HC2 Holdings Inc
Annual Report 2018

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-KxANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.For the fiscal year ended December 31, 2018OR☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.Commission File No. 001-35210 HC2 HOLDINGS, INC.(Exact name of registrant as specified in its charter)Delaware 54-1708481(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)450 Park Avenue, 30th Floor, New York, NY 10022(Address of principal executive offices) (Zip Code)(212) 235-2690(Registrant’s telephone number, including area code)_____________________________________________________________________________________________________________________Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on which registeredCommon Stock, par value $0.001 per share New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act:N/A_____________________________________________________________________________________________________________________Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to thebest of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer ☐Accelerated filerxNon-accelerated filer ☐Smaller reporting company ☐ Emerging growth company ☐If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ýThe aggregate market value of HC2’s common stock held by non-affiliates of the registrant as of June 30, 2018 was approximately $249,795,386, based on the closing sale price ofthe Common Stock on such date.As of February 28, 2019, 44,971,835 shares of common stock, par value $0.001, were outstanding.Documents Incorporated by Reference:Portions of the definitive Proxy Statement to be delivered to stockholders in connection with the registrant's 2019 Annual Meeting of Stockholders areincorporated by reference into Part III. Part I Item 1.Business 2Item 1A.Risk Factors 24Item 1B.Unresolved Staff Comments 61Item 2.Properties 61Item 3.Legal Proceedings 61Item 4.Mine Safety Disclosures 62 Part II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 63Item 6.Selected Financial Data 64Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations 66Item 7A.Quantitative and Qualitative Disclosures about Market Risk 96Item 8.Financial Statements and Supplementary Data 97Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 97Item 9A.Controls and Procedures 98Item 9B.Other Information 98 Part III Item 10.Directors, Executive Officers and Corporate Governance 99Item 11.Executive Compensation 99Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 99Item 13.Certain Relationships and Related Transactions, and Director Independence 99Item 14.Principal Accountant Fees and Services 99 Part IV Item 15.Exhibits, Financial Statement Schedules 100Item 16.Form 10-K Summary 107PART IITEM 1. BUSINESSUnless 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 itsconsolidated subsidiaries.This Annual Report on Form 10-K contains forward looking statements. See "Management’s Discussion and Analysis of Financial Condition and Results of Operations - SpecialNote Regarding Forward-Looking Statements."GeneralHC2 is a diversified holding company that seeks opportunities to acquire and grow businesses that can generate long-term sustainable free cash flow and attractive returns in orderto maximize value for all stakeholders. As of December 31, 2018, our eight reportable operating segments based on management’s organization of the enterprise includedConstruction, Marine Services, Energy, Telecommunications, Insurance, Life Sciences, Broadcasting and Other, which includes businesses that do not meet the separatelyreportable segment thresholds.Our principal operating subsidiaries include the following assets:(i)DBM Global Inc. ("DBMG") (Construction), a family of companies providing fully integrated structural and steel construction services;(ii)Global Marine Group ("GMSL") (Marine Services), a leading provider of engineering and underwater services on submarine cables;(iii)American Natural Gas ("ANG") (Energy), a compressed natural gas fueling company;(iv)PTGi-International Carrier Services Inc. ("ICS") (Telecommunications), a provider of internet-based protocol and time-division multiplexing access for the transport oflong-distance voice minutes;(v)Continental Insurance Group Ltd. ("CIG") (Insurance), a platform for our run-off long-term care and life and annuity business, through its insurance company,Continental General Insurance Company ("CGI" or the "Insurance Company");(vi)Pansend Life Sciences, LLC ("Pansend") (Life Sciences), our subsidiary focused on supporting healthcare and biotechnology product development;(vii)HC2 Broadcasting Holdings Inc. ("HC2 Broadcasting") and its subsidiaries, a strategic acquirer and operator of Over-The-Air ("OTA") broadcasting stations acrossthe United States ("U.S."). In addition, Broadcasting, through its wholly-owned subsidiary, HC2 Network Inc. ("Network"), operates Azteca America, a Spanish-language broadcast network offering high quality Hispanic content to a diverse demographic across the United States; and(viii)Other, which represents all other businesses or investments we believe have significant growth potential that do not meet the definition of a segment individually or inthe aggregate.We expect to continue to focus on acquiring and investing in businesses with attractive assets that we consider to be undervalued or fairly valued, and growing our acquiredbusinesses.Overall Business StrategyWe evaluate strategic and business alternatives, which may include the following: acquiring assets or businesses unrelated to our current or historical operations; operating, growingor acquiring additional assets or businesses related to our current or historical operations; or winding down or selling our existing operations. We generally pursue either controllingpositions in durable, cash-flow generating businesses or companies we believe exhibit substantial growth potential. We may choose to actively assemble or re-assemble acompany’s management team to ensure the appropriate expertise is in place to execute the operating objectives of such business. We view ourselves as strategic and financialpartners and seek to align our management teams’ incentives with our goal of delivering sustainable long-term value to our stakeholders.As part of any acquisition strategy, we may raise capital in the form of debt or equity securities (including preferred stock) or a combination thereof. We have broad discretion inselecting a business strategy for the Company. If we elect to pursue an acquisition, we have broad discretion in identifying and selecting both the industry and the possibleacquisition or business combination opportunity. We have not identified a specific industry to focus on and there can be no assurance that we will, or we will be able to, identify orsuccessfully complete any such transaction. In connection with evaluating these strategic and business alternatives, we may at any time be engaged in ongoing discussions withrespect to possible acquisitions, business combinations and debt or equity securities offerings of widely varying sizes. There can be no assurance that any of these discussions willresult in a definitive agreement and if they do, what the terms or timing of any agreement would be.CompetitionFrom a strategic perspective, we encounter competition for acquisition and business opportunities from other entities having similar business objectives, such as strategic investorsand private equity firms, which could lead to higher prices for acquisition targets. Many of these entities are well established and have extensive experience identifying andexecuting transactions directly or through affiliates. Our financial resources and human resources may be relatively limited when contrasted with many of these competitors whichmay place us at a competitive disadvantage. Finally, managing rapid growth could create higher corporate expenses, as compared to many of our competitors who may be at adifferent stage of growth, which could affect our ability to compete for strategic opportunities. Competitive conditions affecting our operating businesses are described in thediscussions below.2EmployeesAs of December 31, 2018, we had approximately 4,119 employees, including the employees of our operating businesses as described in more detail below. We consider ourrelations with our employees to be satisfactory.Our Operating SubsidiariesConstruction Segment (DBMG)DBM Global Inc. is a fully integrated 3D Building Information Modeling ("BIM") modeler, detailer, fabricator, and erector of structural steel and heavy steel plate. DBMG models,details, fabricates and erects structural steel for commercial and industrial and infrastructure construction projects such as high- and low-rise buildings and office complexes, hotelsand casinos, convention centers, sports arenas and stadiums, shopping malls, hospitals, dams, bridges, mines and power plants. DBMG also fabricates trusses and girders andspecializes in the fabrication and erection of large-diameter water pipe and water storage tanks. Through its Aitken business ("Aitken"), DBMG manufactures pollution controlscrubbers, tunnel liners, pressure vessels, strainers, filters, separators and a variety of customized products. Through its most recent acquisition, GrayWolf Industrial ("GrayWolf"),DBMG also provides specialty maintenance, repair, and installation services to a diverse set of end markets, including power, petrochemical, pulp & paper, and refinery.Headquartered in Phoenix, Arizona, DBMG has operations in Arizona, California, Georgia, Kansas, Kentucky, Texas, and Utah with construction projects primarily located in theaforementioned states.DBMG’s results of operations are affected primarily by (i) the level of commercial, industrial and infrastructure construction in its principal markets; (ii) its ability to win projectcontracts; (iii) the number and complexity of project changes requested by customers or general contractors; (iv) its success in utilizing its resources at or near full capacity; and(v) its ability to complete contracts on a timely and cost-effective basis. The level of commercial, industrial and infrastructure construction activity is related to several factors,including local, regional and national economic conditions, interest rates, availability of financing, and the supply of existing facilities relative to demand.StrategyDBMG’s objective is to achieve and maintain a leading position in the geographic regions and project segments that it serves by providing timely, high-quality services to itscustomers. DBMG pursues this objective with a strategy comprised of the following components:•Pursue Large, Value-Added Design-Build Projects: DBMG’s unique ability to offer design-build services, a full range of steel construction services and projectmanagement capabilities makes it a preferred partner for complex, design-build fabrication projects in the geographic regions it serves. This capability often enablesDBMG to bid against fewer competitors in a less traditional, more negotiated selection process on these kinds of projects, thereby offering the potential for highermargins while providing overall cost savings and project flexibility and efficiencies to its customers;•Expand and Diversify Revenue Base: DBMG is seeking to expand and diversify its revenue base by leveraging its long-term relationships with national and multi-nationalconstruction and engineering firms, national and regional accounts and other customers. DBMG also intends to continue to grow its operations by targeting smallerprojects that carry higher margins and less risk of large margin fluctuations. DBMG believes that continuing to diversify its revenue base by completing smaller projects -such as low-rise office buildings, healthcare facilities and other commercial and industrial structures - could reduce the impact of periodic adverse market or economicconditions, as well as the margin slippage that may accompany larger projects;•Emphasize Innovative Services: DBMG focuses its BIM modeling, design-build, engineering, detailing, fabrication and erection expertise on larger, more complexprojects, where it typically experiences less competition and more advantageous negotiated contract opportunities. DBMG has extensive experience in providing servicesrequiring complex BIM modeling, detailing, fabrication and erection techniques and other unusual project needs, such as BIM coordination, specialized transportation,steel treatment or specialty coating applications. These service capabilities have enabled DBMG to address such design-sensitive projects as stadiums and uniquelydesigned hotels and casinos; and•Diversify Customer and Product Base: Although DBMG seeks to achieve a leading share of the geographic and product markets in which it traditionally competes, it alsoseeks to diversify its product offerings and geographic markets through acquisition. By expanding the portfolio of products offered and geographic markets served,DBMG believes that it will be able to offer more value-added services to existing and new potential customers, as well as to reduce the impact of periodic adverse marketor economic conditions.3Services and CustomersDBMG operates primarily within the over $700 billion non-residential construction industry, which serves a diverse set of end markets.DBMG consists of six business units spread across diverse steel markets: Schuff Steel Company ("SSC") (steel fabrication and erection), Schuff Steel Management Company("SSMC") (management of smaller projects, leveraging subcontractors), PDC Global Pty Ltd. ("PDC") (steel detailing, bridge detailing, BIM modeling and BIM managementservices), BDS VirCon ("BDS") (steel detailing, rebar detailing and BIM modeling services), the Aitken product line ("Aitken") (manufacturing of equipment for the oil and gasindustry), and GrayWolf (specialty maintenance, repair, and installation services). For the fiscal year ended December 31, 2018 revenues were as follows (in millions): Revenue % of RevenueSSC $639.5 89.3%SSMC 26.5 3.7%PDC 22.7 3.2%BDS 11.1 1.5%Aitken 6.6 0.9%GrayWolf (1) 10.0 1.4% $716.4 100.0%(1) Revenue from GrayWolf since acquisition on November 30, 2018 The majority of DBMG's business is in North America, but PDC and BDS provide detailing services on five continents, and SSC provides fabricated steel to Canada and otherselect countries. In 2018, DBMG's two largest customers represented approximately 28.0% of revenues. In 2017, the same customers represented approximately 38.0% ofrevenues.DBMG’s size gives it the production capacity to complete large-scale, demanding projects, with typical utilization per facility ranging from 70%-99% and a sales pipeline thatincludes over $416 million in potential revenue generation. DBMG believes it has benefited from being one of the largest players in a market that is highly-fragmented across manysmall firms.DBMG achieves a highly-efficient and cost-effective construction process by focusing on collaborating with all project participants and utilizing its extensive design-build anddesign-assist capabilities with its clients. Additionally, DBMG has in-house fabrication and erection combined with access to a network of subcontractors for smaller projects inorder to provide high-quality solutions for its customers. DBMG offers a range of services across a broad geography through its twelve fabrication shops in the United States and32 sales and management facilities located in the United States, Australia, Canada, India, New Zealand, the Philippines, Thailand and the UK.DBMG operates with minimal bonding requirements, with a current balance of less than 27% of DBMG's backlog (out of a total backlog of $528.5 million) as of December 31,2018, and bonding is reduced as projects are billed, rather than upon completion. DBMG has limited its raw material cost exposure by securing fixed prices from mills at contractbid, as well as by utilizing its purchasing power as one of the largest domestic buyers of wide flange beams in the United States.DBMG offers a variety of services to its customers which it believes enhances its ability to obtain and successfully complete projects. These services fall into six distinct groups:design-assist/design-build, pre-construction design and budgeting, steel management, fabrication, erection, and BIM:•BIM: DBMG uses BIM on every project to manage its role efficiently. Additionally DBMG’s use of Steel Integrated Management Systems ("SIMS") in conjunctionwith BIM allows for real-time reporting on a project’s progress and an information-rich model review;•Design-Assist/Design-Build: Using the latest technology and BIM, DBMG works to provide clients with cost-effective steel designs. The end result is turnkey-ready,structural steel solutions for its diverse client base;•Pre-Construction Design and Budgeting: Clients who contact DBMG in the early stages of planning can receive a DBMG-performed analysis of the structure and costbreakdown. Both of these tools allow clients to accurately plan and budget for any upcoming project;•Steel Management: Using DBMG’s proprietary SIMS, DBMG can track any piece of steel and instantly know its location. Additionally, DBMG can help clients managesteel subcontracts, providing clients with savings on raw steel purchases and giving them access to a variety of DBMG-approved subcontractors;•Fabrication: Through its twelve fabrication shops in California, Arizona, Texas, Kansas, Georgia, Utah, South Carolina and Kentucky, DBMG has one of the highestfabrication capacities in the United States, with over 1.6 million square feet under roof and a maximum annual fabrication capacity of approximately 318,000 tons; and•Erection: Named the top steel erector in the United States for 2007, 2008, 2011, and from 2013-2018 by Engineering News-Record, DBMG knows how to add value toits projects through the safe and efficient erection of steel structures.4SSMC provides turn-key steel fabrication and erection services with expertise in project management. Leveraging such strengths, SSMC uses its relationships with reliablesubcontractors and erectors, along with state-of-the-art management systems, to deliver excellence to clients.Aitken is a manufacturer of equipment used in the oil, gas, petrochemical and pipeline industries. Aitken supplies the following products both nationwide and internationally:•Strainers: Temporary cone and basket strainers, tee-type strainers, vertical and horizontal permanent line strainers and fabricated duplex strainers;•Measurement Equipment: Orifice meter tubes, orifice plates, orifice flanges, seal pots, flow nozzles, Venturi tubes, low loss tubes and straightening vanes; and•Major Products: Spectacle blinds, paddle blinds, drip rings, bleed rings, and test inserts, ASME vessels, launchers and pipe spools.PDC provides steel detailing, BIM modeling and BIM management services for industrial and infrastructure and commercial construction projects in Australia and North America.•Steel Detailing: Utilizing industry leading technologies, PDC provides steel detailing services which include: shop drawings, erection plans, anchor bolt drawings,connection sketches, DSTV files for cutting and drilling, DXF files for plate work, field bolt lists, specialist reports and advance bill of material and piping;•BIM Modeling: Through multidisciplinary teams, PDC creates highly accurate, scaled virtual models of each structural component. These independent models and data areintegrated and standardized to produce a single 3D model simulation of the entire structure. This integrated model contains complete information for all functionalrequirements of a project, including procurement and logistics, financial modeling, claims and litigation, fabrication, construction support and asset management;•BIM Management: PDC is an industry leading provider of BIM management consultancy services ("BIM Management"), with clients ranging from government, industryorganizations and general construction contractors. BIM Management of all project participants’ input, use and development of the applicable model is integral to ensuringthat the model remains the single point of reference. PDC’s BIM Management service includes the governing of process and workflow management, which is a collectionof defined model uses, workflows, and modeling methods used to achieve specific, repeatable and reliable information results from the model. The way the model iscreated and shared, and the sequencing of its application, impacts the effective and efficient use of BIM for desired project outcomes and decision support; and•Bridge Steel Detailing: Utilizing industry leading technologies, PDC, through its wholly owned subsidiary Candraft Detailing, provides steel detailing services forbridges which include: shop drawings, erection plans, anchor bolt drawings, connection sketches, DSTV files for cutting and drilling, DXF files for plate work, field boltlists, specialist reports and advance bill of material and piping.BDS provides steel and rebar detailing and BIM modeling services for commercial projects in Australia, New Zealand, North America and Europe.•Steel Detailing: Utilizing industry leading technologies, BDS provides steel detailing services, including: shop drawings, erection plans, anchor bolt drawings, connectionsketches, DSTV files for cutting and drilling, DXF files for plate work, field bolt lists, specialist reports, advance bill of material and piping;•BIM modeling: Through multidisciplinary teams, BDS creates highly accurate, scaled virtual models of each structural component. These independent models and data areintegrated and standardized to produce a single 3D model simulation of the entire structure. This integrated model contains complete information for all functionalrequirements of a project, including procurement and logistics, financial modeling, claims and litigation, fabrication, construction support and asset management; and•Rebar Detailing: These services, including rebar detailing and estimating, are delivered by a staff experienced in rebar installation and familiar with the constructionpractices and constructibility issues that arise on project sites. Deliverables include: field placement/shop drawings, field and/or phone support, 2D and 3D modeling,connection sketches, bar listing in ASA format, DGN files, and complete rebar estimating.GrayWolf provides services including maintenance, repair, and installation to a diverse range of end markets in order to provide high-quality outage, turnaround, and newinstallation services to customers. GrayWolf provides the following service types through its four major brands (Titan Contracting, Inco Services, Milco National Constructors andTitan Fabricators):•Specialty mechanical contracting services: GrayWolf offers services including plant maintenance, specialty welding, equipment rigging, and mechanical construction tocustomers in the power, industrial, petrochemical, water treatment, and refining markets at a national level;•Specialty construction solutions for processing markets: Customers in the pulp & paper, metals, mining & minerals, and petrochemical markets are able to receivespecialized solutions including plant maintenance, process piping, equipment, and tank & vessel fabrication and erection that are catered to the needs and specifications ofthe customer’s industry through the Inco Services brand;5•Turnarounds, tank construction, and piping services: GrayWolf offers services including plant maintenance, specialty welding, piping systems, and tanks & vesselsconstruction to the power, refining, petrochemical, and water treatment markets in the Midwest, Mid-Atlantic, and West Coast;•Custom steel fabrication: GrayWolf offers engineering, design, modularization, and additional services to the heavy industrial markets in the Midwest and Gulf Coast;SuppliersDBMG currently purchases its steel from a variety of domestic and foreign steel producers but is not dependent on any one producer. During the year ended December 31, 2018,DBMG purchased approximately 50% of the total value of steel and steel components purchased from two domestic steel vendors. See Item 1A - Risk Factors - "Risks Related tothe Construction segment" elsewhere in this document for discussion on DBMG’s reliance on suppliers of steel and steel components.Sales and DistributionsDBMG obtains contracts through competitive bidding or negotiation, which generally are fixed-price, cost-plus, or unit cost arrangements. Bidding and negotiations require DBMGto estimate the costs of the project up front, with most projects typically lasting from one to 12 months. However, large and more complex projects can often last two years or more.MarketingSales managers lead DBMG’s sales and marketing efforts. Each sales manager is primarily responsible for estimating sales and marketing efforts in defined geographic areas. Inaddition, DBMG employs full-time project estimators and chief estimators. DBMG’s sales representatives build and maintain relationships with general contractors, architects,engineers and other potential sources of business to identify potential new projects. DBMG generates future project reports to track the weekly progress of new opportunities.DBMG’s sales efforts are further supported by most of its executive officers and engineering personnel, who have substantial experience in the design, detailing, modeling,fabrication and erection of structural steel and heavy steel plate.DBMG competes for new project opportunities through its relationships and interaction with its active and prospective customer base which provides valuable current marketinformation and sales opportunities. In addition, DBMG is often contacted by governmental agencies in connection with public construction projects, and by large private-sectorproject owners, general contractors and engineering firms in connection with new building projects such as plants, warehouse and distribution centers, and other industrial andcommercial facilities.Upon selection of projects to bid or price, DBMG’s estimating division reviews and prepares projected costs of shop, field, detail drawing preparation and crane hours, steel andother raw materials, and other costs. With respect to bid projects, a formal bid is prepared detailing the specific services and materials DBMG plans to provide, along with paymentterms and project completion timelines. Upon acceptance, DBMG’s bid proposal is finalized in a definitive contract.CompetitionThe principal geographic and product markets DBMG serves are highly competitive, and this intense competition is expected to continue. DBMG competes with other contractorsfor commercial, industrial and specialty projects on a local, regional, or national basis. Continued service within these markets requires substantial resources and capital investmentin equipment, technology and skilled personnel, and certain of DBMG’s competitors have financial and operating resources greater than DBMG. Competition also placesdownward pressure on DBMG’s contract prices and margins. The principal competitive factors within the industry are price, timeliness of project completion, quality, reputation,and the desire of customers to utilize specific contractors with whom they have favorable relationships and prior experience. While DBMG believes that it maintains a competitiveadvantage with respect to many of these factors, failure to continue to do so or to meet other competitive challenges could have a material adverse effect on DBMG’s results ofoperations, cash flows or financial condition.EmployeesAs of December 31, 2018, DBMG employed approximately 3,358 people across the globe, including the U.S., Canada, Australia, New Zealand, India, Philippines, Thailand, andthe UK. The number of persons DBMG employs on an hourly basis fluctuates directly in relation to the amount of business DBMG performs. Certain of the fabrication anderection personnel DBMG employs are represented by the United Steelworkers of America and the International Association of Bridge, Structural, Ornamental and ReinforcingIron Workers Union. DBMG is a party to several separate collective bargaining agreements with these unions in certain of its current operating regions, which expire (if notrenewed) at various times in the future. Approximately 38% of DBMG’s employees are covered under various collective bargaining agreements. As of December 31, 2018, most ofDBMG’s collective bargaining agreements are subject to automatic annual or other renewal unless either party elects to terminate the agreement on the scheduled expiration date.DBMG considers its relationship with its employees to be satisfactory and, other than sporadic and unauthorized work stoppages of an immaterial nature, none of which have beenrelated to its own labor relations, DBMG has not experienced a work stoppage or other labor disturbance. 6DBMG strategically utilizes third-party fabrication and erection subcontractors on many of its projects and also subcontracts detailing services from time to time when itsmanagement determines that this would be economically beneficial (and/or when DBMG requires additional capacity for such services). DBMG’s inability to engage fabrication,erection and detailing subcontractors on favorable terms could limit its ability to complete projects in a timely manner or compete for new projects, which could have a materialadverse effect on its operations.Legal, Environmental and InsuranceDBMG 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 outcomeof any such matter will be decided favorably to DBMG or that the resolution of any such matter will not have a material adverse effect upon DBMG or the Company’s business,consolidated financial position, results of operations or cash flows. Neither DBMG nor the Company believes that any of such pending claims and legal proceedings will have amaterial adverse effect on its (or the Company’s) business, consolidated financial position, results of operations or cash flows.DBMG’s operations and properties are affected by numerous federal, state and local environmental protection laws and regulations, such as those governing discharges to air andwater and the handling and disposal of solid and hazardous wastes. These laws and regulations have become increasingly stringent and compliance with these laws and regulationshas become increasingly complex and costly. There can be no assurance that such laws and regulations or their interpretation will not change in a manner that could materially andadversely affect DBMG’s operations. Certain environmental laws, such as CERCLA (the Comprehensive Environmental Response, Compensation, and Liability Act) and its statelaw counterparts, provide for strict and joint and several liability for investigation and remediation of spills and other releases of toxic and hazardous substances. These laws mayapply to conditions at properties currently or formerly owned or operated by an entity or its predecessors, as well as to conditions at properties at which wastes or othercontamination attributable to an entity or its predecessors come to be located. Although DBMG has not incurred any material environmental related liability in the past and believesthat it is in material compliance with environmental laws, there can be no assurance that DBMG, or entities for which it may be responsible, will not incur such liability inconnection with the investigation and remediation of facilities it currently operates (or formerly owned or operated) or other locations in a manner that could materially and adverselyaffect its operations.DBMG maintains commercial general liability insurance in the amount of $1.0 million per occurrence and $2.0 million in the aggregate. In addition, DBMG maintains umbrellacoverage limits of $50.0 million. DBMG also maintains insurance against property damage caused by fire, flood, explosion and similar catastrophic events that may result inphysical damage or destruction of its facilities and property. DBM maintains professional liability insurance in the amount of $5.0 million for professional services related to ourwork in steel erection and fabrication projects.All policies are subject to various deductibles and coverage limitations. Although DBMG’s management believes that its insurance is adequate for its present needs, there can be noassurance that it will be able to maintain adequate insurance at premium rates that management considers commercially reasonable, nor can there be any assurance that such coveragewill be adequate to cover all claims that may arise.Marine Services Segment (GMSL)The Global Marine Group (GMSL) is an innovative worldwide market leader in offshore engineering and consists of three business units:•Global Marine providing fiber optic cable solutions to the telecommunications and oil & gas markets;•CWind delivering construction support and asset management services topside and subsea to the offshore renewables and utilities market; and•Global Offshore delivering trenching and power cable lay and repair services to the offshore renewables & utilities market and oil & gas industry.GMSL has two equity method investments in China, SB Submarine Systems and Huawei Marine. GMSL owns one of the world’s largest offshore support vessel fleets. GMSLhas installed over 300,000 kilometers of subsea cable.Strategy OverviewGMSL aims to maintain its leading market position in the telecommunications maintenance segment and seeks opportunities to grow its installation activities in the three marketsectors (telecommunications, offshore power, and oil and gas) while capitalizing on high market growth in the offshore power sector through expansion of its installation andmaintenance services in that sector. In order to accomplish these goals, GMSL has developed a comprehensive strategy which includes:•Developing opportunities in the offshore power market;•Diversifying the business by pursuing growth within its three market segments (telecommunications, offshore power and oil & gas), which it believes will strengthen itsquality of earnings and reduce exposure to one particular market segment;•Retaining and building its leading position in telecommunications maintenance and installation;•Working to develop convergence of its maintenance services across all three market segments; and•Pursuing targeted mergers and acquisitions, equity investments, partnerships and opportunities to build a larger operating platform that can benefit from increasedoperating efficiencies.GMSL has a highly experienced management team with a proven track record and has demonstrated the ability to enter new markets and generate returns for investors from its threebusiness units.7Global MarineGlobal Marine is a market leader in subsea fiber optic cable installation and maintenance solutions to the telecoms sector amongst others. Global Marine is recognized as a highquality, strategic partner with a successful track record across the industry. Global Marine has a long, well-established reputation in the telecommunications sector and is a leadingprovider of subsea services in the industry. It operates in a mature market and is the largest independent provider in the maintenance segment.Global Marine provides vessels on standby to repair fiber optic telecommunications cables in defined geographic zones, and its maintenance business is provided through contractswith consortia of providers of global telecommunications services. Typically, Global Marine enters into five- to seven-year contracts to provide maintenance services to cablesystems that are located in specific geographical areas. These contracts provide highly stable, predictable and recurring revenue and earnings. Additionally, Global Marine providesinstallation of cable systems, including route planning, mapping, route engineering, cable-laying, trenching and burial. Global Marine’s installation business is project-based, withcontracts typically lasting one to five months.CWindCWind is part of GMSL, delivering topside, splash zone and subsea engineering services, to the offshore renewables and utilities market. With experience at over 40 UK andEuropean offshore wind farms, supporting over 12GW power generated by the offshore wind sector.CWind demonstrates a commitment to innovation and is well-positioned to capitalize on the growth of the offshore alternative energy market in construction, as well as on-goingoperations and maintenance, with a strong presence in Northern Europe and Asia (especially China). CWind has developed its strategies to realize this opportunity.Global OffshoreGlobal Offshore is part of GMSL, delivering the company’s cable installation, repair and trenching services to the offshore renewables, utilities and oil & gas markets. GlobalOffshore has developed a reputation as a trusted partner, delivering pipeline, cable and umbilical projects, platform-to-platform connectivity and subsea services.Global Offshore’s primary activities for oil & gas include providing power from shore, enabling fiber-based communication between platforms and shore-based systems andinstalling permanent reservoir monitoring systems that allow customers to monitor subsea seismic data. The majority of its oil and gas business is contracted on a project-by-projectbasis with major energy producers or Tier I engineering, procurement and construction ("EPC") contractors.Global Marine Group’s 2018 track recordNotable GMSL announcements during the year include the following:•January: Global Marine’s contract with the SEAIOCMA: cable maintenance agreement extended by five years to end of 2022. The zone is serviced by Global Marinevessel Cable Retriever based in Subic Bay;•January: CWind and International Ocean Vessel Technical Consultant form joint venture, CWind Taiwan;•April: Complete Cable Care service with dedicated cable repair barge ASV Pioneer established;•April: Contract awarded for Sub Sea Cable Replacement in Orkney Isles for Scottish & Southern Electricity Networks;•May: Five-year Complete Cable Care framework signed with Transmission Capital Services;•August: ROSPA Order of Distinction awarded following 19 consecutive gold awards for health & safety practices;•August: Global Marine completes two offshore oil field communications contracts for Tampnet;•September: Global Offshore delivers back-to-back projects in the North Sea for major oil and gas customers;•September: Global Offshore to provide fast-response cable repair to Vattenfall’s European portfolio in five year repair framework;•October: ASV Pioneer sails for her maiden GMSL project;•October: CWind Taiwan Completes Inaugural Contract at Yunlin Offshore Wind Farm;•November: Global Offshore successfully installs export cable at Kincardine Floating Offshore Wind Farm•December: Extension of NAZ (North America Zone) telecoms maintenance contract by two years to December 2026; and•December: Global Offshore signed a contract with Vattenfall for the inter array cable installation, burial, testing and termination at the 72 turbine Kriegers Flak site inDenmark.Services and/or ProductsGMSL is a pioneer in the subsea cable industry, having laid the first subsea cable in the 1850s and installed the first transatlantic fiber optic cable (TAT-8) in 1988. GMSL ispositioned as a global independent market leader in subsea cable installation and maintenance services and derives approximately 45% of its total revenue from long-term, recurringmaintenance contracts. GMSL has started a new phase of growth through applying its capabilities to the rapidly expanding offshore power sector into which GMSL re-entered inNovember 2015 (see "CWind" above), while retaining a leading position in the telecommunications sector. GMSL has major offices in the United Kingdom and Singapore, withpresence in Bermuda, Canada, China, Indonesia and the Philippines. See "Item 1A - Risk Factors - Risks Related to GMSL for further details. GMSL derives a significant amountof its revenues from sales to customers outside of the United States, which poses additional risks, including economic, political and other uncertainties.8Fleet OverviewGMSL operates one of the largest specialist cable laying fleets in the world, consisting of eight vessels (five owned, three operated through long-term leases) and 17 crew transfervessels operated by its wholly-owned subsidiary, CWind, as of December 31, 2018. The average age of the GMSL fleet is 19 years and the CWind fleet is 4 years. Each cablevessel is equipped with specialist inspection, burial, and survey equipment. By providing oil and gas, offshore power, and telecommunications installation as well astelecommunications maintenance, GMSL can retain vessels throughout their asset lives by cascading them through different uses as they age, as older vessels can or should only beused to provide specified services. This provides a significant competitive advantage because GMSL can retain vessels for longer and reduce the frequency of capital expenditurerequirements with a longer depreciation period. GMSL’s fleet is operated by GMSL employees or long-term contractors.Fleet DetailsVessels Ownership Lease Expiry Age Flag Base PortMaintenance - GMSL Innovator DYVI Cableship 11 AS May-25 23 UK Victoria, CanadaWave Sentinel GMSL N/A 23 UK Portland, UKCable Retriever ICPL March-23 21 Singapore Batangas, PhilippinesSovereign GMSL N/A 27 UK Portland, UK Installation - GMSL Networker GMSL N/A 19 Panama Batam, IndonesiaCS Recorder Maersk Supply Service UK February-22 18 UK Blyth, UKGlobal Symphony GMSL N/A 7 UK Montrose, UKASV Pioneer ASV Pioneer Ltd April-20 11 Singapore Blyth, UK Offshore - CWind Argocat CWind Limited N/A 8 UK Maldon, UKAlliance 50% CWind Limited N/A 7 UK Maldon, UKEndeavour CWind Limited N/A 5 UK Maldon, UKAdventure CWind Limited N/A 5 UK Maldon, UKFulmar CWind Limited N/A 4 UK Colchester, UKArtimus CWind Limited N/A 3 UK Colchester, UKBuzzard CWind Limited N/A 6 UK London, UKChallenger CWind Limited N/A 5 UK Bideford, UKResolution CWind Limited N/A 5 UK Southampton, UKSword CWind Limited N/A 4 UK Ramsgate, UKSpirit CWind Limited N/A 3 UK Colchester, UKEndurance CWind Limited N/A 5 UK Maldon, UKTempest CWind Limited N/A 3 UK Ramsgate, UKTornado CWind Limited N/A 3 UK Ramsgate, UKTyphoon TOW CWind Limited N/A 3 UK Ramsgate, UKHurricane TOW CWind Limited N/A 3 UK Ramsgate, UKCWind Phantom CWind Limited N/A 3 UK Maldon, UKProduct Research and DevelopmentOver the years, GMSL has provided many important innovations to the subsea cable market. One such innovation was GEOCABLE, GMSL’s proprietary GeographicalInformation System (GIS), which GMSL believes to be the largest cable database in the market and was developed specifically to meet the needs of the cable industry.GEOCABLE is an important tool for any vendor planning subsea cable installation, and GMSL sells data from GEOCABLE to third-party customers.In addition to GEOCABLE, GMSL also develops and owns (in a consortium with other industry participants) intellectual property associated with the Universal Joint, a productwhich easily and effectively links together cables from different manufacturers. The Universal Joint has gained such prevalence in the industry that new fiber optic cables may becertified to meet the specifications of the Universal Joint, which is a service provided by GMSL among others, so that any subsea cable manufacturer can ensure compatibility of itssubsea cables with other existing subsea cables as well as with the standardized equipment on cable repair vessels. GMSL benefits from its sales of the Universal Joint, andproceeds from GMSL-sponsored training of jointing skills, but GMSL also enjoys the industry leadership and brand enhancement that come with the creation of an industry leadingproduct.9Intellectual PropertyGMSL is not dependent on any specific intellectual property, but it does vigorously protect its interests in its intellectual property and closely monitors industry changes.CustomersGMSL’s customer base is made up primarily of large, established companies. Contract lengths vary and are largely dependent on the type of services provided. Maintenance andrepair contracts tend to be long-term, five- to seven-years, with a relatively high level of expected renewal rates, and the customer is typically a consortium of different cable ownerssuch as national, regional and international telecommunication companies and others who have an ownership interest in the subsea cables covered by the maintenance contract.GMSL charges a standing fee for cost of vessels plus margin, paid in advance proportionally by each member, and an additional daily call out fee for repairs paid by the specificcable owner(s). Four maintenance vessels are engaged on GMSL’s three current long-term telecommunications maintenance contracts with ACMA (Atlantic Cable MaintenanceAgreement), SEAIOCMA (South East Asia and Indian Ocean Cable Maintenance Agreement), and NAZ (North American Zone). Installation contracts tend to be much shorterterm (30-150 days), and the counterparty tends to be a single client. Contracts are typically bid for on a fixed-sum basis with an initial upfront payment plus subsequent installmentsproviding working capital support. Due to the added complexity of cable installation as opposed to maintenance, GMSL generally realizes higher margins on its installationcontracts in the offshore power and oil and gas sectors.Sales and DistributionsIn the telecommunications cable market, cable maintenance is most often accomplished by zone maintenance contracts in which a consortium of telecommunications operators orcable owners contract with a maintenance provider like GMSL, over a long-term period of approximately five to seven years. GMSL has three cable maintenance agreements,providing a steady, high-quality source of revenue. These maintenance contracts are usually re-awarded to incumbent providers unless there are significant performance issues,which may mean that GMSL will not be required to expend extra capital to retain these contracts, although no assurance can be given that GMSL will be able to renew any specificcontract. GMSL constantly has a focused sales plan to build relationships with current and potential customers at regional and corporate offices and readily leverages HuaweiTechnologies’ large sales organization.MarketingGMSL also has a focused sales and marketing plan to create relationships with major participants in the offshore power and oil and gas industries. Despite the prevailing low oilprice market conditions, GMSL hopes to use its expertise in installing Permanent Reservoir Monitoring ("PRM") systems to forge new contacts with both the end users of PRMservices, such as oil majors, and the PRM suppliers themselves. Additionally GMSL is pursuing a strategy of specialization in installing the small power and fiber optic cables thatits competitors in the oil and gas and offshore power sectors find unprofitable and in which they lack installation experience.CompetitionGMSL is one of the few companies that provide subsea cable installation and maintenance services on a worldwide basis. GMSL competes for contracts with companies that haveworldwide operations, as well as numerous others operating locally in various areas. There are a number of industry participants, mainly Asian based, who focus primarily on theircountries of origin. Competition for GMSL’s services historically has been based on vessel availability, location of or ability to deploy these vessels and associated subseaequipment, quality of service and price. The relative importance of these factors can vary depending on the customer or specific project as well as also over time based on theprevailing market conditions. The ability to develop, train and retain skilled engineering personnel is also an important competitive factor in GMSL’s markets.GMSL believes that its ability to provide a wide range of subsea cable installation and maintenance services in the telecommunications, oil and gas and offshore power sectors on aworldwide basis enables it to compete effectively in the industry in which it operates. However, in some cases involving projects that require less sophisticated vessel and subseaequipment, smaller companies may be able to bid for contracts at prices uneconomical to GMSL. In addition, GMSL’s competitors generally have the capability to move theirvessels to locations in which GMSL operates with relative ease, which may impact competition in the markets it serves.Management and EmployeesAs of December 31, 2018, GMSL employed 460 people. GMSL’s employees are not formally represented by any labor union or other trade organization, although the majority ofthe seafarers are members of an established trade union. GMSL considers relations with its employees to be excellent and it has never experienced a work stoppage or strike.GMSL regularly uses independent consultants and contractors to perform various professional services in different areas of the business, including in its installation and fleetoperations and in certain administrative functions. Dick Fagerstal is a 2.4% interest holder, chairman and chief executive officer of Global Marine Holdings LLC, the parent holdingcompany of Global Marine Holdings Limited, and he is the executive chairman of GMSL. Mr. Fagerstal previously served in an executive capacity for companies operating invarious industries, including energy, marine services, and their related infrastructure.10Legal, Environmental and InsuranceGMSL is from time to time subject to claims and legal proceedings that arise in the ordinary course of business. Such matters are inherently uncertain, and there can be no guaranteethat the outcome of any such matter will be decided favorably to GMSL or that the resolution of any such matter will not have a material adverse effect upon GMSL’s business,consolidated financial position, results of operations or cash flows. GMSL does not believe that any of such pending claims and legal proceedings will have a material adverse effecton its business, consolidated financial position, results of operations or cash flows.GMSL has comprehensive insurance coverage including protection and indemnity, hull and machinery, war risk, and property insurances, director and officers liability insurance,contract warranty insurance for the maintenance contracts, and all other necessary corporate insurances. GMSL’s liability is capped and insured under each of its installationcontracts.Energy Segment (American Natural Gas)ANG is a premier retailer of compressed natural gas ("CNG") that designs, builds, owns, operates and maintains natural gas fueling stations for the transportation industry. ANG’sprincipal business is supplying CNG for light-, medium- and heavy-duty vehicles.ANG focuses its efforts on customers in a variety of markets, including heavy-duty trucking, airports, refuse, industrial, institutional energy users and government fleets. ANGseeks to retain its customers by offering state-of-the-art fueling stations with exemplary service levels.Market for Natural Gas as an Alternative Fuel for VehiclesAs of December 31, 2018, the U.S. Department of Energy estimates that there were approximately 1,683 CNG fueling stations in the United States and over 175,000 natural gasvehicles on American roads. This includes approximately 39,500 heavy-duty vehicles (such as tractors, refuse trucks and buses), 25,800 medium-duty vehicles (such as deliveryvans and shuttles) and 87,000 light-duty vehicles (such as passenger cars, sport utility vehicles, trucks and vans).ANG believes that natural gas is an attractive alternative to gasoline and diesel for use as a vehicle fuel in the United States as it is plentiful, domestically produced, cleaner andgenerally cheaper than gasoline or diesel. Historically, oil, gasoline, and diesel prices have been highly volatile, while natural gas prices have generally been stable and lower thanthe cost of oil, gasoline and diesel on an energy equivalent basis. ANG also expects increasingly stringent air quality regulations, expanding initiatives by fleet operators to lowergreenhouse gas emissions and increase fuel diversity and additional regulations mandating low carbon fuels, all of which supports increased market adoption of natural gas as analternative to gasoline and diesel as a vehicle fuel. ANG believes these factors support current opportunities to market natural gas as a vehicle fuel in the United States.Benefits of Natural Gas FuelDomestic and Plentiful Supply: Technological advances in natural gas drilling and production have unlocked vast natural gas reserves. The U.S. is now the number one producer ofnatural gas in the world, with proven, abundant and growing reserves of natural gas.Less Expensive: Due to the abundance of natural gas, the cost of natural gas in the U.S. is less than the cost of crude oil, on an energy equivalent basis.ANG believes that natural gas used as a transportation fuel will remain cheaper than gasoline and diesel for the foreseeable future. In addition, because the price of the commodity(natural gas) makes up a smaller portion of the cost of a gasoline gallon equivalent (GGE) of CNG relative to the commodity portion of the cost of gallon of diesel or gasoline, theprice of CNG is less sensitive to increases in the underlying commodity cost.Cleaner: Natural gas contains less carbon than any other fossil fuel and thus, produces fewer carbon dioxide emissions when burned. The California Air Resources Board("CARB") has concluded that a CNG fueled vehicle emits 20 to 29 percent fewer greenhouse gas ("GHG") emissions than a comparable gasoline or diesel-fueled vehicle on a well-to-wheel basis. Additionally, a study from Argonne National Laboratory, a research laboratory operated by the University of Chicago for the U.S. Department of Energy, indicatesthat natural gas vehicles produce at least 13 to 21 percent fewer GHG emissions than comparable gasoline and diesel-fueled vehicles.The newest natural gas engines with Near-Zero or "Zero Emissions Equivalent" – technology produces 90% fewer NOx emissions than the current standard. In fact, the cleanestheavy-duty truck engine in the world is powered by natural gas. And when fueled with renewable natural gas, it has up to 115% fewer greenhouse gas emissions than dieselcounterparts well-to-wheel.Safer: As reported by NGV America, CNG is relatively safer than gasoline and diesel because it dissipates into the air when spilled or in the event of a vehicle accident. Whenreleased, CNG is less combustible than gasoline or diesel as it ignites only at relatively high temperatures. The fuel tanks and systems used in natural gas vehicles are subjected to anumber of federally required safety tests, such as fire, environmental hazard, burst pressures, and crash testing, according to the U.S. Department of Transportation NationalHighway Traffic Safety Administration. In addition, CNG is stored in above ground tanks, thus reducing the risk of soil or groundwater contamination. Currently, over 175,000vehicles in the U.S. and more than 23.0 million worldwide, fuel safely with natural gas.11Natural Gas VehiclesNatural gas vehicles use internal combustion engines similar to those used in gasoline or diesel powered vehicles. A natural gas vehicle uses sealed storage cylinders to hold CNG,specially designed fuel lines to deliver natural gas to the engine, and an engine tuned to run on natural gas. Natural gas fuels have higher octane content than gasoline or diesel, andthe acceleration and other performance characteristics of natural gas vehicles are similar to those of gasoline or diesel powered vehicles of the same weight and engine class. Naturalgas vehicles running on CNG are refueled using a hose and nozzle to create an airtight seal with the gas tank. For heavy-duty vehicles, spark ignited natural gas vehicles haveproven to operate more quietly than diesel powered vehicles. Natural gas vehicles typically cost more than gasoline or diesel powered vehicles, primarily due to the higher cost ofthe storage systems that hold the CNG.Virtually any car, truck, bus or other vehicle is capable of being manufactured or modified to run on natural gas. These vehicles include long-haul tractors, refuse trucks, regionaltractors, transit buses, cement trucks, delivery trucks, vocational work trucks, school buses, shuttles, passenger sedans, pickup trucks and cargo and passenger vans. ANG expectsthat additional models and types of natural gas vehicles will become available as natural gas becomes more widely accepted as a vehicle fuel in the U.S.Products and ServicesCNG Sales: ANG sells CNG through fueling stations located on properties owned or leased by ANG. At these CNG fueling stations, ANG procures natural gas from local utilitiesor third-party marketers under standard, floating-rate or locked-in rate arrangements and then compresses and dispenses it into customers vehicles. ANG's CNG fueling stationsales are made primarily through contracts with customers. Under these contracts, pricing is principally determined on a cost-plus basis, which is calculated by adding a margin tothe utility price for natural gas. As a result, CNG total sales revenues increase or decrease as a result of an increase or decrease in the price of natural gas. The balance of ANG’sCNG fueling station sales are public sales based on prevailing market conditions.O&M Services: ANG performs operate and maintain ("O&M") services for CNG stations that are owned by their customers. For these services, ANG generally charges either amonthly or per-GGE fee or time and material fee based on the volume of CNG dispensed at the station and the customers' goals and objectives.Site Development: ANG builds state-of-the-art fueling stations, either serving as general contractor or supervising qualified third-party contractors, for themselves or theircustomers. ANG has also acquired existing stations (that ANG did not build) from third parties. Equipment for a CNG station typically consists of dryers, compressors, dispensersand storage tanks.Thirty-one of ANG’s fueling stations have separate public access areas for retail customers. The fill rate at each of the public stations has comparable dispensing rates equivalent totraditional gasoline and diesel fueling stations.Sales and MarketingANG focuses its sales and marketing efforts within the continental United States and targets such efforts primarily through direct sales. ANG’s sales and marketing group staysinformed of proposed and newly adopted regulations in order to provide education on the value of natural gas as a vehicle fuel to current and potential customers.Key Markets and CustomersANG targets customers in a variety of markets, such as trucking, airports, refuse, public transit and food and beverage distributors. In 2018, approximately 71% of ANG’srevenues from CNG sales came from customers with multi-year contracts based on committed fueling volumes.Trucking and Food and Beverage Distributors: ANG believes that heavy-duty trucking represents one of the greatest opportunities for natural gas to be used as a vehicle fuel in theUnited States. Fleets with high-mileage trucks consume significant amounts of fuel and can benefit from the lower cost of natural gas. A number of shippers, manufacturers,retailers and other truck fleet operators have started to adopt natural gas fueled trucks to move their freight.Corporate Information; Acquisitions and DivestituresANG was originally formed in 2011. In August 2014, HC2 acquired a 51% interest in ANG. In October 2014, ANG acquired Northville Natural Gas, which owned three stationsin Indiana. In May 2016 ANG acquired Southwestern Energy NGV Services, LLC, which included two stations in Arkansas. In September 2016 ANG purchased the assets ofAmerican CNG, Inc. and K&K SWD #1, LLC, which was comprised of one station in Arkansas. In December 2016 ANG acquired Questar Fueling Company and ConstellationCNG, LLC. These acquisitions further expanded ANG’s network by adding 17 stations in Arizona, California, Utah, Colorado, Texas, Kansas, Indiana and Ohio.ANG intends to continue to pursue additional acquisitions, divestitures, partnerships and investments as ANG becomes aware of opportunities that it believes will increase itscompetitive advantage, take advantage of industry developments, or enhance their market position.12Tax IncentivesFrom October 2012 through December 2017, ANG has been eligible to receive the Alternative Fuels Excise Tax Credit ("AFETC") (f/k/a VETC), of $0.50 per GGE of CNG soldas vehicle fuel. In addition, other U.S. federal and state government tax incentives are available to offset the cost of acquiring natural gas vehicles, converting vehicles to use naturalgas or construct natural gas fueling stations. As of the date of this filing, the U.S. Congress did pass its omnibus budget for 2019, however, allocations to the programs remainuncertain.Grant ProgramsANG continues to seek out and apply for, and help its fleet customers apply for federal, state and regional grant programs. These programs provide funding for natural gas vehicleconversions and purchases, natural gas fueling station construction and vehicle fuel sold.CompetitionThe market for vehicle fuels is highly competitive. The biggest competition for CNG is gasoline and diesel, as the vast majority of vehicles in the United States are powered bygasoline and diesel. Many of the producers and sellers of gasoline and diesel fuels are large entities that have significantly greater resources than ANG possesses. ANG alsocompetes with suppliers of other alternative vehicle fuels, including ethanol, biodiesel and hydrogen fuels, as well as providers of hybrid and electric vehicles. New technologiesand improvements to existing technologies may make alternatives other than natural gas more attractive to the market, or may slow the development of the market for natural gas as avehicle fuel if such advances are made with respect to oil and gas usage.A significant number of established businesses, including oil and gas companies, alternative vehicle and alternative fuel companies, natural gas utilities and their affiliates, industrialgas companies, truck stop and fuel station operators, fuel providers and other organizations have entered or are planning to enter the market for natural gas and other alternatives foruse as vehicle fuels. Many of these current and potential competitors have substantially greater financial, marketing, research and other resources than ANG has. Several natural gasutilities and their affiliates own and operate public access CNG stations that compete with ANG’s stations.Government Regulation and Environmental MattersCertain aspects of ANG’s operations are subject to regulation under federal, state, local and foreign laws. If ANG were to violate these laws or if the laws were to change, it couldhave a material adverse effect on ANG’s business, financial condition and results of operations. Regulations that significantly affect ANG’s operations are described below.CNG Stations: To construct a CNG fueling station, ANG must satisfy permitting and other requirements and either ANG or a third-party contractor must be licensed as a generalengineering contractor. Each CNG fueling station must be constructed in accordance with federal, state, NFPA-52 and local regulations pertaining to station design, environmentalhealth, accidental release prevention, above-ground storage tanks, hazardous waste and hazardous materials. ANG is also required to register with certain state agencies as aretailer/wholesaler of CNG.ANG believes it is in material compliance with environmental laws and regulations and other known regulatory requirements. Compliance with these regulations has not had amaterial effect on ANG’s capital expenditures, earnings or competitive position; however, new laws or regulations or amendments to existing laws or regulations to make themmore stringent, such as more rigorous air emissions requirements, proposals to make waste materials subject to more stringent and costly handling, disposal and clean-uprequirements or regulations of greenhouse gas emissions, could require ANG to undertake significant capital expenditures in the future.Telecommunications Segment (PTGi-International Carrier Services, Inc.)ICS provides customers with internet-protocol-based and time-division multiplexing ("TDM") access for the transport of long-distance voice minutes.NetworkICS operates a global telecommunications network consisting of domestic switching and related peripheral equipment, and carrier-grade routers and switches for Internet andcircuit-based services. To ensure high-quality communications services, ICS’s network employs digital switching and fiber optic technologies, incorporates the use of Voice-over-Internet Protocol protocols and SS7/C7 signaling, and is supported by comprehensive network monitoring and technical support services.Switching SystemsICS’s network makes use of a domestic switch system, Internet routers and media gateways in the U.S. and points of presence throughout the world via third partyinterconnections.13Foreign Carrier AgreementsIn selected countries where competition with the traditional Post Telegraph and Telecommunications companies ("PTTs") is limited, ICS has entered into foreign carrier agreementswith PTTs or other service providers that permit ICS to provide traffic into, and receive return traffic from, these countries.Network Management and ControlICS owns and operates network management systems in Herndon, Virginia which are used to monitor and control ICS's switching systems, global data network, and other digitaltransmission equipment used in ICS's network. Additional network monitoring, network management, and traffic management services are supported from ICS's contingentNetwork Management Center located in Guatemala City, Guatemala. The network management control centers are constantly online.Sales and MarketingICS markets its services through a variety of sales channels, as summarized below:•Trade Shows: ICS attends industry trade shows around the globe throughout the year. At each trade show ICS markets to both existing and potential new customersthrough prearranged meetings, social gatherings and networking; and•Business Development: ICS's world class sales team focuses on developing ICS’s business potential around the globe through ongoing communication and face-to-facemeetings.Management Information and Billing SystemsICS operates management information, network and customer billing systems supporting the functions of network and traffic management, customer service and customer billing.For financial reporting, ICS consolidates information from each of ICS's markets into a single database.ICS believes that its financial reporting and billing systems are generally adequate to meet its business needs. However, in the future, ICS may determine that it needs to investadditional capital to purchase hardware and software, license more specialized software and increase its capacity.CompetitionLong Distance: ICS faces significant competition as it attempts to win the business of other telecommunications carriers and resellers. ICS competes on the basis of price, servicequality, financial strength, relationship and presence. Sales of wholesale long-distance voice minutes are generated by connecting one telecommunications operator to another andcharging a fee to do so.Over-the-top ("OTT"): OTT applications, such as WhatsApp, Skype, and FaceTime, continue to impact ICS’s long distance business model. There can be no assurance that: (1) thecurrent declines in the long-distance business globally driven by OTT application will not increase; or (2) ICS’s business will not be impacted by the increased consumer adoptionof OTT applications globally.Government RegulationICS is subject to varying degrees of regulation in each of the jurisdictions in which it operates. Local laws and regulations, and the interpretation of such laws and regulations, differamong those jurisdictions. There can be no assurance that: (1) future regulatory, judicial and legislative changes will not have a material adverse effect on ICS; (2) domestic orinternational regulators or third parties will not raise material issues with regard to its compliance or noncompliance with applicable regulations; or (3) regulatory activities will nothave a material adverse effect on it.Regulation impacting the telecommunications industry continues to change rapidly in many jurisdictions. Privacy-related laws and regulations, such as the EU’s GDPR, as well asprivatization, deregulation, changes in regulation, consolidation, and technological change have had, and will continue to have, significant effects on the industry. Although webelieve that continuing deregulation with respect to portions of the telecommunications industry will create opportunities for firms such as us, there can be no assurance thatderegulation and changes in regulation will be implemented in a manner that would benefit ICS.The regulatory frameworks in certain jurisdictions in which we provide services as of December 31, 2018 are described below:United StatesIn the United States, ICS's services are subject to the provisions of the Communications Act of 1934, as amended (the "Communications Act"), and other federal laws, rules, andorders of the Federal Communications Commission ("FCC") regulations, and the applicable laws and regulations of the various states.ICS's interstate telecommunications services are subject to various specific common carrier telecommunications requirements set forth in the Communications Act and the FCC’srules and orders, including operating, reporting and fee requirements. Both federal and state regulatory agencies have broad authority to impose monetary and other penalties on ICSfor violations of regulatory requirements.14International Service RegulationThe FCC has jurisdiction over common carrier services linking points in the U.S. to points in other countries, and ICS provides such services. Providers of such internationalcommon carrier services must obtain authority from the FCC under Section 214 of the Communications Act. ICS has obtained the authorizations required to use, on a facilities-based and resale basis, various transmission media for the provision of international switched services and international private line services on a non-dominant carrier basis. TheFCC is considering a number of possible changes to its rules governing international common carriers. We cannot predict how the FCC will resolve those issues or how itsdecisions will affect ICS's international business. FCC rules permit non-dominant carriers such as ICS to offer some services on a detariffed basis, where competition can provideconsumers with lower rates and choices among carriers and services.On November 29, 2012, the FCC released an order removing, for all U.S.-international routes other than Cuba, the requirement for facilities-based U.S. carriers, like ICS, withoperating agreements with dominant foreign carriers, to abide by the FCC’s International Settlements Policy by following uniform accounting rates, an even split in settlement rates,and proportionate return of traffic, thereby allowing carriers to negotiate market-based arrangements on those routes. The November 29, 2012 order also adopted a requirement forU.S. carriers to provide information to the FCC about any above-benchmark settlement rates on an as-needed basis in connection with an investigation or competition problems onselected routes or review of high consumer rates on either multiple or selected routes. ICS may take advantage of these more flexible arrangements with non-dominant foreigncarriers, and the greater pricing flexibility that may result, but ICS may also face greater price competition from other international service carriers. On November 9, 2015, the FCCissued a Public Notice indicating that it has begun the process of including Cuba within the liberalized settlements policy established in 2012. In January 2016 the FCC’sInternational Bureau removed Cuba from the "exclusion list" applicable to international Section 214 authorizations, which is intended to facilitate the provision of facilities-basedcompetition between the United States and Cuba. In February 2016, the FCC formally proposed to remove certain non-discrimination requirements for traffic along the US-Cubaroute. We cannot predict the actions the FCC will take in the future or their potential effect on international termination rates, costs, or revenues.Domestic Service RegulationWith respect to ICS's domestic U.S. telecommunications services, ICS is considered a non-dominant interstate carrier subject to regulation by the FCC. FCC rules provide ICSsignificant authority to initiate or expand its domestic interstate operations, but ICS is required to obtain FCC approval to assume control of another telecommunications carrier or itsassets, to transfer control of ICS's operations to another entity, or to discontinue service. ICS is also required to file various reports and pay various fees and assessments to theFCC and various state commissions. Among other things, interstate common carriers must offer service on a nondiscriminatory basis at just and reasonable rates. The FCC hasjurisdiction to hear complaints regarding ICS's compliance or non-compliance with these and other requirements of the Communications Act and the FCC’s rules. Among otherregulations, ICS is subject to the Communications Assistance for Law Enforcement Act ("CALEA") and associated FCC regulations which require telecommunications carriers toconfigure their networks to facilitate law enforcement authorities to perform electronic surveillance.On November 8, 2013, the FCC released an order related to the completion of calls to rural areas. The order applies recordkeeping, retention and reporting obligations to certainproviders of retail long-distance voice service. The rules require those providers to collect and retain information on long-distance call attempts such as, but not limited to, the callednumber, the date and time of the call, and the use of an intermediate provider. The order also prohibits false audible ringing (the premature triggering of audible ring tones to thecaller before the call setup request has reached the terminating service provider). On April 17, 2018, the FCC issued a ruling that eliminated the obligation of providers to report datato the FCC regarding rural call completion, but kept the obligation on carriers to monitor rural call completion and retain records regarding the performance of intermediate carriers.While ICS is not directly subject to these rules, ICS may function as an intermediate provider within the meaning of these rules, which may require ICS to provide information to itscustomers regarding calls that it carries on their behalf. In addition, in February 2018, the "Improving Rural Call Quality and Reliability Act of 2017" became law. This statuteadded new Section 262 to the Communications Act of 1934, which requires intermediate providers (such as ICS) to register with the FCC. The FCC promulgated rulesimplementing this registration requirement in August 2018. These rules will take effect upon approval by the Office of Management and Budget, which approval was pending as ofDecember 31, 2018. The new law also directs the FCC to establish service quality standards for voice transmission services provided by intermediate carriers, such as ICS. TheFCC’s rulemaking to establish such service quality rules is pending. We cannot predict whether the rules the FCC ultimately adopts will materially negatively affect ICS’soperations.Interstate and international telecommunications carriers are required to contribute to the federal Universal Service Fund ("USF"). Carriers providing wholesale telecommunicationsservices are not required to contribute with respect to services sold to customers that provide a written certification that the customers themselves will make the requiredcontributions. If the FCC or the USF Administrator were to determine that the USF reporting for the Company, including ICS, is not accurate or in compliance with FCC rules, ICScould be subject to additional contributions, as well as to monetary fines and penalties. In addition, the FCC is considering revising its USF contribution mechanisms and theservices considered when calculating the contribution. ICS cannot predict the outcome of these proceedings or their potential effect on ICS's contribution obligations. Some changesto the USF under consideration by the FCC may affect certain entities more than others, and we may be disadvantaged as compared to ICS's competitors as a result of FCCdecisions regarding USF. In addition, the FCC may extend the obligation to contribute to the USF to certain services that ICS offers but that are not currently assessed USFcontributions. 15FCC rules require providers that originate interstate or intrastate traffic on or destined for the public switched telephone network ("PSTN") to transmit the telephone numberassociated with the calling party to the next provider in the call path. Intermediate providers, such as ICS, must pass calling party number ("CPN") or charge number ("CN")signaling information they receive from other providers unaltered, to subsequent providers in the call path. While ICS believes that it is in compliance with this rule, to the extent thatit passes traffic that does not have appropriate CPN or CN information, ICS could be subject to fines, cease and desist orders, or other penalties. Insurance Segment (Continental Insurance Group Ltd.)On December 24, 2015, we completed the acquisitions of United Teacher Associates Insurance Company ("UTA") and Continental General Insurance Company ("CGI") (togetherthe "Insurance Company") for aggregate consideration of approximately $18.6 million. The operations of the Insurance Company were consolidated into the insurance operatingsegment, CIG.The Insurance Company filed applications with the Ohio Department of Insurance ("ODOI") and the Texas Department of Insurance ("TDOI") to redomesticate CGI from Ohio toTexas. In conjunction with the redomestication, the Insurance Company filed a request with the TDOI to merge UTA and CGI (with CGI as the surviving entity), which wasapproved as of December 31, 2016.On August 9, 2018, CGI completed the acquisition of KMG America Corporation ("KMG"), the parent company of Kanawha Insurance Company ("KIC"), Humana’s long-termcare insurance subsidiary for consideration of ten thousand dollars. As a condition to the approval of the acquisition by the South Carolina Department of Insurance, CGI agreed toredomesticate KIC from South Carolina to Texas and simultaneously merge KIC with and into CGI, with CGI surviving (the "Merger"), and to maintain an authorized control levelrisk-based capital ratio of no less than 450 percent for two years following the closing. Similarly, CGI agreed with the Texas Commissioner of Insurance that it will maintain a totaladjusted capital to authorized control risk-based capital level of no less than 450 percent for two years from the date of the Merger and of no less than 400 percent for thesubsequent three years.StrategyCIG currently provides long-term care, life, annuity, and other accident and health coverage to approximately 145,000 individuals through CGI. The benefits provided by CIG'sinsurance operations help protect policy and certificate holders from the financial hardships associated with illness, injury, loss of life, or income discontinuation.CIG has a concentrated focus on long-term care insurance and is committed to the continued delivery to its policy and certificate holders of the best-practices services established byCIG's insurance operations to its policy and certificate holders. Through investments in technology, a commitment to attracting, developing and retaining best-in-class insuranceprofessionals, a dedication to continuing process improvements, and a focus on strategic growth, we believe CIG is well equipped to maintain and improve the level of serviceprovided to its customers and assume a leading role in the long-term care industry.CIG’s plan is to leverage its existing platform and industry expertise to identify strategic growth opportunities for managing closed blocks of long-term care business. Growthopportunities are expected to come from:•Future acquisitions of long-term care businesses and/or closed blocks of long-term care policies;•Reinsurance arrangements; and•Third party administration arrangements.ProductsLong-Term Care InsuranceCIG's long-term care insurance products pay a benefit that is either a specified daily indemnity amount or reimbursement of actual charges up to a daily maximum for long-term careservices provided in the insured’s home or in assisted living or nursing facilities. Benefits begin after a waiting period, usually 90 days or less, and are generally paid for a period ofthree years, six years, or the policy holder's lifetime.Substantially all of the in-force long-term care insurance policies were sold after 1995, with all sales then being discontinued in January 2010. Policies were issued in all statesexcept for New York, with Texas being the largest issue state with approximately 20% of the business. The existing block of policies includes both individual and group products,but all individuals were individually underwritten. CIG's long-term care insurance products were sold on a guaranteed renewable basis which allows us to re-price in-force policies,subject to regulatory approval. As part of CIG's strategy for its long-term care insurance business, management has been implementing, and expects to continue to pursue,significant premium rate increases on its blocks of business as actuarially justified. Premium rates vary by age and are based on assumptions concerning morbidity, mortality,persistency, administrative expenses, and investment yields. CIG develops its assumptions based on its own claims and persistency experience and published industry tables.16Life Insurance and AnnuitiesCIG's life insurance products include Traditional, Term, Universal, and Interest Sensitive Life Insurance. Its annuity products include Flexible and Single Premium DeferredAnnuities. CIG's life insurance business provides a personal financial safety net for individuals and their families. These products provide protection against financial hardship afterthe death of an insured. Some of these products also offer a savings element that can help accumulate funds to meet future financial needs. Annuities are long-term retirement savinginstruments that benefit from income accruing on a tax-deferred basis. The issuer of the annuity collects premiums, credits interest or earnings on the policy and pays out a benefitupon death, surrender or annuitization. All life insurance and annuity products are closed to new business. The life insurance products were issued with both full and simplifiedunderwriting.Other Accident & HealthCIG’s accident and health products, other than Long-Term Care Insurance, include accidental death, accidental death & dismemberment disability income, hospital expense, hospitalindemnity, and major medical individual insurance policies. These products provide from partial reimbursement to full reimbursement of covered medical and related expenses. Allproducts were sold prior to the introduction of the Affordable Care Act and these product lines are closed to new business. If not otherwise exempted from the requirements of theAffordable Care Act, the policies are grandfathered under the Affordable Care Act and not subject to the requirements of the Affordable Care Act. A limited number of thesepolicies were guaranteed issued, although the majority of the policies were issued with individual underwriting.CustomersCIG's long-term care insurance policies were marketed and sold to individuals between 1986 and 2010 for the purpose of providing defined levels of protection against thesignificant and escalating costs of long-term care services provided in the insured’s home or in assisted living or nursing facilities. Though CIG no longer actively markets newlong-term care insurance products, it continues to service and receive net renewal premiums on its in-force block of approximately 145,000 lives.Employees and OperationsAs of December 31, 2018, CIG employed 123 people full-time, the majority of whom are employed on a salaried basis with some on an hourly basis. Besides eight remoteemployees working in various states, all other employees work out of the home office located in Austin, Texas. CIG considers its relations with its employees to be satisfactory andhas never experienced a work stoppage or other labor disturbance. All operating centers maintain a cost effective and efficient operating model.Transition Services and Administrative Services AgreementUpon the purchase of the Insurance Company on December 24, 2015 a transition services agreement (the "Transition Services Agreement") was entered into with the prior owner,Great American Financial Resources ("Great American") in Cincinnati, Ohio, pursuant to which Great American agreed to continue to perform certain business functions such asIT, finance, investment, and accounting for a period of 12 to 16 months to allow us time to secure the resources needed to take over those duties. IT, finance, investment andaccounting roles were filled and/or outsourced in fiscal year 2016, and services received under the Transition Services Agreement ended on March 31, 2017. Simultaneously, anAdministrative Services Agreement (the "Administrative Services Agreement") was entered into with Great American, pursuant to which Great American Life Insurance Company("GALIC") agreed to continue to administer the Insurance Company’s life and annuity businesses for a period of no less than five years.The KIC acquisition included the assumption of numerous existing, or the establishment of new, third party administrator (TPA) agreements to continue to provide services andperform processes critical (actuarial, claims processing, rate increase work etc.) to KIC’s ability to continue producing outputs. All of KIC’s insurance contracts are administered bythese TPAs.ReinsuranceCIG reinsures a significant portion of its insurance business with unaffiliated reinsurers. In a reinsurance transaction, a reinsurer agrees to indemnify another insurer for part or allof its liability under a policy or policies it has issued for an agreed upon premium. CIG participates in reinsurance activities in order to minimize exposure to significant risks, limitlosses, and provide additional capacity for future growth. CIG also obtains reinsurance to meet certain capital requirements.Under the terms of the reinsurance agreements, the reinsurer agrees to reimburse CIG for the ceded amount in the event a claim is paid. Cessions under reinsurance agreements donot discharge CIG's obligations as the primary insurer. In the event that reinsurers do not meet their obligations under the terms of the reinsurance agreements, reinsurancerecoverable balances could become uncollectible. CIG's amounts recoverable from reinsurers represent receivables from and/or reserves ceded to reinsurers. Amounts recoverablefrom reinsurers are estimated in a manner consistent with the gross liability associated with the reinsured policy.17Reserves for Policy Contracts and BenefitsThe applicable insurance laws under which insurance companies operate require that they report, as liabilities, policy reserves to meet future obligations on their outstandingpolicies. These reserves are the amounts which, with the additional premiums to be received and interest thereon compounded annually at certain assumed rates, are calculated to besufficient to meet the various policy and contract obligations as they mature. These laws specify that the reserves shall not be less than reserves calculated using certain specifiedmortality and morbidity tables, interest rates, and methods of valuation required for statutory accounting.CIG calculates reserves in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"), which calculations can differ from thosespecified by the laws of the various states and reported in the statutory financial statements. These differences result from the use of mortality and morbidity tables and interestassumptions which CIG believes are more representative of the expected experience for these policies than those required for statutory accounting purposes and also result fromdifferences in actuarial reserving methods.The assumptions CIG uses to calculate its reserves are intended to represent an estimate of experience for the period that policy benefits are payable. If actual experience is morefavorable than our reserve assumptions, then reserves should be adequate to provide for future benefits and expenses. If experience is less favorable than the reserve assumptions,additional reserves may be required. The key experience assumptions include claim incidence rates, claim resolution rates, mortality and morbidity rates, policy persistency, interestrates, crediting spreads, and premium rate increases. CIG periodically reviews its experience and updates its policy reserves and reserves for all claims incurred, as it believesappropriate.The statements of income include the annual change in reserves for future policy and contract benefits. The change reflects a normal accretion for premium payments and interestbuildup and decreases for policy terminations such as lapses, deaths, and benefit payments. If policy reserves using best estimate assumptions as of the date of a test for lossrecognition are higher than existing policy reserves net of any deferred acquisition costs, the increase in reserves necessary to recognize the deficiency is also included in the changein reserves for future policy and contract benefits.For further discussion of reserves, refer to "Risk Factors" contained herein in Item 1A, "Critical Accounting Estimates" and the discussion of segment operating results included in"Management's Discussion and Analysis of Financial Condition and Results of Operations" contained herein in Item 7, and Note 2. Summary of Significant Accounting Policies, ofthe "Notes to Consolidated Financial Statements".InvestmentsCIG manages its cash and invested assets using an approach that is intended to balance quality, diversification, asset/liability matching, liquidity needs and investment return. Thegoals of the investment process are to optimize after-tax, risk-adjusted investment income and after-tax, risk-adjusted total return while managing the assets and liabilities on a cashflow and duration basis. CIG’s liabilities are primarily supported by investments in investment grade, fixed maturity securities reflected on the Company’s consolidated balancesheets.The Company filed an Investment Management Agreement Form D application with the TDOI to appoint CIG, an affiliate, as investment manager effective January 1, 2017. TheTDOI issued a "no action" letter dated December 19, 2016 with regard to the Form D application.RegulationCIG's insurance company subsidiary is subject to regulations in the jurisdictions where it does business. In general, the insurance laws of the various states establish regulatoryagencies with broad administrative powers governing, among other things, premium rates, solvency standards, licensing of insurers, agents and brokers, trade practices, forms ofpolicies, maintenance of specified reserves and capital for the protection of policyholders, deposits of securities for the benefit of policyholders, investment activities andrelationships between insurance subsidiaries and their parents and affiliates. Material transactions between insurance subsidiaries and their parents and affiliates generally mustreceive prior approval of the applicable insurance regulatory authorities and be disclosed. In addition, while differing from state to state, these regulations typically restrict themaximum amount of dividends that may be paid by an insurer to its stockholders in any twelve-month period without advance regulatory approval. Such limitations are generallybased on net earnings or statutory surplus.The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act"), among other things, established a Federal Insurance Office ("FIO") within theU.S. Treasury. The Dodd-Frank Act requires the promulgation of regulations for the FIO to carry out its mandate to focus on systemic risk oversight. The FIO gatheredinformation regarding the insurance industry and submitted a report to Congress in December 2013. The report concluded that a hybrid approach to regulation, involving acombination of state and federal government action, could improve the U.S. insurance system by attaining uniformity, efficiency and consistency, particularly with respect tosolvency and market conduct regulation. The FIO has issued additional reports since that time on various aspects of the insurance sector and insurance regulation. Legislativeproposals currently before Congress, as well as a 2017 report from the Trump Administration, call for refinements of the FIO’s mission including more coordination with stateregulators. We cannot predict the extent to which any of these matters might result in changes to the current state-based system of insurance industry regulation or ultimately impactthe Company’s operations.Most states have created insurance guaranty associations that assess solvent insurers to pay claims of insurance companies that become insolvent. Financial impact of annualguaranty assessments for CGI has not been material.18CompetitionCIG competes with financial services firms with respect to the acquisition of insurance companies and/or blocks of insurance businesses through merger, stock purchase, orreinsurance transactions or otherwise.Life Sciences Segment (Pansend Life Sciences, LLC )Pansend focuses on the development of innovative technologies and products in the healthcare industry. As of December 31, 2018, Pansend has invested in four companies:•R2 Dermatology, Incorporated ("R2"), a company developing medical devices for the treatment of aesthetic and medical skin conditions. In July 2017, R2 receivednotification from the United States Food and Drug Administration of market clearance of R2's second generation device, the R2 Dermal Cooling System. The R2 DermalCooling System is a cryosurgical instrument intended for use in dermatologic procedures for the removal of benign lesions of the skin, based on exclusive licensing rightsto a novel technology developed at Massachusetts General Hospital and Harvard Medical School;•Genovel Orthopedics, Inc. ("Genovel"), a company developing novel partial and total knee replacements for the treatment of osteoarthritis of the knee based on patent-protected technology invented at New York University School of Medicine;•MediBeacon, Inc. ("MediBeacon"), a company developing a proprietary non-invasive real-time monitoring system for the evaluation of kidney function. This system(known as the MediBeacon Optical Renal Function Monitor system) uses an optical skin sensor combined with a proprietary agent that glows in the presence of light. Itwill be the first and only, non-invasive system to enable real-time, direct monitoring of renal function at point-of-care. On March 2, 2017, MediBeacon announced thesuccessful completion of a real-time, point of care renal function clinical study on subjects with impaired kidney function at Washington University in St. Louis. On June8, 2016, MediBeacon announced the completion of the acquisition of Mannheim Pharma & Diagnostics, a life science company based in Mannheim, Germany. Recently,MediBeacon announced a collaborative research project with scientists at Washington University School of Medicine in St. Louis, Missouri in a research project aimed atimproving the understanding of childhood malnutrition and its related problems, including stunted growth. The work is funded by a Grand Challenges Explorations PhaseII grant from the Bill & Melinda Gates Foundation to Washington University. It is a follow-up grant to work carried out through a Phase I Grand ChallengesExplorations Award made in 2014. MediBeacon was also recently the recipient of a Small Business Innovation Research grant supported by the National Eye Institute ofthe National Institutes of Health (NIH). With this support, MediBeacon is pursuing research into the use of a MediBeacon fluorescent tracer agent to visualize vasculaturein the eye. The focus of the NIH-supported project is to determine if a specific proprietary MediBeacon tracer agent when administered has the potential to provideadditional clinical value versus the existing standard of care.Further, on October 22, 2018, the U.S. Food and Drug Administration (FDA) granted Breakthrough Device designation to the MediBeacon's Transdermal GFRMeasurement System (TGFR). The device is intended to measure Glomerular Filtration Rate (GFR) in patients with impaired or normal renal function; and•Triple Ring Technologies, a research and development engineering company specializing in medical devices, homeland security, imaging sensors, optics, fluidics, roboticsand mobile healthcare.DispositionsOn June 8, 2018, Pansend closed on the sale of its approximately 75.9% ownership in BeneVir Biopharm, Inc. ("BeneVir") to Janssen Biotech, Inc. ("Janssen"). In conjunctionwith 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 expects to receive an additionalcash payment of $13.3 million, currently held in an escrow, for a total consideration of $106.7 million. The escrow will be released within 15 months subsequent to the closing date,assuming there are no pending or unresolved indemnified claims. Pansend recorded a gain on the sale of $102.1 million, of which $21.7 million was allocated to noncontrollinginterests. HC2 received a cash payment of $72.8 million and expects to receive an additional cash payment of $9.2 million upon 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 $512.2million.19Broadcasting Segment (HC2 Broadcasting Holdings, Inc.)HC2 Broadcasting Holdings Inc., a subsidiary of HC2 Holdings, Inc., is an owner and operator of broadcast TV stations throughout the U.S., formed in 2017. As of December 31,2018, HC2 Broadcasting and its subsidiaries operate approximately 138 operational stations, including 8 Full-Power stations, 39 Class A stations and 91 LPTV stations. Inclusiveof 29 pending operating station acquisitions, HC2 Broadcasting and its subsidiaries will operate approximately 167 operational stations, including 14 Full-Power stations, 55 ClassA stations and 98 LPTV stations, collectively able to broadcast over 1,000 sub-channels. This coverage reaches over 130 markets between the U.S. and Puerto Rico, including 9 ofthe top 10 markets. HC2 Broadcasting’s objective is to build a nationwide broadcast TV distribution platform that delivers OTA broadcast content that will reach the majority of theU.S. when fully built. HC2 Broadcasting's plan is to interconnect all of HC2 Broadcasting's stations to an IP network backbone, which will allow us to monitor and operate thestations remotely. The network backbone is moving onto cloud-based infrastructure, which we expect will offer significant cost efficiencies and redundancy.In December 2017, HC2 Broadcasting also acquired Azteca America, formerly the US subsidiary of TV Azteca, S.A.B. de C.V., Mexico’s second largest broadcast network.Today, Azteca America airs Spanish language programming targeting U.S. Hispanics and is carried mostly on HC2 Broadcasting’s stations. Much of the network’s programmingis provided by the former parent company under a multi-year Programming Licensing Agreement (PLA) with HC2 Broadcasting. The network is carried on approximately 23 HC2Broadcasting stations and by 25 Azteca America affiliate stations in the U.S. Unlike HC2 Broadcasting’s station group, Azteca America is a linear broadcast television network thatrequires the development and maintenance of programming. As such, HC2 Broadcasting has dedicated employees in the U.S. and contracted employees in Mexico under aBroadcast Services Agreement ("BSA") with TV Azteca who work to maintain the content.Station Group and Network AcquisitionsSince November 2017, HC2 Broadcasting has grown principally through acquisitions, with over 30 completed through February 28, 2019. Major acquisitions have included thefollowing:•DTV America Corporation◦HC2 Broadcasting purchased the majority of shares of common stock of DTV America Corporation ("DTV") for a total consideration of $17.7 million. DTVcurrently owns and operates 50 LPTV stations in more than 30 cities. DTV’s distribution platform currently provides carriage for more than 30 televisionbroadcast networks.•Azteca America◦In November 2017, HC2 Broadcasting acquired Azteca America, a Spanish-language broadcast network for $33.0 million. The transaction included LPTV,Class A and Full-Power stations, as well as the BSA, and PLA.•Mako Communications, LLC◦Purchased all the assets of Mako Communications, LLC in connection with Mako’s ownership and operation of LPTV stations that resulted in HC2Broadcasting acquiring 38 operating stations in 28 cities, for a total consideration of $28.4 million.•Three Angels Broadcasting Network, Inc.◦In December 2017, a wholly-owned subsidiary of HC2 Broadcasting closed on a transaction with Three Angels Broadcasting Network, Inc. to purchase all ofits assets in connection with its ownership and operation of Class A stations that resulted in HC2 Broadcasting acquiring 14 operating stations for a totalconsideration of $9.6 million.Operating Broadcast StationsBelow are HC2 Broadcasting’s operating stations as of December 31, 2018, listed here by call sign and market rank:MarketMarketRank (a)StationServiceNew York, NY1WEDWFull-Power Station WKOB-LDLPTV StationLos Angeles, CA2KHIZ-LDLPTV StationChicago, IL3W25DW-DLPTV Station WPVN-CDClass A StationPhiladelphia, PA4WDUM-LDLPTV Station W36DO-DLPTV Station WZPA-LDLPTV Station WPSJ-CDClass A StationDallas-Ft. Worth, TX5KAZDFull-Power Station KJJM-LDLPTV Station KNAV-LPLPTV Station KODF-LDLPTV Station KPFW-LDLPTV StationHouston, TX7KUVM-CDClass A Station KYAZFull-Power Station20 KEHO-LDLPTV Station KUVM-LDLPTV StationSanFrancisco - Oakland - San Jose, CA8KTNC-TVFull-Power Station KEMO-TVFull-Power Station KQRO-LDLPTV Station KFTY-LDLPTV StationAtlanta, GA10WUVM-LPLPTV Station WDWW-LDLPTV Station WYGA-CDClass A Station WUEO-LDLPTV StationTampa - St. Petersburg - Sarasota, FL11W16DQ-DLPTV Station WXAX-CDClass A Station WTAM-LDLPTV StationPhoenix - Prescott, AZ12K18JL-DLPTV Station KMOH-TVFull-Power Station KPDF-CDClass A Station KEJR-LDLPTV StationSeattle - Tacoma, WA13KUSE-LDLPTV StationDetroit, MI14WUDL-LDLPTV Station WDWO-CDClass A StationMinneapolis - St. Paul, MN15K33LN-DClass A Station KJNK-LDLPTV StationMiami - Ft. Lauderdale, FL16W16CC-DLPTV StationDenver, CO17K05MD-DLPTV StationOrlando - Daytona Beach - Melbourne, FL18WFEF-LDLPTV StationCleveland - Akron - Canton, OH19WQDI-LDLPTV Station WEKA-LDLPTV StationSacramento - Stockton - Modesto, CA20KBTV-CDClass A Station K04QR-DLPTV Station KAHC-LDLPTV Station KFMS-LDLPTV StationSt. Louis, MO21KPTN-LDLPTV Station KBGU-LPLPTV Station WODK-LDLPTV Station K25NG-DClass A StationCharlotte, NC23WVEB-LDLPTV Station WHEH-LDLPTV StationPittsburgh, PA24WWLM-CDClass A Station WJMB-CDClass A Station WKHU-CDClass A Station WWKH-CDClass A StationRaleigh - Durham - Fayetteville, NC25WNCB-LDLPTV Station WIRP-LDLPTV StationBaltimore, MD26WQAW-LPLPTV StationIndianapolis, IN28WSDI-LDLPTV Station WUDZ-LDLPTV StationSalt Lake City, UT30KPNZFull-Power Station KBTU-LDLPTV StationSan Antonia, Tx31K17MJ-DLPTV Station KOBS-LDLPTV Station KSAA-LPLPTV Station K27LF-DClass A Station KISA-LDLPTV Station KVDF-CDClass A StationKansas City, MO32KAJF-LDLPTV Station KCMN-LDLPTV StationHartford - New Haven, CT33WRNT-LDLPTV Station WTXX-LDLPTV Station21Milwaukee, WI36WTSJ-LPLPTV StationWest Palm Beach - Ft. Pierce, FL37WXOD-LDLPTV StationLas Vegas, NV39KVPX-LDLPTV Station K36NE-DClass A Station KNBX-CDClass A Station KHDF-CDClass A Station KEGS-LDLPTV StationAustin, TX40KGBS-CDClass A Station KVAT-LDLPTV StationJacksonville, FL42WKBJ-LDLPTV Station WRCZ-LDLPTV StationBirmingham - Anniston - Tuscaloosa, AL43WUOA-LDLPTV StationOklahoma City, OK45KTOU-LDLPTV Station KBZC-LDLPTV StationAlbuquerque - Santa Fe, NM47KQDF-LPLPTV StationNew Orleans, LA50WTNO-LPClass A Station WQDT-LDLPTV StationMemphis, TN51W15EA-DClass A Station WQEK-LDLPTV Station KPMF-LDLPTV StationBuffalo, NY52WWHC-LPLPTV Station WVTT-CDClass A StationFresno - Visalia, CA54KZMM-CDClass A Station K17JI-DClass A StationFt. Myers - Naples, FL55WGPS-LPLPTV StationTulsa, OK61KZLL-LDLPTV Station KUOC-LDLPTV StationWichita - Hutchinson, KS76KFVT-LDLPTV StationHarlingen - Weslaco - Brownsville - Mcallen, TX78KNWS-LPLPTV Station KRZG-CDClass A Station KAZH-LPLPTV StationHuntsville - Decatur - Florence, AL79W17DJ-DClass A StationRochester - Mason City - Austin, NY80WGCE-CDClass A StationMadison, WI86WZCK-LDLPTV Station W23BW-DClass A StationPaducah, KY - Cape Girardeau, MO - Harrisburg, IL88W29CI-DClass A StationWaco - Temple - Bryan, TX89KZCZ-LDLPTV StationBoise, ID.100K31FD-DClass A Station K17ED-DClass A StationFt. Smith - Fayetteville - Springdale - Rogers, AR101KAJL-LDLPTV Station KFLU-LDLPTV StationFt. Wayne, IN104WFWC-CDClass A StationTyler - Longview - Nacogdoches, TX114KCEBFull-Power Station KDKJ-LDLPTV Station KPKN-LDLPTV StationMontgomery - Selma, AL116WDSF-LDLPTV StationYakima - Pasco - Richland - Kennewick, WA119K33EJ-DClass A StationBakersfield, CA122K08MM-DClass A Station KXBF-LDLPTV StationSanta Barbara - San Luis Obispo, CA123KDFS-CDClass A Station KSBO-CDClass A Station KZDF-LPLPTV Station KLDF-CDClass A StationCorpus Christi, TX128KCCX-LPLPTV Station K20JT-DLPTV Station KYDF-LPLPTV Station K29IP-DLPTV StationAmarillo, TX131KAUO-LDLPTV Station22 KLKW-LDLPTV StationLubbock, TX143K24GPLPTV Station KNKC-LDLPTV StationPalm Springs, CA145K21DO-DClass A StationJackson, TN177WYJJ-LDLPTV StationBowling Green, KY181WCZU-LDLPTV Station(a)Rankings are based on the relative size of a station’s Designated Market Area (DMA) among the 210 generally recognized DMAs in the United States as estimated by Nielsen Media Research (Nielsen) as of December2018.Broadcast OperationsHC2 Broadcasting carries more than 50 networks on its stations, distributing content across the U.S. Broadcasting provides free OTA programming to television viewing audiencesin the communities it serves. The programming Broadcasting distributes includes networks targeting shopping, weather, sports and entertainment programming, as well as religiousnetworks and networks targeting select ethnic groups.RevenuesFor its OTA distribution business, HC2 Broadcasting’s principal source of revenues are multi-year leases, which vary in price according to market size and the number of OTA TVhomes in a market. HC2 currently earns higher revenues for carriage on Full-Power stations compared to Class A and LPTV stations.While lease revenues drive HC2 Broadcasting’s station group business, the primary source of revenue for Azteca America is the sale of commercial inventory on the Aztecanetwork, digital platforms and licensing of content to streaming services. As such, Azteca America principally relies on national, local and spot advertising sales for revenues and, toa lesser extent, multichannel video programming distributor’s (MVPD) retransmission fees. Pricing for advertising sales is based on viewer ratings across the U.S. Sales arehandled by a dedicated HC2 Broadcasting/Azteca sales-force in the U.S.StrategyHC2 Broadcasting’s strategy includes the following initiatives:•HC2 Broadcasting is principally designed to be a nationwide OTA distribution platform, targeting the growing number of OTA households in the US. According toNielsen, these represent 16% of U.S. TV households;•As they “lease up” stations around the country, HC2 Broadcasting's principal and growing revenue source will be providing national carriage for content providers undermulti-year lease agreements. Pricing lease contracts is in part determined by the signal contour of the broadcast station and the number of OTA TV households in a givenmarket as well as market supply and demand;•Once all the operating stations are connected to HC2 Broadcasting's cloud-based IP backbone, HC2 Broadcasting's stations can be operated and monitored remotely,allowing for substantial cost savings and operating efficiencies. Recent FCC deregulation in TV broadcasting has eliminated the need for full time employees and studiofacilities in markets where HC2 Broadcasting operates Full-Power and Class A stations, thus allowing us to operate these stations remotely at greater cost efficiency;•As an anchor network tenant, Azteca America will continue to be distributed on the HC2 Broadcasting platform and MVPDs covering 57% of U.S. Hispanic homes;•HC2 Broadcasting's major focus as HC2 Broadcasting continues to increase HC2 Broadcasting's market footprint and network efficiencies is to attract the highest qualitycontent providers looking for nationwide distribution. With HC2 Broadcasting's national platform and cloud-based infrastructure, HC2 Broadcasting also expects torealize premium pricing for distribution on HC2 Broadcasting's station group; and•HC2 Broadcasting's vision is to capitalize on the opportunities to bring valuable content to more viewers over-the-air and to position itself for the changing medialandscape. Additionally, HC2 Broadcasting is well-positioned to take advantage of the technology advances rapidly underway in the industry. New Broadcast TV Technology: ATSC 3.0In 2017, the FCC approved ATSC 3.0, a next generation broadcast platform, which HC2 Broadcasting believes will bring new opportunities. ATSC 3.0 is an enhancement to theprevious broadcast standard, providing mobility, addressability, capacity, and IP connectivity. ATSC 3.0 merges linear and non-TV data services alongside OTA and over-the-top(OTT). Among the additional many emerging opportunities are hyper-local news, weather, and traffic; dynamic ad insertion; geographic and demographic targeted advertising;customizable content; better measurement and analytics; the ability to talk to devices connected to the Internet; flexibility to add streams as needed; an ultra-high definition picturequality with enhanced immersive audio; and connectivity to automobiles. In addition, ATSC 3.0 provides new emergency capabilities including advanced alerting functions whichcan provide evacuation routes and device wake-up features. All of these features will be available to mobile devices, allowing us to reach viewers wherever they are - includingyounger audiences that are tied to their mobile screens.EmployeesAs of December 31, 2018, HC2 Broadcasting employed approximately 51 people across the U.S.23See Note 21. Operating Segment and Related Information for additional detail regarding HC2 Broadcasting's operating segments and financial information by geographic area.Environmental Regulation and LawsOur operations and properties, including those of DBMG and GMSL, are subject to a wide variety of increasingly complex and stringent foreign, federal, state and localenvironmental laws and regulations, including those concerning emissions into the air, discharge into waterways, generation, storage, handling, treatment and disposal of wastematerials and health and safety of employees. Sanctions for noncompliance may include revocation of permits, corrective action orders, administrative or civil penalties and criminalprosecution. Some environmental laws provide for strict, joint and several liability for remediation of spills and other releases of hazardous substances, as well as damage to naturalresources. In addition, companies may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances. These laws andregulations may also expose us to liability for the conduct of or conditions caused by others, or for our acts that were in compliance with all applicable laws at the time such actswere performed.Compliance with federal, state and local provisions regulating the discharge of materials into the environment or relating to the protection of the environment has not had a materialimpact on our capital expenditures, earnings or competitive position. Based on our experience to date, we do not currently anticipate any material adverse effect on our business orconsolidated financial position, results of operations or cash flows as a result of future compliance with existing environmental laws and regulations. However, future events, suchas changes in existing laws and regulations or their interpretation, more vigorous enforcement policies of regulatory agencies, or stricter or different interpretations of existing lawsand regulations, may require additional expenditures by us, which may be material. Accordingly, there can be no assurance that we will not incur significant environmentalcompliance costs in the future.Corporate InformationHC2, a Delaware corporation was incorporated in 1994. The Company’s executive offices are located at 450 Park Avenue, 30th Floor, New York, NY, 10022. The Company’stelephone number is (212) 235-2690. Our Internet address is www.hc2.com. We make available free of charge through our Internet website our Annual Reports on Form 10-K,Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended,as soon as reasonably practicable after we electronically file such material with, or furnish it to, the United States Securities and Exchange Commission (the "SEC"). Theinformation on our website is not a part of this Annual Report on Form 10-K.The information required by this item relating to our executive officers, directors and code of conduct is set forth below. Information relating to beneficial ownership reportingcompliance will be set forth in our 2019 Proxy Statement under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by reference.Information relating to our Audit Committee and Audit Committee Financial Expert will be set forth in our 2019 Proxy Statement under the Caption "Board Committees" and isincorporated herein by reference.ITEM 1A. RISK FACTORSThe following risk factors and the forward-looking statements elsewhere herein should be read carefully in connection with evaluating the business of the Company and itssubsidiaries. A wide range of events and circumstances could materially affect our overall performance, the performance of particular businesses and our results of operations, andtherefore, an investment in us is subject to risks and uncertainties. In addition to the important factors affecting specific business operations and the financial results of thoseoperations identified elsewhere in this Annual Report on Form 10-K, the following important factors, among others, could adversely affect our operations. While each risk isdescribed separately below, some of these risks are interrelated and it is possible that certain risks could trigger the applicability of other risks described below. Also, the risks anduncertainties described below are not the only ones that we face. Additional risks and uncertainties not presently known to us, or that are currently deemed immaterial, could alsopotentially impair our overall performance, the performance of particular businesses and our results of operations. These risk factors may be amended, supplemented or supersededfrom time to time in filings and reports that we file with the SEC in the future.Risks Related to Our BusinessesHC2 is a holding company and its only material assets are its cash in hand, equity interests in its operating subsidiaries and its other investments. As a result, HC2’sprincipal source of revenue and cash flow is distributions from its subsidiaries and its subsidiaries may be limited by law and by contract in making distributions to HC2.As a holding company, HC2's assets are its cash and cash equivalents, the equity interests in its subsidiaries and other investments. As of December 31, 2018, we had $6.5 millionin cash and cash equivalents at the corporate level at HC2.HC2’s principal source of revenue and cash flow is distributions from its subsidiaries. Thus, its ability to service its debt, including the $470.0 million in aggregate principal amountof 11.5% Senior Secured Notes due 2021 (the "Secured Notes") and $55.0 million aggregate principal amount of 7.5% convertible senior notes due 2022 (the "Convertible Notes"),and together with the Secured Notes, the "Notes", and to finance future acquisitions is dependent on the ability of its subsidiaries to generate sufficient net income and cash flows tomake upstream cash distributions to HC2. HC2’s subsidiaries are separate legal entities, and although they may be wholly-owned or controlled by HC2, they have no obligation tomake any funds available to HC2, whether in the form of loans, dividends, distributions or otherwise. The ability of HC2’s subsidiaries to distribute cash to it are and will remainsubject to, among other things, restrictions that are contained in its subsidiaries’ financing agreements,24availability of sufficient funds and applicable state laws and regulatory restrictions. For instance, each of DBMG and GMSL are borrowers under credit facilities that restrict theirability to make distributions or loans to HC2. Specifically, DBMG is party to credit agreements that include certain financial covenants that can limit the amount of cash available tomake upstream dividend payments to HC2. For additional information, See Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of operations -Liquidity and Capital Resources."Claims of creditors of our subsidiaries generally will have priority as to the assets of such subsidiaries over our claims and claims of our creditors and stockholders. To the extentthe ability of HC2’s subsidiaries to distribute dividends or other payments to HC2 could be limited in any way, our ability to grow, pursue business opportunities or makeacquisitions that could be beneficial to our businesses, or otherwise fund and conduct our business could be materially limited. In addition, if HC2 depends on distributions andloans from its subsidiaries to make payments on HC2’s debt, and if such subsidiaries were unable to distribute or loan money to HC2, HC2 could default on its debt, which wouldpermit the holders of such debt to accelerate the maturity of the debt which may also accelerate the maturity of other debt of ours with cross-default or cross-acceleration provisions.To service our indebtedness and other obligations, we will require a significant amount of cash.Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations, including under our outstanding indebtedness, andour obligations under our outstanding shares of preferred stock, could harm our business, financial condition and results of operations. Our ability to make payments on and torefinance our indebtedness and outstanding preferred stock and to fund working capital needs and planned capital expenditures will depend on our ability to generate cash in thefuture. This, to a certain extent, is subject to general economic, financial, competitive, business, legislative, regulatory and other factors that are beyond our control. For a descriptionof our and our subsidiaries indebtedness, see Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and Note 14. Debt Obligations, ofthe "Notes to Consolidated Financial Statements."If our business does not generate sufficient cash flow from operations or if future borrowings are not available to us in an amount sufficient to enable us and our subsidiaries to payour indebtedness or make mandatory redemption payments with respect to our outstanding shares of preferred stock, or to fund our other liquidity needs, we may need to refinanceall or a portion of our indebtedness or redeem the preferred stock, on or before the maturity thereof, sell assets, reduce or delay capital investments or seek to raise additional capital,any of which could have a material adverse effect on us.In addition, we may not be able to effect any of these actions, if necessary, on commercially reasonable terms or at all. Our ability to restructure or refinance our indebtedness orredeem the preferred stock will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt or financings related to theredemption of our preferred stock could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.The terms of existing or future debt instruments or preferred stock may limit or prevent us from taking any of these actions. In addition, any failure to make scheduled payments ofinterest and principal on our outstanding indebtedness or dividend payments on our outstanding shares of preferred stock would likely result in a reduction of our credit rating,which could harm our ability to incur additional indebtedness or otherwise raise capital on commercially reasonable terms or at all. Our inability to generate sufficient cash flow tosatisfy our debt service and other obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, would have an adverse effect, which could bematerial, on our business, financial condition and results of operations.The agreements governing our indebtedness and Certificate of Designations for our outstanding shares of preferred stock contain various covenants that limit ourdiscretion in the operation of our business and/or require us to meet financial maintenance tests and other covenants. The failure to comply with such tests and covenantscould have a material adverse effect on us.The agreements governing our indebtedness and the Certificate of Designations for our outstanding shares of preferred stock contain, and any of our other future financingagreements may contain, covenants imposing operating and financial restrictions on our businesses.The indenture governing the Secured Notes dated November 20, 2018, by and among HC2, the guarantors party thereto and U.S. Bank National Association, a national bankingassociation ("U.S. Bank"), as trustee (the "Secured Indenture"), and the separate indenture governing the Convertible Notes dated November 20, 2018, between HC2 and U.S.Bank, as trustee (the "Convertible Indenture"), contain, and any future indentures may contain various covenants, including those that restrict our ability to, among other things, theability of the Company, and, in certain cases, the Company’s subsidiaries, to incur additional indebtedness; create liens; engage in sale-leaseback transactions; pay dividends ormake distributions in respect of capital stock; make certain restricted payments; sell assets; engage in transactions with affiliates; or consolidate or merge with, or sell substantially allof its assets to, another person.The debt facilities at our subsidiaries contain similar covenants applicable to each respective subsidiary. These covenants may limit our ability to effectively operate our businesses.For example, DBMG has an indemnity agreement with its surety bond provider that also contains covenants on retention of capital and working capital requirements for DBMG,which may limit the amount of dividends DBMG may pay to its stockholders.In addition, the Secured Indenture requires that we meet certain financial tests, including a collateral coverage ratio and minimum liquidity test. Our ability to satisfy these tests maybe affected by factors and events beyond our control, and we may be unable to meet such tests in the future.25Any failure to comply with the restrictions in the agreements governing our indentures, or any agreement governing other indebtedness we could incur, may result in an event ofdefault under those agreements. Such default may allow the creditors to accelerate the related debt, which acceleration may trigger cross-acceleration or cross-default provisions inother debt. If any of these risks were to occur, our business and operations could be materially and adversely affected.The Certificates of Designation provide the holders of our preferred stock with consent and voting rights with respect to certain of the matters referred to above, in addition tocertain corporate governance rights. These restrictions may interfere with our ability to obtain financings or to engage in other business activities, which could have a materialadverse effect on our business and operations.We have significant indebtedness and other financing arrangements and could incur additional indebtedness and other obligations, which could adversely affect ourbusiness and financial condition.We have a significant amount of indebtedness and outstanding shares of preferred stock. As of December 31, 2018, our total outstanding indebtedness was $743.9 million and theaccrued value of our outstanding preferred stock was $26.7 million inclusive of shares held by our Insurance Company which are eliminated in consolidation. We may not generateenough cash flow to satisfy our obligations under such indebtedness and other arrangements. This significant amount of indebtedness poses risks such as risk of inability to repaysuch indebtedness, as well as:•increased vulnerability to general adverse economic and industry conditions;•higher interest expense if interest rates increase on our floating rate borrowings are not effective to mitigate the effects of these increases;•our Secured Notes are secured by substantially all of HC2’s assets and those of certain of HC2’s subsidiaries that have guaranteed the Secured Notes, including certainequity interests in our other subsidiaries and other investments, as well as certain intellectual property and trademarks, and those assets cannot be pledged to secure otherfinancings;•certain assets of our subsidiaries are pledged to secure their indebtedness, and those assets cannot be pledged to secure other financings;•our having to divert a significant portion of our cash flow from operations to payments on our indebtedness and other arrangements, thereby reducing the availability ofcash to fund working capital, capital expenditures, acquisitions, investments and other general corporate purposes;•limiting our ability to obtain additional financing, on terms we find acceptable, if needed, for working capital, capital expenditures, expansion plans and other investments,which may limit our ability to implement our business strategy;•limiting our flexibility in planning for, or reacting to, changes in our businesses and the markets in which we operate or to take advantage of market opportunities; and•placing us at a competitive disadvantage compared to our competitors that have less debt and fewer other outstanding obligations.In addition, it is possible that we may need to incur additional indebtedness or enter into additional financing arrangements in the future in the ordinary course of business. Theterms of the Secured Indenture and our subsidiaries’ other financing arrangements allow us to incur additional debt and issue additional shares of preferred stock, subject to certainlimitations. If additional indebtedness is incurred or equity is issued, the risks described above could intensify. In addition, our inability to maintain certain leverage ratios couldresult in acceleration of a portion of our debt obligations and could cause us to be in default if we are unable to repay the accelerated obligations.We have experienced significant historical, and may experience significant future, operating losses and net losses, which may hinder our ability to meet working capitalrequirements or service our indebtedness, and we cannot assure you that we will generate sufficient cash flow from operations to meet such requirements or service ourindebtedness.We cannot assure you that we will recognize net income in future periods. If we cannot generate net income or sufficient operating profitability, we may not be able to meet ourworking capital requirements or service our indebtedness. Our ability to generate sufficient cash for our operations will depend upon, among other things, the future financial andoperating performance of our operating business, which will be affected by prevailing economic and related industry conditions and financial, business, regulatory and other factors,many of which are beyond our control. We recognized net income attributable to HC2 of $155.6 million in 2018, net loss of $49.7 million in 2017, net loss of $105.4 million in2016, and have incurred net losses in prior periods. Our net income in 2018 resulted from a bargain purchase gain, gains on the recapture of certain reinsurance treaties along withthe sale of BeneVir.We cannot assure you that our business will generate cash flow from operations in an amount sufficient to fund our liquidity needs. If our cash flows and capital resources areinsufficient, we may be forced to reduce or delay capital expenditures, sell assets and/or seek additional capital or financings. Our ability to obtain future financings will depend onthe condition of the capital markets and our financial condition at such time. Any financings could be at high interest rates and may require us to comply with covenants in additionto, or more restrictive than, covenants in our current financing documents, which could further restrict our business operations. In the absence of such operating results andresources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our obligations. We may not be able to consummatethose dispositions for fair market value or at all. Furthermore, any proceeds that we could realize from any such disposition may not be adequate to meet our obligations. Werecognized cash flows from operating activities of $341.4 million in 2018, $6.6 million in 2017, and $79.1 million in 2016.26We are dependent on certain key personnel, the loss of which may adversely affect our financial condition or results of operations.HC2 and its operating subsidiaries depend, and will continue to depend in the foreseeable future, on the services of HC2’s and our operating subsidiary teams, in particular, ourChief Executive Officer, Philip Falcone, and other key personnel, which may consist of a relatively small number of individuals that possess sales, marketing, engineering, financial,technical and other skills that are critical to the operation of our businesses. The executive management teams that lead our subsidiaries are also highly experienced and possessextensive skills in their relevant industries. The ability to retain key personnel is important to our success and future growth. Competition for these professionals can be intense, andwe may not be able to retain and motivate our existing officers and senior employees, and continue to compensate such individuals competitively. The unexpected loss of theservices of one or more of these individuals could have a detrimental effect on the financial condition or results of operations of our businesses, and could hinder the ability of suchbusinesses to effectively compete in the various industries in which we operate.We and our subsidiaries may not be able to attract and/or retain additional skilled personnel.We may not be able to attract new personnel, including management and technical and sales personnel, necessary for future growth, or replace lost personnel. In particular, theactivities of some of our operating subsidiaries, such as GMSL and CGI require personnel with highly specialized skills. Competition for the best personnel in our businesses canbe intense. Our financial condition and results of operations could be materially adversely affected if we are unable to attract and/or retain qualified personnel.We may identify material weaknesses in our internal control over financial reporting which could adversely affect our ability to report our financial condition and results ofoperations in a timely and accurate manner.A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a materialmisstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As of December 31, 2018 and 2017, management concluded that ourinternal control over financial reporting was effective.In future periods, if the process required by Section 404 of the Sarbanes-Oxley Act of 2002, (the "Sarbanes-Oxley Act") reveals or we otherwise identify one or more materialweaknesses or significant deficiencies, the correction of any such material weakness or significant deficiency could require additional remedial measures including additionalpersonnel which could be costly and time-consuming. If a material weakness exists as of a future period year-end (including a material weakness identified prior to year-end forwhich there is an insufficient period of time to evaluate and confirm the effectiveness of the corrections or related new procedures), our management will be unable to reportfavorably as of such future period year-end to the effectiveness of our control over financial reporting. If we are unable to assert that our internal control over financial reporting iseffective in any future period, we could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the trading price ofour common stock and potentially subject us to additional and potentially costly litigation and governmental inquiries/investigations.Fluctuations in the exchange rate of the U.S. dollar and in foreign currencies may adversely impact our results of operations and financial condition.We conduct various operations outside the United States, primarily in the United Kingdom. As a result, we face exposure to movements in currency exchange rates. Theseexposures include but are not limited to:•re-measurement gains and losses from changes in the value of foreign denominated assets and liabilities;•translation gains and losses on foreign subsidiary financial results that are translated into U.S. dollars, our functional currency, upon consolidation; and•planning risk related to changes in exchange rates between the time we prepare our annual and quarterly forecasts and when actual results occur.We face risks related to the impact on foreign trade agreements and relations from the current administration.Recent changes in the United States federal government have caused uncertainty about the future of trade partnerships and treaties, such as the North American Free TradeAgreement ("NAFTA") and the World Trade Organization. The current administration has formally withdrawn the United States from the Trans Pacific Partnership Agreement("TPPA"). President Trump has also threatened to withdraw the United States from the World Trade Organization, which, if it occurred, could affect tariff rates and other tradeterms between the U.S. and its trading partners as well as possibly have material consequences for the global trading system. The current administration has also initiatednegotiations with Canada and Mexico aimed at re-negotiating the North American Free Trade Agreement ("NAFTA"). The U.S., Mexico, and Canada have reached a preliminaryU.S.-Mexico-Canada Agreement ("USMCA") which would replace NAFTA. The USMCA maintains duty-free access for most products and leaves most key provisions of theNAFTA agreement largely intact. The USMCA still requires approval by the U.S. Congress, by Mexico’s National Assembly, and by Canada’s Parliament before it enters intoforce. In addition, the USMCA is still undergoing a legal review and, this could result in follow-up negotiations which could lead to modifications of certain provisions. It isuncertain what the outcome of the Congressional approval process, legal review, and any follow-up negotiations will be, but it is possible that revisions to NATFA or failure tosecure Congressional approval could adversely affect the Company’s existing production operations in Mexico and the current and future levels of sales and earnings of theCompany in all three countries. Furthermore, the current administration has threatened tougher trade terms with China and other countries . The U.S. Administration’s assertivetrade policies could result in further conflicts with U.S. trading partners, affecting27the Company’s supply chains, sourcing, and markets. Foreign countries may impose additional burdens on U.S. companies through the use of local regulations, tariffs or otherrequirements which could increase our operating costs in those foreign jurisdictions. It remains unclear what additional actions, if any, the current administration will take. If theUnited States were to materially modify NAFTA or other international trade agreements to which it is a party, or if tariffs were raised on the foreign-sourced goods that we sell,such goods may no longer be available at a commercially attractive price, which in turn could have a material adverse effect on our business, financial condition and results ofoperations.Because we face significant competition for acquisition and business opportunities, including from numerous companies with a business plan similar to ours, it may bedifficult for us to fully execute our business strategy. Additionally, our subsidiaries also operate in highly competitive industries, limiting their ability to gain or maintain theirpositions in their respective industries.We expect to encounter intense competition for acquisition and business opportunities from both strategic investors and other entities having a business objective similar to ours,such as private investors (which may be individuals or investment partnerships), blank check companies, and other entities, domestic and international, competing for the type ofbusinesses that we may acquire. Many of these competitors possess greater technical, human and other resources, or more local industry knowledge, or greater access to capital,than we do, and our financial resources may be relatively limited when contrasted with those of many of these competitors. These factors may place us at a competitive disadvantagein successfully completing future acquisitions and investments.In addition, while we believe that there are numerous target businesses that we could potentially acquire or invest in, our ability to compete with respect to the acquisition of certaintarget businesses that are sizable will be limited by our available financial resources. We may need to obtain additional financing in order to consummate future acquisitions andinvestment opportunities and cannot assure you that any additional financing will be available to us on acceptable terms, or at all, or that the terms of our existing financingarrangements will not limit our ability to do so. This inherent competitive limitation gives others an advantage in pursuing acquisition and investment opportunities.Furthermore, our subsidiaries also face competition from both traditional and new market entrants that may adversely affect them as well, as discussed below in the risk factorsrelated to DBMG, GMSL, ANG, ICS, the Insurance Company, and HC2 Broadcasting.Future acquisitions or business opportunities could involve unknown risks that could harm our business and adversely affect our financial condition and results ofoperations.We are a diversified holding company that owns interests in a number of different businesses. We have in the past, and intend in the future, to acquire businesses or makeinvestments, directly or indirectly through our subsidiaries, that involve unknown risks, some of which will be particular to the industry in which the investment or acquisitiontargets operate, including risks in industries with which we are not familiar or experienced. There can be no assurance our due diligence investigations will identify every matter thatcould have a material adverse effect on us or the entities that we may acquire. We may be unable to adequately address the financial, legal and operational risks raised by suchinvestments or acquisitions, especially if we are unfamiliar with the relevant industry, which can lead to significant losses on material investments. The realization of any unknownrisks could expose us to unanticipated costs and liabilities and prevent or limit us from realizing the projected benefits of the investments or acquisitions, which could adverselyaffect our financial condition and liquidity. In addition, our financial condition, results of operations and the ability to service our debt may be adversely impacted depending on thespecific risks applicable to any business we invest in or acquire and our ability to address those risks.We rely on information systems to conduct our businesses, and failure to protect these systems against security breaches and otherwise to implement, integrate, upgrade andmaintain such systems in working order could have a material adverse effect on our results of operations, cash flows or financial condition.The efficient operation of our businesses is dependent on computer hardware and software systems. For instance, HC2 and its subsidiaries rely on information systems to processcustomer orders, manage inventory and accounts receivable collections, purchase products, manage accounts payable processes, track costs and operations, maintain clientrelationships and accumulate financial results. Information technology security threats - from user error to cybersecurity attacks designed to gain unauthorized access to our systems,networks and data - are increasing in frequency and sophistication. Cybersecurity attacks may range from random attempts to coordinated and targeted attacks, includingsophisticated computer crime and advanced persistent threats. Cybersecurity attacks could also include attacks targeting sensitive data or the security, integrity and/or reliability ofthe hardware and software installed in products we use. We treat such cybersecurity risks seriously given these threats pose a risk to the security of our systems and networks andthe confidentiality, availability and integrity of our data. We devote resources to maintain and regularly update our systems and processes that are designed to protect the security ofour computer systems, software, networks and other technology assets against attempts by unauthorized parties to obtain access to confidential information, destroy data, disrupt ordegrade service, sabotage systems or cause other damage, and we have implemented certain review and approval procedures internally and with our banks; and have implementedsystem-wide changes. Despite our implementation of industry-accepted security measures and technology, our information systems are vulnerable to and have been in the pastsubject to computer viruses, malicious codes, unauthorized access, phishing efforts, denial-of-service attacks and other cyber attacks and we expect to be subject to similar attacks inthe future as such attacks become more sophisticated and frequent. Although to date, such attacks have not had a material impact on our financial condition, results of operations orliquidity, there28can be no assurance that our cyber-security measures and technology will adequately protect us from these and other risks, including internal and external risks such as naturaldisasters and power outages and internal risks such as insecure coding and human error. Attacks perpetrated against our information systems could result in loss of assets andcritical information, theft of intellectual property or inappropriate disclosure of confidential information and could expose us to remediation costs and reputational damage. Inaddition, the unexpected or sustained unavailability of the information systems or the failure of these systems to perform as anticipated for any reason, including cyber-securityattacks and other intentional hacking, could subject us to legal claims if there is loss, disclosure or misappropriation of or access to our customers’ information and could result inservice interruptions, safety failures, security violations, regulatory compliance failures, an inability to protect information and assets against intruders, sensitive data being lost ormanipulated and could otherwise disrupt our businesses and result in decreased performance, operational difficulties and increased costs, any of which could adversely affect ourbusiness, results of operations, financial condition or liquidity.We intend to increase our operational size in the future, and may experience difficulties in managing growth.We have adopted a business strategy that contemplates that we will expand our operations, including future acquisitions or other business opportunities, and as a result, we arerequired to increase our level of corporate functions, which may include hiring additional personnel to perform such functions and enhancing our information technology systems.Any future growth may increase our corporate operating costs and expenses and impose significant added responsibilities on members of our management, including the need toidentify, recruit, maintain and integrate additional employees and implement enhanced informational technology systems. Our future financial performance and our ability to competeeffectively will depend, in part, on our ability to manage any future growth effectively.We may not be able to fully utilize our net operating loss and other tax carryforwards.Our ability to utilize our NOL and other tax carryforward amounts to reduce taxable income in future years may be limited for various reasons. As a result of the enactment of theTCJA (as defined below), the deduction for NOLs arising in tax years after December 31, 2017, will be limited to 80% of taxable income, although they can be carried forwardindefinitely. NOLs that arose prior to the years beginning January 1, 2018 are still subject to the same carryforward periods. In addition, our ability to fully utilize these U.S. taxassets can be adversely affected by "ownership changes" within the meaning of Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the "Code"). Anownership change is generally defined as a greater than a 50 percentage point increase in equity ownership by "5% shareholders" (as that term is defined for purposes of Sections382 and 383 of the Code) in any three-year period.In 2014, substantial acquisitions of our common stock were reported by new beneficial owners on Schedule 13D filings made with the SEC, and we issued shares of our preferredstock, which are convertible into a substantial number of shares of our common stock. During the second quarter of 2014, we completed a Section 382 review. The conclusions ofthis review indicated that an ownership change had occurred as of May 29, 2014.As a result of our common stock offering in November 2015 and our purchase of GrayWolf in November 2018, we triggered additional ownership changes, imposing additionallimitations on the use of our NOL carryforward amounts. The ownership changes may impact the timing of our ability to use these losses. There can be no assurance that futureownership changes would not further negatively impact our NOL carryforward amounts because any future annual Section 382 limitation will ultimately depend on the value of ourequity as determined for these purposes and the amount of unrealized gains immediately prior to such ownership change.We have restated certain of our financial statements in the past and may be required to do so in the future, which may lead to additional risks and uncertainties, includingstockholder litigation and loss of investor confidence.The preparation of financial statements in accordance with GAAP involves making estimates, judgments, interpretations and assumptions that affect reported amounts of assets,liabilities, revenues, expenses and income. These estimates, judgments, interpretations and assumptions are often inherently imprecise or uncertain, and any necessary revisions toprior estimates, judgments, interpretations or assumptions could lead to a restatement of our financial statements. For example, in March 2016, we restated certain of our historicalfinancial statements. Any such restatement or correction may be highly time consuming, may require substantial attention from management and significant accounting costs, mayresult in adverse regulatory actions by the SEC or NYSE, may result in stockholder litigation, may cause us to fail to meet our reporting obligations, and may cause investors to loseconfidence in our reported financial information, leading to a decline in our stock price.Our officers, directors, stockholders and their respective affiliates may have a pecuniary interest in certain transactions in which we are involved, and may also compete withus.While we have adopted a code of ethics applicable to our officers and directors reasonably designed to promote the ethical handling of actual or apparent conflicts of interestbetween personal and professional relationships, we have neither adopted a policy that expressly prohibits our directors, officers, stockholders or affiliates from having a direct orindirect pecuniary interest in any transaction to which we are a party or in which we have an interest nor do we have a policy that expressly prohibits any such persons fromengaging for their own account in business activities of the types conducted by us. We have in the past engaged in transactions in which such persons have an interest and, subjectto the terms of any applicable covenants in financing arrangements or other agreements we may enter into from time to time, may in the future enter into additional transactions inwhich such persons have an interest. In addition, such parties may have an interest in certain transactions such as strategic partnerships or joint ventures in which we are involved,and may also compete with us.29In the course of their other business activities, certain of our current and future directors and officers may become aware of business and acquisition opportunities that maybe appropriate for presentation to us as well as the other entities with which they are affiliated. Such directors and officers are not required to and may therefore not presentotherwise attractive business or acquisition opportunities to us.Certain of our current and future directors and officers may become aware of business and acquisition opportunities which may be appropriate for presentation to us as well as theother entities with which they are or may be affiliated. Due to those directors’ and officers’ affiliations with other entities, they may have obligations to present potential businessand acquisition opportunities to those entities, which could cause conflicts of interest. Moreover, as permitted by Delaware law, our Certificate of Incorporation contains a provisionthat renounces our expectation to certain corporate opportunities that are presented to our current and future directors that serve in capacities with other entities. Accordingly, ourdirectors and officers may not present otherwise attractive business or acquisition opportunities to us of which they may become aware.We may suffer adverse consequences if we are deemed an investment company and we may incur significant costs to avoid investment company status.We believe we are not an investment company as defined by the Investment Company Act of 1940, and have operated our business in accordance with such view. If the SEC or acourt were to disagree with us, we could be required to register as an investment company. This would subject us to disclosure and accounting rules geared toward investment,rather than operating, companies; limit our ability to borrow money, issue options, issue multiple classes of stock and debt, and engage in transactions with affiliates; and require usto undertake significant costs and expenses to meet the disclosure and other regulatory requirements to which we would be subject as a registered investment company.We are subject to litigation in respect of which we are unable to accurately assess our level of exposure and which, if adversely determined, may have a material adverse effecton our financial condition and results of operations.We are currently, and may become in the future, party to legal proceedings that are considered to be either ordinary or routine litigation incidental to our current or prior businessesor not material to our financial position or results of operations. We also are currently, or may become in the future, party to legal proceedings with the potential to be material to ourfinancial position or results of operations. There can be no assurance that we will prevail in any litigation in which we may become involved, or that our insurance coverage will beadequate to cover any potential losses. To the extent that we sustain losses from any pending litigation which are not reserved or otherwise provided for or insured against, ourbusiness, results of operations, cash flows and/or financial condition could be materially adversely affected. See Item 3, "Legal Proceedings."Deterioration of global economic conditions could adversely affect our business.The global economy and capital and credit markets have experienced exceptional turmoil and upheaval over the past several years. Many major economies worldwide enteredsignificant economic recessions in recent times and continue to experience economic weakness, with the potential for another economic downturn to occur. Ongoing concerns aboutthe systemic impact of potential long-term and widespread recession and potentially prolonged economic recovery, volatile energy costs, fluctuating commodity prices and interestrates, volatile exchange rates, geopolitical issues, the availability, instability in credit markets, cost and terms of credit, consumer and business confidence and demand, a changingfinancial, regulatory and political environment, and substantially increased unemployment rates have all contributed to increased market volatility and diminished expectations formany established and emerging economies, including those in which we operate. Furthermore, austerity measures that certain countries may agree to as part of any debt crisis ordisruptions to major financial trading markets may adversely affect world economic conditions and have an adverse impact on our business. These general economic conditionscould have a material adverse effect on our cash flow from operations, results of operations and overall financial condition.The availability, cost and terms of credit also have been and may continue to be adversely affected by illiquid markets and wider credit spreads. Concern about the stability of themarkets generally, and the strength of counterparties specifically, has led many lenders and institutional investors to reduce credit to businesses and consumers. These factors haveled to a decrease in spending by businesses and consumers over the past several years, and a corresponding slowdown in global infrastructure spending.Continued uncertainty in the U.S. and international markets and economies and prolonged stagnation in business and consumer spending may adversely affect our liquidity andfinancial condition, and the liquidity and financial condition of our customers, including our ability to access capital markets and obtain capital lease financing to meet liquidityneeds.We are subject to risks associated with our international operations.We operate in international markets, and may in the future consummate additional investments in or acquisitions of foreign businesses. Our international operations are subject to anumber of risks, including:•political conditions and events, including embargo;•changing regulatory environments, including as a result of Brexit;•restrictive actions by U.S. and foreign governments;•the imposition of withholding or other taxes on foreign income, tariffs or restrictions on foreign trade and investment;•adverse tax consequences;•limitations on repatriation of earnings and cash;•currency exchange controls and import/export quotas;30•nationalization, expropriation, asset seizure, blockades and blacklisting;•limitations in the availability, amount or terms of insurance coverage;•loss of contract rights and inability to adequately enforce contracts;•political instability, war and civil disturbances or other risks that may limit or disrupt markets, such as terrorist attacks, piracy and kidnapping;•outbreaks of pandemic diseases or fear of such outbreaks;•fluctuations in currency exchange rates, hard currency shortages and controls on currency exchange that affect demand for our services and our profitability;•potential noncompliance with a wide variety of anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act of 1977 (the "FCPA"), and similarnon-U.S. laws and regulations, including the U.K. Bribery Act 2010 (the "Bribery Act");•labor strikes and shortages;•changes in general economic and political conditions;•adverse changes in foreign laws or regulatory requirements; and•different liability standards and legal systems that may be less developed and less predictable than those in the United States.If we are unable to adequately address these risks, we could lose our ability to operate in certain international markets and our business, financial condition or results of operationscould be materially adversely affected.The U.S. Departments of Justice, Commerce, Treasury and other agencies and authorities have a broad range of civil and criminal penalties they may seek to impose againstcompanies for violations of export controls, the FCPA, and other federal statutes, sanctions and regulations, including those established by the Office of Foreign Assets Control("OFAC") and, increasingly, similar or more restrictive foreign laws, rules and regulations. By virtue of these laws and regulations, and under laws and regulations in otherjurisdictions, including the European Union and the United Kingdom, we may be obliged to limit our business activities, we may incur costs for compliance programs and we maybe subject to enforcement actions or penalties for noncompliance.In recent years, U.S. and foreign governments have increased their oversight and enforcement activities with respect to these laws and we expect the relevant agencies to continue toincrease these activities. A violation of these laws, sanctions or regulations could materially adversely affect our business, financial condition or results of operations.The Company has compliance policies in place for its employees with respect to FCPA, OFAC, the Bribery Act and similar laws. Our operating subsidiaries also have relevantcompliance policies in place for their employees, which are tailored to their operations. However, there can be no assurance that our employees, consultants or agents, or those ofour subsidiaries or investees, will not engage in conduct for which we may be held responsible. Violations of the FCPA, the Bribery Act, the rules and regulations established byOFAC and other laws, sanctions or regulations may result in severe criminal or civil penalties, and we may be subject to other liabilities, which could materially adversely affect ourbusiness, financial condition or results of operations.Furthermore, significant developments stemming from the change in the U.S. Presidential Administration could have a material adverse effect on us. The U.S. PresidentialAdministration has expressed antipathy towards existing trade agreements, like NAFTA, and proposed restrictions on free trade generally and significant increases on tariffs ongoods imported into the United States, particularly from China. Further changes in U.S. social, political, regulatory and economic conditions or in laws and policies governingforeign trade, manufacturing, development and investment in the territories and countries where we currently develop and sell products, and any negative sentiments towards theUnited States as a result of such changes, could adversely affect our business. In addition, negative sentiments towards the United States among non-U.S. customers and amongnon-U.S. employees or prospective employees could adversely affect sales or hiring and retention, respectively.Due to the fact that we have operations located within the United Kingdom (UK), our business and financial results may be negatively impacted as a result of the UK'splanned exit from the European Union (EU), resulting primarily from (a) continued depression in the value of the GBP as compared to the USD; and (b) potential priceincreases for supplies purchased by our UK businesses from companies located in the EU or elsewhere. These risks would be heightened in the event that the UK and theEU are unable to reach a mutually satisfactory exit agreement before the current deadline of March 29, 2019. Following the UK’s vote to leave the EU in 2016 (commonly referred to as Brexit), the value of the British pound ("GBP") incurred significant fluctuations. Additionally, furtheractions related to Brexit may occur in the future. If the value of the British Pound Sterling continues to incur similar fluctuations, unfavorable exchange rate changes may negativelyaffect the value of our operations and businesses located in the UK, as translated to our reporting currency, the USD, in accordance with US GAAP, which may impact the revenueand earnings we report. For more information with respect to Exchange Rate risk applicable to us, please see Part 2 Item 7A. "Market Risk Disclosures" elsewhere in this AnnualReport on Form 10-K. Continued fluctuations in the GBP may also result in the imposition of price adjustments by EU-based suppliers to our UK businesses, as those suppliersseek to compensate for the changes in value of the GBP as compared to the Euro. In addition, a so-called "Hard Brexit," where no formal agreement is made between the EU andUK prior to the UK’s exit, could result in a continued deflation of the British Pound Sterling; additional increases in prices, fees, taxes or tariffs applicable to goods that are boughtand sold between the UK and Europe, and a negative impact on end markets in the UK as a result of declines in consumer sentiment or decreased immigration rates into the UK.Any of these results could have a material adverse effect on the business, revenues and financial condition of our UK and European operations.31We may be required to expend substantial sums in order to bring the companies we have acquired or may acquire in the future, into compliance with the various reportingrequirements applicable to public companies and/or to prepare required financial statements, and such efforts may harm our operating results or be unsuccessful altogether.The "Sarbanes-Oxley Act requires our management to assess the effectiveness of the internal control over financial reporting for the companies we acquire and our external auditorto attest to, and report on the internal control over financial reporting, for these companies. In order to comply with the Sarbanes-Oxley Act, we will need to implement or enhanceinternal control over financial reporting at acquired companies and evaluate the internal controls. We do not conduct a formal evaluation of companies’ internal control over financialreporting prior to an acquisition. We may be required to hire additional staff and incur substantial costs to implement the necessary new internal controls at the companies weacquire. Any failure to implement required internal controls, or difficulties encountered in their implementation, could harm our operating results or increase the risk of materialweaknesses in internal controls, which could, if not remediated, adversely affect our ability to report our financial condition and results of operations in a timely and accuratemanner.We face certain risks associated with the acquisition or disposition of businesses and lack of control over certain of our investments.In pursuing our corporate strategy, we may acquire, dispose of or exit businesses or reorganize existing investments. The success of this strategy is dependent upon our ability toidentify appropriate opportunities, negotiate transactions on favorable terms and ultimately complete such transactions.In the course of our acquisitions, we may not acquire 100% ownership of certain of our operating subsidiaries or we may face delays in completing certain acquisitions, including inacquiring full ownership of certain of our operating companies. Once we complete acquisitions or reorganizations there can be no assurance that we will realize the anticipatedbenefits of any transaction, including revenue growth, operational efficiencies or expected synergies. If we fail to recognize some or all of the strategic benefits and synergiesexpected from a transaction, goodwill and intangible assets may be impaired in future periods. The negotiations associated with the acquisition and disposition of businesses couldalso disrupt our ongoing business, distract management and employees or increase our expenses.In addition, we may not be able to integrate acquisitions successfully and we could incur or assume unknown or unanticipated liabilities or contingencies, which may impact ourresults of operations. If we dispose of or otherwise exit certain businesses, there can be no assurance that we will not incur certain disposition related charges, or that we will be ableto reduce overhead related to the divested assets.In the ordinary course of our business, we evaluate the potential disposition of assets and businesses that may no longer help us meet our objectives or that no longer fit with ourbroader strategy. When we decide to sell assets or a business, we may encounter difficulty in finding buyers or alternative exit strategies on acceptable terms in a timely manner,which could delay the accomplishment of our strategic objectives, or we may dispose of a business at a price or on terms which are less than we had anticipated. In addition, there isa risk that we sell a business whose subsequent performance exceeds our expectations, in which case our decision would have potentially sacrificed enterprise value.In addition to the risks described above, acquisitions are accompanied by a number of inherent risks, including, without limitation, the following:•the difficulty of integrating acquired products, services or operations;•difficulties in maintaining uniform standards, controls, procedures and policies;•the potential impairment of relationships with employees and customers as a result of any integration of new management personnel;•difficulties in disposing of the excess or idle facilities of an acquired company or business and expenses in maintaining such facilities; and•the effect of and potential expenses under the labor, environmental and other laws and regulations of various jurisdictions to which the business acquired is subject.We also own a minority interest in a number of entities, such as MediBeacon and Triple Ring Technologies, Inc., over which we do not exercise, or have only limited, managementcontrol and we are therefore unable to direct or manage the business to realize the anticipated benefits that we can achieve through full integration.We have incurred substantial costs in connection with our prior acquisitions and expect to incur substantial costs in connection with any other transaction we complete inthe future, which may increase our indebtedness or reduce the amount of our available cash and could adversely affect our financial condition, results of operations andliquidity.We have incurred substantial costs in connection with our prior acquisitions and expect to incur substantial costs in connection with any other transactions we complete in the future.These costs may increase our indebtedness or reduce the amount of cash otherwise available to us for acquisitions, business opportunities and other corporate purposes. There is noassurance that the actual costs associated with any such acquisitions will not exceed our estimates. Once an acquisition is consummated, we may continue to incur additional materialcharges reflecting additional costs associated with our investments and the integration of HC2 and our subsidiaries' acquisitions in fiscal quarters subsequent to the quarter in whichsuch investments and acquisitions were consummated.32Our development stage companies may never produce revenues or income.We have made investments in and own a majority stake in a number of development stage companies, primarily in our Life Sciences segment. Each of these companies is at an earlystage of development and is subject to all business risks associated with a new enterprise, including constraints on their financial and personnel resources, lack of established credit,the need to establish meaningful and beneficial vendor and customer relationships and uncertainties regarding product development and future revenues. We anticipate that many ofthese companies will continue to incur substantial additional operating losses for at least the next several years and expect their losses to increase as research and developmentefforts expand. There can be no assurance as to when or whether any of these companies will be able to develop significant sources of revenue or that any of their respectiveoperations will become profitable, even if any of them is able to commercialize any products. As a result, we may not realize any returns on our investments in these companies,which could adversely affect our business, results of operations, financial condition or liquidity.We could consume resources in researching acquisitions, business opportunities or financings and capital market transactions that are not consummated, which couldmaterially adversely affect subsequent attempts to locate and acquire or invest in another business.We anticipate that the investigation of each specific acquisition or business opportunity and the negotiation, drafting and execution of relevant agreements, disclosure documents andother instruments with respect to such transaction will require substantial management time and attention and substantial costs for financial advisors, accountants, attorneys andother advisors. If a decision is made not to consummate a specific acquisition, business opportunity or financing and capital market transaction, the costs incurred up to that point forthe proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific acquisition, investment target or financing, we may failto consummate the investment or acquisition for any number of reasons, including those beyond our control. Any such event could consume significant management time and resultin a loss to us of the related costs incurred, which could adversely affect our financial position and our ability to consummate other acquisitions and investments.There may be tax consequences associated with our acquisition, investment, holding and disposition of target companies and assets.We may incur significant taxes in connection with effecting acquisitions of, or investments in, holding, receiving payments from, operating or disposing of target companies andassets. Our decision to make a particular acquisition, sell a particular asset or increase or decrease a particular investment may be based on considerations other than the timing andamount of taxes owed as a result thereof. We remain liable for certain tax obligations of certain disposed companies, and we may be required to make material payments inconnection therewith.Our participation in current or any future joint investment could be adversely affected by our lack of sole decision-making authority, our reliance on a partner’s financialcondition and disputes between us and the relevant partners.We have, indirectly through our subsidiaries, formed joint ventures, and may in the future engage in similar joint ventures with third parties. For example, GMSL operates variousjoint ventures outside of the United States. In such circumstances, we may not be in a position to exercise significant decision-making authority if we do not own a substantialmajority of the equity interests of such joint venture or otherwise have contractual rights entitling us to exercise such authority. These ventures may involve risks not present were athird party not involved, including the possibility that partners might become insolvent or fail to fund their share of required capital contributions. In addition, partners may haveeconomic or other business interests or goals that are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives.Disputes between us and partners may result in litigation or arbitration that would increase our costs and expenses and divert a substantial amount of management’s time and effortaway from our businesses. We may also, in certain circumstances, be liable for the actions of our third-party partners which could have a material adverse effect on us.We and our subsidiaries rely on trademark, copyright, trade secret, contractual restrictions and patent rights to protect our intellectual property and proprietary rights and ifthese rights are impaired, then our ability to generate revenue and our competitive position may be harmed.If we fail to protect our intellectual property rights adequately, our competitors might gain access to our technology, and our business might be harmed. In addition, defending ourintellectual property rights might entail significant expense. Any of our trademarks or other intellectual property rights may be challenged by others or invalidated throughadministrative process or litigation. While we have some U.S. patents and pending U.S. patent applications, we may be unable to obtain patent protection for the technology coveredin our patent applications. In addition, our existing patents and any patents issued in the future may not provide us with competitive advantages, or may be successfully challengedby third parties. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Effective patent, trademark,copyright and trade secret protection may not be available to us in every country in which we operate. The laws of some foreign countries may not be as protective of intellectualproperty rights as those in the U.S., and mechanisms for enforcement of intellectual property rights may be inadequate. Accordingly, despite our efforts, we may be unable toprevent third parties from infringing upon or misappropriating our intellectual property. In addition, some of our operating subsidiaries may use trademarks which have not beenregistered and may be more difficult to protect.We might be required to spend significant resources to monitor and protect our intellectual property rights. We may initiate claims or litigation against third parties for infringementof our proprietary rights or to establish the validity of our proprietary rights. Any litigation, whether or not it is resolved in our favor, could result in significant expense to us anddivert the efforts of our technical and management personnel.33We may issue additional shares of common stock or preferred stock, which could dilute the interests of our stockholders and present other risks.Our certificate of incorporation, as amended (the "Certificate of Incorporation"), authorizes the issuance of up to 80,000,000 shares of common stock and 20,000,000 shares ofpreferred stock.As of December 31, 2017, HC2 has 45,391,397 issued and 44,907,818 outstanding shares of its common stock, and 26,500 shares of preferred stock issued and outstandinginclusive of shares held by our Insurance Company which are eliminated in consolidation. However, the Certificate of Incorporation authorizes our board of directors (the "HC2Board of Directors"), from time to time, subject to limitations prescribed by law and any consent rights granted to holders of outstanding shares of preferred stock, to issueadditional shares of preferred stock having rights that are senior to those afforded to the holders of our common stock. We also have reserved shares of common stock for issuancepursuant to our broad-based equity incentive plans, upon exercise of stock options and other equity-based awards granted thereunder, and pursuant to other equity compensationarrangements.We may issue shares of common stock or additional shares of preferred stock to raise additional capital, to complete a business combination or other acquisition, to capitalize newbusinesses or new or existing businesses of our operating subsidiaries or pursuant to other employee incentive plans, any of which could dilute the interests of our stockholders andpresent other risks.The issuance of additional shares of common stock or preferred stock may, among other things:•significantly dilute the equity interest and voting power of all other stockholders;•subordinate the rights of holders of our outstanding common stock and/or preferred stock if preferred stock is issued with rights senior to those afforded to holders of ourcommon stock and/or preferred stock;•trigger an adjustment to the price at which all or a portion of our outstanding preferred stock converts into our common stock, if such stock is issued at a price lower thanthe then-applicable conversion price;•entitle our existing holders of preferred stock to purchase a portion of such issuance to maintain their ownership percentage, subject to certain exceptions;•call for us to make dividend or other payments not available to the holders of our common stock; and•cause a change in control of our company if a substantial number of shares of our common stock are issued and/or if additional shares of preferred stock havingsubstantial voting rights are issued.The issuance of additional shares of common stock or preferred stock, or perceptions in the market that such issuances could occur, may also adversely affect the prevailing marketprice of our outstanding common stock and impair our ability to raise capital through the sale of additional equity securities.Conversion of the Convertible Notes will dilute the ownership interest of existing stockholders, including holders who had previously converted their Convertible Notes, ormay otherwise depress the market price of our common stock. The conversion of some or all of HC2's Convertible Notes will dilute the ownership interests of existing stockholders. Any sales in the public market of the shares of our commonstock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Convertible Notes may encourage shortselling by market participants because the conversion of the notes could be used to satisfy short positions, or anticipated conversion of the notes into shares of our common stockcould depress the market price of our common stock.Future sales of substantial amounts of our common stock by holders of our preferred stock or other significant stockholders may adversely affect the market price of ourcommon stock.As of December 31, 2018, the holders of our outstanding preferred stock had certain rights to convert their Preferred Stock into approximately 3.5 million shares of our commonstock, excluding shares owned by our Insurance Company, which are eliminated in consolidation.Pursuant to a second amended and restated registration rights agreement, dated January 5, 2015, entered into in connection with the issuance of the preferred stock (the "RegistrationRights Agreement"), we have granted registration rights to the purchasers of our preferred stock and certain of their transferees with respect to HC2 common stock held by themand common stock underlying the preferred stock. This Registration Rights Agreement allows these holders, subject to certain conditions, to require us to register the sale of theirshares under the federal securities laws. Furthermore, the shares of our common stock held by these holders, as well as other significant stockholders, may be sold into the publicmarket under Rule 144 of the Securities Act of 1933, as amended.Future sales of substantial amounts of our common stock into the public market whether by holders of the preferred stock, by other holders of substantial amounts of our commonstock or by us, or perceptions in the market that such sales could occur, may adversely affect the prevailing market price of our common stock and impair our ability to raise capitalthrough the sale of additional equity securities.34Price fluctuations in our common stock could result from general market and economic conditions and a variety of other factors.The trading price of our common stock may be highly volatile and could be subject to fluctuations in response to a number of factors beyond our control, including:•actual or anticipated fluctuations in our results of operations and the performance of our competitors;•reaction of the market to our announcement of any future acquisitions or investments;•the public’s reaction to our press releases, our other public announcements and our filings with the SEC;•changes in general economic conditions; and•actions of our equity investors, including sales of our common stock by significant stockholders.Delaware law and our charter documents contain provisions that could discourage or prevent a potential takeover, even if such a transaction would be beneficial to ourstockholders.Some provisions of our certificate of incorporation and bylaws, as well as provisions of Delaware law, may discourage, delay or prevent a merger or acquisition that a stockholdermay consider favorable. These include provisions:•authorizing a board of directors to issue preferred stock; •prohibiting cumulative voting in the election of directors; •limiting the persons who may call special meetings of stockholders; •prohibiting stockholder actions by written consent; •creating a classified board of directors pursuant to which our directors are elected for staggered three-year terms;•permitting the board of directors to increase the size of the board and to fill vacancies;•requiring a super-majority vote of our stockholders to amend our bylaws and certain provisions of our certificate of incorporation; and •establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholdermeetings.We are subject to the provisions of Section 203 of the Delaware General Corporation Law which limit the right of a corporation to engage in a business combination with a holderof 15 percent or more of the corporation’s outstanding voting securities, or certain affiliated persons. We do not currently have a stockholder rights plan in place. Although we believe that these charter and bylaw provisions, and provisions of Delaware law, provide an opportunity for the board to assure that our stockholders realize full valuefor their investment, they could have the effect of delaying or preventing a change of control, even under circumstances that some stockholders may consider beneficial.Risks Related to American Natural GasThe adoption, modification or repeal in environmental, tax, government regulations, and other programs and incentives that encourage the use of clean fuel and alternativevehicles, may impact our business.Programs and regulations that have the effect of encouraging the use of CNG as a vehicle fuel are subject to change, and could expire or be repealed or amended as a result ofchanges in federal, state or local political, social or economic conditions. In particular, the AFETC provided a tax credit worth $0.50 per gasoline gallon equivalent of compressednatural gas, or diesel gallon equivalent of liquefied natural gas, which our subsidiary ANG claimed for a portion of its fuel sales each year. The AFETC tax credit has been used asan incentive for fleet operators to adopt natural gas vehicles, as it helped offset the incremental cost of a natural gas vehicle versus a similar gas- or diesel-powered version. Thetermination, modification or repeal of federal, state and local government tax credits, rebates, grants and similar programs and incentives that promote the use of CNG as a vehiclefuel and various government programs that make available grant funds for the purchase and construction of natural gas vehicles and stations may have an adverse impact on ourbusiness. As of the date of this filing, the U.S. Congress did pass its omnibus budget for 2019, however, the AFETC has yet to be approved for 2018 and 2019.Demand for natural gas vehicles may decline with advances in other alternative technologies and fuels, or with improvements in gasoline, diesel or hybrid engines. The market for CNG vehicles may diminish with technological advances in gasoline, diesel or other alternative fuels that may be considered more cost-effective or otherwise moreadvantageous than CNG. Operators may perceive an inability to timely recover the additional costs of natural gas vehicles if CNG fuel is not offered at a lower price than gasolineand diesel. In addition, the adoption of CNG as a fuel for vehicle may be slowed or limited if the low prices and over-supply of gasoline and diesel continue or deteriorate further orif natural gas prices increases without corresponding increases in prices of gasoline and diesel. Advances or improvements in fuel efficiency also may offer more economical choiceand deter consumers to convert their vehicles to natural gas. Growth in the use of electric commercial vehicles likewise may reduce demand for natural gas vehicles and renewablediesel, hydrogen and other alternative fuels may prove to be more economical alternatives to gasoline and diesel than natural gas, which could have an adverse impact on ourbusiness.35If there are advances in other alternative vehicle fuels or technologies, or if there are improvements in gasoline, diesel or hybrid engines, demand for natural gas vehiclesmay decline. Technological advances in the production, delivery and use of gasoline, diesel or other alternative fuels that are, or are perceived to be, cleaner, more cost-effective, more readilyavailable or otherwise more attractive than CNG, may slow or limit adoption of natural gas vehicles. For example, advances in gasoline and diesel engine technology, includingefficiency improvements and further development of hybrid engines, may offer a cleaner, more cost-effective option and make fleet customers less likely to convert their vehicles tonatural gas. Additionally, technological advances related to ethanol or biodiesel, which are used as an additive to, or substitute for gasoline and diesel fuel, may slow the need todiversify fuels and affect the growth of the natural gas vehicle fuel market. Further, use of electric commercial vehicles, or the perception that such vehicles may soon be widely available and provide satisfactory performance at an acceptable cost, mayreduce demand for natural gas vehicles. In addition, renewable diesel, hydrogen and other alternative fuels may prove to be cleaner, more cost-effective alternatives to gasoline anddiesel than natural gas. Advances in technology that reduce demand for natural gas as a vehicle fuel or the failure of natural gas vehicle technology to advance at an equal pace couldslow or curtail the growth of natural gas vehicle purchases or conversions, which would have an adverse effect on our business.Increases, decreases and general volatility in oil, gasoline, diesel and natural gas prices could adversely affect our business. In recent years, the prices of oil, gasoline, diesel and natural gas have been volatile, and this volatility may continue. Additionally, prices for crude oil in recent years have been low,due in part to over-production and increased supply without a corresponding increase in demand. Market adoption of CNG (which can be delivered in the form of CNG) as vehiclefuels could be slowed or limited if the low prices and over-supply of gasoline and diesel, today’s most prevalent and conventional vehicle fuels, continue or worsen, or if the priceof natural gas increases without equal and corresponding increases in prices of gasoline and diesel. Any of these circumstances could decrease the market's perception of a need foralternative vehicle fuels generally and could cause the success or perceived success of our industry and our business to materially suffer. In addition, low gasoline and diesel pricescontribute to the differential between the cost of natural gas vehicles and gasoline or diesel-powered vehicles. Generally, natural gas vehicles cost more initially than gasoline ordiesel powered vehicles, as the components needed for a vehicle to use natural gas add to the vehicle’s base cost. Operators seek to recover the additional costs of acquiring orconverting to natural gas vehicles over time through the lower costs of fueling natural gas vehicles; however, operators may perceive an inability to timely recover these additionalcosts if we do not offer CNG fuel at prices lower than gasoline and diesel. Our ability to offer our customers an attractive pricing advantage for CNG and maintain an acceptablemargin on our sales becomes more difficult if prices of gasoline and diesel decrease or if prices of natural gas increase. These pricing conditions exacerbate the cost differentialbetween natural gas vehicles and gasoline or diesel powered vehicles, which may lead operators to delay or refrain from purchasing or converting to natural gas vehicles at all. Anyof these outcomes would decrease our potential customer base and harm our business prospects. Further, fluctuations in natural gas prices affect the cost to us of the natural gascommodity. High natural gas prices adversely impact our operating margins in cases where we cannot pass the increased costs through to our customers. Conversely, lower naturalgas prices reduce our revenue in cases where the commodity cost is passed through to our customers. As a result, these fluctuations in natural gas prices can have a significant andadverse impact on our operating results. Factors that can cause fluctuations in gasoline, diesel and natural gas prices include, among others, changes in supply and availability of crude oil and natural gas, governmentregulations and political conditions, inventory levels, consumer demand, price and availability of other alternative fuels, weather conditions, negative publicity surrounding drilling,production or importing techniques and methods for oil or natural gas, economic conditions and the price of foreign imports. With respect to natural gas supply and use as a vehicle fuel, there have been recent efforts to place new regulatory requirements on the production of natural gas by hydraulicfracturing of shale gas reservoirs and other means and on transporting, dispensing and using natural gas. Hydraulic fracturing and horizontal drilling techniques have resulted in asubstantial increase in the proven natural gas reserves in the United States. Any changes in regulations that make it more expensive or unprofitable to produce natural gas throughthese techniques or others, as well as any changes to the regulations relating to transporting, dispensing or using natural gas, could lead to increased natural gas prices. If pricing conditions worsen, or if all or some combination of factors causing further volatility in natural gas, oil and diesel prices were to occur, our business and our industrywould be materially harmed.Automobile and engine manufacturers currently produce few originally manufactured natural gas vehicles and engines for the markets in which ANG participates, whichmay adversely impact the adoption of CNG as a vehicle fuel.Limited availability of natural gas vehicles and engine sizes of such vehicles restricts their wide scale introduction and narrows ANG’s potential customer base. This, in turn, has alimiting effect on the results of operations. Due to the limited supply of natural gas vehicles, ANG’s ability to promote certain of the services contemplated by ANG’s business planmay be restricted, even if there is demand.36ANG faces intense competition from oil and gas companies, retail fuel providers, industrial gas companies, natural gas utilities, and other organizations that have fargreater resources and brand awareness than ANG has.A significant number of established businesses, including oil and gas companies, natural gas utilities, industrial gas companies, station owners and other organizations have entered,or are planning to enter, the natural gas fuels market. Many of these current and potential competitors have substantially greater financial, marketing, research and other resourcesthan ANG. Natural gas utilities continue to own and operate natural gas fueling stations. Utilities in Michigan, Illinois, New Jersey, North Carolina and Georgia have also recentlymade efforts to invest in the natural gas vehicle fuel space. ANG expects competition to intensify in the near term in the market for natural gas vehicle fuel as the use of natural gasvehicles and the demand for natural gas vehicle fuel increases. Increased competition will lead to amplified pricing pressure, reduced operating margins and fewer expansionopportunities. ANG’s failure to compete successfully would adversely affect ANG’s business and financial results, even if ANG is successful in implementing its business plan.The infrastructure to support gasoline and diesel consumption is vastly more developed than the infrastructure for natural gas vehicle fuels.Gasoline and diesel fueling stations and service infrastructure are widely available in the United States. For natural gas vehicle fuels to achieve more widespread use in the UnitedStates, they will require a promotional and educational effort and the development and supply of more natural gas vehicles and fueling stations. This will require significantcontinued effort by us, as well as government and clean air groups. In addition, ANG may face resistance from oil companies and other vehicle fuel companies.Risks Related to the Insurance SegmentOur acquisitions of the Insurance Companies are subject to certain post-closing adjustments.In December 2015, pursuant to the SPA between us, Great American Financial Resources, Inc. ("GAFRI") and Continental General Corp. ("CGC," and together with GreatAmerican, the "Seller Parties"), we purchased all of the issued and outstanding shares of common stock of UTA and CGI, as well as all assets owned by the Seller Parties or theiraffiliates that are used exclusively or primarily in the business of the Insurance Companies, subject to certain exceptions. On December 31, 2016, UTA merged into and with CGI,with CGI being the survivor ("Merger").Pursuant to the purchase agreement, the Company also agreed to pay to the Seller Parties, on an annual basis with respect to the years 2015 through 2019, the amount, if any, bywhich the Insurance Companies’ cash flow testing and premium deficiency reserves decrease from the amount of such reserves as of December 31, 2014, up to $13.0 million. Thebalance is calculated based on the annual fluctuation of the statutory cash flow testing and premium deficiency reserves following each of the Insurance Companies' filings with itsdomiciliary insurance regulator of its annual statutory statements for each calendar year ending December 31, 2015 through and including December 31, 2019. The Company didnot set up a contingent liability at acquisition primarily due to the following factors: (i) reduced confidence that treasury rates will increase to historical averages over the near term;(ii) uncertainty around future operating expenses historically performed by the Seller Parties; and (iii) the increase in the premium deficiency reserve as reported at December 31,2015 of approximately $8.0 million. Because the balance is cumulative over the period at issue, a decrease of approximately $8.0 million is required before any obligation existed tothe Seller Parties under the earn-out).On August 9, 2018, CGI completed the acquisition of KMG America Corporation ("KMG"), the parent company of Kanawha Insurance Company ("KIC"), Humana’s long-termcare insurance subsidiary for consideration of ten thousand dollars.As a condition to the approval of the Acquisition by the South Carolina Department of Insurance, CGI agreed to redomesticate KIC from South Carolina to Texas andsimultaneously merge KIC with and into CGI, with CGI surviving (the "Merger"), and to maintain a risk-based capital ratio of no less than 450 percent for two years following theclosing. Similarly, CGI agreed with the Texas Commissioner of Insurance that it will maintain a total adjusted capital to authorized control risk-based capital level of no less than450 percent for two years from the date of the Merger and of no less than 400 percent for the subsequent three years.If our Insurance segment is unable to retain, attract and motivate qualified employees, its results of operations and financial condition may be adversely impacted and it mayincur additional costs to recruit replacement and additional personnel.Our Insurance segment is highly dependent on its senior management team and other key personnel for the operation and development of its business. Our Insurance segment facesintense competition in retaining and attracting key employees including actuarial, finance, legal, risk, compliance and other professionals.CGI comprises the core of our insurance business segment. Our Insurance segment will endeavor to retain key personnel we believe are necessary for the success of the business.As we do not currently have substantial insurance company holdings, we also expect that our Insurance segment will add headcount as we continue to fill out the platform and growthe Insurance segment.Any failure to attract and retain key members of our Insurance segment’s management team or other key personnel going forward could have a material adverse effect on ourInsurance segment’s business, financial condition and results of operations.37The amount of statutory capital our Insurance segment has and the amount of statutory capital that it must hold to maintain its financial strength and meet otherrequirements can vary significantly from time to time and is sensitive to a number of factors outside of our Insurance segment’s control.Our Insurance segment is subject to regulations that provide minimum capitalization requirements based on risk-based capital ("RBC") formulas for life and health insurancecompanies. The RBC formula for life and health insurance companies establishes capital requirements relating to insurance, business, asset, interest rate, and certain other risks.In any particular year, statutory surplus amounts and RBC ratios may increase or decrease depending on a variety of factors, including the following: the amount of statutory incomeor losses generated by our Insurance segment (which are sensitive to equity market and credit market conditions), the amount of additional capital our Insurance segment must holdto support business growth, changes in reserve requirements applicable to our Insurance segment, our Insurance segment’s ability to secure capital market solutions to providereserve relief, changes in equity market levels, the value of certain fixed-income and equity securities in its investment portfolio, the credit ratings of investments held in its portfolio,changes in interest rates, credit market volatility, changes in consumer behavior, as well as changes to the National Association of Insurance Commissioners’ ("NAIC") RBCformula. Many of these factors are outside of our Insurance segment’s control. The financial strength of our Insurance segment is significantly influenced by its statutory surplusamounts and capital adequacy ratios.Additionally, in connection with the consummation of the acquisition of CGI and UTA and as updated by the Merger of such entities, the Company agreed with the TDOI that, forfive years following the closing of the transaction, it will contribute to CGI cash or marketable securities acceptable to the TDOI to the extent required for CGI’s total adjustedcapital to be not less than 400% of CGI’s authorized control level risk-based capital (each as defined under Texas law and reported in CGI’s statutory statements filed with theTDOI). Any such contributions could affect HC2’s liquidity.Our Insurance segment’s results and financial condition may be negatively affected should actual performance differ from management’s assumptions and estimates.Our Insurance segment makes certain assumptions and estimates regarding mortality, morbidity (i.e., frequency and severity of claims, including claim termination rates and benefitutilization rates), health care experience (including type of care and cost of care), persistency (i.e., the probability that a policy or contract will remain in-force from one period to thenext), future premium increases, expenses, interest rates, tax liability, business mix, frequency of claims, contingent liabilities, investment performance and other factors related to itsbusiness and anticipated results. The long-term profitability of our Insurance segment’s insurance products depends upon how our Insurance segment’s actual experience compareswith its pricing and valuation assumptions and estimates. For example, if morbidity rates are higher than underlying pricing assumptions, our Insurance segment could be requiredto make greater payments under its long-term care insurance policies than currently projected, and such amounts could be significant. Likewise, if mortality rates are lower than ourInsurance segment’s pricing assumptions, our Insurance segment could be required to make greater payments and thus establish additional reserves under both its long-term careinsurance policies and annuity contracts and such amounts could be significant. Conversely, if mortality rates are higher than our Insurance segment’s pricing and valuationassumptions, our Insurance segment could be required to make greater payments under its life insurance policies than currently projected.The above-described assumptions and estimates incorporate assumptions about many factors, none of which can be predicted with certainty. Our Insurance segment’s actualexperiences, as well as changes in estimates, are used to prepare our Insurance segment’s consolidated statements of operations. To the extent our Insurance segment’s actualexperience and changes in estimates differ from original estimates, our Insurance segment’s business, operations and financial condition may be materially adversely affected.The calculations our Insurance segment uses to estimate various components of its balance sheet and consolidated statements of operations are necessarily complex and involveanalyzing and interpreting large quantities of data. Our Insurance segment currently employs various techniques for such calculations including engaging third-party studies andfrom time to time will develop and implement more sophisticated administrative systems and procedures capable of facilitating the calculation of more precise estimates.However, assumptions and estimates involve judgment, and by their nature are imprecise and subject to changes and revisions over time. Accordingly, our Insurance segment’sresults may be adversely affected from time to time, by actual results differing from assumptions, by changes in estimates, and by changes resulting from implementing moresophisticated administrative systems and procedures that facilitate the calculation of more precise estimates.If our Insurance segment’s reserves for future policy claims are inadequate as a result of deviations from management’s assumptions and estimates or other reasons, ourInsurance segment may be required to increase reserves, which could have a material adverse effect on its results of operations and financial condition.Our Insurance segment calculates and maintains reserves for estimated future payments of claims to policyholders and contract holders in accordance with U.S. GAAP andstatutory accounting practices. These reserves are released as those future obligations are paid, experience changes or policies lapse. The reserves reflect estimates and actuarialassumptions with regard to future experience. These estimates and actuarial assumptions involve the exercise of significant judgment. Our Insurance segment’s future financialresults depend significantly on the extent to which actual future experience is consistent with the assumptions and methodologies used in pricing our Insurance segment’s insuranceproducts and calculating reserves. Small changes in assumptions or small deviations of actual experience from assumptions can have material impacts on reserves, results ofoperations and financial condition.38Because these factors are not known in advance and have the potential to change over time, they are difficult to accurately predict and inherently uncertain, which means that ourInsurance segment cannot determine with precision the ultimate amounts it will pay for actual claims or the timing of those payments. In addition, our Insurance segment includesassumptions for anticipated (but not yet filed) future premium rate increases in its determination of loss recognition testing of long-term care insurance reserves under U.S. GAAPand asset adequacy testing of statutory long-term care insurance reserves. Our Insurance segment may not be able to realize these anticipated results in the future as a result of itsinability to obtain required regulatory approvals or other factors. In this event, our Insurance segment would have to increase its long-term care insurance reserves by amounts thatcould be material. Moreover, our Insurance segment may not be able to mitigate the impact of unexpected adverse experience by increasing premiums and/or other charges topolicyholders (when it has the right to do so) or alternatively by reducing benefits.The risk that our Insurance segment’s claims experience may differ significantly from its pricing assumptions is significant for its long-term care insurance products. Long-term careinsurance policies provide for long-duration coverage and, therefore, actual claims experience will emerge over many years after pricing and locked-in valuation assumptions havebeen established. For example, changes in the economy, socio-demographics, behavioral trends (e.g., location of care and level of benefit use) and medical advances, among otherfactors, may have a material adverse impact on future loss trends. Moreover, long-term care insurance does not have as extensive of a claims experience history as life insurance,and as a result, our Insurance segment’s ability to forecast future claim costs for long-term care insurance is more limited than for life insurance.For long-duration contracts (such as long-term care policies), loss recognition occurs when, based on current expectations as of the measurement date, the existing contract liabilitiesplus the present value of future premiums (including reasonably expected rate increases) are not expected to cover the present value of future claims payments, related settlement andmaintenance costs, and unamortized acquisition costs. Our Insurance segment regularly reviews its reserves and associated assumptions as part of its ongoing assessment ofbusiness performance and risks. If our Insurance segment concludes that its reserves are insufficient to cover actual or expected policy and contract benefits and claim payments as aresult of changes in experience, assumptions or otherwise, our Insurance segment would be required to increase its reserves and incur charges in the period in which suchdetermination is made. The amounts of such increases may be significant and thus could materially adversely affect our Insurance segment’s results of operations and financialcondition and may require additional capital in our Insurance segment’s businesses.Insurers that have issued or reinsured long-term care insurance policies have recognized, and may recognize in the future, substantial losses in order to strengthen reserves forliabilities to policyholders in respect of such policies. Such losses may be due to the effect of changes in assumptions of future investment yields, changes in claims, expense,persistency assumptions or other factors. Our Insurance segment is subject to similar risks that adverse changes in any of its reserve assumptions in future periods could result inadditional loss recognition in respect of its business.Our Insurance segment’s inability to increase premiums on in-force long-term care insurance policies by sufficient amounts or in a timely manner may adversely affect ourInsurance segment’s results of operations and financial condition.The success of our Insurance segment’s strategy for its run-off long-term care insurance business assumes our Insurance segment’s ability to obtain significant price increases, aswarranted and actuarially justified based on its experience on its in-force block of long-term care insurance policies. The adequacy of our Insurance segment’s current long-term careinsurance reserves also depends significantly on this assumption and our Insurance segment’s ability to successfully execute its in-force management plan through increasedpremiums as anticipated.Although the terms of our Insurance segment’s long-term care insurance policies permit our Insurance segment to increase premiums during the premium-paying period, theseincreases generally require regulatory approval, which often have long lead times to obtain and may not be obtained in all relevant jurisdictions or for the full amounts requested. Inaddition, some states are considering adopting long-term care insurance rate increase legislation, which would further limit increases in long-term care insurance premium rates,beyond the rate stability legislation previously adopted in certain states.Such long-term care insurance rate increase legislation would adversely impact our Insurance segment’s ability to achieve anticipated rate increases. Our Insurance segment canneither predict how policyholders, competitors and regulators may react to any rate increases, nor whether regulators will approve regulated rate increases. If our Insurance segmentis not able to increase rates to the extent it currently anticipates, our Insurance segment may be required to establish additional reserves and make greater payments under long-termcare insurance policies than it currently projects.Our Insurance segment is highly regulated and subject to numerous legal restrictions and regulations.Our Insurance segment conducts its business throughout the United States, excluding New York State. Our Insurance segment is subject to government regulation in each of thestates in which it conducts business. Such regulation is vested in state agencies having broad administrative, and in some instances discretionary, authority with respect to manyaspects of our Insurance segment’s business, which may include, among other things, premium rates and increases thereto, privacy, claims denial practices, policy forms,reinsurance reserve requirements, acquisitions, mergers, and capital adequacy, and is concerned primarily with the protection of policyholders and other customers as opposed toother stakeholders. At any given time, a number of financial and/or market conduct examinations of our Insurance segment may be ongoing. From time to time, regulators raiseissues during examinations or audits of our Insurance segment that could, if determined adversely, have a material impact on our Insurance segment.39Under insurance guaranty fund laws in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred byinsolvent companies. Our Insurance segment cannot predict the amount or timing of any such future assessments.Although our Insurance segment’s business is subject to regulation in each state in which it conducts business, in many instances the state regulatory models emanate from theNAIC. State insurance regulators and the NAIC regularly re-examine existing laws and regulations applicable to insurance companies and their products. Changes in these laws andregulations, or in interpretations thereof, are often made for the benefit of the consumer and at the expense of the insurer and, thus, could have a material adverse effect on ourInsurance segment’s business, operations and financial condition.Our Insurance segment is also subject to the risk that compliance with any particular regulator’s interpretation of a legal or accounting issue may not result in compliance withanother regulator’s interpretation of the same issue, particularly when compliance is judged in hindsight. There is further risk that any particular regulator’s interpretation of a legalor accounting issue may change over time to our Insurance segment’s detriment, or that changes to the overall legal or market environment, even absent any change of interpretationby a particular regulator, may cause our Insurance segment to change its views regarding the actions it should take from a legal risk management perspective, which couldnecessitate changes to our Insurance segment’s practices that may, in some cases, limit its ability to grow and improve profitability.Some of the NAIC pronouncements, particularly as they affect accounting issues, take effect automatically in the various states without affirmative action by the states. Statutes,regulations, and interpretations may be applied with retroactive impact, particularly in areas such as accounting and reserve requirements.At the federal level, bills are routinely introduced in both chambers of the U.S. Congress which could affect life insurers. In the past, Congress has considered legislation that wouldimpact insurance companies in numerous ways, such as providing for an optional federal charter for insurance companies or a federal presence in insurance regulation, pre-emptingstate law in certain respects regarding the regulation of reinsurance, increasing federal oversight in areas such as consumer protection and solvency regulation, and other matters.Currently, the U.S. federal government does not directly regulate the business of insurance. However, Dodd-Frank established the FIO within the Department of the Treasury,which has the authority to participate in the negotiations of international insurance agreements with foreign regulators for the U.S., as well as to collect information about theinsurance industry and recommend prudential standards. On December 12, 2013, the FIO issued a report, mandated by Dodd-Frank, which, among other things, urged the states tomodernize and promote greater uniformity in insurance regulation. The report raised the possibility of a greater role for the federal government if states do not achieve greateruniformity in their laws and regulations. We cannot predict whether any such legislation or regulatory changes will be adopted, or what impact they will have on our business,financial condition or results of operations.Federal legislation and administrative policies can significantly and adversely affect insurance companies, including policies regarding financial services regulation, securitiesregulation, derivatives regulation, pension regulation, health care regulation, privacy, tort reform legislation and taxation. In addition, various forms of direct and indirect federalregulation of insurance have been proposed from time to time, including proposals for the establishment of an optional federal charter for insurance companies.Our Insurance segment cannot predict whether, or in what form, reforms will be enacted and, if so, whether the enacted reforms will positively or negatively affect our Insurancesegment or whether these effects will be material.Other types of regulation that could affect our Insurance segment include insurance company investment laws and regulations, state statutory accounting practices, antitrust laws,minimum solvency requirements, federal privacy laws, insurable interest laws, federal anti-money laundering and anti-terrorism laws. Our Insurance segment cannot predict whatform any future changes in these or other areas of regulation affecting the insurance industry might take or what effect, if any, such proposals might have on our Insurance segmentif enacted into law.Our Insurance segment’s reinsurers could fail to meet assumed obligations or be subject to adverse developments that could materially adversely affect our Insurancesegment’s business, financial condition and results of operations.Our Insurance segment cedes material amounts of insurance and transfers related assets and certain liabilities to other insurance companies through reinsurance. However,notwithstanding the transfer of related assets and certain liabilities, our Insurance segment remains liable with respect to ceded insurance should any reinsurer fail to meet theobligations it has assumed. Accordingly, our Insurance segment bears credit risk with respect to its reinsurers. Our Insurance segment currently cedes material reinsuranceobligations to Loyal American Life Insurance Company ("Loyal") (rated A- by A.M. Best), Hannover Life Reassurance Company ("Hannover") (rated A+ by A.M. Best), GALIC(rated A by A.M. Best), Munich American Reassurance Company ("Munich") (rated A+), and Manhattan Life Assurance Company of America ("Manhattan") (rated B+). Thefailure, insolvency, inability or unwillingness of a reinsurer, including Loyal, Hannover, GALIC, Munich, and Manhattan to pay under the terms of its reinsurance agreement withour Insurance segment could materially adversely affect our Insurance segment’s business, financial condition and results of operations.Reinsurers are currently facing many challenges regarding illiquid credit or capital markets, investment downgrades, rating agency downgrades, deterioration of general economicconditions and other factors negatively impacting the financial services industry generally. If such events cause a reinsurer to fail to meet its obligations, our Insurance segment’sbusiness, financial condition and results of operations could be materially adversely affected.40Our Insurance segment’s financial condition or results of operations could be adversely impacted if its assumptions regarding the fair value and future performance of itsinvestments differ from actual experience.Our Insurance segment makes assumptions regarding the fair value and expected future performance of its investments. For example, our Insurance segment expects that itsinvestments in residential and commercial mortgage-backed securities will continue to perform in accordance with their contractual terms, based on assumptions that our Insurancesegment believes are industry standard and those that a reasonable market participant would use in determining the current fair value and the performance of the underlying assets. Itis possible that the underlying collateral of these investments will perform more poorly than current market expectations and that such reduced performance may lead to adversechanges in the cash flows on our Insurance segment’s holdings of these types of securities. This could lead to potential future other-than-temporary impairments within ourInsurance segment’s portfolio of mortgage-backed and asset-backed securities.In addition, expectations that our Insurance segment’s investments in corporate securities and/or debt obligations will continue to perform in accordance with their contractual termsare based on evidence gathered through its normal credit surveillance process. It is possible that issuers of the corporate securities in which our Insurance segment has invested willperform more poorly than current expectations. Such events may lead our Insurance segment to recognize potential future other-than-temporary impairments within its portfolio ofcorporate securities and may also have an adverse effect on its liquidity and ability to meet its obligations. It is also possible that such unanticipated events would lead our Insurancesegment to dispose of certain of those holdings and recognize the effects of any market movements in its financial statements. Furthermore, actual values may differ from ourInsurance segment’s assumptions. Such events could result in a material change in the value of our Insurance segment’s investments, business, operations and financial condition.Interest rate fluctuations and withdrawal demands in excess of assumptions could negatively affect our Insurance segment’s business, financial condition and results ofoperations.Our Insurance segment’s business is sensitive to interest rate fluctuations, volatility and the low interest rate environment. For the past several years interest rates have remained athistorically low levels. In order to meet policy and contractual obligations, our Insurance segment must earn a sufficient return on invested assets. A prolonged period of historicallylow rates or significant changes in interest rates could expose our Insurance segment to the risk of not achieving sufficient return on invested assets by not achieving anticipatedinterest earnings, or of not earning anticipated spreads between the interest rate earned on investments and the credited interest rates paid on outstanding policies and contracts.Additionally, a prolonged period of low interest rates may lengthen liability maturity, thus increasing the need for a re-investment of assets at yields that are below the amountsrequired to support guarantee features of outstanding contracts.Both rising and declining interest rates can negatively affect our Insurance segment’s interest earnings and spread income (the difference between the returns our Insurance segmentearns on its investments and the amounts that it must credit to policyholders and contract holders). While our Insurance segment develops and maintains asset liability managementprograms and procedures designed to mitigate the effect on interest earnings and spread income in rising or falling interest rate environments, no assurance can be given thatchanges in interest rates will not materially adversely affect its business, financial condition and results of operations.An extended period of declining interest rates or a prolonged period of low interest rates may cause our Insurance segment to change its long-term view of the interest rates that ourInsurance segment can earn on its investments. Such a change would cause our Insurance segment to change the long-term interest rate that it assumes in its calculation of insuranceassets and liabilities under U.S. GAAP. This revision would result in increased reserves and other unfavorable consequences. In addition, while the amount of statutory reserves isnot directly affected by changes in interest rates, additional statutory reserves may be required as the result of an asset adequacy analysis, which is altered by rising or falling interestrates and widening credit spreads.Some of our products, principally traditional whole life insurance and deferred annuities expose us to the risk that changes in interest rates will reduce our "spread," or the differencebetween the amounts we are required to pay under our contracts to policyholders and the rate of return we are able to earn on our investments intended to support obligations underthe contracts. Spread is an integral component of our Insurance Company's net income.As interest rates decrease or remain at low levels, we may be forced to reinvest proceeds from investments that have matured, prepaid, been sold, or called at lower yields, reducingour investment margin. Our fixed income bond portfolio is exposed to interest rate risk as a significant portion of the portfolio is callable. Lowering interest crediting rates can helpoffset decreases in investment margins on some of our products.Our Insurance segment is subject to financial disintermediation risks in rising interest rate environments.Our Insurance segment offers certain products that allow policyholders to withdraw their funds under defined circumstances. In order to meet such funding obligations, ourInsurance segment manages its liabilities and configures its investment portfolios so as to provide and maintain sufficient liquidity to support expected withdrawal demands andcontract benefits and maturities. However, in order to provide necessary long-term returns, a certain portion of its assets are relatively illiquid. There can be no assurance that actualwithdrawal demands will match its estimated withdrawal demands.41As interest rates increase, our Insurance segment is exposed to the risk of financial disintermediation through a potential increase in the number of withdrawals. Disintermediationrisk refers to the risk that policyholders may surrender their contracts in a rising interest rate environment, requiring our Insurance segment to liquidate assets in an unrealized lossposition. If our Insurance segment experiences unexpected withdrawal activity, whether as a result of financial strength downgrades or otherwise, it could exhaust its liquid assetsand be forced to liquidate other assets, possibly at a loss or on other unfavorable terms, which could have a material adverse effect on our Insurance segment’s business, financialcondition and results of operations.Additionally, our Insurance segment may experience spread compression, and a loss of anticipated earnings, if credited interest rates are increased on renewing contracts in an effortto decrease or manage withdrawal activity.Our Insurance segment is subject to cyber-attacks and other privacy or data security incidents. If we are unable to prevent or contain the effects of any such attacks, we maysuffer exposure to substantial liability, reputational harm, loss of revenue or other damages.Our business depends on our clients’ and customers’ willingness to entrust us with their sensitive personal information. Our Insurance segment and certain of our other businessesretain confidential information in their computer systems, and rely on commercial technologies to maintain the security of those systems. Nevertheless, computer systems may bevulnerable to physical break-ins, computer viruses or malware, programming errors, attacks by third parties or similar disruptive problems. We may be the target of computerviruses or other malicious codes, unauthorized access, cyber-attacks or other computer-related penetrations. Despite the implementation of network security measures, our serverscould be subject to physical and electronic break-ins, and similar disruptions from unauthorized tampering with our computer systems. Anyone who is able to circumvent thesesecurity measures and penetrate our and our subsidiaries’ computer systems could access, view, misappropriate, alter, or delete any information in the systems, including personallyidentifiable customer information and proprietary business information. In addition, an increasing number of states require that customers be notified of unauthorized access, use, ordisclosure of their information. Any compromise of the security of our Insurance segment’s computer systems that results in inappropriate access, use, or disclosure of personallyidentifiable customer information could damage our Insurance segment’s reputation in the marketplace, subject our Insurance segment to significant civil and criminal liability, andrequire our Insurance segment to incur significant technical, legal, and other expenses.There have been large scale cyber-attacks and other cyber-security breaches within the insurance industry. As we increase the amount of personal information that we store andshare digitally, our exposure to data security and related cyber-security risks increases, including the risk of undetected attacks, damage, loss or unauthorized access ormisappropriation of proprietary or personal information, and the cost of attempting to protect against these risks also increases. In addition, while we have certain standards for allvendors that provide us services, our vendors, and in turn, their own service providers, may become subject to the same type of security breaches. Finally, our offices may bevulnerable to security incidents or security attacks, acts of vandalism or theft, misplaced or lost data, human error or similar events that could negatively affect our systems and ourcustomers’ and clients’ data.The costs to eliminate or address security threats and vulnerabilities before or after a cyber-incident could be significant. Our remediation efforts may not be successful and couldresult in interruptions, delays, or cessation of service and loss of existing or potential customers.In addition, breaches of our security measures and the unauthorized dissemination of sensitive personal information or proprietary information or confidential information about us,our customers or other third-parties could expose our customers’ private information and our customers to the risk of identity theft, any of which could adversely affect ourbusiness, results of operations, financial condition or liquidity.Our Insurance segment’s investments are subject to market, credit, legal and regulatory risks that could be heightened during periods of extreme volatility or disruption infinancial and credit markets.Our Insurance segment’s invested assets are subject to risks of credit defaults and changes in market values. Periods of extreme volatility or disruption in the financial and creditmarkets could increase these risks.Stressed conditions, volatility and disruptions in financial asset classes or various markets, including global capital markets, can have an adverse effect on us, in part because wehave a large investment portfolio and our insurance liabilities are sensitive to changing market factors. Global market factors, including interest rates, credit spreads, equity prices,real estate markets, foreign currency exchange rates, consumer spending, business investment, government spending, the volatility and strength of the capital markets, deflation andinflation, all affect our financial condition, as well as the volume, profitability and results of our business operations, either directly or by virtue of their impact on the business andeconomic environment generally and on general levels of economic activity, employment and customer behavior specifically. Disruptions in one market or asset class can alsospread to other markets or asset classes. Upheavals in the financial markets can also affect our financial condition (including our liquidity and capital levels) as a result ofmismatched impacts on the value of our assets and our liabilities.The value of our Insurance segment’s mortgage-backed investments depends in part on the financial condition of the borrowers and tenants for the properties underlying thoseinvestments, as well as general and specific circumstances affecting the overall default rate.Significant continued financial and credit market volatility, changes in interest rates, credit spreads, credit defaults, real estate values, market illiquidity, declines in equity prices, actsof corporate malfeasance, ratings downgrades of the issuers or guarantors of these investments, and declines in general economic conditions, either alone or in combination, couldhave a material adverse impact on our Insurance segment’s results of operations, financial condition, or cash flows through realized losses, other-than-temporary impairments,changes in unrealized loss positions,42and increased demands on capital. In addition, market volatility can make it difficult for our Insurance segment to value certain of its assets, especially if trading becomes lessfrequent.Also, in the event of extreme prolonged market events, such as the global credit crisis, we could incur significant capital and/or operating losses due to, among other reasons, lossesincurred in our general account and as a result of the impact on us of guarantees, capital maintenance obligations and/or collateral requirements associated with our affiliatedreinsurers and other similar arrangements. Even in the absence of a market downturn, we are exposed to substantial risk of loss due to market volatility, which may also increase thecost.Valuations may include assumptions or estimates that may have significant period-to-period changes that could have an adverse impact on our Insurance segment’s results ofoperations or financial condition. Moreover, difficult conditions in the global capital markets and the economy may continue to raise the possibility of legislative, judicial, regulatoryand other governmental actions.Credit spreads could adversely affect our Insurance segment’s investment portfolio and financial position.Our exposure to credit spreads primarily relates to market price volatility and cash flow variability associated with changes in such spreads. Market price volatility can make itdifficult to value certain of our securities if trading becomes less frequent. In such case, valuations may include assumptions or estimates that may have significant period-to-periodchanges, which could have a material adverse effect on our results of operations or financial condition. If there is a resumption of significant volatility in the markets, it could causechanges in credit spreads and defaults and a lack of pricing transparency which, individually or in tandem, could have a material adverse effect on our results of operations, financialcondition, liquidity or cash flows.Significant volatility or disruption in credit markets could have a material adverse effect on our Insurance segment’s investment portfolio, and, as a result, our Insurance segment’sbusiness, financial condition and results of operations. Changes in interest rates and credit spreads could cause market price and cash flow variability in the fixed incomeinstruments in our Insurance segment’s investment portfolio. Significant volatility and lack of liquidity in the credit markets could cause issuers of the fixed-income securities in ourInsurance segment’s investment portfolio to default on either principal or interest payments on these securities.Concentration of our Insurance segment’s investment portfolio in any particular economic sector or asset type may increase our Insurance segment’s exposure to risk ifthat area of concentration experiences events that cause underperformance.Our Insurance segment’s investment portfolio may be concentrated in areas, such as particular industries, groups of related industries, asset classes or geographic areas thatexperience events that cause underperformance of the investments. While our Insurance segment seeks to mitigate this risk through portfolio diversification, if our Insurancesegment’s investment portfolio is concentrated in any areas that experience negative events or developments, the impact of those negative events may have a disproportionate effecton our Insurance segment’s portfolio, which may have an adverse effect on the performance of our Insurance segment’s investment portfolio.Our Insurance segment must continue to evaluate the need for a valuation allowance against its deferred tax assets.Deferred tax assets refer to assets that are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, in essence, represent future savings of taxes that would otherwise be paid in cash. The realization of the deferred tax assets is dependent upon the generation ofsufficient future taxable income, including capital gains. If it is determined that the deferred tax assets cannot be realized, a deferred tax valuation allowance must be established,with a corresponding charge to net income.During 2018, the Insurance segment started to trend positively from an earnings perspective and had positive net deferred tax assets before valuation allowance. However, due toprior year losses from the newly acquired long term care business, Kanawha Insurance Company, the Insurance segment took the prudent approach by maintaining a valuationallowance. Financial services companies are frequently the targets of litigation, including class action litigation, which could result in substantial judgments.Our Insurance segment operates in an industry in which various practices are subject to scrutiny and potential litigation, including class actions. Civil jury verdicts have beenreturned against insurers and other financial services companies involving sales, underwriting practices, product design, product disclosure, administration, denial or delay ofbenefits, charging excessive or impermissible fees, recommending unsuitable products to customers, breaching fiduciary or other duties to customers, refund or claims practices,alleged agent misconduct, failure to properly supervise representatives, relationships with agents or other persons with whom the insurer does business, payment of sales or othercontingent commissions, and other matters. For example, a class action lawsuit was filed against CGI in November 2016 alleging breach of contract, tortious interference withcontract and unjust enrichment in relation to the introduction of new products to existing policyholders and the replacement of in-force policies. Such lawsuits can result in theaward of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive or non-economic compensatory damages. In some states,juries, judges, and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable materialadverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very limited appellate review. In addition, in some class action and other lawsuits,financial services companies have made material settlement payments.43Companies in the financial services industry are sometimes the target of law enforcement investigations and the focus of increased regulatory scrutiny.The financial services industry, including insurance companies, is sometimes the target of law enforcement and regulatory investigations relating to the numerous laws andregulations that govern such companies. Some financial services companies have been the subject of law enforcement or other actions resulting from such investigations. Resultingpublicity about one company may generate inquiries into or litigation against other financial services companies, even those who do not engage in the business lines or practices atissue in the original action. It is impossible to predict the outcome of such investigations or actions, whether they will expand into other areas not yet contemplated, whether theywill result in changes in insurance regulation, whether activities currently thought to be lawful will be characterized as unlawful, or the impact, if any, of such scrutiny on thefinancial services and insurance industry or our Insurance segment.Our Insurance segment is dependent on the performance of others under the Administrative Services Agreement and on an ongoing basis as part of its business.Our Insurance segment is dependent on the performance of third parties as part of its business. In the near term, our Insurance segment will depend on the Seller Parties of theInsurance Companies, under the Administrative Services Agreement, for the performance of certain administrative services with respect to our Insurance segment’s life insuranceand annuity business.In addition, various other third parties provide services to our Insurance segment or are otherwise involved in our Insurance segment’s business operations, on an ongoing basis.For example, our Insurance segment’s operations are dependent on various technologies, some of which are provided and/or maintained by certain key outsourcing partners andother parties.Any failure by any of the Seller Parties or such other third-party providers to provide such services could have a material adverse effect on our Insurance segment’s business orfinancial results.Our Insurance segment also depends on other parties that may default on their obligations to our Insurance segment due to bankruptcy, insolvency, lack of liquidity, adverseeconomic conditions, operational failure, fraud, or other reasons. Such defaults could have a material adverse effect on our Insurance segment’s financial condition and results ofoperations. In addition, certain of these other parties may act, or be deemed to act, on behalf of our Insurance segment or represent our Insurance segment in various capacities.Consequently, our Insurance segment may be held responsible for obligations that arise from the acts or omissions of these other parties.If our Insurance segment does not maintain an effective outsourcing strategy or third-party providers do not perform as contracted, our Insurance segment may experienceoperational difficulties, increased costs and a loss of business that could have a material adverse effect on its results of operations. In addition, our Insurance segment’s reliance onthird-party service providers that it does not control does not relieve our Insurance segment of its responsibilities and requirements. Any failure or negligence by such third-partyservice providers in carrying out their contractual duties may result in our Insurance segment becoming liable to parties who are harmed and may result in litigation. Any litigationrelating to such matters could be costly, expensive and time-consuming, and the outcome of any such litigation may be uncertain. Moreover, any adverse publicity arising from suchlitigation, even if the litigation is not successful, could adversely affect the reputation and sales of our Insurance segment and its products.Our Insurance segment’s ability to grow depends in large part upon the continued availability of capital.Our Insurance segment’s long-term strategic capital requirements will depend on many factors, including acquisition activity, our Insurance segment’s ability to manage the run-offof in-force insurance business, our Insurance segment’s accumulated statutory earnings and the relationship between our Insurance segment’s statutory capital and surplus andvarious elements of required capital. To support its capital requirements and/or finance future acquisitions, our Insurance segment may need to increase or maintain statutory capitaland surplus through financings, which could include debt or equity financing arrangements and/or other surplus relief transactions. Adverse market conditions have affected andcontinue to affect the availability and cost of capital from external sources. We are not obligated to, and may choose not to or be unable to, provide financing or make any futurecapital contribution to CGI. Consequently, financing, if available at all, may be available only on terms that are not favorable to our Insurance segment.New accounting rules, changes to existing accounting rules, or the grant of permitted accounting practices to competitors could negatively impact our Insurance segment.Our Insurance segment is required to comply with U.S. GAAP. A number of organizations are instrumental in the development and interpretation of U.S. GAAP such as the SEC,FASB, and the American Institute of Certified Public Accountants. U.S. GAAP is subject to constant review by these organizations and others in an effort to address emergingaccounting rules and issue interpretative accounting guidance on a continual basis. Our Insurance segment can give no assurance that future changes to U.S. GAAP will not have anegative impact on our Insurance segment.The application of U.S. GAAP to insurance businesses and investment portfolios, like our Insurance segment’s, involves a significant level of complexity and requires a number offactors and judgments. U.S. GAAP includes the requirement to carry certain investments and insurance liabilities at fair value. These fair values are sensitive to various factorsincluding, but not limited to, interest rate movements, credit spreads, and various other factors. Because of this, changes in these fair values may cause increased levels of volatilityin our Insurance segment’s financial statements.44In addition, our Insurance segment is required to comply with statutory accounting principles ("SAP"). SAP and various components of SAP (such as actuarial reservingmethodology) are subject to ongoing review by the NAIC and its task forces and committees as well as state insurance departments in an effort to address emerging issues andotherwise improve financial reporting. Various proposals are currently or have previously been pending before committees and task forces of the NAIC, some of which, if enacted,would negatively affect our Insurance segment. The NAIC is also currently working to reform state regulation in various areas, including comprehensive reforms relating to lifeinsurance reserves and the accounting for such reserves.Our Insurance segment cannot predict whether or in what form reforms will be enacted and, if so, whether the enacted reforms will positively or negatively affect our Insurancesegment. In addition, the NAIC Accounting Practices and Procedures manual provides that state insurance departments may permit insurance companies domiciled therein to departfrom SAP by granting them permitted accounting practices. Our Insurance segment cannot predict whether or when the insurance departments of the states of domicile of itscompetitors may permit them to utilize advantageous accounting practices that depart from SAP, the use of which is not permitted by the insurance department of CGI’s state ofdomicile (Texas). With respect to regulations and guidelines, states sometimes defer to the interpretation of the insurance department of the state of domicile. Neither the action of thedomiciliary state nor action of the NAIC is binding on a state. Accordingly, a state could choose to follow a different interpretation. Our Insurance segment can give no assurancethat future changes to SAP or components of SAP or the grant of permitted accounting practices to its competitors will not have a negative impact on our Insurance segment.Our Insurance segment is exposed to the risks of natural and man-made catastrophes, pandemics and malicious and terrorist acts that could materially adversely affect ourInsurance segment’s business, financial condition and results of operations.Natural and man-made catastrophes, pandemics and malicious and terrorist acts present risks that could materially adversely affect our Insurance segment’s operations and results.No assurance can be given that there are not risks that have not been predicted or protected against that could have a material adverse effect on our Insurance segment. A natural orman-made catastrophe, pandemic or malicious or terrorist act could materially adversely affect the mortality or morbidity experience of our Insurance segment or its reinsurers.Claims arising from such events could have a material adverse effect on our Insurance segment’s business, operations and financial condition, either directly or as a result of theireffect on its reinsurers or other counterparties. While our Insurance segment has taken steps to identify and manage these risks, such risks cannot be predicted with certainty, norfully protected against even if anticipated.In addition, such events could result in a decrease or halt in economic activity in large geographic areas, adversely affecting the administration of our Insurance segment’s businesswithin such geographic areas and/or the general economic climate, which in turn could have an adverse effect on our Insurance segment’s business, operations and financialcondition. The possible macroeconomic effects of such events could also adversely affect our Insurance segment’s asset portfolio.Future acquisition transactions may not be financially beneficial to our Insurance segment.In the future, our Insurance segment may pursue acquisitions of insurance companies and/or blocks of insurance businesses through merger, stock purchase or reinsurancetransactions or otherwise. Lines of business that may be acquired include but are not limited to, standalone long-term care, life and annuity products, life and annuity products withlong-term care and critical illness features, and supplemental health products.There can be no assurance that the performance of the companies or blocks of business acquired will meet our Insurance segment’s expectations, or that any of these acquisitionswill be financially advantageous for our Insurance segment. The evaluation and negotiation of potential acquisitions, as well as the integration of an acquired business or portfolio,could result in a substantial diversion of management resources. Acquisitions could involve numerous additional risks such as potential losses from unanticipated litigation, levels ofclaims or other liabilities and exposures, an inability to generate sufficient revenue to offset acquisition costs and financial exposures in the event that the sellers of the acquiredentities or blocks of business are unable or unwilling to meet their indemnification, reinsurance and other obligations to our Insurance segment (if any such obligations are in place).Our Insurance segment’s ability to manage its growth through acquisitions will depend, in part, on its success in addressing these risks. Any failure to effectively implement ourInsurance segment’s acquisition strategies could have a material adverse effect on our Insurance segment’s business, financial condition or results of operations.Our Insurance segment may be unable to execute acquisition transactions in accordance with its strategy.The market for acquisitions of life or health insurers and blocks of like businesses is highly competitive, and there can be no assurance that our Insurance segment will be able toidentify acquisition targets at acceptable valuations, or that any such acquisitions will ultimately achieve projected returns. In addition, insurance is a highly regulated industry andmany acquisition transactions are subject to approval of state insurance regulatory authorities, and therefore involve heightened execution risk.On October 7, 2013, the New York State Department of Financial Services announced that Philip A. Falcone, now our Chairman, President and Chief Executive Officer, hadcommitted not to exercise control, within the meaning of New York insurance law, of a New York-licensed insurer for seven years (the "NYDFS Commitment"). Mr. Falcone,who at the time of the NYDFS Commitment was the Chief Executive Officer and Chairman of the Board of HRG Group Inc. ("HGI"), also committed not to serve as an officer ordirector of certain insurance company subsidiaries and related subsidiaries of HGI or to be involved in any investment decisions made by such subsidiaries, and agreed to recusehimself from45participating in any vote of the board of HGI relating to the election or appointment of officers or directors of such companies. However, it was also noted that in the eventcompliance with the NYDFS Commitment proves impracticable, including in the context of merger, acquisition or similar transactions, then the terms of the NYDFS Commitmentmay be reconsidered and modified or withdrawn to the extent determined to be appropriate by the NYDFS Insurance regulatory authorities may consider the NYDFS Commitmentin the course of a review of any prospective acquisition of an insurance company or block of insurance business by us or our Insurance segment, increasing the risk that any suchtransaction may be disapproved, or that regulatory conditions will be applied to the consummation of such an acquisition which may adversely affect the economic benefitsanticipated to be derived by us and/or our Insurance segment from such transaction.Our Insurance segment’s investment portfolio is subject to various risks that may result in realized investment losses. In particular, decreases in the fair value of fixedmaturity securities may significantly reduce the value of our investments, and as a result, our financial condition may suffer.We are subject to credit risk in our investment portfolio. Defaults by third parties in the payment or performance of their obligations under these securities could reduce ourinvestment income and realized investment gains or result in the recognition of investment losses. The value of our investments may be materially adversely affected by increases ininterest rates, downgrades in the bonds included in our portfolio and by other factors that may result in the recognition of other-than-temporary impairments. Each of these eventsmay cause us to reduce the carrying value of our investment portfolio.The fair value of fixed maturities and the related investment income fluctuates depending on general economic and market conditions. The fair value of these investments generallyincreases or decreases in an inverse relationship with fluctuations in interest rates, while net investment income realized by us will generally increase or decrease in line with changesin market interest rates. In addition, actual net investment income and/or cash flows from investments that carry prepayment risk, such as mortgage-backed and other asset-backedsecurities, may differ from those anticipated at the time of investment as a result of interest rate fluctuations. The impact of value fluctuations affects our consolidated financialstatements, as a large portion of our fixed maturities are classified as available-for- sale, with changes in fair value reflected in our stockholders’ equity (accumulated othercomprehensive income or loss). No similar adjustment is made for liabilities to reflect a change in interest rates. Therefore, interest rate fluctuations and economic conditions couldadversely affect our stockholders’ equity, total comprehensive income and/or cash flows. All of our fixed maturities are subject to credit risk. If any of the issuers of our fixedmaturities suffer financial setbacks, the ratings on the fixed maturities could fall (with a concurrent fall in fair value) and, in a worst-case scenario, the issuer could default on itsfinancial obligations. If the issuer defaults, we could have realized losses associated with the impairment of the securities.Unanticipated increases in policyholder withdrawals or surrenders could negatively impact liquidity.A primary liquidity concern is the risk of unanticipated or extraordinary policyholder withdrawals or surrenders. We track and manage liabilities and attempt to align our investmentportfolio to maintain sufficient liquidity to support anticipated withdrawal demands. However, withdrawal and surrender levels may differ from anticipated levels for a variety ofreasons, including changes in economic conditions, changes in policyholder behavior or financial needs, or changes in our claims-paying ability. Any of these occurrences couldadversely affect our liquidity, profitability and financial condition.While we own a significant amount of liquid assets, we could exhaust all sources of liquidity and be forced to obtain additional financing or liquidate assets, perhaps on unfavorableterms, if we experience unanticipated withdrawal or surrender activity. The availability of additional financing will depend on a variety of factors, such as market conditions, theavailability of credit in general or more specifically in the insurance industry, the strength or weakness of the capital markets, the volume of trading activities, our credit capacity, andthe perception of our long- or short-term financial prospects if we incur large realized or unrealized investment losses or if the level of business activity declines due to a marketdownturn. If we are forced to dispose of assets on unfavorable terms, it could have an adverse effect on our liquidity, results of operations and financial condition.Risks Related to the Construction segmentDBMG’s business is dependent upon major construction contracts, the unpredictable timing of which may result in significant fluctuations in its cash flow due to the timingof receipt of payment under such contracts.DBMG’s cash flow is dependent upon obtaining major construction contracts primarily from general contractors and engineering firms responsible for commercial and industrialconstruction projects, such as high- and low-rise buildings and office complexes, hotels and casinos, convention centers, sports arenas, shopping malls, hospitals, dams, bridges,mines and power plants. The timing of or failure to obtain contracts, delays in awards of contracts, cancellations of contracts, delays in completion of contracts, or failure to obtaintimely payment from DBMG’s customers, could result in significant periodic fluctuations in cash flows from DBMG’s operations. In addition, many of DBMG’s contracts requireit to satisfy specific progress or performance milestones in order to receive payment from the customer. As a result, DBMG may incur significant costs for engineering, materials,components, equipment, labor or subcontractors prior to receipt of payment from a customer. Such expenditures could have a material adverse effect on DBMG’s results ofoperations, cash flows or financial condition46The nature of DBMG’s primary contracting terms for its contracts, including fixed-price and cost-plus pricing, could have a material adverse effect on DBMG’s results ofoperations, cash flows or financial condition.DBMG’s projects are awarded through a competitive bid process or are obtained through negotiation, in either case generally using one of two types of contract pricing approaches:fixed-price or cost-plus pricing. Under fixed-price contracts, DBMG performs its services and executes its projects at an established price, subject to adjustment only for changeorders approved by the customer, and, as a result, it may benefit from cost savings but be unable to recover any cost overruns. If DBMG does not execute such a contract withincost estimates, it may incur losses or the project may be less profitable than expected. Historically, the majority of DBMG’s contracts have been fixed-price arrangements. Therevenue, cost and gross profit realized on such contracts can vary, sometimes substantially, from the original projections due to a variety of factors, including, but not limited to:•failure to properly estimate costs of materials, including steel and steel components, engineering services, equipment, labor or subcontractors;•costs incurred in connection with modifications to a contract that may be unapproved by the customer as to scope, schedule, and/or price;•unanticipated technical problems with the structures, equipment or systems we supply;•unanticipated costs or claims, including costs for project modifications, customer-caused delays, errors or changes in specifications or designs, or contract termination;•changes in the costs of materials, engineering services, equipment, labor or subcontractors;•changes in labor conditions, including the availability and productivity of labor;•productivity and other delays caused by weather conditions;•failure to engage necessary suppliers or subcontractors, or failure of such suppliers or subcontractors to perform;•difficulties in obtaining required governmental permits or approvals;•changes in laws and regulations; and•changes in general economic conditions.Under cost-plus contracts, DBMG receives reimbursement for its direct labor and material cost, plus a specified fee in excess thereof, which is typically a fixed rate per hour, anoverall fixed fee, or a percentage of total reimbursable costs, up to a maximum amount, which is an arrangement that may protect DBMG against cost overruns. If DBMG is unableto obtain proper reimbursement for all costs incurred due to improper estimates, performance issues, customer disputes, or any of the additional factors noted above for fixed-pricecontracts, the project may be less profitable than expected.Generally, DBMG’s contracts and projects vary in length from 1 to 24 months, depending on the size and complexity of the project, project owner demands and other factors. Theforegoing risks are exacerbated for projects with longer-term durations because there is an increased risk that the circumstances upon which DBMG based its original estimates willchange in a manner that increases costs. In addition, DBMG sometimes bears the risk of delays caused by unexpected conditions or events. To the extent there are future costincreases that DBMG cannot recover from its customers, suppliers or subcontractors, the outcome could have a material adverse effect on DBMG’s results of operations, cashflows or financial condition.Furthermore, revenue and gross profit from DBMG’s contracts can be affected by contract incentives or penalties that may not be known or finalized until the later stages of thecontract term. Some of DBMG’s contracts provide for the customer’s review of its accounting and cost control systems to verify the completeness and accuracy of the reimbursablecosts invoiced. These reviews could result in reductions in reimbursable costs and labor rates previously billed to the customer.The cumulative impact of revisions in total cost estimates during the progress of work is reflected in the period in which these changes become known, including, to the extentrequired, the reversal of profit recognized in prior periods and the recognition of losses expected to be incurred on contracts in progress. Due to the various estimates inherent inDBMG’s contract accounting, actual results could differ from those estimates.DBMG’s billed and unbilled revenue may be exposed to potential risk if a project is terminated or canceled or if DBMG’s customers encounter financial difficulties.DBMG’s contracts often require it to satisfy or achieve certain milestones in order to receive payment for the work performed. As a result, under these types of arrangements,DBMG may incur significant costs or perform significant amounts of services prior to receipt of payment. If the ultimate customer does not proceed with the completion of theproject or if the customer or contractor under which DBMG is a subcontractor defaults on its payment obligations, DBMG may face difficulties in collecting payment of amountsdue to it for the costs previously incurred. If DBMG is unable to collect amounts owed to it, this could have a material adverse effect on DBMG’s results of operations, cash flowsor financial condition.47DBMG may be exposed to additional risks as it obtains new significant awards and executes its backlog, including greater backlog concentration in fewer projects, potentialcost overruns and increasing requirements for letters of credit, each of which could have a material adverse effect on DBMG’s results of operations, cash flows or financialcondition.As DBMG obtains new significant project awards, these projects may use larger sums of working capital than other projects and DBMG’s backlog may become concentratedamong a smaller number of customers. Approximately $232.9 million, representing 44.1%, of DBMG’s backlog at December 31, 2018 was attributable to five contracts, letters ofintent, notices to proceed or purchase orders. If any significant projects such as these currently included in DBMG’s backlog or awarded in the future were to have material costoverruns, or be significantly delayed, modified or canceled, DBMG’s results of operations, cash flows or financial position could be adversely impacted.Moreover, DBMG may be unable to replace the projects that it executes in its backlog. Additionally, as DBMG converts its significant projects from backlog into activeconstruction, it may face significantly greater requirements for the provision of letters of credit or other forms of credit enhancements which exceed its current credit facilities.We can provide no assurance that DBMG would be able to access such capital and credit as needed or that it would be able to do so on economically attractive terms.DBMG may not be able to fully realize the revenue value reported in its backlog, a substantial portion of which is attributable to a relatively small number of large contractsor other commitments.At December 31, 2018, DBMG's backlog was $528.5 million, consisting of $420.8 million under contracts or purchase orders and $107.7 million under letters of intent or noticesto proceed. Approximately $232.9 million, representing 44.1% of DBMG’s backlog at December 31, 2018, was attributable to five contracts, letters of intent, notices to proceed orpurchase orders. If one or more of these projects terminate or significantly reduce their scope, DBMG’s backlog could decrease substantially.Commitments may be in the form of written contracts, letters of intent, notices to proceed and purchase orders. New awards may also include estimated amounts of work to beperformed based on customer communication and historic experience and knowledge of our customers’ intentions. Backlog consists of projects which have either not yet beenstarted or are in progress but are not yet complete. In the latter case, the revenue value reported in backlog is the remaining value associated with work that has not yet beencompleted, which increases or decreases to reflect modifications in the work to be performed under a given commitment. The revenue projected in DBMG’s backlog may not berealized or, if realized, may not be profitable as a result of poor contract terms or performance.Due to project terminations, suspensions or changes in project scope and schedule, we cannot predict with certainty when or if DBMG’s backlog will be performed. From time totime, projects are canceled that appeared to have a high certainty of going forward at the time they were recorded as new awards. In the event of a project cancellation, DBMGtypically has no contractual right to the total revenue reflected in its backlog. Some of the contracts in DBMG’s backlog provide for cancellation fees or certain reimbursements inthe event customers cancel projects. These cancellation fees usually provide for reimbursement of DBMG’s out-of-pocket costs, costs associated with work performed prior tocancellation, and, to varying degrees, a percentage of the profit DBMG would have realized had the contract been completed. Although DBMG may be reimbursed for certain costs,it may be unable to recover all direct costs incurred and may incur additional unrecoverable costs due to the resulting under-utilization of DBMG’s assets. Approximately $232.9million, representing 44.1%, of DBMG’s backlog at December 31, 2018 was attributable to five contracts, letters of intent, notices to proceed or purchase orders. If one or more ofthese large contracts or other commitments are terminated or their scope reduced, DBMG's backlog could decrease substantially.DBMG’s failure to meet contractual schedule or performance requirements could have a material adverse effect on DBMG’s results of operations, cash flows or financialcondition.In certain circumstances, DBMG guarantees project completion by a scheduled date or certain performance levels. Failure to meet these schedule or performance requirements couldresult in a reduction of revenue and additional costs, and these adjustments could exceed projected profit. Project revenue or profit could also be reduced by liquidated damageswithheld by customers under contractual penalty provisions, which can be substantial and can accrue on a daily basis. Schedule delays can result in costs exceeding our projectionsfor a particular project. Performance problems for existing and future contracts could cause actual results of operations to differ materially from those previously anticipated andcould cause us to suffer damage to our reputation within our industry and our customer base.DBMG’s government contracts may be subject to modification or termination, which could have a material adverse effect on DBMG’s results of operations, cash flows orfinancial condition.DBMG is a provider of services to U.S. government agencies and is therefore exposed to risks associated with government contracting. Government agencies typically canterminate or modify contracts to which DBMG is a party at their convenience, due to budget constraints or various other reasons. As a result, DBMG’s backlog may be reduced orit may incur a loss if a government agency decides to terminate or modify a contract to which DBMG is a party. DBMG is also subject to audits, including audits of internal controlsystems, cost reviews and investigations by government contracting oversight agencies. As a result of an audit, the oversight agency may disallow certain costs or withhold apercentage of interim payments. Cost disallowances may result in adjustments to previously reported revenue and may require DBMG to refund a portion of previously collectedamounts. In addition, failure to comply with the terms of one or more of our government contracts or government regulations and statutes could result in DBMG being suspendedor debarred from future government projects for a significant period of time,48possible civil or criminal fines and penalties, the risk of public scrutiny of our performance, and potential harm to DBMG’s reputation, each of which could have a material adverseeffect on DBMG’s results of operations, cash flows or financial condition. Other remedies that government agencies may seek for improper activities or performance issues includesanctions such as forfeiture of profit and suspension of payments.In addition to the risks noted above, legislatures typically appropriate funds on a year-by-year basis, while contract performance may take more than one year. As a result, contractswith government agencies may be only partially funded or may be terminated, and DBMG may not realize all of the potential revenue and profit from those contracts.Appropriations and the timing of payment may be influenced by, among other things, the state of the economy, competing political priorities, curtailments in the use of governmentcontracting firms, budget constraints, the timing and amount of tax receipts and the overall level of government expenditures.DBMG is exposed to potential risks and uncertainties associated with its reliance on subcontractors and third-party vendors to execute certain projects.DBMG relies on third-party suppliers, especially suppliers of steel and steel components, and subcontractors to assist in the completion of projects. To the extent these partiescannot execute their portion of the work and are unable to deliver their services, equipment or materials according to the agreed-upon contractual terms, or DBMG cannot engagesubcontractors or acquire equipment or materials, DBMG’s ability to complete a project in a timely manner may be impacted. Furthermore, when bidding or negotiating forcontracts, DBMG must make estimates of the amounts these third parties will charge for their services, equipment and materials. If the amount DBMG is required to pay for third-party goods and services in an effort to meet its contractual obligations exceeds the amount it has estimated, DBMG could experience project losses or a reduction in estimatedprofit.Any increase in the price of, or change in supply and demand for, the steel and steel components that DBMG utilizes to complete projects could have a material adverse effecton DBMG’s results of operations, cash flows or financial condition.The prices of the steel and steel components that DBMG utilizes in the course of completing projects are susceptible to price fluctuations due to supply and demand trends, energycosts, transportation costs, government regulations, duties and tariffs, changes in currency exchange rates, price controls, general economic conditions and other unforeseencircumstances. Although DBMG may attempt to pass on certain of these increased costs to its customers, it may not be able to pass all of these cost increases on to its customers.As a result, DBMG’s margins may be adversely impacted by such cost increases.DBMG’s dependence on suppliers of steel and steel components makes it vulnerable to a disruption in the supply of its products.DBMG purchases a majority of the steel and steel components utilized in the course of completing projects from several domestic and foreign steel producers and suppliers. DBMGgenerally does not have long-term contracts with its suppliers. An adverse change in any of the following could have a material adverse effect on DBMG’s results of operations orfinancial condition:•its ability to identify and develop relationships with qualified suppliers;•the terms and conditions upon which it purchases products from its suppliers, including applicable exchange rates, transport costs and other costs, its suppliers’willingness to extend credit to it to finance its inventory purchases and other factors beyond its control;•financial condition of its suppliers;•political instability in the countries in which its suppliers are located;•its ability to import products;•its suppliers’ noncompliance with applicable laws, trade restrictions and tariffs;•its inability to find replacement suppliers in the event of a deterioration of the relationship with current suppliers; or•its suppliers’ ability to manufacture and deliver products according to its standards of quality on a timely and efficient basis.Intense competition in the markets DBMG serves could reduce DBMG’s market share and earnings.The principal geographic and product markets DBMG serves are highly competitive, and this intense competition is expected to continue. DBMG competes with other contractorsfor commercial, industrial and specialty projects on a local, regional, or national basis. Continued service within these markets requires substantial resources and capital investmentin equipment, technology and skilled personnel, and certain of DBMG’s competitors have financial and operating resources greater than DBMG. Competition also placesdownward pressure on DBMG’s contract prices and margins. Among the principal competitive factors within the industry are price, timeliness of completion of projects, quality,reputation, and the desire of customers to utilize specific contractors with whom they have favorable relationships and prior experience.While DBMG believes that it maintains a competitive advantage with respect to these factors, failure to continue to do so or to meet other competitive challenges could have amaterial adverse effect on DBMG’s results of operations, cash flows or financial condition.49DBMG’s customers’ ability to receive the applicable regulatory and environmental approvals for projects and the timeliness of those approvals could adversely affectDBMG’s business.The regulatory permitting process for DBMG’s projects requires significant investments of time and money by DBMG’s customers and sometimes by DBMG. There are noassurances that DBMG’s customers or DBMG will obtain the necessary permits for these projects. Applications for permits may be opposed by governmental entities, individualsor special interest groups, resulting in delays and possible non-issuance of the permits.DBMG’s failure to obtain or maintain required licenses may adversely affect its business.DBMG is subject to licensure and holds licenses in each of the states in the United States in which it operates and in certain local jurisdictions within such states. While we believethat DBMG is in material compliance with all contractor licensing requirements in the various jurisdictions in which it operates, the failure to obtain, loss or revocation of anylicense or the limitation on any of DBMG’s primary services thereunder in any jurisdiction in which it conducts substantial operations could prevent DBMG from conductingfurther operations in such jurisdiction and have a material adverse effect on DBMG’s results of operations, cash flows or financial condition.Volatility in equity and credit markets could adversely impact DBMG due to its impact on the availability of funding for DBMG’s customers, suppliers and subcontractors.Some of DBMG’s ultimate customers, suppliers and subcontractors have traditionally accessed commercial financing and capital markets to fund their operations, and theavailability of funding from those sources could be adversely impacted by volatile equity or credit markets. The unavailability of financing could lead to the delay or cancellation ofprojects or the inability of such parties to pay DBMG or provide needed products or services and thereby have a material adverse effect on DBMG’s results of operations, cashflows or financial condition.DBMG’s business may be adversely affected by bonding and letter of credit capacity.Certain of DBMG’s projects require the support of bid and performance surety bonds or letters of credit. A restriction, reduction, or termination of DBMG’s surety bondagreements or letter of credit facilities could limit its ability to bid on new project opportunities, thereby limiting new awards, or to perform under existing awards.DBMG is vulnerable to significant fluctuations in its liquidity that may vary substantially over time.DBMG’s operations could require the utilization of large sums of working capital, sometimes on short notice and sometimes without assurance of recovery of the expenditures.Circumstances or events that could create large cash outflows include losses resulting from fixed-price contracts, environmental liabilities, litigation risks, contract initiation orcompletion delays, customer payment problems, professional and product liability claims and other unexpected costs. There is no guarantee that DBMG’s facilities will be sufficientto meet DBMG’s liquidity needs or that DBMG will be able to maintain such facilities or obtain any other sources of liquidity on attractive terms, or at all.DBMG’s projects expose it to potential professional liability, product liability, warranty and other claims.DBMG’s operations are subject to the usual hazards inherent in providing engineering and construction services for the construction of often large commercial industrial facilities,such as the risk of accidents, fires and explosions. These hazards can cause personal injury and loss of life, business interruptions, property damage and pollution andenvironmental damage. DBMG may be subject to claims as a result of these hazards. In addition, the failure of any of DBMG’s products to conform to customer specificationscould result in warranty claims against it for significant replacement or rework costs, which could have a material adverse effect on DBMG’s results of operations, cash flows orfinancial condition.Although DBMG generally does not accept liability for consequential damages in its contracts, should it be determined liable, it may not be covered by insurance or, if covered, thedollar amount of these liabilities may exceed applicable policy limits. Any catastrophic occurrence in excess of insurance limits at project sites involving DBMG’s products andservices could result in significant professional liability, product liability, warranty or other claims against DBMG. Any damages not covered by insurance, in excess of insurancelimits or, if covered by insurance, subject to a high deductible, could result in a significant loss for DBMG, which may reduce its profits and cash available for operations. Theseclaims could also make it difficult for DBMG to obtain adequate insurance coverage in the future at a reasonable cost. Additionally, customers or subcontractors that have agreed toindemnify DBMG against such losses may refuse or be unable to pay DBMG.50DBMG may experience increased costs and decreased cash flow due to compliance with environmental laws and regulations, liability for contamination of the environmentor related personal injuries.DBMG is subject to environmental laws and regulations, including those concerning emissions into the air, discharge into waterways, generation, storage, handling, treatment anddisposal of waste materials and health and safety.DBMG’s fabrication business often involves working around and with volatile, toxic and hazardous substances and other highly regulated pollutants, substances or wastes, forwhich the improper characterization, handling or disposal could constitute violations of U.S. federal, state or local laws and regulations and laws of other countries, and result incriminal and civil liabilities. Environmental laws and regulations generally impose limitations and standards for certain pollutants or waste materials and require DBMG to obtainpermits and comply with various other requirements. Governmental authorities may seek to impose fines and penalties on DBMG, or revoke or deny issuance or renewal ofoperating permits for failure to comply with applicable laws and regulations. DBMG is also exposed to potential liability for personal injury or property damage caused by anyrelease, spill, exposure or other accident involving such pollutants, substances or wastes. In connection with the historical operation of our facilities, substances which currently areor might be considered hazardous may have been used or disposed of at some sites in a manner that may require us to make expenditures for remediation.The environmental, health and safety laws and regulations to which DBMG is subject are constantly changing, and it is impossible to predict the impact of such laws andregulations on DBMG in the future. We cannot ensure that DBMG’s operations will continue to comply with future laws and regulations or that these laws and regulations will notcause DBMG to incur significant costs or adopt more costly methods of operation.Additionally, the adoption and implementation of any new regulations imposing reporting obligations on, or limiting emissions of greenhouse gases from, DBMG’s customers’equipment and operations could significantly impact demand for DBMG’s services, particularly among its customers for industrial facilities.Any expenditures in connection with compliance or remediation efforts or significant reductions in demand for DBMG’s services as a result of the adoption of environmentalproposals could have a material adverse effect on DBMG’s results of operations, cash flows or financial condition.DBMG is and will likely continue to be involved in litigation that could have a material adverse effect on DBMG’s results of operations, cash flows or financial condition.DBMG has been and may be, from time to time, named as a defendant in legal actions claiming damages in connection with fabrication and other products and services DBMGprovides and other matters. These are typically claims that arise in the normal course of business, including employment-related claims and contractual disputes or claims forpersonal injury or property damage which occur in connection with services performed relating to project or construction sites. Contractual disputes normally involve claims relatingto the timely completion of projects or other issues concerning fabrication and other products and services DBMG provides. There can be no assurance that any of DBMG’spending contractual, employment-related personal injury or property damage claims and disputes will not have a material effect on DBMG’s future results of operations, cash flowsor financial condition.Work stoppages, union negotiations and other labor problems could adversely affect DBMG’s business.A portion of DBMG’s employees are represented by labor unions, and 38% of DBMG’s employees are covered under collective bargaining agreements that expire in less than oneyear, but are currently being renegotiated. A lengthy strike or other work stoppage at any of its facilities could have a material adverse effect on DBMG’s business. There is inherentrisk that ongoing or future negotiations relating to collective bargaining agreements or union representation may not be favorable to DBMG. From time to time, DBMG also hasexperienced attempts to unionize its non-union facilities. Such efforts can often disrupt or delay work and present risk of labor unrest.DBMG’s employees work on projects that are inherently dangerous, and a failure to maintain a safe work site could result in significant losses.DBMG often works on large-scale and complex projects, frequently in geographically remote locations. Such involvement often places DBMG’s employees and others near largeequipment, dangerous processes or highly regulated materials. If DBMG or other parties fail to implement appropriate safety procedures for which they are responsible or if suchprocedures fail, DBMG’s employees or others may suffer injuries. In addition to being subject to state and federal regulations concerning health and safety, many of DBMG’scustomers require that it meet certain safety criteria to be eligible to bid on contracts, and some of DBMG’s contract fees or profits are subject to satisfying safety criteria. Unsafework conditions also have the potential of increasing employee turnover, project costs and operating costs. The failure to comply with safety policies, customer contracts orapplicable regulations could subject DBMG to losses and liability and could result in a variety of administrative, civil and criminal enforcement measures.51DBMG’s acquisition of GrayWolf Industrial could lead to significant losses if it does not perform.DBMG completed the acquisition of GrayWolf Industrial in the fourth quarter of 2018. To finance the acquisition DBMG obtained a $80 million term loan with TCW AssetManagement, revised its existing Credit Facility with Wells Fargo, and issued preferred stock to DBM Global Intermediate Co. in exchange for a $40 million investment. DBMGis expected to make interest payments and preferred dividends of approximately $11 million per year. The failure for GrayWolf to generate sufficient cash flow and profit to servicethese obligations could lead to significant losses.Risks Related to the Marine Services segmentGMSL may be unable to maintain or replace its vessels as they age.The expense of maintaining, repairing and upgrading GMSL’s vessels typically increases with age, and after a period of time the cost necessary to satisfy required marinecertification standards may not be economically justifiable. There can be no assurance that GMSL will be able to maintain its fleet by extending the economic life of its existingvessels, or that its financial resources will be sufficient to enable it to make the expenditures necessary for these purposes. In addition, the supply of second-hand replacementvessels is relatively limited and the costs associated with acquiring a newly constructed vessel are high. In the event that GMSL was to lose the use of any of its vessels for asustained period of time, its financial performance would be adversely affected.The operation and leasing of seagoing vessels entails the possibility of marine disasters, including damage or destruction of vessels due to accident, the loss of vessels due topiracy or terrorism, damage or destruction of cargo and similar events that may cause a loss of revenue from affected vessels and damage GMSL’s business reputation,which may in turn lead to loss of business.The operation of seagoing vessels entails certain inherent risks that may adversely affect GMSL’s business and reputation, including:•damage or destruction of a vessel due to marine disaster such as a collision or grounding;•the loss of a vessel due to piracy and terrorism;•compliance with laws and regulations governing the discharge of oil, hazardous substances, ballast water and other substances;•cargo and property losses or damage as a result of the foregoing or less drastic causes such as human error, mechanical failure and bad weather;•environmental accidents as a result of the foregoing;•the availability of insurance at reasonable rates; and•business interruptions and delivery delays caused by mechanical failure, human error, war, terrorism, political action in various countries, labor strikes or adverse weatherconditions.Any of these circumstances or events could substantially increase GMSL’s operating costs, as for example, the cost of substituting or replacing a vessel, or lower its revenues bytaking vessels out of operation permanently or for periods of time. The involvement of GMSL’s vessels in a disaster or delays in delivery or damages or loss of cargo may harm itsreputation as a safe and reliable vessel operator and cause it to lose business.GMSL’s operations are subject to complex laws and regulations, including environmental laws and regulations that result in substantial costs and other risks.GMSL does business with clients in the oil and natural gas industry, which is extensively regulated by U.S. federal, state, tribal, and local authorities, and corresponding foreigngovernmental authorities. Legislation and regulations affecting the oil and natural gas industry are under constant review for amendment or expansion, raising the possibility ofchanges that may become more stringent and, as a result, may affect, among other things, the pricing or marketing of crude oil and natural gas production. Noncompliance withstatutes and regulations and more vigorous enforcement of such statutes and regulations by regulatory agencies may lead to substantial administrative, civil, and criminal penalties,including the assessment of natural resource damages, the imposition of significant investigatory and remedial obligations, and may also result in the suspension or termination ofour operations.Global Marine has material obligations under the Global Marine Pension Plan and related Recovery Plan.In order to satisfy the requirements of Section 226 of the Pensions Act of 2004 (UK) ("UK Pensions Act 2004"), GMSL is a party to the Global Marine Pension Plan RecoveryPlan, dated as of March 14, 2014 (the "Recovery Plan"). The Recovery Plan addresses GMSL’s pension funding shortfall, which (on the basis of U.S. GAAP accountingestimates) was approximately $18.6 million as of December 31, 2018, by requiring GMSL to make certain scheduled fixed monthly contributions, certain variable annual profit-related contributions and certain variable dividend-related contributions to the pension plan. The variable dividend-related contributions require GMSL to pay cash contributions tothe underfunded pension plan equal to 50% of any dividend payments made to its stockholder, which reduces the amount of cash available for GMSL to make upstream dividendpayments to us.However the Global Marine Pension Plan must be valued on a triennial basis, and all valuations are dependent upon the prevailing market conditions and the actuarial methods andassumptions used as well as the expected pension liabilities at the valuation date. The next valuation is due for the Global Marine Pension Plan position as of December 31, 2019,and the valuation report will be published in 2020. There are52various risks which could adversely affect the next valuation of the Global Marine Pension Plan and, consequently, the obligations of GMSL to fund the plan, such as a significantadverse change in the market value of the pension plan assets, an increase in pension liabilities, longer life expectancy of plan members, a change in the discount rate or inflation rateused by the actuary or if the trustees of the plan recommend a material change to the investment strategy. Any increase in the deficit may result in a need for GMSL to increase itspension contributions, which would reduce the amount of cash available for GMSL to make upstream dividend payments to us. While we expect the trustees of the pension plan torenegotiate the Recovery Plan on at least a triennial basis or to dispense with the Recovery Plan if and when the funding shortfall has been eliminated, we can make no assurances inrelation to this.Under the UK Pensions Act 2004, The Pensions Regulator may issue a contribution notice to us or any employer in the UK pension plan or any person who is connected with or isan associate of any such employer where The Pensions Regulator is of the opinion that the relevant person has been a party to an act, or a deliberate failure to act, which had as itsmain purpose (or one of its main purposes) the avoidance of pension liabilities. Under the UK Pensions Act 2008, The Pensions Regulator has the power to issue a contributionnotice to any person where The Pensions Regulator is of the opinion that such person has been a party to an act, or a deliberate failure to act, which has a materially detrimentaleffect on a pension plan without sufficient mitigation having been provided. If The Pensions Regulator determines that any of the employers participating in the Global MarinePension Plan are "insufficiently resourced" or a "service company", it may impose a financial support direction requiring such employer or any person associated or connected (seebelow) with that employer to put in place financial support.The Pensions Regulator can only issue a contribution notice or financial support direction where it believes it is reasonable to do so. The terms "associate" and "connected person"are broadly defined in the UK Insolvency Act (1986) and would cover, among others, GMSL, its subsidiaries and others deemed to be "shadow directors". Liabilities imposedunder a contribution notice or financial support direction may be up to the difference between the value of the assets of the plan and the cost of buying out the benefits of membersand other beneficiaries. If GMSL or its connected or associated parties are the recipient of a contribution notice or financial support direction this could have an effect on our cashflow.In practice, the risk of a contribution notice being imposed may restrict our ability to restructure or undertake certain corporate activities relating to GMSL without first seekingagreement of the trustees of the Global Marine Pension Plan and, possibly, the approval of The Pensions Regulator. Additional security may also need to be provided to the trusteesbefore certain corporate activities can be undertaken (such as the payment of an unusual dividend from GMSL) and any additional funding required by the Global Marine PensionPlan may have an adverse effect on our financial condition and the results of our operations.Litigation, enforcement actions, fines or penalties could adversely impact GMSL’s financial condition or results of operations and damage its reputation.GMSL’s business is subject to various international laws and regulations that could lead to enforcement actions, fines, civil or criminal penalties or the assertion of litigation claimsand damages. In addition, improper conduct by GMSL’s employees or agents could damage its reputation and lead to litigation or legal proceedings that could result in significantawards or settlements to plaintiffs and civil or criminal penalties, including substantial monetary fines. Such events could lead to an adverse impact on GMSL’s financial conditionor results of operations, if not mitigated by its insurance coverage.As a result of any ship or other incidents, litigation claims, enforcement actions and regulatory actions and investigations, including, but not limited to, those arising from personalinjury, loss of life, loss of or damage to personal property, business interruption losses or environmental damage to any affected coastal waters and the surrounding area, may beasserted or brought against various parties including GMSL. The time and attention of GMSL’s management may also be diverted in defending such claims, actions andinvestigations. GMSL may also incur costs both in defending against any claims, actions and investigations and for any judgments, fines or civil or criminal penalties if such claims,actions or investigations are adversely determined and not covered by its insurance policies.Currency exchange rate fluctuations may negatively affect GMSL’s operating results.The exchange rates between the US dollar, the Singapore dollar, the Euro and the GBP have fluctuated in recent periods and may fluctuate substantially in the future. Accordingly,any material fluctuation of the exchange rate of the US Dollar against the Euro, GBP and Singapore dollar could have a negative impact on GMSL’s results of operations andfinancial condition.GMSL derives a significant amount of its revenues from sales to customers outside of the United States, which poses additional risks, including economic, political and otheruncertainties.GMSL’s non-U.S. sales are significant in relation to consolidated sales. GMSL believes that non-U.S. sales will remain a significant percentage of its revenue. In addition, sales ofits products to customers operating in foreign countries that experience political/economic instability or armed conflict could result in difficulties in delivering and installing completeseismic energy source systems within those geographic areas and receiving payment from these customers. Furthermore, restrictions under the FCPA, the Bribery Act, or similarlegislation in other countries, or trade embargoes or similar restrictions imposed by the United States or other countries, could limit GMSL’s ability to do business in certain foreigncountries. These factors could materially adversely affect GMSL’s results of operations and financial condition.53Further deterioration of economic opportunities in the oil and gas sector could adversely affect the financial growth of GMSL.The oil and gas market has experienced an exceptional upheaval since early 2014 with the price of oil falling dramatically and this economic weakness could continue into theforeseeable future. Oil prices can be very volatile and are subject to international supply and demand, political developments, increased supply from new sources and the influenceof OPEC in particular. The major operators are reviewing their overall capital spending and this trend is likely to reduce the size and number of projects carried out in the mediumterm as the project viability comes under greater scrutiny. This is especially true of offshore oil and gas industry, which is our focus in the oil and gas space as it is a relativelyexpensive method of drilling for oil and natural gas. Ongoing concerns about the systemic impact of lower oil prices and the continued uncertainty of possible reductions in long-term capital expenditure could have a material adverse effect on the planned growth of GMSL and eventually curtail the anticipated cash flow and results from operations.Delay or inability to obtain appropriate certifications for our vessels may result in us being unable to win new contracts and fulfill our obligations under our existingcontracts.Our customers require that our vessels are inspected and certified by a recognized independent third party in order for us to be able to participate in tenders for their projects. Inaddition, we are required under our contracts with our customers to maintain such certifications. Each of our vessels is certified by the American Bureau of Shipping ("ABS"). TheABS’s certification process generally involves regularly scheduled extensive vessel surveys by marine engineers evaluating the integrity and seaworthiness of our vessels. If we areunable to maintain or obtain these certifications, we may be unable to service our customers under our existing contracts and may not be eligible to participate in future tenders,which could have an adverse effect on our business, financial condition or results of operations.GMSL’s business is dependent on capital spending by our customers, and reductions in capital spending could have a material adverse effect on our business, consolidatedresults of operations, and consolidated financial condition.Our business is directly affected by changes in capital expenditures by our customers, and further reductions in their capital spending could reduce demand for our services andproducts and have a material adverse effect on our business, consolidated results of operations, and consolidated financial condition. Some of the items that may impact ourcustomer’s capital spending include:•oil and natural gas prices, including volatility of oil and natural gas prices and expectations regarding future prices;•the inability of our customers to access capital on economically advantageous terms;•technological advances that make subsea cable communications less attractive or obsolete;•the consolidation of our customers;•customer personnel changes; and•adverse developments in the business or operations of our customers, including write-downs of reserves and borrowing base reductions under customer credit facilities.As a result of the decreases in oil and natural gas prices, many of our customers in this industry reduced capital spending in 2016 and 2017. While customer budgets are slowlyincreasing in response to improved market conditions, any prolonged further reduction in commodity prices may result in further capital budget reductions in the future.Some of our customers require bids for contracts in the form of long-term, fixed pricing contracts that may require us to assume additional risks associated with cost over-runs, operating cost inflation, labor availability and productivity, supplier and contractor pricing and performance, and potential claims for liquidated damages.Some of our customers may require bids for contracts in the form of long-term, fixed pricing contracts that may require us to provide integrated project management services outsideour normal discrete business to act as project managers as well as service providers, and may require us to assume additional risks associated with cost over-runs. These customersmay provide us with inaccurate information. These issues may also result in cost over-runs, delays, and project losses.GMSL’s operations require us to comply with a number of United States and international regulations, violations of which could have a material adverse effect on ourbusiness, consolidated results of operations, and consolidated financial condition.Our operations require us to comply with a number of United States and international regulations. For example, our operations in countries outside the United States are subject tothe United States Foreign Corrupt Practices Act (FCPA), which prohibits United States companies and their agents and employees from providing anything of value to a foreignofficial for the purposes of influencing any act or decision of these individuals in their official capacity to help obtain or retain business, direct business to any person or corporateentity, or obtain any unfair advantage. Our activities create the risk of unauthorized payments or offers of payments by our employees, agents, or joint venture partners that could bein violation of anti-corruption laws, even though some of these parties are not subject to our control. We have internal control policies and procedures and have implemented trainingand compliance programs for our employees and agents with respect to the FCPA. However, we cannot assure that our policies, procedures, and programs always will protect usfrom reckless or criminal acts committed by our employees or agents. Allegations of violations of applicable anti-corruption laws have resulted and may in the future result ininternal, independent, or government investigations. Violations of anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities,which could have a material adverse effect on our business, consolidated results of operations, and consolidated financial condition. The age of GMSL’s fleet vessels may restrict usfrom doing business with certain customers.54Certain of our existing and potential customers have policies regarding the minimum acceptable original build age of vessels for use on their projects. The average age of the GMSLfleet is 19 years and the CWind fleet is 4 years. One of our vessels have original build ages of over 27 years, and such policies may preclude us from participating in tenders fornew contracts at all or without producing third party feasibility studies of our vessels. Any trend towards restricting the operation of vessels with older original build ages, eitherfrom our customers or under the regulations in the jurisdictions in which a particular vessel operates, could have an adverse effect on our business, financial condition or results ofoperations, particularly as our vessels continue to age.Vessel construction, upgrade, refurbishment and repair projects are subject to risks, including delays and cost overruns, which could have an adverse impact on ouravailable cash resources and results of operations.GMSL expects to incur significant new construction and/or upgrade, refurbishment and repair expenditures for our vessel fleet from time to time, particularly in light of the agingnature of our vessels and requests for upgraded equipment from our customers. Some of these expenditures may be unplanned. Vessel construction, upgrade, refurbishment andrepair projects may be subject to the risks of delay or cost overruns, including delays or cost overruns resulting from any one or more of the following:•unexpectedly long delivery times for, or shortages of, key equipment, parts or materials;•shortages of skilled labor and other shipyard personnel necessary to perform the work;•shipyard delays and performance issues;•failures or delays of third-party equipment vendors or service providers;•unforeseen increases in the cost of equipment, labor and raw materials, particularly steel;•work stoppages and other labor disputes;•unanticipated actual or purported change orders;•disputes with shipyards and suppliers;•design and engineering problems;•latent damages or deterioration to equipment and machinery in excess of engineering estimates and assumptions;•financial or other difficulties at shipyards;•interference from adverse weather conditions;•difficulties in obtaining necessary permits or in meeting permit conditions; and•customer acceptance delays.Significant cost overruns or delays could materially affect our financial condition and results of operations.Additionally, capital expenditures for vessel upgrade, refurbishment and repair projects could materially exceed our planned capital expenditures. The failure to complete such aproject on time, or the inability to complete it in accordance with our design specifications, may, in some circumstances, result in loss of revenues, penalties and/or delay, as well asrenegotiation or cancellation of one or more contracts. In the event of termination of one of these contracts, we may not be able to secure a replacement contract on as-favorableterms. Moreover, our vessels undergoing upgrade, refurbishment and repair will typically not earn revenue during periods when they are out of service.Liability for cleanup costs, natural resource damages, and other damages arising as a result of environmental laws could be substantial and could have a material adverseeffect on our liquidity, consolidated results of operations, and consolidated financial condition.We are exposed to claims under environmental requirements and carry insurance in accordance with international shipping agreements. In the United States and many foreignsubsidiaries, environmental requirements and regulations typically impose strict liability. Strict liability means that in some situations we could be exposed to liability for cleanupcosts, natural resource damages, and other damages as a result of our conduct that was lawful at the time it occurred or the conduct of prior operators or other third parties.Liability for damages arising as a result of environmental laws could be substantial and could have a material adverse effect on our liquidity, consolidated results of operations, andconsolidated financial condition.A revocation or modification of Opinion rulings by the Customs and Border Patrol (CBP) of the Jones Act could result in restrictions on GMSL’s services to U.S. Coastalareas in the United States.GMSL is subject to U.S. cabotage laws that impose certain restrictions on the ownership and operation of vessels in the U.S. coastwise trade (i.e., the transportation of passengersand merchandise between points in the United States), including the transportation of cargo. These laws are principally contained in 46 U.S.C. §50501 and 46 U.S.C. Chapter 551and related regulations and are commonly referred to collectively as the "Jones Act." Subject to limited exceptions, the Jones Act requires that vessels engaged in U.S. coastwisetrade be built in the United States, registered under the U.S. flag, manned by predominantly U.S. crews, and owned and operated by U.S. citizens within the meaning of the JonesAct. Should GMSL be required to comply with the U.S. citizenship requirements of the Jones Act, it may be prohibited from operating its vessels in the U.S. coastwise trade.A portion of GMSL’s operations may be conducted in the U.S. coastal areas, possibly extending to cable laying and repair activities on the US continental shelf. Subject to limitedexceptions, the Jones Act requires that vessels engaged in U.S. coastwise trade be built in the United States, registered under the U.S. flag, manned by predominantly U.S. crews,and owned and operated by U.S. citizens within the meaning of the Jones55Act. Under existing rules, the Jones Act exempts certain foreign construction vessels working in the offshore oil and gas sector delivering repair materials for pipelines andplatforms, which may include work performed by GMSL U.S. coastal areas. In 2017, the U.S. Customs and Border Protection (CBP) requested comments for a proposal to extendthe Jones Act restrictions to vessels supplying equipment to offshore facilities in the U.S. coastwise trade, which, if adopted, could prohibit GMSL from directly operating in U.S.coastal areas. Such a new interpretation would attempt to extend the Jones Act to include previously exempted foreign construction vessels working in the offshore oil and gassector delivering repair materials for pipelines and platforms, and also to cable vessels laying and repair cables. Any such revocation or modification of Opinion rulings by the CBPof the Jones Act, if adopted, could have an adverse effect on GMSL’s business.In May 2017, CPB withdrew its proposal to amend the Jones Act in a way that would have made a bulk of international offshore construction vessels banned from working in U.S.waters in the offshore oil and gas industry. The CPB stated, "Based on the many substantive comments CBP received, both supporting and opposing the proposed action, andCBP’s further research on the issue, we conclude that the Agency’s notice of proposed modification and revocation of the various ruling letters relating to the Jones Act should bereconsidered. Accordingly, CBP is withdrawing its proposed action relating to the modification of HQ 101925 and revision of rulings determining certain articles are vesselequipment under T.D. 49815(4), as set forth in the January 18, 2017 notice.There are risks inherent in foreign joint ventures and investments, such as adverse changes in currency values and foreign regulations.The joint ventures in which GMSL has operating activities or interests that are located outside the United States are subject to certain risks related to the indirect ownership anddevelopment of, or investment in, foreign subsidiaries. These risks include government expropriation and nationalization, adverse changes in currency values and foreign exchangecontrols, foreign taxes, U.S. taxes on the repatriation of funds to the United States, and other laws and regulations, both foreign and domestic, any of which may have a materialadverse effect on GMSL’s investments, financial condition, results of operations, or cash flows. In particular, given our investments in joint ventures in China, there are alsosubstantial uncertainties regarding the interpretation, application and enforcement of China’s laws and regulations. The effectiveness of newly enacted laws, regulations oramendments in China may be delayed, resulting in detrimental reliance by foreign investors. Furthermore, new laws, regulations and government actions, both internationally and inthe U.S., that affect existing and proposed future businesses in China may be applied retroactively and impact GMSL’s investments and activities. The unpredictability of theinterpretation and application of existing and new laws and regulations, in both China and in other countries, may raise additional challenges for us as our joint ventures in Chinadevelop and grow. Our failure to understand these laws or an unforeseen change in a law, or the application thereof, may have a material adverse effect on GMSL’s investments,financial condition, results of operations, or cash flows.Risks Related to our Telecommunications segmentOur Telecommunications segment is substantially smaller than some of our major competitors, whose marketing and pricing decisions, and relative size advantage couldadversely affect our ability to attract and to retain customers. These major competitors are likely to continue to cause significant pricing pressures that could adversely affectICS’s net revenues, results of operations and financial condition.The carrier services telecommunications industry is significantly influenced by the marketing and pricing decisions of the larger business participants. The rapid development of newtechnologies, services and products has eliminated many of the traditional distinctions among wireless, cable, Internet, local and long distance communication services. We facemany competitors in this market, including telephone companies, cable companies, wireless service providers, satellite providers, application and device providers. ICS facescompetition for its voice trading services from telecommunication services providers’ traditional processes and new companies. Once telecommunication services providers haveestablished business relationships with competitors to ICS, it could be extremely difficult to convince them to utilize our services. These competitors may be able to develop servicesor processes that are superior to ICS’s services or processes, or that achieve greater industry acceptance.Many of our competitors are significantly larger than us and have substantially greater financial, technical and marketing resources, larger networks, a broader portfolio of serviceofferings, greater control over network and transmission lines, stronger name recognition and customer loyalty and long-standing relationships with our target customers. As aresult, our ability to attract and retain customers may be adversely affected. Many of our competitors enjoy economies of scale that result in low cost structures for transmission andrelated costs that could cause significant pricing pressures within the industry.Our ability to compete effectively will depend on, among other things, our network quality, capacity and coverage, the pricing of our products and services, the quality of ourcustomer service, our development of new and enhanced products and services, the reach and quality of our sales and distribution channels and our capital resources. It will alsodepend on how successfully we anticipate and respond to various factors affecting our industry, including new technologies and business models, changes in consumer preferencesand demand for existing services, demographic trends and economic conditions. While growth through acquisitions is a possible strategy for ICS, there are no guarantees that anyacquisitions will occur, nor are there any assurances that any acquisitions by ICS would improve the financial results of its business. If we are not able to respond successfully tothese competitive challenges, we could experience reduced revenues.56ICS suppliers may not be able to obtain credit insurance on ICS, which could have a material adverse effect on ICS’s business.ICS makes purchases from its suppliers, who may rely on the ability to obtain credit insurance on ICS in determining whether or not to extend short-term credit to ICS in the formof accounts receivables. To the extent that these suppliers are unable to obtain such insurance they may be unwilling to extend credit. In early 2016, two significant insurers of thistype of credit, Euler and Coface, determined that they will not insure ICS credit, and that the existing policies on its credit were cancelled based on their analysis of the financialcondition of HC2, including its indebtedness levels, recent net losses and negative cash flow. As a result, we expect ICS’s suppliers to find it difficult to obtain credit insurance onICS, which could have a material adverse effect on ICS’s business, financial condition, results of operations and prospects.Any failure of ICS’s physical infrastructure, including undetected defects in technology, could lead to significant costs and disruptions that could reduce its revenue andharm its business reputation and financial results.ICS depends on providing customers with highly reliable service. ICS must protect its infrastructure and any collocated equipment from numerous factors, including:•human error;•physical or electronic security breaches;•fire, earthquake, flood and other natural disasters;•water damage;•power loss; and•terrorism, sabotage and vandalism.Problems at one or more of ICS’s exchange delivery points, whether or not within ICS’s control, could result in service interruptions or significant equipment damage. Any loss ofservices, equipment damage or inability to terminate voice calls or supply Internet capacity could reduce the confidence of the members and customers and could consequentlyimpair ICS’s ability to obtain and retain customers, which would adversely affect both ICS’s ability to generate revenues and its operating results.ICS’s positioning in the marketplace and intense domestic and international competition in these services places a significant strain on our resources, which if not managedeffectively could result in operational inefficiencies and other difficulties.To manage ICS’s market positioning effectively, we must continue to implement and improve its operational and financial systems and controls, invest in critical networkinfrastructure to expand its coverage and capacity, maintain or improve its service quality levels, purchase and utilize other transmission facilities, evolve its support and billingsystems and train and manage its employee base. If we inaccurately forecast the movement of traffic onto ICS’s network, we could have insufficient or excessive transmissionfacilities and disproportionate fixed expenses. As we proceed with the development of our ICS business, operational difficulties could arise from additional demand placed oncustomer provisioning and support, billing and management information systems, product delivery and fulfillment, support, sales and marketing, administrative resources, networkinfrastructure, maintenance and upgrading. For instance, we may encounter delays or cost-overruns or suffer other adverse consequences in implementing new systems whenrequired.If ICS is not able to operate a cost-effective network, we may not be able to operate our ICS business successfully.Our business’s success depends on our ability to design, implement, operate, manage, maintain and upgrade a reliable and cost-effective network infrastructure. In addition, we relyon third-party equipment and service vendors manage ICS’s global network through which it provides its services. If we fail to generate traffic on ICS’s network, if we experiencetechnical or logistical impediments to the development of necessary aspects of ICS’s network or the migration of traffic and customers onto ICS’s network, or if we experiencedifficulties with third-party providers, we may not achieve desired economies of scale or otherwise be successful in our business.Our telecommunications network infrastructure has several vulnerabilities and limitations. Our telecommunications network is the source of most of ICS’s revenues and any damages to or loss of our equipment or any problem with or limitation of ICS’s network whetheraccidental or otherwise, including network, hardware and software failures may result in a reduction in the number of our customers or usage level by our customers, our inability toattract new customers or increased maintenance costs, all of which would have a negative impact on our results of operations. The development and operation of our network issubject to problems and technological risks, including:•physical damage;•power surges or outages;•capacity limitations;•software defects as well as hardware and software obsolescence;•breaches of security, whether by computer virus, break-in or otherwise;•denial of access to our sites for failure to obtain required municipal or other regulatory approvals; and•other factors which may cause interruptions in service or reduced capacity for our customers. 57Our operations also rely on a stable supply of utilities service. We cannot assure you that future supply instability will not impair our ability to procure required utility services in thefuture, which could adversely impact our business, financial condition and results of operations.Changes in the regulatory framework under which we operate could adversely affect our business prospects or results of operations.Our domestic operations are subject to regulation by federal and state agencies, and our international operations are regulated by various foreign governments and internationalbodies. These regulatory regimes may restrict or impose conditions on our ability to operate in designated areas and to provide specified products or services. We are frequentlyrequired to maintain licenses for our operations and conduct our operations in accordance with prescribed standards. We are from time to time involved in regulatory and othergovernmental proceedings or inquiries related to the application of these requirements. It is impossible to predict with any certainty the outcome of pending federal and stateregulatory proceedings relating to our operations, or the reviews by federal or state courts of regulatory rulings. Moreover, new laws or regulations or changes to the existingregulatory framework could affect how we manage our wireline and wireless networks, impose additional costs, impair revenue opportunities, and potentially impede our ability toprovide services in a manner that would be attractive to us and our customers.Service interruptions due to natural disasters or unanticipated problems with our network infrastructure could result in customer loss. Natural disasters or unanticipated problems with our network infrastructure could cause interruptions in the services we provide. The failure of a switch and our back-up systemwould result in the interruption of service to the customers served by that switch until necessary repairs are completed or replacement equipment is installed. The successfuloperation of our network and its components is highly dependent upon our ability to maintain the network and its components in reliable enough working order to provide sufficientquality of service to attract and maintain customers. Any damage or failure that causes interruptions in our operations or lack of adequate maintenance of our network could result inthe loss of customers and increased maintenance costs that would adversely impact our results of operations and financial condition. We have backup data for our key information and data processing systems that could be used in the event of a catastrophe or a failure of our primary systems, and have establishedalternative communication networks where available. However, we cannot assure you that our business activities would not be materially disrupted if there were a partial orcomplete failure of any of these primary information technology systems or communication networks. Such failures could be caused by, among other things, software bugs,computer virus attacks or conversion errors due to system upgrading. In addition, any security breach caused by unauthorized access to information or systems, or intentionalmalfunctions or loss or corruption of data, software, hardware or other computer equipment, could have a material adverse effect on our business, results of operations and financialcondition.Our insurance coverage may not adequately cover losses resulting from the risks for which we are insured. We maintain insurance policies for our network facilities and all of our corporate assets. This insurance coverage protects us in the event we suffer losses resulting from theft, fraud,natural disasters or other similar events or from business interruptions caused by such events. In addition, we maintain insurance policies for our directors and officers. We cannotassure you however, that such insurance will be sufficient or will adequately cover potential losses. We could be adversely affected if major suppliers fail to provide needed equipment and services on a timely or cost-efficient basis or are unwilling to provide us credit onfavorable terms or at all. We rely on a few strategic suppliers and vendors to provide us with equipment, materials and services that we need in order to expand and to operate our business. There are alimited number of suppliers with the capability of providing the network equipment and platforms that our operations and expansion plans require or the services that we require tomaintain our extensive and geographically widespread networks. In addition, because the supply of network equipment and platforms requires detailed supply planning and thisequipment is technologically complex, it would be difficult for us to replace the suppliers of this equipment. Suppliers of cables that we need to extend and maintain our networksmay suffer capacity constraints or difficulties in obtaining the raw materials required to manufacture these cables. We also depend on network installation and maintenance services providers, equipment suppliers, call centers, collection agencies and sales agents, for network infrastructure, andservices to satisfy our operating needs. Many suppliers rely heavily on labor; therefore, any work stoppage or labor relations problems affecting our suppliers could adversely affectour operations. Suppliers may, among other things, extend delivery times, raise prices and limit supply due to their own shortages and business requirements. Similarly,interruptions in the supply of telecommunications equipment for networks could impede network development and expansion. If these suppliers fail to deliver products and serviceson a timely and cost-efficient basis that satisfies our demands or are unwilling to sell to us on favorable credit terms or at all, we could experience disruptions, which could have anadverse effect on our business, financial condition and results of operations.58Risks related to our Broadcasting segmentWe may not be able to successfully integrate HC2 Broadcasting's recent acquisitions into our business, or realize the anticipated benefits of these acquisitions.Following the completion of HC2 Broadcasting’s recent and pending acquisitions, the integration of these businesses into our operations may be a complex and time-consumingprocess that may not be successful. For example, prior to the completion of HC2 Broadcasting’s acquisition of Azteca America, we did not operate a Spanish-language broadcastnetwork providing original content to the Hispanic audience in the United States. In addition, HC2 Broadcasting’s pending and completed acquisitions during 2018 expanded HC2Broadcasting's network to 167 operational stations, inclusive of 29 pending operating station acquisitions. This total includes 14 Full-Power stations, 55 Class A stations and 98LPTV stations, collectively able to broadcast over 1,000 sub-channels in over 130 markets across the United States. In addition, the acquisitions increased Broadcasting’sconstruction permits to 475, allowing for further build-out of coverage across the United States. This may add complexity to effectively overseeing, integrating and operating theseassets.Even if we successfully integrate these assets into our business and operations, there can be no assurance that we will realize the anticipated benefits and operating synergies. TheCompany's estimates regarding the earnings, operating cash flow, capital expenditures and liabilities resulting from these acquisitions may prove to be incorrect. For example, withany past or future acquisition, there is the possibility that:•we may not have implemented company policies, procedures and cultures, in an efficient and effective manner;•we may not be able to successfully reduce costs, increase advertising revenue or audience share;•we may fail to retain and integrate employees and key personnel of the acquired business and assets;•our management may be reassigned from overseeing existing operations by the need to integrate the acquired business;•we may encounter unforeseen difficulties in extending internal control and financial reporting systems at the newly acquired business;•we may fail to successfully implement technological integration with the newly acquired business or may exceed the capabilities of our technology infrastructure andapplications;•we may not be able to generate adequate returns;•we may encounter and fail to address risks or other problems associated with or arising from our reliance on the representations and warranties and relatedindemnities, if any, provided to us by the sellers of acquired companies and assets;•we may suffer adverse short-term effects on operating results through increased costs and may incur future impairments of goodwill associated with the acquiredbusiness;•we may be required to increase our leverage and debt service or to assume unexpected liabilities in connection with our acquisitions; and•we may encounter unforeseen challenges in entering new markets in which we have little or no experience.The occurrence of any of these events or our inability generally to successfully implement our acquisition and investment strategy would have an adverse effect, which could bematerial, on our business, financial condition and results of operations.Our broadcasting business conducted by HC2 Broadcasting operates in highly competitive markets and our ability to maintain market share and generate operatingrevenues depends on how effectively we compete with existing and new competition.HC2 Broadcasting's broadcast stations compete for audiences and advertising revenue with other broadcast stations as well as with other media such as the Internet and radio. HC2Broadcasting also faces competition from (i) local free over-the-air broadcast television and radio stations; (ii) telecommunication companies; (iii) cable and satellite system operatorsand cable networks; (iv) print media providers such as newspapers, direct mail and periodicals; (v) internet search engines, internet service providers, websites, and mobileapplications; and (vi) other emerging technologies including mobile television. Some of HC2 Broadcasting's current and potential competitors have greater financial and otherresources than HC2 Broadcasting does and so may be better placed to extend audience reach and expand programming. Many of HC2 Broadcasting’s competitors possess greateraccess to capital, and its financial resources may be relatively limited when contrasted with those of such competitors. If HC2 Broadcasting needs to obtain additional funding, HC2Broadcasting may be unable to such raise capital or, if HC2 Broadcasting is able to obtain capital it may be on unfavorable terms. If HC2 Broadcasting is unable to obtain additionalfunding as and when needed, it could be forced to delay its development, marketing and expansion efforts and, if it continues to experience losses, potentially cease operations.In addition, cable companies and others have developed national advertising networks in recent years that increase the competition for national advertising. Over the past decade,cable television programming services, other emerging video distribution platforms and the Internet have captured increasing market share. Cable providers, direct broadcast satellitecompanies and telecommunication companies are developing new technology that allows them to transmit more channels on their existing equipment to highly targeted audiences,reducing the cost of creating channels and potentially leading to the division of the television industry into ever more specialized niche markets. The decreased cost of creatingchannels may also encourage new competitors to enter HC2 Broadcasting's markets and compete with us for advertising revenue. In addition, technologies that allow viewers todigitally record, store and play back television programming may decrease viewership of commercials as recorded by media measurement services and, as a result, lowerBroadcasting's advertising revenues. Furthermore, technological advancements and the resulting increase in programming alternatives, such as cable television, direct broadcastsatellite systems, pay-per-view, home video and entertainment systems, video-on-demand, mobile video and the Internet have also created new types of competition to televisionbroadcast stations and will increase competition for household audiences and advertisers. We cannot provide any assurances that we will remain competitive with these developingtechnologies.59HC2 Broadcasting's inability to successfully respond to new and growing sources of competition in the broadcasting industry could have an adverse effect on HC2 Broadcasting'sbusiness, financial condition and results of operations.The FCC could implement regulations or the U.S. Congress could adopt legislation that might have a significant impact on the operations of the stations we own and thestations we provide services to or the television broadcasting industry as a whole.The FCC regulates HC2 Broadcasting's broadcasting business. We must often times obtain the FCC’s approval to obtain, renew, assign or modify, a license, purchase a newstation, sell an existing station or transfer the control of one of HC2 Broadcasting's subsidiaries that hold a license. HC2 Broadcasting's FCC licenses are critical to HC2Broadcasting's operations; we cannot operate without them. We cannot be certain that the FCC will renew these licenses in the future or approve new acquisitions in a timelymanner, if at all. If licenses are not renewed or acquisitions are not approved, we may lose revenue that we otherwise could have earned and this would have an adverse effect onHC2 Broadcasting's business, financial condition and results of operations.In addition, Congress and the FCC may, in the future, adopt new laws, regulations and policies regarding a wide variety of matters (including, but not limited to, technologicalchanges in spectrum assigned to particular services) that could, directly or indirectly, materially and adversely affect the operation and ownership of HC2 Broadcasting's broadcastproperties.Broadcasting Licenses are issued by, and subject to the jurisdiction of the Federal Communications Commission ("FCC"), pursuant to the Communications Act of 1934, asamended (the "Communications Act"). The Communications Act empowers the FCC, among other actions, to issue, renew, revoke and modify broadcasting licenses;determine stations’ frequencies, locations and operating power; regulate some of the equipment used by stations; adopt other regulations to carry out the provisions of theCommunications Act and other laws, including requirements affecting the content of broadcasts; and to impose penalties for violation of its regulations, including monetaryforfeitures, short-term renewal of licenses and license revocation or denial of license renewals.License Renewals. Broadcast television licenses are typically granted for standard terms of eight years. Most licenses for commercial and noncommercial TV broadcast stations,Class A TV broadcast stations, television translators and Low Power Television ("LPTV") broadcast stations are scheduled to expire between 2020 and 2022; however, theCommunications Act requires the FCC to renew a broadcast license if the FCC finds that the station has served the public interest, convenience and necessity and, with respect tothe station, there have been no serious violations by the licensee of either the Communications Act or the FCC’s rules and regulations and there have been no other violations by thelicensee of the Communications Act or the FCC’s rules and regulations that, taken together, constitute a pattern of abuse. The Company has no pending renewal applications. Astation remains authorized to operate while its license renewal application is pending.License Assignments. The Communications Act requires prior FCC approval for the assignment or transfer of control of an FCC licensee. Third parties may oppose the Company’sapplications to assign, transfer or acquire broadcast licenses.Full Power and Class A Station Regulations. The Communications Act and FCC rules and regulations limit the ability of individuals and entities to have certain official positions orownership interests, known as "attributable" interests, above specific levels in full power broadcast stations as well as in other specified mass media entities. Many of these limits donot apply to Class A stations, television translators and LPTV authorizations. In seeking FCC approval for the acquisition of a broadcast television station license, the acquiringperson or entity must demonstrate that the acquisition complies with applicable FCC ownership rules or that a waiver of the rules is in the public interest. Additionally, theCommunications Act and FCC regulations prohibit ownership of a broadcast station license by any corporation with more than 25 percent of its stock owned or voted by non-U.S.persons, their representatives or any other corporation organized under the laws of a foreign country. The FCC has also adopted regulations concerning children’s televisionprogramming, commercial limits, local issues and programming, political files, sponsorship identification, equal employment opportunity requirements and other requirements forfull power and Class A broadcast television stations. The FCC’s rules require operational full-power and Class A stations to file periodic reports demonstrating compliance withthese regulations.Low Power Television and TV Translator Authorizations. LPTV stations and TV Translators have "secondary spectrum priority" to full-service television stations. The secondarystatus of these authorizations prohibits LPTV and TV Translator stations from causing interference to the reception of existing or future full-service television stations and requiresthem to accept interference from existing or future full-service television stations and other primary licensees. LPTV and TV Translator licensees are subject to fewer regulatoryobligations than full-power and Class A licensees, and there no limit on the number of LPTV stations that may be owned by any one entity.The 600 MHz Incentive Auction and the Post-Auction Relocation Process. The FCC concluded a two-sided auction process for 600 MHz band spectrum (the "600 MHz IncentiveAuction") on April 13, 2017. The auction process allowed eligible full-power and Class A broadcast television licensees to sell some or all of their spectrum usage rights inexchange for compensation; the FCC would pay reasonable expenses for the remaining, non-participating full-power and Class A stations to relocate to the remaining "in-core"portion of the 600 MHz band. Several of our stations will relocate to new channel assignments and will receive funding from the 600 MHz Band Broadcaster Relocation Fund.LPTV and TV translator stations will eventually be required to relocate from the "out-of-core" portion of the 600 MHz band (i.e., channels 38-51) and are required under the rulesto mitigate interference to any relocated full-power or Class A station in the in-core band (or cease operations). The FCC has created a priority filing window for LPTV and TVtranslator stations licensed and operating as of April 13, 2017, and some of our LPTV and TV translator stations have found new channel assignments as a result of this specialdisplacement window. But some LPTV and TV translator60stations displaced as a result of the 600 MHz Incentive Auction were not qualified for an alternate channel assignment and will be forced to discontinue operations. Obscenity and Indecency Regulations. Federal law and FCC regulations prohibit the broadcast of obscene material on television at any time and the broadcast of indecent materialbetween the hours of 6:00 a.m. and 10:00 p.m. local time. The FCC investigates complaints of broadcasts of prohibited obscene or indecent material and can assess fines of up to$350,000 per incident for violation of the prohibition against obscene or indecent broadcasts and up to $3,300,000 for any continuing violation based on any single act or failure toact. The FCC may also revoke or refuse to renew a broadcast station license based on a serious violation of the agency’s obscenity and indecency rules.ITEM 1B. UNRESOLVED STAFF COMMENTSNone.ITEM 2. PROPERTIESOur corporate headquarters facility is located in New York, New York. We lease administrative, technical and sales office space in various locations in the countries in which weoperate. DBMG is headquartered in Phoenix, Arizona; GMSL is headquartered in Chelmsford, United Kingdom; ANG is headquartered in Saratoga Springs, NY, and leases landfor fueling stations across the U.S.; ICS is headquartered in Herndon, Virginia, HC2 Broadcasting is headquartered in New York, New York and CIG is headquartered in Austin,Texas. As of December 31, 2018, total leased space approximates 900,889 square feet, and land leased for fueling stations of 965,333 square feet. Total annual lease costs areapproximately $19.1 million. The operating leases expire at various times, with the longest commitment expiring in 2038. In addition, ANG and DBMG own operational facilitiesand sales offices throughout the United States totaling approximately 4,897,587 square feet. We believe that our present administrative, technical and sales office facilities areadequate for our anticipated operations and that similar space can be obtained readily as needed.We own substantially all of the equipment required for our businesses which includes cable-ships and submersibles (used in our Marine Services segment), steel machinery andequipment (used in our Construction segment), and communications equipment (used in our Telecommunications segment), except that we lease certain vessels (as described underthe "Business - Marine Services Segment" section). See Note 10. Property, Plant, and Equipment, net, for additional detail regarding our property and equipment.ITEM 3. LEGAL PROCEEDINGSLitigationThe 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 theoutcome 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’sConsolidated Financial Statements. The Company does not believe that any of such pending claims and legal proceedings will have a material adverse effect on its ConsolidatedFinancial Statements. The Company records a liability in its Consolidated Financial Statements for these matters when a loss is known or considered probable and the amount canbe reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If amatter 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 theextent necessary for its Consolidated Financial Statements not to be misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in itsConsolidated Financial Statements.CGI Producer LitigationOn November 28, 2016, CGI, a subsidiary of the Company, Great American Financial Resource, Inc. ("GAFRI"), American Financial Group, Inc., and CIGNA Corporation wereserved with a putative class action complaint filed by John Fastrich and Universal Investment Services, Inc. in The United States District Court for the District of Nebraska allegingbreach of contract, tortious interference with contract and unjust enrichment. The plaintiffs contend that they were agents of record under various CGI policies and that CGIallegedly instructed policyholders to switch to other CGI products and caused the plaintiffs to lose commissions, renewals, and overrides on policies that were replaced. Thecomplaint also alleges breach of contract claims relating to allegedly unpaid commissions related to premium rate increases implemented on certain long-term care insurance policies.Finally, the complaint alleges breach of contract claims related to vesting of commissions. On August 21, 2017, the Court dismissed the plaintiffs’ tortious interference with contractclaim. CGI believes that the remaining allegations and claims set forth in the complaint are without merit and intends to vigorously defend against them.The case was set for voluntary mediation, which occurred on January 26, 2018. The Court stayed discovery pending the outcome of the mediation. On February 12, 2018, theparties notified the Court that mediation did not resolve the case and that the parties’ discussions regarding a possible settlement of the action were still ongoing. The Court held astatus conference on March 22, 2018, during which the parties informed the Court that settlement negotiations remain ongoing. Nonetheless, the Court entered a scheduling ordersetting the case for trial during the week of October 15, 2019. Meanwhile, the parties’ continued settlement negotiations led to a tentative settlement. On February 4, 2019, theplaintiffs executed a class settlement agreement with CGI, Loyal American Life Insurance Company, American Retirement Life Insurance Company, GAFRI, and AmericanFinancial Group, Inc. (collectively, the Defendants). The settlement agreement, which would require GAFRI to make a $1.25 million payment on behalf of the Defendants, issubject to Court approval. On February 4, 2019, the plaintiffs filed a motion for preliminary61approval of the class settlement in a parallel action in the Southern District of Ohio, Case No. 17-CV-00615-SJD, which motion remains pending. Meanwhile, the case pendingbefore the District of Nebraska was stayed on February 6, 2019, pending final approval of the class action settlement in the Ohio action.Further, the Company and CGI are seeking defense costs and indemnification for plaintiffs’ claims from GAFRI and Continental General Corporation ("CGC") under the terms ofan Amended and Restated Stock Purchase Agreement ("SPA") related to the Company’s acquisition of CGI in December 2015. GAFRI and CGC rejected CGI’s demand fordefense and indemnification and, on January 18, 2017, the Company and CGI filed a Complaint against GAFRI and CGC in the Superior Court of Delaware seeking a declaratoryjudgment to enforce their indemnification rights under the SPA. On February 23, 2017, GAFRI answered CGI’s complaint, denying the allegations. The dispute is ongoing andCGI intends to continue to pursue its right to a defense and indemnity under the SPA regardless of the tentative settlement in the class action. Meanwhile, the parties are currentlyinvolved in settlement negotiations.VAT assessmentOn 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 factualgrounds 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 factsand merits of our existing VAT position.DBMG Class ActionOn November 6, 2014, a putative stockholder class action complaint challenging the tender offer by which HC2 acquired approximately 721,000 of the issued and outstandingcommon 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, asecond 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 (nowdesignated 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-controllingstockholder of DBMG, breached their fiduciary duties to members of the plaintiff class. The Complaint also purports to challenge a potential short-form merger based uponplaintiff’s expectation that the Company would cash out the remaining public stockholders of DBMG following the completion of the tender offer. The Complaint seeks rescissionof 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.The parties have been exploring alternative frameworks for a potential settlement. There can be no assurance that a settlement will be finalized or that the Delaware Courts wouldapprove such a settlement even if the parties enter into a settlement agreement. If a settlement cannot be reached, the Company believes it has meritorious defenses and intends tovigorously defend this matter.Global Marine DisputeGMSL is in dispute with Alcatel-Lucent Submarine Networks Limited ("ASN") related to a Marine Installation Contract between the parties, dated March 11, 2016 (the "ASNContract"). Under the ASN Contract, GMSL's obligations were to install and bury an optical fiber cable in Prudhoe Bay, Alaska. As of the date hereof, neither party hascommenced legal proceedings. Pursuant to the ASN Contract any such dispute would be governed by English law and would be required to be brought in the English courts inLondon. ASN has alleged that GMSL committed material breaches of the ASN Contract, which entitles ASN to terminate the ASN Contract, take over the work themselves, andclaim damages for their losses arising as a result of the breaches. The alleged material breaches include failure to use appropriate equipment and procedures to perform the work andfailure to accurately estimate the amount of weather downtime needed. ASN has indicated to GMSL it has incurred $38.2 million in damages and $1.2 million in liquidateddamages for the period from September 2016 to October 2016, plus interest and costs. GMSL believes that it has not breached the terms and conditions of the contract and alsobelieves that ASN has not properly terminated the contract in a manner that would allow it to make a claim. However, ASN has ceased making payments to GMSL and as ofDecember 31, 2018, the total sum of GMSL invoices raised and issued are $17.0 million, of which $8.1 million were settled by ASN and the balance of $8.9 million remains atrisk. GMSL believes that the allegations and claims by ASN are without merit, and that ASN is required to make all payments under unpaid invoices and intends to defend itsinterests vigorously.ITEM 4. MINE SAFETY DISCLOSURESNot applicable.62PART IIITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIESCommon StockHC2 common stock trades on the NYSE under the ticker symbol "HCHC".Holders of Common StockAs of February 28, 2018, HC2 had approximately 3,687 holders of record of its common stock. This number does not include stockholders for whom shares were held in"nominee" or "street" name.DividendsHC2 paid no dividends on its common stock in 2018 or 2017, and the HC2 Board of Directors has no current intention of paying any dividends on HC2 common stock in the nearfuture. The payment of dividends, if any, in the future is within the discretion of the HC2 Board of Directors and will depend on our earnings, our capital requirements, financialcondition, the ability to comply with the requirements of the law and agreements governing our and our subsidiaries indebtedness. The Secured Indenture contains covenants that,among other things, limit or restrict our ability to make certain restricted payments, including the payment of cash dividends with respect to HC2’s common stock. The DBMGFacility and the GMSL Facility contain similar covenants applicable to DBMG and GMSL, respectively. See Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operations - Liquidity and Capital Resources and Note 14. Debt Obligations to our consolidated financial statements for more detail concerning ourSecured Notes and other financing arrangements. Moreover, dividends may be restricted by other arrangements entered into in the future by us.Issuer Purchases of Equity SecuritiesHC2 did not repurchase any of its equity securities in the year ended December 31, 2018.Stock Performance GraphThe following graph compares the cumulative total returns on our common stock during the period from December 31, 2013 to December 31, 2018, to the Standard & Poor’sMidcap 400 Index and the iShares S&P Global Telecommunications Sector Index. The comparison assumes $100 was invested on December 31, 2013 in the common stock ofHC2 as well as the indices and assumes further that all dividends were reinvested. HC2’s common stock began trading on the OTC Bulletin Board on July 1, 2009, on the NYSEon June 23, 2011, on the OTCQB on November 18, 2013, on the NYSE MKT on December 29, 2014, and on the NYSE on May 16, 2017.63 December 31, 2013 December 31, 2014 December 31, 2015 December 31, 2016 December 31, 2017 December 31, 2018HC2 Holdings, Inc. (HCHC) $100.00 $295.79 $185.61 $208.07 $208.77 $92.63Standard & Poor’s Midcap 400 Index(^MID) $100.00 $108.19 $104.17 $123.69 $141.57 $123.87iShares S&P GlobalTelecommunications Sector IndexFund (IXP) $100.00 $98.79 $98.74 $104.20 $111.13 $95.93The performance graph will not be deemed to be incorporated by reference by means of any general statement incorporating by reference this Form 10-K into any filing under theSecurities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that HC2 specifically incorporates such information by reference, andshall not otherwise be deemed filed under such acts.ITEM 6. SELECTED FINANCIAL DATAThe selected consolidated financial data set forth below should be read in conjunction with (i) Item 7 - Management’s Discussion and Analysis of Financial Condition and Resultsof Operations, (ii) our consolidated audited annual financial statements and the notes thereto, each of which are contained in Item 8 - Financial Statements and Supplementary Dataand (iii) the information described below under "Discontinued Operations."Statement of Operations Data (in millions, except per share amounts): Years Ended December 31, 2018 2017 2016 2015 2014Net revenue $1,976.7 $1,634.1 $1,558.1 $1,120.8 $547.4Income (loss) from operations (55.8) (1.1) (1.5) 0.7 (14.0)Income (loss) from continuing operations 179.9 (50.5) (97.4) (35.7) (11.7)Loss from discontinued operations — — — — (0.1)Net income (loss) 179.9 (50.5) (97.4) (35.8) (11.8)Net income (loss) attributable to HC2 Holdings, Inc. 162.0 (46.9) (94.5) (35.6) (14.4)Net income (loss) attributable to common stock and participating preferredstockholders 155.6 (49.7) (105.4) (39.9) (16.4) Interest expense (75.7) (55.1) (43.4) (39.0) (12.3)Income tax (expense) benefit (2.4) (10.7) (51.6) 10.9 22.9 Per Share Data: Income (loss) per common share: Basic $3.14 $(1.16) $(2.83) $(1.50) $(0.83)Diluted $2.90 $(1.16) $(2.83) $(1.50) $(0.83)Weighted average common shares outstanding: Basic 44.3 42.8 37.3 26.5 19.7Diluted 46.8 42.8 37.3 26.5 19.7Balance Sheet Data (in millions): As of December 31, 2018 2017 2016 2015 2014Cash and cash equivalents $325.0 $97.9 $115.4 $158.6 $108.0Total assets $6,503.8 $3,217.7 $2,835.3 $2,742.5 $712.2Total debt obligations $743.9 $593.2 $428.5 $371.9 $335.5Total liabilities $6,281.8 $3,001.7 $2,735.9 $2,569.2 $563.9Total HC2 Holdings, Inc. stockholders’ equity, before noncontrolling interest $88.1 $73.1 $44.2 $94.0 $79.264Cash Flow and Related Data (in millions): Years Ended December 31, 2018 2017 2016 2015 2014Net cash (used in) provided by operating activities $341.4 $6.6 $79.1 $(27.9) $5.7Purchases of property, plant and equipment $(39.7) $(31.9) $(29.0) $(21.3) $(5.8)Depreciation and amortization $38.7 $36.6 $28.9 $32.5 $11.165ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSYou should read the following discussion and analysis of our financial condition and results of operations together with the information in our consolidated annual audited financialstatements and the notes thereto, each of which are contained in Item 8 entitled "Financial Statements and Supplementary Data," and other financial information included herein.Some of the information contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors"section as well as the section below entitled " - Special Note Regarding Forward-Looking Statements" for a discussion of important factors that could cause actual results to differmaterially 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 itsconsolidated subsidiaries. "U.S. GAAP" means accounting principles accepted in the United States of America.Our BusinessWe are 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 ("HC2 Broadcasting"), and Other, which includesbusinesses that do not meet the separately reportable segment thresholds.We continually evaluate acquisition opportunities and monitor a variety of key indicators of our underlying platform companies in order to maximize stakeholder value. Theseindicators 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 subsidiaryplatform executive management teams on their operations and assist them in the evaluation and diligence of asset acquisitions, dispositions and any financing or operational needs atthe subsidiary level. We believe that this close relationship allows us to capture synergies within the organization across all platforms and strategically position the Company forongoing 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 ofany 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 andexperience in identifying and selecting acquisition and business combination opportunities and the industries in which we seek such opportunities. Many times, we face significantcompetition 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 futurediscussions 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 ofour 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 mayincrease short-term earnings volatility as a result.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 theunique 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 tocapitalize on opportunities during periods of market volatility, we believe the combination thereof positions us well to continue to build long-term stakeholder value.Our OperationsRefer to Note 1. Organization and Business to our Consolidated Financial Statements included elsewhere in this Report on Form 10-K for additional information.Seasonality Our industry can be highly cyclical and subject to seasonal patterns. Our volume of business in our Construction and Marine Services segments may be adversely affected bydeclines or delays in projects, which may vary by geographic region. Project schedules, particularly in connection with large, complex, and longer-term projects can also createfluctuations 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 ofour workforce and equipment in an underutilized capacity to ensure we are strategically positioned to deliver on such projects when they move forward.Examples of other items that may cause our results or demand for our services to fluctuate materially from quarter to quarter include: weather or project site conditions, financialcondition of our customers and their access to capital; margins of projects performed during any particular period; economic, and political and market conditions on a regional,national or global scale.Accordingly, our operating results in any particular period may not be indicative of the results that can be expected for any other period.66Marine ServicesNet revenue within our Marine Services segment can fluctuate depending on the season. Revenues are relatively stable for our Marine Services maintenance business as the coredriver 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 adegree of seasonality. Revenues in our Marine Services installation business are driven by our customers’ need for new cable installations. Generally, weather downtime, and theadditional costs related to downtime, is a significant factor in customers determining their installation schedules, and most installations are therefore scheduled for the warmermonths. As a result, installation revenues are generally lower towards the end of the fourth quarter and throughout the first quarter, as most business is concentrated in the northernhemisphere.Other than as described above, our businesses are not materially affected by seasonality.Recent DevelopmentsAcquisitionsConstructionOn November 30, 2018 DBMG completed the acquisition of GrayWolf, a premier specialty maintenance, repair and installation services provider, for cash consideration of $139.8million. InsuranceOn 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 long-term care insurance subsidiary for cash consideration of ten thousand dollars, recording a $115.4 million gain on bargain purchase.BroadcastingOn February 7, 2018, HC2 Broadcasting closed on the 2017 acquisition of Northstar's broadcast television stations. The total consideration paid in February 2018 was $33.0million. In addition, during the year ended December 31, 2018, HC2 Broadcasting completed a series of asset acquisitions for a total consideration of $71.4 million.Subsequent to December 31, 2018, the Broadcasting segment received FCC approval and closed multiple APAs for a total consideration of $6.2 million, of which $0.3 million waspreviously funded at signing of the APAs.Dispositions and DeconsolidationMarine ServicesOn October 22, 2018, HC2 announced our intention to explore strategic alternatives for GMSL, including a potential sale.Life SciencesOn 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 thetransaction, Janssen made an upfront cash payment of $140.0 million. Pansend received a cash payment of $93.4 million and expects to receive an additional cash payment of $13.3million, currently held in an escrow, for a total consideration of $106.7 million. The escrow will be released within 15 months subsequent to the closing date, assuming there are nopending or unresolved indemnified claims. Pansend recorded a gain on the sale of $102.1 million, of which $21.7 million was allocated to noncontrolling interests. HC2 received acash payment of $72.8 million and expects to receive an additional cash payment of $9.2 million upon 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 $512.2million.OtherOn August 14, 2018, 704Games issued a 53.5% equity interest to international media and technology company Motorsport Network. As a result, HC2’s ownership percentage in704Games was diluted to 26.2% resulting in the loss of control and the deconsolidation of the entity. HC2 recognized a gain of $3.0 million within Gain on sale and deconsolidationof subsidiary line of the Consolidated Statements of Operations.67Debt ObligationsConstructionTCW LoanOn November 30, 2018, DBMG and its subsidiaries entered into a financing agreement with TCW Asset Management Company LLC ("TCW"), for the aggregate principal amountof $80.0 million (the "TCW Loan"). The net proceeds from the TCW Loan were used to refinance the debt assumed and closing costs of the acquisition by DBMG of GrayWolf. The TCW Term Loan matures on the earlier of (a) November 30, 2023; (b) the maturity date of the Wells Fargo Facility; and (c) the 60 days prior to the maturity of the SecuredNotes and/or Convertible Notes if, on that day (and solely for so long as), any of such indebtedness remain outstanding. The TCW Loan will bear interest at a rate of 5.85% abovethe three month LIBOR.Non-operating CorporateOn November 20, 2018, HC2 repaid its 11.0% Senior Secured Notes, and issued $470 million aggregate principal amount of 11.5% senior secured notes due 2021 (the "SecuredNotes") and $55 million aggregate principal amount of 7.5% convertible senior notes due June 1, 2022 (the "Convertible Notes"), both in a private placement to qualifiedinstitutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.Dividends and DistributionsDuring the year ended December 31, 2018, HC2 received $2.5 million in dividends from its Telecommunications segment.Under a tax sharing agreement, DBMG reimburses HC2 for use of its net operating losses. During the year ended December 31, 2018, HC2 received $4.0 million from DBMGunder the tax sharing agreement.In 2018, the Insurance segment generated $4.1 million in net management fees.OtherEnergyAs a result of the Bipartisan Budget Act of 2018, signed into law on February 9, 2018, all Alternative Fuel Tax Credit ("AFETC") revenue for vehicle fuel ANG sold in 2017 wascollected in the second quarter of 2018. Net revenue after customer rebates for such credits for 2017 were $2.6 million, which was recognized during the second quarter of 2018,the period in which the credit became available.InsuranceDuring the year ended December 31, 2018, CGI recaptured two of their reinsurance treaties. The first of which received $161.4 million of cash, reduced its ceded reinsurance by$140.8 million and recognizing a gain of $20.6 million, included in Other income (expenses), net. The second recapture received $168.0 million of cash, reduced its cededreinsurance by $141.7 million and recognizing a gain of $26.3 million, included in Other income (expenses), net.OtherOn August 4, 2018, HC2 Chairman and Chief Executive Officer Philip Falcone informed Inseego Corp’s ("INSG") Board of Directors (the "Board") of his resignation from hisposition as a Director and Chairman of the Board of INSG effective upon consummation of a private placement at INSG. The INSG private placement consisted of an issuance ofan aggregate of 12.0 million shares of its common stock to two investors for a purchase price of $1.63 per share, resulting in aggregate gross proceeds to INSG of approximately$19.7 million. Concurrently, INSG amended HC2's Investors’ Rights Agreement where HC2 agreed to eliminate its board observation and nomination rights. As a result, HC2 lostits ability to exercise significant influence. HC2's equity investment in INSG security no longer qualifies to be accounted for under the equity method. Beginning in the third quarterof 2018, the investment will be recorded at fair value. The investment basis in INSG under the equity method had been reduced to zero as a result of losses incurred for the durationof the investment. The change in the accounting method resulted in a gain of $44.2 million for the three months ended September 30, 2018 and recorded in Other income(expenses), net. On December 4, 2018, the Company sold its investment in INSG for a total consideration of $34.4 million reducing the gain recognized in the third quarter by $9.8million, recorded in Other income (expenses), net.68Financial Presentation BackgroundIn 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 SECdisclosure rules, the Company’s results of operations for the year ended December 31, 2018 as compared to the year ended December 31, 2017, and for the year ended December31, 2017 as compared to the year ended December 31, 2016.Results of OperationsPresented below is a table that summarizes our results of operations and a comparison of the change between the periods presented (in millions). Years Ended December 31, Increase / (Decrease) 2018 2017 2016 2018 comparedto 2017 2017 comparedto 2016Net revenue Construction $716.4 $579.0 $502.6 $137.4 $76.4Marine Services 194.3 169.5 161.9 24.8 7.6Energy 20.7 16.4 6.4 4.3 10.0Telecommunications 793.6 701.9 735.0 91.7 (33.1)Insurance 217.1 151.6 142.5 65.5 9.1Broadcasting 45.4 4.8 — 40.6 4.8Other 3.7 10.9 9.7 (7.2) 1.2Eliminations (1) (14.5) — — (14.5) —Total net revenue 1,976.7 1,634.1 1,558.1 342.6 76.0 Loss from operations Construction 41.9 37.2 49.6 4.7 (12.4)Marine Services (15.4) (0.9) (0.3) (14.5) (0.6)Energy (0.5) (2.8) (0.3) 2.3 (2.5)Telecommunications 4.8 6.4 4.2 (1.6) 2.2Insurance 1.8 25.4 (0.8) (23.6) 26.2Life Sciences (13.8) (17.2) (10.4) 3.4 (6.8)Broadcasting (24.0) (4.0) — (20.0) (4.0)Other (2.5) (5.3) (5.9) 2.8 0.6Non-operating Corporate (33.6) (39.9) (37.6) 6.3 (2.3)Eliminations (1) (14.5) — — (14.5) —Total loss from operations (55.8)(1.1)(1.5)(54.7)0.4 Interest expense (75.7) (55.1) (43.4) (20.6) (11.7)Gain on sale and deconsolidation of subsidiary 105.1 — — 105.1 —Gain (loss) on contingent consideration (0.8) 11.4 (8.9) (12.2) 20.3Income from equity investees 15.4 17.8 10.8 (2.4) 7.0Gain on bargain purchase 115.4 — — 115.4 —Other income (expenses), net 78.7 (12.8) (2.8) 91.5 (10.0)Income (loss) from continuing operations before income taxes 182.3(39.8)(45.8)222.16.0Income tax expense (2.4) (10.7) (51.6) 8.3 40.9Net income (loss) 179.9(50.5)(97.4)230.446.9Less: Net (income) loss attributable to noncontrolling interest and redeemablenoncontrolling interests (17.9) 3.6 2.9 (21.5) 0.7Net income (loss) attributable to HC2 Holdings, Inc. 162.0(46.9)(94.5)208.947.6Less: Preferred stock and deemed dividends from conversions 6.4 2.8 10.9 3.6 (8.1)Net income (loss) attributable to common stock and participating preferredstockholders $155.6$(49.7)$(105.4)$205.3$55.7(1) The Insurance segment revenues are inclusive of realized and unrealized gains in the amount of $14.5 million for the year ended December 31, 2018 recorded on equity securities. Such adjustments are related totransactions between entities under common control which are eliminated or are reclassified to Other income (expenses), net in consolidation.69Net revenue: Net revenue for the year ended December 31, 2018 increased $342.6 million to $1,976.7 million from $1,634.1 million for the year ended December 31, 2017. Theincrease in revenues was driven by improvements in our Construction, Telecommunications, Insurance, and Broadcasting segments. The increase in the Construction segment wasdriven by increased activity on large commercial projects in the West region, which contributed greater revenue when compared to the comparable period. The increase in ourTelecommunications segment was due to changes in our customer mix and fluctuations in wholesale traffic volumes. The Insurance segment revenue increase, net of eliminations,was driven by net investment income and premiums generated from the acquisition of KIC, and higher average invested fixed maturity securities and mortgage loans frompremiums received along with rotation into higher-yielding investments. The increase in revenues from our Broadcasting segment was driven by network advertising, broadcaststation, and network distribution revenues from acquisitions of businesses and assets, beginning in the fourth quarter of 2017.Net revenue for the year ended December 31, 2017 increased $76.0 million to $1,634.1 million from $1,558.1 million for the year ended December 31, 2016. The Constructionsegment was a major driver of the increase, largely due to contribution from large complex projects which brought in greater revenue when compared to the previous period andadditional revenues from BDS and PDC, both of which were acquired in the fourth quarter of 2016. Also contributing to the increase in revenues were our Energy segment, whichexperienced increased Compressed Natural Gas ("CNG") sales from new fueling stations acquired or developed during 2016 which incurred a full year of operations in 2017.Further, growth in the Insurance segment was primarily driven by an increase in the asset base for both fixed maturity securities and mortgage loans and yield improvements forfixed maturity securities when compared to the previous period. Finally, increased revenues from our Marine Services segment were driven by higher offshore power installationrevenues. These increases were offset by decreases in revenues from our Telecommunications segment as a result of a decrease in wholesale traffic volumes as the segment hasbeen focused on a wholesale traffic termination mix that maximizes margin contribution.Loss from operations: Loss from operations for the year ended December 31, 2018 increased $54.7 million to $55.8 million from $1.1 million for the year ended December 31,2017. The increase was driven by our Insurance segment net of eliminations due to higher policy benefits, from a higher proportion of new claims and claim incidences drivinghigher than expected costs. Further adding to the increase was our Broadcasting segment driven by the cost of operations from acquisitions of businesses and assets beginning inthe fourth quarter of 2017, and our Marine Services segment driven by an increase in unutilized vessel costs attributable to recently acquired marine assets and the timing of newproject work as these assets are being deployed. This was offset by a decrease in costs in our Non-operating Corporate segment driven by a reduction of acquisition relatedexpenses incurred and performance based compensation compared to the prior period.Loss from operations for the year ended December 31, 2017 decreased $0.4 million to $1.1 million from $1.5 million for the year ended December 31, 2016. The decrease in losswas driven by the Insurance segment's release of reserves, offset in part by our Construction segment due primarily to better-than-bid performance on large, commercial projects inbacklog in the comparable period that was not repeated in 2017, and our Life Sciences segment as a result of research and development expenses at R2 and BeneVir.Interest expense: Interest expense for the year ended December 31, 2018 increased $20.6 million to $75.7 million from $55.1 million for the year ended December 31, 2017. Theincrease was attributable to the net increase of the aggregate principal amount of our Non-operating Corporate debt, and the interest associated with the Broadcasting segment'sBridge Loan, which was repaid in May 2018. See footnote 14. Debt Obligations for further details.Interest expense for the year ended December 31, 2017 increased $11.7 million to $55.1 million from $43.4 million for the year ended December 31, 2016. The increase wasattributable to the net increase of the aggregate principal amount of our 11.0% Notes compared to the previous period and the portion of original issue discount and deferredfinancing fees expensed in the 2017 period through the refinancing date of our Non-operating Corporate debt. In addition, in the fourth quarter of 2017, Broadcasting borrowed anaggregate principal of $60 million of senior secured debt, further increasing original issue discount, deferred financing fees expense, and interest expense for the year endedDecember 31, 2017 when compared to the previous year.Gain on sale and deconsolidation of subsidiary: Gain on sale and deconsolidation of subsidiary for the year ended December 31, 2018 was $105.1 million. The increase wasattributable to the Life Sciences segment's sale of BeneVir in which the Company recorded a gain on the sale of $102.1 million in addition to the deconsolidation of 704Games inthe third quarter of 2018, which resulted in a gain of $3.0 million.Gain (loss) on contingent consideration: Gain (loss) on contingent consideration for the year ended December 31, 2018 decreased $12.2 million to a loss of $0.8 million fromincome of $11.4 million for the year ended December 31, 2017. The decrease was driven by the prior year reduction to the contingency reserve established by the Company relatedto the Insurance Company acquisition as a result of changes in tax law enacted at the end of 2017 which was not repeated in the current year.Gain (loss) on contingent consideration for the year ended December 31, 2017 increased $20.3 million to income of $11.4 million from a loss of $8.9 million. The increase wasdriven by the reduction to the contingency reserve established by the Company related to the Insurance Company acquisition as a result of changes in tax law enacted at the end of2017 and changes in interest rate expectations.Income from equity investees: Income from equity investees for the year ended December 31, 2018 decreased $2.4 million to $15.4 million from $17.8 million for the year endedDecember 31, 2017. The decrease was due to our Marine Services segment's equity interest in HMN, primarily driven by timing of project work on certain turnkey projects. Thiswas partially offset by our Life Sciences segment, due to lower equity method losses recorded from our investment in Medibeacon due to timing of clinical trials.70Income from equity investees for the year ended December 31, 2017 increased $7.0 million to $17.8 million from $10.8 million for the year ended December 31, 2016. The increasein income was driven by Inseego, as the Company did not recognize losses from our investment in the period as our basis in the investment was zero, and our Marine Servicessegment, principally from the segment's equity interests in HMN, which realized a significant increase in earnings compared to the comparable period. This was partially offset byour investment in MediBeacon as a result of our increased ownership and additional expenses following successful completion of development and clinical milestones.Gain on bargain purchase: Gain on bargain purchase for the year ended December 31, 2018 was $115.4 million, driven by the Insurance Segment's acquisition of KIC. The gainon 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 ofBusiness Acquired balance and a corresponding deferred tax position. More specifically, the gain on bargain purchase was largely driven by the following attributes: (i) the UnifiedLoss 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; (ii) the reductionin the federal income tax rate, from 35% at the time the seller contribution was established to 21% effective January 1, 2018; and (iii) changes in fair value of acquired assets andassumed liabilities between the date the deal was signed and the closing date was driven by the time it took to obtain regulatory approvals.Other income (expenses), net: Other income (expenses), net for the year ended December 31, 2018 increased $91.5 million to income of $78.7 million from a loss of $12.8 millionfor the year ended December 31, 2017. The Company sold its investment in INSG for a total consideration and net gain of $34.4 million. Further, CGI recaptured two of theirreinsurance treaties, in which a gain of $46.9 million was recognized. Our Non-operating corporate segment recognized a $4.1 million gain on the conversion feature of itsConvertible Notes, due to the decline in HC2's stock price and change in credit spreads since the issuance date. This was offset by losses of $5.1 million related to theextinguishment of debt at our Non-operating corporate and Broadcasting segments, and by the impact of impairments recorded in the comparable period which did not repeat in thecurrent period.Other expense, net for the year ended December 31, 2017 increased $10.0 million to $12.8 million compared to $2.8 million for the year ended December 31, 2016. The increase isattributable to an increase in impairment expense in 2017, driven by impairments of one fixed maturity security, warrant shares in a publicly traded company, and our originalinvestment in DTV, and an increase foreign currency transaction expense largely driven by our Marine Services segment. The increases were offset by a prior year impairmentrelated to one fixed maturity security.Income tax expense: Income tax expense was $2.4 million and $10.7 million for the years ended year ended December 31, 2018 and 2017, respectively. The amount recordedprimarily relates to separate state filings that do not have net operating losses available to offset income. In the third quarter of 2018, Continental General Insurance Companyacquired Humana’s long term care business, Kanawha Insurance Company. The combined insurance entity generated a net operating loss for the year due to additional taxdeductions related to increases in policy holder reserves. In addition, the bargain purchase gain is not taxable. This net operating loss will be carried forward but will have avaluation allowance. Additionally, the income tax expense generated from the sale of BeneVir in the second quarter of 2018 is offset by tax attributes for which a valuationallowance had been recorded. Therefore, there is no net income tax expense recorded in the income statement for the sale. See note 15. Income Taxes for further informationregarding the impact of the Tax Cuts and Jobs Act on our income tax provision for the year ended December 31, 2018.Income tax expense was $10.7 million and $51.6 million for the year ended December 31, 2017 and 2016, respectively. The amount recorded primarily relates to the valuationallowance position in which the losses of the HC2 consolidated US group are not benefited for tax purposes. In addition, deferred tax benefits are also not recognized for theInsurance Company given the valuation allowance position. The tax benefits associated with losses generated by certain businesses that do not qualify to be included in the HC2Holdings, Inc. U.S. consolidated income tax return have been reduced by a full valuation allowance as we do not believe it is more-likely-than-not that the losses will be utilizedprior to expiration. See Note 15. Income Taxes for further information regarding the impact of the Tax Cuts and Jobs Act on our income tax provision for the year ended December31, 2017.Preferred stock dividends and deemed dividends from conversions: Preferred stock dividends and deemed dividends for the year ended December 31, 2018 increased $3.6 millionto $6.4 million from $2.8 million for the year ended December 31, 2017. The increase was largely driven by deemed dividends associated with the issuance of the 7.5% ConvertibleNotes, in which the Company incurred a consent fee payable to preferred stockholders of $3.8 million.Preferred stock dividends and deemed dividends for the year ended December 31, 2017 decreased $8.1 million to $2.8 million from $10.9 million for the year ended December 31,2016. In the comparable period, certain preferred stockholders were incentivised to convert their Preferred Stock into the Company's common stock. The deemed dividendincentives associated with such conversions were not repeated in the current period. In addition to the decrease in deemed dividends conversions during the two year period endingDecember 31, 2017 and 2016 reduced the preferred share dividends paid on a quarterly basis.71Segment Results of OperationsIn the Company's Consolidated Financial Statements, other operating (income) expense includes (i) (gain) loss on sale or disposal of assets, (ii) lease termination costs and (iii) assetimpairment expense. 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 Years Ended December 31, Increase / (Decrease) 2018 2017 2016 2018 comparedto 2017 2017 comparedto 2016Net revenue $716.4 $579.0 $502.6 $137.4 $76.4 Cost of revenue 600.4 478.0 400.0 122.4 78.0Selling, general and administrative expenses 66.9 57.9 49.5 9.0 8.4Depreciation and amortization 7.4 5.6 1.9 1.8 3.7Other operating (income) expense (0.2) 0.3 1.6 (0.5) (1.3)Income from operations $41.9 $37.2 $49.6 $4.7 $(12.4)Net revenue: Net revenue from our Construction segment for the year ended December 31, 2018 increased $137.4 million to $716.4 million from $579.0 million for the year endedDecember 31, 2017. The increase was due primarily to increased activity on large ongoing commercial fabrication and erection projects in the West region, including a multi-usesports stadium, entertainment complex and a healthcare facility, which contributed greater revenue when compared to the previous period as these major projects entered erectionphases.Net revenue from our Construction segment for the year ended December 31, 2017 increased $76.4 million to $579.0 million from $502.6 million for the year ended December 31,2016. The increase was due primarily to contribution from large complex projects which produced greater revenue when compared to the previous period and additional revenuesfrom BDS and PDC, both of which were acquired in the fourth quarter of 2016.Cost of revenue: Cost of revenue from our Construction segment for the year ended December 31, 2018 increased $122.4 million to $600.4 million from $478.0 million for the yearended December 31, 2017. Cost of revenue from our Construction segment for the year ended December 31, 2017 increased $78.0 million to $478.0 million from $400.0 millionfor the year ended December 31, 2016. The increases were due primarily to the overall growth in project revenues and expansion in contract backlog, including higher staffingcosts associated with the timing of fabrication, pre-assembly and erection work on certain large complex projects described above.Selling, general and administrative expenses: Selling, general and administrative expenses from our Construction segment for the year ended December 31, 2018 increased $9.0million to $66.9 million from $57.9 million for the year ended December 31, 2017. The increase was due primarily to increases in salary and benefits due to headcount increasesrequired to support the overall growth of the company and an increase in performance based compensation, as well as the additional overhead costs associated with the recentacquisition of GrayWolf in the fourth quarter of 2018.Selling, general and administrative expenses from our Construction segment for the year ended December 31, 2017 increased $8.4 million to $57.9 million from $49.5 million forthe year ended December 31, 2016. The increase was due primarily to the additional operating costs associated with the acquisitions of BDS and PDC in the fourth quarter of 2016.Depreciation and amortization: Depreciation and amortization from our Construction segment for the year ended December 31, 2018 increased $1.8 million to $7.4 million from$5.6 million for the year ended December 31, 2017. The increase was due primarily to the growth of operations and assets acquired through the acquisitions of Candraft and MSSin the fourth quarter of 2017, and the recent acquisition of GrayWolf in the fourth quarter of 2018.Depreciation and amortization from our Construction segment for the year ended December 31, 2017 increased $3.7 million to $5.6 million from $1.9 million for the year endedDecember 31, 2016. The increase was due primarily to the growth of operations and assets acquired through the acquisitions of BDS and PDC.Other operating (income) expense: Other operating (income) expense from our Construction segment for the year ended December 31, 2018 increased by $0.5 million to income of$0.2 million from an expense of $0.3 million for the year ended December 31, 2016. Other operating (income) expense from our Construction segment for the year endedDecember 31, 2017 decreased by $1.3 million to an expense of $0.3 million from an expense of $1.6 million for the year ended December 31, 2016. The changes were primarilydue to the gains and losses on the sale of land and assets in the comparable periods.72Marine Services Segment Years Ended December 31, Increase / (Decrease) 2018 2017 2016 2018 comparedto 2017 2017 compared to2016Net revenue $194.3 $169.5 $161.9 $24.8 $7.6 Cost of revenue 163.0 129.1 121.7 33.9 7.4Selling, general and administrative expenses 20.2 21.6 18.5 (1.4) 3.1Depreciation and amortization 27.2 22.9 22.0 4.3 0.9Other operating income (0.7) (3.2) — 2.5 (3.2)Loss from operations $(15.4) $(0.9) $(0.3) $(14.5) $(0.6)Net revenue: Net revenue from our Marine Services segment for the year ended December 31, 2018 increased $24.8 million to $194.3 million from $169.5 million for the yearended December 31, 2017. The increase in revenues can be primarily attributed to the increased scale and timing of cable installation projects under execution in the telecom and oiland gas markets over the comparable period, as well as from an increase in revenues from power cable repair work. Further, an increase in the offshore renewables operations andmaintenance revenues was largely offset by a decrease in telecom maintenance revenues, which benefited from a higher volume of repair work in the prior year period that were notrepeated in in the current period.Net revenue from our Marine Services segment for the year ended December 31, 2017 increased $7.6 million to $169.5 million from $161.9 million for the year ended December31, 2016. The increase was largely driven by revenue contribution from offshore power installation and telecom maintenance, partially offset by a decrease in telecom installationrevenues when compared to the prior period.Cost of revenue: Cost of revenue from our Marine Services segment for the year ended December 31, 2018 increased $33.9 million to $163.0 million from $129.1 million for theyear ended December 31, 2017. The increases were primarily driven by the increased scale of cable installation work under execution, an increase in unutilized vessel costsattributable to recently acquired marine assets and the timing of new project work as these assets are being deployed and higher than expected offshore power costs.Cost of revenue from our Marine Services segment for the year ended December 31, 2017 increased $7.4 million to $129.1 million from $121.7 million for the year endedDecember 31, 2016. The increase was driven by the increase in revenues, additional costs incurred from ongoing offshore power installation and repair projects as a result of projectchallenges and delays, primarily in the second quarter of 2017, and from an increase in unutilized installation vessels costs due to the timing of project work during the year.Selling, general and administrative expenses: Selling, general and administrative expenses from our Marine Services segment for the year ended December 31, 2018 decreased $1.4million to $20.2 million from $21.6 million for the year ended December 31, 2017. The decrease was due primarily to reductions in consulting and acquisition costs.Selling, general and administrative expenses from our Marine Services segment for the year ended December 31, 2017 increased $3.1 million to $21.6 million from $18.5 millionfor the year ended December 31, 2016 driven by acquisition costs related to the November 2017 acquisition of the Fugro trenching and cable-laying business.Depreciation and amortization: Depreciation and amortization from our Marine Services segment for the year ended December 31, 2018 increased $4.3 million to $27.2 millionfrom $22.9 million for the year ended December 31, 2017. The increase was largely attributable to a full year of depreciation on the Fugro vessel and trenching assets which wereacquired in the fourth quarter of 2017.Depreciation and amortization from our Marine Services segment for the year ended December 31, 2017 increased $0.9 million to $22.9 million from $22.0 million for the yearended December 31, 2016. The increase was due primarily to the acquired CWind assets.Other operating income: Other operating income from our Marine Services segment for the year ended December 31, 2018 decreased $2.5 million to $0.7 million from $3.2 millionfor the year ended December 31, 2017, driven by the sales of vessels. The gain recognized on the sale of a maintenance vessel in 2017 was greater than the sale of a similar vessel inthe current period.Other operating income from our Marine Services segment for the year ended December 31, 2017 increased $3.2 million, driven by the sale of a vessel in 2017.73Energy Segment Years Ended December 31, Increase / (Decrease) 2018 2017 2016 2018 compared to2017 2017 comparedto 2016Net revenue $20.7 $16.4 $6.4 $4.3 $10.0 Cost of revenue 11.2 10.3 2.6 0.9 7.7Selling, general and administrative expenses 4.0 3.6 2.0 0.4 1.6Depreciation and amortization 5.5 5.1 2.1 0.4 3.0Other operating expense 0.5 0.2 — 0.3 0.2Loss from operations $(0.5) $(2.8) $(0.3) $2.3 $(2.5)Net revenue: Net revenue from our Energy segment for the year ended December 31, 2018 increased $4.3 million to $20.7 million from $16.4 million for the year ended December31, 2017. The increase was largely driven by $2.6 million of AFETC related to 2017 CNG sales that were recognized in the second quarter of 2018 and was not present in thecomparable period. The increase was also driven by additional income recognized from renewable energy tax credits related to the use of Renewable Natural Gas ("RNG") and anincrease in volume-related revenues from growth in Compressed Natural Gas ("CNG"). As of March 12, 2019, the U.S. Congress did pass its omnibus budget for 2019, however,allocations to AFETC remain uncertain.Net revenue from our Energy segment for the year ended December 31, 2017 increased $10.0 million to $16.4 million from $6.4 million for the year ended December 31, 2016. Theincrease was primarily driven by increased CNG sales from stations acquired in late 2016 and developed in 2017. This was partially offset by the utilization of tax credits in thecomparable period, which expired on December 31, 2016 and not renewed and recognized until the second quarter of 2018.Cost of revenue: Cost of revenue from our Energy segment for the year ended December 31, 2018 increased $0.9 million to $11.2 million from $10.3 million for the year endedDecember 31, 2017. The increase was driven by utility and supply costs associated with the increase in sale of CNG when compared to the previous period.Cost of revenue from our Energy segment for the year ended December 31, 2017 increased $7.7 million to $10.3 million from $2.6 million for the year ended December 31, 2016.The increase was driven by an increase in CNG supply, utility and other station operating expenses from the newly acquired or developed stations, combined with the impact ofstation down time associated with the integration upgrade of stations and repair and maintenance expenses associated with the acquired stations from Constellation CNG andQuestar Fueling Company in December 2016.Selling, general and administrative expenses: Selling, general and administrative expenses from our Energy segment for the year ended December 31, 2018 increased $0.4 millionto $4.0 million from $3.6 million for the year ended December 31, 2017. The increase was driven by a one-time expense related to the abandonment of a station development projectand increases in professional service expenses required to support the overall growth in the company.Selling, general and administrative expenses from our Energy segment for the year ended December 31, 2017 increased $1.6 million to $3.6 million from $2.0 million for the yearended December 31, 2016. The increase was driven primarily by an increase in operating expenses to support the growth in the number of stations.Depreciation and amortization: Depreciation and amortization from our Energy segment for the year ended December 31, 2018 increased $0.4 million to $5.5 million from $5.1million for the year ended December 31, 2017. The increase was mainly due to additional stations placed in service in 2018.Depreciation and amortization from our Energy segment for the year ended December 31, 2017 increased $3.0 million to $5.1 million from $2.1 million for the year endedDecember 31, 2016. The increase was primarily due to the expense from stations acquired in late 2016 and developed in 2017.Other operating expense: Other operating expense from our Energy segment for the year ended December 31, 2018 increased $0.3 million to $0.5 million from $0.2 million for theyear ended December 31, 2017. The increase was driven by impairment of stations during the fourth quarter of 2018.74Telecommunications Segment Years Ended December 31, Increase / (Decrease) 2018 2017 2016 2018 comparedto 2017 2017 comparedto 2016Net revenue $793.6 $701.9 $735.0 $91.7 $(33.1) Cost of revenue 779.1 685.9 721.2 93.2 (35.3)Selling, general and administrative expenses 9.4 9.0 8.3 0.4 0.7Depreciation and amortization 0.3 0.4 0.5 (0.1) (0.1)Other operating expense — 0.2 0.8 (0.2) (0.6)Income from operations $4.8 $6.4 $4.2 $(1.6) $2.2Net revenue: Net revenue from our Telecommunications segment for the year ended December 31, 2018 increased $91.7 million to $793.6 million from $701.9 million for the yearended December 31, 2017. Net revenue from our Telecommunications segment for the year ended December 31, 2017 decreased $33.1 million to $701.9 million from $735.0million for the year ended December 31, 2016. The increases can be attributed to changes in our customer mix and fluctuations in wholesale traffic volumes, which can result inperiod-to-period variability in revenue contribution as the sales team remains focused on expansion into underrepresented markets.Cost of revenue: Cost of revenue from our Telecommunications segment for the year ended December 31, 2018 increased $93.2 million to $779.1 million from $685.9 million forthe year ended December 31, 2017. Cost of revenue from our Telecommunications segment for the year ended December 31, 2017 decreased $35.3 million to $685.9 million from$721.2 million for the year ended December 31, 2016. The fluctuations are directly correlated to the fluctuations in wholesale traffic volumes, in addition to slightly negativevariances in margin due to call termination rate changes.Selling, general and administrative: Selling, general and administrative expenses from our Telecommunications segment for the year ended December 31, 2018 increased $0.4million to $9.4 million from $9.0 million for the year ended December 31, 2017. The increase was primarily driven by an increase in acquisition related expenses due to the fourthquarter 2018 acquisition of Go2Tel.com.Selling, general and administrative expenses from our Telecommunications segment for the year ended December 31, 2017 increased $0.7 million to $9.0 million from $8.3 millionfor the year ended December 31, 2016. The increase was due primarily to an increase in salaries and commission expense as a result of improved margin contribution, as well asfrom an increase in operational support costs.Other operating expense from our Telecommunications segment for the year ended December 31, 2017 decreased $0.6 million to $0.2 million from $0.8 million for the year endedDecember 31, 2016. This was driven by lease termination costs in 2016 which were not repeated in 2017.Insurance Segment Years Ended December 31, Increase / (Decrease) 2018 2017 2016 2018 comparedto 2017 2017 comparedto 2016Life, accident and health earned premiums, net $94.4 $80.5 $79.4 $13.9 $1.1Net investment income 117.1 66.1 58.0 51.0 8.1Net realized and unrealized gains on investments 5.6 5.0 5.0 0.6 —Net revenue 217.1 151.6 142.4 65.5 9.2 Policy benefits, changes in reserves, and commissions 197.3 108.7 123.2 88.6 (14.5)Selling, general and administrative 30.4 21.9 21.5 8.5 0.4Depreciation and amortization (12.4) (4.4) (3.9) (8.0) (0.5)Other operating expense — — 2.4 — (2.4)Income (loss) from operations $1.8 $25.4 $(0.8) $(23.6) $26.2Life, accident and health earned premiums, net: Life, accident and health earned premiums, net from our Insurance segment for the year ended December 31, 2018 increased $13.9million to $94.4 million from $80.5 million for the year ended December 31, 2017. The increase was due to the premiums generated from the acquisition of KIC.Net investment income: Net investment income from our Insurance segment for the year ended December 31, 2018 increased $51.0 million to $117.1 million from $66.1 million forthe year ended December 31, 2017. The increase in net investment income was primarily due to the income generated from the assets acquired in the KIC acquisition and fromhigher average invested fixed maturity securities and mortgage loans from premiums received along with rotation into higher-yielding investments.75Net investment income from our Insurance segment for the year ended December 31, 2017 increased $8.1 million to $66.1 million. The increase was primarily driven by an increasein the asset base for both fixed maturity securities and mortgage loans and yield improvements for fixed maturity securities when compared to the previous period.Net realized and unrealized gains on investments: Net realized and unrealized gains on investments from our Insurance segment for the year ended December 31, 2018 increased$0.6 million to $5.6 million from $5.0 million for the year ended December 31, 2017. The increase was predominantly driven by gains recorded on the appreciation of ourinvestment in INSG, partially offset by unrealized losses on equity securities recognized through the income statement due to the adoption of ASU 2016-01. In the comparableperiod, such unrealized gains or losses were recorded in Accumulated other comprehensive income (loss).Policy benefits, changes in reserves, and commissions: Policy benefits, changes in reserves, and commissions for the year ended December 31, 2018 increased $88.6 million to$197.3 million from $108.7 million for the year ended December 31, 2017. The increase was primarily driven by the acquisition of KIC, which, subsequent to closing, incurred ahigher proportion of new claims with lifetime benefit periods which generate higher reserves than the block had seen historically. Additionally, the Insurance segment has seenadditional claim incidences that have persisted longer and increased claim incidence for the aging long-term care liabilities on the original block.Policy benefits, changes in reserves, and commissions for the year ended December 31, 2017 decreased $14.5 million to $108.7 million. The decrease was primarily due to thereserve releases as a result of higher CNFO activity in 2017.Selling, general and administrative: Selling, general and administrative from our Insurance segment for the year ended December 31, 2018 increased $8.5 million to $30.4 millionfrom $21.9 million for the year ended December 31, 2017. The increase was driven by higher headcount, occupancy, systems, and transition service agreement fees associated withthe acquisition of KIC.Depreciation and amortization: Depreciation and amortization from our Insurance segment for the year ended December 31, 2018 increased $8.0 million to $12.4 million from $4.4million for the year ended December 31, 2017. The increase was driven by higher negative VOBA amortization largely due to the KIC acquisition. Amortization of negative VOBAreflects an increase to net income.Other operating expense: Other operating expense from our Insurance segment for the year ended December 31, 2016 was $2.4 million driven by the write off of state licenses dueto the merger of UTA and CGI.Life Sciences Segment Years Ended December 31, Increase / (Decrease) 2018 2017 2016 2018 compared to2017 2017 compared to2016Selling, general and administrative expenses $13.6 $17.0 $10.3 $(3.4) $6.7Depreciation and amortization 0.2 0.2 0.1 — 0.1Loss from operations $(13.8) $(17.2) $(10.4) $3.4 $(6.8)Selling, general and administrative expenses: Selling, general and administrative expenses from our Life Sciences segment for the year ended December 31, 2018 decreased $3.4million to $13.6 million from $17.0 million for the year ended December 31, 2017. The decrease was driven by R2 which paid clinical milestone expenses in 2017 withoutcomparable expenses in the current period. In addition, due to the second quarter 2018 sale of BeneVir, expenses for 2018 decreased due to the segment having one less operatingentity. The decrease was partially offset by disposition costs related to the sale of BeneVir in the second quarter of 2018 and an increase in compensation expense of the PansendHolding Company resulting from increased performance of the segment.Selling, general and administrative expenses from our Life Sciences segment for the year ended December 31, 2017 increased $6.7 million to $17.0 million from $10.3 million forthe year ended December 31, 2016. The increase was primarily due to progress driven increases in clinical expenses and research and development at R2 and BeneVir and increasesin compensation expense as a result of these companies increased operational needs to meet company-specific regulatory and product commercialization objectives.76Broadcasting Years Ended December 31,Increase /(Decrease) 2018 2017 2018 comparedto 2017Net revenue $45.4 $4.8 $40.6 Cost of revenue 28.5 2.3 26.2Selling, general and administrative expenses 37.3 6.1 31.2Depreciation and amortization 3.3 0.4 2.9Other operating expense 0.3 — 0.3Loss from operations $(24.0) $(4.0) $(20.0)In 2018, the Broadcasting segment's entities met the definition of a Segment in accordance with ASC 280. The entities in the new segment did not exist in 2017; therefore, there isno comparable data. The increases in the above table are driven by a full year of activity in 2018 compared to one partial quarter of activity in 2017, as well as the impact of stationsacquired in 2018. Explanations for the 2018 period are presented below:Net revenue: Net revenue from our Broadcasting segment for the year ended December 31, 2018 was $45.4 million. HC2 Broadcasting recognized $28.2 million in networkadvertising revenue, $10.8 million in broadcast station revenue, and $4.8 million in network distribution revenue.Cost of revenue: Cost of revenue from our Broadcasting segment for the year ended December 31, 2018 was $28.5 million. HC2 Broadcasting incurred $7.3 million inprogramming fees, $6.2 million in transmission costs, $6.9 million in audience measurement costs and $8.2 million of direct station expenses comprised of tower rent, utilities andmaintenance expenses.Selling, general and administrative expenses: Selling, general and administrative expenses from our Broadcasting segment for the year ended December 31, 2018 was $37.3million. Expenses were primarily attributable to compensation costs of $21.9 million, $7.2 million in legal and advisory fees associated with acquisitions, and a mix of occupancy,advertising and other selling, general and administrative expenses.Depreciation and amortization: Depreciation and amortization from our Broadcasting segment for the year ended December 31, 2018 was $3.3 million, driven by fixed assets anddefinite lived intangible assets.Non-operating Corporate Years Ended December 31, Increase / (Decrease) 2018 2017 2016 2018 compared to2017 2017 compared to2016Selling, general and administrative expenses $33.5 $39.8 $37.6 $(6.3) $2.2Depreciation and amortization 0.1 0.1 — — 0.1Loss from operations $(33.6) $(39.9) $(37.6) $6.3 $(2.3)Selling, general and administrative expenses: Selling, general and administrative expenses from our Non-operating Corporate segment for the year ended December 31, 2018decreased $6.3 million to $33.5 million from $39.8 million for the year ended December 31, 2017. The decrease was driven by a reduction of acquisition related expenses incurredcompared to the prior period, a decrease in compensation expense driven by lower bonus expense, including unrepeated compensation related expenses associated with seniormanagement changes in the comparable period and lower acquisition related costs.Selling, general and administrative expenses from our Non-operating Corporate segment for the year ended December 31, 2017 increased $2.2 million to $39.8 million from $37.6million for the year ended December 31, 2016. The increase was attributable to bonus related compensation associated with the growth in Net Asset Value ("NAV") at the end ofthe period, compensation related expenses associated with senior management changes announced during the year, and acquisition related costs which increased compared to theprevious period as a result of broadcasting related purchases.The HC2 Compensation Committee establishes annual salary, cash and equity-based bonus arrangements for certain HC2 executive employees on an annual basis. In determiningthe amounts payable pursuant to such cash and equity-based bonus arrangements for these employees, the Company has historically measured the growth in the Company’s NAVin accordance with a formula established by HC2’s Compensation Committee ("Compensation NAV"). The Compensation NAV is generally determined by dividing the end ofyear Compensation NAV per share by the beginning year Compensation NAV per share and subtracting 1 from this amount (the "NAV Return"), and then subtracting the requiredthreshold return rate from the NAV Return.77HC2’s accrual for cash and equity-based bonus arrangements of HC2 executive employees as of December 31, 2018, 2017 and 2016, resulted in a decrease in expense recognizedof $3.2 million between December 31, 2018 and 2017, and an increase in expense recognized of $5.8 million between December 31, 2017 and 2016. These increases reflect theunderlying performance and growth in the Compensation NAV, which grew approximately 21%, 50% and 35% for the 2018, 2017, and 2016 periods, respectively.Income from equity investees Years Ended December 31, Increase / (Decrease) 2018 2017 2016 2018 compared to2017 2017 compared to2016Construction $(0.2) $— $— $(0.2) $—Marine Services 19.7 23.6 20.0 (3.9) 3.6Life Sciences (4.0) (5.7) (2.0) 1.7 (3.7)Other (0.1) (0.1) (7.2) — 7.1Income from equity investees $15.4 $17.8 $10.8 $(2.4) $7.0Marine Services: Income from equity investments from our Marine Services segment for the year ended December 31, 2018 decreased $3.9 million to $19.7 million from $23.6million for the year ended December 31, 2017. The decrease in income was primarily driven by its equity interest in HMN, primarily driven by timing of project work on certainturnkey projects that extended into 2019.Marine Services: Income from equity investments from our Marine Services segment for the year ended December 31, 2017 increased $3.6 million to $23.6 million from $20.0million for the year ended December 31, 2016. The increase in income was primarily driven by strong performance from our equity interest in HMN in 2017.Life Sciences: Loss from equity investments from our Life Sciences segment for the year ended December 31, 2018 decreased $1.7 million to a loss of $4.0 million from a loss of$5.7 million for the year ended December 31, 2017. The decreased loss was largely due to lower equity method losses recorded from our investment in Medibeacon due to timingof clinical trials.Loss from equity investments from our Life Sciences segment for the year ended December 31, 2017 increased $3.7 million to a loss of $5.7 million from a loss of $2.0 million forthe year ended December 31, 2016. The increase was largely due to higher equity method losses recorded from our investment in MediBeacon as a result of our increasedownership and additional expenses following successful completion of development and clinical milestones.Other: Loss from equity investments from our Other segment for the year ended December 31, 2017 decreased $7.1 million to $0.1 million from $7.2 million for the year endedDecember 31, 2016. The change was driven by Inseego, as the Company did not recognize losses from our investment in the 2017 period as the basis in this investment was zero.Non-GAAP Financial Measures and Other InformationAdjusted EBITDAAdjusted EBITDA is not a measurement recognized under U.S. GAAP. In addition, other companies may define Adjusted EBITDA differently than we do, which could limit itsusefulness.Management believes that Adjusted EBITDA provides investors with meaningful information for gaining an understanding of our results as it is frequently used by the financialcommunity to provide insight into an organization’s operating trends and facilitates comparisons between peer companies, since interest, taxes, depreciation, amortization and theother items listed in the definition of Adjusted EBITDA below can differ greatly between organizations as a result of differing capital structures and tax strategies. AdjustedEBITDA can also be a useful measure of a company’s ability to service debt. While management believes that non-U.S. GAAP measurements are useful supplemental information,such adjusted results are not intended to replace our U.S. GAAP financial results. Using Adjusted EBITDA as a performance measure has inherent limitations as an analytical toolas compared to net income (loss) or other U.S. GAAP financial measures, as this non-GAAP measure excludes certain items, including items that are recurring in nature, whichmay be meaningful to investors. As a result of the exclusions, Adjusted EBITDA should not be considered in isolation and does not purport to be an alternative to net income (loss)or other U.S. GAAP financial measures as a measure of our operating performance. Adjusted EBITDA excludes the results of operations of our Insurance segment.The calculation of Adjusted EBITDA, as defined by us, consists of Net income (loss), excluding the Insurance segment, as adjusted for depreciation and amortization; amortizationof equity method fair value adjustments at acquisition; (gain) loss on sale or disposal of assets; lease termination costs; asset impairment expense; interest expense; net gain (loss) oncontingent consideration; loss on early extinguishment or restructuring of debt; gain (loss) on sale and deconsolidation of subsidiary; other (income) expense, net; foreign currencytransaction (gain) loss included in cost of revenue; income tax (benefit) expense; (gain) loss from discontinued operations; noncontrolling interest; bonus to be settled in equity;share-based payment expense; non-recurring items; and acquisition and disposition costs.78(in millions): Year ended December 31, 2018 Core Operating Subsidiaries Early Stage and Other Non-operatingCorporate HC2 ConstructionMarineServices Energy Telecom LifeSciences BroadcastingOther andEliminations Net income attributable to HC2 Holdings, Inc. $162.0Less: Net Income attributable to HC2 Holdings Insurance Segment 165.2Less: Consolidating eliminations attributable to HC2 HoldingsInsurance segment 19.2Net Income (loss) attributable to HC2 Holdings, Inc., excludingInsurance Segment $27.7 $0.3 $(0.9) $4.6 $65.2 $(34.5) $(2.9) $(81.9) (22.4)Adjustments to reconcile net income (loss) to Adjusted EBITDA: Depreciation and amortization 7.4 27.2 5.5 0.3 0.2 3.3 0.1 0.1 44.1Depreciation and amortization (included in cost of revenue) 7.0 — — — — — — — 7.0Amortization of equity method fair value adjustment atacquisition — (1.5) — — — — — — (1.5)Asset impairment expense — — 0.7 — — 0.3 — — 1.0(Gain) loss on sale or disposal of assets (0.2) (0.7) (0.2) — — — — — (1.1)Interest expense 2.6 4.8 1.6 — — 9.5 — 57.1 75.6Loss on early extinguishment or restructuring of debt — — — — — 2.6 — 2.5 5.1Net loss (gain) on contingent consideration — 0.8 — — — — — — 0.8Other (income) expense, net (2.6) (1.8) 0.3 0.1 — 1.5 4.6 (4.8) (2.7)Gain on sale and deconsolidation of subsidiary — — — — (102.1) — (1.6) — (103.7)Foreign currency (gain) loss (included in cost of revenue) — 0.1 — — — — — — 0.1Income tax (benefit) expense 11.9 0.2 (1.1) — — (1.0) (1.6) (6.6) 1.8Noncontrolling interest 2.2 — (0.4) — 19.1 (1.9) (1.1) — 17.9Bonus to be settled in equity — — — — — — — 2.0 2.0Share-based payment expense — 1.9 — — 0.2 1.6 0.3 5.0 9.0Non-recurring Items — — — — — — — — —Acquisition and disposition costs 4.9 1.4 — 0.3 2.5 1.7 — 0.7 11.5Adjusted EBITDA $60.9 $32.7 $5.5 $5.3 $(14.9) $(16.9) $(2.2) $(25.9) $44.5 Total Core Operating Subsidiaries $104.4 79(in millions):Year Ended December 31, 2017 Core Operating Subsidiaries Early Stage and Other Non-operatingCorporate HC2 ConstructionMarineServices Energy Telecom LifeSciences BroadcastingOther andEliminations Net (loss) attributable to HC2 Holdings, Inc. $(46.9)Less: Net Income attributable to HC2 Holdings InsuranceSegment 7.1Less: Consolidating eliminations attributable to HC2 HoldingsInsurance segment —Net Income (loss) attributable to HC2 Holdings, Inc., excludingInsurance Segment $23.6 $15.2 $(0.5) $6.2 $(18.1) $(4.9) $(13.1) $(62.3) (54.0)Adjustments to reconcile net income (loss) to Adjusted EBITDA: Depreciation and amortization 5.6 22.9 5.1 0.4 0.2 0.3 1.2 0.1 35.7Depreciation and amortization (included in cost of revenue) 5.3 — — — — — — — 5.3Amortization of equity method fair value adjustment atacquisition — (1.6) — — — — — — (1.6)Asset impairment expense — — — — — — 1.8 — 1.8(Gain) loss on sale or disposal of assets 0.3 (3.5) 0.2 0.2 — — — — (2.8)Lease termination costs — 0.2 — — — — — — 0.3Interest expense 1.0 4.4 1.2 — — 2.0 2.4 44.1 55.1Gain on contingent consideration — — — — — — — (11.4) (11.4)Other (income) expense, net — 2.7 1.5 0.1 — — 6.5 (0.1) 10.7Foreign currency gain (included in cost of revenue) — (0.1) — — — — — — (0.1)Income tax (benefit) expense 10.7 0.2 (4.2) — (0.8) (1.8) 0.7 (10.2) (5.5)Noncontrolling interest 1.9 0.3 (0.7) — (3.9) 0.8 (2.0) — (3.6)Bonus to be settled in equity — — — — — — — 4.1 4.1Share-based payment expense — 1.5 0.4 — 0.3 0.2 0.1 2.8 5.2Non-recurring items — — — — — — — — —Acquisition and disposition costs 3.3 1.8 — — — 2.6 — 3.8 11.5Adjusted EBITDA $51.6 $44.0 $2.9 $6.9 $(22.4) $(0.8) $(2.3) $(29.2) $50.8 Total Core Operating Subsidiaries $105.5 Numbers may not foot due to rounding Construction: Net Income from our Construction segment for the year ended December 31, 2018 increased $4.1 million to $27.7 million compared to $23.6 million for the yearended December 31, 2017. Adjusted EBITDA income from our Construction segment for the year ended December 31, 2018 increased $9.3 million to $60.9 million from $51.6million for the year ended December 31, 2017. The increase can be attributed to the overall growth in project revenues, principally from large commercial projects in the Westregion, partially offset by increases in salary and benefits due to increases in headcount required to support the overall growth in the company.Marine Services: Net Income from our Marine Services segment for the year ended December 31, 2018 decreased $14.9 million to $0.3 million compared to $15.2 million for theyear ended December 31, 2017. Adjusted EBITDA income from our Marine Services segment for the year ended December 31, 2018 decreased $11.3 million to $32.7 million from$44.0 million for the year ended December 31, 2017. The decrease was primarily driven by an increase in unutilized vessel costs attributable to recently acquired marine assets andthe timing of new project work, a decrease in contribution from telecom maintenance projects, due principally to a lower volume of maintenance zone repair work, and a decline inincome from equity method investees, primarily driven by timing of HMN project work.Energy: Net Loss from our Energy segment for the year ended December 31, 2018 increased $0.4 million to $0.9 million compared to $0.5 million for the year ended December 31,2017. Adjusted EBITDA income from our Energy segment for the year ended December 31, 2018 increased $2.6 million to $5.5 million from $2.9 million for the year endedDecember 31, 2017. The increase was largely driven by $2.6 million of AFETC recognized in the second quarter of 2018 attributable to 2017 CNG sales that were not recognizedin the comparable period and additional income recognized from credits related to the use of RNG and an increase in volume-related revenues from growth in CNG. This waspartially offset by increases in utility and supply costs associated with delivering CNG and a general increase in expenses required to support the overall growth in the company.Telecommunications: Net Income from our Telecommunications segment for the year ended December 31, 2018 decreased $1.6 million to $4.6 million compared to $6.2 million forthe year ended December 31, 2017. Adjusted EBITDA income from our Telecommunications segment for the year ended December 31, 2018 decreased $1.6 million to $5.3 millionfrom $6.9 million for the year ended December 31, 2017. While there were increases in revenues driven by changes in our customer mix and fluctuations in wholesale trafficvolumes, the decrease in Adjusted EBITDA was driven by a lower margin contribution mix as a result of unfavorable fluctuations in wholesale call termination and suppliertermination rates.80Life Sciences: Net income (loss) from our Life Sciences segment for the year ended December 31, 2018 increased $83.3 million to Net Income of $65.2 million compared to NetLoss of $18.1 million for the year ended December 31, 2017. Adjusted EBITDA loss from our Life Sciences segment for the year ended December 31, 2018 decreased $7.5 millionto a loss of $14.9 million from $22.4 million. The decrease was driven by R2 Dermatology which paid clinical milestone expenses in the third quarter of 2017 and decreased lossesfrom our Medibeacon equity investment due to timing of product development. In addition, due to the second quarter 2018 sale of BeneVir, operating expenses for the yeardecreased due to the segment having one less operating entity. This decrease was partially offset by an increase in compensation expense of the Pansend Holding Companyresulting from increased performance of the segment.Broadcasting: Net Loss from our Broadcasting segment for the year ended December 31, 2018 increased $29.6 million to $34.5 million compared to $4.9 million for the year endedDecember 31, 2017. Adjusted EBITDA loss from our Broadcasting segment for the year ended December 31, 2018 increased $16.1 million to $16.9 million from $0.8 million. TheAdjusted EBITDA loss from the Broadcasting segment was largely driven by operating expenses of the entities which were predominantly acquired in the fourth quarter of 2017which were not present in the full comparable period.Other and Eliminations: Net Loss from our Other segment and eliminations for the year ended December 31, 2018 decreased $10.2 million to Net loss of $2.9 million compared toNet Loss of $13.1 million for the year ended December 31, 2017. Adjusted EBITDA loss from the Other segment and eliminations remained flat for the year ended December 31,2018 and for the year ended December 31, 2017.Non-operating Corporate: Net Loss from our Corporate segment for the year ended December 31, 2018 increased $19.6 million to $81.9 million compared to $62.3 million for theyear ended December 31, 2017. Adjusted EBITDA loss from our Non-operating Corporate segment for the year ended December 31, 2018 decreased $3.3 million to $25.9 millionfrom $29.2 million for the year ended December 31, 2017. The decrease was primarily attributable to bonus related compensation, which was comparably higher in 2017. Years Ended December 31, Increase /(in millions): 2018 2017 (Decrease)Construction $60.9 $51.6 $9.3Marine Services 32.7 44.0 (11.3)Energy 5.5 2.9 2.6Telecommunications 5.3 6.9 (1.6)Total Core Operating Subsidiaries 104.4 105.5 (1.0) Life Sciences (14.9) (22.4) 7.5Broadcasting (16.9) (0.8) (16.1)Other and Eliminations (2.2) (2.3) 0.1Total Early Stage and Other (34.0) (25.5) (8.5) Non-Operating Corporate (25.9) (29.2) 3.3Adjusted EBITDA $44.5 $50.8 $(6.2)Our Adjusted EBITDA was $44.5 million and $50.8 million for the years ended December 31, 2018 and 2017, respectively.Adjusted Operating Income - InsuranceAdjusted Operating Income ("Insurance AOI") and Pre-tax Adjusted Operating Income ("Pre-tax Insurance AOI") for the Insurance segment are non-U.S. GAAP financialmeasures frequently used throughout the insurance industry and are economic measures the Insurance segment uses to evaluate its financial performance. Management believes thatInsurance AOI and Pre-tax Insurance AOI measures provide investors with meaningful information for gaining an understanding of certain results and provide insight into anorganization’s operating trends and facilitates comparisons between peer companies. However, Insurance AOI and Pre-tax Insurance AOI have certain limitations, and we may notcalculate it the same as other companies in our industry. It should, therefore, be read together with the Company's results calculated in accordance with U.S. GAAP. Similarly to Adjusted EBITDA, using Insurance AOI and Pre-tax Insurance AOI as performance measures have inherent limitations as an analytical tool as compared to income(loss) from operations or other U.S. GAAP financial measures, as these non-U.S. GAAP measures exclude certain items, including items that are recurring in nature, which may bemeaningful to investors. As a result of the exclusions, Insurance AOI and Pre-tax Insurance AOI should not be considered in isolation and do not purport to be an alternative toincome (loss) from operations or other U.S. GAAP financial measures as measures of our operating performance.81Management defines Insurance AOI as Net income (loss) for the Insurance segment adjusted to exclude the impact of net investment gains (losses), including OTTI lossesrecognized in operations; asset impairment; intercompany elimination; bargain purchase gains; reinsurance gain; and acquisition costs. Management defines Pre-tax Insurance AOIas Insurance AOI adjusted to exclude the impact of income tax (benefit) expense recognized during the current period. Management believes that Insurance AOI and Pre-taxInsurance AOI provide meaningful financial metrics that help investors understand certain results and profitability. While these adjustments are an integral part of the overallperformance of the Insurance segment, market conditions impacting these items can overshadow the underlying performance of the business. Accordingly, we believe using ameasure which excludes their impact is effective in analyzing the trends of our operations.The table below shows the adjustments made to the reported Net income (loss) of the Insurance segment to calculate Insurance AOI and Pre-tax Insurance AOI (in millions). Referto the analysis of the fluctuations within the results of operations section: Years Ended December 31, Increase / (Decrease) 2018 2017 2018 compared to 2017Net income (loss) - Insurance segment $165.2 $7.1 $158.1Effect of investment (gains) (5.6) (5.0) (0.6)Asset impairment — 3.4 (3.4)Bargain Purchase Gain (115.4) — (115.4)Reinsurance Gain (47.0) — (47.0)Acquisition costs 2.8 2.5 0.3Insurance AOI — 8.0 (8.0)Income tax expense 0.6 16.2 (15.6)Pre-tax Insurance AOI $0.6$24.2$(23.6)Net income for the year ended December 31, 2018 increased $158.1 million to income of $165.2 million, as compared to income of $7.1 million for the year ended December 31,2017. Pre-tax Insurance AOI income for the year ended December 31, 2018 decreased $23.6 million to income of $0.6 million, as compared to income of $24.2 million for the yearended December 31, 2017. The decrease is primarily driven by the KIC acquisition, which saw an increase in reserves shortly after close, driven by a higher proportion of newclaims with lifetime benefit periods which generate higher reserves than the block had seen in the prior year. Additionally, the Insurance segment has seen additional claimincidences that have persisted longer than expected. Partially offsetting these decreases were increases in net investment income, both due to the additional assets acquired in theKIC acquisition, additional reinvestment of the investments of the segment and higher average invested fixed maturity securities and mortgage loans from premiums received alongwith rotation into higher-yielding investments.BacklogProjects in backlog consist of awarded contracts, letters of intent, notices to proceed, change orders, and purchase orders obtained. Backlog increases as contract commitments areobtained, decreases as revenues are recognized and increases or decreases to reflect modifications in the work to be performed under the contracts. Generally, backlog is realized torevenue in future periods as work is performed or projects are completed. Backlog can be significantly affected by the receipt or loss of individual contracts.Construction SegmentAt December 31, 2018, DBMG's backlog was $528.5 million, consisting of $420.8 million under contracts or purchase orders and $107.7 million under letters of intent or noticesto proceed. Approximately $232.9 million, representing 44.1% of DBMG’s backlog at December 31, 2018, was attributable to five contracts, letters of intent, notices to proceed orpurchase orders. If one or more of these projects terminate or significantly reduce their scope, DBMG’s backlog could decrease substantially.DBMG’s backlog at December 31, 2017 was $723.4 million, consisting of $483.9 million under contracts or purchase orders and $239.5 million under letters of intent or notices toproceed.Marine Services SegmentAt December 31, 2018, GMSL's backlog stood at $483.4 million, inclusive of $393.0 million of signed contracts and customer-approved change orders and $90.4 million of on-siterepair estimates associated with its long-term maintenance contracts. Approximately $351.4 million, representing 72.7% of GMSL's backlog at December 31, 2018 was attributableto three multi-year telecom maintenance contracts which will be realized to revenue as contractual obligations are completed. GMSL's reported backlog may not be realized torevenue thus, GMSL's backlog may not be indicative of the level of its future revenues.At December 31, 2017, GMSL's backlog stood at $445.3 million, inclusive of $342.1 million of signed contracts and customer-approved change orders and $103.2 million of on-site repair estimates associated with its long-term maintenance contracts.82Liquidity and Capital ResourcesShort- and Long-Term Liquidity Considerations and RisksHC2 is a holding company and its liquidity needs are primarily for interest payments on its Secured Notes, dividend payments on its Preferred Stock and recurring operationalexpenses. As of December 31, 2018, the Company had $325.0 million of cash and cash equivalents compared to $97.9 million as of December 31, 2017. On a stand-alone basis, as ofDecember 31, 2018, HC2 had cash and cash equivalents of $6.5 million compared to $29.4 million at December 31, 2017. At December 31, 2018, cash and cash equivalents in ourInsurance segment was $283.3 million compared to $25.2 million at December 31, 2017.Our subsidiaries' principal liquidity requirements arise from cash used in operating activities, debt service, and capital expenditures, including purchases of steel constructionequipment and subsea cable equipment, fueling stations, network equipment (such as switches, related transmission equipment and capacity), and service infrastructure, liabilitiesassociated with insurance products, development of back-office systems, operating costs and expenses, and income taxes. As of December 31, 2018, the Company had $781.0 million of indebtedness on a consolidated basis compared to $601.1 million as of December 31, 2017. On a stand-alone basis,as of December 31, 2018, HC2 had $525.0 million of indebtedness compared to $400.0 million as of December 31, 2017.HC2's stand-alone debt consists of the $470.0 million aggregate principal amount of 11.5% senior secured notes due 2021 (the "Senior Secured Notes") and $55.0 millionaggregate principal amount of 7.5% convertible senior notes due 2022 (the "Convertible Notes"). HC2 is required to make semi-annual interest payments on its outstanding Noteson June 1st and December 1st of each year.HC2 is required to make dividend payments on our outstanding Preferred Stock on January 15th, April 15th, July 15th, and October 15th of each year.In 2018, HC2 received $2.5 million in dividends from its Telecommunications segment.In 2018, the Insurance segment generated $4.1 million in net management fees.Under a tax sharing agreement, DBMG reimburses HC2 for use of its net operating losses. In 2018, HC2 received $4.0 million from DBMG under the tax sharing agreement.We have financed our growth and operations to date, and expect to finance our future growth and operations, through public offerings and private placements of debt and equitysecurities, credit facilities, vendor financing, capital lease financing and other financing arrangements, as well as cash generated from the operations of our subsidiaries. In the future,we may also choose to sell assets or certain investments to generate cash.At this time, we believe that we will be able to continue to meet our liquidity requirements and fund our fixed obligations (such as debt services and operating leases) and other cashneeds for our operations for at least the next twelve months through a combination of distributions from our subsidiaries and from raising of additional debt or equity, refinancing ofcertain of our indebtedness or Preferred Stock, other financing arrangements and/or the sale of assets and certain investments. Historically, we have chosen to reinvest cash andreceivables into the growth of our various businesses, and therefore have not kept a large amount of cash on hand at the holding company level, a practice which we expect tocontinue in the future. The ability of HC2’s subsidiaries to make distributions to HC2 is subject to numerous factors, including restrictions contained in each subsidiary’s financingagreements, regulatory requirements, availability of sufficient funds at each subsidiary and the approval of such payment by each subsidiary’s board of directors, which mustconsider various factors, including general economic and business conditions, tax considerations, strategic plans, financial results and condition, expansion plans, any contractual,legal or regulatory restrictions on the payment of dividends, and such other factors each subsidiary’s board of directors considers relevant. Our ability to sell assets and certain ofour investments to meet our existing financing needs may also be limited by our existing financing instruments. Although the Company believes that it will be able to raiseadditional equity capital, refinance indebtedness or Preferred Stock, enter into other financing arrangements or engage in asset sales and sales of certain investments sufficient tofund any cash needs that we are not able to satisfy with the funds expected to be provided by our subsidiaries, there can be no assurance that it will be able to do so on termssatisfactory to the Company if at all. Such financing options, if pursued, may also ultimately have the effect of negatively impacting our liquidity profile and prospects over the long-term. In addition, the sale of assets or the Company’s investments may also make the Company less attractive to potential investors or future financing partners.83Capital ExpendituresCapital expenditures for the years ended December 31, 2018, 2017 and 2016 are set forth in the table below (in millions): Years Ended December 31, 2018 2017 2016Construction $14.9 $11.7 $8.2Marine Services 21.7 10.5 12.2Energy 1.5 8.6 7.2Telecommunications 0.1 — 0.8Insurance 0.3 0.6 0.1Life Sciences — 0.5 0.2Broadcasting 1.1 — —Other — — 0.1Non-operating corporate 0.1 — 0.2Total $39.7 $31.9 $29.0The above capital expenditures exclude assets acquired under terms of capital lease and vendor financing obligations.IndebtednessNon-Operating CorporateOn November 20, 2018, the Company repaid its 11.0% Notes, and issued $470 million aggregate principal amount of 11.5% senior secured notes due 2021 (the "Secured Notes")and $55 million aggregate principal amount of 7.5% convertible senior notes due 2022 (the "Convertible Notes".Senior Secured Notes Terms and ConditionsMaturity. The Secured Notes mature on December 1, 2021.Interest. The Secured Notes accrue interest at a rate of 11.500% per year. Interest on the Secured Notes is paid semi-annually on December 1 and June 1 of each year.Issue Price. The issue price of the Secured Notes is 98.75% of par.Ranking. The notes and the note guarantees are the Company’s and certain of its direct and indirect domestic subsidiaries’ (the "Subsidiary Guarantors") general senior securedobligations. The notes and the note guarantees will rank: (i) senior in right of payment to all of the Company’s and the Subsidiary Guarantors’ future subordinated debt; (ii) equal inright of payment, subject to the priority of any First-Out Obligations (as defined in the Secured Indenture), with all of the Company’s and the Subsidiary Guarantors’ existing andfuture senior debt and effectively senior to all of its and the Subsidiary Guarantor’s unsecured debt to the extent of the value of the collateral; and (iii) effectively subordinated to allliabilities of its non-guarantor subsidiaries. The notes and the note guarantees are secured on a first-priority basis by substantially all of the Company’s assets and the assets of theSubsidiary Guarantors, subject to certain exceptions and permitted liens.Collateral. The Secured Notes are secured by a first priority lien on substantially all of the Company’s assets (except for certain "Excluded Assets," and subject to certain"Permitted Liens," each as defined in the Secured Indenture), including, without limitation:•all equity interests owned by the Company or a Subsidiary Guarantor (which, in the case of any equity interest in a foreign subsidiary, will be limited to 100% of the non-voting stock (if any) and 65% of the voting stock of such foreign subsidiary) and the related rights and privileges associated therewith (but excluding Equity Interests ofInsurance Subsidiaries (as defined in the Secured Indenture), to the extent the pledge thereof is deemed a "change of control" under applicable insurance regulations);•all equipment, goods and inventory owned by the Company or a Subsidiary Guarantor;•all cash and investment securities owned by the Company or a Subsidiary Guarantor;•all documents, books and records, instruments and chattel paper owned by the Company or a Subsidiary Guarantor;•all general intangibles owned by the Company or a Subsidiary Guarantor; and•any proceeds and supporting obligations thereof.The Secured Indenture permits the Company, under specified circumstances, to incur additional debt in the future that could equally and ratably share in the collateral. The amount ofsuch debt is limited by the covenants contained in the Secured Indenture.Events of Default. The Secured Indenture contains customary events of default which could, subject to certain conditions, cause the SecuredNotes to become immediately due and payable.84Convertible Notes Terms and ConditionsCertain terms and conditions of the Convertible Notes are as follows:Maturity. The Convertible Notes mature on June 1, 2022 unless earlier converted, redeemed or purchased.Interest. The Convertible Notes accrue interest at a rate of 7.5% per year. Interest on the Convertible Notes is paid semi-annually on December 1 and June 1 of each year.Issue Price. The issue price of the Convertible Notes is 100% of par.Ranking. The notes are the Company’s general unsecured and unsubordinated obligations and will rank equally in right of payment with all of the Company’s existing and futureunsecured and unsubordinated indebtedness, and senior in right of payment to any of the Company’s future indebtedness that is expressly subordinated to the notes. The notes willbe effectively subordinated to all of the Company’s existing and future secured indebtedness, including the Company’s Secured Notes being offered concurrently herewith, to theextent of the value of the collateral securing that indebtedness, and structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries, including tradecredit.Optional Redemption. The Company may not redeem the notes prior to June 1, 2020. On or after June 1, 2020, the Company may redeem for cash all of the notes if the lastreported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (which need not be consecutive tradingdays) during any 30 consecutive trading-day period ending within five trading days prior to the date on which the Company provides notice of redemption. The redemption pricewill equal 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, including additional interest, if any, to, but excluding, the redemption date.Conversion Rights. The Convertible Notes are convertible into shares of the Company’s common stock based on an initial conversion rate of 228.3105 shares of common stock per$1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $4.38 per share of the Company’s common stock), at any time prior to theclose of business on the business day immediately preceding the maturity date, in principal amounts of $1,000 or an integral multiple of $1,000 in excess thereof. In addition,following a Make-Whole Fundamental Change (as defined in the Convertible Indenture) or the Company’s delivery of a notice of redemption for the Convertible Notes, theCompany will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with (i) such Make-Whole FundamentalChange or (ii) such notice of redemption. However, to comply with certain listing standards of The New York Stock Exchange, the Company will settle in cash its obligation toincrease the conversion rate in connection with a Make-Whole Fundamental Change or redemption until it has obtained the requisite stockholder approval.Events of Default. The Convertible Indenture contains customary events of default which could, subject to certain conditions, cause the Convertible Notes to become immediatelydue and payable.See Note 14. Debt Obligations, to the Consolidated Financial Statements for additional details regarding the Company's debt.Restrictive Covenants The Secured Indenture contains certain affirmative and negative covenants limiting, among other things, the ability of the Company, and, in certain cases, the Company’ssubsidiaries, to incur additional indebtedness; create liens; engage in sale-leaseback transactions; pay dividends or make distributions in respect of capital stock; make certainrestricted payments; sell assets; engage in transactions with affiliates; or consolidate or merge with, or sell substantially all of its assets to, another person. These covenants aresubject to a number of important exceptions and qualifications.The Company is also required to comply with certain financial maintenance covenants, which are similarly subject to a number of important exceptions and qualifications. Thesecovenants include maintenance of (1) liquidity; (2) collateral coverage; (3) secured net leverage ratio and (4) fixed charge coverage ratio.The maintenance of liquidity covenant provides that the Company will not permit the aggregate amount of (i) all unrestricted cash and Cash Equivalents of the Company and theSubsidiary Guarantors, (ii) amounts available for drawing under revolving credit facilities and undrawn letters of credit of the Company and the Subsidiary Guarantors and (iii)dividends, distributions or payments that are immediately available to be paid to the Company by any of its Restricted Subsidiaries to be less than the Company’s obligation to payinterest on the Senior Secured Notes and all other Debt, including Convertible Preferred Stock mandatory cash dividends or any other mandatory cash pay Preferred Stock butexcluding any obligation to pay interest on Convertible Preferred Stock or any other mandatory cash pay Preferred Stock which, in each case, may be paid by accretion or in-kind inaccordance with its terms) of the Company and its Subsidiary Guarantors for the next six months. As of December 31, 2018, the Company was in compliance with this covenant.The maintenance of collateral coverage provides that the certain subsidiaries' Collateral Coverage Ratio (defined in the Secured Indenture as the ratio of (i) the Loan Collateral to (ii)Consolidated Secured Debt (each as defined therein)) calculated on a pro forma basis as of the last day of each fiscal quarter may not be less than 1.50 to 1.00. As of December 31,2018, the Company was in compliance with this covenant. 85The maintenance of secured net leverage ratio provides that the Company’s Secured Net Leverage Ratio (defined in the Secured Indenture) as of any date of determination calculatedon a pro forma basis after accounting for the net proceeds from any Asset Sale which the Company has determined to apply to the repayment of any Debt to exceed 7.75 to 1.00. Asof December 31, 2018, the Company was in compliance with this covenant. The maintenance of fixed charge coverage ratio provides that commencing with the fiscal year ending December 31, 2019, that the Company will not permit the Fixed ChargeCoverage Ratio (defined in the Secured Indenture) calculated as of the last day of each fiscal year of the Company to be less than 1.00 to 1.00 or that the Company’s “HC2Corporate Overhead” (defined in the Secured Indenture) in any fiscal year not exceed the sum of $29.0 million for such fiscal year.The instruments governing the Company’s Preferred Stock also limit the Company’s and its subsidiaries ability to take certain actions, including, among other things, to incuradditional indebtedness; issue additional Preferred Stock; engage in transactions with affiliates; and make certain restricted payments. These limitations are subject to a number ofimportant exceptions and qualifications.Summary of Consolidated Cash FlowsPresented below is a table that summarizes the cash provided or used in our activities and the amount of the respective increases or decreases in cash provided by (used in) thoseactivities between the fiscal periods (in millions): Years Ended December 31,Increase / (Decrease) 2018 2017 2016 2018 comparedto 2017 2017 comparedto 2016Operating activities $341.4 $6.6 $79.1 $334.8 $(72.5)Investing activities (224.6) (139.3) (140.2) (85.3) 0.9Financing activities 115.2 115.4 18.8 (0.2) 96.6Effect of exchange rate changes on cash and cash equivalents (0.5) 0.3 (1.0) (0.8) 1.3Net increase (decrease) in cash and cash equivalents $231.5 $(17.0) $(43.3) $248.5 $26.3Operating ActivitiesCash provided by operating activities totaled $341.4 million for the year ended December 31, 2018 as compared to $6.6 million for the year ended December 31, 2017. The $334.8million increase was the result of an increase in working capital of $314.6 million, largely driven by the Insurance segment's recapture of two of their reinsurance treaties. Inaddition there was an increase of $15.1 million in dividends received from equity method investments from our Marine Services segment.Cash provided by operating activities totaled $6.6 million for the year ended December 31, 2017 as compared to $79.1 million for the year ended December 31, 2016. The $72.5million decrease was the result of a decrease in working capital largely due to contracts in progress driven by the ramp up of significant projects in our Construction segment, anincrease in cash used from interest paid for our long term obligations driven by an increase in our 11.0% notes, and a net decrease in dividends received from equity investees whencompared to the prior period.Investing ActivitiesCash used in investing activities totaled $224.6 million for the year ended December 31, 2018 as compared to $139.3 million for the year ended December 31, 2017. The $85.3million increase was driven by an increase in cash used from the purchase of investments, net of sales and maturities of $812.1 million, predominantly driven by the Insurancesegment. This was offset by an increase in net cash provided from acquisitions and dispositions of $721.9 million, driven by $806.7 million cash received from the Insurancesegment's acquisition of KIC and $92.0 million cash received from our Life Sciences segment's disposition of BeneVir, partially offset by an increase in cash used of $114.9 millionfrom our Construction segment driven by the acquisition of GrayWolf and $62.6 million from multiple acquisitions within the Broadcasting segment, of which $33.0 million wasfor the acquisition of Northstar's broadcast television stations. Finally, there was a decrease in cash used of $8.8 million from our Life Sciences segment as a result of less cashspend on equity method investments compared to the prior period.Cash used in investing activities totaled $139.3 million for the year ended December 31, 2017 as compared to $140.2 million for the year ended December 31, 2016. The activity,while remaining consistent, was driven by an increase in net cash used from purchases and sales of investments, fully offset by an increase in cash provided by maturities andredemptions of investments. Further, there was an increase in net cash used in the purchase and disposal of property, plant and equipment, partially offset by a decrease in cash paidfor business acquisitions when compared to 2016.86Financing ActivitiesCash provided by financing activities totaled $115.2 million for the year ended December 31, 2018 as compared to cash provided by financing activities of $115.4 million for theyear ended December 31, 2017. The $0.2 million decrease was driven by higher cash proceeds from long-term borrowings, net of repayments and financing fees of $18.3 million,offset by a $13.0 million increase in cash used in transactions with noncontrolling interest holders largely driven by our Life Sciences segment associated with the sale of BeneVirand $5.8 million cash spent by the Insurance segment to repurchase HC2's preferred stock.Cash provided by financing activities totaled $115.4 million for the year ended December 31, 2017 as compared to cash provided by financing activities of $18.8 million for the yearended December 31, 2016. The $96.6 million change was driven by an increase in proceeds from debt obligations borrowings of $130.5 million largely driven by our Corporate,Construction, and Other segments. This was partially offset by an increase of $29.3 million in principal payments on long term obligations largely driven by the repayment of the$35 million, 11.0% Bridge Note.Contractual ObligationsThe obligations set forth in the table below reflect the contractual payments of principal and interest that existed as of December 31, 2018 (in millions): Payments Due By Period Total Less than 1 year 1-3 years 3-5 years More than 5 yearsLife, accident and health liabilities (1) $3,528.8 $222.1 $351.4 $305.3 $2,650.0Debt obligations 951.9 159.0 624.1 156.3 12.5Annuities (1) 196.8 21.3 33.6 27.5 114.4Purchase Obligations 115.9 111.6 4.3 — —Operating leases 93.0 22.0 35.1 15.6 20.3Capital leases 48.4 10.5 20.2 14.1 3.6Total contractual obligations $4,934.8$546.5$1,068.7$518.8$2,800.8(1) Net of reinsurance recoverable.Other Invested AssetsCarrying values of other invested assets accounted for under cost and equity method are as follows (in millions): December 31, 2018 December 31, 2017 MeasurementAlternative Equity Method Fair Value Cost Method Equity Method Fair ValueCommon equity $— $2.1 $— $— $1.5 $—Preferred equity 1.6 9.6 — 2.5 14.2 —Derivatives — — — 0.4 — 0.3Other — 59.2 — — 66.6 —Total $1.6 $70.9 $— $2.9 $82.3 $0.3ConstructionCash FlowsCash flows from operating activities are the principal source of cash used to fund DBMG’s operating expenses, interest payments on debt, and capital expenditures. DBMG's short-term cash needs are primarily for working capital to support operations including receivables, inventories, and other costs incurred in performing its contracts. DBMG attempts tostructure the payment arrangements under its contracts to match costs incurred under the project. To the extent it is able to bill in advance of costs incurred, DBMG generatesworking capital through billings in excess of costs and recognized earnings on uncompleted contracts. DBMG relies on its credit facilities to meet its working capital needs. DBMGbelieves that its existing borrowing availability together with cash from operations will be adequate to meet all funding requirements for its operating expenses, interest payments ondebt and capital expenditures for the foreseeable future.DBMG is required to make monthly or quarterly interest payments on all of its debt. Based upon the December 31, 2018 debt balance, DBMG anticipates that in 2019, its interestpayments will be approximately $1.8 million each quarter. DBMG believes that its available funds, cash generated by operating activities and funds available under its bank creditfacilities will be sufficient to fund its capital expenditures and its working capital needs. However, DBMG may expand its operations through future acquisitions and may requireadditional equity or debt financing.87Marine ServicesCash FlowsCash flows from operating activities are the principal source of cash used to fund GMSL’s operating expenses, interest payments on debt, and capital expenditures. GMSL's short-term cash needs are primarily for working capital to support operations including receivables, inventories, and other costs incurred in performing its contracts. GMSL attempts tostructure the payment arrangements under its contracts to match costs incurred under the project. To the extent it is able to bill in advance of costs incurred, GMSL generatesworking capital through billings in excess of costs and recognized earnings on uncompleted contracts. GMSL believes that its existing borrowing availability together with cashfrom operations will be adequate to meet all funding requirements for its operating expenses, interest payments on debt and capital expenditures for the foreseeable future.GMSL is required to make monthly and quarterly interest and principal payments depending on the structure of each individual debt agreement.Market EnvironmentGMSL earns revenues in a variety of currencies including the U.S. dollar, the Singapore dollar and the British pound. The exchange rates between the U.S. dollar, the Singaporedollar and the British pound have fluctuated in recent periods and may fluctuate substantially in the future. Any material appreciation or depreciation of these currencies against eachother may have a negative impact on GMSL's results of operations and financial condition.InsuranceCash flowsCIG’s principal cash inflows from its operating activities relate to its premiums, annuity deposits and insurance, investment income and other income. CIG’s principal cash inflowsfrom its invested assets result from investment income and the maturity and sales of invested assets. The primary liquidity concern with respect to these cash inflows relates to therisk of default by debtors and interest rate volatility. Additional sources of liquidity to meet unexpected cash outflows in excess of operating cash inflows and current cash andequivalents on hand include selling short-term investments or fixed maturity securities.CIG's principal cash outflows relate to the payment of claims liabilities, interest credited and operating expenses. CIG’s management believes its current sources of liquidity areadequate to meet its cash requirements for the next 12 months.Market environmentAs of December 31, 2018, CIG was in a position to hold any investment security showing an unrealized loss until recovery, provided it remains comfortable with the credit of theissuer. CIG does not rely on short-term funding or commercial paper and to date it has experienced no liquidity pressure, nor does it anticipate such pressure in the foreseeablefuture. CIG projects its reserves to be sufficient and believes its current capital base is adequate to support its business.Dividend LimitationsCIG's insurance subsidiary is subject to Texas statutory provisions that restrict the payment of dividends. The dividend limitations on CIG are based on statutory financial resultsand regulatory approval. Statutory accounting practices differ in certain respects from accounting principles used in financial statements prepared in conformity with U.S. GAAP.Significant differences include the treatment of deferred income taxes, required investment reserves, reserve calculation assumptions and surplus notes.The ability of CIG’s insurance subsidiary to pay dividends and to make such other payments is limited by applicable laws and regulations of the state in which its subsidiary isdomiciled, which subject its subsidiary to significant regulatory restrictions. These laws and regulations require, among other things, CIG’s insurance subsidiary to maintainminimum solvency requirements and limit the amount of dividends this subsidiary can pay. Along with solvency regulations, the primary driver in determining the amount ofcapital used for dividends is the level of capital needed to maintain desired financial strength in the form of its subsidiary Risk-Based Capital ("RBC") ratio. CIG monitors itsinsurance subsidiary's compliance with the RBC requirements specified by the National Association of Insurance Commissioners. As of December 31, 2018, CIG’s insurancesubsidiary exceeds the minimum RBC requirements.88Insurance Companies Capital ContributionsThe Company has an agreement with the Texas Department of Insurance (“TDOI”) that, for two years from August 9, 2018, CIG will contribute to Continental General InsuranceCompany (“CGI” or the “Insurance Company” cash or marketable securities acceptable to the TDOI to the extent required for CGI’s total adjusted capital to be not less than 450%of CGI’s authorized control level risk-based capital and for three years from August 9, 2020, CIG will contribute to CGI cash or marketable securities acceptable to the TDOI to theextent required for CGI’s total adjusted capital to be not less than 400% of CGI’s authorized control level risk-based capital (each as defined under Texas law and reported in CGI’sstatutory statements filed with the TDOI).Additionally, CGI entered into a capital maintenance agreement with Great American. Under the agreement, if the applicable acquired company’s total adjusted capital reported in itsannual statutory financial statements is less than 400% of its authorized control level risk-based capital, Great American has agreed to pay cash or assets to the applicable acquiredcompany as required to eliminate such shortfall (after giving effect to any capital contributions made by the Company or its affiliates since the date of the relevant annual statutoryfinancial statement). Great American’s obligation to make such payments is capped at $35.0 million under the capital maintenance agreement. The capital maintenance agreementswill remain in effect from January 1, 2016 to January 1, 2021 or until payments by Great American under the applicable agreement equal the applicable cap. Pursuant to thepurchase agreement, the Company is required to indemnify Great American for the amount of any payments made by Great American under the capital maintenance agreements.Asset Liability ManagementCIG’s insurance subsidiary maintains investment strategies intended to provide adequate funds to pay benefits without forced sales of investments. Products having liabilities withlonger durations, such as long-term care insurance, are matched with investments such as long-term fixed maturity securities. Shorter-term liabilities are matched with fixed maturitysecurities that have short- and medium-term fixed maturities. The types of assets in which CIG may invest are influenced by state laws, which prescribe qualified investment assetsapplicable to insurance companies. Within the parameters of these laws, CIG invests in assets giving consideration to four primary investment objectives: (i) maintain robustabsolute returns; (ii) provide reliable yield and investment income; (iii) preserve capital and (iv) provide liquidity to meet policyholder and other corporate obligations. The Insurancesegment’s investment portfolio is designed to contribute stable earnings and balance risk across diverse asset classes and is primarily invested in high quality fixed incomesecurities. In addition, at any given time, CIG’s insurance subsidiary could hold cash, highly liquid, high-quality short-term investment securities and other liquid investment gradefixed maturity securities to fund anticipated operating expenses, surrenders and withdrawals.InvestmentsAt December 31, 2018 and December 31, 2017, CIG’s investment portfolio is comprised of the following (in millions): December 31, 2018 December 31, 2017 Fair Value Percent Fair Value PercentU.S. Government and government agencies $25.4 0.7% $15.7 1.1%States, municipalities and political subdivisions 421.9 11.0% 395.4 26.5%Foreign government — —% 6.0 0.4%Residential mortgage-backed securities 94.4 2.5% 104.9 7.0%Commercial mortgage-backed securities 93.9 2.5% 30.4 2.0%Asset-backed securities 511.5 13.4% 147.9 9.9%Corporate and other 2,250.5 58.8% 641.8 42.9%Common stocks (*) 25.5 0.7% 38.8 2.6%Perpetual preferred stocks 240.9 6.3% 42.6 2.9%Mortgage loans 137.6 3.6% 52.1 3.5%Policy loans 19.8 0.5% 18.0 1.2%Total $3,821.4 100.0% $1,493.6 100.0%(*) Balance includes fair value of certain securities held by the Company, which are either eliminated on consolidation or reported within Other invested assets.89Credit QualityInsurance statutes regulate the type of investments that CIG is permitted to make and limit the amount of funds that may be used for any one type of investment. In light of thesestatutes and regulations, and CIG's business and investment strategy, CIG generally seeks to invest in (i) securities rated investment grade by established nationally recognizedstatistical rating organizations (each, a nationally recognized statistical rating organization ("NRSRO")), (ii) U.S. Government and government-sponsored agency securities, or (iii)securities of comparable investment quality, if not rated.The following table summarizes the credit quality, by NRSRO rating, of CIG's fixed income portfolio (in millions): December 31, 2018 December 31, 2017 Fair Value Percent Fair Value PercentAAA, AA, A $1,742.4 51.4% $725.0 54.0%BBB 1,444.1 42.5% 415.6 31.0%Total investment grade 3,186.5 93.9% 1,140.6 85.0%BB 143.8 4.2% 60.3 4.5%B 14.7 0.4% 7.6 0.6%CCC, CC, C 44.4 1.3% 25.6 1.9%D 8.2 0.2% 15.0 1.1%NR — —% 93.1 6.9%Total non-investment grade 211.1 6.1% 201.6 15.0%Total $3,397.6 100.0% $1,342.2 100.0%Off-Balance Sheet ArrangementsDBMGDBMG’s off-balance sheet arrangements at December 31, 2018 included letters of credit of $8.5 million under Credit and Security Agreements and performance bonds of $144.2million.DBMG’s contract arrangements with customers sometimes require DBMG to provide performance bonds to partially secure its obligations under its contracts. Bondingrequirements typically arise in connection with public works projects and sometimes with respect to certain private contracts. DBMG’s performance bonds are obtained throughsurety companies and typically cover the entire project price.New Accounting PronouncementsFor a discussion of our New Accounting Pronouncements, refer to Note 2. Summary of Significant Accounting Policies to our Consolidated Financial Statements included in thisAnnual Report on Form 10-K.Critical Accounting PoliciesThe preparation of financial statements in accordance with generally accepted accounting principles in the U.S. GAAP requires the use of estimates and assumptions that have animpact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental disclosures including information about contingencies, risk andfinancial condition.Critical accounting estimates are defined as those that are reflective of significant judgments and uncertainties and potentially yield materially different results under differentassumptions or conditions. Given current facts and circumstances, we believe that our estimates and assumptions are reasonable, adhere to GAAP and are consistently applied. Ourselection and disclosure of our critical accounting policies and estimates has been reviewed with our Audit Committee. Following is a review of the more significant assumptionsand estimates and the accounting policies and methods used in the preparation of our consolidated financial statements. For all of these estimates, we caution that future events rarelydevelop exactly as forecast, and the best estimates routinely require adjustment. See Note 2. Summary of Significant Accounting Policies, to the Notes to Consolidated FinancialStatements which discusses the significant accounting policies that we have adopted.90Fair Value MeasurementsIn determining the estimated fair value of our investments, fair values are based on unadjusted quoted prices for identical investments in active markets that are readily and regularlyobtainable. When such quoted prices are not available, fair values are based on quoted prices in markets that are not active, quoted prices for similar but not identical investments, orother observable inputs. If these inputs are not available, or observable inputs are not determinable, unobservable inputs and/or adjustments to observable inputs requiringmanagement judgment are used to determine the estimated fair value of investments. The methodologies, assumptions and inputs utilized are described in Note 2. Summary ofSignificant Accounting Policies. Financial markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a reduction in asset liquidity. Ourability to sell investments, or the price ultimately realized for investments, depends upon the demand and liquidity in the market and increases the use of judgment in determining theestimated fair value of certain investments.Valuation of fixed maturity securities Fixed maturity securities are classified as available for sale and are carried at fair value with changes in fair value recorded in accumulated other comprehensive income (loss) withinstockholders' equity. Fair value is defined as the price at which an asset could be exchanged in an orderly transaction between market participants at the balance sheet date.Determining fair value for a financial instrument requires management judgment. The degree of judgment involved generally correlates to the level of pricing readily observable inthe markets. Financial instruments with quoted prices in active markets or with market observable inputs to determine fair value, such as public securities, generally require lessjudgment. Conversely, private placements including more complex securities that are traded infrequently are typically measured using pricing models that require more judgment asto the inputs and assumptions used to estimate fair value. There may be a number of alternative inputs to select based on an understanding of the issuer, the structure of the securityand overall market conditions. In addition, these factors are inherently variable in nature as they change frequently in response to market conditions. See Note 6. Fair Value ofFinancial Instruments for a discussion of our fair value measurements, the procedures performed by management to determine that the amounts represent appropriate estimates.Typically, the most significant input in the measurement of fair value is the market interest rate used to discount the estimated future cash flows of the instrument. Such market ratesare derived by calculating the appropriate spreads over comparable U.S. Treasury securities, based on the credit quality, industry and structure of the asset.Assessment of "other-than-temporary" impairments on fixed maturity securitiesCertain fixed maturity securities with a fair value below amortized cost are carried at fair value with changes in fair value recorded in accumulated other comprehensive income. Forthese investments, we have determined that the decline in fair value below its amortized cost is temporary. To make this determination, we evaluated the expected recovery in valueand our intent to sell or the likelihood of a required sale of the fixed maturity prior to an expected recovery. In making this evaluation, we considered a number of general andspecific factors including the regulatory, economic and market environments, length of time and severity of the decline, and the financial health and specific near term prospects ofthe issuer. If we subsequently determine that the excess of amortized cost over fair value is other-than-temporary for any or all of these fixed maturity securities, the amount recorded inaccumulated other comprehensive income would be reclassified to stockholders' net income as an impairment loss.Income TaxesOur annual tax rate is based on our income, statutory tax rates, exchange rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Taxlaws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our taxexpense and in evaluating our tax positions including evaluating uncertainties under ASC 740. We review our tax positions quarterly and adjust the balances as new information becomes available. Deferred income tax assets represent amounts available to reduce income taxespayable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as fromnet operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from allsources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily onestimates. To provide insight, we use our historical experience and our short and long-range business forecasts. We believe it is more likely than not that a portion of the deferredincome tax assets may expire unused and have established a valuation allowance against them. Although realization is not assured for the remaining deferred income tax assets, webelieve it is more likely than not the deferred tax assets will be fully recoverable within the applicable statutory expiration periods. However, deferred tax assets could be reduced inthe near term if our estimates of taxable income are significantly reduced. See Note 15. Income Taxes, to the "Notes to Consolidated Financial Statements" for further information.91Goodwill and Intangible AssetsGoodwill and intangible assets deemed to have indefinite lives are not amortized but rather are tested at least annually for impairment, or more often if events or changes incircumstances indicate that more likely than not the carrying amount of the asset may not be recoverable. Goodwill is tested for impairment at the reporting unit level. A reportingunit represents an operating segment or a component of an operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation or a two-stepquantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carryingamount, including goodwill.We may elect not to perform the qualitative assessment for some or all reporting units and perform a two-step quantitative impairment test. Fair value is determined based ondiscounted cash flow analyses. The discounted estimates of future cash flows include significant management assumptions such as revenue growth rates, operating margins,weighted average cost of capital, and future economic and market conditions. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired. Theamount of the impairment is the difference between the carrying value of the goodwill and the "implied" fair value, which is calculated as if the reporting unit had just been acquiredand accounted for as a business combination.The estimates of future cash flows involve considerable management judgment and are based upon assumptions about expected future operating performance, economic conditions,market conditions, and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as capital markets. The actual cash flows could differmaterially from management's estimates due to changes in business conditions, operating performance, and economic conditions.See also note 11. Goodwill and Intangibles, net, to the Consolidated Financial Statements for additional information on goodwill and intangible assets.Refer to Note 2. Summary of Significant Accounting Policies for New Accounting Pronouncements to be Adopted Subsequent to December 31, 2018.Related Party TransactionsFor a discussion of our Related Party Transactions, refer to Note 20. Related Parties to our Consolidated Financial Statements included elsewhere in this Annual Report on Form10-K.Corporate InformationHC2, a Delaware corporation, was incorporated in 1994. The Company’s executive offices are located at 450 Park Avenue, 30th Floor, New York, NY, 10022. The Company’stelephone number is (212) 235-2690. Our Internet address is www.hc2.com. We make available free of charge through our Internet website our Annual Reports on Form 10-K,Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended,as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information accessible through our website is not a part of this AnnualReport on Form 10-K.92Special Note Regarding Forward-Looking StatementsThis Annual Report on Form 10-K contains or incorporates a number of "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based on current expectations, and are not strictly historical statements. In somecases, you can identify forward-looking statements by terminology such as "if," "may," "should," "believe," "anticipate," "future," "forward," "potential," "estimate," "opportunity,""goal," "objective," "growth," "outcome," "could," "expect," "intend," "plan," "strategy," "provide," "commitment," "result," "seek," "pursue," "ongoing," "include" or in thenegative of such terms or comparable terminology. These forward-looking statements inherently involve certain risks and uncertainties and are not guarantees of performance,results, or the creation of stockholder value, although they are based on our current plans or assessments which we believe to be reasonable as of the date hereof.Factors that could cause actual results, events and developments to differ include, without limitation: the ability of our subsidiaries (including, target businesses following theiracquisition) to generate sufficient net income and cash flows to make upstream cash distributions, capital market conditions, our and our subsidiaries’ ability to identify any suitablefuture acquisition opportunities, efficiencies/cost avoidance, cost savings, income and margins, growth, economies of scale, combined operations, future economic performance,conditions to, and the timetable for, completing the integration of financial reporting of acquired or target businesses with HC2 or the applicable subsidiary of HC2, completingfuture acquisitions and dispositions, litigation, potential and contingent liabilities, management’s plans, changes in regulations and taxes.We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements.Forward-looking statements are not guarantees of performance. You should understand that the following important factors, in addition to those discussed under the section entitled"Risk Factors" in this Annual Report and in the documents incorporated by reference, could affect our future results and could cause those results or other outcomes to differmaterially from those expressed or implied in the forward-looking statements. You should also understand that many factors described under one heading below may apply to morethan one section in which we have grouped them for the purpose of this presentation. As a result, you should consider all of the following factors, together with all of the otherinformation presented herein, in evaluating our business and that of our subsidiaries.HC2 Holdings, Inc. and SubsidiariesOur actual results or other outcomes may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including,without limitation, the following:•limitations on our ability to successfully identify any strategic acquisitions or business opportunities and to compete for these opportunities with others who have greaterresources;•our possible inability to generate sufficient liquidity, margins, earnings per share, cash flow and working capital from our operating segments;•our dependence on distributions from our subsidiaries to fund our operations and payments on our obligations;•the impact on our business and financial condition of our substantial indebtedness and the significant additional indebtedness and other financing obligations we mayincur;•the impact of covenants in the Indenture governing HC2’s Notes, the Certificates of Designation governing HC2’s Preferred Stock and all other subsidiary debtobligations as summarized in Note 14. Debt Obligations and future financing agreements on our ability to operate our business and finance our pursuit of acquisitionopportunities;•our dependence on certain key personnel, in particular, our Chief Executive Officer, Philip Falcone;•uncertain global economic conditions in the markets in which our operating segments conduct their businesses;•the ability of our operating segments to attract and retain customers;•increased competition in the markets in which our operating segments conduct their businesses;•our expectations regarding the timing, extent and effectiveness of our cost reduction initiatives and management’s ability to moderate or control discretionary spending;•management’s plans, goals, forecasts, expectations, guidance, objectives, strategies and timing for future operations, acquisitions, synergies, asset dispositions, fixed assetand goodwill impairment charges, tax and withholding expense, selling, general and administrative expenses, product plans, performance and results;•management’s assessment of market factors and competitive developments, including pricing actions and regulatory rulings;•the impact of additional material charges associated with our oversight of acquired or target businesses and the integration of our financial reporting;•the impact of expending significant resources in considering acquisition targets or business opportunities that are not consummated;•our expectations and timing with respect to our ordinary course acquisition activity and whether such acquisitions are accretive or dilutive to stockholders;•our expectations and timing with respect to any strategic dispositions and sales of our operating subsidiaries including GMSL, or businesses that we may make in thefuture and the effect of any such dispositions or sales on our results of operations;•our expectations and timing with respect to any strategic dispositions and sales of our operating subsidiaries or businesses that we may make in the future and the effect ofany such dispositions or sales on our results of operations;•the possibility of indemnification claims arising out of divestitures of businesses;•tax consequences associated with our acquisition, holding and disposition of target companies and assets;93•the effect any interests our officers, directors, stockholders and their respective affiliates may have in certain transactions in which we are involved;•our ability to effectively increase the size of our organization, if needed, and manage our growth;•the potential for, and our ability to, remediate future material weaknesses in our internal controls over financial reporting;•our possible inability to raise additional capital when needed or refinance our existing debt, on attractive terms, or at all; and•our possible inability to hire and retain qualified executive management, sales, technical and other personnel.Construction / DBM Global Inc.Our actual results or other outcomes of DBM Global, Inc. and its wholly-owned subsidiaries ("DBMG"), and, thus, our Construction segment, may differ from those expressed orimplied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:•its ability to realize cost savings from expected performance of contracts, whether as a result of improper estimates, performance, or otherwise;•potential impediments and limitations on our ability to complete ordinary course acquisitions in anticipated time frames or at all;•uncertain timing and funding of new contract awards, as well as project cancellations;•cost overruns on fixed-price or similar contracts or failure to receive timely or proper payments on cost-reimbursable contracts, whether as a result of improper estimates,performance, disputes, or otherwise;•risks associated with labor productivity, including performance of subcontractors that DBMG hires to complete projects;•its ability to settle or negotiate unapproved change orders and claims;•changes in the costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors;•adverse impacts from weather affecting DBMG’s performance and timeliness of completion of projects, which could lead to increased costs and affect the quality, costsor availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors;•fluctuating revenue resulting from a number of factors, including the cyclical nature of the individual markets in which our customers operate;•adverse outcomes of pending claims or litigation or the possibility of new claims or litigation, and the potential effect of such claims or litigation on DBMG’s business,financial condition, results of operations or cash flow; and•lack of necessary liquidity to provide bid, performance, advance payment and retention bonds, guarantees, or letters of credit securing DBMG’s obligations under bidsand contracts or to finance expenditures prior to the receipt of payment for the performance of contracts.Marine Services / Global Marine GroupOur actual results or other outcomes of Global Marine Group ("GMSL"), and, thus, our Marine Services segment, may differ from those expressed or implied by forward-lookingstatements contained herein due to a variety of important factors, including, without limitation, the following:•its ability to realize cost savings from expected performance of contracts, whether as a result of improper estimates, performance, or otherwise;•the possibility of global recession or market downturn with a reduction in capital spending within the targeted market segments in which the business operates;•project implementation issues and possible subsequent overruns;•risks associated with operating outside of core competencies when moving into different market segments;•possible loss or severe damage to marine assets;•vessel equipment aging or reduced reliability;•risks associated with two equity method investments that operate in China (i.e., Huawei Marine Systems Co. Limited, a Hong Kong holding company with a Chineseoperating subsidiary and SB Submarine Systems Co. Ltd.);•risks related to noncompliance with a wide variety of anti-corruption laws;•changes to the local laws and regulatory environment in different geographical regions;•loss of key senior employees;•difficulties attracting enough skilled technical personnel;•foreign exchange rate risk;•liquidity risk; and•potential for financial loss arising from the failure by customers to fulfill their obligations as and when these obligations come due.94Energy / ANG Holdings, Inc.Our actual results or other outcomes of ANG, and, thus, our Energy segment, may differ from those expressed or implied by forward-looking statements contained herein due to avariety of important factors, including, without limitation, the following:•automobile and engine manufacturers’ limited production of originally manufactured natural gas vehicles and engines for the markets in which ANG participates;•environmental regulations and programs mandating the use of cleaner burning fuels;•competition from oil and gas companies, retail fuel providers, industrial gas companies, natural gas utilities and other organizations;•the infrastructure for natural gas vehicle fuels;•the safety and environmental risks of natural gas fueling operations and vehicle conversions;•our Energy segment’s ability to implement its business plan in a regulated environment;•the adoption, modification or repeal in environmental, tax, government regulations, and other programs and incentives that encourage the use of clean fuel and alternativevehicles;•demand for natural gas vehicles;•advances in other alternative vehicle fuels or technologies, or improvements in gasoline, diesel or hybrid engines; and•increases, decreases and general volatility in oil, gasoline, diesel and natural gas prices.Telecommunications / PTGi International Carrier Services, Inc.Our actual results or other outcomes of PTGi International Carrier Services, Inc. ("ICS"), and, thus, our Telecommunications segment, may differ from those expressed or impliedby forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:•our expectations regarding increased competition, pricing pressures and usage patterns with respect to ICS’s product offerings;•significant changes in ICS’s competitive environment, including as a result of industry consolidation, and the effect of competition in its markets, including pricingpolicies;•its compliance with complex laws and regulations in the U.S. and internationally;•further changes in the telecommunications industry, including rapid technological, regulatory and pricing changes in its principal markets; and•an inability of ICS’ suppliers to obtain credit insurance on ICS in determining whether or not to extend credit.Insurance / Continental Insurance Group Ltd.Our actual results or other outcomes of Continental Insurance Group Ltd. ("CIG"), the parent operating company of Continental General Insurance Company ("CGI"), whichtogether comprise our Insurance segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors,including, without limitation, the following:•our Insurance segment’s ability to maintain statutory capital and maintain or improve their financial strength;•our Insurance segment’s reserve adequacy, including the effect of changes to accounting or actuarial assumptions or methodologies;•the accuracy of our Insurance segment’s assumptions and estimates regarding future events and ability to respond effectively to such events, including mortality,morbidity, persistency, expenses, interest rates, tax liability, business mix, frequency of claims, severity of claims, contingent liabilities, investment performance, and otherfactors related to its business and anticipated results;•availability, affordability and adequacy of reinsurance and credit risk associated with reinsurance;•extensive regulation and numerous legal restrictions on our Insurance segment;•our Insurance segment’s ability to defend itself against litigation, inherent in the insurance business (including class action litigation) and respond to enforcementinvestigations or regulatory scrutiny;•the performance of third parties, including distributors and technology service providers, and providers of outsourced services;•the impact of changes in accounting and reporting standards;•our Insurance segment’s ability to protect its intellectual property;•general economic conditions and other factors, including prevailing interest and unemployment rate levels and stock and credit market performance which may affect,among other things, our Insurance segment’s ability to access capital resources and the costs associated therewith, the fair value of our Insurance segment’s investments,which could result in impairments and other-than-temporary impairments, and certain liabilities;•our Insurance segment’s exposure to any particular sector of the economy or type of asset through concentrations in its investment portfolio;•the ability to increase sufficiently, and in a timely manner, premiums on in-force long-term care insurance policies and/or reduce in-force benefits, as may be required fromtime to time in the future (including as a result of our Insurance segment’s failure to obtain any necessary regulatory approvals or unwillingness or inability ofpolicyholders to pay increased premiums);•other regulatory changes or actions, including those relating to regulation of financial services affecting, among other things, regulation of the sale, underwriting andpricing of products, and minimum capitalization, risk-based capital and statutory reserve requirements for our Insurance segment, and our Insurance segment’s ability tomitigate such requirements;•our Insurance segment’s ability to effectively implement its business strategy or be successful in the operation of its business;95•our Insurance segment’s ability to retain, attract and motivate qualified employees;•interruption in telecommunication, information technology and other operational systems, or a failure to maintain the security, confidentiality or privacy of sensitive dataresiding on such systems;•medical advances, such as genetic research and diagnostic imaging, and related legislation; and•the occurrence of natural or man-made disasters or a pandemic.Life Sciences / Pansend Life Sciences, LLCOur actual results or other outcomes of Pansend Life Sciences, LLC, and, thus, our Life Sciences segment, may differ from those expressed or implied by forward-lookingstatements contained herein due to a variety of important factors, including, without limitation, the following:•our Life Sciences segment’s ability to invest in development stage companies;•our Life Sciences segment’s ability to develop products and treatments related to its portfolio companies;•medical advances in healthcare and biotechnology; and•governmental regulation in the healthcare industry.Broadcasting / HC2 Broadcasting Holdings Inc.Our actual results or other outcomes of HC2 Broadcasting Holdings Inc., and, thus, our Broadcasting segment, may differ from those expressed or implied by forward-lookingstatements contained herein due to a variety of important factors, including, without limitation, the following:•our Broadcasting segment’s ability to integrate our recent and pending broadcasting acquisitions;•our Broadcasting segment’s ability to operate in highly competitive markets and maintain market share;•our Broadcasting segment’s ability to effectively implement its business strategy or be successful in the operation of its business;•new and growing sources of competition in the broadcasting industry; and•FCC regulation of the television broadcasting industry.OtherOur actual results or other outcomes of our Other segment may differ from those expressed or implied by forward-looking statements contained herein due to a variety of importantfactors, including, without limitation, the following:•our Other segment’s ability to operate in highly competitive markets and maintain market share; and•our Other segment’s ability to effectively implement its business strategy or be successful in the operation of its business.We caution the reader that undue reliance should not be placed on any forward-looking statements, which speak only as of the date of this document. Neither we nor any of oursubsidiaries undertake any duty or responsibility to update any of these forward-looking statements to reflect events or circumstances after the date of this document or to reflectactual outcomes.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKMarket Risk FactorsMarket risk is the risk of the loss of fair value resulting from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, commodity pricesand equity prices. Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying financial instruments are traded. We are exposed tomarket risk with respect to our investments and foreign currency exchange rates. Through DBMG, we have market risk exposure from changes in interest rates charged on itsborrowings and from adverse changes in steel prices. Through GMSL and ANG, we have market risk exposure from changes in interest rates charged on their respectiveborrowings. We do not use derivative financial instruments to mitigate a portion of the risk from such exposures.Equity Price RiskHC2 is exposed to market risk primarily through changes in fair value of available-for-sale fixed maturity and equity securities. HC2 follows an investment strategy approved by theHC2 Board of Directors which sets certain restrictions on the amount of securities that HC2 may acquire and its overall investment strategy.Market prices for fixed maturity and equity securities are subject to fluctuation, as a result, and consequently the amount realized in the subsequent sale of an investment maysignificantly differ from the reported market value. Fluctuation in the market price of a security may result from perceived changes in the underlying economic characteristics of theinvestee, the relative price of alternative investments and general market conditions. Because HC2’s fixed maturity and equity securities are classified as available-for-sale, thehypothetical decline would not affect current earnings except to the extent that the decline reflects OTTI.96A means of assessing exposure to changes in market prices is to estimate the potential changes in market values on the fixed maturity and equity securities resulting from ahypothetical decline in equity market prices. As of December 31, 2018, assuming all other factors are constant, we estimate that a 10.0%, 20.0%, and 30.0% decline in equity marketprices would have an $359.2 million, $718.4 million, and $1,077.5 million adverse impact on HC2’s portfolio of fixed maturity and equity securities, respectively.Foreign CurrencyWe translate the local currency statements of operations of our foreign subsidiaries into the United States dollar ("USD") using the average exchange rate during the reportingperiod. DBMG, GMSL and ICS are exposed to market risk from foreign entities' currency price changes that could have a significant and potentially adverse impact on gains andlosses as a result of translating the operating results and financial position of international subsidiaries into USD. By way of example, when the USD strengthens compared to theBritish pound sterling ("GBP"), there could be a negative or positive effect on the reported results for our Telecommunications segment, depending upon whether such businessesare operating profitably or at a loss. More profits in GBP are required to generate the same amount of profits in USD and a greater loss in GBP to generate the same amount of lossin USD, and vice versa. For instance, when the USD weakens against the GBP, there is a positive effect on reported profits and a negative effect on reported losses.During the years ended December 31, 2018, 2017, and 2016, approximately 11.1%, 11.5%, and 28.4% respectively, of our net revenue from continuing operations was derivedfrom sales and operations outside the U.S. The reporting currency for our Consolidated Financial Statements is the USD. The local currency of each country is the functionalcurrency for each of our respective entities operating in that country.In the future, we expect to continue to derive a portion of our net revenue and incur a portion of our operating costs from outside the U.S., and therefore changes in exchange ratesmay continue to have a significant, and potentially adverse, effect on our results of operations. Our risk of loss regarding foreign currency exchange rate risk is caused primarily byfluctuations in the USD/GBP exchange rate. Changes in the exchange rate of USD relative to the GBP could have an adverse impact on our future results of operations. We haveagreements with certain subsidiaries for repayment of a portion of the investments and advances made to these subsidiaries. As we anticipate repayment in the foreseeable future, werecognize the unrealized gains and losses in foreign currency transaction gain (loss) on the Consolidated Financial Statements. The exposure of our income from operations tofluctuations in foreign currency exchange rates is reduced in part because certain of the costs that we incur in connection with our foreign operations are also denominated in localcurrencies.Interest Rate RiskGMSL, DBMG, and ANG are exposed to the market risk from changes in interest rates through their borrowings, which bear variable rates based on LIBOR. Changes in LIBORcould result in an increase or decrease in interest expense recorded. A 100, 200, and 300 basis point increase in LIBOR based on our floating rate borrowings outstanding as ofDecember 31, 2018 of $126.9 million, would result in an increase in the recorded interest expense of $1.3 million, $2.5 million, and $3.8 million per year.Commodity Price RiskDBMG is exposed to the market risk from changes in the price of steel. For large orders the risk is mitigated by locking the general contractors into the price at the mill at the timework is awarded. In the event of a subsequent price increase by the mill, DBMG has the ability to pass the higher costs on to the general contractor. DBMG does not hedge or enterinto any forward purchasing arrangements with the mills. The price negotiated at the time of the order is the price paid by DBMG.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe report of the independent registered public accounting firm and financial statements listed in the accompanying index are included in Item 15 of this report. See Index to theconsolidated financial statements on page F-1 of this Form 10-K.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.97ITEM 9A. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresOur management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as definedin Rule 13a-15(e) under the Securities Exchange Act of 1934 as amended (the "Exchange Act") as of the end of the period covered by this report. Based on this evaluation, ourChief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2018, our disclosure controls and procedures were effective. Disclosure controls andprocedures mean our controls and other procedures that are designed to ensure that information required to be disclosed by us in our reports that we file or submit under theExchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, withoutlimitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulatedand communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding requireddisclosure.Management’s Report on Internal Control Over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.The Company's internal control over financial reporting is designed to provide reasonable assurance as to the reliability of its financial reporting and the preparation of financialstatements for external purposes in accordance with U.S. GAAP. Because of the inherent limitations in any internal control, no matter how well designed, misstatements may occurand not be prevented or detected. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statementpreparation. Further, the evaluation of the effectiveness of internal control over financial reporting described below was made as of a specific date, and continued effectiveness infuture periods is subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies and procedures maydecline.Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018. This assessment was based on updated criteria for effectiveinternal control over financial reporting set forth by the Committee of Sponsoring Organizations of the Treadway Commission Internal Control-Integrated Framework (2013).Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2018.Auditor Attestation ReportOur independent registered public accounting firm has issued an attestation report on the effectiveness of our internal control over financial reporting, which is on page F-3 of thisreport.Changes in Internal Control over Financial ReportingThere have been no changes in our internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2018, that have materially affected, or arereasonably likely to materially affect, our internal control over financial reporting.ITEM 9B. OTHER INFORMATIONNone.98PART IIIThe information required by Part III will be provided in our definitive proxy statement for our 2019 annual meeting of stockholders ("2019 Proxy Statement"), which isincorporated herein by reference.ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEInformation regarding this item will be set forth in our 2019 Proxy Statement, including under the captions entitled "Information Regarding Directors", "Analysis of Our Directorsin Light of Our Business", "Certain Legal Proceedings Affecting Mr. Falcone", "Code of Conduct", "Section 16(a) Beneficial Ownership Reporting Compliance", "BoardCommittees" and "Executive Officers", and is incorporated herein by reference.Code of ConductWe have adopted a Code of Conduct applicable to all directors, officers and employees, including the CEO, senior financial officers and other persons performing similar functions.The Code of Conduct is a statement of business practices and principles of behavior that support our commitment to conducting business in accordance with the highest standardsof business conduct and ethics. Our Code of Conduct covers, among other things, compliance resources, conflicts of interest, compliance with laws, rules and regulations, internalreporting of violations and accountability for adherence to the Code of Conduct. A copy of the Code of Conduct is available under the "Investor Relations-Corporate Governance"section of our website at www.hc2.com. Any amendment of the Code of Conduct or any waiver of its provisions for a director or executive officer must be approved by the Boardor a duly authorized committee thereof. We intend to post on our website all disclosures that are required by law or the rules of the NYSE concerning any amendments to, orwaivers from, any provision of the Code of Conduct.ITEM 11. EXECUTIVE COMPENSATIONThe information regarding this item will be set forth under the captions entitled "Compensation Discussion and Analysis," "Compensation Committee Report," "CompensationCommittee Interlocks and Insider Participation," "Compensation Tables," and "Employment Arrangements and Potential Payments upon Termination or Change of Control" in our2019 Proxy Statement and is incorporated herein by reference.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSInformation regarding this item will be set forth under the captions entitled "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation PlanInformation" in our 2019 Proxy Statement and is incorporated herein by reference.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEInformation regarding this item will be set forth under the captions entitled "Board of Directors" and "Transactions with Related Persons" in our 2019 Proxy Statement and isincorporated herein by reference.ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESInformation regarding principal accountant fees and services will be set forth under the caption entitled "Independent Registered Public Accounting Firm Fees" in our 2019 ProxyStatement and is incorporated herein by reference.99PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a) List of Documents Filed1) Financial Statements and SchedulesThe financial statements as set forth under Item 8 of this Annual Report on Form 10-K are incorporated herein.2) Financial Statement SchedulesSchedule I - Summary of Investments - Other than Investments in Related PartiesSchedule II- Condensed Financial Information of the RegistrantSchedule III - Supplementary Insurance InformationSchedule IV - ReinsuranceSchedule V - Valuation and Qualifying AccountsAll other schedules have been omitted since they are either not applicable or the information is contained within the accompanying consolidated financial statements.(b) Exhibit IndexThe following is a list of exhibits filed as part of this Annual Report on Form 10-K.100ExhibitNumber Description 2.1 Sale and Purchase Agreement, dated September 22, 2014, by and between Global Marine Holdings, LLC and the Sellers party thereto (incorporated byreference to Exhibit 2.1 to HC2 Holdings, Inc.’s ("HC2") Current Report on Form 8-K, filed on September 26, 2014) (File No. 001-35210). 2.2 Amended and Restated Stock Purchase Agreement, dated as of December 24, 2015, by and among HC2, Continental General Corporation and GreatAmerican Financial Resources, Inc. (incorporated by reference to Exhibit 2.1 to HC2’s Current Report on Form 8-K, filed on December 28, 2015)(File No.001-35210). 2.3# Business Purchase Agreement, dated as of October 11, 2017, by and among Fugro N.V., Global Marine Systems Limited and Global Marine Holdings LLC(incorporated by reference to Exhibit 2.1 to HC2's Current Report on Form 8-K, filed on October 12, 2017) (File No. 001-35210). 2.4# Warranty and Indemnity Agreement, dated as of October 11, 2017, by and among Fugro N.V., Global Marine Systems Limited and Global Marine HoldingsLLC (incorporated by reference to Exhibit 2.2 to HC2's Current Report on Form 8-K, filed on October 12, 2017) (File No. 001-35210). 2.5# Stock Purchase Agreement, dated as of November 6, 2017, by and between Humana, Inc. and Continental General Insurance Company (incorporated byreference to Exhibit 2.1 to HC2's Current Report on Form 8-K, filed on November 7, 2017) (File No. 001-35210). 2.6# Fourth Amended and Restated Limited Liability Company Agreement of Global Marine Holdings, LLC, dated as of November 30, 2017, by and amongGlobal Marine Holdings, LLC and the Members party thereto (incorporated by reference to Exhibit 2.1 to HC2's Current Report on Form 8-K, filed onNovember 30, 2017) (File No. 001-35210). 2.7# Vendor Loan Agreement, dated as of November 30, 2017, by and between Fugro Financial Resources B.V. and Global Marine Systems Limited(incorporated by reference to Exhibit 2.2 to HC2's Current Report on Form 8-K, filed on November 30, 2017) (File No. 001-35210). 2.8# Transitional Services and Framework Services Agreement, dated as of November 30, 2017, by and between Fugro N.V. and Global Marine Systems Limited(incorporated by reference to Exhibit 2.3 to HC2's Current Report on Form 8-K, filed on November 30, 2017) (File No. 001-35210). 2.9# Agreement and Plan of Merger, by and among DBM Global Inc., DBM Merger Sub, Inc., CB-Horn Holdings, Inc. and Charlesbank Equity Fund VI,Limited Partnership, as Stockholders' Representative, dated as of October 10, 2018 (incorporated by reference to Exhibit 2.1 to HC2's Current Report onForm 8-K, filed on December 4, 2018) (File No. 001-35210). 2.10# Amendment No. 1 to Agreement and Plan of Merger, by and among DBM Global Inc., DBM Merger Sub, Inc., CB-Horn Holdings, Inc. and CharlesbankEquity Fund VI, Limited Partnership, as Stockholders' Representative, dated as of November 29, 2018 (incorporated by reference to Exhibit 2.2 to HC2'sCurrent Report on Form 8-K, filed on December 4, 2018) (File No. 001-35210). 2.11# Merger Agreement, dated as of May 2, 2018, by and among Janssen Biotech, Inc., Dogfish Merger Sub, Inc., Benevir Biopharm, Inc., and ShareholderRepresentative Services LLC, as holder representative (incorporated by reference to Exhibit 10.1 to HC2's Current Report on Form 8-K, filed on May 3,2018) (File No. 001-35210). 3.1 Second Amended and Restated Certificate of Incorporation of HC2 (incorporated by reference to Exhibit 3.1 to HC2’s Form 8-A, filed on June 20, 2011)(File No. 001-35210). 3.2 Certificate of Ownership and Merger Merging PTGI Name Change, Inc. into Primus Telecommunications Group, Incorporated (incorporated by reference toExhibit 3.1 to HC2’s Current Report on Form 8-K, filed on October 18, 2013) (File No. 001-35210). 3.3 Certificate of Ownership and Merger Merging HC2 Name Change, Inc. into PTGI Holding, Inc. (incorporated by reference to Exhibit 3.1 to HC2’s CurrentReport on Form 8-K, filed on April 11, 2014) (File No. 001-35210). 3.4 Certificate of Amendment to Second Amended and Restated Certificate of Incorporation of HC2 (incorporated by reference to Exhibit 3.1 to HC2’s CurrentReport on Form 8-K, filed on June 18, 2014) (File No. 001-35210). 3.5 Fourth Amended and Restated By-Laws of HC2 (incorporated by reference to Exhibit 3.1 to HC2's Current Report on Form 8-K, filed on February 25, 2019)(File No. 001-35210). 4.1 Indenture, dated as of November 20, 2014, by and among HC2, the guarantors party thereto and U.S. Bank National Association (incorporated by referenceto Exhibit 4.1 to HC2’s Current Report on Form 8-K, filed on November 21, 2014) (File No. 001-35210). 4.2 Certificate of Amendment to the Certificate of Designation of Series A Convertible Participating Preferred Stock of HC2 (incorporated by reference to Exhibit4.2 to HC2’s Current Report on Form 8-K, filed on January 9, 2015) (File No. 001-35210). 4.3 Certificate of Amendment to the Certificate of Designation of Series A-1 Convertible Participating Preferred Stock of HC2 (incorporated by reference toExhibit 4.3 to HC2’s Current Report on Form 8-K, filed on January 9, 2015) (File No. 001-35210).101ExhibitNumber Description 4.4 Certificate of Designation of Series A-2 Convertible Participating Preferred Stock of HC2 (incorporated by reference to Exhibit 4.1 to HC2’s Current Reporton Form 8-K, filed on January 9, 2015) (File No. 001-35210). 4.5 Certificate of Correction of the Certificate of Amendment to the Certificate of Designation of Series A Convertible Participating Preferred Stock of HC2, filedon January 5, 2015 (incorporated by reference to Exhibit 4.1 on HC2’s Quarterly Report on Form 10-Q, filed on August 10, 2015) (File No. 001-35210). 4.6 Certificate of Correction of the Certificate of Amendment to the Certificate of Designation of Series A Convertible Participating Preferred Stock of HC2, filedon January 5, 2015 (incorporated by reference to Exhibit 4.2 on HC2’s Quarterly Report on Form 10-Q, filed on August 10, 2015) (File No. 001-35210). 4.7 Certificate of Correction of the Certificate of Amendment to the Certificate of Designation of Series A Convertible Participating Preferred Stock of HC2, filedon May 29, 2014 (incorporated by reference to Exhibit 4.3 on HC2’s Quarterly Report on Form 10-Q, filed on August 10, 2015) (File No. 001-35210). 4.8 Certificate of Correction of the Certificate of Amendment to the Certificate of Designation of Series A-1 Convertible Participating Preferred Stock of HC2,filed on January 5, 2015 (incorporated by reference to Exhibit 4.4 on HC2’s Quarterly Report on Form 10-Q, filed on August 10, 2015) (File No. 001-35210). 4.9 Certificate of Correction of the Certificate of Amendment to the Certificate of Designation of Series A-1 Convertible Participating Preferred Stock of HC2,filed on September 22, 2014 (incorporated by reference to Exhibit 4.5 on HC2’s Quarterly Report on Form 10-Q, filed on August 10, 2015) (File No. 001-35210). 4.10 Certificate of Correction of the Certificate of Amendment to the Certificate of Designation of Series A-2 Convertible Participating Preferred Stock of HC2,filed on January 5, 2015 (incorporated by reference to Exhibit 4.6 on HC2’s Quarterly Report on Form 10-Q, filed on August 10, 2015) (File No. 001-35210). 4.11 Warrant Agreement, dated as of December 24, 2015, between HC2 and Great American Financial Resources, Inc. (incorporated by reference to Exhibit 4.1 toHC2’s Current Report on Form 8-K, filed on December 28, 2015) (File No. 001-35210) 4.12 11% Senior Secured Bridge Note due 2019, dated as of December 16, 2016, among HC2 Holdings 2, Inc., as the issuer, HC2 as guarantor, and certain otherguarantors party thereto (incorporated by reference to Exhibit 4.1 to HC2’s Current Report on Form 8-K, filed December 20, 2016) (File No. 001-35210). 4.13 Amended and Restated Certificate of Designation of Series A-1 Convertible Participating Preferred Stock of HC2 (incorporated by reference to Exhibit 10.1on HC2’s Quarterly Report on Form 10-Q, filed on August 9, 2016) (File No. 001-35210). 4.14 Credit Agreement, dated as of November 9, 2017, among HC2 Broadcasting Holdings Inc., certain other guarantors party thereto, Jefferies Finance LLC andthe Lenders (incorporated by reference to Exhibit 4.1 to HC2's Current Report on Form 8-K, filed on November 9, 2017) (File No. 001-35210). 4.15 First Amendment to Credit Agreement, dated as of February 4, 2018, among HC2 Broadcasting Holdings Inc., Jefferies Finance LLC and the Lenders(incorporated by reference to Exhibit 4.1 to HC2's Current Report on Form 8-K, filed on February 6, 2018) (File No. 001-35210). 4.16 Third Supplemental Indenture dated as of May 31, 2018 among HC2 Broadcasting Intermediate Holdings Inc. and HC2 Holdings, Inc. and U.S. BankNational Association (incorporated by reference to Exhibit 4.1 to HC2's Quarterly Report on Form 10-Q, filed on August 8, 2018) (File No. 001-35210) 4.17 Second Supplemental Indenture, dated as of May 7, 2018, among the guarantors party thereto and U.S. Bank National Association (incorporated by referenceto Exhibit 4.2 to HC2's Quarterly Report on Form 10-Q filed on May 10, 2018) (File No. 001-35210). 4.18 Indenture, dated as of November 20, 2018, by and among HC2, the guarantors party thereto and U.S. Bank National Association (incorporated by referenceto Exhibit 4.1 to HC2's Current Report on Form 8-K filed on November 21, 2018) (File No. 001-35210). 4.19 Indenture, dated as of November 20, 2018, by and among HC2 and U.S. Bank National Association (incorporated by reference to Exhibit 4.2 to HC2'sCurrent Report on Form 8-K filed on November 21, 2018) (File No. 001-35210). 4.20 Certificate of Designation for Series A Fixed-to-Floating Rate Perpetual Preferred Shares of DBM Global Inc., dated as of November 30, 2018 (incorporatedby reference to Exhibit 2.4 to HC2's Current Report on Form 8-K, filed on December 4, 2018) (File No. 001-35210). 4.21 Certificate of Designation of Series A Fixed-to-Floating Rate Perpetual Preferred Stock of HC2 Broadcasting Holdings Inc., dated as of December 3, 2018(filed herewith). 4.22 Secured Note dated August 7, 2018, by and among HC2 Station Group, Inc., HC2 LPTV Holdings, Inc. and the Institutional Investors (incorporated byreference to Exhibit 10.1 to HC2's Current Report on Form 8-K, filed on August 8, 2018) (File No. 001-35210). 102ExhibitNumber Description 4.23 Form of Secured Note, dated January 22, 2019, by and among HC2 Station, HC2 LPTV and the Institutional Investors (included in Exhibit 10.58)(incorporated by reference to Exhibit 10.1 to HC2's Current Report on Form 8-K, filed on January 23, 2019) (File No. 001-35210). 10.1 Stock Purchase Agreement, dated May 12, 2014, by and between HC2 and SAS Venture LLC (incorporated by reference to Exhibit 10.1 to HC2’s CurrentReport on Form 8-K, filed on May 13, 2014) (File No. 001-35210). 10.2^ Employment Agreement, dated May 21, 2014, by and between HC2 and Philip Falcone (incorporated by reference to Exhibit 10.2 on HC2’s Quarterly Reporton Form 10-Q, filed on August 11, 2014) (File No. 001-35210). 10.3 Securities Purchase Agreement, dated as of May 29, 2014, by and among HC2 and affiliates of Hudson Bay Capital Management LP, Benefit Street PartnersL.L.C. and DG Capital Management, LLC (the "Purchasers") (incorporated by reference to Exhibit 10.1 to HC2’s Current Report on Form 8-K, filed onJune 4, 2014) (File No. 001-35210). 10.4^ HC2 2014 Omnibus Equity Award Plan (incorporated by reference to Exhibit A to HC2’s Definitive Proxy Statement, filed on April 30, 2014) (File No.001-35210). 10.5^ 2014 HC2 Executive Bonus Plan (incorporated by reference to Exhibit 10.1 to HC2’s Current Report on Form 8-K, filed on June 18, 2014) (File No. 001-35210). 10.6 Second Amended and Restated Credit and Security Agreement, dated as of August 14, 2013, by and among DBMG, as Borrower, and Wells Fargo Credit,Inc. (incorporated by reference to Exhibit 10.12 on HC2’s Quarterly Report on Form 10-Q, filed on August 11, 2014) (File No. 001-35210). 10.7 Amendment to Second Amended and Restated Credit and Security Agreement, dated as of September 24, 2013, by and among DBMG, as Borrower, andWells Fargo Credit, Inc. (incorporated by reference to Exhibit 10.13 on HC2’s Quarterly Report on Form 10-Q, filed on August 11, 2014) (File No. 001-35210). 10.8 Second Amendment to Second Amended and Restated Credit and Security Agreement, dated as of February 3, 2014, by and among DBMG, as Borrower,and Wells Fargo Credit, Inc. (incorporated by reference to Exhibit 10.14 on HC2’s Quarterly Report on Form 10-Q, filed on August 11, 2014) (File No. 001-35210). 10.9 Third Amendment to Second Amended and Restated Credit and Security Agreement, dated as of May 5, 2014, by and among DBMG, as Borrower, andWells Fargo Credit, Inc. (incorporated by reference to Exhibit 10.15 on HC2’s Quarterly Report on Form 10-Q, filed on August 11, 2014) (File No. 001-35210). 10.10 Fourth Amendment to Second Amended and Restated Credit and Security Agreement, dated as of September 26, 2014, by and among DBMG, as Borrower,and Wells Fargo Credit, Inc. (incorporated by reference to Exhibit 10.7 on HC2’s Quarterly Report on Form 10-Q, filed on November 10, 2014) (File No.001-35210). 10.11 Fifth Amendment to Second Amended and Restated Credit and Security Agreement, dated as of October 21, 2014, by and among DBMG, as Borrower, andWells Fargo Credit, Inc. (incorporated by reference to Exhibit 10.9.6 on HC2's Annual Report on Form 10-K, filed on March 16, 2015) (File No. 001-35210). 10.12 Sixth Amendment to Second Amended and Restated Credit and Security Agreement, dated as of January 23, 2015, by and among DBMG, as Borrower, andWells Fargo Credit, Inc. (incorporated by reference to Exhibit 10.14 to HC2's Annual Report on Form 10-K, filed on March 15, 2016) (File No.001-35210). 10.13 Seventh Amendment to Second Amended and Restated Credit and Security Agreement, dated as of February 19, 2015, by and among DBMG, as Borrower,and Wells Fargo Credit, Inc. (incorporated by reference to Exhibit 10.1.1 on HC2’s Quarterly Report on Form 10-Q, filed on May 11, 2015) (File No. 001-35210). 10.14 Eighth Amendment to Second Amended and Restated Credit and Security Agreement, dated as of June 15, 2015, by and among DBMG, as Borrower, andWells Fargo Credit, Inc. (incorporated by reference to Exhibit 10.16 to HC2's Annual Report on Form 10-K, filed on March 15, 2016) (File No. 001-35210). 10.15 Securities Purchase Agreement, dated as of September 22, 2014, by and among HC2 and affiliates of DG Capital Management, LLC and Luxor CapitalPartners, LP (incorporated by reference to Exhibit 10.3 to HC2’s Current Report on Form 8-K, filed on September 26, 2014) (File No. 001-35210). 10.16 Securities Purchase Agreement, dated as of January 5, 2015, by and among HC2 and the purchasers thereto (incorporated by reference to Exhibit 10.1 onHC2’s Current Report on Form 8-K, filed on January 9, 2015) (File No. 001-35210). 10.17 Second Amended and Restated Registration Rights Agreement, dated as of January 5, 2015, by and among HC2 Holdings, the initial purchasers of the SeriesA Preferred Stock, the initial purchasers of the Series A-1 Preferred Stock and the purchasers of the Series A-2 Preferred Stock (incorporated by reference toExhibit 10.2 on HC2’s Current Report on Form 8-K, filed on January 9, 2015) (File No. 001-35210). 10.18 Secured Loan Agreement, dated as of January 20, 2014, by and among Global Marine Systems (Vessels) Limited, as Borrower, Global Marine SystemsLimited, as Guarantor, and DVB Bank SE Nordic Branch, as Lender (incorporated by reference to Exhibit 10.8 on HC2’s Quarterly Report on Form 10-Q,filed on November 10, 2014) (File No. 001-35210). 103ExhibitNumber Description 10.19 Supplemental Charter Agreement, dated as of March 21, 2012, by and among Global Marine Systems Limited, as Charterer, and International Cableship PTELTD, as Owner (incorporated by reference to Exhibit 10.9.1 on HC2’s Quarterly Report on Form 10-Q, filed on November 10, 2014) (File No. 001-35210). 10.20 Bareboat Charter, dated as of September 24, 1992, between International Cableship Pte Ltd and Global Marine Systems Limited (as successor-in-interest toCable & Wireless (Marine) Ltd) (incorporated by reference to Exhibit 10.9.2 on HC2’s Quarterly Report on Form 10-Q, filed on November 10, 2014) (FileNo. 001-35210). 10.21 Deed of Covenant, dated as of March 14, 2006, by and among Global Marine Systems Limited, as Mortgagee, and DYVI Cable Ship, as Mortgagor(incorporated by reference to Exhibit 10.10.1 on HC2’s Quarterly Report on Form 10-Q, filed on November 10, 2014) (File No. 001-35210). 10.22 Bareboat Charter, dated as of March 14, 2006, between DYVI Cable Ship AS and Global Marine Systems Limited (incorporated by reference to Exhibit10.10.2 on HC2’s Quarterly Report on Form 10-Q, filed on November 10, 2014) (File No. 001-35210). 10.23 Mortgage, dated as of March 14, 2006, of DYVI Cable Ship AS, as mortgagor, in favor of Global Marine Systems Limited, as mortgagee (incorporated byreference to Exhibit 10.10.3 on HC2’s Quarterly Report on Form 10-Q, filed on November 10, 2014) (File No. 001-35210). 10.24 Consent and Waiver, dated as of October 9, 2014 to Securities Purchase Agreement, dated as of May 29, 2014, by and among HC2 and affiliates of HudsonBay Capital Management LP, Benefit Street Partners L.L.C. and DG Capital Management, LLC (incorporated by reference to Exhibit 10.14 on HC2’sQuarterly Report on Form 10-Q, filed on November 10, 2014) (File No. 001-35210). 10.25 Consent, Waiver and Amendment, dated as of September 22, 2014 to Securities Purchase Agreement, dated as of May 29, 2014, by and among HC2 andaffiliates of Hudson Bay Capital Management LP, Benefit Street Partners L.L.C. and DG Capital Management, LLC (incorporated by reference to Exhibit10.15 on HC2’s Quarterly Report on Form 10-Q, filed on November 10, 2014) (File No. 001-35210). 10.26^ Reformed and Clarified Option Agreement, dated October 26, 2014, by and between HC2 and Philip Falcone (incorporated by reference to Exhibit 10.18.1 onHC2's Annual Report on Form 10-K, filed on March 16, 2015) (File No. 001-35210). 10.27^ Form of Option Agreement (Additional Time Contingent Option) by and between HC2 and Philip Falcone (incorporated by reference to Exhibit 10.18.2 onHC2's Annual Report on Form 10-K, filed on March 16, 2015) (File No. 001-35210). 10.28^ Form of Option Agreement (Contingent Option) by and between HC2 and Philip Falcone (incorporated by reference to Exhibit 10.18.3 on HC2's AnnualReport on Form 10-K, filed on March 16, 2015) (File No. 001-35210). 10.29^ Form of Non-Qualified Stock Option Award Agreement (incorporated by reference to Exhibit 10.1 on HC2’s Current Report on Form 8-K, filed onSeptember 22, 2014) (File No. 001-35210) 10.30^ Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 on HC2’s Current Report on Form 8-K, filed on September 22, 2014)(File No. 001-35210) 10.31^ Employment Agreement, dated October 1, 2014, by and between HC2 and Paul Voigt (incorporated by reference to Exhibit 10.2 on HC2’s Quarterly Reporton Form 10-Q, filed on May 11, 2015) (File No. 001-35210). 10.32^ Employment Agreement, dated May 20, 2015, by and between HC2 and Michael Sena (incorporated by reference to Exhibit 10.2 on HC2’s Quarterly Reporton Form 10-Q, filed on August 10, 2015) (File No. 001-35210). 10.33^ Non-Qualified Stock Option Award Agreement dated April 18, 2016, by and between HC2 and Philip A. Falcone (incorporated by reference to Exhibit 10.1on HC2’s Quarterly Report on Form 10-Q, filed on May 9, 2016) (File No. 001-35210). 10.34 Voluntary Conversion Agreement, dated August 2, 2016, by and among HC2 and Luxor Capital Group, LP, as investment manager of the exchangingentities, holders of the Company’s Series A-1 Convertible Participating Preferred Stock, par value $0.01 per share (incorporated by reference to Exhibit 10.2on HC2’s Quarterly Report on Form 10-Q, filed on August 9, 2016) (File No. 001-35210). 10.35 Voluntary Conversion Agreement, dated August 2, 2016, by and between HC2 and Corrib Master Fund, Ltd., a holder of the Company’s Series AParticipating Preferred Stock, par value ($0.01 per share) (incorporated by reference to Exhibit 10.3 on HC2’s Quarterly Report on Form 10-Q, filed onAugust 9, 2016) (File No. 001-35210). 10.36^ Form of Employee Nonqualified Option Award Agreement (incorporated by reference to Exhibit 10.4 on HC2’s Quarterly Report on Form 10-Q, filed onAugust 9, 2016) (File No. 001-35210). 10.37 Voluntary Conversion Agreement, dated as of October 7, 2016, by and between Hudson Bay Absolute Return Credit Opportunities Master Fund, LTD. andHC2 (incorporated by reference to Exhibit 10.1 on HC2’s Current Report on Form 8-K, filed on October 11, 2016) (File No. 001-35210). 10.38^ Revised Form of Indemnification Agreement of HC2 (incorporated by reference to Exhibit 10.1 on HC2’s Quarterly Report on Form 10-Q, filed onNovember 9, 2016) (File No. 001-35210).104ExhibitNumber Description 10.39 Registration Rights Agreement, dated as of August 2, 2016, by and between Luxor Capital Group, LP and HC2 (incorporated by reference to Exhibit 10.2 onHC2’s Quarterly Report on Form 10-Q, filed on August 9, 2016) (File No. 001-35210). 10.40 Registration Rights Agreement, dated as of August 2, 2016, by and between Corrib Master Fund, Ltd. and HC2 (incorporated by reference to Exhibit 10.3 onHC2’s Quarterly Report on Form 10-Q, filed on August 9, 2016) (File No. 001-35210). 10.41^ Independent Consulting Services Agreement, effective as of July 1, 2016 and dated as of July 11, 2016, by and between Wayne Barr, Jr. and HC2(incorporated by reference to Exhibit 10.1 on HC2’s Current Report on Form 8-K, filed on July 14, 2016) (File No. 001-35210). 10.42^ Separation and Release Agreement, dated January 5, 2017, by and between HC2 and Keith Hladek (incorporated by reference to Exhibit 10.1 to HC2'sCurrent Report on Form 8-K, filed on January 9, 2017) (File No. 001-35210). 10.43^ Employment Agreement, dated February 26, 2016, by and between HC2 and Paul L. Robinson (incorporated by reference to Exhibit 10.55 to HC2's AnnualReport on Form 10-K, filed on March 9, 2017) (File No. 001-35210). 10.44^ Employment Agreement, dated March 1, 2015, by and between HC2 and Suzi R. Herbst (incorporated by reference to Exhibit 10.54 to HC2's Annual Reporton Form 10-K, filed on March 9, 2017) (File No. 001-35210). 10.45 Voluntary Conversion Agreement dated as of May 2, 2017, by and among DG Value Partners, LP, DG Value Partners II Master Fund, LP and HC2Holdings, Inc. (incorporated by reference to Exhibit 10.1 to HC2's Current Report on Form 8-K, filed on May 8, 2017) (File No. 001-35210). 10.46^ Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to HC2's Current Report on Form 8-K, filed on June 14, 2017)(File No. 001-35210). 10.47 Securities Purchase Agreement dated as of June 27, 2017 among DTV Holding Inc., John N. Kyle II, Kristina C. Bruni, King Forward, Inc., Equity Trust CoFBO John N. Kyle, Tiger Eye Licensing L.L.C., Bella Spectra Corporation, Kim Ann Dagen and Michael S. Dagen, Trustees of the Kim Ann DagenRevocable Living Trust Agreement dated March 2, 1999, Madison Avenue Ventures, LLC, Paul Donner, Reeves Callaway, Don Shalhub, Shalhub MedicalInvestments PA, Tipi Sha, LLC, Luis O. Suau, Irwin Podhajser and Humberto Garriga (incorporated by reference to Exhibit 10.1 to HC2's Current Report onForm 8-K, filed on June 28, 2017) (File No. 001-35210). 10.48 Investor Rights Agreement dated as of June 27, 2017 between DTV Holding Inc., DTV America Corporation and other signatories party thereto(incorporated by reference to Exhibit 10.2 to HC2's Current Report on Form 8-K, filed on June 28, 2017) (File No. 001-35210). 10.49 Asset Purchase Agreement dated as of June 27, 2017 among DTV Holding Inc., King Forward, Inc., Tiger Eye Broadcasting Corporation, Tiger EyeLicensing L.L.C. and Bella Spectra Corporation (incorporated by reference to Exhibit 10.3 to HC2's Current Report on Form 8-K, filed on June 28, 2017)(File No. 001-35210). 10.50 Amended and Restated Secured Note dated December 23, 2016 (incorporated by reference to Exhibit 10.4 to HC2's Current Report on Form 8-K, filed onJune 28, 2017) (File No. 001-35210). 10.51 Asset Purchase Agreement dated as of September 8, 2017 among HC2 LPTV Holdings, Inc., HC2 Holdings, Inc., Mako Communications, LLC, MintzBroadcasting, Nave Broadcasting, LLC, Tuck Properties, Inc., Lawrence Howard Mintz and Sean Mintz (incorporated by reference to Exhibit 10.1 to HC2'sCurrent Report on Form 8-K, filed on September 14, 2017) (File No. 001-35210). 10.52^ Employment Agreement dated as of September 11, 2017, by and between HC2 and Joseph Ferraro (incorporated by reference to Exhibit 10.1 to HC2'sQuarterly Report on Form 10-Q, filed on November 8, 2017) (File No. 001-35210). 10.53^ Separation Agreement by and between HC2 Holdings, Inc. and Paul Voigt dated May 9, 2018 (incorporated by reference to Exhibit 10.1 to HC2's QuarterlyReport on Form 10-Q, filed on August 8, 2018) (File No. 001-35210). 10.54^ HC2 Second Amended and Restated 2014 Omnibus Equity Award Plan (incorporated by reference to Exhibit A to the HC2 Definitive Proxy Statement, filedon April 30, 2018) (File No. 001-35210). 10.55 Second Amended & Restated Limited Liability Company Agreement of Pansend Life Sciences, LLC, dated as of September 20, 2017, by and among HC2Holdings 2, Inc., David Present and Cherine Plumaker (incorporated by reference to Exhibit 10.2 to HC2's Current Report on Form 8-K, filed on May 3,2018) (File No. 001-35210). 10.56 Agreement Re: Secured Notes, dated January 22, 2019, by and among HC2 Station, HC2 LPTV and the Institutional Investors (incorporated by reference toExhibit 10.1 to HC2's Current Report on Form 8-K, filed on January 23, 2019) (File No. 001-35210). 10.57# Securities Purchase Agreement, by and between DBM Global Inc. and DBM Global Intermediate Holdco Inc., dated November 30, 2018 (incorporated byreference to Exhibit 2.3 to HC2's Current Report on Form 8-K, filed on December 4, 2018) (File No. 001-35210). 105ExhibitNumber Description 10.58 Financing Agreement, dated as of November 30, 2018, by and among DBM Global Inc. ("DBM"), as borrower, certain direct and indirect subsidiaries ofDBM as borrowers or guarantors, the lenders from time to time party thereto and TCW Asset Management Company LLC, as administrative agent for thelenders and collateral agent for the secured parties (incorporated by reference to Exhibit 2.5 to HC2's Current Report on Form 8-K, filed on December 4,2018) (File No. 001-35210). 10.59 Fourth Amended and Restated Credit and Security Agreement, dated as of November 30, 2018, by and among DBM Global Inc. and certain of itssubsidiaries, collectively as borrower, and Wells Fargo Bank, National Association as lender (incorporated by reference to Exhibit 2.6 to HC2's CurrentReport on Form 8-K, filed on December 4, 2018) (File No. 001-35210). 10.60 First Amendment to Credit Agreement, dated as of February 4, 2018, among the Borrower, Jefferies and the Lenders (incorporated by reference to Exhibit 4.1to HC2's Current Report on Form 8-K, filed on February 6, 2018) (File No. 001-35210). 21.1 Subsidiaries of HC2 (filed herewith). 23.1 Consent of BDO USA, LLP, an independent registered public accounting firm (filed herewith). 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith). 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (filed herewith). 32.1* Section 1350 Certification of Chief Executive Officer and Chief Financial Officer (furnished herewith). 101 The following materials from the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, formatted in extensible businessreporting language (XBRL); (i) Consolidated Statements of Operations for the years ended December 31, 2018, 2017, and 2016, (ii) Consolidated Statementsof Comprehensive Income (Loss) for the years ended December 31, 2018, 2017, and 2016, (iii) Consolidated Balance Sheets at December 31, 2018 and2017, (iv) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017, and 2016, (v) Consolidated Statements of CashFlows for the years ended December 31, 2018, 2017, and 2016, and (vi) Notes to Consolidated Financial Statements (filed herewith).*These certifications are being "furnished" and will not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subjectto the liability of that section. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities ExchangeAct of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.^Indicates management contract or compensatory plan or arrangement.#Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K and theCompany agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule and/orexhibit upon request.106ITEM 16. FORM 10-K SUMMARYNone.SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.HC2 HOLDINGS, INC.By: /S/ PHILIP A. FALCONE Philip A. FalconeChairman, Presidentand Chief Executive Officer(Principal Executive Officer) Date: March 12, 2019POWER OF ATTORNEYEach of the officers and directors of HC2 Holdings, Inc., whose signature appears below, in so signing, also makes, constitutes and appoints each of Philip A. Falcone and MichaelJ. Sena, and each of them, his true and lawful attorneys-in-fact, with full power and substitution, for him in any and all capacities, to execute and cause to be filed with the SEC anyand all amendments to this Annual Report on Form 10-K, with exhibits thereto and other documents connected therewith and to perform any acts necessary to be done in order tofile such documents, and hereby ratifies and confirms all that said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacitiesand on the dates indicated.Signature Title Date /S/ PHILIP A. FALCONE Director and Chairman, President and Chief Executive Officer (Principal Executive Officer) March 12, 2019Philip A. Falcone /S/ MICHAEL J. SENA Chief Financial Officer (Principal Financial and Accounting Officer) March 12, 2019Michael J. Sena /S/ WAYNE BARR, JR. Director March 12, 2019Wayne Barr, Jr. /S/ ROBERT LEFFLER Director March 12, 2019Robert Leffler /S/ LEE HILLMAN Director March 12, 2019Lee Hillman /S/ WARREN H. GFELLER Director March 12, 2019Warren H. Gfeller 107HC2 HOLDINGS, INC.INDEX TO FINANCIAL STATEMENTS AND SCHEDULESReports of Independent Registered Public Accounting FirmsF-2Consolidated Statements of Operations for the years ended December 31, 2018, 2017, and 2016F-4Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018, 2017 and 2016F-5Consolidated Balance Sheets as of December 31, 2018 and 2017F-6Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016F-7Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016F-9Notes to Consolidated Financial StatementsF-11(1) Organization and BusinessF-11(2) Summary of Significant Accounting PoliciesF-11(3) RevenueF-22(4) Business CombinationsF-29(5) InvestmentsF-35(6) Fair Value of Financial InstrumentsF-39(7) Accounts ReceivableF-43(8) InventoryF-43(9) Recoverable from ReinsurersF-43(10) Property, Plant and Equipment, netF-44(11) Goodwill and Intangible AssetsF-44(12) Life, Accident and Health ReservesF-46(13) Accounts Payable and Other Current LiabilitiesF-46(14) Debt ObligationsF-47(15) Income TaxesF-50(16) Commitments and ContingenciesF-54(17) Employee Retirement PlansF-55(18) Share-based CompensationF-63(19) EquityF-65(20) Related PartiesF-67(21) Operating Segment and Related InformationF-68(22) Quarterly Results of Operations (Unaudited)F-71(23) Basic and Diluted Income (Loss) Per Common ShareF-72(24) Subsequent EventsF-73Schedule I - Summary of Investments - Other Than Investments in Related PartiesF-74Schedule II - Condensed Financial Information of the Registrant (Registrant Only)F-75Schedule III - Supplementary Insurance InformationF-78Schedule IV - ReinsuranceF-79Schedule V - Valuation and Qualifying AccountsF-80F-1Report of Independent Registered Public Accounting FirmShareholders and Board of DirectorsHC2 Holdings, Inc.New York, NYOpinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated balance sheets of HC2 Holdings, Inc. (the “Company”) and subsidiaries as of December 31, 2018 and 2017,the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the periodended December 31, 2018, and the related notes and financial statement schedules listed in the accompanying index (collectively referred to as the“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of theCompany and subsidiaries at December 31, 2018 and 2017, and the results of their operations and their cash flows for each of the three years in the periodended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company'sinternal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued bythe Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 12, 2019 expressed an unqualified opinionthereon.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sconsolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent withrespect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosuresin the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.We have served as the Company's auditor since 2011./s/ BDO USA, LLPNew York, NYMarch 12, 2019F-2Report of Independent Registered Public Accounting FirmShareholders and Board of DirectorsHC2 Holdings, Inc.New York, NYOpinion on Internal Control over Financial ReportingWe have audited HC2 Holdings, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2018, based on criteria established inInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on theCOSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidatedbalance sheets of the Company and subsidiaries as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income(loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial statementschedules listed in the accompanying index and our report dated March 12, 2019 expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicablerules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Ouraudit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing andevaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures aswe considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate./s/ BDO USA, LLPNew York, NYMarch 12, 2019F-3HC2 HOLDINGS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(in millions, except per share amounts)PART I: FINANCIAL INFORMATIONItem 1. Financial Statements Years Ended December 31, 2018 2017 2016Revenue $1,774.1 $1,482.5 $1,415.7Life, accident and health earned premiums, net 94.4 80.5 79.4Net investment income 116.6 66.1 58.0Net realized and unrealized gains (losses) on investments (8.4) 5.0 5.0Net revenue 1,976.7 1,634.1 1,558.1Operating expenses Cost of revenue 1,585.2 1,313.1 1,254.0Policy benefits, changes in reserves, and commissions 197.3 108.7 123.2Selling, general and administrative 218.4 182.8 152.9Depreciation and amortization 31.7 31.3 24.5Other operating (income) expenses (0.1) (0.7) 5.0Total operating expenses 2,032.5 1,635.2 1,559.6Loss from operations (55.8) (1.1) (1.5)Interest expense (75.7) (55.1) (43.4)Gain on sale and deconsolidation of subsidiary 105.1 — —Gain (loss) on contingent consideration (0.8) 11.4 (8.9)Income from equity investees 15.4 17.8 10.8Gain on bargain purchase 115.4 — —Other income (expenses), net 78.7 (12.8) (2.8)Income (loss) from continuing operations before income taxes 182.3 (39.8) (45.8)Income tax expense (2.4) (10.7) (51.6)Net income (loss) 179.9 (50.5) (97.4)Less: Net (income) loss attributable to noncontrolling interest and redeemable noncontrolling interests (17.9) 3.6 2.9Net income (loss) attributable to HC2 Holdings, Inc. 162.0 (46.9) (94.5)Less: Preferred stock and deemed dividends 6.4 2.8 10.9Net income (loss) attributable to common stock and participating preferred stockholders $155.6 $(49.7) $(105.4) Income (loss) per common share: Basic $3.14 $(1.16) $(2.83)Diluted $2.90 $(1.16) $(2.83) Weighted average common shares outstanding: Basic 44.3 42.8 37.3Diluted 46.8 42.8 37.3See notes to Consolidated Financial StatementsF-4HC2 HOLDINGS, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(in millions) Years Ended December 31, 2018 2017 2016Net income (loss) $179.9 $(50.5) $(97.4)Other comprehensive income (loss) Foreign currency translation adjustment 4.1 7.9 (4.9)Unrealized gains (losses) on available-for-sale securities (158.2) 55.6 21.2Actuarial loss on pension plan (6.7) (0.1) (2.6)Other comprehensive income (loss) (160.8) 63.4 13.7Comprehensive income (loss) 19.1 12.9 (83.7)Comprehensive loss (income) attributable to noncontrolling interests and redeemable noncontrolling interests (15.1) 3.6 2.9Comprehensive income (loss) attributable to HC2 Holdings, Inc. $4.0 $16.5 $(80.8)See notes to Consolidated Financial StatementsF-5HC2 HOLDINGS, INC.CONSOLIDATED BALANCE SHEETS(in millions, except share amounts) December 31, 2018 2017Assets Investments: Fixed maturity securities, available-for-sale at fair value $3,391.6 $1,340.6Equity securities 200.5 47.5Mortgage loans 137.6 52.1Policy loans 19.8 17.9Other invested assets 72.5 85.4Total investments 3,822.0 1,543.5Cash and cash equivalents 325.0 97.9Accounts receivable, net 379.2 322.4Recoverable from reinsurers 1,000.2 526.3Deferred tax asset 2.1 1.7Property, plant, and equipment, net 376.3 374.7Goodwill 171.7 131.7Intangibles, net 219.2 117.1Other assets 208.1 102.4Total assets $6,503.8 $3,217.7 Liabilities, temporary equity and stockholders’ equity Life, accident and health reserves $4,562.1 $1,694.0Annuity reserves 245.2 243.2Value of business acquired 244.6 43.0Accounts payable and other current liabilities 344.9 347.5Deferred tax liability 30.3 10.7Debt obligations 743.9 593.2Other liabilities 110.8 70.1Total liabilities 6,281.8 3,001.7Commitments and contingencies Temporary equity Preferred stock 20.3 26.3Redeemable noncontrolling interest 8.0 1.6Total temporary equity 28.3 27.9Stockholders’ equity Common stock, $.001 par value — —Shares authorized: 80,000,000 at December 31, 2018 and December 31, 2017; Shares issued: 45,391,397 and 44,570,004 at December 31, 2018 and December 31, 2017, respectively Shares outstanding: 44,907,818 and 44,190,826 at December 31, 2018 and December 31, 2017, respectively Additional paid-in capital 260.5 254.7Treasury stock, at cost: 483,579 and 379,178 at December 31, 2018 and December 31, 2017, respectively (2.6) (2.1)Accumulated deficit (57.2) (221.2)Accumulated other comprehensive income (loss) (112.6) 41.7Total HC2 Holdings, Inc. stockholders’ equity 88.1 73.1Noncontrolling interest 105.6 115.0Total stockholders’ equity 193.7 188.1Total liabilities, temporary equity and stockholders’ equity $6,503.8 $3,217.7See notes to Consolidated Financial StatementsF-6HC2 HOLDINGS, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in millions) Common Stock AdditionalPaid-InCapital TreasuryStock AccumulatedDeficit AccumulatedOtherComprehensiveIncome (Loss) Total HC2Stockholders'Equity Non-controllingInterestTotalStockholders’EquityTemporaryEquity Shares Amount Balance as of December 31, 2015 35.3 $— $209.5 $(0.4) $(79.8) $(35.4) $93.9 $23.6 $117.5 $55.7Dividend to noncontrolling interest — — — — — —(0.8) (0.8) —Share-based compensation expense — — 8.3 — — — 8.3— 8.3 —Fair value adjustment of redeemablenoncontrolling interest — — (0.5) — — — (0.5)— (0.5) 0.5Taxes paid in lieu of shares issued forshare-based compensation (0.2) — — (1.0) — — (1.0) — (1.0) —Preferred stock dividend and accretion — — (2.9) — — — (2.9) — (2.9) —Amortization of issuance costs andbeneficial conversion feature — — (0.6) — — — (0.6) — (0.6) 0.6Issuance of common stock 0.3 — — — — — —— — —Conversion of preferred stock tocommon stock 6.5 — 21.4 — — — 21.4— 21.4 (23.8)Transactions with noncontrollinginterests — — 6.3 — — — 6.3 2.0 8.3 0.3Net loss — — — — (94.5) — (94.5)(1.5) (96.0) (1.4)Other comprehensive income —————13.713.7—13.7—Balance as of December 31, 2016 41.9 $— $241.5 $(1.4) $(174.3) $(21.7) $44.1 $23.3 $67.4 $31.9Dividend to noncontrolling interests — — — — — — — (0.8) (0.8) —Share-based compensation expense — — 7.3 — — — 7.3 — 7.3 —Fair value adjustment of redeemablenoncontrolling interest — — (1.1) — — — (1.1) — (1.1) 1.1Exercise of stock options 0.1 — 0.5 — — — 0.5 — 0.5 —Taxes paid in lieu of shares issued forshare-based compensation (0.1) — — (0.7) — — (0.7) — (0.7) —Preferred stock dividend and accretion — — (2.1) — — — (2.1) — (2.1) —Amortization of issuance costs andbeneficial conversion feature — — (0.1) — — — (0.1) — (0.1) 0.1Issuance of common stock foracquisition of business 1.0 — 5.0 — — — 5.0 — 5.0 —Issuance of common stock 0.5 — 0.3 — — — 0.3 — 0.3 —Conversion of preferred stock tocommon stock 0.8 — 2.7 — — — 2.7 — 2.7 (3.2)Transactions with noncontrollinginterests — — 0.7 — — — 0.7 93.4 94.1 0.7Net loss — — — — (46.9) — (46.9) (0.9) (47.8) (2.7)Other comprehensive income —————63.463.4—63.4—Balance as of December 31, 2017 44.2$—$254.7$(2.1)$(221.2)$41.7$73.1$115.0$188.1$27.9F-7HC2 HOLDINGS, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in millions) Common Stock AdditionalPaid-InCapital TreasuryStock AccumulatedDeficit AccumulatedOtherComprehensiveIncome (Loss) Total HC2Stockholders'Equity Non-controllingInterestTotalStockholders’EquityTemporaryEquity Shares Amount Balance as of December 31, 2017 44.2 $— $254.7 $(2.1) $(221.2) $41.7 $73.1 $115.0 $188.1 $27.9Cumulative effect of accounting forrevenue recognition (1) — — — — 0.4 — 0.4 0.3 0.7 —Cumulative effect of accounting for therecognition and measurement offinancial assets and financial liabilities(1) — — — — 1.6 0.1 1.7 — 1.7 —Share-based compensation expense — — 12.7 — — — 12.7 — 12.7 —Fair value adjustment of redeemablenoncontrolling interest — — (2.5) — — — (2.5) — (2.5) 2.5Exercise of stock options 0.1 — 0.2 — — — 0.2 — 0.2 —Taxes paid in lieu of shares issued forshare-based compensation (0.1) — — (0.5) — — (0.5) — (0.5) —Preferred stock dividend and accretion — — (5.7) — — — (5.7) — (5.7) —Amortization of issuance costs — — (0.1) — — — (0.1) — (0.1) 0.1Issuance of common stock 0.7 — — — — — — — — —Purchase of preferred stock bysubsidiary — — 0.2 — — — 0.2 — 0.2 (6.1)Transactions with noncontrollinginterests — — 1.5 — — 3.6 5.1 (27.1) (22.0) 6.2Other — — (0.5) — — — (0.5) — (0.5) —Net income (loss) — — — — 162.0 — 162.0 19.1 181.1 (1.2)Other comprehensive loss — — — — — (158.0) (158.0) (1.7) (159.7) (1.1)Balance as of December 31, 2018 44.9 $— $260.5 $(2.6) $(57.2) $(112.6) $88.1 $105.6 $193.7 $28.3(1) See Note 2 to Consolidated Financial Statements for further information about adjustments resulting from the Company’s adoption of new accounting standards in 2018.See notes to Consolidated Financial StatementsF-8HC2 HOLDINGS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in millions) Years Ended December 31, 2018 2017 2016Cash flows from operating activities: Net income (loss) $179.9 $(50.5) $(97.4)Adjustments to reconcile net income (loss) to cash provided by operating activities: Provision for doubtful accounts receivable 2.6 0.1 2.9Share-based compensation expense 9.0 5.2 8.3Depreciation and amortization 38.7 36.6 28.9Amortization of deferred financing costs and debt discount 7.4 6.1 3.3Amortization of (discount) premium on investments 6.2 8.0 11.4(Gain) loss on sale or disposal of assets (1.1) (2.8) 2.4(Gain) loss on sale and deconsolidation of subsidiary (105.1) — —Gain on bargain purchase (115.4) — —Loss on early extinguishment of debt 5.1 — —(Gain) loss on conversion option (4.1) — —Lease termination costs — 0.3 0.2Asset impairment expense 1.0 1.8 2.4Income from equity investees (15.4) (17.8) (10.8)Impairment of investments 1.7 10.0 4.3Net realized and unrealized gains on investments (28.8) (5.1) (2.5)Net (gain) loss on contingent consideration 0.8 (11.4) 8.9Receipt of dividends from equity investees 19.8 4.7 8.7Deferred income taxes (2.6) (10.5) 27.1Annuity benefits 6.6 8.7 9.0Other operating activities 5.1 7.8 (0.9)Changes in assets and liabilities, net of acquisitions: Accounts receivable (30.2) (47.1) (55.9)Recoverable from reinsurers 238.8 (2.1) (2.0)Other assets (26.1) (23.2) 46.8Life, accident and health reserves 126.7 45.3 56.3Accounts payable and other current liabilities 6.6 54.3 11.8Other liabilities 14.2 (11.8) 15.9Cash provided by operating activities 341.4 6.679.1Cash flows from investing activities: Purchase of property, plant and equipment (39.7) (31.9) (29.0)Disposal of property, plant and equipment 5.9 2.0 8.8Purchase of investments (1,184.6) (341.9) (229.7)Sale of investments 248.8 157.2 89.4Maturities and redemptions of investments 82.3 143.3 97.4Purchase of equity method investments (1.8) (10.6) (10.2)Cash received on dispositions, net 92.0 — —Cash received (paid) on acquisitions, net 572.1 (57.8) (66.3)Other investing activities 0.4 0.4 (0.6)Cash used in investing activities (224.6) (139.3)(140.2)Cash flows from financing activities: Proceeds from debt obligations 850.6 186.9 56.1Principal payments on debt obligations (697.0) (51.6) (22.3)Cash paid by subsidiary to purchase preferred stock (5.8) — —Annuity receipts 2.4 2.9 3.4Annuity surrenders (19.2) (19.6) (21.7)Transactions with noncontrolling interests (12.3) 0.7 6.2Payment of dividends (2.0) (3.6) (4.2)Other financing activities (1.5) (0.3) 1.3Cash provided by financing activities: 115.2 115.418.8Effects of exchange rate changes on cash and cash equivalents (0.5) 0.3 (1.0)Net change in cash and cash equivalents 231.5 (17.0)(43.3)Cash, cash equivalents and restricted cash, beginning of period 98.9 115.9 159.2Cash, cash equivalents and restricted cash, end of period $330.4 $98.9$115.9 F-9HC2 HOLDINGS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in millions)Supplemental cash flow information: Cash paid for interest $69.9 $47.6 $39.2Cash paid for taxes, net of refunds $13.1 $19.2 $20.9Non-cash investing and financing activities: Property, plant and equipment included in accounts payable $2.9 $1.4 $1.6Investments included in accounts payable $0.3 $6.3 $2.5Investments included in accounts receivable $4.6 $— $—Conversion of preferred stock to common stock $— $4.4 $28.6Deemed dividend from conversion of preferred stock $— $0.5 $6.9Dividends payable to stockholders $0.5 $0.5 $1.3Business acquisition through the issuance of common stock, debt and warrants $— $20.1 $—Fair value of contingent assets assumed in other acquisitions $— $— $3.0Fair value of deferred liabilities assumed in other acquisitions $— $— $3.0Debt assumed in acquisitions $— $2.5 $20.8Declared but unpaid dividends from equity method investments included in other assets $6.0 $— $—See notes to Consolidated Financial StatementsF-10HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. Organization and BusinessHC2 Holdings, Inc. ("HC2" and, together with its consolidated subsidiaries, the "Company", "we" and "our") is a diversified holding company which seeks to acquire and growattractive businesses that we believe can generate long-term sustainable free cash flow and attractive returns. While the Company generally intends to acquire controlling equityinterests in its operating subsidiaries, the Company may invest to a limited extent in a variety of debt instruments or noncontrolling equity interest positions. The Company’s sharesof common stock trade on the NYSE under the symbol "HCHC".The Company currently has eight reportable segments based on management’s organization of the enterprise - Construction, Marine Services, Energy, Telecommunications,Insurance, Life Sciences, Broadcasting, and Other, which includes businesses that do not meet the separately reportable segment thresholds.1.Our Construction segment is comprised of DBM Global Inc. ("DBMG") and its wholly-owned subsidiaries. DBMG is a fully integrated Building Information Modellingmodeler, detailer, fabricator and erector of structural steel and heavy steel plate. DBMG models, details, fabricates and erects structural steel for commercial and industrialconstruction projects such as high- and low-rise buildings and office complexes, hotels and casinos, convention centers, sports arenas, shopping malls, hospitals, dams, bridges,mines and power plants. DBMG also fabricates trusses and girders and specializes in the fabrication and erection of large-diameter water pipe and water storage tanks. ThroughAitken Manufacturing, DBMG manufactures pollution control scrubbers, tunnel liners, pressure vessels, strainers, filters, separators and a variety of customized products. TheCompany maintains an approximately 92% controlling interest in DBMG.2.Our Marine Services segment is comprised of Global Marine Group ("GMSL"). GMSL is a leading provider of engineering and underwater services on submarine cables.GMSL aims to maintain its leading market position in the telecommunications maintenance segment and seeks opportunities to grow its installation activities in the three marketsectors (telecommunications, offshore power, and oil and gas) while capitalizing on high market growth in the offshore power sector through expansion of its installation andmaintenance services in that sector. The Company maintains an approximately 73% controlling interest in GMSL.3.Our Energy segment is comprised of American Natural Gas, LLC ("ANG"). ANG is a premier distributor of natural gas motor fuel. ANG designs, builds, owns, acquires,operates and maintains compressed natural gas fueling stations for transportation vehicles. The Company maintains an approximately 68% controlling interest in ANG.4.Our Telecommunications segment is comprised of PTGi International Carrier Services ("ICS"). ICS operates a telecommunications business including a network of directroutes and provides premium voice communication services for national telecommunications operators, mobile operators, wholesale carriers, prepaid operators, voice over internetprotocol service operators and internet service providers. ICS provides a quality service via direct routes and by forming strong relationships with carefully selected partners. TheCompany maintains a 100% interest in ICS.5.Our Insurance segment is comprised of Continental General Insurance Company ("CGI" or the "Insurance Company"). CGI provides long-term care, life, annuity, and otheraccident and health coverage that help protect policy and certificate holders from the financial hardships associated with illness, injury, loss of life, or income continuation. TheCompany maintains a 100% interest in CGI.6.Our Life Sciences segment is comprised of Pansend Life Sciences, LLC ("Pansend"). Pansend maintains controlling interests of approximately 80% in GenovelOrthopedics, Inc. ("Genovel"), which seeks to develop products to treat early osteoarthritis of the knee and approximately 74% in R2 Dermatology Inc. ("R2"), which developsskin lightening technology. Pansend also invests in other early stage or developmental stage healthcare companies including an approximately 50% interest in Medibeacon Inc., andan investment in Triple Ring Technologies, Inc.7.Our Broadcasting segment is comprised of HC2 Broadcasting Holdings Inc. ("HC2 Broadcasting") and its subsidiaries. HC2 maintains controlling interests ofapproximately 98% in HC2 Broadcasting. HC2 Broadcasting strategically acquires and operates Over-The-Air ("OTA") broadcasting stations across the United States. In addition,HC2 Broadcasting, through its wholly-owned subsidiary, HC2 Network Inc. ("Network"), operates Azteca America, a Spanish-language broadcast network offering high qualityHispanic content to a diverse demographic across the United States. HC2 maintains an indirect interest of approximately 49% in DTV America Corporation ("DTV") as well ascontrol of DTV due to the approximately 10% proxy and voting rights from minority holders.8.Our Other segment represents all other businesses or investments we believe have significant growth potential, that do not meet the definition of a segment individually or inthe aggregate.F-11HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED2. Summary of Significant Accounting PoliciesPrinciples of ConsolidationThe Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries and all other subsidiaries over which the Company exerts control. Allintercompany profits, transactions and balances have been eliminated in consolidation. As of December 31, 2018, the results of DBMG, GMSL, ANG, ICS, CGI, Genovel, R2,and HC2 Broadcasting have been consolidated into the Company’s results based on guidance from the Financial Accounting Standards Board ("FASB") Accounting StandardsCodification ("ASC" 810, Consolidation). The remaining interests not owned by the Company are presented as a noncontrolling interest component of total equity.Cash and Cash EquivalentsCash and cash equivalents are comprised principally of amounts in money market accounts with original maturities of three months or less.AcquisitionsThe Company’s acquisitions are accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed berecognized at their estimated fair values as of the acquisition date. Estimates of fair value included in the Consolidated Financial Statements, in conformity with ASC 820, FairValue Measurements and Disclosures, represent the Company’s best estimates and valuations developed, when needed, with the assistance of independent appraisers or, wheresuch valuations have not yet been completed or are not available, industry data and trends and by reference to relevant market rates and transactions. The following estimates andassumptions are inherently subject to significant uncertainties and contingencies beyond the control of the Company. Accordingly, the Company cannot provide assurance that theestimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially.Any changes to the initial estimates of the fair value of the assets and liabilities will be recorded as adjustments to those assets and liabilities, and residual amounts will be allocatedto goodwill or Bargain Purchase Gain. In accordance with ASC 805 Business Combinations ("ASC 805"), if additional information is obtained about the initial estimates of the fairvalue of the assets acquired and liabilities assumed within the measurement period (not to exceed one year from the date of acquisition), including finalization of asset appraisals, theCompany will refine its estimates of fair value to allocate the purchase price more accurately.InvestmentsFixed maturity securitiesThe Company determines the appropriate classification of investments in fixed maturity securities at the acquisition date and re-evaluates the classification at each balance sheet date.All of our investments in fixed maturity securities are classified as available-for-sale. The Company carries these investments at fair value with net unrealized gains or losses, net oftax and related adjustments, reported as a component of Accumulated Other Comprehensive Income (Loss) ("AOCI") of the Company's Consolidated Statements of Stockholders'Equity.Premiums and discounts on fixed maturity securities are amortized using the interest method and reported in Net investment income; mortgage-backed securities are amortized overa period based on estimated future principal payments, including prepayments. Prepayment assumptions are reviewed periodically and adjusted to reflect actual prepayments andchanges in expectations. When the Company sells a security, the difference between the sale proceeds and amortized cost (determined based on specific identification) is reported inNet realized and unrealized gains (losses) on investments.When a decline in the value of a specific investment is considered to be other-than-temporary at the balance sheet date, a provision for impairment is charged to earnings (included inrealized gains (losses) on investments) and the cost basis of that investment is reduced. If the Company can assert that it does not intend to sell an impaired fixed maturity securityand it is not more likely than not that it will have to sell the security before recovery of its amortized cost basis, then the other-than-temporary impairment is separated into twocomponents: (i) the amount related to credit losses (recorded in earnings) and (ii) the amount related to all other factors (recorded in AOCI). The credit-related portion of an other-than-temporary impairment is measured by comparing a security’s amortized cost to the present value of its current expected cash flows discounted at its effective yield prior to theimpairment charge. If the Company intends to sell an impaired security, or it is more likely than not that it will be required to sell the security before recovery, an impairment chargeto earnings is recorded to reduce the amortized cost of that security to fair value.Equity securitiesEquity securities that have readily determinable fair values are recorded at fair value with unrealized gains and losses, due to changes in fair value, reflected in Net realized andunrealized gains (losses) on investments. Dividend income from equity securities is recognized in Net investment income. Realized gains and losses on the sale of equity securitiesare recognized in Net realized and unrealized gains (losses) on investments.F-12HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDThe Company utilizes the equity method to account for investments when it possesses the ability to exercise significant influence, but not control, over the operating and financialpolicies of the investee. The ability to exercise significant influence is presumed when an investor possesses more than 20% of the voting interests of the investee. This presumptionmay be overcome based on specific facts and circumstances that demonstrate that the ability to exercise significant influence is restricted. The Company applies the equity method toinvestments in common stock and to other investments when such other investments possess substantially identical subordinated interests to common stock. In applying the equitymethod, the Company records the investment at cost and subsequently increases or decreases the carrying amount of the investment by its proportionate share of the net earnings orlosses in Income from equity investees and other comprehensive income of the investee. The Company records dividends or other equity distributions as reductions in the carryingvalue of the investment. In the event that net losses of the investee reduce the carrying amount to zero, additional net losses may be recorded if other investments in the investee areat-risk, even if the Company has not committed to provide financial support to the investee. Such additional equity method losses, if any, are based upon the change in theCompany's claim on the investee’s book value.Fair Value MeasurementsGeneral accounting principles for Fair Value Measurements and Disclosures define fair value as the exchange price that would be received for an asset or paid to transfer a liability(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. These principlesalso establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value anddescribes three levels of inputs that may be used to measure fair value:Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities. Active markets are defined as having the following characteristics for the measuredasset/liability: (i) many transactions, (ii) current prices, (iii) price quotes not varying substantially among market makers, (iv) narrow bid/ask spreads and (v) most informationpublicly available. The Company’s Level 1 financial instruments consist primarily of publicly traded equity securities and highly liquid government bonds for which quoted marketprices in active markets are available.Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or market standard valuationtechniques and assumptions with significant inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.Such observable inputs include benchmarking prices for similar assets in active, liquid markets, quoted prices in markets that are not active and observable yields and spreads in themarket. The Company’s Level 2 financial instruments include corporate and municipal fixed maturity securities, mortgage-backed non-affiliated common stocks priced usingobservable inputs. Level 2 inputs include benchmark yields, reported trades, corroborated broker/dealer quotes, issuer spreads and benchmark securities. When non-binding brokerquotes can be corroborated by comparison to similar securities priced using observable inputs, they are classified as Level 2.Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the related assets or liabilities. Level 3 assets and liabilitiesinclude those whose value is determined using market standard valuation techniques. When observable inputs are not available, the market standard techniques for determining theestimated fair value of certain securities that trade infrequently, and therefore have little transparency, rely on inputs that are significant to the estimated fair value and that are notobservable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on managementjudgment or estimation and cannot be supported by reference to market activity. Even though unobservable, management believes these inputs are based on assumptions deemedappropriate given the circumstances and consistent with what other market participants would use when pricing similar assets and liabilities. For the Company’s invested assets, thiscategory primarily includes private placements, asset-backed securities, and to a lesser extent, certain residential and commercial mortgage-backed securities, among others. Pricesare determined using valuation methodologies such as discounted cash flow models and other similar techniques. Non-binding broker quotes, which are utilized when pricingservice information is not available, are reviewed for reasonableness based on the Company’s understanding of the market, and are generally considered Level 3. Under certaincircumstances, based on its observations of transactions in active markets, the Company may conclude the prices received from independent third-party pricing services or brokersare not reasonable or reflective of market activity. In those instances, the Company would apply internally developed valuation techniques to the related assets or liabilities.In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fairvalue hierarchy is appropriate for any given financial instrument is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessmentof the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.The Company may utilize information from third parties, such as pricing services and brokers, to assist in determining the fair value for certain assets and liabilities; however,management is ultimately responsible for all fair values presented in the Company’s financial statements. This includes responsibility for monitoring the fair value process, ensuringobjective and reliable valuation practices and pricing of assets and liabilities, and approving changes to valuation methodologies and pricing sources. The selection of the valuationtechnique(s) to apply considers the definition of an exit price and the nature of the asset or liability being valued and significant expertise and judgment is required.F-13HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDAccounts ReceivableAccounts receivable are stated at amounts due from customers net of an allowance for doubtful accounts. Our allowance for doubtful accounts considers historical experience, theage of certain receivable balances, credit history, current economic conditions and other factors that may affect the counterparty’s ability to pay.InventoryInventory is valued at the lower of cost or net realizable value under the first-in, first-out method. Provision for obsolescence is made where appropriate and is charged to cost ofrevenue in the consolidated statements of operations. Short-term work in progress on contracts is stated at cost less foreseeable losses. These costs include only direct labor andexpenses incurred to date and exclude any allocation of overhead. The policy for long-term work in progress contracts is disclosed within the Revenue and Cost Recognitionaccounting policy.ReinsurancePremium revenue and benefits are reported net of the amounts related to reinsurance ceded to and assumed from other companies. Expense allowances from reinsurers are includedin other operating and general expenses. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies.Accounting for Income TaxesWe recognize deferred tax assets and liabilities for the expected future tax consequences of transactions and events. Under this method, deferred tax assets and liabilities aredetermined based on the difference between the financial statement bases and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which thedifferences are expected to reverse. If necessary, deferred tax assets are reduced by a valuation allowance to an amount that is determined to be more likely than not recoverable. Wemust make significant estimates and assumptions about future taxable income and future tax consequences when determining the amount of the valuation allowance. The additionalguidance provided by ASC No. 740, “Income Taxes” (“ASC 740”), clarifies the accounting for uncertainty in income taxes recognized in the financial statements. Expectedoutcomes of current or anticipated tax examinations, refund claims and tax-related litigation and estimates regarding additional tax liability (including interest and penalties thereon)or refunds resulting therefrom will be recorded based on the guidance provided by ASC 740 to the extent applicable.At December 31, 2018, our U.S. and foreign companies have significant deferred tax assets resulting from tax loss carryforwards. The foreign deferred tax assets with minorexceptions are fully offset with valuation allowances. Additionally, the deferred tax assets generated by certain businesses that do not qualify to be included in the HC2 U.S.consolidated income tax return have been reduced by a full valuation allowance. Based on consideration of both positive and negative evidence, we determined that it was morelikely than not that the net deferred tax assets of the HC2 U.S. consolidated filing group and the Insurance Company’s will not be realized. Therefore, a valuation allowance wasmaintained against the HC2 U.S. consolidated filing group’s and Insurance Company’s net deferred tax assets as of December 31, 2018. The appropriateness and amount of thesevaluation allowances are based on cumulative history of losses and our assumptions about the future taxable income of each affiliate and the timing of the reversal of deferred taxassets and liabilities.Property, Plant and EquipmentProperty, plant and equipment are stated at cost less accumulated depreciation, which is provided on the straight-line method over the estimated useful lives of the assets. Costincludes major expenditures for improvements and replacements which extend useful lives or increase capacity of the assets as well as expenditures necessary to place assets intoreadiness for use. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Cost includesfinance costs incurred prior to the asset being available for use. Expenditures for maintenance and repairs are expensed as incurred.Costs for internal use software that are incurred in the preliminary project stage and in the post-implementation stage are expensed as incurred. Costs incurred during the applicationdevelopment stage are capitalized and amortized over the estimated useful life of the software, beginning when the software project is ready for its intended use, over the estimateduseful life of the software.Depreciation is determined on a straight-line basis over the estimated useful lives of the assets, which range from 5 to 40 years for buildings and leasehold improvements, up to 35years for cable-ships and submersibles, 3 to 15 years for equipment, furniture and fixtures, and 3 to 20 years for plant and transportation equipment. Plant includes equipment onthe cable-ships that is portable and can be moved around the fleet and computer equipment. Leasehold improvements are amortized over the lives of the leases or estimated usefullives of the assets, whichever is shorter. Assets under construction are not depreciated until they are complete and available for use.When assets are sold or otherwise retired, the costs and accumulated depreciation are removed from the books and the resulting gain or loss is included in operating results.Property, plant and equipment that have been included as part of the assets held for sale are no longer depreciated from the time that they are classified as such. The Companyperiodically evaluates the carrying value of its property, plant and equipment based upon the estimated cash flows to be generated by the related assets. If impairment is indicated, aloss is recognized.F-14HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDGoodwill and Other Intangible AssetsUnder ASC 350, Intangibles - Goodwill and Other ("ASC 350"), goodwill and indefinite lived intangible assets are not amortized but are reviewed annually for impairment, ormore frequently, if impairment indicators arise. Intangible assets that have finite lives are amortized over their estimated useful lives and are subject to the provisions of ASC 360,Property, plant, and equipment ("ASC 360").In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Topic 350, Intangibles - Goodwilland Other (Topic 350), currently requires an entity that has not elected the private company alternative for goodwill to perform a two-step test to determine the amount, if any, ofgoodwill impairment. In Step 1, an entity compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unitexceeds its fair value, the entity performs Step 2 and compares the implied fair value of goodwill with the carrying amount of the goodwill for that reporting unit. An impairmentcharge equal to the amount by which the carrying amount of goodwill for the reporting unit exceeds the implied fair value of that goodwill is recorded, limited to the amount ofgoodwill allocated to that reporting unit. To address concerns over the cost and complexity of the two-step goodwill impairment test, the amendments in this ASU remove thesecond step of the test. An entity will now apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount overits fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwillimpairment. The Company elected to early adopt ASU 2017-04 effective March 31, 2017, resulting in no impact to the Consolidated Financial Statements.Goodwill impairment is tested at least annually (October 1st) or when factors indicate potential impairment using a two-step process that begins with a qualitative evaluation of eachreporting unit. If such test indicates potential for impairment, a one-step quantitative test is performed and if there is excess of a reporting unit's carrying amount over its fair value,impairment is recorded, not to exceed the total amount of goodwill allocated to the reporting unit.Estimating the fair value of a reporting unit requires various assumptions including projections of future cash flows, perpetual growth rates and discount rates. The assumptionsabout future cash flows and growth rates are based on the Company’s assessment of a number of factors, including the reporting unit’s recent performance against budget,performance in the market that the reporting unit serves, and industry and general economic data from third-party sources. Discount rate assumptions are based on an assessment ofthe risk inherent in those future cash flows. Changes to the underlying businesses could affect the future cash flows, which in turn could affect the fair value of the reporting unit.Intangible assets not subject to amortization consist of certain licenses. Such indefinite lived intangible assets are tested for impairment annually, or more frequently if events orchanges in circumstances indicate that the asset might be impaired. The impairment test shall consist of a comparison of the fair value of an intangible asset with its carrying amount.If the carrying amount of the intangible asset exceeds its fair value, an impairment loss shall be recognized in an amount equal to the excess.Intangible assets subject to amortization consists of certain trade names, customer contracts and developed technology. These finite lived intangible assets are amortized based ontheir estimated useful lives. Such assets are subject to the impairment provisions of ASC 360, wherein impairment is recognized and measured only if there are events andcircumstances that indicate that the carrying amount may not be recoverable. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected toresult from the use of the asset group. An impairment loss is recorded if after determining that it is not recoverable, the carrying amount exceeds the fair value of the asset.In addition to the foregoing, the Company reviews its goodwill and intangible assets for possible impairment whenever events or circumstances indicate that the carrying amounts ofassets may not be recoverable. The factors that the Company considers important, and which could trigger an impairment review, include, but are not limited to: a more likely thannot expectation of selling or disposing all, or a portion, of a reporting unit; a significant decline in the market value of our common stock or debt securities for a sustained period; amaterial adverse change in economic, financial market, industry or sector trends; a material failure to achieve operating results relative to historical levels or projected future levels;and significant changes in operations or business strategy.Active License Holdings. As of December 31, 2018, HC2 Broadcasting held Active television broadcast licenses ("FCC Licenses") issued by the FCC, which are included inIntangibles, net in the consolidated financial statements. The weighted average renewal period for these licenses was 2.71 years.Valuation of Long-lived AssetsThe Company reviews long-lived assets for impairment whenever events or changes indicate that the carrying amount of an asset may not be recoverable. In making suchevaluations, the Company compares the expected undiscounted future cash flows to the carrying amount of the assets. If the total of the expected undiscounted future cash flows isless than the carrying amount of the assets, the Company is required to make estimates of the fair value of the long-lived assets in order to calculate the impairment loss equal to thedifference between the fair value and carrying value of the assets.F-15HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDThe Company makes significant assumptions and estimates in this process regarding matters that are inherently uncertain, such as determining asset groups and estimating futurecash flows, remaining useful lives, discount rates and growth rates. The resulting undiscounted cash flows are projected over an extended period of time, which subjects thoseassumptions and estimates to an even larger degree of uncertainty. While the Company believes that its estimates are reasonable, different assumptions could materially affect thevaluation of the long-lived assets. The Company derives future cash flow estimates from its historical experience and its internal business plans, which include consideration ofindustry trends, competitive actions, technology changes, regulatory actions, available financial resources for marketing and capital expenditures and changes in its underlying coststructure.The Company makes assumptions about the remaining useful life of its long-lived assets. The assumptions are based on the average life of its historical capital asset additions andits historical asset purchase trend. In some cases, due to the nature of a particular industry in which the company operates, the Company may assume that technology changes insuch industry render all associated assets, including equipment, obsolete with no salvage value after their useful lives. In certain circumstances in which the underlying assets couldbe leased for an additional period of time or salvaged, the Company includes such estimated cash flows in its estimate.The estimate of the appropriate discount rate to be used to apply the present value technique in determining fair value was the Company’s weighted average cost of capital which isbased on the effective rate of its debt obligations at the current market values (for periods during which the Company had debt obligations) as well as the current volatility andtrading value of the Company’s common stock.Value of Business Acquired ("VOBA")VOBA is a liability that reflects the estimated fair value of in-force contracts in a life insurance company acquisition less the amount recorded as insurance contract liabilities. Itrepresents the portion of the purchase price that is allocated to the value of the rights to receive future cash flows from the business in force at the acquisition date. A VOBA liability(negative asset) occurs when the estimated fair value of in-force contracts in a life insurance company acquisition is less than the amount recorded as insurance contract liabilities.Amortization is based on assumptions consistent with those used in the development of the underlying contract adjusted for emerging experience and expected trends. VOBAamortization are reported within depreciation and amortization in the accompanying consolidated statements of operations.The VOBA balance is also periodically evaluated for recoverability to ensure that the unamortized portion does not exceed the expected recoverable amounts. At each evaluationdate, actual historical gross profits are reflected, and estimated future gross profits and related assumptions are evaluated for continued reasonableness. Any adjustment in estimatedfuture gross profits requires that the amortization rate be revised ("unlocking") retroactively to the date of the policy or contract issuance. The cumulative unlocking adjustment isrecognized as a component of current period amortization.Annuity Benefits AccumulatedAnnuity receipts and benefit payments are recorded as increases or decreases in annuity benefits accumulated rather than as revenue and expense. Increases in this liability (primarilyinterest credited) are charged to expense and decreases for charges are credited to annuity policy charges revenue. Reserves for traditional fixed annuities are generally recorded atthe stated account value.Life, Accident and Health ReservesLiabilities for future policy benefits under traditional life, accident and health policies are computed using the net level premium method. Computations are based on the originalprojections of investment yields, mortality, morbidity and surrenders and include provisions for unfavorable deviations unless a loss recognition event (premium deficiency) occurs.Claim reserves and liabilities established for accident and health claims are modified as necessary to reflect actual experience and developing trends.For long-duration contracts (such as traditional life and long-term care insurance policies), loss recognition occurs when, based on current expectations as of the measurement date,existing contract liabilities plus the present value of future premiums (including reasonably expected rate increases) are not expected to cover the present value of future claimspayments and related settlement and maintenance costs (excluding overhead) as well as unamortized acquisition costs. If a block of business is determined to be in loss recognition,a charge is recorded in earnings in an amount equal to the excess of the present value of expected future claims costs and unamortized acquisition costs over existing reserves plusthe present value of expected future premiums (with no provision for adverse deviation). The charge is recorded as an additional reserve (if unamortized acquisition costs have beeneliminated).In addition, reserves for traditional life and long-term care insurance policies are subject to adjustment for loss recognition charges that would have been recorded if the unrealizedgains from securities had actually been realized. This adjustment is included in unrealized gains (losses) on marketable securities, a component of AOCI.Presentation of Taxes CollectedThe Company reports a value-added tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between the Company and a customer ona net basis (excluded from revenues).F-16HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDForeign Currency TransactionsForeign currency transactions are transactions denominated in a currency other than a subsidiary’s functional currency. A change in the exchange rates between a subsidiary’sfunctional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of thetransaction. That increase or decrease in expected functional currency cash flows is reported by the Company as a foreign currency transaction gain (loss). The primary componentof the Company’s foreign currency transaction gain (loss) is due to agreements in place with certain subsidiaries in foreign countries regarding intercompany transactions. TheCompany anticipates repayment of these transactions in the foreseeable future, and recognizes the realized and unrealized gains or losses on these transactions that result fromforeign currency changes in the period in which they occur as foreign currency transaction gain (loss).Foreign Currency TranslationThe assets and liabilities of the Company’s foreign subsidiaries are translated at the exchange rates in effect on the reporting date. Income and expenses are translated at the averageexchange rate during the period. The net effect of such translation gains and losses are reflected within AOCI in the stockholders’ equity section of the consolidated balance sheets.Convertible InstrumentsThe Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815, Derivatives and Hedging Activities. ApplicableGAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certaincriteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to theeconomic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured atfair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrumentwould be considered a derivative instrument. The Company accounts for convertible instruments, when it has been determined that the embedded conversion options should not bebifurcated from their host instruments, as follows: The Company records when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded indebt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion priceembedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption. The Company accounts for theconversion of convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives are removed at theircarrying amounts and the shares issued are measured at their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accountingliabilities.Deferred Financing CostsThe Company capitalizes certain expenses incurred in connection with its debt and line of credit obligations and amortizes them over the term of the respective debt agreement. Theamortization expense of the deferred financing costs is included in interest expense on the consolidated statements of operations. If the Company extinguishes portions of its debtprior to the maturity date, deferred financing costs are charged to expense on a pro-rata basis and are included in loss on early extinguishment or restructuring of debt on theconsolidated statements of operations.Use of EstimatesThe preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptionsaffect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts ofnet revenue and expenses during the reporting period. Actual results may differ from these estimates. Significant estimates include allowance for doubtful accounts receivable, theextent of progress towards completion on contracts, contract revenue and costs on long-term contracts, valuation of certain investments and the insurance reserves, marketassumptions used in estimating the fair values of certain assets and liabilities, the calculation used in determining the fair value of HC2’s stock options required by ASC 718,Compensation - Stock Compensation ("ASC 718"), income taxes and various other contingencies.Estimates of fair value represent the Company’s best estimates developed with the assistance of independent appraisals or various valuation techniques and, where the foregoinghave not yet been completed or are not available, industry data and trends and by reference to relevant market rates and transactions. The estimates and assumptions are inherentlysubject to significant uncertainties and contingencies beyond the control of the Company. Accordingly, the Company cannot provide assurance that the estimates, assumptions, andvalues reflected in the valuations will be realized, and actual results could vary materially.F-17HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDPensionsGMSL operates various pension schemes comprising both defined benefit plans and defined contribution plans. GMSL also makes contributions on behalf of employees who aremembers of the Merchant Navy Officers Pension Fund ("MNOPF").For the defined benefit plans and the MNOPF plan, the amounts charged to income (loss) from operations are the current service costs and the gains and losses on settlements andcurtailments. These are included as part of staff costs. Past service costs are recognized immediately if the benefits have vested. If the benefits have not vested immediately, the costsare recognized over the period vesting occurs. The interest costs and expected return of assets are shown as a net amount and included in interest income and other income(expense). Actuarial gains and losses are recognized immediately in the consolidated statements of operations.Defined benefit plans are funded with the assets of the plan held separately from those of GMSL, in separate trustee administered funds. Pension plan assets are measured at fairvalue and liabilities are measured on an actuarial basis using the projected unit method discounted at a rate of equivalent currency and term to the plan liabilities. The actuarialvaluations are obtained annually.For the defined contribution plans, the amount charged to income (loss) from operations in respect of pension costs is the contributions payable in the period. Differences betweencontributions payable in the period and contributions actually paid are shown as either accruals or prepayments in the consolidated balance sheets.Share-Based CompensationThe Company accounts for share-based compensation issued to employees in accordance with the provisions of ASC 718 and to non-employees pursuant to ASC 505-50, Equity-based payments to non-employees. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for using a fair-value based method. The Company records share-based compensation expense for all new and unvested stock options that are ultimately expected to vest as the requisite service isrendered. The Company issues new shares of common stock upon the exercise of stock options.The Company elected to adopt the alternative transition method for calculating the tax effects of share-based compensation. The alternative transition method includes simplifiedmethods to determine the beginning balance of the APIC pool related to the tax effects of share-based compensation and to determine the subsequent impact on the APIC pool andthe statement of cash flows of the tax effects of share-based awards that were fully vested and outstanding upon the adoption of ASC 718.The Company uses a Black-Scholes option valuation model to determine the grant date fair value of share-based compensation under ASC 718. The Black-Scholes modelincorporates various assumptions including the expected term of awards, volatility of stock price, risk-free rates of return and dividend yield. The expected term of an award is noless than the option vesting period and is based on the Company’s historical experience. Expected volatility is based upon the historical volatility of the Company’s stock price. Therisk-free interest rate is approximated using rates available on U.S. Treasury securities with a remaining term similar to the option’s expected life. The Company uses a dividendyield of zero in the Black-Scholes option valuation model as it does not anticipate paying cash dividends in the foreseeable future. Share-based compensation is recorded net ofactual forfeitures.Concentration of Credit RiskFinancial instruments that potentially subject the Company to concentration of credit risk principally consist of trade accounts receivable. The Company performs ongoing creditevaluations of its customers but generally does not require collateral to support customer receivables. The Company maintains its cash with high quality credit institutions, and itscash equivalents are in high quality securities.Income (Loss) Per Common ShareBasic income (loss) per common share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted income (loss) percommon share is computed using the weighted average number of shares of common stock, adjusted for the dilutive effect of potential common stock and related income fromcontinuing operations, net of tax. Potential common stock, computed using the treasury stock method or the if-converted method, includes options, warrants, restricted stock,restricted stock units and convertible preferred stock.In periods when the Company generates income, the Company calculates basic Earnings Per Share ("EPS") using the two-class method, pursuant to ASC No. 260, Earnings PerShare. The two-class method is required as the shares of the Company’s preferred stock qualify as participating securities, having the right to receive dividends should dividends bedeclared on common stock. Under this method, earnings for the period are allocated to the common stock and preferred stock to the extent that each security may share in earningsas if all of the earnings for the period had been distributed. The Company does not use the two-class method in periods when it generates a loss as the holders of the preferred stockdo not participate in losses.F-18HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDOther income (expenses), netThe following tables provide information relating to Other income (expenses), net (in millions): Years Ended December 31, 2018 2017 2016Gain on reinsurance recaptures $47.0 $— $—Gain on investment in Inseego 34.4 — —Other income (expenses), net (2.7) (12.8) (2.8)Total $78.7 $(12.8) $(2.8)ReclassificationCertain previous year amounts have been reclassified to conform with current year presentations, as related to the reporting of new balance sheet line items.Accounting Pronouncements Adopted in the Current YearThe following discussion provides information about recently adopted and recently issued or changed accounting guidance (applicable to the Company ) that have occurred since theCompany filed its 2017 Form 10-K. The Company has implemented all new accounting pronouncements that are in effect and that may impact its Consolidated Financial Statementsand does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial condition, results of operationsor liquidity.Effective January 1, 2018 the Company adopted the accounting pronouncements described below.Statement of Cash FlowsAccounting Standards Codification ("ASC") 2016-18, Restricted Cash, was issued by FASB in November 2016. This guidance requires entities to show the changes in the totalcash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cashequivalents and restricted cash and cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in morethan one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. Thisreconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. This standard was applied retrospectively, which resultedin the recast of the prior reporting period in the consolidated statements of cash flows. A reconciliation of cash and cash equivalents and restricted cash from our consolidatedstatements of cash flows to the amounts reported within our consolidated balance sheet is included in our consolidated statements of cash flows.The following table provides a reconciliation of cash and cash equivalents and restricted cash to amounts reported within the Company's Consolidated Balance Sheets andConsolidated Statements of Cash Flows (in millions): December 31, 2018 2017 2016Beginning of period Cash and cash equivalents $97.9 $115.4 $158.7Restricted cash included in other assets 1.0 0.5 0.5Total cash and cash equivalents and restricted cash $98.9 $115.9 $159.2 End of period Cash and cash equivalents $325.0 $97.9 $115.4Restricted cash included in other assets 5.4 1.0 0.5Total cash and cash equivalents and restricted cash $330.4 $98.9 $115.9F-19HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDRecognition and Measurement of Financial Assets and Financial LiabilitiesASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, was issued by FASB in January 2016. The update provides that equity investmentswith readily determinable values be measured at fair value and changes in the fair value flow through net income. These changes historically have run through other comprehensiveincome. Equity investments without readily determinable fair values have the option to be measured at fair value or at cost, adjusted for changes in observable prices minusimpairment. Changes in either method are also recognized in net income. The standard requires a qualitative assessment of impairment indicators at each reporting period. Forfinancial liabilities, entities that elect the fair value option must recognize the change in fair value attributable to instrument-specific credit risk in other comprehensive income ratherthan net income. Lastly, regarding deferred tax assets, the need for a valuation allowance on a deferred tax asset will need to be assessed related to available-for-sale debt securities.This standard was adopted prospectively as of January 1, 2018 and resulted in a $1.6 million cumulative effect adjustment credit to retained earnings related to the followinginvestments (in millions):Equity securities which were previously classified as available-for-sale $1.7Equity securities which were previously accounted for under the cost method 1.6Stranded tax, unrelated to the adoption of ASU 2018-02 (1.7)Total $1.6Revenue RecognitionASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASC 606"), was issued by FASB in May 2014. This ASU supersedes the revenue recognition requirementsin Revenue Recognition (Topic 605). Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amountthat reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In March 2016, the FASB issued ASU 2016-08, Revenue fromContracts with Customers (Topic 606): Principal Versus Agent Considerations, which clarifies the guidance in ASU 2014-09. In April 2016, the FASB issued ASU 2016-10,Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, an update on identifying performance obligations and accounting forlicenses of intellectual property. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and PracticalExpedients, which includes amendments for enhanced clarification of the guidance. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvementsto Revenue from Contracts with Customers (Topic 606), which includes amendments of a similar nature to the items typically addressed in the technical corrections andimprovements project. Lastly, in February 2017, the FASB issued ASU 2017-05, clarifying the scope of asset derecognition guidance and accounting for partial sales ofnonfinancial assets to clarify the scope of ASC 610-20, Other Income - Gains and Losses from Derecognition of Nonfinancial Assets, and provide guidance on partial sales ofnonfinancial assets. This ASU clarifies that the unit of account under ASU 610-20 is each distinct nonfinancial or in substance nonfinancial asset and that a financial asset that meetsthe definition of an "in substance nonfinancial asset" is within the scope of ASC 610-20. This ASU eliminates rules specifically addressing sales of real estate and removesexceptions to the financial asset derecognition model. The ASUs described above are effective for annual reporting periods beginning after December 15, 2017, including interimperiods within that reporting period. See Note 3. Revenue for further details.New Accounting Pronouncements to be Adopted Subsequent to December 31, 2018Accounting for LeasesASU 2016-02, Leases, was issued by FASB in February 2016. This standard requires the Company, as the lessee, to recognize most leases on the balance sheet thereby resultingin the recognition of right of use assets and lease obligations for those leases currently classified as operating leases. The standard became effective for the Company on January 1,2019 and the Company elected the optional transition method as well as the package of practical expedients upon adoption. While the Company is still finalizing its adoptionprocedures, the Company estimated the primary impact to its Consolidated Balance Sheets upon adoption will be the recognition, on a discounted basis, of it's minimumcommitments under noncancelable operating leases resulting in the recording of right of use assets and lease obligations for in the range of $68.0 million to $74.0 million.New Credit Loss StandardASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, was issued by FASB in June 2016. This standard iseffective January 1, 2020 (with early adoption permitted), and will impact, at least to some extent, Company's accounting and disclosure requirements for it's recoverable fromreinsurers, accounts receivable and mortgage loans. Available for sale fixed maturity securities are not in scope of the new credit loss model, but will undergo targetedimprovements to the current reporting model including the establishment of a valuation allowance for credit losses versus the current direct write down approach. The Company willcontinue to identify any other financial assets not excluded from scope. The Company does not currently expect to early adopt this standard and is currently evaluating the impact ofthis new accounting guidance on its consolidated financial statements.F-20HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDOutlined below are key areas of change, although there are other changes not noted below:•Financial assets (or a group of financial assets) measured at amortized cost will be required to be presented at the net amount expected to be collected, with an allowancefor credit losses deducted from the amortized cost basis, resulting in a net carrying value that reflects the amount the entity expects to collect on the financial asset atpurchase.•Credit losses relating to available for sale fixed maturity securities will be recorded through an allowance for credit losses, rather than reductions in the amortized cost ofthe securities and is anticipated to increase volatility in the Company's Consolidated Statements of Operations. The allowance methodology recognizes that value may berealized either through collection of contractual cash flows or through the sale of the security. Therefore, the amount of the allowance for credit losses will be limited to theamount by which fair value is below amortized cost because the classification as available for sale is premised on an investment strategy that recognizes that theinvestment could be sold at fair value, if cash collection would result in the realization of an amount less than fair value.•The Company's Consolidated Statements of Operations will reflect the measurement of expected credit losses for newly recognized financial assets as well as the expectedincreases or decreases (including the reversal of previously recognized losses) of expected credit losses that have taken place during the period. The measurement ofexpected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts thataffect the collectability of the reported amount•Disclosures will be required to include information around how the credit loss allowance was developed, further details on information currently disclosed about creditquality of financing receivables and net investments in leases, and a rollforward of the allowance for credit losses for available for sale fixed maturity securities as well asan aging analysis for securities that are past due.The Company anticipates a significant impact on the systems, processes and controls. While the requirements of the new guidance represent a material change from existing GAAP,the underlying economics of items in scope and related cash flows are unchanged. Currently, the Company plans to focus on developing models and procedures in the first half of2019 with testing and refinement of models occurring in the later part of the year 2019. Focus areas will include, but not limited to (i) updating procedures to reflect new guidancerequiring establishment of allowance for credit losses on available for sale debt securities; (ii) establishing procedures to review reinsurance risk to include but not limited to reviewof reinsurer ratings, trust agreements where applicable and historical and current performance; (iii) establishing procedures to identify and review all remaining financial assetswithin scope, (iv) developing, testing, and implementing controls for newly developed procedures, as well as for additional annual reporting requirements.Long-duration contractsASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, was issued by the FASB in August 2018 andis expected to have a significant impact on the Company’s Consolidated Financial Statements and Notes to Consolidated Financial Statements. The standard is effective January 1,2021 (with early adoption permitted), and will impact, at least to some extent, Company's accounting and disclosure requirements for it's long-duration insurance contracts. TheCompany does not currently expect to early adopt this standard and is currently evaluating the impact of this new accounting guidance on its consolidated financial statements.Outlined below are key areas of change, although there are other changes not noted below:•Cash flow assumptions must be reviewed at least annually and updated if necessary. The impact of these updates will be reported through net income. Current accountingpolicy requires the liability assumptions for long-duration contracts and limited payment contracts be locked in at contract inception, unless the contracts project a lossposition which would allow the liability assumptions to be unlocked so that the loss could be recognized.•The rate used to discount the liability projections is be based on an A-rated asset with observable market inputs and duration consistent with the duration of the liabilities.The discount rate is to be updated quarterly with the impact of the change in the discount rate recognized through other comprehensive income. Current accounting policyallows the use of an expected investment yield (which is not required to be observable in the market) to discount the liability projections.•Deferred acquisition costs for long-duration contracts are to be amortized in proportion to premiums, gross profits, or gross margins and those balances must beamortized on a constant-level basis over the expected life of the contract. Current accounting policy would amortize deferred acquisition costs based on revenue andprofits. The Company does not have any deferred acquisition costs but VOBA amortization will follow this new guidance.•Market risk benefits are to be measured at fair value and presented separately in the statement of financial position. Under current accounting policy benefit features thatwill meet the definition of market risk benefits are accounted for as embedded derivatives or insurance liabilities via the benefit ratio model. The Company does not haveany benefit features that will be categorized as market risk benefits.F-21HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED•Disaggregated rollforwards of beginning to ending balances of the liability for future policy benefits, policyholder account balances, VOBA, as well as information aboutsignificant inputs, judgments, assumptions, and methods used in measurement are required to be disclosed.The Company anticipates that the requirement to update assumptions for liability for future policy benefits will increase volatility in the Company's Consolidated Statements ofOperations while the requirement to update the discount rate will increase volatility in the Company's Consolidated Statements of Stockholders' Equity. The Company anticipates asignificant impact on the systems, processes and controls . While the requirements of the new guidance represent a material change from existing GAAP, the underlying economicsof the Company's Insurance segment and related cash flows are unchanged.Currently, the Company plans to focus on developing models and procedures in 2019 with testing and refinement of models occurring in 2020. Focus areas will include, but notlimited to (i) determining an appropriate upper-medium grade fixed income instrument yield source from the market; (ii) establishing appropriate aggregation of liabilities; (iii)establishing liability models for each contract grouping identified that may be quickly updated to reflect current inforce listing and new discount rates on a quarterly basis; (iv)establishing appropriate best estimate assumptions with no provision for adverse deviation; (v) establishing procedures for annual review of assumptions including tracking ofactual experience for enhanced reporting requirements; (vi) establish new VOBA amortization that will align with new guidance for DAC amortization; (vii) developing, testing, andimplementing controls for newly developed procedures, as well as for additional annual reporting requirements. 3. RevenueThe Company adopted ASC 606 on January 1, 2018. The adoption of ASC 606 represents a change in accounting principle that aligns revenue recognition with the timing of whenpromised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods orservices. To achieve this core principle, the Company applies the following five steps in accordance with ASC 606:Identify the contract with a customerA contract with a customer exists when: (a) the parties have approved the contract and are committed to perform their respective obligations, (b) the rights of the parties can beidentified, (c) payment terms can be identified, (d) the arrangement has commercial substance, and (e) collectibility of consideration is probable. Judgment is required whendetermining if the contractual criteria are met, specifically in the earlier stages of a project when a formally executed contract may not yet exist. In these situations, the Companyevaluates all relevant facts and circumstances, including the existence of other forms of documentation or historical experience with our customers that may indicate a contractualagreement is in place and revenue should be recognized. In determining if the collectibility of consideration is probable, the Company considers the customer’s ability and intentionto pay such consideration through an evaluation of several factors, including an assessment of the creditworthiness of the customer and our prior collection history with suchcustomer.Identify the performance obligations in the contractAt contract inception, the Company assesses the goods or services promised in a contract and identifies, as a separate performance obligation, each distinct promise to transfergoods or services to the customer. The identified performance obligations represent the "unit of account" for purposes of determining revenue recognition. In order to properlyidentify separate performance obligations, the Company applies judgment in determining whether each good or service provided is: (a) capable of being distinct, whereby thecustomer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and (b) distinct within the context of thecontract, whereby the transfer of the good or service to the customer is separately identifiable from other promises in the contract.In addition, when assessing performance obligations within a contract, the Company considers the warranty provisions included within such contract. To the extent the warrantyterms provide the customer with an additional service, other than assurance that the promised good or service complies with agreed upon specifications, such warranty is accountedfor as a separate performance obligation. In determining whether a warranty provides an additional service, the Company considers each warranty provision in comparison towarranty terms which are standard in the industry.Determine the transaction priceThe transaction price represents the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to our customers.The consideration promised within a contract may include fixed amounts, variable amounts, or both. To the extent the performance obligation includes variable consideration,including contract bonuses and penalties that can either increase or decrease the transaction price, the Company estimates the amount of variable consideration to be included in thetransaction price utilizing one of two prescribed methods, depending on which method better predicts the amount of consideration to which the entity will be entitled. Such methodsinclude: (a) the expected value method, whereby the amount of variable consideration to be recognized represents the sum of probability weighted amounts in a range of possibleconsideration amounts, and (b) the most likely amount method, whereby the amount of variable consideration to be recognized represents the single most likely amount in a range ofpossible consideration amounts. When applying these methods, the Company considers all information that is reasonably available, including historical, current and estimates offuture performance.F-22HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDVariable consideration is included in the transaction price only to the extent it is probable, in the Company’s judgment, that a significant future reversal in the amount of cumulativerevenue recognized under the contract will not occur when the uncertainty associated with the variable consideration is subsequently resolved. This threshold is referred to as thevariable consideration constraint. In assessing whether to apply the variable consideration constraint, the Company considers if factors exist that could increase the likelihood or themagnitude of a potential reversal of revenue, including, but not limited to, whether: (a) the amount of consideration is highly susceptible to factors outside of the Company’sinfluence, such as the actions of third parties, (b) the uncertainty surrounding the amount of consideration is not expected to be resolved for a long period of time, (c) the Company’sexperience with similar types of contracts is limited or that experience has limited predictive value, (d) the Company has a practice of either offering a broad range of priceconcessions or changing the payment terms and conditions of similar contracts in similar circumstances, and (e) the contract has a large number and broad range of possibleconsideration amounts.Pending change orders represent one of the most common forms of variable consideration included within contract value and typically represent contract modifications for which achange in scope has been authorized or acknowledged by our customer, but the final adjustment to contract price is yet to be negotiated. In estimating the transaction price forpending change orders, the Company considers all relevant facts, including documented correspondence with the customer regarding acknowledgment and/or agreement with themodification, as well as historical experience with the customer or similar contractual circumstances. Based upon this assessment, the Company estimates the transaction price,including whether the variable consideration constraint should be applied.Changes in the estimates of transaction prices are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. Such changes in estimatescan result in the recognition of revenue in a current period for performance obligations which were satisfied or partially satisfied in prior periods. Such changes in estimates mayalso result in the reversal of previously recognized revenue if the ultimate outcome differs from the Company’s previous estimate.Allocate the transaction price to performance obligations in the contractFor contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation based on a relative standalone selling price.The Company determines the standalone selling price based on the price at which the performance obligation would have been sold separately in similar circumstances to similarcustomers. If the standalone selling price is not observable, the Company estimates the standalone selling price taking into account all available information such as marketconditions and internal pricing guidelines. In certain circumstances, the standalone selling price is determined using an expected profit margin on anticipated costs related to theperformance obligation.Recognize revenue as performance obligations are satisfiedThe Company recognizes revenue at the time the related performance obligation is satisfied by transferring a promised good or service to its customers. A good or service isconsidered to be transferred when the customer obtains control. The Company can transfer control of a good or service and satisfy its performance obligations either over time or ata point in time. The Company transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time if one of thefollowing three criteria are met: (a) the customer simultaneously receives and consumes the benefits provided by the Company’s performance as we perform, (b) the Company’sperformance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (c) the Company’s performance does not create an asset with analternative use to us, and we have an enforceable right to payment for performance completed to date.For our performance obligations satisfied over time, we recognize revenue by measuring the progress toward complete satisfaction of that performance obligation. The selection ofthe method to measure progress towards completion can be either an input method or an output method and requires judgment based on the nature of the goods or services to beprovided.Revenue from contracts with customers consist of the following (in millions): Year Ended December 31, 2018Revenue (1) Construction $716.4Marine Services 194.3Energy 20.7Telecommunications 793.6Broadcasting 45.4Other 3.7Total revenue $1,774.1(1) The Insurance segment does not have revenues in scope of ASU 2014-09.F-23HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDAccounts receivables, net from contracts with customers consist of the following (in millions): December 31, 2018 2017Accounts receivables with customers Construction $196.6 $162.6Marine Services 48.3 48.7Energy 3.3 3.7Telecommunications 117.6 91.7Broadcasting 9.2 10.8Other — 4.6Total accounts receivables with customers $375.0 $322.1Construction SegmentDBMG performs its services primarily under fixed-price contracts and recognizes revenue over time using the input method to measure progress for its projects. The nature of theprojects does not provide measurable value to the customer over time and control does not transfer to the customer at discrete points in time. The customer receives value over theterm of the project based on the amount of work that has been completed towards the delivery of the completed project. The most reliable measure of progress is the cost incurredtowards delivery of the completed project. Therefore, the input method provides the most reliable method to measure progress. Revenue recognition begins when work hascommenced. Costs include all direct material and labor costs related to contract performance, subcontractor costs, indirect labor, and fabrication plant overhead costs, which arecharged to contract costs as incurred. Revenues relating to changes in the scope of a contract are recognized when DBMG and customer or general contractor have agreed on boththe scope and price of changes, the work has commenced, it is probable that the costs of the changes will be recovered and that realization of revenue exceeding the costs is assuredbeyond a reasonable doubt. Revisions in estimates during the course of contract work are reflected in the accounting period in which the facts requiring the revision become known.Provisions for estimated losses on uncompleted contracts are made in the period a loss on a contract becomes determinable.Construction contracts with customers generally provide that billings are to be made monthly in amounts which are commensurate with the extent of performance under thecontracts. Contract receivables arise principally from the balance of amounts due on progress billings on jobs under construction. Retentions on contract receivables are amounts dueon progress billings, which are withheld until the completed project has been accepted by the customer.Disaggregation of RevenuesDBMG's revenues are principally derived from contracts to provide fabrication and erection services to its customers. Contracts represent majority of the revenue of theConstruction segment and are generally recognized over time. A majority of contracts are domestic, fixed priced, and are in excess of one year. Disaggregation of the Constructionsegment, by market or type of customer, is used to evaluate its financial performance.The following table disaggregates DBMG's revenue by market (in millions): December 31, 2018Commercial $253.4Convention 155.8Healthcare 105.0Industrial 79.5Transportation 53.0Other 69.5Total revenue from contracts with customers 716.2Other revenue 0.2Total Construction segment revenue $716.4Contract Assets and Contract LiabilitiesThe timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our long-term construction projects whenrevenue recognized under the cost-to-cost measure of progress exceed the amounts invoiced to our customers, as the amounts cannot be billed under the terms of our contracts.Such amounts are recoverable from our customers based upon various measures of performance, including achievement of certain milestones, completion of specified units orcompletion of a contract. In addition, many of our time and materials arrangements, as well as our contracts to perform turnaround services within the United States industrialservices segment, are billed in arrears pursuant to contract terms that are standard within the industry, resulting in contract assets and/or unbilled receivables being recorded, asrevenue is recognized in advance of billings. Also included in contract assets are amounts we seek or will seek to collect fromF-24HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDcustomers or others for errors or changes in contract specifications or design, contract change orders or modifications in dispute or unapproved as to both scope and/or price orother customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). Our contract assets do not include capitalized costs to obtain andfulfill a contract. Contract assets are included in Other assets in the Consolidated Balance Sheets.Contract liabilities from our long-term construction contracts occur when amounts invoiced to our customers exceed revenues recognized. Contract liabilities additionally includeadvanced payments from our customers on certain contracts. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation.Contract liabilities are included in Other liabilities in the Consolidated Balance Sheets.Contract assets and contract liabilities consisted of the following (in millions): December 31, 2018 December 31, 2017Contract assets $69.0 $25.7Contract liabilities $(62.0) $(29.9)The change in contract assets is a result of the recording of $45.5 million of costs in excess of billings driven by new commercial projects and $20.9 million of costs in excess ofbillings for projects acquired in the GrayWolf acquisition, partially offset by $23.1 million of costs in excess of billings transferred to receivables from contract assets recognized atthe beginning of the period. The change in contract liabilities is a results of periodic billing in excess of costs of $59.5 million driven largely by new commercial projects and $4.0million of billings in excess of costs for projects acquired in the GrayWolf acquisition, offset by revenue recognized that was included in the contract liability balance at thebeginning of the period $31.4 million.Transaction Price Allocated to Remaining Unsatisfied Performance Obligations The transaction price allocated to remaining unsatisfied performance obligations consisted of the following (in millions): Within one year Within five years TotalCommercial $133.3 $10.4 $143.7Convention 77.5 — 77.5Healthcare 38.8 1.8 40.6Industrial 123.5 — 123.5Other 119.4 23.8 143.2Remaining unsatisfied performance obligations$492.5 $36.0 $528.5DBMG's remaining unsatisfied performance obligations, otherwise referred to as backlog, increase with awards of new contracts and decrease as it performs work and recognizesrevenue on existing contracts. DBMG includes a project within its remaining unsatisfied performance obligations at such time the project is awarded and agreement on contractterms has been reached. DBMG's remaining unsatisfied performance obligations include amounts related to contracts for which a fixed price contract value is not assigned when areasonable estimate of total transaction price can be made. DBMG expects to recognize this revenue over the next twenty four months.Remaining unsatisfied performance obligations include unrecognized revenues to be realized from uncompleted construction contracts. Although many of DBMG's contracts aresubject to cancellation at the election of its customers, in accordance with industry practice, DBMG does not limit the amount of unrecognized revenue included within its remainingunsatisfied performance obligations due to the inherent substantial economic penalty that would be incurred by its customers upon cancellation.Marine Services SegmentGMSL generally generates revenue by providing maintenance services for subsea telecommunications cabling, installing subsea cables, providing installation, maintenance andrepair of fiber optic communication and power infrastructure to offshore oil and gas platforms, and installing inter-array power cables for use in offshore wind farms.Telecommunication - Maintenance & InstallationGMSL performs its services within telecommunication market primarily under fixed-price contracts and recognizes revenue over time using the input method to measure progressfor its projects. The nature of the projects does not provide measurable value to the customer over time and control does not transfer to the customer at discrete points in time. Thecustomer receives value over the term of the project based on the amount of work that has been completed towards the delivery of the completed project. Depending on the project,the most reliable measure of progress is either the cost incurred or time elapsed towards delivery of the completed project. Therefore, the input method provides the most reliablemethod to measure progress. Revenue recognition begins when work has commenced. Costs include all direct material and labor costs related to contract performance, indirectlabor, and overhead costs, which are charged to contract costs as incurred. Revisions in estimates during theF-25HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDcourse of contract work are reflected in the accounting period in which the facts requiring the revision become known. Provisions for estimated losses on uncompleted contracts aremade in the period a loss on a contract becomes determinable.Maintenance revenues within this market are attributable to standby vessels and the provision of cable storage depots for repair of fiber optic telecommunications cables in definedgeographic zones, and its maintenance business is provided through contracts with consortia of approximately 60 global telecommunications providers. These contracts aregenerally five to seven years long. Installation revenues within this market are generated through installation of cable systems including route planning, mapping, route engineering, cable laying, and trenching andburial. GMSL’s installation business is project-based with contracts typically lasting one to five months.Power - Operations, Maintenance & Construction SupportMajority of revenues within this market are generated through the provision of crew transfer vessels and turbine technicians on the maintenance of offshore windfarms. Servicesare provided at agreed day rates and are recognized as revenues at the point in time at which the performance obligations are met. Additional revenues are generated through theprovision of approved safety training courses to personnel operating on offshore wind turbines. Courses are supplied at agreed rates and recognized at the point in time at which thecourses are provided.Power - Cable Installation & RepairInstallation and repair revenues within this market are attributable to the provision of engineering solutions, which includes the charter of cable laying vessels and related subseaassets. These contracts are either charged at agreed day rates and are recognized as revenues at the point in time at which the performance obligations are met, or are under fixed-price contracts, in which case revenue is recognized over time using the input method to measure progress for its projects.Disaggregation of RevenuesThe following table disaggregates GMSL's revenue by market (in millions): Year Ended December 31, 2018Telecommunication - Maintenance $87.0Telecommunication - Installation 41.5Power - Operations, Maintenance & Construction Support 31.0Power - Cable Installation & Repair 34.8Total revenue from contracts with customers 194.3Other revenue —Total Marine Services segment revenue $194.3Contract Assets and Contract LiabilitiesThe timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our long-term projects when revenuerecognized exceeds the amounts invoiced to our customers, as the amounts cannot be billed under the terms of our contracts. Such amounts are recoverable from our customersbased upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. In addition, many of our timeand materials arrangements, as well as our contracts to perform services are billed in arrears pursuant to contract terms that are standard within the industry, resulting in contractassets and/or unbilled receivables being recorded, as revenue is recognized in advance of billings. Contract assets are included in Other assets in the Consolidated Balance Sheets.Contract liabilities from our long-term construction contracts occur when amounts invoiced to our customers exceed revenues recognized. Contract liabilities additionally includeadvanced payments from our customers on certain contracts. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation.Contract liabilities are included in Other liabilities in the Consolidated Balance Sheets.Contract assets and contract liabilities consisted of the following (in millions): December 31, 2018 December 31, 2017Contract assets $5.2 $6.6Contract liabilities $(1.0) $(3.1)F-26HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDTransaction Price Allocated to Remaining Unsatisfied Performance Obligations The transaction price allocated to remaining unsatisfied performance obligations consisted of the following (in millions): Within one year Within five years Thereafter TotalTelecommunication - Installation $17.7 $— $— $17.7Telecommunication - Maintenance 75.4 215.6 60.3 351.3Power - Operations, Maintenance & ConstructionSupport 11.5 8.9 — 20.4Power - Cable Installation & Repair 28.0 66.0 — 94.0Remaining unsatisfied performance obligations$132.6 $290.5 $60.3 $483.4GMSL's remaining unsatisfied performance obligations, otherwise referred to as backlog, increase with awards of new contracts and decrease as it performs work and recognizesrevenue on existing contracts. GMSL includes a project within its remaining unsatisfied performance obligations at such time the project is awarded and agreement on contract termshas been reached. GMSL's remaining unsatisfied performance obligations include amounts related to contracts for which a fixed price contract value is not assigned when areasonable estimate of total transaction price can be made.Remaining unsatisfied performance obligations consist predominantly from projects within telecommunication maintenance market. These revenues are generated through long-termcontracts for the provision of vessels and cable depots in maintaining and repairing subsea telecoms cables around the globe. Revenues are recognized over time to reflect both theduration that the vessels and depots are provided on standby duties and the amount of work that has been completed.Energy SegmentANG's revenues are principally derived from sales of compressed natural gas. ANG recognizes revenue from the sale of natural gas fuel primarily at the time the fuel is dispensed.As a result of the Bipartisan Budget Act of 2018, signed into law on February 9, 2018, all Alternative Fuel Tax Credit ("AFETC") revenue for vehicle fuel ANG sold in 2017 wascollected in the second quarter of 2018. Net revenue after customer rebates for such credits for 2017 were $2.6 million, which was recognized during the second quarter of 2018,the period in which the credit became available.Disaggregation of RevenuesThe following table disaggregates ANG's revenue by type (in millions): Year Ended December 31, 2018Volume-related $16.5Maintenance services 0.1Total revenue from contracts with customers 16.6RNG incentives 1.3Alternative fuel tax credit 2.6Other revenue 0.2Total Energy segment revenue $20.7Telecommunications SegmentICS operates an extensive network of direct routes and offers premium voice communication services for carrying a mix of business, residential and carrier long-distance traffic,data and transit traffic. Customers may have a bilateral relationship with ICS, meaning they have both a customer and vendor relationship with ICS. In these cases, ICS sells thecustomer access to the ICS supplier routes but also purchases access to the customer’s supplier routes.Net revenue is derived from the long-distance data and transit traffic. Net revenue is earned based on the number of minutes during a call multiplied by the price per minute, and isrecorded upon completion of a call. Completed calls are billable activity while incomplete calls are non-billable. Incomplete calls may occur as a result of technical issues or becausethe customer’s credit limit was exceeded and thus the customer routing of traffic was prevented.F-27HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDRevenue for a period is calculated from information received through ICS’s billing software, such as minutes and market rates. Customized billing software has been implementedto track the information from the switch and analyze the call detail records against stored detailed information about revenue rates. This software provides ICS with the ability toperform a timely and accurate analysis of revenue earned in a period.ICS evaluates gross versus net revenue recognition for each of its contractual arrangements by assessing indicators of control and significant influence to determine whether the ICSacts as a principal (i.e. gross recognition) or an agent (i.e. net recognition). ICS has determined that it acts as a principal for all of its performance obligations in connection with allrevenue earned. Net revenue represents gross revenue, net of allowance for doubtful accounts receivable, service credits and service adjustments. Cost of revenue includes networkcosts that consist of access, transport and termination costs. The majority of ICS’s cost of revenue is variable, primarily based upon minutes of use, with transmission andtermination costs being the most significant expense.Disaggregation of RevenuesICS's revenues are predominantly derived from wholesale of international long distance minutes (in millions): Year Ended December 31, 2018Termination of long distance minutes $793.6Total revenue from contracts with customers 793.6Other revenue —Total Telecommunications segment revenue $793.6Broadcasting SegmentNetwork advertising revenue is generated primarily from the sale of television airtime for programs or advertisements. Network advertising revenue is recognized when the programor advertisement is broadcast. Revenues are reported net of agency commissions, which are calculated as a stated percentage applied to gross billings. The Network advertisingcontracts are generally short-term in nature.Network distribution revenue consists of payments received from cable, satellite and other multiple video program distribution systems for their retransmission of our networkcontent. Network distribution revenue is recognized as earned over the life of the retransmission consent contract and varies from month to month. Variable fees are usage/salesbased, calculated on the average number of subscribers, and recognized as revenue when the usage occurs. Transaction prices are based on the contract terms, with no materialjudgements or estimates.Broadcast station revenue is generated primarily from the sale of television airtime in return for a fixed fee or a portion of the related ad sales recognized by the third party. In atypical broadcast station revenue agreement, the licensee of a station makes available, for a fee, airtime on its station to a party which supplies content to be broadcast during thatairtime and collects revenue from advertising aired during such content. Broadcast station revenue is recognized over the life of the contract, when the program is broadcast. Thefees that we charge can be fixed or variable and the contracts that the Company enters into are generally short-term in nature. Variable fees are usage/sales-based and recognized asrevenue when the subsequent usage occurs. Transaction prices are based on the contract terms, with no material judgements or estimates.The following table disaggregates the Broadcasting segment's revenue by type (in millions): Year Ended December 31, 2018Network advertising $28.2Broadcast station 10.8Network distribution 4.8Other 1.6Total revenue from contracts with customers 45.4Other revenue —Total Broadcasting segment revenue $45.4Contract LiabilitiesAudience deficiency units ("ADU") liability is recognized as an available return to customers as fulfillment for under-delivered guaranteed viewership per the related agreement.ADU balance was $1.0 million and $1.6 million as of December 31, 2018 and December 31, 2017, respectively. HC2 Broadcasting measures the potential obligation based onaudience measurement ratings and cost per view, and is subsequently made whole in the following period.F-28HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDTransaction Price Allocated to Remaining Unsatisfied Performance Obligations The transaction price allocated to remaining unsatisfied performance obligations consisted of $8.3 million and $0.6 million of network advertising and broadcasting station revenues,respectively of which $4.2 million is expected to be recognized within one year, $4.0 million is expected to be recognized within five years and $0.7 million is expected to berecognized thereafter.4. Acquisitions, Dispositions, and DeconsolidationsConstruction Segment2018 AcquisitionsOn 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 acquisitions of GrayWolf was $139.8 million. The transaction was accounted for as businessacquisition.Preliminary fair value of consideration transferred and its allocation among the identified assets acquired, liabilities assumed, intangibles and residual goodwill are summarized asfollows (in millions):Other invested assets $0.9Cash and cash equivalents 8.6Accounts receivable 32.0Property, plant and equipment 15.4Goodwill 43.7Intangibles 44.1Other assets 22.2Total assets acquired 166.9Accounts payable and other current liabilities (23.0)Other liabilities (4.1)Total liabilities assumed (27.1)Total net assets acquired $139.8The size and breadth of the GrayWolf acquisition necessitates use of the one year measurement period to adequately analyze all the factors used in establishing the asset and liabilityfair values as of the acquisition date, including, but not limited to deferred tax assets. Goodwill was determined based on the residual differences between fair value 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 deductiblefor tax purposes.Acquisition costs incurred by DMBG in connection with the acquisition of GrayWolf were approximately $4.2 million, which were included in selling, general and administrativeexpenses. The acquisition costs were primarily related to legal, accounting and valuation services.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 theyare not material to our consolidated results of operations.F-29HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED2017 AcquisitionsOn November 1, 2017, DBMG consummated the acquisition of 100% of shares of North American operations of Candraft VSI ("Candraft"). Candraft is a premier bridgeinfrastructure detailing and modeling company. On December 1, 2017, DBMG consummated the acquisition of the assets from Mountain States Steel, Inc. ("MSS") includinginventory, machinery & equipment, real estate, employees and certain intangible assets. MSS is a premier custom structural steel fabricator for constructions projects includingbridges, stadiums and power plants. The aggregate fair value of the consideration paid in connection with the acquisitions of Candraft and MSS was $17.8 million, including $16.1million in cash. Both transactions were accounted for as business acquisitions. Fair value of consideration transferred and its allocation among the identified assets acquired,liabilities assumed, intangibles and residual goodwill are summarized as follows (in millions):Accounts receivable $0.5Property, plant and equipment 12.7Goodwill 2.3Intangibles 1.6Other assets 0.9Total assets acquired 18.0Other liabilities (0.2)Total liabilities assumed (0.2)Total net assets acquired $17.8Goodwill was determined based on the residual differences between fair value of consideration transferred and the value assigned to tangible and intangible assets and liabilities.Among the factors that contributed to goodwill was approximately $1.5 million assigned to the assembled and trained workforce. Goodwill is not amortized and is not deductiblefor tax purposes.Acquisition costs incurred by DMBG in connection with the 2017 acquisitions were approximately $3.3 million, which were included in selling, general and administrativeexpenses. The acquisition costs were primarily related to legal, accounting and valuation services.Results of acquired businesses were included in our Consolidated Statements of Operations since their respective acquisition dates. Pro forma results of operations have not beenpresented because they are not material to our consolidated results of operations.Marine Services Segment2017 AcquisitionsOn November 30, 2017 GMSL acquired 5 assets and 19 employees and contractors based in Aberdeen, Scotland from Fugro N.V. The fair value of the purchase consideration was$87.2 million and comprised of 23.6% share in GMH LLC and a short-term loan of $7.5 million to Fugro N.V. The decision to acquire was made to support the overall groupstrategy of growing the power and oil & gas businesses. The transaction was accounted for as business acquisition.The limited liability company agreement of GMH LLC was amended and restated upon consummation of the acquisition to reflect such issuance and to provide the Fugro Memberwith certain rights, including the right to designate two out of the up to seven members of its board of directors, the right to approve certain actions outside the ordinary course ofbusiness, certain "tag-along" rights to participate in sales of membership units by other members and, after five years and subject to the Fugro member first offering its membershipunits to the other members at a price based upon independent valuations, the right to cause GMH LLC to be put up for sale in a process led by an investment banking firm.Fair value of consideration transferred and its allocation among the identified assets acquired, liabilities assumed, intangibles and residual goodwill are summarized as follows (inmillions):Cash and cash equivalents $2.2Property, plant and equipment 73.3Goodwill 11.8Other assets 0.6Total assets acquired 87.9Accounts payable and other current liabilities (0.7)Total liabilities assumed (0.7)Total net assets acquired $87.2Goodwill was determined based on the residual differences between fair value of consideration transferred and the value assigned to tangibleand intangible assets and liabilities. Goodwill is not amortized and is not deductible for tax purposes.Acquisition costs incurred by GMSL in connection with the 2017 acquisition were approximately $1.8 million, which were included in selling, general and administrative expenses.The acquisition costs were primarily related to legal, accounting and valuation services.F-30HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDResults of acquired business were included in our Consolidated Statements of Operations since their respective acquisition dates. Pro forma results of operations are also presentedbecause the Fugro acquisition was material to our consolidated results of operations.Insurance2018 AcquisitionsOn 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 long-term care insurance subsidiary for a 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 business.The preliminary allocation of fair value of consideration transferred and its allocation among the identified assets acquired, liabilities assumed and bargain purchase gain aresummarized as follows (in millions):Fixed maturity securities, available-for-sale at fair value $1,575.4Equity securities 0.3Mortgage loans 0.9Policy loans 2.9Cash and cash equivalents 806.7Recoverable from reinsurers 901.8Other assets 28.2Total assets acquired 3,316.2Life, accident and health reserves (2,931.3)Annuity reserves (11.3)Value of business acquired (214.4)Accounts payable and other current liabilities (6.7)Deferred tax liability (25.3)Other liabilities (11.8)Total liabilities assumed (3,200.8)Total net assets acquired 115.4Total fair value of consideration(1) —Gain on bargain purchase $115.4(1) Total fair value of consideration was ten thousand dollars.The size and breadth of the KIC acquisition necessitates use of the one year measurement period to adequately analyze all the factors used in establishing the asset and liability fairvalues as of the acquisition date, including, but not limited to deferred tax assets. Gain on bargain purchaseGain 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 ofBusiness Acquired balance, corresponding deferred tax position and, ultimately, recognition of a 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 purchaseprice. •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 theremaining 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 obtainregulatory approvals, amongst other closing conditions.F-31HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDReinsurance RecoverableThe reinsurance recoverable balance represents amounts recoverable from third parties. U.S. GAAP requires insurance reserves and reinsurance recoverable balances to bepresented 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 valueof the net insurance contract liability for the amount of reinsurance of approximately $901.8 million, to arrive at a gross insurance liability, and recognized an offsetting reinsurancerecoverable amount of approximately $901.8 million. As part of this process, management considered reinsurance counterparty credit risk and considers it to have an immaterialimpact 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 reinsurancerecoverable on paid and unpaid losses, including an estimate for losses incurred but not reported. Reinsurance recoverable represent expected cash inflows from reinsurers forliabilities ceded and therefore incorporate uncertainties as to the timing and amount of claim payments. Reinsurance recoverable includes the balances due from reinsurers under theterms of the reinsurance agreements for these ceded balances as well as settlement amounts currently due.The Value of Business AcquiredVOBA 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 theportion 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 (negativeasset) 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. VOBA wascalculated by adjusting the purchase price, which was derived on a statutory accounting basis, for differences between statutory and US GAAP accountingrequirements. 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 reservesThe Company 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. The Company estimated the fair value of recoverable from reinsurers using the same assumptions as those for reserves of thenet retained business, but applied to business ceded through various, existing reinsurance agreements. Life Sciences Segment2018 DispositionsOn 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 thetransaction, Janssen made an upfront cash payment of $140.0 million. Pansend received a cash payment of $93.4 million and expects to receive an additional cash payment of $13.3million, currently held in an escrow, for a total consideration of $106.7 million. The escrow will be released within 15 months subsequent to the closing date, assuming there are nopending or unresolved indemnified claims. Pansend recorded a gain on the sale of $102.1 million, of which $21.7 million was allocated to noncontrolling interests. HC2 received acash payment of $72.8 million and expects to receive an additional cash payment of $9.2 million upon 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 $512.2million.Broadcasting2018 AcquisitionsDuring the year ended December 31, 2018, the Broadcasting segment completed a series of transactions for a total consideration of $71.4 million, including $71.0 million paid incash. All transactions were accounted for as asset acquisitions.Fair value of consideration transferred and its allocation among the identified assets acquired and intangibles are summarized as follows (in millions):Property, plant and equipment $1.2Intangibles 70.2Total net assets acquired $71.4F-32HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED2017 AcquisitionsDuring the year ended December 31, 2017, HC2 Broadcasting completed a series of transactions for a total consideration of $91.2 million (in millions): DTV Mako Azteca Other TotalCash $13.5 $18.2 $— $12.1 $43.8Accounts payable — — 33.0 — 33.0Equity — 5.0 — — 5.0Debt obligations 2.4 5.2 — — 7.6Fair value of previously held interest 1.8 — — — 1.8Fair value of consideration $17.7 $28.4 $33.0 $12.1 $91.2DTVIn November 2017, we closed a series of transactions that resulted in HC2 and its subsidiaries owning over 50% of the shares of common stock of DTV for a total consideration of$17.7 million. DTV is an aggregator and operator of Low Power Television ("LPTV") licenses and stations across the United States. DTV currently owns and operates 52 LPTVstations in more than 40 cities. DTV’s distribution platform currently provides carriage for more than 30 television broadcast networks. DTV maintains a focus on technologicalinnovation. DTV exclusively adopted Internet Protocol (IP) as a transport to provide Broadcast-as-a-Service, making it the only adopter of all IP-transport to the home. Thetransaction was accounted for as business acquisition.MakoIn November 2017, a wholly-owned subsidiary of HC2 Broadcasting, closed on a transaction with Mako Communications, LLC and certain of its affiliates ("Mako") to purchaseall the assets in connection with Mako’s ownership and operation of LPTV stations that resulted in HC2 acquiring 38 operating stations in 28 cities, for a total consideration of$28.4 million. Mako is a family owned and operated business headquartered in Corpus Christi, Texas, that has been acquiring, building, and maintaining Class A and LPTVstations all across the United States since 2000. The transaction was accounted for as business acquisition.AztecaIn November 2017, a wholly-owned subsidiary of HC2 Broadcasting acquired Azteca America, a Spanish-language broadcast network, from affiliates of TV Azteca, S.A.B. deC.V. ("Azteca") (AZTECACPO.MX) (Latibex:XTZA). As part of the bifurcated transaction structure, a wholly-owned subsidiary of HC2 Broadcasting signed a definitiveacquisition agreement with Northstar Media, LLC ("Northstar"), a licensee of numerous broadcast television licenses in the United States. Under the agreement with Northstar, awholly-owned subsidiary of HC2 Broadcasting will acquire Northstar’s broadcast television stations, which carry Azteca America programming. The total consideration accrued bythe Company as of December 31, 2017 pending the close of the Northstar acquisition was $33.0 million. In February 2018, a wholly-owned subsidiary of HC2 Broadcastingclosed on the acquisition of Northstar's broadcast television stations and funded the $33.0 million consideration balance. The transaction was accounted for as business acquisition.F-33HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDOtherIn November and December of 2017, a wholly-owned subsidiary of HC2 Broadcasting closed three additional acquisitions for a total consideration of $12.1 million. All threetransactions were accounted as asset acquisitions.Fair value of consideration transferred and its allocation among the identified assets acquired, liabilities assumed, intangibles and residual goodwill are summarized as follows (inmillions):Cash and cash equivalents $0.1Accounts receivable 9.1Property, plant and equipment 12.1Goodwill 21.4Intangibles 80.4Other assets 1.3Total assets acquired 124.4Accounts payable and other current liabilities (8.0)Deferred tax liability (6.1)Debt obligations(1) (4.5)Other liabilities (0.1)Total liabilities assumed (18.7)Total net assets acquired 105.7Less fair value of noncontrolling interest 14.5Total fair value of consideration $91.2(1) Debt obligations includes $2.0 million note with CGI, which is eliminated on the Consolidated Balance Sheet.The following table summarizes acquired intangible assets (in millions):FCC licenses and channel share arrangements $75.9Trade name 0.2Other 4.3Total intangibles $80.4Goodwill was determined based on the residual differences between fair value of consideration transferred and the value assigned to tangible and intangible assets and liabilities.Goodwill is not amortized and is not deductible for tax purposes.Results of operations from other acquisitions since respective acquisition dates have been included in our Consolidated Statements of Operations.Other SegmentOn August 14, 2018, 704Games issued a 53.5% equity interest to international media and technology company Motorsport Network. As a result, HC2’s ownership percentage in704Games was diluted to 26.2% resulting in the loss of control and the deconsolidation of the entity. HC2 recognized a gain of $3.0 million within the Gain on sale anddeconsolidation of subsidiary line of the Consolidated Statements of Operations.Pro Forma Adjusted SummaryDisclosure of proforma information under ASC 805 related to the Azteca acquisition has not been provided as it would be impracticable to do so. After making every reasonableeffort to do so, the Company is unable to obtain reliable historical GAAP financial statements for Azteca. Amounts would require estimates so significant as to render the disclosureirrelevant.The following schedule presents unaudited consolidated pro forma results of operations as if the acquisition of KIC had occurred on January 1, 2017. This information does notpurport to be indicative of the actual results that would have occurred if the acquisitions had been completed on the date indicated, nor is it necessarily indicative of the futureoperating results or the financial position of the combined company (in millions): Years Ended December 31, 2018 2017Net revenue $2,106.4 $1,775.8Net income (loss) from continuing operations $234.3 $(6.3)Net income (loss) attributable to HC2 Holdings, Inc. $203.1 $(121.8)F-34HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED5. InvestmentsFixed Maturity SecuritiesThe following tables provide information relating to investments in fixed maturity securities (in millions):December 31, 2018 Amortized Cost Unrealized Gains UnrealizedLosses Fair ValueU.S. Government and government agencies $24.7 $0.7 $— $25.4States, municipalities and political subdivisions 413.7 9.6 (1.4) 421.9Residential mortgage-backed securities 92.6 3.1 (1.3) 94.4Commercial mortgage-backed securities 94.7 0.3 (1.1) 93.9Asset-backed securities 540.8 0.8 (30.1) 511.5Corporate and other 2,311.0 17.0 (83.5) 2,244.5Total fixed maturity securities $3,477.5 $31.5 $(117.4) $3,391.6December 31, 2017 Amortized Cost Unrealized Gains Unrealized Losses FairValueU.S. Government and government agencies $15.3 $0.5 $— $15.7States, municipalities and political subdivisions 377.5 19.0 (1.1) 395.5Foreign government 6.3 — (0.3) 6.0Residential mortgage-backed securities 102.0 4.2 (1.3) 104.9Commercial mortgage-backed securities 30.2 0.2 — 30.4Asset-backed securities 145.5 2.6 (0.2) 147.9Corporate and other 589.8 51.9 (1.4) 640.2Total fixed maturity securities $1,266.6 $78.4 $(4.3) $1,340.6The Company has investments in mortgage-backed securities ("MBS") that contain embedded derivatives (primarily interest-only MBS) that do not qualify for hedge accounting.The Company recorded the change in the fair value of these securities within Net realized and unrealized gains (losses) on investments. These investments had a fair value of $9.9million and $12.3 million as of December 31, 2018 and 2017 respectively. The change in fair value related to these securities resulted in gains of $0.3 million, $0.9 million and aloss of $1.2 million for the years ended December 31, 2018, 2017, and 2016 respectively.The amortized cost and fair value of fixed maturity securities available-for-sale as of December 31, 2018 are shown by contractual maturity in the table below (in millions). Actualmaturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset andmortgage-backed securities are shown separately in the table below, as they are not due at a single maturity date: Amortized Cost Fair ValueCorporate, Municipal, U.S. Government and Other securities Due in one year or less $21.8 $22.3Due after one year through five years 206.6 204.7Due after five years through ten years 293.5 293.8Due after ten years 2,227.5 2,171.0Subtotal 2,749.4 2,691.8Mortgage-backed securities 187.3 188.3Asset-backed securities 540.8 511.5Total $3,477.5 $3,391.6The table below shows the major industry types of the Company’s corporate and other fixed maturity securities (in millions): December 31, 2018 December 31, 2017 Amortized Cost FairValue % ofTotal Amortized Cost Fair Value % ofTotalFinance, insurance, and real estate $469.0 $452.9 20.2% $191.2 $203.7 31.8%Transportation, communication and other services 758.6 734.0 32.7% 186.1 201.8 31.5%Manufacturing 712.7 693.5 30.9% 100.9 111.4 17.4%Other 370.7 364.1 16.2% 111.6 123.3 19.3%Total $2,311.0 $2,244.5 100.0% $589.8 $640.2 100.0%F-35HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDA portion of certain other-than-temporary impairment ("OTTI") losses on fixed maturity securities is recognized in AOCI. For these securities the net amount, which is recognizedin the Consolidated Statements of Operations in the below line items, represents the difference between the amortized cost of the security and the net present value of its projectedfuture cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. Any remaining difference between the fair value and amortized cost isrecognized in AOCI. The Company recorded the following (in millions): Years Ended December 31, 2018 2017 2016Net realized and unrealized gains (losses) on investments $1.5 $— $0.2Other income (expenses), net 0.2 6.6 2.5Total Other-Than-Temporary Impairments $1.7 $6.6 $2.7The following table presents the total unrealized losses for the 749 and 126 fixed maturity securities held by the Company as of December 31, 2018 and 2017, respectively, wherethe estimated fair value had declined and remained below amortized cost by the indicated amount (in millions): December 31, 2018 December 31, 2017 UnrealizedLosses % ofTotal Unrealized Losses % ofTotalFixed maturity securities Less than 20% $(116.0) 98.8% $(4.2) 93.7%20% or more for less than six months (0.8) 0.7% (0.2) 3.9%20% or more for six months or greater (0.6) 0.5% (0.1) 2.4%Total $(117.4) 100.0% $(4.5) 100.0%The determination of whether unrealized losses are "other-than-temporary" requires judgment based on subjective as well as objective factors. Factors considered and resourcesused by management include (i) whether the unrealized loss is credit-driven or a result of changes in market interest rates, (ii) the extent to which fair value is less than cost basis,(iii) cash flow projections received from independent sources, (iv) historical operating, balance sheet and cash flow data contained in issuer SEC filings and news releases, (v) near-term prospects for improvement in the issuer and/or its industry, (vi) third party research and communications with industry specialists, (vii) financial models and forecasts, (viii)the continuity of dividend payments, maintenance of investment grade ratings and hybrid nature of certain investments, (ix) discussions with issuer management, and (x) ability andintent to hold the investment for a period of time sufficient to allow for anticipated recovery in fair value.The Company analyzes its MBS for OTTI each quarter based upon expected future cash flows. Management estimates expected future cash flows based upon its knowledge of theMBS market, cash flow projections (which reflect loan-to-collateral values, subordination, vintage and geographic concentration) received from independent sources, implied cashflows inherent in security ratings and analysis of historical payment data.The Company believes it will recover its cost basis in the non-impaired securities with unrealized losses and that the Company has the ability to hold the securities until they recoverin value. The Company neither intends to sell nor does it expect to be required to sell the securities with unrealized losses as of December 31, 2018. However, unforeseen facts andcircumstances may cause the Company to sell fixed maturity and equity securities in the ordinary course of managing its portfolio to meet certain diversification, credit quality andliquidity guidelines.The following tables present the estimated fair values and gross unrealized losses for the 749 and 126 fixed maturity securities held by the Company that have estimated fair valuesbelow amortized cost as of each of December 31, 2018 and 2017, respectively. The Company does not have any OTTI losses reported in AOCI. These investments are presentedby investment category and the length of time the related fair value has remained below amortized cost (in millions):December 31, 2018 Less than 12 months 12 months of greater Total FairValue UnrealizedLosses Fair Value UnrealizedLosses Fair Value UnrealizedLossesU.S. Government and government agencies $5.0 $— $3.3 $— $8.3 $—States, municipalities and political subdivisions 117.2 (1.3) 1.9 (0.1) 119.1 (1.4)Residential mortgage-backed securities 22.4 (1.2) 5.7 (0.1) 28.1 (1.3)Commercial mortgage-backed securities 57.8 (1.1) — — 57.8 (1.1)Asset-backed securities 466.0 (29.6) 5.9 (0.5) 471.9 (30.1)Corporate and other 1,418.2 (71.9) 254.6 (11.6) 1,672.8 (83.5)Total fixed maturity securities $2,086.6 $(105.1) $271.4 $(12.3) $2,358.0 $(117.4)F-36HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDDecember 31, 2017 Less than 12 months 12 months of greater Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized LossesU.S. Government and government agencies $5.0 $— $2.2 $— $7.2 $—States, municipalities and political subdivisions 32.9 (0.8) 10.8 (0.2) 43.7 (1.1)Foreign government — — 6.0 (0.3) 6.0 (0.3)Residential mortgage-backed securities 5.1 (0.6) 16.2 (0.7) 21.3 (1.3)Commercial mortgage-backed securities 5.1 — 1.0 — 6.1 —Asset-backed securities 19.8 (0.1) 3.9 (0.1) 23.7 (0.2)Corporate and other 18.5 (0.8) 19.4 (0.7) 37.9 (1.4)Total fixed maturity securities $86.4 $(2.3) $59.5 $(2.0) $145.9 $(4.3)As of December 31, 2018, investment grade fixed maturity securities (as determined by nationally recognized rating agencies) represented approximately 87.9% of the grossunrealized loss and 93.1% of the fair value. As of December 31, 2017, investment grade fixed maturity securities represented approximately 7.3% of the gross unrealized loss and10.4% of the fair value. Certain risks are inherent in connection with fixed maturity securities, including loss upon default, price volatility in reaction to changes in interest rates, andgeneral market factors and risks associated with reinvestment of proceeds due to prepayments or redemptions in a period of declining interest rates.Equity SecuritiesFair values of equity securities were as follows (in millions): December 31, 2018 December 31, 2017Equity securities Common stocks $15.0 $4.9Perpetual preferred stocks 185.5 42.6Total equity securities $200.5 $47.5On August 4, 2018, HC2 Chairman and Chief Executive Officer Philip Falcone informed Inseego Corp’s ("INSG") Board of Directors (the "Board") of his resignation from hisposition as a Director and Chairman of the Board of INSG effective upon consummation of a private placement at INSG. The INSG private placement consisted of an issuance ofan aggregate of 12.0 million shares of its common stock to two investors for a purchase price of $1.63 per share, resulting in aggregate gross proceeds to INSG of approximately$19.7 million. Concurrently, INSG amended HC2's Investors’ Rights Agreement where HC2 agreed to eliminate its board observation and nomination rights. As a result, HC2 lostits ability to exercise significant influence. HC2's equity investment in INSG security no longer qualifies to be accounted for under the equity method. Beginning in the third quarterof 2018, the investment will be recorded at fair value. The investment basis in INSG under the equity method had been reduced to zero as a result of losses incurred for the durationof the investment. On December 4, 2018, the Company sold its investment in INSG for a total consideration of $34.4 million. The Company recognized a net gain of $34.4 millionas a result of both transactions recorded in Other income (expenses), net.Other Invested AssetsCarrying values of other invested assets were as follows (in millions): December 31, 2018 December 31, 2017 MeasurementAlternative Equity Method Fair Value Cost Method Equity Method FairValueCommon equity $— $2.1 $— $— $1.5 $—Preferred equity 1.6 9.6 — 2.5 14.2 —Derivatives — — — 0.4 — 0.3Other — 59.2 — — 66.6 —Total $1.6 $70.9 $— $2.9 $82.3 $0.3F-37HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDSummarized financial information for equity method investees not consolidated for the years ended December 31, 2018, 2017, and 2016 were as follows (information for one of theinvestees is reported on a one month lag, in millions): Years Ended December 31, 2018 2017 2016Net revenue $382.9 $481.5 $558.2Gross profit $98.8 $122.1 $164.9Income (loss) from continuing operations $38.7 $7.6 $51.7Net income (loss) $30.9 $(17.5) $(11.1) Current assets $282.5 $357.3 $285.5Noncurrent assets $90.5 $188.3 $278.8Current liabilities $177.0 $227.2 $184.1Noncurrent liabilities $19.5 $161.0 $131.6Net Investment IncomeThe major sources of net investment income were as follows (in millions): Years Ended December 31, 2018 2017 2016Fixed maturity securities, available-for-sale at fair value $98.3 $59.4 $54.7Equity securities 5.4 2.6 2.2Mortgage loans 7.3 2.5 0.5Policy loans 1.2 1.2 1.2Other invested assets 4.8 0.6 0.3Gross investment income 117.0 66.3 58.9External investment expense (0.4) (0.2) (0.9)Net investment income $116.6 $66.1 $58.0Net Realized and Unrealized Gains (Losses) on InvestmentsThe major sources of net realized and unrealized gains and losses on investments were as follows (in millions): Years Ended December 31, 2018 2017 2016Realized gains on fixed maturity securities $5.6 $4.4 $4.9Realized losses on fixed maturity securities (1.5) (1.0) (2.4)Realized gains on equity securities 0.3 1.0 4.5Realized losses on equity securities — (0.6) (0.3)Net unrealized gains (losses) on equity securities (11.6) — —Net unrealized gains (losses) on derivative instruments 0.3 1.2 (1.5)Impairment losses (1.5) — (0.2)Net realized and unrealized gains (losses) $(8.4) $5.0 $5.0F-38HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED6. Fair Value of Financial InstrumentsAssets by Hierarchy LevelAssets and liabilities measured at fair value on a recurring basis are summarized below (in millions):December 31, 2018 Fair Value Measurement Using: Total Level 1 Level 2 Level 3Assets Fixed maturity securities U.S. Government and government agencies $25.4 $6.1 $19.3 $—States, municipalities and political subdivisions 421.9 — 421.9 —Residential mortgage-backed securities 94.4 — 75.4 19.0Commercial mortgage-backed securities 93.9 — 35.7 58.2Asset-backed securities 511.5 — 33.3 478.2Corporate and other 2,244.5 6.6 2,152.9 85.0Total fixed maturity securities 3,391.6 12.7 2,738.5 640.4Equity securities Common stocks 15.0 9.1 — 5.9Perpetual preferred stocks 185.5 7.2 123.0 55.3Total equity securities 200.5 16.3 123.0 61.2Total assets accounted for at fair value $3,592.1 $29.0 $2,861.5 $701.6Liabilities Embedded derivative $8.4 $— $— $8.4Other 3.5 — — 3.5Total liabilities accounted for at fair value $11.9 $— $— $11.9December 31, 2017 Fair Value Measurement Using: Total Level 1 Level 2 Level 3Assets Fixed maturity securities U.S. Government and government agencies $15.7 $5.1 $10.6 $—States, municipalities and political subdivisions 395.4 — 389.4 6.0Foreign government 6.0 — 6.0 —Residential mortgage-backed securities 104.9 — 90.3 14.6Commercial mortgage-backed securities 30.5 — 18.3 12.2Asset-backed securities 147.9 — 14.2 133.7Corporate and other 640.2 2.1 611.8 26.3Total fixed maturity securities 1,340.6 7.2 1,140.6 192.8Equity securities Common stocks 5.0 4.8 — 0.2Perpetual preferred stocks 42.5 7.6 28.5 6.4Total equity securities 47.5 12.4 28.5 6.6Derivatives 0.3 — — 0.3Total assets accounted for at fair value $1,388.4 $19.6 $1,169.1 $199.7Liabilities Other $4.8 $— $— $4.8Total liabilities accounted for at fair value $4.8 $— $— $4.8The Company reviews the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certainfinancial assets or liabilities. Such reclassifications are reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur.Availability of secondary market activity and consistency of pricing from third-party sources impacts the Company's ability to classify securities as Level 2 or Level 3. TheCompany’s assessment resulted in a net transfer out of Level 3 of $59.3 million and out of Level 3 of $62.9 million, primarily related to structured securities, during the years endedDecember 31, 2018 and 2017, respectively.F-39HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDThe methods and assumptions the Company uses to estimate the fair value of assets and liabilities measured at fair value on a recurring basis are summarized below:Fixed Maturity Securities. The fair values of the Company’s publicly-traded fixed maturity securities are generally based on prices obtained from independent pricing services.Prices from pricing services are sourced from multiple vendors, and a vendor hierarchy is maintained by asset type based on historical pricing experience and vendor expertise. Insome cases, the Company receives prices from multiple pricing services for each security, but ultimately uses the price from the pricing service highest in the vendor hierarchy basedon the respective asset type. Consistent with the fair value hierarchy described above, securities with validated quotes from pricing services are generally reflected within Level 2, asthey are primarily based on observable pricing for similar assets and/or other market observable inputs.If the Company ultimately concludes that pricing information received from the independent pricing service is not reflective of market activity, non-binding broker quotes are used,if available. If the Company concludes the values from both pricing services and brokers are not reflective of market activity, it may override the information from the pricing serviceor broker with an internally developed valuation, however, this occurs infrequently. Internally developed valuations or non-binding broker quotes are also used to determine fairvalue in circumstances where vendor pricing is not available. These estimates may use significant unobservable inputs, which reflect the Company’s assumptions about the inputsthat market participants would use in pricing the asset. Pricing service overrides, internally developed valuations and non-binding broker quotes are generally based on significantunobservable inputs and are reflected as Level 3 in the valuation hierarchy.The inputs used in the valuation of corporate and government securities include, but are not limited to, standard market observable inputs which are derived from, or corroboratedby, market observable data including market yield curve, duration, call provisions, observable prices and spreads for similar publicly traded or privately traded issues thatincorporate the credit quality and industry sector of the issuer.For structured securities, valuation is based primarily on matrix pricing or other similar techniques using standard market inputs including spreads for actively traded securities,spreads off benchmark yields, expected prepayment speeds and volumes, current and forecasted loss severity, rating, weighted average coupon, weighted average maturity, averagedelinquency rates, geographic region, debt-service coverage ratios and issuance-specific information including, but not limited to: collateral type, payment terms of the underlyingassets, payment priority within the tranche, structure of the security, deal performance and vintage of loans.When observable inputs are not available, the market standard valuation techniques for determining the estimated fair value of certain types of securities that trade infrequently, andtherefore have little or no price transparency, rely on inputs that are significant to the estimated fair value but that are not observable in the market or cannot be derived principallyfrom or corroborated by observable market data. These unobservable inputs are sometimes based in large part on management judgment or estimation, and cannot be supported byreference to market activity. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and are believed to be consistent withwhat other market participants would use when pricing such securities.The fair values of private placement securities are primarily determined using a discounted cash flow model. In certain cases, these models primarily use observable inputs with adiscount rate based upon the average of spread surveys collected from private market intermediaries who are active in both primary and secondary transactions, taking into account,among other factors, the credit quality and industry sector of the issuer and the reduced liquidity associated with private placements. Generally, these securities have been reflectedwithin Level 3. For certain private fixed maturity securities, the discounted cash flow model may also incorporate significant unobservable inputs, which reflect the Company’s ownassumptions about the inputs market participants would use in pricing the security. To the extent management determines that such unobservable inputs are not significant to theprice of a security, a Level 2 classification is made. Otherwise, a Level 3 classification is used.Equity Securities. The balance consists principally of common and preferred stock of publicly and privately traded companies. The fair values of publicly traded equity securities areprimarily based on quoted market prices in active markets and are classified within Level 1 in the fair value hierarchy. The fair values of preferred equity securities, for which quotedmarket prices are not readily available, are based on prices obtained from independent pricing services and these securities are generally classified within Level 2 in the fair valuehierarchy. The fair value of common stock of privately held companies was determined using unobservable market inputs, including volatility and underlying security values andwas classified as Level 3.Cash Equivalents. The balance consists of money market instruments, which are generally valued using unadjusted quoted prices in active markets that are accessible for identicalassets and are primarily classified as Level 1. Various time deposits carried as cash equivalents are not measured at estimated fair value and, therefore, are excluded from the tablespresented.F-40HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDLevel 3 Measurements and TransfersThe following tables summarize changes to the Company’s financial instruments carried at fair value and classified within Level 3 of the fair value hierarchy for the years endedDecember 31, 2018 and 2017, respectively (in millions): Total realized/unrealized gains(losses) included in Balance at December 31,2017Net earnings (loss)Other comp. income (loss)Purchases andissuancesSales and settlementsTransfer to Level 3Transfer outof Level 3 Balance at December 31,2018Assets 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 (6.4) —Residential mortgage-backed securities 14.6 0.2 0.2 33.7 (8.0) 8.1 (29.8) 19.0Commercial mortgage-backed securities 12.2 (0.1) (0.9) 47.5 (0.1) 1.8 (2.2) 58.2Asset-backed securities 133.7 1.2 (31.6) 445.4 (79.8) 12.9 (3.6) 478.2Corporate and other 26.3 (0.2) (6.1) 116.8 (15.0) 24.8 (61.6) 85.0Total fixed maturity securities 192.8 1.1 (38.5) 645.8 (102.9) 48.0 (105.9) 640.4Equity securities Common stocks 0.2 0.8 — 0.1 — 4.8 — 5.9Perpetual preferred stocks 6.4 (0.5) — 56.0 (0.4) 3.5 (9.7) 55.3Total equity securities 6.6 0.3 — 56.1 (0.4) 8.3 (9.7) 61.2Derivatives 0.3 (0.3) — — — — — —Total financial assets $199.7 $1.1 $(38.5) $701.9 $(103.3) $56.3 $(115.6) $701.6 Total realized/unrealized(gains) losses included in Balance atDecember 31,2017Net (earnings)lossOther comp. (income) lossPurchases andissuancesSales and settlementsTransfer to Level 3Transfer outof Level 3 Balance atDecember 31,2018Liabilities Embedded derivative $— $(4.1) $— $12.5 $— $— $— $8.4Other 4.7 (2.2) — 1.2 (0.2) — — 3.5Total financial liabilities $4.7 $(6.3) $— $13.7 $(0.2) $— $— $11.9 Total realized/unrealized gains(losses) included in Balance atDecember 31,2016Net earnings (loss)Other comp. income (loss)Purchases andissuancesSales and settlementsTransfer to Level 3Transfer outof Level 3Balance at December 31,2017Assets Fixed maturity securities States, municipalities and political subdivisions $5.7 $(0.1) $(0.1) $0.5 $— $1.6 $(1.6) $6.0Residential mortgage-backed securities 56.0 (0.4) 1.2 3.5 (9.0) 3.2 (39.9) 14.6Commercial mortgage-backed securities 43.0 (0.3) 0.3 0.2 (10.1) 8.6 (29.5) 12.2Asset-backed securities 73.2 1.2 1.5 149.0 (80.6) 1.1 (11.7) 133.7Corporate and other 20.4 (3.4) 3.8 12.7 (7.9) 10.6 (9.9) 26.3Total fixed maturity securities 198.3 (3.0)6.7165.9(107.6)25.1(92.6)192.8Equity securities Common stocks 4.6 (3.2) 0.2 0.1 — 0.3 (1.8) 0.2Perpetual preferred stocks — — 0.3 — — 6.1 — 6.4Total equity securities 4.6 (3.2)0.50.1—6.4(1.8)6.6Derivatives 3.8 (1.6) — 0.1 (2.0) — — 0.3Total financial assets $206.7 $(7.8)$7.2$166.1$(109.6)$31.5$(94.4)$199.7F-41HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED Total realized/unrealized(gains) losses included in Balance atDecember 31,2016Net(earnings)lossOther comp.(income) lossPurchases andissuancesSales andsettlementsTransfer toLevel 3Transfer outofLevel 3Balance atDecember 31,2017Liabilities Other $16.3 $(11.5) $— $— $(0.1) $— $— $4.7Total financial liabilities $16.3 $(11.5) $— $— $(0.1) $— $— $4.7Internally developed fair values of Level 3 assets represent less than 1% of the Company’s total assets. Any justifiable changes in unobservable inputs used to determine internallydeveloped fair values would not have a material impact on the Company’s financial position.Fair Value of Financial Instruments Not Measured at Fair Value The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments, which were not measured at fair value on a recurring basis. Thetable excludes carrying amounts for cash, accounts receivable, costs and recognized earnings in excess of billings, accounts payable, accrued expenses, billings in excess of costsand recognized earnings, and other current assets and liabilities approximate fair value due to relatively short periods to maturity (in millions):December 31, 2018 Fair Value Measurement Using: Carrying Value Estimated FairValue Level 1 Level 2 Level 3Assets Mortgage loans $137.6 $137.6 $— $— $137.6Policy loans 19.8 19.8 — 19.8 —Other invested assets 1.6 1.6 — — 1.6Total assets not accounted for at fair value $159.0 $159.0 $— $19.8 $139.2Liabilities Annuity benefits accumulated (1) $244.0 $241.7 $— $— $241.7Debt obligations (2) 702.5 703.0 — 703.0 —Total liabilities not accounted for at fair value $946.5 $944.7 $— $703.0 $241.7December 31, 2017 Fair Value Measurement Using: Carrying Value Estimated FairValue Level 1 Level 2 Level 3Assets Mortgage loans $52.1 $52.1 $— $— $52.1Policy loans 17.9 17.9 — 17.9 —Other invested assets 3.0 3.7 — — 3.7Total assets not accounted for at fair value $73.0 $73.7 $— $17.9 $55.8Liabilities Annuity benefits accumulated (1) $243.2 $240.4 $— $— $240.4Debt obligations (2) 544.2 552.4 — 552.4 —Total liabilities not accounted for at fair value $787.4 $792.8 $— $552.4 $240.4(1) Excludes life contingent annuities in the payout phase.(2) Excludes certain lease obligations accounted for under ASC 840, Leases.Mortgage Loans on Real Estate. The fair value of mortgage loans on real estate is estimated by discounting cash flows, both principal and interest, using current interest rates formortgage loans with similar credit ratings and similar remaining maturities. As such, inputs include current treasury yields and spreads, which are based on the credit rating andaverage life of the loan, corresponding to the market spreads. The valuation of mortgage loans on real estate is considered Level 3 in the fair value hierarchy.Annuity Benefits Accumulated. The fair value of annuity benefits was determined using the surrender values of the annuities and classified as Level 3.Debt Obligations. The fair value of the Company’s debt obligations was determined using Bloomberg Valuation Service BVAL. The methodology combines direct marketobservations from contributed sources with quantitative pricing models to generate evaluated prices and classified as Level 2.F-42HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED7. Accounts ReceivableAccounts receivable consists of the following (in millions): December 31, 2018 2017Contracts in progress $188.2 $167.8Trade receivables 127.5 106.9Unbilled retentions 65.6 51.0Other receivables 4.2 0.4Allowance for doubtful accounts (6.3) (3.7)Total accounts receivable $379.2 $322.48. InventoryInventory is recognized in the consolidated balance sheets within Other assets, and consists of the following (in millions): December 31, 2018 2017Raw materials and consumables $19.3 $11.8Work in process 1.6 0.7Finished goods 0.4 0.2 $21.3 $12.79. Recoverable from ReinsurersRecoverable from reinsurers consists of the following (in millions): December 31, 2018 December 31, 2017Reinsurer A.M. BestRating Amount % of Total Amount % of TotalHannover Life Reassurance Company of America A+ $336.9 33.7% $336.9 64.0%Munich American Reassurance Company A+ 335.0 33.5% — —%Loyal American Life Insurance Company A 146.0 14.6% 140.5 26.7%Manhattan Life Assurance Company of America B+ 89.5 8.9% — —%Great American Life Insurance Company A 54.5 5.4% 48.9 9.3%Other 38.3 3.9% — —%Total $1,000.2 100.0% $526.3 100.0%During the year ended December 31, 2018, CGI recaptured two of their reinsurance treaties. The first of which received $161.4 million of cash, reduced its ceded reinsurance by$140.8 million and recognizing a gain of $20.6 million, included in Other income (expenses), net. The second recapture received $168.0 million of cash, reduced its cededreinsurance by $141.7 million and recognizing a gain of $26.3 million, included in Other income (expenses), net.F-43HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED10. Property, Plant, and Equipment, netProperty, plant, and equipment consists of the following (in millions): December 31, 2018 2017Cable-ships and submersibles $251.1 $251.8Equipment, furniture and fixtures, and software 148.0 127.4Building and leasehold improvements 47.3 34.6Land 32.8 30.3Construction in progress 12.9 20.0Plant and transportation equipment 12.0 6.6 504.1 470.7Less: Accumulated depreciation 127.8 96.0Total $376.3 $374.7Depreciation expense was $46.6 million, $35.8 million, and $28.9 million for the years ended December 31, 2018, 2017, and 2016, respectively. These amounts included $7.0million, $5.3 million, and $4.4 million of depreciation expense within cost of revenue for the years ended December 31, 2018, 2017, and 2016, respectively.As of December 31, 2018 and December 31, 2017, total net book value of equipment under capital leases consisted of $40.0 million and $45.3 million of cable-ships, submersibles,and equipment.In 2018, ANG recorded an impairment expense of $0.7 million, $0.4 million due to station performance and $0.3 million related to the abandonment of a station developmentproject. In 2017, NerVve recorded an impairment of $1.2 million. Computer software and other fixed assets were written down to zero as a result of deteriorated businessconditions. Impairment expenses recorded on property, plant and equipment are included in Other operating (income) expenses in our Consolidated Statements of Operations for theyear ended December 31, 2018 and 2017, respectively.11. Goodwill and Intangibles, netGoodwillThe changes in the carrying amount of goodwill by segment are as follows (in millions): ConstructionMarineServices Energy Telecom Insurance LifeSciencesBroadcastingOther TotalBalance at December 31, 2016 $36.3 $2.5 $2.6 $3.4 $47.3 $3.6 $— $2.4 $98.1Measurement period adjustment — — (0.5) — — — — — (0.5)Acquisitions 2.3 11.8 — — — — 20.6 — 34.7Impairments — — — — — — — (0.6) (0.6)Balance at December 31, 2017 38.6 14.3 2.1 3.4 47.3 3.6 20.6 1.8 131.7Measurement period adjustment — — — — — — 0.8 — 0.8Acquisitions 43.6 — — 1.0 — — — — 44.6Dispositions — — — — — (3.6) — (1.8) (5.4)Balance at December 31, 2018 $82.2 $14.3 $2.1 $4.4 $47.3 $— $21.4 $— $171.7On an annual basis, the Company performs it's goodwill impairment review. After considering all quantitative and qualitative factors, other than noted below, the Company hasdetermined that it is more likely than not that the reporting units' fair values exceed carrying values as of the period end.During the second quarter of 2017, the Company concluded that a step 1 test of goodwill for NerVve was necessary. Based on certain indicators of impairment related to NerVve'sdeteriorated business conditions. The Company estimated the fair value of the NerVve reporting unit, using the income approach, at an implied fair value of goodwill of $0 and animpairment charge of $0.6 million was recorded. This impairment charge is included in Other operating (income) expenses in our Consolidated Statements of Operations for theyear ended December 31, 2017.Through the sale of BeneVir in the second quarter of 2018, $3.6 million of goodwill was deconsolidated. Through the deconsolidation of 704Games in the third quarter of 2018,$1.8 million of goodwill was deconsolidated. See Note 4. Acquisitions, Dispositions, and Deconsolidations, for additional detail regarding our acquisitions and dispositions.F-44HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDIndefinite-lived Intangible AssetsIndefinite-lived intangible assets consists of the following (in millions): December 31, 2018 2017FCC licenses $120.6 $76.4State licenses 2.5 2.5Developed technology — 6.4Total $123.1 $85.3Through the sale of BeneVir, $6.4 million of developed technology were sold to a third party. See Note 4. Acquisitions, Dispositions, and Deconsolidations for additional detailregarding our acquisitions and dispositions.The Broadcasting segment strategically acquires assets across the United States, which results in the recording of FCC licenses. Providing the Company acts within therequirements and constraints of the regulatory authorities, the renewal and extension of these licenses is reasonably certain at minimal costs. Accordingly, we have concluded thatthe acquired FCC licenses are indefinite-lived intangible assets.In 2018, FCC licenses increased $44.2 million, $45.0 million through acquisitions, partially offset by $0.6 million of measurement period adjustments and $0.2 million ofimpairments driven by non-strategic licenses dismissed by the FCC.Definite Lived Intangible AssetsThe gross carrying amount and accumulated amortization of amortizable intangible assets by major intangible asset class is as follows (in millions): Weighted-AverageOriginal Useful Life December 31, 2018 December 31, 2017 Gross CarryingAmount AccumulatedAmortizationNet Gross CarryingAmount AccumulatedAmortizationNetTrade names 13 Years $25.9 $(5.9) $20.0 $14.0 $(4.5) $9.5Customer relationships 10 Years 53.6 (7.2) 46.4 21.7 (4.7) 17.0Channel sharing arrangement 40 Years 25.2 — 25.2 — — —Developed technology 5 Years 1.2 (1.2) — 3.8 (3.6) 0.2Other 4 Years 5.5 (1.0) 4.5 5.4 (0.3) 5.1Total $111.4 $(15.3) $96.1 $44.9 $(13.1) $31.8Amortization expense for amortizable intangible assets was $4.9 million, $5.4 million, and $3.8 million for the years ended December 31, 2018, 2017, and 2016 respectively, andwas included in Depreciation and amortization in the Consolidated Statements of Operations.VOBAVOBA is amortized in relation to the projected future premium of the acquired long-term care blocks of business and recorded amortization increases net income for the respectiveperiod. Total negative amortization recorded for the years ended December 31, 2018, 2017, and 2016 was $12.8 million, $4.6 million and $3.9 million, respectively.Excluding the impact of any future acquisitions or change in foreign currency, the Company estimates annual amortization of amortizable intangible assets and VOBA for the nextfive fiscal years will be as follows (in millions): Estimated Amortization Definite Lived IntangibleAssets Negative VOBA2019 $11.8 $(22.2)2020 8.1 (20.9)2021 7.9 (19.7)2022 7.8 (18.5)2023 6.9 (17.2)Thereafter 53.6 (146.1)Total $96.1 $(244.6)F-45HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED12. Life, Accident and Health ReservesLife, accident and health reserves consist of the following (in millions): December 31, 2018 2017Long-term care insurance reserves $4,142.5 $1,453.4Other accident and health insurance reserves 222.8 140.6Traditional life insurance reserves 196.8 100.0Total life, accident and health reserves $4,562.1 $1,694.0The following table sets forth changes in the liability for claims for the portion of our long-term care insurance reserves in scope of the ASU 2015-09 disclosure requirements (inmillions): Years Ended December 31, 2018 2017Beginning balance $243.5 $227.0Less: recoverable from reinsurers (100.6) (97.9)Beginning balance, net 142.9 129.1 Opening balance due to business acquired 295.4 —Less: recoverable from reinsurers (55.9) —Net Balance of business acquired 239.5 —Incurred related to insured events of: Current year 216.6 55.4Prior years 81.6 (1.3)Total incurred 298.2 54.1Paid related to insured events of: Current year (15.0) (6.7)Prior years (72.1) (38.5)Total paid (87.1) (45.2)Interest on liability for policy and contract claims 8.8 4.9Ending balance, net 602.3 142.9Add: recoverable from reinsurers 136.4 100.6Ending balance $738.7 $243.5The Company experienced unfavorable claims reserve development of $81.6 million in 2018 and favorable claims reserve development of $1.3 million in 2017. Much of thisdeficiency is due to the (i) recapture of two reinsurance treaties that covered the KIC business post acquisition (ii) strengthening of the morbidity assumptions for the KIC claimreserves and (iii) development of claim termination rates and care transition settings.13. Accounts Payable and Other Current LiabilitiesAccounts payable and other current liabilities consist of the following (in millions): December 31, 2018 2017Accounts payable $104.7 $119.2Accrued interconnection costs 103.0 73.4Accrued expenses and other current liabilities 83.4 99.5Accrued payroll and employee benefits 44.2 44.4Accrued interest 8.8 4.6Accrued income taxes 0.8 6.4Total accounts payable and other current liabilities $344.9 $347.5F-46HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED14. Debt ObligationsDebt obligations consist of the following (in millions): December 31, 2018 2017Construction LIBOR plus 5.85% Note, due in 2023 $80.0 $—LIBOR plus 1.50%, due in 2023 34.0 19.7LIBOR plus 2.5%, due in 2019 — 6.7Marine Services Obligations under capital leases 40.4 48.57.49% Note, due in 2019 14.0 —10% Notes, due 2018 — 7.5Notes payable and revolving lines of credit, various maturity dates 12.9 16.2Energy 5.0% Term Loan due in 2022 12.4 13.74.5% Note due in 2022 11.3 12.5Other, various maturity dates 3.2 4.3Life Sciences Notes due in 2019 1.7 1.8Broadcasting 8.50% Secured Note due 2019(1) 35.0 —Other, various maturity dates 11.1 10.1LIBOR plus applicable margin Bridge Note, due in 2018 — 60.0Other Notes payable, various maturity dates — 0.1Non-operating Corporate 11.5% Senior Secured Notes, due in 2021 470.0 —7.5% Convertible Senior Notes, due in 2022 55.0 —11.0% Senior Secured Notes, due in 2019 — 400.0Total 781.0 601.1Issuance discount, net and deferred financing costs (37.1) (7.9)Debt obligations $743.9 $593.2(1) On January 22, 2019, HC2 Broadcasting issued an additional $7.5 million of 8.5% notes to institutional investors and increased the capacity of the Stations Notes by $15.0 million to$50.0 million. Aggregate capital lease and debt payments, including interest are as follows (in millions): Capital Leases Debt Total2019 $10.5 $159.0 $169.52020 10.2 81.1 91.32021 10.0 543.0 553.02022 9.8 75.2 85.02023 4.3 81.1 85.4Thereafter 3.6 12.5 16.1Total minimum principal & interest payments 48.4 951.9 1,000.3Less: Amount representing interest (7.0) (212.3) (219.3)Total aggregate capital lease and debt payments $41.4 $739.6 $781.0The interest rates on the capital leases range from approximately 10.7% to 12.5%.F-47HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDConstructionWells Fargo FacilityDBMG has a Credit and Security Agreement ("Wells Fargo Facility") with Wells Fargo Bank, National Association ("Wells Fargo"). Under the initial terms of the agreement,Wells Fargo agreed to advance up to a maximum amount of $50.0 million to DBMG, including up to $14.5 million of letters of credit (the "Revolving Line"). The Revolving Linehad a floating interest rate based on LIBOR plus 2.0%, required monthly interest payments, and was due in April 2019.The Wells Fargo Facility allows for the issuance by DBMG of additional loans in the form of notes of up to $10.0 million ("Real Estate Term Advance"), at LIBOR plus 2.5% andthe issuance of a note payable of up to $15.0 million, ("Real Estate Term Advance 2") at LIBOR plus 2.5%, each as separate tranches of debt under the Wells Fargo Facility.On April 5, 2018, the Wells Fargo Facility was amended, increasing the maximum advance amount under the Revolving Line to $70.0 million, modifying the floating interest rate todaily three month LIBOR plus 1.5% and extending the maturity date through March 31, 2023. The amendment also created a $17.0 million long-term tranche under the $70.0million Revolving Line with a maturity date of May 31, 2025. Additionally, The Real Estate Term Advance and Real Estate Advance 2 interest rates were modified to daily threemonth LIBOR plus 2.25% with a maturity date of April 30, 2024.On July 24, 2018, the Wells Fargo Facility was amended, increasing the availability of the borrowing base allowing DBMG to borrow an additional $10.0 million of the $70.0million total line and bearing interest at daily three month LIBOR plus 2.5%. The temporary borrowing base increase and related interest had an initial maturity date of October 23,2018, subsequently extended to November 30, 2018.On November 30, 2018, the Wells Fargo Facility was amended, increasing the maximum advance amount under the Revolving Line to up to $80.0 million. As of December 31,2018, $15.4 million was issued through term loans and $18.7 million through the revolver. In addition, $8.4 million in outstanding letters of credit were issued under the WellsFargo Facility, of which zero has been drawn.TCW LoanOn November 30, 2018, DBMG and its subsidiaries entered into a financing agreement with TCW Asset Management Company LLC ("TCW"), for the aggregate principal amountof $80.0 million (the "TCW Loan"). The net proceeds from the TCW Loan were used to refinance the debt assumed and closing costs of the GrayWolf acquisition. The TCW TermLoan matures on the earlier of (a) November 30, 2023; (b) the maturity date of the Wells Fargo Facility; and (c) the 60 days prior to the maturity of the Senior Secured Notes and/orConvertible Notes if, on that day (and solely for so long as), any of such indebtedness remain outstanding. The TCW Loan will bear interest at a rate of 5.85% above the threemonth LIBOR .Marine ServicesShawbrook LoanOn April 4, 2018, GMSL entered into a 7.49% fixed interest only loan, due April 3, 2019, with Shawbrook Bank Limited for £7.2 million, or approximately $9.4 million atissuance ("Shawbrook Loan"), the net proceeds used to fund capital expenditures, being mainly upgrades to cable ships, and working capital requirements on installation contracts.On September 21, 2018, GMSL refinanced the Shawbrook loan, extending the principal balance to £11.0 million, or approximately $14.4 million at issuance, and extending thematurity date to September 21, 2019. The net proceeds were used to pay the principal balance of the original Shawbrook loan and repay the debt associated with the purchase of theFugro trenching business acquisition.Fugro AcquisitionAs part of the Fugro trenching business acquisition in 2017, GMSL issued to Fugro a $7.5 million secured loan, which bears interest, payable quarterly, at 4% per annum throughJanuary 11, 2018, and at 10% per annum thereafter, and matures 363 days following the acquisition. In September 2018, GMSL repaid the note in full.F-48HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDEnergyTerm LoansIn May 2017, ANG entered into a term loan with M&T Bank for $12.0 million. The loan bears fixed interest annually at 5.00% and matures in 2022. During the third quarter 2017,ANG drew on the term loan for an additional $2.5 million at 4.85%.In January 2017, ANG refinanced and consolidated all three of its loans with Pioneer Savings Bank ("Pioneer") into a new term loan. The principal balance outstanding bears fixedinterest at a fixed rate annually equal to 4.5% and matures in 2022. The agreement with Pioneer also includes a revolving demand note for $1.0 million with an annual renewalprovision that bears interest at monthly LIBOR plus 3.0% (the "Pioneer Demand Note"). In September 2017, ANG increased the availability under the Pioneer Demand Note to$1.5 million. As of December 31, 2018, there was $11.3 million aggregate principal outstanding under the Pioneer term loan and $1.1 million drawn under the Pioneer DemandNote.InsuranceIn July 2018, in connection with the signed agreement to purchase the long-term care block of Humana, CGI obtained a three month surplus note (the "Surplus Note") fromHumana, issued July 17, 2018 and due September 14, 2018, in the amount of $32.0 million. The Surplus Note was paid in full on August 17, 2018.Life SciencesR2 NotesIn December 2017, R2 issued 11% secured convertible drawdown promissory notes for $1.25 million, maturing on December 2018. In 2018, R2 drew on the notes for anadditional $0.5 million, and entered into an amendment extending the maturity date to December 2019.In December 2017, R2 issued $0.5 million to its licensors in satisfaction for amounts owed as part of a milestone payment. The $0.5 million principal balance was paid in full inAugust 2018. BroadcastingOn November 9, 2017, HC2 Broadcasting entered into a $75.0 million bridge loan (the "Bridge Loan") pari passu with the 11.0% Senior Secured Notes. The Bridge Loan wasguaranteed by HC2 and each of the other guarantors of the 11.0% Notes and ranked pari passu to, and was equally and ratably secured with HC2's 11.0% Notes. The Bridge Loanwas used to finance acquisitions in the broadcast television distribution market. HC2 Broadcasting borrowed $45.0 million of principal amount of the Bridge Loan on the same dayat LIBOR plus applicable margin. On December 15, 2017, HC2 Broadcasting borrowed an additional $15.0 million of principal amount at LIBOR plus applicable margin.On February 4, 2018, HC2 Broadcasting entered into a First Amendment to the Bridge Loan to extend the Agreement to add an additional $27.0 million in principal borrowingcapacity to the existing credit agreement. On February 6, 2018, HC2 Broadcasting borrowed $42.0 million in principal amount of the Bridge Loan at LIBOR plus applicable margin,the net proceeds of which were used to finance certain acquisitions, to pay fees, costs and expenses relating to the Bridge Loan, and for general corporate purposes.The Bridge Loan of $102.0 million was repaid as part of the May 7, 2018 HC2 financing transaction. As part of the transaction, the Broadcasting segment recorded a loss onextinguishment of debt of $2.5 million, which was recorded in Other income (expenses), net in the Consolidated Financial Statements.On August 7, 2018, certain subsidiaries of the Broadcasting segment entered into several financing transactions, generating approximately $38.1 million of proceeds. Included inthese financing transactions were HC2 Station Group, Inc.'s, and LPTV's issuance of a $35.0 million 364-day Secured Note (the "Stations Note") to certain institutional investors.The Secured Note bears interest at a rate of 8.50%, payable at maturity. The Stations Note was used to finance certain acquisitions and for general corporate purposes.Non-operating CorporateIn January 2017, HC2 issued an additional $55.0 million in aggregate principal amount of its 11.0% Notes (the "11.0% Notes"). HC2 used a portion of the proceeds from theissuance to repay all $35.0 million in outstanding aggregate principal amount of HC22's 11.0% bridge note.In June 2017, HC2 issued an additional $38.0 million of aggregate principal amount of its 11.0% Notes to investment funds affiliated with three institutional investors in a privateplacement offering. On May 7, 2018, HC2 closed on $110.0 million aggregate principal amount of 11.0% Notes. The Notes were issued at a price of 102.0% of principal amount, which resulted in apremium of $2.2 million. The Company used the net proceeds from the issuance of the Notes to refinance the Bridge Loan at our Broadcasting segment.F-49HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDOn November 20, 2018, HC2 repaid its 11.0% Notes, and issued $470.0 million aggregate principal amount of 11.5% senior secured notes due 2021 (the "Senior Secured Notes")and $55.0 million aggregate principal amount of 7.5% convertible senior notes due June 1, 2022 (the "Convertible Notes"). The Senior Secured Notes and Convertible notes wereissued in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The Convertible Notes have an effective interestrate of 17.54% which reflects $12.5 million discount due to the bifurcated conversion feature and $1.9 million deferred financings fees.The Company accounted for the transaction under the debt extinguishment model as the present value cashflows under the terms of the Senior Secured Notes and Convertible Noteswas at least 10% different from the present value of the remaining cash flows under the 11.0% Notes. Unamortized debt issuance costs and net original issuance premium in theamount of $2.6 million, recorded within Other income (expenses), net.Senior Secured NotesThe Senior Secured Notes were issued under an indenture dated November 20, 2018, by and among the Company, the guarantors party thereto and U.S. Bank NationalAssociation, a national banking association ("U.S. Bank"), as trustee (the "Secured Indenture"). The Senior Secured Notes were issued at 98.75% of par, which translated into adiscount of $5.9 million.Convertible NotesThe Convertible Notes were issued under a separate indenture dated November 20, 2018, between the Company and U.S. Bank, as trustee (the "Convertible Indenture"). TheConvertible Notes were issued at 100% of par.Each $1,000 of principal of the Convertible Notes will initially be convertible into 228.3105 shares of our common stock, which is equivalent to an initial conversion price ofapproximately $4.38 per share, subject to adjustment upon the occurrence of specified events.In accordance with ASC Topic 815-15, Derivatives and Hedging, the embedded conversion feature contained in the Convertible Notes is required to be bifurcated and recorded as aderivative liability and marked to market in each reporting period. The embedded conversion feature had a fair value of $12.5 million on the transaction date, which was recorded asa discount on the Convertible Notes and included within Other liabilities on our Consolidated Balance Sheets. The fair value of the embedded conversion feature was $8.4 million asof December 31, 2018, the change in fair value from the transaction date being recorded within Other income (expenses), net.In conjunction with the issuance of the Convertible Notes, the Company incurred a consent fee payable to preferred stockholders of $3.8 million. This fee was recorded within thePreferred stock and deemed dividends line item of the Consolidated Statements of Operations as a deemed dividend.At December 31, 2018, the Convertible Notes had a carrying value of $40.9 million and an unamortized discount of $12.2 million. Based on the closing price of our common stockof $2.64 on December 31, 2018, the if-converted value of the Convertible Notes did not exceed its principal value.For the year ended December 31, 2018, interest cost recognized for the period relating to both the contractual interest coupon and amortization of the discount on the Convertiblenotes was $0.5 million and $0.3 million, respectively.15. Income TaxesThe provisions (benefits) for income taxes for the years ended December 31, 2018, 2017 and 2016 are as follows (in millions): Years Ended December 31, 2018 2017 2016Current: Federal $0.5 $17.4 $20.9State 3.6 3.2 2.1Foreign 1.0 0.6 1.5Subtotal Current 5.1 21.2 24.5Deferred: Federal (1.4) (9.5) 26.7State (0.2) 0.2 0.4Foreign (1.1) (1.2) —Subtotal Deferred (2.7) (10.5) 27.1Income tax (benefit) expense$2.4$10.7 $51.6F-50HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDThe US and foreign components of income (loss) from continuing operations before income taxes for the years ended December 31, 2018, 2017 and 2016 are as follows (inmillions): Years Ended December 31, 2018 2017 2016US $179.6 $(56.3) $(71.6)Foreign 2.7 16.5 25.8Income (loss) from continuing operations before income taxes $182.3$(39.8) $(45.8)The provisions (benefits) for income taxes differed from the amount computed by applying the federal statutory income tax rate to income (loss) before income taxes due to thefollowing items for the years ended December 31, 2018, 2017 and 2016 (in millions): Years Ended December 31, 2018 2017 2016Tax provision (benefit) at federal statutory rate $38.3 $(13.9) $(16.0)Permanent differences 1.5 0.5 1.6State tax (net of federal benefit) 6.2 2.4 1.8Foreign rate differential (0.9) (1.5) 1.5Minority interest (4.6) — —Executive and stock compensation 3.5 0.6 1.4Adjustment to net operating losses 15.6 (7.6) —Increase (decrease) in valuation allowance (43.8) 6.3 57.8Transaction costs 1.5 2.3 1.2Tax credits generated/utilized — (0.2) (0.4)Outside basis difference — 1.1 2.7Gain/Loss on Sale or Deconsolidation of a Subsidiary 5.7 — —Bargain Purchase Gain (24.2) — —Other 3.6 (0.4) —Transition to the U.S. Tax Cuts and Jobs Act — 21.1 —Income tax expense $2.4 $10.7 $51.6On December 22, 2017, the U.S. enacted of Public Law 115-97, known informally as the Tax Cuts and Jobs Act (TCJA), making significant changes to the Internal Revenue Code.Changes include, but are not limited to, reducing the federal corporate tax rate from 35% to 21%, creating a new limitation on deductible interest expense, eliminating the corporatealternative minimum tax (AMT), 100% expensing for certain business assets, repealing the Sec. 199 deduction, changing the rules related to uses and limitation of NOLs for taxyears beginning after December 31, 2017 and a one- time transition tax on the mandatory deemed repatriation of foreign earnings. As a result of the enactment of TCJA on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP insituations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting forcertain income tax effects of the TCJA. SAB 118 provides that the measurement period is complete when a company’s accounting is complete, but should not extend beyond oneyear from the enactment date. During the year ended December 31, 2018, the Company has not recorded any measurement period adjustments to the provisional estimate recorded atDecember 31, 2017 for the TCJA. While our accounting for the recorded impact of the TCJA is deemed to be complete, these amounts are based on prevailing regulations andcurrently available information, and any additional guidance issued by the IRS could impact the aforementioned amounts in future periods. Beginning January 1, 2018, the Company is subject to several provisions of the TCJA including computations under Global Intangible Low Taxed Income (GILTI), Base Erosionand Anti-Abuse Tax (BEAT), and the Section 163(j) interest limitation rules which the Company has included the impact of each of these provisions in their overall tax expense forthe twelve months ended December 31, 2018. The Company will continue evaluating the impact of these provisions as additional guidance is issued by the IRS. As of December31, 2018, we have adopted an accounting policy regarding the treatment of taxes due on future inclusion of non-U.S. income in U.S. taxable income under the GILTI provisions asa current period expense when incurred. Therefore, no deferred tax related to these provisions has been recorded as of December 31, 2018.For the year ended December 31, 2016, the Company’s effective tax rate was unfavorably impacted by the establishment of valuation allowances totaling $57.8 million, primarilyattributed to management’s conclusion that it was more-likely-than-not that the deferred tax assets of our HC2 U.S. consolidated group and the Insurance Company would not berealized.F-51HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDDeferred income taxes reflect the net income tax effect of temporary differences between the basis of assets and liabilities for financial reporting purposes and for income taxpurposes. Net deferred tax balances are comprised of the following as of December 31, 2018 and 2017 (in millions): December 31, 2018 2017Deferred tax assets $407.2 $210.3Valuation allowance (126.7) (133.5)Deferred tax liabilities (308.7) (85.8)Net deferred taxes $(28.2)$(9.0) December 31, 2018 2017Allowance for bad debt $— $0.2Basis difference in intangibles (21.0) (11.6)Equity investments — 5.7Net operating loss carryforwards 97.0 49.0Basis difference in fixed assets (14.7) (2.9)Deferred compensation 11.7 14.0Foreign tax credit — 1.2Capital loss carryforwards — 2.2Insurance company investments (264.2) (59.3)UK trading loss carryforward 37.8 49.7Unrealized gain/loss in OCI — 0.1Sec. 163(j) carryforward 15.9 —Insurance claims and reserves 163.6 57.0Value of insurance business acquired ("VOBA") 53.8 9.1Start-up cost — 1.2Deferred acquisition costs 13.4 5.7Other 5.2 3.2Valuation allowance (126.7) (133.5)Net deferred taxes $(28.2) $(9.0)Deferred tax assets refer to assets that are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.Deferred tax assets in essence represent future savings of taxes that would otherwise be paid in cash. The realization of the deferred tax assets is dependent upon the generation ofsufficient future taxable income, including capital gains. If it is determined that the deferred tax assets cannot be realized, a valuation allowance must be established, with acorresponding charge to net income. In accordance with ASC 740, the Company establishes valuation allowances for deferred tax assets that, in its judgment are not more likely-than-not realizable. These judgments arebased on projections of future income or loss and other positive and negative evidence by individual tax jurisdiction. Changes in industry and economic conditions and thecompetitive environment may impact these projections. In accordance with ASC Topic 740, during each reporting period the Company assesses the likelihood that its deferred taxassets will be realized and determines if adjustments to its valuation allowances are appropriate. Management evaluated the need to maintain the valuation allowance against the deferred taxes of the HC2 Holdings, Inc. U.S. consolidated tax group (“the group”) for each of thereporting periods based on the positive and negative evidence available. The objective negative evidence evaluated was the group’s historical operating results over the prior three-year period. The group is in a cumulative three-year loss as of December 31, 2018 and is forecasting losses in the near future, which provide negative evidence that is difficult toovercome and would require a substantial amount of objectively verifiable positive evidence of future income to support the realizability of the group’s deferred tax assets. Whilepositive evidence exists by way of unrealized gains in the Company’s investments, management concluded that the negative evidence now outweighs the positive evidence. Thus, itis more likely than not that the group’s US deferred tax assets will not be realized. Management evaluated the need to maintain the valuation allowance against the deferred taxes of the Insurance Company for each of the reporting periods. Included in thisassessment was the Insurance Company’s historical operating results over the prior three-year period. Additional positive and negative evidence was considered including thetiming of the reversal of the deferred tax assets and liabilities, and projections of future income from the runoff of the insurance business. During 2018, the Insurance Companyacquired Humana’s long-term care business, Kanawha Insurance Company (“KIC”). Included in the 2018 operating income is a one-time bargain purchase gain of $115.4 millionrelated to the KIC acquisition, and a $47.0 million gain on the recapture of two reinsurance treaties, both of the bargain purchase gain and the gain on recapture are special events in2018 that are not reflective of the combined entity’s core operating results. After excluding such one-time events, the Company including KIC has a relatively large cumulative loss.Based on the weight of the positive and negative evidence, Management concluded that it is more likely than not that the Insurance Company’s net deferred tax assets will not berealized.F-52HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDManagement noted that the trend of earnings results in the Insurance Company is positive, as the 2018 adjusted earnings are close to break even after excluding one-time events.Given the continued improvement in the Insurance Company’s operations and profitability levels, it is reasonably possible that positive evidence will be sufficient to release amaterial amount of the Insurance Company’s valuation allowance recorded against the deferred tax assets of December 31, 2018. Release of the valuation allowance would result ina decrease to income tax expense for the period the release is recorded. The exact timing and amount of the valuation allowance release are subject to change on the basis of the levelof profitability that the Insurance Company is able to achieve. Management will continue to evaluate the Insurance Company’s cumulative income position and income trend on aquarterly basis, as well as future projections of sustained profitability and whether this profitability trend constitutes sufficient positive evidence to support a release of the valuationallowance. Valuation allowances have been maintained against deferred tax assets of the European entities, including GMSL’s UK non-tonnage tax trading losses, and losses generated bycertain businesses that do not qualify to be included in the HC2 Holdings, Inc. U.S. consolidated income tax return.As of December 31, 2018, the Company had foreign operating loss carryforwards of approximately $223.7 million. Of the foreign NOLs, $209.9 million were generated byGMSL’s historical non-tonnage tax operations.At December 31, 2018, the Company has U.S. net operating loss carryforwards available to reduce future taxable income in the amount of $116.3 million, of which $87.9 million issubject to an annual limitation under Section 382 of the Internal Revenue Code. The annual limitation relates to ownership changes that occurred in 2015 and 2014 and acquiredNOLs in connection with the DBM Global’s acquisition of GrayWolf. Additionally, the Company has $277.3 million of U.S. net operating loss carryforwards from its subsidiariesthat do not qualify to be included in the HC2 U.S. consolidated income tax return, including $214.6 million from the Insurance segment. $11.4 million is subject to an annuallimitation under Section 382 of the Internal Revenue Code. The annual limitation relates to ownership changes that occurred in 2017 and acquired NOLs in connection with HC2’sacquisition of DTV America.Pursuant to the rules under Section 382, the Company believes that it underwent an ownership change on May 29, 2014. This conclusion is based on an analysis of Schedule 13Dand Schedule 13G filings over the prior three years made with the SEC and the impact resulting from the May 29, 2014 preferred stock issuance. Due to the Section 382 limitresulting from the ownership change, approximately $146.2 million of the Company’s net operating losses will expire unused. The $146.2 million in expiring NOLs werederecognized in the consolidated financial statements as of December 31, 2014. The remaining pre-change NOL’s of $46.1 million recorded in the consolidated financial statementsare subject to an annual limitation under IRC Sec. 382 of approximately $2.3 million.On November 4, 2015, HC2 issued 8,452,500 shares of its stock in a primary offering which the Company believes resulted in a Section 382 ownership change resulting in anadditional annual limitation to the cumulative NOL carryforward of the HC2 U.S. consolidated tax group. The amount of the annual limitation is based on a number of factors,including the value of HC2’s stock and the amount of unrealized gains on the date of the ownership change.The purchase of GrayWolf Industrial on November 30, 2018 triggered a Section 382 ownership change. $35.4 million of federal net operating losses are subject to an annuallimitation of $2.9 million for the first five years beginning in 2019 and $1.1 million afterwards through 2036. The Company will continue to analyze the Section 382 limitation onthe acquired net operating losses during the one year measurement period and any adjustments will be made accordingly.The Company follows the provision of ASC 740 which prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financialstatements 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 tocertain tax planning strategies, including certain intercompany transactions as well as regulatory taxes.The Company did not have any unrecognized tax benefits as of December 31, 2018, 2017 and 2016, related to uncertain tax positions.The Company conducts business globally, and as a result, HC2 or one or more of its subsidiaries files income tax returns in the United States federal jurisdiction and various stateand foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the world. Tax years 2002-2018 remain open forexamination.The Company is currently under examination in various domestic and foreign tax jurisdictions. The open tax years contain matters that could be subject to differing interpretations ofapplicable 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 taxperiod. Given the nature of tax audits, there is a risk that disputes may arise.F-53HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED16. Commitments and ContingenciesFuture minimum lease payments under purchase obligations and non-cancellable operating leases are as follows (in millions): Purchase Obligations OperatingLeases2019 $111.6 $22.02020 4.3 18.72021 — 16.42022 — 8.82023 — 6.8Thereafter — 20.3Total obligations $115.9 $93.0The Company has contractual obligations to utilize an external vendor for certain customer support functions and to utilize network facilities from certain carriers with terms greaterthan one year.The Company’s expense under operating leases was $19.1 million, $11.6 million and $5.3 million for the years ended December 31, 2018, 2017 and 2016, respectively.LitigationThe 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 theoutcome 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’sConsolidated Financial Statements. The Company does not believe that any of such pending claims and legal proceedings will have a material adverse effect on its ConsolidatedFinancial Statements. The Company records a liability in its Consolidated Financial Statements for these matters when a loss is known or considered probable and the amount canbe reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If amatter 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 theextent necessary for its Consolidated Financial Statements not to be misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in itsConsolidated Financial Statements.CGI Producer LitigationOn November 28, 2016, CGI, a subsidiary of the Company, Great American Financial Resource, Inc. ("GAFRI"), American Financial Group, Inc., and CIGNA Corporation wereserved with a putative class action complaint filed by John Fastrich and Universal Investment Services, Inc. in The United States District Court for the District of Nebraska allegingbreach of contract, tortious interference with contract and unjust enrichment. The plaintiffs contend that they were agents of record under various CGI policies and that CGIallegedly instructed policyholders to switch to other CGI products and caused the plaintiffs to lose commissions, renewals, and overrides on policies that were replaced. Thecomplaint also alleges breach of contract claims relating to allegedly unpaid commissions related to premium rate increases implemented on certain long-term care insurance policies.Finally, the complaint alleges breach of contract claims related to vesting of commissions. On August 21, 2017, the Court dismissed the plaintiffs’ tortious interference with contractclaim. CGI believes that the remaining allegations and claims set forth in the complaint are without merit and intends to vigorously defend against them.The case was set for voluntary mediation, which occurred on January 26, 2018. The Court stayed discovery pending the outcome of the mediation. On February 12, 2018, theparties notified the Court that mediation did not resolve the case and that the parties’ discussions regarding a possible settlement of the action were still ongoing. The Court held astatus conference on March 22, 2018, during which the parties informed the Court that settlement negotiations remain ongoing. Nonetheless, the Court entered a scheduling ordersetting the case for trial during the week of October 15, 2019. Meanwhile, the parties’ continued settlement negotiations led to a tentative settlement. On February 4, 2019, theplaintiffs executed a class settlement agreement with CGI, Loyal American Life Insurance Company, American Retirement Life Insurance Company, GAFRI, and AmericanFinancial Group, Inc. (collectively, the Defendants). The settlement agreement, which would require GAFRI to make a $1.25 million payment on behalf of the Defendants, issubject to Court approval. On February 4, 2019, the plaintiffs filed a motion for preliminary approval of the class settlement in a parallel action in the Southern District of Ohio,Case No. 17-CV-00615-SJD, which motion remains pending. Meanwhile, the case pending before the District of Nebraska was stayed on February 6, 2019, pending final approvalof the class action settlement in the Ohio action.Further, the Company and CGI are seeking defense costs and indemnification for plaintiffs’ claims from GAFRI and Continental General Corporation ("CGC") under the terms ofan Amended and Restated Stock Purchase Agreement ("SPA") related to the Company’s acquisition of CGI in December 2015. GAFRI and CGC rejected CGI’s demand fordefense and indemnification and, on January 18, 2017, the Company and CGI filed a Complaint against GAFRI and CGC in the Superior Court of Delaware seeking a declaratoryjudgment to enforce their indemnification rights under the SPA. On February 23, 2017, GAFRI answered CGI’s complaint, denying the allegations. The dispute is ongoing andCGI intends to continue to pursue its right to a defense and indemnity under the SPA regardless of the tentative settlement in the class action. Meanwhile, the parties are currentlyinvolved in settlement negotiations.F-54HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDVAT assessmentOn 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 factualgrounds 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 factsand merits of our existing VAT position.DBMG Class ActionOn November 6, 2014, a putative stockholder class action complaint challenging the tender offer by which HC2 acquired approximately 721,000 of the issued and outstandingcommon 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, asecond 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 (nowdesignated 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-controllingstockholder of DBMG, breached their fiduciary duties to members of the plaintiff class. The Complaint also purports to challenge a potential short-form merger based uponplaintiff’s expectation that the Company would cash out the remaining public stockholders of DBMG following the completion of the tender offer. The Complaint seeks rescissionof 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.The parties have been exploring alternative frameworks for a potential settlement. There can be no assurance that a settlement will be finalized or that the Delaware Courts wouldapprove such a settlement even if the parties enter into a settlement agreement. If a settlement cannot be reached, the Company believes it has meritorious defenses and intends tovigorously defend this matter.Global Marine DisputeGMSL is in dispute with Alcatel-Lucent Submarine Networks Limited ("ASN") related to a Marine Installation Contract between the parties, dated March 11, 2016 (the "ASNContract"). Under the ASN Contract, GMSL's obligations were to install and bury an optical fiber cable in Prudhoe Bay, Alaska. As of the date hereof, neither party hascommenced legal proceedings. Pursuant to the ASN Contract any such dispute would be governed by English law and would be required to be brought in the English courts inLondon. ASN has alleged that GMSL committed material breaches of the ASN Contract, which entitles ASN to terminate the ASN Contract, take over the work themselves, andclaim damages for their losses arising as a result of the breaches. The alleged material breaches include failure to use appropriate equipment and procedures to perform the work andfailure to accurately estimate the amount of weather downtime needed. ASN has indicated to GMSL it has incurred $38.2 million in damages and $1.2 million in liquidateddamages for the period from September 2016 to October 2016, plus interest and costs. GMSL believes that it has not breached the terms and conditions of the contract and alsobelieves that ASN has not properly terminated the contract in a manner that would allow it to make a claim. However, ASN has ceased making payments to GMSL and as ofDecember 31, 2018, the total sum of GMSL invoices raised and issued are $17.0 million, of which $8.1 million were settled by ASN and the balance of $8.9 million remains atrisk. GMSL believes that the allegations and claims by ASN are without merit, and that ASN is required to make all payments under unpaid invoices and intends to defend itsinterests vigorously.Tax MattersCurrently, 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 hasnot proposed any specific adjustments and the audit is ongoing.17. Employee Retirement PlansHC2The Company sponsors a 401(k) employee benefit plan (the "401(k) Plan") that covers substantially all United States based employees. Employees may contribute amounts to the401(k) Plan not to exceed statutory limitations. The 401(k) Plan provides an employer matching contribution in cash of 50% of the first 6% of employee annual salary contributionscapped at $6,000.The matching contribution made during each of the years ended December 31, 2018, 2017 and 2016 was $0.4 million, $0.1 million, and $0.1 million, respectively.F-55HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDDBMGCertain of DBMG’s fabrication and erection workforce are subject to collective bargaining agreements. DBMG contributes to union-sponsored, multi-employer pension plans.Contributions are made in accordance with negotiated labor contracts. The passage of the Multi-Employer Pension Plan Amendments Act of 1980 (the "Act") may, under certaincircumstances, cause DBMG to become subject to liabilities in excess of contributions made under collective bargaining agreements. Generally, liabilities are contingent upon thetermination, withdrawal, or partial withdrawal from the plans. Under the Act, liabilities would be based upon DBMG’s proportionate share of each plan’s unfunded vested benefits.DBMG made contributions to various Pension Trusts of $12.2 million and $7.0 million during the years ended December 31, 2018 and 2017, respectively. DBMG’s fundingpolicy is to make monthly contributions to the plan. DBMG’s employees represent less than 5% of the participants in the Pension Trusts.DBMG maintains a 401(k) retirement savings plan which covers eligible employees and permits participants to contribute to the plan, subject to Internal Revenue Code restrictionsand which features matching contributions of 100% of the first 1%, and 50% of the next 5% of employee annual salary contributions, depending on the subsidiary. The matchingcontributions for the years ended December 31, 2018 and 2017 was $1.2 million and $1.4 million, respectively.GMSLGMSL has established a number of pension schemes and contribute to other pension schemes around the world covering many of its employees. The principal funds are those inthe UK comprising The Global Marine Systems Pension Plan, The Global Marine Personal Pension Plan (established in 2008), and Global Marine Systems (Guernsey) PensionPlan. A small number of employees are members of the MNOPF, a centralized defined benefit scheme to which the GMSL contributes.The Global Marine Systems Pension Plan, the Global Marine Systems (Guernsey) Pension Plan and the MNOPF are defined benefit plans with assets held in separate trusteeadministered funds. However as the Global Marine Systems (Guernsey) Pension Plan, which operates both a Career Average Re-valued Earnings ("CARE") defined benefitsection and a defined contribution section is small with few members, the scheme is accounted for as defined contribution type plan. The Global Marine Personal Pension Plan ispredominantly of the money purchase type.The Global Marine Systems Pension Plan was a hybrid, exempt approved, occupational pension scheme for the majority of staff, which provides pension and death in servicebenefits. The defined benefit section of the Plan provided final salary benefits up to December 31, 2003 and CARE benefits from January 1, 2004. In 2008 the defined contributionsection was closed to new contributions and all the accumulated funds attributable to the defined contribution members were transferred to a Contracted in Money Purchase Scheme("CIMP") set up by GMSL. These funds were held on behalf of the defined contribution members and were all transferred to the Global Marine Personal Pension plan of eachmember on or before June 30, 2009. From August 31, 2006 the defined benefit section of the Scheme closed to future accrual and active members were offered membership of theexisting defined contribution section (with some enhanced benefits).Global Marine Systems Pension Plan - Defined Benefit SectionThe defined benefit section of the Global Marine Systems Plan (prior to its closure on August 31, 2006) was contributory, with employees contributing between 5% and 8%(depending on their age) and the employer contributing at a rate of 9.2% of pensionable salary plus deficit contributions of $1.4 million per year.The defined benefit section of the Global Marine Systems Pension Plan is funded by the payment of contributions determined with the advice of qualified independent actuaries onthe basis of triennial valuations using the projected unit method. The most recent full actuarial valuation was conducted as of December 31, 2016 valuation, for the purpose ofdetermining the funding requirements of the plan. The main assumptions used were as follows:Assumption Retail price inflation Break even RPI curveConsumer price inflation RPI inflation curve less 1.1%Rate of return on investments (post-retirement) Fixed interest gilt yield curve plus 0.7%At the actuarial valuation date the market value of the defined benefit section’s assets (in millions) $173.3On a statutory funding objective basis the value of these assets covered the value of technical provisions by 80%F-56HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDUnder a revised deficit recovery plan agreed between GMSL and the trustees of GMSL's pension plan dated March 20, 2018, which was subsequently submitted to the UKgovernment’s Pension Regulator, contributions of approximately $12.7 million deferred from 2016 and 2017 due in December 2017 have been further deferred. To support thisdeferral, the Company has provided secured assets in the form of the CWind Phantom crew transfer vessel and two trenchers. Consistent with earlier recovery plans, the reviseddeficit recovery plan comprises three elements: fixed contributions, variable contributions (profit-related element) and variable contributions (dividend-related element), though theamounts and some definitions have been modified. As of December 31, 2018, the fixed contributions are payable in installments, comprise approximately approximately $6.6million in 2019, approximately $6.8 million in 2020, approximately $7.0 million in 2021 and approximately $3.0 million in 2022. The variable contributions (profit-related element)are calculated as 10% of GMSL's audited operating profit and paid two years in arrears in December each year from 2018. The variable contributions (dividend-related) equate to50% of any future dividend paid by GMSL.Global Marine Personal Pension PlanThis is a defined contribution pension scheme and is contributory from the employee; the rate of contributions is split as follows: •ex-CARE employees contributing between 2.5% and 7.5% and the employer contributing at a matching rate plus an additional 5% fixed contributions; and•defined contribution employees contributing between 2% and 7.5% and the employer contributing at a matching rate.For the year ended December 31, 2018, $3.8 million of contributions have been made to the Company's pension plans, comprising $2.6 million of fixed contributions and $1.1million of profit-related contributions (based on 2015 profits). For the year ended December 31, 2017, GMSL made contributions of $3.0 million.MNOPFThe MNOPF is funded by the payment of contributions determined with the advice of qualified independent actuaries on the basis of triennial valuations using the projected unitmethod. The most recent available full actuarial valuation was conducted as at March 31, 2015 for the purpose of determining the funding requirements of the plan. The mainassumptions used were that Retail Price Inflation would be 3.1% per year, Consumer Price Inflation would be 2.1% per year, the rate of return on investments (pre-retirement)would be 4.75% per year, the rate of return on investments (post-retirement) would be 2.6% per year and with pensions increasing (where relevant) by 2.9% per year.At the actuarial valuation date the market value of the total assets in the scheme amounted to $3.6 billion of which 0.08% ($2.8 million) relates to GMSL. On an on-going basis thevalue of these assets, together with the deficit contributions receivable of $394 million, covered the value of pensioner liabilities, preserved pension liabilities for former employeesand the value of benefits for active members based on accrued service and projected salaries, to the extent of 99.7%.Following the March 31, 2015 actuarial valuation, contributions are payable by the GMSL as follows: •Maintain employer contributions to 20% of pensionable salaries to September 30, 2016, and then no more contributions thereafter.Global Marine Systems (Guernsey) Pension PlanThe defined benefit section of the Guernsey Scheme is contributory, with employees contributing between 5% and 8% (depending on their age), the employer ceased contributingafter July 2004. The defined contribution section is also contributory, with employees contributing between 2% and 7.5% (depending on their age and individual choice) and theemployer contributing at a matching rate. The defined benefit section of the Guernsey Scheme is funded by the payment of contributions determined with the advice of qualifiedindependent actuaries on the basis of triennial valuations using the projected unit method.The most recent full actuarial valuation was conducted as of December 31, 2016 for the purpose of determining the funding requirements of the plan. The principal actuarialassumptions used by the actuary were investment returns of 3.5% per year pre-retirement, 2.6% per year post-retirement, inflation of 3.7% per year and pension increases of3.4% per year.At the valuation date the market value of the assets amounted to $2.6 million. The results show a past service shortfall of $1.0 million corresponding to a funding ratio of 73%.Following the December 31, 2016 actuarial valuation, contributions are as follows: •Six annual contributions of less than $0.2 million from December 31, 2019 to 2024 with a final contribution of $0.1 million on April 30, 2025.Collectively hereafter, the defined benefit plans will be referred to as the "Plans".F-57HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDObligations and Funded StatusFor all company sponsored defined benefit plans and our portion of the MNOPF, the benefit obligation is the "projected benefit obligation," the actuarial present value, as of ourDecember 31 measurement date, of all benefits attributed by the pension benefit formula to employee service rendered to that date. The amount of benefit to be paid depends on anumber of future events incorporated into the pension benefit formula, including estimates of the average life of employees/survivors and average years of service rendered. It ismeasured based on assumptions concerning future interest rates and future employee compensation levels.The following table presents this reconciliation and shows the change in the projected benefit obligation for the Plans for the period from December 31, 2016 through December 31,2018 (in millions):Projected benefit obligation at December 31, 2016 $192.6Service cost - benefits earning during the period —Interest cost on projected benefit obligation 5.7Contributions —Actuarial loss 2.7Benefits paid (9.9)Foreign currency gain 17.6Projected benefit obligation at December 31, 2017 208.7Service cost - benefits earning during the period —Interest cost on projected benefit obligation 5.3Contributions —Actuarial loss (11.6)Benefits paid (10.0)Foreign currency loss (11.1)Projected benefit obligation at December 31, 2018 $181.3The following table presents the change in the value of the assets of the Plans for the period from December 31, 2016 through December 31, 2018 and the plans’ funded status atDecember 31, 2018 (in millions):Fair value of plan assets at December 31, 2016 $170.8Actual return on plan assets 10.4Benefits paid (9.9)Contributions 3.1Foreign currency gain 15.8Fair value of plan assets at December 31, 2017 190.2Actual return on plan assets (11.7)Benefits paid (10.0)Contributions 3.8Foreign currency loss (9.5)Fair value of plan assets at December 31, 2018 162.8Unfunded status at end of year $18.6Amounts recognized in the consolidated balance sheets within Other assets and Other liabilities at December 31, 2018 and 2017 are listed below (in millions): December 31, 2018 2017Pension Asset $— $—Pension Liability 18.6 18.6Net amount recognized $18.6 $18.6The accumulated benefit obligation for the Plans represents the actuarial present value of benefits based on employee service and compensation as of a certain date and does notinclude an assumption about future compensation levels. As of December 31, 2018 contributions of $6.6 million were due to be payable to the Plans.F-58HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDNet Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive IncomePeriodic Benefit CostsThe aggregate net pension cost recognized in the consolidated statements of operations were benefits of $4.6 million and $2.1 million, and cost of $2.2 million for the years endedDecember 31, 2018, 2017 and 2016, respectively.The following table presents the components of net periodic benefit cost are as follows (in millions): Years Ended December 31, 2018 2017 2016Service cost - benefits earning during the period $— $— $—Interest cost on projected benefit obligation 5.3 5.7 6.7Expected return on assets (7.5) (7.8) (7.1)Actuarial loss 6.7 0.1 2.8Foreign currency gain (loss) 0.1 (0.1) (0.2)Net pension (benefit) cost $4.6 $(2.1) $2.2Of the amounts presented above, income of $2.1 million has been included in cost of revenue and loss of $6.7 million included in other comprehensive income for the year endedDecember 31, 2018, and income of $2.1 million has been included in cost of revenue and gain of $0.1 million included in other comprehensive income for the year endedDecember 31, 2017.In determining the net periodic pension cost for the Plans, GMSL used the following weighted average assumptions: the pension increase assumption is that for benefits increasingwith RPI limited to 5% per year, to which the majority of the Plan’s liabilities relate. GMSL employs a building block approach in determining the long-term rate of return ofpension plan assets. Historical markets are studied and assets with higher volatility are assumed to generate higher returns consistent with widely accepted capital market principles.The overall expected rate of return on assets is then derived by aggregating the expected return for each asset class over the actual asset allocation for the Plans as of December 31,2018. Years Ended December 31, 2018 2017 2016Discount rate 2.60% 2.60% 2.85%Rate of compensation increases (MNOPF only) N/A NA N/ARate of future RPI inflation 3.15% 3.15% 3.20%Rate of future CPI inflation 2.05% 2.05% 2.10%Pension increases in payment 3.00% 3.00% 3.05%Long-term rate of return on assets 3.99% 4.01% 3.17%Other Changes in Benefit Obligations Recognized in Other Comprehensive IncomeThe following tables present the after-tax changes in benefit obligations recognized in comprehensive income and the after-tax prior service credits that were amortized from AOCIinto net periodic costs are as follows (in millions): Years Ended December 31, 2018 2017 2016Net loss (gain) $4.9 $2.3 $2.2Total recognized in net periodic benefit cost and other comprehensive income (loss) $4.9 $2.3 $2.2 Years Ended December 31, 2018 2017Actuarial (gain) loss $6.7 $0.1Total recognized in other comprehensive (income) loss $6.7 $0.1There is zero estimated loss for pension benefits to be amortized from AOCI into net periodic benefit cost in fiscal year 2018.F-59HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDEstimated Future Benefit PaymentsExpected benefit payments are estimated using the same assumptions used in determining the Plan’s benefit obligation at December 31, 2018. Because benefit payments will dependon future employment and compensation levels, average years employed, average life spans, and payment elections, among other factors, changes in any of these factors couldsignificantly affect these expected amounts. The following table provides expected benefit payments under our pension and post-retirement plans (in millions): Expected BenefitPayments2019 $9.72020 10.02021 10.32022 10.62023 10.9Thereafter 59.1Total $110.6Aggregate expected contributions in the coming fiscal year are expected to be $6.6 million.Plan Assets - Description of plan assets and investment objectivesThe assets of the Plans consist primarily of private and public equity, government and corporate bonds, among others. The asset allocations of the Plans are maintained to meetregulatory requirements where applicable. Any contributions to the Plans are made to a pension trust for the benefit of plan participants.The principal investment objectives are to ensure the availability of funds to pay pension benefits as they become due under a broad range of future economic scenarios, to maximizelong-term investment return with an acceptable level of risk based on our pension and post-retirement obligations, and to be broadly diversified across and within the capital marketsto insulate asset values against adverse experience in any one market. Each asset class has broadly diversified characteristics. Substantial biases toward any particular investing styleor type of security are sought to be avoided by managing the aggregation of all accounts with portfolio benchmarks. Asset and benefit obligation forecasting studies are conductedperiodically, generally every two to three years, or when significant changes have occurred in market conditions, benefits, participant demographics or funded status. Decisionsregarding investment policy are made with an understanding of the effect of asset allocation on funded status, future contributions and projected expenses.The Plans’ weighted-average asset targets and actual allocations as a percentage of Plan assets, including the notional exposure of future contracts by asset categories atDecember 31, 2018, are as follows: Target December 31, 2018Liability hedging 33.2% 45.5%Equities 18.3% 13.8%Hedge funds 26.5% 28.9%Corporate bonds 16.1% 10.6%Property 5.4% 1.2%Other 0.5% —%Total 100.0% 100.0%F-60HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDInvestment ValuationGMSL’s plan investments related to the Global Marine Systems Pension Plan consist of the following (in millions): December 31, 2018 2017Equities $29.6 $38.6Liability Hedging Assets 52.5 66.7Hedge Funds 42.8 46.4Corporate Bonds 25.8 25.7Property 8.6 8.8Other 0.7 0.6Total market value of assets 160.0 186.8Present value of liabilities (178.6) (205.4)Net pension liability $(18.6) $(18.6)GMSL’s plan investments related to the MNOPF consist of the following (in millions): December 31, 2018 2017Equities $0.3 $0.3Liability Hedging Assets 1.6 1.9Hedge Funds 0.4 0.5Corporate Bonds 0.4 0.5Property 0.1 0.1Total market value of assets 2.8 3.3Present value of liabilities (2.8) (3.3)Net pension asset (liability) $— $—Investments are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants atthe measurement date. Generally, investments are valued based on information provided by fund managers to our trustee as reviewed by management and its investment advisers.Investments in securities traded on a national securities exchange are valued at the last reported sales price on the last business day of the year. If no sale was reported on that date,they are valued at the last reported bid price. Investments in securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities withsimilar characteristics or discounted cash flows. Over-the-counter (OTC) securities and government obligations are valued at the bid price or the average of the bid and asked priceon the last business day of the year from published sources where available and, if not available, from other sources considered reliable. Depending on the types and contractualterms of OTC derivatives, fair value is measured using a series of techniques, such as Black-Scholes option pricing model, simulation models or a combination of various models.Alternative investments, including investments in private equities, private bonds, limited partnerships, hedge funds, real assets and natural resources, do not have readily availablemarket values. These estimated fair values may differ significantly from the values that would have been used had a ready market for these investments existed, and such differencescould be material. Private equity, private bonds, limited partnership interests, hedge funds and other investments not having an established market are valued at net asset values asdetermined by the investment managers, which management has determined approximates fair value. Private equity investments are often valued initially based upon cost; however,valuations are reviewed utilizing available market data to determine if the carrying value of these investments should be adjusted. Such market data primarily includes observationsof the trading multiples of public companies considered comparable to the private companies being valued. Investments in real assets funds are stated at the aggregate net asset valueof the units of these funds, which management has determined approximates fair value. Real assets and natural resource investments are valued either at amounts based uponappraisal reports prepared by appraisers or at amounts as determined by an internal appraisal performed by the investment manager, which management has determinedapproximates fair value.Purchases and sales of securities are recorded as of the trade date. Realized gains and losses on sales of securities are determined on the basis of average cost. Interest income isrecognized on the accrual basis. Dividend income is recognized on the ex-dividend date.F-61HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDThe following table sets forth by level, within the fair value hierarchy, the pension assets and liabilities at fair value for the Global Marine Systems Pension Plan (in millions):As of December 31, 2018 Fair Value Measurement Using: Level 1 Level 2 TotalEquities $— $29.6 $29.6Liability Hedging Assets — 52.5 52.5Hedge Funds — 42.8 42.8Corporate Bonds — 25.8 25.8Property — 8.6 8.6Other 0.4 0.3 0.7Total Plan Net Assets $0.4$159.6$160.0As of December 31, 2017 Fair Value Measurement Using: Level 1 Level 2 TotalEquities $— $38.6 $38.6Liability Hedging Assets — 66.7 66.7Hedge Funds — 46.4 46.4Corporate Bonds — 25.7 25.7Property — 8.8 8.8Other 0.2 0.4 0.6Total Plan Net Assets $0.2 $186.6 $186.8The following table sets forth by level, within the fair value hierarchy, the pension assets and liabilities at fair value for the MNOPF (in millions): Fair Value Measurement Using: Level 3 Total Level 3 Total As of December 31, 2018 As of December 31, 2017Equities $0.3 $0.3 $0.3 $0.3Hedge Funds 0.4 0.4 0.5 0.5Corporate Bonds 0.4 0.4 0.5 0.5Liability Hedging Assets 1.6 1.6 1.9 1.9Property 0.1 0.1 0.1 0.1Total Plan Net Assets $2.8 $2.8 $3.3 $3.3The table below set forth a summary of changes in the fair value of the Level 3 pension assets for the period from December 31, 2016 through December 31, 2018 for the MNOPF(in millions):Balance at December 31, 2016 $3.2Actual return on plan assets (0.1)Contributions —Benefits paid (0.2)Foreign currency gain 0.3Balance at December 31, 2017 3.2Actual return on plan assets (0.1)Contributions —Benefits paid (0.2)Foreign currency loss (0.2)Balance at December 31, 2018 $2.7F-62HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED18. Share-based CompensationOn April 11, 2014, HC2’s Board of Directors adopted the HC2 Holdings, Inc. Omnibus Equity Award Plan (the "2014 Plan"), which was originally approved at the annualmeeting of stockholders held on June 12, 2014. On April 21, 2017, the Board of Directors, subject to stockholder approval, adopted the Amended and Restated 2014 OmnibusEquity Award Plan (the "Restated 2014 Plan"). The Restated 2014 Plan was approved by HC2's stockholders at the annual meeting of stockholders held on June 14, 2017. Subjectto adjustment as provided in the Restated 2014 Plan, the Restated 2014 Plan authorizes the issuance of 3,500,000 shares of common stock of HC2, plus any shares that againbecome available for awards under the 2014 Plan, plus any shares that again become available for awards under the Restated 2014 Plan.On April 20, 2018, the Board of Directors, subject to stockholder approval, adopted the Second Amended and Restated 2014 Omnibus Equity Award Plan (the "Second A&R2014 Plan"). The Second A&R 2014 Plan was approved by HC2's stockholders at the annual meeting of stockholders held on June 13, 2018. Subject to adjustment as provided inthe Second A&R 2014 Plan, the Second A&R 2014 Plan authorizes the issuance of up to 3,500,000 shares of common stock of HC2 plus any shares that again become availablefor awards under the 2014 Plan or the Amended 2014 Plan.The Second A&R 2014 Plan provides that no further awards will be granted pursuant to the Amended 2014 Plan. However, awards previously granted under either the 2014 Planor the Amended 2014 Plan will continue to be subject to and governed by the terms of the 2014 Plan and Amended 2014 Plan, respectively. The Compensation Committee ofHC2's Board of Directors administers the 2014 Plan, the Amended 2014 Plan and the Second A&R 2014 Plan and has broad authority to administer, construe and interpret theplans.The Second A&R 2014 Plan provides for the grant of awards of non-qualified stock options, incentive (qualified) stock options, stock appreciation rights, restricted stock awards,restricted stock units, other stock based awards, performance compensation awards (including cash bonus awards) or any combination of the foregoing. The Company typicallyissues new shares of common stock upon the exercise of stock options, as opposed to using treasury shares.The Company follows guidance which addresses the accounting for share-based payment transactions whereby an entity receives employee services in exchange for either equityinstruments of the enterprise or liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. Theguidance generally requires that such transactions be accounted for using a fair-value based method and share-based compensation expense be recorded, based on the grant date fairvalue, estimated in accordance with the guidance, for all new and unvested stock awards that are ultimately expected to vest as the requisite service is rendered.The Company granted 662,769 and 331,616 options during the years ended December 31, 2018 and 2017, respectively.The weighted average fair value at date of grant for options granted during the years ended December 31, 2018, and 2017 was $2.91 and $2.72, respectively, per option. The fairvalue of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions shown as a weighted average for theyear: Years Ended December 31, 2018 2017 2016Expected option life (in years) 0.88 - 5.84 0.39 - 6.10 4.70 - 6.00Risk-free interest rate 2.24 - 2.85% 1.11 - 2.22% 1.27 - 1.35%Expected volatility 47.51 - 47.89% 47.04 - 48.29% 39.58 - 55.58%Dividend yield —% —% —%Total share-based compensation expense recognized by the Company and its subsidiaries under all equity compensation arrangements was $9.0 million, $5.2 million and $8.3million for the years ended December 31, 2018 and 2017 and 2016, respectively. All grants are time based and vest either immediately or over a period of up to 4 years. TheCompany recognizes compensation expense for equity awards, reduced by actual forfeitures, using the straight-line basis.F-63HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDRestricted StockA summary of HC2’s restricted stock activity is as follows: Shares Weighted AverageGrant Date Fair ValueUnvested - December 31, 2016 115,921 $5.59Granted 1,847,473 $5.41Vested (374,988) $5.64Unvested - December 31, 2017 1,588,406 $5.36Granted 2,073,612 $6.21Vested (467,889) $5.33Forfeited (162,660) $5.70Unvested - December 31, 2018 3,031,469 $5.93As of December 31, 2018, the unvested restricted stock represented $10.0 million of compensation expense that is expected to be recognized over the weighted average remainingvesting period of approximately 2.1 years. The number of shares of unvested restricted stock expected to vest is 3,031,469.Stock OptionsA summary of HC2’s stock option activity is as follows: Shares Weighted AverageExercise PriceOutstanding - December 31, 2016 6,829,097 $6.58Granted 331,616 $5.50Exercised (134,539) $3.53Expired (36,318) $9.00Outstanding - December 31, 2017 6,989,856 $6.57Granted 662,769 $5.45Exercised (274,037) $4.37Forfeited (60,293) $5.50Expired (157,434) $9.00Outstanding - December 31, 2018 7,160,861 $6.51 Eligible for exercise 5,877,428 $6.31As of December 31, 2018, intrinsic value and average remaining life of the Company's outstanding options were zero and approximately 6.2 years, and intrinsic value and averageremaining life of the Company's exercisable options were zero and approximately 5.9 years.As of December 31, 2018, unvested stock options outstanding represented $1.6 million of compensation expense and are expected to be recognized over the weighted averageremaining vesting period of 1.9 years. There are 1,283,433 unvested stock options expected to vest, with a weighted average remaining life of 7.4 years, a weighted average exerciseprice of $7.41, and an intrinsic value of zero.F-64HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED19. EquitySeries A Preferred Stock, Series A-1 Preferred Stock and Series A-2 Preferred StockThe Company’s preferred shares authorized, issued and outstanding consisted of the following: December 31, 2018 2017Preferred shares authorized, $0.001 par value 20,000,000 20,000,000Series A shares issued and outstanding 6,375 12,500Series A-2 shares issued and outstanding 14,000 14,000In connection with the issuance of the Series A Convertible Preferred Stock, the Company adopted a Certificate of Designation of Series A Convertible Participating PreferredStock adopted on May 29, 2014 (the "Series A Certificate"). In connection with the issuance of the Series A-1 Preferred Stock on September 22, 2014, the Company adopted theCertificate of Designation of Series A-1 Convertible Participating Preferred Stock (the "Series A-1 Certificate") and also amended and restated the Series A Certificate. Inconnection with the issuance of the Series A-2 Preferred Stock on January 5, 2015, the Company adopted the Certificate of Designation of Series A-2 Convertible ParticipatingPreferred Stock (the "Series A-2 Certificate") and also amended and restated the Series A Certificate and the Series A-1 Certificate. On August 10, 2015, the Company adoptedcertain Certificates of Correction of the Certificates of Amendment to the Certificates of Designation of the Series A Certificate, the Series A-1 Certificate and the Series A-2Certificate, and on June 24, 2016 the Company adopted certain amendments to the Series A-1 Certificate of Designation. The Series A Certificate, the Series A-1 Certificate and theSeries A-2 Certificate together, as amended, are referred to as the "Certificates of Designation."The following summary of the terms of the Preferred Stock and the Certificates of Designation is qualified in its entirety by the complete terms of the Certificates of Designation.Dividends. The Preferred Stock accrues a cumulative quarterly cash dividend at an annualized rate of 7.50%. The accrued value of the Preferred Stock will accrete quarterly at anannualized rate of 4.00% that is reduced to 2.00% or 0.00% if the Company achieves specified rates of growth measured by increases in its net asset value; provided, that theaccreting dividend rate will be 7.25% in the event that (i) the daily volume weighted average price ("VWAP") of the common stock is less than a certain threshold amount, (ii) thecommon stock is not registered under Section 12(b) of the Securities Exchange Act of 1934, as amended, (iii) following May 29, 2015, the common stock is not listed on certainnational securities exchanges or (iv) the Company is delinquent in the payment of any cash dividends. The Preferred Stock is also entitled to participate in cash and in-kinddistributions to holders of shares of common stock on an as-converted basis.Optional Conversion. Each share of Preferred Stock may be converted by the holder into common stock at any time based on the then applicable conversion price. Pursuant to theSeries A Certificate, each share of Series A Preferred Stock is currently convertible at a conversion price of $4.25. Pursuant to the Series A-2 Certificate, each share of Series A-2Preferred Stock is currently convertible at a conversion price of $7.04. Such conversion prices are subject to adjustment for dividends, certain distributions, stock splits,combinations, reclassifications, reorganizations, mergers, recapitalizations and similar events, as well as in connection with issuances of equity or equity-linked or other comparablesecurities by the Company at a price per share (or with a conversion or exercise price or effective issue price) that is below the applicable conversion price (which adjustment shallbe made on a weighted average basis).Redemption by the Holders / Automatic Conversion. On May 29, 2021, holders of the Preferred Stock are entitled to cause the Company to redeem the Preferred Stock at theaccrued value per share plus accrued but unpaid dividends (to the extent not included in the accrued value of Preferred Stock). Each share of Preferred Stock that is not so redeemedwill be automatically converted into shares of common stock at the conversion price then in effect. Upon a change of control (as defined in the Certificates of Designation) holdersof the Preferred Stock are entitled to cause the Company to redeem their Preferred Stock at a price per share of Preferred Stock equal to the greater of (i) the accrued value of thePreferred Stock, which amount would be multiplied by 150% in the event of a change of control occurring on or prior to May 29, 2017, plus any accrued and unpaid dividends (tothe extent not included in the accrued value of Preferred Stock), and (ii) the value that would be received if the share of Preferred Stock were converted into common stockimmediately prior to the change of control.Redemption by the Company. At any time after May 29, 2017, the Company may redeem the Preferred Stock, in whole but not in part, at a price per share generally equal to 150%of the original accrued value or on that date, plus accrued but unpaid dividends (to the extent not included in the accrued value of Preferred Stock), subject to the holder’s right toconvert prior to such redemption.Forced Conversion. After May 29, 2017, the Company may force conversion of the Preferred Stock into common stock if the common stock’s thirty-day VWAP exceeds 150% ofthe then-applicable Conversion Price and the common stock’s daily VWAP exceeds 150% of the then applicable Conversion Price for at least twenty trading days out of the thirtytrading day period used to calculate the thirty-day VWAP. In the event of a forced conversion, the holders of Preferred Stock will have the ability to elect cash settlement in lieu ofconversion if certain market liquidity thresholds for the common stock are not achieved.Liquidation Preference. The Series A Preferred Stock ranks at parity with the Series A-2 Preferred Stock. In the event of any liquidation, dissolution or winding up of the Company(any such event, a "Liquidation Event"), the holders of Preferred Stock are entitled to receive per share the greater of (i) the accrued value of the Preferred Stock, which amountwould be multiplied by 150% in the event of a Liquidation Event occurring on orF-65HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDprior to May 29, 2017, plus any accrued and unpaid dividends (to the extent not included in the accrued value of Preferred Stock), and (ii) the value that would be received if theshare of Preferred Stock were converted into common stock immediately prior to such occurrence. The Preferred Stock will rank junior to any existing or future indebtedness butsenior to the common stock and any future equity securities other than any future senior or pari-passu preferred stock issued in compliance with the Certificates of Designation.Voting Rights. Except as required by applicable law, the holders of the shares of each series of Preferred Stock are entitled to vote on an as-converted basis with the holders of theother series of Preferred Stock (on an as-converted basis) and holders of the Company’s common stock on all matters submitted to a vote of the holders of common stock. Certainseries of Preferred Stock are entitled to vote with the holders of certain other series of Preferred Stock on certain matters, and separately as a class on certain limited matters. Subjectto maintenance of certain ownership thresholds by the initial purchasers of the Series A Preferred Stock also have the right to vote shares of Preferred Stock as a separate class forat least one director, as discussed below under "Board Rights."Consent Rights. For so long as any of the Preferred Stock is outstanding, consent of the holders of shares representing at least 75% of certain of the Preferred Stock thenoutstanding is required for certain material actions.Participation Rights. Pursuant to the securities purchase agreements entered into with the initial purchasers of the Series A Preferred Stock and the Series A-2 Preferred Stock,subject to meeting certain ownership thresholds, certain purchasers of the Series A Preferred Stock and the Series A-2 Preferred Stock are entitled to participate, on a pro-rata basisin accordance with their ownership percentage, determined on an as-converted basis, in issuances of equity and equity linked securities by the Company. In addition, subject tomeeting certain ownership thresholds, certain initial purchasers of the Series A Preferred Stock and the Series A-2 Preferred Stock will be entitled to participate in issuances ofpreferred securities and in debt transactions of the Company.Preferred Share ActivityCGI PurchaseOn December 18, 2018 and December 20, 2018, CGI, a wholly owned subsidiary of the Company closed on the purchase of 6,125 shares of Series A Preferred Stock, convertibleinto a total of 1,460,764 shares of the Company's common stock. The shares and dividends accrued related to the Series A Preferred shares owned by CGI are eliminated inconsolidation.DG ConversionOn May 2, 2017, the Company entered into an agreement with DG Value Partners, LP and DG Value Partners II Master Funds LP, holders (collectively, "DG Value") of theCompany's Series A Preferred Stock and Series A-1 Preferred Stock, to convert and exchange all of DG Value's 2,308 shares of Series A Preferred Stock and 1,000 shares ofSeries A-1 Preferred Stock into a total of 803,469 shares of the Company's common stock. 17,500 shares of common stock issued in the conversion were issued as considerationfor the agreement by DG Value to convert its Preferred Stock. The fair value of the 17,500 shares was $0.1 million on the date of issuance and was recorded as a deemed dividend.Luxor and Corrib ConversionsOn August 2, 2016, the Company converted the Preferred Shares of both Corrib Master Fund, Ltd. ("Corrib"), then a holder of 1,000 shares of Series A Preferred Stock, andcertain 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 theconversions, the Company agreed to provide the following two forms of additional consideration for as long as the Preferred Stock remained entitled to receive dividend payments(the "Additional Share Consideration"):•The Company agreed that in the event that Corrib and Luxor would have been entitled to any Participating Dividends payable, had they not converted the Preferred Stock(as defined in the respective Series A and Series A-1 Certificate of Designation), after the date of their Preferred Share conversion, then the Company will issue to Corriband Luxor, on the date such Participating Dividends become payable by the Company, in a transaction exempt from the registration requirements of the Securities Act thenumber 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 therespective 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 ofDesignation) for the period ending two business days prior to the underlying event or transaction that would have entitled Corrib or Luxor to such Participating Dividendhad 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 correspondingdividend 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-1Certificate 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% theAccrued 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 definedin 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).F-66HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDFor the year ended December 31, 2018, 117,734 and 13,245 shares of the Company's common stock have been issued to Luxor and Corrib, respectively, in conjunction with theConversion agreement.The fair value of the Additional Share Consideration issued in 2018 was valued by the Company at $0.8 million on the dates of issuance and was recorded within Preferred stockand deemed dividends line item of the Consolidated Statements of Operations as a deemed dividend.Preferred Share DividendsDuring 2018, HC2's Board of Directors declared cash dividends with respect to HC2’s issued and outstanding Preferred Stock, as presented in the following table (in millions):2018Declaration Date March 31, 2018 June 30, 2018 September 30, 2018 December 31, 2018Holders of Record Date March 31, 2018 June 30, 2018 September 30, 2018 December 31, 2018Payment Date April 16, 2018 July 17, 2018 October 15, 2018 January 15, 2019Total Dividend $0.5 $0.5 $0.5 $0.52017Declaration Date March 31, 2017 June 30, 2017 September 30, 2017 December 31, 2017Holders of Record Date March 31, 2017 June 30, 2017 September 30, 2017 December 31, 2017Payment/Accrual Date April 17, 2017 July 17, 2017 October 16, 2017 January 16, 2018Total Dividend $0.6 $0.5 $0.5 $0.520. Related PartiesHC2 In January 2015, the Company entered into a services agreement (the "Services Agreement") with Harbinger Capital Partners, a related party of the Company, with respect to theprovision of services that may include providing office space and operational support and each party making available their respective employees to provide services as reasonablyrequested by the other party, subject to any limitations contained in applicable employment agreements and the terms of the Services Agreement. The Company recognized $3.8million and $3.6 million of expenses under the Services Agreement for the years ended December 31, 2018 and 2017, respectively.In June 2018, the Company funded $0.8 million to Harbinger Capital Partners for a deposit in connection with its allocable portion of shared office space occupied by the Company.GMSLIn November 2017, GMSL, acquired the trenching a cable lay services business from Fugro N.V. ("Fugro"). As part of the transaction, Fugro became a 23.6% holder of GMSL'sparent, Global Marine Holdings, LLC ("GMH"). GMSL, in the normal course of business, incurred expenses with Fugro for various survey and other contractual services. For theyear ended December 31, 2018, GMSL recognized $9.3 million of expenses for such services with Fugro.The parent company of GMSL, GMH, incurred management fees of $0.6 million and $0.7 million for each of the years ended December 31, 2018 and 2017, respectively.F-67HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUEDGMSL has investments in various entities for which it exercises significant influence. A summary of transactions with such entities and balances outstanding are as follows (inmillions): Years Ended December 31, 2018 2017Net revenue $21.8 $25.2Operating expenses $4.8 $7.4Interest expense $1.3 $1.4Dividends $25.8 $4.4 December 31, 2018 2017Accounts receivable $5.0 $8.7Debt obligations $28.5 $35.3Accounts payable $2.2 $1.9 Life SciencesIn 2017, R2 secured convertible drawdown promissory notes of $1.5 million to a related party, Blossom Innovations, LLC. As of December 31, 2018, the note with BlossomInnovation, LLC had an outstanding balance of $1.1 million.In 2018 R2 made a milestone payment to Blossom Innovations, LLC and MGH for $0.4 million.21. Operating Segment and Related InformationThe Company currently has two primary reportable geographic segments - United States and United Kingdom. The Company has eight reportable operating segments based onmanagement’s organization of the enterprise - Construction, Marine Services, Energy, Telecommunications, Insurance, Life Sciences, Broadcasting, Other, and a non-operatingCorporate segment. Net revenue and long-lived assets by geographic segment is reported on the basis of where the entity is domiciled. All inter-segment revenues are eliminated. Years Ended December 31, Segment 2018 2017 2016Customer A Telecommunications 11.0% * ** Less than 10% revenue concentrationSummary information with respect to the Company’s geographic and operating segments is as follows (in millions): Years Ended December 31, 2018 2017 2016Net Revenue by Geographic Region United States $1,757.7 $1,447.1 $1,115.3United Kingdom 192.2 158.3 418.0Other 26.8 28.7 24.8Total $1,976.7 $1,634.1 $1,558.1 Years Ended December 31, 2018 2017 2016Net revenue Construction $716.4 $579.0 $502.6Marine Services 194.3 169.5 161.9Energy 20.7 16.4 6.4Telecommunications 793.6 701.9 735.0Insurance 217.1 151.6 142.5Broadcasting 45.4 4.8 —Other 3.7 10.9 9.7Eliminations (*) (14.5) — —Total net revenue $1,976.7 $1,634.1 $1,558.1(*) The Insurance segment revenues are inclusive of realized and unrealized gains in the amount of $14.5 million for the year ended December 31, 2018 recorded on equity securities.Such adjustments are related to transactions between entities under common control which are eliminated or are reclassified to Other income (expenses), net in consolidation.F-68HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED Years Ended December 31, 2018 2017 2016Income (loss) from operations Construction $41.9 $37.2 $49.6Marine Services (15.4) (0.9) (0.3)Energy (0.5) (2.8) (0.3)Telecommunications 4.8 6.4 4.2Insurance 1.8 25.4 (0.8)Life Sciences (13.8) (17.2) (10.4)Broadcasting (24.0) (4.0) —Other (2.5) (5.3) (5.9)Non-operating Corporate (33.6) (39.9) (37.6)Eliminations (*) (14.5) — —Total loss from operations $(55.8) $(1.1) $(1.5)(*) The Insurance segment revenues are inclusive of realized and unrealized gains in the amount of $14.5 million for the year ended December 31, 2018 recorded on equity securities.Such adjustments are related to transactions between entities under common control which are eliminated or are reclassified to Other income (expenses), net in consolidation. Years Ended December 31, 2018 2017 2016 Total loss from operations $(55.8) $(1.1) $(1.5)Interest expense (75.7) (55.1) (43.4)Gain on sale and deconsolidation of subsidiary 105.1 — —Gain (loss) on contingent consideration (0.8) 11.4 (8.9)Income from equity investees 15.4 17.8 10.8Gain on bargain purchase 115.4 — —Other income (expenses), net 78.7 (12.8) (2.8)Income (loss) from continuing operations before income taxes 182.3(39.8)(45.8)Income tax expense (2.4) (10.7) (51.6)Net income (loss) 179.9(50.5)(97.4)Less: Net (income) loss attributable to noncontrolling interest and redeemable noncontrolling interests (17.9) 3.6 2.9Net income (loss) attributable to HC2 Holdings, Inc. 162.0(46.9)(94.5)Less: Preferred stock and deemed dividends from conversions 6.4 2.8 10.9Net income (loss) attributable to common stock and participating preferred stockholders $155.6$(49.7)$(105.4) Years Ended December 31, 2018 2017 2016Depreciation and Amortization Construction $7.4 $5.6 $1.9Marine Services 27.2 22.9 22.0Energy 5.5 5.1 2.2Telecommunications 0.3 0.4 0.5Insurance (*) (12.4) (4.4) (3.8)Life Sciences 0.2 0.2 0.2Broadcasting 3.3 0.3 —Other 0.1 1.1 1.5Non-operating Corporate 0.1 0.1 —Total $31.7 $31.3 $24.5(*) Balance represents amortization of negative VOBA, which increases net income.F-69HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED Years Ended December 31, 2018 2017 2016Capital Expenditures (*) Construction $14.9 $11.7 $8.2Marine Services 21.7 10.5 12.2Energy 1.5 8.6 7.2Telecommunications 0.1 — 0.8Insurance 0.3 0.6 0.1Life Sciences — 0.5 0.3Broadcasting 1.1 — —Non-operating Corporate 0.1 — 0.2Total $39.7 $31.9 $29.0(*) The above capital expenditures exclude assets acquired under terms of capital lease and vendor financing obligations. December 31, 2018 2017Investments Construction $0.9 $0.2Marine Services 58.3 66.3Insurance 3,821.4 1,493.6Life Sciences 16.3 17.8Other 5.6 1.5Eliminations (80.5) (35.9)Total $3,822.0 $1,543.5 December 31, 2018 2017Property, Plant, and Equipment, net United States $178.2 $162.8United Kingdom 192.7 204.9Other 5.4 7.0Total $376.3 $374.7 December 31, 2018 2017Total Assets Construction $537.9 $342.8Marine Services 368.6 389.5Energy 77.6 83.6Telecommunications 139.9 114.4Insurance 5,213.1 2,117.0Life Sciences 35.6 31.5Broadcasting 202.8 136.7Other 5.6 2.7Non-operating Corporate 9.2 35.3Eliminations (86.5) (35.8)Total $6,503.8 $3,217.7F-70HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED22. Quarterly Results of Operations (Unaudited)The following is a tabulation of the unaudited quarterly results of operations for the years ended December 31, 2018 and 2017 (in millions, except per share amounts): Quarters Ended March 31, 2018 June 30, 2018 September 30, 2018 December 31, 2018Net revenue $453.6 $496.8 $501.4 $524.9Cost of revenue 375.7 400.6 402.9 406.0Other operating expenses 91.6101.7122.9131.1(Loss) income from operations $(13.7) $(5.5) $(24.4) $(12.2) Net income (loss) attributable to common stock and participating preferredstockholders $(35.8) $54.7 $152.8 $(16.1) Weighted average common shares outstanding: Basic 44.3 44.2 44.3 44.5Diluted 44.3 45.5 46.2 44.5 Income (loss) per common share Basic $(0.81) $1.11 $3.09 $(0.36)Diluted $(0.81) $1.08 $2.97 $(0.36) Quarters Ended March 31, 2017 June 30, 2017 September 30, 2017 December 31, 2017Net revenue $390.6$378.7$406.5$458.5Cost of revenue 314.4 308.7 324.7 365.3Other operating expenses 75.2 81.2 71.2 94.7Income (loss) from operations $1.0$(11.2)$10.6$(1.5) Net income (loss) attributable to common stock and participating preferredstockholders $(15.1) $(18.7) $(6.7) $(9.2) Weighted average common shares outstanding-basic and diluted 41.9 42.7 43.0 43.6 Basic and Diluted income (loss) per common share: Net income (loss) attributable to HC2 Holdings, Inc. $(0.36)$(0.44)$(0.16)$(0.21)Quarterly and year-to-date computations of per share amounts are made independently; therefore, the sum of per share amounts for the quarters may not agree with per shareamounts for the year.F-71HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED23. Basic and Diluted Loss Per Common ShareEarnings 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'scapital 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 areconsidered participating securities. The dilutive effect of options and their equivalents (including non-vested stock issued under stock-based compensation plans), is computed usingthe "treasury" method as this measurement was determined to be more dilutive between the two available methods in each period.The following potential weighted average common shares were excluded from diluted EPS for the year ended December 31, 2018 as the shares were antidilutive: 2,168,454 foroutstanding warrants to purchase the Company's stock 353,960 for unvested restricted stock awards, and 4,919,760 for convertible preferred stock.The Company had no dilutive common share equivalents during the year ended December 31, 2017 and 2016 due to the results of operations being a loss from continuingoperations, 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): Years Ended December 31, 2018 2017 2016Loss from continuing operations attributable to common stock and participating preferred stockholders $155.6 $(49.7) $(105.4) Earnings allocable to common shares: Numerator for basic and diluted EPS Participating shares at end of period: Weighted-average Common stock outstanding - basic 44.3 42.8 37.3Unvested restricted stock 0.4 — —Preferred stock (as-converted basis) 4.9 — —Total 49.6 42.8 37.3 Percentage of loss allocated to: Common Stock 89.3% 100% 100%Unvested restricted stock 0.8% —% —%Preferred Stock 9.9% —% —% Net Income (loss) attributable to common stock, basic $139.0 $(49.7) $(105.4) Distributed and Undistributed earnings to Common Stockholders: Effect of assumed shares under treasury stock method for stock options and restricted shares and if-converted method for convertible instruments (3,270) — —Income from the dilutive impact of subsidiary securities — — —Net Income (loss) attributable to common stock, diluted $135.7 $(49.7) $(105.4) Denominator for basic and dilutive earnings per share Weighted average common shares outstanding - basic 44.3 42.8 37.3Effect of assumed shares under treasury stock method for stock options and restricted shares and if-converted method for convertible instruments 2.6 — —Weighted average common shares outstanding - diluted 46.8 42.8 37.3 Net income (loss) attributable to participating security holders - basic $3.14 $(1.16) $(2.83)Net income (loss) attributable to participating security holders - diluted $2.90 $(1.16) $(2.83)F-72HC2 HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED24. Subsequent EventsOn January 11, 2019, CGI, a wholly owned subsidiary of the Company closed on the purchase of 10,000 shares of Series A-2 Preferred Stock, convertible into a total of 1,420,455shares of the Company's common stock. The shares were purchased at a discount of $1.7 million.On January 22, 2019, HC2 Broadcasting issued additional $7.5 million of 8.5% notes to institutional investors, and increased the capacity of the Stations Notes by $15.0 million to$50.0 million.Subsequent to December 31, 2018, the Broadcasting segment received FCC approval and closed multiple APAs for a total consideration of $6.2 million, of which $0.3 million waspreviously funded at signing of the APAs. Further, Broadcasting entered into multiple APAs for a total consideration of $13.7 million.F-73HC2 HOLDINGS, INC.SCHEDULE ISummary of investments - other than investments in related partiesDecember 31, 2018(in millions) Amortized Cost Fair Value Amount at whichshown in thebalance sheetFixed maturity securities Bonds United States Government and government agencies and authorities $24.7 $25.4 $25.4States, municipalities and political subdivisions 413.7 421.9 421.9Foreign governments 92.6 94.4 94.4Public utilities 423.3 403.1 403.1Convertibles and bonds with warrants attached 8.2 8.0 8.0All other corporate bonds 2,521.2 2,444.8 2,444.8Total fixed maturity securities 3,483.7 3,397.6 3,397.6Equity securities Industrial, miscellaneous and all other 25.5 25.5 25.5Nonredeemable preferred stocks 240.9 240.9 240.9Total equity securities 266.4 266.4 266.4Mortgage loans 137.6 137.6 137.6Policy loans 19.8 19.8 19.8Other invested assets — — —Total investments $3,907.5 $3,821.4 $3,821.4F-74HC2 HOLDINGS, INC.SCHEDULE IICondensed Financial Information of the Registrant (Registrant Only)BALANCE SHEETS(in millions) December 31, 2018 2017Assets Cash and cash equivalents $6.5 $29.4Restricted cash 0.8 —Other current assets 0.5 0.6Total current assets 7.8 30.0Intercompany receivable 5.0 —Investment in subsidiaries 642.6 500.6Other assets 1.3 5.3Total assets $656.7 $535.9 Liabilities Accounts payable $1.0 $0.7Accrued and other current liabilities 26.3 21.4Total current liabilities 27.3 22.1Intercompany payable 12.5 15.6Debt obligations 491.7 393.8Other liabilities 10.7 5.0Total liabilities 542.2 436.5 Temporary equity Preferred stock 26.4 26.3 Stockholders’ equity Common stock — —Additional paid-in capital 260.5 254.7Treasury stock (2.6) (2.1)Accumulated deficit (57.2) (221.2)Accumulated other comprehensive income (loss) (112.6) 41.7Total stockholders’ equity 88.1 73.1Total liabilities, temporary equity and stockholders’ equity $656.7 $535.9F-75HC2 HOLDINGS, INC.SCHEDULE IICondensed Financial Information of the Registrant (Registrant Only)STATEMENTS OF OPERATIONS(in millions) For the years ended December 31, 2018 2017 2016Revenue $— $— $—Operating expenses General and administrative 33.5 39.8 37.6Depreciation and amortization 0.1 0.1 —Total operating expenses 33.6 39.9 37.6Loss from operations (33.6) (39.9) (37.6)Interest expense (57.0) (44.1) (36.0)Gain (loss) on contingent consideration — 11.4 (11.4)Equity in net income (loss) of subsidiaries 244.0 15.4 0.4Other income (expense) 2.0 0.1 1.3Income (loss) before income taxes 155.4 (57.1) (83.3)Tax (benefit) expense (6.6) (10.2) 11.2Net income (loss) $162.0 $(46.9) $(94.5)F-76HC2 HOLDINGS, INC.SCHEDULE IICondensed Financial Information of the Registrant (Registrant Only)STATEMENTS OF CASH FLOWS(in millions) December 31, 2018 2017 2016Net cash used by operating activities $(98.2) $(32.9) $(21.2)Cash flows from investing activities Contributions to subsidiaries (108.7) (24.1) (22.4)Return of capital from subsidiaries 81.9 13.2 31.1Cash paid for business acquisitions, net of cash acquired — (2.6) —Other investing activity — (0.1) (0.2)Net cash used in investing activities (26.8) (13.6) 8.5Cash flows from financing activities Proceeds from debt obligations 615.2 91.7 —Principal payments on debt obligations (510.0) (35.0) —Purchase of noncontrolling interest — — (1.4)Payment of dividends (2.0) (2.1) (4.2)Proceeds from the exercise of warrants and stock options 0.3 0.5 —Taxes paid in lieu of shares issued for share-based compensation (0.6) (0.8) (1.0)Other financing activity — (0.1) (0.1)Net cash provided by financing activities 102.9 54.2 (6.7)Net change in cash and cash equivalents (22.1) 7.7 (19.4)Cash, cash equivalents and restricted cash, beginning of period 29.4 21.7 41.1Cash, cash equivalents and restricted cash, end of period $7.3 $29.4 $21.7F-77HC2 HOLDINGS, INC.SCHEDULE IIISupplementary Insurance Information(in millions) As of and for the years ended December 31, 2018 2017 2016Insurance Company Deferred policy acquisition cost $— $— $—Future policy benefits, losses, claims and loss expenses $4,807.3 $1,937.2 $1,899.8Unearned premiums $— $— $—Net earned premiums $94.4 $80.5 $79.4Net investment income $117.1 $66.1 $58.0Benefits, claims, losses $18.2 $24.3 $15.7Amortization of deferred policy acquisition cost $— $— $—Other operating expenses $27.0 $23.2 $23.1Net written premiums (excluding life) $87.0 $72.5 $70.6F-78HC2 HOLDINGS, INC.SCHEDULE IVReinsurance(in millions)2018 Gross Amount Ceded to othercompanies Assumed fromother companies Net Amount Percentage ofamount assumed tonetLife insurance in force $2,266.6 $(1,970.2) $32.6 $329.0 9.9%Premiums: — Life insurance $14.9 $(8.3) $0.8 $7.4 10.8%Accident and health insurance 214.2 (132.2) 5.0 87.0 5.7%Total premiums $229.1 $(140.5) $5.8 $94.4 6.1%2017 Gross Amount Ceded to othercompanies Assumed fromother companies Net Amount Percentage ofamount assumed tonetLife insurance in force $720.2 $(467.7) $34.3 $286.8 12.0%Premiums: Life insurance $12.2 $(4.6) $0.4 $8.0 5.1%Accident and health insurance 198.0 (129.9) 4.4 72.5 6.1%Total premiums $210.2 $(134.5) $4.8 $80.5 6.0%2016 Gross Amount Ceded to othercompanies Assumed fromother companies Net Amount Percentage ofamount assumed tonetLife insurance in force $764.9 $(495.0) $36.3 $306.2 11.8%Premiums: Life insurance $13.3 $(4.9) $0.4 $8.8 4.7%Accident and health insurance 212.0 (145.9) 4.5 70.6 6.3%Total premiums $225.3 $(150.8) $4.9 $79.4 6.1%F-79HC2 HOLDINGS, INC.SCHEDULE VValuation and Qualifying Accounts(in millions)Activity in the Company’s allowance accounts for the years ended December 31, 2018, 2017 and 2016 was as follows: Doubtful Accounts Receivable Balance atBeginning of Period Charged toCosts and Expenses Deductions Other Balance atEnd of Period2016 $0.8 $2.9 $— $— $3.62017 $3.6 $0.1 $— $— $3.72018 $3.7 $2.6 $— $— $6.3 Deferred Tax Asset Valuation Balance atBeginning of Period Charged toCosts and Expenses Deductions Other Balance atEnd of Period2016 $68.1 $57.8 $— $12.1 $138.02017 $138.0 $6.3 $— $(10.8) $133.52018 $133.5 $(43.8) $— $37.0 $126.7F-80Exhibit 21.1SUBSIDIARIES OF THE REGISTRANTSubsidiaryJurisdiction of OrganizationDBM Global Intermediate Holdco Inc.DelawareHC2 Holdings 2, Inc.DelawareHC2 International Holding, Inc.DelawareSchuff Merger Sub, Inc.DelawareSubsidiaries of DBM Global Intermediate Holdco Inc., HC2 Holdings 2, Inc. and HC2 International Holding, Inc., are listed below. All subsidiaries arewholly-owned by their respective parent, except where otherwise indicated.SUBSIDIARIES OF DBM GLOBAL INTERMEDIATE HOLDCO INC.SubsidiaryJurisdiction of OrganizationDBM Global Inc. (92.48%)DelawareCB-Horn Holdings, Inc.DelawareGrayWolf Industrial, Inc.DelawareInco Services, Inc.GeorgiaM. Industrial Mechanical, Inc.DelawareMidwest Environmental, Inc.KentuckyMilco National Constructors, Inc.DelawareTitan Contracting & Leasing Company, Inc.KentuckyTitan Fabricators, Inc.KentuckyDBM Global-North America Inc.DelawareAddison Structural Services, Inc.FloridaQuincy Joist CompanyDelawareAitken Manufacturing Inc.DelawareBDS Steel Detailers (USA) Inc.ArizonaOn-Time Steel Management Holding, Inc.DelawareSchuff Steel Management Company – Colorado LLCDelawareSchuff Steel Management Company – Southeast LLCDelawareSchuff Steel Management Company – Southwest, Inc.DelawarePDC Services (USA) Inc.DelawareSchuff Steel Company(1)DelawareSchuff Steel – Atlantic, LLCFloridaSSRW JV LLC (50%)DelawareSchuff Steel Company – Panama S. de R.L.PanamaDBM Global Holdings Inc.DelawareBDS Steel Detailers (UK) LtdUnited KingdomBDS Vircon Private LimitedIndiaDBM Vircon Services LTD(2)British Columbia, CanadaDBMG International PTE LTDSingaporeDBMG Singapore PTE LTDSingaporeBDS Vircon Co. LTDThailandSubsidiaryJurisdiction of OrganizationDBM Vircon (Australia) Pty LtdAustraliaDBM Vircon Services (Australia) Pty Ltd (f/k/a BDS Global Detailing Pty Ltd)AustraliaBDS Steel Detailers (Australia) Pty LtdAustraliaBDS Steel Detailers (NZ) LtdNew ZealandPDC Operations (Australia) Pty LtdAustraliaPDC Asia Pacific Inc.PhilippinesSchuff Premier Services LLCDelawareSUBSIDIARIES OF HC2 HOLDINGS 2, INC.SubsidiaryJurisdiction of OrganizationANG Holdings, Inc. (67.7%)DelawareAmerican Natural Gas, LLC(3)New YorkANG Region 1, LLC(4)DelawareANG Region 2, LLCDelawareContinental Insurance Group Ltd.DelawareContinental LTC Inc.DelawareContinental General Insurance CompanyTexasGlobal Marine Holdings, LLC (72.72%)DelawareGlobal Marine Holdings LimitedUnited KingdomGlobal Marine Systems LimitedUnited KingdomCWind LimitedUnited KingdomCWind 247 GmbHGermanyCwind Taiwan (51%)TaiwanGlobal Marine Search LimitedUnited KingdomGlobal Marine Systems (Americas) Inc.DelawareGlobal Marine Systems (Bermuda) LimitedBermudaGlobal Marine Systems (Depots) LimitedCanadaGlobal Marine Systems (Investments) LimitedUnited KingdomGlobal Marine Systems (Netherlands) BVNetherlandsGlobal Marine Systems (Vessels) LimitedUnited KingdomGlobal Marine Systems (Vessels II) LimitedUnited KingdomGlobal Marine Systems Oil & Gas LimitedUnited KingdomGlobal Marine Systems Pension Trustee LimitedUnited KingdomGMS Guernsey Pensions Plans LimitedGuernseyGMSG LimitedGuernseyGMSL Employee Benefit TrustUnited KingdomRed Sky Subsea LimitedUnited KingdomVibro-Einspultechnik Duker - and Wasserbau GmbHGermanyGlobal Marine Cable Systems Pte LimitedSingaporeHC2 Broadcasting Holdings Inc.(5) (98%)DelawareHC2 Broadcasting Intermediate Holdings Inc.DelawareSubsidiaryJurisdiction of OrganizationHC2 Broadcasting Inc.DelawareDTV America Corporation (49.2%)DelawareHC2 Broadcasting License Inc.DelawareHC2 LPTV Holdings, Inc.DelawareHC2 Network Inc.(6)DelawareHC2 Station Group, Inc.DelawareNerVve Technologies, Inc. (72.35%)DelawarePansend Life Sciences, LLCDelawareGenovel Orthopedics, Inc. (80%)DelawareR2 Dermatology Incorporated (74.05%)DelawareSUBSIDIARIES OF HC2 INTERNATIONAL HOLDING, INC.SubsidiaryJurisdiction of OrganizationHC2 International, Inc.DelawarePrimus Telecommunications El Salvador SA de C.V.El SalvadorICS Group Holdings Inc. (d/b/a Arbinet Corporation, f/k/a Vault Holdings Inc.)DelawareArbinet-thexchange LtdUnited KingdomPTGi-ICS Holdings LimitedUnited KingdomPTGi International Carrier Services, Inc.DelawarePTGI-ICS OPS RO S.R.L.RomaniaPTGi International Carrier Services LtdUnited KingdomGo2Tel.com, IncFloridaGu2Tel Spain, S.L.U.SpainThe St. Thomas & San Juan Telephone Company, Inc.U.S. Virgin Islands_____________________(1)Also does business under the name Schuff Steel Company Inc. (AL and NY)(2)Also does business under the name Candraft VS(3)Also does business under the names American Natural Gas KY, LLC (KY), American Natural Gas of Ohio, LLC (OH)(4)Also does business under the name American Natural Gas Holdings, Inc. (CA)(5)Also does business under the name QUU (DE and NY)(6)Also does business under the names, HC2 Network Inc. - KAZD (TX), HC2 Network Inc. - KEMO (CA), HC2 Network Inc. - KHDF (NV), HC2Network Inc. KJLA (CA), HC2 Network Inc. - KPDF (AZ), HC2 Network Inc. - KVDF(TX), HC2 Network Inc. - KYAZ (TX), HC2 Network Inc. -KYDF (TX), HC2 Network Inc. - WCHU (IL), HC2 Network Inc. - WFXZ (MA), HC2 Network - WNYN (NY), HC2 Network Inc.-WPMF (FL), HC2Network - WQAW (DC), HC2 Network Inc. - WTNO (LA), HC2 Network Inc. - WUVM (GA), HC2 Network Inc. - WXAX (FL)Exhibit 2.15CERTIFICATE OF DESIGNATIONOFSERIES A FIXED-TO-FLOATING RATE PERPETUAL PREFERRED STOCKOFHC2 BROADCASTING HOLDINGS INC.Pursuant to Section 151 of the General Corporation Law of the State of DelawareHC2 Broadcasting Holdings Inc., a corporation organized and existing under the General Corporation Law of the State ofDelaware (the “Company”), hereby certifies that the following resolution was duly adopted by the Board of Directors of the Company(or a duly authorized committee thereof) as required by Section 151 of the General Corporation Law of the State of Delaware:NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors of the Company (or a duly authorized committee thereof)in accordance with the provisions of the certificate of incorporation of the Company (as amended, restated supplemented or otherwisemodified from time to time, the “Certificate of Incorporation”), designates the Series A Preferred Stock, par value $0.001 per share, ofthe Company (of which there are no issued shares) (the “Preferred Stock”), and the number of shares constituting such series, and fixesthe rights, powers preferences, privileges and restrictions relating to such series in addition to any set forth in the Certificate ofIncorporation as follows:ARTICLE IDESIGNATION AND NUMBER; DEFINITIONS; RULES OF CONSTRUCTIONSECTION 1.01. Designation and Number. The shares of such series shall be designated as “Series A Fixed-to-Floating RatePerpetual Preferred Shares,” par value $0.001 per share, of the Company (the “Series A Preferred Stock”), and the number constitutingsuch series shall be Twenty Thousand (20,000), which may be issued from time to time on the date hereof or thereafter.SECTION 1.02. Definitions. As used in this Certificate of Designation (as defined below), the following capitalized terms willhave the following meanings:“Affiliate” means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries,controls, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” of a Person meansthe power, directly or indirectly, either to (a) vote 10% or more of the Equity Interests having ordinary voting power for the election ofmembers of the Board of Directors of such Person or (b) direct or cause the direction of the management and policies of such Personwhether by contract or otherwise.“Board of Directors” means with respect to (a) any corporation, the board of directors of the corporation or any committeethereof duly authorized to act on behalf of such board, (b) a partnership, the board of directors of the general partner of the partnership,(c) a limited liability company, the managing member or members or any controlling committee or board of directors of such companyor the sole memberUS-DOCS\104451108.9or the managing member thereof, and (d) any other Person, the board or committee of such Person serving a similar function.“Business Day” means any day that is not a Saturday or Sunday or a legal holiday in New York, New York.“Cash Equivalents” means (a) marketable direct obligations issued or unconditionally guaranteed by the United StatesGovernment or issued by any agency thereof and backed by the full faith and credit of the United States, in each case, maturing withintwelve (12) months from the date of acquisition thereof; (b) marketable direct obligations of any State of the United States or anypolitical subdivision of any such State, within twelve (12) months from the date of acquisition thereof rated P 1 by Moody's or A 1 byStandard & Poor's; (c) commercial paper, maturing not more than 270 days after the date of issue rated P 1 by Moody's or A 1 byStandard & Poor's; (d) certificates of deposit maturing not more than 12 months after the date of issue, issued by commercial bankinginstitutions and money market or demand deposit accounts maintained at commercial banking institutions, each of which is a memberof the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000; (e)repurchase agreements having maturities of not more than ninety (90) days from the date of acquisition which are entered into withmajor money center banks included in the commercial banking institutions described in clause (c) above and which are secured byreadily marketable direct obligations of the United States Government or any agency thereof; (f) money market accounts maintainedwith mutual funds having assets in excess of $500,000,000, which assets are primarily comprised of Cash Equivalents described inanother clause of this definition; and (g) marketable tax exempt securities rated A or higher by Moody's or A+ or higher by Standard &Poor's, in each case, maturing within twelve (12) months from the date of acquisition thereof.A “Change of Control” shall be deemed to have occurred if Parent ceases to beneficially and of record own and control at least51% on a fully diluted basis of the aggregate outstanding voting or economic power of the Equity Interests of the Company.“Capitalized Lease” means, with respect to any Person, any lease of (or other arrangement conveying the right to use) real orpersonal property by such Person as lessee that is required under GAAP to be capitalized on the balance sheet of such Person.“Capitalized Lease Obligations” means, with respect to any Person, obligations of such Person and its Subsidiaries underCapitalized Leases, and, for purposes hereof, the amount of any such obligation shall be the capitalized amount thereof determined inaccordance with GAAP.“Certificate of Designation” means this Certificate of Designation of Series A Fixed-to-Floating Rate Perpetual Preferred Shares,as amended, restated supplemented or otherwise modified from time to time.“Code” means the United States Internal Revenue Code of 1986, as amended.“Common Stock” means the Common Stock, par value $0.001 per share, of the Company.“consolidated” when used with respect to any Person refers to such Person consolidated with its restricted subsidiaries.“Contingent Obligation” means, with respect to any Person, any obligation of such Person guaranteeing or intending toguarantee any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor")in any manner, whether directly or indirectly,2US-DOCS\104451108.9including, without limitation, (a) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary courseof business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of a primary obligor, (b) theobligation to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to anagreement, (c) any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any propertyconstituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any such primaryobligation or (B) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvencyof the primary obligor, (iii) to purchase property, assets, securities or services primarily for the purpose of assuring the owner of anysuch primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure orhold harmless the holder of such primary obligation against loss in respect thereof; provided, however, that the term "ContingentObligation" shall not include any product warranties extended in the ordinary course of business. The amount of any ContingentObligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation with respect to whichsuch Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liablepursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximumreasonably anticipated liability with respect thereto (assuming such Person is required to perform thereunder), as determined by suchPerson in good faith.“DGCL” means the General Corporation Law of the State of Delaware.“Dividend” means a dividend to be made by the Company in respect of the Series A Preferred Shares in accordance withSection 2.01(a).“Dividend Period” means, subject to the definition of “LIBOR Successor Rate Conforming Changes”, the period from the IssueDate to the first Quarterly Date, and thereafter, the period from the first day of April, July and October, applicable to the immediatelyfollowing Quarterly Date; provided, however, that if any Dividend Period would end on a day that is not a Business Day, suchDividend Period shall be extended to the next succeeding Business Day, unless such Business Day falls in another calendar month, inwhich case such Dividend Period shall end on the next preceding Business Day.“Dividend Rate” means, (a) for the first five years following the Issue Date, 12.50% per annum and (b) starting on the fifthanniversary of the Issue Date, the LIBOR Rate per annum; provided, however, that if a Trigger Event occurs and is continuing theDividend Rate will increase by 2.00% until the cure or waiver of such Trigger Event. If accrued but unpaid dividends with respect toany Quarterly Date are not paid to the Holders entitled thereto, then the Dividend Rate on such accrued and unpaid dividends shall bethe rate set forth in the foregoing clause (a) or clause (b), as applicable, subject to the foregoing proviso (where applicable).“Equity Interests” means (a) all shares of capital stock (whether denominated as common stock or preferred stock), equityinterests, beneficial, partnership or membership interests, joint venture interests, participations or other ownership or profit interests in orequivalents (regardless of how designated) of or in a Person (other than an individual), whether voting or non-voting and (b) allsecurities convertible into or exchangeable for any of the foregoing and all warrants, options or other rights to purchase, subscribe foror otherwise acquire any of the foregoing, whether or not presently convertible, exchangeable or exercisable.“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations of the SECpromulgated thereunder.3US-DOCS\104451108.9“Existing Indebtedness” means Indebtedness of the Company and its Subsidiaries in existence on the Issue Date plus interestaccruing thereon, until such amounts are repaid.“GAAP” means generally accepted accounting principles in effect from time to time in the United States, applied on a consistentbasis.“Governmental Authority” means any nation or government, any foreign, federal, state, territory, provincial, city, town,municipality, county, local or other political subdivision thereof or thereto and any department, commission, board, bureau,instrumentality, agency or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers orfunctions of or pertaining to government (including any supra-national bodies such as the European Union or the European CentralBank).“Hedging Agreement” means any interest rate, foreign currency, commodity or equity swap, collar, cap, floor or forward rateagreement, or other agreement or arrangement designed to protect against fluctuations in interest rates or currency, commodity orequity values (including, without limitation, any option with respect to any of the foregoing and any combination of the foregoingagreements or arrangements), and any confirmation executed in connection with any such agreement or arrangement.“Holder” means a holder of a Series A Preferred Share and “Holders” means more than one holder of Series A Preferred Shares.“Indebtedness” means, with respect to any Person, without duplication, (a) all indebtedness of such Person for borrowedmoney; (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables or otheraccounts payable incurred in the ordinary course of such Person's business and any earn-out, purchase price adjustment or similarobligation until such obligation appears in the liabilities section of the balance sheet of such Person); (c) all obligations of such Personevidenced by bonds, debentures, notes or other similar instruments or upon which interest payments are customarily made; (d) allreimbursement, payment or other obligations and liabilities of such Person created or arising under any conditional sales or other titleretention agreement with respect to property used and/or acquired by such Person, even though the rights and remedies of the lessor,seller and/or lender thereunder may be limited to repossession or sale of such property; (e) all obligations and liabilities, contingent orotherwise, of such Person, in respect of letters of credit, acceptances and similar facilities; (f) all obligations and liabilities, calculated ona basis and in accordance with accepted practice, of such Person under Hedging Agreements; (g) all monetary obligations under anyreceivables factoring, receivable sales or similar transactions and all monetary obligations under any synthetic lease, taxownership/operating lease, off-balance sheet financing or similar financing; and (h) all obligations referred to in clauses (a) through (g)of this definition of another Person secured by (or for which the holder of such Indebtedness has an existing right, contingent orotherwise, to be secured by) a Lien upon property owned by such Person, even though such Person has not assumed or become liablefor the payment of such Indebtedness.“Issue Date” means the date the Series A Preferred Shares are issued on the Closing Date (as defined in the Series A SecuritiesPurchase Agreement).“Investments” means, with respect to any Person, to, directly or indirectly, lend money or credit (by way of guarantee orotherwise) or make advances to any person, or purchase or acquire any Equity Interests, bonds, notes, debentures, guarantees or othersecurities of, or make any capital contribution to, or acquire assets constituting all or substantially all of the assets of, or acquire assetsconstituting a line of business, business unit or division of, any other Person.“Law” means any applicable U.S. or foreign, federal, state, provincial, municipal or local law (including common law), statute,ordinance, rule, regulation, code, policy, directive, standard, license, treaty,4US-DOCS\104451108.9judgment, order, injunction, decree or agency requirement of or undertaking to or agreement with any Governmental Authority.“LIBOR” means, the offered rate for deposits in U.S. dollars having an index maturity of three months, in amounts of at least$1,000,000, as such rate appears on the Reuters screen “LIBOR01” at approximately 11:00 a.m., London time, on the date that is twobusiness days preceding the first day of each Dividend Period. If on an interest determination date, such rate does not appear on theReuters screen “LIBOR01” as of 11:00 a.m., London time, or if the Reuters screen “LIBOR01” is not available on such date, thecalculation agent will obtain such rate from Bloomberg L.P.’s page “BBAM.”, which determination shall be conclusive absent manifesterror. Notwithstanding anything herein to the contrary, if “LIBOR” shall be less than zero, such rate shall be deemed to be zero forpurposes of this Certificate of Designation.Notwithstanding anything to the contrary in this Certificate of Designation, if the Company reasonably determines, thatadequate and reasonable means do not exist for ascertaining LIBOR for any requested Dividend Period and such circumstances areunlikely to be temporary, or a Governmental Authority has made a public statement identifying a specific date after which LIBOR shallno longer be made available, or used for determining the interest rate of loans (such specific date, the “Scheduled Unavailability Date”),or syndicated loans currently being executed, or that include language similar to that contained herein, are being executed or amended(as applicable) to incorporate or adopt a new benchmark interest rate to replace LIBOR, then “LIBOR” shall mean the alternatebenchmark rate (including any mathematical or other adjustments to the benchmark (if any) incorporated therein) reasonablydetermined by the Company giving due consideration to any evolving or then existing convention for similar U.S. dollar denominatedsyndicated credit facilities for such alternative benchmarks (any such proposed rate, a “LIBOR Successor Rate”), together with anyproposed LIBOR Successor Rate Conforming Changes.“LIBOR Rate” means LIBOR, plus a spread of 9.50%.“LIBOR Successor Rate Conforming Changes” means, with respect to any proposed LIBOR Successor Rate, any conformingchanges to the definition of, Dividend Period, timing and frequency of determining rates and making payments of interest and otheradministrative matters as may be appropriate, in the discretion of the Company, to reflect the adoption of such LIBOR Successor Rateand to permit the administration thereof by the Company in a manner substantially consistent with market practice.“Lien” means any mortgage, deed of trust, pledge, lien (statutory or otherwise), security interest, charge or other encumbranceor security or preferential arrangement of any nature, including, without limitation, any conditional sale or title retention arrangement,any Capitalized Lease and any assignment, deposit arrangement or financing lease intended as, or having the effect of, security.“Liquidation Preference” means, with respect to each outstanding Series A Preferred Share at any time, the sum of (i) the StatedValue thereof, plus (ii) all accrued, accumulated and unpaid Dividends thereon.“Moody’s” means Moody's Investors Service, Inc. and any successor thereto.“Parent” means HC2 Holdings, Inc., a Delaware corporation.“Person” means any individual, corporation, limited liability company, partnership, (including a limited partnership) jointventure, association, joint stock company, trust, unincorporated organization, government or any agency or political subdivision thereofor any other entity.5US-DOCS\104451108.9“Quarterly Date” means March 31, June 30, September 30 and December 31, of each year, commencing on and includingDecember 31, 2018; provided that, if any Quarterly Date is not a Business Day, the Quarterly Date will be the immediately followingBusiness Day.“Redemption Date” means the date of redemption of any redemption of any Series A Preferred Share pursuant to Article IV, asfixed by the Company.“Redemption Price” means, with respect to any Series A Preferred Share at any Redemption Date, an amount per share equal tothe Liquidation Preference as of such Redemption Date.“SEC” means the Securities and Exchange Commission or any similar or successor agency of the Federal governmentadministering the Securities Act.“Securities Act” means the U.S. Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgatedthereunder.“Series A Preferred Share” means one share of Series A Preferred Stock and “Series A Preferred Shares” means one or moreshares of Series A Preferred Stock.“Series A Securities Purchase Agreement” means that certain Series A Securities Purchase Agreement, dated as of December 3,2018, by and among Continental General Insurance Company and the Company, as amended, restated supplemented or otherwisemodified from time to time.“Standard & Poor’s” means Standard & Poor’s Ratings Services, a division of The McGraw Hill Companies, Inc. and anysuccessor thereto.“Stated Value” means, at any date of determination, and with respect to each outstanding Series A Preferred Share, $1,000(adjusted as appropriate in the event of any stock dividend, stock split, stock distribution, recapitalization or combination with respect tothe Series A Preferred Shares).“Subsidiary” means, with respect to any Person at any date, any corporation, limited or general partnership, limited liabilitycompany, trust, estate, association, joint venture or other business entity (a) the accounts of which would be consolidated with those ofsuch Person in such Person’s consolidated financial statements if such financial statements were prepared in accordance with GAAP or(b) of which more than 50% of (i) the outstanding Equity Interests having (in the absence of contingencies) ordinary voting power toelect a majority of the Board of Directors of such Person, (ii) in the case of a partnership or limited liability company, the interest in thecapital or profits of such partnership or limited liability company or (iii) in the case of a trust, estate, association, joint venture or otherentity, the beneficial interest in such trust, estate, association or other entity business is, at the time of determination, owned orcontrolled directly or indirectly through one or more intermediaries, by such Person. References to a Subsidiary shall mean a Subsidiaryof the Company unless the context expressly provides otherwise.“U.S.” means the United States of America.SECTION 1.03. Rules of Construction. Unless the context otherwise requires:(a) a term has the meaning assigned to it;(b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;6US-DOCS\104451108.9(c) “or” is not exclusive;(d) the words “including,” “includes” and similar words shall be deemed to be followed by without limitation;(e) words in the singular include the plural, and in the plural include the singular;(f) “will” shall be interpreted to express a command;(g) provisions apply to successive events and transactions;(h) references to sections of, or rules under, the Securities Act or the Exchange Act shall be deemed to include substitute,replacement or successor sections or rules adopted by the SEC from time to time;(i) unless the context otherwise requires, any reference to an “Article,” “Section” or “clause” refers to an Article, Section orclause, as the case may be, of this Certificate of Designation;(j) the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Certificate of Designation as awhole and not any particular Article, Section, clause or other subdivision;(k) words used herein implying any gender shall apply to both genders; and(l) in the computation of periods of time from a specified date to a later specified date, the word “from” means “from andincluding”; the words “to” and “until” each mean “to but excluding”; and the word “through” means “to and including”.ARTICLE IIDIVIDENDSSECTION 2.01. Dividends.(a) From and after the date of issuance of each Series A Preferred Share and for so long as any Series A Preferred Shares shallbe outstanding, the Holders shall be entitled to receive in respect of each Series A Preferred Share, as, when and if declared by theBoard of Directors of the Company, from time to time, and in preference and priority to the declaration and payment of dividends onshares of Common Stock or shares of any other class or series of capital stock of the Company ranking junior to shares of Series APreferred Stock as to dividends and pari passu to the declaration and payment of dividends on shares of any class or series of capitalstock of the Company ranking on parity with the Series A Preferred Shares as to dividends, dividends accruing on a daily basis at theDividend Rate on the Liquidation Preference of such Series A Preferred Share, payable quarterly in cash in arrears on each QuarterlyDate, which dividends shall cumulate as of a Quarterly Date if not paid.(b) The Dividends shall be paid in cash.SECTION 2.02. Rank. For the avoidance of doubt, so long as any Series A Preferred Shares shall remain outstanding, theSeries A Preferred Shares shall rank senior to shares of Common Stock or shares of any other class or series of capital stock of theCompany ranking junior to shares of Series A Preferred Stock7US-DOCS\104451108.9as to dividends and pari passu to shares of any class or series of capital stock of the Company ranking on parity with the Series APreferred Shares as to dividends.ARTICLE IIILIQUIDATION, DISSOLUTION AND WINDING UPSECTION 3.01. Liquidation, Dissolution and Winding Up. So long as any Series A Preferred Shares shall remain outstanding,in the event of any dissolution, liquidation or winding up of the Company, in preference and priority to shares of Common Stock orshares of any other class or series of capital stock of the Company ranking junior to shares of Series A Preferred Stock upon thedissolution, liquidation or winding up of the Company and pari passu to shares of any class or series of capital stock of the Companyranking on parity with the Series A Preferred Shares upon the dissolution, liquidation or winding up of the Company, each Holder shallbe entitled to receive with respect to each Series A Preferred Share owned by such Holder out of the assets of the Company availablefor distribution to its stockholders, the then applicable Liquidation Preference. A merger or consolidation of the Company with or intoanother corporation or other entity, or a sale of all or any part of the assets of the Company (which shall not in fact result in thedissolution, liquidation or winding up of the Company and the distribution of its assets to its stockholders) shall not be deemed aliquidation, dissolution or winding up of the Company within the meaning of this Section 3.01.ARTICLE IVREDEMPTIONSECTION 4.01. Optional Redemption.(a) At any time from and after the Issue Date, the then outstanding Series A Preferred Shares shall be redeemable, in whole orin part, at the option of the Company exercisable at any time or from time to time upon provision of the notice described in Section4.02, at the Redemption Price, which Redemption Price shall be paid in cash. Such redemption may, at the option of the Company, besubject to satisfaction of one or more conditions precedent.(b) If fewer than all of the then outstanding Series A Preferred Shares are to be redeemed pursuant to this Article IV, theCompany shall redeem a portion of Series A Preferred Shares held by each Holder on a pro rata basis based on the number of Series APreferred Shares held by each Holder.(c) From and after the Redemption Date, so long as the applicable Redemption Price with respect to the Series A PreferredShares being redeemed has been paid in full or a sum sufficient to redeem such Series A Preferred Shares has been irrevocablydeposited or set aside to pay the Redemption Price with respect to each such Series A Preferred Share, dividends on each Series APreferred Share called for redemption shall cease to accrue, such Series A Preferred Share shall no longer be deemed to be outstanding,and all rights in respect of such Series A Preferred Share shall cease, except the right to receive the Redemption Price.(d) Nothing in this Article IV shall prevent the Company from, at any time and from time to time, purchasing Series APreferred Shares from an individual Holder with the consent or approval of such Holder.SECTION 4.02. Notice of Redemption. Notice of a redemption pursuant to this Article IV shall be furnished to each Holder atthe address shown in the books and records of the Company for such Holder by registered mail via national courier service, not morethan 60 days before the Redemption Date, and shall set forth:8US-DOCS\104451108.9(a) The aggregate number of Series A Preferred Shares to be redeemed:(b) The Redemption Date;(c) The Redemption Price;(d) A statement that the certificate representing the Series A Preferred Shares called for redemption must be surrendered to theCompany to collect the Redemption Price; and(e) Any conditions precedent to such redemption.SECTION 4.03. Effect of Notice of Redemption. The notice, if delivered in the manner provided in Section 4.02, shall beconclusively presumed to have been given, whether or not the Holder receives such notice.SECTION 4.04. Certificates Evidencing Series A Preferred Shares Redeemed in Part. Upon surrender of a certificaterepresenting Series A Preferred Shares that are redeemed in part, pursuant to this Article IV, the Company shall issue a new certificaterepresenting the unredeemed Series A Preferred Shares formerly represented thereby.ARTICLE VCONVERSIONSECTION 5.01. No Conversion. The Series A Preferred Shares shall not be convertible into any other securities of theCompany.ARTICLE VIVOTINGSECTION 6.01. Generally. Except as provided by this Certificate of Designation or applicable law, each Holder, as such, shallnot be entitled to vote and shall not be entitled to any voting powers in respect thereof.ARTICLE VIICOVENANTSSECTION 7.01. Company Covenants.(a) For so long as any Series A Preferred Shares shall be outstanding, the Company shall not, at any time or from time to timeafter the Issue Date, without the prior vote or written consent of the Holders of at least a majority of the Series A Preferred Shares thenoutstanding, voting separately as a single class:(i) pay any dividends on account of, or redeem or repurchase, shares of Common Stock (other than dividendspayable in additional shares of Common Stock) or other series of Preferred Shares of the Company ranking junior to the Series APreferred Shares as to dividends at any time there are accrued and unpaid dividends on the Series A Preferred Shares;(ii) create and issue any series of Preferred Shares of the Company ranking senior to or pari passu with the Series APreferred Shares as to dividends and upon a dissolution, winding up or liquidation of the Company;9US-DOCS\104451108.9(iii) enter into a Change of Control, merger, consolidation and sale of all or substantially all of the assets of theCompany; or(iv) amend the Company’s certificate of incorporation to increase the authorized number of Series A Preferred Sharesto an amount in excess of 20,000 shares or alter or change the powers, preferences or special rights of the Series A PreferredShares so as to affect them adversely (including by way or merger or consolidation or otherwise).(b) The Company shall not incur any Indebtedness or Liens (or permit any of its Subsidiaries to incur any Indebtedness orLiens) or permit any of its Subsidiaries to issue any Preferred Stock; provided that the following and any activities incidental theretoshall be permitted in any event: (i) incurring Indebtedness or permitting its Subsidiaries to incur Indebtedness the proceeds of which areused to redeem all Series A Preferred Shares then outstanding, (ii) incurring the Existing Indebtedness and (iii) incurring Indebtednessthat that serves to extend, replace, refund, refinance, renew or defease the Existing Indebtedness or any Indebtedness issued to soextend, replace, refund, refinance, renew or defease such Existing Indebtedness, including any increased amounts required to financefees, expenses, prepayment costs or other amounts in connection therewith.(c) The foregoing provisions in this Section 7.01 shall not apply if, and to the extent, they would violate the terms of any debtof the Parent, any other Indebtedness or any Indebtedness that refinances debt of the Parent or any other Indebtedness.ARTICLE VIIITRIGGER EVENTS AND WAIVERSECTION 8.01. Trigger Events. wherever used herein, means a Trigger Event as defined in the Series A Securities PurchaseAgreement.SECTION 8.02. Waiver of Certificate of Designation Provisions. The powers (including voting powers), if any, of such seriesand the preferences and relative, participating, optional, special or other rights, if any, and the qualifications, limitations or restrictions,if any, of the Series A Preferred Stock may be waived as to all Series A Preferred Stock Shares in any instance (without the necessity ofcalling, noticing or holding a meeting of stockholders) by the written consent or agreement of the Holders of at least a majority of theSeries A Preferred Shares then outstanding, consenting or agreeing separately as a single class.SECTION 8.03. Waiver of Trigger Event. Any Trigger Event and its consequences hereunder may be waived as to all Series APreferred Shares in any instance (without the necessity of calling, noticing or holding a meeting of stockholders) by the written consentor agreement of the Holders of at least a majority of the Series A Preferred Shares then outstanding, consenting or agreeing separatelyas a single class. Upon any such waiver, such Trigger Event shall be deemed to have been cured for every purpose herein; but no suchwaiver shall extend to any subsequent or other Trigger Event or impair any right consequent thereon.10US-DOCS\104451108.9ARTICLE IXSTATUS OF REDEEMED OR REPURCHASED SERIES A PREFERRED SHARESSECTION 9.01. Retirement and Cancellation. If any Series A Preferred Share is redeemed, repurchased or otherwise acquiredby the Company in any manner whatsoever, the Series A Preferred Share so acquired shall, to the fullest extent permitted by Law, beretired and cancelled upon such acquisition.SECTION 9.02. No Reissuance of the Series A Preferred Shares. If any Series A Preferred Share is redeemed, repurchased orotherwise acquired by the Company in any manner whatsoever, the Series A Preferred Share so acquired shall not be reissued as a shareof Series A Preferred Stock.SECTION 9.03. Undesignated Shares of Preferred Stock. Any Series A Preferred Share that is redeemed, repurchased orotherwise acquired by the Company in any manner whatsoever shall, upon its retirement and cancellation, and upon the taking of anyaction required by applicable Law, become authorized but unissued shares of Preferred Stock, subject to the conditions and restrictionsin the Certificate of Incorporation or imposed by the DGCL.[Signature Page Follows]11US-DOCS\104451108.9IN WITNESS WHEREOF, the Company has caused this Certificate of Designation to be signed by a duly authorized officer this3rd day of December, 2018.THE COMPANY:HC2 BROADCASTING HOLDINGS INC.By: /s/ Michael J. Sena Name: Michael J. SenaTitle: Vice President[Signature Page to Certificate of Designation]Exhibit 23.1Consent of Independent Registered Public Accounting FirmHC2 Holdings, Inc.New York, New YorkWe hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-217274, No. 333-213107, No. 333-207266, andNo. 333-207470) and Form S-8 (No. 333-224657, No. 333-218835 and No. 333-198727) of HC2 Holdings, Inc. of our reports dated March 12, 2019, relatingto the consolidated financial statements and financial statement schedules presented in Item 15, and the effectiveness of HC2 Holdings, Inc.’s internal controlover financial reporting, which appear in this Form 10-K./s/ BDO USA, LLPNew York, NYMarch 12, 2019Exhibit 31.1CERTIFICATIONSI, Philip A. Falcone, certify that:1. I have reviewed this Annual Report on Form 10-K of HC2 Holdings, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Dated: March 12, 2019By:/s/ Philip A. Falcone Name:Philip A. Falcone Title:Chairman, President and Chief Executive Officer (Principal Executive Officer)Exhibit 31.2CERTIFICATIONSI, Michael J. Sena, certify that:1. I have reviewed this Annual Report on Form 10-K of HC2 Holdings, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Dated: March 12, 2019By:/s/ Michael J. Sena Name:Michael J. Sena Title:Chief Financial Officer (Principal Financial and Accounting Officer)Exhibit 32.1CERTIFICATIONPursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. §1350, as adopted), Philip A.Falcone, the Chairman, President and Chief Executive Officer (Principal Executive Officer) of HC2 Holdings, Inc. (the “Company”), and Michael J. Sena, theChief Financial Officer (Principal Financial and Accounting Officer) of the Company, each hereby certifies that, to the best of his knowledge:1. The Company’s Annual Report on Form 10-K for the year ended December 31, 2018, to which this Certification is attached as Exhibit 32 (the“Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition of the Company at the end of theperiod covered by the Periodic Report and results of operations of the Company for the period covered by the Periodic Report.Dated: March 12, 2019 /s/ Philip A. Falcone /s/ Michael J. SenaPhilip A. Falcone Michael J. SenaChairman, President and Chief Executive Officer(Principal Executive Officer) Chief Financial Officer (Principal Financial and AccountingOfficer)

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