Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
FORM 10-Q 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission File No. 001-35210
 
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13051933&doc=15
HC2 HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
54-1708481
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
450 Park Avenue, 30th Floor, New York, NY
 
10022
(Address of principal executive offices)
 
(Zip Code)
(212) 235-2690
(Registrant’s telephone number, including area code)
_____________________________________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $0.001 per share
HCHC
New York Stock Exchange

Indicate 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 12 months (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 of this 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 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 filer
x
Non-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 financial accounting 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 Exchange Act).    Yes       No  ý

As of July 31, 2019, 45,850,584 shares of common stock, par value $0.001, were outstanding.



HC2 HOLDINGS, INC.
INDEX TO FORM 10-Q


PART I. FINANCIAL INFORMATION

PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


1

HC2 HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in millions, except per share amounts)

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Revenue
 
$
439.9

 
$
455.0

 
$
844.8

 
$
870.5

Life, accident and health earned premiums, net
 
29.9

 
19.9

 
59.8

 
39.9

Net investment income
 
50.3

 
19.4

 
101.4

 
37.1

Net realized and unrealized gains (losses) on investments
 
(1.5
)
 
2.5

 
4.0

 
3.0

Net revenue
 
518.6

 
496.8

 
1,010.0

 
950.5

Operating expenses
 
 
 
 
 
 
 
 
Cost of revenue
 
381.2

 
400.6

 
738.9

 
776.3

Policy benefits, changes in reserves, and commissions
 
48.0

 
35.4

 
100.7

 
67.7

Selling, general and administrative
 
52.1

 
57.1

 
105.0

 
109.1

Depreciation and amortization
 
7.6

 
9.0

 
14.5

 
18.7

Other operating (income) expenses
 
(1.2
)
 
0.2

 
(1.6
)
 
(2.0
)
Total operating expenses
 
487.7

 
502.3

 
957.5

 
969.8

Income (loss) from operations
 
30.9

 
(5.5
)
 
52.5

 
(19.3
)
Interest expense
 
(23.0
)
 
(17.2
)
 
(45.3
)
 
(36.5
)
Gain on sale and deconsolidation of subsidiary
 

 
102.1

 

 
102.1

Income from equity investees
 
6.1

 
10.7

 
1.2

 
5.5

Gain on bargain purchase
 
1.1

 

 
1.1

 

Other income (expense), net
 
(4.7
)
 
(0.9
)
 
(1.4
)
 
0.2

Income from continuing operations
 
10.4

 
89.2

 
8.1

 
52.0

Income tax expense
 
(1.2
)
 
(9.4
)
 
(5.2
)
 
(11.1
)
Net income
 
9.2

 
79.8

 
2.9

 
40.9

Less: Net (income) loss attributable to noncontrolling interest and redeemable noncontrolling interest
 
0.2

 
(24.4
)
 
3.7

 
(20.5
)
Net income attributable to HC2 Holdings, Inc.
 
9.4

 
55.4

 
6.6

 
20.4

Less: Preferred dividends, deemed dividends, and repurchase gains
 
0.4

 
0.7

 
(0.8
)
 
1.4

Net income attributable to common stock and participating preferred stockholders
 
$
9.0

 
$
54.7

 
$
7.4

 
$
19.0

 
 
 
 
 
 
 
 
 
Income per common share
 
 
 
 
 
 
 
 
Basic
 
$
0.19

 
$
1.11

 
$
0.15

 
$
0.39

Diluted
 
$
0.12

 
$
1.08

 
$
0.08

 
$
0.38

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
45.6

 
44.2

 
45.2

 
44.1

Diluted
 
58.1

 
45.5

 
59.9

 
45.3



    












See notes to Condensed Consolidated Financial Statements

2

HC2 HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in millions)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Net income
 
$
9.2

 
$
79.8

 
$
2.9

 
$
40.9

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
 
(0.7
)
 
(6.2
)
 
0.2

 
(1.7
)
Unrealized gain (loss) on available-for-sale securities
 
81.4

 
(22.9
)
 
229.6

 
(51.6
)
Other comprehensive income (loss)
 
80.7

 
(29.1
)
 
229.8

 
(53.3
)
Comprehensive income (loss)
 
89.9

 
50.7

 
232.7

 
(12.4
)
Net (income) loss attributable to noncontrolling interest and redeemable noncontrolling interest
 
0.4

 
(24.4
)
 
3.6

 
(20.5
)
Comprehensive income (loss) attributable to HC2 Holdings, Inc.
 
$
90.3

 
$
26.3

 
$
236.3

 
$
(32.9
)


























See notes to Condensed Consolidated Financial Statements

3

HC2 HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in millions, except share amounts)

 

June 30, 2019
 
December 31, 2018
Assets

 
 
 
Investments:

 
 
 
Fixed maturity securities, available-for-sale at fair value

$
3,812.6


$
3,391.6

Equity securities

143.2


200.5

Mortgage loans

151.8


137.6

Policy loans

19.4


19.8

Other invested assets

71.1


72.5

Total investments

4,198.1


3,822.0

Cash and cash equivalents

280.4


325.0

Accounts receivable, net

350.7


379.2

Recoverable from reinsurers

961.4


1,000.2

Deferred tax asset

2.3


2.1

Property, plant and equipment, net

416.4


376.3

Goodwill

178.4


171.7

Intangibles, net

224.9


219.2

Other assets

270.6


208.1

Total assets

$
6,883.2


$
6,503.8

 




Liabilities, temporary equity and stockholders’ equity




Life, accident and health reserves

$
4,536.6


$
4,562.1

Annuity reserves

238.8


245.2

Value of business acquired

231.9


244.6

Accounts payable and other current liabilities

338.5


344.9

Deferred tax liability

59.9


30.3

Debt obligations

828.2


743.9

Other liabilities

197.9


110.8

Total liabilities

6,431.8


6,281.8

Commitments and contingencies




Temporary equity




Preferred stock

10.3


20.3

Redeemable noncontrolling interest

10.3


8.0

Total temporary equity

20.6


28.3

Stockholders’ equity




Common stock, $.001 par value




Shares authorized: 80,000,000 at June 30, 2019 and December 31, 2018;






Shares issued: 46,480,105 and 45,391,397 at June 30, 2019 and December 31, 2018;






Shares outstanding: 45,776,190 and 44,907,818 at June 30, 2019 and December 31, 2018, respectively






Additional paid-in capital

270.9


260.5

Treasury stock, at cost: 703,915 and 483,579 shares at June 30, 2019 and December 31, 2018, respectively

(3.2
)

(2.6
)
Accumulated deficit

(54.9
)

(57.2
)
Accumulated other comprehensive income (loss)

117.1


(112.6
)
Total HC2 Holdings, Inc. stockholders’ equity

329.9


88.1

Noncontrolling interest

100.9


105.6

Total stockholders’ equity

430.8


193.7

Total liabilities, temporary equity and stockholders’ equity

$
6,883.2


$
6,503.8












See notes to Condensed Consolidated Financial Statements

4

HC2 HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in millions)


 
 
Three Months Ended June 30, 2019
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
Total HC2 Stockholders' Equity
 
Non-
controlling
Interest
Total Stockholders’ Equity
Temporary Equity
 
 
 
 
Shares
 
Amount
 
Balance as of March 31, 2019
 
45.6

 
$

 
$
264.4

 
$
(3.2
)
 
$
(64.3
)
 
$
36.2

 
$
233.1

 
$
99.1

 
$
332.2

 
$
17.6

Share-based compensation
 

 

 
2.2

 

 

 

 
2.2

 

 
2.2

 

Preferred stock dividend
 

 

 
(0.2
)
 

 

 

 
(0.2
)
 

 
(0.2
)
 

Issuance of common stock
 
0.2

 

 

 

 

 

 

 

 

 

Transactions with noncontrolling interests
 

 

 
5.2

 

 

 

 
5.2

 
2.1

 
7.3

 
3.1

Other
 

 

 
(0.7
)
 

 

 

 
(0.7
)
 

 
(0.7
)
 

Net income (loss)
 

 

 

 

 
9.4

 

 
9.4

 
(0.1
)
 
9.3

 
(0.1
)
Other comprehensive income (loss)
 










80.9


80.9


(0.2
)

80.7



Balance as of June 30, 2019
 
45.8


$


$
270.9


$
(3.2
)

$
(54.9
)

$
117.1


$
329.9


$
100.9


$
430.8


$
20.6


 
 
Six Months Ended June 30, 2019
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
Total HC2 Stockholders' Equity
 
Non-
controlling
Interest
Total Stockholders’ Equity
Temporary Equity
 
 
 
 
Shares
 
Amount
 
Balance as of December 31, 2018
 
44.9

 
$

 
$
260.5

 
$
(2.6
)
 
$
(57.2
)
 
$
(112.6
)
 
$
88.1

 
$
105.6

 
$
193.7

 
$
28.3

Cumulative effect of accounting for leases (1)
 

 

 

 

 
(4.3
)
 

 
(4.3
)
 
(0.7
)
 
(5.0
)
 
(0.1
)
Share-based compensation
 

 

 
4.7

 

 

 

 
4.7

 

 
4.7

 

Fair value adjustment of redeemable noncontrolling interest
 

 

 
0.2

 

 

 

 
0.2

 

 
0.2

 
(0.2
)
Taxes paid in lieu of shares issued for share-based compensation
 
(0.2
)
 

 

 
(0.6
)
 

 

 
(0.6
)
 

 
(0.6
)
 

Preferred stock dividend
 

 

 
(0.5
)
 

 

 

 
(0.5
)
 

 
(0.5
)
 

Issuance of common stock
 
1.1

 

 

 

 

 

 

 

 

 

Purchase of preferred stock by subsidiary
 

 

 
1.7

 

 

 

 
1.7

 

 
1.7

 
(10.0
)
Transactions with noncontrolling interests
 

 

 
4.7

 

 

 

 
4.7

 
(0.9
)
 
3.8

 
3.1

Other
 

 

 
(0.4
)
 

 

 

 
(0.4
)
 

 
(0.4
)
 

Net income (loss)
 

 

 

 

 
6.6

 

 
6.6

 
(3.2
)
 
3.4

 
(0.5
)
Other comprehensive income
 










229.7


229.7


0.1


229.8



Balance as of June 30, 2019
 
45.8


$


$
270.9


$
(3.2
)

$
(54.9
)

$
117.1


$
329.9


$
100.9


$
430.8


$
20.6

(1) See Note 2. Summary of Significant Accounting Policies for further information about adjustments resulting from the Company’s adoption of new accounting standards in 2019 and 2018, respectively.








See notes to Condensed Consolidated Financial Statements

5

HC2 HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in millions)


 
 
Three Months Ended June 30, 2018
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
Total HC2 Stockholders' Equity
 
Non-
controlling
Interest
Total Stockholders’ Equity
Temporary Equity
 
 
 
 
Shares
 
Amount
 
Balance as of March 31, 2018
 
44.5

 
$

 
$
253.1

 
$
(2.4
)
 
$
(252.2
)
 
$
15.8

 
$
14.3

 
$
112.0

 
$
126.3

 
$
29.5

Cumulative effect of accounting for revenue recognition (1)
 

 

 

 

 
(0.3
)
 

 
(0.3
)
 
0.3

 

 

Share-based compensation
 

 

 
5.0

 

 

 

 
5.0

 

 
5.0

 

Fair value adjustment of redeemable noncontrolling interest
 

 

 
(0.8
)
 

 

 

 
(0.8
)
 

 
(0.8
)
 
0.8

Exercise of stock options
 
0.1

 

 
0.4

 

 

 

 
0.4

 

 
0.4

 

Preferred stock dividend
 

 

 
(0.5
)
 

 

 

 
(0.5
)
 

 
(0.5
)
 

Issuance of common stock
 
0.1

 

 

 

 

 

 

 

 

 

Transactions with noncontrolling interests
 

 

 
2.8

 

 

 
3.8

 
6.6

 
(27.7
)
 
(21.1
)
 
5.0

Net income
 

 

 

 

 
55.4

 

 
55.4

 
24.3

 
79.7

 
0.2

Other comprehensive income (loss)
 










(28.8
)

(28.8
)

0.4


(28.4
)

(0.8
)
Balance as of June 30, 2018
 
44.7

 
$

 
$
260.0

 
$
(2.4
)
 
$
(197.1
)
 
$
(9.2
)
 
$
51.3

 
$
109.3

 
$
160.6

 
$
34.7


 
 
Six Months Ended June 30, 2018
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
Total HC2 Stockholders' Equity
 
Non-
controlling
Interest
Total Stockholders’ Equity
Temporary Equity
 
 
 
 
Shares
 
Amount
 
Balance as of December 31, 2017
 
44.2

 
$

 
$
254.7

 
$
(2.1
)
 
$
(221.2
)
 
$
41.7

 
$
73.1

 
$
115.0

 
$
188.1

 
$
27.9

Cumulative effect of accounting for revenue recognition (1)
 

 

 

 

 
0.4

 

 
0.4

 
0.3

 
0.7

 

Cumulative effect of accounting for the recognition and measurement of financial assets and financial liabilities (1)
 

 

 

 

 
3.3

 
(1.7
)
 
1.6

 

 
1.6

 

Share-based compensation
 

 

 
6.6

 

 

 

 
6.6

 

 
6.6

 

Fair value adjustment of redeemable noncontrolling interest
 

 

 
(3.3
)
 

 

 

 
(3.3
)
 

 
(3.3
)
 
3.3

Exercise of stock options
 
0.1

 

 
0.4

 

 

 

 
0.4

 

 
0.4

 

Taxes paid in lieu of shares issued for share-based compensation
 
(0.1
)
 

 

 
(0.3
)
 

 

 
(0.3
)
 

 
(0.3
)
 

Preferred stock dividend
 

 

 
(1.0
)
 

 

 

 
(1.0
)
 

 
(1.0
)
 

Issuance of common stock
 
0.5

 

 

 

 

 

 

 

 

 

Transactions with noncontrolling interests
 

 

 
2.6

 

 

 
3.8

 
6.4

 
(27.7
)
 
(21.3
)
 
5.0

Net income
 

 

 

 

 
20.4

 

 
20.4

 
21.3

 
41.7

 
(0.7
)
Other comprehensive income (loss)
 










(53.0
)

(53.0
)

0.4


(52.6
)

(0.8
)
Balance as of June 30, 2018
 
44.7

 
$

 
$
260.0

 
$
(2.4
)
 
$
(197.1
)
 
$
(9.2
)
 
$
51.3

 
$
109.3

 
$
160.6

 
$
34.7

(1) See Note 2. Summary of Significant Accounting Policies for further information about adjustments resulting from the Company’s adoption of new accounting standards in 2019 and 2018, respectively.






See notes to Condensed Consolidated Financial Statements

6

HC2 HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)


 
 
Six Months Ended June 30,
 
 
2019
 
2018
Cash flows from operating activities
 
 
 
 
Net income
 
$
2.9

 
$
40.9

Adjustments to reconcile net income to cash provided by (used in) operating activities
 
 
 
 
Provision for doubtful accounts receivable
 
0.4

 
0.8

Share-based compensation expense
 
3.8

 
4.8

Depreciation and amortization
 
19.0

 
22.0

Amortization of deferred financing costs and debt discount
 
6.2

 
4.7

Amortization of (discount) premium on investments
 
3.9

 
2.4

Gain on embedded derivative
 
(5.6
)
 

Gain on sale or disposal of assets
 
(0.8
)
 
(2.4
)
Gain on sale or disposal of a subsidiary
 

 
(102.1
)
Income from equity investees
 
(1.2
)
 
(5.5
)
Net realized and unrealized gains on investments
 
(3.5
)
 
(3.0
)
Receipt of dividends from equity investees
 
7.6

 
3.1

Annuity benefits
 
2.9

 
4.2

Other operating activities
 
2.9

 
1.9

Changes in assets and liabilities, net of acquisitions
 
 
 
 
Accounts receivable
 
41.5

 
(23.1
)
Recoverable from reinsurers
 
0.2

 
(4.9
)
Other assets
 
(5.1
)
 
(21.4
)
Life, accident and health reserves
 
12.9

 
34.1

Accounts payable and other current liabilities
 
(28.4
)
 
(9.7
)
Other liabilities
 
(22.8
)
 
12.0

Cash provided by (used in) operating activities
 
36.8


(41.2
)
Cash flows from investing activities
 
 
 
 
Purchase of property, plant and equipment
 
(19.2
)
 
(20.2
)
Disposal of property, plant and equipment
 
3.7

 
3.5

Purchase of investments
 
(575.3
)
 
(207.5
)
Sale of investments
 
449.3

 
155.5

Maturities and redemptions of investments
 
37.2

 
40.0

Cash received from dispositions, net
 

 
93.3

Cash paid on acquisitions
 
(53.5
)
 
(46.0
)
Other investing activities
 
3.2

 
(2.2
)
Cash (used in) provided by investing activities
 
(154.6
)
 
16.4

Cash flows from financing activities
 
 
 
 
Proceeds from debt obligations
 
84.9

 
180.3

Principal payments on debt obligations
 
(10.3
)
 
(110.7
)
Cash received by subsidiary to issue preferred stock
 
8.9

 

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

Annuity receipts
 
1.1

 
1.3

Annuity surrenders
 
(9.5
)
 
(11.2
)
Transactions with noncontrolling interests
 
5.5

 
(14.9
)
Payment of dividends
 
(1.7
)
 
(1.0
)
Other financing activities
 
(1.6
)
 
(0.7
)
Cash provided by financing activities
 
69.0

 
43.1

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


(0.3
)
Net change in cash, cash equivalents and restricted cash
 
(48.5
)
 
18.0

Cash, cash equivalents and restricted cash, beginning of period
 
330.4

 
98.9

Cash, cash equivalents and restricted cash, end of period
 
$
281.9


$
116.9

 
 
 
 
 
Supplemental cash flow information:
 
 
 
 
Cash paid for interest
 
$
38.7

 
$
33.9

Cash paid for taxes (net of refunds)
 
$
3.7

 
$
11.5

Non-cash investing and financing activities:
 
 
 
 
Property, plant and equipment included in accounts payable
 
$
6.3

 
$
1.2

Investments included in accounts payable
 
$
31.6

 
$
0.8

Investments included in accounts receivable
 
$
9.7

 
$




 
See notes to Condensed Consolidated Financial Statements

7


HC2 HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1. Organization and Business

HC2 Holdings, Inc. ("HC2" and, together with its consolidated subsidiaries, the "Company", "we" and "our") is a diversified holding company which seeks to acquire and grow attractive businesses that we believe can generate long-term sustainable free cash flow and attractive returns. While the Company generally intends to acquire controlling equity interests in its operating subsidiaries, the Company may invest to a limited extent in a variety of debt instruments or noncontrolling equity interest positions. The Company’s shares of common stock trade on the NYSE under the symbol "HCHC".

The Company currently has 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 Modelling modeler, detailer, fabricator and erector of structural steel and heavy steel plate. DBMG models, details, fabricates and erects structural steel for commercial and industrial construction projects such as high- and low-rise buildings and office complexes, hotels and casinos, convention centers, sports arenas, shopping malls, hospitals, dams, bridges, mines and power plants. DBMG also fabricates trusses and girders and specializes in the fabrication and erection of large-diameter water pipe and water storage tanks. Through GrayWolf, DBMG provides services including maintenance, repair, and installation to a diverse range of end markets in order to provide high-quality outage, turnaround, and new installation services to customers. Through Aitken Manufacturing, DBMG manufactures pollution control scrubbers, tunnel liners, pressure vessels, strainers, filters, separators and a variety of customized products. The Company maintains an approximately 92% controlling interest in DBMG.

2.Our Marine Services segment is comprised of Global Marine Systems Limited ("GMSL"). GMSL is a leading provider of engineering and underwater services on submarine cables and operates under the Global Marine Group brand. GMSL aims to maintain its leading market position in the telecommunications maintenance segment and seeks opportunities to grow its installation activities in the three market sectors (telecommunications, offshore power, and oil and gas) while capitalizing on high market growth in the offshore power sector through expansion of its installation and maintenance 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 69% controlling interest in ANG.

4.Our Telecommunications segment is comprised of PTGi International Carrier Services, Inc. ("ICS"). ICS operates a telecommunications business including a network of direct routes and provides premium voice communication services for national telecommunications operators, mobile operators, wholesale carriers, prepaid operators, voice over internet protocol service operators and internet service providers. ICS provides a quality service via direct routes and by forming strong relationships with carefully selected partners. The Company maintains a 100% interest in ICS.

5.Our Insurance segment is comprised of Continental Insurance Group Ltd. ("CIG") and its wholly-owned subsidiary Continental General Insurance Company (“CGI”). CGI provides long-term care, life, annuity, and other accident and health coverage that help protect policy and certificate holders from the financial hardships associated with illness, injury, loss of life, or income continuation.  The Company maintains a 100% interest in CIG.

6.Our Life Sciences segment is comprised of Pansend Life Sciences, LLC ("Pansend"). Pansend maintains controlling interests of approximately 80% in Genovel Orthopedics, Inc. ("Genovel"), which seeks to develop products to treat early osteoarthritis of the knee and approximately 63% in R2 Dermatology Inc. ("R2"), which develops skin lightening technology. Pansend also invests in other early stage or developmental stage healthcare companies including an approximately 50% interest in MediBeacon Inc., and an investment in Triple Ring Technologies, Inc.

7.Our Broadcasting segment is comprised of HC2 Broadcasting Holdings Inc. ("HC2 Broadcasting") and its subsidiaries. HC2 Broadcasting strategically acquires and operates over-the-air broadcasting stations across the United States. In addition, HC2 Broadcasting, through its wholly-owned subsidiary, HC2 Network Inc. ("Network"), operates Azteca America, a Spanish-language broadcast network offering high quality Hispanic content to a diverse demographic across the United States. The Company maintains an approximately 98% controlling interest in HC2 Broadcasting and an approximately 50% controlling interest in DTV America Corporation ("DTV") as well as approximately 10% proxy and voting rights from minority holders.

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 in the aggregate.


8


HC2 HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

2. Summary of Significant Accounting Policies

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries and all other subsidiaries over which the Company exerts control. All intercompany profits, transactions and balances have been eliminated in consolidation. As of June 30, 2019, the results of DBMG, GMSL, ANG, ICS, CIG, Genovel, R2, and HC2 Broadcasting have been consolidated into the Company’s results based on guidance from the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC" 810, Consolidation). The remaining interests not owned by the Company are presented as a noncontrolling interest component of total equity.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of the Company included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of such information. All such adjustments are of a normal recurring nature. Certain information and note disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), have been condensed or omitted pursuant to such rules and regulations. Certain prior amounts have been reclassified or combined to conform to the current year presentation. These reclassifications and combinations had no effect on previously reported net loss attributable to controlling interest or accumulated deficit. These interim financial statements should be read in conjunction with the Company’s annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on March 12, 2019. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results for any subsequent periods or the entire fiscal year ending December 31, 2019.

Use of Estimates and Assumptions

The preparation of the Company’s Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions used.

Statement of Cash Flows

The following table provides a reconciliation of cash and cash equivalents and restricted cash to amounts reported within the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows (in millions):
 
 
June 30, 2019
 
June 30, 2018
Cash and cash equivalents, beginning of period
 
$
325.0

 
$
97.9

Restricted cash included in other assets
 
5.4

 
1.0

Total cash and cash equivalents and restricted cash
 
$
330.4

 
$
98.9

 
 
 
 
 
Cash and cash equivalents, end of period
 
$
280.4

 
$
112.3

Restricted cash included in other assets
 
1.5

 
4.6

Total cash and cash equivalents and restricted cash
 
$
281.9


$
116.9


Accounting Pronouncements Adopted in the Current Year

The Company’s 2018 Form 10-K includes discussion of significant recent accounting pronouncements that either have impacted or may impact our financial statements in the future. The following discussion provides information about recently adopted and recently issued or changed accounting guidance (applicable to the Company ) that have occurred since the Company filed its 2018 Form 10-K. The Company has implemented all new accounting pronouncements that are in effect and that may impact its Condensed Consolidated Financial Statements and 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 operations or liquidity.

Effective January 1, 2019 the Company adopted the accounting pronouncements described below.

Accounting for Leases

ASU 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 resulting in 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. Upon adoption, the Company recognized right of use ("ROU") assets and lease liabilities in the amount of $67.1 million and $74.1 million, respectively, within Other assets and Other liabilities lines of the Condensed Consolidated Financial

9


HC2 HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Statements, respectively, and utilizing the modified retrospective approach, we evaluated ROU assets for impairment and determined that approximately $5.1 million of newly recognized ROU assets that existed immediately prior to the effective date were impaired. The impairment of ROU assets as of January 1, 2019, was recorded as a reduction to retained earnings and noncontrolling interests.

Accounting Pronouncements to be Adopted Subsequent to December 31, 2019

Credit Loss Standard

ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, was issued by FASB in June 2016. This standard is effective January 1, 2020 (with early adoption permitted), and will impact, at least to some extent, the Company's accounting and disclosure requirements for it's recoverable from reinsurers, accounts receivable, and mortgage loans. Available for sale fixed maturity securities are not in scope of the new credit loss model, but will undergo targeted improvements to the current reporting model including the establishment of a valuation allowance for credit losses versus the current direct write down approach. The Company will continue to identify any other financial assets not excluded from scope. The Company 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:

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

Credit losses relating to available for sale fixed maturity securities will be recorded through an allowance for credit losses, rather than reductions in the amortized cost of the securities and is anticipated to increase volatility in the Company's Consolidated Statements of Operations. The allowance methodology recognizes that value may be realized either through collection of contractual cash flows or through the sale of the security. Therefore, the amount of the allowance for credit losses will be limited to the amount by which fair value is below amortized cost because the classification as available for sale is premised on an investment strategy that recognizes that the investment could be sold at fair value, if cash collection would result in the realization of an amount less than fair value.

The Company's Consolidated Statements of Operations will reflect the measurement of expected credit losses for newly recognized financial assets as well as the expected increases or decreases (including the reversal of previously recognized losses) of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

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

The Company anticipates a significant impact on 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 continues to focus on developing models and procedures, with testing and refinement of models occurring in the second half of the year 2019.  Focus areas will include, but not be limited to: (i) updating procedures to reflect new guidance requiring establishment of allowance for credit losses on available for sale debt securities; (ii) establishing procedures to review reinsurance risk to include but not limited to review of reinsurer ratings, trust agreements where applicable and historical and current performance; (iii) establishing procedures to identify and review all remaining financial assets within scope; and (iv) developing, testing, and implementing controls for newly developed procedures, as well as for additional annual reporting requirements.

Long-Duration Contracts

ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, was issued by the FASB in August 2018 and is expected to have a significant impact on the Company’s 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. The Company 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 accounting policy requires the liability assumptions for long-duration contracts and limited payment contracts be locked in at contract inception, unless the contracts project a loss position which would allow the liability assumptions to be unlocked so that the loss could be recognized.


10


HC2 HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The rate used to discount the liability projections is to be based on an A-rated asset with observable market inputs and duration consistent with the duration of the liabilities. The discount rate is to be updated quarterly with the impact of the change in the discount rate recognized through other comprehensive income. Current accounting policy allows the use of an expected investment yield (which is not required to be observable in the market) to discount the liability projections.

Deferred acquisition costs for long-duration contracts are to be amortized in proportion to premiums, gross profits, or gross margins and those balances must be amortized on a constant-level basis over the expected life of the contract. Current accounting policy would amortize deferred acquisition costs based on revenue and profits. The Company does not have any deferred acquisition costs but VOBA amortization will follow this new guidance.

Market risk benefits are to be measured at fair value and presented separately in the statement of financial position. Under current accounting policy benefit features that will meet the definition of market risk benefits are accounted for as embedded derivatives or insurance liabilities via the benefit ratio model. The Company does not have any benefit features that will be categorized as market risk benefits.

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

The Company anticipates that the requirement to update assumptions for liability for future policy benefits will increase volatility in the Company's Consolidated Statements of Operations while the requirement to update the discount rate will increase volatility in the Company's Consolidated Statements of Stockholders' Equity. The Company anticipates a significant impact on the systems, processes and controls. While the requirements of the new guidance represent a material change from existing GAAP, the underlying economics of the Company's Insurance segment and related cash flows are unchanged.

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 not be limited to: (i) determining an appropriate upper-medium grade fixed income instrument yield source from the market; (ii) establishing appropriate aggregation of liabilities; (iii) establishing liability models for each contract grouping identified that may be quickly updated to reflect current inforce listing and new discount rates on a quarterly basis; (iv) establishing appropriate best estimate assumptions with no provision for adverse deviation; (v) establishing procedures for annual review of assumptions including tracking of actual experience for enhanced reporting requirements; (vi) establishing new VOBA amortization that will align with new guidance for DAC amortization; and (vii) developing, testing, and implementing controls for newly developed procedures, as well as for additional annual reporting requirements.    

Subsequent Events

ASC 855, Subsequent Events requires the Company to evaluate events that occur after the balance sheet date as of which the financial statements are issued, and to determine whether adjustments to or additional disclosures in the financial statements are necessary. See Note 22. Subsequent Events for the summary of the subsequent events.

3. Revenue

Revenue from contracts with customers consist of the following (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Revenue (1)
 
 
 
 
 
 
 
 
Construction
 
$
195.7

 
$
176.9

 
$
387.8

 
$
335.9

Marine Services
 
39.4

 
68.4

 
81.8

 
105.1

Energy
 
5.5

 
7.1

 
10.6

 
11.6

Telecommunications
 
189.3

 
190.5

 
344.8

 
392.8

Broadcasting
 
10.0

 
11.1

 
19.8

 
21.7

Other
 

 
1.0

 

 
3.4

Total revenue

$
439.9


$
455.0


$
844.8

 
$
870.5

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

11


HC2 HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Accounts receivables, net from contracts with customers consist of the following (in millions):
 
 
June 30, 2019
 
December 31, 2018
Accounts receivables with customers
 
 
 
 
Construction
 
$
190.1

 
$
196.6

Marine Services
 
37.7

 
48.3

Energy
 
5.7

 
3.3

Telecommunications
 
90.5

 
117.6

Broadcasting
 
8.7

 
9.2

Total accounts receivables with customers
 
$
332.7

 
$
375.0


Construction Segment

The following table disaggregates DBMG's revenue by market (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Commercial
 
$
52.9

 
$
67.9

 
$
112.3

 
$
137.5

Convention
 
28.4

 
22.2

 
57.1

 
53.8

Healthcare
 
13.6

 
29.2

 
22.4

 
57.1

Industrial
 
62.7

 
28.3

 
116.5

 
36.1

Transportation
 
16.3

 
8.2

 
34.4

 
13.4

Other
 
21.6

 
21.1

 
44.9

 
38.0

Total revenue from contracts with customers
 
195.5


176.9


387.6


335.9

Other revenue
 
0.2

 

 
0.2

 

Total Construction segment revenue
 
$
195.7


$
176.9


$
387.8


$
335.9


Contract Assets and Contract Liabilities

Contract assets and contract liabilities consisted of the following (in millions):
 
 
June 30, 2019
 
December 31, 2018
Contract assets
 
$
59.7

 
$
69.0

Contract liabilities
 
$
(49.6
)
 
$
(62.0
)

The change in contract assets is a result of the recording of $28.6 million of costs in excess of billings driven by new commercial projects, offset by $34.6 million of costs in excess of billings transferred to receivables from contract assets recognized at the beginning of the period. The change in contract liabilities is a result of periodic billing in excess of costs of $40.8 million driven largely by new commercial projects, offset by revenue recognized that was included in the contract liability balance at the beginning of the period in the amount of $53.0 million.

The transaction price allocated to remaining unsatisfied performance obligations consisted of the following (in millions):
 
 
Within one year
 
Within five years
 
Total
Commercial
 
$
96.7

 
$
25.1

 
$
121.8

Convention
 
26.4

 

 
26.4

Healthcare
 
35.8

 

 
35.8

Industrial
 
127.0

 
19.9

 
146.9

Transportation
 
90.1

 
1.2

 
91.3

Other
 
46.1

 
0.2

 
46.3

Remaining unsatisfied performance obligations
$
422.1

 
$
46.4

 
$
468.5



12


HC2 HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Marine Services Segment

The following table disaggregates GMSL's revenue by market (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Telecommunication - Maintenance
 
$
20.0

 
$
22.1

 
$
41.0

 
$
43.9

Telecommunication - Installation
 
10.0

 
16.5

 
15.4

 
23.8

Power - Operations, Maintenance & Construction Support
 
5.1

 
11.9

 
9.3

 
16.6

Power - Cable Installation & Repair
 
4.3

 
17.9

 
16.1

 
20.8

Total revenue from contracts with customers
 
39.4

 
68.4

 
81.8


105.1

Other revenue
 

 

 

 

Total Marine Services segment revenue
 
$
39.4

 
$
68.4

 
$
81.8


$
105.1


Contract assets and contract liabilities consisted of the following (in millions):
 
 
June 30, 2019
 
December 31, 2018
Contract assets
 
$
11.5

 
$
5.2

Contract liabilities
 
$
(15.8
)
 
$
(1.0
)

The transaction price allocated to remaining unsatisfied performance obligations consisted of the following (in millions):
 
 
Within one year
 
Within five years
 
Thereafter
 
Total
Telecommunication - Maintenance
 
$
37.2

 
$
217.4

 
$
59.9

 
$
314.5

Telecommunication - Installation
 
15.3

 

 

 
15.3

Power - Operations, Maintenance & Construction Support
 
5.9

 
18.9

 

 
24.8

Power - Cable Installation & Repair
 
3.0

 
48.6

 

 
51.6

Remaining unsatisfied performance obligations
$
61.4


$
284.9


$
59.9

 
$
406.2


Energy Segment

The following table disaggregates ANG's revenue by type (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Volume-related
 
$
5.3

 
$
4.0

 
$
10.1

 
$
8.1

Maintenance services
 

 

 

 
0.1

Total revenue from contracts with customers
 
5.3

 
4.0

 
10.1


8.2

RNG incentives
 
0.1

 
0.4

 
0.4

 
0.7

Alternative fuel tax credit
 

 
2.6

 

 
2.6

Other revenue
 
0.1

 
0.1

 
0.1

 
0.1

Total Energy segment revenue
 
$
5.5

 
$
7.1

 
$
10.6


$
11.6


Telecommunications Segment

ICS's revenues are predominantly derived from wholesale of international long distance minutes (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Termination of long distance minutes
 
$
189.3

 
$
190.5

 
$
344.8

 
$
392.8

Total revenue from contracts with customers
 
189.3

 
190.5

 
344.8

 
392.8

Other revenue
 

 

 

 

Total Telecommunications segment revenue
 
$
189.3

 
$
190.5

 
$
344.8

 
$
392.8


13


HC2 HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Broadcasting Segment

The following table disaggregates the Broadcasting segment's revenue by type (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Network advertising
 
$
5.4

 
$
7.0

 
$
10.8

 
$
13.8

Broadcast station
 
2.9

 
2.8

 
5.6

 
5.5

Network distribution
 
1.2

 
0.9

 
2.7

 
1.8

Other
 
0.5

 
0.4

 
0.7

 
0.6

Total revenue from contracts with customers
 
10.0

 
11.1

 
19.8

 
21.7

Other revenue
 

 

 

 

Total Broadcasting segment revenue
 
$
10.0

 
$
11.1

 
$
19.8

 
$
21.7


The transaction price allocated to remaining unsatisfied performance obligations consisted of $4.1 million and $7.7 million of network advertising and broadcasting station revenues, respectively of which $4.1 million is expected to be recognized within one year and $7.7 million is expected to be recognized within five years.

4. Acquisitions, Dispositions, and Deconsolidations

Construction Segment

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

The preliminary allocation of the fair value of consideration transferred among the identified assets acquired, liabilities assumed, intangibles and residual goodwill are summarized as follows (in millions):
Other invested assets
 
$
0.9

Cash and cash equivalents
 
8.6

Accounts receivable
 
28.8

Property, plant and equipment
 
15.4

Goodwill
 
50.7

Intangibles
 
44.1

Other assets
 
18.9

Total assets acquired
 
167.4

Accounts payable and other current liabilities
 
(23.7
)
Other liabilities
 
(3.9
)
Total liabilities assumed
 
(27.6
)
Total net assets acquired
 
$
139.8


The 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 liability fair 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 deductible for tax purposes.

Acquisition costs incurred by DBMG in connection with the acquisition of GrayWolf were approximately $4.2 million, which were included in selling, general and administrative expenses. The acquisition costs were primarily related to legal, accounting and valuation services.

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


14


HC2 HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Energy Segment

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

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

Insurance Segment

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

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

The preliminary allocation of the fair value of consideration transferred among the identified assets acquired, liabilities assumed and bargain purchase gain are summarized as follows (in millions):
Fixed maturity securities, available-for-sale at fair value
 
$
1,575.4

Equity securities
 
0.3

Mortgage loans
 
0.9

Policy loans
 
2.9

Cash and cash equivalents
 
806.6

Recoverable from reinsurers