Discontinued Operations and Exit Activities

12 Months Ended

Dec. 31, 2022

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations and Exit Activities

10. Discontinued Operations and Exit Activities

Sale of CIG

The sale of CIG closed on July 1, 2021 to Continental General Holdings LLC ("Continental"), an entity controlled by Michael Gorzynski, a former director of the Company who also serves as executive chairman of Continental since October 2020. Our previous segment incorporating CIG (the "Insurance segment"), which primarily consisted of a closed block of long-term care insurance, had a book value, inclusive of intercompany eliminations, at the time of the sale of $544.0 million, inclusive of $344.0 million of Accumulated other comprehensive income ("AOCI"). The carrying value of the Insurance segment at the time of sale excluded cash of $62.5 million and investments of $26.7 million which were distributed to the Company through an extraordinary dividend immediately prior to the sale. The extraordinary dividend was approved by our domestic regulator in connection with the approval of the sale. The amount included in AOCI was reversed from equity at the time of the sale and offset the loss recognized.

While several factors impacted the fair value of the Insurance segment at the end of 2019, following discussions with our domestic regulator, changes in the asset management fee arrangement and expectations of future dividends primarily and ultimately resulted in the full impairment of the goodwill associated with the Insurance segment in 2019. While these factors did not have a major impact on the operations of the stand-alone business, they did have a significant impact on the economic benefit that could be realized by the Company.

As a result of the factors described above, combined with the risks associated with the long-term care insurance industry, the Company exited the Insurance segment and sold the business resulting in a $200.8 million loss on the sale of CIG in the third quarter of 2021.

On September 3, 2022, INNOVATE and Continental entered into a tax cooperation agreement permitting Continental General Insurance Company ("CGIC") to consolidate into INNOVATE's 2021 U.S. tax return for the six-month period INNOVATE owned CGIC, allowing CGIC to shield some of its income tax liability by utilizing a portion of INNOVATE's Net Operating Losses ("NOLs") while also converting a portion of INNOVATE's IRC Sec. 163(j) carryforward assets into NOLs. Refer to Note 14. Income Taxes for additional information regarding income tax attributes.

The net tax savings of $3.1 million on CGIC's income tax liability was split between CGIC and INNOVATE in accordance with the tax sharing agreement, which was executed on October 11, 2022. INNOVATE recognized a current income tax benefit of $3.1 million in the current year and received $0.9 million as a result of the tax sharing agreement during the fourth quarter of 2022 and expects to receive the remaining $0.4 million in 2023. As CGIC is no longer a subsidiary of INNOVATE, the $1.8 million tax benefit received by CGIC from the tax sharing agreement was treated as a deemed contribution, and therefore INNOVATE recognized an additional $1.8 million loss related to the previous sale of the subsidiary, through continuing operations.

Sale of Beyond6

On January 15, 2021, the Company closed on the sale of Beyond6 to an affiliate of Mercuria Investments US, Inc., pursuant to an Agreement and Plan of Merger (the "Merger Agreement") among Beyond6, Greenfill, Inc., a Delaware corporation ("Parent"), Greenfill Merger Inc., a newly-formed Delaware corporation and wholly-owned subsidiary of the Parent, and an affiliate of INNOVATE as the Stockholder Representative for the Beyond6 stockholders, for a total purchase price, net of Beyond6's debt and transaction expenses, customary purchase price adjustments and escrow arrangements, of approximately $106.5 million. Net proceeds received by INNOVATE at closing was cash consideration of approximately $70.0 million. During the first quarter of 2021, the Company recognized a $39.2 million gain on the sale. During the third quarter of 2021, as a result of releases of related escrows and hold backs, the Company recognized an additional $0.5 million gain on the sale.

A portion of the proceeds from the sale of Beyond6 were used to repay $15.0 million of the then outstanding balance under the 6.75% line of credit with MSD PCOF Partners IX, LLC ("Revolving Credit Agreement") and repay $27.9 million of the Company's 2021 Senior Secured Notes.

Sale of GMSL

On February 28, 2020, the Company, through its indirect subsidiary, GMH, in which the Company holds an approximately 73% controlling interest, sold 100% of the shares of GMSL to Trafalgar AcquisitionCo, Ltd. and an affiliate of J.F. Lehman & Company, LLC. During the year ended December 31, 2021, the Company recognized a gain of $1.2 million as a result of an indemnity release related to the sale of GMSL.

Discontinued Operations Reporting

The results of Beyond6 and CIG, as well as the gain from GMSL, and the related expenses directly attributable to the entities were reported as discontinued operations. Formerly part of the Marine Services, Telecommunications, and Clean Energy segments, these entities were previously reclassified to the Other segment. Summarized operating results of the discontinued operations as of the periods indicated were as follows (in millions):


	Years Ended December 31,
		2022		2021
Revenue		$	—	$	1.7
Life, accident and health earned premiums, net		—		55.7
Net investment income		—		92.4
Realized/unrealized gains on investments		—		5.1
Total revenue		—		154.9
Cost of revenue		—		0.8
Policy benefits, changes in reserves, and commissions		—		126.0
Selling, general and administrative		—		21.1
Depreciation and amortization		—		(11.0)

Income from operations		—		18.0
Interest expense		—		(0.5)
Loss on sale and liquidation of subsidiaries		—		(159.9)

Other loss		—		(3.1)
Pre-tax loss from discontinued operations		—		(145.5)
Income tax expense		—		(4.4)
Loss from discontinued operations		$	—	$	(149.9)

Assets Held for Sale

As of December 31, 2022 the Company had no assets held for sale, and as of December 31, 2021, the Company had approximately $1.5 million of other current assets related to discontinued operations which were classified in Assets held for sale in the Consolidated Balance Sheet.

Exit Activities - HC2 Network Shut-Down

On December 31, 2022, Broadcasting shut-down the operations and broadcasting of the Azteca America network and, during the year ended December 31, 2022, terminated both the PLA and BSA with TV Azteca. HC2 Network did not quality for held-for-sale or discontinued operations as of December 31, 2022 as HC2 Network was not significant to the Company, does not represent a strategic shift and will not have a major effect on the Company's operations and financial results. As a result of the cessation of the Azteca operations, for the year ended December 31, 2022, the Company recognized employee-related termination costs of $0.7 million, which are included in Selling, general & administrative, and a net loss of $30 thousand which is included in Other (expense) income, net.

Restructuring Costs - DBM Global

DBMG incurred approximately $6.5 million of restructuring costs for the year ended December 31, 2022, which are reflected in Selling, general and administrative in the Consolidated Statements of Operations. These costs relate to a one-time internal project to evaluate and revamp DBMG's internal operations and back-office functions across all departments, including finance & accounting, risk management, human resources, IT and purchasing to improve future state delivery models and reduce redundancy throughout the organization. There are no remaining amounts accrued as of December 31, 2022.