SEC Filing | Cannae Holdings, Inc.

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



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

For the quarterly period ended March 31, 2020



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

Commission File Number 1-38300

CANNAE HOLDINGS, INC.

______________________________________________________________________________________________________________________________________________________

(Exact name of registrant as specified in its charter)



Delaware			82-1273460
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

1701 Village Center Circle,	Las Vegas,	Nevada	89134
(Address of principal executive offices)			(Zip Code)

(702) 323-7330

___________________________________________________________________

(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
Cannae Common Stock, $0.0001 par value	CNNE	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 ☑ 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). Yes ☑ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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	☐	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 ☑

As of April 30, 2020 there were 79,006,724 shares of the Registrant's common stock outstanding.

FORM 10-Q

QUARTERLY REPORT

Quarter Ended March 31, 2020

TABLE OF CONTENTS




	Page
Part I: FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
A. Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019	1
B. Condensed Consolidated Statements of Operations for the three-month periods ended March 31, 2020 and 2019	2
C. Condensed Consolidated Statements of Comprehensive Earnings for the three-month periods ended March 31, 2020 and 2019	3
D. Condensed Consolidated Statements of Equity for the three-month periods ended March 31, 2020 and 2019	4
E. Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2020 and 2019	5
F. Notes to Condensed Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3. Quantitative and Qualitative Disclosure About Market Risk	30
Item 4. Controls and Procedures	30
Part II: OTHER INFORMATION
Item 1. Legal Proceedings	31
Item 1A. Risk Factors	31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 6. Exhibits	33

Table of Contents

Part I: FINANCIAL INFORMATION


Item 1.	Condensed Consolidated Financial Statements

CANNAE HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)



	March 31, 2020			December 31, 2019

ASSETS
Current assets:
Cash and cash equivalents	$	444.3		$	533.7
Short-term investments	0.8			0.5
Trade receivables	3.2			16.0
Inventory	8.1			16.3
Prepaid expenses and other current assets	35.0			64.4
Total current assets	491.4			630.9
Investment in Ceridian, at fair value - see Note A	993.4			—
Investments in unconsolidated affiliates	759.2			836.5
Lease assets	145.0			192.9
Property and equipment, net	137.9			162.6
Other intangible assets, net	38.3			63.1
Goodwill	53.5			66.1
Fixed maturity securities available for sale, at fair value	26.1			19.2
Deferred tax asset	—			54.5
Other long term investments and non-current assets	60.3			66.4
Total assets	$	2,705.1		$	2,092.2

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and other accrued liabilities, current	$	57.8		$	86.4
Lease liabilities, current	26.7			41.5
Income taxes payable	45.1			37.4
Deferred revenue	16.2			26.4
Notes payable, current	6.3			7.0
Total current liabilities	152.1			198.7
Lease liabilities, long term	138.4			199.7
Deferred tax liability	124.5			—
Notes payable, long term	42.6			120.1
Accounts payable and other accrued liabilities, long term	42.5			43.9
Total liabilities	500.1			562.4
Commitments and contingencies - see Note G
Equity:
Cannae common stock, $0.0001 par value; authorized 115,000,000 shares as of March 31, 2020 and December 31, 2019; outstanding of 79,130,316 and 79,516,833 shares as of March 31, 2020 and December 31, 2019, respectively, and issued of 79,727,972 shares as of March 31, 2020 and December 31, 2019, respectively	—			—
Preferred stock, $0.0001 par value; authorized 10,000,000 shares; issued and outstanding, none as of March 31, 2020 and December 31, 2019	—			—
Retained earnings	791.3			143.6
Additional paid-in capital	1,406.1			1,396.7
Less: Treasury stock, 597,656 and 211,139 shares as of March 31, 2020 and December 31, 2019, respectively, at cost	(16.7		)	(5.9		)
Accumulated other comprehensive loss	(0.2		)	(45.9		)
Total Cannae shareholders' equity	2,180.5			1,488.5
Noncontrolling interests	24.5			41.3
Total equity	2,205.0			1,529.8
Total liabilities and equity	$	2,705.1		$	2,092.2

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CANNAE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions)

(Unaudited)



	Three months ended March 31,
	2020			2019

Revenues:
Restaurant revenue	$	169.9		$	257.8
Other operating revenue	3.1			4.5
Total operating revenues	173.0			262.3
Operating expenses:
Cost of restaurant revenue	153.1			227.0
Personnel costs	29.2			16.1
Depreciation and amortization	8.4			10.4
Other operating expenses	27.9			19.9
Goodwill impairment	7.7			—
Total operating expenses	226.3			273.4
Operating loss	(53.3		)	(11.1		)
Other income (expense):
Interest, investment and other income	2.2			11.0
Interest expense	(3.8		)	(3.7		)
Realized and other gains and losses, net	915.1			1.6
Total other income	913.5			8.9
Earnings (loss) before income taxes and equity in losses of unconsolidated affiliates	860.2			(2.2		)
Income tax expense (benefit)	169.4			(6.0		)
Earnings before equity in losses of unconsolidated affiliates	690.8			3.8
Equity in losses of unconsolidated affiliates	(52.7		)	(21.4		)
Earnings (loss) from continuing operations	638.1			(17.6		)
Net losses from discontinued operations, net of tax - see Note L	—			(2.3		)
Net earnings (loss)	638.1			(19.9		)
Less: Net loss attributable to non-controlling interests	(9.6		)	(3.1		)
Net earnings (loss) attributable to Cannae Holdings, Inc. common shareholders	$	647.7		$	(16.8	)
Amounts attributable to Cannae Holdings, Inc. common shareholders
Net earnings (loss) from continuing operations attributable to Cannae Holdings, Inc. common shareholders	$	647.7		$	(14.8	)
Net loss from discontinued operations attributable to Cannae Holdings, Inc. common shareholders	—			(2.0		)
Net earnings (loss) attributable to Cannae Holdings, Inc. common shareholders	$	647.7		$	(16.8	)
Earnings per share
Basic
Net earnings (loss) per share from continuing operations	$	8.19		$	(0.21	)
Net loss per share from discontinued operations	—			(0.03		)
Net earnings (loss) per share	$	8.19		$	(0.24	)
Diluted
Net earnings (loss) per share from continuing operations	$	8.17		$	(0.21	)
Net loss per share from discontinued operations	—			(0.03		)
Net earnings (loss) per share	$	8.17		$	(0.24	)
Weighted Average Shares Outstanding
Weighted average shares outstanding Cannae Holdings common stock, basic basis	79.1			71.6
Weighted average shares outstanding Cannae Holdings common stock, diluted basis	79.3			71.6

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CANNAE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)

(In millions)

(Unaudited)



	Three months ended March 31,
	2020			2019
Net earnings (loss)	$	638.1		$	(19.9	)
Other comprehensive earnings (loss), net of tax:
Unrealized gain (loss) on investments and other financial instruments, net (excluding investments in unconsolidated affiliates) (1)	5.3			(0.2		)
Unrealized (loss) gain relating to investments in unconsolidated affiliates (2)	(3.9		)	5.9
Reclassification adjustments for unrealized gains and losses on unconsolidated affiliates, net of tax, included in net earnings (3)	44.3			0.6
Other comprehensive earnings	45.7			6.3
Comprehensive earnings (loss)	683.8			(13.6		)
Less: Comprehensive loss attributable to noncontrolling interests	(9.6		)	(3.1		)
Comprehensive earnings (loss) attributable to Cannae Holdings, Inc.	$	693.4		$	(10.5	)

_________________________________


(1)	Net of income tax expense (benefit) of $1.4 million and $(0.1) million for the three months ended March 31, 2020 and 2019, respectively.


(2)	Net of income tax (benefit) expense of $(1.0) million and $1.6 million for the three months ended March 31, 2020 and 2019, respectively.


(3)	Net of income tax expense of $11.8 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CANNAE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In millions)

(Unaudited)



	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comp (Loss) Earnings			Treasury Stock				Non-controlling Interests			Total Equity
	Shares	$		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comp (Loss) Earnings			Shares	$			Non-controlling Interests			Total Equity

Balance, December 31, 2018	72.2	$	—	$	1,146.2		$	45.8		$	(67.2	)	—	$	(0.2	)	$	75.1		$	1,199.7
Adjustment for cumulative effect of adoption of accounting standards by unconsolidated affiliates	—	—		—			20.5			(5.0		)	—	—			—			15.5
Other comprehensive earnings — unrealized loss on investments and other financial instruments, net of tax	—	—		—			—			(0.2		)	—	—			—			(0.2		)
Other comprehensive earnings — unrealized earnings of investments in unconsolidated affiliates, net of tax	—	—		—			—			5.9			—	—			—			5.9
Reclassification adjustments for unrealized gains and losses on unconsolidated affiliates, net of tax, included in net earnings	—	—		—			—			0.6			—	—			—			0.6
Dun & Bradstreet equity issuance costs	—	—		(1.4		)	—			—			—	—			—			(1.4		)
Stock-based compensation, consolidated subsidiaries	—	—		0.9			—			—			—	—			—			0.9
Contribution of CSA services from FNF	—	—		0.3			—			—			—	—			—			0.3
Stock-based compensation, unconsolidated affiliates	—	—		1.5			—			—			—	—			—			1.5
Subsidiary dividends paid to noncontrolling interests	—	—		—			—			—			—	—			(0.4		)	(0.4		)
Net loss	—	—		—			(16.8		)	—			—	—			(3.1		)	(19.9		)
Balance, March 31, 2019	72.2	$	—	$	1,147.5		$	49.5		$	(65.9	)	—	$	(0.2	)	$	71.6		$	1,202.5

Balance, December 31, 2019	79.7	$	—	$	1,396.7		$	143.6		$	(45.9	)	0.2	$	(5.9	)	$	41.3		$	1,529.8
Restaurant Group reorganization and deconsolidation of Blue Ribbon	—	—		5.2			—			—			—	—			(10.3		)	(5.1		)
Other comprehensive earnings — unrealized gain on investments and other financial instruments, net of tax	—	—		—			—			5.3			—	—			—			5.3
Other comprehensive earnings — unrealized losses of investments in unconsolidated affiliates, net of tax	—	—		—			—			(3.9		)	—	—			—			(3.9		)
Reclassification adjustments for unrealized gains and losses on unconsolidated affiliates, net of tax, included in net earnings	—	—		—			—			44.3			—	—			—			44.3
Sale of noncontrolling interest in consolidated subsidiary	—	—		—			—			—			—	—			3.1			3.1
Treasury stock repurchases	—	—		—			—			—			0.4	(10.8		)	—			(10.8		)
Stock-based compensation, consolidated subsidiaries	—	—		1.1			—			—			—	—			—			1.1
Contribution of CSA services from FNF	—	—		0.4			—			—			—	—			—			0.4
Stock-based compensation, unconsolidated affiliates	—	—		2.7			—			—			—	—			—			2.7
Net earnings (loss)	—	—		—			647.7			—			—	—			(9.6		)	638.1
Balance, March 31, 2020	79.7	$	—	$	1,406.1		$	791.3		$	(0.2	)	0.6	$	(16.7	)	$	24.5		$	2,205.0

See Notes to Condensed Consolidated Financial Statements

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CANNAE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



	Three months ended March 31,

	2020			2019

Cash flows from operating activities:
Net earnings (loss)	$	638.1		$	(19.9	)
Adjustments to reconcile net earnings (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization	8.4			13.9
Equity in losses of unconsolidated affiliates	52.7			21.4
Distributions from investments in unconsolidated affiliates	0.5			2.0
Realized and other gains and losses and asset impairments, net	(902.0		)	(1.4		)
Lease asset amortization	6.2			9.9
Stock-based compensation cost	1.1			0.9
Changes in assets and liabilities, net of effects from acquisitions:
Net decrease in trade receivables	8.7			20.2
Net increase in inventory, prepaid expenses and other assets	(10.9		)	(10.1		)
Net decrease in lease liabilities	(8.2		)	(10.9		)
Net decrease (increase) in accounts payable, accrued liabilities, deferred revenue and other	2.0			(12.3		)
Net change in income taxes	169.1			(7.7		)
Net cash (used in) provided by operating activities	(34.3		)	6.0
Cash flows from investing activities:
Proceeds from sale of investment securities and investments in unconsolidated affiliates	—			1.7
Proceeds from partial sale of Ceridian shares - see Note A	283.7			—
Additions to property and equipment and other intangible assets	(13.6		)	(3.2		)
Additions to notes receivable	(11.2		)	—
Proceeds from sales of property and equipment	—			2.9
Investments in Dun & Bradstreet, net of capitalized syndication fees	—			(502.7		)
Additional investments in unconsolidated affiliates	(226.2		)	—
Cash deconsolidated through the Blue Ribbon Reorganization - see Note A	(1.1		)	—
Distributions from investments in unconsolidated affiliates	—			0.3
Net proceeds from sales and maturities of short-term investment securities	(0.3		)	19.2
Net cash provided by (used in) investing activities	31.3			(481.8		)
Cash flows from financing activities:
Borrowings	12.5			262.2
Debt service payments	(91.2		)	(1.0		)
Subsidiary distributions paid to noncontrolling interest shareholders	—			(0.4		)
Sale of noncontrolling interest in consolidated subsidiary	3.1			—
Treasury stock repurchases	(10.8		)	—
Proceeds from Restaurant Group sale and leaseback of corporate office, net of issuance costs	—			13.2
Net cash (used in) provided by financing activities	(86.4		)	274.0
Net decrease in cash and cash equivalents	(89.4		)	(201.8		)
Cash and cash equivalents at beginning of period	533.7			323.0
Cash and cash equivalents at end of period	$	444.3		$	121.2

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CANNAE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note A — Basis of Financial Statements

The following describes the significant accounting policies of Cannae Holdings, Inc. and its subsidiaries (collectively, “we,” “us,” “our,” "Cannae," "CNNE," or the "Company”) which have been followed in preparing the accompanying Condensed Consolidated Financial Statements.

Description of the Business

We are a holding company engaged in actively managing and operating a group of companies and investments, as well as making additional majority and minority equity portfolio investments in businesses, in order to achieve superior financial performance and maximize the value of these assets. Our primary investments as of March 31, 2020 include our minority ownership interests in The Dun & Bradstreet Corporation ("Dun & Bradstreet" or "D&B"), Ceridian HCM Holding, Inc. ("Ceridian") and AmeriLife Group, LLC ("AmeriLife"); majority equity ownership stakes in O'Charley's Holdings, LLC ("O'Charley's") and 99 Restaurants Holdings, LLC ("99 Restaurants"); and various other controlled portfolio companies and minority equity and debt investments.

See Note H for further discussion of the businesses comprising our reportable segments.

The Company conducts its business through its wholly-owned subsidiary Cannae Holdings, LLC ("Cannae LLC"), a Delaware limited liability company. The Company’s board of directors ("Board") oversees the management of the Company, Cannae LLC and its businesses, and the performance of Trasimene Capital Management, LLC (“Trasimene” or the “Manager”). In connection with the externalization of certain of our management functions in September 2019, the Company, Cannae LLC, and the Manager entered into a Management Services Agreement (the “Management Services Agreement”).

Principles of Consolidation and Basis of Presentation

The accompanying Condensed Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and the instructions to Form 10-Q and Article 10 of Regulation S-X and include the historical accounts as well as wholly-owned and majority-owned subsidiaries of the Company. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All adjustments made were of a normal, recurring nature. This report should be read in conjunction with our Annual Report on Form 10-K (our "Annual Report") for the year ended December 31, 2019.

Following the split-off of the former portfolio company investments by Fidelity National Financial, Inc. ("FNF"), and subsequent contribution to us (the "FNF Split-Off"), the Company is allocated certain corporate overhead and management services expenses from FNF based on the terms of the Corporate Services Agreement ("CSA"), dated as of November 17, 2017, by and between the Company and FNF and our proportionate share of the expense determined on actual usage and our best estimate of management's allocation of time. The CSA has an initial three-year term and after the initial three-year term, if the CSA is not mutually terminated by us or FNF prior to the expiration of the initial three-year term, it will automatically renew for successive one-year terms on mutually agreeable arm's length terms unless FNF and Cannae mutually agree to terminate the agreement. Both FNF and Cannae believe expense allocations pursuant to the CSA are reasonable; however, they may not be indicative of the actual results of operations or cash flows of the Company had the Company been operating as an independent, publicly-traded company for the periods presented or the amounts that will be incurred by the Company in the future. FNF is considered a related party to the Company.

All intercompany profits, transactions and balances have been eliminated. Our investments in non-majority-owned partnerships and affiliates are accounted for using the equity method until such time that they may become wholly or majority-owned. Earnings attributable to noncontrolling interests are recorded on the Condensed Consolidated Statements of Operations relating to majority-owned subsidiaries with the appropriate noncontrolling interest that represents the portion of equity not related to our ownership interest recorded on the Condensed Consolidated Balance Sheets in each period.

Management Estimates

The preparation of these Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management include the valuation of goodwill and acquired intangible assets and fair value measurements (Note C). Actual results may differ from estimates.

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CANNAE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued

Recent Developments

Ceridian

On February 21, 2020, we completed the sale of an additional 3.9 million shares of common stock of Ceridian to a broker pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended. In connection with the sale, we received proceeds of $283.7 million and recorded a gain of $223.1 million. As a result of the sale, we now own 19.8 million shares of Ceridian which represents 13.7% of its outstanding common stock.

As of March 31, 2020 our voting agreement with Ceridian was terminated and, as a result, we are no longer able to exert influence over the composition and quantity of Ceridian's board of directors. In combination with the reduction in our ownership of Ceridian resulting from the sale of shares in February 2020, we no longer exercise significant influence over Ceridian. As of March 31, 2020, we account for our investment in Ceridian pursuant to the investment in equity security guidance of Accounting Standards Codification ("ASC") 321. The change resulted in the revaluation of our investment in Ceridian to its fair value of $993.4 million as of March 31, 2020 and recording a gain on such revaluation of $684.9 million. Refer to Notes C and D for further discussion of our accounting for our investment in Ceridian.

On May 8, 2020, we sold 1.8 million shares of common stock of Ceridian to a broker pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended. We expect to receive proceeds of $115.9 million on May 12, 2020.

Restaurant Group

On January 27, 2020, American Blue Ribbon Holdings, LLC ("Blue Ribbon") and its wholly-owned subsidiaries, filed voluntary petitions for relief under chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware (the "Blue Ribbon Reorganization"). The Blue Ribbon Reorganization does not involve or affect the operations of O’Charley’s or 99 Restaurants, which are not part of Blue Ribbon.

As a result of the Blue Ribbon Reorganization, we deconsolidated Blue Ribbon as of January 27, 2020 because the bankruptcy court and committee of creditors formed are deemed to have control of Blue Ribbon. We continue to own 65.4% of the equity of Blue Ribbon and we have agreed to provide debtor-in-possession financing (the "DIP Loan") of up to $20.0 million to Blue Ribbon and its subsidiaries.

We recorded a gain of $26.5 million on January 27, 2020 as a result of the deconsolidation of Blue Ribbon which is included in Realized and other gains and losses, net on the Condensed Consolidated Statement of Operations. The recorded gain was measured as the excess of the fair value of our retained equity investment in Blue Ribbon over our book value of Blue Ribbon as of January 27, 2020.

We account for our retained equity interest in Blue Ribbon under the equity method of accounting because (1) we continue to exert significant influence over Blue Ribbon through our majority equity ownership and position as the single largest post-petition creditor of Blue Ribbon through the DIP Loan, (2) the Blue Ribbon Reorganization is limited in scope and is expected to be short in duration, and (3) we expect to retain our equity interest upon completion of the Blue Ribbon Reorganization. We recorded an investment of $33.6 million as of January 27, 2020. The fair value of the investment was determined by performing a combination of discounted cash flow and market approaches.

As a result of unprecedented social restrictions imposed by state and local government authorities related to the novel coronavirus ("COVID-19") pandemic, our Restaurant Group brands experienced a significant reduction in guest counts beginning in the last two weeks of March 2020. In response to the outbreak and these changing conditions, our Restaurant Group brands closed the dining rooms in substantially all of our restaurants, with limited exceptions related to stores that have reopened in states which have relaxed restrictions in late April and May 2020. As of the filing of this report, in most of our restaurants we are solely operating to-go and delivery services where able. Due to increased uncertainty in the operating environment for restaurants and a significant reduction in forecasted cash flows for Blue Ribbon, we recorded an other-than-temporary impairment of our investment of $18.6 million as of March 31, 2020.

Refer to Note D for further discussion of our investments in unconsolidated affiliates.

As of March 31, 2020, we have provided $11.0 million of financing to Blue Ribbon and its subsidiaries under the DIP Loan which is included in Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheet.

AmeriLife

On March 18, 2020, we closed on the previously announced $125.0 million investment in a partnership (the “AmeriLife Joint Venture”) which invested in the recapitalization of AmeriLife. Cannae and other investors provided an aggregate of $617.0 million

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CANNAE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued

in equity financing to the AmeriLife Joint Venture to acquire AmeriLife. AmeriLife is a leader in marketing and distributing life, health, and retirement solutions. The Company's $125.0 million investment represents 20.3% of the outstanding equity of the AmeriLife Joint Venture. We account for our investment in the AmeriLife Joint Venture under the equity method of accounting and the investment is included in Investments in unconsolidated affiliates on our Condensed Consolidated Balance Sheet as of March 31, 2020. Refer to Note D for further discussion of our investments in unconsolidated affiliates.

Equity Fund

On December 12, 2019, we entered into a limited partnership with an investment fund manager designed to opportunistically trade in marketable securities (the "Equity Fund"). In December 2019, we initially contributed $90.9 million of cash in exchange for limited partnership interests in the Equity Fund representing 49.0% of its outstanding equity and a deposit on hand with the Equity Fund. In the three months ended March 31, 2020, we invested an additional $101.2 million in the Equity Fund. Subsequent to March 31, 2020, we invested an additional $50.0 million in the Equity Fund. Refer to Note D for further discussion.

Earnings Per Share

Basic earnings per share, as presented on the Condensed Consolidated Statement of Operations, is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period.

In periods when earnings are positive, diluted earnings per share is calculated by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding plus the impact of assumed conversions of potentially dilutive securities. For periods when we recognize a net loss, diluted earnings per share is equal to basic earnings per share as the impact of assumed conversions of potentially dilutive securities is considered to be antidilutive. We have granted certain shares of restricted stock which have been treated as common share equivalents for purposes of calculating diluted earnings per share for periods in which positive earnings have been reported.

Instruments that provide the ability to purchase shares of our common stock that are antidilutive are excluded from the computation of diluted earnings per share. For the three months ended March 31, 2020 there were no antidilutive shares of restricted stock outstanding which were excluded from the calculation of diluted earnings per share. For the three months ended March 31, 2019 there were 0.2 million antidilutive shares of restricted stock outstanding which were excluded from the calculation of diluted earnings per share.

Income Tax

Income tax expense (benefit) was $169.4 million and $(6.0) million in the three-month periods ended March 31, 2020 and 2019, respectively. Our effective tax rate was 19.7% and 272.7% in the three months ended March 31, 2020 and 2019, respectively. The change in the effective tax rate in the three-month period ended March 31, 2020 was primarily attributable to the reduced impact of equity in losses of unconsolidated affiliates on pretax earnings in 2020 compared to the impact of equity in losses of unconsolidated affiliates on pretax losses in the same period in the 2019. We have a Deferred tax liability of $124.5 million as of March 31, 2020 and a Deferred tax asset of $54.5 million as of December 31, 2019. The $179.0 million change in deferred taxes in the three months ended March 31, 2020 is primarily attributable to the tax impact on the gain recorded for the change in accounting for Ceridian as of March 31, 2020.

Restricted Cash

Our Restaurant Group is required to hold cash collateralizing its outstanding letters of credit. Included in Cash and cash equivalents on our Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 is $11.4 million of such restricted cash.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12 Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740), which simplifies various aspects of the income tax accounting guidance and will be applied using different approaches depending on what the specific amendment relates to and, for public entities, are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. We are still evaluating the impact of this guidance and have not yet concluded on its anticipated impact on our Condensed Consolidated Financial Statements and related disclosures upon adoption.

Change in Accounting Principle

We historically accounted for our investment and proportionate share of losses in Dun & Bradstreet utilizing a three-month reporting lag due to timeliness considerations. In the third quarter of 2019, the Company was able to obtain financial information

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for Dun & Bradstreet on a more timely basis and determined it was preferable to record our investment in Dun & Bradstreet on a current basis as opposed to the previous three-month lag.

In accordance with applicable accounting literature, a change to eliminate a previously existing reporting lag is considered a change in accounting principle. Changes in accounting principles are to be reported through retrospective application of the new principle to all prior financial statement periods presented. Accordingly, the Company's condensed consolidated financial statements for the interim periods of fiscal year 2019 were adjusted in the third quarter of 2019 to reflect the period specific effects of eliminating the three-month reporting lag. The elimination of the three-month reporting lag did not impact total operating, investing or financing cash flows for any period presented.

The elimination of the three-month reporting lag for our equity investment in Dun & Bradstreet resulted in the adjustments as of and for the periods indicated below (in millions, except per share amounts).



	Three Months Ended
	March 31, 2019
	As Previously Reported			As Adjusted			Difference
	(in millions, except per share amounts)
Condensed Consolidated Statements of Operations
Income tax benefit	$	(4.8	)	$	(7.2	)	$	(2.4	)
Equity in earnings (losses) of unconsolidated affiliates	2.9			(21.4		)	(24.3		)
Net earnings (loss)	2.0			(19.9		)	(21.9		)
Net earnings (loss) attributable to Cannae Holdings	$	5.1		$	(16.8	)	$	(21.9	)
Per Share Data:
Basic
Basic earnings (loss) per share attributable to Cannae Holdings common shareholders	$	0.07		$	(0.24	)	$	(0.31	)
Diluted
Diluted earnings (loss) per share attributable to Cannae Holdings common shareholders	$	0.07		$	(0.24	)	$	(0.31	)
Condensed Consolidated Statements of Comprehensive Earnings
Net earnings (loss)	$	2.0		$	(19.9	)	$	(21.9	)
Unrealized gain relating to investments in unconsolidated affiliates	6.2			5.9			(0.3		)
Comprehensive earnings (loss) attributable to Cannae Holdings, Inc.	$	11.7		$	(10.5	)	$	(22.2	)

Note B — Leases

We are party to operating lease arrangements primarily for leased real estate for restaurants and office space. Right-of-use assets and lease liabilities related to operating leases are recorded at commencement when we are party to a contract which conveys the right for the Company to control an asset for a specified period of time. We are not a party to any material contracts considered finance leases. Right-of-use assets and lease liabilities related to operating leases are recorded as Lease assets and Lease liabilities, respectively, on the Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019.

There have been no changes in our accounting for leases as of or during the three months ended March 31, 2020.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued

As a result of the Blue Ribbon Reorganization, we deconsolidated Blue Ribbon as of January 27, 2020. Future payments under operating lease arrangements as of March 31, 2020 are now as follows (in millions):



2020 (remaining)	$	28.8
2021	37.4
2022	29.9
2023	25.9
2024	17.0
Thereafter	88.3
Total lease payments, undiscounted	$	227.3
Less: discount	62.2
Total operating lease liability as of March 31, 2020, at present value	$	165.1
Less: operating lease liability as of March 31, 2020, current	26.7
Operating lease liability as of March 31, 2020, long term	$	138.4

Note C — Fair Value Measurements

The fair value hierarchy established by the accounting standards on fair value measurements includes three levels that are based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Financial assets and liabilities that are recorded in the Condensed Consolidated Balance Sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we have the ability to access.

Level 2. Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.

Level 3. Financial assets and liabilities whose values are based on model inputs that are unobservable.

Recurring Fair Value Measurements

The following table presents our fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019, respectively:



	March 31, 2020
	Level 1		Level 2		Level 3		Total
	(In millions)
Fixed-maturity securities available for sale:
Corporate debt securities	$	—	$	—	$	26.1	$	26.1
Investment in Ceridian	993.4		—		—		993.4
Total	$	993.4	$	—	$	26.1	$	1,019.5



	December 31, 2019
	Level 1		Level 2		Level 3		Total
	(In millions)
Fixed-maturity securities available for sale:
Corporate debt securities	$	—	$	—	$	19.2	$	19.2
Total	$	—	$	—	$	19.2	$	19.2

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued

Our Level 1 fair value measurement for our investment in Ceridian is based on quoted market prices of Ceridian's common equity (NYSE: CDAY).

Our Level 3 fair value measurement for our fixed maturity securities available for sale are provided by a single third-party pricing service. Depending on security specific characteristics, either a combination of an income approach or a contingent claims approach was utilized in determining the fair value of our Level 3 fixed-maturity securities available for sale. Discount rates are the primary unobservable inputs utilized for the securities valued using a combination of an income and net recovery approach. The discount rates used are based on company-specific risk premiums, public company comparable securities, and leveraged loan indices. The discount rates used in our determination of the fair value of our Level 3 fixed-maturity securities available for sale varies by security type and ranged from 14.0% to 14.5% as of March 31, 2020 and a weighted average based on relative fair value of the underlying securities of 14.5%. Based on the total fair value of our Level 3 fixed-maturity securities available for sale as of March 31, 2020, changes in the discount rate utilized will not result in a fair value significantly different or material to the Company's financial position or results of operation than the amount recorded.

The following table presents a summary of the changes in the fair values of Level 3 assets, measured on a recurring basis, for the three months ended March 31, 2020 and 2019 (in millions).



	Three months ended March 31, 2020		Three months ended March 31, 2019
	Corporate debt		Corporate debt
	securities		securities

Fair value, beginning of period	$	19.2	$	17.8
Impairment (1)	—		(0.3		)
Net valuation gain included in other comprehensive earnings (2)	6.9		—
Fair value, end of period	$	26.1	$	17.5

_____________________________________

(1) Included in Realized and other gains and losses, net on the Condensed Consolidated Statements of Operations

(2) Included in Unrealized gain (loss) on investments and other financial instruments, net (excluding investments in unconsolidated affiliates) on the Condensed Consolidated Statements of Comprehensive Earnings (Loss)

Transfers into or out of the Level 3 fair value category occur when unobservable inputs become more or less significant to the fair value measurement or upon a change in valuation technique. There were no transfers between Level 2 and Level 3 in the three months ended March 31, 2020 and 2019.

All of the unrealized gain on investments and other financial instruments, net (excluding investments in unconsolidated affiliates) on our Condensed Consolidated Statements of Comprehensive Earnings (Loss) for the three months ended March 31, 2020 relate to fixed maturity securities considered Level 3 fair value measures.

Additional information regarding the fair value of our investment portfolio is included in Note D.

The carrying amounts of trade receivables and notes receivable approximate fair value due to their short-term nature. The fair value of our notes payable is included in Note F.

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Note D — Investments

Investment in Ceridian

As of March 31, 2020, we account for our investment in Ceridian at fair value pursuant to ASC 321. We recorded unrealized gains of $684.9 million upon the change in accounting all of which relates to Ceridian equity securities which continue to be held by the Company as of March 31, 2020. The unrealized gain is included in Realized and other gains and losses, net on the Condensed Consolidated Statement of Operations for the three months ended March 31, 2020.

Investments in Unconsolidated Affiliates

Investments in unconsolidated affiliates recorded using the equity method of accounting as of March 31, 2020 and December 31, 2019 consisted of the following (in millions):



	Ownership at March 31, 2020		March 31, 2020		December 31, 2019
Dun & Bradstreet	24.3	%	$	396.5	$	385.9
Ceridian (1)	13.7	%	—		309.5
Equity Fund	49.0	%	134.3		46.7
AmeriLife	20.3	%	125.0		—
Other	various		103.4		94.4
Total			$	759.2	$	836.5

_____________________________________

(1) Investment in Ceridian is no longer accounted for under the equity method of accounting as of March 31, 2020.

Equity in earnings (losses) of unconsolidated affiliates for the three months ended March 31, 2020 and March 31, 2019 consisted of the following (in millions):



	Three months ended March 31, 2020			Three months ended March 31, 2019
Dun & Bradstreet	$	10.1		$	(24.3	)
Ceridian (1)	1.5			2.6
Equity Fund	(58.8		)	—
AmeriLife	—			—
Other	(5.5		)	0.3
Total	$	(52.7	)	$	(21.4	)

_____________________________________

(1) Fiscal year 2020 amount represents the Company's equity in earnings of Ceridian in the three months ended March 31, 2020 prior to the change in accounting for the investment as of March 31, 2020.

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Dun & Bradstreet

Summarized financial information for Dun & Bradstreet for the relevant dates and time periods included in Investments in unconsolidated affiliates and Equity in earnings (losses) of unconsolidated affiliates in our Condensed Consolidated Balance Sheets and Statements of Operations, respectively, is presented below.

We acquired our initial interest in Dun & Bradstreet's parent on February 8, 2019. The results of operations for the three months ended March 31, 2019 presented below represents Dun & Bradstreet's results of operations subsequent to our acquisition.



	March 31, 2020		December 31, 2019
	(In millions)
Total current assets	$	570.1	$	417.9
Goodwill and other intangible assets, net	7,994.2		8,091.5
Other assets	608.1		603.4
Total assets	$	9,172.4	$	9,112.8

Current liabilities	$	927.7	$	1,090.4
Long-term debt	4,023.9		3,818.9
Other non-current liabilities	1,568.5		1,594.0
Total liabilities	6,520.1		6,503.3
Preferred equity	1,032.8		1,030.6
Total capital	1,619.5		1,578.9
Total liabilities and equity	$	9,172.4	$	9,112.8



	Three months ended March 31, 2020			Period from February 8, 2019 to March 31, 2019
	(In millions)
Total revenues	$	395.3		$	174.1
Loss before income taxes	(1.0		)	(111.6		)
Net income (loss)	73.9			(81.1		)
Dividends attributable to preferred equity and noncontrolling interest expense	(32.4		)	(18.3		)
Net income (loss) attributable to Dun & Bradstreet	41.5			(99.4		)

Equity Fund

As of March 31, 2020, we have invested $192.1 million in the Equity Fund, all of which has been contributed to the fund's capital and is accounted for under the equity method of accounting for investments. Summarized financial information for the Equity Fund for the relevant dates and time periods included in Investments in unconsolidated affiliates and Equity in losses of unconsolidated affiliates in our Condensed Consolidated Balance Sheets and Statements of Operations, respectively, is presented below.

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	March 31, 2020		December 31, 2019
	(In millions)
Due from brokers and counterparties	$	393.5	$	93.2
Cash and cash equivalents	—		45.2
Derivative contracts, at fair value	—		2.4
Other assets	0.1		—
Total assets	$	393.6	$	140.8

Derivative contracts, at fair value	$	118.1	$	—
Capital received in advance	—		45.2
Other liabilities	1.4		0.2
Total liabilities	119.5		45.4
Net assets	$	274.1	$	95.4



	Three months ended March 31, 2020
	(In millions)
Total net investment loss	$	(0.3	)
Realized gain on securities and derivative contracts	0.5
Change in unrealized loss on derivative contracts	(120.5		)
Change in net assets from operations	(120.3		)

AmerLife

On March 18, 2020, we closed on our $125.0 million investment in the AmeriLife Joint Venture. We account for our investment in AmeriLife as an equity method investment and report our equity in earnings or loss of the AmeriLife Joint Venture on a three-month lag. Because the Company will record its equity in earnings or loss of the AmeriLife Joint Venture using lag reporting, there is no equity in earnings or loss of AmeriLife included in the Company’s results of operations for the three months ended March 31, 2020. The Company plans to begin including its equity earnings or loss related to AmeriLife in the three months ended June 30, 2020, at which time the Company expects to begin providing summary financial information for the AmeriLife Joint Venture.

Equity Security Investments Without Readily Determinable Fair Values

We account for our investment in preferred equity of QOMPLX, Inc. ("QOMPLX"), an intelligent decision and analytics platform used by businesses for modeling and planning, at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly market transactions. As of March 31, 2020, we have $22.5 million recorded for our investment in QOMPLX, which is included in Other long term investments and noncurrent assets on our Condensed Consolidated Balance Sheet. We have not recorded any upward or downward adjustments to our investment in QOMPLX.

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Fixed Maturity Securities

The carrying amounts and fair values of our available for sale fixed maturity securities at March 31, 2020 and December 31, 2019 are as follows:



	March 31, 2020
	Carrying Value		Cost Basis		Unrealized Gains		Unrealized Losses			Fair Value
	(In millions)
Fixed maturity securities available for sale:
Corporate debt securities	$	26.1	$	19.9	$	6.4	$	(0.2	)	$	26.1
Total	$	26.1	$	19.9	$	6.4	$	(0.2	)	$	26.1



	December 31, 2019
	Carrying Value		Cost Basis		Unrealized Gains		Unrealized Losses			Fair Value
	(In millions)
Fixed maturity securities available for sale:
Corporate debt securities	$	19.2	$	19.6	$	0.7	$	(1.1	)	$	19.2
Total	$	19.2	$	19.6	$	0.7	$