This analysis should be read in conjunction with the condensed consolidated
financial statements and the notes thereto.
Results of Operations
The Company reported net income attributable to common shares of $112.5 million
($22.44 per share) for the first quarter of 2021, compared to a loss of $33.2
million ($6.32 per share) for the first quarter of 2020.
The COVID-19 pandemic and measures taken to prevent its spread, such as travel
restrictions, shelter in place orders and mandatory closures, significantly
impacted the Company's results for 2020 and the first three months of 2021,
largely from reduced demand for the Company's products and services. This
significant adverse impact is expected to continue for several of the Company's
businesses for the remainder of 2021. The Company's management has taken a
variety of measures to reduce costs and implement changes to business
operations. The Company cannot predict the severity or duration of the pandemic,
the extent to which demand for the Company's products and services will be
adversely affected or the degree to which financial and operating results will
be negatively impacted.
Items included in the Company's income before income taxes for the first quarter
of 2021:
•a $0.6 million reduction to operating expenses from property, plant and
equipment gains in connection with the spectrum repacking mandate of the FCC;
•$79.2 million in net gains on marketable equity securities;
•$10.3 million in net earnings of affiliates whose operations are not managed by
the Company;
•a non-operating gain of $2.7 million from the write-up of a cost method
investment; and
•$1.1 million in interest expense to adjust the fair value of the mandatorily
redeemable noncontrolling interest.
Items included in the Company's loss before income taxes for the first quarter
of 2020:
•$16.4 million in goodwill and intangible asset impairment charges;
•a $0.3 million reduction to operating expenses from property, plant and
equipment gains in connection with the spectrum repacking mandate of the FCC;
•$100.4 million in net losses on marketable equity securities;
•$0.6 million in net losses of affiliates whose operations are not managed by
the Company;
•non-operating losses of $6.1 million from impairments of cost method and equity
method investments; and
•$4.3 million in non-operating foreign currency gains.
Revenue for the first quarter of 2021 was $712.5 million, down 3% from $732.3
million in the first quarter of 2020. Revenues declined at education and
television broadcasting, partially offset by increases at manufacturing,
healthcare and other businesses. The Company reported operating income of $33.8
million for the first quarter of 2021, compared to $8.1 million for the first
quarter of 2020. The operating income increase is driven by improved results in
education, manufacturing, healthcare and other businesses, partially offset by
declines in television broadcasting.
On April 5, 2021, the Company announced it had entered into an agreement to
acquire all outstanding shares of common stock of Leaf Group Ltd. (NYSE:LEAF) at
$8.50 per share in an all cash transaction valued at approximately $323 million.
Leaf Group, headquartered in Santa Monica, CA, is a consumer internet company
that builds enduring, creator-driven brands that reach passionate audiences in
large and growing lifestyle categories, including fitness and wellness
(Well+Good, Livestrong.com and MyPlate App), and home, art and design (Saatchi
Art, Society6 and Hunker). The transaction is expected to close in June or July
of 2021 and is subject to approval of the Leaf Group shareholders, regulatory
approval and the satisfaction of other closing conditions.
                                       22
--------------------------------------------------------------------------------

Division Results
Education
Education division revenue totaled $329.3 million for the first quarter of 2021,
down 8% from $356.4 million for the same period of 2020. Kaplan reported
operating income of $18.9 million for the first quarter of 2021, compared to
operating income of $4.7 million for the first quarter of 2020.
The COVID-19 pandemic adversely impacted Kaplan's operating results beginning in
February 2020 and continuing through the first quarter of 2021.
Kaplan serves a significant number of students who travel to other countries to
study a second language, prepare for licensure, or pursue a higher education
degree. Government-imposed travel restrictions and school closures arising from
COVID-19 had a negative impact on the ability of international students to
travel and attend Kaplan's programs, particularly Kaplan International's
Language programs. In addition, most licensing bodies and administrators of
standardized exams postponed or canceled scheduled examinations due to COVID-19,
resulting in a significant number of students deciding to defer their studies,
negatively impacting Kaplan's exam preparation education businesses. Overall,
this is expected to continue to adversely impact Kaplan's revenues and operating
results for the remainder of 2021, particularly at Kaplan International
Languages.
To help mitigate the adverse impact of COVID-19, Kaplan implemented a number of
significant cost reduction and restructuring activities across its businesses in
2020. Related to these restructuring activities, Kaplan recorded $1.0 million in
lease impairment charges in the first quarter of 2021 and $2.1 million in lease
restructuring costs in the first quarter of 2020. Kaplan management is
continuing to monitor the ongoing COVID-19 disruptions and changes in its
operating environment and may develop and implement further restructuring
activities in 2021.
In 2020, Kaplan also accelerated the development and promotion of various online
programs and solutions, rapidly transitioned most of its classroom-based
programs online and addressed the individual needs of its students and partners,
substantially reducing the disruption from COVID-19 while simultaneously adding
important new product offerings and operating capabilities. Further, in the
fourth quarter of 2020, Kaplan combined its three primary divisions based in the
United States (Kaplan Test Prep, Kaplan Professional, and Kaplan Higher
Education) into one business known as Kaplan North America (KNA). This
combination is designed to enhance Kaplan's competitiveness by better leveraging
its diversified academic and professional portfolio, as well as its relationship
with students, universities and businesses. For financial reporting purposes,
KNA is reported in two segments: Higher Education and Supplemental Education
(combining Kaplan Test Prep and Kaplan Professional (U.S.) into one reporting
segment).
A summary of Kaplan's operating results is as follows:
                                                    Three Months Ended
                                                         March 31
(in thousands)                                                    2021           2020         % Change
Revenue
Kaplan international                                           $ 171,895      $ 199,615         (14)
Higher education                                                  75,686         73,537           3

Supplemental education                                            79,655         81,288          (2)
Kaplan corporate and other                                         3,363          3,205           5
Intersegment elimination                                          (1,282)        (1,267)          -
                                                               $ 329,317      $ 356,378          (8)
Operating Income (Loss)
Kaplan international                                           $  10,207      $  18,980         (46)
Higher education                                                   6,253         (2,020)          -

Supplemental education                                            12,497         (6,550)          -
Kaplan corporate and other                                        (4,907)        (1,522)          -
Amortization of intangible assets                                 (4,165)        (4,201)          1
Impairment of long-lived assets                                   (1,047)             -           -
Intersegment elimination                                              98              5           -
                                                               $  18,936      $   4,692           -


Kaplan International includes postsecondary education, professional training and
language training businesses largely outside the United States. Kaplan
International revenue decreased 14% for the first quarter of 2021 (20% on a
constant currency basis) due largely to COVID-19 disruptions at Languages.
Kaplan International reported operating income of $10.2 million in the first
quarter of 2021, compared to $19.0 million in the first quarter of 2020. The
decline in operating results in the first three months of 2021 is due primarily
to $13 million in losses incurred at
                                       23
--------------------------------------------------------------------------------

Languages from significant COVID-19 disruptions. Due to the continuation of
travel restrictions imposed as a result of COVID-19, Kaplan expects the
disruption of its Languages business operating environment to continue in 2021.
Higher Education includes the results of Kaplan as a service provider to higher
education institutions. In the first quarter of 2021, Higher Education revenue
grew 3%, due to an increase in the Purdue Global fee recorded and revenue from
new university agreements. For the first quarter of 2021, Kaplan recorded a
portion of the fee with Purdue Global based on an assessment of its
collectability under the TOSA; no fee with Purdue Global was recorded in the
first quarter of 2020. Purdue Global experienced increased enrollment for the
first three months of 2021, which resulted in improved Higher Education results.
The Company will continue to assess the collectability of the fee with Purdue
Global on a quarterly basis to make a determination as to whether to record all
or part of the fee in the future and whether to make adjustments to fee amounts
recognized in earlier periods. The first quarter 2020 operating loss at Higher
Education includes $2.0 million in lease restructuring costs.
As of March 31, 2021, Kaplan had a total outstanding accounts receivable balance
of $88.6 million from Purdue Global related to amounts due for reimbursements
for services, fees earned and a deferred fee. Included in this total, Kaplan has
a $19.0 million long-term receivable balance due from Purdue Global at March 31,
2021, related to the advance of $20 million during the initial KU Transaction.
Supplemental Education includes Kaplan's standardized test preparation programs
and domestic professional and other continuing education businesses.
Supplemental Education revenue declined 2% for the first quarter of 2021, due to
a decline in retail comprehensive test preparation demand, offset in part by
product-life extensions in the first quarter of 2020 related to the postponement
of various standardized test and certification exam dates due to COVID-19, as
well as growth in real estate and insurance programs. Operating results improved
in 2021 due to savings from restructuring activities implemented in 2020 and the
adverse revenue impact from product-life extensions in the first quarter of
2020.
Kaplan corporate and other represents unallocated expenses of Kaplan, Inc.'s
corporate office, other minor businesses and certain shared activities. Overall,
Kaplan corporate and other expenses increased in the first three months of 2021
due to higher incentive compensation costs.
Television Broadcasting
                                   Three Months Ended
                                        March 31
(in thousands)                                   2021           2020         % Change
Revenue                                       $ 113,625      $ 115,448          (2)
Operating Income                                 32,978         35,776          (8)


Revenue at the television broadcasting division decreased 2% to $113.6 million
in the first quarter of 2021, from $115.4 million in the same period of 2020.
The revenue decrease is due to a $10.3 million decline in political advertising
revenue, partially offset by a $4.1 million increase in retransmission revenues
and increased local and national advertising revenues, which were adversely
impacted in 2020 by reduced demand related to the COVID-19 pandemic. In the
first quarter of 2021 and 2020, the television broadcasting division recorded
$0.6 million and $0.3 million, respectively, in reductions to operating expenses
related to property, plant and equipment gains due to new equipment received at
no cost in connection with the spectrum repacking mandate of the FCC. Operating
income for the first quarter of 2021 decreased 8% to $33.0 million, from $35.8
million in the same period of 2020, due to reduced revenues and higher network
fees.
In March 2021, the Company's television stations located in Orlando, FL and
Jacksonville, FL received approval of their FCC license renewals through
February 1, 2029.
Manufacturing
                                   Three Months Ended
                                        March 31
(in thousands)                                   2021           2020         % Change
Revenue                                       $ 115,960      $ 113,458           2
Operating Income                                  8,907          6,501          37


Manufacturing includes four businesses: Hoover, a supplier of pressure
impregnated kiln-dried lumber and plywood products for fire retardant and
preservative applications; Dekko, a manufacturer of electrical workspace
solutions, architectural lighting and electrical components and assemblies;
Joyce/Dayton, a manufacturer of screw jacks and other linear motion systems; and
Forney, a global supplier of products and systems that control and monitor
combustion processes in electric utility and industrial applications.
Manufacturing revenues increased 2% in the first quarter of 2021. The revenue
growth is due primarily to increased revenues at Hoover from significantly
higher wood prices but lower product demand, partially offset by lower
                                       24
--------------------------------------------------------------------------------

revenues at Dekko due to a significant reduction in product demand, particularly
in the commercial office electrical products, hospitality, transportation and
industrial sectors. Manufacturing operating results improved in the first
quarter of 2021 due to significantly higher results at Hoover from substantial
gains on inventory sales, partially offset by a significant decline in Dekko
results from lower revenues. Since the onset of the COVID-19 pandemic in the
second half of March 2020, lower product demand at Dekko has adversely impacted
manufacturing revenues and operating income and this is expected to continue
throughout 2021.
Healthcare
                                                 Three Months Ended
                                                      March 31
              (in thousands)                                    2021          2020        % Change
              Revenue                                        $ 50,043      $ 45,994           9
              Operating Income                                  7,140         3,169           -


The Graham Healthcare Group (GHG) provides home health and hospice services in
three states. GHG provides other healthcare services, including nursing care and
prescription services for patients receiving in-home infusion treatments through
its 75% interest in CSI Pharmacy Holdings Company, LLC (CSI). Healthcare
revenues increased 9% for the first quarter of 2021, due to growth at CSI and
home health services. The increase in GHG operating results in the first quarter
of 2021 is due to improved results from home health services and CSI. In the
second half of March 2020, GHG home health patient volumes declined, due
primarily to the curtailment of elective procedures by health systems due to the
COVID-19 pandemic.
Other Businesses
Automotive
Automotive includes three automotive dealerships in the Washington, D.C.
metropolitan area: Lexus of Rockville, Honda of Tysons Corner, and Ourisman Jeep
of Bethesda. Revenues for the first quarter of 2021 increased due to sales
growth at each of the three dealerships, due partly to significantly reduced
demand for sales and service in the first quarter of 2020 at the onset of the
COVID-19 pandemic in March 2020. As a result of the pandemic and the related
recessionary conditions, the Company's automotive dealerships recorded a $6.7
million intangible asset impairment charge in the first quarter of 2020.
Operating earnings for the first quarter of 2021 improved from a loss in the
prior year due to increased sales, in addition to the impairment charge recorded
in the first quarter of 2020.
Clyde's Restaurant Group (CRG)
Clyde's Restaurant Group (CRG) owns and operates eleven restaurants and
entertainment venues in the Washington, D.C. metropolitan area, including Old
Ebbitt Grill and The Hamilton. As a result of the COVID-19 pandemic, CRG
temporarily closed all of its restaurants and venues in the second half of March
2020 through mid-June 2020, pursuant to government orders, maintaining limited
operations for outdoor dining, delivery and pickup. CRG recorded a $9.7 million
goodwill and intangible assets impairment charge in the first quarter of 2020.
In December 2020, CRG temporarily closed its restaurant dining rooms in Maryland
and the District of Columbia for the second time, reopening again for limited
indoor dining service in mid-February 2021.
Overall, CRG incurred significant operating losses in each of the first quarters
of 2021 and 2020 due to limited revenues and costs incurred to maintain its
facilities and support its employees, and CRG is uncertain as to the timing and
other details regarding a full reopening. While CRG revenues have been adversely
impacted as a result of the pandemic, such revenues improved steadily in each of
the first three months of 2021. CRG continues to develop and implement
initiatives to increase sales and reduce costs to mitigate the impact of
COVID-19. The pandemic is expected to continue to adversely impact CRG revenues
and operating results in the second quarter of 2021.
Framebridge
On May 15, 2020, the Company acquired Framebridge, Inc., a custom framing
service company, headquartered in Washington, DC, with two retail locations in
the DC metropolitan area and a manufacturing facility in Richmond, KY. At the
end of the first quarter of 2021, Framebridge had six retail locations in the
Washington, DC, Brooklyn, NY and Atlanta, GA areas and two manufacturing
facilities in Kentucky. Framebridge revenues in the first quarter of 2021 were
up substantially from the prior year. As an investment stage business,
Framebridge reported operating losses in the first quarter 2021.
Code3
Code3 is a performance marketing agency focused on driving performance for
brands through three core elements of digital success: media, creative and
commerce. Code3 revenue declined in the first quarter of 2021, due to continued
sluggish marketing spending by some advertising clients as a result of the
recessionary environment from
                                       25
--------------------------------------------------------------------------------

the COVID-19 pandemic, offset by increased commerce and creative revenues. Code3
reported operating losses in the first quarter of 2021 and the first quarter of
2020. Code3 implemented a restructuring plan in 2020 that included initiatives
to reduce Code3's cost structure.
Megaphone
Megaphone was sold by the Company to Spotify in December 2020.
Other
Other businesses also include Slate and Foreign Policy, which publish online and
print magazines and websites; and three investment stage businesses, Cybervista,
Decile and Pinna. All of these businesses reported revenue increases in the
first three months of 2021. Losses from each of these five businesses in the
first three months of 2021 adversely affected operating results.
Overall, for the first quarter of 2021, operating revenues for other businesses
increased due largely to increases at the automotive dealerships and from the
Framebridge acquisition, partially offset by declines at CRG and Code3, and due
to the sale of Megaphone in December 2020. Operating results improved in the
first quarter of 2021 primarily due to the goodwill and other long-lived asset
impairment charges recorded in the first quarter of 2020 at the automotive
dealerships and CRG.
Corporate Office
Corporate office includes the expenses of the Company's corporate office and
certain continuing obligations related to prior business dispositions. Corporate
office expenses increased in the first three months of 2021 due primarily to
higher compensation costs.
Equity in Earnings of Affiliates
At March 31, 2021, the Company held an approximate 12% interest in Intersection
Holdings, LLC, a company that provides digital marketing and advertising
services and products for cities, transit systems, airports, and other public
and private spaces. The Company also holds interests in several other
affiliates, including a number of home health and hospice joint ventures managed
by GHG and two joint ventures managed by Kaplan. Overall, the Company recorded
equity in earnings of affiliates of $13.4 million for the first quarter of 2021,
compared to losses of $1.5 million for the first quarter of 2020. These amounts
include $10.3 million in net earnings for the first quarter of 2021 and $0.6
million in net losses for the first quarter of 2020 from affiliates whose
operations are not managed by the Company; this includes losses from the
Company's investment in Intersection in the first quarter of 2021. The Company
recorded $3.6 million in write-downs in equity in earnings of affiliates related
to two of its investments in the first quarter of 2020.
The recessionary environment resulting from the COVID-19 pandemic adversely
impacted the underlying businesses of Intersection Holdings, LLC due to lower
marketing spending by advertising clients. The decline in revenues adversely
impacted the operating results and liquidity of the business since the onset of
the COVID-19 pandemic. The Company concluded that these events are not
indicative of an other than temporary decline in the value of its investment to
an amount less than its carrying value. Given the uncertain economic impact of
the COVID-19 pandemic, it is possible that an other than temporary impairment
charge could occur in the future should Intersection Holdings, LLC fail to
execute on its operating and financing strategy to address the decline in
revenues and operating results. Further, the Company recorded a $5.4 million
loss in equity earnings related to Intersection in the first quarter of 2021 and
expects to record additional losses for the remainder of 2021.
Net Interest Expense and Related Balances
The Company incurred net interest expense of $7.6 million for the first quarter
of 2021, compared to $6.5 million for the first quarter of 2020. The Company
recorded interest expense of $1.1 million to adjust the fair value of the
mandatorily redeemable noncontrolling interest at GHG in the first quarter of
2021.
At March 31, 2021, the Company had $510.3 million in borrowings outstanding at
an average interest rate of 5.1% and cash, marketable equity securities and
other investments of $1,088.2 million. At March 31, 2021, the Company had £55
million ($75.6 million) outstanding on its $300 million revolving credit
facility. In management's opinion, the Company will have sufficient financial
resources to meet its business requirements in the next twelve months, including
working capital requirements, capital expenditures, interest payments and
dividends.
Non-operating Pension and Postretirement Benefit Income, net
The Company recorded net non-operating pension and postretirement benefit income
of $28.8 million for the first quarter of 2021, compared to $18.4 million for
the first quarter of 2020, respectively.
                                       26
--------------------------------------------------------------------------------

Gain (Loss) on Marketable Equity Securities, net
Overall, the Company recognized $79.2 million in net gains on marketable equity
securities in the first quarter of 2021, compared to $100.4 million in net
losses on marketable equity securities in the first quarter of 2020.
Other Non-Operating Income
The Company recorded total other non-operating income, net, of $6.3 million for
the first quarter of 2021, compared to $2.7 million for the first quarter of
2020. The 2021 amounts included a $2.7 million fair value increase on a cost
method investment and other items. The 2020 amounts included $4.3 million in
foreign currency gains and other items; partially offset by $2.6 million in
impairments on cost method investments.
Provision for (Benefit from) Income Taxes
The Company's effective tax rate for the first three months of 2021 was 26.9%.
The Company's effective tax rate for the first three months of 2020 was 57.3%,
which was generally based on the Company's estimated effective tax rate for
fiscal year 2020. The Company's estimated tax rate for 2020 included the adverse
impacts of the COVID-19 pandemic and losses on marketable equity securities on
the Company's estimated pre-tax income for 2020, resulting in a significantly
higher overall estimated tax rate, as permanent differences and increased
valuation allowances have a larger impact on the overall estimated effective tax
rate.
Earnings (Losses) Per Share
The calculation of diluted earnings per share for the first quarter of 2021 was
based on 4,977,340 weighted average shares outstanding, compared to 5,273,651
for the first quarter of 2020. At March 31, 2021, there were 5,001,649 shares
outstanding. On September 10, 2020, the Board of Directors authorized the
Company to acquire up to 500,000 shares of its Class B common stock; the Company
has remaining authorization for 364,151 shares as of March 31, 2021.
Financial Condition: Capital Resources and Liquidity
The Company considers the following when assessing its liquidity and capital
resources:
                                                                                       As of
                                                                                                December 31,
(In thousands)                                                           March 31, 2021             2020
Cash and cash equivalents                                              $       350,135          $  413,991
Restricted cash                                                                 22,484               9,063

Investments in marketable equity securities and other investments 


   715,580             587,582
Total debt                                                                     510,329             512,555


Cash generated by operations is the Company's primary source of liquidity. The
Company maintains investments in a portfolio of marketable equity securities,
which is considered when assessing the Company's sources of liquidity. An
additional source of liquidity includes the undrawn portion of the Company's
$300 million revolving credit facility, amounting to $224.4 million at March 31,
2021.
In March 2020, the U.S. government enacted legislation, including the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide
stimulus in the form of financial aid to businesses affected by the COVID-19
pandemic. Under the CARES Act, employers may defer the payment of the employer
share of FICA taxes due for the period beginning on March 27, 2020, and ending
December 31, 2020. As of March 31, 2021, the Company has deferred $21.4 million
of FICA payments under this program, of which 50% is due by December 31, 2021
and the remaining balance due by December 31, 2022.
The CARES Act also included provisions to support healthcare providers in the
form of grants and changes to Medicare and Medicaid payments. In April 2020, GHG
applied for and received $31.5 million under the expanded Medicare Accelerated
and Advanced Payment Program, modified by the CARES Act. The Department of
Health and Human Services will recoup this advance beginning 365 days after the
payment was issued, and the advance will be reduced by a portion of the amount
of revenue recognized for claims submitted for services provided after the
recoupment period begins.
Governments in other jurisdictions where the Company operates also provided
relief to businesses affected by the COVID-19 pandemic in the form of job
retention schemes, payroll assistance, deferral of income and other tax
payments, and loans. As of March 31, 2021, Kaplan has recorded benefits totaling
$1.6 million related to job retention and payroll schemes, mostly at Kaplan
International. Additionally, Kaplan deferred VAT and other tax payments in
Ireland amounting to $2.2 million as of March 31, 2021.
                                       27
--------------------------------------------------------------------------------

During the first three months of 2021, the Company's cash and cash equivalents
decreased by $63.9 million, due to the purchase of marketable equity securities,
capital expenditures and payments of dividends, partially offset by cash
generated from operations. In the first three months of 2021, the Company's
borrowings decreased by $2.2 million, due to repayments, which were partially
offset by foreign currency translation adjustments.
As of March 31, 2021 and December 31, 2020, the Company had money market
investments of $175.2 million and $268.8 million, respectively, that are
included in cash and cash equivalents. At March 31, 2021, the Company held
approximately $68 million in cash and cash equivalents in businesses domiciled
outside the U.S., of which approximately $8 million is not available for
immediate use in operations or for distribution. Additionally, Kaplan's business
operations outside the U.S. retain cash balances to support ongoing working
capital requirements, capital expenditures, and regulatory requirements. As a
result, the Company considers a significant portion of the cash and cash
equivalents balance held outside the U.S. as not readily available for use in
U.S. operations.
At March 31, 2021, the fair value of the Company's investments in marketable
equity securities was $700.4 million, which includes investments in the common
stock of seven publicly traded companies. The Company purchased $48.0 million of
marketable equity securities during the first three months of 2021. There were
no sales of marketable equity securities during the first three months of 2021.
At March 31, 2021, the unrealized gain related to the Company's investments
totaled $419.5 million.
The Company had working capital of $909.7 million and $824.5 million at
March 31, 2021 and December 31, 2020, respectively. The Company maintains
working capital levels consistent with its underlying business requirements and
consistently generates cash from operations in excess of required interest or
principal payments.
At March 31, 2021 and December 31, 2020, the Company had borrowings outstanding
of $510.3 million and $512.6 million, respectively. The Company's borrowings at
March 31, 2021 were mostly from $400.0 million of 5.75% unsecured notes due June
1, 2026, £55 million in outstanding borrowings under the Company's revolving
credit facility and a commercial note of $24.5 million at the Automotive
subsidiary. The Company's borrowings at December 31, 2020 were mostly from
$400.0 million of 5.75% unsecured notes due June 1, 2026, £55 million in
outstanding borrowings under the Kaplan Credit Agreement and a commercial note
of $25.3 million at the Automotive subsidiary. The interest on $400.0 million of
5.75% unsecured notes is payable semiannually on June 1 and December 1.
During the three months ended March 31, 2021 and 2020, the Company had average
borrowings outstanding of approximately $512.1 million and $511.4 million,
respectively, at average annual interest rates of approximately 5.0% and 5.1%,
respectively. During the three months ended March 31, 2021 and 2020, the Company
incurred net interest expense of $7.6 million and $6.5 million, respectively.
Included in the interest expense for the three months ended March 31, 2021 is an
amount of $1.1 million to adjust the fair value of the mandatorily redeemable
noncontrolling interest (See Note 7).
On April 27, 2021, Standard & Poor's affirmed the Company's credit rating and
revised the outlook from Negative to Stable.
The Company's current credit ratings are as follows:
              Moody's       Standard & Poor's
Long-term           Ba1                      BB
Outlook        Negative                  Stable


The Company expects to fund its estimated capital needs primarily through
existing cash balances and internally generated funds and, to a lesser extent,
borrowings under its revolving credit facility. As of March 31, 2021, the
Company had $75.6 million outstanding under the $300 million revolving credit
facility, which borrowing was used to repay the £60 million Kaplan U.K. credit
facility that matured at the end of June 2020. In management's opinion, the
Company will have sufficient financial resources to meet its business
requirements in the next 12 months, including working capital requirements,
capital expenditures, interest payments, potential acquisitions and strategic
investments, dividends and stock repurchases.
                                       28
--------------------------------------------------------------------------------

In summary, the Company's cash flows for each period were as follows:


                                                                             Three Months Ended
                                                                                   March 31
(In thousands)                                                             2021                2020
Net cash provided by operating activities                              $   23,999          $  12,403
Net cash (used in) provided by investing activities                       (63,290)             9,561
Net cash used in financing activities                                     (10,129)           (26,685)
Effect of currency exchange rate change                                    (1,015)            (7,684)

Net decrease in cash and cash equivalents and restricted cash $ (50,435) $ (12,405)

Operating Activities. Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities. The Company's net cash flow provided by operating activities were as follows:


                                                                               Three Months Ended
                                                                                     March 31
(In thousands)                                                               2021                2020
Net Income                                                               $  112,635          $ (33,891)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, amortization and goodwill and other long-lived asset
impairments                                                                  31,529             47,270
Amortization of lease right-of-use asset                                     18,594             23,749
Net pension benefit                                                         (24,501)           (13,784)
Other non-cash activities                                                   (60,201)            82,362
Change in operating assets and liabilities                                  (54,057)           (93,303)
Net Cash Provided by Operating Activities                                $

23,999 $ 12,403




Net cash provided by operating activities consists primarily of cash receipts
from customers, less disbursements for costs, benefits, income taxes, interest
and other expenses.
For the first three months of 2021 compared to the first three months of 2020,
the increase in net cash provided by operating activities is primarily due to
changes in operating assets and liabilities. Changes in operating assets and
liabilities were driven by accounts payable and accrued liabilities and income
tax receivables, partially offset by accounts receivable.
Investing Activities. The Company's net cash flow (used in) provided by
investing activities were as follows:
                                                                              Three Months Ended
                                                                                    March 31
(In thousands)                                                              2021                2020

Net (purchases of) proceeds from sales of marketable equity securities $ (48,036) $ 48,016 Purchases of property, plant and equipment

                                 (13,113)           (25,235)

Investments in equity affiliates, cost method and other investments (2,415)

            (7,427)

Investments in certain businesses, net of cash acquired                          -             (6,011)
Other                                                                          274                218
Net Cash (Used in) Provided by Investing Activities                    $

(63,290) $ 9,561




Net (purchases of) proceeds from sale of investments. The Company purchased
$48.0 million of marketable equity securities during the first three months of
2021. During the first three months of 2020, the Company sold marketable equity
securities that generated proceeds of $48.0 million.
Capital Expenditures. Capital expenditures for the first three months of 2021
were lower than the first three months of 2020 primarily due to the postponement
of noncritical capital expenditures to preserve cash resources in response to
the COVID-19 pandemic. In addition, 2020 includes capital expenditures in
connection with spectrum repacking at the Company's television stations in
Detroit, MI, Jacksonville, FL, and Roanoke, VA, as mandated by the FCC; these
expenditures are expected to be largely reimbursed to the Company by the FCC.
The amounts reflected in the Company's Condensed Consolidated Statements of Cash
Flows are based on cash payments made during the relevant periods, whereas the
Company's capital expenditures for the first three months of 2021 of $13.1
million include assets acquired during the quarter. The Company estimates that
its capital expenditures will be in the range of $55 million to $65 million in
2021.
Acquisitions. During the first three months of 2020, the Company acquired two
small businesses in its education division.
                                       29
--------------------------------------------------------------------------------

Financing Activities. The Company's net cash flow used in financing activities
were as follows:
                                                   Three Months Ended
                                                         March 31
(In thousands)                                     2021           2020
Dividends paid                                 $   (7,553)     $  (7,703)

Net proceeds from vehicle floor plan payable 2,462 2,478 Net payments under revolving credit facility (2,223)

             -
Repayments of borrowings                           (1,034)          (847)
Issuance of borrowings                                  -          1,023
Common shares repurchased                               -        (33,610)
Other                                              (1,781)        11,974

Net Cash Used in Financing Activities $ (10,129) $ (26,685)




Dividends. The quarterly dividend rate per share was $1.51 and $1.45 for the
first three months of 2021 and 2020, respectively.
Vehicle Floor Plan Payable and Borrowings. In the first three months of 2021 and
2020, the Company used floor vehicle plan financing to fund the purchase of new
and used vehicles at its Automotive subsidiary.
Common Stock Repurchases. During the first three months of 2020, the Company
purchased a total of 83,919 shares of its Class B common stock at a cost of
approximately $33.6 million. On September 10, 2020, the Board of Directors
authorized the Company to acquire up to 500,000 shares of its Class B common
stock. The Company did not announce a ceiling price or time limit for the
purchases. At March 31, 2021, the Company had remaining authorization from the
Board of Directors to purchase up to 364,151 shares of Class B common stock.
Other. In March 2021, the Hoover's minority shareholders put the remaining
outstanding shares to the Company, which had a redemption value of $3.5 million.
During the first three months of 2021, the Company increased the borrowings
under its cash overdraft facilities by $3.2 million. During the first three
months of 2020, the Company increased the borrowings under its cash overdraft by
$9.1 million and received $5.3 million in proceeds from the exercise of stock
options.
There were no other significant changes to the Company's contractual obligations
or other commercial commitments from those disclosed in the Company's Annual
Report on Form 10-K for the year ended December 31, 2020.
Forward-Looking Statements
All public statements made by the Company and its representatives that are not
statements of historical fact, including certain statements in this report, in
the Company's Annual Report on Form 10-K and in the Company's 2020 Annual Report
to Stockholders, are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Actual results may differ
materially from those projected as a result of certain risks and uncertainties,
including but not limited to the duration and severity of the COVID-19 pandemic
and its effects on the Company's operations, financial results, liquidity and
cash flows. Other forward-looking statements include comments about expectations
related to acquisitions or dispositions or related business activities,
including the TOSA, the Company's business strategies and objectives,
anticipated results of license renewal applications, the prospects for growth in
the Company's various business operations and the Company's future financial
performance. As with any projection or forecast, forward-looking statements are
subject to various risks and uncertainties, including the risks and
uncertainties described in Item 1A of the Company's Annual Report on Form 10-K,
that could cause actual results or events to differ materially from those
anticipated in such statements. Accordingly, undue reliance should not be placed
on any forward-looking statement made by or on behalf of the Company. The
Company assumes no obligation to update any forward-looking statement after the
date on which such statement is made, even if new information subsequently
becomes available.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company is exposed to market risk in the normal course of its business due
primarily to its ownership of marketable equity securities, which are subject to
equity price risk; to its borrowing and cash-management activities, which are
subject to interest rate risk; and to its foreign business operations, which are
subject to foreign exchange rate risk. The Company's market risk disclosures set
forth in its 2020 Annual Report filed on Form 10-K have not otherwise changed
significantly.
                                       30

--------------------------------------------------------------------------------

© Edgar Online, source Glimpses