Investment and Other (Loss) Income
Investment and other (loss) income for the three months ended March 31, 2020 decreased $17.2 million, compared to the same period in 2019 primarily due to unrealized losses, net of hedging activity, on the seed and corporate investment portfolios in the current period compared to unrealized gains, net of hedging activity, in the prior year comparative period.
Taxes
The following table reconciles the statutory federal income tax rate with our effective income tax rate from continuing operations for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
2019
|
|
Statutory federal income tax rate
|
|
21.0
|
%
|
21.0
|
%
|
State income taxes, net of federal tax benefit
|
|
4.5
|
|
2.8
|
|
Permanent differences
|
|
4.0
|
|
0.6
|
|
Share-based compensation
|
|
1.4
|
|
0.4
|
|
Losses (income) attributable to redeemable noncontrolling interests
|
|
1.1
|
|
(0.3)
|
|
Other items
|
|
—
|
|
0.1
|
|
Effective income tax rate
|
|
32.0
|
%
|
24.6
|
%
|
Our effective income tax rate was 32.0% for the three months ended March 31, 2020, as compared to 24.6% for the same period in 2019, an increase of 7.4%. Due to the impact that we expect the COVID-19 pandemic will have on our business throughout 2020, we are forecasting a decline in estimated pre-tax income for the remainder of 2020 as compared to more favorable year-to-date results through March 31, 2020, which is increasing the proportional tax impact of state income taxes and permanent differences on our rate.
The Company expects continued future volatility in its effective tax rate as the tax effects of share-based compensation will be impacted by market fluctuations in our stock price. During the second quarter of 2020, we estimate that vestings of restricted stock awards will create a tax shortfall of $1.5 million. The future effective tax rate could also experience volatility from federal and state tax incentives, unanticipated federal and state tax legislative changes, and unanticipated fluctuations in earnings.
Liquidity and Capital Resources
Management believes its available cash, marketable securities and expected cash flow from operations will be sufficient to fund the Company’s short-term operating and capital requirements. Expected short-term uses of cash include dividend payments, repurchases of our Class A common stock, interest on indebtedness and maturities of outstanding debt in January 2021, income tax payments, seed money for new products, ongoing technology enhancements, capital expenditures, and collateral funding for margin accounts established to support derivative positions, and could include strategic acquisitions.
Expected long-term capital requirements include operating leases and purchase obligations. Other possible long-term discretionary uses of cash could include capital expenditures for enhancement of technology infrastructure, strategic acquisitions, payment of dividends, seed money for new products, and repurchases of our Class A common stock.
Our operations provide much of the cash necessary to fund our priorities, as follows:
|
●
|
Finance growth objectives
|
Our existing capital return policy is designed to provide financial flexibility to invest in our business, support ongoing operations and maintain a strong balance sheet, while continuing to provide a very competitive return to stockholders. The components of the capital return policy are described below.