Tootsie rolls industries is an American manufacturer of confectionary. It’s most famous product is tootsie rolls and tootsie pops. It was found by an Austrian immigrant to the United States. The headquarters of the company is located in the South side of Chicago. The company also has a production factory in Mexico where it produces some flavors of tootsie pops. The company has acquired some famous brands of confections such as The Candy Corporation of America’s Mason Division in 1972, Cella’s confections in 1985, The Charms Company in 1988 and many more. The products of the company are marketed in a range of packages designed to be suitable for display and sale in different types of retails outlets.
The company’s financial position is very strong as a result we can see a growth in the earnings from $67,318,000 in 2016 to $80,654,000 in 2017. Cash flow from 2017 operating activities totaled $42,973,000. During 2017 the company paid cash dividends of $22,621,000 purchased and retired $34,133,000 of the outstanding shares and also made a capital expenditure of $16,673,000.
The company’s total cash and cash equivalents and investments, including all long term investments in marketable securities as of 31st December 2017 was $328,430,000 which was $67,995,00 less than what it was in 2016, which generally reflects increase in prepaid expenses and current income taxes receivables as well as payment of deferred compensation in 2017. The company also invests in trading securities to provide an economic hedge for its deferred compensation liabilities.
Overall the company has a relatively straight-forward financial structure and has maintained a smooth financial position. The company has no special financing arrangements except for an immaterial amount of operating lease. Cash flows from operations plus maturities of short-term investment are accepted to meet the company’s overall financing needs, including capital expenditure in 2018.
Why to invest in a confectionary company in United States?
Tax Reform Act
U.S tax reform changed the approach of United States to taxation of foreign earnings to a territorial system by providing a 100 percent dividends received deduction for a certain qualified dividends received from foreign subsidiaries.
In connection with enactment of the U.S Tax Cuts and Jobs Act (Tax Reform Act) in December 2017, Net earnings attributable to Tootsie Roll Inc. were $80,864,000 in 2017 compared to $67,510,000 in 2016.The Company recorded a favorable accounting adjustment of $0.32 per share, during the fourth quarter of 2017..This reflects the estimated benefit from the revaluation of net deferred income tax liabilities on the new lower U.S corporate income tax rate effective January 1, 2018. Average shares outstanding decreased from 64 086 in 2016 to 63,179 in 2017
These provisions of the U.S Tax reform significantly impact the accounting for the undistributed earnings of foreign subsidiaries, and as a result the company intends to distribute approximately $10,000,000 of the earnings held in excess cash by its foreign subsidiaries in 2018. The costs associated with a future distribution, including foreign withholding taxes, are not material to the Company’s financial statements. After carefully considering these facts, the company has determined that it will not be asserting permanent reinvestment of its foreign subsidiaries earnings as of December 31st, 2017.