Tobacco Documents Online

I February 6, 1913. W. R. Perki ns, Esq . , Attorney for P. Lorillard Company, Jersey City, New Jersey. Dear Si r: In conjunction with counsel for the 1lmerican Tobacco Company and Liggett &Myers Tobacco Company, you ask for my interpretation of the decree entered in the case of United States vs. The American Tobacco Company, et al., November 16, 1911, in this particular, namely, as to the proper value at which leaf tobacco delivered to Liggett & Myers Tobacco Com- pany and P. Lorillard Company, respectively, by American To- bacco Company, shall be charged. The facts as you state them are that it was the custom of the American Tobacco Company to charge each of its factories and subsidiary companies to which tobacco leaf was delivered, interest on the purchase price at the rate of 5;b per annum from the date of purchase until finally used, cre- d1ting this amount to the -Anerican Tobacco Company as a part of its profits in the month of manufacture. Dr. A. C. Muhse, K in his report which was filed with the court at the hearing, pointed thi-4 out in connection with his analysis of the earn- ings of the_three companies in the direct tobacco business, as 69695464 ~ W-R (Om ro LIM W # &V t W T; ~

.9 vv.R.P.2 set forth in the Petition for approval of the plan, based upon the earnings of 1910, and showed that in the statement of departmental profits of the American Tobacco Company was included a system of over-providing for various purposes, vrhich reduced those profits by, among other things, charging this arbitrary interest charge that I. have referred to, and that in the Petition the earnings of the three companies for 1910 were computed by restoring tnis profit to the itp--n of brand profi t. The plan as adopted and embodied in the decree providedG for the conveyance to Liggett & Myers Tobacco Com- pany and P. Lorillard Company, respectively, of certain tangible properties aggregating 430,607,261.96 of Liggett & Myers Company, and $28, 091,?48.86, i ncludi ng in such prop- erties "leaf tobacco, supplies and materials and cash" based upon conditions as of December 31, 1910, the last completed year. Thus, it was stated in the plan, the American Tobacco Company would be left, after such co nveyances with "tangible "assets including stocks of companies employed in manufactur- "ing tobacco and its products, cash and bills and accounts "receivable of the value of 153,408,498.94 as of IIecember 1131, 1910." ' In carrying out the provisions of the decree, you

. inform me, the American Tobacco Company has transferred cer- tain stocks of leaf tobacco to the other two companies, at a price which is book value, plus an interest charge at the rate of 5%, as above mentioned; but which charge does not appear as a part of the bo ok value o 7 the American Tobacco Company' s books. By this method, upon the transfer and delivery to the Liggett & kLyers and Lorillard compani es, respectively, of assets to the amounts specified in the plan, the American Tobacco Company would be left with "tangible assets, includ- "ing stocks of companies employed in manufacturing tobacco and "its products, cash and bills and accounts receivable" of a value of upwards of a million of dollars in excess of the sum of $53,408,498,94, mentioned in the decree, as of December 31, 1910, It seems to me that this fact, without reference to any other, furnishes the answer to the inquiry you maYe, and demonstrates the fact that the leaf tobacco should be turned over to the respective distributee companies at book value without the addition of the interest charge. You fu rther inform me that although the provisions of the decree were carried out by making the transfers required by the plan within the time fixed, which is now some months ago, never- r theless the two distributee co,-.npanies have, in effect, paid to the American Tobacco Company something more than a million dollars in excess of the amount properly chargeable as above

A ,t W.R.P.4 stated. lhis should, it seems to r.ie, be readjusted and payments made to bring down the amount wi th which they shoul d have been charged to those specified in the decree. Respect~lly (