Tobacco Documents Online

R I PHILIP MORRIS & CO. LTD., INCORPORATED Report upon Tests of Inventories as of March 31, 1945 LYBRAND, Ross BRGS. & MONTGOMERY CERTIFIED PUBLIC ACCOUNTANTS New YORK OrFICs

Llm~~um, Rass REBIOENT PARTNERB CERTIFIED PUBLIC ACCOUNTANT9 NiW TCllq WtU!AM MLYORANO, ~ O BROAO ST R EET PwiLADtI*MIA RODERt H.MONTGOM[RY CMlCAOD WALTLRA, BTAUS 007TON4,MILTONDUMDRILLC (V~EWYoRK 4 °AL"'"ONt THOMAB rlp HENDERaON WAaNiNO*CN PRIOR 91NCLAIR P~tT~.u~ON' NORMAN J. IENHARTDt1pOtT CL[v[LAND WAITER L.SCHAFFER CiNdNN-T1CONRAD B TArLOR NoCerOND HeRMONF: BELL ALVIIiR JENNiNOa June ~,8 1945. C1yRt8TOPHER H KNOIL MILTONRCAMPBEII ~ EDWAROO CARSON OCOtlOE W McIVER.JR.WALTER R BTAUB Mr. 0. H. Chalkley, Chairman of Board, Philip Morris & Co. Ltd., Incorporated, 119 Fifth Avenue, New York 3, N. Y. Dear Sir: r LOUIS LoUHV0.Lt ATLANTA DALLA• ffOUSTON BANrNANeIeeo LOb ANOtLtB .EATTLE LONDON Pursuant to your request, we have examined the balance sheet of PHILIP MORRIS & CO. LTD., INCORPORATED as of March 31, 1945 and the related statements of income and surplus for the year then ended. e I Our examination included various tests of inventories at March 31, 1945 as outlined in later paragraphs of this report. Because similar tests had been previously applied by us in our examination as of September 30, 1944 (an examination made for the purpose of a registration statement filed with the Securities and Exchange Commission in connection with the company's new issue of 4 per cent cumulative preferred stock), our tests at March 31,1945 were somewhat curtailed, particularly with respect to leaf tobacco. The inventories of the company amounted to 487,280,430.97 at March 31, 1945 as shown by the following condensed summary: Domestic and imported leaf tobacco (including imported leaf in bond subject to duty) $72,179,265.96 Cigarette and gmoking tobacco in process 1,651,154.79 Manufactured stock, including revenue stamps affixed 7,677,648.24 Other materials and supplies (less allowance of 4216,307.63 for possible obsolescence ofwrapping stock) 3,920',597•78 U. S.Internal Revenue stamps (unaffixed) 532,537.19 Advances against purchases of Turkish tobacco 11Z19,227.01 1~7l28C,430.21 t 1

In connoction with our testg of the inventories and our reviews of the related accounting controls and records, we recon- ciled the pounds of leaf tobacco transferred to the factories during the year ended March 31, 1945 with the sales of finished product in that period, based upon data shown by the statistical records at the New York, Richmond and Louisville offices. Certain adjustments and conversion factors are involved in such reconcilia- tions, as indicated in the following outline of our procedures: 1. The number of pounds of leaf tobacco transferred to f.actories., as shown by analyses of the leaf in warehouse accounts, was reconci?:ad with the number of dry pounds represented in the product manu- factured during the period after giving effect to inventories in the stemmery and factories, leaf handled for Stephano Bros., sales of stems and dust, etc. 2. The number of wet pounds (dry pcundo piu3 casing material) rQpresentod in the product manufactured at Richmond during the year ended March,31, 194;5 was found to be 105.03 per cent of the dry pounds, as compared with 104.50 per cent for the year ended Prlarch 31, 1944. The corresponding percentage for the product manufactured at Louisville for the period from June 2G, 1944 to March 31, 1945 was 105.85. 3. A. comparison of the quantity of cigarettes produced during the year ended March 31, 1945 at Richmond and at Stephano Bros., Philadelphia,with the number of wet pounds consumed in their manufacture sliowed the average consumption to be 2.3918 wet pounds (equivalent to 38.27 oz.) per thousand ciga,rettes, as compared with 2.3931 wet pounds per thousand cigarettes for the year ended March 31, 1944. The nvara.lge conctimption for cigarc;l.tes produced at Louisville for the period from June 20, 1944 to March 31, 1945 was 2.4154 wet pounds (equivalent to 38.65 oz.) per thousand with respect to size 70 millimeter ci arettes and 2.8058 '-let pounds (equivalent to 44.89 oz.5 per thousand with respect to size 85 millimeter cigarettes. 4. The quantities of cigarettes and smoking tobacco pro- were reconciled with quantities sold by taking duced into consideration inventories of manufactured stock and also samples, goods -lestroydd, etc. C Sales quantities for the leading brands of cigarettes were exl:endedat selling prices and the ar.*gregates thereof were in approximate agreement with the re- spective dollar sales as shown by the genoral ledGer. A similar test was also a:ade for the leading brands of smoking tobacco. 2

The amounts of inventories recorded in the accounts kept at the various offices of the company were as follows at March 31, 1945: Richmond Louisville New York O77,065,323.13 2,265,250.12 _ '~949z857 `87 280,_O0._K The methods and procedures followed by us in applying tests to these inventories are described in following paragraphs of this report. RICHI'4OND The inventories controlled by accounts at Richmond are summarized hereunder: Domestic leaf tobacco, in warehouses (see note) Imported leaf tobacco: In warehouses, subject to dut7 (see note) In warehouses, duty paid (see note) Freight, drayage, storage, insurance and~buyine department expenses on leaf tobacco in warehouses: Domestic Imported Cigarette and smoking tobacco in process Manufacturee stock, including 4~409,4~51.56 for revenue stamps affixed: Cigarettes Smokinl; tobacco Other materials and supplies: Casing materials Wrapping and shipping supplies Factory supplies U.S. Internal Revenue stamps (unaffixed) 065,386,352.49 45,188, 872. 63 12,296.14 5,201,168.77 475, 288'. 54 72,076.~1 547,365.45 670,475•75 82,683.85 639,870.97 2,699,804.03 21- 541.'Z9 1,309,492.84 753,159.60 3,361,216.79 ~06, ~67.19 77 06 2.1 Note: The word "warehouses" includes public warehouses and "compa.ny-owned or cg~n~~~~Ls~l rQnted" warehouses. 1 3

DomestiewLeAf Tobncco In Warehouses: We examined warehouse receipts covering domestic leaf tobacco stored in public warehouses as of March 31, 1945,, and, in ad3~{ tion,such tobacco was confirmed to us by the respective warehouses as being held for the aiccotlilt of tho company at that date. InspEction of uarehouse receipts for dcmestic leaf tobacco in warehouses as of March 31, 1945, was commenced on March 26, 1945, and from that time until April 24, 1945, these receipts were under our control. Durine the period from April 10 to April 24, 1945, we visited certain warehouses in the states of Virginia, Kentucky and North Carol.ina and made test counts of selected lots of the domestic leaf tobacco called for by the afore-mentioned warehouse receipts. Such~test counts of domestic leaf tobacco in warehouses consisted of an examina- tion~of the tpgs attached to the selected ho;sheads, waich tags ir.dicated the hcgshead numbers and net weights. During our visits to the ware- houses, various hogsheads, selected at random by us, were partly opened to satisfy ourselves that they contained leaf tobacco. The hogsheads of domestic leaf'tobacco counted by us comprised approximately 20 per cent of the total weight of all domestic leaf tobacco recorded in the accounts at Richmond as of March 31, 1945. The following tabulation indicates the various locations visited and the extent of our tests: Pounds Pounds Test- Percentages i Warzhcuses and Locaticns Stored Checked of Test Checks Richnond, Virginia: AlleChany Warehouse Co., Inc. 19,008,764 31964,381 20.86 Blair Tnbacco Storage Co.,Inc. 2,098,354 303,280 14.45 Carrington & N~?ichaux, Inc. 232,898 Chesapeake Storage Corporaticn 13434,574 2,539,148 18.9o Fireproof Storage Co. 3)468,984 6:0,270 1,R.17 J. P. Taylor Co., Inc. 2,845,405 563,176 19.79 The Vau,*han Storage Co. 10,733,843 1,860,270 1'I•33 ~. X.Vie t or & C o. Inc. (Star j~~arehouseg~ --I=,42_0 n ~ ~83 r-04 201.03 1-2-,949j029 ip.26 10 0 ti33zsoz 4

Warchouses and Locations Elackstone, Virginia: Joseph E. Peach Danville, Virginia: Pounds Stored y78 Dibbrell Brothers, Inc. 56,007 Reliance Storage s inspection Co., Inc. 18,3F2 Virginia Tobacco Co.,Inc. Petersburg, Virdinia: W. B. Beach~ & Co. , Inc. South Boston, Virginia: J. P. Taylor Co.,Inc. Scuth Boston Tobacco Storage Co. C. W. Walters Co., Inc. Douglas, Georgia: Dot~olas Tobacco Co.,Inc. Bowling Green, Kentucky: Wm. L. Burford & Co. Carrollton, Kentucky: R. M. Barker Tobacco Co. H'opkinsville, Kentucky: Southwestern Tobacco Co., Inc. F,~69,15t3 Pounds Test- Percentages Checked of Test Checks 878 0: 6. 2,523,136 924,176 36.63 2,082,292 312,966 15.03 ~00 , 807 145,845 48.48 4,9C6,2~5 1,382,987 28.11 276, 424 165,j48 1,413,310 1,165,434 Lexington, Kentucky: Southwestern Tobacco Co., Inc. _4,6= 76o 2,285,398 49.29 Louiqville, Kentucky: Louisville Public WP.rehouse Co. 330,762 Law"ence Warehouse Company 511,319 153,:03 29.98 Western District Ware- housing Corp. 289,277 87,053 30.09 Warehouses owned by c omp any 4,708,666 1,~11 , 5M 27.85 84,0024 5 26.51 Maysville, Kentucky: ' Kirk & Key 174 A2.08 Owensboro, Kentucky: Southwestern Tobacco Co., Inc. ~1 404,0~0 Shelbyville, Kentucky: Southwestern Tobacco Co., Inc. - 1i437,681 495.065 .43 IM2332t6-03 5 1

Pounds Pounds Test- Warehouses and Locations Stored Checked of Test Checks Durham, North Carolina: W. L. Robinson Co, Inc;. Venable Tobacco Co.Inc. 662,096 11~,'~~4 Fairmont, Vorth Carolina: Person Garrett Co.,Inc. ~5 Farniville, North Carolina: Farmville Leaf Tobacco Co.,Inc. 152 Fuquay Springs, North Carolina: Westside Storage ~ 132~ 540 Goldsboro, North Carolina: J.P. Taylor Co.,Inc. , 962.664 Greenville, North Carolinas Person Garrett Co.,Ine. 531,861 Henderson, North Carolina: J. P. Taylor Co.,In,c. 2,118,214 Kinston, North Carolina: B. V. Webb & Co., Inc. 16,480 L. B. Jenkins Tobacco Co., Inc* 7Q4,.560 Nov Bern, North Carolina: A. C. Monk & Co.,Inc. Oxford, North Carolina: W. A. Adams Co., Inc. `98 ? Rocky Mount, North Cerolina: G.R. Garrett & Co.,Ii,c. 12,756 W.B. Lea Tobacco Storage Co. 1,373,6Sr Rocky Mount Storage Warehouse 463,146 L849,59-8 Wilson, North Carolina: R.P. Watson Co.,Inc. 758,435 Wilson Tobacco~ C,.,Inc. 9Q 4''8 8+ M I Winaton-Snlem,Nortl, Carolina~'r' P'iedmcnt Leef Tobacco Co. 207,E98 Winston Loaf Tobacco & Storage Co. 1,Q34,.=~22 1J 24&22~ Greenville, Tennessee: The Austin Co., Inc. 124,572 Greenville Storage 80,050 L.B. Jenkins Redrying Co.,Inc. Knoxville, Tennessee: The Ac.stin Co., Inc. 8, B'.(:6 _--~0 0 ~4Zp - 577,752 x.02 - 461,618 33.61 187.760 40.F4 h~~'~' 3~ .11 2~,,227, 882 Percentages 20.62 6

imnorted Leaf Tobacco in Warehouses: A summaryof the imported leaf tobc.cco included in the inventor~ at March 31, 1945 is shown hereunder: Pou_zds Dollars Stored in warehouses at Richmond and Petersburn VirginiA, and Louisqville, Kentucky~ Zin custod~r of the United State: Custcrr.s !~ervice) 7,143,850 "Duty paid" tobacco stored in ware- house at Richmond, Virginia: 15,804 Z.152's54k L, 201168 . Z We secured confirmations from the United States Customs Service with respect to all bales of imported tobacco owned by the company which were in the custody of that department of the Federal Government at March 31, 1945. During the period from April 19 to 24, 1945, we visited warehouses in Richmond and Petersburs, Virginia, and made test counts of selected items of imported leaf tobacco. Such test counts covered approximately 64 per cent of the total weight of imported leaf tobacco in warehouses. Cigarette and Smoking Tobacco in Process, Manufactured Stock,Other rlaterials and Sup2lies and Revenue Stamos : On March 30 and 31-, 1945, emplo;,~ees of the company took ph;~sical inventories of all cigarette and smoking tobacco in process, manufactured stock, casing materials, etc., and revenue stamps onhc.nd. The employees did not take physical inventories of all items of factory, wrapping and shipping supplies, as it is the practice to count selected items during the year, when conditions permit, for the purpose of counting~ each item several times within the 3°ear. N on Selected nuantities of cigarette and smoking tobacco in process were test-checked b;; inspection and estimates of such quantities. The dollar amount of the quantities so tested aggregatedl approximately 87 per cent of the total dollar amount of all cirPrette and: smoking tobacco In process. 7

We accounted for about 94 per cent in dollar amount of the manufactured stock on hand by inspection thereof. Test counts were made by us of other materials and supplies on hand and we secured a confirmation from a vendor compan.~ for honey held in its warehouse. Such materials and supplies accounted for through test counts represented approximate4 73 per cent in dollar amount of all materials and supplies. The packaged unaffixed revenue stamps were accounted for by a count of the number of packages, which count was supplemented b,F a detailed count of the stamps included in packages selected at random. The loose revenue stamps were counted and the amount of stamps affixed to mahufactured stock on hand was computed by application of the re- spective tax rates to the inventory,of such manufactured stock. Prices: An extensive investigation of prices was made by us which indicated that the invc..ntories at March 31, 1945, were priced as follows: Domestic and imported leaf tobacco in warehouses, at average cost (hereinafter explained in greater detail), subject to reallocation by grades to show a differential between various 'grad'es. Cigarette and smoking tobacco in process, at average cost of leaf plus casing material, direct labo:~ ard stemmery over- head, if applicable, but exclusive of factory overhead. Manufactured stock, at average cost of leaf tobacco plus casing material, direct labor, stemmery and factory overhead. Other materials and supplies, at average cost. Revenue stamps, at cost. In accordance with the practice followed for many years, the ,average costs by grades of domestic leaf tobacco withdrawn from ware- houses for manufacturing were redetermined at the beginning of the buying season for bright tobacco by averaging the cost of the bright tobacco then owned and the estimated cost of the new crop of that tobacco expected to be purchased. The increased average costs, so W redetermined, were used! in pricing the domestic bright leaf tobacco withdrawn from warehouses for use in manufacturino during the pert od from August l, 1944, to Februar;, 2b, 1045. 8

The some practico was .fol].owed wi th respFc t to bur1% , lOaf tobacco except that the increased average costs of biirley tobacco, so redetermined, were used in pricing the domestic burleJ leaf tobacco withdrawn from warehouses for use in manufacturtnZ dur3ne, the period from DFcomber 1, 1944 to Mnrch 31, 1945. After the determination of actual costs with rospoct to I new crop pur-chaaee, e.d jusilmorits wern ma<ln to ref].ect such costs In the various invontor~ nccounts on the books, In conjunction t,}icrewii;h, the usual cost a.d justrnents were made between the various C;rtld:es of leaf tobacco in order to maintain "normal differentials in costs"' which, in the opinion of the management, should exist between each~ grade• The excess of such estimated average costs for domestic leaf tobacco, as charged to cost of sales during the bu~yin& seasons, over the aggregate based upon the actual average costs during. that period was not material in relation to the net income of the company and therefore no adjustment was made for this factor. The average cost of leaf tobacco contained in cigarette and smoking tobacco in procPss includes freight, drayage, storage, in- surance and buying department expenses. These charges, for convenience in accounting, are segregated in "leaf expense" accounts until the leaf tobacco is placedin process, at which time tho amount con- sidered applicable thereto is transferred to the "in process" account. The balances in the leaf expense accounts at hiarch 31, 1945, including accrued stora.ge charges of $220,000:, were investigated by us and did not appear to be in excess of tho aggregate amount of charges applicable to the domestic and imported leaf tobacco in warehouses at that date. General: Extensive tests were applied by us with respect 9 to the general mathematical accuracy of the inventories. N W The inventory summary does not include duty in the amount of CJ approximately $2,143,000 which is pe.;,able before withdrat,rn. (based upon a rate of 30 cents per pound) the imported leaf tobacco in bond may be %J 9

LOli,7`L%~ L?L The inveIli:or{ eS COIi~I'.~l l ~:ty by i;}:E ~~ ;,ue ~v~.~llc are surr~~narized herounder: L Domestic 1,-)if tobacco in Z~~*,, ~:I~ua:.s Cig4rette toawcco in process Manufrotured stock inc1:..IU:n~- ~`~9,?U?•?5 for revenue stq7nS af'fixed ` Other materia.lc 2n d supplijes; Casing materia1: ,vrMppint, a.;iri cu,aplioQ : a.ctory surp].iF: s U. S. Int;erzial Re venue s ta.mps (umaffixEd) x.i ic)?_ 55'( . •_.: ' ~ • l~ U4 4, ~~a,~(:•~7 131, ~13.24 nr S)7v00 INr~M' Dc?me4tic Itepf Tobacco in Harehousec: .he doraes'~~ic 1erf tobacco, AC~reCa,ti!~9 1,Z01,00~ pound's, was Qtored ir_ cor.par;; t;o.re- housE and factory vuildi:i6s. During the period from' March 30 to April ?, 1945, our representatives made test counts of various lots of domestic leaf tobaec;;)~ yeleotEc~ !'rota t'h~,- coral»n~.rs inventory snd 1eN;f' recor,13. Such tast counte congi sted of an e:;a.rr.y nation of the tQOs 4t',~c?:wd to the melectt•d horr~3 1cea't:: Y,h`^h t?^s 'n.~_'ct~tea ; ho~-~,1 , c, ic a1 nur.7l~ers and t:P t usiFhts,, At esch locatl.on vis lted, ve.rious hor,sheQ;cjs, selected at rv:nclori by us, were ps.ri.Iy upwnca' to s~.t'sfy a:x•~_i;1~<~c +.ant they CoC'.5alfit)d Innf tobrICCO, ThetiogshQ2.dsof dcr-sstic leai tc'cv,ccoso coun;;td: by us~~~'I~~'~4~jll~.t~ r+ 11y l i~- i, t. ~ i. tu ..1 j, ~. .. ~l, ~: 11 dlon°stf.c Ieaf tolacco recor:?ed J.n the r-cmuit3 at Lcuiyv:Ille I~s of riurch' 31, 1945. C,}.-~C:C 1at,loti~nlca 1~t11 y'1~h1{c,~• £I1,1 r~tr•srltit~ { +q,~•~.• CI1 i':c":' 0 L':I ~+ r 7 ,Y • r•cJ l-, J'eec •;I L:1C' :J _CO'.C ',~1'rnnt•,~r~ -v~ 10

tobaccoi in prccess, manufactured stock, casing nlat€~^isls, I,-rappiii, C-1 and sliipping supplies, and iever_uz staMps. The employees did not take a physical inver.tory of fe.ictor;; ;;tizj)plii,as as of Ma7%cii 31, 1~45 because not only was such a physical invFI.to:-y 'U,C'.ken at FE'ui^uary 1, 1945 but an effective perpetual inventory recarel is also malntr Lned in connection therewith. Practicully all of the cigarotte tobacco in proceS3 wF.3 accounted~for by our inspection and estimates with respect to tize quantities involved. About 99 per cent of the total dollar Pmot.nt of ntanufactured stock on hand was also acccunted for by insp eaticn. Various test counts were applied b3r,,:s to other mater'_als and miscellaneous supplies. The packaged unaffixed revenue stamps were ccunted by us and the amount of sta:!ips affixed i;o manufactured stock on hani was computed by application of the respective tax rates to the inventory of such manufactured stock. rices: We made an extensive investigation of inventory prices and applied numerous tests thereto. In gen.era.l, the basis of pricing at Louisville was the same as hereinbefore outlined with respect to Richmond. NEW Y0 RK The balances of the inventory accounts at New York as of March 31, 1945 were as follows: Manufactured stock, including revenue stamps affixed Cidarette tobacco in process at Philadelphia Operating supplies at Pt7iladelphia Esdvances agairrst purchases of imparted leaf tobacco Less, Allowance for possible obsolescence of wrapping stock at fa.cto.ies I:et ir.ventory amount ,`6,772,6~5.40 32, 003 .00 42,174.G4 1.3191' 2217.0 1 ~- , ~.- llc>~,~,~ -DJ.3r 21() ,?0 7 .,'. 11

Manufactured Stoak: Phy sica1 counts were ms,c;e by us of cigarettes and smokl.n~ toba.cco stored a' warchou3es in the fol~~lowing cities: bost:on Jerse;,r City Nev Y,nrk (Tower's Camden Los fi.naEles Wareh'1011~~e) Chicago Milwaukee Port1'and (except Clevelend Ne~Tarl, Sea Stores) Dallas iVew Orleans San Fvancisco Detroit New York (119 Fifth (except Sea stores) Houston Avenue ) .~.t. Louis Jacksonville The stock at Jerse'y City, San Francisco and 119 FIfth AvenuA, New Yo„k City, is in the custody of cc ipany employees but stock at the other locations shown above is in the custody of p:iolic 1*arehov.ses. Shipments in transit at March 31, 1945 from the factories at Richmond and Louisville, and from Stepne.no Bros., PhilP.aelphia, to the various warehousea were accounted for satisfactorily by exam~Lnation of such recordsas railroed bills of1adino, warehouceadvlcesof receipts bearing later dates, invento,cy and shipping records at Rich~-aond and Louisville, and inventory ann"'A receiving records at New York and Son Francisco. Ttsts were made at a nu;mber of locations, to determine that merchandise rcported by the warelzouises as shippod to customers had actually left the premises prior to our co-lnt. The ba3lance of themanufactured stock at P:arch 31, 104.5consisted of cigflvettes and cmok:__is tobacco at va.ricus loc.ptions throughout the country, and of ciEs.rottes at Stephano 3ros., Philad'elphia. With the exception of a few relatively minor items, all of suc-i marrifncture:d stock was confirmed to us. by independent karehocises ~:nd custodians. The relative inipc)rtAnce of the three foreSo{ n- eroups, With respect to quantities, is indj,csted by the followins ta'oula.tio;~ Which s.iows the apprcxicnc.ta percenta--e in each Sroup to the to tal at March 31, 1945: 12

Per Ccn* of T') tn- ]. 0;~~i i-y Counted In transit from Richmond, Louisville and P?zilad-,_lphi& to warehouses Other stocks 41 The inventory of manufactured stock is priced at average cost, calculated separately for each brand of cigarettes and smoking tobacco. NvmRrous t~,gts of such avorn;;o +aontn were ni,l,r~o~ b;; lit;. A t'ow cll3c~6 or P,IvFrse r,hyr' on7i condttion9 at waroboa:,As, such as abnorlv.l teriperatur3s or humidity, f siluro to uso dunnage under ste.ck;,, proximity to o~lorous merchsnaisA, etc., were obderved by our representatives and reported to the company's traffic depirt- ment. 0tgarette T2tiit=,o in Proceca; Tho oigarette tobacco in process at Stephano Bros. was confirmed to us by that comp3.r.y, both as to weight and dollar cost. Oberatim.7. Stlpf.ie5; The following amounts, which were confirmed to us by Stephano Bros., represent the cost of :nateriP.ls held by that company for use in .r.anufacturing and shipping cigarettes fcr Philjp Niorria & Co. I,td., IncorPorateAa CJ WrRpping stock 321,524.70 Casing stock 2,155•24 M"- Shipping supplies 18,495.00 Advances AgAinst Pur^haQes of Imnorted. Leaf Tobs:cco: As of Narch,31, 1945, the company had rr.s.de e,dvances, e,ggreg~.tir.g 45,569,227.01, to The tL:7Aricr?.n Tobacco Compan,.,, aUainist p~!rchases of Tarkishi tobr.cco:s. I t is Fst1 mated that Ir5, 3J0, 000.00 of that totel 13

applies to the 1942-43 crop order and that the balance of $269,227.01 will be applied to the 1943-44 crop order. Purchases of 1942-43 crop tobaccos, amounting to $4,250,000.00, were applied aga•inst the ad- vances so made, leaving a balance of $1,319,227.01 at March 31,1945 which was confirmed to us by The American Tobacco Company. Allowance for Possible Obsolescence of Wra, stocl Factories: An allowance of $21b,307.63 has been made for possible obsolescence of wrapping stock at factories. This amount results from allowances made in prior periods. GENERAL During the course of our inventory tests, as outlined in the preceding paragraphs of this report, we received complete co- operation from officers and employees of the con.pany and also the personnel at the various independent warehouses visited by us. Based upon our examination, as outlined in preceding paragraphs of this'report, we are satisfied with respect to the general accuracy of inventory quantities and valuations as of March 31, 1945. Very truly yours, ~--• 14