cases of bonded whisky were sold in fiscal 1940, and there were no further price declines on Old Forester. Pending formulation of the plan the bankers agreed to an extension of about 9 months on loans due. The plan was submitted in March or April of 1939 and the bankers concurred. As a result, a renewal agreement was executed in April 1939 extending petitioner's loans approximately 18 months and permitting it to borrow sufficient sums to finance the necessary purchases of bulk whisky. Commencing in October 1938, when petitioner was permitted to resume distilling operations, its entire production, with the exception of 36 barrels, was aged to 4 years or more and sold after the base period. During the early years of its existence, petitioner sold in bulk some of its own distillation. These sales were necessary at the time in order to finance petitioner's operations, and were to a degree responsible for the net profit realized by petitioner in its fiscal year 1936. Thereafter, and during the base period, petitioner repurchased as much of this whisky as it could locate to use in Old Forester. In pursuance of the Sanderlin Plan it purchased substantial quantities of other bulk whiskies as well. The following is a summary of annual purchases of bulk whisky by petitioner in each of its fiscal years ended April 30, 1936, to April 30, 1943, inclusive: Purchases of Brown-Forman distillation by petitioner were at prices substantially exceeding petitioner's costs of distilling and carrying in inventory whisky of like ages. In January of 1939, in order to further entrench itself in the quality whisky field, petitioner increased the age of some of its brands. During petitioner's fiscal years 1937 to 1940, inclusive, its total case sales, case sales of bonded and of other whiskies in absolute quantity and in proportion of the total sold, gross profit per case on each type of sale, and total net income were as follows: In late 1939 and during 1940, petitioner purchased advertising space in trade papers and magazines of wide general circulation seeking to encourage liquor dealers to increase their stocks of Old Forester. National Distillers, one of the "Big Four" of the industry, produces 2 of the 6 aforementioned bottled-in-bond bourbon whiskies, namely, Old Grand Dad and Old Taylor. National's expenditures in advertising Old Grand Dad and Old Taylor during the calendar years 1936 to 1939, inclusive, were as follows: The comparatively small expenditures in 1936 and 1937 were due to the relatively small inventory of 4-year-old whisky then available. Petitioner incurred the following costs in advertising during the calendar years 1936 to 1940, inclusive: Advertising a brand of whisky is long term and cumulative. Steady advertising is important in building consumer demand. The expense necessary to produce a desired number of sales of a given brand in any year is substantially affected by amounts spent in advertising the same brand in prior years. During the early part of the base period the short supply of 4year-old bourbon whisky created in essence a "seller's market." However, National always looked upon Old Forester as the biggest ultimate competitor of its own premium bourbon whiskies. Case sales of Old Forester as compared to sales of Old Grand Dad and Old Taylor for 1937 to 1939, inclusive, were as follows: Petitioner and National are not comparable. National is many times larger than petitioner, and markets a full line of distilled products. It entered the postprohibition era with much larger stocks of aged whisky in reserve and much larger distilling and storage capacity than petitioner and an established nationwide distribution and selling organization. Petitioner, in contrast, had limited capital, and very little aged whisky in reserve. The selling, general, and administrative expenses (expressed as a percentage of net sales) of petitioner, National, and of distilleries registered with the Securities & Exchange Commission and for the years 1937, 1938, and 1939, were as follows: The net whisky inventories for the entire industry of whiskies aged 3 to 4 years and over 4 years in bonded warehouses as of June 30 of each year, 1936 to 1940, inclusive, and total industry tax gallon withdrawals of bottled-in-bond whisky for years ending June 30, 1937 to 1940, inclusive, all in gallons, were as follows: Some unspecified portions of whiskies 3 to 4 years old were eventually bottled and sold other than in bond. Total gallons withdrawn each month and bottled in bond during the calendar years 1937 to 1939, inclusive, were as follows: After evaporation and leakage losses. By 1940, monthly industry withdrawals for bottled-in-bond had In its fiscal year ending April 30, 1940, the average selling prices During each month from January 1939 to April 1940, inclusive, petitioner made the following use or sales (in cases) of its own distil- Excluding Federal withdrawal tax. 1 May 1, 1939, to April 30, 1940, sales of bonds, in addition to Old Forester include sales of Early Times, Apple Brandy, Old Forman, Old Polk, and for private stock in the amount of 4,524 cases. Petitioner introduced two medium-price bonded whiskies in fiscal 1940. In addition, petitioner produced during its fiscal year ending April 30, 1940, approximately 200,000 cases of whisky out of bond from its own distillation between 3 and 4 years of age. The Brown-Forman distillation, 4 years or older, was suitable for use in Old Forester, and that 3 to 4 years of age would soon have become so. Prior to 1939 no Brown-Forman distillation 4 years old or older had been used other than in bonded whisky, with the exception of 52 cases each in October and December of 1938. During its fiscal year ending April 30, 1940, petitioner bottled out of bond 1,339 barrels of its own. distillation of 1935. Its inventory of earlier distillation was nominal. It also bottled out of bond during that fiscal year 5,481 barrels of distillation of the spring of 1936, and bottled in bond 748 barrels of that distillation. Petitioner's closing inventory of its own distillation (in cases) at least 4 years old for each month from January 1939 to April 1940, was as follows: In the Sanderlin Plan of operation, petitioner had premised case |