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/ / / i PLA~NIHG ~SUMPTIORS ARL) FORECAST FOR THE PERIOD 1977-1986+ FOR R. ,I, REYtlOLDS TOBACCO COHPANY Tile GENERAL BUSINESS CLIMATE ................ THE I'OBACCO IIIDUSTRY AND R. J. REYNOLDS TOBACCO COHPANY THE RESEARCH DEPARTHEtIT A. GEI(EFLAL ......................... SMOKING A~D HEALTH ' C. REGULATION, Tw~#,ATION, ETC ............... D. RAW /-9~TERIALS K'~D PROCESSES ............. E. PRODUCTS ....................... F. MISCELL/~IEOUS ....................... Research Department March 15 o 1976 1 3 3 3 5 9 10 14 18 RM047634

I. TIIE GENEPJ~L BUSIIIESS CLIII%~E ::::i:i::,. No sudden change ~.~ill occur in the "syste,~" or busi,ess environ~ent |n which ~.$e operate, i.e., there ~.Ji]1 be no catast~.phic pestilence, disease. ~)rld war, revolution, major depression, natural disaster, or the like. There is a possibility of rene~Jed ~.:arfare in the M|d-Ea~t probably again accompanied by a petroleum crisis. As the present "under 35" age group becomes the dominant po~er group In our society, the new perso~al and political values of that group will exert a more predictable influence for change upon most aspects of government, society, business, morality and foreign policy. The changes which occur are not expected to be favorable to business. However, this large consumer group will have needs to be satisfied In terms of tobacco products. This offers us a large market if we are sufficiently astute to identify those needs and desisn and sell products to ~eet them. World leaders of morality, such as the Pope, ~ill ~xert great |nfluence to ~odify the personal mores, and consequently the civil arKl political values, of the present "under thirty" age group. lherewi11 be a strong swing to~ard ~olesoc~,e~ess, integrity and decency wi~Ich will affect the consu~er outlook and product expecta- tions of this group. Price, quality and durability v:ill beco-.e more important than fad, flamboyant fashion or sex appeal. The "consun~erixm" movement will remain stror~g, and the ability of consumers to objectively judge the qualitc~ and utility of products may Increase. Product labeling ~ill becon:e ~OFO defiritive in terms of camposition, date, hazards, and the like. Present socio-legal-governmental trends ~ill continue. Concern for "social justlce', enviror~nent, energy,'Gopulation con~",)l, and product safety ~.~ill re:,~in hlgn. Governmental regulation of almost all aspects of our society will increase. The energy shortage and to a lesser extent other material shortages over the next decade will cause a change in world economy and ~olitics, a change in national priorities and life sty|e, a;~d increased cost and difficulty in doing business. Concern for environment will re~ain high a~ong certain groups; and althoush eneroy needs ~i11 finallv out~migh environment considerations, the environmental groups continue to fight and delay. Ynese influences vzill continue beyond the projection period anG will intensify as energy needs and environ- ~w~nt consideration exert a 9rearer effect on the average person. ~he U. S. standard of living ~ill not increase at the rate of the last decade. Ihe a~ou~t of dlscretionary incor~e ~ill decrease. The main squeeze v~ill be on t~e r.~iddie economic RM047635 CX 56-B

THEGZflERAL BUSINESS CLIrVJE (cent' The health consciousness and technical understanding of the population, as applled to products, will increase. Prlce-wage-profit controls tHll remain a possibility for at least several more years. Coping with the business cycle will remain difficult, The profit squeeze will remain a major problem unless periodic "pass-through" price Increases are competitively feasible and allowable. Due in large part to political tampering with ~n economy already under real stress, it was long thought that the economy would %,cle bet~,~en h|~h unemplo)~ent and hi.oh inflation at about 2 to 3-year intervals. Ho'~ever, it is apparent frcx~ recent experience that this Idea should be abandoned. For several years unemplo~w-~nt and inflation have been cycling together. As a lO-year average, Inflatlon wi%1 probably run at about 8% and unemplo)~ent at about 8%; i.e., politicians will continue, in election years, to place more emphasis upon full ecnploy~ent than upon price stability. Also, for complex reasons, the governn~cnt is con~itted to a continued pollc~, of inflation. A key factor in the control of the economy's vigor is the 4ecreasing birth rate. Even at current levels, every facet of the juvenile market may expect to be depressed. And only a fe~..' ),ears toyond the proJectlo~ period 1oo~s a n~arkedly reduced 9eneratlon of young adults who will need consu~r goods. Tills ~,ay provide a built-in cooling of the econo~,y, leading toward less inflation and specialized areas of unemplo~nnent. More and more evidence of financial mishandlipg by cities, states and national governments v~ill leak through to the public in the i~edlate future. The root causes, such as overextending in program.s, abuse of expenditures in such pro.oraF.~s, corruption, unwise and expensive experimentatio~ :.:ith ~c~cational progr~s, and unnecessary services will becon~e more evide~;t ".o ti~e public and wili elicit strong response and possibly backlash. Considerable instability in municipal, state and federal spendihg policies and programs will result, with attendant uncertainties in taxation out]ook. CX 56-C RM047636

]. IlIE GEIIERAL BUSIIiESS CLII.~'~TE (cont'd) ~he health consciousness and technical understanding of the population, as applied to products, will increase. Price-wage-profit controls vHll remain a possibility for at least several ~ore years. Coping with the business cycle will remain difficult, The profit squeeze will re=ain a major problem unless periodic "pass-through" price Increases are competitively feasible and allowable. Due in large part to political tampering with an economy already under real stress, it was long thought that ~he economy ~uld cycle l)ett.~en hlgh unemplo}~w~nt and high inflation at about 2 to 3-year intervals. However, it is apparent from recent experience that thls idea should be abandoned. For several years unemployment and inflation have been cycling together. As a 10-year average, Inflation will probab1~, run at about ~ and unemplo)~ent at about 8%; I.e., poIitlclans w|11 continue, in election years, to place more emphasis upon full employme~ than upon price stability. Also, for co~plex reasons, the government is co~i~Itted to a continued pollcy of Inflation. A key factor in the control of the economy's vigor is the decreasing birth rate. Even at current levels, every facet oF the juvenile market may expect to b~ depFesse~. And onl'y a fev~ years beyond the projectio~ period looms a ~arkedly reduced generation of young adults who will need cons~r goods. This may provioe a built-ln coollng of the econo~.y, leading to~.~ard less inflation and specialized areas of unemployment. More and more evidence of financial mishandling by cities, states and natlonal governments ~ill leak through tc the public in the immediate future. The root causes, such as ovcrextending in ~elfare programs, abuse of expenditures in ~uci~ programs, corruption, unwise and expensive experi~ontatioh :.~ith cc~cational pro§ran:s, and unnecessary services will beco~.e ~ore evideGt :o the public and will elicit strong response and possibl), backlash. Considerable instability In F~nicipa|, state and federal spendih~ policies and progran~s result, with attendant uncertainties in taxation outlook. CX 56-D RM047637

IT. THE TOBACCO INDUSIRY AJ~D R.J. Ill. THE RESEARCII R~:~NOLBS TOBACCO CO:4PANY T~i...:.fQ.mat for the discussion of the b.m sections (a) The Tobacco Industry and R. J. Reynol~::~:::~6~acco ~any an~ (b) The Research Depar~;ent has been presented as two separate sectlo~.In:past issues of Plann~ng Ass~ptlons and re.casts. This fo~t has b~en changed for the~:~:~6~:ent ~rand~. .. lhe..~]annlng assertions and forecast for The Tobacco Industry - RJR for ~97Z-1986* are paral]~T:~~ere:.:.:.., app]ic~ble, on the sa~ page with c~ents on the possible response of the Research De~ar~t to the ass~ptlons affecting the Industry and RJR. ~ile this parelle] fo~t/~A~ ~o s~ repetition in the text, hopefully It will provide a better understandin partic~l~]~ to pe~enn~l in other depar~nts of the Research Depar~nt's involvement in the situations fomc~st for the ]977-198~* period. lhe~!~fit squeeze, the increasing cost ofi.domestlc and Oriental leaf tobacco, ind:~:~'~d t0xation, end the s~r~king health controversy ~:i:l remaln the maC.or problems of the Industry. A. General As the technical complexity of the tobacco business and the sophlsticatio- its products increase, there ~ill be increased needs and opportunities for research, particularly in the area of basic research, Results and procedure: developed in basic research from past years will be utilized at an increascc level. .Projects aimed at effecting operatin~ economics will continue to receive ~aJor short- and long-term cm~hasls. The r~eed for research services, e.g., new analytical ~thods development, analyses, literature, ecology, s~okin health related, and the llke, will in- crease as the size, product lines, ant scientific complexity of the tobacco busl.ess increase. Closer working relationships Manufacturing, ~larketing, Tobacco Developn~ent, Legal, and other Company Departments will provide i~croved i~cu: pertinent to research programs. CX 56-E RM047638

4 II. IIIE IO(~ACCO INDUSTRY AI~D R. J. REYr(0LDS ]OBACCO CO~.4P/~|Y 2. RJR~ has a g~at op~rtunlty to capitalize 2. on ~c~ing fo~tgn ~rket, parttcularl~ the~:~ln~rk~t tn "~ing nations". In- crea;~B~trade b~rrlers and International ~n~;;~difficulties, increased regula- tlo~ and'taxation of ~bacco p~ucts In for~T~Ountrles, and increased ~ul~- ~nts that ~ch of the ~bacco u~e~ ~ "h~:~" ~]] ad~ to the dlfflcu]t~ ~n~l~a~ng these ~rkets. 3. Over the long ~n ~e influence an~ ca] power of the Indu%t~ HIll ~¢rea~e. 4. TotB!~;tl~amtte ~ons~tlon in t~ U.S.A. as ~:~:as ~r ~aplta cigarette con~ptlon wl]]~:~ffecte~ prlnclpaI]~ by the foIIowlng d~nd factor~ (]l~ted in o~er of e~tl~te~ dec~i:~g i~ortance) : a. ::Total U. S. populatlon (IB and over) b. :.~:~ ~istrlbution within this ~pulation c, ~:.~:Taxatlon and ot~r clga~tte price ~fac tots d. ~:~mpact of the health con~pt~jon wl]] ~tay level, at best, and ~ te~d~ ~ decrease as the ~rcentage of • " ne~lers decrea~e~. It can ~ tha:~::~::~he other factors wl]] have their ~lo~:i~Ca]:.:P impacts. Thus, the long-range unft::~~:~s ul]] Increase no more sa]:~......~.~rease will exceed that of the ]ndd~l~..at least In the first few ~ears 5. lhe;:::~~:~c concern over energy, Inf]atlon, po]~:i~ca] Inte~rlt~, une~,~p]o~,~ent, etc. cre~l~:~ period of natlona] stress, during ~hich ~moking-hea]th concerns may be overshadoved. 6. lhe d~cllnlng birthratu, if continued, indl- cares decreased ci,3arette sales In ]5 to 20 )'oars, duo to the reducod consu~ption by the the, ]aroe over-SO age gFoup. I II. TIIE R[SEARCII DZPART~:EI~T Research Department will be involved RJR-I on request (probably through TPD,. CX 56-F RM047639

If. 3' TIIE TOBACCO IIIDUSTRY A;~D R. J. REYNOLDS TOt~ACCO COHPAIIY III. TIiF R[SEARCIi DEPARII.IEt~T The scientific controvers~over the alleged effects o.f smoking ~on the health of the smok~:::i~11 stab|llze or abate, provided Industry,: Govertm~nt and other groups begin to ~i~::~i~ truly const~ctive, collaborate consensus and Joint effort; othen~ise it ~y :!~B~t.~B~ify. A hard-core anti-tobacco att~B~, the to~c~ Industry. lhe ~.~Ye effect of the s~klng-health cont~verSy on ~ns~r behavior is approaching a ~xl~; l.e., ~o new adve~e data ~uld ~ expected t~ Vhe )~:~:~o~co lobby, in addition to harp(~:~:::::~n t~ alleged association of clga:~e.)~, s~ke wlth cancer and other thrust at s~klng In an att~pt to sti~.t.!.~e It as a socially objectionBble and ).:)~:~ class h~blt. One of the ~ajor tool:.s in this endeavor will be the cam- pai~)~!nst the effects of envl~ntal s~ which is ]abel~ "passive s~king". P s~:(.ve.:~s~kln~ is defined as the ex- posu~::~(6: tobacco s~ke by nons~kers. !hre~Cated but distinct areas need be cons:lder~d: a. ~l::~:.)atlve activities of antl-tobacco forc.e~.a$~d at p~hiblting or restrict- ing ~:~.)~.!.@~g in pubI$~ places such as rest- aura~i:~:::;:::::T~emi-public places such as the worKi~:lace in general, including offices, fact:ories:, etc. A concerted effort to counf~t these activities is being ~ade by th~..I~acco Institute; no HJR initiative b. )~ long-range, ~re important, second ~s boing done to contost this industry-~tdo, In~portant. Smoking~a.nd llea~tl~ 1. Smoking-health research done on a collaborative basis by C~npany, industr. and private or academic groups will require the Research Deparb~ent to provide inputs such as consultation, analyses, and possibly various detaileC ]aboratory studies. Research related to the smoking~health controversy will continue to receive major short- and long-term emphasis, 2. Awareness will be maintained b~ Researc~ Department. o TechniRues to determine COF,,posltion and quallty of sidestrear~ s.~oke to which t::: nonsr:'.oker is exposed will be developed. CX 56-G RM047640

il. ]HE TOBACCO ]I(DUSTRY /OlD R.J. Ill. REYIIOLDS TOBACCO CO~4PAIIY B. Smokin~ and Health c. The third effort of the anti-tobacco 1(~by could be labeled indirect prohibition. ll)is r~fers ~ ~e effort of the anti- td~:~6 lobby to enfo~e over a period of t~ a ~steady 1~rlng of tar and nicotine 1~:l~dth the purpose ~at leering tar a~d nicotine, es~ciaIIy the latter, will e~B~11y lead cur~nt s~kers to stop .a~:~:~her and ~e "~ ~ker" not to st~:F~~?~::~ Very little Is being done on an I~s~-wlde ~asls ~ counteract this, and a ~R Inltlattve se~ warranted. It IS::~::~:~rt~n~ ~at effo~s on this point ~::~B~, not only w1~In ~e United S~tes, bU:C~i:~b overseas. 4. New data favorable ~ ~king, If generally accepted b~ ~e publlc, could significantly i~rove ..... the ~sltlon of the Industry. If ~!:~.~ ~ ~co~ ~e Industry s~kes- ~:~:::~:~:~::~t~rs ..... ~lated to s~klng and hea]~i~::~and ~ke the offensive in p~sent- in9 In[o~tlon favorable to the Industr~ (a~:~R-T), the impact of the oft- ~peated ~rgu~nts of the anti-tobacco forces ~I11 ~ offset. 5. ~f:cb~]~~, ultl~tely, ~y return to its position In the 1964 Surgeon General's ~t~ I.e., not g~d for a f~ persons wI::th specific hea1~n p~b1~s, but gen~ra1::::r, ot a significant health hazard. :. • ::~::: 6. Curr~n~i)' cigarettes having no ~re than 6. 12:.rag o:f "Lar" and a~ut 0.8 ~ of nicotine, ~dth~:~acto~panylng reduction in carbon ~@~I~, etc., t-muld ap~ar to be con- si~ed acceptably "safe" to the ~re n~# anti-tobacco 9roup. th~~.~.~.~.~,;~xinun= ......... acccptable values would be ex~:~;~@d to drop to lower levels; e.g., 7. Cu<.~:Cn~simpIIstlc ~phasls on direct 7. ~d:dE~;]~6n of stoke "tar" and nicotine will re~;~;~;~htgh but m~ be ~placed gradually by~mphasls on selectlve roduc~iGn of sp~:.~:!::¢ smoke components a11eued to be ha~:i:{F~:~::~ t-iitl~ shift fro~ "prohibition- total cessotlon" to developn;ent of an allc3odly "safer" :igarotte. Ibis based on the 9rowl=.9 ackno'.~ledg,~ont anLi-touLcco ~.rou~'s that laroo numbers 1lIE R[SZARCH DEPARTMEI~II 4. Awareness wll] be maintained by Researc; Department. 5. Awareness will be maintained by Researcl Department. lhe Research Department ~:ill be preparoc to assess the composition of the snake from such cigarettes In te~s of flavorant dellvery, physiologica] impact and satisfaction, and the li~e. Much effort will be d|rectcd toward the Ic.; "tar" concept, Anticipation of the nature of the specific selective s~oke comFonents alleged to be harmful will rermit developn~nt of appropriate analytical procedures, ~thods Lo control levels, objectivc assessment of allec~cd hermfu~ effects, etc. CX 56-H RM047641

7 ]I. III[ TOBACCO IIIDUSIRY AIID R. REYNOLUS IOBACCO COI.IPAflY O. llI. B. S~okin9 and llealth of people t~i11 continue to sn~oke and that the. realistic goal should be to n~inimize tli'e a11.:.eged health hazards claimed to be aSS~ji~i:ted with smoking. B, ]h~I~e.~.sed researci~ effort under the 8, N~ Cancer plan ~,i11 not furnish sU~ta~lal a~unts of i~ediately useful ne@~"~:~d~tion bearing on the s~oking- he~lh~::~ontroversy, but, by the end of the de:{.~.~.~,.~,.~, gove~nt ~search ma~ point to ~:::~:~ich ~ feels ~he Industr~ can ~ke towArd.~llegedly "safer" cigarettes, with at::~:~:t indirect gover~ent endorse~nt. 9. Sd~:~:~:~lal p~ss ~II result toward i.~at 9. ~ieged to. be a %afar~ ci~3~e~ use Of a c~Inatlon of ~ e.9.., use of h~genlzed touacco, porous pa~e~, ~ved air dilutlon and filtration, aIC~e~tion of the bu~Ing process, pre- t~A~nt of tobacco, additives, alteration of~:::E~~:~co varieties, use of synthetic or ex:t~ded tobacco, end the like, rather th~n from""~ sin~le effect. I0. ~.. presently-used flavorants, ~dditlves, 10. an~:~:~rants ~y cc~ undor attazk be~~use they ~y be claimed to a~d to ti~e al~e~ health hazards of sr, oking. De- t~;~nfo~tlo~ an the properties of = . flavora.nts and additives with lon~ his- to~]~:~ use ~y ~ ~Qulred by Fedoral , 11. De~p~.t~::; Improv~nt In methods for predic- t i~:.~:[.:~ susceptlbll I ty to, detection, pre- ~e~C~::~::~::~:;;, treat~nt or {ure of so':,e of the di~:~ses alleged to be associated to~usage, and i~rove~.ent in the a1~:~, safety of tobacco products, the a1~1ega~!ons regarding the "risk" of s~::~i::B~: w111 not be substantla1.1y altered. in ..l.he.~ext five ~ears. 12. ~:~kln painting w111 remain the 12. st~~,~ but Incorrect test procedure for a1~i~e~ carclno~enlcity of s~,,oke for ~ost oC~li~decaue, ~u: prourcss will be toward develo~:~,mt of n~,~ n:ore ro~id arid ~aninofu11, and Icss exre,~sive proccdures. Inhalation testin,~ boco~ increasinuly i~'portant as the ~thod is i~l~roved and i~ecor.:es widel~ acceptc.d. TIIE RESEARCII DEPAI~,II-IEr~T Consultation of Research personnel ~It-. l~at|onal Cancer Institute personnel v:i be directed toward ensuring that government personnel recognize an~d ackno~ledqe the Company's (and lndust~ contributions to the studies In program. or planned. Studies on the effect of various combi~ tions of these techniques on smoke quality and properties ~ill be confine.. or implemented to ensure that progress indeed in the directicn of an allege~]: "safer" cigarette. In anticipation of such attacks, the Research PepartEent ~ill, as tiara ar.~ personnel availability permit, cataIc{ the nature and chemical and physical properties of the ~or and minor components of all f|avorants and additives. Because both the "tar" yield and the concentrations of allegedly harmful components in the "tar" ~HII probabl,' continue to decrease 6uring the pro2~:. tion period, th~ "risk" from smoklnc should be reassessed in terms of dose response. Awareness of alternate short-term, les" expensive test procedures fcr cll¢.9od carcinogenicity of smoke will be ma i nta i ned. ~ RM047642

0 II. TIIE TOUACCO IN~SiRY /~I~D R. J. REYNOLE)S TOBACCO COHPAIIY Ill. TIIE RES[ARCII D[PARTHENT 13. Tl~l~::~::i~onent or components of tobacco smoke deen~d responsible for a11eged he~)i~l~ii~hazards associated ~tith smoking w$11 be more closely defined during the d~a~i~i Appropriate biological test p~.o..~res for these components will be :i:i:i: 14. C~::monoxlde w111 receive increasingly m(~¥~:.~i~teatlon as a major a11eged smoke- health hazard, partlcularly v~hen FTC begins to publish carbon monoxide values for brands in about t~n) years. Before the. end of tlw~ projection period, n|~!~.~]~.:oxide will also receive increased 15. St(i{lle~:' may identify certain types of Ind::|~:Id'u~.Is highly susceptible to diseases a11egedly associated ~ith smoking. This ma~ a11ow others to s~oke ~tlth less health 16. Dl~eases... or d|sabilltles not presently aT.~..C:g:ed to be associated ~Ith s~ohino w|:.1:1:~:::in the projection period, be at'~ii~.ge.~;; to be so associated. 17. P~Qg~SS will be made in developing t~i~es to make cessation of sm~k~nO;i easier. 18, An~::~I~b~cco programs aimed at the public, an~i::~i~articularly at cni Idren, wl 11 c(~e, and with experience and tln'.e research related to sm~::|~Bg"and health is likely to be ex- pa~:ed.:~:.~at least for the next several . . ::::::::::::::::::::::::::::: • 20, Th~~~rch for a quallty cigarette free of~:::~T.~leged health hazards will continue, bu~T.~::::~s unllkely that sn~l:ing critics will be totally satisfied v~ith any pro- duct produced. Such a product x~ould, of course, be a boon to the Industry. ~npkin~ and lleal 13. 14. 16. 17 19. th The Research Department will attempt i anticipate the nature of the con:pone~;L or con~ponents. Appropriate a~alyses : these components wit| be developed, e~ ~ethods to reduce the levels of such components wit| be investigated. Ti~e claims that such components are respo, ble for health hazards will be scrutinized as to their validity. Continued emphasis on carbon monoxide by antl-tobacco forces will require continued research on n~thods for controlling levels of carbon monoxide in smoke. The validity of such allegations will objectively scrutinized and counter- argun:ents, if available, will be prepared. A~areness will be ~eintained. A'nareness w111 be maintained. Research services in the forn~ of analytical ~ethods, consultation, sa~ preparation, and the like ~:iil be pro- vided as requested. All necessary rese:rch services ~.~111 t supplied to Tobacco ~evelopn~ent, ~anufacturing, etc. in support of'thi~ search. CX 5 6 - ~T RIVi047643

IT. flit TOBACCO INi~USTRY [#~D R.J. III. TIIE R[SE[,RCII DEPARTHEIIT ?REYI(O,LDS TOBACCO COHP;uNY . i ...... ~;~;~;~; ...... C. Regulation, Taxation, Etc. I. l~6i~i~:~ition, manufacture, advertisin~q, ~Bles..~:and use of tobacco ~ii::~nder Increasin9 govermental 2. Tfi:~:~::r~:~eral gova~nt ~y set maximum p~.~i..~:~ible levels for "tar', nicotine, ~:~ ~noxIde, and other components, ~Bly vla a "volunta~" agre~nt with the ]ndust~. Failure to comply ~y result In inc~ased taxation or the necessity to i~diately reouce ~..tar" levels of ~jor brands while ~I6[~inlng quality. Ibe probability ~:::::~:Be date of such gove~nt action ~ advanced by the Int~ductlon of I~ "~ar" products such as the Carlton a:~:: i~e NOW ~Ich de~nstrate the feasibility of low "tar" cigarettes. I:hcrease, ~c~Ing ~re punitive ~hd.u]~ti~tely ~re s~clflcally ~:~:at~d to the alleged health hazard 6~:. each product. 4. Additives or adulterants and colorants of L~bac~o products may ~ regulated. 5. I~::~::~C may extend Its s~ke analyses to ~:}ude components in addition to "tar" aad~:::.:a.~cotine. Carbon ~noxide and othor g~:~. Anal,,ses (or these ~~(ro sln:Itaneous determinations ~ff~:~he same sample. Research services to provide informati- to combat such regulation v~ill be pro- vided on request. 2. Research will provide technology to enable such reductions to be accomplis,. 3. Awareness ~vill be maintained. Awareness will be maintained. Anticipation of analyses required by t! FTC k~ill be a continuous Research Depart:nent function. CX 5 G - K RM047644

10 II. TIIE TOBACCO INOUSTRY A~ID R. J. REYffOLDS TOBACCO COIIPA~IY Ill. TIIE RESEARCil DEPARTI.IEIIT C Requl at i on.t_T_Ta xa t i on, Etc. ~ protection on "new" tobacco tech- 6. ~I01o9),., partlcularly in the areas of ~l::~ants, additives and synthetic %obacgos, wlll ~ increasingly diffi- ~::~, of to~cco products wtll dwindle On ' ~th a d~estlc and ,mrld-wlde basis, :~It sales of clga~ttes will continue ~to::Increase. Leaf prices will increase B~::~;~a~unt in excess of the Inflation $~ pmjected leaf price squeeze ~ill require acceIeratlon of ~ximlzation of y.!eld of cigarettes ~r unit weight of :tQb~Cco (e.g., full usage of stc'~s, scrap ~B 0 OUSt; ~XI~ use O~ bl~ tOOaCCO; :~'~e of tobacco ~d di~nsions; :.~T~ation of fi~ess standards; use of :~ol~ plant, stalk Bnd all; and the :~O*~Ing and processing of tobacco on the ::fa:~Will bec~ ~re technically :;;~Istlcated, e.g., trenos to i~prove ::~leties and cultural practices, :~ized harvesting, bulk curino, and ~(~e.the cost, quallty, and manufac- "~:::~gr.[pg characterls~Ics of our raw material. :$~;:::::~wi~g and p~ocessing of tobacco do ~:~:~ technlcally ~re sophisticated, ~th ~:~lfty and cost will approach reaiistlca~ly :::a~Ceptabie values, the dominant fact beino, ~C;~::~::~:~th all aoricultural products, the law of supply and de,~nd ui]] assert itself and eventually sufficient tobocco of satisfac- tor~ ~ali~ and reasonable price :41th a concerted effort involving pre- paration of appropriate argu~mnts to rebut the patent examiner, patents wi%i be obtainable vhere such effort is deen~d advisable. The Research Departr~nt will supply services necessary to aid in defense against such lawsuits. The Research De~artr~nt ~,ill necessary infon.~tion on the effect smo~e co~position an~ quality of the techniques described. 3. Awareness w|ll be maintained. RM047645 CX 56-L

II If .... IHE TO[~ACCO If~USTRT ~%'~D R. O. ~EYI~OtDS IOi;ACCO CGHPA2~T 4. ~ver, i~nt support of do~stic tobacco ~.d.~tton eventua]ly ~ill ~ drop~d ~nd E~I support of agricultural ~search ~:~ curtailed. The entire system for ~:tton and markettn~ of leaf Chan~ and the tobacco ~te~lal p~oduced ~!,~&han~e tn fo~ and have substantially !.O~:~.~s~kin~ and physical quality. Ihe ~wil} be t~a~ ~chantzed p~ductton of ~ chop~d, ~,ole-plant, bulk-dried to~cco ~terl~l derived fr~ high density ~lantt~gs on ~lattvely fe~ ve~ large ~.~ co~?le~es, d~stic and/or foreign- ~ ~oatract basis, ~rhaps 9~:B.raphic regions, ~sstbly on a t~,m- ~:>. .... : 5. ~anttal changes tn the physical and s~king qumltties of our ra~ ~teri~l mix ~t]J,.requtra substantial changes tn our ~:~sstng and ~nufacturing techniques. liras ra~r ~nterial c, uality decli~les severely, i~resent processes, ai.~ed at preserving ~i~nd~nhancin9 the qualities of natural ~a~ will give ~ay to process~n~ ~here ~:~:::~ver-rtdtn9 aim will ~ to produce ::;~.:~st product f~m the least a~unt :~f raw ~terial, with desirable s~klng .~.~.~ties being i~arted during processing :~V~:~:~::;:~)avorants, addi t Ires, substanti al ~]uents, and chcaical trea~(er, ts. "," '" -~:~:!~:,v ..~':~ " ~" ". "" " " ~'~ " " "" "'' ' ]I]. TIIE RESEARCH DEPAI,'THENT Raw llaterlals and Processes 4. Awareness will be maintained. This chanDe in processln9 philosophy may ultimately give rise to much si:,~pler, less ex$~e~sive ~anufacturin9 syste~(:s for con- vetting rov~ n~terial to finished cigarette. [)esig~ of suci~ systems v~ill also be 'dire.cLod tm~aFd Feduced c.nergy consu~ptlun. A competitor or other agency will an advance in technology vhich ~,,ill require rapid technological respon'~e from the Research Department at the expense of on-going projects. Substantial changes in processin9. tec~ nology, raw materials, and product .composition and configuration, leadin~ to substantial alteration of stoke co:-~ position, will necessitate increased ~: effort on biological evaluation of n~: ~ or altered products. Unoer ~resent ~ Company policy, this v.'ork v:ill be r. contracted to i;(]a:~r, dent laboratories.:" with arrange~r,~.s, zxT.,:rir, ental desi~.~ monitoring, and inter:~retction of inc. results the prir.w~ry responslbility of " .the Research Uepartr.~nt. Or, it ~:al/ ~. possible in terms of cost end cre~i- 'b~l~ty to a)'rango for ome of this to l~e done by the National Cencer Institute. Efforts along these lines will at an increased level. RM047646

12 II. ~IIE TOBACCO IIIDUSIRY AIID R. J. P,E~Y.N_OLDS TOBACCO CO>IPAIIY III. TIIE RESEARCII D[PARIHENT D. Raw Haterials and Processes I. lf.:..~::~|l~geni2ed tobaccos are produced and used. t:he processing involved will present a :U~!.iF~e opportunity to manipulate and c~:i~"[::~]i: the co:~position of the product a~:~::~ smoke, and to standardize product q~.La..:}ii!::~?..~.d effect overall processing e¢onomles. 8. I@i~:.:~#l, non-Orlental tobaccos w|ll find g~ use of domestic products as long as they are substantially less expensive than domestic tobaccos and can be upgraded by addition of flavors and other additives. Ili~i..economlcs of ~any countries which are sOo~ce~ of off-shore tobaccos ~|ll grow at.&.:faster rate than that of the U.S.A. ; thO:g"~"::~ome off-shore tobaccos may rapidly be::~:~:~:.~:ced out of our reach. 9. ~l}e use of Turkish tobacco ~111 decrease a{t:[~:.:.:.tobacco beco,.~s less available, mo~:~~pensive, and of 1~mr quality. 1O. O~::::~:f':more "synthetic" tobaccos or tobacco e~te.D.cbrs may find appreciable use in t(~bai~c(~ blends. Ly the end of the projec- tf~ pe'r]o~, one or ~re synthetic tobaccos oF:~:bbacco extenders ~ay be developed to t~#:~nt where they will provide reason- ab.:}~::~::::~ceptable cigarettes alcne, not • ,...a~mlxed:.j~lth tobacco. Synthetic tobaccos a~#6g pro~ted as offering alleged he~:},t~::~dvantaoes to the smolder and p~a~1$ will not in the near future be le~::~enslve to use than natural t~{cos. Natural extend~rs which the Go~:~nt or ot.ers sugoest will reduce han,~fu] effects of tobacco may come into use. lhoy ~a)" also offset leaf shortauos and im;~ro,'e profitability; presently, ~u,,:e,'c,r, a~l .on-tobacco naterials are under a "cloud". Past studies indicated that homogeniza- tion of the strip portion appears to appreciably affect s~oke quality adversely. Hence, further sophistlcatc i~rk on homogenization of leaf are clearly indicated, By 1978, RJR-T will produce and use proprietary Turkish flavorants in domestic products. In addition to the: proprietary flavorants first isolated a decade ago in the ~esearch DeF~rtmor,: v~rk In progress ~.~i11 yield flavorants. 10., Awareness of competitors' "synthetics" will be maintained. In specific ~nstances, examination of snoke for "strangers" may be instituted. Our JlO product, ~hen develored, ma~ offer a very attractive alternative • to use of synthetic tobaccos or other extenSors, in ten~s of both cco~omio~ and allesod "safety". A~prc2,-i~tc studies on the properties of jlO and JlO-tobacco smoke will be completed in late 1977. CX 56-N RM047647 1

13 Ill. TIlE RESEARCll DEPARTKENT Raw Materials and Processes 11. Comparison and quantitation of smoke profiles will be i~proved to assess the effects, of lo~.~r "smoke numbers" and/or inclusion of off-shore, pro- cessed, hor~ogenized or synthetic tobaccos. 12. 13. 15. Further research on smoke and physical qualities of cisarettes containing 100% expanded tobacco u111 be needed. Awareness of all factors influencing the Freon II situation (ozone depletic theory, cardiovascular problem, etc.} will be ~aintained. Consultation TPD, Arjay, etc. will continue. Despite the lay probgbility of success ~rk to develop ne~.~ or alternate expansion processes ~:ill continue. Attempts ~ill be ~e to protect C~pany by patenting all such a]ter- natives. Alternatives v~ill be sought. 16. lhe Research Departr..ent is e~ployin.~ considerable auto:~ation and con~uteri zation in its operations. ~at-~ • computerizati°n ~;i11 be. exteaded. areas for ~..ajor i:'pro'/eT:ent in outp;'z cx 56-0 RN~O4764B

14 TOBACCO IIIDUSIRY t~ig R. J. Ill. IIIE RESEARCII [)EPARII.IEI~T ilork to improve smoke quality and innovations directed tosvard establish- ment of new brands i:ill contir, ue to receive major short- end long-tern~ emphasis. Work to improve smoke quality and innovations directed to~ard establisl;- ~w~nt of new brands ~Hll continv', to receive f~aJor short- and long-ten'.~ emphasis. Work to improve s~noke quality and innovations direrted toward establish- ~mnt of ne~¢ brands ~,'lll continue to receive major short- and long-ten.~ empha s i s. CX 56-P RM047649

15 I I. ~IIE ~OBACCO INooSIR¥ AKD r. J. 4. ~-filtered cigarettes will continue [~ decline in share of market because of $~nt off-taste. Unfiltered cigarettes ~e p~sent 85-m Romal Flavor Filter FF)"~cigarette will dec1~ne in share of 5. ~ end of the p~Jection Rriod, ~$ally ~ll cl~a~ttes sold will have ~Ither filters or ~uthpieces. E. Products Ill. 1lIE RESEARCH DEPAkTI.;EIIT 6. l.~ost brands, res~nding to pressures for ~].ower numbers, Hill eventually use some ifO~m of air dilution. 7. .$~:,~offs fro~ established brands will iyleld ~re than ~est net brand gain, :~ ~'holly n~ brands, of good guality and image, have hi,her market potential. 8..~(:t~:exception of the very lo~ "tar" ~;:igarettes (iC0~), any fully successful ~:~ew brand will bare to deliver real ~faction to the s~oker and will have ~::io ~ demonstrably dlffercnt in ccm~osi- ~:~l~:and/or physical configuration from ~ :B[~sent products. 9. ~:i.~c~aslng attention ~111 ~ paid to ~T~:~ificatlon, ~asurement and reduction .:~}~f unpleasant "nesativo" factors in ::~ ¢I~'ette s~ke, such as ste:::W taste, ~-~uth" I rritcnc>', and the ~ike. :::;~l~:~:~st successful brands ~i11 ~ncreasing- :...}y ~,co~ those ~micn ~e]ivur nicotine .... ~Sfaction acc~?anied by the ]eas~ ::~::~am~w~t of "negatives". i~euotive, or ~:/~B~easant, f]avor and ",nouth-fee~" ~:p)-imar~ factors in custu~or :~c::~e]ection of cigarettes, along ~ ~c~:;~iC~ t i n e s a t i s f a c t ~ on. The Research Department will attempt to anticipate brands. 10. There ,:lay be a l(mited ~arl.et for a quality cigaFette deliverir,3 csso,~ti,:ll/ no nicotine. 5. Rew filter concepts will be explored. Capabillty will be ~aintained, new concepts will be explored. 7. Hew cigarette conccpts will be sought. 10. In some instar s, the kesearch Department ra) bo the "court of last resort" in providir,.~ thu necessary smoke data to indic:.to that a par~.icu~. addltive, colorant, etc. does not contribute "strangers" tO the sr.~oko. Panel testing ~:ill re~r, ain an important measure of tobacc~ s:.~:,l:c c~ality; hob.lever, panel testin,~ F.Ceas to be in;proved to boco:~e ~o)e "r,..alistic"; and a more objectiv? ~oasurc~e~.t, b,. an~l.vt ical based on reFroduci TM data profiles, is needed and ~',ay soon be technically feasible. A lo~-nicotino cigarette n~y be more acceptable in ter~% of s".c,:o c.ualit>, l,>' inclusicn of (c.rt~in. nitroccn other CX 56-Q RM047650

IG !I. 1HI TOBACCO II<DUSTRY AHD R. J. Ill. REYNOLDS TOI;ACCO COHPA~(Y Products TIIE RESEARCII DEPAR~I-ILNT II. On~:.~...Q!Lmore cigarette products i11th novel 11. fl~6~:~",~ay establish a ne~ market category,. Thi~il.s.....D..~ flavor concept may Include an al)~.:.~5~iey or flue-cured cigarette. 12. A 6~)~li6~tte ,dth "no~l" s~ke nicotine 12. an~::)))~l)~ificantly Ic,.~ered "tar', e.g., wl~.h...UAd.que "tar"/nlcotlne ratio of pla.c~ lii the ~rket. 13. A ~)(:.g~tte designed and ladled as being 13. "noninhalable', i.e., with alkaline, high nicotine s~te, ~y ap~al to a limited ~rket. The Research Departr.w~nt ~.~ill atte~pt to create new concepts. The Research Department ~ill explore new concepts. S~urces of nicotine for this type of cigarett~ will be investigated. The Research Deparl~ent will have to examine such a cigarette in detail with regards to smoke composition and properties to demonstrate that n~ conflict exists ~Ith the IIIICCl~ESIEk Little Cigar. Research will explore possibilities provide prototypzs fc, r evaluation TPD and ilarLeting. 15. Research ~ill explore nev~ concepts. 16. Research ~ill e×plore new concepts. 17. Research ~ill explore ne~.y concepts. CX 56-R RM047651

17 II. IIIE IODACCO INDUSIRY A~ID R. J. R[YHOLDS TOBACCO COHPAIIY E. Products ]8. ~A~..~ material (tobacco and substitutes) i~l~~"~ities and manufacturing tecimiques i~hi~ge, changes ~n product configuration ~nd qualities ~d11 occur. This may lead ~. ~:~Wariety of new product configurations ~:::#:::~:~.ga~ttes ~de fr~ h~gin~zed ~lieet tobacco (sty, stalk and a11) ..... ~:~ ...... ~lus s~bst~t~tes~xtenders and b. A c~gamtte rod ~de by extrusion of 9~und, puffed tobacco and extender, treated with appropriate ~:". ...... additives and encased ~n paper. :%:~.~:::Clgaret~e-sha~ed aerosol "smoke" ........................ generator devices, ~here the .::~ ................. aerosol ~s ~if~ed snmke conden- : ............. sate or a purely synthetic m~x- ture of nicotine, flavor, ~sturc, : ~:~. ~:::::a.~ c. ~d. Cigarettes made ~holly from :. prlate additives. :..: : ..: :, .: :, :. ,:.:~ :~::7:::::::::::O::ther "smoLe generator~ systems, ~C:::~:~:. not set conceived may appear. ... ? ..: :. £,:::::~::.Other nicotine delivery sys[ems not " ' ::::~ ................... }nvolving Cor;bustiOn, e.9., ~n %::~:::~hevlable, lozenge or baverage fon~, ~.~y appear. Ilouever, this type of ::::::::::::::::::::::::::::: : :,..,,. ,.,. ,.. •., .~:~ ~: Cigarettes ~ith diameter equivalent ......... to or less than the i.~RE may appear. ~ :~ ~L.du c t ~ on o f c ~ g a re t t e d i a.,'e t e r h a s been claimed to reduce biological acEivit~ of s~,:~:e in r'ouse skin t,aintin9 stu~ic.s. TIlE RESE/'~Ctl DEPARTGENT Present research ~ork in this area will continue into the projection period. be Present research work in this area will continue into the projection period. c. Research will explore new concepts. lhe smoke from such cigarettes, whether generated In-house or f,'c~ outside the Company rill be examined for "strangers" if d2emeo advisable. Awareness will bc maintained and periodic statt, s reports wild issue on "syr.t,.etics" e. Research ~zill explore neu ccrcE;.ts .f, . Research vdll explo're nev~ concepts. Studi~s on influence of ciearettc par~:;cters on smoke yield, cc..ic,~t and properties ~i11 continue ~nto '.. projection period. CX 56-S RM047652

18 ]]. E. Products 19. 20. F. Miscellaneous Ill. 1lIE R[SEARCII D[PARTI4EHT The contribution of additives other menthol to smoke ccr,:position will be examined. Research efforts ~ill be directed towards exploration of the possibilitic: here. Current basic research may eventually provide answers to the more efficient conversion of tobacco to smoke during the combustion process. The Research Departr,,2nt he~dcount sheu grow at a modest rate for the rer,~ai~:c: of the pFo.~ect~on period as the complexity of our business increase~, Also, periodiC infuF, ions oF "new bloat ~i]l be ~eeded to p,'ovid~, for orderly ,succession and to provide fresh skills and view points, ~y_]_~36, over one third of the 1976 ~rofc, ssicnal staff ~Ti ll~i' ~3~ 1 ~.l.-"r:.. C~i'~/~'O-~; ]T~; ii:i ii;C, 2. ~he present Research l;uiIEi;.e ,,:ill be adequate for our .~pace r, ecds during the projection d~astic Fenode]ling of l~t.or:Lorv . space to acco~a~odato increasea On sophisticated instrumentcticn required. Instrumental ha~dli~,g of laboratory work is rapidly replacing , of the cu~,',bc.rso~;~e classical pl'ocnduve~ Iiajor c,.~pite) invest~.~ents in ~e',:, or heCC'[,Suty e:, t~(' sco,,,e and cc,,:;,lexity of our research (¢!orl incrcasc, s. CX 56-T RM047653

• I/99Li~OIAI}:I f~-9~ XD aq~ u~ as~aJ~u~ ue o~nba~ LL~ s~s~q snonu~%uo) e uo lJoddns L~u~%sqn~ Jo~ ~u~ua~nba~ ~W 'anu~uo~ LI~ suo~s~nb~ a~n~n] ~o ~ua~a~ 6u~6ou~ 1o SLLI~S ul lu~a^o~duI '9 'g ~uo~el~U~ pue ~6~ ~o~ ~!%!~ 'gLGl ~oJ %m!% o~ ~l~s aq ll~ ~L6~ ~o] %a6pnq %uauqaeda~ q~easa~ aql snoauetLaDs)H "~ IHHHlaVd3O II3~V]S3H 3111 "Ill 6t ANVdl.!O30DDVFIOI SO]O~:~I "P "~J ONV k,'ilsnoHl 033Vn~l 311! "If