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IAUCO, DAVID CondcnseltTM MISSISSIPPI TOBACO LF 1 DAVID IAUCO, ~ being f'wst duly sworn, testified as follows: 3 EXAMINATION 4 BY MS. FLOWERS: 5 Q. Good morning, Mr. Iauoo. I'm Jodi 6 Flowers. I represent the State of Mississippi in the 7 case in which you've been designated as an expert 8 witness. 9 A. Good morning. I0 Q. If at any time you need to take a break, I ! just let mc know. If you don't understand my 12 questions, I'd appreciate it if you'll let mc know ~3 that, too. Could you state your name for the record, ]4 please? ~5 A. David lauco. t6 Q. And you're currently employed by It,. J. 17 Reynolds; is that correct? 18 A.R.J. Reynolds Tobacco Company. 19 Q. Have you cvcr been deposed before? 20 A. Yes. 21 Q. Could you tell mc which cases you've been 22 deposed in? 23 A. Yes. There are three cases. One was 24 Keuper. 25 Q. K-e-u-p-e-r? Page 1 A. I believe that's oorreet. The other was 2 Mangini. 3 Q. Okay. 4 A. And the third was Conner, I believe. 5 Q Do you know the -- I believe Keuper was 6 in 1992 or thereabouts and I know when Conner was. 7 Do you know have any idea when the Mangini deposition 8 took place? 9 A. I'm going 1o have to --it's about two 10 years ago. I l Q. ] going to mark this as Iauco Deposition 12 Exhibit Number 1, Plaintiff's Notice of Dgposition. 13 I apologize, I only have one copy of this. 14 (EXH. L Plaintiff's Notice of 15 Deposition, was marked for 16 identification.) 17 BY MS. FLOWERS: 15 Q. Do you recognize this document? 19 A. Yes. 20 Q. Okay. When was the first time you saw 21 it? Do you know? 22 A. I think it was last week. 23 Q. Did you assist in the document 24 compilation that was produced to the State in 25 conjunction with the notice and document request? A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 1 - Page

IAUCO, DAVID l A. Yes. 2 Q. And who did you assist in that? Did you 3 do it all yourself'?. 4 A. No. 5 Q. Can you identify for me who helped you 6 with "&at? 7 A. Bob McDermott, Geoff Beach. 8 Q. Is that it? 9 A. That's all I can recall at this point. I0 Q. So you're fairly familiar with the t I documents that have been produced? 12 A. YOs. 13 Q. It's about a quarter of a hox? 14 A. YOS. 15 Q. Do you feel that those are complete and 16 covered by what we've requested? 17 MR. McDERMOTT: Let me inteljcct here. CondenseltTM MISSISSIPPI TOBACO LrrlGATIO~ 19 21 Z2 23 24 25 l 2 3 4 5 6 7 9 l0 11 12 13 14 15 16 18 19 20 21 22 23 24 25 Page Page A. I applied. 2 Q Did you apply anywhere else? 3 A. Yes. Many different companies. 4 Q How many? Can you give rne an idea? 5 A. Well, it was over 20 years ago. So 6 Proctor and Gamble, Exxon, Xerox, 3M, I believe. I'm 7 sure there were other. 8 Q. Was R JR your first pick for potential 9 employers? Io A. What do you racan by fn'st pick? 11 Q. Your fast choice of the ones you just 12 mentioned. 13 A. Not going 14 Q. You began with Reynolds in 6 of '76; is that fight? 16 A. '75. |7 Q. Okay. The CV that I've got, which I'll We have produced not what you have asked for, but what wc gaink you're entided to and in accordance with the understandings that govern ~he expert discovery in this case. Everything which is on this list has not been produced to you. MS. FLOWERS: Okay. Thank you. MR. McDERMOTT: And those judgments were made by the lawyers, not by Mr. lanco. Page 6 MS. FLOWERS: well, the State would just interpose an objection at this time to the failure to produce all the documents that have been requested. 18 go ahead and mark as lauco Deposition Exhibit Number 19 2, and we'll go ahead and pul the Rule 26 sta~ment 20 w~th it. 21 (EXH. 2, Rule 26(B)(4) Expert Statement 22 and Curriculum Vitae of David N. lanco, 23 was marked for identification.) 24 BY MS. FLOWERS: 25 Q. Now, if you'll look under the first line Page 8 1 of work experience, it has listed that you hegan in 6 2 of '76. 3 A. Yeah. That's-- MR. McDERMOTT: Again, we have produced in accordance with the understandings between the parties, but your objection is noted. BY MS. FLOWERS: Q. Mr. Iauco, you have a master's degree in Q. A. Q. start? Is that incorrect? That's incorrect. Could you tell me when you did, in fact, Yes. It was 6/75. marketing; is that correct? A. Master's degree in management, marketing management. Q. Okay. Was that a ~vo-year program? A. Yes. Q. And have you had any formal education beyond that? A. Don't know what you mean by formal education. I have been to, you know, seminars, that kind of thing. I have not had any advanced degrees beyond that. Q. Thank you. Did you go to work for R. J. Reynolds directly after leaving college? A. Yes. Q. Could you please tell me about being hired by R. J. Reynolds? Did you apply there or did ¢aey come and recruit you? 9 Q. 6/75? Okay. Is this the most current cv ]0 you have? 11 A. No. 12 Q. I also notice, when you look at your Rule 13 26 statement, it says that you arc "currently senior 14 vice president, business development and market 15 research." 16 A. That's correct. 17 Q. And I, in looking at the cv, note that it IS has you as senior vice president of worldwide '19 business development. 20 A. Right. And that's what missing, the 21 latest change. 22 Q. So you were promoted after the worldwide 23 business position? 24 A. Well, I wasn't promoted; but my job 25 ddscription changed in, would have been ] believe, A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 5 - Page 8

IAUCO, DAVID 1 2 3 4 CondenseltTM 5 6 7 8 9 I0 substitute. And if you have no objection, we'll send 11 a copy to the court reporter and put the substitute, 12 thg updated cv - 13 MS. FLOWERS: I'd appreciate that. 14 MR. McDERMOTT: - into ~ dcpositio~ 15 record as well, so there's no confusion. 16 BY MS. b'LOW~RS: 17 Q. Jus~ so I understand today though, you, IS from '94 to '96, held the position that's listed ~9 here? 20 A. Yes. 21 Q. And ~ in '96, you began the position 22 that's listed in your Rule 26 statement, the senior 23 vice president, business development and market 24 research? 25 A. Yes. Page March or April of '96, my present position, senior vice president of business developraent and market re~arck MR. McDERMOTr: Jodi -- THE WI1WESS: SO this is just out of MR. McDERMOTT: - we'll update the internal CV. We didn't realim it was out of date when we provided ft to you. We'll furnish a bI1SSISSIPPI TOBACO LITIGATIOb Page 11 ~nded up returning to Reynolds. Q. Were you recruited back or did you reapply? A. I had kept contacts with the company. It was only a year that I was gone. And it was made clear to me that if ! was interested in returning that there was an in~r~t on the part of th~ company and I sought that out. Q. In your current position, who do you Q. And that's th~ position you currently hold today? A. Yes. Q. Do you have any expertise on the policy and practices of R. J. Reynolds' advertising, marketing and promotion prior to ! 975? A. Just observations. Q. Have you ever worked for anyone other than R. J. Reynolds? A. Yes. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 19 20 21 22 23 24 25 Q. Would this he Kubcrman? A. Kuheman. Yes. Q. Kubcman? A. Yes. N-a-n. Q. Okay. And what is Kubcman? Page 1C A. It was a firm that was in the computer software business. We marketed a small, medium size law firm, tim~, accounting and billing system that was developed by the f'wm and marketed during the advent of minicomputers. Q. Why did you leave Reynolds in '79 to go to Kuhernan? A. It was just an entrepreneurial opportunity that I wanted to explore. I left, tried it, didn't work out the way I hoped it would, and I I0 t~port to? l I A. I report to the CEO, Andrew Schindler. 12 Q. And he is the cEo o~ 13 A. He is president and CEO of R. J. Reynolds 14 Tobacco Company. ]5 Q. Do& he mpor~ din~tly to the hoard or 16 do you know who he reports 17 A. I believe he reports to the board; but 18 don't know the... 19 Q. How many people are under your 20 supervision? 21 A. I should know this. I just acquired 22 responsibility for another department, the planning 23 department, and I'm going to guess around 60 or 70 24 people. 25 Q. Okay. And these are all within the Page 12 market research departracnt? 2 A. No. All within marketing. 3 Q. All within marketing? 4 A. (Nodding head.) 5 Q. So market research is a subdivision of 6 the marketing department? 7 A. Yes. 8 Q. What other consumer products have you 9 worked on besides cigarettes? I know you just mentioned the computer software, but hesides that. ,11 A. Pipe tobaccos, chewing tobaccos. !2 Q. Any non-tobacco products? ,13 A. NO. Q. I'd like to direct your attention for '15 just a minute to your Rule 26 statement, ~e second !6 paragraph. It says you're expected -- I'm quoting. "Expected to testify on the subjects of ,!8 advertising, marketing and promotion of consumer products, including cigarettes." Is that statement, !20 consumer products, then limited to tobacco products? 2! A. No. I've got both my education, as well 22 as experience. I serve on ~e board of the 23 Association of National Advertisers. I've got, I 24 think, a well-rounded view and understanding of how 25 consumer products beyond just cigarettes or tobacco A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 9 - Page 12

IAUCO, DAVID CondenseltTM Page 131 t products are markctvd. 2 Q. What othex consumer products would you 3 anticipate testifying about at trial? 4 A. 1ust in gengral? 5 Q. Stir. 6 A. I can talk about other consumer 7 products. I don't intend to testify specifically 8 about any other ones. 9 Q. So you don't have any specifically in to mind in tiffs broader category of consttmcr products? 11 A. No. 12 Q. I'd like to direct your attention back . 13 for a moment to your Cv and go back to the beginning, 't4 wben you started with Reynolds. 16 Q. What does a marketing assistant do? A. It's an envy level position in marketing and primarily it's task based. It's a position where 19 a new hire would be grounded in the category, understand how we market our products, how we 21 distribute our products, how the products are developed. And a marketing assistant would be given 25 I 2 3 5 6 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MISSISSIPPI TOBACO LFFIGATIO] Page I wants are. Repositioning is simply changing how a 2 consumer views the brand, both from a product and a~ 3 image standpoint. 4 Q Is it fairly common in cigarette 5 marketing? 6 A. Yes. 7 Q. In '7g, when you were promoted from 8 assistant brand manager to brand manager, did you 9 stay on the Salem brand or did you -- 10 A. No. 11 Q. -- switch then? 12 A~ I switebed. 13 Q. Which brand were you assigned to then? 14 A. It was new brands. So I worked on a 15 variety of new brand projects, 16 Q. Could you describe any of flx~m for me? 17 A. Frankly, I don't recall what #hey were. I 8 It was for a short period of time and they were in 19 the formative stages and I don't believe that any of 2o them ended up coming to market, being brought to 21 market. 22 Q. Then, you left and went to Kubernan. various tasks as part of the marketing of our products. Q. Was it specific to any brands? A. My experience? Q. In that position. A. My experience arc you talking about? Q. Yes. A. Yes. It usually is specific to brands. Q. With regard to the enwy level position at that time, was that specifically - A. Yes. Q. -- assigned a couple of brands or a brand? A. One brand. Moore, Moore Cigarettes. 23 When you came back in '80 as a brand manager, do you 24 recall what brands you were assigned to at that 25 point? Page 14 Page 16 1 A. Yes. I'm sony. I made a mistake. 2 During the time that I was brand manager, from '78 te 3 '79, I worked in specialty tobacco products. And 4 that was our smoking, chewing, little cigar business. 5 Q. Were those sold off or -- 6 A. Yes. We divested ourselves of that 7 business. It was then in '$0 when I came back as a 8 brand manager on new brands. 9 Q. Do you know what brands you worked on -- 10 A. No. That's what I don't recall. 11 Q. All right. How about in '82 to '84, when Q. When you were promoted to assistant brand manager in '78, was that also in the Moore brand? A. It was in '77. No. It was on Salem. Q. You switched then to Salem? A. Yes. Q. Can you tell me what repositioning is? A. Yes. Positioning is a - first of all, positioning is a fundamcmal concept in marketing. It's understanding what particular consumers wants are in th¢ category, both in terms of product and image. And positioning a brand is developing the product that would meet those wants, positioning that product in the minds of the consumer and developing an image that is in concert with what that consumer's 12 yOU were a senior brand manager? 13 A. Yes. That was on the Camel brand. 14 Q. Can you tell me generally how your 15 responsibilities and duties changed from, say, brand 16 manager to senior brand manager? Does that mean 17 there's no one above you on that brand? 18 A. I'm sorry. I may have -- I may be 19 confused on my brand manager positions. It's been a 20 long time and I... 21 MR. McDERMOTT: why don't you just take a 22 moment and just look down the roster of jobs and try 23 to sort it out. 24 THE WITNESS: I want to give you the 25 right answer here and I can't remember which one was A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 13 - Page 16

IAUCO, DAVID 6 7 9 10 l! 12 13 14 16 17 18 19 20 2l 22 23 24 25 CondenseltTM Page 17 which, whether I was in specialty tobacco products before I left the company or aflmauards, I BY MS. FLOWERS: Q. That's all right. I won't hold you to it. I'm just trying to get a feel for what time frames you worked -- a. Yeah, MR. MCDERMO'I-f: Yoxt want to go off the record for a second, take a break for a couple of minutes and sort that out or,.. BY MS. FLOWERS: Q. If you like, ] could just list off some brands and you can tell rm whether you worked on them. A. No. I know exactly which brands 1 worked on and I know what I -- l just can't remember during which time period. Whether it was -- whether I worked in specialty tobacco products prior to '79 or afterwards and that's the only point of confusion. MR. COLINGO: Does it really matter? MS. FLOWERS: I think it probably doesn't. Q. I think it's the former. I think it was before you left. MISSISSIPPI TOBACO LITIGATIO Page 1 1 A. Yeah. I was responsible for a number of 2 brands at that point. 3 Q. Those were existing brands? 4 A. Yes. 5 Q. Do you have any recollection of what 6 those were? 7 A. Yes. Camel, Salem, Doral, Century. 8 Q. From '87 to '88, you were, I assume it's 9 a promotion, to vice president, brand management? 10 A. (Nodding head.) 11 Q. Did you continue to manage those sarue 12 brands you just-- 13 A. I had all the brands in the company. Page 18 A. That's what -- that's what I ~call, 2 but -- well, ff it's important, I can go back and 3 check and l~ you -- Q. I'm not interested in -- 5 A. -- correct the record. 6 Q. -- when you worked in specialty tobacco 7 products. I'm a little more interested in the time s frames in which you worked on some of the other 9 brands during the '80s. 10 A. Okay. Well, again, if it's important and 11 we need to correct the record, we can do that. 12 Q. Okay. 13 A. Okay. You were talking. 14 Q. Yes. Let'sjustgo abead andmoveon. 15 We know you worked at Camel at some point in the 16 early- 17 A. No. That was 4/82. I know that one. IS Q. In '84 to '85, group manager of new 19 brands. Do you recall which brands those were? 20 A. Oh, I think at that point we were working 21 on Magna, which later came to market, and there was 22 some other development. There were other brands in 23 development. 24 Q. '85 to '87, were you sort of switched out 25 of new brands to marketing director, brand marketing? I,t Q. All of the brands at that point? 15 A. Yes. I was responsible for all of our 16 established brands. 17 Q. From '88 to '89, you continued to he 18 responsible for all the brands? 19 A. No. Beginning in February of '88, I went 20 to a different division of the tobacco company, R JR Tobacco Development Company, and worked on the 22 Premier brand. 23 Q. Did you do that exclusively? 24 A, Yes, 25 Q. For how long? Page 20 1 A. Until July of '89. 2 Q. Can you describe for me the type of 3 duties and responsibilities you fulfilled? 4 A. I was responsible for marketing of that 5 brand, also had responsibility for external relations 6 and scientific affairs, coordination of scientific 7 affairs. S q. Do you have any scientific ~'aining? 9 A. I have a -- no. I have a technical 10 undergraduate degree. 11 Q. Did you leave Premier at some point? 12 A. Yes. 13 Q. Was that in the senior vice president, 14 marketing position? 15 &Yes. l returned to RJR Tobacco in July 16 of '89 and was seni~)r vice president of marketing, 17 held various positions for that five-year period in 18 terms of scope of responsibility. Initially, was 19 responsible for all of our brands, *hen all of our 20 full-price brands. 21 Q. Which would include Salem, Winston? 22 A. Winston, Salem, Camel, as well as new 23 brand development, I believe, during that period. !24 Q. Would that include Eclipse? 125 A. I subsequently was responsible for A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800:743-DEPO Page 17 - Page 20

IAUCO, DAVID CondcnscltTM MISSISSIPPI TOBACO LITIGATIOI Page 21 I Eclipse, yes. 2 Q. But that wasn't during this time frame or 3 was it during this? 4 A. Well, Eclipse -- work on Eclipse didn't begin until '93 or '94. I should say ~ mark~dng 6 working on Eclipse. 7 Q. When you w~re shifted or promoted, 8 whichever it waS, to senior vice president worldwide 9 business developrnent -- A. Uh-huh. Q.-- can you tell mc how your duties and 12 responsibilities changed at that point? A. Yes. During that point in time, my 1,1 responsibilities were primarily concerned with the development of Eclipse and we were also -- I should 16 say that our tobacco international subsidiary was 17 also interested in that product. And I shared some responsibility in coordinating, learning and the 19 development of marketing elements for Eclipse and 20 Hi-Q in Germany, which is an Eclipse type product, as 21 well as coordination for some -- development with some licensees. Q. Was-- A. Offshore. 25 Q. Were your duties and responsibilities in 1 2 3 4 5 6 7 8 9 10 11 12 13 14 t5 16 17 18 19 20 21 22 23 24 25 Page 22 the worldwide business development limited to the Eclipse? A. Yes. Q. And the Hi-Q? A. Yes. Q. Are there any other international brands that are s'nnilar to the Eclipse or the Hi-Q? A. Yes. Q. Could you tell me about those, please? A. Yes. In Sweden, we have licensed this product to Swedish Tobacco Company. The name of the brand is Inside, that they market. And Japan Tobacco has also lieensed the technology from us and is test marketing a product called Airs, A-i-r-s. Q. Do you know whether these products, Hi-Q, Inside or Airs ate now currently available in these Page 21 l market. In the case of Hi-Q, it's available in 2 Augsburg, Germany, which was a test -- their initial 3 test market. In the case of Sweden, my understanding 4 is that Inside is available in several different 5 cities within Sweden, but is -- has limited 6 distribution at present. The distribution is 7 building. And in lhe case of Japan, Airs was just 8 launched in one, I think they call it a prefecture. 9 It's like a slate within Japan, one area of Japan as 10 a test market. 11 Q. Was Premier available in Japan? 12 A. No. :13 Q. Does Reynolds assist in anylhing beyond 14 the licensing of those products in terms of 15 marketing? 16 A. Only in terms of sharing information, 17 sharing learning. 18 Q. And in your current position as senior 19 vice president of business development and market 20 research, can you tell me how that has changed, if it 21 has, from your previous position? 22 A. Yes. I no longer have responsibility for 23 worldwide coordination on Eclipse or the Eclipse typc 24 product. Really, there isn't ~ need that there was 25 when wc were in the early stages. So I have Page 24 1 responsibility for the business development, a 2 business unit called business development, which is 3 primarily eoncenlrating on the continued development 4 of Eclipse. 5 I also have responsibility for ~ market 6 research deparlment that provides market research 7 counsel and services across all of our brands within 8 uhe company. And just recently assumed 9 responsibility for our planning and business analysis 10 department. l l Q. This is a new department? 12 A. It's not a new department. 13 Q. Can you estimate for me how many 14 employees are in the market research department? 15 A. Estimate, about 20. 16 Q. Can you estimate for me how many were countries? A. Yes, they arc. Q. Arc they widely available? A. They're in -- each of them is in test market. Q. When you say test market, is that one city, two cities? How widely available? A. Well, in the case of Eclipse, it's available just in Chattanooga at present, in a test 17 there when you began with Reynolds in '757 18 A. No. 19 Q. Was it more or less? 20 A. It was more. 21 Q. There were more in the market research department in '75 than fl'~ere are now? 23 A. Yes. 24 Q. Can you describe for me the types of 25 market research that are conducted by R. J. Reynolds? A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 21 - Page 24

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGAT]O~ Page 2~ l MR. MeDERMOTr: Let me consult for just a 2 moment. 3 (Off-the-record confercace.) 4 THE WrINgS: Yes. We rio advertising 5 research. 6 MR. McDERMOTI~: JUst for the record, I 7 was raising a question regarding trade secrets, which 8 we're permitted to do. ] want to make sure that we 9 are squared away. 10 THE WlTN~S: We do advertising research 11 in the marketing research department, trarking 12 atudies for -- for example, brands that are in test 13 market, we track their performance. Promotion 14 research, packaging research and product research, 15 product testing. 16 BY MS. FLOWERS: 17 Q. Could you list for me some of the outside 18 market research fu'ms that Reynolds has used since 19 you've been there.'? '20 A. l can list a few. ] don't -- ] don't 121 work directly with them. So I'm not totally familiar '22 with all of them; but we use Marc, for example. 23 Q. Asset? z4 A. (Shaking head.) 25 Q. Tracker? 1 2 3 4 5 6 9 10 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 26 A. Yes, but that's through Marc. Q. Okay. So Tracker is a... A. Tracker is a system that we've developed to track performance of our brands. Marc, to my understanding Marc administer~ that for Us. There are other firms, ]just can't recall offthe top of my head. Q. Since your tenure in '95, forward, has Reynolds always used outside marketing research fn-ms? A. Yes. Q. Can you give me an estimate of how much is done, say a percentage inside and outside the company? A. Almost ail of our market research is done Page 2' 1 advertising. And then the outside f'um would 2 administer, would actually administer the research, 3 the test. 4 Q. The objectives are set by R JR? 5 A. Yes. 6 Q. Do you tell them in advance what 7 demographic group you intend to target? 8 A. Sometimes. 9 Q, Do you understand the term integrated l0 marketing? II A. Generally. 12 Q, Is it something that's practiced at R, J, 13 Reynolds? 14 A. Yes, I'd have to say it is. 15 Q. Did you work on the Uptown campaign? 16 A. I did not work personally on it. I was 17 familiar with it and shared some responsibility for 18 Uptown as I recall. 19 Q. What happened to Uptown? 20 A. It was -- it began -- it was launched in 21 a test market, but there was a concerted effort to 22 mJscharacterize it and we ended up pulling it from 23 the market. 24 Q. Was that as a result of some of the 25 concerns of the public health community or the black Page 28 l community? 2 A. It was as a result of very negative 3 publicity that was mischaracterizing our intentions 4 and, frankly, we decided it wasn't worth the bad 5 publicity and we pulled it from the market. It was 6 not to be able -- it was not getting a fair hearing 7 by smokers in the market. 8 Q. What was the intention of the campaign? 9 A. The intention of the campaign was to -- 1o it was a new brand developed to appeal to black 11 smokers, particularly Newport smokers and hopefully 12 to switch Newport smokers to Uptown. 13 Q. Did you work on the Dakota campaign? 14 A. I had some responsibility for Dakota as 15 well. through outside suppliers. Q. Can you describe for me how this relationship operates? A. Yes. ~ we de~ide ~3at there is an issue to he researched, for example, a new advertising campaign, we would generally outline -- our market research departmcm would generally outline the objectives of the research and then they would work in concert with an outside firm to design a questionnaire and a method for evaluating the t6 Q. Were you proud of this work? 17 A. Sure. 18 Q. Do you think it's proper to target virile 19 females? 20 MR. McDERNIO'I']': rm sorry, I couldn't 21 hear yOU. 22 BY MS. FLOWERS; 23 Q, Do you think it's proper to target virile 24 females? 25 A. It's entirely appropriate to target A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 25 - Page 28

IAUCO, DAVID ! 2 4 CondcnscltTM 5 6 7 8 9 I0 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MISSISSIPPI TOBACO LITIGATIO, Page 2~ female Marlboro smokers and that's what Dakota was attempting to do. Q. You don't find the term virile female offensive? A. No. It was mischaracterizvd, again, as a pejorative term; but it can~ from an analysis of our market where we characterize brands as, quote, virile brands because of their masculine heritage. They tended to be Can~] and Marlboro and, therefore, ~c term came from simply a way of describing female Marlboro smokers. And there was nothing negative Page I A. That's correct. I would not want our -- 2 MR. McDERMOTT: Our CUlTent marketing 3 budget as opposed to historical budgets. 4 THE WITNESS: Well, even historically, 5 arc -- we're in an cxW~mcly competitive marketplace 6 and to -- we consider it very proprietary how much wc 7 spend marketing our products, both today and cv~n in 8 ~ near pasl, because it would give our competition 9 information that could bc dctrirnental to us. 10 BY MS. FLOWERS: 11 Q. Do you have the san~ position with regard about the term or our u,~ of it, Q. I assume you've reviewed the Tronv research, Tronc advertising ~epor~ Project VF? A. Not recently. Q. Have you ever seen it? A. I believe I saw it. Q. Do you think it's possible to segment the 18- to 20-year-old age group? A. Sure, Q. How do you ensure that it won't ai~'act some younger and son~ old,r? A. What wouldn't attract? Q. When you target 18 to 20, a wry lin'fited 12 ~o the figures fllat arf provicbd to the t~'c? 13 A. Y~. Wepro~&~W~ ~c, but~ 14 don't cx~ ~at ~y'~ going w ma~ public or 15 ~at it's going to ~ sh~d ~ o~ ~m~tifion. 16 Q. Do you ~ow ~ ~ount of mo~ ~t 17 Rc~olds h~ s~t on i~ m~ketlng promotion and 18 advc~sing for cigars for, say, ~ yc~ 1993 ~ 19 giv~ to ~C? ;20 ~. McDE~O~: ~ ~ in~pt ~. 21 ~ ~ ~nsult forj~t a ~nu~, J~. ,22 (Off-~-~rd ~fc~.) 23 MS. ~WERS: Want ~ to ~po~ ~ scope, how do you assure that it wouldn't spill over Page either way? A. I'm not sine what you mean by spill over. You mean have appeal or... Q. Yes. How do you assure it won't have appeal to other age segments? A. Youcan't. Itmay. If you dcsign a marketing approach for 18 to 20 year olds, there ~24 question? 25 MR. McDERMOTT: The budgets for at least Page 32 the last five years and maybe even farther back arc confidential and proprietary. The information thm's reported to the FTC is similarly confidential and is mainta'mcd as confidential. Only aggregate numbers are released. This is a matter that is tycated -- that is proprietary and highly confidential by the company. It could have substantial competitive 8 9 I0 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 chance that it may attract attvation or have some appeal to other age groups. Q. Do you know what ~ annual marketing budget for R. J. Reynolds is presently? A. I don't have a precise figure in my mind. Q. Do you have a range? A. This gets into -- MR. COLINGO: Hold on a second. MR. MCDERMOTT: I.~t m¢ consult on ~-adc (Off-the-record conference.) THE WITNESS: Ycah. This is an area where I feel that it is very proprietary and would not want it public for competitive reasons. BY MS. FLOWERS: Q. You don't want the - A. O1" marketing budget? O. Yes. significance even for recent history because the 9 companies could reverse engineer, as it were, the 10 planning and thinking of their competitors and 11 perhaps draw conclusions about what's going on now. 12 I'm prepared to discuss with you at some 13 oth~r point what information you legitimately require 14 and what relevance it may have to the lawsuit and see 15 if there isn't some way to accommodate your interests 16 and our concerns. But for thc time being, wc'renot 17 prepared to go forward. 18 I should also state for the record that 19 Mr. Ianco, and you can explore this with him, really 20 dces not have in his mind, you know, a comprehensive 2| and complete set of numbers that would respond to 22 your inquiry. You can ask any questions you wish of 23 me or of Dave. 24 MS. FLOWERS: Are you going to instruct 25 hi~m not to answer specific questions about how much WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 29 - Page 32

IAUCO, DAVID Page 33 the ad budgets are for at least the last five years? MR. McDERMOTT: For the lime being, at least until we come up with an appropriate arrangement for dealing with th~ information. We can CondenseltTM MISSISSIPPI TOBACO LITIGATIOh Page 35 1 MR. McDERMOTT: YO~ want the witness to 2 characterize the amount of money or ~souroes he has 3 available to him? 4MS. FLOWERS: Yes. 5 supply that later in an appropriate form 6 MS. FLOWERS: Is it a trade secret? I 7 Imow you said that -- 8 MR. McDERMOT'£: YeS, l~la'am. 9 MS. FLOWERS: - confidential and 10 proprietary, l just want to understand under the - 11 MR. MeDERMO'I~: Yes. Trade secret. 12 MS. FLOWERS: - case management order 13 which it is you're claiming. 14 MR. McDERMOTT: Trade s¢~ret. 15 MS. FLOWERS: SO you're -- 16 MR. McDERMOTT: I m~ght also add that n current marketing information would seem to have IS little to do with a case filed in the middle of 1994 19 dealing with events that supposedly go back to the 20 early '50s and deal by and large with evenis of many 21 decades. 22 MS. FLOWERS: I'm happy to ask him about 23 | 994 if he'll answer that question, but I suspect 24 you're not going to let him answer that either, 25 MR. McDERMOTT: I SttSpeet you're right 5 MR. McDERMOTT: If you can do that. 6 THE WI'EqESS: I fftink th~ amount that we 7 spend marketing our produeis is pretty mu~h in line S with, you know, as a percent of sales of other - of 9 other categories and it's sufficient, given the 10 competitive environment in which we market our I 1 products, which is intensively competitive. 12 BY MS. FLOWERS: 13 Q. In your opinion, is Reynolds' marketing 14 effective? Is A. Some of it is. 16 Q. Which brands have been the most 17 successful? 18 MR. McDERMOTT: During what time period? 19 BY MS. FLOWERS: 20 Q. Last ten years. 21 A. Doral and Camel. 22 Q. How often does Reynolds introduce a new 23 brand? 24 A. There is no set tin~ period. There have 25 been periods where we have had a lot of new brand Page 34 1 and that was also after the lawsuit was filed, I 2 might point out; but in any event, let's go forward. 3 BY MS. FLOWERS: 4 Q. How about 1977? Can you tell me what the 5 markeftng budgets were in 1977 approximately? 6 A. No. Imean, Ijust don'tknow, lwasan 7 assistant brand manager in 1977. Frankly, I doubt s that I had access to what the entire marketing 9 budgets were at that point in time. I certainly have 10 no recollection. 11 O. Let me ask it in a different way. In 12 your opinion, does R. J. Reynolds spend a lot of 13 money on its advertising, marketing and promotion? 14 h~R.. COLINGO: I object. Wait a minute. 15 Define what you mean by a lot Of money. 16 MS. FLOWERS: A lot of money relative to 17 the other things they spend money on in the course of 18 their business. 19 MR. COLINGO: Like what? That's not a 2o definition. You're asking him an amount? 21 MS. FLOWERS: NO. I'm asking if he 22 thinks it's a great deal, a lot, considerable amount, 23 not very muck Wonder if he has any opinion about 24 whether he's given enough to do -- enough resources 25 to do his job. Page 36 I activity and other periods where we have not. So I 2 really can't give you an answer, one answer. 3 Q. Do you know bow many brands are currently 4 on the market for P-dR? 5 A. I'd have to count them up. 6 Q. I bet you could do it on your fingers and 7 toes. 8 MR. McDERMOTT: Is this question directed 9 at brand families as opposed to brands and styles? 10 MS. FLOWERS: Yes. If he would give me 11 Salem, I would count all of the different brand 12 extensions under that. 13 THE WITNESS: Right. 14 BY MS. FLOWERS: 15 Q. Is it safe to say you don't know right 16 now? 17 A, I don't know offthetop myhead. I 18 think we have 16 different brand families. We also 19 have numerous -- we produce numerous private label 20 brands for retail customers. It's in that ball park. 21 Q. Okay. Are you familiar with the number 22 reported to the Frc for the entire industry? 23 A. I-" 24 MR. McDERMO'I-f: which numbers? 25 BY MS. FLOWERS: A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 33 - Page 36

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATIOn, 2 3 5 6 7 8 9 10 12 13 14 15 16 17 18 19 20 22 23 Q. The aggregate numbers for marketing, promotion and advertising. A. I hast a general familiarity with them. Q. Do you ]mow what ~ha't number was for, say, 19937 A. No. Q. 1994? A. (Shaking head.) I don't prepare or review *~at report. Q. Who at Reynolds assists in the preparation of that report? A. It comes out of our finance deparlmcnt and there arc - my understanding is tbere a~ Page 37 Page 3S I A. I'm not familiar with that. 2 Q. Do yeu plan on ~elying on the 1994 3 surgeon general's report in conjunction with your 4 testimony? 5 A. In part. 6 Q. Just page ] 30? 7 A. Yes. That's... S Q. That's the only page you're going to rely 9 on? I0 A. I have a general understanding of other II sections of the report. 12 Q. But do you intend to rely on any.-- the 13 rest oftbe report? I wasjust given that page in categories that the Frc requests that are unlike the way we categorize our expenditures. Q. Do you ]mow what CamcPs current market share is? A. It's about five percent of the market. Q. DO you know what percentage of minors, and we'll just define those here as people under 18, smoke Camel cigarc~s? A. I don't have -- no, I don't know precisely. Q. You never looked at those figures? A. What figures? Page 38 1 Q. The figures perhaps that have bccn done 2 by the Centers for Disease Control. 3 A. There have bccn some estimates that I 4 have read that estimate that among youth that Camel 5 has about an eight share. I don't know wbether -- l 6 can't -- I don't know whether those am correct or 7 not. g Q. I think the CDC estimates were eight 9 before Joe Camel was repositioned and, now, they're l0 approximately thirteen. Does that surprise you at l~ all? 12 MR. McDERMO'FI': Ale yOU offering that as t3 testimony. I object to ~e form of the question. 14 MS. FLOWERS: Yes, I'd be happy to put ~5 that MblV~ in if you like. 16 MR. MCDERMO'I~': AS you wish. I object to 17 the form of the question. 18 BY MS. FLOWERS: ! 9 Q. Can you go ahead and answer it? 20 A. What's the question again? 21 Q. Arc you familiar with -- I'I1 find it and 22 put it in. Am you familiar with the data from CDC 23 that indicates that since Joe Camel was brought out 24 in '88 the market sham of among minors has jumped 25 from eight percent to thirteen percent? 14 conjunction with your testimony. I wondered ff that 15 WaS the only page you were going to rely on? 16 A. At this time, yes. 17 Q. Has PJR or any of its agents ever tracked 18 cigarette consumption among minors? Wben I say 19 tracking, I mean engage in the tracking that you 20 described earlier. 21 A. I don't know. 22 Q. I'd like to ask you a little bit more 23 about your cxpcn disclosure statement. Did you draft this yourself?. 25 A. No. Page 40 l Q. Do you know who did? 2 A. No, I don't know. I don't know who did 3 it. I helped in putting it together. 4 Q. You helped in putting it together, but 5 you don't know with whom? 6 A. I don't know who drafted it per se. 7 Q. Was it given to you and then -- 8 A. Yes. 9 Q. -" you made changes -- 10 A. Yes. 1 ~ Q. -- and sent it back to somebody? Who did 12 you give it back to? 13 A..Someone in our law departmcnt. 14 Q. Do you know who it was? ~5 A. Sharon Yoc. 16 Q. That's internal to R. 2. Reynolds7 17 A. Yes. 18 Q. I like to direct your attention down to 19 the last sentence oftbe second full paragraph which 20 states: "Mr. Iauco may also testify about specific 21 advertising campaigns, marketing and promotional 22 practices." Did I read that correctly? 23 A. Yes. 24 Q. What specific ad campaigns do you 25 anticipate testifying about, if you know? A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 37 - Page 40