Tobacco Documents Online

Za3 raaRic AvEHUE. NEW YORK,NEW 7CAri 1DPM7 bFFtCf 09 TM.*e s!.'Mt OM'1 V/CE F"l81Dl"T MtD GElIL'1lAt. COVMOEL VarCh 27, 1995. Johit P. RupP, Esg- CoRingtr3A & BzrZirtig 1201 Pen.nsyha.nia Avenue, N.W. P .4. Boz 7566 pTa.sh.ig.gton, D. C. 20044 Re: Federal Cigarette Labeling and Adverti s ing Act f the ' Ac t°? - Package Label Statersent Ratation Dear John: Yoa have asked Americaa,Brands, Inc. to describe the ecoaaaaic burden likely to be i=posed on it if it were required to adhere to the inflexible calendar quarter rotatioa of cigarette package label stateaents rather than implement a s imu.Ita.neovs rotation program. The simitltaneous rotation prograas, while certa3.nly, not without econaatic effect, was designed to achieve tlxe rotation mandated by the Act while minimizing the enormous econoa:i.c burde.n, practical difficulty and risk of error inherent in impZementation of an inflexible calendar quarter rotation program. A calendar quarter rotation progr= would, at tbe otrtset, quadrupie the cost to American of the new cylinder engravings necessary for the printing of its cigarette packages. Without attempting to account for American' s internal cost, it is Iikely, tb.at the added cylinder costs and engraving costs would be in excess of $600,.000. Moreover, this multiplication of costs would be enccruntered each time a new brand is introduced or the packaging of an established brazd is altered. As you kncw. American includes tar and nicotine data on the packages of many of its brand styles, so changes in that data would necessitate a package ch.ange. In addition, adoption of an infleSi.bLe calendar rotation program would TIMN 0013823 GlabLLe AaQRELS: pOW1iATTAli

a0wa4cJ.1e[ John P. Aupp, Esq. - 2.- March 27, 1985 reguire that package labels be printed at more freq;nent intervals and in smalier qa.antities, thereby in -reasing. v.ait costs on an- ongoivg basis. The costs of cyZinder preparation and printing, while significant, are at least measu.rable quaatita:tively. Perhaps a more significant cost, in our view, is likely to be encouatered in the disrnption in normal factory operations in co8nectitm with the changeover of labe3l production at the end of each calendar quarter. Cigarette f actori.es -are desigrzed to run econamicaily at hios~'ri speeds, azvund the clock. To require Aiaerican to interrupt productiorb rnns ia mid-operation wi13l result in a loss of efficiency, with a comrnensurate increase in expense. It is difficu?.t to gauge }his loss in the abstract but, s iace the interruption wf ZZ o=ur eaeb and every quarter,, indefinitely, tbe- c=uiative expense would clearly be significant. Further inefficiency will result. froar, the imposition of a level of inventory control that does not currently exist. In order to ensure that it has adequate package inventory on hand, American estimates that over the conrse of a year it would purchase and maintain an additioaal $1 ,000, 040 of inventories of paekages bearing each of the four Iabel statezents. Assuming these inventories could be successfully stored for use in the subsequent year witbout damage, discoloration or obsolesoence, the annual cost of such storage woaid be measured in the hundreds of thousands of dollars. Moreover, it is conceivable that inventory considerations could require the construction of additional or improved warehouse facilities. ,, A further burden on American may be imposed by the significant legal risks presented by ar calendar quarter rotatien program. Just as every quarterly changeover of production entails a loss of econoatic efficiency, every such cha.rge involves an oppartunity for mistake. Given the tremendous vo3tiaae of produotion,, the pressure of prtluctivcz scheda3.es, the imposition of inventory procedures where none existed before, and simple human nature, mistakes would be inevitable. TIMN 0013824

John P. Rupp, Esq. - 3-, March 27, 1985 %tLe irosty of the apparent insistence on inflexisle calendar qua..-tar rotation is that the effect on the caastt~ner of such a program, as compared to the proposed simulta.neous rotation program, would likely be a.xperceptible. Th.e coasumer is not likely to be expos.~ to a parti+cu3.ar label statement for an entire calendar guarter. As product moves through the distribution chain, any serablance of an orderly sequence of label statement exposure at the retai3l level will be purely coincidental. The exercise of creatinq a calendar quarter rotatio13 progrs.mr tha.refore, is siaply putting forca aver substance. Consider_ng the enormous economs.c burden likely to be imposed by such a program, ax~d the s i.gni f i.caAt Lega:i risk to American arxd the other cigarette maa.ufacturers, insistence on such a program would be unconscionable. very tru ly yo¢rs, Arnold Henson Senior vice Presidf:at and General Cawase:C Ag:rsb TIMN 0013825