6175-5: EXHIBIT 5: DECLARATION OF K.C. CROSTHWAITE (PM USA) Nov. 11, 2015

November 11, 2015 6:30 pm by Gene Borio

The PDF is Here

EXCERPT:

I am responsible for Marlboro across its entire cigarette portfolio. As part of my duties, I am knowledgeable about PM USA’s plans to comply with the Court’s Order requiring PM USA to publish “corrective statements” on television, print newspapers, online newspapers, websites, and onserts.

. . .

The process of implementing these corrective communications in the various media will be time-consuming. Once the Court determines the text, we will need to create and format mock-ups for each execution. Based on past experience, we might seek to consult with the Government to resolve potential execution issues.

. . .

In addition to the losses outlined above, we will not be able to recoup costs to retain third-party vendors to create the corrective statements in television, newspapers, and websites, and to negotiate the media buy in television and newspapers, if it turns out the corrective statements are not run in those media as purchased . We estimate the costs of the third-party vendor services to exceed $800,000 for the PM USA and Altria spots.

END EXCERPT

FULL TEXT:

EXHIBIT 5

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA,

Plaintiff,

and

TOBACCO-FREE KIDS

ACTION FUND, et al.

Plaintiff-lnterv enors

v.

PHILIP MORRIS USA INC., et al.,

Defendants,

and

ITG BRANDS LLC, et al.,

Post-Judgment Intervenors as to

Remedies.

Civil Action No. 99-CV-2496 (GK)

DECLARATION OF K.C. CROSTHWAITE

I, K.C. Crosthwaite, declare as follows:

l . The opinions set forth herein are based on my personal knowledge and on conversations with other employees at Philip Morris USA Inc. (”PM USA”).

2. I am the Vice President and General Manager of Marlboro at PM USA. I have held this position since 2013. I have been employed by PM USA, or an affiliate of PM USA, since 1997. During my employment, I have held a held a variety of roles in the Sales & Brand Management organizations including Director, Marlboro Value Delivery, District Manager of Sales, Director of Marlboro Equity, Director of Marlboro -New Products, and Director of Marlboro Smokeless.

3. In my current job, I am responsible for Marlboro across its entire cigarette portfolio. As part of my duties, I am knowledgeable about PM USA’s plans to comply with the Court ’s Order requiring PM USA to publish “corrective statements” on television, print newspapers, online newspapers, websites, and onserts. The precise content of the corrective statements is yet to be determined.
4. I understand that PM USA must begin publishing the corrective statements within defined time periods after a “Trigger Date.” See Order #51-Remand (Dkt. No. 6095).
5. The process of implementing these corrective communications in the various media will be time-consuming. Once the Court determines the text, we will need to create and format mock-ups for each execution. Based on past experience, we might seek to consult with the Government to resolve potential execution issues.
6. Once the formatting is completed , we will need to create and produce each media execution. This will require us, among other things, to retain outside agencies and vendors to create the TV spots, and purchase placement in newspapers and television. We will also need to change our manufacturing processes to be able to place the required onserts. I describe these issues, and the costs they impose, in more detail below.
7. Television. PM USA will need to procure network approval for the television spots and negotiate the media buy. Television networks require the purchase of spots as an “upfront” or “scattered ” negotiation. Upfront negotiations allow for an annual commitment, cancellation options, and better price points. These negotiations take place in the summer with the annual run beginning in the fall. By contrast, an eight-week execution would require a scattered negotiation. Scattered negotiations are less ideal because they allow for a limited inventory selection, there are no cancellations, and they carry a pricing premium. Based on

2

current advertising rates, the estimated “upfront ” cost of purchasing a year’s worth of the television spots for both PM USA and Altria will exceed $9 million. Once we have placed the television order, if it turns out that we are not required to run the television spots at the time for which we purchased them, we may not be able to recoup our costs. In that situation, we may be able to delay the airing for about six weeks. After that period elapses, however, we would likely lose the air time we purchased .

8. Newspapers. The corrective statements will.need to appear in the Sunday edition of print and online newspapers beginning the eighth Sunday after the Trigger Date. 1 The estimated cost of running the corrective statements in the manner the Court has directed for both PM USA and Altria is approximately $4 million for print newspapers and approximately $600,000 for digital newspapers. Like.television, once we have placed the newspaper order, if it turns out that we are not required to run the newspaper spots at the time for which we purchased them, we may not be able to recoup our costs. In that situation, we may be able to delay the publication for about six weeks. After that period elapses, however, we would likely lose the newspaper space we purchased.

9. Onserts. Beginning no later than thirty weeks after the Trigger Date, PM USA will need to ship to our customers packages with onserts containing the Court’s corrective statements. Immediately after the Court determines the content of the communications, PM USA will need to take the following steps: (1) develop the new designs; (2) retain a vendor to engrave and install printing cylinders, which are used to print the onserts at high speed; (3) have the vendor pri nt the new onserts; (4) produce and ship certain product to the vendor for the placement of certain onserts; (5) produce packages containing the onserts at PM USA; and (6)

———–

1 For any newspaper that does not publish on the Sunday for which the statements are required, the statements will need to appear in the Friday edition immediately preceding that Sunday.

3

ship packages with the onserts to PM USA’s direct customers, with directions for them to be put into the retail market. For context, PM USA manufactures approximately 270 different brand styles of cigarettes. Each of those must be onserted. Each brand style has distinct manufacturing protocols and procedures. Based on PM USA’s projections for 2016, I currently estimate that in excess of 200 million packs would need to be onserted in the first two-week installment of required onserts. Because these products will be different from what we ordinarily manufacture, we must create new manufacturing protocols for each brand style to manage this effort. It will take at least several thousand hours of employee time to manage and implement this effort. We also estimate, based on our prior use of onserts, that the costs of running the first of the six required installments of onserts will exceed $7 million. If it turns out that we are not required to run the onserts as printed, we would not be able to recover these costs. We would also lose the value of the onserted product itself, which would need to be destroyed . We would also face significant business disruption and losses if it turns out we could not fulfill orders with onserted product that has already been produced.

10. Additional unrecoverable costs. In addition to the losses outlined above, we will not be able to recoup costs to retain third-party vendors to create the corrective statements in television, newspapers, and websites, and to negotiate the media buy in television and newspapers, if it turns out the corrective statements are not run in those media as purchased . We estimate the costs of the third-party vendor services to exceed $800,000 for the PM USA and Altria spots.

4

I declare under penalty of perjury that the foregoing is true and correct. Executed on this 10th_ day of November, 2015, in Richmond, Virginia.

K.C. Crosthwaite

5

Leave a Reply

The primary purpose of this site is to provide information in a timely manner. Postings should be informative. The usual rules apply: No libel, no profanity, no personal abuse, keep it on topic, and short.

If you are scheduled as a court witness, CHECK with your lawyer before posting anything here!