WINSTON-SALEM, N.C. -- Reynolds American Inc. (RAI) said that its R.J. Reynolds Tobacco Co. subsidiary will record a third-quarter pre-tax noncash charge of approximately $175 million associated with the lower trademark value of its Kool cigarette brand.
As RAI noted in its restructuring announcement in September, R.J. Reynolds has moved Kool from a "growth" brand to a "support" brand. Under accounting rules, that triggered an analysis of the trademark's value. The reduction in Kool's value is due to the reduced marketing support the brand will receive going forward. With this change, [image-nocss] R.J. Reynolds has two growth brands, Camel and Pall Mall.
The company will include the impact of this charge in its third-quarter earnings, which will be released on October 22.
Reynolds American Inc. is the parent company of R.J. Reynolds Tobacco Co.; Conwood Co. LLC; Santa Fe Natural Tobacco Co. Inc.; and R.J. Reynolds Global Products Inc. R.J. Reynolds Tobacco's brands include five of the 10 best-selling cigarettes in the United States: Camel, Kool, Pall Mall, Winston and Doral.
Meanwhile, an expert on smoking and health said last week that R.J. Reynolds relied on suspect data to support its claim that smokers of its Eclipse cigarettes may face less risk than smokers of conventional ones, reported the Associated Press.
Testifying in a civil suit, Dr. David Burns, a pulmonologist and professor emeritus at the University of California-San Diego's medical school, said too few people participated in studies of the cigarette and that they did not use it long enough for scientists to draw meaningful conclusions about whether it's safer than other brands.
The state of Vermont is suing the tobacco giant over what it said were misleading claims that the Eclipse may carry less risk of cancer and other health ailments.
Filed in 2005 on behalf of Vermont and 36 other states, the suit said Reynolds violated consumer fraud statutes in its marketing of the cigarette and seeks a court order barring the Winston-Salem, N.C., company from making the claims.
Reynolds contended that smokers' risk of cancer, chronic bronchitis and possibly emphysema are reduced with Eclipse because the cigarettes heat the tobacco without burning it. "We believe the claims we have made regarding the product have been supported by credible and reliable scientific data," Thomas McKim, vice president and deputy general counsel, told AP.
Burns, called as an expert witness by the state, testified for a second day about Reynolds studies that the company says provide adequate scientific foundation for the advertising claims.
The trial is expected to last a month.
R.J. Reynolds plans to call about 13 witnesses, including company scientists and outside experts who will vouch for the credibility of the studies, according to McKim.
Assistant Attorney General Julie Brill, one of the state's lawyers in the case, said no judge had ever had to decide the question posed by the case. "It's a huge question as to how much science or proof there should be before they can make a claim to consumers," she said.
The other states involved in the case are Alaska, Arizona, Arkansas, California, Connecticut, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Michigan, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Washington, Wisconsin and Wyoming.
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