UNITED STATES OF AMERICA February 9, 1998 Clinton O. Price, Sr. Dear Mr. Price: Enclosed you will find an Order to File a Special Report on your company’s products, sales, and advertising and marketing expenditures for calendar years 1996 and 1997. Please read the instructions contained in this Order carefully. If you have any questions regarding these instructions, please call Mamie Kresses at (202) 326-2070 or Nancy S. Warder at (202) 326-3048. If you have technical questions concerning entry of the computerized data, please call Frank Curtin at (202) 326-2280. The Commission will only disclose the data in aggregate form. The Commission will not make public documents or company-specific information submitted in compliance with this Order to File a Special Report that are marked "confidential" without first giving you 10 days notice of the Commission’s intention to do so, except as provided in sections 6(f) and 21 of the Federal Trade Commission Act. Furthermore, no privileged or confidential commercial or financial information within the meaning of section 6(f) of the Federal Trade Commission Act may be publicly disclosed without your consent. Sincerely, C. Lee Peeler UNITED STATES OF AMERICA COMMISSIONERS: ORDER TO FILE SPECIAL REPORT Pursuant to a resolution of the Federal Trade Commission dated February 6, 1998, entitled "Resolution Directing Use of Compulsory Process in Nonpublic Investigation," a copy of which is enclosed, John Middleton Incorporated, hereinafter referred to as "the company," is ordered to file a Special Report with the Commission no later than April 9, 1998, containing the information specified herein. The Special Report is required to be subscribed and sworn to by an official of the company who has prepared or supervised the preparation of the Special Report from books, records, correspondence, and other data and materials in the company’s possession. The Special Report should restate each item of this Order with which the corresponding answer is identified. If any question cannot be answered fully, give the information that is available and explain in what respects and why the answer is incomplete. Please supply written answers to the following items: 1. The person who signs the Special Report must give his or her full name, business address, and official capacity. 2. State the full name of the company and its official address, and its date and state of incorporation. 3. State whether the company is a subsidiary company, and if so, the name of the parent company; whether the company has any subsidiary companies; and report the same information specified in item two (2) for each parent and subsidiary. 4. Report the total number of cigars sold in the United States by the company and any of its subsidiary or parent companies each year for calendar years 1996 and 1997. This number should equal the sum of units sold reported for each brand on line 5 of the brand datafile for the relevant calendar year. For purposes of this Special Report, the term "cigar" shall mean any roll of tobacco wrapped in leaf tobacco or wrapped in any substance containing tobacco, other than a cigarette within the meaning of the Federal Cigarette Labeling and Advertising Act, 15 U.S.C. § 1331. 5. Report the total dollar value for cigar sales in the United States by the company and any of its subsidiary or parent companies each year for calendar years 1996 and 1997. This number should equal the sum of dollar sales reported for each brand on line 6 of the brand datafile for the relevant calendar year. 6A. State whether the company or any of its subsidiary or parent companies paid any money or compensation, or made any other contribution, including but not limited to goods or services, in connection with any production or filming of any motion picture(s) or television show(s), or in connection with any celebrity appearance(s), celebrity endorsement(s) or celebrity testimonial(s) on behalf of cigars or cigar smoking, during calendar years 1996 or 1997. If so, please identify: all such movies, television shows, or celebrity endorsements, testimonials or appearances; and the dollar value of each payment or contribution. 6B. State whether the company, or any of its subsidiary or parent companies, or any other persons working for or on behalf of any of the foregoing, paid any money or compensation, or made any other contribution, including but not limited to goods or services, during calendar years 1996 or 1997 to any individual, partnership or corporation engaged in the business of product placement in motion pictures or television shows. If so, please identify: the person who made the contribution; the recipient of the payment or contribution; the nature and amount of the payment or contribution; and the name of each and every motion picture or television show in which any company product appeared in return for such payment or contribution (regardless of whether the product name or logo was evident to viewers). 7. Report the total dollar amount expended by the company and any of its subsidiary or parent companies on cigar advertising, merchandising, or promotion each year for calendar years 1996 and 1997. This amount should equal the total of all expenses reported in Categories A through O of the brand datafile for the relevant calendar year. INSTRUCTIONS FOR COMPLETION OF THE CIGAR SPECIAL REPORT DATAFILES The Commission is requesting brand specific information from your company about sales and advertising and promotional expenditures for cigars in a computer readable format (brand datafile). In addition, the Commission is requesting specific information from your company about the product characteristics and sales of each variety of cigar available within each brand (variety datafile). Attachments A-1 and A-2 provide the datafile structures and indicate how the data for each record should be recorded. Information about advertising and promotional expenditures for each brand of cigar sold in the United States by your company (or any of its subsidiary or parent companies) during calendar years 1996 and 1997 (including any cigars sold in a test market or on a limited market basis) should be entered on a separate brand datafile report. Datafile reports for each brand should be filed separately for calendar years 1996 and 1997. For the purposes of this Special Report, "brand" means cigars that bear a common identifying name or logo, regardless of whether the products are differentiated by size or packaging. In the case of generic or private label cigars, brand refers to all indistinguishable products produced by a single manufacturer or its affiliates or imported by a single importer or its affiliates. Information about the product characteristics and sales of each variety of cigar sold by your company (or any of its subsidiary or parent companies) during calendar years 1996 and 1997 (including any cigars sold in a test market or on a limited market basis) should be entered on a separate variety datafile report. Datafile reports for each variety should be filed separately for calendar years 1996 and 1997. For the purposes of this Special Report, "variety" means any cigar, marketed under a particular brand name or logo, that is differentiated from any other cigar bearing that same brand name or logo by one or more of the product characteristics identified in the variety datafile (for example -- product size, style, or flavor). Data for the brand datafile and the variety datafile should be submitted in MS-Access, DBASE, or FoxPro database formats; in industry standard comma-separated ASCII format; or in spreadsheet format using Lotus, Excel, or Quattro-Pro. PART I: THE BRAND DATAFILE The cost accounting procedure to be used in assigning an expenditure to the particular calendar year shall be the accrual rather than the cash basis of accounting. In allocating reportable advertising and promotional expenditures among brands the following guidelines should be followed:
It is recognized that some of the allocations required by the guidelines set forth above may be arbitrary. In making these allocations, the company is not being asked to certify or warrant that the allocations precisely reflect either the subject or intent of the expenditures being reported. Expenditures reported should reflect the cost to the company of administering the activity involved, including commissions and other payments made to separate organizations such as advertising agencies. Reported expenditures should also include all amounts spent for advertising and promotion relating to cigars regardless of whether the advertising or promotion would constitute "commercial speech" or would be protected from law enforcement action by the First Amendment. However, expenditures should not include the compensation of full- time employees of the company or any overhead expenses attributable to the activities of company employees. There are 25 separate pieces of information ("fields") requested for each cigar brand. Each field should be entered according to the specifications indicated in Attachment A-1. The following sections contain explanations of the information requested for the 1996 and 1997 brand datafiles. FIELD DEFINITIONS: (1) YEAR COVERED: Refers to the calendar year (1996 or 1997) for which data or other information is being reported. (2) COMPANY CODE: Enter assigned letter:
(3) BRAND NAME: Refers to the brand identified on the packaging or in advertising. (4) BRAND NUMBER: Assign a sequential two digit number (from 01 to 99) to each brand sold by the company. (5) UNITS SOLD: Report one figure for total units (i.e., number of cigars) of the brand sold in the United States during the calendar year covered by the report. Sales in the United States include sales in the 50 states, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Virgin Islands, American Samoa, Wake Island, Midway Islands, Kingman Reef, Johnston Island, and installations of the Armed Forces. (6) DOLLAR SALES: Report in whole dollars the volume of sales of the brand in the United States (as defined in Paragraph 5 above) during the calendar year covered by this report. Please do not express in units of thousands or millions. (7-8)FIRST SOLD/ LAST SOLD DATE: These items should be completed only if the brand was first offered for sale or was discontinued during the calendar year covered by this report. The next 17 fields are used to record "Reportable Expenditures," that is, advertising, marketing, and promotional expenditures for the specific categories requested by the Commission, as well the total of such expenditures, and expenditures for sports. Expenditures in Categories A through O should equal the total on line 24. Expenditures should not be reported in more than one category, except for any amounts also reported in field 25 (sports). Please provide information for items 9 through 25 rounded to the nearest whole dollar. Fields with no data should be zero. (9) CAT-A-EXPENSES: Newspaper advertising, but excluding if practicable those expenditures covered by Categories I, J, K, or M, which should be reported in those categories. (10) CAT-B-EXPENSES: Magazine advertising (other than advertising in trade publications), but excluding if practicable those expenditures covered by Categories I, J, K, or M, which should be reported in those categories. (11) CAT-C-EXPENSES: Outdoor advertising, but excluding if practicable those expenditures covered by Categories E, I, J, or K, which should be reported in those categories. (12) CAT-D-EXPENSES: All expenditures for audio-visual or video advertising on any medium of electronic communication subject to the jurisdiction of the Federal Communications Commission. This category includes, but is not limited to, advertisements on: broadcast television, cable television, or radio; screens at motion picture theaters; television screens or monitors in residential dwellings, as in certain televised programs, such as satellite broadcasts and pay per view programming, and through video cassette entertainment products; and television screens or monitors in commercial establishments, such as restaurants, bars, airports, and video arcades. This category does not include expenditures for advertising on the Internet, which should be reported in Category N below. (13) CAT-E-EXPENSES: Advertising in or on public transportation vehicles or facilities, but excluding if practicable those expenditures covered by Categories I, J, or K, which should be reported in those categories. (14) CAT-F-EXPENSES: Direct mail advertising, but excluding if practicable those expenditures covered by Categories I, J, K, or M, which should be reported in those categories. (15) CAT-G-EXPENSES: Point-of-sale advertisements, but excluding if practicable those expenditures covered by Categories I, J, K, or M, which should be reported in those categories. (16) CAT-H-EXPENSES: Promotional allowances paid to retailers and any other persons (other than full-time company employees who are involved in the product distribution and sales process) in order to facilitate the sale of any cigar product, but excluding if practicable those expenditures covered by Categories A through G, which should be reported in those categories. (17) CAT-I-EXPENSES: Cigar sampling, including the costs of the products themselves and the costs of organizing, promoting, and conducting the sampling. (18) CAT-J-EXPENSES: All costs of distributing promotional items other than cigars, including the costs of such items, whether distributed by sale, redemption of coupons, or otherwise, including all items which do and/or do not bear the name or depict any portion of the package of any brand of cigars sold by the company. The expenditures reported in this field shall be the net cost to the company, that is, payments received from consumers for such items shall be deducted. Whenever such activities are combined with sampling, the expenditures connected therewith shall be reported solely in Category I. Exclude if practicable expenditures covered by Category M. (19) CAT-K-EXPENSES: Public entertainment events bearing or otherwise displaying the name, logo, or selling message of the company or the brand covered by this report. Public entertainment events include but are not limited to dinners, wine or spirit tastings, and weekends or other vacations that feature smoking of the brand covered by this report. This item includes all expenditures by the company in promoting and/or sponsoring any event, and excludes if practicable those expenditures covered by Categories I or J. (20) CAT-L-EXPENSES: Endorsements and testimonials, but excluding if practicable those expenditures covered by Categories A through G or Category K, which should be reported in those categories. This field includes, but is not limited to, all expenditures made to encourage cigar smoking, or the mention of the brand covered by this report or the company name, or the appearance of the product or name, or package, in any situation (including, but not limited to, motion pictures, stage shows, and public appearances by or photographs of a celebrity or public figure) where such use, mention, appearance, or photograph may come to attention of the public. (21) CAT-M-EXPENSES: Retail value added and coupons: All expenditures and costs associated with the value added to the purchase of cigars, including but not limited to, buy one get one free; all expenditures and costs associated with coupons for the reduction of the retail cost of cigars, whether redeemed at the point of sale or by mail, including but not limited to all costs associated with advertising or promotion, design, printing, distribution, or redemption. (22) CAT-N-EXPENSES: All expenditures for advertisements on the Internet, including but not limited to the World Wide Web, and on commercial on-line services. This category includes, but is not limited to: spending on all Internet sites and pages, hyperlinks, and banners on third party sites, newsgroups, and on-line advertisements that can be accessed by computers located in the United States, regardless of where the site is located or the Internet address of the site or page; and all sites and pages, hyperlinks, and banners on third party sites, or newsgroups that include the name, logo, symbol, motto, or selling message of a brand of cigars, or are referred to in any other cigar advertisement, regardless of whether the site, page, hyperlink, or banner is promoting the sale of cigars. Include expenditures associated with such ads paid for by the company or any of its parent or subsidiary corporations. Expenditures include, but are not limited to, the cost of developing, creating, maintaining, monitoring, and updating the site, page, banner, or other form of on-line advertisement, whether located on systems maintained by the company or by third party advertisers, commercial on-line services, or Internet World Wide Web host providers. (23) CAT-O-EXPENSES: Any advertising or promotional expenditures not covered by another reporting category. Specify the total amount on the form and describe the subject matter of each such expenditure. (24) TOTAL REPORTABLE EXPENDITURES FOR BRAND: Refers to reportable expenditures for the brand as defined in the appropriate explanatory notes. The figure provided for total reportable expenditures should equal the sum of the expenses listed in Categories A through O for the brand. (25) SPORTS AND SPORTING EVENTS: The expenditures in this category are intended to be duplicative of expenditures covered by Categories A through O and totaled on line 24. Do not report any expenditure on this line that has not also been reported in one of Categories A through O above. For example, advertising a sporting event in a newspaper would be reported in Category A and included in the total on line 24; a miscellaneous advertising expenditure for promotion of a sports team would be reported in Category O and included in the total on line 24. "Sports and sporting events" includes but is not limited to football, soccer, basketball, baseball, hockey, golf, tennis, wrestling, karate, judo, weight lifting, volleyball, skiing, skating, sailing, boating, equestrian, rodeo, automobile, bicycle, truck, monster truck, tractor-pull, fishing, and hunting events, competitions, tournaments, and races. Report all items that include but are not limited to all expenditures connected with or related to the sponsoring, advertising, or promotion of sports or sporting events, support of an individual, group or sports team, and purchase of or support for sports equipment, uniforms, sports facilities and/or training facilities; and all expenditures for advertising, including but not limited to print, television, radio, billboards, banners, etc., in the name of the company or any of its cigars in a sports facility, on a scoreboard or in conjunction with the reporting of sports results; and all expenditures connected with the production, offer, sale, or provision without fee of all functional promotional items at or in connection with a sporting event, including but not limited to, clothing, hats, bags, posters, sporting goods and equipment. PART II: THE VARIETY DATAFILE There are 17 fields requested for each cigar variety. Each field should be entered according to the specifications indicated in Attachment A-2. The following sections contain explanations of the information requested for the 1996 and 1997 variety datafiles. FIELD DEFINITIONS: (A) YEAR COVERED: Refers to the calendar year (1996 or 1997) for which data or other information is being reported. (B) COMPANY CODE: Enter assigned letter:
(C) BRAND NUMBER: Enter the number assigned to the brand on line 4 of the brand datafile. (D) VARIETY NAME: Refers to the variety identified on the packaging or in advertising. (E) PRODUCT SIZE: Refers to the size of the cigar, that is little cigar, medium cigar, or large cigar. The Commission has assigned codes for the product sizes. Enter the appropriate letter:
(F) PRODUCT STYLE: Refers to whether the cigar has a tip made of a substance not containing tobacco.
(G) WRAPPER TOBACCO: Refers to whether the tobacco used in the wrapper is natural or reconstituted.
(H) BINDER TOBACCO: Refers to whether the tobacco used as binder is natural or reconstituted.
(I) FILLER TOBACCO: Refers to whether the tobacco used in the filler is natural or reconstituted.
(J) CURING OF WRAPPER: Refers to the curing process used for the wrapper.
(K) CURING OF BINDER: Refers to the curing process used for the binder.
(L) CURING OF FILLER: Refers to the curing process used for the filler.
(M) FLAVOR: Refers to flavoring added to the cigar, such as cherry, sweet, or vanilla, if applicable. (N) WEIGHT: Refers to the weight of an individual cigar (in the case of a tipped cigar, with tip included) in grams (approximate). (O) UNITS SOLD: Report one figure for total units (i.e., number of cigars) of the variety sold in the United States during the calendar year covered by the report. Sales in the United States include sales in the 50 states, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Virgin Islands, American Samoa, Wake Island, Midway Islands, Kingman Reef, Johnston Island, and installations of the Armed Forces. (P) DOLLAR SALES: Report in whole dollars the volume of sales of the variety in the United States (as defined in Paragraph O above) during the calendar year covered by this report. Please do not express in units of thousands or millions. (Q) VARIETY CODE: FTC will assign these numbers. The sum of units sold and the sum of dollar sales reported on lines O and P above for all of the varieties included in a brand should equal the units sold and dollar sales, respectively, reported for the brand on lines 5 and 6 of the brand datafile. Penalties may be imposed under applicable provisions of federal law for failure to file Special Reports or for filing false reports. The Special Report called for in this Order is to be filed on or before April 9, 1998. By direction of the Commission, Commissioner Azcuenaga not participating. Robert Pitofsky SEAL Date of Order: February 6, 1998 The Special Report required by this Order, or any inquiry concerning it, should be addressed to the attention of:
ATTACHMENT A-1 CIGAR SPECIAL REPORT BRAND DATAFILE STRUCTURE There are five columns describing each field in the brand datafile structure. The column headings are abbreviated as follows: FIELD: Field number FIELD ITEM NAME WDTH OPUT TYP
If you have any questions regarding the brand datafile structure, please direct them to:
ATTACHMENT A-2 CIGAR SPECIAL REPORT VARIETY DATAFILE STRUCTURE There are five columns describing each field in the variety datafile structure. The column headings are abbreviated as follows: FIELD: Field number FIELD ITEM NAME WDTH OPUT TYP
If you have any questions regarding the variety datafile structure, please direct them to:
UNITED STATES OF AMERICA COMMISSIONERS: File No. 972-3100 RESOLUTION DIRECTING USE OF COMPULSORY Nature and scope of Investigation: To compile data concerning cigar advertising and promotion employed throughout the United States during calendar years 1996 and 1997 by Consolidated Cigar Corporation, Swisher International, Inc., General Cigar Co., Inc., Havatampa Incorporated, and John Middleton Incorporated. The Federal Trade Commission hereby resolves and directs that any and all compulsory process available to it be used in connection with this investigation. Authority to Conduct Investigation:
By direction of the Commission, Commissioner Azcuenaga not participating. Donald S. Clark DATED: February 6, 1998 |