TOBACCO'S FUTURE STRIKINGLY ROSY

MIAMI - The nation's five biggest cigarette makers are worth $157
billion and have a ``strikingly rosy'' future, a financial expert
testified Tuesday for smokers seeking punitive damages from the
tobacco industry.

But George Mundstock, a University of Miami law school finance
professor, scaled back some of his values on cross-examination based
on his preferred method of valuing the companies. He did not give a
revised total.

The dollar figure is key testimony for a jury considering how much to
pay 300,000 to 500,000 sick Florida smokers for decades of misconduct
by the tobacco industry.

For R.J. Reynolds, Mundstock's initial value of $38 billion fell to
$19.6 billion using the different method.

For Lorillard, a $17 billion value dropped on cross-examination to
$12.5 billion. Mundstock believed the company could raise $10 billion
with a sale that would put it out of business.

The industry fears a crippling award, even though Florida law does not
allow a punitive verdict to put a company out of business. The
industry lost a fight over allowing jurors to consider the industry's
borrowing power, and the smokers' attorney stressed the industry's
ability to raise prices.

Brown & Williamson attorney Gordon Smith, who said his company was
``going down the tubes,'' undermined Mundstock's testimony by pointing
to the company's declining market share and share of profits within
the industry. Mundstock said he didn't take those factors into account
when estimating a $22 billion value for Brown & Williamson.

Mundstock, who estimated Philip Morris' domestic and foreign cigarette
business is worth $118 billion, agreed when company attorney Brad
Lerman said, ``They don't have their hands on that cash today.''
Mundstock had no alternative value for the company on
cross-examination.

Wholesale cigarette prices are up 58 percent and sales are down 9
percent since the tobacco companies settled lawsuits with states in
1998 for $254 billion, Mundstock testified. The settlements are called
the MSA, short for master settlement agreement.

``In the post-MSA world, things are really looking strikingly rosy,''
he said of tobacco finances.

On direct questioning, Mundstock offered values for the domestic
tobacco companies based on Philip Morris' purchase last year of three
Liggett brands and their 0.2 percent market share, plus the companies'
book value, at the end of 1999.

He concluded Philip Morris Inc. with 49 percent of the market was
worth $80 billion, R.J. Reynolds Tobacco Co. with 24 percent was worth
$36 billion, Brown & Williamson Tobacco Corp. with 14 percent was
worth $22 billion, Lorillard Tobacco Co. with 11 percent was worth $17
billion and Liggett Group Inc. with 1 percent was worth $1.8 billion.