Free Motion to Amend/Correct - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS PRECISION PINE & TIMBER, INC., Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) ) )

No. 98-720C (Judge George W. Miller)

PLAINTIFF'S CORRECTED PROPOSED FINDINGS OF FACT IN SUPPPORT OF PLAINTIFF'S POST-TRIAL BRIEF INTRODUCTORY FACTS 1. The following terms were used and defined in the course of trial: a. Board foot ("bd ft" or "bf"): The amount of wood contained in an unfinished (i.e., rough or unplaned) board 1" thick, 12" long, and 12" wide. In trees or logs, board-foot volume is a measure of merchantability, and therefore the relationships between board feet and cubic feet (defined below) depends on tree diameter, amount of slab, and saw kerf, Tr. 2912 (Matson); commonly 1,000 bd ft is written as 1 mbf, and 1,000,000 bd ft is written 1 mmbf. Tr. 2912 (Matson). b. Buck: To cut a felled tree into smaller segments, called logs. Tr. 142 (Porter); 1727 (Reidhead). c. Ccf: One hundred cubic feet (see below). Tr. 110 (Porter).

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d.

Clear Face: One quarter of the diameter of a standing tree in the first 16' segment from the tree's base that has no protrusions from the trunk such as limbs, knots or conks. Tr. 131-134 (Porter); Tr. 5531 (Porter).

e.

Cubic foot (cf): A unit of measure, 1' x 1' x 1', used by the Forest Service to quantify the volume of timber sold; commonly 100 cubic feet is written 1 ccf. Tr. 110, 243 (Porter); Tr. 1173 (Devere).

f.

Cutting Unit: A defined sub-set of trees on a contiguous piece of land subject to a Forest Service timber sale contract. Several Cutting Units are aggregated into a Payment Unit. A single timber sale contract will contain multiple Payment Units. See Tr. 226-28 (Porter); PX 170 at JRH-170 (Map of Jersey Horse sale area showing cutting and payment units); Tr. 3802-03, 4521-22 (Harris).

g.

Deck: A pile of logs. DX 838, Smith Deposition, at 25. Logs at Precision Pine's mills are separated into decks according to the contract that was the source of the logs. Tr. 368 (Porter).

h. i.

Dbh: Diameter at breast height. Tr. 111 (Porter). Diameter at breast height: The diameter of a tree outside of the bark at about 4 feet off the ground , i.e., about breast height on a person, used, among other purposes, for estimating the volume of wood in a tree, and categorizing trees into sawtimber or pulpwood/roundwood. Tr. 110-11 (Porter).

j.

Fall, fell, felling: to cut down a tree. Tr. 1724-25 (Reidhead); see, e.g., Tr. 4471-72 (Harris).

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k.

Grade: The quality of a piece of lumber. A term also sometimes used to refer to higher quality lumber. See Tr. 127, 419-20 (Porter); Tr. 4395 (Munn). Lumber products are categorized by quality into "grades." See Tr. 75-78 (Porter). Lumber grades include: i. ii. iii. Moulding: high quality lumber used for ornamental materials such as baseboards, crowns and doors casings. Tr. 76-77 (Porter). Shop: a high to mid-grade lumber product. Tr. 127-28 (Porter). Dimension: a mid to low-grade lumber product designated for structural features such as 2x4 studs, and not for visual or ornamental features. Tr. 76 (Porter).

l.

Grade material: A term used to refer to portions of a tree from which lumber of a relatively high quality can be manufactured. See, e.g., Tr. 420 (Porter); 2897 (Matson).

m.

Grade recovery: The proportion of higher quality lumber produced in comparison to overall lumber produced from a given source. See Tr. 75-78, 122 (Porter); 4183 (Harris).

n.

Graderman: The member of a sawmill's crew specially trained and certified by industry standard-setting organizations to categorize lumber by its quality (i.e., by grade). Tr. 128-131, 429-31 (Porter); 1180 (Devere).

o.

Green lumber (also rough lumber): Lumber that has been cut in a sawmill, but not yet dried or planed for sale. Tr. 74, 79, 361 (Porter.)

p.

Green haul: Transporting green rough lumber from the sawmill that produced it to a kilning and/or planing facility where it can be dried and/or planed into a final product for sale. Tr. 2174-75, 2240, 2271, 2573 (Ness). 3

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q.

High Grading: The removal of the most commercially valuable trees (highgrade trees), often leaving a residual stand composed of trees of poor condition or species composition. Tr. 2912 (Matson).

r.

Kiln: Oven-like facility for drying green lumber into a final product for sale. Tr. 97 (Porter).

s.

Log Scale: A designation for the volume of timber, in mbf, contained in timber or logs. Abbreviated mbf (LS). Tr. 137, 140, 145 (Porter).

t.

Lumber Tally: A designation for the volume of lumber, in mbf, produced by a mill. Abbreviated mbf(LT). Tr. 137, 140, 145 (Porter);

u. v.

Mbf: One thousand board feet. Tr. 110 (Porter); Tr. 2912 (Matson). Mbf (LS): One thousand board feet in Log Scale. See "Log Scale," above. Tr. 110 (Porter).

w.

Mbf (LT): One thousand board feet in Lumber Tally. See "Lumber Tally," above. Tr. 110 (Porter).

x. y.

Mmbf: One million board feet. Tr. 2912 (Matson). Mill Study: A process for accurately calculating the overrun factor for a mill, under which each log entering the mill is individually scaled under the Scribner Decimal C system (defined below) and each board produced by the mill from those logs is individually measured. Tr. 1143 (Devere).

z.

Millwright: Tradesman skilled in building, maintaining and repairing sawmills and sawmill equipment. Tr. 74 (Porter):

aa.

Overrun factor: The ratio between the volume of lumber in mbf (LT) and the volume of the logs in mbf (LS) used to manufacture that lumber. DX 840, 4

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Forest Service Timber Sale Preparation Handbook § 45.23c(9), made effective by WO Amendment 2409.18-90-1, October 31, 1990; Tr. 137, 139-40 (Porter). bb. Payment Unit: A defined portion of a timber sale, which in turn is sub-divided into Cutting Units. Tr. 224-230 (Porter); Tr. 4170, 4510-11, 4521-22 (Harris). cc. Percent of Clear Faces: Data reported by the Forest Service in its appraisal summary for a timber sale contract showing the percent of the sampled trees that had a single clear face (defined above). Tr. 131-34 (Porter). dd. Planer (Planing): Device used to smooth rough lumber into a finished lumber product. (Lumber can occasionally be sold without planing as a "rough" product.) Tr. 357-58 (Porter). ee. Product Mix/Product Percentages: The amount of each individual lumber product produced from certain logs as a percent of the total volume of all lumber products produced from those logs. Tr. 4278 (Munn). ff. Pulp: Separated wood fibers used in manufacturing paper and allied products. Tr. 2913 (Matson). gg. Pulpwood (also Roundwood): Trees between 5" and 9" in diameter at breast height, used primarily as a source for pulp. Tr. 111-12 (Porter). hh. RL or RWL: Abbreviations for "random length" and "random width and length," respectively. Frequently, wholesale lumber is sold only to the specific thickness of the boards in a bundle (see "4/4" and "5/4," below), but the bundle will contain boards of various, i.e., random, widths and/or lengths. For example, an invoice may record the purchase of a certain quantity of lumber described as "5/4 x RWL." This means that the lumber sold consisted of 5

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boards all 1-1/4" thick, but of various widths and lengths. Tr. 1665 (Porter). Alternatively, an invoice might record the purchase of a certain quantity of timber described as "5/4 x 10 x RL." This means the lumber sold consisted of boards 1-1/4" thick, 10" wide but of various lengths. Tr. 2344-45 (Ness). ii. Sawlog/Sawtimber: Logs or trees 9" or greater in diameter and meeting other criteria suitable as a source for sawmills to produce lumber. Tr. 111-12 (Porter); Tr. 2914-15 (Matson). See Tr. 3079 (Lewis). jj. Sawyer: The member of a sawmill crew with particular training and skill in operating the mill's saws efficiently to produce the best overall grade recovery. Tr. 358-361 (Porter); Tr. 2915 (Matson). kk. Saw Kerf: The portion of a log lost to grindings (sawdust) from the width of the saw. As technology improved, saws grew narrower, reducing kerf. Tr. 1144 (Devere). ll. Scaling: The measurement or estimation of the quantity or quality of felled timber. The person who conducts scaling is a Scaler. Tr. 2915-16 (Matson). mm. Scribner rule/Scribner decimal C log rule: The Scribner rule is a method for estimating, in board feet, the amount of lumber that will be recovered from a tree or log. Tr. 140 (Porter); Tr. 1142-43 (Devere). The Scribner rule assumes 1" boards, 1/4" kerf, is measured based on diameter at the small end of the log, disregards taper, and does not provide for overrun. The Scribner rule underestimates lumber yield especially on small diameter logs and on long logs with taper. Tr. 2917 (Matson); Tr. 139-145 (Porter explaining taper & overrun using PX 1001); see "overrun factor," above. The Scribner decimal C log rule 6

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is then a modification of the Scribner rule in which board foot volume is rounded to the closest 10 bd bf, and then the last digit is dropped. Tr. 2916 (Matson). The Forest Service traditionally estimated the volume of timber sold based on the Scribner decimal C log rule, changing in the early 90's to using ccf as its unit of measure. Tr. 243-44 (Porter). nn. Skidding: Dragging felled trees or logs to an area where they can be loaded onto trucks for shipment to a sawmill. See Tr. 1724-25 (Reidhead). oo. Slab: The rounded side of a log first cut off to square the log in preparation for further processing. Tr. 1168 (Devere). A well-trained sawmill crew can recover merchantable lumber from slab, increasing the mill's overrun factor and product mix (grade recovery). Tr. 1180-81 (Devere); see Tr. 2912 (Matson) (definition of "board feet", supra); Tr. 140-145 (Porter) (using PX 1001 to describe overrun). pp. Stumpage: The amount, generally quantified in $/mbf(LS) or $/ccf, that a timber purchaser pays the Forest Service for the right to cut and remove standing timber from Forest Service land, i.e., stumpage is the purchase price paid the Forest Service for logs. Tr. 113 (Porter). qq. rr. T.E.A.: Transaction Evidence Appraisal (see below). Transaction Evidence Appraisal: A system by which the Forest Service appraises the value of a timber on a sale based on the weighted average selling price of all timber sale contracts in the Region in the preceding four fiscal quarters, adjusted based on how factors such as anticipated hauling distance, slash disposal costs, road maintenance cost and tree quality compared between 7

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the sale being appraised and the regional weighted average for each of those factors. Tr. 3759, 3762, 4183-89 (Harris). ss. TSSA (Timber Sale Statement of Account): Document normally issued each month by the Forest Service to a timber sale purchaser reflecting activity and charges under the contract, including a statement of the volume harvested that month and the total volume harvested for the life of that contract to that point in time. Tr. 237-38 (Porter). The TSSAs are numbered sequentially for each contract, and so instances where the Forest Service stopped issuing the TSSA for a specific sale on a monthly basis (because activity on that sale temporarily ceased) can be identified by noting the TSSA's numbers. See PX 290 (compilation of TSSAs). tt. WWPA: Trade organization for the forest products industry in the Western United States, which, among other activities, sets and enforces lumber product grading standards by certifying gradermen (defined above) and inspecting member's facilities. Tr. 128-29 (Porter); Tr. 1180-82 (Devere). uu. 4/4 ("four quarter"): A measure of the thickness of a board equal to one inch (i.e., four quarter inches). See, e.g., Tr. 456-57 (Porter). vv. 5/4 ("five quarter"): A measure of thickness of a board equal to 1-1/4" (i.e., five quarter inches). Tr. 167 (Porter). Similarly, 6/4 would be "six quarter" or 1½". See id.

2.

Plaintiff, Precision Pine & Timber, Inc. ("Precision Pine"), was founded in 1984 in

Heber, Arizona by Lon Porter, Lewis Tenney and Danny Peterson to make precision lumber 8

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products from timber grown in northeastern Arizona. Joint Stipulation of Fact (March 11, 2005); Tr. 2927-28 (Tenney); Tr. 72, 84-85 (Porter). Since its inception, Mr. Porter has served as president of the company. Tr. 71-72, 84-85 (Porter).

3.

Mr. Porter has with extensive experience with Ponderosa Pine timber and sawmills in the

southwest. Mr. Porter's father was the owner/operator of a sawmill and was engaged in obtaining timber for the production and sale of lumber products in Northern Arizona and New Mexico, and from a very young age, Mr. Porter participated in the family business of assessing and acquiring standing timber, all facets of sawmill operations as well as the production and sale of lumber products. Tr. 72-75, 78-79 (Porter).

4.

Totaled, Mr. Porter has more than 29 years of employment experience in ponderosa

lumber manufacturing, including approximately 20 years of experience buying standing timber. See Tr. 72-75, 78-79, 84-85 (Porter stating that he was in charge of procurement for Precision Pine since it foundation in 1984).

5.

Heber is located in a rural area of northeastern Arizona, on the Mogollon Rim, in the

heart of a swath of virtually unbroken Ponderosa Pine forest that extends in an arc from nearly the Arizona-Nevada boundary into New Mexico. Joint Stipulation of Fact (March 11, 2005); Tr. 79-81, 85-86 (Porter); see also PX 104 (map of Arizona, Heber Sawmill indicated by red dot; Forest Service land indicated by green shading).

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6.

Approximately 83% of the land in Arizona is owned by the Federal or State government,

and/or designated as Indian reservation, and virtually all of the forested land that produces sawlogs in Arizona is government-owned. Tr. 82-83 (Porter); see also PX 104 (map of Arizona, Federal, State and Indian lands indicated by shading); Tr. 3418 (Neuberger).

7.

At all times relevant to this case, Precision Pine's sawmills, as well as all other non-

Indian-owned sawmills in Northern Arizona, were substantially dependant upon the Forest Service's commercial timber sale program for their supply of raw material, i.e., logs for their sawmills. Tr. 82-83; 214-15; 223 (Porter); see also Tr. 2194 (Ness) (stating that when the Forest Service suspended the contacts, Precision Pine had "no other place to go and buy" timber). Specifically, more than 75% of Precision Pine's supply of raw material historically came from the Forest Service's timber sale program on National Forests in northeast Arizona, particularly the Tonto, Coconino, Apache-Sitgreaves and Kaibab National Forests. Tr. 94-5 (Porter).

8.

In each and every year from its inception in 1984 until 1995, Precision Pine bid on and

was awarded contracts by the Forest Service for the harvesting of timber, harvested timber pursuant to those contracts, paid the Forest Service for the timber removed, manufactured that timber into lumber and by-products and sold the lumber and by-products at a profit. Indeed, prior to the suspension, Precision Pine was consistently profitable. Tr. 365-66, 631-32, 643 (Porter); Tr. 3418-19 (Neuberger); see also Tr. 2193-94 (Ness).

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9.

As a result of manufacturing of logs into lumber, Precision Pine also produced the

following by-products: (i) bark; (ii) chips; (iii) shavings; and (iv) grindings. Joint Stipulation of Fact (March 11, 2005).

10.

As of August 25, 1995, Precision Pine was operating sawmills strategically located in (1)

Heber, Arizona, (2) Eagar, Arizona, and (3) Winslow, Arizona. Tr. 86-87, 1074 (Porter); Joint Stipulation of Fact (March 11, 2005); see also PX 104 (red dot indicating Heber mill, blue dot indicating Eager mill and yellow dot indicating Winslow mill).

11.

The Heber sawmill, constructed in 1984, drew its timber supply primarily from the Tonto

National Forest and the western (Sitgreaves) side of the Apache-Sitgreaves National Forest. Joint Stipulation of Fact (March 11, 2005); Tr. 85-88; see also PX 104 (red dot indicating Heber mill, and the Tonto and the Sitgreaves portion of the Apache-Sitgreaves National Forests outlined and labeled "T" and "S", respectively). The Heber sawmill had the capacity to produce approximately 9 to 10 million board feet of lumber per year when operating one eight-hour shift per day. Tr. 94 (Porter).

12.

Precision Pine obtained its Winslow facility from Duke City Lumber Company in 1991.

Joint Stipulation of Fact (March 11, 2005). The Winslow sawmill drew its timber supply primarily from the Coconino and Kaibab National Forests. Tr. 88-89 (Porter); see also PX 104 (yellow dot indicating Winslow mill, and the Coconino and Kaibab National Forests outlined and labeled "C" and "K", respectively). The Winslow sawmill had the capacity to produce

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approximately 14 to 15 million board feet of lumber per year on a one shift basis. Tr. 94 (Porter).

13.

As of August 25, 1995, the Winslow facility also contained a planer mill and kilns, where

rough green lumber from all of Precision Pine's sawmills was surfaced and dried. Tr. 89-90 (Porter). The Winslow planer and kilns had an annual capacity well in excess of the combined annual output of Precision Pine's sawmills. Stipulation of Fact (March 11, 2005); Tr. 96-97 (Porter).

14.

The Winslow sawmill was severely damaged by fire and as a result closed on September

17, 1998, and the Winslow planer was closed in or about September 1999. Joint Stipulation of Fact (March 11, 2005).

15.

During 1993, Precision Pine constructed a sawmill in Eagar, Arizona; completing it in or

about October 1993. Joint Stipulation of Fact (March 11, 2005). The Eagar sawmill drew on the supply of timber sold by the Forest Service on the eastern (i.e., Apache) side of the ApacheSitgreaves National Forest. Tr. 87 (Porter); see also PX 104 (Blue dot indicating Eager mill, and the Apache portion of the Apache-Sitgreaves National Forests outline and labeled "A"). Prior to the suspension, the Eager mill had a capacity of 9-10 million board feet per year on a one shift basis, but Precision was at the time of the suspension expanding its capacity by 15 or 20 percent, to approximately 11 million board feet of lumber per year on a one shift basis. Tr. 94 (Porter).

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16.

Precision Pine was the high bidder on the O.D. Ridge timber sale contract, the U-Bar

timber sale contract, the Jersey Horse timber sale contract, the Salt multi-product sale contract, the Hutch-Boondock multi-product sale contract, the Saginaw-Kennedy multi-product sale contract, the Mud multi-product sale contract, the Monument multi-product sale contract, the Brann multi-product sale contract, the Manaco multi-product sale contract, the Brookbank multiproduct sale contract and the Kettle multi-product sale contract. Precision Pine was awarded these sales on the following dates: Contract Jersey Horse O.D. Ridge Brookbank Kettle U-Bar Mud Monument Salt Manaco Saginaw-Kennedy Brann Hutch-Boondock Joint Stipulation of Fact (March 11, 2005). Award Date 12/13/1993 8/14/1992 4/13/1995 7/20/1995 10/5/1992 9/14/1994 9/28/1994 2/28/1994 1/17/1995 9/29/1994 9/29/1994 6/29/1994

17.

The Hay timber sale contract originally was awarded to Reidhead Lumber Company, Inc.

on January 17, 1990, and then transferred to Precision Pine by contract modification on June 24, 1991. Joint Stipulation of Fact (March 11, 2005).

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18.

The St. Joe timber sale contract was originally awarded to Grand Canyon Forest

Industries on April 14, 1992. It was assigned to Precision Pine by Grand Canyon Forest Industries on October 16, 1992. Joint Stipulation of Fact (March 11, 2005).

19.

The price index applicable to the escalation and de-escalation of stumpage prices for

eight of the contracts at issue that is the Western Wood Products Association (WWPA), Inland Rocky Mountain Ponderosa Pine index. Joint Stipulation of Fact (March 11, 2005). 20. On August 24, 1995, the United States District Court for the District of Arizona entered

an order in Silver v. Babbitt, 924 F. Supp. 976 (D. Ariz. 1995), enjoining all timber harvesting on United States Forest Service timber sales in Forest Service Region 3. Forest Service Region 3 principally encompasses the states of Arizona and New Mexico. Joint Stipulation of Fact (March 11, 2005).

21.

On August 25, 1995, following entry of the court order, the Forest Service suspended

operations on the Hay, St. Joe, O.D. Ridge, U-Bar, Jersey Horse, Salt, Hutch-Boondock, Saginaw-Kennedy, Mud, Monument, Brann, Manaco, Brookbank and Kettle contracts. Joint Stipulation of Fact (March 11, 2005), i.e., the Forest Service suspended operations an all of Precision Pine's Forest Service sales including Campbell and Barber (which are not part of this litigation). Tr. 2933-38 (Tenney). The suspension for the Hay, O.D. Ridge, U-Bar, Jersey Horse, Salt, Saginaw-Kennedy, Monument, Manaco, Brookbank and Kettle contracts lasted until December 4, 1996, Joint Stipulation of Fact (March 11, 2005), a total of 466 days.

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22.

At the time of the suspension, the remaining volume of Ponderosa Pine timber remaining

on 11 breached contracts for which lost profit damages are sought was: Sale Monument Mud Saginaw-Kennedy U-Bar Brookbank Jersey Horse Manaco Salt Hay Kettle O D Ridge Sawlogs 1461 6199 2268 3194.12 2711.29 3040 5006 4460 3819.22 5702 2626 Roundwood 1100 ccf 4060 ccf 1658 ccf N/A 5346.8 ccf N/A 1348 ccf 1835 ccf N/A 3958 ccf N/A Topwood N/A N/A N/A 48 cords N/A N/A N/A N/A N/A N/A N/A

ccf ccf ccf mbf ccf ccf ccf ccf mbf ccf mbf

Third Joint Stipulation of Facts (June 3, 2005); PX 320. The remaining volume of timber other than Ponderosa Pine timber was: Sale Name U-Bar Hay O.D. Ridge O.D. Ridge PX 131 at Ex. 9. Specie Douglas-fir Douglas-fir Douglas-fir Englemann Spruce 1,361 257.55 441 264 Sawlogs mbf mbf mbf mbf

23.

Using a conversion factor of 2 ccf per mbf (LS) for the above volumes listed in ccf (see

Tr. 244-45 (Porter)), at the time of the suspension the total remaining sawtimber volume on the 11 breached sales for which lost profit damages are sought was:

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Volume remaining on the 11 breached sales as of August 25, 1995 Sale Monument Mud Saginaw-Kennedy U-Bar Brookbank Jersey Horse Manaco Salt Hay Kettle O D Ridge Sawlog volume in units listed in contract 1461 ccf 6199 ccf 2268 ccf 3194.12 mbf 2711.29 ccf 3040 ccf 5006 ccf 4460 ccf 3819.22 mbf 5702 ccf 2626 mbf TOTAL: See PX 1013.1 Sawlog volume in mbf (LS) 730.50 3099.50 1134.00 3194.12 1355.65 1520.00 2503.00 2230.00 3819.22 2851.00 2626.00 25,062.99 mbf (LS)

24.

In this action, among other things, Precision Pine seeks to recover the profits that it lost

by not being able to harvest the timber on these sales as it anticipated between August 25, 1995 and December 4, 1996 and manufacturing and selling the lumber there from between August 25, 1995 and April 15, 1997 (a period covering the suspension and the ensuing winter).

25.

The remaining volume of sawlogs on the 11 breached contracts for which Precision Pine

is seeking lost profits represents an approximately 10.5 month supply of sawlogs for Precision Pine's sawmills. Tr. 344, 664 (Porter). In Precision Pine's damage calculations it had found the remaining volume of sawlogs on the 11sales to be only 24,943.79 mbf (LS). See PX 131, App. A at 4. This was 119.2 mbf (LS) less than resulted from the stipulation entered into by the parties during trial. 16
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26.

On October 18, 1995, the Forest Service entered into a stipulation with the plaintiffs in

Silver v. Babbitt, which was subsequently approved by the Court, and which allowed certain sales to be released from the injunction. Joint Stipulation of Fact (March 11, 2005).

27.

On December 4, 1996, the Arizona District Court found that the Forest Service had

completed consultation on its Forest Plans under the Endangered Species Act and dissolved the injunction. As a result, the Forest Service lifted the suspension of the Brookbank, Hay, Jersey Horse, Kettle, Manaco, Monument, O.D. Ridge, Saginaw-Kennedy, Salt and U-Bar contracts. Joint Stipulation of Fact (March 11, 2005). The total length of the suspension of these sales was 466 days.

28.

In 1997, Precision Pine submitted claims under the Contract Disputes Act ("CDA") for

breach of contract with respect to 14 of its Forest Service timber sale contracts that had been suspended beginning on August 25, 1995 and seeking, among other things, lost profits. See PX 194, 196, 198, 200, 202, 204, 206, 208, 210, 212, 214, 216, 218, 220.

29.

In the final decisions on Precision Pine's claims, the government denied liability for the

breach of contract as well as for Precision Pine's lost profit claim. See PX 195, 197, 199, 201, 203, 205, 207, 209, 211, 213, 215, 217, 219, 221. Pursuant to contract clause C(T)6.01, the Forest Service did pay Precision Pine a total of $18,242.78 in out-of-pocket expenses for the protracted suspension of 14 contracts. Precision Pine & Timber, Inc. v. United States, 50 Fed. Cl. 35, 52 (2001).

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30.

Precision Pine brought suit in this Court, appealing the Contracting Officers' final

decisions. This Court's finding at summary judgment was that the Forest Service had, in fact, breached 12 of the 14 timber sale contracts that were suspended. Precision Pine & Timber, Inc. v. United States, 50 Fed. Cl. 35, 73-74 (2001) (finding a breach of duty not to hinder for 11 contracts, and the breach of duty not to cooperate for six of those 11 (plus an additional contract), for a total of 12 breached contracts).

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COMPOSITION OF PRECISION PINE'S CLAIMS 31. Precision Pine hired Robert Ness, CPA, as an independent expert to conduct a review,

analysis and, as necessary, recalculation of Precision Pine's damages in this case. Tr. 2163-64 (Ness).

32.

Mr. Ness is currently, and was from the time Precision Pine engaged him to do his

analysis, also employed as the Controller for Sundance Lumber Company in Springfield, Oregon, a lumber manufacturer. Tr. 2151-52 (Ness).

33.

Mr. Ness graduated near the top of his class from Oregon State University in 1977 with a

Bachelor of Science Degree in Business Administration, concentrating on Accounting and Finance, as well as minors in Computer Science and Applied Mathematics. Tr. 2152-53 (Ness); PX 56 (Mr. Ness' Curriculum Vitae).

34.

A year after graduation, Mr. Ness went to work for the "Big Eight" accounting firm of

Coopers & Lybrand in Eugene, Oregon, and remained there until 1982. He began as an auditor and eventually moved into business consulting, completing special engagements such as analyzing cash flow models, conducting performance evaluations and verifying internal controls. During his tenure at Coopers & Lybrand, Mr. Ness worked for a variety of clients, including some in the forest products industry such as lumber manufacturers, particle board plants, and timber operations. Tr. 2153-54 (Ness); PX 56.

35.

Mr. Ness earned his Certified Public Accounting accreditation in 1981. PX 56. 19

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36.

In 1982, Mr. Ness left Cooper & Lybrand to work within companies as a Chief Financial

Officer and/or Controller. Tr. 2154-55 (Ness). From that point to the present, Mr. Ness has, with one exception when he worked for the international clothier, Levi Strauss & Co., been the highest-ranking financial manager for every firm at which he worked. Tr. 2158 (Ness). During his 23 years in industry, Mr. Ness has spent seven to eight years working specifically in the forest products industry, including his current position at Sundance Lumber Company. Tr. 2155 (Ness). In addition, in his college years, Mr. Ness worked as a laborer in sawmills during vacations, learning their operations first hand. Tr. 2168 (Ness). In his professional career, Mr. Ness, among other achievements, helped shepherd a construction firm through a period of significant growth, making their books auditable for the first time. Tr. 2156-57 (Ness). Indeed, Mr. Ness has centered his career on guiding growing or struggling companies through periods of change. Tr. 2155; 2160 (Ness).

37.

Mr. Ness has served as an expert witness, fact witness and/or company representative on

behalf of his employer or one of his former employers with respect to damages computations in litigation on four prior occasions. Tr. 2160-63 (Ness).

38.

Mr. Ness is an expert in the area of accounting for forest products companies. Tr. 2171

(Court).

39.

After reviewing and analyzing Precision Pine's damages claim, Mr. Ness agreed with the

overall approach that Precision Pine had taken in calculating its damages. However, Mr. Ness had a number of disagreements with particular calculations made by Precision Pine, and reduced 20

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the claim from Precision Pine's original estimate by about $1.252 million. Tr. 2173, 2190 (Ness).

40.

Precision Pine's damages claim is divided into the following categories: a. Gross profits that Precision Pine would have earned, but for the Forest Service's breach, from harvesting the remaining timber on the breached contracts, then processing that timber into lumber and by-products at its mills, and selling that lumber and those by-products on the open market. b. Increased costs arising from manufacturing inefficiencies that resulted directly from the Forest Service's breach of contract and severe restriction of the volume of timber available for Precision Pine's sawmills during the suspension. c. Other extra costs that Precision Pine incurred as a direct result of the Forest Service's breach of contract.

Tr. 2190 (Ness).

Increased Hauling Costs From The Hay Timber Sale 41. Precision Pine seeks to recover its increased hauling costs on the Hay timber sale

contract. Tr. 2208 (Ness); see PX 318 (a revision to the spreadsheet that was originally included as Exhibit 3 to Mr. Ness's report, PX 131, and containing Mr. Ness's calculations for this item);2 see also Tr. 2210-16 (explanation of what prompted the revised calculations).

As Mr. Ness testified, due to adjustments in the volume of timber actually transported to Winslow and Heber, Ex. 3 of his original report needed to be revised. Tr. 2211 (Ness); see PX 1006. 21

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42.

The severe reduction in volume of logs available to Precision Pine as a result of the

Forest Service's suspension and breach of Precision Pine's contracts caused Precision Pine to suspend operations at its mill in Eagar on December 1, 1995, and to keep it closed throughout the suspension period. Tr. 2209 (Ness); Tr. 725-26, 729 (Porter); PX 262; PX 116; PX 163 (Summary of mill shutdowns). In fact, due to the shortage of sawlogs caused by the protracted suspension, on or about June 19, 1996, Precision Pine consolidated its manufacturing operations at its Winslow facility. Tr. 720 (Porter).

43.

Immediately after the suspension was lifted in December of 1996, Precision Pine sought

the Forest Service's permission to begin harvesting on the Hay timber sale outside of the Normal Operating Season. Tr. 719 (Porter); PX 262.

44.

The Hay sale, unlike most sales, was located at an elevation that allowed for a very high

likelihood of extended winter logging. Tr. 719-20 (Porter); PX 262.

45.

At that time the suspension was lifted, the Eagar sawmill was not due to the log shortage

caused by the suspension. Accordingly, Precision Pine also sought and obtained Forest Service permission to haul sawlogs removed from the Hay sale to its Winslow sawmill which, due to the suspension, was also in need of logs. Tr. 750-52 (Porter); PX 257; PX 258.

46.

In February 1997, Precision Pine reopened the Eagar sawmill, and logs from the Hay sale

were again hauled to Eagar. Tr. 753 (Porter).

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47.

Precision Pine operated the Eagar sawmill in February and March of 1997 and from May

through July of 1997, Tr.746-47 (Porter); PX 163; PX 20 (Eagar production ledger), at which time it was permanently closed in the wake of continuing logs shortages caused by yet another injunction entered against the Forest Service, i.e., the "Forest Guardians" suspension in June 1997, Tr. 743-4, 1268-9 (Porter), which, among other things, caused Hay to be suspended from June 4, 1997 to mid-December 1997. Tr. 983 (Porter); PX 119.

48.

During December 1996 and January 1997, when the Eagar sawmill was still closed,

Precision Pine hauled logs from the Hay sale to the Winslow sawmill, which was considerably further away from the Hay sale than was the Eagar sawmill. Tr. 2209 (Ness); Tr. 720-22 (Porter); PX 260; see also PX 104 (Map of Arizona, indicating the location of the Hay sale by a handwritten "H" near the blue dot indicating the Eagar sawmill, and indicating the Winslow sawmill by a yellow dot).

49.

Hauling the sawlogs from the Hay sale to the Winslow sawmill instead of the Eagar

sawmill entailed an additional 272 miles in roundtrip hauling. Tr. at 756 (Porter); Tr. 2209 (Ness); see also PX 104 (Map of Arizona, indicating the location of the Hay sale by a handwritten "H" near the blue dot indicating the Eagar mill, and indicating the Winslow mills by a yellow dot).

50.

Mr. Porter and Mr. Reidhead agreed the cost for hauling the logs from the Hay sale

would $1.10 per mile. Tr. 756 (Porter); Tr. 1728 (Reidhead).

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51.

During December 1996 and January 1997, Precision Pine removed 1070 mbf (LS) of

sawlogs from the Hay timber sale. PX 290, Vol. I Hay Sale. All of this sawlog volume was hauled to the Winslow sawmill. Tr. 794 (Porter).

52.

Mr. Ness calculated the increased haul cost by multiplying the increased mileage of the

haul (272 miles) by the haul rate of $1.10 per mile, and then dividing the product by the average volume of timber hauled in one load (4 mbf (LS) per load). Tr. 2209-10, 2239-41 (Ness); PX 318. The result is the increased cost per mbf (LS) of hauling logs to Winslow -- $74.80 per mbf (LS). PX 318. To determine the total increased cost of hauling to Winslow, Mr. Ness then multiplied the volume hauled from the Hay sale to Winslow in December 1996 and January 1997 (1,070 mbf (LS)) by the average increase in haul cost, i.e., $74.80/mbf (LS). Tr. 2209-10 (Ness); PX 318. The total of damages incurred by Precision Pine due to the increased cost of hauling sawlogs from Hay to Winslow in 1996 and 1997 was $80,036. Id.

53.

Mr. Ness then reduced this total by $33,437.50 which is the cost that Precision Pine saved

by not having to incur the $25 per mbf (LT) cost to haul green lumber produced from Hay from the Eagar mill to the Winslow facility for planing and drying. Tr. at 2213, 2240 (Ness), PX 318. The difference represents the net increase that Precision Pine incurred as a result of the Forest Service's breach for hauling sawlogs from the Hay timber sale to Winslow.3

This amounts to a net of $46,598.50. Adding the 7.6% overhead and 10% profit markup that Mr. Ness determined to be appropriate for all increased hauling costs to this amount yields a total of $55,153.98 for the increased hauling costs incurred in December 1996 and January 1997. Tr. 2210-11 (Ness). 24

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54.

Mr. Ness repeated the above process with regard to sawlogs that in 1998 Precision Pine

was forced to haul to Heber because Eagar had been permanently closed. Tr. 2208-10 (Ness).

55.

After the Forest Guardians suspension of Hay had been lifted in December of 1997 and

Precision Pine recommenced harvesting the Hay sale in late 1998, Precision Pine was forced to haul the timber from Hay to its sawmill at Heber because at that time the Eagar sawmill had been permanently closed and the Winslow sawmill has suffered a catastrophic fire and was also permanently closed. Tr. 620, 763 (Porter).

56.

During 1998, Precision Pine removed 1,662 mbf (LS) of sawlogs from the Hay timber

sale. PX 290, Vol. I, Hay Sale. All of this sawlog volume was hauled to Precision Pine's Heber sawmill. Tr. 853 (Porter).

57.

Hauling the sawlogs from the Hay sale to the Heber sawmill instead of the Eagar sawmill

entailed an additional 190 miles in roundtrip hauling. Tr. 780 (Porter); see also PX 104 (Map of Arizona, indicating the location of the Hay sale by a handwritten "H" near the blue dot indicating the Eagar mill, and indicating the Heber mill by a red dot).

58.

Mr. Ness again calculated the increased haul cost by multiplying the increased mileage of

the haul by the haul rate of $1.10 per mile, and then dividing the product by the average volume of timber hauled in one load (4 mbf (LS) per load). Tr. 2209-10 (Ness); PX 318. The result is the increased cost per mbf of hauling logs to Heber -- $52.25 per mbf (LS). PX 318. To determine the increased cost of haul, Mr. Ness then multiplied the volume of timber hauled from 25

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the Hay sale to Heber in 1998 (1,662 mbf (LS)) by the $52.25. Tr. 2239-41 (Ness); PX 318. The total amount of damage incurred by Precision Pine due to the increased cost of hauling sawlogs from Hay to Heber in 1998 was $80,036. Id.

59.

Mr. Ness then reduced this total by $14,542.50 which is the $7 per mbf (LT) that

Precision Pine saved by only having to haul green lumber produced from Hay from the Heber sawmill rather than the more distant Eagar sawmill to the Winslow facility for planing and drying. Tr. at 2213, 2240 (Ness); PX 318. The difference represents the net increase that Precision Pine incurred as a result of the breach in hauling sawlogs from the Hay timber sale to Winslow.4

60.

The total net increase in costs incurred by Precision Pine for hauling sawlogs from the

Hay sale to Winslow and Heber rather than to Eagar was $118,895.50, to which Mr. Ness then added 7.6% overhead and 10% profit, producing total damages for increased hauling costs of $140,724.72. Tr. 2240-41 (Ness); PX 318.

61.

Mr. Ness calculated the general and administrative overhead rate of 7.6% by adding all of

Precision Pine's general and administrative overhead costs for the year prior to the suspension, and then determining the percent that the general and administrative overhead costs were of all costs, including logging & manufacturing costs. PX 131, Ex. 8; Tr. 2198-99 (Ness).

This amounts to $72,297. Adding the 7.6% overhead and 10% profit markup that Mr. Ness determined to be appropriate for all increased hauling coats to this amount yields a total of $85,570.14 for the increased hauling costs incurred by Precision Pine in 1998. Tr. 2210-11 (Ness). 26

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Lost Market Opportunity (Lumber & By-Products) 62. The next (and by far the largest) item of damages is Precision Pine's lost market

opportunity, i.e., its lost gross profits for the lumber and by-products that but for the Forest Service's breach Precision Pine would have produced and sold from the timber that it would have harvested on the breached sales during the suspension period. Tr. 2217-18 (Ness); PX 131, Ex. 1, item 3.

63.

Mr. Ness' general approach to calculating lost profits for lumber and by-products was to

determine "what would have changed" between what Precision Pine actually did during the period of the suspension and ensuing winter, and what Precision Pine would have done absent the Forest Service's breach. Tr. 2218-19 (Ness).

64.

In broad terms, to calculate lost profits, Mr. Ness determined the gross profits before

manufacturing overhead that Precision Pine would have generated from producing and selling lumber and by-products from the timber on the breached sales that, absent the breach, Precision Pine would have harvested between August 25, 1995 and December 4, 1996. To do so, he calculated what Precision Pine's total revenue would been for lumber and by-products produced from the timber remaining on the breached sales, and then deducted the various direct manufacturing costs Precision Pine would also have incurred had it harvested that timber and produced lumber and by-products from it. Tr. 2218-19 (Ness).

65.

Specifically, after Mr. Ness first calculated total revenue (by determining what products

Precision Pine would have produced and at what prices Precision Pine would have sold those 27

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products) in order to calculate what Precision Pine's gross profits before manufacturing overhead would have been from the breached sales, he then deducted the following cost items from total revenue: direct manufacturing costs (including stumpage for the timber itself); logging and hauling costs; severance tax; sawmill (i.e., direct manufacturing) costs; green lumber hauling costs; dry kiln and planer costs; and

Tr. 2220 (Ness).5

66.

In Mr. Ness' expert accounting opinion, gross profits before manufacturing overhead is

the appropriate measure of damages in this case. Tr. 2218, 2755 (Ness). Taking into account operating as well as general & administrative overhead is not appropriate here, because those items remain static whether or not a suspension occurs. Tr. 2755-56 (Ness). In other words, to calculate what "would have changed" between the scenario that Precision Pine faced because of the breach and the scenario that Precision Pine would have faced absent the breach, Mr. Ness did not need to factor in these static costs. Tr. 2756-57 (Ness). Taking into account other sources of income or loss after operating income is also not appropriate, because those type of income or losses do not reflect timber operations. Tr. 2222 (Ness). Deducting manufacturing overhead (e.g., property taxes, general insurance, supervisor wages, repairs and maintenance, etc.) then determines what Precision Pine's gross profit would have been. Tr. 2220 (Ness). Subtracting general & administrative overhead (officer salaries, sales expenses, accounting department payroll taxes, workman's comp, group medical insurance, etc.) from gross profit then yields operating income. Tr. 2221-22 (Ness). Finally, deducting from operating income other items such as interest income, interest expenses, gains & losses, and gains & losses from subsidiaries, yields net income before taxes, otherwise termed "net income." Tr. 2222 (Ness); see also PX 1011 (demonstrating this testimony). 28
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Milling Schedule 67. To calculate gross profits before manufacturing overhead, Mr. Ness had to determine

what Precision Pine would have produced from the timber it would have harvested but for the suspension. Tr. 2244 (Ness).

68.

In determining what Precision Pine would have produced but for the suspension, Mr.

Ness assumed that Precision Pine would have operated its mills at or near capacity during the suspension, based on the fact that running at or near capacity: (1) was what Precision Pine has always done, (2) allows a sawmill to achieve the highest level of profit possible, and (3) was confirmed by Mr. Porter as Precision Pine's goal. Tr. 2283 (Ness).

69.

Mr. Ness then determined that total anticipated production for all three mills for the 19¾

months of the suspension plus the ensuring winter, i.e., from August 25, 1995 to April 15, 1997, was 57.134 mmbf (LT) (57,134 mbf (LT)). Mr. Ness then calculated the annual capacity that the 57.134 mmbf (LT) over 19¾ months represented, by deriving a monthly rate, i.e., by dividing the total capacity by the number of months in the suspension and then multiplying by 12. He found annual capacity/anticipated rate of production to be 34.7 mmbf (LT) (34,714 mbf (LT)). Tr. 2284 (Ness).

70.

Mr. Ness verified (i.e., performed a "reality check" on) his determined annual capacity/

anticipated rate of production of 34.7 mmbf (LT) by reviewing Precision Pine's actual production records in the two fiscal years prior to the suspension. For the fiscal years ending ("FYE") March 31, 1994 and March 31, 1995, Mr. Ness found that Precision Pine had produced 29

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slightly over 30 mmbf each year. (The exact figures were 30,088,892 bf in FYE 3/31/94 and 30,197,841 bf in FYE 3/31/95.) Tr. 2320 (Ness). As of August, 1995, Precision Pine was in the process of making several improvements to its sawmills to increase capacity. PPFF 15. Accordingly, Precision Pine could have achieved annual capacity of 34.7 mmbf during the suspension period but for the Forest Service's breach. Tr. 2285 (Ness). As an additional verification, Mr. Ness confirmed with Mr. Porter that Precision Pine could have produced lumber at this rate. Tr. 2284 (Ness).

71.

After calculating production capacity, Mr. Ness had to determine the volume of timber

remaining on the breached sales for which Precision Pine is claiming lost profits at the time of the breach. Mr. Ness' understanding of this volume is set forth at Exhibit 9 of his report, and shows total volumes remaining as: - Ponderosa Pine: - Douglas Fir: - Spruce: TOTAL: 22,620 mbf (LS) 2,060 mbf (LS) 264 mbf (LS) 24,944 mbf (LS)

Tr. 2244-45 (Ness); PX 131, Ex. 9; but see PX 1013 (showing a total of 25,062 mbf (LS) remaining volume based on the Third Joint Stipulation of Facts, and assuming a ccf-mbf conversion factor of 2 to 1).

72.

After determining the total volume of sawtimber remaining on the 11 breached sales at

the time of the suspension, Mr. Ness then had to determine in which fiscal quarters those volumes would have been processed into lumber. To do so, he started with the harvest

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projection prepared by Mr. Porter (see PX 131, App. A at 4, column headed "Previous").6 In verifying Precision Pine's harvest projection, Mr. Ness found several discrepancies and asked Precision Pine to resolve them, which it did. Mr. Ness then distributed any adjustments in the volume remaining pro rata across each quarter in which harvest took place and then verified with Mr. Porter that Precision Pine could have harvested the slightly increased volumes. Tr. 2434-5. Precision Pine's revised remaining volume calculations are recorded in Mr. Ness' report (PX 131) at Ex. 9 in the column headed "Revised." Tr. 2244-45 (Ness).

73.

The slightly adjusted harvest schedule upon which Mr. Ness' report is based did not

change Mr. Porter's original projection of the quarter in which harvesting of the breached sales would have taken place had there been no suspension. Tr. 2245 (Ness). Compare PX 131 at App. A, p. 4 with PX 131, Ex. 9.

74.

Mr. Ness then had to determine when Precision Pine had sawmill capacity available to

process this timber, assuming total capacity based on a one-shift basis. The per-sawmill capacity/anticipated production (verified with Mr. Porter) for each sawmill is set forth in left hand column of p. 4 of Exhibit 7 to Mr. Ness' report (PX 131). Tr. 2246 (Ness).

75.

To do so, Mr. Ness determined how much lumber Precision Pine actually produced

under the constraints of the suspension and breach. In this regard, Precision Pine provided Mr. Ness with monthly production figures by mill. See PX 131, Ex. 7 at 4 (columns headed "Actual Production"); Tr. 2247 (Ness).
6

See PPFF 245 infra. 31

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76.

Mr. Ness grouped the actual lumber production data by quarter and set forth that data in

the first two rows on pages 1, 2 and 3 of Exhibit 7 of his report (PX 131) for the Winslow, Heber and Eagar sawmills, respectively.

77.

To determine the available capacity at a given sawmill in a given quarter, Mr. Ness

subtracted the actual production of lumber for the quarter from the anticipated production of lumber for the quarter and then converted the result into a sawlog volume by dividing it by 1.25. Tr. 2247-49 (Ness). a. E.g., for the 3rd quarter of 1995 Winslow's anticipated production capacity was 1.194 mmbf (LT) (1,194 mbf (LT)), but actual production was only 1.089 mmbf (LT) (1,089 mbf (LT)), meaning that Winslow could have produced 104 mbf (LT) more lumber in that quarter in the absence of the suspension and breach. Tr. 2247 (Ness); see PX 131, Ex. 7 at 1. b. To convert lost production in lumber tally into excess capacity in log scale, Mr. Ness divided by an overrun factor of 1.25. So, for example, the 104.57 mbf (LT) lost production for Winslow in the 3rd quarter of 1995 coverts to 83.66 mbf (LS) excess capacity. Tr. 2248 (Ness); PX 131, Ex. 7 at 1.

78.

Mr. Ness used the same approach to determine excess capacity, by sawmill, in each

quarter during the suspension, taking into account that anticipated capacity can vary by month based on the number of working days in the month, as well as other factors. Tr. 2248 (Ness). a. E.g., when Mr. Ness applied his methodology for calculating excess capacity by mill and by quarter to the Winslow mill in the 4th quarter of 1995, he determined 32

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that there was 757 mbf (LS) of excess capacity for that mill in that quarter. Tr. 2248-9 (Ness).

79.

After calculating excess capacity for each sawmill in each quarter during the suspension

and ensuing winter, Mr. Ness then referred to the harvesting schedule supplied by Mr. Porter (PX 131, App. A at 4) to determine from which of the breached sales Precision Pine would have obtained timber to fill each sawmill's excess capacity in each quarter. Tr. 2249-50, 5606 (Ness). a. E.g., for the 757 mbf (LS) excess capacity for the Winslow sawmill in the 4th quarter of 1995, Mr. Ness determined that Precision Pine could have obtained sawtimber from one of four of the breached sales that Precision Pine was using to supply its Winslow mill, i.e., Monument, Mud, Saginaw- Kennedy or U-Bar. Because, according to Mr. Porter's schedule, the Mud sale was the next of those four to be harvested, Mr. Ness determined that Precision Pine would have filled the excess capacity at the Winslow mill in the 4th quarter of 1995 with timber from the Mud sale. Tr. 2249-50 (Ness).

80.

Using this methodology, Mr. Ness determined the additional volume of sawlogs in mbf

(LS) that Precision Pine would have processed from each of the breached sales, by quarter, and recorded those volumes on page 1 of Exhibit 7 to his report (PX 131) under the heading "Logs that would have been processed." Tr. 2249-50 (Ness).

81.

Once Mr. Ness calculated the amount of additional timber that Precision Pine would have

processed in each quarter, by mill, he then calculated the total cost of obtaining that additional 33

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timber (i.e., the cost of purchasing, felling, hauling the timber plus severance tax; this total cost is termed the "delivered log cost" of the timber). Tr. 2250-51 (Ness). Mr. Porter supplied the amounts of the various components of delivered log cost (log cost, miscellaneous costs, logging & hauling costs, and severance tax) for each quarter, and Mr. Ness recorded those amounts on pages 7-8 of App. A to his report (PX 131). Using these figures, Mr. Ness first calculated the delivered log cost for each sale which would have supplied additional timber, by quarter, and recorded those amounts on pages 1-3 of on Exhibit 7 of his report under the heading "Log Cost ­ Based on Quarter Logged." Tr. 2250-52 (Ness).

82.

Mr. Ness then itemized and totaled all of the components of delivered log cost for each

sale, by quarter, in Exhibit 4 of his report (PX 131). a. E.g., in itemizing delivered log costs for the 760 additional mbf (LS) of timber that Precision Pine would have obtained from the Mud sale in the 4th quarter of 1995 (see PX 131, Ex. 4 at 2), Mr. Ness calculated the following figures: i. Log costs: $59,257.20 (760 mbf x $77.97/mbf log cost for Mud sale in the 4th quarter of 1995 reflected on App. A, p. 7, line 160, column C); ii. Miscellaneous costs: $7159.20 (760 mbf x $9.42/mbf reflected on App. A, p. 7, line 160, column D); iii. Logging and hauling costs: $95,000.00 (760 mbf x $125/mbf on App. A, p. 7, line 160, column E); and iv. Severance tax: $1,618.80 (760 mbf x $2.13/mbf reflected on App. A, p. 8, line 201, column B). 34

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Tr. 2250-54 (Ness). Then, Mr. Ness summed the components to determine total delivered log cost for the excess volume that Precision Pine would have consumed from the Mud sale in the 4th quarter of 1995: $163,035.20. PX 131, Ex. 4 at 2.

83.

Mr. Ness used the methodology described above to calculate delivered log costs for each

sale from which Precision Pine would have obtained timber to fill its excess capacity in each quarter of the suspension, and recorded the results in Exhibit 4 of his report, by sale and by quarter. Tr. 2254 (Ness); PX 131, Ex. 4.

84.

Mr. Ness then set about computing the total revenue that Precision Pine would have

earned from the timber it milled to fill that excess capacity. To do so, Mr. Ness started by taking the volume of timber in mbf (LS) from a breached sale that would be milled by sale by quarter and multiplying it by an overrun factor of 1.25 to determine the volume of lumber that would be produced from the timber on that sale in that quarter. Tr. 2254 (Ness). a. E.g., for the Mud sale in the 4th quarter of 1995, Mr. Ness took the 760 mbf (LS) of additional timber that he determined would be processed from Mud in that quarter and calculated that it would yield 960 mbf of lumber (960 mbf (LT)). Tr. 2254-5; PX 131, Ex 4 at 2, column headed "volume," row labeled "lumber salesPonderosa Pine."

Product Mix 85. After determining the additional volume that a sawmill would have produced in a

particular quarter from timber from a particular breached sale or sales, Mr. Ness needed to know 35

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how much of each of 13 different Ponderosa Pine lumber products that Precision Pine makes would have been yielded from that additional volume. Tr. 2254-55 (Ness). Mr. Porter provided Mr. Ness with projections, by sale, of how much lumber Precision Pine would have produced in each of the 13 product categories as a percentage of all lumber produced from that sale. (These percentages are referred to as the "product mix.") Mr. Ness recorded Mr. Porter's projected data on pages 2 and 3 of App. A to his report (PX 131) and used them in his calculations. Tr. 225455 (Ness). a. E.g., Mr. Porter projected that 0.4% of all lumber produced from timber from the Mud sale would be graded and sold as moulding & better lumber (PX 131, App. A, p. 2, col. C, line 38), and 0.6% of that lumber would be graded and sold as 5/4 #1 Shop lumber (id., col. C, line 39). Tr. 2255 (Ness).

86.

Mr. Ness performed a "reality check" on Mr. Porter's product mix projections by

calculating a weighted average of all of the by-sale projected product mixes, and then comparing that weighted average to the product mix that Precision Pine had actually achieved in the fiscal year prior to the suspension, as recorded in the Winslow Sale Journal. Tr. 2322, 230-33 (Ness); PX 288; PX 290. Mr. Ness' comparison displayed graphically is:

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Grade Moulding & Better 5/4 # 1 Shop 5/4 # 2 Shop 5/4 # 3 Shop Par 99, Redress 5/4 RWL Radius Edge #2, #3, # 4 & Better # 3 Common Utility # 4 Common Economy # 5 Common Rough Timbers Shop Outs

As Projected by Mr. Porter 4.35% 1.52% 7.32% 20.69% 13.51% 16.86% 8.55% 6.86% 7.62% 0.23% 2.84% 2.48% 7.18%

Precision Pine Historical 5.3% 1.0% 7.7% 21.9% 10.8% 12.2% 10.1% 11.2% 4.9% 0.3% 2.9% 2.3% 9.5%

The figures in the "Projected" column show the results of Mr. Ness' weighted averaging of the by-sale projections Mr. Porter provided. See PX 288 (first page, right column). The figures in the "Historical" column are taken from Winslow Sale Journal for FYE 3/31/95. See PX 290 (page headed "April 1994 through March 1995").

87.

Through the above comparison, Mr. Ness concluded that Mr. Porter's projections were a

reasonable estimation of the overall product mix that Precision Pine would have achieved had it been able to process the timber from breached sales into lumber. Tr. 2332 (variations still compared favorably), 2335-36 (no substantial difference on an absolute basis) (Ness). For example, Mr. Porter projected that from all of the lumber that would have been produced from the breached sales, 4.35% of it would have been moulding & better, Tr. 2334 (Ness); see PX

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288, but historically, Precision Pine had actually achieved a more favorable recovery percentage, 5.3%, for this high-grade product.

88.

With respect to the comparison of Radius Edge and #2, #3, #4 & Better products, Mr.

Ness discovered that from identical timber Precision Pine had a choice of making either lumber product, and therefore, that the two product categories are interchangeable for the purposes of product mix. Tr. 2336-37 (Ness). Thus, adding the percentages in each category together reveals that the Winslow Sales Journal shows recovery of 22.3% for both products combined during FYE 3/31/95, and that Mr. Porter's projection shows recovery of about 25% for both types. See PX 288. Based on this, Mr. Ness again concluded that the Mr. Porter's projections were a reasonable estimation of the product mix that would have been obtained from the breached sales. Tr. 2338-39 (Ness).

89.

Mr. Ness performed a similar comparison of Mr. Porter's projected product mix for the

breached sales and the product mix that Precision Pine actually achieved in the FYE 3/31/94 and found the same type of relatively close percentages. Tr. 2341; PX 290 (page headed "Year Total/April 1993 March 1994). Also, Mr. Porter told Mr. Ness that the quality of the logs that Precision Pine processed in the FYE March 1994 and March 1995 were relatively similar to that of the logs on the breached sales. Tr. 2342 (Ness).

90.

Satisfied of the veracity of Mr. Porter's projected by-sale product mix for each of the

breached sales, Mr. Ness then applied the appropriate percentages to the total amount of excess timber that Precision Pine would have processed from each sale in each quarter. 38

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a. E.g., applying the percentages for Mud to the 950.00 mbf (LT) of additional lumber that would have been produced in the 4th quarter 1995 from timber from the Mud sale yields the volume of by-particular lumber product that Precision Pine would have produced that is set out in the middle of the first page of Exhibit 6 to Mr. Ness' report (PX 131). Specifically, for 950 mbf (LT) of lumber produced from timber from the Mud sale in the 4th quarter of 1995, 3.80 mbf (LT) would have been in the moulding & better grade. Tr. 2255 (Ness).

Lumber Product Prices & Gross Revenue From Lumber Sales 91. After determining the additional amount of each Ponderosa Pine lumber product that

would have been produced on a quarterly basis at each mill in the absence of the breach, Mr. Ness then needed to calculate the gross revenue that Precision Pine would have earned by selling those products. To do so, he multiplied the additional volume of each product that would have been produced in a quarter by the per-mbf unit price for that product type and quarter that Mr. Porter supplied to him based on Mr. Porter's analysis of Precision Pine's invoices. Tr. 2256, 2350 (Ness); see Tr. 443-497 (Porter's pricing analysis).

92.

In most cases, to determine a product's pricing, Mr. Porter had averaged the prices, by

quarter, at which Precision Pine had actually sold the product during the suspension as reflected on Precision Pine's invoices. Tr. 443-44 (Porter). a. E.g., for moulding & better in the 3rd quarter of 1995, Mr. Porter found three invoices reflecting sales prices of $1,340, $1,350 and $1,350 per mbf. The simple average of these prices is $1,346.67. Tr. 443-44 (Porter). 39

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93.

In some cases, although Mr. Porter had projected that but for the suspension Precision

Pine would have produced a certain product in a certain quarter, Precision Pine did not actually produce any of that product in that quarter during the suspension. In those cases, Mr. Porter moved the volume that he projected that Precision Pine would have produced into a similarlypriced product category. Tr. 447-48 (Porter). a. E.g., in some quarters, Mr. Porter projected that but for the suspension Precision Pine would have produced timbers. However, in reality, Precision Pine chose to produce #3 dimension lumber instead of timbers. (Both products can be produced from identical timber.) Accordingly, in this situation, Mr. Porter added the projected volume of timbers into his calculations for #3 dimension lumber. Tr. 447-48 (Porter).

94.

In other cases, Mr. Porter had projected that but for the suspension Precision Pine would

have produced a certain product in a certain quarter, but in actuality Precision Pine had invoices containing prices for that product in only one or two months of the quarter. In theses cases, Mr. Porter consulted am industry publication entitled Random Lengths (see, e.g., PX 232) to derive the monthly price for the month that Precision Pine had no invoice containing that product's price, and included the Random Lengths price in his average. Tr. 449-54 (Porter). a. E.g., for the 3rd quarter of 1996, Precision Pine had only one invoice that reflected a sales price for moulding & better, which was in July. So Mr. Porter consulted Random Lengths for a price for moulding & better in August and September, 1996. Tr. 454 (Porter).

40

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95.

Lastly, Mr. Porter excluded a few (less than 35) of the more than 1,100 invoices that

Precision Pine had used to arrive at an average price for each of the 13 lumber products. Tr. 455-58. See PX 227, at tab labeled "inapplicable invoice from the period of the suspension."7 Some of these were excluded on the basis that the prices reflected on them, when compared to prices for the same lumber product on other numerous invoices in the same time period, were either so high (which would have favored Precision Pine) or so low (which would have favored the government) that excluding them was fair to both sides rather than skewing the quarterly price either up or down. Id. Mr. Porter also excluded a few invoices such as 4/4 Shop which is a product that Precision Pine did not intentionally make on a regular basis and which have improperly brought down some of the Shop lumber prices if included on an simple average basis. Id.8

Mr. Moosman testified at trial that, based on his review of the sequential numbering on the invoices, he believed that a total of 93 invoices had not been used in determining Precision Pine's lumber product prices. Tr. 5231 (Moosman). Although Mr. Moosman conceded that the Many of the invoices record prices for sales of more than one lumber product. See, e.g., PX 227, at V 00001 showing lumber sales prices for three different lumber products. Accordingly, the number of actual lumber sales used to derive lumber product prices greatly exceeds the number of invoices. In calculating the post-suspension lumber prices, Mr. Ness with the assistance of Mr. Porter, also excluded some 49 invoices on the same basis as invoices had been excluded during the suspension period. Tr. 3571-72 (Neuberger). Dr. Neuberger, nevertheless described Mr. Ness' approach to determining lumber product prices in the post-suspension period as the correct one. DX 796, p. 10, ¶28. As the court n