Free Motion in Limine - District Court of Federal Claims - federal

Case 1:98-cv-00720-GWM

Document 306-3

Filed 04/07/2005

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Robert A. Ness
35670 Myrtlewood Lane Pleasant Hill, OR97455 Ph: (541) 746-2563 Fax: (541) 746-I 162

February 26, 2005

Alan I. Saltman, Esq. SalWnan& Stevens, P.C. 1801 K Street, N.W. Suite M- 110 Washington, D.C. 20006 Re: Rebuttal of Certain of Mr. Moosman's Conclusions Dear Mr. Saltman: Al~er attending the deposition of Mr. WayneMoosman,the government's accounting

expert, I raised several ~issues regarding Mr. Moosman's use of the Precision Pine Sales Journals. At your request, I have completed myown analysis of the Precision Pine Sales I

Journals from August 24, 1995 through December 31, 1996. In preparing this analysis, reviewed Mr. Moosrnan~sreport, the attached exhibits, and Precision Pine's sales journals.

myreport dated November 14, 2003

Mr. Moosman Appendix2 of his report asserts that Precision Pine "has overstated its in delayed market opportunities by calculating a simole average on the product invoice prices ... as opposed to calculating a ~ average based on invoice sales volumes". While I

agree that using a weighted average is a preferable method, I do not agree that using a simple average necessarily will overstate sales, and I see nothing in Mr. Moosman's report that proves this assertion. Mr. Moosmanalso asserts that removal of "several invoices" from those used to

calculate the sales averages may have impacted "the overall weighted average prices". He

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Case 1:98-cv-00720-GWM

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Filed 04/07/2005

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contends that using the "WinslowSales Record" which is a monthly summaryof the customerinvoices (I will refer to both the summary the monthly and detailed listing of each invoice as the Wiuslow Sales Journal) wouldbe a better meansto project Precision Pine's "delayed market opporturdties" because"this document appears to be the most encompassing of PP&T's actual prices realized duringthese years". His calculation of the sales averagesis shown Attachment of his report. in 9 It does not appear that Mr. Moosman sufficient checking to determine if each did cohimu tiffs sales jouraal wasa reflection of productswith enough in similarity to allow an appropriate average to be computed. Also, he did not check to see if the accumulation the of data was accurate, i.e. Wereproduct types consistently placed in the same colurrm? My reviewshows that both of these issues causedsignificant distortions in the sales averagesas calculated by Mr. Moosman. For example, I found lumber products summarizedin the same colunmof the sales i~ journal, for the samequarter, whereone lumberproduct sold for $1,340~00 MBF tile per and other lumberproduct sold for $570.00per MBF. Clearly, these are not similar products that can be averaged together. This is just one example- Many more could be cited. I also noticed invoices for the samelumberproduct wererecorded in different columns different at times. F0r example,5/4 X 6 # ~3 common found in tw0 different columns(column7 for ~as 5/4 RWL column9 for # 3 Common and Utility). This was true of many other product types. in total, I foundover 200 invoices out of about 1200im'oicesthat wereeither classified with dissimilar productsor werenot consistently classified. In addition, over 500,000 BF of DouglasFir, Hem and White Fir are included in Fir sales journal columns 9 and 10. Mr. Moosman's 8, calculations treated themas if they were Ponderosa Pine products. The sales prices for lumber products madefrom these other species can be significantly different than lumber products of the same dimensions and grades madefrom PonderosaPine. In the exhibits attached, I calculate the weightedaverage sales price for each of the thirteen lumberproduct categories used by Precision Pine in its damage calculations. Each invoice was reviewed to determine whichlumber product category was appropriate. Lumber products that did not precisely fit into one of the thirteen categories (e.g. 4/4 RW Shop) Page of 4 2 ". .,

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required judgmentcalls in order to determine the appropriate classification.

These were

discussedwith Mr. LonPorter, President of Precision Pine, to determinethe mostappropriate classification. All invoices (approximately 1200) were used and the sales dollars for each invoice is net of any delivered freight. Note that the previous sales averages used in the Precision Pine damage calculations were before freight and an average freight was deducted for all sales. The invoices for other species weregroupedinto their owncategory whichis labeled as Product Code20 - Other Species. Seveninvoices 0nv # 1034, 1230, 1255, 1508, 1536, 1560, and 1623) either did not have enoughinformation to properly classify themor were invoices for services, not for lumber sales. These invoices are included in Product Code15 - Misc. Duringthis review,I also noticed that 8/4 lumberproducts(e.g. productssold as 2 x 4, x 6, etc.) and 5/4 lumberproductswere includedin the samelumberproduct classifications. This_does.notaccurately reflect the correct ratio of the volume the 10g actually used to of produc 5/4 lumberproducts vs. 8/4 lumberpr0d~cts: Specifically; i~roducinga 5/4 lumber e product Uses about 88-90% the woodvolumerequired:to produce an 8/4 lumber product. of Yet, the board footage calculation used for invoicing the 5/4 lumberproducts reflects a volumeof woodthat is 62%% the 8/4 lumber products. Therefore, using a weighted of a~igra~ ;thfi~ Simply combines 5/4 and 8/4 lumber products, as Mr M0osman done, has producesan inaccurately low result. To put 5/4 and 8/4 lumber products on a more equal basis, I have converted all 8/4 lumber products to 6/4 lumber products in determining the average sales price. This conversion makesthe difference betweenthe board footage calculation for a 5/4 lumber product equal to 83 1/3%of the board footage calculation for the resulting 6/4 lumber product, whichis much closer to the volumeof woodratio noted above. As other factors (e.g. the number rasawcuts, the sizes that are cut by the edger, etc.) also affect the volume of of lumber recovered, the comparisonis within the range of reasonableness and is more accurate than the approach used by Mr. Mousman. The result of mydalculatious using the approach detailed above is summarizedin Exhibits 1 - 5 attached. In Exhibit 4, the columnlabeled "Prod Code"corresponds to my classification of products as summarized each quarter under the "Summary Product for by Page of 4 3

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Type".The columnlabeled "SJ Col" correspondsto the columnused in the sales journal and is surmnarized each quarter under the "Summary Sales Journal". for by By makingall of the adjustments discussed above, I calculate that Precision Pine's damages understated by approximately$388,000. I do not suggest that Precision Pine are necessarilyincrease its request for damages this case to reflect this amount in (althoughfrom an accounting standpoint it wouldcertainly be entitled to do so), rather I offer these calculations as a rebuttal to the calculations performedby Mr. Moosman as further and evidenceof the conservativeapproach used by Precision Pine in calculating its damages. This analysis addresses only the sales averages that Mr. Moosman calculated to use in his report. It does not address howhe used these sales averagesor any other issues regarding his report. ' Verykruly yours, " s/Rob~r~A. Ness Robert A. Ness

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Precision Pine & Timber, Inc. Analysis of WinslowSales Journal List of Exhibits
Exhibht 1 1 Page Summary Differences betweenOdginal Calculations and of Revised Sales Pdces 17 PagesAnticipated LumberSales - Revised Sales Pdces 17 PagesAnticipated LumberSales - Odginal Calculations 39 Pages LumberSales Invoices - SuspensionPedod 34 Pages PonderosaPine Lumb~rSales Invoices - SuspensionPedod Sorted by Product Type

Exhibit 2 Exhibit 3 Exhibit 4 Exhibit 5