Opinion ID: 1188758
Heading Depth: 1
Heading Rank: 4

Heading: The disputed issues

Text: The parties are in general agreement as to several important matters. The plaintiffs and the defendant followed similar procedures in which they first attempted to determine the total market value of the railroad operating properties of Burlington Northern and the two subsidiaries here involved, and then apportion a percentage of the total value to Oregon. The parties made a diligent and generally successful effort to separate the operating railroad properties from the nonrail operating properties. All appraisers were initially close to agreement as to the capitalization rate to be applied under the Income approach. The main issue is whether defendant's Income approach valuation using an annuity technique, which was approved and adopted by the Tax Court, is appropriate to the valuation of plaintiffs' ongoing railroad operations. The plaintiffs mainly relied upon the testimony of two experienced appraisers, John Green and Arlo Woolery. John Green testified that the Income approach was the most reliable approach; that neither Stock and Debt nor Cost were as reliable. His opinion of value of the total operating system was $750,000,000. [3] Mr. Woolery utilized all three approaches and concluded that the value of the total operating system was $760,000,000. The defendant called an experienced appraiser, Richard Green, who agreed that the Stock and Debt approach was inappropriate. Giving the Cost approach a weighting of 30 percent and the Income approach a weighting of 70 percent, Richard Green concluded that the total market value of the plaintiffs' Oregon operating properties was $59,960,000. Following the split decision of the Tax Court, the defendant submitted revised computations which were further revised at the request of the Tax Court. The decree ultimately entered by the Tax Court determined the value of the Oregon properties to be: 1976 $50,630,000 1977 50,254,000 It is apparent, both from the written opinion of the Tax Court and from comments made by the Tax Court at the final hearing, [4] that the Tax Court believed that the value determination should be made using the Income approach. We are inclined to agree that the Income approach is the more reliable approach to be used in this case, but we disagree that the annuity technique applied by the defendant's appraiser is appropriate in this case, and we disagree as to some important assumptions made in the defendant's appraisal. For reference, we have prepared a table summarizing the opinions of the various expert witnesses and the court's findings relative to the determinations of value. NOTE: All Alloc. Stock Cost Obsol. % Income Cap Value Oregon % figures are Oper/Non-oper and Rate % BN in (000) Debt (In %) OE (in %) OT John 1976 50.62 $767,250 1,368,000 54.38 678,250 10.5 750,000 2.826 59.9 _______ Green 49.38 21,195 17.96 1977 49.57 834,700 1,404,000 55.34 760,000 10.75 80,000 2.779 59.99 ______ 50.43 22,232 21.6 Arlo 1976 55.55 714,000 822,000 75.18 755,000 11 760,000 2.71 56.3 _______ Woolery 44.45 20,596 27.09 1977 47.23 650,000 761,000 78.86 773,000 11 770,000 2.72 58.42 _______ 52.77 20,944 25.16 16.42 Richard 1976 52.1 938,497 1,969,000 __ 1,673,280 10.5 2,196,408 2.68 51.8 _________ Green 47.9 59,960 18.6 29.6 1977 39.7 1,031,300 2,053,000 __ 1,809,550 10.5 2,232,821 2.56 52 _________ 60.3 58,320 18.9 R. Green 1976 __ 938,497 1,801,177 __ 1,616,400 10.5 1,895,894 2.68 51.8 _________ Revised 51,832 18.6 Submission 29.6 1977 __ 1,031,300 1,840,349 __ 1,757,200 11 1,938,469 2.56 52 _________ 50,708 18.9 Tax Court 1976 __ __ __ __ __ 10.5 50,630 2.68 51.8 and 18.6 R. Green 29.6 Final Submission 1977 __ __ __ __ __ 11 50,254 2.56 52 18.9 29.1