Swendrowski questions Ocean Spray
accounting procedures,
Dear Northland Growers: It appears that the Department of Agriculture will implement some form of marketing order for the 2000 crop year. Jerry Bach, Dave Lukas, and John Stauner have been meeting with many of you individually reviewing the current recommendation by the CMC and its impact on your individual properties. According to reports, Ocean Spray has announced that it anticipates a final price of approximately $10.50, including average incentives for the 1999 crop. Your contracts with Northland are at Ocean Spray base price plus $3.00. Thus, it appears that if Ocean Spray reaches its target for the 1999 crop, your price for the 2000 crop will be in the $11.00 to $12.00 range. Unfortunately, Ocean Spray is not a SEC public reporting company and most growers are not financial analysts. Thus, Ocean Spray’s performance does not receive the same level of public scrutiny as Northland’s. If it did, the question that would be asked is whether Ocean Spray’s management really earned the proposed $10.50 a barrel for their grower? In looking at their annual report under "New Accounting Pronouncements" and footnote #10 (copies attached)* it appears as though, due to Accounting Pronouncements, Ocean Spray will expense $25.5 million in its current fiscal year. According to the 1999 audit report by Ocean Spray’s outside auditors Deloitte & Touche, Ocean Spray also expensed over $58 million in deferred charges in 1997-99 to comply with the Generally Accepted Accounting Principals. However, you should note that for "pool accounting," which it appears is not subject to audit, these costs are being "expensed" over 5 years. Thus, over $83 million in expenses are being spread out over 5 years at the grower level. If you divide $83 million by 5 million barrels you get an expense of $16.60 per barrel or $3.32 per year for 5 years. So, did Ocean Spray really even earn $10.50 per barrel or did their "clobber the competition" attitude lose money per barrel if you expense the charges as they occur? Do Ocean Spray’s growers actually realize that over five years they will be paid $3.32 per barrel less than they otherwise would earn per year because of this "pool" accounting ($16.60 ÷ 5 years = $3.32 per year). Remember, this has nothing to do with and is in addition to the $10.00 overpayment for the 1998 crop. This is a burden above the repayment plan for the 1998 crop. It is the result of delaying the charge under the pool accounting instead of treating it the same as their audit report. Obviously, the marketing order combined with the price per barrel can only be described as a disaster for the grower. It is inconceivable that a 20% to 30% oversupply can cause an 80% decrease in value. Basic economics would dictate that by simply holding or disposing of excess supply, the base value of the commodity would only be reduced by the same 20% to 30%. Someone recently gave me the following puzzle to solve: 1) 1997, 6,000,000 barrels, $60 per barrel, $360,000,000 payments to growers. 2) 1999, 7,000,000 barrels, $10 per barrel, $70,000,000 payments to growers. 3) Where did the $290,000,000 go? We do not understand the economic decisions of the industry leader that controls 70% of the commodity. We do understand that Ocean Spray’s decisions establish the value that we can all expect since its actions in fact establish market value. It appears that those in control at Ocean Spray have decided to pursue a "Market Share At All Costs" philosophy as a means of dealing with the oversupply. This attitude is perhaps one way to explain why an 80% decline in the price of a commodity results from a 30% oversupply. It also is the answer to the puzzle. Many of you have called and offered to join in a civil lawsuit against Ocean Spray. Many of you have asked if Ocean Spray’s actions are legal. We cannot tell you if its actions are legal or illegal. Ultimately, only a court can decide based on the facts in the case. However, we believe that events may have occurred that are worthy of review by a jurisdictional body. At this point in time, if you feel that you are being wrongfully harmed, you are certainly entitled to contact the appropriate jurisdictional agencies to request an investigation into these facts. In response to your requests, the appropriate agencies are as follows: Antitrust Division U.S. Department of Justice 950 Pennsylvania Avenue Washington, D.C. 20530 (or contact via webpage at www.usdoj.gov/atr/contact/emails.htm Richard G. Parker Federal Trade Commission Bureau of Competition 6th and Pennsylvania Avenue, NW Washington, D.C. 20580 We are all faced with a crisis that will challenge everyone’s financial resources. You can be assured that Northland will continue to market your cranberries to the best of its ability. We believe we can survive as long as anyone in this industry and we fully intend to do so. We can and will "play the game" of "Last Man Standing" that has been initiated by Ocean Spray that believes it is the only one entitled to be in the business. We recently took a $27,000,000 charge against our cranberry inventory and put our major problems behind us. We are ready to compete and fully intend to be "standing" in the end. We Northland Growers will be unnecessarily bruised and scarred, but growing up in Racine, I’ve been in street fights before. We will not run from this fight and we will take every action necessary to prove that we have the right and the will to compete. Northland is in the initial stages of analyzing strategic alternatives through its investment banks. We are simply doing the same thing many of you are doing – exploring alternatives. We want to know all of our alternatives as we prepare for this fight. Very much like you, we are ready to make the tough decisions to ensure our long-term viability as a profitable entity. We have made the decision to basically let the cranberries grow themselves in Massachusetts on our properties. We have cut back full-time employees and will hire minimal seasonal workers. In anticipation of implementation of the marketing order, we evaluated our most economical choice for reducing our production in line with the marketing order. We concluded that our Massachusetts properties were our best choice to cut back due to yield and the costs of running the properties. We expect many more strategic decisions as we plan our future. We will do whatever we can to help you in your right to be left standing. Just like Northland, you need to pursue every financial and governmental avenue available to protect your interests. Take actions, don’t just complain. Your voice and pen are important to solving the problem – USE THEM! USE THEM NOW! Feel free to call with any comments or questions. Sincerely,
John Swendrowski Chairman & CEO
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