The SEC and Coke Settle Channel Stuffing Allegations.

The SEC settled major channel-stuffing violations by Coke with no penalty, as the below article makes clear. Maybe the SEC is afraid that Coke will pull the vending machines out of their halls,...

Link: Coke settles with SEC over sales inflation in Japan - Food and Beverage - Company Announcements - SEC.

No fine for Coke in 'channel-stuffing' SEC: Beverage behemoth to continue 'remedial actions' By William Spain, MarketWatch Last Update: 1:15 PM ET April 18, 2005

CHICAGO (MarketWatch) - The Securities and Exchange Commission said Monday that it has accepted a settlement offer from Coca-Cola Co. in a case involving "channel-stuffing" by a Japanese subsidiary that inflated the beverage behemoth's sales -- and allowed it to meet Wall Street's profit expectations for eight quarters in the late 1990s.

Although the company garnered hundreds of millions of dollars in extra revenues from the practice, it will pay nothing to settle the charges.
The SEC found that Coca-Cola (KO: news, chart, profile) filed false and misleading statements -- a charge the company neither admits nor denies -- and the company is being punished by little more than a requirement it continue to undertake "remedial efforts" that are already underway.
Regulators found that, at or near the end of each reporting period between 1997 and 1999, the company used a practice in Japan known as "gallon pushing" for the purpose of pulling sales forward. To pull it off, Japanese bottlers were offered extended credit terms to buy beverage concentrate they would likely not have purchased until a later quarter.

The practice typically added 1 cent to 2 cents a share to Coca-Cola's quarterly numbers -- and was the difference in 8 out of the 12 quarters between meeting and missing analysts' consensus earnings estimates, the SEC said.

All the while, the company kept mum about the practice, failing to disclose it in its periodic reports. The bill eventually came due in January of 2000 when the company said that a worldwide concentrate inventory reduction would have an impact of 11 cents to 13 cents per share on its first-half earnings. More than a nickel of that was from an anticipated drop in Japanese sales brought on by the inventory build-ups.

"Coca-Cola misled investors by failing to disclose end of period practices that impacted the company's likely future operating results," said Richard Wessel, head of the SEC's Atlanta office, in the settlement announcement.

To get off the hook, Coca-Cola promised to abide by a cease-and-desist order that found violations of antifraud and reporting requirements while taking "steps to strengthen its internal disclosure review process to prevent future violations," the SEC said.

In a letter to employees, Coca-Cola CEO Neville Isdell noted that the settlement does not involve monetary penalties and that the company was told another investigation by the Department of Justice has been closed.

The latter probe involved a lawsuit by a whistleblower who claimed that he was fired for reporting various frauds and accounting irregularities at the company.

"We will not comment on specific allegations," he wrote. "The measures identified in this settlement and those we have taken over the past few years are an important step forward in ensuring our systems continually improve."

Shares of Coca-Cola were down 30 cents to $40.99 in afternoon trading.

William Spain is a reporter for MarketWatch in Chicago.






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