Coke faces probe into sales practices

Channel stuffing refers to a legally murky practice in which a company convinces clients to accept unwanted or early deliveries of a product. It can be used to pad revenue and help a company meet quarterly financial targets. Rebates, extended payment terms and other incentives are often provided to clients in exchange for their complicity. Federal investigators, who have been interviewing current and former Coke workers, have been told the company used incentives to make over-shipments of concentrate more palatable to Japanese bottlers, according to the Journal.

The Toronto Star
May 4, 2004

Coke faces probe into sales practices
Financial results alleged to be inflated. U.S. grand jury set to convene, report says.

ATLANTA – A federal grand jury could begin hearing testimony later this month as part of a U.S. government investigation into allegations that Coca-Cola Co., inflated its financial results by over-shipping concentrate, the Wall Street Journal reported yesterday.

The grand jury is scheduled to convene around May 25 and is expected to focus on whether the world’s larges soft-drink maker engaged in “channel stuffing” in Japan and other markets, according to unnamed sources cited by the Journal.

A spokesperson for the U.S. department of justice, which launched an investigation into Coca-Cola’s business practices last year after an ex-Coke worker accused the company of fraud, would neither confirm nor deny the report.

The U.S. Securities and Exchange Commission, which have opened its own investigation of Coca-Cola, declined to comment yesterday.

Coca-Cola, which continues to deny engaging in channel stuffing, also would not comment on the status of the investigations.

Channel stuffing refers to a legally murky practice in which a company convinces clients to accept unwanted or early deliveries of a product. It can be used to pad revenue and help a company meet quarterly financial targets.

Rebates, extended payment terms and other incentives are often provided to clients in exchange for their complicity.

Federal investigators, who have been interviewing current and former Coke workers, have been told the company used incentives to make over-shipments of concentrate more palatable to Japanese bottlers, according to the Journal.

A shareholder lawsuit four years ago raised accusations of revenue padding in Coca-Cola’s Japanese market, which accounts for about 20 per cent of the company’s annual operating profit.

Speculation the federal investigations are intensifying comes at a time when Coca-Cola is busy searching for a replacement for chairman and chief executive Doug Daft, who is planning to retire at the end of 2004.

Some beverage-industry observers have said the uncertainty raised by the investigations could help scare off candidates.

Daft, who took over the reins of Coca-Cola in early 2000, has spent nearly a year dealing with the fallout from the federal probes and the whistle-blower lawsuits that led to the investigations.

Shares of Coca-Cola rose 5 cents (U.S.) to close at $50.62 yesterday on the New York Stock Exchange.

REUTERS NEWS AGENCY


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