In re The Coca-Cola Company

 
  UNITED STATES OF AMERICA 
                                                                     Before                                                                     the                                                                     
                                    SECURITIES                                    AND                                    EXCHANGE COMMISSION 
 
SECURITIES ACT OF 1933 
Release No. 8569 / April 18, 2005 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 51565 / April 18, 2005 
 
ACCOUNTING AND AUDITING ENFORCEMENT 
Release No. 2232 / April 18, 2005 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-11902 
 
 
In the Matter of 
 
The Coca-Cola Company,  
 
Respondent. 
 
ORDER INSTITUTING CEASE-
AND-DESIST PROCEEDINGS, 
MAKING FINDINGS AND 
IMPOSING A CEASE-AND-
DESIST ORDER PURSUANT TO 
SECTION 8A OF THE 
SECURITIES ACT OF 1933 AND 
SECTION 21C OF THE 
SECURITIES EXCHANGE ACT 
OF 1934  
 
I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate 
that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of 
the Securities Act of 1933 (“Securities Act”) and Section 21C of the Securities Exchange 
Act of 1934 (“Exchange Act”) as to The Coca-Cola Company (“Coca-Cola” or 
“Respondent”). 
 
II. 
 
 In anticipation of the institution of these proceedings, Respondent has submitted an 
Offer of Settlement (the “Offer”) which the Commission has determined to accept.  Solely 
for the purpose of these proceedings and any other proceedings brought by or on behalf of 
the Commission, or to which the Commission is a party, and without admitting or denying 
the findings herein, except as to the Commission’s jurisdiction over it and the subject 
matter of these proceedings, Respondent consents to the entry of this Order Instituting 
Cease-and-Desist Proceedings, Making Findings and Imposing a Cease-and-Desist Order 
Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities 
Exchange Act of 1934 (“Order”), as set forth below. 

 
III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds that:
1
 
RESPONDENT
 
1. Coca-Cola is a Delaware corporation headquartered in Atlanta, Georgia.  Coca-
Cola’s common stock is registered with the Commission under Section 12(b) of the 
Exchange Act and trades on the New York Stock Exchange under the symbol KO.  Coca-
Cola is the largest manufacturer, distributor and marketer of nonalcoholic beverage 
concentrates and syrups in the world.  Coca-Cola’s reported net operating revenues for 
the past ten years have ranged between $16 billion and $22 billion. 
 
2. Coca-Cola offered and sold securities in registered offerings during 1997, 1999 and 
2000.  Specifically, Coca-Cola conducted securities offerings pursuant to employee benefit 
plans and S-8 Registration Statements filed with the Commission in May 1997, May 1999 
and April 2000, which incorporated by reference certain Forms 10-K, 10-Q and 8-K filed 
by Coca-Cola during this period. 
 
RELEVANT ENTITY
 
3. The Coca-Cola (Japan) Company, Ltd. (“CCJC”) is a Japanese corporation and 
wholly-owned subsidiary of Coca-Cola.  CCJC is engaged in the marketing, manufacture 
and distribution of Coca-Cola beverage concentrate in Japan.   Historically, CCJC is one of 
Coca-Cola’s two or three greatest sources of net operating revenue and, on a per gallon of 
concentrate sold basis, CCJC is the most profitable operating division of Coca-Cola 
throughout the world. 
 
COCA-COLA HAD AN ESTABLISHED HISTORY 
OF MEETING OR EXCEEDING EARNINGS EXPECTATIONS 
 
4. From 1990 through 1996, Coca-Cola consistently met or exceeded earnings 
expectations while achieving a compound annual earnings per share growth rate of 18.3 
percent – more than twice the average growth rate of the S&P 500.  Coca-Cola’s superior 
earnings performance resulted in its common stock trading at a price to earnings multiple 
(“P/E Ratio”) of 38.1 by the end of 1996, as compared to the S&P 500’s P/E Ratio of 20.8. 
 
5. In the mid-1990s, Coca-Cola began experiencing increased competition and more 
difficult economic environments.  Nevertheless, Coca-Cola publicly maintained between 
1996 and 1999 that it expected its earnings per share to continue to grow between 15 
percent and 20 percent annually. 
 
                                                
 
1
 The  findings  herein  are  made  pursuant  to  Coca-Cola’s  Offer  of  Settlement  and  
are not binding on any other person or entity in this or any other proceeding. 
 
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COCA-COLA “GALLON PUSHED” IN JAPAN TO MEET  
BUSINESS PLAN TARGETS AND EARNINGS EXPECTATIONS 
 
6. At or near the end of each reporting period between 1997 and 1999, Coca-Cola, 
through its officers and employees implemented a “channel stuffing” practice in Japan 
known as “gallon pushing.”  In connection with this practice, CCJC asked bottlers in Japan 
to make additional purchases of concentrate for the purpose of generating revenue to meet 
both annual business plan and earnings targets.  The income generated by gallon pushing in 
Japan was the difference between Coca-Cola meeting or missing analysts’ consensus or 
modified consensus earnings estimates for 8 out of 12 quarters from 1997 through 1999. 
 
7. To accomplish gallon pushing’s purpose, at or near the end of reporting periods 
CCJC offered extended credit terms to bottlers, as described below, to induce them to 
purchase quantities of concentrate the bottlers otherwise would not have purchased until a 
following period.  The quantities of concentrate CCJC sold to its bottlers in connection 
with a gallon push were in excess of the bottlers’ forecasted demand; the bottlers 
nevertheless purchased the concentrate to preserve their relationships with Coca-Cola. 
 
8. Concentrate sales by CCJC to its bottlers typically track and correspond to 
anticipated and actual bottler sales of finished products to retailers.  Increases in the 
inventory level of concentrate held by bottlers often anticipate increases in sales of finished 
products.  As a result of gallon pushing, however, concentrate inventory levels at CCJC’s 
bottlers increased more than 60 percent from the start of 1997 through the close of 1999.  
During this same time, bottler sales of finished products to retailers only increased 
approximately 11 percent. 
 
9. Coca-Cola estimated its bottlers’ inventory levels, forecasted purchasing demand, 
and was aware that quarter-end gallon pushing likely could not continue at existing levels 
and likely would cause a corresponding reduction in sales in a future period.  At no point 
between 1997 and 1999, however, did Coca-Cola publicly disclose to shareholders the 
existence of gallon pushing, the impact of gallon pushing on its current income, or the 
likely impact of gallon pushing on its future income. 
 
COCA-COLA GALLON PUSHED  
ITS MOST PROFITABLE PRODUCTS 
 
10. In connection with gallon pushes, bottlers primarily purchased only two products:  
Georgia Coffee, a canned flavored coffee beverage, and branded Coca-Cola (“Coke”).  
Georgia Coffee and Coke were typically two of the highest sales volume products for 
CCJC to its bottlers.  Additionally, of Coca-Cola’s major products, Georgia Coffee and 
Coke were two of the highest profit-margin per gallon products CCJC could include in a 
gallon push.  From Coca-Cola and CCJC’s perspective, therefore, in order to generate sales 
sufficient to meet the additional income targets, it was most efficient to push the bottlers to 
purchase additional gallons of Georgia Coffee and Coke. 
 
 
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11. For CCJC’s bottlers, however, sales of Georgia Coffee and Coke to retailers were 
actually 
declining from 1997 through 1999.  Hence, Coca-Cola, through CCJC, was 
inducing its bottlers to purchase quantities of concentrate that were in excess of forecasted 
sales demand for the current quarter. 
 
12. Gallon pushing for the purpose of meeting earnings expectations occurred at no 
Coca-Cola operating division other than CCJC.  As CCJC was Coca-Cola’s single most 
profitable division throughout the world on a per gallon of concentrate sold basis, it was by 
far the most efficient location from which to push additional inventory for the purpose of 
managing earnings. 
 
CCJC IMPLEMENTED GALLON PUSHING  
THROUGH THE USE OF EXTENDED CREDIT TERMS 
 
13. To encourage bottlers to purchase additional concentrate, CCJC extended more 
favorable credit terms than usual to bottlers, typically increasing payment terms from eight 
to twenty-eight or thirty days.  No rights of return on gallons sold pursuant to gallon 
pushing were offered to bottlers, and no concentrate sold pursuant to gallon pushing was 
returned to CCJC or Coca-Cola.  All concentrate sold pursuant to gallon pushing was paid 
for by the bottlers. 
 
14. CCJC’s extension of credit terms required the express approval of certain of Coca-
Cola’s officers and employees in Atlanta.   In order to obtain approval for credit extensions, 
CCJC’s finance department was required to submit formal Requests for Authorization 
which identified both the approximate amount of gallons of concentrate to be sold with the 
extended credit terms and the approximate amount of revenue to be generated by the 
additional sales. 
 
15. After receiving approved Requests for Authorization back from Atlanta, CCJC’s 
finance department then contacted its bottlers’ finance departments, offering the more 
favorable credit terms and requesting that the bottlers purchase specific quantities of 
concentrate above the amounts that the bottlers already had planned to purchase to meet 
forecasted demand for the period.  In contrast to sales made in connection with a gallon 
push, routine concentrate sales involved CCJC’s sales and marketing departments 
corresponding with the bottlers’ purchasing departments. 
 
COCA-COLA’S RECURRING USE OF GALLON PUSHING TO 
MEET ITS BUSINESS PLAN TARGETS AND EARNINGS ESTIMATES  
 
16. Gallon pushing shifted concentrate purchases that bottlers would have made in a 
future period into the then current period.  As a result, the previous period’s gallon push 
caused bottlers to start the next quarter with more inventory than they anticipated needing 
to meet forecasted demand and caused CCJC to start the future period with a sales 
“deficit.”  In order to avoid selling less concentrate in the future period as a result of the 
previous period’s gallon push, and having to lower income targets, Coca-Cola instead 
 
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would engage in another gallon push, again shifting future sales and income to the present 
period. 
 
17. CCJC’s gallon pushing practice was incorporated into its annual business plans – 
not simply for the purpose of increasing sales and meeting Coca-Cola’s 
future earnings 
targets, but also to prevent a decrease in concentrate sales and corresponding decrease in 
earnings in the 
present period.  Gallon pushing therefore became a recurrent component of 
CCJC’s annual business plan as Coca-Cola refused to allow CCJC to suffer the sales and 
income declines resulting from a prior gallon push. 
 
18. The chart below shows the estimated volume of gallons pushed and revenue 
generated thereby for each quarter from 1997 through 1999.  In order to meet annual 
business plan targets and consolidated earnings estimates CCJC continually had to push 
more and more gallons of concentrate on the bottlers.  At the end of the fourth quarter of 
1999, nearly one out of every two gallons of concentrate held in inventory by CCJC’s 
bottlers had been sold in connection with a gallon push. 
 
Reporting 
Period 
Bottlers Ending 
Inventory (in gallons) 
Gallons 
Pushed  
Revenue Generated  
from Gallon Push 
Q1 1997   15,571,000    3,317,000   $46,201,000 
Q2 1997   18,408,000   4,380,000   $64,850,000 
Q3 1997   17,569,000   3,012,000   $62,949,000 
Q4 1997   20,016,000   8,090,000   $131,541,000 
    
Q1 1998   15,180,000   1,000,000   $17,061,000 
Q2 1998   20,363,000   7,117,000   $98,253,000 
Q3 1998   17,526,000   5,171,000   $79,807,000 
Q4 1998   21,800,000   9,659,000   $181,331,000 
    
Q1 1999   17,053,000   4,180,000   $67,644,000 
Q2 1999   23,544,000   8,181,000   $126,131,000 
Q3 1999   18,833,000   7,105,000   $128,519,000 
Q4 1999   22,017,000   10,116,000   $208,900,000 
 
GALLON PUSHING INCREASED BOTTLER INVENTORY  
LEVELS  BEYOND WHAT WAS NECESSARY TO MEET  
FORECASTED DEMAND FOR THE PERIOD 
 
19. For year end 1996 through year end 1999, bottler sales of finished products to 
retailers in Japan increased approximately 11 percent in the aggregate amount.  As sales of 
finished products by bottlers drive the sale of concentrate by CCJC, inventory levels at 
CCJC’s bottlers should have increased approximately by a corresponding amount during 
this same time period.  Gallon pushing, however, caused bottler inventory levels to increase 
62 percent during this time period – a rate approximately six times greater than the increase 
in bottler sales to retailers.   Hence, gallon pushing resulted in Japanese bottlers carrying 
significantly higher levels of inventory than was necessary to meet forecasted demand in 
the current quarter. 
 
 
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20. The concentrate inventory versus sales of finished products disparity was even 
greater with respect to Georgia Coffee and Coke.  Given that sales by bottlers to retailers of 
Georgia Coffee and Coke were in fact declining between 1997 and 1999, inventory levels 
of Georgia Coffee and Coke should have declined as well.  Yet, it was gallon pushed sales 
of Georgia Coffee and Coke concentrate alone that were causing the bottlers’ overall 
inventory levels to rise six times faster than their overall sales of finished products to 
retailers. 
 
COCA-COLA’S GALLON PUSHING PUT FUTURE INCOME AT RISK 
 
21. CCJC forecasted and tracked its actual results against its annual business plan 
throughout the year in monthly “rolling estimates.”  In addition to containing balance sheet 
and income statement information, CCJC’s rolling estimates included concentrate sales to 
bottlers, bottlers’ sales to retailers, and estimated bottlers’ inventory levels. 
 
22. CCJC’s rolling estimates also included summary sections explaining any 
substantial variances within the rolling estimate as compared to the preexisting annual 
business plan.  These variance summaries typically indicated that in the first and second 
month of reporting periods between 1997 and 1999, gallon sales of concentrate and the 
corresponding income generated by these concentrate sales were lower than expected as a 
result of gallon pushing in the prior period.  The rolling estimates further illustrated that 
gallon pushing during the third and final month of a reporting period was necessary for 
CCJC to return to the sales and income targets contained within its annual business plan.   
 
23. The monthly rolling estimate analyses submitted by CCJC illustrate that gallon 
pushing during one reporting period negatively impacted the concentrate sales and income 
that would be generated in the following reporting period. 
 
24. CCJC also generated internal bottler inventory reports and bottler sales reports, 
typically broken down into “major brand” categories.  The bottler inventory reports 
indicated that bottlers were carrying inventory levels of Georgia Coffee and Coke that, 
even considering their higher sales volume as compared to other products, were in excess 
of all other products.  The bottler sales reports further indicated that although Georgia 
Coffee and Coke were two of the highest volume products for bottlers, overall bottler sales 
of Georgia Coffee and Coke were in fact decreasing compared to prior periods. 
 
25. Moreover, since gallon pushing was designed to address earnings shortfalls rather 
than actual forecasted demand for the current quarter, gallon pushing increased bottler 
inventories of Georgia Coffee and Coke beyond what bottlers required to satisfy demand 
for the period. 
 
26. During 1999, bottler inventory levels had increased to the point that gallon pushing 
could no longer be implemented at desired levels.  In May 1999, a request from Coca-Cola 
was made to CCJC for a specific amount of income to be generated to assist Coca-Cola in 
eliminating a consolidated earnings shortfall for the second quarter.  CCJC declined the 
request because CCJC had already incorporated and planned a gallon push as part of 
 
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meeting its annual business plan and thought that it was impractical for bottlers to purchase 
even more concentrate to address Coca-Cola’s anticipated earnings shortfall. 
 
27. During the fourth quarter of 1999, CCJC conducted its largest gallon push – 
generating revenue in excess of $208 million.  This fourth quarter 1999 gallon push 
contributed roughly $0.02 to Coca-Cola’s consolidated earnings and, absent one time 
items, enabled Coca-Cola to meet its modified earnings expectations.  While in the process 
of implementing this gallon push, employees of CCJC’s finance department contacted 
officers and employees of Coca-Cola and informed them that gallon pushing had reached 
its maximum limit and was not sustainable at existing levels.  Coca-Cola’s future inability 
to gallon push at existing levels necessitated that gallon pushing either significantly 
decrease in scope or cease entirely – either of which would result in a substantial decrease 
in revenue and income flowing to Coca-Cola from CCJC. 
 
28. At no time between 1997 and 1999 did Coca-Cola disclose any information from 
which investors could determine the existence of gallon pushing, the impact of such gallon 
pushing on current income, or the likely impact of gallon pushing on future income. 
 
COCA-COLA ISSUED A FORM 8-K  
CONTAINING FALSE AND MISLEADING STATEMENTS  
 
29. On January 26, 2000, Coca-Cola filed a Form 8-K with the Commission which 
disclosed, among other things, a worldwide concentrate inventory reduction planned to 
occur during the first half of the year 2000.  The inventory reduction was to be 
accomplished by Coca-Cola’s operating divisions, specifically including CCJC, ceasing to 
sell concentrate to bottlers until bottlers naturally reduced their inventory to purported 
“optimum” levels.  The impact on Coca-Cola’s earnings for the first and second quarter of 
2000 was estimated to be between $0.11 and $0.13 per share. 
 
30. In describing the inventory reduction, Coca-Cola stated that: (a) “[t]hroughout the 
past several months, [Coca-Cola had] worked with bottlers around the world to determine 
the optimum level of bottler inventory;” (b) the management of Coca-Cola and its bottlers, 
specifically including bottlers in Japan, had jointly determined “that opportunities exist to 
reduce concentrate inventory carried by bottlers;” and (c) certain bottlers throughout the 
world, specifically including those in Japan, had “indicated that they intend to reduce their 
inventory levels during the first half of the year 2000.” 
 
31. These statements are false and misleading as a review of inventory levels in the 
context of determining an optimum level for bottlers had not occurred throughout the past 
several months.  Such a review did not take place until, at the earliest, January 2000 – 
immediately after the fourth quarter 1999 gallon push had occurred and CCJC finance 
employees had informed Coca-Cola that gallon pushing could not continue at existing 
levels.  Moreover, Coca-Cola did not identify a single bottler that, prior to the Form 8-K 
being filed, was aware of any planned inventory reduction. 
 
 
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32. The Form 8-K further is misleading in that, despite its language describing the 
inventory reduction as a joint proactive efficiency measure between Coca-Cola and its 
bottlers, the inventory reduction was in fact solely a Coca-Cola initiative.  In addition, the 
Form 8-K did not disclose that of the estimated $0.11 to $0.13 impact to earnings for the 
Company as a whole, more than $0.05 would be attributable to an anticipated reduction of 
sales for Japan.  CCJC’s portion of the estimated gross profit impact was more than five 
times greater than that of any other operating division in the world. 
 
COCA-COLA’S VIOLATIONS OF SECTIONS  
17(A)(2) AND 17(A)(3) OF THE SECURITIES ACT 
 
33. Sections 17(a)(2) and 17(a)(3) of the Securities Act prohibit making untrue 
statements of fact and misleading omissions of facts in the offer or sale of a security. 
Section 17(a)(2) specifically proscribes obtaining “money or property by means of any 
untrue statement of a material fact or any omission to state a material fact necessary in 
order to make the statements made, in light of the circumstances under which they were 
made, not misleading.”  Section 17(a)(3) specifically proscribes engaging “in any 
transaction, practice, or course of business which operates or would operate as a fraud or 
deceit upon the purchaser.”  To constitute a violation of Sections 17(a)(2) and 17(a)(3), the 
alleged untrue statements or omitted facts must be material.  Information is deemed 
material upon a showing of a substantial likelihood that the misrepresented or omitted facts 
would have assumed significance in the investment deliberations of a reasonable investor. 
 
Basic, Inc. v. Levinson
, 485 U.S. 224 (1988). Establishing violations of Sections 17(a)(2) 
and 17(a)(3) does not require a showing of scienter; negligence is sufficient. 
Aaron v. SEC, 
446 U.S. 680 (1980); 
SEC v. Hughes Capital Corp., 124 F.3d 449, 453-54 (3d Cir. 1997). 
 
34. As set forth above, Coca-Cola’s Forms 10-K and 10-Q for the reporting periods 
between 1997 and 1999, certain of which were incorporated by reference in Coca-Cola’s  
S-8 Registration Statements filed with the Commission, were misleading in that they failed 
to disclose within 
Management’s Discussion and Analysis of Financial Condition and 
Results of Operations (“MD&A”), or anywhere else within such filings, the existence of 
gallon pushing, the impact on Coca-Cola’s current income of gallon pushing, and the likely 
impact of gallon pushing on its future income.  In addition to the substantial likelihood that 
in making a decision regarding an investment in Coca-Cola, a
 reasonable investor, or 
potential investor, would have wanted to know of the existence and purpose of gallon 
pushing as an end of period sales practice, 
gallon pushing was further material in that in 8 
out of 12 reporting periods from 1997 to 1999 and 6 out of 8 reporting periods from 1998 
to 1999, it provided the income necessary for Coca-Cola to meet its modified earnings 
expectations. 
 
35. The investing public and analysts following Coca-Cola could not discern this 
information from the public disclosures made by the Company.  Based on the conduct 
described above, Coca-Cola violated Sections 17(a)(2) and 17(a)(3) of the Securities Act 
with respect to its Forms 10-K and 10-Q filed with the Commission between 1997 and 
1999 and incorporated by reference into its S-8 Registration Statements filed with the 
Commission between 1997 and 2000. 
 
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36. As set forth above, Coca-Cola’s January 26, 2000, Form 8-K filed with the 
Commission contained false statements concerning the existence of a several month long 
optimum inventory study conducted as a joint effort between Coca-Cola and its bottlers.  
Additionally, the Form 8-K was misleading by omission as it failed to disclose the impact 
of past gallon pushing practices in Japan in the context of the planned inventory reduction.  
There is a substantial likelihood that the false statements surrounding the inventory 
reduction and misleading omissions regarding gallon pushing within the Form 8-K would 
have assumed significance in the investment deliberations of a reasonable investor.  Based 
on the conduct described above, Coca-Cola violated Sections 17(a)(2) and 17(a)(3) of the 
Securities Act with respect to its January 26, 2000 Form 8-K filed with the Commission 
and incorporated by reference into its S-8 Registration Statements filed between 1997 and 
2000. 
 
COCA-COLA’S REPORTING VIOLATIONS: SECTION 13(a) OF THE  
EXCHANGE ACT AND RULES 12b-20, 13a-1, 13a-11, AND 13a-13 THEREUNDER 
 
37. Section 13(a) of the Exchange Act requires issuers such as Coca-Cola to file 
periodic reports with the Commission containing such information as the Commission 
prescribes by rule. Exchange Act Rules 13a-1, 13a-11, and 13a-13 require, respectively, 
issuers to file Forms 10-K, 8-K, and 10-Q.  Under Exchange Act Rule 12b-20, the reports 
must contain, in addition to disclosures expressly required by statute and rules, such other 
information as is necessary to ensure that the statements made are not, under the 
circumstances, materially misleading.  The obligation to file reports includes the 
requirement that the reports be true and correct.  
United States v. Bilzerian, 926 F.2d 1285, 
1298 (2d Cir. 1991). The reporting provisions are violated if false and misleading reports 
are filed.  SEC v. Falstaff Brewing Corp., 629 F.2d 62, 67 (D.C. Cir. 1980). Scienter is not 
an element of a Section 13(a) violation.  
SEC v. Savoy Indus., Inc., 587 F.2d 1149,1167 
(D.C. Cir. 1978). 
 
38. As set forth above, Coca-Cola’s Forms 10-K and 10-Q for the reporting periods 
between 1997 and 1999 were materially misleading because they failed to disclose the 
existence of gallon pushing, the impact of gallon pushing on current earnings, and the 
likely impact of gallon pushing on future earnings. 
 
39. Additionally, Regulation S-K Item 303 requires registrants to disclose in the 
MD&A sections of required periodic filings “any known trends or uncertainties that have 
had or that the registrant reasonably expects will have a material ... unfavorable impact on 
net sales or revenues or income from continuing operations.”  The failure to comply with 
Regulation S-K constitutes a violation under Section 13(a) of the Exchange Act.   
 
40. Contrary to the requirements of Regulation S-K, Coca-Cola failed to disclose the 
material impact of gallon pushing on current and future income within its required MD&A 
sections. 
 
 
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41. As set forth above, Coca-Cola’s Form 8-K filed with the Commission on January 
26, 2000 was materially false and misleading. 
 
42. Based on the conduct described above, Coca-Cola violated Section 13(a) of the 
Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. 
 
REMEDIAL EFFORTS
 
43. In determining to accept the Offer, the Commission considered the following 
remedial efforts that the Respondent initiated prior to and during the Commission staff’s 
investigation: 
 
a. Coca-Cola has established an Ethics & Compliance Office to administer its 
Code of Business Conduct and ensure, among other things, that the Respondent 
conducts its business in compliance with the Code of Business Conduct and with 
various laws; 
 
b. Coca-Cola has established a Disclosure Committee to assist its Chief 
Executive Officer and Chief Financial Officer in fulfilling their responsibility for 
oversight of the accuracy and timeliness of the disclosures made by Coca-Cola; 
 
c. Coca-Cola now requires that its divisions certify quarterly that they have not 
changed or extended payment terms for any bottler or customer and have not 
granted any special or unusual credit terms or incentives to any bottler or customer, 
unless they received approval for such terms; and 
 
d. Coca-Cola’s Audit Committee employs independent counsel experienced in 
securities laws disclosure issues and will continue to employ such experienced legal 
counsel chosen by the Audit Committee.  Such counsel shall advise the Audit 
Committee as to implementation of the undertakings in this Order. 
 
UNDERTAKINGS
 
44. Respondent has undertaken to: 
 
a. Permanently maintain the aforementioned remedial efforts or the functional 
equivalents thereof, except as may be approved by the Commission; 
 
b. Require the Audit Committee, within 90 days of the date of this Order, to 
review with management of Respondent the process by which the MD&A sections 
of periodic reports filed by Respondent with the Commission are prepared and 
material information about the business and prospects, including but not limited to, 
trend information and known events and uncertainties that may have a material 
impact on liquidity or future financial performance, is identified for discussion in 
the MD&A sections of such reports, and to approve a set of criteria to be used by 
the Disclosure Committee and management to reasonably assure that appropriate 
 
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items are identified and discussed.  The Audit Committee will meet periodically, at 
least annually, with the Chair of the Disclosure Committee to review such criteria, 
and will review and discuss with the Chief Financial Officer the proposed MD&A 
section of each periodic report to be filed with the Commission; 
 
c. Require the Disclosure Committee to: (i) use the aforementioned criteria to 
identify items that might need to be disclosed within the MD&A section of 
Respondent’s periodic reports filed with the Commission; and (ii) use the 
aforementioned criteria to evaluate those items and recommend whether, and to 
what extent, disclosure is appropriate with respect to each item.  The Chair of the 
Disclosure Committee will also report to the Audit Committee, on a quarterly basis, 
any recommended departures from the aforementioned criteria and the rationale 
supporting each such recommendation; 
 
d. Adhere to the guidance articulated in SEC Staff Accounting Bulletin No. 
101 on disclosures that are required with respect to the recognition of revenue; 
 
e. Maintain for ten (10) years documentation sufficient to show for every of its 
Forms 8-K filed with the Commission, the preparers of each Form 8-K and those 
persons who reviewed and approved each Form 8-K; and 
 
f. Provide a written report, within 120 days of the date of this Order, to the 
Commission staff that details the Respondent’s implementation of the undertakings 
articulated herein.  
 
45. In determining whether to accept the Offer, the Commission has considered the 
remedial acts promptly undertaken by Respondent and cooperation afforded the 
Commission staff.  
 
IV. 
 
 In view of the foregoing, the Commission deems it appropriate to impose the 
sanctions specified in Respondent Coca-Cola’s Offer. 
 
 ACCORDINGLY, IT IS HEREBY ORDERED: 
 
 Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, 
Coca-Cola cease and desist from committing or causing any violations and any future 
violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 13(a) of the 
Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. 
 
            By            the            Commission.            
 
       Jonathan G. Katz 
       Secretary 
 
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UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES ACT OF 1933 
Release No. 8569 / April 18, 2005 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 51565 / April 18, 2005 
 
ACCOUNTING AND AUDITING ENFORCEMENT 
Release No. 2232 / April 18, 2005 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-11902 
 
 
In the Matter of 
 

The Coca-Cola Company,  
 
Respondent. 
 

ORDER INSTITUTING CEASE-
AND-DESIST PROCEEDINGS, 
MAKING FINDINGS AND 
IMPOSING A CEASE-AND-
DESIST ORDER PURSUANT TO 
SECTION 8A OF THE 
SECURITIES ACT OF 1933 AND 
SECTION 21C OF THE 
SECURITIES EXCHANGE ACT 
OF 1934  

 
I. 

 
 The Securities and Exchange Commission (“Commission”) deems it appropriate 
that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of 
the Securities Act of 1933 (“Securities Act”) and Section 21C of the Securities Exchange 
Act of 1934 (“Exchange Act”) as to The Coca-Cola Company (“Coca-Cola” or 
“Respondent”). 
 

II. 
 
 In anticipation of the institution of these proceedings, Respondent has submitted an 
Offer of Settlement (the “Offer”) which the Commission has determined to accept.  Solely 
for the purpose of these proceedings and any other proceedings brought by or on behalf of 
the Commission, or to which the Commission is a party, and without admitting or denying 
the findings herein, except as to the Commission’s jurisdiction over it and the subject 
matter of these proceedings, Respondent consents to the entry of this Order Instituting 
Cease-and-Desist Proceedings, Making Findings and Imposing a Cease-and-Desist Order 
Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities 
Exchange Act of 1934 (“Order”), as set forth below. 



 
III. 

 
 On the basis of this Order and Respondent’s Offer, the Commission finds that:1

 
RESPONDENT

 
1. Coca-Cola is a Delaware corporation headquartered in Atlanta, Georgia.  Coca-
Cola’s common stock is registered with the Commission under Section 12(b) of the 
Exchange Act and trades on the New York Stock Exchange under the symbol KO.  Coca-
Cola is the largest manufacturer, distributor and marketer of nonalcoholic beverage 
concentrates and syrups in the world.  Coca-Cola’s reported net operating revenues for 
the past ten years have ranged between $16 billion and $22 billion. 
 
2. Coca-Cola offered and sold securities in registered offerings during 1997, 1999 and 
2000.  Specifically, Coca-Cola conducted securities offerings pursuant to employee benefit 
plans and S-8 Registration Statements filed with the Commission in May 1997, May 1999 
and April 2000, which incorporated by reference certain Forms 10-K, 10-Q and 8-K filed 
by Coca-Cola during this period. 
 

RELEVANT ENTITY
 
3. The Coca-Cola (Japan) Company, Ltd. (“CCJC”) is a Japanese corporation and 
wholly-owned subsidiary of Coca-Cola.  CCJC is engaged in the marketing, manufacture 
and distribution of Coca-Cola beverage concentrate in Japan.   Historically, CCJC is one of 
Coca-Cola’s two or three greatest sources of net operating revenue and, on a per gallon of 
concentrate sold basis, CCJC is the most profitable operating division of Coca-Cola 
throughout the world. 
 

COCA-COLA HAD AN ESTABLISHED HISTORY 
OF MEETING OR EXCEEDING EARNINGS EXPECTATIONS 

 
4. From 1990 through 1996, Coca-Cola consistently met or exceeded earnings 
expectations while achieving a compound annual earnings per share growth rate of 18.3 
percent – more than twice the average growth rate of the S&P 500.  Coca-Cola’s superior 
earnings performance resulted in its common stock trading at a price to earnings multiple 
(“P/E Ratio”) of 38.1 by the end of 1996, as compared to the S&P 500’s P/E Ratio of 20.8. 
 
5. In the mid-1990s, Coca-Cola began experiencing increased competition and more 
difficult economic environments.  Nevertheless, Coca-Cola publicly maintained between 
1996 and 1999 that it expected its earnings per share to continue to grow between 15 
percent and 20 percent annually. 
 
                                                 

1 The findings herein are made pursuant to Coca-Cola’s Offer of Settlement and 
are not binding on any other person or entity in this or any other proceeding. 

 -2-



COCA-COLA “GALLON PUSHED” IN JAPAN TO MEET  
BUSINESS PLAN TARGETS AND EARNINGS EXPECTATIONS 

 
6. At or near the end of each reporting period between 1997 and 1999, Coca-Cola, 
through its officers and employees implemented a “channel stuffing” practice in Japan 
known as “gallon pushing.”  In connection with this practice, CCJC asked bottlers in Japan 
to make additional purchases of concentrate for the purpose of generating revenue to meet 
both annual business plan and earnings targets.  The income generated by gallon pushing in 
Japan was the difference between Coca-Cola meeting or missing analysts’ consensus or 
modified consensus earnings estimates for 8 out of 12 quarters from 1997 through 1999. 
 
7. To accomplish gallon pushing’s purpose, at or near the end of reporting periods 
CCJC offered extended credit terms to bottlers, as described below, to induce them to 
purchase quantities of concentrate the bottlers otherwise would not have purchased until a 
following period.  The quantities of concentrate CCJC sold to its bottlers in connection 
with a gallon push were in excess of the bottlers’ forecasted demand; the bottlers 
nevertheless purchased the concentrate to preserve their relationships with Coca-Cola. 
 
8. Concentrate sales by CCJC to its bottlers typically track and correspond to 
anticipated and actual bottler sales of finished products to retailers.  Increases in the 
inventory level of concentrate held by bottlers often anticipate increases in sales of finished 
products.  As a result of gallon pushing, however, concentrate inventory levels at CCJC’s 
bottlers increased more than 60 percent from the start of 1997 through the close of 1999.  
During this same time, bottler sales of finished products to retailers only increased 
approximately 11 percent. 
 
9. Coca-Cola estimated its bottlers’ inventory levels, forecasted purchasing demand, 
and was aware that quarter-end gallon pushing likely could not continue at existing levels 
and likely would cause a corresponding reduction in sales in a future period.  At no point 
between 1997 and 1999, however, did Coca-Cola publicly disclose to shareholders the 
existence of gallon pushing, the impact of gallon pushing on its current income, or the 
likely impact of gallon pushing on its future income. 
 

COCA-COLA GALLON PUSHED  
ITS MOST PROFITABLE PRODUCTS 

 
10. In connection with gallon pushes, bottlers primarily purchased only two products:  
Georgia Coffee, a canned flavored coffee beverage, and branded Coca-Cola (“Coke”).  
Georgia Coffee and Coke were typically two of the highest sales volume products for 
CCJC to its bottlers.  Additionally, of Coca-Cola’s major products, Georgia Coffee and 
Coke were two of the highest profit-margin per gallon products CCJC could include in a 
gallon push.  From Coca-Cola and CCJC’s perspective, therefore, in order to generate sales 
sufficient to meet the additional income targets, it was most efficient to push the bottlers to 
purchase additional gallons of Georgia Coffee and Coke. 
 

 -3-



11. For CCJC’s bottlers, however, sales of Georgia Coffee and Coke to retailers were 
actually declining from 1997 through 1999.  Hence, Coca-Cola, through CCJC, was 
inducing its bottlers to purchase quantities of concentrate that were in excess of forecasted 
sales demand for the current quarter. 
 
12. Gallon pushing for the purpose of meeting earnings expectations occurred at no 
Coca-Cola operating division other than CCJC.  As CCJC was Coca-Cola’s single most 
profitable division throughout the world on a per gallon of concentrate sold basis, it was by 
far the most efficient location from which to push additional inventory for the purpose of 
managing earnings. 
 

CCJC IMPLEMENTED GALLON PUSHING  
THROUGH THE USE OF EXTENDED CREDIT TERMS 

 
13. To encourage bottlers to purchase additional concentrate, CCJC extended more 
favorable credit terms than usual to bottlers, typically increasing payment terms from eight 
to twenty-eight or thirty days.  No rights of return on gallons sold pursuant to gallon 
pushing were offered to bottlers, and no concentrate sold pursuant to gallon pushing was 
returned to CCJC or Coca-Cola.  All concentrate sold pursuant to gallon pushing was paid 
for by the bottlers. 
 
14. CCJC’s extension of credit terms required the express approval of certain of Coca-
Cola’s officers and employees in Atlanta.   In order to obtain approval for credit extensions, 
CCJC’s finance department was required to submit formal Requests for Authorization 
which identified both the approximate amount of gallons of concentrate to be sold with the 
extended credit terms and the approximate amount of revenue to be generated by the 
additional sales. 
 
15. After receiving approved Requests for Authorization back from Atlanta, CCJC’s 
finance department then contacted its bottlers’ finance departments, offering the more 
favorable credit terms and requesting that the bottlers purchase specific quantities of 
concentrate above the amounts that the bottlers already had planned to purchase to meet 
forecasted demand for the period.  In contrast to sales made in connection with a gallon 
push, routine concentrate sales involved CCJC’s sales and marketing departments 
corresponding with the bottlers’ purchasing departments. 
 

COCA-COLA’S RECURRING USE OF GALLON PUSHING TO 
MEET ITS BUSINESS PLAN TARGETS AND EARNINGS ESTIMATES  

 
16. Gallon pushing shifted concentrate purchases that bottlers would have made in a 
future period into the then current period.  As a result, the previous period’s gallon push 
caused bottlers to start the next quarter with more inventory than they anticipated needing 
to meet forecasted demand and caused CCJC to start the future period with a sales 
“deficit.”  In order to avoid selling less concentrate in the future period as a result of the 
previous period’s gallon push, and having to lower income targets, Coca-Cola instead 

 -4-



would engage in another gallon push, again shifting future sales and income to the present 
period. 
 
17. CCJC’s gallon pushing practice was incorporated into its annual business plans – 
not simply for the purpose of increasing sales and meeting Coca-Cola’s future earnings 
targets, but also to prevent a decrease in concentrate sales and corresponding decrease in 
earnings in the present period.  Gallon pushing therefore became a recurrent component of 
CCJC’s annual business plan as Coca-Cola refused to allow CCJC to suffer the sales and 
income declines resulting from a prior gallon push. 
 
18. The chart below shows the estimated volume of gallons pushed and revenue 
generated thereby for each quarter from 1997 through 1999.  In order to meet annual 
business plan targets and consolidated earnings estimates CCJC continually had to push 
more and more gallons of concentrate on the bottlers.  At the end of the fourth quarter of 
1999, nearly one out of every two gallons of concentrate held in inventory by CCJC’s 
bottlers had been sold in connection with a gallon push. 
 

Reporting 
Period 

Bottlers Ending 
Inventory (in gallons) 

Gallons 
Pushed  

Revenue Generated  
from Gallon Push 

Q1 1997   15,571,000    3,317,000   $46,201,000 
Q2 1997   18,408,000   4,380,000   $64,850,000 
Q3 1997   17,569,000   3,012,000   $62,949,000 
Q4 1997   20,016,000   8,090,000   $131,541,000 
    

Q1 1998   15,180,000   1,000,000   $17,061,000 
Q2 1998   20,363,000   7,117,000   $98,253,000 
Q3 1998   17,526,000   5,171,000   $79,807,000 
Q4 1998   21,800,000   9,659,000   $181,331,000 
    

Q1 1999   17,053,000   4,180,000   $67,644,000 
Q2 1999   23,544,000   8,181,000   $126,131,000 
Q3 1999   18,833,000   7,105,000   $128,519,000 
Q4 1999   22,017,000   10,116,000   $208,900,000 

 
GALLON PUSHING INCREASED BOTTLER INVENTORY  
LEVELS  BEYOND WHAT WAS NECESSARY TO MEET  

FORECASTED DEMAND FOR THE PERIOD 
 
19. For year end 1996 through year end 1999, bottler sales of finished products to 
retailers in Japan increased approximately 11 percent in the aggregate amount.  As sales of 
finished products by bottlers drive the sale of concentrate by CCJC, inventory levels at 
CCJC’s bottlers should have increased approximately by a corresponding amount during 
this same time period.  Gallon pushing, however, caused bottler inventory levels to increase 
62 percent during this time period – a rate approximately six times greater than the increase 
in bottler sales to retailers.   Hence, gallon pushing resulted in Japanese bottlers carrying 
significantly higher levels of inventory than was necessary to meet forecasted demand in 
the current quarter. 
 

 -5-



20. The concentrate inventory versus sales of finished products disparity was even 
greater with respect to Georgia Coffee and Coke.  Given that sales by bottlers to retailers of 
Georgia Coffee and Coke were in fact declining between 1997 and 1999, inventory levels 
of Georgia Coffee and Coke should have declined as well.  Yet, it was gallon pushed sales 
of Georgia Coffee and Coke concentrate alone that were causing the bottlers’ overall 
inventory levels to rise six times faster than their overall sales of finished products to 
retailers. 
 

COCA-COLA’S GALLON PUSHING PUT FUTURE INCOME AT RISK 
 
21. CCJC forecasted and tracked its actual results against its annual business plan 
throughout the year in monthly “rolling estimates.”  In addition to containing balance sheet 
and income statement information, CCJC’s rolling estimates included concentrate sales to 
bottlers, bottlers’ sales to retailers, and estimated bottlers’ inventory levels. 
 
22. CCJC’s rolling estimates also included summary sections explaining any 
substantial variances within the rolling estimate as compared to the preexisting annual 
business plan.  These variance summaries typically indicated that in the first and second 
month of reporting periods between 1997 and 1999, gallon sales of concentrate and the 
corresponding income generated by these concentrate sales were lower than expected as a 
result of gallon pushing in the prior period.  The rolling estimates further illustrated that 
gallon pushing during the third and final month of a reporting period was necessary for 
CCJC to return to the sales and income targets contained within its annual business plan.   
 
23. The monthly rolling estimate analyses submitted by CCJC illustrate that gallon 
pushing during one reporting period negatively impacted the concentrate sales and income 
that would be generated in the following reporting period. 
 
24. CCJC also generated internal bottler inventory reports and bottler sales reports, 
typically broken down into “major brand” categories.  The bottler inventory reports 
indicated that bottlers were carrying inventory levels of Georgia Coffee and Coke that, 
even considering their higher sales volume as compared to other products, were in excess 
of all other products.  The bottler sales reports further indicated that although Georgia 
Coffee and Coke were two of the highest volume products for bottlers, overall bottler sales 
of Georgia Coffee and Coke were in fact decreasing compared to prior periods. 
 
25. Moreover, since gallon pushing was designed to address earnings shortfalls rather 
than actual forecasted demand for the current quarter, gallon pushing increased bottler 
inventories of Georgia Coffee and Coke beyond what bottlers required to satisfy demand 
for the period. 
 
26. During 1999, bottler inventory levels had increased to the point that gallon pushing 
could no longer be implemented at desired levels.  In May 1999, a request from Coca-Cola 
was made to CCJC for a specific amount of income to be generated to assist Coca-Cola in 
eliminating a consolidated earnings shortfall for the second quarter.  CCJC declined the 
request because CCJC had already incorporated and planned a gallon push as part of 

 -6-



meeting its annual business plan and thought that it was impractical for bottlers to purchase 
even more concentrate to address Coca-Cola’s anticipated earnings shortfall. 
 
27. During the fourth quarter of 1999, CCJC conducted its largest gallon push – 
generating revenue in excess of $208 million.  This fourth quarter 1999 gallon push 
contributed roughly $0.02 to Coca-Cola’s consolidated earnings and, absent one time 
items, enabled Coca-Cola to meet its modified earnings expectations.  While in the process 
of implementing this gallon push, employees of CCJC’s finance department contacted 
officers and employees of Coca-Cola and informed them that gallon pushing had reached 
its maximum limit and was not sustainable at existing levels.  Coca-Cola’s future inability 
to gallon push at existing levels necessitated that gallon pushing either significantly 
decrease in scope or cease entirely – either of which would result in a substantial decrease 
in revenue and income flowing to Coca-Cola from CCJC. 
 
28. At no time between 1997 and 1999 did Coca-Cola disclose any information from 
which investors could determine the existence of gallon pushing, the impact of such gallon 
pushing on current income, or the likely impact of gallon pushing on future income. 

 
COCA-COLA ISSUED A FORM 8-K  

CONTAINING FALSE AND MISLEADING STATEMENTS  
 

29. On January 26, 2000, Coca-Cola filed a Form 8-K with the Commission which 
disclosed, among other things, a worldwide concentrate inventory reduction planned to 
occur during the first half of the year 2000.  The inventory reduction was to be 
accomplished by Coca-Cola’s operating divisions, specifically including CCJC, ceasing to 
sell concentrate to bottlers until bottlers naturally reduced their inventory to purported 
“optimum” levels.  The impact on Coca-Cola’s earnings for the first and second quarter of 
2000 was estimated to be between $0.11 and $0.13 per share. 
 
30. In describing the inventory reduction, Coca-Cola stated that: (a) “[t]hroughout the 
past several months, [Coca-Cola had] worked with bottlers around the world to determine 
the optimum level of bottler inventory;” (b) the management of Coca-Cola and its bottlers, 
specifically including bottlers in Japan, had jointly determined “that opportunities exist to 
reduce concentrate inventory carried by bottlers;” and (c) certain bottlers throughout the 
world, specifically including those in Japan, had “indicated that they intend to reduce their 
inventory levels during the first half of the year 2000.” 
 
31. These statements are false and misleading as a review of inventory levels in the 
context of determining an optimum level for bottlers had not occurred throughout the past 
several months.  Such a review did not take place until, at the earliest, January 2000 – 
immediately after the fourth quarter 1999 gallon push had occurred and CCJC finance 
employees had informed Coca-Cola that gallon pushing could not continue at existing 
levels.  Moreover, Coca-Cola did not identify a single bottler that, prior to the Form 8-K 
being filed, was aware of any planned inventory reduction. 
 

 -7-



32. The Form 8-K further is misleading in that, despite its language describing the 
inventory reduction as a joint proactive efficiency measure between Coca-Cola and its 
bottlers, the inventory reduction was in fact solely a Coca-Cola initiative.  In addition, the 
Form 8-K did not disclose that of the estimated $0.11 to $0.13 impact to earnings for the 
Company as a whole, more than $0.05 would be attributable to an anticipated reduction of 
sales for Japan.  CCJC’s portion of the estimated gross profit impact was more than five 
times greater than that of any other operating division in the world. 
 

COCA-COLA’S VIOLATIONS OF SECTIONS  
17(A)(2) AND 17(A)(3) OF THE SECURITIES ACT 

 
33. Sections 17(a)(2) and 17(a)(3) of the Securities Act prohibit making untrue 
statements of fact and misleading omissions of facts in the offer or sale of a security. 
Section 17(a)(2) specifically proscribes obtaining “money or property by means of any 
untrue statement of a material fact or any omission to state a material fact necessary in 
order to make the statements made, in light of the circumstances under which they were 
made, not misleading.”  Section 17(a)(3) specifically proscribes engaging “in any 
transaction, practice, or course of business which operates or would operate as a fraud or 
deceit upon the purchaser.”  To constitute a violation of Sections 17(a)(2) and 17(a)(3), the 
alleged untrue statements or omitted facts must be material.  Information is deemed 
material upon a showing of a substantial likelihood that the misrepresented or omitted facts 
would have assumed significance in the investment deliberations of a reasonable investor.  
Basic, Inc. v. Levinson, 485 U.S. 224 (1988). Establishing violations of Sections 17(a)(2) 
and 17(a)(3) does not require a showing of scienter; negligence is sufficient. Aaron v. SEC, 
446 U.S. 680 (1980); SEC v. Hughes Capital Corp., 124 F.3d 449, 453-54 (3d Cir. 1997). 
 
34. As set forth above, Coca-Cola’s Forms 10-K and 10-Q for the reporting periods 
between 1997 and 1999, certain of which were incorporated by reference in Coca-Cola’s  
S-8 Registration Statements filed with the Commission, were misleading in that they failed 
to disclose within Management’s Discussion and Analysis of Financial Condition and 
Results of Operations (“MD&A”), or anywhere else within such filings, the existence of 
gallon pushing, the impact on Coca-Cola’s current income of gallon pushing, and the likely 
impact of gallon pushing on its future income.  In addition to the substantial likelihood that 
in making a decision regarding an investment in Coca-Cola, a reasonable investor, or 
potential investor, would have wanted to know of the existence and purpose of gallon 
pushing as an end of period sales practice, gallon pushing was further material in that in 8 
out of 12 reporting periods from 1997 to 1999 and 6 out of 8 reporting periods from 1998 
to 1999, it provided the income necessary for Coca-Cola to meet its modified earnings 
expectations. 
 
35. The investing public and analysts following Coca-Cola could not discern this 
information from the public disclosures made by the Company.  Based on the conduct 
described above, Coca-Cola violated Sections 17(a)(2) and 17(a)(3) of the Securities Act 
with respect to its Forms 10-K and 10-Q filed with the Commission between 1997 and 
1999 and incorporated by reference into its S-8 Registration Statements filed with the 
Commission between 1997 and 2000. 

 -8-



 
36. As set forth above, Coca-Cola’s January 26, 2000, Form 8-K filed with the 
Commission contained false statements concerning the existence of a several month long 
optimum inventory study conducted as a joint effort between Coca-Cola and its bottlers.  
Additionally, the Form 8-K was misleading by omission as it failed to disclose the impact 
of past gallon pushing practices in Japan in the context of the planned inventory reduction.  
There is a substantial likelihood that the false statements surrounding the inventory 
reduction and misleading omissions regarding gallon pushing within the Form 8-K would 
have assumed significance in the investment deliberations of a reasonable investor.  Based 
on the conduct described above, Coca-Cola violated Sections 17(a)(2) and 17(a)(3) of the 
Securities Act with respect to its January 26, 2000 Form 8-K filed with the Commission 
and incorporated by reference into its S-8 Registration Statements filed between 1997 and 
2000. 
 

COCA-COLA’S REPORTING VIOLATIONS: SECTION 13(a) OF THE  
EXCHANGE ACT AND RULES 12b-20, 13a-1, 13a-11, AND 13a-13 THEREUNDER 
 
37. Section 13(a) of the Exchange Act requires issuers such as Coca-Cola to file 
periodic reports with the Commission containing such information as the Commission 
prescribes by rule. Exchange Act Rules 13a-1, 13a-11, and 13a-13 require, respectively, 
issuers to file Forms 10-K, 8-K, and 10-Q.  Under Exchange Act Rule 12b-20, the reports 
must contain, in addition to disclosures expressly required by statute and rules, such other 
information as is necessary to ensure that the statements made are not, under the 
circumstances, materially misleading.  The obligation to file reports includes the 
requirement that the reports be true and correct.  United States v. Bilzerian, 926 F.2d 1285, 
1298 (2d Cir. 1991). The reporting provisions are violated if false and misleading reports 
are filed.  SEC v. Falstaff Brewing Corp., 629 F.2d 62, 67 (D.C. Cir. 1980). Scienter is not 
an element of a Section 13(a) violation.  SEC v. Savoy Indus., Inc., 587 F.2d 1149,1167 
(D.C. Cir. 1978). 
 
38. As set forth above, Coca-Cola’s Forms 10-K and 10-Q for the reporting periods 
between 1997 and 1999 were materially misleading because they failed to disclose the 
existence of gallon pushing, the impact of gallon pushing on current earnings, and the 
likely impact of gallon pushing on future earnings. 
 
39. Additionally, Regulation S-K Item 303 requires registrants to disclose in the 
MD&A sections of required periodic filings “any known trends or uncertainties that have 
had or that the registrant reasonably expects will have a material … unfavorable impact on 
net sales or revenues or income from continuing operations.”  The failure to comply with 
Regulation S-K constitutes a violation under Section 13(a) of the Exchange Act.   
 
40. Contrary to the requirements of Regulation S-K, Coca-Cola failed to disclose the 
material impact of gallon pushing on current and future income within its required MD&A 
sections. 
 

 -9-



41. As set forth above, Coca-Cola’s Form 8-K filed with the Commission on January 
26, 2000 was materially false and misleading. 
 
42. Based on the conduct described above, Coca-Cola violated Section 13(a) of the 
Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. 
 

REMEDIAL EFFORTS
 
43. In determining to accept the Offer, the Commission considered the following 
remedial efforts that the Respondent initiated prior to and during the Commission staff’s 
investigation: 
 

a. Coca-Cola has established an Ethics & Compliance Office to administer its 
Code of Business Conduct and ensure, among other things, that the Respondent 
conducts its business in compliance with the Code of Business Conduct and with 
various laws; 

 
b. Coca-Cola has established a Disclosure Committee to assist its Chief 
Executive Officer and Chief Financial Officer in fulfilling their responsibility for 
oversight of the accuracy and timeliness of the disclosures made by Coca-Cola; 

 
c. Coca-Cola now requires that its divisions certify quarterly that they have not 
changed or extended payment terms for any bottler or customer and have not 
granted any special or unusual credit terms or incentives to any bottler or customer, 
unless they received approval for such terms; and 

 
d. Coca-Cola’s Audit Committee employs independent counsel experienced in 
securities laws disclosure issues and will continue to employ such experienced legal 
counsel chosen by the Audit Committee.  Such counsel shall advise the Audit 
Committee as to implementation of the undertakings in this Order. 

 
UNDERTAKINGS

 
44. Respondent has undertaken to: 
 

a. Permanently maintain the aforementioned remedial efforts or the functional 
equivalents thereof, except as may be approved by the Commission; 
 
b. Require the Audit Committee, within 90 days of the date of this Order, to 
review with management of Respondent the process by which the MD&A sections 
of periodic reports filed by Respondent with the Commission are prepared and 
material information about the business and prospects, including but not limited to, 
trend information and known events and uncertainties that may have a material 
impact on liquidity or future financial performance, is identified for discussion in 
the MD&A sections of such reports, and to approve a set of criteria to be used by 
the Disclosure Committee and management to reasonably assure that appropriate 

 -10-



items are identified and discussed.  The Audit Committee will meet periodically, at 
least annually, with the Chair of the Disclosure Committee to review such criteria, 
and will review and discuss with the Chief Financial Officer the proposed MD&A 
section of each periodic report to be filed with the Commission; 
 
c. Require the Disclosure Committee to: (i) use the aforementioned criteria to 
identify items that might need to be disclosed within the MD&A section of 
Respondent’s periodic reports filed with the Commission; and (ii) use the 
aforementioned criteria to evaluate those items and recommend whether, and to 
what extent, disclosure is appropriate with respect to each item.  The Chair of the 
Disclosure Committee will also report to the Audit Committee, on a quarterly basis, 
any recommended departures from the aforementioned criteria and the rationale 
supporting each such recommendation; 

 
d. Adhere to the guidance articulated in SEC Staff Accounting Bulletin No. 
101 on disclosures that are required with respect to the recognition of revenue; 

 
e. Maintain for ten (10) years documentation sufficient to show for every of its 
Forms 8-K filed with the Commission, the preparers of each Form 8-K and those 
persons who reviewed and approved each Form 8-K; and 

 
f. Provide a written report, within 120 days of the date of this Order, to the 
Commission staff that details the Respondent’s implementation of the undertakings 
articulated herein.  

 
45. In determining whether to accept the Offer, the Commission has considered the 
remedial acts promptly undertaken by Respondent and cooperation afforded the 
Commission staff.  
 

IV. 
 
 In view of the foregoing, the Commission deems it appropriate to impose the 
sanctions specified in Respondent Coca-Cola’s Offer. 
 
 ACCORDINGLY, IT IS HEREBY ORDERED: 
 
 Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, 
Coca-Cola cease and desist from committing or causing any violations and any future 
violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 13(a) of the 
Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. 
 
 By the Commission. 
 
       Jonathan G. Katz 
       Secretary 

 -11-


	UNITED STATES OF AMERICA
	In the Matter of
	The Coca-Cola Company,
	Respondent.



	COCA-COLA’S REPORTING VIOLATIONS: SECTION 13(a) OF THE
	EXCHANGE ACT AND RULES 12b-20, 13a-1, 13a-11, AND 13a-13 THE
	Pursuant to Section 8A of the Securities Act and Section 21C