- The Washington Times - Tuesday, June 17, 2003

ATLANTA (AP) — Coca-Cola Co. admitted yesterday that employees rigged a marketing test of Frozen Coke at Burger Kings three years ago, one of a series of charges in a whistleblower lawsuit being investigated by the Securities and Exchange Commission.

Miami-based Burger King said it was disappointed by Coke’s actions in the test and is continuing its own probe. Burger King is one of Coke’s largest customers.

“The No. 2 player, Burger King, really adds a significant amount of volume for Coke, and something like this really doesn’t bode well for their image,” said Todd Stender, an analyst with Crowell, Weedon and Co. in Los Angeles. “Whether or not this influences the contract when it comes up for bid is another thing.”

An auditing committee, investigating several charges by a former Coke manager, also found that the company’s fountain division had improperly valued some equipment. The company will take a $9 million pretax writedown to correct the value.

The former manager, Matthew Whitley, also accused the world’s largest beverage maker of discriminating against minority employees. In a lawsuit containing his complaints, he said he was fired for raising his concerns to President and Chief Operating Officer Steve Heyer.

Coke’s audit committee said yesterday there is no evidence it discriminates against minorities or women. It also said it found no evidence to support another charge: that the fountain division improperly shifted $4 million of capital funding to a fountain project in 2002.

The Atlanta company has said Mr. Whitley was fired after Coke refused a demand to pay him $44.4 million. He lost his job as finance director for supply management at the fountain division in March, amid a reorganization that eliminated 1,000 jobs.

The fountain division handles sales of fountain-dispensed beverages to restaurants, movie theaters and other venues.

“No one is above the values and expected conduct at the Coca-Cola Co., and each of us must ensure that our conduct always reflects the core values we stand for,” Chief Executive Doug Daft said in a memo to employees.

Mr. Whitley’s suit, filed last month in state court in Atlanta, said company officials rigged a marketing test of Frozen Coke at Burger King restaurants. It also said Coke used funds fraudulently to boost equipment sales.

The Frozen Coke promotion was conducted at Burger King outlets in Richmond in March 2000. An internal company document filed as part of the lawsuit said the tactic was to hire an outside consultant to spend up to $10,000 to buy value meals at Burger Kings in Richmond, boosting demand for Frozen Coke and other frozen drinks.

The suit says the Richmond promotion resulted in a $65 million investment by Burger King in Frozen Coke.

Coke said yesterday that its investigation confirmed that some members of the Coke fountain division’s account team improperly influenced the marketing test results, and said the employees were disciplined in 2001. The statement was the first time Coke acknowledged the issue publicly, spokesman Ben Deutsch said.

Coke said the Frozen Coke program at Burger King was begun on the basis of marketing tests in other cities in 1998, that Frozen Coke was mandated for all Burger King stores in 1999 and that more than 75 percent of Burger King restaurants had installed the frozen carbonated beverage dispensers before the Richmond test.

Burger King spokesman Rob Doughty said his company learned about the issue for the first time when the lawsuit was filed.

Mr. Deutsch declined to immediately comment when asked if Coke would make amends to Burger King. He said the SEC recently opened an informal inquiry of Mr. Whitley’s charges and requested documents from Coke.

“We expect and demand the highest standards of conduct and integrity in all of our vendor relationships and will not tolerate any deviation from these standards,” Burger King said in a statement.

Marc Garber, an attorney for Mr. Whitley, said Coke’s announcement served as vindication for his client. But he said he was disappointed the company did not address other charges in the suit, including that Coke set up an off-the-books pool of money to cover up the failure of a high-tech dispensing-machine project.

Coke said it would address other issues in the lawsuit later.

Shares of Coke fell $1, or 2.1 percent, to $47.20 in trading yesterday on the New York Stock Exchange.



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