Coca-Cola Company Audit: Contracts, Structure & Antitrust

Introduction to the Coca-Cola Company Audit

A company audit occurs when there is a need to examine the performance of a large company, particularly its financial and accounting records over a given period of time. Professionals such as certified public accountants typically carry out auditing. The audit of a company is significant for verifying accuracy in accounting records. A company like Coca-Cola requires an audit to help verify its financial records because of the large market it serves. The Coca-Cola Company is undeniably the world's largest distributor of beverages, which are used primarily as refreshments by consumers. The company serves a large number of distribution countries and a vast base of consumers. This paper presents the audit of the Coca-Cola Company. In auditing the company, it is necessary to examine some of the agreements the company has engaged in.

This agreement was made in 2010 between the Coca-Cola Company and the Dr. Pepper Snapple Group, in which Coca-Cola was to pay for the distribution of some of the latter's brands. The agreement required the Coca-Cola Company to pay $715 million in order to take over distribution of those brands (Press Kits, 2010). This followed the company's completion of the planned acquisition of Coca-Cola Enterprises (CCE) in its North American business; the contract was therefore a continuation of the distribution previously handled by CCE. The distribution was aimed at complementing CCE's operations. This agreement also involved Dr. Pepper Snapple Group joining the innovative Coca-Cola Freestyle Fountain Dispenser (Press Kits, 2010). Coca-Cola entered the agreement to complement its efforts toward achieving the 2020 vision of doubling system revenue from its present value. This would have positioned the company as one of the most powerful distribution companies in the world by establishing a strong global distribution network.

The Distribution Agreement with Dr. Pepper Snapple Group

The Coca-Cola Company had to reach a definitive agreement with CCE in order to continue distributing the Dr. Pepper Snapple Group's brands, given that CCE had been the initial distributor. The definitive agreement enabled the company to take over the North American bottling business that was at the time controlled by CCE. CCE would in turn acquire the company's Norway and Sweden operations, which were under Coca-Cola's control (Press Kits, 2010). This arrangement also had implications for the company's budgeting.

The Coca-Cola Company was to pay the $715 million as a lump sum in order to take over distribution of the Dr. Pepper Snapple brands. The distribution was aimed primarily at the United States and certain territories in Canada — regions that were prior distribution markets for CCE. The brands distributed under the license agreement in Canada included Canada Dry, C'Plus, and Schweppes (Press Kits, 2010). Under the agreement, the initial license term was set at 20 years, with the possibility of renewal for another 20 years — one of the longest renewal periods for a contract of this nature (Press Kits, 2010). The agreement also served as a substitute for the previously existing contract between CCE and Dr. Pepper Snapple Group in the North American bottling business (Press Kits, 2010), which had direct implications for the company's financial position.

In addition to the monetary payment to Dr. Pepper Snapple Group, Coca-Cola was also required to provide the latter with access to fountain accounts in local regions previously under CCE. The agreement further required the company to include Dr. Pepper and Diet Dr. Pepper in its own Coca-Cola Freestyle fountain dispenser. The Freestyle arrangement carried a 20-year term from the date the agreement came into effect. The estimated investment by Dr. Pepper Snapple Group in the license agreement was between $115 million and $135 million (Press Kits, 2010), representing a profit opportunity for both partners.

As a result of the agreement, the Coca-Cola Company established its presence among Dr. Pepper trademark bottlers across the United States (Press Kits, 2010). The rate of distribution activity also increased, as there would be uninterrupted delivery of brands to existing customers who had a direct relationship with CCE. Consequently, CCE-affiliated outlet owners gained a greater choice in distributing available brands, which effectively increased the number of customers associated with the enterprise.

The acquisition of CCE was also on track to close in the final quarter of that year, subject to shareholder approval. The Coca-Cola Freestyle dispenser features an increased capacity for dispensing a larger variety of beverages simultaneously. The contract therefore had a significant impact on the company's audit records, as the company expanded its investment and the corresponding financial documentation. The agreement with Dr. Pepper Snapple Group is particularly important in auditing terms because the changes in the company's production activity — including the funds spent to finance the agreement — would be directly traceable to this contract.

The organizational structure of the Coca-Cola Company is divided into two main operating groups: Bottling Investments and Corporate. In addition, the company operates in groups subdivided by diverse geographic regions, including North America, Africa, Latin America, Eurasia, the Pacific, and the European Union. Each of these divisions is further subdivided into specific geographical regions. This structure allows major decisions to be made at numerous local levels, enabling the organization to respond swiftly to changes in market demand, while higher-level management focuses on long-term strategy.

Certain functions within the Coca-Cola Company — including finance, innovation, marketing and strategy, human resources, and planning — are centrally located within the corporate division. Other functions are carried out at the regional level. However, the most significant decisions are typically prepared at the top of the company hierarchy. The corporate headquarters has granted local divisions the authority to make advertising decisions, allowing each division to design commercials and advertisements that appeal to its local market.

Coca-Cola's Organizational Structure

The corporate segment bears overall responsibility for providing the company with strategic direction and support for the regional structure. The chief strategic decisions are made by the Executive Committee, which comprises twelve company officers. These twelve members help shape the six planning priorities set in advance. The chairperson of the Executive Committee serves as the figurehead of the company, chairing board meetings and acting as the Chief Executive Officer — the primary senior decision maker. Other executives are assigned either to major regions or to key business specialisms, such as the Chief Financial Officer.

The Coca-Cola Company is also organized into regional structures that combine centralization and localization. This connection is used to determine the company's success in individual marketplaces, with a particular emphasis on building viable relationships with local consumers. The company operates in six geographical operating segments, commonly referred to as Strategic Business Units, along with the corporate segment, which serves as the head office.

Each local Strategic Business Unit is further subdivided into numerous divisions. For example, the European Union Strategic Business Unit includes the United Kingdom Strategic Business Unit, which is situated within the Northwest Europe division. The geographical structure is designed to recognize markets that are geographically separated and that possess differing levels of advancement. It is also used to account for variations in consumer tastes, lifestyles, income levels, and consumption patterns from one location to another.

At the local management level, the Coca-Cola Company employs a number of functional specialisms. This management structure is particularly well illustrated in Great Britain. The structure of Coca-Cola Great Britain combines elements of centralization and decentralization. Divisions and regions within Great Britain operate as business unit teams, with each Director reporting to the General Manager, who is in many cases designated the Division President.

A matrix structure also exists for every function. For instance, the Finance Director within the Great Britain division reports both to the Great Britain President and to the Finance Director of the Northwest Europe Division. The chief functions within the Coca-Cola Company operate across geographical boundaries with the aim of sharing best practices. Generally, the Coca-Cola Company's configuration is a hybrid combining both mechanistic and organic forms. The company's primary focus is responsiveness. Complex integration mechanisms reflect the organic dimension of the structure, while the flow of information from top to bottom relies on surveys and interviews, with an intranet enabling lateral communication. The company's use of surveys follows simplification and standardization, while centralization and a high level of consistency are associated with its mechanistic dimension.

Blank contracts are essential tools for both personal and business agreements. Such an agreement is typically made between a business organization and an individual or another company. The Coca-Cola Company has entered into blank contract agreements with various business entities. One of the most significant of these involved the distribution agreement signed between Coca-Cola and Dr. Pepper Snapple Group. Using a blank contract template represents a reliable and efficient way to begin drawing up personal, legal, or business documents without prior knowledge of correct formatting. It is therefore important to understand the contract information thoroughly before settling on the most suitable arrangement. Given that Coca-Cola is the world's largest manufacturer of soft drinks and beverages, distribution agreements of this nature are critically important. A disagreement, breach of contract, or negligence by either party could be significantly damaging to the company.

The company therefore enters only into viable agreements with reliable and trustworthy entities. With hundreds of brands — including fruit juices, soft drinks, and sports drinks — Coca-Cola commands a dominant share of the soft drinks and beverage industry and places strong emphasis on improving quality and increasing output. The company has also expanded into new markets worldwide, supported by substantial advertising expenditure. Coca-Cola paid Dr. Pepper Snapple Group over $715 million for distribution rights. The 20-year deal allowed Coca-Cola continued access to the Dr. Pepper brand, which maintained strong sales despite intense competition in the carbonated soft drinks market. Under the agreement, Coca-Cola was to sell Dr. Pepper and Diet Dr. Pepper in its high-tech Freestyle Fountain machines, allowing consumers to mix and match beverages to create their own blends. Dr. Pepper Snapple Group renegotiated its distribution contracts with both Coca-Cola and PepsiCo when both companies agreed to purchase bottlers.