Bottling Strategy Drain's Coke Finances

The real thing isn't very real these days, according to a new report in which Coca-Cola's continuously weak financial performance is attributed to a poor relationship with its bottlers. And now, the way in which Coke handled its stake in bottling has raised more than a few eyebrows when it comes to GAAP.

Back in 1986 when Coke spun off its slight majority interest in bottling operations to Coca-Cola Enterprises, Inc. (CCE), it retained seats on CCE's board. This is known in accounting circles as a '49 percent solution,' and in essence, wiped the low-margin bottling assets off the company's books.

At the same time, Coke boosted its own returns without giving up control of the business based on those assets or distributions.

Here's where it gets complicated: accounting experts argue that the 49 percent strategy violated the spirit, if not the letter, of Generally Accepted Accounting Principles or GAAP.

In return for bottling and distributing Coke's soft drinks, CCE has received annual payments from Coke that were earmarked for marketing, although payments actually were designed to pay bottlers for operating costs.

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