The Coca-Cola Company 1986 Annual Report

THE COCA-COLA COMPANY ANNUAL REPORT 1986

9C/2

" When Coca-Cola is a part of your life,you can't beat the feeling"

1 he Coca-Cola Company is the worldwide soft drink leader, as well as one of theworld's leading producers and distributors of filmed entertainment and the leadingU.S. marketer of orange juice and juice products.

bee 10 Placing a strategic emphasis on accelerating unit sales growth of theCompany's sugar colas, the North America Soft Drink business Sectorrecorded impressive sales volume and share gains.

Page 15 Acting on its commitment to increase international per capitaconsumption of soft drinks, the International Soft Drink BusinessSector produced its second consecutive year of double-digit salesvolume growth.

Page 20 Through the production, acquisition and distribution of motion picturesand television programming, the Entertainment Business Sectorenhanced its position as a leading force in the worldwide filmed enter-tainment industry.

Maid1OO% PURE

ORANGEJUICE

Page 2 6 The Foods Business Sector aggressively marketed its products in adifficult industry environment, achieving sales volume and share gainsand setting the stage for future growth.

Cover.-The leadership of the Coca-Colatrademark reached new heights in 1986.A new U.S. advertising campaign,"When Coca-Cola is a part of your life,you can't beat the feeling" capturesthe essence of the special role thatCoca-Cola plays in people's lives allover the world.

CONTENTSLetter to Shareholders 2Operations Review 6Soft Drink Business Sectors 10Entertainment Business Sector 20Foods Business Sector 26Financial Information 31Officers and Directors 57Shareholder Information 60

FINANCIAL HIGHLIGHTS The Coca-Cola Company and Subsidiaries(In millions except per share data)

Year Ended December 31, 1986

Net operating revenues $8,668.6Operating income* $1,145.0Income from continuing operations

before income taxes* * $1,511.3Income from continuing operations* * $ 9 3 4 . 3Net income** $ 934.3Income per share from continuing operations* * $ 2 .42Net income per share* * $ 2 . 4 2Dividends per share $ 1 .04Shareholders' equity at year-end $ 3 ,5 1 5.0Income from continuing operations

to net operating revenues 10.8%Income from continuing operations to

average shareholders' equity 28.8%

Book value per share $ 9.13Closing market price per share $ 37.75Ratio of market to book value 4. 1

1985

$7,212.1$ 984.6

$1,063.4$ 677.6$ 722.3$ 1.72$ 1.84$ .99$2,979.1

9.4%

23.5%S 7.72$ 28.17

3.6

% Change

20.2%16.3%

42.1%37.9%29.4%40.7%31.5%

5.1%18.0%

*/ 1986, operating income was reduced by provisions for disinvestment and restructured operations aggregating $180 million.* * 1986 operating results included the provisions described above and the $375 million pretax gain on sale of stock by Coca-Cola Enterprises Inc.

Net Operating Revenues Income From Income Per Share From Closing Market Price(% Billions) Continuing Operations Continuing Operations ($) Per Share* ($)

($ Millions)

1 9.0 1 1 950y | ,o^ / ,ro ^

/ - /*'' js /*'1.8 190

'76 '81 '86 '76 '81 '86 '76 '81

I 2.50

/2t 1.50

1.00S

.50

'86 '76

/sJ\

'81

40.00

iI 32.00

/ 24.00

16.00

8.00

'86

* Adjusted 'for a tbree-for-onestock split in June 1986

To O U R S H A R E H O L D E R S

Roberto C. Goizueta,Chairman of theBoard of Directorsand Chief ExecutiveOfficer (right), andDonald R. Keough,President and ChiefOperating Officer.

1 he Coca-Cola Company celebrated theCentennial of Coca-Cola in 1986 by achiev-ing record market shares, sales volumes,returns and profits, while augmenting theCompany's substantial portfolio of opportu-nities for growth in the future.

In 1986, the combination of the returnon equity reached and the per share earningsgrowth achieved was the best since 1936. Forthe year, return on average shareholders'equity from continuing operations increased5.3 points to 28.8 percent. Earnings per sharefrom continuing operations increased 41 per-cent to $2.42, and have grown at an averageannual rate of 16 percent since 1981.

Our strong operating performance in1986 was enhanced by approximately 35 centsper share as the net result of a pretax gain of$375 million resulting from the sale of stockby Coca-Cola Enterprises Inc. (CCE) andone-time accounting provisions of 8180 mil-lion taken against earnings. These provisionsare related to the restructuring of our U.S. softdrink business and our decision to completethe disinvestment from South Africa.

Excellent performances from each of ourfour business sectors combined with favorablecurrency translation rates to generate a 16 percentincrease in operating income to $1.145 billion(after the one-time provisions of $180 million).

Total return on your investmentstockprice appreciation plus dividendswas 3 8 per-cent in 1986, following a 40 percent return in1985. Since 1981, the Company's average com-pounded annual total return on shareholderinvestment has been 30 percent.

CAPITALIZING ON OPPORTUNITIES

Our 100 years of prosperity, supported byseveral significant strategic actions in recentyears, have created a rich portfolio of oppor-tunities for The Coca-Cola Company. Thisportfolio includes our four business sectorsand their leadership positions, our innovativeuse of business structures and the resultingequity investments, and our financial resources.

The goal of exploiting these opportuni-ties to increase shareholder value always willbe challenging. However, by building on ourstrong foundation and investing for tomor-row's growth, we are confident that we willsuccessfully meet the challenges ahead.

Each of our four business sectors isoperating according to a well-defined plan.Each is moving forward in line with a broadstrategy to capitalize on its superior position-ing and expertise, while drawing from com-plementary corporate resources that bind thesectors into a single, powerful enterprise.

FLEXING OPERATIONAL STRENGTH

North America Soft Drink BusinessSector Our soft drink business in NorthAmerica developed tremendous momentumin 1986. Strong volume growth and reducedmarketing spending resulted in significantlyimproved operating results, although operat-ing income was reduced by the one-timeaccounting provisions previously noted.

Led by the excellent performance of theproducts of our Coca-Cola megabrand, theCompany captured a record share of morethan 39 percent of the US. soft drink industry.The 7 percent sales volume gain of our U.S.soft drinks accounted for more than 60 percentof the growth of the total US. soft drink mar-ket, which grew 5 percent in unit case volume.

In 1986, the combined volume of Coke,caffeine-free Coke, Coca-Cola classic andcherry Coke increased 5 percent, a result ofthe effort begun in 1985 to revitalize our sugarcolas. This volume gain represented more thanthree-fourths of the growth of the entire sugarcola category. While our sugar cola volumegrew 5 percent, all competing sugar colas com-bined had volume growth of only 1 percent.Additionally, volume for diet Coke increased14 percent, continuingthe remarkable growthof the world's premier one-calorie soft drink andthe third largest-selling soft drink of any kind inthe United States.

Our overall strategy is to continue tobuild on our strengths in product superiority,distribution, marketing and customer service,and to take advantage of new opportunities asthey arise.

International Soft Drink Business SectorThe key to volume growth and profitability inour international markets is growth in percapita soft drink consumption. The potentialappears limitless, and the Coca-Cola system isaggressively implementing programs designedto increase soft drink availability, affordability

and acceptability around the world.Our international soft drink business

experienced its most successful year in 1986.International sales volume grew by 12 percentin 1986, the strongest increase in seven years.Aided by a weakening dollar, internationaloperating income, even after the one-timeaccounting provision, increased in excess ofoverall corporate performance. In 1986, oper-ating income for the sector alone exceeded totaloperating income for the entire Company justfour years ago.

In most of our international markets,our objective is to increase the consumptionof soft drinks as a share of total beverage con-sumption. The double-digit volume gain ofeach of the last two years illustrates clearly thatwe are building a very positive growth trend.

Entertainment Business Sector TheCoca-Cola Company has firmly establisheditself as one of the world's leading producersand distributors of filmed entertainment. Ineach of the four full years we have been in theentertainment industry, that segment of ourbusiness has achieved more than a 30 percentgain in operating income. In addition, theCompany, through Coca-Cola Television, isone of the world's leading programming sup-pliers to the television industry.

Despite the success of The Karate KidPart II and Stand By Me, we were not satisfiedwith the performance of Columbia Pictures'feature films in 1986. Accordingly, we tooksignificant steps forward, including a changein leadership at the Columbia motion picturesstudio. We believe these steps will producebetter products, which will result in betterearnings in the years ahead.

As new technologies are developed andnew markets emerge for filmed entertainment,the Company is prepared for whatever direc-tion the consumer takes the industry. We areequipped with the programming, productioncapabilities, distribution systems, flexibility

"* 3 "

L E T T E R T O S H A R E H O L D E R S

and financial resources to continue as thisindustry's innovative leader.

Foods Business Sector Our foods busi-ness is anchored by Minute Maid orange juice,the leading product in the total orange juicemarket. Severe fluctuations in orange juiceprices slowed earnings growth in 1986. But asorange juice costs stabilize, we are confidentwe will again generate strong growth in oper-ating income.

The sector launched two new products,which in one year became leaders in theirrespective categories: Minute Maid FruitJuicee frozen snacks and Bacardi frozen con-centrated tropical fruit mixers. Additionalnew product successes are anticipated in 1987.

DEVELOPING INNOVATIVE BUSINESS STRUCTURES

The Company is continuing to leverage itsoperating achievements through the innova-tive use of new business structures.

The most visible and significant exampleof these structures in 1986 was our creation ofCoca-Cola Enterprises (CCE), the world'slargest soft drink bottling company, and theproducer and distributor of 38 percent of thetotal U.S. bottle/can volume for Companyproducts. Via a successful public offering,CCE sold 71.4 million shares of its commonstock last November and raised approximately$1.12 billion in equity.

Through CCE, we also achieved apermanent, independent ownership structurefor a significant portion of the U.S. Coca-Colabottling system. By owning 49 percent ofCCE's outstanding common stock, TheCoca-Cola Company maintains a significantinterest in the increasing value of the bottlingindustry, while CCE has established its owncapital structure as a freestanding company.

The Coca-Cola Company formed CCEto maximize the Company's volume growthpotential and financial returns. In partnershipwith CCE, we will continue to guide the stra-

" 4 ~

tegic direction of our U.S. bottling system toincrease distribution and marketing efficiencies.

We extended our structural innovationsinternationally by forming a joint venture withCadbury Schweppes. Coca-Cola & SchweppesBeverages Limited, a new company that is theleading marketer of soft drinks in Great Britain,is handling bottling, canning and distribution ofboth companies' products throughout thatimportant market.

In the entertainment arena, there is nobetter example of the use of innovative busi-ness structures than Tri-Star Pictures, Inc.,which we helped establish just four years agoand took public in 1985. The Coca-ColaCompany continues to own 30 percent ofTri-Star, which is a significant presence infilmed entertainment, as well as a strong con-tributor to our entertainment profits.

USING FINANCIAL LEVERAGE

Our financial resources, including a large cashflow, strong balance sheet and debt capacity,provide another important element in our port-folio of opportunities.

In late 1986, we announced the increasein our internal target net debt-to-capital ratioto 35 percent, providing more than $1 billionin additional financing capacity. Reflectingour confidence in the underlying strengths ofthis Company, we also launched a program torepurchase up to 10 million shares of ourcommon stock. And, to enhance further thegrowth prospects and long-term returns of theCompany's existing businesses, we plan togradually reduce over time the dividend pay-out ratio to 40 percent. Dividends will beincreased appropriately, but at a lesser ratethan our annual earnings growth.

DIVIDEND INCREASE AND BOARD MATTERS

For 25 consecutive years, your Board ofDirectors has approved dividend increases. At

its February 1987 meeting, the Board increasedthe quarterly dividend to 28 cents per share,equivalent to an annual dividend of $1.12per share.

At a special meeting last June, share-holders voted to split the Company's stockthree-for-one. Since 1981, the value of ourCompany's stock has quadrupled. The splitplaced the stock price in a range attractive toboth individual and institutional investors.

In accordance with Company bylaws,a distinguished member of our Board, JosephW.Jones, did not stand for re-election in 1986after six years on the Board. During his morethan 50 years with the Coca-Cola system andin close association with the late Robert W.Woodruff, Mr. Jones provided much wisdomto our enterprise. We are grateful for hismany contributions.

At the 94th Annual Meeting of Share-holders last April, shareholders elected as a newDirector Peter V. Ueberroth, Commissionerof Major League Baseball. We welcomeMr. Ueberroth to the Board. The Companywill benefit from his considerable experience.

SUCCEEDING THROUGH OUR WORK ETHIC

This Company is indeed blessed with talentedmen and women who give their time, theirminds and their hearts to the business. Theyput into their work that extra effort, spirit,enthusiasm and high morale which keep thisCompany the leader and sustain its traditionalhigh level of prosperity. Employees at TheCoca-Cola Company make excellence a wayof life. This will continue to be part of ourwork ethic in the increasingly demanding andcomplex future.

All of our associates at The Coca-ColaCompany join us in thanking our Board ofDirectors for its wise advice and counsel. Wealso thank you, our shareholders, for your sup-port, and take this opportunity to express ourpride in being employed by this great Company.

LOOKING TO THE FUTURE

The potential of our enviable portfolio ofopportunities makes the future prospects ofThe Coca-Cola Company indeed bright.

Our "Strategy for the 1980s" has pro-duced record sales, earnings and returns. Lastyear's results confirm our management's beliefthat for planning to be successful, it must beopportunistic, and for a strategy to be effec-tive, it needs to be flexible. We look to thefuture, secure in our vision. We are assured ofour abilities to quickly seize opportunities asthey arise and to minimize the negativeimpact of adverse events that may occur out-side our control. We are confident in theeffectiveness of our strategies and are commit-ted to the long-term growth of the value ofThe Coca-Cola Company.

Roberto C. GoizuetaChairman, Board of Directors,and Chief Executive Officer

Donald R. KeoughPresident andChief Operating Officer

February 19, 1987

OPERATIONS REVIEW

Soft Drink Business Sectors

The Coca-Cola Company increasedits worldwide soft drink volume 10percent in 1986, and extended itsworldwide market share 1 point to43 percent.

Operating income of the twosoft drink business sectors grew 20 per-cent in 1986, to $1.017 billion. Thisgrowth resulted from strong volumegains both in North America and inter-nationally, favorable exchange ratecomparisons and a diminution in 1986of the heavy 1985 marketing invest-ments in North America.

Operating results from the twosoft drink business sectors increasedstrongly in 1986, but were moderated by

North America Soft DrinkBusiness Sector

The North America Soft Drink Busi-ness Sector outperformed the overallsoft drink industry and its primarycompetitor as it strengthened its lead-ership in every major soft drink seg-ment in 1986. The outstanding market-ing achievements included several firstsin the United States: Company soft drinkproducts represented five of the top10-selling soft drinks; Coca-Cola classic

claimed the position of the best-sellingsoft drink product; Sprite became thebest-selling lemon-lime soft drink; andcaffeine-free diet Coke became the best-selling caffeine-free cola. Meanwhile,diet Coke, the third best-selling softdrink of any kind in the United States,further tightened its leadership grip ofthe one-calorie segment.

The excellent performance ofsugar colas in 1986 helped drive anoverall 7 percent volume increase for

International Soft DrinkBusiness Sector

one-time accounting provisions of $ 180million taken against earnings. Theseprovisions are related to the restruc-turing of the U.S. soft drink business andthe decision to complete the Company'sdisinvestment from South Africa.

Soft drink operations accountedfor 74 percent of the total operatingincome generated by The Coca-ColaCompany's four business sectors.

Net Operating Revenues($ Milliims)

6,000

4,800

3,600

2,400

1,200

Operating Income($ Millions)

1,025

820

615

410

205

1984-1986 1984-1986

the sector that contributed to strongoperating results, although operatingincome was reduced by the one-timeaccounting provisions noted above.

Looking ahead, the sector willcontinue its emphasis on a superiorproduct line and excellent marketingprograms for all distribution channels.

Aggressive marketing and economicimprovement in key markets led theInternational Soft Drink BusinessSector to its most successful year everand its second successive year ofdouble-digit volume growth. Morethan 60 percent of the Company'stotal soft drink volume originatedfrom international markets in 1986.

The sector benefited from aweakening dollar and achievedoperating income growth (after theone-time accounting provision) sig-nificantly stronger than the operatingincome growth for the Company asa whole.

The sector is poised for contin-ued volume growth and increasedprofitability. The sector's strategy isto increase the international per capitaconsumption of Company soft drinksby increasing their availability, afford-ability and acceptability.

OPERATIONS REVIEW

Entertainment Business Sector

227

The Entertainment Business Sectorgenerated operating income growthin excess of 30 percent for the fourthconsecutive full year that it has been apart of The Coca-Cola Company. Asone of the world s largest television pro-gramming suppliers, the sector gainedstrength in 1986 through the acquisi-tion of Merv Griffin Enterprises, amajor producer of first-run syndica-tion programming.

The sector expects to extend itsprofitability through the decade bycapitalizing on opportunities in televi-sion syndication, theatrical distribu-tion, home video, pay television andother developing filmed entertain-ment distribution channels.

StBUSTERS~^m

Wheel of Fortune

Foods Business Sector The Foods Business Sector achievedstrong volume and share gains in theface of unfavorable industry condi-tions that limited growth. With asignificant portion of the sector's busi-ness affected by the severe fluctuationsin prices of orange solids, the sectortook steps to ensure future growth.

Two new products launched in 1986became leaders in their respectivecategories during the year: MinuteMaid Fruit Juicee frozen snacks andBacardi frozen concentrated tropicalfruit mixers.

MinuteMaid,1OO% PURE

ORANGEJUICE

NO PRESERVATIVESOR SUGAR ADDED

MFLOZ.(GAL)IS9 liters

Net Operating Revenues(S Millions)

Operating Income($ Millims)

g Sally Fielde -

1,375

1,100

R 2 5

550

275

1984-1986 1984-1986

Short Circuit

250

200

150

100

50

The sector is continuing todevelop successful new products thatleverage the strengths of both the Min-ute Maid and Hi-C trademarks.

slet Oper$ Millions)

ating Re\enue s y*r

30

24

18

12

6

'86 '76 '81 '86

41

CONSOLIDATED BALANCE SHEETS(In thousands except share data)

December 31,ASSETS

CURRENT CashMarketable securities, at cost (approximates market)

INVESTMENTS, FILM COSTSAND OTHER ASSETS

PROPERTY, PLANT AND EQUIPMENT

GOODWILL AND OTHERINTANGIBLE ASSETS

Trade accounts receivable, less allowances of$32,008 in 1986 and $ 17,025 in 1985

Inventories and film costsPrepaid expenses and other assets

TOTAL CURRENT ASSETS

Investments in affiliatesCoca-Cola Enterprises Inc.*Other

Film costsReceivables and other assets

LandBuildings and improvementsMachinery and equipmentContainers

Less allowances for depreciation

1986

$ 625,899261,785

887,684

1,081,597932,619837,512

3,739,412

709,287387,155777,590337,213

2,211,245

137,233765,482

1,565,305321,938

2,789,9581,026,230

1,763,728

659,053$8,373,438

1985(Restated)

S 499,624369,491

869,115

827,451884,445221,006

2,802,017

402,678384,898536,112444,436

1,768,124

127,565674,131

1,405,835317,752

2,525,283893,846

1,631,437

570,032

$6,771,610*At December 31, 1986, the Company held 68,600,000 shares with a market price per share of $14.25.

42

The Coca-Cola Company and Subsidiaries

December 31,LIABILITIES AND SHAREHOLDERS' EQUITYCURRENT

ENTERTAINMENT OBLIGATIONS

LONG-TERM DEBT

DEFERRED INCOME TAXES

DEFERRED ENTERTAINMENT REVENUE

SHAREHOLDERS' EQUITY

Accounts payable and accrued expensesLoans and notes payableCurrent maturities of long-term debtEntertainment obligationsAccrued taxes including income taxes

TOTAL CURRENT LIABILITIES

Common stock, $1 par value Authorized: 700,000,000 shares in 1986 and

540,000,000 shares in 1985;Issued: 414,491,897 shares in 1986 and

413,098,698 shares in 1985Capital surplusReinvested earningsForeign currency translation adjustment

1986

$1,332,714701,866

23,212257,333439,689

2,754,814

354,054

1,011,185

381,559

356,847

414,492299,345

3,624,046(118,087)

4,219,796Less treasury stock, at cost (29,481,220 shares

in 1986; 27,117,093 shares in 1985) 704,817

3,514,979$8,573,438

1985(Restated)

$1,056,415391,421

29,578215,249243,182

1,935,845

270,676

866,756

285,180

434,096

69,227602,617

3,092,255(181,440)

3,582,659

603,602

2,979,057

$6,771,610See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF INCOME(In thousands except per share data)

Year Ended December 31,

NET OPERATING REVENUESCost of goods and servicesGROSS PROFITSelling, administrative and general expensesProvisions for disinvestment and

restructured operations

OPERATING INCOMEInterest incomeInterest expenseOther income (deductions) netGain on sale of stock by

Coca-Cola Enterprises Inc.INCOME FROM CONTINUING OPERATIONS

BEFORE INCOME TAXESIncome taxesINCOME FROM CONTINUING OPERATIONSIncome from discontinued operations

(net of applicable income taxes of $ 7,870in 1985 and $6,144 in 1984)

Gain on disposal of discontinued operations(net of applicable income taxes of $20,252in 1985)

NET INCOMEPER SHARE

Continuing operationsDiscontinued operationsNet income

AVERAGE SHARES OUTSTANDING


1986 1985 1984(Restated) (Restated)

$8,668,556 ; $7,212,093 $6,592,7434,644,2354,024,3212,699,293

180,0001,145,028

134,184185,76942,837

375,000

1,511,280576,933934,347

$ 934,347

$ 2.42

$ 2.42386,831

3,859,612 3,556,5183,352,481 3,036,2252,367,853 2,046,244

- -

984,628 ! 989,981150,683 131,480168,462 ' 125,64696,597 35,469

1,063,446 1,031,284385,880 409,526677,566 621,758

9,000 7,060

35,733$ 722,299 $ 628,818

$ 1.72 $ 1.57.12 .02

S 1.84 $ 1.59393,354 396,630

See Notes to Consolidated Financial Statements.

44

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY The Coca-Cola Company and Subsidiaries(In thousands except per share data)

Number of Shares Amount

Three Years Ended CommonDecember 31, 1986 Stock

Balance January 1, 1984 409,962Sales to employees

exercising stock optionsand appreciation rights 948

Tax benefit from sale ofoption shares by employees

Translation adjustments (netof income taxes of $ 2,950)

Stock issued under RestrictedStock Award Plan 882

Treasury stock purchasedNet incomeDividends (per share S .92)Balance December 31, 1984 41 1,792Sales to employees

exercising stock optionsand appreciation rights 1,025


Translation adjustments (netof income taxes of $ 841 )

Treasury stock issued in con-nection with an acquisition


Treasury stock purchasedNet incomeDividends (per share S. 99)Balance December 31, 1985 413,099Change in par value of

common stockSales to employees

exercising stock optionsand appreciation rights 1,183


Translation adjustments (netof income taxes of 15,681)

Treasury stock issued in con-nection with an acquisition


Treasury stock purchasedNet incomeDividends (per share $ 1 .04)Balance December 31, 1986 414,492

TreasuryStock

903

-

-

-

18,414-

-

19,317

(123)

-

-

(7,077)

15,000

-

27,117

-

(30)

-

_

(485)

2,879

-

29,481

CommonStock

$ 68,704

158

-

-

147-

-

-

69,009

171

-

-

-

47-

-

69,227

343,872

1,183

-

-

-

210-

-

-

$414,492

CapitalSurplus

S 500,031

10,931

2,557

-

18,667-

-

-

532,186

13,647

3,492

-

46,653

6,639-

-

602,617

(343,872)

26,771

5,907

-

-

7,922-

-

1299,345

ReinvestedEarnings

$2,494,215

-

-

-

-

-

628,818(364,138)

2,758,895

-

-

-

-

722,299(388,939)

3,092,255

-

-

-

-

-

-

934,347(402,556)

$3,624,046

ForeignCurrency

Translation

$(1 30,640)

-

-

(104,171)

-

-

_

-

(234,811)

-

53 ,371

-

-

-

-

(181,440)

-

-

-

63 ,353

-

-

-

-

$(118,087)

TreasuryStock

$ (11,554)

-

-

-

-

(335,659)-

-

(347,213)

1,552

-

-

121,989

-

(379,930)-

-

(603,602)

-

539

-

-

8,717

(110,471)

-

$(704,817)See Notes to Consolidated Financial Statements.

45

CONSOLIDATED STATEMENTS OF CHANGESIN FINANCIAL POSITION (in thousands)Year Ended December 31,

OPERATIONS Income from continuing operationsDepreciationAmortization

GoodwillNoncurrent film costs

Deferred income taxesGain on sale of stock by

Coca-Cola Enterprises Inc.Provisions for disinvestment and

restructured operationsOther

Discontinued operationsWorking capital provided by operations

Decrease in working capitalNet additions to noncurrent film costs

Cash provided by operationsIncrease (decrease) in deferred entertainment revenueDecrease (increase) in investments and other assetsAdditions to property, plant and equipmentDisposals of property, plant and equipmentIncrease (decrease) in noncurrent entertainment

obligationsTemporary investments and other

Net cash invested in operationsNet cash available from operations

FINANCING ACTIVITIES Increase (decrease) in loans and notes payableand current maturities of long-term debt

Increase in long-term debtDecrease in long-term debtCommon stock issued (includes treasury)Repurchase of common stock

Cash provided by (used for) financing activitiesACQUISITIONS AND Acquisitions of purchased companiesDISCONTINUED Net working capitalOPERATIONS Property, plant and equipment net

Other assets, net of other liabilitiesGoodwill

Discontinued operationsNet working capitalNet long-term assets (including property,

plant and equipment)Resources used for acquisitions and

discontinued operationsDIVIDENDSCASH AND CURRENT Net increase during the yearMARKETABLE SECURITIES Balance at beginning of year

Balance at end of year


1986

$ 934,347166,829

17,942244,886

1985(Restated)

$ 677,566143,226

15,991138,965

94,524 87,562

(375,000)

180,0004,106

~

1,267,63441,308

(292,655)1,016,287

(77,249)173,529

(372,623)167,417

83,378(494,805)(443,104)495,934

303,741

-

13,93053,573

1,130,81341,074

(155,405)1,016,482

434,09623,701

(441,631)28,563

32,37827,022

(329,967)1,120,611

(189,471)253,831 182,821

(122,125)51,249

(110,471)376,225

(53,325)(81,833)

(181,158)(134,718)

-

(451,034)(402,556)

18,569869,115

$ 887,684

(29,578)194,190

(379,930)(221,968)

(127,255)(14,799)

(321,792)(20,000)

29,209

27,771

(426,866)(388,939)

82,838786,277

1 869,115

1984(Restated)

% 621,758131,179

15,410136,714

82,544

-

9,12015,222

1,011,94737,878

(225,764)824,061

-

(350,663)(298,072)

72,069

(50,895)(23,613)

(651,174)172,887

499,416332,491

(119,594)32,460

(335,659)409,114

34,287(37,029)

(43,025)

-

(45,767)(364,138)172,096614,181

S 786,277

See Notes to Consolidated Financial Statements.

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Coca-Cola Company and Subsidiaries

1. ACCOUNTING POLICIES. The major accounting policies andpractices followed by the Company and its subsidiaries are asfollows:

Consolidation: The consolidated financial statements includethe accounts of the Company and its subsidiaries except forCoca-Cola Financial Corporation (CCFC). All significant inter-company accounts and transactions are eliminated in consoli-dation. CCFC, a wholly owned finance subsidiary, initiatedoperations in 1984 and is accounted for under the equity method.CCFC's operations for 1986, 1985 and 1984 were not significantto the consolidated financial statements.

Inventories and Film Costs, Inventories are valued at thelower of cost or market method. In general, inventories arevalued on the basis of average cost or first-in, first-out (FIFO)methods. However, certain soft drink and citrus inventories arevalued on the last-in, first-out (LIFO) method. The excess ofcurrent costs over LIFO stated values amounted to approxi-mately $23 million and $32 million at December 31, 1986 and1985, respectively.

Film costs include film production, print, prerelease andother advertising costs expected to benefit future periods,accrued profit participations and capitalized interest. The indi-vidual film forecast method is used to amortize these costs basedon the revenues recognized in proportion to management'sestimate of ultimate revenues to be received. Based on the Com-pany's estimate of revenues as of December 31, 1986, approxi-mately 75 percent of unamortized film costs are expected to beamortized over the next three years.

The costs of feature and television films are classified ascurrent assets to the extent such costs are expected to be recov-ered through the respective primary markets; remaining costsrelating to film production are classified as concurrent.

Revenues from theatrical exhibition of feature films arerecognized on the dates of exhibition. Revenues from televisionlicensing agreements are recognized when films are available fortelecasting. Cash collected in advance of the time of availabilityis recorded as deferred entertainment revenue. Motion picturerevenues are derived from the following markets: domestic andforeign theater, home video, pay television, network televisionand independent broadcast television. The Company's averagerevenue recognition cycle for motion pictures is approximatelyseven years.

Property, Plant and Equipment- Property, plant and equip-ment is stated at cost, less allowance for depreciation, except thatforeign subsidiaries carry bottles and shells in service at amounts(less than cost) that generally correspond with deposit pricesobtained from customers. Depreciation expense is determinedprincipally by the straight-line method. The annual rates ofdepreciation are 2 percent to 10 percent for buildings and improve-ments and 7 percent to 34 percent for machinery and equip-ment. Available investment tax credits have been accounted forby the flow-through method.

Capitalized Interest: Interest capitalized as part of the cost ofacquisition, construction or production of major assets (includ-ing film costs) was $22 million, $34 million and $26 million in1986, 1985 and 1984, respectively.

Goodwill and Other Intangible Assets: Goodwill and otherintangible assets are stated on the basis of cost and, if acquiredsubsequent to October 31, 1970, are being amortized, princi-pally on a straight-line basis, over the estimated future periods tobe benefited (not exceeding 40 years). Accumulated amortiza-tion amounted to $63 million and $65 million at December 31,1986 and 1985, respectively.

2. INVENTORIES AND FILM COSTS consist of the following(in thousands):December 31, 1986

Finished goods $316,194Work in process 16,722Raw materials and supplies 397,308Film costs (includes in

process costs of $62,524in 1986 and $51,901 in 1985) 202,395

$932,619Noncurrent film costs

CompletedIn process

$585,142192,448

$777,590

1985

$300,47517,374

355,627

210,969884,445

$411,110125,002

$536,112

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3 . INVESTMENTS IN AND ADVANCES To AFFILIATED COMPANIES.On September 12, 1986, the Company transferred the operatingassets of substantially all previously owned and recently acquiredbottling companies in the United States to Coca-Cola EnterprisesInc. (Enterprises), a wholly owned subsidiary. In connection withthese transactions, Enterprises assumed approximately $233 millionof debt incurred by the Company in conjunction with certain ofthe acquisitions. In addition, in September 1986, Enterprises acquiredthe Coca-Cola bottling companies controlled by John T. Luptonand his family and the soft drink bottling operations of BCIHoldings Corporation (the successor to The Beatrice Companies,Inc.) and the remaining interest in The Detroit Bottling Company,Inc. for an aggregate cost of approximately $2.25 billion; theseacquisitions were funded with borrowings under a credit agree-

ment entered into by Enterprises with a syndicate of banks. TheCompany is not a party to the credit agreement and has notguaranteed any of the borrowings thereunder.

On November 21, 1986, Enterprises sold 71 .4 million sharesof its unissued common stock for net proceeds of approximately$ 1.12 billion. This transaction reduced the Company's ownershipinterest to 49 percent and resulted in a pretax gain of $375 million.Consistent with its reduced ownership interest, the Companyhas commenced reporting its investment in Enterprises under theequity method of accounting. The consolidated financial state-ments have been restated to reflect Enterprises under the equitymethod of accounting for all periods presented. The restate-ment had no effect on shareholders' equity, income from con-tinuing operations, net income or related per share amounts.

A summary of financial information for Enterprises and other principal equity mvestee companies (none of which is individu-ally significant) is as follows (in thousands):

Coca-Cola Enterprises Inc. Other Equity InvestsDecember 31, 1986

Current assets $ 422,626Noncurrent assets 5,388,393

Total assets $3,811,019Current liabilities $ 522,587Noncurrent liabilities 1,840,908

Total liabilities $2,363,495Net assets $1,447,524Company investments and advances $ 709,287

Year ended December 31,

Net operating revenues $1,951 ,008Cost of goods and services 1,137,720Gross profit $ 813,288Income before taxes $ 84,770Net income $ 27,792Company equity in earnings $ 28,161

1985

8 205,005574,503

$ 779,5085 136,624

240,206$ 376,830$ 402,678$ 402,678

$3,271,959755,709

$ 516,250$ 63,628$ 35,907$ 35,907

The Company had an investment of approximately 540million and $45 million in CCFC, a wholly owned unconsoli-dated subsidiary, at December 31, 1986, and 1985, respectively.Total assets of CCFC were approximately $292 million at

1984

$872,279513,032

$359,2473 46,4883 24,8193 24,819

1986

$555,941389,762

$945,703$341,765

222,878

$564,643$381,060$186,655

$783,933501,576

$282,357$100,190$ 91,444$ 46,508

1985

$382,986368,074

$751,060$212,758

199,105$411,863$?39 , I97$149,695

5864,997594,057

$270,940$ 79,380$ 75,485$ 41,132

1984

5518,626340,031

$178,595$ 34,668$ 25,499$ 12,431

December 31, 1986, and $197 million at December 31, 1985. Netincome of CCFC was approximately $4.2 million and $ 3.4million in 1986 and 1985, respectively, (CCFC's first two fullyears of operations).

48


4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES are composed ofthe following amounts (in thousands):

December 31, 1986

Trade accounts payable $1,217,165Deposits on bottles and shells 44,119Other 71,430

SI,332,714

1985936,09942,04278,274

$1,056,415

5, SHORT-TERM BORROWINGS AND CREDIT ARRANGEMENTS.Loans and notes payable consist of commercial paper and notespayable to banks and other financial institutions.

Under lines of credit and other credit facilities for short-term debt with various financial institutions, the Company,including CCFC, may borrow up to $332 million. These linesof credit are subject to normal banking terms and conditions. AtDecember 31,1986, the unused portion of the credit lines was$288 million. Some of the financial arrangements require com-pensating balances which are not material.

6. ACCRUED TAXES are composed of the following amounts(m thousands):

December 31,

Income taxesSales, payroll and

miscellaneous taxes

1986

$364,126

75,563$439,689

1985

$185,604

57,578$243,182

7. SHAREHOLDERS'EQUITY. At a special meeting on June 4, 1986,the Company's shareholders approved an increase in the number ofauthorized shares from 180 million to 700 million, a three-for-onestock split effective June 16,1986, and a change from no par valuecommon stock to $ 1.00 par value per share. All share data hereinhas been restated to reflect these changes.

8. LONG-TERM DEBT consists of the following amounts(in thousands):December 31,

notes due June 1,1988 $11 '/g% notes due November 28, 198812!4% notes due August 1, 198911 !/4% notes redeemed on October 1, 1986

(original due date was October 1, 1989)IP/4% notes due October 16, 1991

(redeemable after October 16, 1988)IP/8% notes due November 28, 199197/s% notes due August 1, 1992

(redeemable after July 31, 1989)9^8% notes due November 26, 1992

(redeemable after November 26, 1989)5'/4% notes due April 24, 1996Other

1986

99,530100,00099,870

99,82980,793

98,780

1 00,000189,156166,439

Less current portion1,034,397

23,212,011 ,185

1985

99,198100,00099,821

98,641

99,793

98,562

100,000

200,319896,334

29,5788866,756

Notes outstanding at December 31, 1986, were issuedoutside the United States and are redeemable at the Company soption under certain conditions related to U.S. and foreign taxlaws. The 97/% percent notes due November 26, 1992, wereissued with detachable warrants which grant the holder the rightto receive, upon tender of the original bond, additional notesbearing the same interest rate and maturing in 1992. The war-rants expire November 26, 1989.

Other long-term debt consists of various mortgages andnotes with maturity dates ranging from 1987 to 2011. Intereston a portion of this debt varies with the changes in the primerate, and the weighted average interest rate applicable to theremainder is approximately 10 percent.

Maturities of long-term debt for the five years succeedingDecember 31,1986, are as follows (in thousands):

19871988198919901991

$ 23,212217,116114,47515,446

194,320

The above notes include various restrictions, none ofwhich are presently significant to the Company.

The Company is contingently liable for guarantees ofindebtedness owed by some independent bottling companies($169 million), CCFC ($201 million) and others, totalingapproximately $394 million at December 31, 1986.

49


9. PENSION PLANS. The Company and its subsidiaries sponsorand/or contribute to various pension plans covering substan-tially all U.S. employees and certain employees in non-US.locations. Pension expense for continuing operations determinedunder various actuarial cost methods, principally the aggregatelevel cost method, amounted to approximately $ 31 million in1986, $35 million in 1985 and $30 million in 1984. Pension costsare generally funded currently.

The actuarial present value of accumulated benefits, asestimated by consulting actuaries, and net assets available forbenefits of Company and subsidiary-sponsored plans in theUnited States are presented below (in thousands):January I, 1986 1985

Actuarial present value ofaccumulated plan benefits:

Vested 1267,476 $216,083Nonvested 25,295 20,933

$292,771Net assets available for benefits $398,931

$237,016$323,989

The weighted average assumed rates of return used indetermining the actuarial present value of accumulated planbenefits were approximately 8 percent for 1986 and 9 percentfor 1985. This change in the assumed rate of return and a planamendment increased the actuarial present value of accumulatedplan benefits by approximately $48 million at January 1, 1986,and decreased 1986 pension expense by approximately $7 million.

The Company has various pension plans in locationsoutside the United States. These locations are not required toreport to U.S. governmental agencies and do not determine theactuarial present value of accumulated plan benefits or net assetsavailable for benefits as calculated and disclosed above. For suchplans, the value of the pension funds and balance sheet accrualsexceeded the actuarially computed value of benefits as ofJanuary 1, 1986 and 1985, as estimated by consulting actuaries.

The Company also has a plan that provides post-retirementhealth care and life insurance benefits to virtually all employeeswho retire with a minimum of five years of service; the aggregatecost of these benefits is not significant.

10. INCOME TAXES. The components of income before incometaxes for both continuing and discontinued operations consist ofthe following (in thousands):

Year EndedDecember 31,

United StatesForeign

1986

693,829817,451

,511,280

1985$ 519,008

617,293

$1,136,301

1984

$ 433,715610,773

$1,044,488

Income taxes for continuing and discontinued operationsconsist of the following amounts (in thousands):}!ear EndedDecember ft,1986

CurrentDeferred

1985CurrentDeferred

1984CurrentDeferred

UnitedStates

$23,97879,630

$25,31058,711

$28,48866,184

State&Local

$22,02213,432

512,0857,073

518,3923,181

Ivreign

$436,4091,462

5288,05122,772

$285,78813,637

Total

$482,40994,524

$325,44688,556

$332,6688 3,002

A reconciliation of the statutory US. federal rate andeffective rates is as follows:

Year Ended December 31, 1986

Statutory rate 46.0%State income taxesnet of

federal benefit 1.1Provision for disinvestment -

South Africa 1.4Earnings in jurisdictions taxed at

lower rates (principallyPuerto Rico) (4.1)

Investment tax credits (1.6)Gain on sale of stock by

Coca-Cola Enterprises Inc. (4.0)Equity method earnings (1.2)Other-net .6

38.2%

Investment tax credits includedin determination of aboverates (in millions): $24.0

1985

46.0%

1.0

(5.7)(3.2)

(1-9).1

36.3%

135.0

1984

46.0%

1.1

(3.6)(3.1)

(1-5)

39.7%

$32.0

50


Deferred taxes are provided principally for depreciation,film costs and television and other licensing income which arerecognized in different years for financial statement and incometax purposes. The Company has manufacturing facilities inPuerto Rico that operate under a Puerto Rican tax exemption,which expires in 1995. In 1984, the Company completed anorganizational restructuring in the Entertainment Business Sec-tor that resulted in an increase in the tax bases of certain assets.

Appropriate U.S. and foreign income taxes have been pro-vided for earnings of subsidiary companies that are expected tobe remitted to the parent company in the near future. Accumu-lated unremitted earnings of foreign subsidiaries that are expectedto be required for use in the foreign operations were approxi-mately $142 million at December 31, 1986, exclusive of amounts,which if remitted, would result in little or no tax.

The United States Tax Reform Act of 1986 repealed theinvestment tax credit for property placed in service after Decem-ber 31, 1985, unless a binding contract to purchase or constructqualified property was in effect on that date. In accordance withgenerally accepted accounting principles, the Company reversedin the fourth quarter of 1986, $8 million of investment tax creditspreviously recorded during the year.

11. STOCK OPTIONS AND OTHER STOCK PLANS. The amended1983 Restricted Stock Award Plan provides that 3,000,000shares of restricted common stock may be granted to certainofficers and key employees of the Company. The shares aresubject to forfeiture if the employee leaves the Company forreasons other than death, disability or retirement and may notbe transferred by the employee prior to death, disability orretirement. The employee receives dividends on the shares andmay vote the shares. The market value of the shares at the dateof grant is charged to operations over the vesting periods. Sharesgranted were 210,000 shares, 282,000 shares and 883,500 sharesin 1986, 1985 and 1984, respectively. At December 31, 1986,1,125,000 shares were available to be granted under this Plan.

The Company's 1983 Stock Option Plan covers 6,000,000shares of the Company's common stock. The Plan provides forthe granting of stock appreciation rights and stock options tocertain officers and employees. Stock appreciation rights permitthe holder, upon surrendering all or part of the related stockoption, to receive cash, common stock or a combinationthereof, in an amount up to 100 percent of the differencebetween the market price and the option price. Included moptions outstanding at December 31, 1986, were various optionsgranted under previous plans and other options granted not as apart of an option plan.

Further information relating to options is as follows:

December 31,

Options outstandingat January 1

Options granted inthe year

Options exercised inthe year

Options cancelled inthe year

1986

5,662,155

1,800,400

(1,194,183)

(202,448)Options outstanding

at December 31

1985

5,599,335

1,444,350

(1,081,938)

(299,592)

6,065,924 5,662,155Options exercisable

at December 31 3,153,137Shares available at

December 31for options whichmay be granted 459,454

Option prices per shareExercised in

the year $ 10-124Unexercised at

year-end $10-$ 3 9

3,192,978

2,128,263

$10-121

$10-S24

1984

5,139,666

1,363,950

(794,535)

(109,746)

5,599,335

2,605,788

3,395,850

$ 8-117

$10-121

In 1985, the Company entered into Performance UnitAgreements, whereby certain officers will be granted cash awardsbased on the difference in the market value of 555,000 shares ofthe Company's common stock at the measurement dates andthe base price of $20.6 3, the market value as of January 2, 1985.Under these agreements, the cost will be charged to operationsover the vesting period.

12. ACQUISITIONS. In July 1986, the Company acquired twoCanada Dry bottling operations in Canada for approximately$90 million. In May 1986, the Company acquired JanuaryEnterprises, Inc. (doing business as Merv Griffin Enterprises), amajor producer of game shows and other television programs,for approximately $200 million.

In December 1985, the Company acquired Nutri-FoodsIntl., Inc. (Nutri-Foods), a manufacturer of juice-based frozendesserts. The total purchase price consisted of approximately$30 million in cash at closing, plus participation in Nutri-Foods'earnings through December 31, 1989. Such earnings will be paidto former principal owners, one of whom continues as anemployee of Nutri-Foods.

51


In August 1985, the Company purchased certain assetsand properties of Embassy Communications and Affiliates(Embassy) and Tandem Productions (Tandem). The purchaseprice for the assets of Tandem was approximately $ 178 millionin cash and the assumption of certain trade liabilities. The pur-chase price for Embassy was approximately $267 million, com-posed of approximately 7.1 million shares of the Company'scommon stock and the payment of existing debt. Embassy andTandem are engaged principally in the production and distribu-tion of television programs. Embassy Pictures and certainreceivables and contract rights, which were acquired in conjunc-tion with the above acquisitions, were subsequently sold.

The operating results of these acquired companies havebeen included in the consolidated statements of income from thedates of acquisition and do not have a significant effect on oper-ating results for those respective years.

In December 1986, the Company acquired The Coca-ColaBottling Company of Southern Florida, Inc. (Miami CCBC) forapproximately $325 million and Coca-Cola bottling companiesaffiliated with Mr. Crawford Rainwater, Jr. (Rainwater Bottlers)for approximately $211 million. The investments in RainwaterBottlers and Miami CCBC are reported on the cost methodas management anticipates disposing of the Company's owner-ship interests.

13. DIVESTITURES AND DISCONTINUED OPERATIONS. In October1986, the Company sold its Embassy Home Entertainmentoperations for approximately $85 million in cash plus relief ofcertain liabilities, the total of which approximated the Com-pany's carrying value.

In December 1985, the Company sold Presto ProductsIncorporated and Winkler/FIexible Products, Inc., manufacturersof plastic products, for approximately $112 million. Operatingresults for these companies have been reported as discontinuedoperations. Net revenues of discontinued operations were $235million and $212 million in 1985 and 1984, respectively.

In 1984, the Company sold Ronco Enterprises, Inc., a man-ufacturer and distributor of pasta products, for cash. This trans-action had no significant effect on consolidated operating results.

In 1985, the Company sold capital stock of several U.S.bottling operations resulting in gains of approximately $67million. In 1984, the Company sold bottling interests inAustralia and Japan and provided for possible losses inJ

r r r

Guatemala, where an independent bottler ceased operations.These efforts resulted in net pretax gains of approximately $18million in 1984.

14. PROVISIONS FOR DISINVESTMENT AND RESTRUCTUREDOPERATIONS. During the fourth quarter of 1986, the Companyrecorded provisions against earnings for disinvestment andrestructured operations aggregating $180 million. These provi-sions include a charge of $45 million related to the previouslyannounced decision to dismvest from South Africa. Theremaining $135 million relates principally to the revaluation ofcertain assets and the estimated cost of closing various produc-tion facilities as a result of changes inCompany's U.S. soft drink business.

the conduct of the

15. RECEIVABLE AND CONTRACT RIGHT CONVERSIONS. In 1986and 1985, the Company sold its rights to cash payments undercontracts related to certain films and television programs notpresently available for telecast. Approximately $45 million in1986 and $31 million in 1985 of such rights were acquired byCCFC, the Company's wholly owned finance subsidiary. Thesetransactions resulted in deferred revenue which is recognized asoperating revenue as the respective materials become availablefor telecast. The differences between the present value of thecontracts and the amounts to be recognized as revenue are beingreported as nonoperating deductions. Certain entertainment andother accounts receivable, totaling $238 million in 1986 and$465 million in 1985, were also sold. These transactions aresubject to recourse. The uncollected balance of receivables wasapproximately $618 million and $4131986 and 1985, respectively.

million at December 3 1 ,

16. WORKING CAPITAL. Decreases (increases) in working capital(excluding cash, marketable securities, temporary investments,loans and notes payable and current portion of lonjby component, were (in thousands):

1986i s \r\J

Trade accounts receivable $(220,606)Inventories and film costs 3 ,2 55Prepaid expenses and

other assets (96,749)\ i_i jAccounts payable and

accrued expenses 124,695Entertainment obligations 42,084Accruedtaxes 188,629

$ 41,308

J9H5I S*JJ

$ 76,256(131,801)

(51,762)

77,1788,648

62,555S 41,074

r-term debt),

1984i s\r*

S(61,632)19,572

15,573

59,73038,324

(33,689)S 37,878

52

17. LINES OF BUSINESS. The Company operates principally inthe soft drink industry. The Entertainment Business Sector isengaged in the production and distribution of motion pictureand television products and other entertainment related activi-

Year Ended December 31,

NET OPERATING REVENUES Soft drinksEntertainmentFoods

ties. Citrus, fruit drinks,


coffee and other products are includedin the Foods Business Sector. Intercompany transfers betweensectors are not material. Information concerning operations indifferent lines of business is as follows (in millions):

Consolidated net operating revenuesOPERATING INCOME Soft drinks**

EntertainmentFoodsGeneral expenses

Consolidated operating incomeIDENTIFIABLE ASSETS ATYEAR-END

Soft drinksEntertainmentFoods

1986

$5,976.81,373.81,318.0

$8,668.6$1,016.5

235.4120.2

(227.1)$1,145.0$3,456.92,170.1

576.5Corporate assets (principally marketable

securities, investments and fixed assets)

CAPITAL EXPENDITURES(INCLUDING FIXED ASSETSOF PURCHASED COMPANIES)

Investment in Coca-ColaEnterprises Inc.

Discontinued operationsConsolidated assets

Soft drinksEntertainmentFoodsCorporate

Consolidated capital expendituresDEPRECIATION ANDAMORTIZATION OFGOODWILL

Soft drinksEntertainmentFoodsCorporate

1,460.6

709.3-

$8,373.4S 246.5

44.071.892.2

$ 454.5S 118.1

23.726.416.6

1985*$4,812.5

1,072.11,327.5

$7,212.1$ 850.6

160.9117.5

(144.4)$ 984.6$3,189.0

1,802.4473.5

904.0

402.7-

$6,771.6$ 239.4

22.4113.880.8

$ 456.4$ 104.2

19.721.214.1

Consolidated depreciation andamortization of goodwill

* Prior years' information has been restated to account for Coca-Cola Enterprises Inc.$ 184.8 $ 159.2

1984*

$4,447.6884.7

1,260.4$6,592.7$ 851.7

121.1123.6

(106.4)$ 990.0$2,655.8

1,615.4369.1

771.7

336.990.9

$5,839.8$ 238.2

31.239.925.8

$ 335.1$ 97.8

17.620.310.9

$ 146.6under the equity method. (See Note 3.)

* */ 1986, soft drink operating income was reduced by provisions for disinvestment and restructured operations aggregating $180 million.

Net Operating Revenues($ Millions)

^M .^Mb.VOperating Income

Foods 1,318

Entertainment 1,374

Soft Drinks 5,977

(S Millions)

1^ .^^^ Foods 120

| Entertainment 235

Soft Drinks 1,017


18. OPERATIONS IN GEOGRAPHIC AREAS. Information about theCompany's operations in different geographic areas is presented

Year Ended December 3i,

NET OPERATING REVENUES United StatesLatin AmericaEurope and AfricaPacific and Canada


below (in millions). Intercompany transfers between geographicareas are not material.

Consolidated net operating revenuesOPERATING INCOME United States**

Latin AmericaEurope and Africa**Pacific and CanadaGeneral expenses

Consolidated operating incomeIDENTIFIABLE ASSETS AT United StatesYEAR-END Latin America

Europe and AfricaPacific and CanadaCorporate assets (principally marketable

securities, investments and fixed assets)Investment in Coca-Cola

Enterprises Inc.Discontinued operations

Consolidated assetsIDENTIFIABLE LIABILITIES OFOPERATIONS OUTSIDE THEUNITED STATES

1986

$4,650.0555.5

1,628.61,834.5

$8,668.6

1985*

$4,216.6452.4

1,240.61,302.5

$7,212.1$ 513.9 $ 495.6

140.9354.3363.0

(227.1)$1,145.0$4,139.0

383.3895.5785.7

1,460.6

91.5294.3247.6

(144.4)

1984*

13,795.1429.6

1,183.81,184.2

$6,592.7$ 489.2

91.6282.7232.9

(106.4)$ 984.6 $ 990.0$3,737.5 S3,130.8

380.8 409.8805.0541.6

904.0

709.3 402.7

$8,373.4

$ 854.1

$6,771.6

$ 742.6

636.4463.3

771.7

336.990.9

$5,839.8

$ 714.5* Prior years' information has been restated to account for Coca-Cola Enterprises Inc. under the equity-method. (See Note 3.)

* "In 1986, United States and Europe and Africa operating income was reduced by provisions for disinvestment and restructured operations aggregating $135 million and$45 million, respectively.

Net Operating Revenuesf* Millions)

^^fllB^ LannAmenca 556

M ^ Europe and Afnca 1,629

1 S Padfic and Canada 1,834

W UniKd States 4,650

^H^

Operating Income($ Millions)

1It Latin America 141Europe and Africa 3 54Pacific and Canada 363United States 514

REPORT OF INDEPENDENT ACCOUNTANTS The Coca-Cola Company and Subsidiaries

Board of Directors and ShareholdersThe Coca-Cola CompanyAtlanta, Georgia

We have examined the consolidated balance sheets of TheCoca-Cola Company and subsidiaries as of December 31, 1986 and1985, and the related consolidated statements of income, sharehold-ers' equity and changes in financial position for each of the threeyears in the period ended December 31, 1986. Our examinationswere made in accordance with generally accepted auditing standardsand, accordingly, included such tests of the accounting records andsuch other auditing procedures as we considered necessary inthe circumstances.

In our opinion, the financial statements referred to abovepresent fairly the consolidated financial position of The Coca-ColaCompany and subsidiaries at December 31, 1986 and 1985, andthe consolidated results of their operations and changes in theirfinancial position for each of the three years in the period endedDecember 31, 1986, in conformity with generally accepted account-ing principles applied on a consistent basis after restatementfor the change, with which we concur, to the equity method ofaccounting for Coca-Cola Enterprises Inc. as described in Note 3to the consolidated financial statements.

Atlanta, GeorgiaFebruary 2,1987

REPORT OF MANAGEMENT

Management is responsible for the preparation and integrity of theconsolidated financial statements appearing in this Annual Report.The financial statements were prepared in conformity with gener-ally accepted accounting principles appropriate in the circumstancesand, accordingly, include some amounts based on management'sbest judgments and estimates. Financial information in this AnnualReport is consistent with that in the financial statements.

Management is responsible for maintaining a system ofinternal accounting controls and procedures to provide reasonableassurance, at an appropriate cost/benefit relationship, that assetsare safeguarded and that transactions are authorized, recorded andreported properly. The internal accounting control system is aug-mented by a program of internal audits and appropriate reviews bymanagement, written policies and guidelines, careful selection andtraining of qualified personnel and a written Code of BusinessConduct adopted by the Board of Directors, applicable to allemployees of the Company and its subsidiaries. Managementbelieves that the Company's internal accounting controls providereasonable assurance that assets are safeguarded against materialloss from unauthorized use or disposition and that the financialrecords are reliable for preparing financial statements and otherdata and maintaining accountability for assets.

The Audit Committee of the Board of Directors, composedsolely of Directors who are not officers of the Company, meetswith the independent accountants, management and internal audi-tors periodically to discuss internal accounting controls, auditingand financial reporting matters. The Committee reviews with theindependent accountants the scope and results of the audit effort.The Committee also meets with the independent accountantswithout management present to ensure that the independentaccountants have free access to the Committee.

The independent accountants, Ernst & Whinney, arerecommended by the Audit Committee of the Board of Directors,selected by the Board of Directors and ratified by the share-holders. Ernst & Whinney is engaged to examine the consolidatedfinancial statements of The Coca-Cola Company and subsidiariesand conduct such tests and related procedures as it deems necessaryin conformity with generally accepted auditing standards. Theopinion of the independent accountants, based upon their examina-tion of the consolidated financial statements, is contained in thisAnnual Report.

Roberto C. GoizuetaChairman, Board of Directors,and Chief Executive Officer

M. Douglas IvesterSenior Vice Presidentand Chief Financial Officer

February 2,1987

QUARTERLY DATA (UNAUDITED)(For the years ended December 31 , 1986 and 1985)

QUARTERLY RESULTS OF OPERATIONS*(In millions except per share data)

First quarterSecond quarterThird quarterFourth quarter


Net Operating Revenues Gross Profit1986

$1,734.82,245.02,533.82,155.0

$8,668.6

First quarterSecond quarterThird quarterFourth quarter* *

1985

$1,569.21,803.31,897.01,942.6

$7,212.1

1986

$ 805.21,077.51,143.8

997.8$4,024.3

1985

$ 710.9880.6906.6854,4

$3,352.5

Income FromContinuing Operations Net Income

1986

$ 161.2225.5233.1314.5

$ 934.3

First quarterSecond quarterThird quarterFourth quarter* *

1985

$ 139.9193.6192.3151.8

$ 677.6

1986

% 161.2225.5233.1314.5

$ 934.3

1985

$ 141.2196.1195.6189.4

$ 722.3

Income Per ShareFrom Continuing Operations Net Income Per Share

1986

$ .42.58.60.82

1985

$ .36.49.48.39

$ 2.42 $ 1.72

1986

$ .42.58.60.82

$ 2.42

1985

$ .36.50.49.49

$ 1.84^Quarterly information has been restated to account for Coca-Cola Enterprises Inc. under the equity method. (See Note 3.)

* "The fourth tjuarter of 1986 included provisions for disinvestment and restructured operations aggregating $180 million and the $375 million pretax gain on sale ofstock by Coca-Cola Enterprises Inc.

CORPORATE OFFICERS

Roberto C. GoizuetaChairman, Board of Directors, and

Chief Executive Officer

Donald R. KeoughPresident and

Chief Operating Officer

SENIOR EXECUTIVEVICE PRESIDENTGlaus M. Halle

EXECUTIVE VICE PRESIDENTSJohn W. GeorgasA. Garth HamhyIraC. HerbertFrancis T. Vincent, Jr.

SENIOR VICE PRESIDENTSEugene V AmorosoH.T. CircuitM-A. GianturcoM- Douglas IvesterRobert A. KellerEarl T. Leonard, Jr.Alex MalaspinaEdwin R. MellettDouglas A. SaarelR.V WaltemcyerCarl Ware

VICE PRESIDENTSWilliam W AllisonWilliam R. BuehlerRobert L. Callahan, Jr.Philip J. Carswell, Jr.Murray D. FriedmanJohn J. GillinJoseph R. Gladden, Jr.Robert D. GuyGary P. HiteW. Glenn KernelGloria E. LemosWilliam H. LynnS.W MagruderMaury C. Roe

M. Douglas IvesterChief Financial Officer

Robert A. KellerGeneral Counsel

Murray D- FriedmanTreasurer

Philip J. Carswell, Jr.Controller

Donald R- GreeneSecretary

Executive Officers -Operating Units

NORTH AMERICASOFT DRINKBUSINESS SECTOREdwin R. MellettPresident

INTERNATIONALSOFT DRINKBUSINESS SECTORClaus M. HallePresident

ENTERTAINMENTBUSINESS SECTORFrancis T. Vincent, Jr.President

FOODSBUSINESS SECTOREugene V AmorosoPresident

57

BOARD OF DIRECTORS

HERBERT A. ALLENNew York, New YorkPresident and Chief

Executive OfficerAllen & Company Incorporated

ANNE Cox CHAMBERSAtlanta, GeorgiaChairmanAtlanta Newspapers

CHARLES W. DUNCAN, JR.Houston, TexasChairman of the BoardDuncan, Cook & Co.

RICHARD J. FLAMSON IIILos Angeles, CaliforniaChairman, Board of Directors,

and Chief Executive OfficerSecurity Pacific CorporationChairman, Board of DirectorsSecurity Pacific National Bank

ROBERTO C. GOIZUETAAtlanta, GeorgiaChairman, Board of Directors,

and Chief Executive OfficerThe Coca-Cola Company

DONALD R. KEOUGHAtlanta, GeorgiaPresident and Chief

Operating OfficerThe Coca-Cola Company

JAMES T. LANEYAtlanta, GeorgiaPresidentEmory University

DONALD F. McHENRYWashington, D.C.University Research

Professor of Diplomacyand International Affairs

Georgetown University

PAUL F. OREFFICEMidland, MichiganChairman, President

and Chief Executive OfficerThe Dow Chemical Company

JAMES D. ROBINSON, IIINew York, New YorkChairman, Board of Directors,

and Chief Executive OfficerAmerican Express Company

JAMES M. SIBLEYAtlanta, GeorgiaPartner in the law firmKing& Spalding

WILLIAM B. TURNERColumbus, GeorgiaChairman, Board of Directors,

and Chief Executive OfficerW.C.Bradley Co.Chairman, Executive Committee

of Board of DirectorsCB&TBancshares, Inc.

PETER V UEBERROTHNew York, New YorkCommissionerMajor League BaseballJAMES B. WILLIAMSAtlanta, GeorgiaVice Chairman, Board

of DirectorsSunTrust Banks, Inc.PresidentTrust Company of GeorgiaPresidentSun Banks, Inc.

58

Standing, left to right: James D. Robinson, III, James M. Sibley, Herbert A. Allen, Richard J. Flamson III, Peter V Ueberroth,Paul F. Oreffice, Donald F. McHenry, James T. Laney. Seated, left to right: William B. Turner, James B. Williams, Roberto C. Goizueta,Donald R. Keough, Charles W Duncan, Jr., Anne Cox Chambers.

59

SHAREHOLDER INFORMATION

COMMON STOCKTicker Symbol: KOCommon stock of The Coca-Cola Company, exceeding 385million shares outstanding, is listed and traded on the New \brkStock Exchange and also is traded on the Boston, Cincinnati,Midwest, Pacific and Philadelphia stock exchanges. Outside theUnited States, the Company's common stock is listed and tradedon the German exchange in Frankfurt and on Swiss exchangesin Zurich, Geneva, Bern, Basel and Lausanne.

At year-end, there were 95,753 shareholders of record, a28 percent increase over 1985.

ANNUAL MEETINGThe Annual Meeting of Shareholders will be at 9:00 a.m.local time, April 15, 1987, at the I Intel duPont, l l t h andMarket Streets, Wilmington, Delaware. Shareholders arecordially invited to attend the Annual Meeting, and those notplanning to attend are encouraged to have their shares repre-sented by returning their proxy card.

DIVIDEND POLICYThe Company has paid 263 consecutive dividends, beginning in1920, and has increased dividends for each of the last 25 consec-utive years. Dividends normally are paid on a quarterly basis,usually on the first day of April, July and October and the 15thday of December. The Board of Directors has endorsed a policyto increase the percentage of earnings reinvested in the businessby gradually reducing over time the dividend payout ratio to40 percent.

STOCK PERFORMANCE 1981-1986The accompanying chart illustrates the growth in value of com-mon stock of The Coca-Cola Company as compared with theStandard & Poor's Composite Index of 500 Stocks. The Com-pany's stock performance has been outstanding in recent years,significantly outperforming the Standard & Poor's Index of 500Stocks in five of the past six years. A 1100 investment in theCompany's stock on December 31, 1980, would have grown tomore than $388 by December 31, 1986, including the accumula-tion of dividends.

STOCK PERFORMANCE

S200

$100

1981-1986

^_ The Coca-Cola Company... Standard & Poor's 500

This comparison assumes no commissions and no income taxes.Historic returns are not necessarily indicative of future returns.

Below are the New York Stock Exchange high, low andclosing prices of The Coca-Cola Company stock for each quar-ter of 1986 and 1985 and for the preceding four years, adjustedfor a three-for-one stock split in June 1986.

1986Fourth quarterThird quarterSecond quarterFirst quarter

High

39.6344.8841-8336.67

1985Fourth quarterThird quarterSecond quarterFirst quarter1984198319821981

29.4224.9624.0823.4222.0019.1717.88

13.42

Low

33.7532.8832.8325.58

23.0422.4222.001 9 . 8 316.3315.17

9.928.92

Close

37.7533.8841.8335.08

28.1723.252 3 . 1 32 3 . 3 320.7917.83

17.3311.58

60

DIVIDEND AND CASH INVESTMENT PLANAll shareholders of record are invited to participate in the Divi-dend and Cash Investment Plan. By reinvesting dividends fromCompany stock toward the purchase of new shares, the Planprovides a convenient, economical and systematic method ofacquiring additional shares of the Company's common stock.All costs and commissions associated with joining and partici-pating in the Plan are paid by the Company.

Shareholders may purchase additional Company stockthrough voluntary cash investments of up to $ 60,000 per yearwith or without reinvesting dividends from existing shares.

The Plans administrator, Morgan Shareholder ServicesTrust Company, purchases stock on or about the first of eachmonth for voluntary cash investments, and quarterly for divi-dend reinvestment.

At year-end, 23 percent of the shareholders of record wereparticipants in the Plan. In 1986, shareholders invested nearly$6 million in dividends and more than $6 million in cash invest-ments in the Plan.

ADDITIONAL COMPANY INFORMATION SOURCESThe Company regularly distributes quarterly Progress Reportscontaining financial results and other information about theCompany. A Notice of Annual Meeting of Shareholders and ProxyStatement are furnished to shareholders in advance of theAnnual Meeting. Publications that are available at no chargefrom the Shareholder Relations Department include the Com-pany's Annual Report on Form 10-K and Quarterly Report on Form10-Q Also available is the brochure A Profile of The Coca-ColaCompany in 1990, an update on the Company's "Strategy for the1980s" and a special history publication, The Chronicle of Coca-ColaSince 1886. A variety of other booklets about the Company andits products also is available.

EQUAL OPPORTUNITY POLICYThe Coca-Cola Company maintains a long-standing com-mitment to equal opportunity and affirmative action. TheCompany strives to create a working environment free of dis-crimination and harassment with respect to race, sex, color,national origin, religion, age, handicap, or being a veteran of theVietnam era, as well as to make reasonable accommodations inthe employment of qualified individuals with disabilities. TheCompany continued to increase the minority and female repre-sentation in 1986. In addition, the Company provides fair mar-keting opportunities to all suppliers and maintains programs toincrease transactions with firms that are owned and operated byminorities and women.

CORPORATE OFFICESThe Coca-Cola CompanyOne Coca-Cola Plaza N.W.Atlanta, Georgia 30313(404) 676-2121

INQUIRIES AND ASSISTANCEInquiries and requests for assistanceshould be directed to the addresses below:

SHAREHOLDER ASSISTANCEShareholder Relations DepartmentThe Coca-Cola CompanyPost Office Drawer 1734Atlanta, Georgia 30301(404)676-2777

SECURITY ANALYST ASSISTANCEInvestor Relations DepartmentThe Coca-Cola CompanyPost Office Drawer 1734Atlanta, Georgia 30301(404) 676-5766

TRANSFER AGENT, REGISTRAR,DIVIDEND DISBURSING AGENTMorgan Shareholder Services

Trust Company30 West BroadwayNew York, New York 10015(212)587-6515

INDEPENDENT ACCOUNTANTSErnst & Whinney1800 Peachtree Center South Tower225 Peachtree Street N.E.Atlanta, Georgia 30303(404) 658-9400

Design: Critt Graham + AssociatesCaver: Dazzeland StudiosMajor Photography: Burk Uzde, Phillip VulloPrinting: George Rice & Sons

Documents

The Coca-Cola Company 1986 Annual Report