The Coca-Cola Company 1985 Annual Report

THE COCA-COLA COMPANYANNUAL REPORT 1985

As it prepares to celebrate the centennialof Coca-Cola in May, The Coca-ColaCompany has enhanced its position as theundisputed leader of the worldwide softdrink industry. The Company is also amajor producer and distributor of motionpictures and television programs and oneof the world's largest citrus marketers. TheCompany's brands, sold in more than 155countries, include megabrand Coca-Cola comprising products Coca-Cola,Coca-Cola classic, diet Coke, cherry Coke,diet cherry Coke, caffeine-free Coke andcaffeine-free diet CokeSprite, TAB,Fanta, Minute Maid, Five Alive andHi-C, among others. The Company'sentertainment business consists primarilyof the various units of Columbia PicturesIndustries, Inc., recently acquiredEmbassy Communications and Affiliatesand Tandem Productions and a signif-icant interest in Tri-Star Pictures, Inc.

A^^dH^ Cver: Through innovativefmf | advances in marketing,

^ P^^^ packaging and distribution,,Coca-Cola has evolved from its modest sodafountain origin 100 years ago into a timelesssymbol of quality refreshment and the world'smost widely recognized trademark. Today,brand Coca-Cola is number one in the UnitedStates and the world, refreshing hundreds ofmillions of people every day.

.ONTENTS2 Financial Highlights3 Letter to Shareholders8 Soft Drink Business Sectors

20 Entertainment Business Sector26 Foods Business Sector31 Financial Information55 Officers and Directors58 Shareholder Information

THE COCA-COLA COMPANY

,he power of the Coca-Cola system,the strength of our trademarks, the flexibility of our Strategy

and the creativity of our people propel us intoa second century of leadership.

FINANCIAL HIGHLIGHTS(In millions except per share data)

The Coca-Cola Company and Subsidiaries

Year Ended December 31, 1985 1984 % ChangeNet operating revenuesOperating incomeIncome from continuing operations

before income taxesIncome from continuing operationsNet incomeIncome per share from continuing operationsNet income per shareDividends per shareShareholders' equity at year-endIncome from continuing operations

to net operating revenuesIncome from continuing operations to

average shareholders' equityBook value per shareClosing market price per shareRatio of market to book value

$7,903.9$1,045.4

53,092.8$ 677.6$ 722.3$ 5.17$ 5.51$ 2.96$2,979.1

8.6%

23.5%$ 23.154$ 84.50

3.6

$7,151.8$1,042.1

$1,054.8$ 621.8$ 628.8$ 4.70$ 4.76$ 2.76$2,778.1

10.5%.3%

3.6%9.0%

14.9%10.0%15.8%

7.2%7.2%

8.7%

21.8%$ 21.235$ 62.375

2.9

Net Operating Revenues(S Billions)

Income FromContinuing Operations($ Millions)

Income Per Share FromContinuing Operations

700

560

420

280

140

5.25

4.20

3.15

2.10

1.05

1975-1985 1975-1985 1975-1985

To OUR SHAREHOLDERS:

A.s we celebrate thecentennial of Coca-Cola in May and embarkon a challenging and promising secondcentury, The Coca-Cola Company is forg-ing ahead with its Strategy for the 1980s.From 1981 through 1985, earnings per sharefrom continuing operations grew at an aver-age annual rate of 10 percent, and returnon average shareholders' equity from contin-uing operations increased 3.6 points to 23.5percent. During the same five-year period,average compounded annual return on yourinvestmentstock price appreciation plusdividends reached 24 percent versus 13percent for Standard & Poor's CompositeIndex of 500 Stocks. All of this was accom-plished during a time of significant contin-uing increase in the value of the U.S. dollar,which negatively affected our year-to-yearreported earnings comparisons.

In 1985, the Company achieved a9 percent increase in income from continu-ing operations to $678 million, and a 10percent gain in income per share from con-tinuing operations to $5.17. Net income pershare was $5.51. Operating income exceeded$1 billion in 1985. In addition, 1985 was ayear of unprecedented new product intro-ductions, supported by substantial market-ing investments to seed our new megabrandproducts, Coca-Cola, Coca-Cola classicand cherry Coke, as well as to support theremarkable success of diet Coca-Cola.

Strategic Focus As we look to thefuture, it is difficult to foretell the world of1990, but your management has a sharedset of expectations, ambitions and goalsfor The Coca-Cola Company and its sys-tem. We are a changed company. We are amore action-oriented and forward-lookingcompany. We are fully committed to achiev-ing sustainable, profitable growth and

OUR STRATEGY WILL CON-TINUE TO BE FLEXIBLE TOTAKE ADVANTAGE OF CIR-CUMSTANCES THAT ARISE.OUR CHALLENGE IS TO MAIN-TAIN MOMENTUM AND TOCAPITALIZE ON CHANGE.

enhancing shareholder value.With our Strategy statement as a

guide, we have embraced a new corporateculture based on intelligent risk taking. Weare emphasizing long-term results and sen-sitivity to changing business and consumerenvironments. One thing is certain: ourStrategy will continue to be flexible to takeadvantage of the opportunities that arise.Our challenge is to maintain momentumand to capitalize on change.

While adapting to change, the funda-mentals underpinning our Strategy remainconstant. We will continue to be a consumer-driven company that creates and fulfills con-sumer demand around the world. We willcontinue to expand our three businesses soft drinks, entertainment and foods.

First and foremost, we will be a softdrink company. By 1990, The Coca-ColaCompany, together with the Coca-Cola bot-tling system, will have enhanced its positionas the world's leading soft drink marketer byever wider margins. We will capitalize onour strengths, which include our trademarks,marketing and distribution systems secondto none, significant financial resources,knowledge of business conditions aroundthe world and a heritage of excellence.

Leveraging OurTrademarks Perhaps thebest example of our strategic commitment toleadership in the soft drink industry andcertainly the most dramatic event of the pastyearwas the further development of mega-brand Coca-Cola. With the introductions ofthe new taste of Coca-Cola, Coca-Cola classicand cherry Coke in 1985, we extended theprocess of leveraging the world's best-knowntrademark begun with the 1982 introductionof diet Coke. The speed and flexibility of theCompany's response to American consum-ers during the past year is testament to our

ROBERTO C. GOIZUETA, CHAIRMAN, BOARD OF DIRECTORS, AND CHIEF EXECUTIVE OFFICER,WITH DONALD R. KEOUGH (FOREGROUND), PRESIDENT AND CHIEF OPERATING OFFICER

LETTER TO SHAREHOLDERS

ability to listen to, and our willingness tomeet, consumer demand for choice in thesoft drink marketplace.

These products of the Coca-Colamegabrand along with our caffeine-freecolas boldly extended the Company's softdrink leadership. Today, one of every twocolas and one of every three soft drinks con-sumed by the American public is a Coca-Colabranded product. This achievement, com-bined with the strong performance of suchallied brands as Sprite, has expanded ourtotal U.S. share to 39 percent in 1985 from35 percent five years ago.

We are continuing to extend the suc-cessful megabrand concept and strategy,utilizing for this purpose our second mostvaluable Company trademark, MinuteMaid. After a successful experience withMinute Maid Orange Soda in Canada, inearly 1986 we began the U.S. introductionof Minute Maid Orange Soda, MinuteMaid Lemon-Lime Soda and their dietversions, all vitamin enriched and contain-ing 10 percent fruit juices.

Our Worldwide Thrust We arealready the leading soft drink businessinternationally, with a share of 44 percent,outselling our nearest competitor by morethan a three-to-one margin outside theUnited States. Nevertheless, we plan toinvest a significant portion of our cash flowin the next five years to develop further theInternational Soft Drink Business Sector'svast growth potential. This will requireincreasing availability, enhancing afforda-bility and broadening acceptability of oursoft drink products.

Tremendous opportunities exist toincrease international per capita consump-tion of soft drinks. Whereas Americansdrink an average of 806 soft drinks per

WE HAVE STEPPED UPOUR BOTTLER RESTRUC-

TURING PROGRAM TO

CREATE A MORE EFFICIENT

DISTRIBUTION SYSTEM TO

SERVE OUR EXPANDEDPRODUCT LINE.

person each year, consumers in internationalmarkets drink just 118 soft drinks per year,15 percent of U.S. per capita consumption.By the end of the decade we expect toincrease international per capita consump-tion of our products by 40 percent from1985 levels. Significant progress was madein 1985 when we achieved over 10 percentunit volume growth.

As in the U.S., we have stepped up ourbottler restructuring program internation-ally. Our goal is to reduce our current lowproduction costs and create a more efficientdistribution system to serve our expandedproduct line. We already have effected sev-eral key transfers of bottler ownership thathave strengthened our independent bottlersystem.

In market development, our interna-tional bottler system is creating demand forlow-calorie beverages in locations where suchmarkets do not yet exist. Since 1983, we haveintroduced diet Coke or Coca-Cola light in59 countries, extending our most valuableassetthe trademark Coca-Cola inworldwide markets.

Expanding Entertainment OpportunitiesThe Coca-Cola Company is committed toexpansion that complements existing busi-nesses and provides profitable growthpotential. Columbia Pictures Industries,Inc., the centerpiece of our participation inthe rapidly growing entertainment industry,presented such an opportunity. In each ofthe three full years our Company has hadan equity in the entertainment industry, thatsegment of our business has achieved morethan a 30 percent gain in operating income.

To meet accelerating consumer demandfor quality entertainment software and tomaximize the efficient use of its distributionsystems, Columbia was a partner in the


1982 formation of Tri-Star Pictures, thefirst major motion picture studio createdin many years. To lessen the financial riskof motion picture production, ColumbiaPictures and Tri-Star Pictures separatelyentered into pay and network televisionlicensing agreements, as well as severalequity financing arrangements.

In 1985, for the third consecutive year,television contributed the greatest portionto operating income in the EntertainmentBusiness Sector. Columbia Pictures Televi-sion's production and distribution capabili-ties were complemented in 1985 with theacquisitions of Embassy Communicationsand Affiliates and Tandem Productions,leading producers and syndicators of televi-sion programs. Also, we entered into severallicensing and syndication agreements toincrease the flow of programming in futureyears to television stations nationally.

Our entertainment sector is takingadvantage of the growth in home entertain-ment by being a major participant in theburgeoning videocassette business. In theyears ahead, we will continue to developand distribute programming to all types ofdelivery systems, including movie theatres,cable systems, television markets andvideocassettes.

Leading in Our Foods Markets In ourFoods Business Sector, our Strategy calls forour products to be the leading entries intheir respective market segments. In spite ofintense competition, Minute Maid orangejuice remains the number one selling product.Our share of U.S. orange juice sales, frozenconcentrated and chilled combined, reached22 percent for the full year 1985 from 20.5percent five years ago.

To capitalize further on its strong dis-tribution system and well-known trade-

WE WILL CONTINUE TO

DEVELOP AND DISTRIBUTEENTERTAINMENT PRO-

GRAMMING TO ALL TYPESOF DELIVERY SYSTEMS,

FULLY CAPITALIZING ON

THE RAPIDLY GROWING

DYNAMICS OF THE ENTER-TAINMENT INDUSTRY.

marks, Coca-Cola Foods has introducedmore than 60 new products and packagessince 1981. We have captured larger sharesof product categories by segmenting theindustry. A prime example of our willing-ness to meet and even create consumerdemand is our leadership in aseptics single-serving, non-refrigerated drink boxpackaging.

The 1985 purchase of Nutri-FoodsInt'l., Inc., a producer of frozen fruit juice-based desserts, leverages the Company'smarketing and distribution expertise.Through Nutri-Foods, we are participatingin a fast-growing food segment that fits wellwith consumer demand for quality, nutri-tion and convenience.

Aggressive Financial Activity In thefinancial arena, The Coca-Cola Companyis pursuing a more aggressive policy. We areusing greater financial leverage wheneverstrategic investment opportunities are avail-able. We are reinvesting a larger portion ofour earnings by increasing dividends at alesser rate than earnings per share growth.We are maintaining our effective incometax rate at a level well below our historicalrate. And, we are continuing to repurchaseour common shares when excess cash ordebt capacity exceed near-term investmentrequirements.

Another principle in our Strategyrequires us to consider divesting assetswhen they no longer generate acceptablereturns and earnings growth or are incon-sistent with our focus on consumer prod-ucts. Accordingly, over the last five yearswe have sold a wine business, a private-label instant coffee and tea unit, a boilerand industrial water purification subsidi-ary, a regional pasta operation andprivate-label plastic products businesses.


Also in 1985, we completed the conversionof certain entertainment sector receivablesto cash to free up funds with which tomake higher-return investments.

Dividend and Other Board MattersFor 24 consecutive years, your Board ofDirectors has approved dividend increases.At its February 20,1986, meeting, theBoard increased the quarterly dividend to78 cents, equivalent to a full-year 1986dividend of $3.12 per share.

We were deeply saddened by the deathin March 1985 of Director Emeritus RobertW. Woodruff, one of the world's greatestbusiness leaders. Few businesses have beenas successful as The Coca-Cola Company,and few have been as influenced by theleadership of a single individual as we havebeen by Mr. Woodruff. He is missed.

In December 1985, we mourned thedeath of former Chairman J.Paul Austin,who presided over one of the most dynamicperiods of growth in the Company's history.All of us with the Company are indebtedto Mr. Austin for his legacy of achievement.

Complying with Company bylaws,two distinguished members of our Board,George W. Woodruff and George S. Craft,did not stand for re-election to the Boardin 1985. Mr. Woodruff, who served theCompany for nearly half a century, waselected to the Board in 1936. Mr. Craft waselected a Director in 1972. Their dedicatedservice and contributions as Board mem-bers benefited the Company in numerousways, for which we are grateful.

Last July, the Board elected andwelcomed as a Director Paul F. Oreffice,president and chief executive officer ofThe Dow Chemical Company. We arepleased to add Mr. Oreffice's broad inter-national experience to our Board.

WHILE WE ARE FAR AHEADIN FULFILLING OUR VISIONFOR THE 1980S, WE WILLCONTINUE TO TAKE INITIA-TIVES TO DRIVE PROFIT-ABLE GROWTH AND CRE-ATE SHAREHOLDER VALUE.

Creating Shareholder Value Becausewe are mindful of the heritage of excel-lence that has guided The Coca-ColaCompany to the present, we cannot man-age this Company only as a portfolio or awarehouse of valuable equities. We mustregard ourselves as a factory that enhancesthe worth of these equities and producesvalue for our shareholders. We are approach-ing 1990 as a renaissance company madeup of versatile, resilient and creative pro-fessionals. We are reinvigorating our busi-ness while it is producing record profits,and this will continue to be our collectivewisdom.

The decade of the 1980s is half over,but we are far ahead in fulfilling our vision.Wherever our three businesses expand anddevelop in the future, you can be sure thatThe Coca-Cola Company will be therecapitalizing on its strengths. Our peoplewill propel the Company forward into itsnext 100 years, taking initiatives to driveprofitable growth and create greater share-holder value well into the second centuryof Coca-Cola.

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

Donald R. KeoughPresident andChief Operating Officer

February 20,1986

SOFT DRINK BUSINESS SECTORS

TLhe.he Coca-Cola Company'sworldwide soft drink unit volume achievedoutstanding growth of 10 percent in 1985,boosting the Company's worldwide shareto more than 42 percent, from 35 percentin 1984. Operating income from the twosoft drink business sectors totaled $881million in 1985, about even with 1984 as aresult of significant marketing investmentsmade in North America. Total soft drinkoperating income represented 76 percent ofoperating income from the Company's fourbusiness sectors.

North America Soft Drink Business SectorA 9 percent increase in shipments of syrupand concentrate highlighted a history-making year for the North America SoftDrink Business Sector. The Company'sbold product introductions and marketingmoves paved the way for achieving the sec-tor's long-term strategic growth objectiveswhile at the same time changing the funda-mentals of the soft drink industry in theUnited States and Canada.

The sector's largest division, Coca-ColaUSA, revitalized and expanded its leader-ship of the sugar cola segment through

THE SMOOTH TASTE OF

COCA-COLA, THE TRA-

DITIONAL APPEAL OF

COCA-COLA CLASSIC AND

THE OUTRAGEOUS FUN

OF CHERRY COKE PRO-

VIDE CONSUMERS WITH

THREE SUGAR COLA PROD-

UCT OPTIONS IN THE

COCA-COLA MEGABRAND.

major product introductions for Coca-Cola,Coca-Cola classic and cherry Coke. Thedivision also attained significant volume in-creases for diet Coke, Sprite and diet Sprite.

Coca-Cola USA's overall volume gain inexcess of 9 percent outpaced the industry's5 percent growth rate and increased thedivision's share of domestic soft drink salesto 39 percent the highest in history.

In unit sales, Coca-Cola USA outgrewthe overall soft drink industry in food stores,vending, all other bottle/can segments andfountain outlets. Food stores account for 36percent of the Company's domestic volume,vending and other bottle/can segmentsrepresent 32 percent and fountain accountsfor 32 percent.

Significant marketing investments,primarily for rapid national product launches,resulted in somewhat lower operating in-come than in 1984 but set the stage for accel-erated future income growth.

Coca-Cola USA continued to fulfill itsstrategic goal of business leadership by mar-keting the best product line and maintain-ing the best bottler and fountain-customersystem in the U.S. soft drink industry. Thedivision's pace-setting activities in consumer

Soft DrinksNet Opera ling Revenues($ Millions)

5,525

Operating Income($ Millions)

900

4,420

3,315

2,210

1,105

720

540

360

180

1983-1985 1983-1985


marketing, bottler development, technolog-ical innovation and human resource man-agement resulted in a further strengtheningof its leadership position.

New Taste of Coke As part of itsstrategic efforts to enhance the trademarkCoca-Cola and to continue as the leadingforce in the industry, the Company took his-toric steps to satisfy the changing tastes ofAmerican consumers. The Company devel-oped a new taste for Coca-Cola, which earnedsuperior preference ratings in consumer tastetests. In April, the new taste of Coke waslaunched nationwide. With its smoothertaste and contemporary positioning, Cokebegan developing a new consumer franchisewith special appeal to the youth segment.

As national rollout of the new formulareached full throttle, many consumers dem-onstrated unexpectedly strong loyalty to theoriginal taste of Coca-Cola by requestingthe option of once again enjoying its famil-iar, unique taste. Responding promptly, theCompany introduced Coca-Cola classic in

CAFFEINE-FREE COKE,CAFFEINE-FREE DIET COKEAND CAFFEINE-FREE TABPROVIDE CONSUMERSWITH A VARIETY OF COLAOPTIONS WITHOUT CAF-FEINE. TAB, TARGETEDPRIMARILY TO FEMALECONSUMERS, COMPLE-MENTS COCA-COLAUSA'S LOW-CALORIE COLASEGMENT LEADERSHIP.

July a new name for the product with theoriginal formula for Coca-Cola. This gaveAmerica an unparalleled choice: the tradi-tional taste in Coca-Cola classic, appealingto its committed consumers, and the excit-ing new taste of Coke, attracting new con-sumers to Company products.

Coke and Coca-Cola classic are thecornerstone products of the Coca-Colamegabrand, the family of soft drinks bear-ing the world's most recognized trademark,Coca-Cola. Along with Coke and Coca-Colaclassic, the other products of megabrandCoca-Cola include diet Coke, cherry Coke,caffeine-free Coca-Cola and caffeine-free dietCoke. Diet cherry Coke entered test marketsin the first quarter of 1986.

Sharing a world-famous name andcertain extrinsic values, each of these softdrink products satisfies different consumerson various use occasions. Together, theyconstitute the most formidable brandormegabrand, because of its sales volume in the soft drink industry, by any measure.

10

By the end of 1985, half the colas con-sumed in the U.S. carried the trademarkCoca-Cola, and one of every three soft drinksin the U.S. was a Coca-Cola branded product.

Megabrand Strategy Beyond increasedconsumer interest sparked by product intro-ductions, the Company's megabrand strategychanged the rules of the game, if not thegame itself, for the soft drink industryand redirected its future course with a newemphasis on providing multiple optionsfor consumers under the umbrella of apowerful, trusted brand name.

One of these options is cherry Coke.The pioneer in a new cherry-flavored colacategory, cherry Coke reached top-10 statusamong all soft drinks by year end.

The combination of Coca-Cola,Coca-Cola classic and cherry Coke in 1985provided a 7 percent volume increase for

SECOND ONLY TOCOCA-COLA IN AVAILABIL-ITY IN THE U.S. FOUNTAINSEGMENT, DIET COKE ISTHE TOP-SELLING LOW-CALORIE SOFT DRINK.

the Company in the sugar cola segment.In contrast, the Company and the industrygrew the sugar cola segment by only 2 per-cent a year in the past six years.

In the major growth area of diet colas,Coca-Cola USA enhanced its alreadyimpressive leadership position. Diet Coke,which in 1982 was the first product to extendthe Coca-Cola trademark, achieved volumegrowth of 33 percent in 1985. The product'staste superiority was reconfirmed in nation-wide taste tests. Diet Coke and caffeine-freediet Coke attained a combined 8 percentshare of the U.S. soft drink industry. Theseproducts, together with TAB and caffeine-free TAB, commanded more than 50 per-cent of overall diet cola sales.

Citrus-Flavored Soft Drinks Re spend-ing to changing consumer tastes, Coca-ColaUSA made further strides in another rapidly

11

expanding segment: citrus-flavored softdrinks. Backed by aggressive marketing,Sprite and diet Sprite gained on products ofthe lemon-lime category leader for the sec-ond consecutive year. In unit volume, Spriteand diet Sprite grew 16 percent.

To enhance the value of another majortrademark, the Company initiated theintroduction of Minute Maid Orange Soda,Minute Maid Lemon-Lime Soda and theirdiet versions in 1986. These new vitamin-enriched products contain 10 percent fruitjuices, and the two diet sodas are sweetenedwith NutraSweet. Also, low-calorie Fresca,reformulated with 1 percent grapefruit juiceand NutraSweet, performed well afterentering a U.S. market test late in 1985.

Strengthened Bottler, Fountain ProgramsThe Company's energetic product-line ini-tiatives came to fruition through programs

SPRITE AND DIET SPRITECONTINUED TO MAKESTRONG GAINS IN 1985,GROWING 16 PERCENT INUNIT VOLUME, AND SHOW-ING EXCEPTIONAL APPEALAMONG YOUNG PEOPLE.

to enhance further its bottler and fountain-customer system by far the strongest inthe U.S. soft drink industry. A bottlerdevelopment program, in place for the lastfive years, facilitates Company participa-tion in many bottler ownership changes.This strengthens the long-term quality ofbottler management.

In 1985, the program was broadened toinclude geographic realignments to enhanceeconomies of scale and better organize mar-ket trading areas, and improvements in bot-tler financial structures to facilitate growth.

Also in 1985, an investor group ledby J. Bruce Llewellyn and Julius "Dr. J"Erving purchased controlling interestin The Philadelphia Coca-Cola BottlingCompany from The Coca-Cola BottlingCompany of New York, Inc., providingfor the first majority black-owned

12


Coca-Cola bottling company in the U.S.To strengthen further the U.S.

distribution system and accelerate volumegrowth, the Company announced in early1986 the anticipated merger of its U.S. bot-tling interests with those of JTL Corpora-tion and the Great Western, Denver andPhoenix Coca-Cola bottling companies.The formation of what will be the world'slargest independent bottling operation willenhance the Coca-Cola bottler system'sability to execute marketing strategies devel-oped with Coca-Cola USA, and enhancethe value of all the bottling properties. Theanticipated merger is consistent with theCompany's strategy to achieve a stronger,more efficient bottler network by investingmore aggressively in bottler operationsthrough minority interests and joint ven-tures, when appropriate.

Coca-Cola USA also strengthened itsbottler system through programs to reduceoperating costs, thereby providing increasedmarketing funds. These include programs

REFORMULATED FRESCA,THE LOW-CALORIE BEVER-AGE WITH 1 PERCENTGRAPEFRUIT JUICE ANDNUTRASWEET, WAS TESTMARKETED IN 1985 WHILEVITAMIN-ENRICHEDMINUTE MAID ORANGESODA, MINUTE MAIDLEMON-LIME SODA ANDTHEIR DIET VERSIONSBEGAN NATIONALINTRODUCTION IN EARLY1986. MELLO YELLO,WITH NEW PACKAGINGGRAPHICS AND ADVERTIS-ING, GAINED SHARE INTEST MARKETS.

by which bottlers produce syrup from con-centrate and self-manufacture packaging.

To maintain its unparalleled foodservice customer system, Coca-Cola USAfurther improved its high quality fountainservice programs. Fountain advancesincluded a smart valve, which uses micro-computer technology to ensure high qualitysoft drinks, a bag-in-box non-returnablesyrup packaging system and 24-hour on-line customer service.

The Company's technological innova-tions provided a competitive edge in 1985,particularly in packaging. The nation'sfirst plastic soft drink can, developed byCoca-Cola USA in conjunction with aninternational packaging consortium,entered a market test to study its acceptabil-ity and ability to be recycled. With theCompany-developed "Coke Space Can','Coca-Cola became the first soft drinkconsumed in space.

Canadian Operations In Canada,the Company registered a 7 percent unit

13


volume gain, exceeding the Canadian softdrink industry's growth rate. Coca-ColaLtd., the Canadian operating unit of theNorth America Soft Drink Business Sector,achieved its largest-ever overall share.

The Coca-Cola megabrand strategy wassuccessfully launched in Canada with thenew taste of Coca-Cola, the introductionof Coca-Cola classic and the partial rolloutof cherry Coke. For the year, combined unitsales of Coke and Coca-Cola classic wereahead of 1984 sales of sugar colas.

Minute Maid Orange Soda, launchedin Canada in 1984, was introduced inadditional areas and has achieved segmentleadership in all Canadian markets where itis available.

For the North America Soft DrinkBusiness Sector as a whole, following1984's 10 percent volume gain, the impres-sive 9 percent increase in 1985 was nearlydouble the growth rate of the extremelycompetitive industry. More importantly,groundwork was laid for future growth by

THE COMPANY is FOCUSINGON THE OUTSTANDING

GROWTH POTENTIAL REP-

RESENTED BY INTERNA-

TIONAL SOFT DRINK PER

CAPITA CONSUMPTION,

WHICH IS ONLY 15 PERCENT

OF THAT IN THE U.S.

new-product launches, the repositioning ofcurrent entries and the opening of entirenew categories. The Coca-Cola megabrandstrategy offers virtually limitless potentialfor pleasing more consumers on moreoccasions through the unmatched strengthof the trademark Coca-Cola.

International Soft Drink Business SectorUnit volume in the International SoftDrink Business Sector grew more than 10percent in 1985, the highest increase since1979. Operating income increased despitethe continued strengthening of the U.S.dollar during most of the year, which penal-ized translation of local currency results andyear-to-year earnings comparisons.

The sector's strong performancereflects the initial effects of The Coca-ColaCompany's long-term strategic objective tobuild international per capita consumptionof soft drinks. While international per cap-ita consumption is only 15 percent of the U.S.level, there is enormous growth potential

International Soft Drink Potential(Per capita consumption as a percentage of the U.S. rate)

i

Africa4%

Pacific:8%

Western Europe23%

III Latin America29%

lilliliill United Scales100%Excludes the USSR, Chins and India ro avoid disrortions

14

inherent in gaining new soft drink users andpromoting new use occasions.

Expanding per capita consumptionis the key to volume growth since TheCoca-Cola Company is already the leadingsoft drink business in nearly every interna-tional market. The Company has a 40 per-cent average share of soft drink sales in themore than 155 countries in which it doesbusiness and significantly higher shares inmost major markets. To address the vastgrowth potential of the internationalsector, the Company is moving towardthree objectives:

n Increasing product availability,n Enhancing affordability,n Broadening acceptability to more

consumers on more occasions.Availability: To boost penetration in

non-traditional soft drink channels, the

IN 1985, COCA-COLAACHIEVED ITS STRONGESTINTERNATIONAL VOLUMEGROWTH IN SEVERAL YEARS.TO BROADEN ITS ACCEPT-ABILITY, COCA-COLA ISPROMOTED IN KOREA ANDOTHER INTERNATIONALMARKETS AS A COMPLEMENTTO FOOD.

Company aggressively installed innovativevending and fountain equipment in newoutlets. New product introductions such asdiet Coca-Cola and cherry Coke expandedthe range of products available in interna-tional markets. Vending and fountain seg-ments are significantly less developed outsidethe U.S., representing under 10 percent ofunit volume, compared with more than halfof the Company's unit volume in the U.S.

Affordability: The Company and theCoca-Cola bottling system continued effortsin 1985 to make Company soft drinks moreaffordable to more consumers by pioneer-ing larger package sizes, which offer greatervalue and convenience to the consumer.

Acceptability: The Company increasedits marketing efforts to position soft drinksas appropriate for consumption in a widervariety of settings and occasions.

15

Geographic Results The Company'sincreased advertising and promotionalactivities and the improved economies ofseveral individual markets helped to sparkincremental volume and operating revenuesin each of the Company's three major geo-graphic groups outside the U.S.

In Latin America, volume grew morethan 14 percent. However, the effects ofcontinuing price controls in some majorLatin American markets contributed to asmall decline in operating income in 1985.Improved economic conditions in Mexicohelped generate an 18 percent increase involume and a healthy gain in operatingincome. Brazil and Colombia each experi-enced strong volume gains although oper-ating income was limited by continuingprice controls. Operating income wasenhanced in Argentina as a result of

SPRITE BECAME THE TOP-SELLING LEMON-LIME SOFTDRINK BRAND OUTSIDETHE U.S. IN 1985. INTER-NATIONAL GROWTH FORSPRITE WAS ESPECIALLYSTRONG IN LATIN AMER-ICA, WHERE IT WAS SUC-CESSFULLY INTRODUCEDIN BRAZIL.

increased purchasing power achievedthrough improved economic conditions.

The Pacific group reported operatingincome growth of 11 percent, which wasprimarily driven by a 6 percent gain in vol-ume. In Japan, shifts in product mix and a6 percent volume increase led to a strongoperating income increase. In Australia,volume grew more than 19 percent andoperating income advanced, while in thePhilippines volume decreased slightly due tobottler inventory reductions during the year.

In Europe and Africa, operating incomegrew 4 percent as a result of a 9 percent vol-ume gain and despite a strong U.S. dollar.Volume growth in Europe and Africa wasdriven by effective marketing and volume-building activity. Strong volume gains of27 percent and 14 percent were achieved inItaly and Great Britain, respectively.

16


Product Performance In strivingto increase availability, enhance affordabil-ity and broaden acceptability, the sector isequipped with a quality product line andan unparalleled bottler network. The Com-pany serves varied consumer preferenceswith its superior product offerings in bothgrowing and emerging soft drink segments.

Volume for Coca-Cola, the Company'sleading soft drink internationally, grew9 percent in 1985, a rate well above that ofrecent years. In Italy, where Coca-Cola vol-ume increased 24 percent, extensive adver-tising supported the soft drink's leadershipposition. In Australia, strong growth resultedfrom nationally coordinated bottler programsdesigned to increase sales through super-markets and large fountain outlets. InColombia and Mexico, Coca-Cola volumegrew 14 percent and 12 percent, respectively,as a result of intensive promotional effortsand improved economic conditions.

The Coca-Cola megabrand continuedto establish a strong position beyond the sugar

THE DEVELOPMENTOF BOTTLES FOR THECOCA-COLA MEGABRANDALLOWS INTERNATIONALBOTTLERS FLEXIBILITY INADDING PRODUCTS OF THECOCA-COLA MEGABRAND.THE RETURNABLE BOT-TLES CAN BE RELABELEDTO PACKAGE ANY PRODUCTOF THE COCA-COLAMEGABRAND.

cola category internationally. Three yearsago, the Company made the strategic deci-sion to extend the Coca-Cola trademark intothe low-calorie segment. Diet Coke quicklybecame both the top selling low-calorie softdrink and low-calorie food product in theworld. The low-calorie soft drink categoryhas become increasingly important as pop-ulations in developed countries becomeincreasingly fitness conscious.

In 1985, international volume for dietCoke increased 14 percent over 1984, ayear in which volume more than doubled.Available in 61 countries, diet Coca-Cola,known in some markets as Coca-Colalight, has captured 21 percent of the inter-national low-calorie soft drink category.Diet Coca-Cola achieved strong results inAustralia and Great Britain. In Argentina,diet Coke has become a well-establishedsoft drink after slightly more than a year ofavailability. In Norway, Coca-Cola lightvolume grew 30 percent. Coke light sellssecond only to Coca-Cola in Norway as

17


well as in several other countries.Cherry Coca-Cola, introduced in several

international markets in 1985, is a promis-ing member of the Coca-Cola megabrand.Cherry Coke was test marketed in Tokyo,Japan, where it attracted high consumerinterest, and will be rolled out nationwidein 1986. National rollouts of cherry Cokebegan in the fourth quarter in Holland,Puerto Rico, Norway and Canada. Backedby bold, new packaging graphics and an ag-gressive advertising campaign, cherry Cokeis scheduled for several more major marketintroductions in 1986, in addition to itsJanuary 1986 launch in the United Kingdom.

Positioned as a unique soft drink alter-native, cherry Coke extends the Coca-Colatrademark into the large market for fruit-flavored soft drinks. Fruit flavors historicallyhave been more popular internationallythan in the U.S., accounting for 45 percentof international industry sales.

In the lemon-lime category, Spritebecame the best selling soft drink outside

SATISFYING VARIED CON-SUMER PREFERENCES INBOTH GROWING ANDEMERGING SOFT DRINKSEGMENTS, INTERNA-TIONAL BOTTLERS MARKETSUCH SUCCESSFUL PROD-UCTS AS COCA-COLALIGHT IN NORWAY, FANTAFRUIT PUNCH IN JAPAN,CAFFEINE-FREE COKE INSPAIN , KIN MINERALWATER IN ARGENTINAAND SPRITE LIGHT INSWITZERLAND.

the U.S. in 1985. Sprite volume increased31 percent internationally as a result ofwider availability and improved perfor-mance in many markets.

Sprite volume was particularly strongin Latin America. In Mexico, the Com-pany's second-largest volume market afterthe U.S., volume tripled through signif-icantly increased availability and aggressivemarketing support. In 1985, Sprite alsowas successfully introduced in Brazil,another high growth potential market.

European gains for Sprite were pacedby Italy's 41 percent volume growth, whichresulted from increased advertising andpromotions. In Australia, increased mar-keting support for Sprite resulted in signif-icant volume increases.

Fanta, the Company's number twosoft drink brand in volume worldwide,achieved renewed growth in 1985 with a10 percent unit volume increase. Rejuve-nated by creative marketing programs andsuccessful flavor reformulations, the Fanta

18

brand reversed a five-year decline. The1985 results for Fanta further strengthenedthe Company's position in the interna-tional fruit-flavored soft drink segment.

A marketing affiliation with The WaltDisney Company enhanced the success ofFanta in 1985. The natural appeal of suchworld-famous properties as Mickey Mouseand Donald Duck equips Fanta with apowerful marketing tool for reachingyoung consumers. Reformulations, newpackaging and new flavor extensions of theFanta brand, often combined with theDisney association, helped to achieve vol-ume increases for Fanta in Japan, Italy,Germany, Brazil and Australia.

Bottler Restructuring Fundamentalto the sector's long-term internationalgrowth strategy is the strengthening of theCoca-Cola bottler system. In 1985, the

FANTA, THE COMPANY'SSECOND BEST-SELLINGBRAND WORLDWIDE, WASREJUVENATED IN 1985THROUGH FLAVOR REFOR-MULATIONS AND CREATIVEMARKETING PROGRAMS.FANTA'S STRONG APPEALAMONG YOUTH RESULTEDIN HEALTHY GROWTH INMANY MAJOR MARKETS,INCLUDING GERMANY,

Company initiated a bottler restructuringprogram in Germany. This program is reduc-ing the large number of bottling territoriesthere, thus creating a more streamlined,effective distribution and marketing system.In Great Britain, the Company reached atentative agreement with Cadbury SchweppesPLC to form a joint venture distributorshipfor both companies' soft drinks in 1987.Also during the year, bottling companiesin Chile and Ecuador were strengthenedthrough restructuring activity.

Overall, the Company's aggressivemarketing efforts internationally producedstrong volume growth and operating incomeresults in 1985. These results reflect theCompany's continuing commitment to in-crease international volume growth throughincreasing per capita consumption, a keystrategic objective in 1986 and beyond.

19

ENTERTAINMENT BUSINESS SECTOR

T-Lhe. he Entertainment

Business Sector substantially enhanced itsfinancial results in 1985, reaching operat-ing income of $161 million, a 33 percentincrease over 1984. Contributing to thisincrease were the acquisitions of EmbassyCommunications and Affiliates and TandemProductions and the strong earnings ofColumbia Pictures Television Group. Resultsfrom the film division, while somewhatlower than 1984's record, benefited fromseveral successful releases near the end ofthe year and dramatic growth in video-cassette sales.

The sector's major operations areColumbia Pictures, Columbia Pictures Tele-vision Group, Embassy Television andEmbassy Telecommunications, The WalterReade Organization and a significant inter-est in Tri-Star Pictures.

Activities in 1985, both existing andnew ones, strongly supported the sector'sgrowth strategies: to increase profitabilitywithout significantly increasing capitalrisk; to acquire and produce more filmedentertainment product; to maximize theefficient use of distribution systems; toincrease participation in worldwide ancil-

COLUMBIA PICTURESTELEVISION GROUP POSTEDRECORD EARNINGS FORA THIRD CONSECUTIVEYEAR. NEW EPISODES OF"TJ. HOOKER" WERELICENSED TO CBS FORLATE NIGHT BROADCAST,ENHANCING THE SERIES'SYNDICATION VALUE.

lary markets; and to enter new industrysegments through acquisition.

Television The sector's most profitableunit in 1985 was Columbia Pictures Televi-sion Group, which generated record earn-ings for the third consecutive year. Thegroup derives its profits principally fromsyndication of the vast library of televisionshows produced and acquired over theyears. In 1985, Columbia Pictures Televi-sion syndicated to stations about 50 televi-sion series. "Barney Miller',' "Benson" "Hartto Hart" and "Charlie's Angels" continuedto perform strongly and "Carson's ComedyClassics" made a successful first appearanceon stations nationwide. Columbia PicturesTelevision Group also syndicates ColumbiaPictures' library of approximately 2,000motion pictures.

In 1985, the Company purchasedfrom Stephen J. Cannell Productions thedomestic distribution rights to two success-ful prime-time series, "Hardcastle andMcCormick" and "Riptide" available forsyndication in 1987 and 1988, respectively.

For the first time, Columbia PicturesTelevision developed for first-run syndicationa half-hour comedy, "What's Happening

EntertainmentNet Operating Revenues($ Millions)

1,075

Operating Income{$ Millions)

175

860 140

645

430

215

105

70

35

19834985 1983-1985

21


Now!!" which received solid ratings andwas licensed to many television stations. Inaddition, a newly produced, evening ver-sion of "The Price Is Right" was licensed byThe Television Program Source, a distribu-tion partnership half owned by ColumbiaPictures Television Group.

Colex Enterprises, a joint venturebetween the television group and LBSCommunications Inc., had a successfulsecond season in the time-barter ing busi-ness. Colex provides syndicated product tostations in return for cash and advertisingtime, thereby participating in the advertis-ing value of television station time.

Columbia Pictures Television, the pro-duction arm, creates virtually all formats oftelevision programming: prime-time series,daytime series, mini-series, made-for-televisionmovies and programs for first-run syndica-tion and pay television. Prime-time series onthe air in 1985 included "Crazy Like a Fox"on CBS and "Ripley's Believe It or Not!" on

EXCELLENT TELEVISIONPERFORMANCE WAS HIGH-LIGHTED BY COLUMBIA'SPRIME-TIME SERIES

"CRAZY LIKE A Fox" ANDEMBASSY'S SYNDICATIONOF "THE JEFFERSONS."THE SUSTAINED AUDIENCEAPPEAL OF "JAGGEDEDGE" MADE IT ONE OFSEVERAL SUCCESSFULCOLUMBIA FILM RELEASES.

ABC. Nineteen new hours of "TJ. Hooker"were licensed to CBS for a new late-nighttime slot, increasing the series' syndicationvalue. Columbia's daytime series are "Days ofOur Lives" on NBC and "The Young and theRestless" on CBS. The division also producedthe mini-series "Alice in Wonderland" "RobertKennedy and His Times" and "Jenny's War"and the made-for-television movie "I Dreamof Jeannie 15 Years Later."

The acquisition of Embassy providedadditional important syndication and pro-duction entities for the sector. EmbassyTelecommunications syndicates a valuablelibrary that includes such series as "ArchieBunker's Place" "The Jeffersons" "One Dayat a Time" and "Sanford fie Son? In 1985,a large number of stations ordered "TheFacts of Life" which will be available in thefall of 1986. "Silver Spoons" which will beavailable in 1987, achieved one of the mostsuccessful introductions ever for a half-hourcomedy. Embassy Telecommunications also

22

syndicates domestically films previouslyproduced or acquired by Embassy Picturesand continues to syndicate "Embassy Nightat the Movies',' the first and most successfulnationally bartered film package.

Embassy Television is a leading pro-ducer of prime-time series, which in 1985included the highly rated "Who's The Boss?"on ABC; "The Facts of Life',' "Silver Spoons"and "227" on NBC; and "Diff'rent Strokes';which in 1985 appeared both on ABC andin syndication. Embassy Television alsoproduced the mini-series "Kane & Abel','which generated high ratings on CBS.

Under a new agreement, EmbassyTelecommunications will distribute domes-tically all new prime-time series producedby Reeves Communications Corporationbetween the fall of 1985 and June 1990.Columbia Pictures International will dis-

EMBASSY TELEVISION HADSEVERAL POPULAR PRIME-TIME TELEVISION SERIESON THE AIR IN 1985,INCLUDING THE HIGHLYRATED "WHO'S THE Boss?"

tribute these series outside the U.S.Motion Pictures Although the theatrical

film business in 1985 was not as strong asexpected for the industry or for ColumbiaPictures, the film division generated con-siderable profits. Earnings were lowerthan in 1984when Columbia released"Ghostbusters," the number one hit thatyearbut were notably higher than in 1983.

Among 1985's successful releases were"Agnes of God',' "Fright Night',1 "JaggedEdge',' "St. Elmo's Fire" and "White Nights?In addition, Columbia generated substan-tial profits from its theatrical distributionservices for Tri-Star Pictures, Inc.

Tri-Star Pictures, in its third year ofoperation, released "Rambo: First BloodPart II" the number two box-office hit of1985 and one of many successful films forTri-Star Pictures.

23

In 1985, Tri-Star Pictures successfullycompleted a public offering of a portion ofits stock. During the year, CBS Inc. sold itsinterest in Tri-Star, thereby removing certainprohibitions against the studio's enteringthe television production and distributionbusiness. The Coca-Cola Company pur-chased half of Home Box Office's Tri-Starstockholdings and now owns about 40percent of Tri-Star Pictures' stock.

The Coca-Cola Company acquiredthe remaining stock of The Walter ReadeOrganization, Inc. that it did not previ-ously own. Walter Reade operates 12motion picture screens in New York City.In 1985, Columbia enhanced its position inboth the music print and music publishingbusinesses by acquiring Belwin-MillsPublishing Corp., a major internationalmusic publisher.

"WHITE NIGHTS" WAS ONEOF SEVERAL SUCCESSFULFILMS DISTRIBUTED BYCOLUMBIA PICTURES IN1985. OTHERS INCLUDED"ST. ELMO'S FIRE""AGNES OF GOD" AND"FRJGHT NIGHT."

Home Video and Pay Cable The U.S.home video market continued its exception-ally strong growth in 1985, as industry salesof prerecorded videocassettes more thandoubled. Columbia benefited from this growththrough its 50 percent equity interest in RCA/Columbia Pictures Home Video.

The joint venture demonstrates thesector's strategy of increasing participationin ancillary markets. Columbia has licensed tothe joint venture about 250 films, several ofwhich became hits on videocassette in 1985."Ghostbusters" became the industry's firsttitle with a suggested retail price of $79.95to achieve initial sales of more than 400,000units. Other top video sellers from Colum-bia were "The Karate Kid" "A Soldier'sStory" and "Starman" The venture alsodistributed a portion of Tri-Star Pictures'films on cassette.

24


To capitalize on two particularly fast-growing segments, RCA/Columbia PicturesHome Video introduced two new productlines, MusicVision, which serves the musicvideo segment, and Magic Window, whichmarkets children's videos.

Columbia and Tri-Star renegotiatedand extended through 1990 their licensingagreements with Home Box Office. Thesector was a leader last year in encouragingthe growth of pay-per-view, an emergingentertainment segment. Columbia Picturesand Tri-Star Pictures licensed their filmsdirectly to several new pay-per-view services,and "Ghostbusters" set the revenue recordfor films in pay-per-view distribution.

International Operations Interna-tional distribution of Columbia filmedentertainment in all media is coordinatedby Columbia Pictures International. Ahighlight for 1985 was the extraordinarytheatrical performance of "Ghostbusters"which earned gross revenues of more than$100 million at box offices outside the U.S.

TRI-STAR PICTURES'"RAMBO: FIRST BLOODPART II" WAS THE INDUS-TRY'S NUMBER TWO BOX-OFFICE HIT OF 1985.RCA/COLUMBIA PIC-TURES HOME VIDEORELEASED SEVERAL SUC-CESSFUL VIDEOCASSETTES."GHOSTBUSTERS"ACHIEVED OUTSTANDINGRESULTS FOR COLUMBIAPICTURES INTERNATIONAL.

and Canada, and became the industry'snumber one international comedy.

Columbia Pictures International's tele-vision business performed well in 1985. Fea-ture films were licensed in many countriesaround the world, including France, Italy,Australia and Japan. Additionally, suchColumbia series as "Crazy Like a Fox',' "Hartto Hart" "Ripley's Believe It or Not!" and "T. J.Hooker" were popular internationally.

Columbia Pictures Internationalparticipated in the emerging internationalpay-television market by licensing films tonew pay-television services. RCA/ColumbiaPictures International Video, from whichColumbia benefits both as a licensor ofentertainment product and a 50 percentequity owner, experienced an excellent yearin 1985.

In 1986, the Entertainment BusinessSector expects to continue its strong growthrecord through increased involvement infilm and television production and distribu-tion, pay television and home video.

25

FOODS BUSINESS SECTOR

I.n a year of intense challenges,the Foods Business Sector took steps to buildfor the long term, while maintaining profit-ability. In a highly competitive environment,unit volume increased slightly, while operat-ing income declined slightly from 1984 levels.

Minute Maid The sector's mainproduct, Minute Maid orange juice, suc-cessfully retained its leadership position inthe orange juice category, achieving a 22percent share, well ahead of its nearestcompetitor.

Industry-wide, orange juice volumedeclined slightly, affected by high pricesthat resulted from the fourth Florida freezein five years. In October, Coca-Cola Foodsentered into a new venture that provideslong-term benefits for its citrus business.The sector purchased land in Belize inCentral America for citrus developmentto create an additional supply source forthe future.

In keeping with the sector's strategyof expanding and segmenting product linesto meet varied consumer needs, Coca-ColaFoods introduced a new product under itsflagship Minute Maid brand. The product,Minute Maid country style orange juice,

THE INTRODUCTION OFMINUTE MAID COUNTRYSTYLE ORANGE JUICEHELPED THE MlNUTEMAID BRAND MAINTAIN

LEADERSHIP OF THE COM-PETITIVE U.S. ORANGEJUICE BUSINESS.

introduced in frozen concentrated and chilledforms during the first quarter of 1985, is animproved version of the successful orangejuice "with more pulp" introduced in 1983.The country style introduction, backed byan advertising campaign featuring televi-sion personality Richard Thomas and hisfamily, drew increased attention to thishigh-potential segment.

Other Minute Maid products alsocontinued to lead their categories. MinuteMaid ades, which achieved record highvolume in 1984, once again showed strongperformance, posting a 37 percent sharefor the year. In addition, three new frozenconcentrated productsMinute Maidgrapeade, lemon-limeade and orangeade brought additional strength to the MinuteMaid brand. Further strength will comefrom the national rollout of Minute MaidOrange Soda, Minute Maid Lemon-LimeSoda and their diet versions, initiated in1986 by the U.S. soft drink bottler system.

Aseptic Packaging One of the sector'smost dynamic areas is the still growingaseptic segment. This category of shelf-stable juices and juice drinks has become a$360 million business since its U.S. debut

FoodsNet Operating Revenues($ Millions)

1,325

1,060

795

530

265

Operating Income($ Millions)

125

100

75

50

25

1983-1985 1983-1985

27


in 1981, and shows little sign of peaking.To capitalize on this growth, the sec-

tor has invested approximately $30 millionin aseptic packaging equipment in the pastfour years. Coca-Cola Foods, which marketsaseptically packaged Minute Maid juicesand fruit punch, Hi-C fruit drinks andFive Alive beverages, leads the categorywith a 35 percent share of the segment,up from 30 percent in 1984.

The sector continued to expand itsaseptic business in line with its strategy ofgrowing faster than the markets in which itdoes business. In 1985, Coca-Cola Foods suc-cessfully launched three Hi-C fruit drinkproducts in aseptic packages: candy applecooler, double fruit cooler and lemonade.

Another step in building this segmentwas the successful introduction of nine-pack versions of the most popular aseptic-ally packaged products. Aseptics providedthe major impetus for the growth of theoverall Hi-C fruit drink business. Also, theHi-C brand remains the undisputed leader

THE COMPANY'S LEADER-SHIP IN THE GROCERYFREEZER FEATURES FlVEALIVE CITRUS BEVERAGEAND PRODUCTS OF THEMINUTE MAID BRAND,INCLUDING REDUCED ACIDORANGE JUICE, FROZENCONCENTRATED ORANGEJUICE, GRAPEADE ANDGRAPEFRUIT JUICE.

of the 46-ounce segment.Another addition to the aseptic shelf

was Five Alive tropical citrus beverage, thethird flavor in the Five Alive line of five-fruitbeverages. Five Alive tropical citrus productswere also introduced in frozen concentratedand chilled versions.

New Categories In 1985, Coca-ColaFoods expanded into new, complementarybusiness areas that will allow the sector toleverage existing trademarks and take advan-tage of marketing and distribution strengths.

The primary accomplishment wasthe acquisition of Nutri-Foods Int'l., Inc.,a producer and marketer of frozen juice-based desserts. The purchase, completed inDecember, opened the way for participa-tion in the rapidly growing frozen noveltyand dessert category. Minute Maid FruitJuicee, the first product resulting from themerger, was introduced nationally in thefirst weeks of 1986.

Coca-Cola Foods also entered a newcategory with the introduction of Bacardi

28

tropical fruit mixers. Tesr marketed in 1985,the mixers are produced by Coca-ColaFoods under a marketing agreement withBacardi Imports and Bacardi & CompanyLtd. These non-alcoholic, frozen concen-trated mixers, in daiquiri, strawberrydaiquiri, mai tai punch and pina coladaflavors, are the first major branded prod-ucts within the category. Consumerresponse so far has been excellent.

Expanded Distribution The sectoralso generated new business by expandinginto new channels of distribution in 1985.In the U.S., Coca-Cola Foods began mar-keting aseptically packaged juices anddrinks in vending machines placed atschools and fitness facilities.

In Canada, Coca-Cola Foods CanadaInc. laid the foundation for significant salesexpansion with the introduction of chilled

As THE SALES LEADER OFASEPTICALLY PACKAGEDFRUIT DRINKS, THECOMPANY CONTINUEDTO EXTEND THE NUMBEROF PRODUCTS OF ITS Hl-C,MINUTE MAID AND FIVEALIVE BRANDS IN ASEPTICPACKAGES, WHICH HAVEPROVED POPULAR WITHYOUNGSTERS.

Minute Maid orange juice, Five Alive tropi-cal citrus beverage and Minute Maid dietlemonade sweetened with NutraSweet. A newmanufacturing facility, the first Coca-ColaFoods operation outside the U.S., supportsthe growth of this important market.

In Puerto Rico, a new processing facil-ity was completed in January 1986 to servethe Caribbean market, also a promisingarea for growth.

Food Service. Coffee. Bottled WaterSince 1980, the sector's food servicecitrus/beverage business has more thandoubled, spurred in part by the increasingpopularity of fast-food breakfasts. Majoraccomplishments in 1985 included a con-tract with Wendy's International, Inc. toserve Minute Maid orange juice in itscompany-owned stores.

The coffee unit's national food service

29


business also grew faster than the industryaverage, supported by new products includ-ing Flavormark high-yield coffee. Volumein the retail coffee business, which includestwo regional brands, Maryland Club andButter-Nut, increased 5 percent over 1984.

Belmont Springs Water Company, Inc.continued to grow, increasing revenues by17 percent in 1985. Belmont, the largestbottled water company in New England,serves Boston and the surrounding areas.

In line with the corporate strategy tofocus assets on branded consumer prod-ucts, Presto Products Incorporated andWinkler/Flexible Products, Inc., makers ofprivate-label plastic products, were sold toa group that includes existing Presto andWinkler/Flexible management. The saleresulted in a net gain of $36 million forThe Coca-Cola Company.

For the future, the Foods BusinessSector anticipates growth higher thanindustry averages from both its primary

NEW BUSINESS VENTURESFOR COCA-COLA FOODSINCLUDED THE SUCCESS-FUL TEST MARKETING OFBACARDI FROZEN CON-CENTRATED TROPICALFRUIT MIXERS AND,THROUGH THE ACQUISI-TION OF NUTRI-FOODSINT'L., INC., THE 1986ENTRY OF MINUTE MAIDFRUIT JUICEE INTO THEGROWING FROZEN JUICE-BASED DESSERT BUSINESS.

businesses and its new products and distri-bution areas. Renewed growth is expectedfor the orange juice category in 1986, asworldwide citrus supplies increase. At yearend, Coca-Cola Foods led the industry inreducing retail orange juice prices byapproximately 25 percent on frozen con-centrated and chilled orange juice, bringingnew enthusiasm to the category from bothretailers and consumers.

The aseptic packaging segment andcitrus and coffee food service businessesalso are expected to continue their stronggrowth, and the frozen dessert and noveltybusiness offers significant new potential.

For 1986 and beyond, the sector pro-jects continued growth through expansioninto new markets, both through innovativeinternal product development and ongoingexploration of new business arenas wherethe trademarks and distribution systemsof Coca-Cola Foods can be leveraged tosignificant advantage.

30

FINANCIAL REPORT

32 Financial Review IncorporatingManagement's Discussion and Analysis

38 Selected Financial Data40 Consolidated Balance Sheets42 Consolidated Statements of Income43 Consolidated Statements of

Shareholders' Equity44 Consolidated Statements of Changes

in Financial Position45 Notes to Consolidated Financial Statements51 Report of Independent Accountants51 Report of Management52 Supplemental Information on

the Effects of Changing Prices54 Quarterly Data55 Corporate Officers56 Board of Directors58 Shareholder Information

31

FINANCIAL REVIEW INCORPORATING MANAGEMENT'SDISCUSSION AND ANALYSIS

BUSINESS OBJECTIVES AND STRATEGY

Management's primary objective is toincrease shareholder value. To accomplishthis objective, The Coca-Cola Companyand subsidiaries (the "Company") havedeveloped a comprehensive business Strat-egy which emphasizes increasing returns onshareholders' equity by increasing invest-ments in areas offering attractive returns,divesting low return assets and maintainingappropriate financial policies.

OperationsThe Company operates in three markets:Soft Drinks, Entertainment and Foods,each of which is consumer-oriented andoffers attractive rates of returns. To achievethe objective of increasing the return onshareholders' equity, the Company focuseson maximizing unit volume growth andutilization of its distribution systems.

Soft Drinks: A principal goal for theSoft Drink Business Sectors is to increaseunit volume at rates in excess of the respec-tive industry rates. In the United States, theCompany seeks to achieve this goal byexpanding its product line, strengthening itsbottler system and continuing its aggressivemarketing programs. In 1985, investmentin the Coca-Cola megabrand was designedto expand and create new categories in re-sponse to diversified consumer preferences.

Outside the United States, the Companyfocuses on product availability, affordabilityand acceptability to increase internationalper capita soft drink consumption, whichwas 15% of the United States rate in 1985.Increased product availability is achieved

Return onShareholders' Equity (%)(Incomefrom ContinuingOperations to AverageShareholders'Equity)

25

20

15

10

5

1983-1985

through expanding fountain and vendingpenetration and implementation of thebottler restructuring program overseas.Tactical pricing and larger packaging sizeswill improve product affordability, whilemarketing will emphasize the acceptabilityof soft drinks as the beverage for all occa-sions, at all times of the day.

Entertainment: A key goal of theEntertainment Business Sector is to leverageits motion picture and television distribu-tion systems and increase its library oftelevision programs. The Company partici-pates in several equity and prelicensingarrangements to finance its motion pictures.These arrangements moderate the financialrisk of film production. In 1985, the Com-pany purchased certain assets and propertiesof Embassy Communications and Affiliatesand Tandem Productions, producers anddistributors of television programs. Theseacquisitions greatly expand the productsavailable for present and future syndication.

Foods: Following a strategy of productand package segmentation, the Foods Busi-ness Sector increases unit volume by layeringnew products into its existing distributionsystems. The growth of Minute Maidorange juice volume is being expanded bythe introduction of country style and reducedacid orange juices, and new flavors are beingadded to the Hi-C brand. In 1985, the Com-pany acquired Nutri-Foods Int'I., Inc., amanufacturer of frozen juice-based dessertproducts. These strategic actions maximizeutilization of the foods sector distributionsystem.

32


FinancialManagement of Resources: A key elementof the Company's Strategy is to concentrateits resources in consumer markets offeringstrategic fit, attractive returns and highgrowth potential. Management seeks solidinvestments that strategically enhance exist-ing operations and offer long-term cashreturns which exceed the Company's over-all cost of capital. For investments with riskcharacteristics similar to the soft drinkindustry, that cost of capital is estimated bymanagement to be approximately 14% aftertaxes at our target debt to total capital ratio.

Total financial management requiresoptimization of all assets and resources,including divestiture of low-return assets inorder to invest in higher return opportuni-ties. In 1985, management convertedalmost one billion dollars in entertainmentaccounts receivable and contract rights tocash. The Company also sold Presto Prod-ucts, Incorporated, and Winlder/FlexibleProducts, Inc., manufacturers of plasticproducts. These businesses operate inprivate-label markets and did not offer astrategic fit with the Company's primarylines of business. The proceeds from thesetransactions are being invested in more prof-itable areas of the business.

The Company's emphasis on profitablegrowth is reflected in the level of investmentspending. In 1985, the Company's capitalreinvestment approximated $497 millionexcluding fixed assets of purchased compa-nies. This reinvestment was allocated as fol-lows: soft drink sectors58%; foodssector23 %; entertainment sector3 %;corporate16%. The soft drink sectorsinvested primarily in fountain sales equip-ment and distribution equipment for

Debt to Capital (%}(Net of Excess Cashand Marketable Securities)

25

20

15

10

5

1983-1985

Company-owned bottling operations. Thefoods sector has made significant investmentsin Tetra Brik aseptic packaging equipment tosupport the continued growth in this area.

The Company repurchased 5 millionshares of its common stock in 1985 and 6.1million shares in 1984. The repurchasesincreased return on equity by approximately3 percentage points and earnings per shareby 12 cents in 1985. These repurchases wereinitiated after management determined thatfor the near term the Company's availablecash and debt capacity would exceed thefunds required to support the business andfor anticipated investments. Managementplans to consider future share repurchases asappropriate business and cash flow circum-stances arise.

Capital Structure: One of theCompany's financial goals is to maintain astrong financial position while utilizingprudent amounts of long-term debt. In1985, a $100 million long-term debt offer-ing with a stated interest rate of 9% %was issued by the Company in the Euro-pean market. At December 31,1985, totaldebt, net of excess cash and current mar-ketable securities, represented 18.8% oftotal capital. In the future, the Companyenvisions increasing the use of such debt inorder to fund attractive investment oppor-tunities. This financing policy is aimed atincreasing the return on shareholders'equity and the total return to shareholders.

Dividends^ With approval from theBoard of Directors, management plans toincrease the percentage of earnings rein-vested in the business by raising dividends

33


annually at a rate lower than the prioryear's growth in earnings per share, thusdecreasing over time the dividend payoutratio. The annual dividend was $2.96 pershare, $2.76 per share and $2.68 per sharein 1985,1984 and 1983, respectively. At itsFebruary 1986 meeting, the Board of Direc-tors increased the quarterly per share divi-dend to $0.78, equivalent to a full yeardividend of $3.12 in 1986. This is the 24thconsecutive year in which the Board ofDirectors has approved dividend increases.

The above actions illustrate manage-ment's efforts to achieve its objective ofenhancing the value of the shareholders'investment in The Coca-Cola Company.

MANAGEMENT'S DISCUSSION AND ANALYSIS

Lines of BusinessThe Company operates three major lines ofbusiness:

The Soft Drink Business Sectorsmanufacture and sell soft drink syrups andconcentrates to independent bottling andcanning operations and approved whole-salers. The Company also owns bottlingand canning operations which representapproximately 11% of worldwide volumeof syrup and concentrate.

The Entertainment Business Sector isengaged in the production and distributionof theatrical motion pictures, televisionseries, television features and other enter-tainment related activities.

The Foods Business Sector's principalbusiness is processing and marketing a vari-ety of fruit juices and fruit drink products.The sector also sells coffee, tea andbottled water.

In 1985, the Company sold PrestoProducts, Incorporated, and Winkler/Flexible Products, Inc., manufacturers ofplastic products; in 1983, the Companysold The Wine Spectrum. The operatingresults for these companies have beenreported as discontinued operations.

Operating ResultsSoft Drinks: Revenues and operatingincome for the Soft Drink Business Sectorsincreased in 1985 and 1984 primarilybecause of unit volume increases of 10%and 6%, respectively. Volume increasedsignificantly for diet Coke and Sprite inboth years. In 1985, the Company intro-duced a new taste for Coca-Cola; a newproduct, Coca-Cola classic, with the origi-nal formula; and cherry Coke. Combinedvolume for these sugar cola productsexceeded volume for Coca-Cola during1984 by 8%.

Approximately 62% of soft drinksales volume is generated outside theUnited States. In 1985 and 1984, soft drinkrevenue increases were adversely affected bylower foreign exchange rates. As exchangerates decline, local currency revenues trans-late into fewer United States dollars. Inaddition, in both years soft drink revenueswere adversely affected by lower sweetenerprices. The price of Coca-Cola syrup soldto bottlers in the United States is adjustedquarterly for changes in the market price of

34


sweeteners. While affecting revenues, thispractice minimizes the effects of sweetenerprices on gross profit per unit.

Lower foreign exchange rates alsoadversely affected operating income in 1985and 1984. Operating income in 1985 wasfurther moderated by increased marketingexpenditures incurred to seed firmly theproducts of megabrand Coca-Cola in theUnited States and Canada.

Entertainment: Increases in revenuesand operating income for the Entertain-ment Business Sector in 1985 resultedprimarily from television syndication,including the initial syndication of "Carson'sComedy Classics'.' The syndications of"The Jeffersons" and "DifFrent Strokes" byEmbassy Telecommunications, acquired inAugust 1985, also contributed to revenuesand operating income. Successful motionpicture releases during 1985 included "St.Elmo's Fire" and "Jagged Edge? Profits werealso derived from the distribution of Tri-Star Pictures, Inc.'s releases, particularly"Rambo: First Blood Part II?

In 1984, the increases in revenues andoperating income for the entertainmentsector were due principally to profitablemotion picture releases and television syn-dications and the licensing of variouslibrary programs in Germany. Successfulmotion picture releases included "Ghost-busters" and "The Karate Kid'.' Televisionrevenues and operating income benefitedfrom the initial syndication of "Benson"and "Hart to Hart?

Foods: Citrus is the dominant businessin the Foods Business Sector. Though reve-nues increased in 1985, operating incomein the citrus business was adversely affectedby increased trade deals and consumer

Total Selling Expenses($ Millions)

Selling Expenses OtherThan Media Advertising

Media Advertising

2,050

1,640

1,230

820

410

1983-1985

promotions in response to intense industrycompetition. Revenues and operatingincome increased in the other divisions ofthe foods sector in relation to generalvolume increases.

Increases in 1984 revenues and operat-ing income compared to the prior year weredue primarily to citrus products, whichreported modest price increases.

Selling, Administrative andGeneral ExpensesSelling expenses, including media advertis-ing, were $2.03 billion in 1985, $1.73 bil-lion in 1984 and $1.51 billion in 1983.Expenditures for media advertising,excluding amounts capitalized as film pro-duction costs, were $630 million in 1985,$535 million in 1984 and $463 million in1983. An additional $118 million, $108million and $103 million of media spend-ing were capitalized in 1985,1984 and1983, respectively, in film costs in accord-ance with film industry accounting stan-dards. The 1985 increase in mediaadvertising expense was due to increasedmarketing and promotional expenditures,some of which related to the introductionsof Coke with changed taste componentsand Coca-Cola classic and the nationalrollout of cherry Coke.

Administrative and general expensesincreased 15.4% in 1985, compared to4.2% in 1984, primarily because of expan-sion of the business and increases inemployee related expenses. Such expenses,as a percentage of net operating revenues,remained relatively stable at about 8% overthe three years ended December 31,1985.

35


Interest Income and ExpenseInterest income increased by $19 million in1985 and $46 million in 1984, due tohigher average invested balances.

Increases in interest expense of $45million in 1985 and $51 million in 1984were due to increases in average total debt.The increases in debt were related to theacquisition of various bottling operations,the share repurchase program and increasedinvestment in working capital.

Other Income and DeductionsThe increase in other income (net) in 1985was due to gains resulting from changes inexchange rates and the sales of certain equityinvestments in various partially owned bot-tling operations. Gains on the sales of capi-tal stock of bottling companies located inPhiladelphia, New York, Indianapolis,Chicago and other locations totalledapproximately $67 million.

The increase in other income (net) in1984 was due principally to gains from thesales of Ronco Enterprises, Inc., and bottlingoperations in Australia and Japan. Thisincrease was partially offset by losses result-ing from declines in foreign exchange rates.

Liquidity and Capital ResourcesAt December 31,1985, cash and market-able securities totalled $865 million, anincrease of $83 million over the prior year.The Company's principal source of cashcontinues to be funds provided by opera-tions. In 1985, the sale of certain entertain-ment contract rights, as described in Note12, was also a major source. Cash providedby operations was $1,044 million in 1985,$781 million in 1984 and $766 million in1983. The primary uses of cash were divi-dends and capital expenditures for each of

Net Cash Providedby Operations(S Millions)

1,050

840

630

420

210

1983-1985

the three years in the period ended Decem-ber 31,1985. The repurchase of commonstock was also a major use of cash in 1985and 1984, and the acquisition of certainassets and properties of Tandem Produc-tions was a major use in 1985.

In 1985, the Company issued $100million in long-term debt. Also in 1985,loans and notes payable decreased over$110 million. The Company maintainscash and current marketable securities sub-stantially in excess of minimum operatingrequirements. The percentage of total debt,net of cash and current marketable securi-ties in excess of minimum operating needs,to total capital was as follows:

December 31,1985: 18.8% {net of anestimated $625 million of cashand current marketable securitiesin excess of minimum operatingrequirements)

December 31,1984: 21.5% (net of anestimated $600 million of cashand current marketable securitiesin excess of minimum operatingrequirements)

The Company's total cash and mar-ketable securities was $782 million atDecember 31,1984, a $171 million increaseover 1983. This increase was due principallyto the increases in loans and notes payableand long-term debt.

At December 31, 1985, investmentsamounted to $471 million, an increase of$136 million over 1984. This increase is dueprimarily to the acquisitions of Nutri-FoodsInt'l., Inc., and certain operations of EmbassyCommunications and Affiliates and TandemProductions, which are temporarily reportedon the equity method. Entertainmentobligations increased $95 million in 1985,

36


primarily as a result of the acquisitions ofEmbassy Communications and Affiliatesand Tandem Productions.

The Company maintains credit lines atvarious financial institutions. At December31,1985, the unused portion of the creditlines was $560 million.

Capital expenditures in 1985,1984and 1983 were $542 million, $391 millionand $384 million, respectively, and re-lated principally to capacity expansion,improved efficiency and fixed assets of pur-chased companies.

International OperationsThe Company distributes its products inover 155 countries and uses approximately40 functional currencies. The United Statesdollar is used as the functional currency incountries considered to have hyperinflation-ary economies, such as Brazil and Mexico.

Approximately 50% of total operatingincome is generated outside the UnitedStates. Management estimates that theaverage annual exchange rates of selectedkey hard currencies versus the United Statesdollar weakened by an average of 9% inboth 1985 and 1984. As the United Statesdollar strengthens, foreign currency operat-ing results are translated into fewer UnitedStates dollars.

Percentage (decreases) increases inaverage exchange rates for several of theselected foreign hard currencies are asfollows:

1985 1984 1983

Exchange effects, i.e., gains (losses) onforeign currency transactions and transla-tion of balance sheet accounts in hyperinfla-tionary countries, were $27 million in 1985,$(18) million in 1984 and $9 million in1983. Such amounts are included in otherincome (net of other deductions) in theconsolidated statements of income.

In general, the Company does notenter into forward exchange contracts tohedge its net investment in foreign opera-tions. The Company does, however, engagein various hedging activities to minimizepotential losses on cash flows denominatedin foreign currencies and to offset foreignexchange movements on firm commitmentsand certain other transactions where poten-tial for loss exists.

Additional InformationFor additional information concerning theCompany's operations, cash flow, liquidityand capital sources, this analysis should beread in conjunction with the Letter to Share-holders and the information on pages 40through 50 of this Annual Report. For infor-mation relating to the effects of inflation onthe operations of the Company see pages 52and 53, "Supplemental Information on theEffects of Changing Prices'.' Additional infor-mation concerning operations in differentindustries and different geographic areas ispresented on pages 49 and 50.

GermanyJapanSouth AfricaUnited KingdomAustralia

(3)%1 %

(34)%(2)%

(20)%

(11)%(D%

(23)%(12)%

(2)%

(5)%4 %

(2)%(13)%(13)%

37

SELECTED FINANCIAL DATA(In millions except per share data)


Year Ended December 31, 1985 1984 1983 1982(c) 1981 1980 1979 1978 1977 1976 1975Summary ofOperations (a,b)

Per Share Data (d)

Year-End Position

Financial Ratios

Other Data

Net operating revenuesCost of goods and servicesGross profitSelling, administrative and

general expensesOperating incomeInterest incomeInterest expenseOther income (deductions) netIncome from continuing operations

before income taxesIncome taxesIncome from continuing operationsNet incomeIncome from continuing operationsNet incomeDividendsCash and marketable securitiesProperty, plant and equipment netTotal assetsLong-term debtTotal debtShareholders' equityTotal capital (e)Income from continuing operations

to net operating revenuesIncome from continuing operations

to average shareholders' equityTotal debt to total capitalDividend payoutAverage shares outstanding (d)Capital expendituresDepreciationMarket price per share at December 31 (d)

$7,9044,1943,710

2,6651,045

14816868

1,093415

$ 678$ 722$ 5.17

5.512.96

$ 8651,8846,898

8891,3152,9794,294

8.6%

23.5%30.6%53.7%131

$ 542178

84.50

$ 7,1523,8233,329

2,2871,042

129123

7

1,055433

$ 622$ 629$ 4.70

4.762.76

$ 7821,6235,958

7401,3632,7784,141

8.7%

21.8%32.9%58.0%132

$ 391159

62.375

$6,6413,6183,023

2,041982

8372(2)

991438

$ 553$ 559$ 4.06

4.102.68

$ 6111,5615,228

513620

2,9213,541

8.3%

19.4%17.5%65.3%136

$ 384147

53.50Notes: (a) Operating results for 1975-1984 have been restated to

exclude the results of Presto Products, Incorporated, andWinkler/Flexible Products, Inc., which were sold in

December 1985 and accounted for as discontinued operations.(b) In June 1982, the Company acquired Columbia Pictures Industries,

Inc., in a purchase transaction.

$5,8623,1892,673

1,810863106747

902408

$ 494$ 512$ 3.81

3.952.48

$ 2611,5394,923

462583

2,7793,362

8.4%

19.6%17.3%62.8%130

$ 382138

52.00

$5,5403,0622,478

1,706772

7038

{23}

781349

$ 432$ 482$ 3.50

3.902.32

$ 3401,4093,565

137232

2,2712,503

7.8%

19.9%9.3%

59.5%124

$ 330128

34.75

$ 5,3272,9882,339

1,620719

4035

(10)

714320

$ 394$ 422$ 3.19

3.422.16

$ 2311,3413,406

133228

2,0752,303

7.4%

19.7%9.9%

63.2%124

$ 293123

33.375

$4,4722,4312,041

1,367674

3610(2)

698312

$ 386$ 420$ 3.13

3.401.96

$ 1491,2842,938

31139

1,9192,058

8.6%

21.1%6.8%

57.6%124

$ 381103

34.50

$ 3,9382,1481,790

1,159631357

(14)

645294

$ 351$ 375$ 2.84

3.031.74

$ 3211,0652,583

1569

1,7401,809

8.9%

21.2%3.8%

57.4%124

$ 30686

43.875

$3,2651,7901,475

915560

296

(10)

573263

$ 310$ 331$ 2.52

2.681.54

$ 350887

2,2541557

1,5781,635

9.5%

20.6%3.5%

57.5%123

$ 26476

37.25

$2,8771,5741,303

80250129

6(4)

520242

$ 278$ 294$ 2.25

2.381.325

$ 364738

2,0071152

1,4341,486

9.7%

20.3%3.5%

55.7%123

$ 19166

39.50

$ 2,7261,5981,128

689439

226

(8)

447214

$ 233$ 249$ 1.89

2.021.15

$ 389647

1,8011642

1,3021,344

8.5%

18.7%3.1%

56.9%123

$ 14563

41.125(c) In 1982, the Company adopted Statement of Financial Accounting

Standards No. 52, "Foreign Currency Translation'.'(d) Adjusted for a two-for-one stock split in 1977.(e) Includes shareholders' equity and total debt.

Operating Income(S Millions)

Net Income($ Millions)

1,050

840

630

420

210

750

600

450

300

150

1975-1985 1975-1985

Income Per Share FromContinuing Operations (S)

1975-1985

5.25

4.20

3.15

2.10

1.05

Return onShareholders' Equity (%)

1975-1985

25

20

15

10

38 39

CONSOLIDATED BALANCE SHEETS(In thousands except share data)

December 31,Assets 1985 1984Current Cash

Marketable securities, at cost(approximates market)

$ 495,672

369,491865,163

Investments,Film Costs andOther Assets

Trade accounts receivable, less allowances of$19,479 in 1985 and $20,670 in 1984

Inventories and film costsPrepaid expenses and other assetsTotal Current AssetsInvestments

{principally investments in affiliates)Film costsReceivables and other assets

897,200913,293294,628

2,970,284

470,575536,112364,581

1,371,268Property, Plant andEquipment

LandBuildings and improvementsMachinery and equipmentContainers

Less allowances for depreciation

139,450771,088

1,742,118358,354

3,011,0101,127,3011,883,709

Goodwill and OtherIntangible Assets 672,445

$6,897,706

$ 307,564

474,575782,139

872,332740,063241,326

2,635,860

334,220341,662408,324

1,084,206130,883645,150

1,518,264337,993

2,632,2901,009,7151,622,575

615,428$5,958,069

40


Liabilities and Shareholders* EquityDecember 31,

1985 1984

Current

EntertainmentObligationsLong-Term DebtDeferred Income TaxesDeferred EntertainmentRevenueShareholders' Equity

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

Common stock, no par value Authorized: 180,000,000 shares in

1985 and 1984;Issued: 137,699,566 shares in 1985

and 137,263,936 shares in 1984Capital surplusReinvested earningsForeign currency translation adjustment

$1,108,964391,62934,495

215,249253,507

2,003,844

270,676889,201320,832

434,096

69,227602,617

3,092,255(181,440)

3,582,659Less treasury stock, at cost (9,039,031 shares

in 1985; 6,438,873 shares in 1984) 603,6022,979,057

$6,897,706

$1,020,807502,216120,300192,537186,942

2,022,802

175,234740,001241,966

69,009532,186

2,758,895(234,811)

3,125,279

347,2132,778,066

$5,958,069See Notes to Consolidated Financial Statements.

41

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


Year Ended December 31, 1985 1984 1983Net Operating RevenuesCost of goods and servicesGross ProfitSelling, administrative and general expensesOperating IncomeInterest incomeInterest expenseOther income (deductions) netIncome From Continuing Operations

Before Income TaxesIncome taxesIncome From Continuing OperationsIncome from discontinued operations

(net of applicable income taxes of $7,870in 1985, $6,144 in 1984 and $4,920 in 1983)

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

Net IncomePer Share

Continuing operationsDiscontinued operationsNet income

Average Shares Outstanding

$7,903,9044,193,5573,710,3472,664,9451,045,402

147,523167,82267,746

1,092,849415,283677,566

9,000

35,733$ 722,299

$ 5.17.34

$ 5.51131,118

$7,151,8263,822,6373,329,1892,287,0411,042,148

128,823122,983

6,841

1,054,829433,071621,758

7,060

$ 628,818

$ 4.70.06

$ 4.76132,210

$6,640,7593,617,6993,023,0602,041,257

981,80382,87772,145(2,025)

990,510437,566552,944

5,843

$ 558,787

$ 4.06.04

$ 4.10136,222

See Notes to Consolidated Financial Statements.

42

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY(In thousands except per share data)


Three Years EndedDecember 31, 1985

Balance January 1, 1983Sales to employees

exercising stock optionsand appreciation rights

Tax benefit from sale of optionshares by employees

Translation adjustments {net ofincome taxes of $13,346)

Treasury stock issued inconnection with an acquisition

Stock issued under RestrictedStock Award Plan

Net incomeDividends (per share $2.68)Balance December 31, 1983Sales to employees



Translation adjustments (net ofincome taxes of $2,950)


Treasury stock purchasedNet incomeDividends {per share $2.76)Balance December 31, 1984Sales to employees



Translation adjustments (net ofincome taxes of $841 )

Treasury stock issued inconnection with an acquisition


Treasury stock purchasedNet incomeDividends {per share $2.96)Balance December 31, 1985

Number of Shares

Common Treasury Common CapitalStock Stock Stock Surplus

136,100 359 $68,427 $478,308

387 194 13,327

1,616

(58) (1,847)

167 83 8,627_ _ _

136,654 301 68,704 500,031

316 158 10,931

2,557

__ _

294 - 147 18,6676,138

_ _ _

_ _ __

137,264 6,439 69,009 532,186

342 (41) 171 13,647

3,492__ __ _ _

(2,359) 46,653

94 - 47 6,6395,000

_ _ _ _

137,700 9,039 $69,227 $602,617

Amount

ForeignReinvested CurrencyEarnings Translation

$2,300,217 $ (54,486)

(76,154)

558,787(364,789)

2,494,215 (130,640)

_ _

(104,171)_ _

628,818(364,138)

2,758,895 (234,811)

53,371

_ _

_ _

722,299(388,939)

$3,092,255 $(181,440)

TreasuryStock

$ (13,812)

2,258

(11,554)

(335,659)

(347,213)

1,552

121,989

(379,930)

$(603,602)See Notes to Consolidated Financial Statements.

43

CONSOLIDATED STATEMENTS OF CHANGESIN FINANCIAL POSITION (in thousands) The C

The Coca-Cola Company 1985 Annual Report

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