(FORTUNE Magazine) – THREE OR FOUR times a day Roberto C. Goizueta, the aristocratic Cuban-born chief executive of Coca-Cola, walks out of his oak-floored office in Atlanta and down the hall to a Quotron machine, where he checks Coke's stock price. It is one of the small pleasures of his day, something like cracking open a can of soda pop is for millions of people around the world. Since he was named to the top spot at the No. 1 soft drink company six years ago, the Quotron machine has generally -- but not always -- fortified his sense of comfort and resolve. While his company was going through the most tumultuous period in its 101 years, Coke's stock price nearly quintupled, outperforming the S&P 500 by 80%. Goizueta (pronounced Goy-SWET-ah), 56, has shaken up the sleepy company and its Southern traditions in ways unimaginable in the 1970s, often riling surprised employees, security analysts, and consumers. He started talking about maximizing shareholder value before the notion became a corporate cliche, and did something about it. He and Coke's Iowa-bred president, Donald Keough, turbocharged the company's returns and growth by finding new ways to make money from its prized possession -- the world's most valuable trademark, which Coke carries on the books at a laughable $25 million. Amazing though it seems, Coke emblazoned its famous name on only one product when Goizueta and Keough took command. They extended Coca-Cola to a diet cola and five other variations on the basic soft drink. Though they seemingly bungled the introduction of sweeter-tasting new Coke in 1985, the extended family of drinks with Coke's name on them overtook Pepsi-named products in food stores last year, and Coke's share is still going up. The company's total U.S. soft drink market share (including such Coca-Cola brands as Sprite, Fanta, and Tab) has risen 7.4 percentage points to about 40% today, vs. 31% for Pepsi (see box). Each point represents $400 million at retail and $250 million at wholesale. Already the leading soft drink purveyor in 155 countries, Coke geared up a massive campaign to persuade foreigners to drink more pop and less coffee, tea, milk, and, yes, even water. Says T. Burke McKinney, marketing manager of Coca-Cola Central Pacific, ''We want a major share of stomach.'' While doing all this, Goizueta and Keough took on debt -- anathema at Coke for a century -- and tapped the company's tremendous cash flow to make the first substantial acquisitions in its history. They invested $2 billion to enter the bottling business, once mainly handled by independent franchisees. They spent another $1.5 billion to expand into a new and controversial field: movies and television. They also announced a plan to buy back 10% of Coke's shares by 1990.

Goizueta and his sidekick have become innovative dealmakers, outfoxing leveraged buyout artists in the bottling business and applying many LBO principles to Coke's financial restructuring. Last year they took their bottlers public, holding on to 49% of the shares. Recently they did the same thing with their entertainment holdings. BY ENCOURAGING risk taking, Goizueta has nurtured a new entrepreneurial spirit among managers in a top-down metamorphosis of Coke's once-stodgy corporate culture. And he has done it without the scars of heavy-handed restructuring evident at many other big corporations these days. There have been no layoffs. Employees are still among the best paid in Atlanta. Stretch limos are laid on for visitors. Top executives do not apologize for jetting around to business meetings in the company's three Gulfstreams. Class is part of Coke's image, as it is of Goizueta's. A reflective, renaissance man in a hard-sell world, Goizueta wears tailored suits with natty silk handkerchiefs in the chest pocket and insists that his executives look equally sharp. Coke, after all, is in what the marketers call an image-intensive business. The story is told at Coke that Goizueta once admonished a manager in the executive dining room to button up his suit coat. Goizueta's salary ($1.7 million a year) and stock options make him a millionaire several times over, but he lives in the same two-story suburban house he bought in the 1960s when he was making $25,000 and raising three children. He has always been a workaholic, and his wife has to drag him away to take a one-week vacation every year. He does have two vices: a weakness for chocolate and for True cigarettes. The son of a wealthy sugar plantation owner in Cuba, he passed up a position with the family business to become a chemical engineer. He attended a small prep school in New Hampshire, where he learned English, partly by memorizing dialogue from movies, and became the class valedictorian. He later graduated from Yale and went to work for Coke in Havana. He saw his family lose its money to Castro's revolution and fled to Miami when he was 29. Coke put him on the fast track in its research division for Latin America and in 1964 transferred him to headquarters. Robert Woodruff, Coke's aging patriarch who retired in 1955 at 65 but held on to the reins, became impressed with Goizueta in the 1970s and started inviting him to lunch. Eventually Woodruff prevailed upon J. Paul Austin, Coke's chief executive in 1981, to name Goizueta his successor over more conventional competitors. At Coke, the anointing of a Cuban-born chemical engineer rather than a good ol' boy marketer was tantamount to a palace coup. Woodruff may have realized that it would take an outsider to break with the past and get the company moving again. Goizueta made a shrewd alliance with Keough, a gregarious bull of a marketing man, naming him president and chief operating officer. What people may not remember, says Goizueta, is that Coca-Cola was in deep trouble when he took over. The sugar-cola market segment, from which Coke makes over half its profits, as well as Coke's share of that segment, had been declining for 20 consecutive years. ''You can extrapolate that out and eventually you end up with zilch,'' he says. In steering Coke into the fast lane, Goizueta took big risks and had to overcome powerful internal and external resistance. The prevailing attitude in the company was: If it ain't broke, don't fix it. But Goizueta saw his company's inertia as a greater danger than doing something. Perhaps his biggest gamble was putting Coke's name on a diet cola -- a decision that in retrospect looks as if it should have been a no-brainer. Goizueta and Keough say it was the toughest decision they ever made. The risk of putting Coke's name on another product -- one that might fail -- seemed to outweigh any potential gain. But Goizueta decided to roll the dice and now, five years later, Diet Coke is the third-largest-selling soft drink -- a remarkable new-product success story -- and accounts for most of Coke's growth in total market share. And then came New Coke. Goizueta remains adamant that Coke was right to bring out a sweeter-tasting formula to stave off Pepsi's growing popularity, especially among kids -- and even to pull original Coke off the shelves rather than introduce New Coke as a simple line extension. He just wishes he had brought back old Coke in one month, rather than waiting three, humbling though the experience was. He'll never forget standing before a room full of TV cameras and reporters, having to confess to the American people that he had made a mistake. Few errors pay off so handsomely. Today the original formula, restored to the shelves as Classic Coke, outsells New Coke (now just plain Coke) ten to one. Classic Coke has passed Pepsi to become the best-selling soft drink in the U.S. Still, Goizueta seems to hold out hope that new Coke, which he considers the standard-bearer despite lackluster sales, may yet make a comeback as the baby boom's sweeter-toothed children grow up. ''It's more important that Coke's name is on its best-tasting product than its best- selling product,'' he says. ''One may be growing, the other may not be growing.'' HOWEVER THAT TURNS OUT, the fiasco and fast turnabout by Coke seemed to reawaken a deep-seated American loyalty to the Coca-Cola trademark. According to company surveys, Coke's image rating among consumers jumped from an index of 84 in the early 1980s to 128 today -- the highest since the surveys began 30 years ago. The payoff, however, has been in increased megabrand sales -- all seven Coke-branded products -- rather than new Coke and Classic. Together the two hold a 21.5% total market share, a whole point shy of original Coke's standing in 1984. The proliferation of niche brands at Coke and other soft drink companies has eaten into the share of the two flagship brands. The real action at Coca-Cola, however, has more to do with financial alchemy than chemistry, or even marketing. Coke's basic soft drink concentrate business requires almost no capital investment and throws off sinful amounts of cash. Consequently the margins and returns on capital are unusually high. Smith Barney's beverage analyst, Joseph Doyle, puts return on assets near 50%. What Goizueta has done is force his managers to measure the performance of their own businesses and allocate capital by the high financial standards that apply to soft drinks. Since he took over, his focus on returns has led to the jettisoning of a boiler company, a private-label coffee and tea business, a plastic-manufacturing company, and a wine business. Under Goizueta, Coke has also sharpened thinking about soft drink operations. The soda fountain side of the business, which accounts for one- third of U.S. sales, had been considered very high profit. After all, there were no bottles to make and lug around. But Goizueta learned that the fountain business's return on capital was only 12.5% at a time when the cost of capital was 16%. Over the years, the business had started to use expensive five-gallon stainless steel containers, making it surprisingly capital intensive. ''Everyone used to say what a fantastic business it was, but they forgot those five-gallon containers,'' says Goizueta. ''We were investing money at less than it cost us and essentially liquidating the business.'' Goizueta found ways around the problem. The company came up with disposable bag-in-a-box containers, stopped buying five-gallon drums, and used 50-gallon containers for big customers. Return on capital invested went up to 17%, and by leveraging the balance sheet with debt, Coke brought its cost of capital down to 14%. But increasing returns within existing businesses, Goizueta concluded, would not be enough to boost Coke's flagging profit growth. ''We wanted to expand into something with inherent growth potential and social dynamics,'' he says. Trumpeting a host of marketing synergies, Coke picked entertainment and bought Columbia Pictures in 1982 for $700 million. Wall Street was stunned. Almost no one, except maybe Coke's management, felt a staid soft drink company could star in Hollywood. Indeed, Coke never mastered the creative process at Columbia's movie studio. It went through three studio bosses in five years and, after Ghostbusters in 1984, never had a blockbuster. Columbia's last chief executive, David Puttnam, noisily attacked the star system in Hollywood for pushing up production costs to outrageous levels. He alienated some high-powered talent, including Bill Cosby, a Coke spokesman (and star of Columbia's comedy Leonard Six, which the studio hopes will be its Christmas hit). Coke never could straighten out the cyclical ups and downs of movie cash flow. Ishtar, a silly comedy starring Warren Beatty and Dustin Hoffman cavorting in the desert a la Bing Crosby and Bob Hope, lost $25 million and helped wipe out any growth in Columbia's earnings this year. Columbia laid off a lot of the risk on others through tax-shelter financing, but this eroded discipline, says the chief executive of another Hollywood studio: ''Once people knew they were protected from failure, it took the pressure off.'' The movie studio never made much money, but the uneven financial results, mere ripples in an ocean of Coke, were less troubling than the barrage of negative publicity. ''You get a scratch in this business and everyone thinks you have cancer,'' says a Hollywood competitor. Goizueta says the bad publicity over Ishtar was exaggerated but admits it hurt Coke's stock price -- one additional reason it makes sense to spin off Columbia. In the end, however, Coke made out a lot better in Hollywood than anyone imagined -- as an investor, not a manager. By today's prices, Coke got Columbia Pictures at a bargain. Last year Ted Turner paid $1.6 billion for MGM -- more than twice what Coke paid for Columbia. Coke also added to Columbia's TV properties by buying Norman Lear's Embassy/Tandem Productions and Merv Griffin Enterprises, which included hot syndication properties, such as game shows Wheel of Fortune and Jeopardy. Bountiful TV profits more than made up for the film studio's shortcomings. Says Goizueta: ''People say we bought these earnings and didn't create them, but is that a sin?'' At the same time, Columbia struck savvy deals to increase profits. It made an exclusive pay-TV arrangement with HBO and later started a second studio with CBS and Time Inc. (owner of HBO and publisher of FORTUNE). The new venture, Tri-Star Pictures, was dreamed up by Victor Kaufman, a lawyer at Columbia who became Tri-Star's chief executive. His idea was to spread fixed costs, such as distribution, over more films. Since CBS and HBO put up most of the film production costs in exchange for exclusive showing rights, Columbia did extremely well, taking a 15% distribution fee off the top. Says an executive close to the deal: ''It was a brilliant financial move for Columbia.'' Coke will merge its Columbia movie and TV divisions with Tri-Star in a stock swap that, after a new issue of shares, will boost Coke's stake to 80%. The new company will be renamed Columbia Pictures Entertainment, and Coke will redistribute 31% of the shares to its own shareholders. Once the deal is completed, Coke will have gotten back the $1.5 billion it invested in entertainment and will still hold 49% of one of the five biggest studios in Hollywood. The new combination will have assets of about $3 billion and be capitalized at around $1.6 billion. Coke became a convert to such financial retooling when the company bought many of its independent bottlers and then spun off the group as publicly traded Coca-Cola Enterprises last year. Coke kept 49% of the stock in that spinoff too, and the investment could become Coca-Cola's best ever. Most of Coke's bottling franchises -- the backbone of its distribution system -- used to be owned by entrepreneurs who had exclusive rights to bottle and sell Coca-Cola products in specific territories. The system worked fine for years, but as the cola wars heated up in the late 1970s, bottlers' efficiency became more important than ever to building -- or in Coke's case, holding -- market share. Many of Coke's old bottlers were more interested in squeezing profits from their essentially unregulated utilities than investing to build their businesses. In the early 1980s, as third- and fourth-generation owners decided to sell, the franchises started to turn over to new owners in staggering numbers. By then franchise prices had taken off, partly because Coke and its bottlers settled an antitrust action, and leveraged buyout specialists moved in. Bottling plants that used to be valued at $2 a case of annual capacity in the 1950s started to sell at ten times that price, or even more, according to Jesse Meyers, publisher of Beverage Digest, a respected trade publication.

Coke became alarmed at the sheer volume of franchise deals -- up from a handful to 100 or 150 a year out of a total of some 350 across the country. Some new owners seemed to Coke to be more interested in milking the franchises for cash than in modernizing equipment. It decided to drop its hands-off policy and get involved, first as a broker of deals, then as an investment banker, and finally as a buyer. ''We wanted to put people in place with our same objectives and enough resources to withstand the strong competitive environment,'' says Keough. ''We had to make sure they were not just asset players in for the short term.'' Last year two of the biggest franchises came up for sale, one owned by the billionaire Lupton family of Chattanooga, the other by Beatrice, the huge Chicago conglomerate. Goizueta and Keough realized it was an unusual opportunity to take control of Coke's distribution system and free the company from archaic contracts that required Coke to provide concentrate ingredients at prices fixed largely in the 1920s. They snapped up both franchises and joined them with their other owned bottlers to form Coca-Cola Enterprises. Just like other LBO players, they flipped half the new company's ownership back to the public. Today Coke's 49% stake is worth $1.3 billion on the stock market. Boasts Goizueta: ''My idea was very clever. We would do with the bottling business what we did with Tri-Star, except we would lay off half the investment by going public rather than lining up two partners.'' Coca-Cola Enterprises installed the latest equipment and negotiated better deals with suppliers and food outlets. It is also consolidating territories in prime markets. ''With all the speeding up in the 1980s, you need to be agile and quick,'' says CCE's boss, Brian Dyson. ''Otherwise you miss out.'' THE NEW MANTRA in Atlanta is that by freeing the bottling and entertainment businesses buried within the parent company's restrictive structure, Coke is unlocking value. The stock market will be able to evaluate the new publicly traded companies more simply. Both Columbia Pictures Entertainment and Coca- Cola Enterprises can leverage themselves up to the higher levels of debt that prevail in their respective industries. Having Coke as a big friendly shareholder affords them greater financial resources than their competitors'. Above all, they can give their executives stock options tied to the performance of their business. Says Douglas Ivester, Coke's chief financial officer and an architect of the 49% deals: ''History has shown that when people own a piece of the rock, they take good care of it.'' Coke's biggest problem right now is deciding how to spend the new cash and debt capacity -- some $5 billion -- freed up by the partial spinoffs. That might seem to make the company a tempting takeover target, but Coke's stock market value of nearly $20 billion makes a raid unlikely. The company is studying over 30 projects to expand current businesses, and all require capital. Some of that capital will go to accelerating foreign sales, which are growing at about double Coke's 4% domestic growth rate. Coke dominates soft drink sales abroad. Its real international competition comes from other long- established beverages: tea in England, coffee in France, and milk in Brazil. The potential is enormous. International per-capita consumption of soft drinks, excluding Russia and China, is only 15% of that in the U.S. Yet 95% of the world's population lives outside the U.S. ''Every human needs to drink two or three liters a day of liquid,'' says R. Fenton-May, managing director of Coca-Cola China Ltd. Coke believes it can double or even triple its size by the year 2000 through growth of international sales alone. ''Our business in the 1990s will be to grow the world,'' says Keough. ''If we could get the Chinese, for instance, to drink the same amount of soft drinks as the Australians, we would have another Coca-Cola Co. That just shows you what's possible.'' The Chinese drink on average 3.7 servings (of eight ounces) a year, vs. 285 for Australians, which in turn is less than half the consumption of Americans. That may seem like an impossible dream, but Coke has already started to build a 100%-owned syrup plant in Shanghai to supply its seven Chinese-owned bottlers. Back home, Coke continues to create new soft drink varieties to match different demographic segments. As people get older, they are becoming more health-conscious and are more apt to drink soda pop than alcohol or coffee. The company has big -- some parents would suggest insidious -- plans to make soda pop available in the home. Are you ready for this? Coke is thinking about how to install soft drink utility lines to homes in planned communities, or more likely, mini-soda fountain taps that may be hooked up to sinks or refrigerators. Coke's only troubled division is food, where revenues and earnings are flat. Largely made up of Minute Maid orange juice, the division contributed 15% of revenues last year but only 11% of earnings. Goizueta seems more interested in building the business then selling it, since juices are the only beverage besides soft drinks whose sales are growing. Coke may spin off some assets, such as 20,000 acres of orange groves, to improve returns. But it may also buy some big new product lines in frozen or chilled foods. Coke probably won't diversify soon into a whole new line of business, like health care or flavorings -- two areas it considered when it opted for entertainment. Coca-Cola clothing is just a sideline started to give the company grounds to sue clothing manufacturers who put Coke's name on T-shirts, sometimes evoking its mythological origin from cocaine. The flavor does come from the coca plant, the same plant cocaine comes from, but Coke says none of the drug has ever been used in Coca-Cola. These days, one thing is sure: The shareholders need no cocaine to get their kick out of Coke.

BOX: INVESTOR'S SNAPSHOT COCA-COLA

SALES (LATEST FOUR QUARTERS) $9.0 BILLION CHANGE FROM YEAR EARLIER UP 15%

NET PROFIT $999.4 MILLION CHANGE UP 30%

RETURN ON COMMON STOCKHOLDERS' EQUITY 29% FIVE-YEAR AVERAGE 22%

STOCK PRICE RANGE (last 12 months) $32.75-$53.50

RECENT SHARE PRICE $48

PRICE/EARNINGS MULTIPLE 18

TOTAL RETURN TO INVESTORS (12 months to 9/25/87) 45%

CHART: TEXT NOT AVAILABLE CREDIT: PETER ZERAY CAPTION: Coke's New Family of Colas When Goizueta became CEO, only one cola bore the famous name. Now there are seven. DESCRIPTION: Coca-Cola soft drinks and consumption rates.