** **

**As filedwith the Securities and Exchange Commission on June 27, 2008**

** **

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

** **

**FORM 20-F**

 

**o****                ****REGISTRATION STATEMENTPURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**OR**

 

**x****             ****ANNUAL REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For thefiscal year ended December 31, 2007**

** **

**OR**

** **

**o****                ****TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For the transition period from              to              **

 

Commissionfile number 001-13142

 
| **Embotelladora  Andina S.A.**                                    |
|-------------------------------------------------------------------|
| (Exact name of  Registrant as specified in its charter)           |
|                                                              |
| **Andina  Bottling Company**                                      |
| (Translation of  the Registrant’s name in English)           |
|                                                              |
| **Republic  of Chile**                                            |
| (Jurisdiction of  incorporation or organization)                  |
|                                                              |
| **Avenida  El Golf 40, Office 401  Las Condes - Santiago, Chile** |
| (Address of  principal executive offices)                         |

 

Securitiesregistered or to be registered pursuant to Section 12(b) of the Act:

 

| Title of each  class                                                                      |   | Name of each  exchange on which registered |
|-------------------------------------------------------------------------------------------|--------|--------------------------------------------|
| Series A Shares,  Series B Shares of Registrant represented by American Depositary Shares |   | New York Stock  Exchange                   |

 

Securitiesregistered or to be registered pursuant to Section 12(g) of the Act:None

 

Securitiesfor which there is a reporting obligation pursuant to Section 15(d) ofthe Act

 
| **7.625%  Notes due October 1, 20277.875% Notes due October 1,  2097** |
|-----------------------------------------------------------------------------|

 

Thenumber of outstanding shares of the issuer’s stock as of December 31, 2007was 760,274,542 as follows:
|   | **380,137,271 Series A Shares** |
|--------|---------------------------------|
|   | **380,137,271 Series B Shares** |

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.

x Yes   oNo

 

Ifthis report is an annual or transition report, indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934.

o Yes   xNo

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

x Yes   oNo

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.(Check one):

 

| Large  accelerated filer x |   | Accelerated  filer o |   | Non-accelerated  filer o |
|----------------------------|--------|----------------------|--------|--------------------------|

 

Indicateby check mark which basis of accounting the registrant has used to prepare thefinancial statements included in this filing U.S. GAAP International FinancialReporting Standards as issued by the international Accounting StandardsBoard     x   Other.

 

IfOther has been checked in response to the previous question, indicate by checkmark which financial statement item the registrant has elected tofollow    o  Item 17   ** **x  Item 18

 

Ifthis is an annual report, indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes   x No

 

 

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**TABLE OFCONTENTS**

 
| ** **                        | ** **                                                                    | ** ** | **Page** |
|-----------------------------------|-------------------------------------------------------------------------------|------------|----------|
| PART I                       |                                                                          |       | 1        |
|                              |                                                                          |       |     |
| ITEM 1.                           | IDENTITY OF DIRECTORS,  SENIOR MANAGEMENT AND ADVISERS                        |       | 1        |
| ITEM 2.                           | OFFER STATISTICS AND  EXPECTED TIMETABLE                                      |       | 1        |
| ITEM 3.                           | KEY INFORMATION                                                               |       | 1        |
| ITEM 4.                           | INFORMATION ON THE  COMPANY                                                   |       | 11       |
| ITEM 4A                           | UNRESOLVED SECURITIES AND EXCHANGE COMMISSION STAFF  COMMENTS                 |       | 31       |
| ITEM 5.                           | OPERATING AND  FINANCIAL REVIEW AND PROSPECTS                                 |       | 31       |
| ITEM 6.                           | DIRECTORS,  SENIOR MANAGEMENT AND EMPLOYEES                                   |       | 46       |
| ITEM 7.                           | MAJOR  SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            |       | 54       |
| ITEM 8.                           | FINANCIAL INFORMATION                                                         |       | 58       |
| ITEM 9.                           | THE OFFER AND LISTING                                                         |       | 60       |
| ITEM 10.                          | ADDITIONAL  INFORMATION                                                       |       | 63       |
| ITEM 11.                          | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |       | 76       |
| ITEM 12.                          | DESCRIPTION OF  SECURITIES OTHER THAN EQUITY SECURITIES                       |       | 77       |
|                              |                                                                          |       |     |
| PART II                      |                                                                          |       | 77       |
|                              |                                                                          |       |     |
| ITEM 13.                          | DEFAULTS, DIVIDEND ARREARAGES AND  DELINQUENCIES                              |       | 77       |
| ITEM 14.                          | MATERIAL  MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |       | 77       |
| ITEM 15.                          | CONTROLS AND  PROCEDURES                                                      |       | 77       |
| ITEM 16A.                    | AUDIT  COMMITTEE FINANCIAL EXPERT                                             |       | 78       |
| ITEM 16B.                         | CODE OF ETHICS                                                                |       | 78       |
| ITEM 16C.                         | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                       |       | 78       |
| ITEM 16D.                    | EXEMPTIONS  FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   |       | 79       |
| ITEM 16E.                         | PURCHASERS OF  EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS      |       | 79       |
|                              |                                                                          |       |     |
| PART III                     |                                                                          |       | 79       |
|                              |                                                                          |       |     |
| ITEM 17.                          | FINANCIAL STATEMENTS                                                          |       | 79       |
| ITEM 18.                          | FINANCIAL STATEMENTS                                                          |       | 79       |
| ITEM  19.                         | EXHIBITS                                                                      |       | 80       |
|                              |                                                                          |       |     |
| EX-8.1:  LIST OF OUR SUBSIDIARIES |                                                                          |       |
| EX-12.1:  CERTIFICATION           |                                                                          |       |
| EX-12.2:  CERTIFICATION           |                                                                          |       |
| EX-13.1:  CERTIFICATION           |                                                                          |       |
| EX-13.2:  CERTIFICATION           |                                                                          |       |

 

i

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**INTRODUCTION**

 

**References**

 

Unless the context otherwise requires, as used inthis annual report the following terms have the meanings set forth below:

 

·                          the “Company” and “we” means Andina and itsconsolidated subsidiaries;

·                          “Andina”means Embotelladora Andina S.A.;

·                          “Refrescos”means the Company’s subsidiary, Rio de Janeiro Refrescos Ltda. and itssubsidiaries;

·                          “Edasa” meansthe Company’s subsidiary, Embotelladora del Atlántico S.A.;

·                          “Envases CMF” means the Company’s affiliate,Envases CMF S.A.;

·                          “Vital” means the Company’s subsidiary, VitalS.A.;

·                          “Vasa” means the Company’s subsidiary, VitalAguas S.A.; and

·                          “Multipack” means the Company’s subsidiary,Envases Multipack S.A.

 

Likewise, unless the context otherwise requires, “TheCoca-Cola Company” means The Coca-Cola Company or any of its subsidiaries,including without limitation Coca-Cola de Chile S.A. (“CC Chile”), whichoperates in the Republic of Chile (“Chile”), Recofarma Industrias do AmazonasLtda. (“CC Brazil”), which operates in the Federative Republic of Brazil (“Brazil”)and Servicios y Productos para Bebidas Refrescantes S.R.L. (“CC Argentina”),which operates in the Republic of Argentina (“Argentina”).

 

In addition, as used in this annual report:

 

·                          the “Chilean territory” means theMetropolitan Region of Santiago, Chile and the neighboring provinces ofCachapoal and San Antonio;

·                          the “Brazilian territory” means the majorityof the State of Rio de Janeiro, and the totality of the State of EspíritoSanto; and

·                          the “Argentine territory” means the provincesof Córdoba, Mendoza, San Juan, San Luis, Entre Rios, Buenos Aires (only SanNicolás and Ramallo) and most of Santa Fe.

 

**PRESENTATIONOF FINANCIAL AND CERTAIN OTHER INFORMATION**

 

Unless otherwise specified, references herein to “dollars,”“U.S. dollars” or “US$” are to United States dollars; references to “pesos,” “Chileanpesos”, “Ch$” or “ThCh$” are to Chilean pesos; references to “UF” are to *Unidades de Fomento*, a daily indexedChilean peso-denominated monetary unit that takes into account the effect ofthe Chilean inflation rate during the previous month; references to “Argentinepesos” or “AR$” are to Argentine pesos; and references to “real” or “reais” or “R$”are to Brazilian reais. Certain percentages and amounts contained in thisannual report have been rounded for ease of presentation.

 

For the convenience of the reader, this annualreport contains translations of certain Chilean peso amounts into U.S. dollarsat specified rates. Unless otherwise indicated, U.S. dollar equivalentinformation for amounts in Chilean pesos is based on the Observed Exchange Rate(as defined under “Item 3. Key Information—Exchange Rates”) reported by the *Banco Central de Chile*(the Central Bankof Chile), which we refer to as the “Central Bank,” for December 31, 2007,which was Ch$496.89=US$1.00. The Observed Exchange Rate for June 25, 2008was Ch$505.11 per US$1.00. The Federal Reserve Bank of New York does not reporta noon buying rate in New York City for Chilean pesos. No representation ismade that the peso or U.S. dollar figures presented in this annual report couldhave been or could be converted into U.S. dollars or pesos, as the case may be,at any particular rate or at all.

 

**Forward-looking information**

 

This annual report contains or incorporates byreference statements that constitute “forward-looking statements,” in that theyinclude statements regarding the intent, belief or current expectations of ourdirectors and officers with respect to our future operating performance. Suchstatements include any forecasts, projections and descriptions of anticipatedcost savings or other synergies. Words such as “anticipate,” “expect,” “intend,”“plan,” “believe,” “seek,” “estimate,” variations of such words, and similarexpressions are intended to identify such forward-looking statements. Youshould be aware that any such forward-looking statements are not guarantees offuture performance and may involve risks and uncertainties, and that actualresults may differ from those set forth in the forward-looking statements as aresult of various factors (including, without limitations, the actions ofcompetitors, future global economic conditions, market conditions, foreignexchange rates, 

 

ii

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andoperating and financial risks related to managing growth and integratingacquired businesses), many of which are beyond our control. The occurrence ofany such factors not currently expected by us would significantly alter theresults set forth in these statements. You should not place undue reliance onsuch statements, which speak only as of the date that they were made. Ourindependent auditors have not examined or compiled the forward-lookingstatements and, accordingly, do not provide any assurance with respect to suchstatements. These cautionary statements should be considered in connection withany written or oral forward-looking statements that we might issue in thefuture. We do not undertake any obligation to release publicly any revisions tosuch forward-looking statements after filing of this annual report to reflectlater events or circumstances or to reflect the occurrence of unanticipatedevents.

 

**Market Data**

 

We have computed the information contained in thisannual report regarding annual volume and per capita growth rates and levels,and market share, product segment, packaging and population data in bottlingand franchise territories, and it is based upon statistics accumulated andcertain assumptions we have made. Additional data was obtained from thirdparties. Sales information presented with respect to soft drinks and beer isbased on data supplied by A.C. Nielsen Company (“A.C. Nielsen”) and is believedto be accurate although no assurances to that effect can be given. To theextent estimates are contained in this annual report, we believe that to thebest of our knowledge such estimates are reliable. Market data used throughoutthis annual report were derived from reports prepared by unaffiliatedthird-party sources. Such reports generally state that the informationcontained therein has been obtained from sources believed by such sources to bereliable. Certain market data herein (including percentage amounts) may not sumdue to rounding.

 

iii

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**PART I**

 

**ITEM 1.****                             ****IDENTITY OF DIRECTORS,SENIOR MANAGEMENT AND ADVISERS**

 

**Not Applicable**

 

**ITEM 2.****                             ****OFFER STATISTICS ANDEXPECTED TIMETABLE**

 

**Not Applicable**

 

**ITEM 3.****                             ****KEY INFORMATION**

 

**Selected Financial Data**

 

The following table presents our selectedconsolidated and other financial and operating information at the dates and forthe periods indicated. The selected financial information at December 31,2006 and 2007 and for each of the three years ended December 31, 2007 hasbeen derived from, should be read in conjunction with, and is qualified in itsentirety by reference to our Consolidated Financial Statements and the notesthereto, included elsewhere in this annual report in Item 18, that werefer to in this annual report as the “Consolidated Financial Statements.” OurConsolidated Financial Statements are prepared in accordance with Chilean GAAP,which differs in certain significant respects from accounting principles generallyaccepted in the United States which we refer to as “U.S. GAAP.” Note 30 of thenotes to the Consolidated Financial Statements provides a description of theprincipal differences between Chilean GAAP and U.S. GAAP as they relate to usand a reconciliation to U.S. GAAP of net income and total shareholders’ equityfor the periods and as of the dates covered thereby.

 

Our consolidated financial results include theresults of our subsidiaries located outside Chile, principally in Brazil andArgentina. Our subsidiaries outside Chile prepare their financial statements inaccordance with Chilean GAAP and, to comply with local regulations, inaccordance with accounting principles generally accepted in their country ofoperation. Our Consolidated Financial Statements reflect the Chilean GAAPresults of our subsidiaries outside Chile translated into Chilean pesos.Chilean GAAP requires monetary assets and liabilities to be translated atyear-end rates of exchange, non-monetary assets and liabilities to be translatedat historical rates of exchange as of the date of acquisition or incurrence, asthe case may be, and income and expense accounts to be translated at theaverage monthly exchange rate for the month in which income or expense isrecognized. Unless otherwise specified, our financial data is presented hereinin constant Chilean pesos (which factors in the purchasing power of the Chileanpeso) as of December 31, 2007. See Notes 1(c) and 30(a) and (b) toour Consolidated Financial Statements.

 

The following table presents our selectedconsolidated financial information. This information should be read inconjunction with, and is qualified in its entirety by reference to, ourConsolidated Financial Statements, including the notes thereto in Item 18.The selected financial information contained herein is presented on aconsolidated basis, and is not necessarily indicative of our financial positionor results of operations at or for any future date or period.

 

1

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| ** **                                           | ** ** | **Year ended December 31,**                                                                                                                                                                                                                       | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                           | ** ** | **2007**                                                                                                                                                                                                                                                         | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                           | ** ** | **(in millions of constant Ch$ as of December 31, 2007 and millions of US$ , except ratios, per  share  and per ADS data, and sales volume)** | ** ** |
| ** **                                           | ** ** | ** **                                                                                                                                                                                                                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ***Income Statement Data:***                         |       |                                                                                                                                                                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| ***Chilean GAAP:***                                  |       |                                                                                                                                                                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| **Net sales**                                        | ** ** | **US$1,281**                                                                                                                                                                                                                                                     | ** ** | **Ch$636,689** | ** ** | **Ch$587,190** | ** ** | **Ch$511,301** | ** ** | **Ch$459,114** | ** ** | **Ch$441,560** | ** ** |
| Cost of sales                                        |       | -707                                                                                                                                                                                                                                                             |       | -351,452 |   | -335,171 |   | -301,775 |   | -277,234 |   | -278,954 |   |
| Administrative and selling expenses                  |       | -342                                                                                                                                                                                                                                                             |       | -169,743 |   | -149,922 |   | -124,096 |   | -110,439 |   | -107,063 |   |
| Operating income                                     |       | 232                                                                                                                                                                                                                                                              |       | 115,494 |   | 102,097 |   | 85,430 |   | 71,441 |   | 55,543 |   |
| Non-operating (expense) income, net                  |       | -1                                                                                                                                                                                                                                                               |       | -476 |   | -666 |   | -7,789 |   | -13,455 |   | -28,312 |   |
| Income taxes and minority interest                   |       | -54                                                                                                                                                                                                                                                              |       | -26,913 |   | -14,590 |   | -9,361 |   | -4,485 |   | -1,180 |   |
| Amortization of goodwill                             |       | -13                                                                                                                                                                                                                                                              |       | -6,503 |   | -6,984 |   | -6,830 |   | -7,880 |   | -7,706 |   |
|                                                 |       |                                                                                                                                                                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| **Net income**                                       | ** ** | **164**                                                                                                                                                                                                                                                          | ** ** | **81,602** | ** ** | **79,857** | ** ** | **61,450** | ** ** | **45,621** | ** ** | **18,345** | ** ** |
|                                                 |       |                                                                                                                                                                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| **Basic and diluted earnings per share**             |       |                                                                                                                                                                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| Series A                                        |       | 0.21                                                                                                                                                                                                                                                             |       | 102.22 |   | 100.04 |   | 76.98 |   | 57.15 |   | 22.98 |   |
| Series B                                        |       | 0.23                                                                                                                                                                                                                                                             |       | 112.44 |   | 110.04 |   | 84.67 |   | 62.86 |   | 25.28 |   |
| **Basic and diluted earning per ADS(3)**             |       |                                                                                                                                                                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| Series A                                        |       | 1.23                                                                                                                                                                                                                                                             |       | 613.34 |   | 600.23 |   | 461.87 |   | 342.90 |   | 137.89 |   |
| Series B                                        |       | 1.36                                                                                                                                                                                                                                                             |       | 674.65 |   | 660.22 |   | 508.04 |   | 377.18 |   | 151.67 |   |
| ***U.S.GAAP:***                                      |       |                                                                                                                                                                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| **Net income**                                       | ** ** | **172**                                                                                                                                                                                                                                                          | ** ** | **85,572** | ** ** | **82,541** | ** ** | **82,443** | ** ** | **58,583** | ** ** | **20,166** | ** ** |
| **Total number of shares:**                          |       |                                                                                                                                                                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| Series A                                        |       | 380,137,271                                                                                                                                                                                                                                                      |       | 380,137,271 |   | 380,137,271 |   | 380,137,271 |   | 380,137,271 |   | 380,137,271 |   |
| Series B                                        |       | 380,137,271                                                                                                                                                                                                                                                      |       | 380,137,271 |   | 380,137,271 |   | 380,137,271 |   | 380,137,271 |   | 380,137,271 |   |
| **Dividends declared per series:**                   |       |                                                                                                                                                                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| Series A                                        |       | 74                                                                                                                                                                                                                                                               |       | 36,991 |   | 35,459 |   | 33,908 |   | 22,504 |   | 24,405 |   |
| Series B                                        |       | 82                                                                                                                                                                                                                                                               |       | 40,690 |   | 39,005 |   | 37,299 |   | 24,755 |   | 26,845 |   |
| **Basic and diluted earning per share**              |       |                                                                                                                                                                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| Series A                                        |       | 0.22                                                                                                                                                                                                                                                             |       | 107.20 |   | 103.40 |   | 103.28 |   | 73.39 |   | 25.26 |   |
| Series B                                        |       | 0.24                                                                                                                                                                                                                                                             |       | 117.91 |   | 113.73 |   | 113.60 |   | 80.72 |   | 27.79 |   |
| **Basic and diluted earning per ADS(3)**             |       |                                                                                                                                                                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| Series A                                        |       | 1.29                                                                                                                                                                                                                                                             |       | 643.18 |   | 620.39 |   | 619.66 |   | 440.33 |   | 151.57 |   |
| Series B                                        |       | 1.42                                                                                                                                                                                                                                                             |       | 707.47 |   | 682.41 |   | 681.60 |   | 484.34 |   | 166.73 |   |
| ***Balance Sheet Data:***                            |       |                                                                                                                                                                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| ***Chilean GAAP:***                                  |       |                                                                                                                                                                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| Total assets                                         |       | US$1,088                                                                                                                                                                                                                                                         |       | Ch$540,428 |   | Ch$551,605 |   | Ch$576,842 |   | Ch$658,592 |   | Ch$681,688 |   |
| Short-term debt (1)                                  |       | 22                                                                                                                                                                                                                                                               |       | 10,988 |   | 35,336 |   | 46,169 |   | 38,056 |   | 23,602 |   |
| Long-term debt                                       |       | 150                                                                                                                                                                                                                                                              |       | 74,338 |   | 82,100 |   | 112,130 |   | 178,750 |   | 199,688 |   |
| **Total shareholders’ equity**                  | ** ** | **566**                                                                                                                                                                                                                                                          | ** ** | **281,149** | ** ** | **295,064** | ** ** | **294,355** | ** ** | **330,413** | ** ** | **352,747** | ** ** |
| ***U.S.GAAP:***                                      |       |                                                                                                                                                                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| **Total shareholders’ equity**                  | ** ** | **600**                                                                                                                                                                                                                                                          | ** ** | **298,080** | ** ** | **308,485** | ** ** | **317,537** | ** ** | **341,856** | ** ** | **350,890** | ** ** |
| ***Other Financial Information:***                   |       |                                                                                                                                                                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| ***Chilean GAAP:***                                  |       |                                                                                                                                                                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| Cash flows from operating activities                 |       | 276                                                                                                                                                                                                                                                              |       | 137,139 |   | 136,314 |   | 106,172 |   | 79,850 |   | 84,176 |   |
| Cash flows from investing activities                 |       | 63                                                                                                                                                                                                                                                               |       | 31,446 |   | 6,425 |   | 11,961 |   | -42,705 |   | -20,739 |   |
| Cash flows from financing activities                 |       | -183                                                                                                                                                                                                                                                             |       | -90,737 |   | -120,627 |   | -125,141 |   | -49,757 |   | -69,180 |   |
| Depreciation                                         |       | 59                                                                                                                                                                                                                                                               |       | 29,148 |   | 31,741 |   | 31,841 |   | 35,728 |   | 38,384 |   |
| Capital expenditures                                 |       | 113                                                                                                                                                                                                                                                              |       | 56,024 |   | 39,743 |   | 30,040 |   | 28,675 |   | 29,510 |   |
| Ratio of total debt to total capitalization (2) |       | 0.23                                                                                                                                                                                                                                                             |       | 0.23 |   | 0.28 |   | 0.35 |   | 0.40 |   | 0.39 |   |
| ***Other Operating Data:***                          |       |                                                                                                                                                                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| Sales volume of :                                    |       |                                                                                                                                                                                                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| Coca-Cola Soft Drinks (million UCs)(5)               |       | 402.4                                                                                                                                                                                                                                                            |       | 402.4 |   | 381.9 |   | 360.1 |   | 336.3 |   | 315.5 |   |
| Other Beverages (million UCs) (4)(5)            |       | 38.9                                                                                                                                                                                                                                                             |       | 38.9 |   | 33.3 |   | 29.3 |   | 27.8 |   | 27.0 |   |

 

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(1)                   Includes short-term bank liabilities and theportion of long–term bank liabilities and bonds payable within 12 months.

(2)                   Total debt is calculated as the sum of short–termand long–term financial debt. Total capitalization is calculated as the sum oftotal financial debt, minority interest and total shareholders’ equity.Shareholders’ equity under U.S. GAAP differs from Chilean GAAP in certainimportant respects. For a summary of the principal differences between U.S.GAAP and Chilean GAAP as they relate to us, see “Item 5 – Operating andFinancial Review and Prospects – U.S. GAAP Reconciliation” and Note 30 to ourConsolidated Financial Statements included elsewhere herein.

 

2

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(3)                   Each ADS represents six shares of commonstock.

(4)                   Includes waters and juices (in Chile andArgentina) and beer, waters and juices (in Brazil).

(5)                   Unit cases (“UCs”) refer to 192 ounces offinished beverage product (24 eight-ounce servings) or 5.68 liters.

 

**Exchange Rates**

 

The following table sets forth the annual low, high,average and period-end Observed Exchange Rate for U.S. dollars for each yearbeginning in 2003 and for each month during the six months immediatelypreceding the month of this annual report, as reported by the Central Bank.

 
| ** **         | ** ** | **Daily Observed Exchange Rate Ch$ per US$(1)** | ** ** |
|--------------------|------------|-------------------------------------------------------------------------------|------------|
| **Year**           | ** ** | **Low(2)**                                                                    | ** ** | **High(2)** | ** ** | **Average(3)** | ** ** | **Period End** | ** ** |
| 2003               |       | 593.10                                                                        |       | 758.21 |   | 691.04 |   | 593.80 |   |
| 2004               |       | 557.40                                                                        |       | 649.45 |   | 609.41 |   | 557.40 |   |
| 2005               |       | 509.70                                                                        |       | 592.75 |   | 559.68 |   | 512.50 |   |
| 2006               |       | 511.44                                                                        |       | 549.63 |   | 530.34 |   | 532.39 |   |
| 2007               |       | 439.14                                                                        |       | 548.67 |   | 522.55 |   | 496.89 |   |
|               |       |                                                                          |       |   |   |   |   |   |   |
| **Month**          | ** ** | ** **                                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| December 2007 |       | 495.49                                                                        |       | 506.23 |   | 498.39 |   | 496.89 |   |
| January 2008  |       | 463.58                                                                        |       | 498.05 |   | 479.46 |   | 465.34 |   |
| February 2008 |       | 453.95                                                                        |       | 476.44 |   | 466.67 |   | 453.95 |   |
| March 2008    |       | 431.22                                                                        |       | 454.94 |   | 442.13 |   | 437.71 |   |
| April 2008    |       | 433.98                                                                        |       | 461.49 |   | 447.51 |   | 461.49 |   |
| May 2008      |       | 461.49                                                                        |       | 479.66 |   | 470.55 |   | 479.54 |   |

* *

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*Source*: Central Bank.
| (1) | Nominal  Figures.                                                                                                                                                                         |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Exchange  rates are the actual low and high, on a day-by-day basis for each period.                                                                                                       |
| (3) | With  respect to annual periods, the average of the exchange rates on the last day  of each month during the year and, with respect to monthly periods, the  actual daily exchange rates. |

 

TheObserved Exchange Rate on June 25, 2008 was Ch$505.11 per US$1.00.

 

**Risk Factors**

 

The Company is subject to various economic,political, social and competitive conditions. Any of the following risks, ifthey materialize, could materially and adversely affect our business, resultsof operations, prospects and financial condition.

 

**Risks Related to our Company**

 

***We rely heavily on our relationshipwith The Coca-Cola Company which has substantial influence over our businessand operations***

 

Approximately 88% of our net sales in 2007 werederived from the distribution of Coca-Cola soft drinks and 9% from thedistribution of other beverages bearing trademarks owned by The Coca-ColaCompany. We produce, market and distribute Coca-Cola products through standardbottler agreements between our bottler subsidiaries and, in each case, thelocal subsidiary of The Coca-Cola Company or, in the case of fruit juices andnectars, The Minute Maid Company, a subsidiary of The Coca-Cola Company. TheCoca-Cola Company has the ability to exercise substantial influence over ourbusiness through its rights under the Bottler Agreements. See “Item 7. MajorShareholders and Related Party Transactions—Bottler Agreements.” Under theBottler Agreements, The Coca-Cola Company unilaterally sets the prices forCoca-Cola soft drink concentrates and Coca-Cola beverages (in the case of softdrinks pre-mixed by The Coca-Cola Company) sold to us. The Coca-Cola Companyalso monitors pricing changes we institute and has the right to review andapprove our marketing, operational and advertising plans. These factors mayimpact our profit margins which could adversely affect our net income andresults of operations. Our marketing campaigns for all Coca-Cola products aredesigned and controlled by The Coca-Cola Company. Pursuant to the Bottler Agreements,we are required to submit a business plan to The Coca-Cola Company for priorapproval on a yearly basis. In accordance with the Bottler Agreements, TheCoca-Cola Company may, among other 

 

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things,require that we demonstrate financial ability to meet our business plan and ifwe are not able to demonstrate our financial capacity The Coca-Cola Company mayterminate our rights to produce, market and distribute Coca-Cola soft drinks orother Coca-Cola beverages in territories where we have such approval. Under theBottler Agreements, we are prohibited from producing, bottling, distributing orselling any products that could be substituted for, be confused with or beconsidered an imitation of, Coca-Cola soft drinks or other Coca-Cola beveragesand products.

 

We depend on The Coca-Cola Company to renew theBottler Agreements which are subject to termination by The Coca-Cola Company inthe event we default or upon expiration of their respective terms. We cannotassure you that the Bottler Agreements will be renewed or extended upon theirexpiration, and even if they are renewed, we cannot be certain that renewalwill be granted on the same terms as those currently in effect. Termination,non-extension or non-renewal of any of the Bottler Agreements would have amaterial adverse effect on our business, financial condition and results ofoperation.

 

In addition, any acquisition we make of bottlers ofCoca-Cola products in other countries may require, among other things, theconsent of The Coca-Cola Company under bottler agreements to which such otherbottlers are subject. We cannot assure you that The Coca-Cola Company willconsent to any future geographic expansion of our Coca-Cola beverage business.In addition, we cannot assure you that our relationship with The Coca-ColaCompany will not undergo significant changes in the future. If such changes dooccur, our operations, and financial results and condition could be materiallyaffected.

 

***Our business is highly competitiveand subject to price competition which may adversely affect our net profits andmargins***

 

The soft drink and non-alcoholic beverage businessesare highly competitive in each of our Company’s franchise territories. In ourfranchise territories we compete with bottlers of regional brands, includinglow cost “B brand” beverages and Pepsi products.  In Argentina and Brazil we compete withCompanhia de Bebidas das Americas, commonly referred to as AmBev, the largestbrewer in Latin America and a subsidiary of InBev S.A., which sells Pepsiproducts, in addition to a portfolio that includes local brandas with flavossuch as guaraná. This competition is likely to continue, and we cannot assureyou that it will not intensify in the future which could materially andadversely affect our financial condition and results of operations. See “Item4. Information on the Company — Part B. Business Overview— Soft DrinkBusiness—Competition.”

 

***Changes in the nonalcoholic beverages business environmentcould adversely affect our financial results.***

 

The nonalcoholic beverages business environment israpidly evolving as a result of, among other things, changes in consumerpreferences, including changes based on health and nutrition considerations andobesity concerns, shifting consumer tastes and needs, changes in consumerlifestyles and competitive product and pricing pressures. In addition, theindustry is being affected by the trend toward consolidation in the retailchannel. If we are unable to successfully adapt to this rapidly changingenvironment, our net income, share of sales and volume growth could benegatively affected.

 

***Raw material prices may be subjectto U.S. dollar/local currency exchange risk and price volatility which couldincrease our costs of operations***

 

Numerous raw materials, including sugar and resin,are used in producing beverages and containers. We purchase raw materials fromboth domestic and international suppliers. See “Item 4. Information on theCompany—Part B. Business Overview—Soft Drink Business—Raw Materials andSupplies.” Because the prices of raw materials are fixed in U.S. dollars, weare subject to local currency risk in each of our operations. If the Chileanpeso, Brazilian real or Argentine peso were to depreciate significantly againstthe U.S. dollar, the cost of certain raw materials could rise significantly,which could have an adverse effect on our financial condition and results ofoperations. We cannot assure you that these currencies will not lose valueagainst the U.S. dollar in the future.  Additionally, these raw materials are subject to international pricevolatility that could also have a material negative effect over ourprofitability.

 

***Instability in the supply of utilityservices and oil prices may adversely impact our results of operations***

 

Our operations depend on a stable supply ofutilities and fuel in the countries where we operate. Given recent economicinstability, particularly in Argentina, we cannot assure you that suchinstability will not impair our ability to procure required utility services orfuel in the future which could adversely impact our results or operations.Increases in oil prices have adversely affected our cost of energy andtransportation in the three countries we operate and we expect that they willcontinue to do so in the future.   Webelieve that the increase of energy prices will not have a significant effectover our results of operations.

 

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***Water scarcity andpoor quality could negatively impact the Company’s production costs andcapacity.***

 

Water is the main ingredient in substantially all ofour products. It is also a limited resource in many parts of the world, facingunprecedented challenges from overexploitation, increasing pollution and poormanagement. As demand for water continues to increase around the world, and asthe quality of available water deteriorates, the Company may incur increasingproduction costs or face capacity constraints that could adversely affect ourprofitability or net operating revenues in the long run.

 

***Significantadditional labeling or warning requirements may inhibit sales of affectedproducts.***

 

In the countries in which we operate, authorities mayseek to adopt significant additional product labeling or warning requirementsrelating to the chemical content or perceived adverse health consequences ofcertain of the Coca-Cola products. These types of requirements, if they becomeapplicable to one or more of the Coca-Cola products under current or futureenvironmental or health laws or regulations, may inhibit sales of suchproducts.

 

***If we are unable toprotect our information systems against data corruption, cyber-based attacks ornetwork security breaches, our operations could be disrupted.***

 

We are increasingly dependent on informationtechnology networks and systems, including the Internet, to process, transmitand store electronic information. In particular, we depend on our informationtechnology infrastructure for digital marketing activities and electroniccommunications among the Company and our clients, suppliers and also among oursubsidiaries. Security breaches of this infrastructure can create systemdisruptions, shutdowns or unauthorized disclosure of confidential information.If we are unable to prevent such breaches, our operations could be disrupted,or we may suffer financial damage or loss because of lost or misappropriatedinformation.

 

***Perception of risk in emergingeconomies may impede our access to international capital markets, hinder ourability to finance our operations and adversely affect the market price of ourcommon shares and American Depositary Shares .***

 

As a general rule, international investors considerBrazil and Argentina, and to a lesser extent Chile, to be emerging marketeconomies. Consequently, economic conditions and the market for securities ofemerging market countries influence investors’ perceptions of Chile, Brazil andArgentina and their evaluation of companies’ securities located in thesecountries.

 

During periods of heightened investor concernregarding emerging market economies, Brazil and Argentina, in particular, haveexperienced significant outflows of U.S. dollars. In addition, Brazilian andArgentine companies have faced higher costs for raising funds, both domesticallyand abroad, as well as limited access to international capital markets, whichhave negatively affected the prices of Brazilian and Argentine securities.Although economic conditions are different in each of the emerging-marketcountries, investors’ reactions to developments in one of these countries mayaffect the securities of issuers in the others, including Chile. For example,adverse developments in other developing or emerging market countries may leadto decreased investor interest in investing in Chile or in the securities ofChilean companies, including securities of the Company.

 

***It may be difficult to enforce civilliabilities against us or our directors, executive officers or controllingpersons***

 

We are a *sociedadanónima*, or stock corporation, organized under the laws of Chile.Some of our directors, executive officers and controlling persons reside inChile or outside of the United States. In addition, all or a substantialportion of the assets of these persons and of our assets are located outside ofthe United States. As a result, it may not be possible for investors to effectservice of process within the United States upon such persons, or to enforceagainst them in U.S. courts judgments predicated upon civil liability provisionsof the federal securities laws of the United States or otherwise obtained inU.S. courts. Because our assets are located outside of the United States, anyjudgment obtained in the United States against us may not be fully collectiblein the United States.

 

***If we experiencestrikes, work stoppages or labor unrest, our business would suffer.***

 

Strikes, work stoppages or other forms of laborunrest at any of our production facilities could impair our ability to supplyproducts to customers, which would reduce our revenues and could expose us tocustomer claims.

 

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** **

**Risks Relating to Chile**

 

***Our growth and profitability dependon economic conditions in Chile***

 

Approximately 49% of our assets and 38% of our netsales in 2007 were derived from our operations in Chile. Thus, our financialcondition and results of operations depend significantly on economic conditionsprevailing in Chile. According to data published by the Central Bank, theChilean economy grew at a rate of 3.8% in 2003, 6.0%, in 2004, 5.7% in 20054.0% in 2006 and 5.3% in 2007. Our financial condition and results ofoperations could also be adversely affected by changes over which we have nocontrol, including, without limitation:

 

·                          the economic or other policies of the Chileangovernment, which has a substantial influence over many aspects of the private sector;

·                          other political or economic developments inor affecting Chile;

·                          regulatory changes or administrativepractices of Chilean authorities;

·                          inflation and governmental policies to combatinflation;

·                          currency exchange movements; and

·                          global and regional economic conditions.

 

***Inflation in Chile may disrupt ourbusiness and have an adverse effect on our financial condition and results ofoperations***

 

Chile experienced high rates of inflation in thepast, and although they had moderated in recent years, there was a sharpincrease in 2008.  The annual rates ofinflation (as measured by changes in the consumer price index and as reportedby the Chilean National Institute of Statistics) in 2005, 2006, and 2007 were 3.7%,2.6% and 7.8%, respectively.   Highlevels of inflation in Chile could adversely affect the Chilean economy andhave a material adverse effect on our financial condition and results ofoperations. We cannot assure you that Chilean inflation will not continue toincrease significantly. We cannot assure you that, under competitive pressure,we will be able to realize price increases, which could adversely impact ourfinancial condition and results of operations.

 

***The Chilean peso is subject todepreciation and volatility which could adversely affect the value of aninvestment in our securities***

 

The Chilean government’s economic policies and anyfuture changes in the value of the Chilean peso against the U.S. dollar, couldadversely affect our operations and financial results and the dollar value ofan investor’s return on an investment in our securities. The Chilean peso hasbeen subject to large nominal devaluations in the past and may be subject tosignificant fluctuations in the future. Based on the Observed Exchange Ratesfor U.S. dollars in the period from December 31, 1997 to December 31,2002 the value of the Chilean peso relative to the U.S. dollar decreasedapproximately 38.9% in nominal terms (without adjusting for inflation) anddecreased 27.8% in real terms (adjusting for inflation), in the period from December 31,2002 to December 31, 2007, the value of the Chilean peso relative to theU.S. dollar appreciated 30.9% in nominal terms (without adjusting forinflation) and appreciated 49.5% in real terms (adjusting for inflation).During 2007 the value of the Chilean peso relative to the U.S. dollarappreciated 6.7% in nominal terms (without adjusting for inflation) andappreciated 14.5% in real terms (adjusted for inflation). See “—Exchange Rates.”

 

Our Class A shares and Class B shares aretraded in Chilean pesos on the Chilean Stock Exchanges. Cash distributions withrespect to the shares will be received in Chilean pesos by the depositary,currently The Bank of New York Mellon Corporation or the depositary (asdepositary for the Series A and Series B shares represented by the Series Aand Series B ADSs), which will convert such Chilean pesos to U.S. dollarsat the then prevailing exchange rate to make U.S. dollar payments in respect ofthe ADSs. If the value of the Chilean peso depreciates relative to the U.S.dollar, the value of the ADSs and any distributions to be received from thedepositary would be adversely affected. In addition, the depositary will incurcosts (to be ultimately borne by the holders of the ADSs) in connection with theforeign currency conversion and subsequent distribution of dividends or otherpayments with respect to our ADRs.

 

***Exchange controls and withholdingtaxes in Chile may limit repatriation of your investment***

 

Equity investments in Chile by persons who are notChilean residents are generally subject to various exchange control regulationsthat govern the repatriation of the investments and earnings. The ADSs aregoverned by an Agreement among us, the depositary and the Central Bank of Chile(the “Foreign Investment Agreement”). The Foreign Investment Agreement grantsthe depositary and the holders of the ADRs access to Chile’s Formal ExchangeMarket, permits the depositary to remit dividends it receives from us to theholders of ADSs and permits the holders of ADSs to repatriate the proceeds ofthe sale of 

 

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shareswithdrawn from the ADR facility, thereby enabling them to acquire on morefavorable terms currencies necessary to repatriate investments in the sharesand earnings therefrom.  Pursuant tocurrent Chilean law, the Foreign Investment Agreement may not be amendedunilaterally by the Central Bank of Chile, and there are judicial precedents(which are not binding with respect to future judicial decisions) indicatingthat the Foreign Investment Agreement may not be voided by future legislativechanges.

 

Dividends received by holders of ADSs are paid netof foreign currency exchange fees and expenses of the depositary and aresubject to Chilean withholding tax, currently imposed at a rate of 35%, subjectto credits in certain cases as described under “Item 10. AdditionalConsiderations —Tax Considerations Relating to Equity Securities”.

 

In order to facilitate capital movements from andinto Chile and to encourage foreign investment, the Central Bank eliminatedforeign exchange restrictions and adopted the *Compendiode Normas de Cambios Internacionales* (“Compendium of ForeignExchange Regulations”) effective April 19, 2001.

 

We cannot assure you that additional Chileanrestrictions applicable to the holders of ADRs, the disposition of the sharesunderlying the ADRs or the repatriation of the proceeds from such dispositionor the payment of dividends will not be imposed in the future, nor can weadvise as to the duration or impact of such restrictions if imposed. If for anyreason, including changes in the Foreign Investment Agreement or Chilean law,the depositary was able to convert Chilean pesos to U.S. dollars, investorswould receive dividends or other distributions, if any, in Chilean pesos.

 

**Risks Relating to Brazil**

 

***The Brazilian government hasexercised and continues to exercise influence over the Brazilian economy, whichtogether with historically volatile Brazilian political and economicconditions, could adversely affect our financial condition and results ofoperations and the market price of our shares and ADSs***

 

Approximately 36% of our assets and 42% of ourconsolidated net sales in 2007 were derived from our operations in Brazil.Because demand for soft drinks and beverage products is usually correlated toeconomic conditions prevailing in the relevant local market, which in turn isdependent on the macroeconomic condition of the country in which the market islocated, our financial condition and results of operations to a considerableextent are dependent upon political and economic conditions prevailing inBrazil.

 

Historically, the Brazilian government has changedmonetary, credit, tariff, and other policies to influence the course of Brazil’seconomy. Such government actions have included wage and price controls as wellas other measures such as freezing bank accounts, imposing exchange controlsand imposing limits on imports and exports. Changes in policy and otherpolitical and economic developments could adversely affect the Brazilianeconomy and have a material adverse effect on our business, financial conditionand results of operations.

 

Brazil’s current President, Luiz Inácio Lula daSilva, was elected in October 2002 and took office on January 1,2003. During 2006 he was reelected and will continue in office until the end of2010. In the period leading up to and following President Lula’s election,there was substantial uncertainty regarding the policies the new governmentwould pursue, including the potential implementation of macroeconomic policiesthat could have differed significantly from those of the prior administration.The level of confidence in the Brazilian economy has improved consistentlyresulting in an 11.8%, 8.7% and 17.2% appreciation in the value of the realagainst the U.S. dollar during 2005, 2006 and 2007 respectively. We cannotassure you that current economic conditions and policies intended to promotecontinued economic development will continue. We cannot predict what effect thepolicies of President Lula’s administration will have on Brazilian economicconditions or on our financial condition or results of operations.

 

***Although inflation in Brazil hasstabilized in recent years, increased inflation may adversely affect theoperations of Refrescos which could adversely impact our financial conditionand results of operations***

 

Asmeasured by the Brazilian *ÍndiceNacional de Preços ao Consumidor* or INPC, inflation in Brazil was5.1%, 2.8% and 5.2%  in 2005, 2006 and2007, respectively. Inflation, governmental efforts to control it and publicspeculation about future governmental actions, have had a significant impactover the Brazilian economy and the Company’s operations in Brazil and maycontinue to do so.  High inflation ratesin the past have resulted in lower consumer purchasing power on behalf ofconsumers and lower sales volume for Refrescos.

 

We cannot assure you that levels of inflation inBrazil will not increase in future years and have a material adverse effect onour business, financial condition or results of operations. Inflationarypressures may lead to further government intervention 

 

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in the economy, including the introduction ofgovernment policies that could adversely affect the results of operations ofRefrescos and consequently our financial condition and results of operationsand the market price of our shares and ADSs.

 

***The Brazilian real is subject todepreciation and volatility which could adversely affect our financialcondition and results of operations***

 

During 2006 and 2007, the *real*appreciated 8.7% and 17.2%, respectively against the U.S. dollar compared tothe prior year period. Currently, there is a high volume of dollar reserves anda favorable trade balance, but there can be no assurance that the *real*will not again be devalued relative to the U.S. dollar,or that the *real*will not fluctuate significantlyrelative to the U.S. dollar. In the event of a devaluation of the real, thefinancial condition and results of operations of our Brazilian subsidiary couldbe adversely affected.

 

Depreciation of the *real*relative to the U.S. dollar may increase the cost of servicing foreigncurrency-denominated debt that we may incur in the future, which couldadversely affect our results of operations and financial condition. Inaddition, depreciation of the *real*can create  inflationary pressures in Brazil that maynegatively affect our results of operations. Depreciation generally curtailsaccess to international capital markets and may prompt recessionary governmentintervention. It also reduces the U.S. dollar value of our revenues,distributions and dividends, and the U.S. dollar equivalent of the market priceof our common shares. On the other hand, the appreciation of the real againstthe U.S. dollar may lead to the deterioration of Brazil’s public accounts andbalance of payments, as well as to lower economic growth from exports.

 

***The Brazilian government imposescertain restrictions on currency conversions and remittances abroad which couldaffect the timing and amount of any dividend or other payment we receive***

 

Brazilian law guarantees foreign shareholders ofBrazilian companies the right to repatriate their invested capital and toreceive all dividends in foreign currency provided that their investment isregistered with the *Banco Central do Brazil*,which we refer to as the Brazilian Central Bank. We registered our investmentin Refrescos with the Brazilian Central Bank on October 19, 1995. Althoughdividend payments related to profits obtained subsequent to January 1,1996 are not subject to income tax, after the sum of repatriated capital andinvested capital exceeds the investment amount registered with the BrazilianCentral Bank, repatriated capital is subject to a capital gains tax of 15%.Under current Chilean tax law, we will realize a tax credit in respect of allBrazilian taxes paid relating to Refrescos. There can be no assurance that theBrazilian government will not impose additional restrictions or modify existingregulations that would have an adverse effect on an investor’s ability torepatriate funds from Brazil nor can there be any assurance of the timing orduration of such restrictions, if imposed in the future.

 

**Risks Relating to Argentina**

 

***Our business is dependent to someextent on economic conditions in Argentina***

 

Approximately 15% of our assets and 20% of our netsales in 2007 were derived from our operations in Argentina. Because demand forsoft drinks and beverage products usually is correlated to economic conditionsprevailing in the local market, which in turn is dependent on the macroeconomiccondition of the country in which the market is located, the financialcondition and results of operations of our franchise in Argentina are, to aconsiderable extent, dependent upon political and economic conditionsprevailing in Argentina. In 2007, the Argentine economy continued recoveringfollowing the acute economic crisis that prevailed from 1998 through 2003,recording  positive GDP growth, stabilityin its fiscal accounts, and growth in exports. The Argentine crisis had amaterial adverse effect on our operations in Argentina. Notwithstanding thepositive economic results recorded from 2003 until 2007, we cannot assure youthat economic conditions will continue to improve or that our operations inArgentina will continue to experience improved results.

 

***Political and economic instabilitymay recur which could have a material adverse effect on our Argentineoperations and on our financial condition and results of operations.***

 

In the period from 1998 through 2003, Argentinaexperienced acute economic problems that culminated with the restructuring ofsubstantially all of Argentina’s sovereign bond indebtedness. A succession ofpresidents were inaugurated during this crisis period and various states ofemergency were declared that suspended civil liberties and institutedrestrictions on transfers of funds abroad and foreign exchange controls, amongother measures. Argentina’s GDP contracted by 10.9% in2002. Beginning in 2003,Argentine GDP began to recover and from 2004 to 2006 recorded an average rateof growth of 9%.  GDP growth for the year2007 is estimated at 8.4%.

 

The macroeconomic condition in Argentina has beencharacterized by:

 

·                          increased inflation which has been slightlycontrolled by price control;

 

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·                          high nominal exchange rate;

·                          primary fiscal surplus and commercialsurplus, with a decreasing tendency;

·                          negative real interest rates; and

·                          expansive monetary policy.

 

The Argentine economy reached its fifth year ofstrong growth in 2007, resulting in a cumulative 52% increase in GDP comparedto 2002.

 

The exchange rate was stable during 2007, withvariations of 2.6% and official inflation was 8.5% .  As of December 31, 2007, the exchangerate was AR$3.15 per U.S. dollar compared to AR$3.06 per U.S. dollar as of December 31,2006. The employment situation continued improving as the unemployment ratereached 7.3% during 2007, reflecting a decrease from the 9.8% achieved during2006.

 

There were presidential elections during October of2007 where the majority vote was achieved by Senator Cristina Fernandez deKirchner; wife of the president at the moment. Opposition was seen significantlydisintegrated, thus facilitating the victory during the first round. Mrs. Kirchner’sactions in the first months of her administration indicate she will continuethe economic policies followed by the previous president.

 

Despite the marked improvement of the Argentineeconomy in the 2003-2007 period, the current administration still has toaddress many of the same structural problems that have contributed to Argentina’spast political crises. A number of unpopular decisions may be necessary to addressthese problems, which may or may not affect popular support for current andfuture presidential administrations and political stability in Argentina.Congress may oppose the administration’s proposals.  Unstable economic conditions have had, andcould have, a material adverse effect on our financial condition and results ofoperation.

 

The Argentine government may again be faced with thepossibility of default on its issued bonds if economic recovery abates and anew economic crisis emerges which could again have a material adverse effect onour results of operation and prospects.

 

The Argentine government continues to facesignificant exposure to litigation from holders of its defaulted debt that didnot participate in the Argentine government’s exchange offer. At present, thereare legal proceedings against the Argentine government in the United States,Italy and Germany. Although it is impossible to predict the outcome of theseproceedings will be, a judgment against the Argentine government in such casescould result in a reduction in funding sources and investment capital, whichcould have a significant effect on the Argentine government’s capacity toimplement reforms and reinstate sustainable economic growth, all of which couldadversely affect our results of operations.

 

***The Argentine government imposescertain restrictions on currency conversions and remittances abroad which couldaffect the timing and amount of any dividends or other payment we receive fromour Argentine franchise***

 

Until December 2001, theArgentine peso was pegged 1-to-1 to the U.S. dollar. From January 1st, 2002,the Argentine peso has been allowed to float freely against the U.S. dollar andother foreign currencies.

 

Since 2003 and following a series of restrictivemeasures in the money market and fund movements, the Argentine Central Bankremoved several of the foreign exchange restrictions, including elimination ofthe requirement that the Argentine Central Bank approve the repayment ofprincipal of financial indebtedness, extended the term for the repatriation ofexport proceeds, allowed earlier payments of imports, and as beginning 2004,increased up to US$2 million, the monthly amount that Argentine-domiciledindividuals or corporations are allowed to purchase and transfer abroad.

 

There can be no assurance that the Argentine CentralBank will not once again require its prior authorization for the transfer offunds abroad in the form of dividends or payment of inter-company or thirdparty loans. Any such inability to transfer funds outside of Argentina, in theform of dividends or otherwise, could adversely affect the value of ourArgentine operations and the market value of our ADSs.

 

***Inflation in Argentina may adverselyaffect our operations which could adversely impact our financial condition andresults of operations***

 

Argentina has experienced high levels of inflationin recent decades, resulting in large devaluations of its currency. Argentina’shistorically high rates of inflation resulted mainly from its lack of control overfiscal policy and the money supply. The official annual rates of inflation(published by INDEC-Instituto Nacional de Estadisticas y Censos- National 

 

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Statisticsand Census Institute as measured by changes in the consumer price index)in2003, 2004, 2005, 2006 and 2007 were 3.7%, 6.1%, 12.3%, 9.8% and 8.5,respectively. High levels of inflation in Argentina could adversely affect theArgentine economy and have a material adverse effect on our financial conditionand results of operations.

 

***The Argentine peso is subject todepreciation and volatility which could adversely affect our financialcondition and results of operations***

 

The Argentine government’s economic policies and anyfuture devaluation of the Argentine peso against the U.S. dollar couldadversely affect our financial condition and results of operations. TheArgentine peso has been subject to large devaluations in the past and may besubject to significant fluctuations in the future.

 

The Public Emergency Law and Foreign Exchange RegimeReform Law of 2002 put an end to more than ten years of U.S. dollar-peso parityand authorized the Argentine government to set the exchange rate. Subsequent tothe devaluation of the Argentine peso in early 2002 and since the beginning ofthe Argentine economic crisis, there have been significant fluctuations in thevalue of the Argentine peso causing repeated Argentine Central Bankinterventions to stabilize the Argentine peso through purchases and sales ofU.S. dollars said devaluation of the Argentine peso has had a negative impacton our results.

 

We cannot assure you that the policies to beimplemented by the Argentine government in the future will stabilize the valueof the Argentine peso against foreign currencies. Therefore, the Argentine pesomay continue to be subject to significant fluctuations and furtherdepreciations which might significantly and adversely affect our financialcondition and the results of our operations.

 

***Argentina continues to face politicaland economic uncertainty***

 

Although general economic conditions have improvedrecently, the rapid and radical nature of the changes in the Argentine social,political, economic and legal environment over the past years and the absenceof a clear political consensus in favor of any particular set of economicpolicies raises doubts about Argentina’s economic and political future. It ispossible that, despite recent economic growth, Argentina could return to adeeper recession, higher inflation and unemployment and greater social unrest.We cannot assure you that laws and regulations implemented by the Argentinegovernment to regulate the economy will not continue to change in the future orthat any changes will not adversely affect our business, financial condition orresults of operations.

 

***Risk Factors Relating to the ADSsand the Shares***

 

***Preemptive rights may be unavailableto holders of our ADSs***

 

According to the *Leyde Sociedades Anónimas* No. 18.046 and the *Reglamento de Sociedades Anónimas* (collectively,the “Chilean Companies Law”), whenever we issue new shares for cash, we arerequired to grant preemptive rights to holders of our shares (including sharesrepresented by ADSs), giving them the right to purchase a sufficient number ofshares to maintain their existing ownership percentage. However, we may not beable to offer shares to United States holders of ADSs pursuant to preemptiverights granted to our shareholders in connection with any future issuance ofshares unless a registration statement under the U.S. Securities Act of 1933,as amended, is effective with respect to such rights and shares, or anexemption from the registration requirements of the U.S. Securities Act of1933, as amended, is available.

 

Under the procedure established by the Central Bankof Chile, the foreign investment agreement of a Chilean company with anexisting ADR program will become subject to an amendment (which will also bedeemed to incorporate all laws and regulations applicable to internationalofferings in effect as of the date of the amendment) that will extend thebenefits of such contract to new shares issued pursuant to a preemptive rightsoffering to existing ADS owners and to other persons residing and domiciledoutside of Chile that exercise preemptive rights, upon request to the CentralBank of Chile. We intend to evaluate at the time of any rights offering thecosts and potential liabilities associated with any such registration statementas well as the indirect benefits to us of enabling United States holders ofADSs to exercise preemptive rights and any other factors that we considerappropriate at the time, and then make a decision as to whether to file suchregistration statement.

 

We cannot assure you that any registration statementwould be filed. To the extent holders of ADSs are unable to exercise suchrights because a registration statement has not been filed, the depositary willattempt to sell such holders’ preemptive rights and distribute the net proceedsthereof if a secondary market for such rights exists and a premium can berecognized over the cost of any such sale. If such rights cannot be sold, theywill expire and holders of ADSs will not realize any value from the grant ofsuch preemptive rights. In any such case, such holder’s equity interest in theCompany would be diluted proportionately.

 

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***Shareholders’ rights are less welldefined in Chile than in other jurisdictions, including the United States***

 

Under the United States federal securities laws, asa foreign private issuer, we are exempt from certain rules that apply todomestic United States issuers with equity securities registered under theUnited States Securities Exchange Act of 1934, as amended, including the proxysolicitation rules, the rules requiring disclosure of share ownership bydirectors, officers and certain shareholders. We are also exempt from certainof the corporate governance requirements of the Sarbanes-Oxley Act of 2002 andthe New York Stock Exchange, Inc., including the requirements concerningindependent directors.

 

Our corporate affairs are governed by the laws ofChile and our *estatutos* orbylaws, which function not only as our bylaws but also as our articles ofincorporation. Under such laws, our shareholders may have fewer or lesswell-defined rights than they might have as shareholders of a corporationincorporated in a U.S. jurisdiction.

 

Pursuant to Law No. 19,705, enacted in December 2000,the controlling shareholders of an open stock corporation can only sell theircontrolling shares via a tender offer issued to all shareholders in which thebidder would have to buy all the offered shares up to the percentage determinedby it, when the price paid is substantially higher than the market price (thatis, when the price paid was higher than the average market price of a periodstarting 90 days before the proposed transaction and ending 30 days before suchproposed transaction, plus 10%).

 

***The market for our shares may bevolatile and illiquid***

 

The Chilean securities markets are substantiallysmaller, less liquid and more volatile than major securities markets in theUnited States. The *Bolsa de Comercio deSantiago* (the “Santiago Stock Exchange”), which is Chile’s principalsecurities exchange, had a market capitalization of approximately US$213,364million at December 31, 2007 and an average monthly trading volume ofapproximately US$4,363 million for 2007. The lack of liquidity owing, in part,to the relatively small size of the Chilean securities markets may have amaterial adverse effect on the trading prices of our shares. Because the marketfor our ADSs depends, in part, on investors’ perception of the value of ourunderlying shares, this lack of liquidity for our shares in Chile may have asignificant effect on the trading prices of our ADSs.

 

**ITEM 4.****                             ****INFORMATION ON THE COMPANY**

 

**A.****                    ****History and development of the Company**

 

Our legal name is Embotelladora Andina S.A. and ourcommercial name for advertising and publicity purposes is Andina. We wereincorporated and organized on February 7, 1946 under the Chilean CompaniesLaw as a *sociedad anónima* (stockcorporation). An abstract of our bylaws is registered with the *Registro de Comercio de Santiago* (PublicRegistry of Commerce of the City of Santiago) under No. 581 on page 768of the year 1946. Pursuant to our bylaws, our term of duration is indefinite.

 

Our shares of common stock are listed and traded onthe Santiago Stock Exchange and also traded on the *Bolsa de Comercio de Valparaiso* (the Valparaiso Stock Exchange)and *Bolsa Electrónica de Chile*(theChilean Electronic Stock Exchange)*.*OurSeries A and Series B ADSs representing our Series A and Series Bshares, respectively, are listed on the New York Stock Exchange. Our principalexecutive offices are located at Avenida El Golf 40, Piso 4, Las Condes,Santiago, Chile. Our telephone number is+56-2-338-0520 and our website is www.koandina.com.

 

Our depositary agent for the ADSs in the UnitedStates is The Bank of New York Mellon Corporation, located at One Wall Street,New York, New York 10286. Our depositary agent’s telephone number is(212) 815-2296. Our authorized representative in the United States isPuglisi & Associates, located at 850 Library Avenue, Suite 204,Newark, Delaware 19711, United States and their phone number is(302) 738-6680.

 

**History**

 

In 1941, The Coca-Cola Company licensed a privateChilean company to produce coca-cola soft drinks in Chile, and production beganin 1943. In 1946, the original licensee withdrew from the license arrangement,and a group of U.S. and Chilean investors formed Andina, which became TheCoca-Cola Company’s sole licensee in Chile. Between 1946 and the early 1980s,Andina developed the Chilean market for Coca-Cola soft drinks with a system ofproduction and distribution facilities covering the central and southernregions of Chile. In the early 1980s, Andina sold its Coca-Cola licenses formost areas outside the Santiago metropolitan region and concentrated on thedevelopment of its soft drink business in the Santiago area. Although no longerthe sole Coca-Cola bottler in Chile, Andina has been the principal manufacturerof Coca-Cola products in Chile for an uninterrupted period of 62 years.

 

11

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In 1985, a majority of Andina’s shares was acquiredby Inversiones Freire Ltda. and certain related persons. On December 31,2007, Freire and entities controlled by Freire owned approximately 52.6% of ouroutstanding Series A shares, which have preferred voting rights andthereby control the Company.

 

Refrescos, our Brazilian subsidiary, beganproduction and distribution of Coca-Cola soft drinks in Rio de Janeiro in 1942.In June 1994, we acquired 100% of the capital stock of Refrescos forapproximately US$120 million and contributed an additional US$31 million toRefrescos’ capital immediately after the acquisition to repay certainindebtedness of Refrescos.   In 2000, wepurchased through Refrescos, from the Coffin Group, a Coca-Cola franchiselicense for a territory in Brazil comprising the State of Espirito Santo andpart of the States of Rio de Janeiro and Minas Gerais (NVG), for US$74.5million. NVG was merged into Refrescos in 2000, and its operations wereintegrated with Refrescos in 2001.   In2004, Refrescos entered into a franchise swap agreement with the Braziliansubsidiary of The Coca-Cola Company, Recofarma Indústria do Amazonas Ltda., for(1) an exchange of franchising rights, goods and other assets of Refrescosin the territory of Governador Valadares in the State of Minas Gerais, and (2) otherfranchise rights of The Coca-Cola Company in the territories of Nova Iguaçú inthe state of Rio de Janeiro, which was previously owned by Companhia Mineira deRefrescos S.A.

 

Production of Coca-Cola soft drinks in the Argentineterritory began in 1943 with the start-up of operations in the province ofCórdoba, Argentina, through Inti S.A.I.C., which we refer to as Inti. In July 1995,we (through Inversiones del Atlántico S.A., an investment company incorporatedin Argentina), which we refer to as IASA, acquired a 59% interest in Edasa, theparent company of Rosario Refrescos S.A. and Mendoza Refrescos S.A. Theseentities were subsequently merged to create Rosario Mendoza Refrescos S.A.,which we refer to as Romesa. In 1996 we acquired an additional 35.9% interestin Edasa, an additional 78.7% interest in Inti, a 100% interest in Cipetlocated in Buenos Aires (a PET plastic bottle and packaging business) and a15.2% interest in Cican S.A.. Edasa is the Coca-Cola bottler in the provincesof Entre Rios, San Luis, San Juan, Mendoza, part of Santa Fe and part of BuenosAires (San Nicolás y Ramallo). During 1997, the operations of Romesa weremerged into Inti. In 1999, Edasa was merged into IASA. In 2000, IASA was mergedinto Inti, which in turn changed its corporate name to Embotelladora delAtlántico S.A. (EDASA). In 2002 Cipet merged into Edasa. During 2007 EDASA’sownership interest in Cican S.A. was sold to Femsa for a total amount ofCh$679,501 thousand (US$1.4 million), this sale resulted in a loss of Ch$86,549thousand.

 

In  1998,Andina repurchased from The Coca-Cola Company its 49% stake in Vital.Concurrently with that transaction, The Coca-Cola Company purchased Vital’smineral water springs located at Chanqueahue, 80 miles south of Santiago. Aspart of the transaction, the Vital bottler agreement was replaced with a juicebottler agreement with Minute Maid International Inc., as well as a new mineralwater bottling agreement with The Coca-Cola Company. In addition, the 1995shareholders’ agreement between us and The Coca-Cola Company regardingownership of Vital was terminated. The restructuring of the water and juicebusiness in Chile enhanced our focus on the production of soft drinks, waterand juice.  During 2005, the productionand packaging business of water, juice and non-carbonated beverages licensed byThe Coca-Cola Company in Chile was restructured. Vital Aguas S.A., which werefer to as VASA, was created to develop the production and packagingbusinesses of Vital de Chanqueahue, mineral water and other waterproducts.   VASA is focused on developingjuice and non-carbonated beverages. Andina, Embonor S.A. and Embotelladora Coca-Cola Polar S.A. own 56.5%,26.4% and 17.1%, respectively, of the outstanding capital of VASA.

 

*Cristalerías Joint Venture*.  In2001, we and Cristalerías de Chile S.A. formed 50/50 joint venture (Envases CMFS.A.) in order to develop the PET production in Chile Cristalerías de ChileS.A.

 

* Reclassification of Capital Stock*. In 1996, our shareholders approved thereclassification, which we refer to as the Reclassification, of Andina’s commonstock into two new series of shares. Pursuant to the Reclassification, eachoutstanding share of Andina’s common stock was replaced by one newly issued Series Ashare and one newly issued Series B share, which we refer to as the Series Ashares and the Series B shares, respectively. The Series A and Series Bshares are principally differentiated by their voting and economic rights: theholders of the Series A shares have full voting power and are entitled toelect six of seven regular and alternate members of the board of directors, andthe holders of the Series B shares have no voting rights but for the rightto elect one regular and one alternate member of the board of directors. Inaddition, holders of Series B shares are entitled to a dividend 10%greater than any dividend on Series A shares.

 

In 1996, the Superintendency of Pension FundManagers (*Superintendencia deAdministradores de Fondos de Pensiones*) decreed that Chilean pensionfunds would not be permitted to acquire Series B Shares due to theirlimited voting rights. Later, during 2004, the Superinentendency approved Series Bshares as investment instruments for Chilean Pension funds. Series A shareshave always been eligible as investment instruments.

 

12

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**Capital Expenditures**

 

The following table sets forth our capitalexpenditures by territory and line of business for the periods indicated:

 
| ** **                       | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|
| ** **                       | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                       | ** ** | **MCh$**                                   | ** ** | **MCh$** | ** ** | **MCh$** | ** ** |
| **Soft  Drinks:**                |       |                                       |       |   |   |   |   |
| Chilean  territory               |       | 33,772                                     |       | 16,075 |   | 15,526 |   |
| Brazilian  territory             |       | 15,507                                     |       | 15,697 |   | 8,268 |   |
| Argentine  territory             |       | 4,601                                      |       | 5,840 |   | 5,201 |   |
| **Other  Beverages:**            |       |                                       |       |   |   |   |   |
| Vital S.A. and  Vital Aguas S.A. |       | 1,569                                      |       | 1,797 |   | 730 |   |
| **PET  Packaging:**              |       |                                       |       |   |   |   |   |
| Argentine  territory             |       | 575                                        |       | 334 |   | 315 |   |
| Total                            |       | 56,024                                     |       | 39,743 |   | 30,040 |   |

 

During 2007, the company disbursedapproximately Ch$4,748 million to improve its industrial process, industrialwaste metering equipment, barotary analices, environmental impact consultancyand other studies.

 

Our total capital expenditures were Ch$56,024million in 2007, Ch$39,743 million in 2006 and Ch$ 30,040 million in 2005. In2007, capital expenditures were principally related to the following:

 

**Soft drinks:**

 

***Chile***

 

·                  Returnable bottles (glass and PET bottles)and bottle cases;

·                  Cooling equipments, freezers, post mix andother point of sale equipments;

·                  New equipment to increase efficiency andproduction capacity; and

·                  Property and construction of two distributioncenters

 

***Brazil***

 

·                  Glass bottles and bottle cases;

·                  Coolers, freezers, post-mix and otherpoint-of-sale equipment;

·                  Building the new distribution center at theJacarepaguá plant (Rio de Janeiro); and

·                  Remodeling of the administrative offices atthe Jacarepaguá plant (Rio de Janeiro)

 

***Argentina***

 

·                  Bottles (glass and PET bottles) and bottlecases;

·                  New equipment to increase operatingefficiency; and

·                  Investments in coolers and freezers.

 

**Waters and Juices**

 

***Waters***

 

·                  Upgrade of the Carballo 62/14 filler;

·                  New formats for the BH labelling machine;

·                  Initial investment in blowing plant for PETbottles;

·                  Machinery and facilities associated to theProject for Benedictino purified water;

 

13

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·                  Extension of generator substation; and

·                  Increase capacity of materials’ warehouse.

 

***Juices***

 

·                  Increase capacity of Single block duplexcapping machine for glass bottle line;

·                  Increase production capacity of Juiceformulating room;

·                  Increase capacity of Crowning Machine glassbottles line;

·                  Increase useful life of central control panelof formulating room;

·                  Up grade plaques and packaging ofPasteurization machines;

·                  Up grade Krones tunnel PET bottles line;

·                  Automatize transportation of PET bottlesline; increase efficiency; and

·                  Pre-sealing applicator for glass bottlesline; increase production capacity.

 

**PET Packaging**

 

Investments in PET package facilities during 2007included ordinary course maintenance and investment designed to increaseefficiency and reliability.

 

In 2007, we invested approximately Ch$4,748 millionin improvements to industrial processes, industrial waste flow measurementequipment, laboratory analysis, environmental impact consulting services andother studies.

 

**Divestitures**

 

In November 2007, Edasa sold to Femsa for atotal amount of US$1.4 million, its 15.20% ownership interest in Cican S.A., anArgentine company dedicated to the canning of Coca-Cola products and thepackaging of Cepita juices.

 

During 2006, Refrescos sold the warehouse located inItambi, Rio de Janeiro, Brazil for a total amount of US$1.4 million.

 

**B.****                    ****Business Overview**

 

We are the largest producer of soft drinks in Chileand one of the largest soft drink producers in Brazil and Argentina. Ourprincipal business is the production and distribution of Coca-Cola soft drinks,which accounted for 87.8% of our consolidated net sales in 2007. ThroughAndina, we are the sole producer and distributor of Coca-Cola soft drinks inthe Chilean territory; through Refrescos, the sole producer and distributor ofCoca-Cola soft drinks in the Brazilian territory; and through Edasa, the soleproducer and distributor of Coca-Cola soft drinks in the Argentine territory.In 2007, we recorded consolidated net sales of Ch$559,300 million and total salesvolume of 402.4 million unit cases of Coca-Cola soft drinks.

 

In addition to the Coca-Cola soft drinks business,through Vital S.A., we produce and distribute fruit juices and otherfruit-flavored beverages in Chile under trademarks owned by The Coca-ColaCompany. Through Vital Aguas S.A., we produce and sell mineral water andpurified water in Chile under trademarks owned by The Coca-Cola Company.  Through Envases Central S.A. we produceflavored waters.  We also manufacture PETbottles primarily for our own use in the packaging of Coca-Cola soft drinks inChile and Argentina. In Brazil, we also distribute the beer brands Kaiser,Heineken, Bavaria, Xingú, Summer, Sol and Dos Equis (XX).

 

**Our Products**

 

We produce, market and distribute the followingCoca-Cola trademark beverages and brands licensed from third parties throughoutour Chilean, Brazilian and Argentine franchise territories:

 

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| ** **                             | ** ** | **Chile** | ** ** | **Brazil** | ** ** | **Argentina** | ** ** |
|----------------------------------------|------------|-----------|------------|------------|------------|---------------|------------|
| Andina                                 |       | x         | ** ** | ** ** | ** ** | ** **    | ** ** |
| Andina Frut                            |       | x         |       |       |       |          |       |
| Andina Hi-C                            |       | x         |       |       |       | x             |       |
| Andina Nectar                          |       | x         |       |       |       |          |       |
| Aquarius                               |       |      |       | x          |       |          |       |
| Aquarius Fresh                         |       |      |       | x          |       |          |       |
| Bavaria                                |       |      |       | x          |       |          |       |
| Bonaqua                                |       |      |       | x          |       |          |       |
| Burn                                   |       |      |       | x          |       |          |       |
| Cepita Manzana                         |       |      |       |       |       | x             |       |
| Cepita Multifruta                      |       |      |       |       |       | x             |       |
| Cepita Naranja                         |       |      |       |       |       | x             |       |
| Cepita Pomelo Rosado                   |       |      |       |       |       | x             |       |
| Cepita Saborizada Limonada             |       |      |       |       |       | x             |       |
| Cepita Saborizada Pomelo               |       |      |       |       |       | x             |       |
| Cepita Saborizada Pomelo Rosado        |       |      |       |       |       | x             |       |
| Coca-Cola                              |       | x         |       | x          |       | x             |       |
| Coca-Cola Light                        |       | x         |       | x          |       | x             |       |
| Coca-Cola Light Lemon                  |       |      |       | x          |       |          |       |
| Coca-Cola Zero                         |       | x         |       | x          |       | x             |       |
| Crush Lima-Limón                  |       |      |       |       |       | x             |       |
| Crush Naranja                          |       |      |       |       |       | x             |       |
| Dasani                                 |       | x         |       |       |       | x             |       |
| Dasani Active                          |       | x         |       |       |       |          |       |
| Dasani Balance                         |       | x         |       |       |       |          |       |
| Dasani Citrus                          |       | x         |       |       |       | x             |       |
| Dasani Durazno                         |       |      |       |       |       | x             |       |
| Dasani Limón                      |       |      |       |       |       | x             |       |
| Dasani Tangerine                       |       | x         |       |       |       |          |       |
| Dos Equis (XX)                         |       |      |       | x          |       |          |       |
| Fanta Exotica sabor frutos  tropicales |       | x         |       |       |       |          |       |
| Fanta Limón                       |       |      |       |       |       | x             |       |
| Fanta Mundo                            |       |      |       | x          |       |          |       |
| Fanta Naranja                          |       | x         |       | x          |       | x             |       |
| Fanta Naranja Light                    |       | x         |       | x          |       | x             |       |
| Fanta Uva                              |       |      |       | x          |       |          |       |
| Fanta Uva Light                        |       |      |       | x          |       |          |       |
| Guaraná Kuat                      |       |      |       | x          |       |          |       |
| Heineken                               |       |      |       | x          |       |          |       |
| Kaiser                                 |       |      |       | x          |       |          |       |
| Kapo                                   |       | x         |       | x          |       |          |       |
| Kapo chocolate (flavored milk)         |       |      |       | x          |       |          |       |
| Kuat com Laranja                       |       |      |       | x          |       |          |       |
| Kuat Zero                              |       |      |       | x          |       |          |       |
| Minute Maid Mais (in 14 flavors)       |       |      |       | x          |       |          |       |
| Nestea                                 |       | x         |       |       |       |          |       |
| Nestea Cha                             |       |      |       | x          |       |          |       |
| Nestea Cha Light                       |       |      |       | x          |       |          |       |
| Nestea Mate                            |       |      |       | x          |       |          |       |
| Nestea Mate Light                      |       |      |       | x          |       |          |       |
| Nordic Mist Ginger Ale                 |       | x         |       |       |       |          |       |
| Nordic Mist Tónica                |       | x         |       |       |       |          |       |
| Powerade                               |       | x         |       |       |       |          |       |
| Quatro Light                           |       | x         |       |       |       |          |       |

 

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| Quatro Pomelo               |   |   |   |   |   | x      |   |
|-----------------------------|--------|--------|--------|--------|--------|--------|--------|
| Schweppes Citrus            |   |   |   | x      |   | x      |   |
| Schweppes Citrus Light      |   |   |   | x      |   |   |   |
| Schweppes Club Soda         |   |   |   | x      |   |   |   |
| Schweppes Soda              |   |   |   | x      |   |   |   |
| Schweppes Tónica       |   |   |   | x      |   | x      |   |
| Schweppes Tónica Light |   |   |   | x      |   |   |   |
| Soda Kin                    |   |   |   |   |   | x      |   |
| Sol                         |   |   |   | x      |   |   |   |
| Sprite                      |   | x      |   | x      |   | x      |   |
| Sprite Zero                 |   | x      |   | x      |   | x      |   |
| Summer                      |   |   |   | x      |   |   |   |
| Super Kapo con Nurisha      |   | x      |   |   |   |   |   |
| Taí                    |   | x      |   |   |   |   |   |
| Vital                       |   | x      |   |   |   |   |   |
| Xingu                       |   |   |   | x      |   |   |   |

 

We produce, market and distribute Coca-Cola softdrinks in our franchise territories through standard bottler agreements betweenour bottler subsidiaries and the local subsidiary in each jurisdiction of TheCoca-Cola Company (collectively, the “Bottler Agreements”). We consider theenhancement of our relationship with The Coca-Cola Company an integral part ofour business strategy.

 

We seek to enhance our business throughout thefranchise territories by developing existing markets, penetrating other softdrink, waters and juices markets, forming strategic alliances with retailers toincrease consumer demand for our products, increasing productivity, and byfurther internationalizing our operations.

 

**1. Soft Drink Business**

 

**Sales Overview**

 

We measure sales volume in terms of unit cases,which we refer to as UCs. Unit cases contain 192 ounces of finished beverageproduct (24 eight-ounce servings) or 5.68 liters. The following tableillustrates our historical sales volumes for each of our territories:

 

**Soft DrinkSales Volumes**

 
| ** ** | ** ** | **Year ended December 31,** | ** ** |
|------------|------------|--------------------------------------------|------------|
| ** ** | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** ** | ** ** | **(millions of UCs)**            | ** ** |
| Chile      |       | 123.9                                      |       | 119.0 |   | 113.6 |   |
| Brazil     |       | 164.9                                      |       | 155.4 |   | 147.7 |   |
| Argentina  |       | 113.6                                      |       | 107.5 |   | 98.8 |   |

 

In 2007, our Coca-Cola soft drinks businessaccounted for net sales of Ch$559,300 million and operating income ofCh$107,001 million representing 87.8% and 92.6% of our consolidated net salesand operating income, respectively.

 

Our Chilean soft drink operations accounted for netsales in 2007 of Ch$202,820 million; the Brazilian soft drink operations fornet sales of Ch$242,793 million; and the Argentine soft drink operations fornet sales of Ch$113,687 million.

 

The following tables set forth, for the periodsindicated, our net sales and volume of Coca-Cola soft drinks sold in ourfranchise territories for the periods indicated.

 
| ** **           | ** ** | **Year ended December 31, 2007** | ** ** |
|----------------------|------------|------------------------------------------------------|------------|
| ** **           | ** ** | **Chile**                                            | ** ** | **Brazil** | ** ** | **Argentina** | ** ** |
| ** **           | ** ** | **MCh$**                                             | ** ** | **MUCs** | ** ** | **MCh$** | ** ** | **MUCs** | ** ** | **MCh$** | ** ** | **MUCs** | ** ** |
| Colas                |       | 165,227                                              |       | 102.0 |   | 197,256 |   | 134.5 |   | 83,868 |   | 85.2 |   |
| Flavored soft drinks |       | 37,593                                               |       | 21.9 |   | 45,537 |   | 30.4 |   | 29,819 |   | 28.4 |   |
| Total                |       | 202,820                                              |       | 123.9 |   | 242,793 |   | 164.9 |   | 113,687 |   | 113.6 |   |

 

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| ** **           | ** ** | **Year ended December 31, 2006** | ** ** |
|----------------------|------------|------------------------------------------------------|------------|
| ** **           | ** ** | **Chile**                                            | ** ** | **Brazil** | ** ** | **Argentina** | ** ** |
| ** **           | ** ** | **MCh$**                                             | ** ** | **MUCs** | ** ** | **MCh$** | ** ** | **MUCs** | ** ** | **MCh$** | ** ** | **MUCs** | ** ** |
| Colas                |       | 157,125                                              |       | 96.1 |   | 175,834 |   | 124.7 |   | 81,142 |   | 79.8 |   |
| Flavored soft drinks |       | 38,699                                               |       | 22.9 |   | 38,344 |   | 30.7 |   | 26,202 |   | 27.7 |   |
| Total                |       | 195,824                                              |       | 119.0 |   | 214,178 |   | 155.4 |   | 107,344 |   | 107.5 |   |
|                 |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| ** **           | ** ** | **Year ended December 31, 2005** | ** ** |
| ** **           | ** ** | **Chile**                                            | ** ** | **Brazil** | ** ** | **Argentina** | ** ** |
| ** **           | ** ** | **MCh$**                                             | ** ** | **MUCs** | ** ** | **MCh$** | ** ** | **MUCs** | ** ** | **MCh$** | ** ** | **MUCs** | ** ** |
| Colas                |       | 151,672                                              |       | 91.3 |   | 129,728 |   | 116.9 |   | 78,872 |   | 74.4 |   |
| Flavored soft drinks |       | 39,237                                               |       | 22.3 |   | 33,453 |   | 30.8 |   | 12,396 |   | 24.4 |   |
| Total                |       | 190,909                                              |       | 113.6 |   | 163,181 |   | 147.7 |   | 91,268 |   | 98.8 |   |

 

In Chile, Coca-Cola softdrinks are distributed in returnable and non-returnable glass and PET bottlesand aluminum cans of various sizes. It is also distributed as Post-mix syrup,which is mixed with carbonated water in a dispenser at the point of sale, instainless steel and bag-in-box containers. In Brazil, Coca-Cola soft drinks aredistributed in returnable and non-returnable glass, in PET bottles of varioussizes, in aluminum cans and also as post-mix syrup. In Argentina, Edasaproduces and distributes Coca-Cola soft drinks in returnable and non-returnableglass and PET bottles of various sizes, in aluminum cans and as post-mix syrup.  Regarding Juices, they are distributed innon-returnable glass and PET bottles, in bi-laminated sachettes, cardboardTetra Pack containers and bag-in-box as concentrated juice that is mixed withwater at the point of sale. Waters are distributed in returnable glass bottlesand non-returnable PET bottles.

 

The following table sets forth, for the periodsindicated, our sales of Coca-Cola soft drinks in Chile, Brazil and Argentina,by packaging type, measured as a percentage of total sales volume:

 

**Soft DrinkSales by Packaging Type**

 
| ** **     | ** ** | **Year Ended December 31,** | ** ** |
|----------------|------------|--------------------------------------------|------------|
| ** **     | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **     | ** ** | **Chile**                                  | ** ** | **Brazil** | ** ** | **Argentina** | ** ** | **Chile** | ** ** | **Brazil** | ** ** | **Argentina** | ** ** | **Chile** | ** ** | **Brazil** | ** ** | **Argentina** | ** ** |
| ** **     | ** ** | **% Total  Mix**                      | ** ** | **% Total  Mix** | ** ** | **% Total  Mix** | ** ** | **% Total  Mix** | ** ** | **% Total  Mix** | ** ** | **% Total  Mix** | ** ** | **% Total  Mix** | ** ** | **% Total  Mix** | ** ** | **% Total  Mix** | ** ** |
| Returnable     |       | 61.0                                       |       | 13.7 |   | 48.3 |   | 61.1 |   | 13.3 |   | 47.2 |   | 61.7 |   | 12.2 |   | 48.1 |   |
| Non-returnable |       | 34.9                                       |       | 83.5 |   | 51.0 |   | 34.9 |   | 84.0 |   | 52.0 |   | 34.1 |   | 85.0 |   | 51.0 |   |
| Post Mix       |       | 4.1                                        |       | 2.8 |   | 0.7 |   | 4.0 |   | 2.7 |   | 0.8 |   | 4.2 |   | 2.8 |   | 0.9 |   |
| Total          |       | 100.0                                      |       | 100.0 |   | 100.0 |   | 100.0 |   | 100.0 |   | 100.0 |   | 100.0 |   | 100.0 |   | 100.0 |   |

 

**Customers and Distribution**

 

As of December 31, 2007, we sold our productsto approximately 46,244 customers in Chile, 60,411 customers in Brazil, and46,214 customers in Argentina. Although the mix varies significantly among thefranchise territories, our distribution network generally relies on acombination of Company-owned trucks and independent distributors in eachterritory.

 

The following table sets forth, for the periodsindicated, our sales of Coca-Cola soft drinks in Chile, Brazil and Argentina,by type of customer, measured as a percentage of total sales volume:

 

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**Soft DrinkSales by Type of Customer**

 
| ** **                                                 | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                 | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                 | ** ** | **Chile**                                  | ** ** | **Brazil** | ** ** | **Argentina** | ** ** | **Chile** | ** ** | **Brazil** | ** ** | **Argentina** | ** ** | **Chile** | ** ** | **Brazil** | ** ** | **Argentina** | ** ** |
| ** **                                                 | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **(%)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Small- and  medium-sized retail establishments for takeout |       | 49                                         |       | 26 |   | 37 |   | 46 |   | 27 |   | 19 |   | 46 |   | 22 |   | 17 |   |
| Wholesale  distributors                                    |       | 9                                          |       | 20 |   | 29 |   | 8 |   | 21 |   | 30 |   | 7 |   | 23 |   | 30 |   |
| Supermarkets                                               |       | 23                                         |       | 28 |   | 15 |   | 23 |   | 28 |   | 15 |   | 25 |   | 31 |   | 15 |   |
| Restaurants,  hotels and bars                              |       | 6                                          |       | 20 |   | 3 |   | 6 |   | 19 |   | 4 |   | 6 |   | 19 |   | 4 |   |
| Fast food  outlets                                         |       | 3                                          |       | 2 |   | 1 |   | 3 |   | 2 |   | 1 |   | 3 |   | 2 |   | 1 |   |
| Convenience  stores                                        |       | 9                                          |       | 1 |   | 12 |   | 9 |   | 1 |   | 29 |   | 7 |   | 1 |   | 31 |   |
| Others                                                     |       | 1                                          |       | 3 |   | 3 |   | 5 |   | 2 |   | 2 |   | 6 |   | 2 |   | 2 |   |
| Total                                                      |       | 100                                        |       | 100 |   | 100 |   | 100 |   | 100 |   | 100 |   | 100 |   | 100 |   | 100 |   |

 

*Chile*. As of December 31, 2007, Andina’ssales force in Chile consisted of 198 salespeople (135 full time and 63 parttime) who call on most customers on average 1.8 times per week. For sales tomajor supermarkets, we employ approximately 6 key account managers, 13 fieldsupervisors and 477 promoters (433 full time and 44 part time) who are on-sitesupervisors who handle our products, monitor displays and track the pricing andmarketing strategies of our competitors. Account executives are also assignedto major fast food outlets to work with the customer to develop sales on aconsistent basis. Our distribution system for our soft drink products consistedof a group of 18 exclusive distributors, which are independent businesses thatcollectively deploy approximately 350 trucks, depending on seasonal demand. Weown an additional 26 trucks. The 18 distributors collectively service all ofour Chilean customers. In most cases, the distributor collects payment from thecustomer in cash or check. Where applicable, the driver also either collectsempty returnable glass or PET bottles of the same type and quantity as thebottles being delivered, or collects cash deposits for the net returnablebottles delivered. This task is particularly significant in the Chileanterritory where returnable containers accounted for approximately 61% of totalunit cases of soft drinks sold in 2007. Certain important customers (such assupermarkets), maintain accounts receivables with us, which are settled onaverage every 46 days after invoices are issued. On average, accountsreceivable from all clients are liquidated on a 22-day term.

 

*Brazil*. As of December 31, 2007, Refrescos’sales force in Brazil consisted of an average of 398 salespeople, divided intothree major groups responsible for: (i) sales to key accounts and fastfood chains (who purchase soft drinks in post-mix dispensers, in cans andbottles), (ii) sales to supermarkets (consisting of bottle and can sales)and (iii) all other traditional customers. Each of these three groups alsomanages sales of the other beverages (beer, water, juice, energy drinks andiced tea) distributed by Refrescos. In Brazil, we generally distributeCoca-Cola soft drinks through a distribution system that includes: (i) trucksoperated by independent distributors pursuant to exclusive distributionarrangements with us and (ii) trucks operated by independent transportcompanies on a non-exclusive basis. In 2007, 10.4% were distributed byexclusive distributors, and 89.6% by independent transport companies.Distribution of Refrescos’ beverages (including soft drinks, beer, bottledwater, energy drinks and iced tea) takes place from distribution centers andproduction facilities. High volume customers such as supermarkets are servicedexclusively from the distribution centers located at Refrescos’ production facilities.In 2007, approximately 15% of Refrescos’ soft drink sales were paid for in cashat the time of delivery, 30% were paid by check to be cashed between one andten days after delivery and 55% were paid between 10 and 45 days after deliveryby invoice.

 

*Argentina*. As of December 31, 2007, our salesforce in Argentina consisted of 382 employees, grouped in salespeople,merchandisers, and Contact Center personnel. In 2007, 71% of Edasa’s Coca-Colasoft drinks were distributed by direct distribution (trucking) and 29% bywholesale distribution. All of the direct distribution is done by a group ofindependent transport companies (each with three or more trucks). In 2007,approximately 72% of Edasa’s soft drink sales were paid for in cash and 28%were credit sales. Approximately 0.2% of credit sales were paid by short-termcredit to be paid for within one to eight days after delivery, 19.8% of creditsales were made by simple account and 8% of credit sales were paid for bycheck.

 

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** **

**Competition**

 

We face intense competition throughout the franchiseterritories principally from bottlers of competing soft drink brands. See “Item3. Key Information — Risk Factors — Risks Related to our Company — Our businessis highly competitive and subject to price competition which may adverselyaffect our net profits and margins.”

 

*Chile.*The soft drink segment of the Chileanbeverage industry is highly competitive. The most important areas ofcompetition are product image, pricing, advertising, ability to deliver productin popular bottle sizes, distribution capacity, and the amount of returnablebottles held by retailers or by consumers. Returnable bottles can be exchangedat the time of new purchases in lieu of paying a bottle deposit, thereby decreasingthe purchase price. Our main competitor in the Chilean franchise territory isEmbotelladora Chilenas Unidas or ECUSA, a subsidiary of Compañía CerveceríasUnidas S.A. or CCU, the major brewer in Chile. ECUSA produces and distributesPepsi-Cola products and its own brands (soft drinks and bottled water).

 

*Brazil.*The soft drink segment of the Brazilianbeverage industry is highly competitive. The most important areas ofcompetition are product image, pricing, advertising and distribution capacity(including the number and location of sales outlets). According to A.C.Nielsen, our main soft drink competitor in the Brazilian territory is AmericanBeverage Company or Ambev, the largest beer producer and distributor in Braziland also produces soft drinks, including Pepsi-Cola.

 

*Argentina.*The soft drink segment of the Argentinebeverage industry is highly competitive. The most important areas ofcompetition are product image, pricing, advertising, ability to produce bottlesin popular sizes and distribution capacity. Embotelladora de los Andes S.A.,which is controlled by the Hunicken Group, produced Pepsi-Cola products in theprovince of Mendoza, and the license expired during 2006. As a result, theylaunched new soft drinks under the brand Talca that in the market for water isa well-known quality product with aggressive prices. Baesa produces Pepsi-Colaproducts in the provinces of Córdoba, Mendoza and Santa Fe. Pritty S.A.produces and sells Pritty, Doble Cola, Saldán, Switty, Rafting and during 2006it launched Hook in the provinces of Córdoba, Santa Fe and Mendoza. In theprovince of Santa Fe, Baggio sells Mocoretá. In the province of Mendoza, SanIsidro Refrescos S.A. sells Beach, Royal Crown, Upper 10, Sao, Sunkist andSeagram’s products, and Cahiza Hermanos sells Chyc.

 

Based on reports by A.C. Nielsen, we estimate thatin 2007, our average soft drink market share within our franchise territoriesreached 67.4%, 58.5%, and 51.1% for Chile, Brazil, and Argentina, respectively.

 

The following table presents the market share of ourmain competitors in Chile, Brazil and Argentina for the periods indicated:

 

**MarketShare**

 
| ** **                    | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------|------------|--------------------------------------------|------------|
| ** **                    | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                    | ** ** | **Chile**                                  | ** ** | **Brazil** | ** ** | **Argentina** | ** ** | **Chile** | ** ** | **Brazil** | ** ** | **Argentina** | ** ** | **Chile** | ** ** | **Brazil** | ** ** | **Argentina** | ** ** |
| ** **                    | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **(%)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Coca-Cola soft  drinks        |       | 67                                         |       | 57 |   | 51 |   | 68 |   | 57 |   | 50 |   | 68 |   | 56 |   | 51 |   |
| ECUSA soft  drinks            |       | 20                                         |       | — |   | — |   | 19 |   | — |   | — |   | 19 |   | — |   | — |   |
| Pepsi-Cola and 7  Up products |       | 3                                          |       | 6 |   | 20 |   | 3 |   | 5 |   | 18 |   | 3 |   | 5 |   | 17 |   |
| Pritty products               |       | —                                     |       | — |   | 9 |   | — |   | — |   | 10 |   | — |   | — |   | 10 |   |
| Antarctica  products          |       | —                                     |       | 10 |   | — |   | — |   | 10 |   | — |   | — |   | 10 |   | — |   |
| Brahma products               |       | —                                     |       | 1 |   | — |   | — |   | 1 |   | — |   | — |   | — |   | — |   |
| Other                         |       | 10                                         |       | 26 |   | 20 |   | 10 |   | 27 |   | 22 |   | 10 |   | 29 |   | 22 |   |
| Total                         |       | 100                                        |       | 100 |   | 100 |   | 100 |   | 100 |   | 100 |   | 100 |   | 100 |   | 100 |   |

 

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*Source: A.C. Nielsen*

 

**Seasonality**

 

Each of our lines of business is seasonal. Most ofour beverage products have their highest sales volumes during the SouthAmerican summer (October through March), with the exception of nectarproducts, which have a higher sales volume 

 

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duringthe South American winter (April through September). Our Chilean andArgentine operations generally experience higher levels of seasonal pricefluctuations than our Brazilian operations.

 

**Raw Materials and Supplies(1)**

 

Numerous raw materials, including, withoutlimitation, sugar, resin, and aluminum, are used in producing our beverages andcontainers. We have purchased these raw materials from both domestic andinternational suppliers. Because we are often required to purchase rawmaterials in the international markets using U.S. dollars, we are subject tolocal currency risks in each of our operations. If the Chilean peso, Brazilianreal or Argentine peso were to lose value against the U.S. dollar, the cost ofcertain raw materials could rise significantly, which, in turn, could adverselyaffect our net income and results of operations. We cannot assure you thatthese currencies will devaluate against the U.S. dollar in the future.

 

The principal raw materials used in the productionof Coca-Cola soft drinks are concentrate, sweetener, water and carbon dioxidegas. Production also requires glass and plastic bottles, bottle tops andlabels. Water used in soft drink production is treated for impurities andadjusted for taste reasons. All raw materials, especially water, are subjectedto continuous quality control.

 

*Chile—Raw Materials.* We purchase concentrate at pricesestablished by The Coca-Cola Company. We purchase sugar fom Industria AzucareraNacional S.A., IANSA, the only producer of sugar in Chile, although we maypurchase sugar in the international market when prices are favorable, and havedone so on occasion. Chilean sugar prices are subject to a price bandestablished by the Chilean government on an annual basis.  We obtain carbon dioxide gas from AGA ChileS.A. Andina’s affiliate Envases CMF, produces returnable PET bottles and thenon-returnable PET bottles we use. We purchase glass bottles principally fromCristalerías de Chile S.A. and Cristalerías Toro S.A.I.C.  Bottle caps are purchased from Alusud,Alucaps Mexicana S.A. de C.V., Inyecal S.A. and other suppliers.

 

During 2007 73% of cost of sales for softdrinks produced by Andina corresponded to main raw materials. The cost ofeach raw material within the total of main raw materials is the following:concentrate represents 62%; sugar and artificial sweeteners 21%; non-returnablebottles 12%; bottle caps 4% and carbon dioxide 1%. Water does notconstitute an important cost as raw material. Additionally, the cost offinished products purchased from third parties is included within the cost ofsales of soft drinks. These costs represent 24% of the total costs of sales ofsoft drinks and correspond to cans and some PET bottles.

 

*Brazil - Raw Materials.* Refrescos purchases concentrate in the cityof Manaus at prices established by The Coca-Cola Company. Manaus has beendesignated as a duty-free development zone by the Brazilian government.Refrescos purchases sugar from Brazilian suppliers, in particular fromCopersucar Ltda. It purchases carbon dioxide gas mainly from Companhia WhiteMartins Gases S.A and Linde Gases Ltda. PET bottles mainly from Amcor Ltd., Braspla Ltda., and from Edasa’sPackaging Division.  Glass bottles arepurchased from Owens-Illinois and metal bottle caps from Aro S.A. Plasticbottle caps are purchased from Alcoa and Owens-Illinois.  Refrescos purchases water from themunicipality of Rio de Janeiro.

 

During 2007, 73% of cost of sales for softdrinks produced by Refrescos corresponded to main raw materials. The costof each raw material within the total of main raw materials is the following:concentrate (including juice used for some flavors) represents 29%; sugar andartificial sweeteners 23%; non-returnable bottles 26%; cans 17%, bottle caps 4%and carbon dioxide 1%. Additionally, the cost of finished productspurchased from third parties is included within the cost of sales of softdrinks. These costs represent 3% of the total costs of sales of soft drinks andcorrespond to some formats of cans, PET and non returnable glass bottles.

 

*Argentina - Raw Materials.* Edasa purchases concentrate at pricesestablished by The Coca-Cola Company. Edasa purchases sugar mainly from Ing. yRefinería San Martín de Tabacal S.A., Cía. Azucarera Concepción S.A., andLedesma S.A.A.I.; fructose from Productos de Maíz S.A. and Ledesma S.A.A.I.,and carbon dioxide gas from Praxair S.A. and Air Liquide S.A. Edasa producesnon-returnable and returnable PET bottles through Edasa’s Packaging Division,and glass bottles from Cattorini Hermanos S.A. and from Cristalerías Toro deChile, plastic bottle caps from Alusud S.A. and metal caps from MetalgráficaCearense S.A. and Aro in Brazil. Regarding water supply for the production ofsoft drink, Edasa owns water wells and pays a fee to the Dirección Provincialde Aguas Sanitarias.  Edasa also buysstretch wrap from Manuli Packaging Argentina, Plastiandino S.A. and PlásticosLa Rioja S.A: ; and carton from Corrugadora Centro S.A.

 

During 2007, 71% of cost of sales for softdrinks produced by Edasa corresponded to main raw materials. The cost ofeach raw material as a percentage of the total cost of main raw materials isthe following: concentrate 50%; sugar and 

 

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(1) Fordetailed information please visit our website www.koandina.com

 

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artificialsweeteners 21%; non-returnable bottles 24%; bottle caps 4% and carbon dioxide1%. Additionally, the cost of finished products purchased from third parties isincluded within the cost of sales of soft drinks. These costs represent 3%of the total costs of sales of soft drinks and correspond to can formats andjuices.

 

*PET Packaging - Raw Materials.* The principal raw material required forproduction of PET bottles is PET resin, which is purchased mainly in Argentinawith a smaller percentage being imported from Asia. The principal suppliers ofPET resin for the Edasa Packaging Division are Eastman Chemical ArgentinaS.R.L. (sold to DAK Américas de Argentina S.A.) Indorama Synthetics TBK, FarEastern Textile Ltd. and Nan Ya Plastics Corp America.  In 2007, the Edasa Packaging Division’s costsfor PET resin accounted for 95.8% of the total variable cost of its sales ofPET bottles.

 

**Marketing**

 

We and The Coca-Cola Company jointly promote andmarket Coca-Cola soft drinks in our franchise territories, in accordance withthe terms of our respective Bottler Agreements. During 2007, we paidapproximately 50% of the advertising and promotional expenses incurred by The Coca-ColaCompany in our franchise territories. Nearly all media advertising andpromotional materials for Coca-Cola soft drinks are produced and distributed byThe Coca-Cola Company. See “Item 7. Major Shareholders and Related PartyTransactions—Bottler Agreements.”

 

*Channel Marketing*. In order to provide more dynamic andspecialized marketing of our products, our strategy is to segment ourmarket and develop targeted efforts for each segment or distribution channel.Our principal channels are small retailers, “on-premise” consumption suchas restaurants and bars, supermarkets and third partydistributors. Presence in these channels entails a comprehensive anddetailed analysis of the purchasing patterns and preferences of variousgroups of soft drink consumers in each type of location or distributionchannel. In response to this analysis, we seek to tailor our product,price, packaging and distribution strategies to meet the particular needs ofand exploit the potential of each channel.

 

We believe that the implementation of our channelmarketing strategy also enables us to respond to competitive initiativeswith channel-specific responses as opposed to market-wide responses. Thisfocused response capability isolates the effects of competitive pressurein a specific channel, thereby avoiding costlier market-wide responses.Our channel marketing activities are facilitated by our managementinformation systems. We have invested significantly in creating suchsystems, including providing hand-held computer and data gathering equipment tosupport the gathering of product, consumer and delivery informationrequired to implement our channel marketing strategies effectively for most ofour sales routes in Chile, Brazil and Argentina. We will continue investingto increase pre-sale coverage in our territories.

 

*Marketing Expenditure.* Our consolidated total marketing andadvertising expenditures in 2007 were Ch$22,440 million.

 

**Retailer Incentive Programs**

 

We have implemented incentive programs to provideretailers with commercial refrigerators for the display and cooling ofsoft drink products and for point-of-sale display materials. We seek, inparticular, to increase the distribution of coolers among retailers to magnifythe visibility and consumption of our products and to ensure that theyare sold at the proper temperature. Sales promotions include sponsorshipof community activities, sporting, cultural and social events, andconsumer sales promotions such as contests, sweepstakes and product giveaways.

 

**Advertising**

 

We advertise in all major communications media. Wefocus our advertising efforts on increasing brand recognition by consumersand improving our customer relations. National advertising campaigns aredesigned and proposed by The Coca-Cola Company’s local affiliates, withour input at the local or regional level.

 

**2. Other Beverages**

 

*Chile*. In addition to Coca-Cola soft drinks,through Vital S.A., we produce and sell juices, other fruit flavored beverages,ready-to-drink tea and sports drinks, and through Vital Aguas S.A. we produceand sell mineral water and purified water. Juices are produced and sold underthe brands Andina, Andina Frut, Andina Néctar, Andina Hi-C, Andina Forte, AndnaCalcio + D and Kapo.  The line of sportsdrinks is sold under the brand Powerade and ready-to-drink tea is sold asNestea. Water products are produced and sold under the brands Vital (AguaMineral Vital), Dasani (purified and flavored water).

 

*Brazil*. We distribute beer under the Kaiser,Bavaria, Heineken, Santa Cerva, Sol, Xingu and Dos Equis (XX) labels. We alsodistribute water under the Bonaqua and Aquarius labels and sell and distributeready-to-drink juices under the Kapo 

 

21

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andMinute Maid Mais labels, milk and cocoa-based beverages under the KapoChocolate brand, energy drinks under the Burn brand name and Nesteaready-to-drink tea.

 

*Argentina*. We distribute ready-to-drink juices underthe Cepita brand name, which competes with other recognized brands such as Adesand Baggio. We also produce and sell water (sparkling and still) under theDasani brand name, which competes with well-known brands such as Villavicencio,Eco de Los Andes and Glaciar. During 2006, we launched Dasani flavored watercompeting in the segment developed by the brands, Ser, Villa del Sur and Magna.

 

The trademarks “Andina Frut”, “Andina Néctar”, “AndinaHi-C”, “Kapo”, “Powerade”, “Cepita”, “Bonaqua”, “Aquarius”, “Burn”, “Vital” and“Dasani” are owned by The Coca-Cola Company. We produce and/or sell non-softdrink beverages bearing these trademarks under bottling agreements with TheCoca-Cola Company.   The “Nestea”trademark is owned by Nestlé in joint venture with The Coca-Cola Company.

 

**Waters and Juices in Chile**

 

Through Vital S.A., we compete in the fruit juice,nectars, fruit flavor tea based beverages, sports drinks and other noncarbonated fruit flavored beverages in the beverage market in Chile.  Through Vital Aguas S.A. we compete in themineral water and purified water segments of the beverage market in Chile.Vital S.A. sells non-soft drink beverage products under six different brandnames: Andina Frut (natural fruit juices), Andina Néctar (fruit nectars),Andina Hi-C (fruit refreshment with vitamins), Kapo (artificially flavoredfruit drinks), Powerade (sports drinks) and Nestea (fruit flavored tea basedbeverage). On the other hand Vital Aguas S.A. sells its products under twobrand names: Vital (mineral water) and Dasani (flavored and unflavored purifiedwater).

 

*Sales*. In 2007,net sales of waters and juices in Chile represented 6.6% of our consolidatednet sales. On a consolidated basis, sales of waters and juices in Chile wereCh$41,835 million, reflecting additional revenue we received from Vital’s salesto third parties together with Andina’s operating margin realized from the saleand distribution of these products. During 2007, the waters and juices industryin Chile experienced a 10.2% increase in sales volume.

 

The following table sets forth for the periodsindicated, Vital’s net sales and sales by volume of unit cases of waters andjuices:

 

**Waters andJuices Sales by Net Sales and Volume(1)**

 
| ** **               | ** ** | **Year-ended December 31,**                                                                                                                                    | ** ** |
|--------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **               | ** ** | **2007**                                                                                                                                                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **               | ** ** | **(in millions of constant Ch$ as of December 31, 2007, and millions of UCs, as applicable)** | ** ** |
| ** **               | ** ** | **Ch$**                                                                                                                                                                  | ** ** | **UCs** | ** ** | **Ch$** | ** ** | **UCs** | ** ** | **Ch$** | ** ** | **UCs** | ** ** |
| Andina Frut              |       | 11,046                                                                                                                                                                   |       | 5.3 |   | 8,378 |   | 4.1 |   | 7,719 |   | 4.1 |   |
| Andina Néctar       |       | 7,381                                                                                                                                                                    |       | 5.2 |   | 6,412 |   | 4.4 |   | 6,400 |   | 3.6 |   |
| Kapo                     |       | 3,980                                                                                                                                                                    |       | 3.2 |   | 3,781 |   | 3.1 |   | 3,918 |   | 2.8 |   |
| Andina HI-C              |       | 33                                                                                                                                                                       |       | — |   | 383 |   | 0.2 |   | 637 |   | 0.3 |   |
| Powerade                 |       | 941                                                                                                                                                                      |       | 0.4 |   | 633 |   | 0.2 |   | — |   | — |   |
| Nestea                   |       | 315                                                                                                                                                                      |       | 0.1 |   | — |   | — |   | — |   | — |   |
| Dasani (Purified  Water) |       | 2,278                                                                                                                                                                    |       | 2.1 |   | 4,092 |   | 3.6 |   | 2,170 |   | 1.6 |   |
| Vital (mineral  water)   |       | 7,241                                                                                                                                                                    |       | 11.1 |   | 6,069 |   | 9.1 |   | 9,808 |   | 9.5 |   |
| Total(2)                 |       | 33,215                                                                                                                                                                   |       | 27.4 |   | 29,748 |   | 24.7 |   | 30,652 |   | 21.9 |   |

 

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(1)                   Reflects the sale of Vital and Vital Aguas tobottlers of The Coca-Cola Company.

(2)                   Includes sales to related companies which areeliminated upon consolidation.

 

*Marketing.* Marketing and promotional programs,including television, radio and print advertising, point-of-sale advertising,sales promotions and entertainment are developed by The Coca-Cola Company forall Vital and Vital Aguas’ products.

 

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*Customers and Distribution*. Juices and waters throughout Chile aredistributed by means of distribution agreements between us and two otherCoca-Cola bottlers. In 2007, Andina distributed approximately 55% of Vital’sproducts, and the other two Coca-Cola bottlers in Chile distributed anaggregate of 45%. Each Coca-Cola bottler in Chile distributes Vital and VitalAguas products in its respective franchise territory. Under Vital and VitalAguas’ distribution agreements, each bottler has the exclusive right todistribute waters and juices in its territory and each agrees not to distributecompeting products.

 

Our management believes that our distributionarrangements for waters and juices provide an effective means of distributingthose products throughout Chile using the extensive distribution system of theCoca-Cola bottlers. We have a good working relationship with the Coca-Colabottlers that distribute waters and juices. If any Coca-Cola bottler were tocease distribution, our management believes it could arrange alternativedistribution arrangements, but the transition to the new arrangements couldinvolve significant delays in distributing products and would involveadditional costs and an initial reduction in sales.

 

*Competition*. Vital Aguas’ principal competitor(1) regardingwater is CCU with the Cachantún brand.  Additionally there are low priced brands (B-brands) in the water segmentin Chile.   Vital S.A.’s principalcompetitors regarding juices are, Watt’s-CCU, Corpora Tres Montes and four ofthe leading dairy producers in Chile: Soprole S.A., Nestlé Chile S.A., Parmalatand Loncoleche S.A., who is also a subsidiary of Watt’s S.A. During 2006, thelargest Chilean brewery CCU acquires from Watts S.A. a 50% ownership interestof the juice brands in Chile, creating a joint venture for the management ofthis business area. The Chilean market for fruit-flavored beverages and watersalso includes low-cost, lower-quality fruit juice concentrates and artificiallyflavored powdered beverage mixes. We do not consider these products to competewith our waters and juices business because we believe that these products areof lower quality and value.

 

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(1) Until mid 2007 the Benedictino brand belonged to Aguas del Sur, a company whichwas acquired by a subsidiary of Embotelladora Coca-Cola Polar.   In October of 2007, Coca-Cola de Chileacquired from said subsidiary the Benedictino brand.

 

Based on reports by A.C. Nielsen, we estimate thatin 2007, our market share within our Chilean franchise territories reached29.6% for Juices and 28.3% for Water

 

*Raw material for Juices*. The principal raw materials used by VitalS.A. in the production of juices and as a percentage of total raw materialcosts, are sweeteners 9.7%, fruit pulp and juices 12.9%, flavors, aromas andcitric acid 17.8%, containers 28.6% and wrapping material 5.0%, all of whichduring 2007 accounted for 80% of total costs for sales of juice, includingpackaging.

 

*Raw materials for Waters:* The principal raw materials used by VitalAguas S.A. in the production of mineral water and purified unflavored andpurified flavored water and as a percentage of total raw material costs are:Non returnable PET packaging 44.2%, mineral water, flavor, aromas, sweetenersand citric acid 29.6%, packaging material 4.5%, caps 4.1% and carbon dioxidegas 0.5%, all of which during 2007 accounted for 86.3% of total costs for salesof water, including packaging.

 

**Beer, Juices and Waters in Brazil**

 

*Sales*. In 2007, net sales of beer, juices, waters,tea based beverages and energy drinks in Brazil were Ch$27,206 million,representing 4.3% of our consolidated net sales.

 

Refrescos uses its distribution system to distributebeer in the Brazilian territory. Refrescos started distributing beer in the1980s as a result of the acquisition of Kaiser by a consortium of Coca-Colabottlers (including Refrescos) in Brazil. In March 2002, the Canadianbrewing company Molson Inc. acquired Cervejarias Kaiser S.A. (“Kaiser”). In2006, Femsa acquired from Molson the controlling ownership interest overKaiser.   Refrescos began thedistribution of the beer brand Dos Equis (XX) during 2007.

 

Refrescos buys beer from Femsa at a price determinedby Femsa and sells it to its customers with a fixed margin. In the case ofcertain discount sales that have been approved by Femsa, Femsa shares between50% and 100% of the cost of such discounts. In 2007, Refrescos’ net sales ofbeer were Ch$13,583 million, of which Kaiser brand beer accounted for 12.9%,Santa Cerva for 0.1%, Bavaria for 51.3%, Heineken for 7.2%, Xingu for 2.3%, Solfor 26.1% and Dos Equis (XX)  for 0.1% ofnet sales.

 

*Competition*. In the beer sector, Refrescos’ maincompetitor is Ambev. According to A.C. Nielsen, beer sold by Kaiser and Ambevaccounted for approximately 2% and 72%, respectively, of the total sales ofbeer by volume in the Brazilian territory in 2007.

 

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*TheDistribution Agreements. *TheCoca-Cola Company, Cervejarías Kaiser S.A., Molson Inc. and the BrazilianAssociation of Coca-Cola Manufacturers entered into an agreement of understandingand a convention regarding the distribution through the Coca-Cola System ofbeer produced and imported by Femsa. The term of the distributionagreements signed after May 30, 2003, is of renewable periods of 20 years.

 

Refrescos is not allowed to produce, bottle, sell orobtain any interest in any bottled or tap beer under any other label or in anybottle or packaging that could be confused with brand beers, except as may bemutually agreed in writing between Refrescos and Femsa.

 

Under the terms of the distribution agreement, Femsaassumes all responsibility for planning and managing advertising, marketing andpromotional activities related to beer. Refrescos, however, is free to undertake marketing or promotionalactivities with Femsa ́s prior approval. The parties have agreed to assume jointresponsibility for the costs of certain promotional activities (radio ortelevision) and for certain outdoor events which take place in the Rio deJaneiro region. Refrescos has agreed to devote at least 3% of its sales net oftaxes of Femsa products to such promotional activities or events.

 

Refrescos is prohibited from assigning,transferring, or otherwise encumbering the Femsa distribution agreement or anyinterest therein for the benefit of third parties without prior written consentfrom Femsa. Femsa may terminate the Femsa distribution agreement immediately inthe event that Refrescos (i) declares bankruptcy, is made a party tobankruptcy proceedings or is placed under judicial administration, (ii) isdissolved or liquidated or its assets are nationalized, expropriated, attachedor intervened, (iii) undergoes a change of business or of control, (iv) ceasesto be a franchisee of The Coca-Cola Company or (v) causes a materialbreach of the Femsa distribution agreement. In addition, Femsa may terminatethe Femsa distribution agreement one year after delivery of notice thatRefrescos is not complying with the terms thereof. Refrescos may terminate theFemsa distribution agreement in the event of a material breach thereof byFemsa.

 

**3. PET Packaging**

 

**Overview and Background**

 

We produce PET bottles in both returnable andnon-returnable formats. The Coca-Cola Company acquired the right to use certainPET technology from Continental PET (now known as Graham Packaging Inc.) in1991 and has sub-licensed that technology to certain PET-manufacturers thatproduce Coca-Cola PET bottles, including Envases CMF in Chile and Cipet inArgentina. The sublicense held by Edasa’s packaging division (ex-Cipet) wasgiven by Coca-Cola de Argentina S.A. in 1996 for a ten year period.  Currently the renewal of said sub-license isbeing negotiated. The sublicense held by Envases CMF is currenly beingnegotiated. We cannot assure you that the sublicenses will be renewed. As areturnable packaging material, PET has advantages compared to glass because itis lightweight, difficult to break, transparent and easily recyclable. Onaverage, returnable PET bottles can be used up to 12 times. Non-returnable PETbottles also are produced in various sizes and are used by a variety of softdrink producers and, in Chile, by producers of edible oil products.

 

The Edasa Packaging Division (ex-Cipet) wasestablished in 1987 by The Coca-Cola Company and Cía. Argentina Belga S.A., andwas acquired by us as part of transactions with The Coca-Cola Company in December 1996.On January 1, 2003, Cipet was merged into Edasa and became Edasa’spackaging division. In 2007, the Edasa Packaging Division was one of thelargest manufacturers of PET products in Argentina.

 

In Brazil, Refrescos purchases 55% of its PETpackaging needs from Amcor, 5% from Brasalpla, global PET bottle manufacturers,and 40% from the Edasa Packaging Division.

 

*Sales*. In 2007, the Edasa Packaging Division hadnet sales of Ch$21,002 million with sales to Edasa Soft Drinks Divisionamounting to Ch$11,389 million, to Rio de Janeiro Refrescos amounted toCh$3,240 million and to Envases CMF amounting to Ch$90 million. The EdasaPackaging Division also sold PET bottles to third parties accounting for approximatelyCh$6,283 million.

 

*Competition*. We are suppliers of returnable PET bottlesfor Coca-Cola bottlers in Argentina and Chile. According to the pre-existingagreements between The Coca-Cola Company and the other Coca-Cola bottlerswithin South America, we must obtain the consent and assistance of TheCoca-Cola Company to expand our sales of returnable PET bottles to saidbottlers.

 

In Chile, we have one principal competitor in the non–returnablePET bottles market for oils, wines and personal hygiene: Strong ChemicalsLtda., another one of our competitors is PetPackaging S.A. for non-returnablePET bootles but for 

 

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client who are not within the Coca-Cola System; andPlasco S.A., the second Chilean manufacturer of non returnable PET bottles, whodoes not compete with us because it is the exlcusive supplier of PET bottlesfor ECUSA.

 

In Argentina, we compete principally with Alpla S.A.and Amcor. The Edasa Packaging Division is the supplier of returnable PETbottles to all Coca-Cola bottlers in Argentina.

 

Various bottle manufacturers produce returnable PETbottles in Chile and other South American countries for competitors of TheCoca-Cola Company, and numerous manufacturers in various countries producenon-returnable PET bottles for beverages and other products.

 

**4. Patents and Licenses**

 

The Company has entered into Bottling Agreementswith The Coca-Cola Company, by which it has the license to produce anddistribute Coca-Cola brand products within its operating franchise territoriesin Chile, Brazil and Argentina. The Company’s operations are highly dependenton maintaining and renewing the Bottler Agreements which provide for theproduction and distribution of Coca-Cola brand products. The duration, renewaland maintenance terms of the Bottler Agreements are set forth in “Item 7 —Major Shareholders and Related Party Transactions — Bottler Agreements.”

 

**5. Regulation**

 

**General**

 

We are subject to the full range of governmentregulations generally applicable to companies engaged in business in ourfranchise territories, including but not limited to labor, social security,public health, consumer protection, environmental, sanitation, employee safety,securities and anti-trust laws. Currently, no material legal or administrativeproceedings are pending against us with respect to any regulatory matter in anyof our franchise territories except those listed as such in “Item 8. FinancialInformation—Legal Proceedings.” We believe, to the best of our knowledge thatwe are in compliance in all material respects with applicable statutory andadministrative regulations relating to our business in each of our franchiseterritories.

 

*Chile*. There are no special licenses or permitsrequired to manufacture and distribute soft drinks and juices in the Chileanterritory. Food and beverage producers in Chile, however, must obtainauthorization from (and their activities are subject to supervision by) theChilean Environmental Protection Services (*ServicioSanitario Metropolitano del Ambiente*), which inspects plants andtakes liquid samples for analysis on a regular basis. Our permit from theChilean Environmental Protection Authority was obtained on January 8, 1992and is in effect indefinitely. In addition, production and distribution ofmineral water is subject to special regulation such that mineral water may bedrawn only from sources designated for such purpose by presidential decree.Certification of compliance with such decree is provided by the National HealthService today the Undersecretary’s Office of the Ministry of Health (*Servicio de Salud Metropolitano del Ambiente*).Our mineral water production facilities have received the requiredcertification.

 

*Brazil*. Labor laws, in addition to mandatingemployee benefits, include regulations to ensure sanitary and safe workingconditions in our production facilities located in Brazil. Food and beverageproducers in Brazil must register their products with and receive a ten-yearpermit from the Ministry of Agriculture and Provisioning and the Ministry ofHealth, which oversees diet products, which we together refer to as theMinistries. Our permits from the Ministries are valid and in force for a termof ten years for each product we produce. Although we cannot assure you thatthey will be renewed, we have not experienced any material difficulties inrenewing our permits in the past nor do we expect to experience anydifficulties in the future. The Ministries do not regularly inspect facilitiesbut they do send inspectors to investigate any complaints it receives.

 

*Argentina*. While most laws applicable to Edasa areenforced at the federal level, some, such as sanitary and environmentalregulations, are primarily enforced by provincial and municipal governments.There are no licenses or permits required for the manufacture or distributionof soft drinks in the Argentine territory. However, our production facilitiesare subject to registration with federal and provincial authorities and tosupervision by municipal health agencies, which certify compliance withapplicable laws.

 

**Environmental Matters**

 

It is our policy to conduct environmentally soundoperations on a basis consistent with applicable laws and with criteriaestablished by The Coca-Cola Company. Although regulation of matters relatingto the protection of the environment is not as well-developed in the franchiseterritories as in the United States and other industrialized countries, weexpect that additional laws and regulations may be enacted in the future withrespect to environmental matters that may impose additional restrictions on uswhich could materially or adversely affect our results of operations in thefuture. There are no 

 

25

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materiallegal or administrative proceedings pending against us in any of the franchiseterritories with respect to environmental matters, and we believe that, to thebest of our knowledge, we are in compliance in all material respects with allenvironmental regulations applicable to us.

 

*Chile.* The Chilean government has severalregulations governing environmental matters relating to our operations. Forinstance, Law 3,133 regulates discharge of residual industrial waste, and theSanitary Code contains provisions relating to liquid and solid waste disposal,basic environmental conditions in the workplace, and the protection of waterfor human consumption. In 1993, the Chilean government published regulationsthat updated the provisions of Law 3,133. These regulations place limits on thedisposal of harmful substances which may be hazardous to water used inirrigation or water for consumption by people or animals without priorauthorization from the Ministry of Public Works and a favorable determinationfrom the Superintendency of Sanitary Services. The regulations also mandategovernmental approval of any systems to treat or discharge liquid industrialwaste (regulated by Supreme Decree 90 for discharges to open courses and bySupreme Decree 609 for discharges to sewage collectors). In 1996, we installeda liquid industrial waste treatment plant to comply with the Chilean liquidwaste emissions standards, in effect since 1998. As of May of 2006, thefirst stages of liquid industrial waste treatment are done at our facilitiesand then it is completed at La Farfana. Currently there is an outsourcing agreement with the company Ecorilesfor the treatment of liquid industrial waste.

 

Law 19,300, passed in March 1994, addressesgeneral environmental concerns that may be applicable to our activities andwhich, if applicable, would require us to hire independent experts to conductenvironmental impact studies or declarations of any future projects oractivities that could be impacted by the regulations of Law 19,300. Law 19,300creates the National Commission on the Environment, which is supported byregional commissions to supervise environmental impact studies and declarationsfor all new projects, to enforce the regulations of Law 19,300 and to grantdiscretionary power to regulators. There can be no assurance that futurelegislative regulatory developments will not impose further restrictions thatwould be material to our operations in Chile.  We believe that, to the best of our knowledge we believe we are in compliancewith all material aspects of the Chilean environmental regulations.

 

In October 2006 The Coca-Cola Company issued itsaudit regarding Certifications of Quality, Security and Environment Systemsknown as PHASE 3, and we have become the first production facility in Chile toreceive this certification with the maximum qualifications. Additionally andthanks to our commitment lead to the first place achievment in the 2006 QualityContest for Bottler in the Coca-Cola System in Chile.

 

In May of 2006, our Company received the 2005National Award for Quality in the category for Large Corporations based on theevaluation of performance excellence, known as Malcolm Balridge in the UnitedStates. It is the first time this distinction is awarded to a company of theconsumer products industry, a recognition to the performance of EmbotelladoraAndina S.A. that during over 60 years of trajectory has proven excellence inits procedures, client service and social responsibility.

 

During October of 2005, followingpre-certification and certification procedures developed through audits carriedout by a third party (SGS Chile), the Company was recommended for the ISO14001:2004. As a result, the production facility located at Carlos Valdovinos560, San Joaquin, in Santiago, Chile, became the first plant in Latin Americato achieve the four Quality System Certifications, Nourishing Security (HACCP),Environment (ISO 14001:2004), Security and Occupational Health (OHSAS18001:1999 and Quality (ISO 9001:2000), In September of 2007, thesecertificactions were extended for another 3 years.

 

In 2003, the plants of Rengo and Vital werecertified under the *Codex Alimentarius*and the Chilean regulation 2861:2004 for their production processes, HazardAnalysis and Critical Control Point (“HACCP”) system.  This certification was renewed in 2006.

 

Andina’s management believes it maintains goodrelationships with its employees.  InChile, Andina received three awards from independent oraganizations praisingour labor relations and the positive effects of these over our business.  During 2002 and 2003 Andina was awarded withthe Corcin award from an important Chilean Training Center (Centro Intermediode Capacitación de ASEXMA) as a member company with the greatest commitment andinvestment for training purposes.  During2003 Embotelladora Andina was awarded the Carlos Vial Espantoso award, whichdistinguishes the most relevant Chilean company in terms permanent training,security and risk prevention, bonus and other policies aimed towards benefitingthe families of our workers.

 

*Brazil*. Our Brazilian operations are subject toseveral environmental laws, none of which currently impose substantialrestrictions on us. The Brazilian Constitution establishes the broad guidelinesfor the new treatment of environmental 

 

26

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concerns,dedicating an entire chapter (Chapter VI, Article 225) to the protectionof the environment, along with several other articles related to theenvironmental law and urban law. Environmental issues are regulated at thefederal, state and municipal levels and the Brazilian Constitution empowers thepublic authorities to develop regulations designed to preserve and restore theenvironment and to control industrial processes that affect human life.Violations of these regulations are subject to criminal, civil andadministrative penalties.

 

In addition, Law No. 6,938 of August 31,1981, known as the Brazilian Environmental Policy, introduced an entirelydifferent environmental regime by which no environmental damage is exempt fromcoverage. The legislation is based on the idea that even a polluting wastetolerated under the established standards could cause environmental damage, andtherefore subjects the party causing such damage to payment of an indemnity.Moreover, as mentioned above, activities damaging to the environment lead tocriminal and administrative penalties, provided for in Law 9,605 of February 12,1998 or the Environmental Crimes Act.

 

Numerous governmental bodies have jurisdiction overenvironmental matters. At the federal level, the *Ministério do Meio Ambiente* (Brazilian Ministry ofEnvironment) and the *Conselho Nacional doMeio-Ambiente* or CONAMA dictate environmental policy, including,without limitation, initiating environmental improvement projects, establishinga system of fines and administrative penalties and reaching agreements onenvironmental matters with offending industries. The *Instituto Brasileiro do Meio Ambiente e dos RecursosNaturais Renováveis* or IBAMA enforces environmental regulations setby CONAMA. In addition, variousfederal authorities have jurisdiction over specific industrial sectors, butnone of these currently affect us. Finally, various state and local authoritiesregulate environmental matters in the Brazilian territory including the *Fundação Estadual de Engenharia do Meio-Ambiente*or FEEMA, the principal environmental authority in Rio de Janeiro and the *Instituto Estadual de Medio Ambiente e RecursosHídricos* or IEMA, the principal environmental authority in EspíritoSanto. FEEMA and IEMA periodically inspect industrial sites and tests liquidwaste for contamination. We believe to the best of our knowledge that we are incompliance in all material respects with the standards established by all thegovernmental authorities applicable to our operations in Brazil. We cannotassure you, however, that additional regulations will not be enacted in thefuture, and that such restrictions would not have a material adverse effect onour results or operations.

 

*Argentina*. The Argentine Constitution, as amended in1994, allows any individual who believes a third party may be damaging theenvironment to initiate an action against it. No such action has ever beeninstituted against us, but we cannot assure you that an action will not be broughtin the future. Though provincial governments have primary regulatory authorityover environmental matters, municipal and federal authorities are alsocompetent to enact laws on environmental issues. Thus, municipalities arecompetent on local environmental matters, such as waste management, while thefederal government regulates inter-province environmental issues, such astransport of hazardous waste or environmental matters covered by internationaltreaties.

 

On July 2002, the National Congress enactedfederal Law No. 25,612, *GestiónIntegral de Residuos Industriales y de Actividades de Servicios (*IntegralManagement of Industrial Residues and Service Activities*)*and on November, 2002, Law No. 25,675,*Ley General del Ambiente**(*General Environmental Law) establishingminimum guidelines for the protection of the sustainable environmentalmanagement and the protection of biodiversity, applicable throughout Argentina.The law establishes the purposes, principles and instruments of the nationalenvironmental policy, the concept of “minimum guidelines,” the judicialcompetence and the rules governing environmental education andinformation, citizens’ participation and self-management, among otherprovisions.

 

Provincial governments within the Argentine territoryhave enacted laws establishing a framework for the preservation of theenvironment (Law No. 7,343 in Córdoba, Law No. 5,961 in Mendoza andLaw No. 11.717 in Santa Fe). These laws contain principles onenvironmental policy and management, as well as rules on environmentalimpact assessment. They also give certain agencies competence in environmentalissues.

 

Almost all provinces as well as many municipalitieshave enacted laws regarding the use of water, the sewage system and thedisposal of liquids into underground flows of water or rivers. There arecurrently no claims pending against us on this matter. The violation of theselaws usually results in fines.

 

**C.****                    ****Organizational Structure**

 

The following table presents information relating tothe main activity of our principal subsidiaries, our ownership interest in themas of December 31, 2007.

 

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| **Operating Subsidiaries**       | ** ** | **Activity**                                                                                                                                                                                                                                                                                                                                                                                                                         | ** ** | **Country of  Incorporation** | ** ** | **Percentage  Ownership** | ** ** |
|---------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|---------------------------|------------|
| Vital S.A.                            |       | Operation of industrial facilities engaged in the  manufacture, production, processing, distribution and marketing in general of  all food products and particularly of all kinds of juices, soft drinks and  beverages in general.                                                                                                                                                                                                  |       | Chile                              |       | 99.99                     |       |
|                                  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |       |                               |       |                      |       |
| Vital Aguas S.A.                      |       | Operation of one or more industrial facilities  engaged in the manufacture, production, preparation, transformation,  distribution, marketing and other activities, regarding all kinds of water,  mineral or not, purified or treated, soft drinks and beverages in general,  and other similar products.                                                                                                                           |       | Chile                              |       | 56.50                     |       |
|                                  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |       |                               |       |                      |       |
| Servicios  Multivending Ltda.         |       | Commercialize products and merchandise through  equipment and vending machines.                                                                                                                                                                                                                                                                                                                                                      |       | Chile                              |       | 99.99                     |       |
|                                  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |       |                               |       |                      |       |
| Transportes  Andina Refrescos Ltda.   |       | Provide management and handle services for domestic  and foreign ground transportation.                                                                                                                                                                                                                                                                                                                                              |       | Chile                              |       | 99.99                     |       |
|                                  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |       |                               |       |                      |       |
| Rio de Janeiro Refrescos Ltda.        |       | Production and sale of alcoholic and non-alcoholic  beverages, mineral water, nectars, syrups, powdered juices and other related  semi-processed products as well as any operations related with the core  activity.                                                                                                                                                                                                                 |       | Brazil                             |       | 99.99                     |       |
|                                  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |       |                               |       |                      |       |
| Mais Indústria de Alimentos S.A. |       | Production and commercialization of food, beverages  in general and beverage concentrate in their natural state or industrialized;  fruit juices and nectars, refreshments, isotonic, tea, mixtures of fruit  juices with soy and/or milk derivatives, soy drinks, milk based drinks,  nutritional compounds, flavored liquids and ready to drink liquid compounds;  and participation in other companies as partner or shareholder. |       | Brazil                             |       | 7.36                      |       |
|                                  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |       |                               |       |                      |       |
| Embotelladora del Atlántico S.A. |       | Produce, bottle, distribute, and sell non-alcoholic  beverages. Design, producte and sell plastic products or products derived  from the plastic industry, mainly in the packaging area.                                                                                                                                                                                                                                             |       | Argentina                          |       | 99.98                     |       |
|                                  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |       |                               |       |                      |       |
| Abisa Corp. S.A.                      |       | Financial investment company.                                                                                                                                                                                                                                                                                                                                                                                                        |       | British Virgin  Islands       |       | 99.99                     |       |

 

The following chart presents in summary form the Company’s direct andindirect ownership participations in subsidiaries and affiliates:

 

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**D.****                    ****Property, Plants and Equipment**

 

We maintain production plants in each of theprincipal population centers that comprise the franchise territories. Inaddition, we maintain distribution centers and administrative offices in eachof the franchise territories. The following table sets forth in square meters,our principal properties and facilities in each of the franchise territories:

 

**PROPERTIES AND FACILITIES**

 
| ** **                                 | ** ** | **MAIN USE**                                                        | ** ** | **SURFACE (Sq Meters)** | ** ** |
|--------------------------------------------|------------|--------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                 | ** ** | ** **                                                               | ** ** | ** **                        | ** ** |
| **CHILE**                                  |       |                                                                     |       |                              |       |
| **Embotelladora Andina S.A.**              |       |                                                                     |       |                              |       |
| Metropolitan Region                        |       | Offices / Production of Soft  Drinks / Distribution Centers / Warehouses |       | 494,386                           |       |
| Rancagua                                   |       | Warehouses                                                               |       | 25,920                            |       |
| San Antonio                                |       | Warehouses                                                               |       | 19,809                            |       |
|                                       |       |                                                                     |       |                              |       |
| **Vital S.A.**                             |       |                                                                     |       |                              |       |
| Metropolitan Region                        |       | Offices  / Production of Juices                                          |       | 40,000                            |       |
|                                       |       |                                                                     |       |                              |       |
| **Vital Aguas S.A.**                       |       |                                                                     |       |                              |       |
| Rengo                                      |       | Production  of Waters                                                    |       | 12,375                            |       |
|                                       |       |                                                                     |       |                              |       |
| **Envases CMF S.A.**                       |       |                                                                     |       |                              |       |
| Metropolitan Region                        |       | Offices / Production of PET  bottles and preforms                        |       | 74,001                            |       |
|                                       |       |                                                                     |       |                              |       |
| **Envases Central S.A.**                   |       |                                                                     |       |                              |       |
| Metropolitan Region                        |       | Offices / Production of Soft  Drinks                                     |       | 51,906                            |       |
|                                       |       |                                                                     |       |                              |       |
| **BRAZIL**                                 |       |                                                                     |       |                              |       |
| **Rio de Janeiro Refrescos  Ltda.**        |       |                                                                     |       |                              |       |
| Jacarepaguá                           |       | Offices / Production of Soft  Drinks / Distribution Centers / Warehouses |       | 248,375                           |       |
| Vitória                               |       | Offices / Production of Soft  Drinks / Warehouses                        |       | 93,320                            |       |
| Itambi                                     |       | Warehouses                                                               |       | 131,420                           |       |
| Nova Iguaçu                           |       | Warehouses                                                               |       | 79,958                            |       |
| Bangu                                      |       | Warehouses                                                               |       | 44,614                            |       |
| Campos                                     |       | Warehouses                                                               |       | 24,200                            |       |
| Cabo Frio                                  |       | Warehouses                                                               |       | 1,985                             |       |
| Cachoeira do Itapemirim                    |       | Warehouses                                                               |       | 8,000                             |       |
|                                       |       |                                                                     |       |                              |       |
| **ARGENTINA**                              |       |                                                                     |       |                              |       |
| **Embotelladora del Atlántico  S.A.** |       |                                                                     |       |                              |       |
| Córdoba                               |       | Offices / Production of Soft  Drinks / Distribution Centers / Warehouses |       | 923,360                           |       |
| Santo Tomé                            |       | Offices  / Warehouses                                                    |       | 89,774                            |       |
| San Juan                                   |       | Offices  / Warehouses                                                    |       | 48,036                            |       |
| Mendoza                                    |       | Offices  / Warehouses                                                    |       | 41,579                            |       |
| Rosario                                    |       | Offices  / Warehouses                                                    |       | 28,070                            |       |
| Rio IV                                     |       | Offices  / Warehouses                                                    |       | 7,482                             |       |
| San Luis                                   |       | Offices  / Warehouses                                                    |       | 6,069                             |       |
| Buenos Aires                               |       | Production of PET bottles  and preforms                                  |       | 27,043                            |       |

 

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We have full ownership of our properties which arenot subject to material encumbrances.

 

**Capacity by Line of Business**

** **

Set forth below is certain information concerningthe installed capacity and approximate average utilization of our productionfacilities, by line of business.

 
| ** **                                | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                   | ** ** | **2006** | ** ** |
| ** **                                | ** ** | **Annual  Total  Installed  Capacity**     | ** ** | **Average  Capacity  Utilization  (%)** | ** ** | **Capacity  Utilization  During  Peak  Month  (%)** | ** ** | **Annual  Total  Installed  Capacity** | ** ** | **Average  Capacity  Utilization  (%)** | ** ** | **Capacity  Utilization  During  Peak  Month  (%)** | ** ** |
| Coca-Cola soft  drinks (millions of UCs): |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Chile                                     |       | 157                                        |       | 70 |   | 97 |   | 154 |   | 68 |   | 81 |   |
| Brazil                                    |       | 209                                        |       | 79 |   | 94 |   | 204 |   | 75 |   | 84 |   |
| Argentina                                 |       | 141                                        |       | 82 |   | 100 |   | 133 |   | 82 |   | 97 |   |
| Other beverages  (millions of UCs)        |       | 49                                         |       | 58 |   | 69 |   | 49 |   | 55 |   | 72 |   |
| PET packaging  (millions of bottles)      |       | 639                                        |       | 95 |   | 98 |   | 639 |   | 96 |   | 100 |   |

 

Total installed annual production capacity assumesproduction of the mix of products and containers produced in 2007. In 2007, wecontinued to modernize and renovate our manufacturing facilities in order tomaximize efficiency and productivity. At present, we estimate we have thecapacity in each of the franchise territories to meet consumer demand for eachproduct format. Because bottling is a seasonal business with significantlyhigher demand during the South American summer and because soft drinks areperishable, it is necessary for bottlers to carry significant over-capacity inorder to meet the substantially greater seasonal demand. We maintain qualitycontrol laboratories at each production facility where raw materials are testedand soft drink samples are analyzed.

 

As of December 31, 2007, we had total installedannual production capacity, including soft drinks, fruit waters and juices, of556 million unit cases. Our primary facilities include:

 

·                          through Embotelladora Andina, in the Chileanterritory,  one soft drink productionfacility with eight production lines with total installed annual capacity of157 million unit cases (28% of our total installed annual capacity);

 

·                          through Vital S.A. in the Chilean territory,one fruit juice production facility, with six production lines, with totalinstalled annual capacity of 21 million unit cases (4% of our totalinstalled annual capacity);

 

·                          through Vital Aguas S.A. in the Chileanterritory, one mineral water production facility, with four production lines,with total installed annual capacity of 28 million unit cases (5% of ourtotal installed annual capacity);

 

·                          through Rio de Janeiro Refrescos in theBrazilian territory, two soft drink production facilities with elevenproduction lines with total installed annual capacity of 209 million unitcases (38% of our total installed annual capacity); and

 

·                          through Embotelladora del Atlántico in theArgentine territory, one soft drink production facility with seven productionlines with a total installed annual capacity of 141 million unit cases(25% of our total installed annual capacity).

 

**ITEM 4A.****                    ****UNRESOLVED SECURITIES ANDEXCHANGE COMMISSION STAFF COMMENTS**

** **

**Not Applicable -**

** **

**ITEM 5.****                             ****OPERATING AND FINANCIALREVIEW AND PROSPECTS**

** **

**Basis of Presentation**

** **

The following discussion should be read inconjunction with and is qualified in its entirety by reference to theConsolidated Financial Statements, including the notes thereto, included inItem 18. We prepare our financial statements in accordance with ChileanGAAP, which differs in certain important respects from U.S. GAAP. Note 30 ofthe notes to the Consolidated Financial Statements provides a description ofthe principal differences between Chilean GAAP and U.S. GAAP and areconciliation to U.S. GAAP of net income and total shareholders’ equity.

 

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Chilean GAAP requires that financial statementsrecognize the effects of inflation. Accordingly, all of our financialinformation, unless otherwise indicated, has been restated to eliminate thedistorting effects of changes in the purchasing power of the Chilean peso onnon-monetary assets and liabilities and shareholders’ equity, such that allsuch information is presented in comparable monetary terms. The generalprice-level gain or loss reflected in the income statement indicates the effectof inflation on our net holdings of monetary assets and liabilities during aperiod of inflation. Assets and liabilities are considered “monetary” forpurposes of general price-level accounting if their amounts are fixed bycontract or otherwise in terms of number of currency units, regardless ofchanges in specific prices or in the general price level. Examples of “monetary”assets and liabilities include accounts receivable, accounts payable and cash.

 

Income reported on a U.S. GAAP basis differs fromthat reported in accordance with Chilean GAAP principally due to basicdifferences in property, plant and equipment, accounting for deferred incometaxes, acquisition through the issuance of shares, difference in accounting forinvestments in related companies and different goodwill amounts, difference inaccounting for translation adjustment of foreign investments, difference injoint venture accounting, and differences in amortization periods for goodwill.The effect of inflation accounting under Chilean GAAP has not been reversed inthe reconciliation to U.S. GAAP. See Note 30 of the notes to the ConsolidatedFinancial Statements.

 

**Factors Affecting Comparability**

** **

During 2007, there were no changes in theapplication of Chilean GAAP as compared to the previous year that couldmaterially affect the comparability of the financial statements.

 

**Critical Accounting Estimates**

** **

*Discussion of critical accountingestimates*

* *

In the ordinary course of business, we have made anumber of estimates and assumptions relating to the reporting of our results ofoperations and financial position in the preparation of financial statements inconformity with Chilean GAAP and U.S. GAAP (with respect to the reconciliationof net income and shareholders’ equity and additional disclosures required byU.S. GAAP). We cannot assure you that actual results will not differ from thoseestimates. We believe that the following discussion addresses our most criticalaccounting policies, which are those that are most important to the portrayalof our financial condition and results of operations and require management’smost difficult, subjective and complex judgments, often as a result of the needto make estimates and assumptions about the effect of matters that areinherently uncertain. For a more detailed discussion of accounting policiessignificant to our operations, please see Note 1 to our Consolidated FinancialStatements.

 

*Allowance for doubtful accounts*

* *

We evaluate the collectibility of our trade accountsreceivable based on a number of factors. In circumstances where we are aware ofa specific customer’s inability to meet its financial obligations to us, aspecific reserve for bad debts is estimated and recorded which reduces therecognized receivable to the estimated amount we believe will ultimately becollected. In addition to specific identification of potential bad customerdebts, bad debt charges are recorded based on, among other factors, our recentloss history and an overall assessment of past due trade accounts receivableoutstanding. As of December 31, 2007, our accounts receivable balance wasCh$74,866 million, net of allowances for doubtful accounts of Ch$1,536 million.Historically, on a consolidated basis, doubtful accounts have averaged lessthan 1% of consolidated net sales.

 

*Property, plant and equipment*

* *

Property, plant and equipment (excluding thetechnical reappraisal that occurred in 1979 which was eliminated in thereconciliation to U.S. GAAP) is recorded at cost plus price-level restatementsand is depreciated on a straight-line basis over the estimated useful lives ofsuch assets. Changes in circumstances such as technological advances, changesto our business model or changes in our capital strategy could result in theactual useful lives differing from our estimates. In those cases where wedetermine that the useful life of property, plant and equipment should beshortened, we depreciate the net book value in excess of the estimated salvagevalue over its revised remaining useful life. Factors such as changes in theplanned use of manufacturing equipment, vending equipment, transportationequipment or software could result in shortened useful lives. We reviewlong-lived assets for impairment whenever events or changes in circumstancesindicate that the carrying amount of any such asset may not be recoverable. Theestimate of future cash flow is based upon, among other things, certain assumptionsabout expected future operating performance. Our estimates of undiscounted cashflows may differ from actual cash flows due to, among other things,technological changes, economic conditions and changes to our business model orchanges in operating performance. If the sum of the projected undiscounted cashflows (excluding interest) is less than the carrying value of the asset, theasset will be written down to its estimated fair value. Free cash flows inBrazil and Argentina 

 

32

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discountedat a rate of 12% resulted in a higher result than the amount for thecorresponding assets (including goodwill) of the Company’s Brazilian andArgentine subsidiaries. Had discounted cash flows been reduced by 15%, theresulting amount would still be sufficient to cover the amount of thecorresponding asset.

 

*Goodwill and other intangibleassets*

* *

Goodwill and other intangible assets are recorded atcost plus price-level restatements and are amortized, principally on astraight-line basis, over the estimated future periods benefited (not exceeding20 years). Intangible assets consist primarily of bottling and distributionrights in specific territories. Goodwill and other intangible assets areperiodically reviewed for impairment whenever events or changes occur thatindicate the carrying value of the business or assets to which they relate maynot be recoverable. As such events or changes occur, management estimates thefuture cash flows expected to result from the use and, if applicable, theeventual disposition of the assets and related goodwill. The key variableswhich management must estimate include sales volume, prices, marketing expensesand other economic factors. Significant management judgment is involved inestimating these variables, and they include inherent uncertainties; however,the assumptions used are consistent with our internal planning. Therefore,management periodically evaluates and updates the estimates based on theconditions that influence these variables. If such assets are consideredimpaired, they are written down to fair value as appropriate. In 2001, weadopted the provisions of Statement of Financial Accounting Standards No. 142,“Goodwill and Other Intangible Assets,” for the purposes of U.S. GAAPreporting. We performed the impairment tests of our goodwill and concluded thatno impairment charge was necessary.

 

*Deferred tax assets*

* *

We record a valuation allowance to reduce thecarrying value of our deferred tax assets to an amount that is more likely tobe realized. While we have considered future taxable income and prudent andfeasible tax planning strategies in assessing the need for the valuationallowance, should we determine that it would not be possible to realize all orpart of net deferred tax assets in the future, an adjustment to the carryingvalue of the deferred tax assets would be charged to income in the period inwhich such determination was made.

 

*Liability for deposits for bottlesand cases*

* *

We have a liability for deposits received forbottles and cases provided to our customers and distributors. The liabilityrepresents the deposit value that we may be required to remit upon receipt fromthe customer or distributor of the bottles and cases, in good condition, alongwith the original invoice. The liability is not subjected to price levelrestatements as per current agreements with customers and distributors. Weestimate the liability for deposits based on an annual inventory of bottlessold to customers and distributors, estimates of bottles in circulation and aweighted average historical deposit value per bottle or case. Additionally,because the amount of bottles and cases has generally increased over time, theliability is presented as a long-term liability. Significant managementjudgment is involved in estimating the number of bottles in circulation, thedeposit value that could be subject to redemption and the timing ofdisbursements related to this liability.

 

Since February 2001, liability for deposits waschanged to a system in which customers have five years from the date ofinvoicing to recover the deposit after returning the bottles and cases to us ingood condition together with the original invoice. After that date, if thecustomer does not exercise the option, the Company is allowed to reverse theliability in accordance with Chilean GAAP. Due to the time elapsed since theadoption of this policy, no material adverse impact is expected with respect toany liability existing before February 2001.

 

33

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**A.****                    ****Operating Results**

 

The Company primarily produces and distributesCoca-Cola soft drinks in Chile, Brazil and Argentina. In Chile, we also produceand distribute fruit juices, other fruit-flavored beverages and mineral water.In Brazil, we distribute beer, energy drinks, fruit-flavored beverages andNestea iced tea; and in Argentina, we distribute fruit-flavored beverages andsoda water. In addition, we produce PET bottles primarily for our own use andfor sale to other Coca-Cola bottlers in Chile and Argentina.

 

The following table sets forth, for the periodsindicated, the net sales and operating income for the Company’s operations inChile, Brazil and Argentina, respectively, expressed in each case in millionsof Chilean pesos with purchasing power as of December 31, 2007, and as apercentage of consolidated net sales or operating income, as the case may be:

 
| ** **                    | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------|------------|--------------------------------------------|------------|
| ** **                    | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                    | ** ** | **MCh$**                                   | ** ** | **%** | ** ** | **MCh$** | ** ** | **%** | ** ** | **MCh$** | ** ** | **%** | ** ** |
| Net sales:                    |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Chile                         |       | 244,656                                    |       | 38.4 | % | 236,056 |   | 40.2 | % | 227,742 |   | 44.5 | % |
| Brazil                        |       | 269,999                                    |       | 42.4 | % | 235,103 |   | 40.0 | % | 178,201 |   | 34.9 | % |
| Argentina                     |       | 125,274                                    |       | 19.7 | % | 120,235 |   | 20.5 | % | 110,683 |   | 21.6 | % |
| Intercountry eliminations (1) |       | (3,240                                     | )          | -0.5 | % | (4,204 | ) | -0.7 | % | (5,325 | ) | -1.0 | % |
|                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Total                         |       | 636,689                                    |       | 100.0 | % | 587,199 |   | 100.0 | % | 511,301 |   | 100.0 | % |
|                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Operating income:             |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Chile                         |       | 57,107                                     |       | 49.4 | % | 55,409 |   | 54.3 | % | 54,621 |   | 63.9 | % |
| Brazil                        |       | 48,015                                     |       | 41.6 | % | 36,748 |   | 36.0 | % | 21,810 |   | 25.5 | % |
| Argentina                     |       | 13,024                                     |       | 11.3 | % | 12,356 |   | 12.1 | % | 11,603 |   | 13.6 | % |
| Corporate expenses (2)        |       | (2,652                                     | )          | -2.3 | % | (2,416 | ) | -2.4 | % | (2,604 | ) | -3.0 | % |
|                          |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Total                         |       | 115,494                                    |       | 100.0 | % | 102,097 |   | 100.0 | % | 85,430 |   | 100.0 | % |

 

----

(1)                                  Eliminations represent intercompany sales.

 

(2)                                  Corresponds to corporate expenses that arenot distributable in the operations.

 

The following table sets forth, for the periodsindicated, the net sales and operating income contributed by each of ourbusiness segments, expressed in each case in millions of Chilean pesos withpurchasing power as of December 31, 2007, and as a percentage ofconsolidated net sales or operating income, as the case may be:

 
| ** **         | ** ** | **Year ended December 31,** | ** ** |
|--------------------|------------|--------------------------------------------|------------|
| ** **         | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **         | ** ** | **MCh$**                                   | ** ** | **%** | ** ** | **MCh$** | ** ** | **%** | ** ** | **MCh$** | ** ** | **%** | ** ** |
| Net sales:         |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Soft drinks        |       | 559,300                                    |       | 87.8 |   | 517,346 |   | 88.1 |   | 445,358 |   | 87.1 |   |
| Other beverages(1) |       | 71,015                                     |       | 11.2 |   | 62,829 |   | 10.7 |   | 52,744 |   | 10.3 |   |
| Packaging          |       | 6,374                                      |       | 1.0 |   | 7,015 |   | 1.2 |   | 13,199 |   | 2.6 |   |
| Total              |       | 636,689                                    |       | 100.0 |   | 587,190 |   | 100.0 |   | 511,301 |   | 100.0 |   |
|               |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Operating income:  |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Soft drinks        |       | 107,000                                    |       | 92.6 |   | 91,888 |   | 90.0 |   | 75,492 |   | 88.4 |   |
| Other beverages(1) |       | 6,775                                      |       | 5.9 |   | 8,070 |   | 7.9 |   | 7,630 |   | 8.9 |   |
| Packaging          |       | 1,719                                      |       | 1.5 |   | 2,139 |   | 2.1 |   | 2,308 |   | 2.7 |   |
| Total              |       | 115,494                                    |       | 100.0 |   | 102,097 |   | 100.0 |   | 85,430 |   | 100.0 |   |

 

34

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----

(1)                   Includes, in Chile, waters and juices; inBrazil, beer, water, energy drinks, Nestea products and fruit flavored juices;and in Argentina fruit flavored waters and juices.

 

The following table sets forth, for the periodsindicated, information derived from our consolidated income statements,expressed in millions of Chilean pesos with purchasing power as of December 31,2007:

 
| ** **                            | ** ** | **Year ended December 31,**           | ** ** |
|---------------------------------------|------------|------------------------------------------------------|------------|
| ** **                            | ** ** | **2007**                                             | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                            | ** ** | **(amounts in millions of Ch$)** | ** ** |
| ** **                            | ** ** | **MCh$**                                             | ** ** | **%** | ** ** | **MCh$** | ** ** | **%** | ** ** | **MCh$** | ** ** | **%** | ** ** |
| Net sales                             |       | 636,689                                              |       | 100 | % | 587,190 |   | 100 | % | 511,301 |   | 100 | % |
| Cost of sales                         |       | (351,452                                             | )          | -55.2 | % | (335,171 | ) | -57.1 | % | (301,775 | ) | -59.0 | % |
|                                  |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Gross profit                          |       | 285,237                                              |       | 44.8 | % | 252,019 |   | 42.9 | % | 209,526 |   | 41.0 | % |
| Administrative and selling expenses   |       | (169,743                                             | )          | -26.7 | % | (149,922 | ) | -25.5 | % | (124,096 | ) | -24.3 | % |
| Operating income                      |       | 115,494                                              |       | 18.1 | % | 102,097 |   | 17.4 | % | 85,430 |   | 16.7 | % |
|                                  |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Non-operating income (expenses), net  |       | (6,979                                               | )          | -1.1 | % | (7,649 | ) | -1.3 | % | (14,619 | ) | -2.9 | % |
| Income taxes, minority interest (net) |       | (26,913                                              | )          | -4.2 | % | (14,591 | ) | -2.5 | % | (9,361 | ) | -1.8 | % |
|                                  |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Net income                            |       | 81,602                                               |       | 12.8 | % | 79,857 |   | 13.6 | % | 61,450 |   | 12.0 | % |

 

**Results of Operations for the Years Ended December 31,2007 and 2006**

 
| ** **                             | ** ** | **Chile**                               | ** ** | **Brazil** | ** ** | **Argentina** | ** ** | **Total(1)** | ** ** |
|----------------------------------------|------------|-----------------------------------------|------------|------------|------------|---------------|------------|--------------|------------|
| ** **                             | ** ** | **2007**                                | ** ** | **2006**   | ** ** | **2007**      | ** ** | **2006**     | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                             | ** ** | **(in millions of Ch$)** | ** ** |
| Net sales                              |       | 244,656                                 |       | 236,056    |       | 269,999       |       | 235,103      |       | 125,274 |   | 120,235 |   | 636,689 |   | 587,190 |   |
| Cost of sales                          |       | (136,039                                | )          | (131,330   | )          | (142,714      | )          | (132,077     | )          | (75,939 | ) | (75,967 | ) | (351,452 | ) | (335,171 | ) |
| Gross profit                           |       | 108,617                                 |       | 104,726    |       | 127,285       |       | 103,026      |       | 49,335 |   | 44,268 |   | 285,237 |   | 252,019 |   |
| Administrative and selling expenses(2) |       | (51,511                                 | )          | (49,317    | )          | (79,270       | )          | (66,278      | )          | (36,311 | ) | (31,912 | ) | (167,092 | ) | (147,506 | ) |
| Corporate expenses                     |       |                                    |       |       |       |          |       |         |       |   |   |   |   | (2,651 | ) | (2,416 | ) |
| Operating income                       |       | 57,107                                  |       | 55,409     |       | 48,015        |       | 36,748       |       | 13,024 |   | 12,356 |   | 115,494 |   | 102,097 |   |

 

----

(1)                  The total does not equal the sum of all thefranchise territories due to intercountry eliminations.

(2)                  The majority of corporate expenses weredistributed in the operations.

 

***Net Sales***

 

Our consolidated net sales in 2007 were Ch$636,689million, representing a 8.4% improvement over the Ch$587,190 million recordedin 2006. Consolidated Sales Volume amounted to 441.3 million unit cases,reflecting a 6.3% growth. Soft drinks grew 5.4%, waters 8.5% and juices 26.8%.This reflects that in the three countries where we operate, the consumption ofour main products (soft drinks) has increased, also consolidating growthopportunities through waters, juices and beer, which altogether grew 16.9%. Netsales of Coca-Cola soft drinks represented 87.8% of total Consolidated NetSales, reflecting a decrease compared to the year 2006.

 

35

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In Chile, total net sales amounted to Ch$244,656million in 2007, which shows a 3.6% increase when comparing to 2006. Theincrease of total net sales in Chile was as a result of a 5.3% increase insales volume amounting to 151.3 million unit cases, partially offset by alower average income, due to a change of the product mix. In year 2007, ouraverage volume market share in the soft drink market in Chile decreased from67.8% during 2006 to 67.4% primarily due to price increases carried out duringthe year, however, we maintain our strong competitive position. Our averagevalue market share was 70.6% during 2007 compared to 70.8% in 2006.

 

Soft drink net sales in Chile amounted to Ch$202,820million during 2007, representing a 3.6% increase regarding the previous year,principally explained by a 4.1% increase of soft drink volumes.Net sales offruit waters and juices in Chile was Ch$41,836 million in 2007, showing anincrease of 4.0% from 2006. This growth was led by an increase of sales volumeof these segments, especially the Juice category, with an 18.0% growth.

 

In Brazil, net sales in 2007 reached Ch$269,999million, 14.8% higher than in 2006. Net sales of Coca-Cola soft drinks inBrazil were Ch$242,793 million, representing a 13.4% increase compared to 2006.This increase is principally explained by the increase in soft drinks volume of6.1% from 2006, reaching 164.9 million unit cases in 2006 as a result ofprice adjustments carried out during 2006 in Brazil and exchange rates thatbenefited the conversion of figures. The increase of soft drink net sales perunit case was 6.9%. The 10.3% average appreciation of the Brazilian real had apositive impact upon the translation of figures, which was partially offset bythe 6.7% appreciation of the Chilean peso end of period exchange rate.

 

On the other hand, the Company’s beer, waters andjuices operations in Brazil generated net sales in 2007 of Ch$27,206 million,representing a 30.0% increase from 2006.

 

In Argentina, net sales in 2007 were Ch$125,274million, representing an 4.2% increase from 2006. This increase is principallyexplained by higher sales volume of 5.9% and price adjustments during theperiod, partially offset by the effect upon translation of figures dueto thedevaluation of the Argentine peso (1.4% average for the period). Sales volumeof Coca-Cola soft drinks in 2006 grew 5.7% from 2006, amounting to113.6 million unit cases of soft drinks sold, impulsed by the launch ofCoca-Cola Zero in the Light segment (3.5% of the soft drinks portfolio) and theincrease in salaries.

 

Net sales of PET packaging in Argentina wereCh$9,614  million in 2007, representing adecrease of 14.3% compared to 2006, explained by changes in the business modeland a lower resin prices.

 

***Cost of Sales***

 

Cost of sales were Ch$351,452 million in 2007,representing 55.2% of net sales, compared to Ch$335,171 million, or 57.1% ofnet sales in 2006. The decrease in cost of sales as a percentage of net salesin 2007 was principally due to the decrease of PET resin costs and the positiveeffect of the revaluation of currencies, partially offset by the increase insugar and labor costs.

 

For our Chilean operations, cost of sales represented55.6% of Chilean net sales for both 2007 and 2006. For our Brazilianoperations, cost of sales represented 52.9% of Brazilian net sales in 2007,compared to 56.2% in 2006. For the Argentine operations, cost of salesrepresented 60.6% of Argentine net sales in 2007, compared to 63.2% in 2006.

 

***Gross Profit***

 

Due to the aforementioned, gross profit in 2007increased by 13.2%, reaching Ch$285,237 million, or 44.8% of net sales,compared to Ch$252,019 million, or 42.9% of net sales in 2006.

 

***Administrativeand Selling Expenses***

 

Selling and administrative expenses amounted toCh$167,092 million in 2007, this represented 26.2% of net sales for 2007 and a13.3% growth with respect to the Ch$147,506 million in 2006, that represented25.1% of net sales for that year. As a percentage of net sales, the Company’sChilean operations recorded selling and administrative expenses of 21.1% in2007 compared to 20.8% in 2006. Selling and administrative expenses in ourBrazilian operations were 29.4% in 2007 compared with 28.2% in 2006 and theselling and administrative expenses in our Argentine operations were 29.0% in2007 compared with 26.5% in 2006.

 

In Chile, selling and administrative expenses in2007 increased by 4.4%, in Brazil 19.6%, and in Argentina 13.8% from 2006.These higher selling and administrative expenses are, in general terms,explained by increases in freight distribution expenses as a result of greaterfuel prices and higher volumes. Higher selling and administrative expenses inArgentina were also due to increases in wages due to government decrees andstrong pressures from labor unions. Higher selling and 

 

36

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administrativeexpenses in Brazil were also impacted by the figure conversion effect, giventhe higher average appreciation of the real over the depreciation of the end ofperiod Chilean peso.

 

***Operating Income***

 

As a consequence of the aforementioned, operatingincome increased 13.1% in 2007, amounting to Ch$115,494 million, or 18.1% ofnet sales, compared to Ch$102,097 million, or 17.4% of net sales in 2006.

*** ***

***Non-operatingIncome (Expense), Net***

 

The following table sets forth, for the periodsindicated, the items of non-operating income (expense), net:

 
| ** **                                        | ** ** | **As of December 31,** | ** ** |
|---------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                        | ** ** | **2007**                              | ** ** | **2006** | ** ** |
| ** **                                        | ** ** | **MCh$**                              | ** ** | **MCh$** | ** ** |
| Financial income                                  |       | 22,935                                |       | 13,460 |   |
| Share of income  from affiliated companies        |       | 668                                   |       | 554 |   |
| Other  non-operating income                       |       | 12,130                                |       | 6,117 |   |
| Amortization of  goodwill                         |       | (6,503                                | )          | (6,984 | ) |
| Financial  expenses                               |       | (15,161                               | )          | (16,510 | ) |
| Other  non-operating expenses                     |       | (6,535                                | )          | (7,930 | ) |
| Price-level  restatement and exchange gain (loss) |       | (14,513                               | )          | 3,644 |   |
|                                              |       |                                  |       |   |   |
| Non-operating  income (expense), net              |       | (6,979                                | )          | (7,649 | ) |

 

Non-operating income (expense), net, was a loss of Ch$6,979 million in2007, compared to a loss of Ch$7,649 million in 2006, representing a decreaseof 8.8% in 2007 compared to 2006.

*** ***

***Income Taxes***

 

Income taxes in 2007 increased 84.6% to Ch$26,870million compared to Ch$14,558 million in 2006. The increase is principallyexplained by:

 

·         higher profits in the three operations

 

·         increased charges to results due to deferred taxes in Brazil, resultingfrom financial earnings from the effect of revaluation of the real with respectto the U.S. dollar over liabilities in U.S. dollars.

 

·         Increased charges to results due to income taxes resulting from theextinction of tax loss carry forwards.

*** ***

***Net Income***

 

As a result of the aforementioned, net income in2007 was Ch$81,602 million, representing 12.8% of net sales and an increase of2.2% compared to net income of Ch$79,857 million in 2006.

 

37

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**Results of Operations for the Years Ended December 31,2006 and 2005**

** **
| ** **                          | ** ** | **Chile**                               | ** ** | **Brazil** | ** ** | **Argentina** | ** ** | **Total(1)** | ** ** |
|-------------------------------------|------------|-----------------------------------------|------------|------------|------------|---------------|------------|--------------|------------|
| ** **                          | ** ** | **2006**                                | ** ** | **2005**   | ** ** | **2006**      | ** ** | **2005**     | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                          | ** ** | **(in millions of Ch$)** | ** ** |
| Net sales                           |       | 236,056                                 |       | 227,742    |       | 235,103       |       | 178,201      |       | 120,235 |   | 110,683 |   | 587,190 |   | 511,301 |   |
| Cost of sales                       |       | (131,330                                | )          | (127,457   | )          | (132,077      | )          | (106,466     | )          | (75,967 | ) | (73,178 | ) | (335,171 | ) | (301,776 | ) |
| Gross profit                        |       | 104,726                                 |       | 100,285    |       | 103,026       |       | 71,736       |       | 44,268 |   | 37,505 |   | 252,019 |   | 209,526 |   |
| Administrative and selling expenses |       | (49,317                                 | )          | (45,663    | )          | (66,278       | )          | (49,925      | )          | (31,912 | ) | (25,902 | ) | (147,506 | ) | (121,492 | ) |
| Corporate expenses (2)              |       |                                    |       |       |       |          |       |         |       |   |   |   |   | (2,416 | ) | (2,604 | ) |
| Operating income                    |       | 55,409                                  |       | 54,621     |       | 36,748        |       | 21,810       |       | 12,356 |   | 11,603 |   | 102,097 |   | 85,430 |   |

 

----

(1)   The total does not equal the sum of all the franchise territories dueto intercountry eliminations.

(2)   Corresponds to corporate expenses that are not distributable in theoperations.

 

***Net Sales***

 

Our consolidated net sales in 2006 were Ch$587,190million, representing a 14.8% improvement over the Ch$511,301 million recordedin 2005. Consolidated Sales Volume amounted to 415.1 million unit cases,reflecting a 6.6% growth. Soft drinks grew 6.0%, waters 10.3% and juices 16.1%.This reflects that in the three countries where we operate, the consumption ofour main products (soft drinks) has increased, also consolidating growthopportunities through waters, juices and beer, which altogether grew 13.7%. Netsales of Coca-Cola soft drinks represented 88.1% of total Consolidated Net Sales,reflecting an increase compared to the year 2005.

 

In Chile, total net sales amounted to Ch$236,056million in 2006, which shows a 3.7% increase when comparing to 2005. Theincrease of total net sales in Chile was as a result of a 6.1% increase in salesvolume amounting to 143.7 million unit cases, partially offset by a loweraverage income, due to a change of the product mix. In year 2006, our averagevolume market share in the soft drink market in Chile decreased from 68.5%during 2005 to 67.8% primarily due to price increases carried out during theyear, however, we maintain our strong competitive position. Our average valuemarket share has remained basically the same from 71.0% in 2005 to 70.8% during2006.

 

Soft drink net sales in Chile amounted to Ch$195,823million during 2006, representing a 2.6% increase regarding the previous year,principally explained by a 4.7% increase of soft drink volumes.Net sales offruit waters and juices in Chile was Ch$40,232 million in 2006, showing anincrease of 9.2% from 2005. This significant growth was led by an increase ofsales volume of these segments, especially the Water category, with a 14.8%growth.

 

In Brazil, net sales in 2006 reached Ch$235,103  million, 31.9% higher than in 2005. Net salesof Coca-Cola soft drinks in Brazil were Ch$214,178 million, representing a31.3% increase compared to 2005. This increase is principally explained by theincrease in soft drinks volume of 5.2% from 2005, reaching 155.4 millionunit cases in 2006 as a result of price adjustments carried out during 2006 inBrazil and exchange rates that benefited the conversion of figures. Theincrease of soft drink net sales per unit case was 24.7%. The devaluation ofthe Chilean end of period exchange rate was 3.9%, which had a positive impactupon the translation of figures, additionally the 11.1% appreciation of theBrazilian real further compensated this effect.

 

On the other hand, the Company’s beer, waters andjuices operations in Brazil generated net sales in 2006 of Ch$20,926 million,representing a 39.3% increase from 2005. Net sales per unit case of theaggregate of beer, waters and juices grew 17.7% explained by price adjustmentsas well as by the positive effect of conversion of figures, already explained.

 

In Argentina, net sales in 2006 were Ch$120,235million, representing an 8.6% increase from 2005. This increase is principallyexplained by higher total sales volume of 8.8% during 2006 and constant prices,partially offset by the 4.9%

 

38

----

 

averagedevaluation of the Argentine. Sales volume of Coca-Cola soft drinks in 2006grew 8.8% from 2005, amounting to 107.5 million unit cases of soft drinkssold. The Light segment has continued expanding, achieving a 21.5% growth andrepresenting over 6% of the total portfolio of products.

 

Net sales of PET packaging in Argentina wereCh$11,220 million in 2006, representing a decrease of 39.4% compared to 2005,explained by changes in the business model and a lower resin prices.

*** ***

***Cost of Sales***

 

Cost of sales were Ch$335,171 million in 2006,representing 57.1% of net sales, compared to Ch$301,776 million, or 59.0% ofnet sales in 2005. The decrease in cost of sales as a percentage of net salesin 2006 was principally due to the cost pressures that we observed during 2006(that led to a 4.2% increase of the cost of sales per unit case in real terms),were lower than the price adjustments carried out in Chile, Brazil andArgentina. The increased cost of sales is mainly due to the increase in thecost of sugar in Brazil and the effect of translating figures, partially offsetby the decrease of the price of resin.

 

For our Chilean operations, cost of salesrepresented 55.6% compared to 56.0% of Chilean net sales in 2005. For ourBrazilian operations, cost of sales represented 56.2% of Brazilian net sales in2006, compared to 59.7% in 2005. For the Argentine operations, cost of salesrepresented 63.2% of Argentine net sales in 2006, compared to 66.1% in 2005.

*** ***

***Gross Profit***

 

Due to the aforementioned, gross profit in 2006increased by 20.3%, reaching Ch$252,019 million, or 42.9% of net sales,compared to Ch$209,526 million, or 41.0% of net sales in 2005.

*** ***

***Administrativeand Selling Expenses***

 

Selling and administrative expenses amounted toCh$147,506 million in 2006, this represented 25.1% of net sales for 2006 and a21.4% growth with respect to the Ch$121,492 million in 2005, that represented23.8% of net sales for that year. As a percentage of net sales, the Company’sChilean operations recorded selling and administrative expenses of 20.9% in2006 compared to 20.1% in 2005. Selling and administrative expenses in ourBrazilian operations were 28.2% in 2006 compared with 28.0% in 2005 and theselling and administrative expenses in our Argentine operations were 26.5% in2006 compared with 23.4% in 2005.

 

In Chile, selling and administrative expenses in2006 increased by 8.0%, in Brazil 32.8%, and in Argentina 23.2% from 2005.These higher selling and administrative expenses are, in general terms, explainedby increases in freight distribution expenses as a result of greater fuelprices and higher volumes. Higher selling and administrative expenses inArgentina were also due to increases in wages due to government decrees andstrong pressures from labor unions. Higher selling and administrative expensesin Brazil were also impacted by the figure conversion effect, given the higheraverage appreciation of the real over the depreciation of the end of periodChilean peso.

*** ***

***Operating Income***

 

As a consequence of the aforementioned, operatingincome increased 19.5% in 2006, amounting to Ch$102,097 million, or 17.4% ofnet sales, compared to Ch$85,430 million, or 16.7% of net sales in 2005.

 

***Non-operatingIncome (Expense), Net***

 

The following table sets forth, for the periodsindicated, the items of non-operating income (expense), net:

 
| ** **                                       | ** ** | **As of December 31,** | ** ** |
|--------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                       | ** ** | **2006**                              | ** ** | **2005** | ** ** |
| ** **                                       | ** ** | **MCh$**                              | ** ** | **MCh$** | ** ** |
| Financial income                                 |       | 13,460                                |       | 31,276 |   |
| Share of income from affiliated companies        |       | 554                                   |       | 844 |   |
| Other non-operating income                       |       | 6,117                                 |       | 8,019 |   |
| Amortization of goodwill                         |       | (6,984                                | )          | (6,830 | ) |
| Financial expenses                               |       | (16,510                               | )          | (23,151 | ) |
| Other non-operating expenses                     |       | (7,930                                | )          | (8,485 | ) |
| Price-level restatement and exchange gain (loss) |       | 3,644                                 |       | (16,292 | ) |
| Non-operating income (expense), net              |       | (7,649                                | )          | (14,619 | ) |

 

39

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Non-operating income (expense), net, was a loss ofCh$7,649 million in 2006, compared to a loss of Ch$14,619 million in 2005,representing a decrease of 47.7% in 2006 compared to 2005. The principaldifferences between 2006 and 2005 were the following: A lower financial incomeexplained the lower earnings obtained in cross currency swap agreements and theone-time profit recorded during 2005 due to the sale of bonds; this lowerfinancial income was over compensated by earning due to exchange ratedifferences.

*** ***

***Income Taxes***

 

Income taxes in 2006 increased 55.3% to Ch$14,558million compared to Ch$9,374 million in 2005. The increase is principallyexplained by:

 

·         higher profits in the three operations

 

·         improved results in Brazil which resulted inhigher taxable income

 

·         increased charges to results due to deferredtaxes in Brazil, resulting from the elimination of the existing financialprovision to cover an eventual loss relating to a Pis Cofins lawsuit that inthe end had a favorable outcome for the Company.

 

·         Increased charges to results due differedtaxes in Argentina resulting from use of tax loss carry forwards in order tocover tax earnings for the period.

 

***Net Income***

 

As a result of the aforementioned, net income in2006 was Ch$79,857 million, representing 13.6% of net sales and an increase of30.0% compared to net income of Ch$61,450 million in 2005.

 

**Impact of Inflation**

 

Under Chilean GAAP, we are required to restatenon-monetary assets and liabilities, UF- and foreign currency-denominatedassets and liabilities, shareholders’ equity and income and expense accounts,to reflect the effect of variations in the purchasing power of the Chileanpeso. However, Chilean peso-denominated monetary assets and liabilities are notrestated, so inflation has the adverse effect of diminishing the purchasingpower of a company’s monetary assets, which are not price-level indexed, andhas the positive effect of reducing the real value of monetary liabilities. SeeNote 1(c) of the notes to the Consolidated Financial Statements.

 

Non-monetary assets and liabilities, shareholders’equity and income and expense accounts are generally restated using the Chileanconsumer price index, based on the “prior month rule” in which inflationadjustments are based on the consumer price index at the end of the monthpreceding the period end. Monetary assets and liabilities in UF and foreigncurrency are restated at period-end value of UF and exchange rates,respectively.

 

Price-level restatement can have a significanteffect on our net income. The size of the price-level restatement for anyperiod will primarily depend on the amount of local and foreign currency-denominated monetary assets and liabilities and the effect of inflation and theforeign exchange rate on such assets and liabilities. Periods of both moderateinflation and depreciation of the Chilean peso against the U.S. dollar willtend to result in a modest amount of price-level restatement. Conversely, thereal appreciation of the Chilean peso generally leads to a high amount ofprice-level restatement. Given the unpredictable nature of the foreign exchangemarkets and, to a lesser extent, inflation, there can be no assurance thatprice-level restatement will continue to be an insignificant component of netincome or that it will not result in income statement expense in the future.

 

During the third quarter of 1998, Technical BulletinNo. 64 was approved and applied retroactively to January 1, 1998. Inour case, such bulletin required a return to accounting in U.S. dollars for allinvestments outside Chile. This methodology has an effect on results for theperiod and requires that the exchange rate difference be recorded in a reservesub-account of shareholders’ equity.

 

The following table sets forth, for the periodsindicated, variations among the consumer price index, UF and U.S. dollar:

 

40

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| ** **                      | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------|------------|--------------------------------------------|------------|
| ** **                      | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| Consumer price  index variation |       | 7.4                                        | %          | 2.1 | % | 3.6 | % |
| UF variation                    |       | 7.0                                        | %          | 2.0 | % | 3.8 | % |
| U.S. dollar  variation          |       | -6.7                                       | %          | 3.9 | % | -8.1 | % |

 

The effects of price-level restatement aresummarized below:

 
| ** **                                       | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                       | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                       | ** ** | **MCh$**                                   | ** ** | **MCh$** | ** ** | **MCh$** | ** ** |
| Shareholders’ equity                        |       | (15,818                                    | )          | (4,780 | ) | (8,834 | ) |
| Liabilities                                      |       | (9,850                                     | )          | (3,386 | ) | (6,420 | ) |
| Property, plant and equipment                    |       | 6,122                                      |       | 1,600 |   | 2,959 |   |
| Other assets                                     |       | 17,114                                     |       | 6,776 |   | 13,438 |   |
| Balance sheet adjustments                        |       | (2,432                                     | )          | 210 |   | 1,143 |   |
| Income statement adjustments                     |       | (2,110                                     | )          | (550 | ) | (1,768 | ) |
| Foreign exchange (loss) gain                     |       | (9,971                                     | )          | 3,984 |   | (15,667 | ) |
| Price-level restatement and exchange (loss) gain |       | (14,513                                    | )          | 3,644 |   | (16,292 | ) |

 

**Impact of Foreign Currency Fluctuations**

 

We use numerous raw materials, including sugar,resin, and aluminum in producing beverages and containers. We purchase theseraw materials from both domestic and international suppliers. See “Item 4.Information on the Company—Part B. Business Overview—Soft DrinkBusiness—Raw Materials and Supplies.” Because we often are required to purchaseraw materials in the international markets using U.S. dollars, we are subjectto local currency risk in each country where we have operations. If the Chileanpeso, Brazilian real or Argentine peso were to devalue against the U.S. dollar,the cost of certain raw materials could rise significantly, which, in turn,could adversely affect our net income. We cannot assure you that thesecurrencies will not lose value against the U.S. dollar in the future.

 

In Chile we had losses of Ch$9,971 million in 2007due to the revaluation of the Chilean peso, compared to a positive impact offoreign currency fluctuations in 2006 in the amount of approximately Ch$3,984million, due to our net asset position in U.S. dollars amounting to a total ofapproximately US$138 million. In Argentina and Brazil we recognized profitsamounting in the aggregate to Ch$2,798 million in 2007 and Ch$434 million in2006. These resulted from the application of the Argentine and Brazilianexchange rates in the currency conversion undertaken in our financialstatements as of December 31, 2007 and 2006, in accordance with themethodology set forth in Technical Bulletin No. 64 issued by the ChileanInstitute of Accountants, which are reflected on our consolidated statements ofincome in other non-operating income.

 

We use hedge agreements, including cross-currencyswaps and forwards, to protect against foreign currency risk. In 2005, 2006 and2007, these agreements partially offset the effects of the variation of theChilean peso exchange rate, whose results are recorded in financial income orexpense in the consolidated statements of income. For further information aboutthe instruments we use to protect against foreign currency risk, see “Item 11.Quantitative and Qualitative Disclosures about Market Risk—Foreign CurrencyRisk.”

 

**Impact of Governmental Policies**

 

Our business is dependent upon the economicconditions prevailing in our countries of operation. Various governmental economic,fiscal, monetary and political policies, such as those related to inflation orforeign exchange, may affect these economic conditions, and in turn may impactour business. These government policies may also affect investments by ourshareholders.

 

41

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Please refer to “Item 3. Key Information—RiskFactors—Risk Factors Relating to the ADSs and the Shares” and “Item 10.Additional Information,” for a discussion of governmental and political factorsthat could materially affect investments by U.S. shareholders. Furtherreference in this respect is made to the factors discussed under “Item 3. KeyInformation—Risk Factors—Risks Relating to Chile—Exchange controls andwithholding taxes in Chile may limit repatriation of your investment.” For adiscussion of governmental economic, fiscal, monetary and political policiesthat could materially affect our operations, see “Item 3. Key Information—RiskFactors—Risks Relating to Chile,” “—Risks Relating to Brazil” and “—RisksRelating to Argentina.”

** **

**B.****      ****Liquidity and Capital Resources**

*** ***

***Capital Resources***

 

Our principal source of funding is our operationswhich historically have been a sufficient source of financing. Cash generationis designated to finance working capital and capital expenditure requirements.Cash surplus has been utilized to pay dividends. The main sources to financefuture strategic and geographic expansion plans include (i) public equityofferings and privately negotiated share subscriptions; (ii) borrowingsfrom commercial banks, both internationally and in the local markets where wehave operations, namely, Chile, Brazil and Argentina; and (iii) debtofferings in the Chilean and foreign capital markets.

 

There are no restrictions to transfer funds amongour operating subsidiaries. In the past, we have transferred funds fromArgentina to Chile through capital reductions and during 2006 and 2007 wereceived dividends from our Brazilian subsidiary, and we also expect to receivethem in 2008.

 

Our management believes that, through these sources,we have sufficient financial resources available to maintain our currentoperations and provide for our current capital expenditure and working capitalrequirements, scheduled debt payments, interest and income tax payments anddividends to shareholders. The amount and frequency of future dividends will bedetermined by the General Shareholders’ Meeting upon the proposal of our boardof directors in light of our earnings and financial condition at such time, andwe cannot assure you that dividends will be declared in the future, except forthe minimum 30% of annual profits required by Chilean law.

*** ***

***Treasury andFunding Policies***

 

Our board of directors has been empowered by ourshareholders to define our financing and investment policies. Our bylaws do notdefine a strict financing structure, nor do they limit the types of investmentswe may make. Traditionally, we have preferred to use our own resources tofinance our investments.

 

Our financing policy is that each subsidiary shouldfinance its own operations. From this perspective, each subsidiary’s managementmust focus on cash generation and should establish clear targets for operatingincome, capital expenditures and levels of working capital. These targets arereviewed on a monthly basis to ensure that their objectives are met. Shouldincreased financing needs arise, either as a result of a cash deficit or totake advantage of market opportunities, our policy is to prefer local financingto allow for natural hedging. If local financing conditions are not acceptable,because of costs or other constraints, Andina will provide financing.

 

Our cash surplus policy is that Andina invests anycash surplus in a portfolio of investment grade securities until such time asour board of directors makes a final decision as to the disposition of thesurplus.

 

Derivative instruments are utilized only forbusiness purposes, and never for speculative purposes. Forward currencycontracts are used to cover the risk of local currency devaluation relative tothe U.S. dollar in an amount approximately equal to our budgeted purchases ofU.S. dollar-denominated raw materials. Depending on market conditions, insteadof forward currency contracts, from time to time we prefer to utilize our cash surplusto purchase raw materials in advance to obtain better prices and a fixedexchange rate.

*** ***

***InvestingActivities***

 

Additions to property, plants and equipment during2007 totaled Ch$56,024 million. Capital expenditures during 2007 were fundedwith cash flows from operations.

 

At December 31, 2007, we had no materialcommitments for the purchase of capital assets other than those related tonormal replacement of equipment. Our management anticipates that additions toproperty, plant and equipment in 2008 will be in the range of US$114 millionand plans to fund such additions through cash flows from operations.

 

42

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We believe that cash flow generated by operations,cash balances, available lines of credit, including from suppliers, andborrowings from third parties, are currently sufficient to meet our workingcapital, debt service and capital expenditure requirements.

*** ***

***FinancingActivities***

 

As of December 31, 2007, we had Ch$139,149million invested in time deposits and other short-term and long-terminvestments.  As of that date, we hadavailable short-term credit lines in an amount equivalent to approximatelyCh$102,327 million (US$205.9 million). The aggregate unused portion of suchlines of credit at that date was equivalent to Ch$98,618 million (US$198.5million).

 

Our unused sources of liquidity include 15 lines ofcredit. In Chile, we had the equivalent of Ch$6,611 million in credit availablefrom three separate lines. In Brazil, we had the equivalent of Ch$78,359million in credit available with eight lines. In Argentina, we had theequivalent of Ch$17,357 million in credit available with four lines.

 

In 2007, our available cash was principally used forinvestments in fixed assets of Ch$56,024 million and dividend payments ofCh$78,348 million. In 2006, the principal uses of cash were investments infixed assets of Ch$39,743 million and dividend payments of Ch$79,136 million.

*** ***

***Liabilities***

 

For the period ending December 31, 2007, ourtotal liabilities, excluding minority interest, were Ch$257,992 million,representing a 1.1% increase compared to December 31, 2006. The increasein total liabilities resulted principally from a reduction in short andlong-term bond debt, partially offset by higher income tax provision, deferredtaxes and accounts payable. As of December 31, 2007, our long termliabilities included (i) long-term bank debt of Ch$741 million, (ii) long-termbond debt of Ch$73,598 million, (iii) long-term notes outstanding of Ch$80million, and (iv) long term notes and accounts payable to relatedcompanies of Ch$3,341 million (v) long term deferred taxes of Ch$12,376million, and (vi) other long-term accrued liabilities and provisions ofCh$29,193 million, for a total of Ch$119,327 million of long-term liabilitiescompared to total long-term liabilities of Ch$119,673 million as of December 31,2006.

 

Our short term liabilities, as of December 31,2007 included (i) short-term bank debt of Ch$3,951 million, (ii) currentportion of long-term bank liabilities of Ch$122 million, (iii) currentportion of long-term bond debt of Ch$6,914 million, (iv) trade accountspayable of Ch$54,585 million, (v) notes payable to related companies ofCh$19,157 million, and (vi) other short-term liabilities, principally provisions,withholdings and income tax payable, for Ch$53,936 million, for a total ofCh$138,665 million of short-term liabilities compared to total short-termliabilities of Ch$135,612  million as of December 31,2006.

 

As of December 31, 2007, our bond liabilitieshad a weighted average interest rate of 6.48% while our bank liabilities had aweighted average interest rate of 6.06%.

** **

**Summary of Significant Debt Instruments**

 

The following is a brief summary of our significantlong-term indebtedness outstanding as of December 31, 2007:

* *

*Unsecured Notes*. On October 1, 1997 we entered into anindenture pursuant to which we issued three series of bonds. The indentureimposes certain restrictions on liens, sale and leaseback transactions,assets sales and subsidiary indebtedness and certain conditions in the event ofmerger or consolidation.

 

The three series of bonds issued in 1997 under thisindenture are the following:

 

·         US$150 million of 7.00% Unsecured Notes due2007;

 

·         US$100 million of 7.625% Unsecured Notes due2027; and

 

·         US$100 million of 7.875% Unsecured Notes due2097.

 

On July 10, 2001, through our subsidiary TheSterling Pacific Corp, S.A., (now Abisa Corp.), we made an offer to repurchasefor cash at par value the notes outstanding and the following notes weretendered:

 

·         US$118 million of the 7.00% Unsecured Notesdue 2007;

 

·         US$96 million of the 7.625% Unsecured Notesdue 2027; and

 

·         US$100 million of the 7.875% Notes due 2097.

 

43

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On Novemeber 28, 2007, through our subsidiary AbisaCorp we purchased US$ 2 million of the 7.625% Unsecured Notes due 2027.

 

On June 13, 2001, Andina completed a local bondplacement in the Chilean capital markets of two series of bonds as follows:

 

·         UF 3.3 million series of bonds due 2008with annual interest rate over inflation of 6.20% of which, UF0.33 million was outstanding at December 31, 2007; and

 

·         UF 3.7 million series of bonds due 2026,with annual interest rate over inflation of 6.50%, being outstanding at December 31,2007.

 

The bond issue and placement in the Chilean marketis subject to the following restrictions:

 

·         Andina must maintain a leverage ratio,defined as total debt/consolidated equity, of less than 1.20%. For purposes ofcalculating the leverage ratio, total debt includes (i) short-term bankliabilities, (ii) the current portion of long-term bank liabilities, (iii) short-termliabilities and promissory notes, (iv) the current portion of bondspayable, (v) long-term bank liabilities, and (vi) long-term bondspayable. Consolidated equity means total shareholders’ equity plus minorityinterest.

 

·         Andina must maintain consolidated assets freeof any pledge, mortgage or other encumbrances for an amount equal to at least1.30 times the consolidated liabilities that are not guaranteed by theinvestee.

 

·         Andina may not lease, sell, assign or disposeof the franchise territory in Chile.

 

·         Andina may not lease, sell, deliver ordispose of its franchise territory in Argentina or Brazil, as long as eitherterritory represents more than 40% of Andina’s consolidated operating cashflows.

 

**C.****      ****Research and development, patents and licenses**

 

Given the nature of the business and the supportprovided by The Coca-Cola Company as franchisor to its bottlers, the Company’sresearch and development expenses are not meaningful. For more information onpatents and licenses, see “Item 4. Information on the Company — Part B.Business Overview — Patents and Licenses”.

 

**D.****      ****Trend Information**

 

Our results will likely continue to be influenced bychanges in the level of consumer demand in the countries in which we operate,particularly Argentina and Brazil, resulting from economic measures that thegovernments of those countries have implemented, or may implement in thefuture.

 

Additionally, principal raw materials used in theproduction of soft drinks, such as sugar and resin, may experience priceincreases in the future. Such price increases may affect our results if we areunable to pass the cost increases on to the sales price of our products due todepressed consumer demand and/or heightened competition.

 

Increased competition from low-price brands isanother factor that could limit our ability to grow, and thus negatively affectour results.

 

Finally, exchange rate fluctuations, in particularthe potential devaluations relative to the U.S. dollar of local currencies inthe countries in which we operate, may adversely affect our results because ofthe impact on the cost of U.S. dollar-denominated raw materials and theconversion of monetary assets.

 

**E.****       ****Off-Balance SheetArrangements**

 

We do not have any off-balance sheet arrangements.

 

**F.****       ****Contractual Obligations**

 

The following table summarizes our contractualobligations and commercial commitments as of December 31, 2007:

 

44

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| ** **                             | ** ** | ** **                                                                                             | ** ** | **Payments Due by Period** | ** ** |
|----------------------------------------|------------|--------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                             | ** ** | ** **                                                                                             | ** ** | **Years**                                 | ** ** |
| ** **                             | ** ** | **Total**                                                                                              | ** ** | **Less than  1 Year**           | ** ** | **1-3  Years** | ** ** | **3-5  Years** | ** ** | **More than  5 Years** | ** ** |
| ** **                             | ** ** | **(in millions of constant Ch$ as of December 31, 2007)** | ** ** |
| ** **                             | ** ** | **MCh$**                                                                                               | ** ** | **MCh$**                                  | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** |
| Long-term  debt(1)                     |       | 1,060                                                                                                  |       | 208                                       |       | 565 |   | 287 |   | — |   |
| Short-term debt                        |       | 4,000                                                                                                  |       | 4,000                                     |       | — |   | — |   | — |   |
| Bonds payable(2)                       |       | 130,098                                                                                                |       | 11,876                                    |       | 15,753 |   | 16,837 |   | 85,632 |   |
| Operating lease  obligations           |       | 1,465                                                                                                  |       | 1,465                                     |       | — |   | — |   | — |   |
| Purchase  obligations                  |       | 29,285                                                                                                 |       | 19,105                                    |       | 9,848 |   | 332 |   | — |   |
| Other short and  long term obligations |       | 13,194                                                                                                 |       | 3,871                                     |       | 6,870 |   | 2,453 |   | — |   |
|                                   |       |                                                                                                   |       |                                      |       |   |   |   |   |   |   |
| Total  contractual obligations         | ** ** | **179,102**                                                                                            | ** ** | **40,525**                                | ** ** | **33,036** | ** ** | **19,909** | ** ** | **85,632** | ** ** |

 

----

(1)      See Notes 15(b) and 16 of the Notes to the Consolidated FinancialStatements for additional information.

 

(2)      See Note 17 of the Notes to the Consolidated Financial Statements foradditional information.

 

The following table presents future expirations forthe remaining long term liabilities. These expirations have been made based onaccounting estimates because the liabilities do not have specific dates offuture payment as allowance for severance indemnities, contingencies, deferredtaxes and liabilities for container guarantees are included.

 
| ** **                                                           | ** ** | ** **                                                                                             | ** ** | **Maturity**       | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                           | ** ** | ** **                                                                                             | ** ** | **Years**          | ** ** |
| ** **                                                           | ** ** | **Total**                                                                                              | ** ** | **1-3 Years** | ** ** | **3-5 Years** | ** ** | **More than  5 Years** | ** ** |
| ** **                                                           | ** ** | **(in millions of constant Ch$ as of December 31, 2007)** | ** ** |
| ** **                                                           | ** ** | **MCh$**                                                                                               | ** ** | **MCh$**           | ** ** | **MCh$** | ** ** | **MCh$** | ** ** |
| Provisions                                                           |       | 8,838                                                                                                  |       | 3,175              |       |   |   | 5,663 |   |
| Deferred taxes                                                       |       | 12,376                                                                                                 |       | 12,376             |       |   |   |   |   |
| Other long-term  liabilities                                         |       | 15,605                                                                                                 |       | 7,865              |       | 222 |   | 7,518 |   |
| Total long-term  liabilities not included in contractual obligations |       | 36,819                                                                                                 |       | 23,416             |       | 222 |   | 13,181 |   |

** **

**U.S. GAAP Reconciliation**

 

The principal differences between Chilean GAAP andU.S. GAAP as they relate to us are (i) inflation accounting under ChileanGAAP, which has not been reversed in the reconciliation to U.S. GAAP, (ii) therevaluation and depreciation of certain property, plant and equipment on thebasis of a technical appraisal, (iii) different goodwill amounts anddifferences in amortization for goodwill, (iv) the treatment of mandatoryminimum dividends, (v) difference in accounting for investments in relatedcompanies and joint ventures, (vi) the accounting for deferred incometaxes, (vii) the treatment of investment securities, (viii) theaccounting for the translation adjustment of foreign investments and translationof financial statements of non-Chilean operations; (ix) the accounting forderivative instruments, and (x) the reversal of impairment loss on fixedassets. Note 30 of the notes to the Consolidated Financial Statements providesa description of the principal differences between Chilean GAAP and U.S. GAAPas they relate to us and a reconciliation to U.S. GAAP of net income andshareholders’ equity.

 

Net income after reconciliation to U.S. GAAP wasCh$20,993 million higher in 2005, Ch$2,683 million higher in 2006, and Ch$3,970million higher in 2007, in each case than net income as reported under ChileanGAAP for each respective year. See Note 30(o) of the notes to theConsolidated Financial Statements. Under Chilean GAAP, shareholders’ equity at December 31,2006, was Ch$295,064 million, compared to Ch$308,485 million under U.S. GAAP,representing a

 

45

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differenceof 4.5%. Under Chilean GAAP, shareholders’ equity as of December 31, 2007was Ch$281,149 million, compared to Ch$298,020 million under U.S. GAAP,representing a difference of 6.0%.

** **

**ITEM 6.****         ****DIRECTORS, SENIOR MANAGEMENTAND EMPLOYEES**

 

**Management and Board of Directors**

 

Pursuant to Chilean law, we are managed by a groupof executive officers under the supervision of our board of directors.  The Company’s operations in Chile, Brazil andArgentina report to the Corporate Office.

 

**Principal Officers**

 

Thefollowing table includes information regarding our senior executives:

 
| Jaime García R.      |   | Chief Executive Officer                       |   | Joined  the Company in 1977, as head of the research-studies department. In 1978, he  was appointed general manager of Embotelladora Talca (today part of Embonor  S.A.). In 1979, he was appointed general manager of Embotelladora Concepción  (today part of Embonor S.A.). In 1983, he became financial manager of Andina,  a position he held until 1987, when he was appointed general manager of ISASA  (a subsidiary of Andina). In 1990, he was appointed general manager of  Andina, a position he held until 1993, when he became our chief executive  officer.Date of birth:  November 24, 1953 |
|---------------------------|--------|-----------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |   |                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Michael Cooper A.         |   | Chief Operating Officer                       |   | Joined  the Company in May 2000, as chief operating officer. In 1989, he was  appointed chief executive officer of Inchcape Coca-Cola bottling operations,  with businesses in Chile, Peru and Russia. In 1999, Embonor S.A. bought  Inchcape Chilean and Peruvian bottling operations and he became chief  executive officer of the consolidated entity.Date of birth: May 15, 1948                                                                                                                                                                                                                        |
|                      |   |                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Osvaldo Garay A.          |   | Chief Financial Officer                       |   | Joined  the Company in 1997, as controller of Andina. He was appointed as our chief  financial officer on October 31, 2002. Prior to joining Andina, he held  a similar position with Grupo Claro.Date of birth: April 20, 1948                                                                                                                                                                                                                                                                                                                                                                             |
|                      |   |                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Pedro Pellegrini R.       |   | Chief Legal & Communications Officer |   | Joined  the Company in June 1995, as chief legal & communications. From  1986 to 1992, he worked at Carey & Cia., the largest law firm in  Chile. From 1992 to 1995, he served as a vice president of Citibank, N.A.,  and Citicorp-Chile and was in charge of legal corporate matters.Date of birth: January 13, 1965                                                                                                                                                                                                                                                                    |
|                      |   |                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Raúl Ramírez V. |   | Chief Technical Officer                       |   | Joined  the Company in 1969 as deputy manager of operations from August 1969  until August 1995. In 1995, he was promoted to corporate manager of  engineering, a position he held until December 1996. In  January 1997, he was transferred to our operations in Argentina as  technical manager until July 2000. Since 2000 until the present date he  holds the position of chief technical officer.Date of birth: July 24, 1944                                                                                                                                                     |
|                      |   |                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Gonzalo Vergara D.        |   | Chief CSR and Procurement Officer             |   | Joined  the Company in 1995. He was previously Credit and Collections Manager of  Almacenes Paris S.A. Within Andina he has served in several positions, as  Chief Juices and Waters Corporate Officer and General Manager of the PET  packaging facilities.Date  of birth: June 17, 1948                                                                                                                                                                                                                                                                                                                        |

 

46

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| German Garib N.         |   | Chief Information Officer                                |   | Joined  the Company in 1998, as chief information officer. Prior to Andina, he was  the marketing manager of IBM Chile.Date of birth: August 28, 1961                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|-------------------------|--------|----------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                    |   |                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Renato Ramírez F.  |   | General Manager of Chilean Soft Drink Operation          |   | Joined  the Company in 1979, as general manager of Chilean soft drink operations. He  began working as head of the budget and costs department and, in 1980, was  appointed planning assistant manager. From January 1988 to  August 1990, he was the commercial manager of Embotelladora Williamson  Balfour. From September 1990 to October 1992, he served as  marketing manager for Compañía de Telefonos de Chile. In August 1993, he  returned to Andina as commercial manager, a position he held until 1997. In  March of 1998 he became general manager of the Chilean Soft Drink  Operation.Date of  birth: July 27, 1952                                                                  |
|                    |   |                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Ricardo Gehrke          |   | General Manager ofRio de  Janeiro Refrescos Ltda.        |   | Joined the company in January 2008. He began his  professional career in 1981 at Esso Brasileira de Petróleo working in several  areas, such as Finance, Planning, Sales, Supply, Transportation and  Distribution. In 1995 he was appointed as Senior Counsel of European  Affiliates of Exxon Company International. In 1996 he returned to Esso  Brasileira de Petróleo and held several positions: Senior Counsel, Better  Practices of Retail Operations, Director of Retail Sales and also as  President and Director of Fuels until 2004. From 2004 until 2007 he worked at  the Gerdau Group as Chief Executive Officer of Aços Longos Brasil and Member  of the Executive Committee.Date of Birth: July 6, 1957 |
|                    |   |                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Alejandro A. Feuereisen |   | General Manager ofEmbotelladora  del Atlántico S.A. |   | Joined  the company in 1993. In August of 1998 he was appointed General Manager  of EDASA. From September 1995 to July 1998, he served as the  commercial manager of Embotelladora del Atlántico S.A. From 1993 to 1995, he  was a sales manager at Andina and, from 1981 to 1992, an officer at Citibank,  Santiago de Chile. During the last three years of his tenure at Citibank, he  was vice president of the International Financial Institutions Group. From  1977 to 1980, he served as financial analyst at Leasing Andino S.A., a  subsidiary of Banco de Chile.Date of birth: May 19, 1953                                                                                                                   |
|                    |   |                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Cesar Vargas P.         |   | General Manager of Vital S.A. and Vital Aguas S.A.       |   | Joined  the Company in 1978. Mr. Vargas began working as project engineer and  head of electric maintenance. In 1985, he was appointed head of the juice  division plant of Industrial Sud Andina S.A. in Santiago, a former subsidiary  of Andina, where he was subsequently promoted to deputy production manager of  the juice and mineral water division. In 1992, Vital S.A. was created and he  was appointed operations manager, a position that he held until 1998, when he  was appointed general manager.Date of birth: May 26, 1957                                                                                                                                                                                          |

 

**Compensation Principal Officers**

 

The Company does not have any incentive plans otherthan salaries. The compensation system is a mixed one, composed by a basesalary and participation, which are in accordance with each market and thecompetitive conditions of each one. For General Managers it also considersuse of cash flow versus the budget and market share versus the establishedgoals. Amounts are different depending on each officer, positionand/or responsibility, but it is applicable to all of the Company. For theyear ended December 31, 2007, compensation paid out to the principalofficers of Embotelladora Andina S.A. amounted to Ch$3,751 million(Ch$3,268 million in 2006).   Of the Ch$3,751 million paid to the mainofficers of Embotelladora Andina S.A., the variable portion was 53% and for theperiod ended December 31, 2006 of the Ch$3,268 million paid to the mainofficers of Embotelladora Andina S.A., the variable portion was 56%. There wereno severance

 

47

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paymentsto former managers or former principal officers for the period ended December 31,2007.   We do not make available pulicinformation as to the compensation of of our executive officers on anindividual basis, as disclosure of such information is not required underChilean law.

 

**Board of Directors**

 

In accordance with our bylaws, the board ofdirectors must consist of seven regular directors and seven alternatedirectors. Each director is assigned a specific alternate director. Thedirectors may or may not be shareholders and are elected for a term of threeyears subject to indefinite re-election. In the case of Series A shares,it is necessary to have 14.29% of the total shares represented in ashareholders’ meeting in order to elect one director assuming there is 100%shareholder vote participation. In the case of series B shares, it is necessaryto have a total of 50.1% of the total shares represented in a shareholders’meeting to elect a director if it is also assumed that there is 100%shareholder vote participation. All members of the board of directors arenominated and elected every three years by and during the ordinary annualshareholders’ meeting. Cumulative voting is permitted for the election ofdirectors.

 

In the event of a vacancy, the designated alternatedirector fills the vacancy for the remaining period of the director’s term. Ifthe alternate director is unable or unwilling to serve, the board of directorsmay appoint a replacement to fill the vacancy, and the entire board ofdirectors must be elected or re-elected at the next regularly scheduledshareholders’ meeting.

 

The majority shareholders’ agreement for theelection of directors is contained in Inversiones Freire S.A.’s ShareholderAgreement and further explained on Item 7 “Major Shareholders and RelatedCompanies”. In addition, pursuant to the terms and conditions of the DepositAgreement, if no instructions are received by The Bank of New York, asdepositary, it shall give a discretionary proxy to a person designated by thechairman of the board of directors of Embotelladora Andina with respect to theshares or other deposited securities that represent the ADRs.

 

As of December 31, 2007, our board of directorsconsisted of the following directors and alternate directors:

 
| **Name**                                 | ** ** | **Title**                                | ** ** | **Information**                                                                                                                                                                                                                                                                                                                                                                                                 |
|------------------------------------------|------------|------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Juan  Claro                              |       | Chairman  of the Board of Directors      |       | Has  been a member of the board of directors since April 2004.Principal occupation: Entrepreneur Other directorships: Pesquera Friosur,  Lafarge Chile S.A., Antofagasta Minerals S.A., Antofagasta PLC, Empresas CMPC  S.A.,  Red Televisa Chilevisión S.A., Entel Chile S.A.  Date of birth: November 7, 1950                                                                                  |
|                                     |       |                                     |       |                                                                                                                                                                                                                                                                                                                                                                                                            |
| Salvador  Said (1)                       |       | Vice  Chairman of the Board of Directors |       | Has  been a member of the board of directors since April 1992.Principal occupation: Executive director of  Said Holding Group Other  directorships: Edelpa S.A., Parque Arauco S.A., The Endeavour Initiative  Inc., Isapre Cruz Blanca S.A., BBVA Chile, Leasing, Mutual Funds and  Financial Consulting Subsidiaries, Generación Empresarial y Telmex Chile. Date of birth: September 16, 1964 |
|                                     |       |                                     |       |                                                                                                                                                                                                                                                                                                                                                                                                            |
| José  Antonio Garcés, Jr. |       | Director                                 |       | Has  been a member of the board of directors since May 1991.Principal occupation: General manager of  Inversiones San Andrés Ltda. Other  directorships: Banvida S.A.; Inmobiliaria FFV S.A., Fundación Paternitas,  Viña Montes, Viña Garcés Silva Ltda., and Carnes Ñuble Ltda. Date of birth: March 1, 1966                                                          |
|                                     |       |                                     |       |                                                                                                                                                                                                                                                                                                                                                                                                            |
| Arturo  Majlis                           |       | Director                                 |       | Has  been a member of the board of directors since April 1997.Principal occupation: Principal partner of  the law offices of Grasty, Quintana, Majlis Compañía  Other directorships:  Asesorías e Inversiones Til Til S.A.; Banchile Seguros de Vida.  Date of birth:  April 7, 1962                                                                                                   |
|                                     |       |                                     |       |                                                                                                                                                                                                                                                                                                                                                                                                            |
| James  Robert Quincey                    |       | Director                                 |       | Has  been a member of the board of directors since April 2006.Principal occupation: President of Coca-Cola  de Mexico Other directorships:  Coca-Cola Embonor S.A. Date of  birth: January 8, 1965                                                                                                                                                                                                    |
|                                     |       |                                     |       |                                                                                                                                                                                                                                                                                                                                                                                                            |
| Gonzalo  Said (1)                        |       | Director                                 |       | Has  been a member of the board of directors since May 1993.Principal occupation: General manager and  director of Inversiones Newport Ltda.                                                                                                                                                                                                                                                               |

 

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| **Name**                         | ** ** | **Title**                                                      | ** ** | **Information**                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|----------------------------------|------------|----------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                             |       |                                                           |       | Other  directorships: BBVA Administradora General de Fondos S.A., Inmobiliaria Don  Aurelio Ltda., y Telemercados Europa S.A.Date of birth: October 16, 1964                                                                                                                                                                                                                                                                                                            |
|                             |       |                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Heriberto  Urzúa (2)        |       | Director                                                       |       | Has  been a member of the board of directors since April 2006.Principal occupation: Company directorships Other directorships: Agrícola Ariztía  S.A.,  Inversiones Alsacia S.A., Hortifrut S.A. Promoplan y Otros S.A., RELSA  S.A., Forus S.A., Telmex S.A., y La Polar S.A.  Date of birth: November 28, 1962                                                                                                                                         |
|                             |       |                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Ernesto  Bertelsen               |       | Alternate  Director to Juan Claro                              |       | Has  been a member of the board of directors since April 2006.Principal occupation: Company directorships Other directorships: Banco BBVA and  Factorline S.A. Date of birth:  March 18, 1945                                                                                                                                                                                                                                                                      |
|                             |       |                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| José  Domingo Eluchans      |       | Alternate  Director to Salvador Said.                          |       | Has  been a member of the board of directors since April 2005.Principal  occupation: Partner at José Domingo Eluchans Asesorías Limitada  Other directorships: Banco BBVA, Envases del Pacífico S.A.  Date of birth:  August 6, 1953                                                                                                                                                                                                                |
|                             |       |                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Patricio  Parodi                 |       | Alternate  Director to José Antonio Garcés, Jr. |       | Has  been a member of the board of directors since April 2005.Principal occupation: General manager  Consorcio Financiero S.A. and subsidiaries Other directorships: Banmédica S.A.; Isapre Vida Tres S.A.; Isapre  Banmédica S.A., Help S.A.; Clínica Dávila S.A.; Sociedad Punta del Cobre  S.A.; Pacífico V Región S.A.; Maderas Condor S.A., Salfacorp S.A., Invernova  S.A. and Moletto Hermanos Date  of birth: April 28, 1963 |
|                             |       |                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| José  Miguel Barros         |       | Alternate  Director to Arturo Majlis                           |       | Has  been a member of the board of directors since April 2005.Principal occupation: Director and Partner  of Larrain Vial S.A. Other  directorships: Bata Chile S.A., Cerámica Santiago S.A., Viña Santa Carolina  S.A. and Multiexport Foods S.A. Date  of birth: March 1, 1964                                                                                                                                                                         |
|                             |       |                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Jorge  Hurtado                   |       | Alternate  Director to James Quincey                           |       | Has  been a member of the board of directors since January 1998.Principal occupation: Directing Partner of  Agrícola y Comercial Yerbas Buenas S.A. Other directorships: CMPC Tissue S.A.; Vendomática S.A.; Adviser Drilling S.A., Proemsa S.A.,  Trabajando.com Chile S.A., and Sociedad Anónima de Deportes Club de Golf  Santiago Date of birth:  March 25, 1946                                                                                |
|                             |       |                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| José  María Eyzaguirre |       | Alternate  Director to Gonzalo Said                            |       | Has  been a member of the board of directors since April 2006.Principal occupation: Lawyer, Partner at  Estudio Claro y Cia. Other  directorships: N/A Date of  birth: May 22, 1962                                                                                                                                                                                                                                                                                |
|                             |       |                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Pedro  Vicente (2)               |       | Alternate  Director to Heriberto Urzúa                    |       | Has  been a member of the board of directors since April 2004.Principal occupation: Director of Capital  Consulting Services S.A. Date  of birth: August 11, 1951                                                                                                                                                                                                                                                                                                  |

 

----

(1)      Salvador Said S. is the cousin of Gonzalo Said H.

 

(2)      Independent from controlling shareholder pursuant to Article 50bis, paragraph 6 of the Chilean Public Company Law N° 18,045.

 

49

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Directorsand alternate directors are paid an annual fee for attendance to meetings ofthe board of directors and committees. The total compensation paid to eachdirector or alternate director during 2007, which was approved by ourshareholders, was as follows:

 
| ** **                                | ** ** | **Compensation  (millions of Ch$ )(1)** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------------|------------|
| Juan Claro G.                             |       | 98                                                     |       |
| Salvador Said S.                          |       | 90                                                     |       |
| José Antonio Garcés S. (junior) |       | 97                                                     |       |
| Arturo Majlis A.                          |       | 90                                                     |       |
| James Quincey B.                          |       | 45                                                     |       |
| Gonzalo Said H.                           |       | 90                                                     |       |
| Heriberto Urzúa  S.                  |       | 52                                                     |       |
| Ernesto  Bertelsen R.                     |       | 18                                                     |       |
| José D. Eluchans  U.                 |       | 18                                                     |       |
| Patricio Parodi  G.                       |       | 18                                                     |       |
| José M. Barros  V.                   |       | 18                                                     |       |
| Jorge Hurtado G.                          |       | 18                                                     |       |
| José Eyzaguirre  B.                  |       | 18                                                     |       |
| Pedro A. Vicente  M.                      |       | 18                                                     |       |

 

----

(1)      The amounts paid to each director and director’s alternate forattendance at board meetings varies in accordance with the position held andthe time period during which such position was held.

 

For the year that ended on December 31, 2007,the aggregate amount of compensation we paid to all directors and executiveofficers as a group was Ch$4,438 million of which Ch$3,751 million was paid toour executive officers. We do not disclose to our shareholders or otherwisemake available public information as to the compensation of our executiveofficers on an individual basis. We do not maintain any pension or retirementprograms for our directors or executive officers. See “—Employees.”

** **

**Board Practices**

 

Our board of directors has regularly scheduled meetingsat least once a month, and extraordinary meetings are convened when called bythe chairman or when requested by one or more directors. The quorum for ameeting of the board of directors is established by the presence of an absolutemajority of its regular directors, without taking alternate directors intoconsideration, unless regular directors are absent. Resolutions are passed bythe affirmative vote of an absolute majority of those directors present at themeeting, with the chairman determining the outcome of any tie vote.

 

**Executive Committee**

 

The Company’s Board ofDirectors is counseled by an Executive Committee that proposes Company policiesand is comprised by the following Directors: Mr. Salvador Said Somavía, Mr. JoséAntonio Garcés Silva (junior), Mr. Arturo Majlis Albala, and Mr. GonzaloSaid Handal, who were elected during the Regular Board Session N° 1002held April 24, 2007. It is also comprised by the Chairman of the Board, Mr. JuanClaro González and by the Chief Executive Officer, Mr. Jaime GarcíaRioseco, who participate by own right. This committee meets permanentlythroughout the year and normally holds one or two weekly sessions.

 

**Directors’ Committee**

 

In accordance with therequirements of the article 50 bis of Chilean Company Law N° 18,046 in additionto Law N° 19,705, whose purpose has been to self regulate and strengthenCompanies incorporating more supervision over management’s activities, duringthe year 2001 a Directors’ Committee was created.

 

50

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In accordance withShareholders’ Meeting held April 17, 2007 and during Board Session N° 1002held April 24, 2007 the following Directors were ratified as members ofthis Committee: Mr. Juan Claro González (Committee Chairman), Mr. José AntonioGarcés Silva (junior) and Mr. Heriberto Urzúa Sánchez.  Should any of the members be unable to attenda Committee session, their respective alternates will be:  Mr. Ernesto Bertelsen Repetto,Mr.Patricio Parodi Gil and Mr.Pedro Arturo Vicente Molina, respectively.

 

The duties developed bythis Committee during 2007, followingthe same categorization of faculties and responsibilities established by Article 50bis of Company Law N° 18,046 were the following:

 

a.     Toexamine the reports of external auditors and account inspectors,accordingly, of the balance sheets and other financialstatements, presented by the administrators or liquidators of the Companyto the shareholders, and to take a position on such reports beforethey are presented to shareholders for their approval.

 

b.     In 2007these matters were addressed during Sessions: N° 45, on January 30; N°46on March 26; N°47 on April 23; N° 48 on May 28; N°50, on July 20;N°51 on August 27; N° 52 on September 24; N° 53 on October 22;and N° 54 on November 22.

 

c.     To proposethe External Auditors and Private Rating Agencies to the Board ofDirectors that will then be submitted to the Shareholders’ Meeting.  In the event of disagreements with theCommittee, the Board of Directors may make its own proposals and both will besubmitted to the Shareholders’ Meeting.

 

d.     Thismatter was addressed during Session N° 46 on March 26, 2007.

 

e.     Examineinformation regarding the operations referred to by Articles 44 and 89 andreport on these operations.

 

f.      In 2007these matters were addressed during Sessions: N°45 on January 30; N°46 on March 26;and N°50 on July 20.

 

g.     Examinesalary and compensation plans for Managers and Principal Officers.

 

h.     Thismatter was addressed during Session N°54 on November 22, 2007.

 

i.      Allother matters required by company bylaws or that may be required by theShareholders’ Meeting or by the Board of Directors.  The following matters were addressed during2007:

 

·                  Review Anonymous Reports: Sessions: N° 45 onJanuary 30; N°46 on March 26; N° 47 on April 23; N° 49 on June 22; N° 51  on August 27; N° 52 on September 24;N° 53 on October 22; N° 54 on November 22; and N° 55 on December 13.

·                  Review and approve 2006 Annual Report:Session N° 46 on March 26.

·                  Review and approve 2006 20F: Session N° 49on June 22.

·                  Review Contingencies:  Session N° 54 on November 22.

·                  Status of External AuditorsRecommendations:  Sessions: N° 46 on March 26;N° 47 on April 23; and N° 48 on May 28.

·                  Operating Budget 2007 Committee:  Session N° 45 on January 30.

·                  Review 2007 Internal Audit Plan:  Session N° 46 on March 26.

·                  Implementation Status of SAP in Brazil:  Session N° 51 on August 27.

·                  Operations Related to Concentrate PriceIncrease of The Coca-Cola Company: Session N° 54 on November 22.

·                  Internal Control Model and OfficialCommunication 422 of the SVS*: Session N° 55 on December 13.

 

Wedo not have a committee dedictated exclusivel to compensation matters, sincereview of salary and compensation plans is already performed by the Directors’Committee.

 

**Sarbanes-OxleyAudit Committee**

 

On July 26, 2005,the Board of Directors agreed that in order to comply with therequirements of the NYSE and the SEC, it was necessary to establishan Audit Committee before July 31, 2005, so as to comply withthe requirements of the Sarbanes-Oxley Act. During Board Session N° 1002held April 24, 2007, Mr. Juan Claro González (CommitteeChairman), Mr. José Antonio Garcés Silva (junior) and Mr. HeribertoUrzúa Sánchez were ratified as members of the Audit Committee. Our Board ofDirectors determined that Mr. Juan Claro González and Mr. HeribertoUrzúa Sánchez comply with the independence standards set forth in theSarbanes-Oxley Act, SEC and NYSE regulations.  Mr. Heriberto Urzúa Sánchez has 

 

51

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been appointed by theBoard of Directors as the financial expert in accordance with the definitionsof the listing standards of the NYSE and the Sarbanes-Oxley Act.

 

Theresolutions, agreements and organization of the Audit Committee aregoverned by the rules relating to Board Meetings and to the Company’s Directors’Committee. Since its creation, the sessions of the AuditCommittee have been held with the Directors’ Committee, since some of thefunctions are very similar and the members of both of theseCommittees are the same.

 

The Audit CommitteeCharter defines the duties and responsibilities of this Committee.  The Audit Committee****isresponsible for analyzing financial statements; supportingthe financial supervision and rendering of accounts; ensuringmanagement’s development of reliable internal controls; ensuringcompliance by the audit department and external auditors with theirrespective roles; and reviewing of auditing practices.

 

**Employees**

 

On December 31, 2007, we had approximately 4,911employees, including 1,243 in Chile, 2,116 in Brazil, and 1,652 in Argentina.Of these employees, 273 were temporary employees in Chile and 305 in Argentina.During the South American summer, it is customary for us to increase the numberof employees in order to meet peak demand.

 

On December 31, 2007, 634, 290, and 1,050 ofour employees in Chile, Brazil and Argentina, respectively, were members ofunions.

 

The following table represents a breakdown of ouremployees for the years ended December 31, 2007, 2006 and 2005:

 
| ** **                     | ** ** | **2007**  | ** ** |
|--------------------------------|------------|-----------|------------|
| ** **                     | ** ** | **Chile** | ** ** | **Brazil** | ** ** | **Argentina** | ** ** |
| ** **                     | ** ** | **Total** | ** ** | **Union** | ** ** | **Non-  Union** | ** ** | **Total** | ** ** | **Union** | ** ** | **Non-  Union** | ** ** | **Total** | ** ** | **Union** | ** ** | **Non-  Union** | ** ** |
| Executives                     |       | 35        |       | 0 |   | 35 |   | 77 |   | 0 |   | 77 |   | 69 |   | 0 |   | 69 |   |
| Technicians and  professionals |       | 459       |       | 238 |   | 221 |   | 1,136 |   | 93 |   | 1,043 |   | 317 |   | 0 |   | 317 |   |
| Workers                        |       | 476       |       | 396 |   | 80 |   | 803 |   | 197 |   | 606 |   | 961 |   | 765 |   | 196 |   |
| Temporary  workers             |       | 273       |       | 0 |   | 273 |   | 0 |   | 0 |   | 0 |   | 305 |   | 285 |   | 20 |   |
| Total                          |       | 1,243     |       | 634 |   | 609 |   | 2,016 |   | 290 |   | 1,726 |   | 1,652 |   | 1,050 |   | 602 |   |
|                           |       |      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **                     | ** ** | **2006**  | ** ** |
| ** **                     | ** ** | **Chile** | ** ** | **Brazil** | ** ** | **Argentina** | ** ** |
| ** **                     | ** ** | **Total** | ** ** | **Union** | ** ** | **Non-  Union** | ** ** | **Total** | ** ** | **Union** | ** ** | **Non-  Union** | ** ** | **Total** | ** ** | **Union** | ** ** | **Non-  Union** | ** ** |
| Executives                     |       | 26        |       | 0 |   | 26 |   | 70 |   | 2 |   | 68 |   | 67 |   | 0 |   | 67 |   |
| Technicians and  professionals |       | 429       |       | 199 |   | 230 |   | 980 |   | 121 |   | 859 |   | 325 |   | 0 |   | 325 |   |
| Workers                        |       | 462       |       | 392 |   | 70 |   | 1,110 |   | 132 |   | 978 |   | 918 |   | 750 |   | 168 |   |
| Temporary  workers             |       | 140       |       | 6 |   | 134 |   | 0 |   | 0 |   | 0 |   | 288 |   | 261 |   | 27 |   |
| Total                          |       | 1,057     |       | 597 |   | 460 |   | 2,160 |   | 255 |   | 1,905 |   | 1,598 |   | 1,011 |   | 587 |   |
|                           |       |      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **                     | ** ** | **2005**  | ** ** |
| ** **                     | ** ** | **Chile** | ** ** | **Brazil** | ** ** | **Argentina** | ** ** |
| ** **                     | ** ** | **Total** | ** ** | **Union** | ** ** | **Non-  Union** | ** ** | **Total** | ** ** | **Union** | ** ** | **Non-  Union** | ** ** | **Total** | ** ** | **Union** | ** ** | **Non-  Union** | ** ** |
| Executives                     |       | 23        |       | 0 |   | 23 |   | 74 |   | 2 |   | 72 |   | 40 |   | 0 |   | 40 |   |
| Technicians and  professionals |       | 407       |       | 154 |   | 253 |   | 1,008 |   | 89 |   | 919 |   | 241 |   | 0 |   | 241 |   |
| Workers                        |       | 469       |       | 370 |   | 99 |   | 1,018 |   | 128 |   | 890 |   | 894 |   | 734 |   | 160 |   |
| Temporary  workers             |       | 153       |       | 0 |   | 153 |   | 0 |   | 0 |   | 0 |   | 279 |   | 216 |   | 63 |   |
| Total                          |       | 1,052     |       | 524 |   | 528 |   | 2,100 |   | 219 |   | 1,881 |   | 1,454 |   | 950 |   | 504 |   |

 

52

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Management believes that it has good relations withits employees.

 

In Chile we make provision for severance indemnitiesin accordance with our Collective Bargaining Agreements and labor legislations,in the amount of one month’s salary for every year of employment subject to certainrestrictions. In addition, we complement our employees’ contribution to ourhealth insurance system, thus decreasing health costs for the employees’families. Employees are required to contribute funds for financing pensionfunds, which are mainly managed by private entities. In Chile, approximately65% of employees are members of labor unions.

 

On June 1, 2007, Andina anticipatedly signed anew Collective Bargaining Agreement with Union N°2 that mainly representspersonell from the areas of managements, logostics, and operations specialists,for a period of 4 years (beginning June 1, 2007 until May 31,2011).  Additionally on June 26,2007 Andina signed a new Collective Bargaining Agreement with Union N°1 thatmainly represents employees from the Bottling area, for a period of 2 years(beginning June 1, 2007 until May 31, 2009) Said agreement was signedafter a 20-day legal strike that affected 223 workers out of a total of 886 whowork for the company.

 

In Brazil, 14% of employees are members of laborunions. Collective bargaining agreements are negotiated on an industry-widebasis. Individual companies can therefore negotiate special terms for theiraffiliates that apply to all employees in each jurisdiction where companieshave a plant. Collective bargaining agreements are generally binding for oneyear. With respect to Refrescos, there are seven collective bargainingagreements currently in force: (1) five agreements for employees in theState of Rio de Janeiro; (a) the Soft Drink Industry Employees’ Unionagreement from October 1, 2007 to September 30, 2008; (b) theSalesmen Union agreement from October 1, 2007 to September 30, 2008; (c) the“Stack Machine” Operator Union agreement from May 1, 2007 to April 30,2008; (d) the Chemical Product Industry Employees’ of Nova Iguaçu Unionagreement form February 1, 2007 to August 31, 2008; (e) theDriver and Helper of the Lagos Region Union agreement from May 1, 2007through April 30, 2008; and (2) two agreements for employees in theState of Espirito Santo: (a) the Nourishment Union agreement from July 1,2007 to June 30, 2008; (b) the Salesmen Union agreement from December 1,2007 to November 30, 2008. Such agreements do not require us to increasewages on a collective basis. Selected increases were granted, however, mainlyin the manufacturing area. We provide benefits to our employees according tothe relevant legislation and to the collective bargaining agreements. Refrescosexperienced its most recent work stoppages in January and October 1990,for eight days in each instance.

 

In Argentina, Edasa’s employees are parties tocollective bargaining agreements and 64% of them (including the PackagingDivision (ex Cipet) are represented by local workers’ unions associated with anational federation of unions. The Argentine Chamber of Non-Alcoholic Beveragesof the Argentine Republic (*Cámara Argentinade Industria de Bebidas sin Alcohol de la República Argentina* (the “Chamber”)and the Argentine Workers Federation of Carbonated Water (*Federación Argentina de Trabajadores de AguasGaseosas)*(the “Federation”) are parties to collective bargainingagreements that expired in April 1997, but continue to be in effect untilrenegotiated. On March 31, 2006 the Chamber and the Federation enteredinto a one-year term collective agreement, increasing the minimum wage. Thisagreement was extended until June 30, 2006 and re-negotiated during August of2006 that was in force until and including the month of March 2007. On June 21,2007 the Chamber and the Federation entered into a new collective bargainingagreement establishing new salaries, new non-salary benefits and companycontributions, that is in full force and effect until April 30, 2008.

 

Argentine law requires severance paymentsupon dismissal without cause in an amount at least equal to an average ofone-month’s wages for each year of employment or a fraction thereof if employedlonger than three months. Severance payments are subject to maximum and minimumamounts.  On December 15, 2004, theArgentine government approved law 25,972 that forces employers to increase thequantity of regular severance payments for dismissals as long as theunemployment rate of Argentina is higher than 10%. Consequently, between January 1,2005 and November 30, 2005, the quantity of regular severance payments fordismissals increased by 80%. As of December 1, 2005, this increase ofregular severance payments for dismissals was reduced and fixed at 50%.However, the employer was exempt from crediting the increase of regularseverance payments for dismissals if the date of hiring of the dismissedemployee was later than January 2003 and that his/her hiring had impliedan increase in the total number of employees that the employer had as of December 31,2002.  In September of 2007 theArgentine government fulfilled its goal to reduce the unemployment rate in 

 

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Argentina to less than 10% and therefore the increase of severanceindemnities became extinct and the applicable regime is the same one thatexisted prior to year 2001.

 

As of December 31, 2007, Edasa had no pensionfund liabilities. Employees contribute, on the basis of automatic withholding,to either the privately administered retirement funds or to the governmentsocial security system. Most of the health system in the Argentine territory isrun by the unions through contributions from union and non-union employees.

** **

**Share Ownership of Directors, Members of the Directors’Committee and Senior Executives**

 

The following table sets forth the amount andpercentage of our shares beneficially owned by our directors, members of theDirectors’ Committee and senior executives as of December 31, 2007.

 
| ** **                                    | ** ** | **Series A**     | ** ** | **Series B** | ** ** |
|-----------------------------------------------|------------|-----------------------|------------|-------------------|------------|
| **Shareholder**                               | ** ** | **Beneficial  Owner** | ** ** | **%  Class**      | ** ** | **Direct  Owner** | ** ** | **%  Class** | ** ** | **Indirect  Owner** | ** ** | **%  Class** | ** ** | **Beneficial  Owner** | ** ** | **%  Class** | ** ** | **Direct  Owner** | ** ** | **%  Class** | ** ** | **Indirect  Owner** | ** ** | **%  Class** | ** ** |
| José Antonio  Garcés Silva (junior) |       | —                |       | —            |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   | 5,033,002 |   | 1.3240 |   |
| Arturo Majlis  Albala                         |       | —                |       | —            |       | — |   | — |   | 2,150 |   | 0.0006 |   | — |   | — |   | 5,220 |   | 0.0014 |   | — |   | — |   |
| Salvador Said  Somavía                   |       | —                |       | —            |       | — |   | — |   | 1,022 |   | 0.0003 |   | — |   | — |   | — |   | — |   | 2,932,259 |   | 0.7714 |   |
| Gonzalo Said  Handal                          |       | 50,001,651            |       | 13.1536           |       | — |   | — |   | — |   | — |   | 11,761,462 |   | 3.0940 |   | — |   | — |   | 4,241,565 |   | 1.1158 |   |

 

**ITEM 7.****                             ****MAJOR SHAREHOLDERS ANDRELATED PARTY TRANSACTIONS**

** **

**Major Shareholders**

 

The following table sets forth certain informationconcerning beneficial ownership of our capital stock at December 31, 2007,with respect to the principal shareholders known to us who maintain at least a5% beneficial ownership in our shares and with respect to all of our directorsand executive officers as a group:

 
| ** **                                               | ** ** | **Series A** | ** ** | **Series B** | ** ** |
|----------------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| **Shareholder**                                          | ** ** | **Shares**        | ** ** | **% Class**  | ** ** | **Shares** | ** ** | **% Class** | ** ** |
| Freire(1)(2)                                             |       | 200,006,603       |       | 52.61             |       | 161,070,784 |   | 42.37 |   |
| The Bank of New  York Mellon(3)                          |       | 13,819,158        |       | 3.64              |       | 42,330,042 |   | 11.14 |   |
| The Coca-Cola  Company, directly or through subsidiaries |       | 41,962,864        |       | 11.04             |       | 41,962,864 |   | 11.04 |   |
| AFPs as a group  (Chilean pension funds)                 |       | 69,141,147        |       | 19.19             |       | 24,367,654 |   | 6.41 |   |
| Principal  foreign mutual funds as a group               |       | 5,360,475         |       | 1.41              |       | 6,624,912 |   | 1.74 |   |
| Executive  officers as a group                           |       | 165,474           |       | 0.04              |       | 180,474 |   | 0.05 |   |
| Directors as a  group(4)                                 |       | 50,004,823        |       | 13.15             |       | 23,973,508 |   | 6.31 |   |

 

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(1)      The ownership percentages listed above reflectthe voting and economic interests of Andina’s shareholders.

 

(2)      Freire does not hold either directly orindirectly any Series B shares. The amounts set forth correspond to Series Bshares held by other companies, members of the controlling shareholder group,including: Inversiones Newport Ltda., Inversiones HB S.A, Inversiones MarAdentro Ltda., Inversiones Caburga S.A., Inversiones Nueva Sofía Ltda., andInversiones Ledimor Chile Ltda.

 

(3)      Acting as depositary for the ADRs.

 

(4)      Represents shares to which Gonzalo SaidHandal, José Antonio Garcés Silva (junior), Salvador Said Somavía and ArturoMajlis Albala would claim direct and indirect.

 

Inversiones Freire S.A. holds a controlling interestin Andina. Freire is beneficially owned in equal interests by Alberto HurtadoF., José Said S., José Antonio Garcés S. (Senior), and Gonzalo Said H., thelatter also a Director of Andina. Pursuant to an agreement among partners,dated May 29, 1992, which shall remain in effect for so long as Freire isin existence, each partner in Freire shall not, dispose of his pro rata portionof his shares of stock, unless in accordance with the previously mentionedAgreement.

 

At an extraordinary shareholders’ meeting held on September 30,1996, our shareholders approved the Reclassification whereby each outstandingshare of common stock was replaced by one newly issued Series A share andone Series B share. Series A shares have full voting power and areentitled to elect six of seven regular and alternate directors. Series B shareshave no voting power besides the power to elect one regular and one alternatedirector and are entitled to a dividend equal to 

 

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10%more than any dividends received by Series A shareholders. The Reclassificationwas consummated on April 27, 1997. See “Item 4. Information on theCompany—Part A. History and Development of the Company—History.” TheCompany’s major shareholders do not have different voting rights from thosegranted by the ownership of Series A shares and Series B shares.

 

In connection with The Coca-Cola Company’sinvestment in Andina, the Coca-Cola shareholders and Freire entered into aShareholders’ Agreement dated September 2, 1996 (the “Shareholders’Agreement”), providing for certain restrictions on the transfer of shares ofAndina capital stock by the Coca-Cola Shareholders and Freire. Specifically,Freire is restricted from transferring its Series A shares without theprior authorization of The Coca-Cola Company. The Shareholders’ Agreement alsoprovides for certain corporate governance and other matters, including theright of the Coca-Cola shareholders collectively to elect one regular and onealternate member of our board of directors so long as The Coca-Cola Company andits subsidiaries collectively own, in aggregate, at least 4% of the Series Ashares. In addition, in related agreements, Freire granted the Coca-Colashareholders an option, exercisable upon the occurrence of certain changes inthe beneficial ownership of Freire, to acquire, all but not part, of our Series Ashares held by Freire at a price and in accordance with procedures establishedin such agreements.

 

The total number of registered ADR holders Andinahad at December 2007 was 18 (9 in the Series A ADRs and 9 in the Series BADRs). At December 31, 2007, the ADRs represented 7.4% of the total numberof our issued and outstanding shares. The Bank of New York Mellon, asdepositary, is the only U.S. shareholder of record.

 

**Related Party Transactions**

 

In the ordinary course of our business, we engage ina variety of transactions with certain of our affiliates and related parties.Financial information concerning these transactions is set forth in Note 6 toour Consolidated Financial Statements. Article 89 of the *Ley de Sociedades Anónimas* (the “ChileanCompanies Law”) requires that our transactions with related parties be on amarket basis or on similar terms to those customarily prevailing in the market.We are required under Article 89, to compare the terms of any suchtransaction to those prevailing in the market at the date the transaction is tobe entered into. Directors of companies that violate Article 89 are liablefor losses resulting from such violation. In addition, Article 44 of theChilean Public Companies Law, provides that any transaction in which a directorhas a personal interest or is acting on behalf of a third-party, must bepreviously approved by the board of directors, which will do so only when ithas been informed of such director’s interest and the terms of such transactionare similar to those prevailing in the market.

 

Pursuant to an amendment introduced to the ChileanPublic Companies Law in December 2000, if the proposed transactioninvolves material amounts, the board of directors must previously declare thatsuch transaction is consistent with conditions prevailing in the market. If itis not possible to reach such a judgment, the board of directors may appointtwo independent evaluators. The evaluators’ final conclusions must be presentedto the shareholders’ and directors’ for their consideration for a period of 20business days, during which shareholders representing 5% or more of the issuedvoting shares may request the board of directors to call a shareholders’meeting to resolve the matter by a majority of two-thirds of the issued votingshares. For the purposes of this regulation, the Chilean Public Companies Lawprovides that the amount of a proposed transaction will be material when itexceeds 1% of the company’s paid in capital and reserves so long as thetransaction is greater than UF 2,000. In all cases, a transaction is consideredmaterial when it exceeds UF 20,000. Our directors’ committee is charged withevaluating transactions with related parties and to report on these transactionsto the full board of directors. See “Item 6. Directors, Senior Management andEmployees—Directors’ Committee.”

 

All resolutions approving such transactions must bereported to the company’s shareholders at the next annual shareholders’meeting. Violation of Article 44 may result in administrative or criminalsanctions and civil liability to shareholders or third parties who sufferlosses as a result of such violation. However, the violation of Article 44does not affect the validity of the transaction. Such a violation will grantthe business entity, the shareholders or interested third parties the right tobe indemnified for damages, and force the director involved in the transactionto make reparations to the business entity in an amount equivalent to thebenefits that would have been derived for the business entity, absentnegotiations by such director, his relatives, or his representatives, that donot imply other administrative or criminal sanctions.

 

Our management believes, to the best of its knowledge,that it has complied, in all material respects with Article 89 and Article 44of the Chilean Public Company Law in all transactions with related parties.There can be no assurance, however, that the aforementioned regulations willnot be modified in the future.

 

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**Bottler Agreements**

 

In the course of our business, we have entered intoagreements with The Coca-Cola Company. Bottler Agreements (as definedhereunder) are international standard contracts The Coca-Cola Company entersinto with bottlers outside the United States for the sale of concentrates andbeverage basis for certain Coca-Cola soft drinks and non-soft drink beverages.See “We rely heavily on our relationship with The Coca-Cola Company which hassubstantial influence over our business and operations.”

 

We are a party to the following bottleragreements:  (i) with respect to theChilean territory, a bottler agreement entered into between Andina and TheCoca-Cola Company (the “Chilean Bottler Agreement”), celebrated on January 1,2008 for a 5-year term until December 31, 2012; (ii) with respect to theBrazilian territory, a bottler agreement between Refrescos and C-C Brazil withThe Coca-Cola Company as an intervening party (collectively, the “BrazilianBottler Agreement”), which was executed in advance of its effecteive date andwill expire on October 4, 2013; (iii) with respect to the Argentine territory,bottler agreements, between Edasa and The Coca-Cola Company (the “ArgentineBottler Agreements”), which will expire in February of 2012; (iv) with respectto the Chilean territory, a Juice Bottling Agreement was entered into onDecember 22, 2005 between Vital S.A. and The Coca-Cola Company for theproduction, processing, and bottling of products under the brands Andina Frut,Andina Hi-C and Kapo, which will expire on December 31, 2015; (v) with respectto the Chilean territory, a Water Manufacturing and Packaging Agreement wassubscribed on December 22, 2005 between The Coca-Cola Company and Vital AguasS.A. for the preparation and packaging of beverages that will be in effectuntil December 31, 2015, regarding the brands Vital, Chanqueahue, Vital deChanqueahue and Dasani (purified water version) and (vi) with respect to theArgentine territory a Juice and Water Bottler Agreement was subscribed onFebruary 10, 2007 that will be in effect for two years.

 

Bottler Agreements are renewable upon request by thebottler and at the sole discretion of The Coca-Cola Company. We cannot assureyou that the Bottler Agreements will be renewed upon their expiration, and evenif they are renewed, we cannot assure you that the agreements will be renewedon the existing terms.

 

The Bottler Agreements provide that we will purchaseour entire requirement of concentrates and beverage basis for Coca-Cola softdrinks and other Coca-Cola beverages from The Coca-Cola Company and otherauthorized suppliers. Although under the Bottler Agreements The Coca-ColaCompany, in its sole discretion, may set the price of concentrates and beveragebasis, among other terms, we set the price of products sold to retailers at ourdiscretion, subject only to certain price restraints.

 

We are the sole producer of Coca-Cola soft drinksand other Coca-Cola beverages in our franchise territories. Although this rightis not exclusive, The Coca-Cola Company has never authorized any other entityto produce or distribute Coca-Cola soft drinks or other Coca-Cola beverages insuch territories, although we cannot assure you that in the future it will notdo so. In the case of post-mix soft drinks, the Bottler Agreements explicitlyestablish such non-exclusive rights.

 

The Bottler Agreements include an acknowledgment byus that The Coca-Cola Company is the sole owner of the trademarks that identifythe Coca-Cola soft drinks and other Coca-Cola beverages and of any secretformula used in concentrates.

 

All distribution must be in authorized containers.The Coca-Cola Company has the right to approve, at its sole discretion, any andall kinds of packages and containers for beverages, including their size, shapeand any of their attributes. The Coca-Cola Company has the authority at itssole discretion to redesign or discontinue any package of any of the Coca-Colaproducts, subject to certain limitations, so long as Coca-Cola soft drinks andother Coca-Cola beverages are not all discontinued at the same time. We areprohibited from producing or handling any other beverage products, other thanthose of The Coca-Cola Company, or other products or packages that wouldimitate, infringe or cause confusion with the products, trade dress, containersor trademarks of The Coca-Cola Company, or from acquiring or holding aninterest in a party that engages in such activities. The Bottler Agreementsalso impose restrictions concerning the use of certain trademarks, authorizedcontainers, packaging and labeling of The Coca-Cola Company and prohibitbottlers from distributing Coca-Cola soft drinks or other Coca-Cola beveragesoutside their designated territories.

 

The Bottler Agreements require us to maintainadequate production and distribution facilities; inventories of bottles, caps,boxes, cartons and other exterior packaging or materials; to undertake adequatequality control measures prescribed by The Coca-Cola Company; to develop,stimulate, and fully satisfy the demand for Coca-Cola soft drinks and otherCoca-Cola beverages and to use all approved means, and spend such funds onadvertising and other forms of marketing, as may be reasonably required to meetthat objective; and to maintain such sound financial capacity as may bereasonably necessary to assure performance by us and our affiliates of ourobligations to The Coca-Cola Company. All Bottler Agreements require us 

 

56

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annuallyto submit our business plans for such franchise territories to The Coca-ColaCompany, including without limitation, marketing, management, promotional andadvertising plans for the ensuing year.

 

The Coca-Cola Company has no obligation to contributeto our expenditures derived from advertising and marketing, but it may, at itsdiscretion, contribute to such expenditures and undertake independentadvertising and marketing activities, as well as cooperative advertising andsales promotion that would require our cooperation and support. In each of thefranchise territories, The Coca-Cola Company has been contributingapproximately 50% of advertising and marketing expenses, but no assurances canbe given that equivalent contributions will be made in the future.

 

Each bottler is prohibited from, directly orindirectly, assigning, transferring or pledging its Bottler Agreement, or anyinterest therein, whether voluntarily, involuntarily or by operation of law,without the consent of The Coca-Cola Company, and each Bottler Agreement issubject to termination by The Coca-Cola Company in the event of default by us.Moreover, the bottler may not undergo a material change of ownership or controlwithout the consent of The Coca-Cola Company.

 

The Coca-Cola Company may terminate a BottlerAgreement immediately, by written notice to the bottler, in the event that,inter alia, (i) the bottler suspends payments to creditors, declaresbankruptcy, is declared bankrupt, is expropriated or nationalized, isliquidated, dissolved, changes its legal structure, or pledges or mortgages itsassets; (ii) the bottler does not comply with instructions and standardsestablished by The Coca-Cola Company relating to the production of itsauthorized soft drink products; (iii) the bottler ceases to be controlledby its controlling shareholders; or (iv) the terms of the BottlerAgreement come to violate applicable law.

 

Either party to any Bottler Agreement may, with 60days’ notice thereof to the other party, terminate the Bottler Agreement in theevent of non-compliance by the other party with the terms thereof so long asthe party in non-compliance has not remedied such non-compliance during thisperiod. In addition, if a bottler does not wish to pay the required price forconcentrate for any Coca-Cola products, it must notify The Coca-Cola Companywithin 30 days of receipt of The Coca-Cola Company’s new prices. In the case ofany Coca-Cola soft drink or other Coca-Cola beverages other than Coca-Colaconcentrate, the franchise regarding such product shall be deemed automaticallycanceled three months after The Coca-Cola Company’s receipt of the bottler’snotice of refusal. In the case of Coca-Cola concentrate, the Bottler Agreementsshall be deemed terminated three months after The Coca-Cola Company’s receiptof the bottler’s notice of refusal. The Coca-Cola Company may also terminatethe Bottler Agreements if the bottler or any individual or legal entity thatcontrols, owns a majority share in or directly or indirectly influences the managementof the bottler, engages in the production of any non-Coca-Cola beverage,whether through direct ownership of such operations or through control oradministration thereof, provided that, upon request, the bottler shall be givensix months to remedy such situation.

 

**PET Agreements**

 

Envases CMF produces returnable PET bottles pursuantto agreements with The Coca-Cola Company, which we refer to as the PETContracts, which transfer The Coca-Cola Company’s license to manufacture suchbottles using non-proprietary technology provided by Continental PETTechnologies Inc., which we refer to as Continental, today known as GrahamPackaging Company Inc. Multipack leased molds from The Coca-Cola Company forreturnable PET bottles in the distinctive bottle shapes used for Coca-Cola softdrinks. In May 1995, Multipack obtained the license from Continental toproduce non-returnable PET bottles with a high content of recycled materialusing “multilayer” technology developed by Continental. Multipack hastransferred all of such rights to Envases CMF pursuant to the Cristaleríasjoint venture described below.

 

The PET Contracts expired in July 2007 and arecurrently being negotiated may be automatically renewable for two additionalyears at the option of Envases CMF. The Coca-Cola Company may terminate the PETContracts prior to that date if (i) Envases CMF is unable to producebottles meeting contract specifications, (ii) Envases CMF breachescontract obligations, or (iii) PET bottle production has an adverse impacton The Coca-Cola Company’s trademarks, trade dress or reputation, or exposesThe Coca-Cola Company to a material risk of liability. There can be noassurance that the PET Contracts will be renewed following the two-year renewaloption.

 

On June 29, 2001, through our respectivesubsidiaries, Multipack and Crowpla Reicolite S.A., we and Cristalerías deChile S.A. signed a series of contracts forming a joint venture for thedevelopment of a PET production facility in Chile through the formation ofEnvases CMF S.A. We contributed the assets necessary to further the developmentof the joint venture from Multipack. Our subsidiary Andina InversionesSocietarias S.A. holds a 50% stake in the joint venture while Cristalerías deChile S.A. retains the other 50% interest.

 

EDASA produces returnable PET bottles in accordancewith an agreement with C-C Argentina, which we refer to as the Argentine PETAgreement, which sublicensed to Edasa the C-C Argentina license to manufacturethe PET bottles using 

 

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non-proprietarytechnology provided by Continental PET Technologies Inc., today known as GrahamPackaging Company Inc. The Argentine PET Agreement subscribed in December 1996had a 10-year duration and is currently being negotiated. There can be noassurance that the Argentine PET Agreement will be renewed.

 

**Transactions with related companies**

 

Othertransactions with related companies are outlined in the following table:

 
| ** **                                                  | ** ** | ** **            | ** ** | ** **                           | ** ** | **December 31, 2007  Effect on Income** | ** ** | **December 31, 2006  Effect on Income** | ** ** | **December 31, 2005  Effect on Income** | ** ** |
|-------------------------------------------------------------|------------|-----------------------|------------|--------------------------------------|------------|-------------------------------------------------------------|------------|-------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| **Company**                                                 | ** ** | **Relation**          | ** ** | **Transaction**                      | ** ** | **Amount**                                                  | ** ** | **(charge)  credit**                                        | ** ** | **Amount**                                                  | ** ** | **(charge)  credit** | ** ** | **Amount** | ** ** | **(charge)  credit** | ** ** |
| ** **                                                  | ** ** | ** **            | ** ** | ** **                           | ** ** | **MCh$**                                                    | ** ** | **MCh$**                                                    | ** ** | **MCh$**                                                    | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** |
| **Envases  Central S.A.**                                   |       | Equity investee       |       | Sales of raw materials and supplies  |       | 1,677                                                       |       | 40                                                          |       | 1,581                                                       |       | 358 |   | 1,100 |   | 70 |   |
| **—**                                                  |       | —                |       | Finished product purchases           |       | 16,867                                                      |       | 0                                                           |       | 16,474                                                      |       | 0 |   | 15,123 |   | 0 |   |
| **Coca-Cola  de Chile S.A.**                                |       | Shareholder           |       | Concentrate purchases                |       | 49,328                                                      |       | 0                                                           |       | 43,631                                                      |       | 0 |   | 44,781 |   | 0 |   |
| **—**                                                  |       | —                |       | Payment of advertising participation |       | 4,131                                                       |       | (4,131                                                      | )          | 1,952                                                       |       | (1,952 | ) | 3,121 |   | (3,121 | ) |
| **—**                                                  |       | —                |       | Water source rental                  |       | 1,690                                                       |       | (1,690                                                      | )          | 1,445                                                       |       | (1,445 | ) | 1,651 |   | (1,651 | ) |
| **—**                                                  |       | —                |       | Sales of advertisement               |       | 3,550                                                       |       | 0                                                           |       | 2,907                                                       |       | 0 |   | 3,499 |   | 0 |   |
| **Servicios y Productos para Bebidas Refrescantes  S.R.L.** |       | Shareholder           |       | Concentrate purchases                |       | 27,115                                                      |       | 0                                                           |       | 24,375                                                      |       | 0 |   | 22,034 |   | 0 |   |
| **Envases del Pacifico S.A.**                               |       | Shareholder related   |       | Purchase of raw materials            |       | 226                                                         |       | 0                                                           |       | 458                                                         |       | 0 |   | 856 |   | 0 |   |
| **Recofarma Industrias do Amazonas Ltda.**                  |       | Shareholder related   |       | Concentrate purchases                |       | 54,839                                                      |       | 0                                                           |       | 43,802                                                      |       | 0 |   | 32,389 |   | 0 |   |
| ** **                                                  |       | —                |       | Payment of advertising participation |       | 3,309                                                       |       | (3,309                                                      | )          | 3,448                                                       |       | (3,448 | ) | 3,430 |   | (3,430 | ) |
| **—**                                                  |       | —                |       | Reimbursements and other purchases   |       | 518                                                         |       | 518                                                         |       | 580                                                         |       | 580 |   | 467 |   | 467 |   |
| **Envases  CMF S.A.**                                       |       | Equity investee       |       | Purchase of containers               |       | 16,122                                                      |       | 0                                                           |       | 17,686                                                      |       | 0 |   | 17,439 |   | 0 |   |
| ** **                                                  |       |                  |       | Sale of finished products            |       | 216                                                         |       |                                                        |       |                                                        |       |   |   |   |   |   |   |
| **—**                                                  |       | —                |       | Dividend payment                     |       | 3,210                                                       |       | 0                                                           |       | 1,590                                                       |       | 0 |   | 1,368 |   | 0 |   |
| **Coca-Cola Embonor S.A.**                                  |       | Shareholder related   |       | Subsidiary sale of shares            |       | 0                                                           |       | 0                                                           |       | 0                                                           |       | 0 |   | 3,333 |   | 2,592 |   |
| ** **                                                  |       |                  |       | Purchase of  products                |       | 280                                                         |       |                                                        |       |                                                        |       |   |   |   |   |   |   |
| ** **                                                  |       | —                |       | Sale of finished products            |       | 8,712                                                       |       | 1,995                                                       |       | 7,455                                                       |       | 2,697 |   | 0 |   | 0 |   |
| **Embotelladora  Coca-Cola Polar S.A.**                     |       | Shareholder related   |       | Subsidiary sale of shares            |       | 0                                                           |       | 0                                                           |       | 0                                                           |       | 0 |   | 2,154 |   | 1,674 |   |
| ** **                                                  |       | —                |       | Sale of finished products            |       | 5,164                                                       |       | 1,036                                                       |       | 4,635                                                       |       | 1,648 |   | 0 |   | 0 |   |
| **Inmobiliaria y Constructora El Golf S.A**                 |       | Shareholder in common |       | Purchase of real estate property     |       | 0                                                           |       | 0                                                           |       | 0                                                           |       | 0 |   | 18 |   | 0 |   |
| **Inversiones  Caburga S.A.**                               |       | Shareholder           |       | Sale of real estate property         |       | 0                                                           |       | 0                                                           |       | 0                                                           |       | 0 |   | 1,123 |   | 0 |   |
| **Iansagro  S.A.**                                          |       | Director in common    |       | Purchase of sugar                    |       | 15,709                                                      |       | 0                                                           |       | 10,521                                                      |       | 0 |   | 13,358 |   | 0 |   |
| **Cican  S.A.**                                             |       | Shareholder related   |       | Purchase of finished products        |       | 1,456                                                       |       | 0                                                           |       | 1,370                                                       |       | 0 |   | 230 |   | 0 |   |
| **Vendomatica  S.A.**                                       |       | Sahreholder related   |       | Sale of finished products            |       | 1,463                                                       |       | 439                                                         |       | 1,550                                                       |       | 263 |   | 1,227 |   | 208 |   |
| **BBVA  Administradora General de Fondos S.A.**             |       | Shareholder related   |       | Investment in mutual funds           |       | 44,511                                                      |       | 0                                                           |       | 85,011                                                      |       | 0 |   | 0 |   | 0 |   |
| **—**                                                  |       | —                |       | Redemption of mutual fund            |       | 46,341                                                      |       | 0                                                           |       | 76,252                                                      |       | 328 |   | 0 |   | 0 |   |

 

**ITEM 8.****                             ****FINANCIAL INFORMATION**

 

See “Item 18 —Financial Statements” for ourConsolidated Financial Statements filed as part of this annual report.

** **

**Legal Proceedings**

 

We are party to certain legal proceedings that havearisen during the normal course of business, and we believe none of them arelikely to have a material adverse effect on our financial condition. Thefollowing is a summary of the main proceedings to which we and our subsidiariesare a party:

* *

*EmbotelladoraAndina S.A. (Chile)*

 

As of December 31, 2007, Embotelladora AndinaS.A. faces, labor, tax, commercial and other lawsuits. Accounting provisionsfor potential loss contingencies stemming from these lawsuits amount toapproximately ThCh$20,424. The Company considers it unlikely that thecontingencies that are not provisioned for will adversely affect the results ofthe Company in a material manner.

 

58

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*Vital S.A. (Chile)*

 

The *Servicio deImpuestos Internos*(Chilean Internal Revenue Service) commenced acriminal investigation against our subsidiary Vital S.A., and against thoseultimately responsible for the application of tax losses. A tax lawsuit was filedsimultaneously with this claim for the recovery of income tax and applicationof accumulated losses. On May 10, 2007 the criminal investigation wasdismissed because the court found that the facts under investigation did notconstitute a crime. During the month of May of 2007, the mentioned taxlawsuit was terminated where part of the accumulated losses of our subsidiaryVital S.A. were recognized, and the income tax statements were revised asnecessary. The termination of these lawsuits had a non-significant positiveeffect over our results for the year 2007. On September 12, 2007 the Courtof Appeals upheld the dismissal, and with this resolution the lawsuit wasterminated.

 

*Rio JaneiroRefrescos Ltda. (Brazil)*

 

When we acquired Refrescos in 1994 and the Permalicense in March 2000, there were several significant legal proceedingspending in Brazilian courts, mainly regarding certain potential taxliabilities. In accordance with the terms of the acquisition, the previousowners must compensate Refrescos with respect to the portion of those pendingtax claims that took place prior to the time the acquisition. We have not madeprovisions for these proceedings because they are covered by mortgageguarantees and letters of credit granted by the previous owners of Refresco.

 

Additionally, as of December 31, 2007, Refrescoswas also involved in labor and tax litigation. Provisions in the amount ofapproximately ThCh$941.443 have been made for these proceedings in accordancewith generally accepted accounting principles.

 

*Embotelladoradel Atlántico S.A. (Argentina)*

 

As of December 31, 2007, Embotelladora delAtlántico S.A. was involved in labor litigation and other legal proceedings,for which provisions of approximately ThCh$1,538,745 were made. No provisions weremade for those contingencies that in our opinion are unlikely to have amaterial adverse effect on our results of operations.

 

**Provisions**

 

In accordance withaccounting principles, the provisions regarding legal proceedings must berecorded if said procedures are reasonably probable to be resolved against theCompany. Management believes that the constituted provisions reasonably coverthe risk exposures.

 

**DividendPolicy**

 

Pursuant to Chilean law, we must distribute cashdividends equal to at least 30% of our annual net income, calculated inaccordance with Chilean GAAP, unless otherwise provided for by a unanimous voteof the Series A shareholders. If there is no net income in a given year,we are not legally required to distribute dividends from retained earnings. Atthe annual meeting of shareholders held in April 2006, the shareholdersauthorized the board of directors to distribute, at its discretion, interimdividends during July and October 2006 and January 2007. A U.S.holder of Series A or Series B ADSs may effectively be required toreceive a cash dividend, in the absence of a registration statement in effectpursuant to the Securities Market Law of Chile or an effective exemption fromthe requirement for registration according to that law. Series Bshareholders will be entitled to a dividend equal to 10% more than any dividenddeclared for holders of the Series A shares.

 

During 2005, 2006, and2007, the respective shareholders’ meetings approved extraordinary dividendpayments to be paid from retained earnings fund in light of significant cashgeneration. There can be no assurance that dividend payments will be availablein the future.

 

The following table sets forth the nominal amount inChilean pesos of dividends declared and paid per share each year and the U.S.dollar amounts on a per share basis actually paid to holders of ADSs, on eachof the respective payment dates:

 
| ** ** | ** ** | ** **                       | ** ** | **Fiscal Year with Respect**        | ** ** | **Series A**                      | ** ** | **Series B**           | ** ** |
|------------|------------|----------------------------------|------------|----------------------------------------------------|------------|----------------------------------------|------------|-----------------------------|------------|
| **Year**   | ** ** | **Date Dividend Paid** | ** ** | **to which Dividend was  Declared** | ** ** | **Ch$ per Share  (nominal)** | ** ** | **US$ per share** | ** ** | **Ch$ per Share  (nominal)** | ** ** | **US$ per  share** | ** ** |
| 2008       |       | January 24                  |       | 2007                                               |       | 7.00                                   |       | 0.01485                     |       | 7.70 |   | 0.01633 |   |
|       |       | April 24                    |       | 2007                                               |       | 9.13                                   |       | 0.02036                     |       | 10.043 |   | 0.02239 |   |
|       |       | May 14                      |       | Retained Earnings                                  |       | 60.00                                  |       | 0.12806                     |       | 66.00 |   | 0.14087 |   |
| 2007       |       | January 31                  |       | 2006                                               |       | 5.60                                   |       | 0.01028                     |       | 6.16 |   | 0.01131 |   |
|       |       | April 26                    |       | 2006                                               |       | 11.120                                 |       | 0.02108                     |       | 12.232 |   | 0.02319 |   |
|       |       | July 5                      |       | Retained Earnings                                  |       | 65.19                                  |       | 0.12442                     |       | 71.709 |   | 0.13686 |   |

 

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| ** ** | ** ** | ** **                       | ** ** | **Fiscal Year with Respect**        | ** ** | **Series A**                      | ** ** | **Series B**           | ** ** |
|------------|------------|----------------------------------|------------|----------------------------------------------------|------------|----------------------------------------|------------|-----------------------------|------------|
| **Year**   | ** ** | **Date Dividend Paid** | ** ** | **to which Dividend was  Declared** | ** ** | **Ch$ per Share  (nominal)** | ** ** | **US$ per share** | ** ** | **Ch$ per Share  (nominal)** | ** ** | **US$ per  share** | ** ** |
|       |       | July 26                     |       | 2007                                               |       | 7.00                                   |       | 0.01337                     |       | 7.70 |   | 0.01470 |   |
|       |       | October 24                  |       | 2007                                               |       | 7.00                                   |       | 0.01387                     |       | 7.70 |   | 0.01526 |   |
| 2006       |       | January 26                  |       | 2005                                               |       | 4.80                                   |       | 0.00907                     |       | 5.28 |   | 0.00998 |   |
|       |       | April 27                    |       | 2005                                               |       | 6.48                                   |       | 0.01249                     |       | 7.13 |   | 0.01374 |   |
|       |       | June 01                     |       | Retained Earnings                                  |       | 70.00                                  |       | 0.13158                     |       | 77.00 |   | 0.14474 |   |
|       |       | July 26                     |       | 2006                                               |       | 5.60                                   |       | 0.01032                     |       | 6.16 |   | 0.01135 |   |
|       |       | October 26                  |       | 2006                                               |       | 5.60                                   |       | 0.01068                     |       | 6.16 |   | 0.01175 |   |
| 2005       |       | January 27                  |       | 2004                                               |       | 4.80                                   |       | 0.00819                     |       | 5.28 |   | 0.00901 |   |
|       |       | April 28                    |       | 2004                                               |       | 4.80                                   |       | 0.00824                     |       | 5.28 |   | 0.00906 |   |
|       |       | May 19                      |       | Retained Earnings                                  |       | 70.00                                  |       | 0.12079                     |       | 77.00 |   | 0.13287 |   |
|       |       | July 28                     |       | 2005                                               |       | 4.80                                   |       | 0.00852                     |       | 5.28 |   | 0.00937 |   |
|       |       | October 26                  |       | 2005                                               |       | 4.80                                   |       | 0.00878                     |       | 5.28 |   | 0.00966 |   |

 

**ITEM 9.****                             ****THE OFFER AND LISTING**

 

Shares of Andina’s common stock have traded in theUnited States on the New York Stock Exchange (“NYSE”) since July 14, 1994in the form of ADSs, each representing six shares of common stock, with theADSs in turn evidenced by ADRs. The Depositary for the ADSs is The Bank of NewYork. Shares of Andina’s common stock also trade in Chile on the *Bolsa de Comercio de Santiago*, the *Bolsa de Valores Electrónica* and the *Bolsa de Valores de Valparaíso*.

 

The table below shows the high and low daily closingprices of the common stock in Chilean pesos and the trading volume of thecommon stock on the Santiago Stock Exchange for the periods indicated. It alsoshows the high and low daily closing prices of the ADSs and the volume tradedin the New York Stock Exchange.

 
| ** **       | ** ** | ** **              | ** ** | ** **                  | ** ** |
|------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **       | ** ** | **Share Volume**   | ** ** | **Ch$ per Share** | ** ** |
| ** **       | ** ** | **(in thousands)** | ** ** | **Series A**           | ** ** | **Series B** | ** ** |
| ** **       | ** ** | **Series A**       | ** ** | **Series B**           | ** ** | **High** | ** ** | **Low** | ** ** | **High** | ** ** | **Low** | ** ** |
| ** **       | ** ** | ** **              | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| 2003             |       | 37,157                  |       | 64,610                      |       | Ch$ | 1,150 |   | Ch$ | 759 |   | Ch$ | 1,151 |   | Ch$ | 705 |   |
| 2004             |       | 42,141                  |       | 114,101                     |       | 1,311 |   | 981 |   | 1,227 |   | 981 |   |
| 2005             |       | 56,477                  |       | 127,049                     |       | 1,400 |   | 1,050 |   | 1,505 |   | 1,100 |   |
| 2006             |       |                    |       |                        |       |   |   |   |   |   |   |   |   |
| 1st Quarter      |       | 10,405                  |       | 23,273                      |       | Ch$ | 1,240 |   | Ch$ | 1,096 |   | Ch$ | 1,330 |   | Ch$ | 1,180 |   |
| 2nd Quarter      |       | 15,719                  |       | 57,064                      |       | 1,275 |   | 1,080 |   | 1,380 |   | 1,190 |   |
| 3rd Quarter      |       | 13,679                  |       | 61,734                      |       | 1,250 |   | 1,150 |   | 1,335 |   | 1,250 |   |
| 4th Quarter      |       | 53,289                  |       | 8,720                       |       | 1,400 |   | 1,180 |   | 1,530 |   | 1,270 |   |
| 2007             |       |                    |       |                        |       |   |   |   |   |   |   |   |   |
| 1st Quarter      |       | 14,399                  |       | 30,311                      |       | Ch$ | 1,600 |   | Ch$ | 1,390 |   | Ch$ | 1,800 |   | Ch$ | 1,500 |   |
| 2nd Quarter      |       | 40,797                  |       | 84,860                      |       | 1,750 |   | 1,590 |   | 1,930 |   | 1,690 |   |
| 3rd Quarter      |       | 12,863                  |       | 68,915                      |       | 1,690 |   | 1,400 |   | 1,820 |   | 1,480 |   |
| 4th Quarter      |       | 13,728                  |       | 58,047                      |       | 1,600 |   | 1,300 |   | 1,750 |   | 1,420 |   |
| Last six months: |       |                    |       |                        |       |   |   |   |   |   |   |   |   |
| Dec-07           |       | 4,260                   |       | 16,916                      |       | 1,450 |   | 1,300 |   | 1,590 |   | 1,420 |   |
| Jan-08           |       | 6,327                   |       | 20,072                      |       | 1,340 |   | 1,100 |   | 1,525 |   | 1,200 |   |
| Feb-08           |       | 4,860                   |       | 6,973                       |       | 1,525 |   | 1,325 |   | 1,660 |   | 1,485 |   |
| Mar-08           |       | 2,155                   |       | 7,246                       |       | 1,445 |   | 1,350 |   | 1,520 |   | 1,440 |   |
| Apr-08           |       | 2,897                   |       | 17,928                      |       | 1,535 |   | 1,430 |   | 1,700 |   | 1,550 |   |
| May-08           |       | 21,938                  |       | 23,445                      |       | 1,504 |   | 1,330 |   | 1,670 |   | 1,485 |   |
|                  |            |                         |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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| ** **       | ** ** | **ADS Volume**     | ** ** | **US$ per ADS** | ** ** |
|------------------|------------|-------------------------|------------|---------------------------|------------|
| ** **       | ** ** | **(in thousands)** | ** ** | **Series A**         | ** ** | **Series B** | ** ** |
| ** **       | ** ** | **Series A**       | ** ** | **Series B**         | ** ** | **High** | ** ** | **Low** | ** ** | **High** | ** ** | **Low** | ** ** |
| 2003             |       | 3,282                   |       | 9,148                     |       | 11.07 |   | 6.10 |   | 11.40 |   | 6.05 |   |
| 2004             |       | 4,478                   |       | 9,387                     |       | 13.21 |   | 10.40 |   | 13.59 |   | 10.35 |   |
| 2005             |       | 3,091                   |       | 4,990                     |       | 15.70 |   | 11.50 |   | 17.00 |   | 12.15 |   |
| 2006             |       |                    |       |                      |       |   |   |   |   |   |   |   |   |
| 1st Quarter      |       | 590                     |       | 1,257                     |       | 14.18 |   | 12.35 |   | 15.40 |   | 13.35 |   |
| 2nd Quarter      |       | 391                     |       | 754                       |       | 14.65 |   | 11.52 |   | 16.20 |   | 13.00 |   |
| 3rd Quarter      |       | 295                     |       | 1,019                     |       | 14.18 |   | 12.60 |   | 15.00 |   | 13.79 |   |
| 4th Quarter      |       | 505                     |       | 1,715                     |       | 16.02 |   | 12.85 |   | 17.46 |   | 14.04 |   |
| 2007             |       |                    |       |                      |       |   |   |   |   |   |   |   |   |
| 1st Quarter      |       | 1,601                   |       | 1,560                     |       | 18.06 |   | 15.00 |   | 20.28 |   | 14.54 |   |
| 2nd Quarter      |       | 2,516                   |       | 2,478                     |       | 20.75 |   | 17.88 |   | 21.39 |   | 19.22 |   |
| 3rd Quarter      |       | 574                     |       | 866                       |       | 19.58 |   | 14.50 |   | 21.00 |   | 15.78 |   |
| 4th Quarter      |       | 389                     |       | 1,442                     |       | 20.69 |   | 13.66 |   | 22.55 |   | 17.00 |   |
| Last six months: |       |                    |       |                      |       |   |   |   |   |   |   |   |   |
| Dec-07           |       | 74                      |       | 337                       |       | 20.69 |   | 14.95 |   | 19.50 |   | 17.00 |   |
| Jan-08           |       | 126                     |       | 585                       |       | 17.90 |   | 14.67 |   | 19.32 |   | 15.41 |   |
| Feb-08           |       | 325                     |       | 132                       |       | 20.15 |   | 15.84 |   | 21.65 |   | 17.80 |   |
| Mar-08           |       | 243                     |       | 566                       |       | 19.25 |   | 18.10 |   | 21.05 |   | 19.32 |   |
| Apr-08           |       | 47                      |       | 233                       |       | 21.02 |   | 19.25 |   | 22.75 |   | 20.15 |   |
| May-08           |       | 140                     |       | 802                       |       | 19.6 |   | 16.83 |   | 21.69 |   | 18.59 |   |

 

*Sources:*Santiago StockExchange Official Quotations Bulletin and New York Stock Exchange.

 

On December 31, 2007, the closing price for theSeries A shares on the Santiago Stock Exchange was Ch$1,399 per share(US$15.49 per Series A ADR), and Ch$1,513 for the Series B shares(US$16.93 per Series B ADR). At December 31, 2007, there were2,303,193 Series A ADRs (equivalent to 13,819,158 Series A shares)and 7,055,007 Series B ADRs (equivalent to 42,330,042 Series Bshares). Andina’s ADSs represented at such date 7.4% of the total number of ourissued and outstanding shares.

 

The Santiago Stock Exchange, established in 1893, isthe principal equities exchange in Chile. The Chilean securities markets aresubstantially smaller, less liquid, and more volatile than major securitiesmarkets in the United States. The Santiago Stock Exchange had a marketcapitalization of approximately US$213,364 million as of December 31, 2007and an average monthly trading volume of US$4,363 million in 2007. Tradingactivity on the Santiago Stock Exchange is on average substantially less thanthat on the principal national securities exchanges in the United States. Weestimate that for the year ended December 31, 2007, Andina’s shares weretraded on the Santiago Stock Exchange on an average of approximately 95.12% and100.0% of such trading days, for Series A and Series B sharesrespectively.

 

Pursuant to the terms of the Shareholders’ Agreementdated September 5, 1996 (the “Agreement”), among Inversiones Freire Ltda.,and Inversiones Freire Dos Ltda. (together, the “Freire Shareholders”), theCompany and the other parties thereto, none of the shareholders, party to theAgreement, may transfer Series A shares of the Company they hold unless itinvolves:

 

·                          Transfers to wholly-owned subsidiaries ofany Freire Shareholder, provided that any shares transferred to such entitiesremain subject to the provisions of the Agreement;

 

·                          Acceptance by a Freire Shareholder partyto the Agreement of a bona fide offer from a third party to purchase some orall of the shares held by such shareholder, so long as the Freire Shareholderfirst offers such shares for sale, on the same terms and conditions as thoseproposed to be sold to the third-party purchaser and to the other shareholderparty to the Agreement; and

 

·                          A proposal by a shareholder party to theAgreement to sell its shares in a public offering or in a brokers’ transaction,so long as it first offers such shares to the other shareholders party to theAgreement at the price proposed in the public sale notice.

 

Other than as discussed above, we are not aware of anyother existing contracts or documents that impose material limitations orqualifications on the rights of shareholders of our listed securities.

 

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**TheYankee Bonds**

 

Our 7 5/8% Notes due 2027 and 7 7/8% Notes due 2097 are not listed on anystock exchange or other regulated market. Trading in these notes takes placeprimarily in the over-the counter market and, accordingly, we are not able toobtain reliable information on trading in these notes.

 

**DebtSecurities**

 

The Central Bank is responsible, *inter alia*, for Chile’s monetary policiesand exchange controls. The Central Bank has authorized Chilean issuers to offerbonds in Chile and abroad under the terms of Chapter XIV of the CFER. Thefollowing paragraphs summarize some of the Central Bank rules oninternational bond issuances. This summary does not intend to be complete andthose interested in a full description should refer to Chapter XIV of the CFER.

 

Effective April 19, 2001 the new CFER greatlysimplified the procedure to register capital contributions, investments andforeign loans, including bonds issuances. Payments or remittances of funds, toor from Chile, in connection with credits granted abroad should be made throughthe Formal Exchange Market, which is composed by the main commercial banks thatoperate in Chile. When foreign currency resulting from loans or bonds is madeavailable to the beneficiary in the country, the intervening bank should issuethe pertinent “Form” and request certain information from the debtor andcreditor, as applicable, pursuant to Chapter XIV.

 

Payments or remittances of foreign currency ascapital, interest, adjustments, profits and other benefits originating in thetransactions regulated under Chapter XIV must be reported to the Central Bankas follows: (i) if the foreign currency represents a remittance made fromChile, the intervening Formal Exchange Market bank should issue the above form;(ii) the issuer or borrower should inform the Central Bank, within thefirst 10 days of the month following the date of the transaction, if theforeign currency used to make the pertinent payments originates from credittransactions for which the foreign currency has been used directly abroad or ifthe corresponding payment obligation is fulfilled abroad using funds other thanthose indicated in Chapter XIV.

 

Any change in the terms of the transaction must bereported to the Central Bank within 10 days after formalization. Thisrequirement applies, among others, to the substitution of the debtor orcreditor, total or partial assignments of credits or rights and themodification of the financial terms of the respective credit regardinginvestments or capital contributions.

 

Exchange rule amendments dated April 2001established that transactions recorded prior to April 19, 2001 willcontinue to be governed by the rules in force at the time they wererecorded, but that the parties may choose to apply the new regulations.

 

These procedures also apply to foreign loans obtainedthrough the placement of convertible bonds, in which case the issuer shallreport to the Central Bank any increase or decrease in their registered amountas a result of the conversion of convertible bonds denominated and payable inChilean pesos, for other convertible bonds denominated and payable in foreigncurrency or shares, as applicable, acquired by foreign investors with proceedsthat had entered Chile under the terms of Chapter XIV.

 

According to Chapter XIV, the Central Bank establishedthat credits relating to acts, agreements or contracts which create a directobligation of payment or remittance of foreign currency abroad by personsdomiciled or residing in Chile, that exceed on an individual basis the sum ofUS$100,000 or the equivalent in other foreign currencies, absent any specialrule in the CFER, shall be reported to the Chilean Central Bank by theobligor either directly or through a Formal Exchange Market entity using theforms contained in the CFER, within 10 days from formalization.

 

In February 1999, after obtaining the requisiteauthorization from the Central Bank, we issued bonds in the internationalmarkets, subject to the exchange regulations in effect at that time.

 

The Central Bank unilaterally decides whether to grantauthorizations for international bond offerings, and although otherauthorizations of the Central Bank have never been cancelled once issued, theCentral Bank did request that lenders renegotiate the terms of their loans duringthe restructuring of Chile’s foreign debt in the eighties.

 

We cannot give any assurance that the Central Bankwill not impose future restrictions applicable to the holders of debtsecurities, nor can we make any evaluation of the duration or impact of suchrestrictions, if imposed.

 

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**ITEM 10.****                      ****ADDITIONAL INFORMATION**

 

**MaterialContracts**

 

Pursuant to a JointVenture Agreement or JV dated October 4, 2007 Refrescos and all Coca-Colabottlers in Brazil entered into a joint venture to exploit the Brazilian juicemarket, through the incorporation of a company called “MAIS INDUSTRIA DEALIMENTOS S.A.” or “Sucos Mais”. Sucos Mais was structured as follows: 50% ofits capital was subscribed by the 18 Coca-Cola bottlers in Brazil and 50% bythe company representing Coca-Cola in the country (called “Recofarma Industriado Amazonas Ltda.”). Refrescos holds an interest of 7.35% in the capital ofSucos Mais.

 

On October 17, 2005,Andina, Vital, Coca-Cola Embonor S.A. or Embonor and Embotelladoras Coca-ColaPolar S.A. or Polar entered into a letter of intent to carry out thetransactions described below in order to re-structure production and packing ofproducts in the business categories of Water, Juices and Non-CarbonatedBeverages, licensed by The Coca-Cola Company in Chile. On December 22,2005, the definitive agreements were implemented to give effect to this letterof intent, as described below:

 

a) In the category of Water, Andina, Embonor(through its subsidiary, Embonor S.A.) and Polar have taken an interest of56.5%, 26.4% and 17.1%, respectively, in Vital Aguas S.A., which will conductthe business of the processing, production and bottling of the *Vital de Chanqueahue* Mineral Water andother waters, according to the terms of the contracts and authorizations agreedupon by Vital Aguas S.A. and The Coca-Cola Company.

 

The equity interests of Embonor and Polar in VitalAguas S.A. were acquired by purchase from Andina and its subsidiary, AndinaInversiones Societarias S.A., at prices equivalent to UF 169,306 and UF109,428, respectively. Said amounts were adjusted and paid duringJanuary 2006.

 

In addition, Andina, Vital, Embonor and Polar agreedto the respective contracts and authorizations with The Coca-Cola Company toproduce, bottle and sell the “Dasani” water.

 

b) In the category of Juices and Non-carbonatedBeverages, contracts were signed whereby Embonor and Polar have become theholders of the rights to acquire products from Vital S.A. under the brands “*Kapo,” “Andina Nectar,” “Andina H-C,” “Andina Frut,”*and other brands, according to the terms of the contracts agreed upon by eachbottler and The Coca-Cola Company. The right to purchase these products fromVital S.A. will be at the prices and under the conditions applicable to volumesand maximum periods determined by the parties that will last, in all cases,until December 31, 2015.

 

Embonor and Polar agreed to pay to Andina’ssubsidiary, Vital S.A., advances for the aforementioned rights, equal to UF196,486 and UF 51,981, respectively. Said amounts were adjusted and paid duringJanuary 2006.

 

In addition, Andina, Vital, Embonor and Polar haveagreed to the respective contracts and authorizations with The Coca-ColaCompany to produce, bottle and sell these products at their respective plants.

 

On August 10, 2004, Refrescos entered into anagreement with Recofarma Industria do Amazonas Ltda. or Recofarma,Refrigerantes Minas Gerais Ltda. or RMG and Companhia Mineira de Refrescos S.A.or CMR, and together with Recofarma and RMG, the Counterparties, pursuant towhich the parties agreed to swap franchise territories for the production anddistribution of Coca-Cola brand soft drinks. Pursuant to the terms of thistransaction, Refrescos sold its equity stake in a newly-formed company namedFranquia 2299-Atendimento Personalisado Ltda., to which it had previouslycontributed all of the assets, production and distribution rights for Coca-Colasoft drinks in the territory denominated Governador Valadares in the State of MinasGerais, to the Counterparties. In consideration for this transfer, Refrescosreceived all of the Counterparties’ equity interest in Zohhal Industria deRefrigerantes Ltda. or Zohhal, which owned all of the assets, production anddistribution rights for Coca-Cola soft drinks in the territory known as NovaIguaçú in the State of Rio de Janeiro. On August 28, 2004, aftercompletion of all operational transitions and adjustments provided for in theagreement, the parties formalized the transfers of their respective territoriesand Refrescos acquired all rights to produce and distribute Coca-Cola brandproducts in the Nova Iguaçu territory. As required by Brazilian law, allfilings and registrations required in connection with this transaction werepresented with the Commercial Board of Rio de Janeiro.

 

On March 19, 2002, The Coca-Cola Company, Kaiser,Molson and the Association of Brazilian Producers of Coca-Cola soft drinks (ofwhich Refrescos is a member) executed a memorandum of understanding and anagreement with a term of 20 years for the distribution of beers produced orimported by Kaiser through the Coca-Cola distribution system with a term of 20years and renewable for another 20-year period. On May 30, 2003, Kaiserand its distributors (including Refrescos) executed a new twenty-yeardistribution agreement which is renewable for another twenty-year period.

 

63

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**Law 20,123: regulatingSubcontracting, Temporary Labor Companies and Temporary Labor Agreements.Published on October 16, 2006, effective on January 16, 2007.**

 

Law No. 20,123 brought significant changes toChile’s employment law. First, it allowed companies (the “principal companies”)to engage a “contractor” or “contracting company” to hire employees, who wouldthen be responsible for the employment relationship. The principal companyremains jointly liable with the contractor for labor and pension fundobligations owed to the employees, including compensation for employmenttermination. The principal company’s liability will be merely subsidiary tothat of the contractor, however, if it monitors the contractor’s performance ofits obligations and withholds payments from the contractor in case ofviolations, as described under the law. The principal company shall also complywith certain legal and regulatory requirements regarding health and safetyconditions at the workplace. Law No. 20,123 also created “temporary laborcompanies”, entities with the exclusive corporate purpose of hiring employees toprovide services to third parties (“end-users”) on a temporary basis.

 

During 2007, we engaged a contractor to hire employeesunder this new law and took the requisite measures to ensure compliance withits requirements, including changes to commercial agreements and the creationof a new system to monitor labor conditions and obligations

 

**ForeignInvestment and Exchange Controls in Chile**

 

The Central Bank is responsible, among other matters,for setting monetary policies and exchange controls in Chile. As ofApril 19, 2001, the Chilean Central Bank eliminated prior foreign exchangecontrols, imposed certain reporting requirements and determined that certainoperations be conducted through the Formal Exchange Market. The main purpose ofthese amendments, as declared by the Central Bank, is to facilitate the flow ofcapital into Chile and outside the country and to foster foreign investment.

 

Equity investments in Chile (including investments instock) by non-resident persons or entities must comply with some of theexisting exchange control restrictions. Foreign investments may be registeredwith the Foreign Investment Committee (*Comitéde Inversiones Extranjeras*) in accordance with Law N° 600 of 1974and amendments or with the Central Bank in accordance with Chapter XIV of theCompendium of Foreign Exchange Regulations (*Compendiode Normas de Cambios Internacionales* or CFER) of the Central Bank.In the case of Decree Law N° 600, foreign investors execute a foreigninvestment agreement with Chile, thus guaranteeing access the FEM. However,investors under Decree Law N° 600 will only be able to repatriate capitalone-year after the investment. Earnings can be remitted abroad at any time. Inthe case of CFER, capital as well as earnings can be repatriated at any time,without an agreement with the Central Bank.

 

As of April 19, 2001 the Central Bank eliminatedcertain exchange controls. For instance, it revoked Chapter XXVI of the CFER,which regulated the issuance and placement of ADRs by Chilean corporations. Pursuantto the new rules, the Central Bank’s approval is no longer a pre-condition forADR issuances or foreign investment contracts with the Central Bank. ADRissuances are now regarded as an ordinary foreign investment, and the onlyrequirements are that the Chilean Central Bank be informed of the transaction,by fulfilling the rules of Chapter XIV of the CFER, and that the moniescome in or leave the country exclusively through the Formal Exchange Market, ifthe recipient of the investment decides to enter the foreign currency to thecountry or if it carries out payments or remittances from Chile.

 

Notwithstanding these changes, exchange transactionsauthorized prior to April 19, 2001 remained subject to the rules inforce as of the date of such transactions. The new exchange regime did notaffect Chapter XXVI of the CFER and the Foreign Investment Contract - FICbetween Andina, the Central Bank and The Bank of New York Mellon (as depositaryof the shares represented by ADSs). The FIC is the agreement by which access tothe Foreign Exchange Market is given to the depositary and ADR holders. The FICadopted the dispositions of Chapter XXVI and was celebrated pursuant toArticle 47 of the Constitutional Organic Act of the Chilean Central Bank.

 

Banco de Chile was initally appointed as our custodianbank, beginning December 31, 2002. The Bank of New York Mellon latercaused the FIC to be amended and on May 5, 2003 Banco de Chile wasreplaced by Banco Santander Chile as custodian.

 

Under Chapter XXVI of the CFER, if the funds topurchase the common shares underlying the ADSs are brought into Chile, thedepositary must deliver, on behalf of foreign investors, an annex providinginformation on the transaction to the Formal Exchange Market entity involved,together with a letter instructing such entity to deliver the foreign currencyor the equivalency in pesos, on or before the date the foreign currency isbrought or is to be brought into Chile.

 

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Repatriationof amounts received with respect to deposited common shares or common shareswithdrawn from deposits on surrender of ADRs (including amounts received ascash dividends and proceeds from the sale in Chile of the underlying commonshares and any rights arising there from) need be made through the FormalExchange Market. The Formal Exchange Market entity intervening in therepatriation must provide certain information to the Chilean Central Bank onthe following banking business day.

 

Under Chapter XXVI andthe FIC, the Chilean Central Bank agreed to grant to the depositary, on behalfof Series A and Series B ADR holders, and to any investor notresiding nor domiciled in Chile who withdraws Series A shares or Series Bshares upon surrender of Series A or Series B ADRs, which we refer toas the Withdrawn Shares, Formal Exchange Market access to convert Chilean pesosinto U.S. dollars (and to remit those dollars outside Chile) with respect to Series Aand Series B common shares represented by Series A and Series BADSs or Withdrawn Shares, including amounts received as:

 

(1)                  cash dividends;

 

(2)                  proceeds from the sale in Chile of Withdrawn Shares;

 

(3)                  proceeds from the sale in Chile of preemptive rightsto subscribe for additional Series A and Series B shares;

 

(4)                  proceeds from the liquidation, merger or consolidationof Andina;

 

(5)                  proceeds from the sale in Chile of common sharesreceived as dividends; and

 

(6)                  other distributions, including those in respect of anyre-capitalization resulting from holding Series A or Series B sharesrepresented by Series A or Series B ADSs or by Withdrawn Shares.Investors that receive Withdrawn Shares in exchange of Series A or Series BADRs shall be authorized to re-deposit them in exchange of Series A or Series BADRs, provided the conditions necessary to re-deposit them are met.

 

The guarantee of FormalExchange Market access under the FIC will extend to the participants of the ADSoffering if the following requirements are met: (1) the funds to purchasethe Series A shares or Series B shares underlying the ADSs arebrought into Chile and converted into Chilean pesos through the Formal ExchangeMarket; (2) the purchase of the underlying Series A shares or Series Bshares is made on a Chilean stock exchange; and (3) within five businessdays from the conversion of the funds into Chilean pesos, the Chilean CentralBank is informed that the funds thus converted were used to purchase theunderlying Series A shares or Series B shares.

 

Chapter XXVI providesthat Formal Exchange Market access in connection with dividend payments isconditioned to our certifying to the Chilean Central Bank that a dividendpayment has been made and that any applicable tax has been withheld. We agreedto provide this certification. Chapter XXVI also provides that Formal ExchangeMarket access in connection with the sale of Withdrawn Shares, or distributionthereon, is conditioned upon receipt by the Chilean Central Bank of (1) acertificate by the depositary or custodian, as the case may be, that the Series Ashares or Series B shares have been withdrawn in exchange for delivery ofthe appropriate ADRs, and (2) a waiver of the benefits of the FIC withrespect to ADRs (except in connection with the proposed sale of the Series Ashares or Series B shares) until the Withdrawn Shares are re-deposited.

 

Chapter XXVI and the FICprovide that an entity or person who is not domiciled in Chile nor a Chileanresident, who brings foreign currency into Chile to purchase Series Ashares or Series B shares pursuant to the FIC must convert that foreigncurrency into Chilean pesos on the date of entry into Chile, and must invest inSeries A or Series B shares within five banking business days inorder to receive the benefits of the FIC. If that entity or person does notinvest in Series A or Series B shares within that period, it canaccess the Formal Exchange Market to reacquire foreign currency, provided thatthe request is submitted to the Chilean Central Bank within seven bankingbusiness days of the initial conversion into pesos. Series A shares or Series Bshares acquired as described above may be deposited in exchange for ADRs andthe entity or person will receive the benefits of the FIC, subject to: (1) receiptby the Chilean Central Bank of a certificate from the depositary that the Series Aor Series B shares have been deposited and that the related ADRs have beenissued; and (2) receipt by the custodian of a declaration from the personmaking the deposit waiving the benefits granted by the FIC with respect to thedeposited Series A or Series B shares.

 

FEM access under any ofthe circumstances described above is not automatic. Pursuant to Chapter XXVI,such access needs the Chilean Central Bank’s approval on a request submitted tothat end through a banking institution established in Chile. The FIC providesthat if the Chilean Central Bank has not acted upon the request within sevenbanking days, the request is deemed to have been granted.

 

Under current Chileanlaw, the Chilean Central Bank cannot unilaterally change the FIC. Judicialprecedent (although not binding on future judicial decisions) also establishedthat the FIC cannot be annulled by future legislative changes. No

 

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assurance can begiven, however, that additional Chilean restrictions applicable to the holdersof ADRs, to the disposition of underlying Series A or Series Bshares, or to the repatriation of proceeds from their disposition, will not beimposed in the future; nor can there be any assessment of the duration orimpact of any restrictions that might be imposed. If for whatever reason,including changes in the FIC or Chilean law, the Depositary is prevented fromconverting Chilean pesos into U.S. dollars; the investors shall receivedividends or other payments in Chilean pesos, which shall subject the investorsto exchange rate risks. It cannot be assured that the CFER, as amended, or anyother exchange regulation will not be amended in the future, or that if newregulations are enacted that they shall have no material bearing on Andina orthe holders of the ADS.

 

No assurance can be giventhat Andina will be able to purchase U.S. Dollars in the Informal ExchangeMarket at any time in the future, nor that any such purchase will be for theamounts necessary to pay any sum due under any of its debt instruments.Likewise, it is not possible to guarantee that changes to the regulations ofthe Chilean Central Bank or other legislative changes relating to exchangecontrols will not restrict nor impair Andina’s ability to purchase U.S. Dollarsin order to make payment on its debt instruments.

 

All payments anddistributions regarding the Series A or Series B ADSs must betransacted in the Formal Exchange Market.

 

**Tax Considerations Relating to EquitySecurities**

 

***Chilean Tax Considerations***

 

The following discussionsummarizes the material Chilean income tax consequences of an investment inAndina’s stock or ADSs by an individual who is not domiciled or resident inChile or a legal entity that is not organized under the laws of Chile and doesnot have a permanent establishment in Chile (a “foreign holder”). Thisdiscussion is based upon Chilean income tax laws presently in force, includingRuling No. 324 of January 29, 1990 of the *Servicio de Impuestos Internos* (the Chilean Internal RevenueService or “SII”) and other applicable regulations and rulings that are subjectto change without notice. The discussion is not intended as a tax advice to anyparticular investor, which can be rendered only in light of that investor’sparticular tax situation. Each investor or potential investor is encouraged toseek independent tax advice with respect to consequences of investing in Andina’sstock or the ADSs.

 

Under Chilean law, allmatters regarding taxation such as tax rates (including tax rates applicable toforeign investors), the computation of taxable income for Chilean purposes, themanner in which Chilean taxes are imposed and collected, and others thereof,may only be imposed or amended by a law enacted by Congress. In addition, theSII is empowered to issue rulings and regulations of either general or specificapplication, and to interpret the provisions of Chilean tax law. Chilean taxmay not be assessed retroactively against taxpayers who act in good faithrelying on such rulings, regulations and interpretations, but the SII maychange said rulings, regulations and interpretations prospectively. There is noincome tax treaty in force between Chile and the United States.

 

*CashDividends and Other Distributions*

 

Dividends we pay withrespect to the shares of stock held by a foreign holder will be subject toChilean withholding tax at a rate of 35% (the “Withholding Tax”). The tax paidby the Company on profits from which the dividends are paid (the “FirstCategory Tax”), imposed at a rate of 17%, will be credited against theWithholding Tax. The credit will increase the base upon which the WithholdingTax is imposed. Consequently, dividends that are attributable to currentprofits will be subject to an effective dividend withholding tax rate of 21.7%,calculated as follows:

 
| ** **                                                                                 | ** ** | **Ch$** | ** ** |
|--------------------------------------------------------------------------------------------|------------|---------|------------|
| Company taxable  income                                                                    |       | 100.0   |       |
| First Category  Tax (17.0% of Ch$100)                                                      |       | (17.0   | )          |
| Net  distributable income                                                                  |       | 83.0    |       |
| Dividend  distributed                                                                      |       | 83.0    |       |
|                                                                                       |       |    |       |
| Withholding Tax  (35% of the sum of Ch$83.0 dividend plus Ch$17.0 First Category Tax paid) |       | (35.0   | )          |
| Credit for First  Category Tax                                                             |       | 17.0    |       |
| Net additional  tax withheld                                                               |       | (18.0   | )          |
| Net dividend  received                                                                     |       | 65.0    |       |
| Effective  dividend withholding rate (18.0/83.0)                                           |       | 21.7    | %          |

 

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For purposes ofdetermining the amount of First Category Tax we pay on profits from which thedividends are paid, dividends are attributed to our oldest retained profits.

 

Dividend distributionsmade in property will be subject to the same Chilean tax rules as cashdividends. Our stock dividends are not subject to Chilean taxation.

 

*CapitalGains*

 

Gains recognized from thesale or exchange of ADSs (or ADRs evidencing ADSs) by a foreign holder outsideChile will not be subject to Chilean taxation.

 

Gains recognized on asale or exchange of shares of stock (as distinguished from sales or exchangesof ADSs representing such shares) will be subject to both the First CategoryTax and the Withholding Tax (the former being credited against the latter) ifeither (i) the foreign holder has held the shares of common stock for lessthan one year since exchanging ADSs for the shares of common stock, (ii) theforeign holder acquired and disposed of the shares of common stock in the ordinarycourse of its business or as an habitual trader of shares or (iii) theforeign holder transfers shares of common stock to a related person, as definedby Chilean tax law. In all other cases, gain on the disposition of shares ofcommon stock will be subject only to the First Category Tax, currently imposedat a rate of 17%, except if it is for shares resulting from an exchange of ADSsfor shares (flow back) in which case, the Chilean Internal Revenue Servicepursuant to Oficio 1,705 dated May 15, 2006 has interpreted that saidshares may benefit from article 18 ter if the ADS were acquired through a stockbroker or by any other circumstance stipulated by that norm.

 

The deposit or withdrawalof shares of common stock in exchange for ADSs is not subject to any Chileantaxes. The tax basis of shares of common stock received in exchange for ADSswill be determined in accordance with the valuation procedure set forth in thedeposit agreement, which values shares of common stock at the highest reportedsales price at which they trade on the Santiago Stock Exchange on the date ofthe withdrawal of the shares of common stock from the depositary. Consequently,the conversion of ADSs into shares of common stock, and the immediate sale ofthe shares for the value established under the deposit agreement, will notgenerate a capital gain subject to taxation in Chile. However, in the casewhere the sale of the shares is made on a day that is different than the datein which the exchange is recorded, capital gain subject to taxation in Chilemay be generated. In connection thereto, on October 1, 1999 the ChileanInternal Revenue Service issued Ruling No. 3708 whereby it allowed Chileanissuers of ADSs to amend the deposit agreements to which they are parties inorder to include a clause that states that, in the case that the exchangedshares are sold by the ADSs’ holders on a Chilean Stock Exchange either on thesame day in which the exchange is recorded or within the two business daysprior to such date, the acquisition price of such exchanged shares shall be theprice registered in the invoice issued by the stock broker that participated inthe sale transaction. Consequently, should this amendment be included in thedeposit agreement, the capital gain that may be generated if the exchange dateis different than the date in which the shares received in exchange for ADSswere sold, will not be subject to taxation. We reiterate that if a contributorin good faith adopts Oficio 1,705, then the excess value will not be subject totaxation in Chile.

 

The distribution andexercise of preemptive rights relating to the shares of common stock will notbe subject to Chilean taxation. Any gain on the sale or assignment ofpreemptive rights relating to the shares of common stock will be subject toboth the First Category Tax and the Withholding Tax (the former being creditedagainst the latter).

 

*OtherChilean Taxes*

 

No Chilean inheritance,gift or succession taxes apply to the transfer or disposition of the ADSs by aforeign holder, but such taxes generally will apply to the transfer at death orby gift of shares of common stock by a foreign holder. No Chilean stamp, issue,registration or similar taxes or duties apply to foreign holders of ADSs orshares of common stock.

 

*WithholdingTax Certificates*

 

Upon request, we willprovide to foreign holders appropriate documentation evidencing the payment ofChilean withholding taxes.

 

***United States Tax Considerations***

 

The following discussionsummarizes certain U.S. federal income tax consequences of an investment inADSs or shares of common stock. This discussion is based upon U.S. federalincome tax laws presently in force. The discussion is not a full description ofall tax considerations that may be relevant to a decision to purchase ADSs orshares of common stock. In particular, the discussion is directed only to U.S.holders (as defined below) that hold ADSs or shares of common stock as capitalassets, and it does not address the tax treatment of holders that are subjectto special tax rules under the Internal Revenue Code of 1986 as amended(the “Code”), such as financial institutions, regulated investment companies,real estate

 

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investment trusts,investors in pass-through entities, dealers in securities or currencies,traders in securities that elect to use a mark-to-market method of accountingfor their securities holdings, insurance companies, tax-exempt entities,persons holding ADSs or shares of common stock as part of a hedging, integrated,conversion or constructive sale transaction or a straddle, holders of 10% ormore of our voting shares, persons liable for alternative minimum tax orpersons whose “functional currency” is not the U.S. dollar. Furthermore, thediscussion below is based upon the provisions of the Code and regulations,rulings and judicial decisions there under as of the date hereof, and suchauthorities may be repealed, revoked or modified so as to result in U.S.federal income tax consequences different from those discussed below. Inaddition, the discussion below assumes that the Deposit Agreement, and allother related agreements, will be performed in accordance with their terms. Ifa partnership holds our ADSs or shares of common stock, the tax treatment of apartner will generally depend upon the status of the partner and the activitiesof the partnership. Partners in a partnership holding ADSs or shares of commonstock should consult their tax advisors. This summary does not contain adetailed description of all the United States federal income tax consequencesto a holder in light of its particular circumstances and does not address theeffects of any state, local or non-United States tax laws. **Prospective purchasers should consult their taxadvisors about the federal, state, local and foreign tax consequences to themof the purchase, ownership and disposition of ADSs or shares of common stock.**

 

As used herein, the term “U.S.holder” means a holder of ADSs or shares of common stock that is (i) anindividual U.S. citizen or resident, (ii) a corporation (or any otherentity treated as a corporation for U.S. federal income tax purposes) createdor organized in or under the laws of the United States, any state thereof orthe District of Columbia, (iii) an estate the income of which is subjectto U.S. federal income taxation regardless of its source or (iv) a trust (x) thatis subject to the primary supervision of a court within the United States andwith respect to which one or more U.S. persons have the authority to controlall substantial decisions of the trust or (y) that has a valid election ineffect under applicable U.S. Treasury regulations to be treated as a U.S.person.

 

*ADSs*

 

If the obligationscontemplated by the deposit agreement are performed in accordance with itsterms, holders of ADSs (or ADRs evidencing ADSs) generally will be treated forU.S. federal income tax purposes as the owners of the shares of common stockrepresented by those ADSs. Deposits or withdrawals of shares of common stock byU.S. holders in exchange for ADSs will not result in the realization of gain orloss for U.S. federal income tax purposes. The U.S. Treasury has expressedconcerns that parties to whom ADSs are released may be taking actions that areinconsistent with the claiming of foreign tax credits for U.S. holders of ADSs.Such actions would also be inconsistent with the claiming of the reduced rateof tax, described below, applicable to dividends received by certainnon-corporate holders. Accordingly, the analysis of the creditability ofChilean taxes and the availability of the reduced tax rate for dividendsreceived by certain non-corporate holders, each described below, could beaffected by actions taken by parties to whom the ADSs are released.

 

*CashDividends and Other Distributions*

 

Cash dividends (includingthe amount of any Chilean taxes withheld) paid to U.S. holders with respect tothe ADSs or shares of common stock generally will be treated as dividend incometo such U.S. holders, to the extent paid out of current or accumulated earningsand profits, as determined under U.S. federal income tax principles. Suchincome will be includable in the gross income of a U.S. holder as ordinaryincome on the day received by the Depositary, in the case of ADSs, or by theU.S. holder, in the case of shares of common stock. The dividends will not beeligible for the dividends received deduction allowed to corporations under theCode. With respect to non-corporate U.S. holders, certain dividends receivedbefore January 1, 2011 from a qualified foreign corporation may be subjectto reduced rates of taxation. A foreign corporation is treated as a qualifiedforeign corporation with respect to dividends received from that corporation onshares (or ADSs backed by such shares) that are readily tradable on anestablished securities market in the United States. U.S. Treasury Departmentguidance indicates that our ADSs (which are listed on the New York StockExchange), but not our shares of common stock, are readily tradable on anestablished securities market in the United States. Thus, we do not believethat dividends that we pay on our shares of our common stock that are notbacked by ADSs currently meet the conditions required for these reduced taxrates. There can be no assurance that our ADSs will be considered readilytradable on an established securities market in later years. Non-corporateholders that do not meet a minimum holding period requirement during which theyare not protected from the risk of loss or that elect to treat the dividendincome as “investment income” pursuant to section 163(d)(4) of the Codewill not be eligible for the reduced rates of taxation regardless of our statusas a qualified foreign corporation. In addition, the rate reduction will notapply to dividends if the recipient of a dividend is obligated to make relatedpayments with respect to positions in substantially similar or relatedproperty. This disallowance applies even if the minimum holding period has beenmet. Non-corporate U.S. holders should consult their own tax advisors regardingthe application of these rules given their particular circumstances.

 

Dividends paid in Chileanpesos will be includable in a U.S. dollar amount based on the exchange rate ineffect on the day of receipt by the Depositary, in the case of ADSs, or by theU.S. holder in the case of shares of common stock, regardless

 

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of whether theChilean pesos are converted into U.S. dollars. If the Chilean pesos received asdividends are not converted into U.S. dollars on the date of receipt, a U.S.holder will have a basis in Chilean pesos equal to their U.S. dollar value onthe date of receipt. Any gain or loss realized on a subsequent conversion orother disposition of the Chilean pesos will be treated as U.S. source ordinaryincome or loss, regardless of whether the pesos are converted into U.S.dollars.

 

The Chilean WithholdingTax (net of any credit for the First Category Tax) paid by or for the accountof any U.S. holder may be eligible, subject to generally applicable limitationsand conditions, for credit against the U.S. holder’s federal income taxliability. For purposes of calculating the foreign tax credit, dividends paidwith respect to the ADSs or shares of common stock generally will be foreignsource income and will generally constitute passive income. Further, in certaincircumstances, a U.S. holder that (i) has held ADSs or shares of commonstock for less than a specified minimum period during which it is not protectedfrom risk of loss or (ii) is obligated to make payments related to thedividends will not be allowed a foreign tax credit for foreign taxes imposed ondividends paid on ADSs or shares of common stock. The rules governing theforeign tax credit are complex. Investors are urged to consult their taxadvisors regarding the availability of the foreign tax credit under theirparticular circumstances.

 

Distributions to U.S.holders of additional shares of common stock or preemptive rights with respectto shares of common stock that are made as part of a pro rata distribution toall shareholders of the Company generally should not be subject to U.S. federalincome tax.

 

To the extent that theamount of any distribution exceeds our current and accumulated earnings andprofits for a taxable year, as determined under U.S. federal income taxprinciples, the distribution will first be treated as a tax-free return ofcapital, causing a reduction in the adjusted basis of the ADSs or shares ofcommon stock (thereby increasing the amount of gain, or decreasing the amountof loss, to be recognized by the investor on a subsequent disposition of theADSs or shares of common stock), and the balance in excess of adjusted basiswill be taxed as capital gain recognized on a sale or exchange. Consequently,such distributions in excess of our current and accumulated earnings andprofits generally would not give rise to foreign source income and a U.S.holder generally would not be able to use the foreign tax credit arising fromany Chilean withholding tax imposed on such distributions unless such creditcan be applied (subject to applicable limitations) against U.S. taxes due onother foreign source income in the appropriate category for foreign tax creditpurposes. However, we do not expect to keep earnings and profits in accordancewith U.S. federal income tax principles. Therefore, a U.S. holder should expectthat a distribution will generally by treated as a dividend (as discussedabove).

 

We do not believe that weare, for U.S. federal income tax purposes, a passive foreign investment company(a “PFIC”), and expect to continue our operations in such a manner that we willnot be a PFIC. If, however, we are or become a PFIC, U.S. holders could besubject to additional U.S. federal income taxes on gain recognized with respectto the ADSs or shares of common stock and on certain distributions, plus aninterest charge on certain taxes treated as having been deferred by the U.S.holder under the PFIC rules of the U.S. federal income tax laws.

 

Non-corporate U.S.holders will not be eligible for reduced rates of taxation on any dividendsreceived from us prior to January 1, 2011, if we are a PFIC in the taxableyear in which such dividends are paid or in the preceding taxable year.

 

*CapitalGains*

 

U.S. holders that holdADSs or shares of common stock as capital assets will recognize capital gain orloss for federal income tax purposes on the sale or other disposition of suchADSs or shares (or preemptive rights with respect to such shares) held by theU.S. holder or the Depositary. Capital gains of individuals derived withrespect to capital assets held for more than one year are eligible for reducedrates of taxation. The deductibility of capital losses is subject tolimitations. Any gain or loss recognized by a U.S. holder generally will betreated as U.S. source gain or loss. Consequently, in the case of a dispositionof shares of common stock (which, unlike a disposition of ADSs, may be taxablein Chile), the U.S. holder may not be able to use the foreign tax credit forChilean tax imposed on the gain unless it can apply (subject to applicablelimitations) the credit against tax due on other income from foreign sources.

 

*Estateand Gift Taxation*

 

As discussed above under “ChileanTax Considerations — Other Chilean Taxes,” there are no Chilean inheritance,gift or succession taxes applicable to the transfer or disposition of ADSs by aforeign holder, but such taxes generally will apply to the transfer at death orby gift of shares of common stock by a foreign holder. The amount of anyinheritance tax paid to Chile may be eligible for credit against the amount ofU.S. federal estate tax imposed on the estate of a U.S. holder. U.S. holdersshould consult their personal tax advisors to determine whether and to whatextent they may be entitled to such credit. The Chilean gift tax generally willnot be treated as a creditable foreign tax for U.S. tax purposes.

 

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*InformationReporting and Backup Withholding*

 

In general, informationreporting requirements will apply to dividends in respect of ADSs or the sharesof common stock or the proceeds received on the sale, exchange, or redemptionof the ADSs paid within the United States (and in certain cases, outside of theUnited States) to U.S. holders other than certain exempt recipients (such ascorporations). A backup withholding tax may apply to such payments if the U.S.holder fails to provide an accurate taxpayer identification number orcertification of other exempt status or fails to report interest and dividendsrequired to be shown on its federal income tax returns. The amount of anybackup withholding from a payment to a U.S. holder will be allowed as a creditagainst the U.S. holder’s U.S. federal income tax liability provided therequired information is furnished to the Internal Revenue Service.

 

**Tax Considerations Relating to DebtSecurities**

 

***General***

 

In October 1997, weissued US$150 million 7% Notes Due 2007 (the “2007 Notes”), US$100 million7 5/8% Notes due 2027 (the “2027 Notes”) and US$100 million 7 7/8% Debentures Due 2097 (the “2097Debentures,” together with the 2007 Notes and the 2027 Notes, the “DebtSecurities”). The following is a summary of certain Chilean tax and U.S.federal income tax considerations relating to the purchase, ownership anddisposition of Debt Securities. The summary does not purport to be acomprehensive description of all tax considerations that may be relevant to adecision to purchase Debt Securities. This summary does not describe any taxconsequences arising under the laws of any state, locality or taxingjurisdiction other than the United States and Chile.

 

This summary is based onthe tax laws of Chile and the United States as in effect on the date hereof, aswell as regulations, rulings and decisions of Chile and the United Statesavailable on or before such date and now in effect. All of the foregoing issubject to change, which change could apply retroactively and could affect thecontinued validity of this summary.

 

There is currently no taxtreaty between the United States and Chile.

 

***Chilean Tax Considerations***

 

The following is ageneral summary of the material consequences under Chilean tax law, ascurrently in effect, of an investment in the Debt Securities made by a ForeignHolder. The term “Foreign Holder” means: (i) an individual, who is not aresident in Chile (for purposes of Chilean taxation, an individual is residentin Chile if he or she has resided in Chile for more than six months in onecalendar year, or a total of more than six months in two consecutive fiscalyears); or (ii) a legal entity that is not organized under the laws ofChile, unless the Debt Securities are assigned to a branch or an agent,representative or permanent establishment of such entity in Chile.

 

Under Chile’s Income TaxLaw, because the issuance of the Debt Securities is registered with the CentralBank, payments of interest or premium, if any, that we make in respect of theDebt Securities to a Foreign Holder will generally be subject to a Chileanwithholding tax (the “Chilean Interest Withholding Tax”) currently assessed ata rate of 4.0%. If the Debt Securities are issued through our offshore branch,payment to Foreign Holders of Debt Securities by such branch generally will notbe subject to the Chilean withholding tax.

 

Chile’s Income Tax Lawprovides that any capital gains realized on the sale or other disposition by aForeign Holder of the Debt Securities generally will not be subject to anyChilean income taxes provided that such sale or other disposition occursoutside of Chile (except that any premium payable on redemption of the DebtSecurities will be treated as interest and subject to the Chilean InterestWithholding Tax as described above).

 

A Foreign Holder will notbe liable for estate, gift, inheritance or similar taxes with respect to theDebt Securities unless such Debt Securities (i) are located in Chile atthe time of such Foreign Holder’s death or (ii) were purchased or acquiredwith money obtained from Chilean sources.

 

The initial issuance ofthe Debt Securities is subject to stamp tax of 1.608% up to the year 2006, 1.5%for the year 2006, 1.35% for the year 2008, and 1.2% for the year 2009 forward,of the aggregate principal amount of the Debt Securities, which will be payableby the Company. If the Debt Securities are issued through our offshore branchand are not subsequently brought into Chile, no stamp tax will be payable. Ifthe stamp tax is not paid when due, Chilean tax law imposes a penalty up tothree times the amount of the tax due plus interest. In addition, until suchtax (and any penalty) is paid, Chilean courts would not admit any action basedon the Debt Securities. A Foreign Holder will not be liable for Chilean stamp,registration or similar taxes.

 

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***United States Tax Considerations***

 

The following summarydescribes certain U.S. federal income tax consequences of the ownership of DebtSecurities by U.S. holders (as defined below) as of the date hereof. Exceptwhere noted, it deals only with Debt Securities held as capital assets and doesnot deal with special situations, such as those of dealers in securities orcurrencies, financial institutions, insurance companies, regulated investmentcompanies, real estate investment trusts, tax-exempt entities, investors inpass-through entities, persons holding the Debt Securities as a part of ahedging, integrated, conversion or constructive sale transaction or a straddle,traders in securities that elect to use a mark-to-market method of accountingfor their securities holdings, persons liable for the alternative minimum taxor holders of Debt Securities whose “functional currency” is ngot the U.S.dollar. Furthermore, the discussion below is based upon the provisions of theCode, and regulations, rulings and judicial decisions there under as of thedate hereof, and such authorities may be repealed, revoked or modified so as toresult in U.S. federal income tax consequences different from those discussedbelow. If a partnership holds our Debt Securities, the tax treatment of apartner will generally depend upon the status of the partner and the activitiesof the partnership. Partners in a partnership holding our Debt Securitiesshould consult their tax advisors.

 

**Personsconsidering the purchase, ownership or disposition of the Debt Securitiesshould consult their own tax advisors concerning the federal income taxconsequences in light of their particular situations as well as anyconsequences arising under the laws of any other taxing jurisdiction.**

 

As used herein, a “U.S.holder” of the Debt Securities means a holder of the Debt Securities that is(i) an individual U.S. citizen or resident, (ii) a corporation (orany other entity treated as a corporation for U.S. federal income tax purposes)created or organized in or under the laws of the United States, any statethereof or the District of Columbia, (iii) an estate the income of whichis subject to U.S. federal income taxation regardless of its source or(iv) a trust (x) that is subject to the primary supervision of acourt within the United States and with respect to which one or more U.S.persons have the authority to control all substantial decision of the trust or(y) that has a valid election in effect under applicable U.S. Treasuryregulations to be treated as a U.S. person.

 

*Paymentsof Interest*

 

Interest on the DebtSecurities will generally be taxable to a U.S. holder as ordinary income at thetime it is paid or accrued in accordance with the U.S. holder’s method ofaccounting for tax purposes. In addition to interest on the Debt Securities, aU.S. holder will be required to include in income any Additional Amounts andany tax withheld from interest payments notwithstanding that such withheld taxis not in fact received by such U.S. holder. A U.S. holder may be entitled todeduct or credit such tax, subject to applicable limitations in the Code,including that the election to deduct or credit foreign taxes applies to all ofthe U.S. holder’s foreign taxes for a particular year. Interest income,including Chilean taxes withheld there from and Additional Amounts on the DebtSecurities, generally will constitute foreign source income and generally willbe considered passive income, which is treated separately from other types ofincome in computing the foreign tax credit that may be allowable to U.S.holders under U.S. federal tax laws. A U.S. holder will generally be denied aforeign tax credit for Chilean taxes imposed with respect to the DebtSecurities where such a holder does not meet a minimum holding period requirementduring which the holder is not protected from risk of loss. Therules governing the foreign tax credit are complex. We urge investors toconsult their tax advisors regarding the availability of the foreign tax creditunder their particular circumstances.

 

*MarketDiscount*

 

If a U.S. holderpurchases a Debt Security for an amount that is less than its principal amount,the amount of the difference will be treated as “market discount” for U.S.federal income tax purposes, unless that difference is less than a specified deminimis amount. Under the market discount rules, the U.S. holder will berequired to treat any principal payment on, or any gain on the sale, exchange,retirement or other disposition of, a Debt Security as ordinary income to the extentof the market discount that the U.S. holder has not previously included inincome and is treated as having accrued on the Debt Security at the time of itspayment or disposition.

 

In addition, the U.S.holder may be required to defer, until the maturity of the Debt Security or itsearlier disposition in a taxable transaction, the deduction of all or a portionof the interest expense on any indebtedness attributable to the Debt Security.A U.S. holder may elect, on a bond-by-bond basis, to deduct the deferredinterest expense in a tax year prior to the year of disposition. U.S. holdersshould consult their own tax advisors before making this election.

 

Any market discount willbe considered to accrue ratably during the period from the date of acquisitionto the maturity date of the Debt Security, unless the U.S. holder elects toaccrue on a constant interest method. A U.S. holder may elect to

 

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include marketdiscount in income currently as it accrues, on either a ratable or constantinterest method, in which case the rule described above regarding deferralof interest deductions will not apply.

 

*AmortizableBond Premium*

 

A U.S. holder thatpurchases a Debt Security for an amount in excess of its principal amount willbe considered to have purchased the Debt Security at a “premium.” The U.S.holder may elect to amortize the premium over the remaining term of the DebtSecurity on a constant yield method as an offset to interest when includible inincome under the holder’s regular accounting method. If the U.S. holder doesnot elect to amortize bond premium, that premium will decrease the gain orincrease the loss the holder would otherwise recognize on disposition of theDebt Security.

 

*Sale,Exchange and Retirement of Debt Securities*

 

Upon the sale, exchange,retirement or other disposition of the Debt Securities, a U.S. holder willrecognize gain or loss equal to the difference between the amount realized uponthe sale, exchange, retirement or other disposition (less any accrued interest,which will be taxable as such if not previously included in income) and theU.S. holder’s adjusted tax basis in the Debt Securities. A U.S. holder’s taxbasis in the Debt Securities generally will be the U.S. holder’s costtherefore, increased by market discount previously included in income, andreduced by any amortized premium. Except as described above with respect tomarket discount, gain or loss realized by a U.S. holder on the sale, exchange,retirement or other disposition of the Debt Securities will generally becapital gain or loss. Gain or loss realized by a U.S. holder on the sale,exchange, retirement or other disposition of the Debt Securities will generallybe treated as U.S. source gain or loss. Consequently, a U.S. holder may not beable to claim a credit for any Chilean tax imposed on the sale, exchange,retirement or other disposition of the Debt Securities due to limitations onthe foreign tax credit under the Code. Capital gains of individuals derived withrespect to capital assets held for more than one year are eligible for reducedrates of taxation. The deductibility of capital losses is subject tolimitations.

 

*InformationReporting and Backup Withholding*

 

In general, informationreporting requirements will apply to certain payments of principal and intereston the Debt Securities and to the proceeds of the sale of the Debt Securitiesmade to U.S. holders other than certain exempt recipients (such ascorporations). A backup withholding tax will apply to such payments if the U.S.holder fails to provide its taxpayer identification number or a certificationof exempt status, or, in the case of interest payments, fails either to reportin full dividend and interest income or to make certain certifications.

 

Any amounts withheldunder the backup withholding rules will be allowed as a refund or a creditagainst the U.S. holder’s U.S. federal income tax liability provided therequired information is furnished to the Internal Revenue Service.

 

***Special Tax Considerations Relating to 2097 Debentures***

 

As a result of the 2097Debentures’ 100 year term, it is not certain whether such Debentures will betreated as debt or as equity for U.S. federal income tax purposes. We havetaken the position that the 2097 Debentures constitute debt for financialreporting and U.S. federal income tax purposes. Our position, however, is notbinding on the Internal Revenue Service. Although classification of the 2097Debentures as equity generally would not significantly affect a U.S. holder’staxable income resulting from an investment in the 2097 Debentures, thediscussion that follows also briefly describes certain U.S. federal income taxconsequences that would arise if the 2097 Debentures were not treated as debtfor U.S. federal income tax purposes.

 

If the 2097 Debenturesare treated as equity for U.S. federal income tax purposes, the potentialdifferences in the U.S. federal income tax treatment to U.S. holders of the2097 Debentures that would result include (i) payments denominated asinterest on the 2097 Debentures (including Additional Amounts) would bereclassified as dividends to the extent paid out of the current or accumulatedearnings and profits of the Company (as determined using U.S. federal incometax principles) and (ii) U.S. holders would be required to report suchpayment amounts as ordinary income when actually or constructively received(instead of accruing such amounts as interest, even if such U.S. holders areaccrual method taxpayers). To the extent any such payments exceed such earningsand profits, they would be treated as a return of capital or capital gain(although, as we do not expect to keep earnings and profits in accordance withU.S. federal income tax principles. U.S. holders should expect that such paymentswill generally be treated as dividends). Amounts treated as dividends will notbe eligible for the dividends received deduction generally allowed U.S.corporations. In addition, because our 2097 Debentures are not readily tradableon an established securities market in the United States, we do not believethat any amounts treated as dividends currently meet the conditions requiredfor the reduced tax rates that apply to qualified dividend income received bynon-corporate U.S. holders. **Persons consideringthe purchase, ownership or disposition of the 2097 Debentures should consulttheir own tax advisors concerning additional potential tax consequences,including those arising upon a sale,**

 

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**exchangeor redemption of the 2097 Debentures, which could result from the treatment ofthe 2097 Debentures as equity for U.S. federal income tax purposes.**

 

**Documents on Display**

 

We are subject to theinformational reporting requirements of the U.S. Securities Exchange Act of1934, as amended, which requires that we file periodic reports and otherinformation with the SEC. As a foreign private issuer, we file annual reportson Form 20-F as opposed to Form 10-K. We do not file quarterlyreports on Form 10-Q but furnish reports in relation to material events onForm 6-K. As a foreign private issuer, we are exempt from therules under the U.S. Securities Exchange Act of 1934, as amended,prescribing the furnishing and content of proxy statements and short-swingprofit disclosure and liability.

 

You may read and copy allor any portion of the annual report or other information in our files in theSEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Youcan also access these documents through the SEC’s website athttp://www.sec.gov. You can request copies of these documents upon payment of aduplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330for further information on the operation of the public reference rooms. Inaddition, reports and other information concerning us may be inspected at theoffices of the New York Stock Exchange, Inc., 20 Broad Street, New York,New York 10005, on which our ADSs are listed.

 

We also file reports withthe Chilean Superintendencia de Valores y Seguros. You may read and copy anymaterials filed with the SVS directly from its website http://www.svs.cl offrom our corporate website http://www.koandina.com or request a hard copy toir@koandina.com. The documents referred to in this annual report can beinspected at El Golf 40 Oficina 401, Las Condes, Santiago, Chile. Chilean lawmay restrict our shareholders’ right of inspection to certain days and times.

 

**NYSE and Chilean Corporate GovernanceRequirements**

 

In accordance withSection 303A.11 of the NYSE’s Listed Company Manual, the following tablesets forth significant differences between Chilean corporate governancepractices and those corporate governance practices followed by domesticcorporations under NYSE listing standards. Significant ways in which ourcorporate governance practices differ from those followed by U.S. companiesunder NYSE listing standards are also publicly available on our website at **www.koandina.com.**

 
| **ITEM**                                      | ** ** | **NYSE  REQUIREMENTS**                                                           | ** ** | **CHILEAN  LAW REQUIREMENTS**                                                                                                                                                                                                                                                                                                                                                                                            |
|-----------------------------------------------|------------|----------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                          |       |                                                                             |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 303A.01  Independence                         |       | Members of the Board of Directors must be  independent in their majority.        |       | There is no legal obligation to have a Board of  Directors composed mainly of independent members. In addition, according to  section 303A regarding Controlled Companies, the requirements of 303A do not  apply to our Company.                                                                                                                                                                                        |
|                                          |       |                                                                             |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 303A.02  Test of Independence                 |       | Members of the Board of Directors must meet the Test  of Independence.           |       | No similar legal obligation exists under Chilean  law. However, Chilean law defines a director as independent if he is elected  by votes of shareholders who are not controlling shareholders or otherwise  related to controlling shareholders.                                                                                                                                                                         |
|                                          |       |                                                                             |       |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 303A.03  Meetings of Non-Management Directors |       | Non-Management Directors must meet regularly without  management of the company. |       | No similar legal obligation exists under Chilean  law. Under Chilean law, the position of director of a corporation is  incompatible with the position of manager, auditor, accountant or president  of the company. The Non-Management Director does not exist under Chilean law.  Directors, however, are required to convene in legally established meetings  to resolve matters required by Chilean Corporation Law. |

 

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| **ITEM**                                | ** ** | **NYSE  REQUIREMENTS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | ** ** | **CHILEAN  LAW REQUIREMENTS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|-----------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 303A.04  Corporate Governance Committee |       | Listed companies must have a Nominating/Corporate  Governance Committee composed entirely of independent directors and must have  a written charter addressing certain matters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       | There is no similar legal obligation under Chilean  law. In addition, section 303 A regarding Controlled Companies does not apply  to our Company. Chilean Andina has a Directors’ Committee whose functions are  set by Chilean Corporation Law.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 303A.05  Compensation Committee         |       | Listed companies must have a Compensation Committee  composed entirely of independent directors, and must have a written charter  addressing certain matters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       | There is no similar legal obligation under Chilean  law. In accordance with Chilean law, the above-mentioned Directors’ Committee  is in charge of reviewing management compensation. In addition, section 303 A  regarding Controlled Companies does not apply to our Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 303A.06  Audit Committee                |       | ·     Listed  companies must have an Audit Committee that satisfies the requirements of  Rule 10A-3 under the Exchange Act.

·     The Audit  Committee must have a minimum of three members.

·     In  addition to any requirement of Rule 10A-3(b)(1), all Audit Committee  members must satisfy the requirements for independence set out in  Section 303 A.02.

·     The Audit  Committee must have a written charter addressing certain matters.

·     An Audit  Committee was appointed in accordance with the characteristics, composition  and faculties established under Item 16-A of this document. |       | No similar legal obligation exists under Chilean  law. However, in accordance with the Chilean Public Companies Law 18,046,  public companies that have a net worth of more than 1.5 million UFs must have  a Committee of Directors, formed by three independent board members and the  controller. The Committee’s compensation is set by the ordinary shareholders’  meeting, and it performs the following functions: (1) examines reports  of account inspectors and external auditors, financial statements and issues  an opinion on these reports and statements; (2) proposes external  auditors and rating agencies to the Board of Directors; (3) examines  conflicts of interest and informs the Board regarding such conflicts;  (4) examines compensation systems and plans for directors and executive  officers; and (5) any other matters that the bylaws, the shareholders’  meeting or the Board of Directors decides. |
|                                    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 303A.07  Internal Audit Function        |       | Listed companies must maintain an Internal Audit  Function to provide management and the Audit Committee with ongoing  assessments of the company’s risk management processes and systems of  internal control. A listed company may choose to outsource this function to a  third party service provider other than its independent auditor.                                                                                                                                                                                                                                                                                                                                                                                                                                     |       | There is no similar obligation under Chilean law.  Chilean law requires that companies must have both account inspectors and  external auditors.

 

However, Andina designated an Audit Committee in  accordance with Rule 10 A.3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 303A.08  Voting on Compensation Plans   |       | Shareholders must have the opportunity to vote on  compensation plans regarding board members, executives and employees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       | Directors’ compensation is annually approved during  the Company’s General Shareholders’ Meeting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

 

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| **ITEM**                          | ** ** | **NYSE  REQUIREMENTS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | ** ** | **CHILEAN  LAW REQUIREMENTS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|-----------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                              |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 303A.09  Corporate Governance     |       | Listed companies must adopt and disclose Corporate  Governance Practices.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       | Chilean Law does not require the adoption of  Corporate Governance Practices because they have been established by Chilean  Corporate Law.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                              |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 303A.10  Code of Business Conduct |       | A company must adopt a Code of Business Conduct for  its directors, officers and employees. Such company must disclose any waiver  of its code of conduct that is granted to an officer or director.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       | There is no legal obligation to adopt a Code of  Business Conduct. Chilean law requires that a company have a set of internal  regulations which regulate the company and its relations with personnel. Such  regulations must contain, among other things, regulations related to ethics  and good behavior. Notwithstanding the above, a company may create internal  codes of conduct, provided they do not require or prohibit behavior that  contravenes Chilean law. In 1996, Andina created a Code of Business Conduct  that applies to the entire Company, which does not require or prohibit  behavior that contravenes Chilean Law. This Code of Business Conduct is  available on our website at http://www.koandina.com/. |
|                              |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 303A.11  Summary of Differences   |       | A company must provide a summary description of  significant differences between its home country corporate governance  practices and the corporate governance requirements established by the NYSE  as applicable to U.S. domestic listed companies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       | No similar obligation exists under Chilean law.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                              |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 303A.12  CEO Certification        |       | •    Each listed company CEO must certify to  the NYSE each year that he or she is not aware of any violation by the  company of NYSE corporate governance listing standards.

•    Each listed company CEO must promptly  notify the NYSE in writing after any executive officer of the listed company  becomes aware of any material non-compliance with any of the applicable  provisions of Section 303 A.

•    Each listed company must submit an  executed Written Affirmation annually to the NYSE. In addition, each listed  company must submit an interim Written Affirmation each time a change occurs  to the Board of Directors or any of the committees subject to  Section 303 A. The annual and interim Written Affirmations must be in  the form specified by the NYSE. |       | No similar obligation exists under Chilean law.  However, in accordance with Chilean law, the directors of a company must  annually submit for approval the company’s annual report and financial  statements to its shareholders at the company’s annual shareholders’ meeting.  Similarly, public companies must, from time to time, provide all relevant  company information by means of the publications and notifications  established by law.                                                                                                                                                                                                                                                                   |

 

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| **ITEM**                  | ** ** | **NYSE  REQUIREMENTS**                                                                                                                                                                                         | ** ** | **CHILEAN  LAW REQUIREMENTS**                                                                                                                 |
|---------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------|
|                      |       |                                                                                                                                                                                                           |       |                                                                                                                                          |
| 303A.13  Public Reprimand |       | The NYSE may issue a Public Reprimand letter to any  listed company, regardless of the type of security listed or country of incorporation  if it determines the company has violated a NYSE listing standard. |       | No similar obligation exists under Chilean law, with  the exception of sanctions imposed by the Chilean Superintendence of  Securities (SVS). |

 

**ITEM 11.****                       ****QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Market risk generallyrepresents the risk that losses may occur in the values of financialinstruments as a result of movements in interest rates, foreign currencyexchange rates and commodity prices. We are exposed to changes in financialmarket conditions in the normal course of our business due to our use ofcertain financial instruments as well as transacting in various foreigncurrencies and translation of our foreign subsidiaries’ financial statementsinto the Chilean peso.

 

**Interest Rate Risk**

 

Our primary interest rateexposures relate to U.S. dollar denominated and UF long-term fixed rate bondliabilities and other long-term variable and fixed rate bank liabilities. Wealso invest in certain medium-term bond securities that bear a fixed interestrate. We monitor our exposure to interest rate fluctuations regularly dependingon market conditions.

 

The following table provides information about ourlong-term debt and bond investments that are sensitive to changes in marketinterest rates as of December 31, 2007.

 
| ** **                        | ** ** | **Expected Maturity Date** | ** ** | **Estimated Fair****Market Value** | ** ** |
|-----------------------------------|------------|--------------------------------------|------------|----------------------------------------------|------------|
| ** **                        | ** ** | **2008**                             | ** ** | **2009**                                     | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Total** | ** ** |
| ** **                        | ** ** | **MCh$**                             | ** ** | **MCh$**                                     | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** |
| **Interest  Earning Assets**      |       |                                 |       |                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Bonds                             |       | 1,004                                |       | 0                                            |       | 0 |   | 0 |   | 0 |   | 0 |   | 1,004 |   | 1,015 |   |
| Weighted average interest rate    |       | 5.13                                 | %          |                                         |       |   |   |   |   |   |   |   |   | 5.13 | % |   |   |
| Time deposits  and credit links   |       | 49,088                               |       | 0                                            |       | 0 |   | 0 |   | 0 |   | 0 |   | 49,088 |   | 49,088 |   |
| Weighted average interest rate    |       | 4.68                                 | %          | 0                                            | %          |   |   |   |   |   |   |   |   | 4.68 | % |   |   |
| **Interest  Bearing Liabilities** |       |                                 |       |                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term debt                    |       | 6,914                                |       | 2,135                                        |       | 4,271 |   | 4,271 |   | 4,271 |   | 58,650 |   | 80,512 |   | 98,505 |   |
| Fixed Rate                        |       | 6.20                                 | %          | 6.50                                         | %          | 6.50 | % | 6.50 | % | 6.50 | % | 6.52 | % | 6.49 | % |   |   |
| Bonds                             |       | 6,914                                |       | 2,135                                        |       | 4,271 |   | 4,271 |   | 4,271 |   | 58,650 |   | 80,512 |   | 98,505 |   |
| Weighted average  interest rate   |       | 6.20                                 | %          | 6.50                                         | %          | 6.50 | % | 6.50 | % | 6.50 | % | 6.52 | % | 6.49 | % |   |   |
| Bank liabilities                  |       | 3,951                                |       | 0                                            |       | 0 |   | 0 |   | 0 |   | 0 |   | 3,951 |   | 3,951 |   |
| Weighted average  interest rate   |       | 8.91                                 | %          |                                         |       |   |   |   |   |   |   |   |   | 8.91 | % |   |   |
| Variable Rate                     |       |                                 |       |                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Bank liabilities                  |       | 122                                  |       | 118                                          |       | 347 |   | 166 |   | 109 |   | 0 |   | 862 |   | 862 |   |
| Weighted average  interest rate   |       | 11.89                                | %          | 10.79                                        | %          | 9.87 | % | 9.82 | % | 9.40 | % |   |   | 10.21 | % |   |   |

 

**Foreign Currency Risk**

 

At December 31,2007, the Company has long-term interest bearing debt subject to exchange ratefluctuations between the Chilean peso and the U.S. dollar. We manage such riskby maintaining cash, deposits, money market mutual funds and bonds in U.S.dollars amounting to Ch$46,299 million at December 31, 2007, which arehigher than our total long term debt in U.S. dollars amounting to Ch$45,200million at such date. Notwithstanding the aforementioned, ourdollar-denominated financial assets are protected against fluctuations in theexchange rate for U.S. dollars by means of a “cross currency swap” hedgeagreement. The hedged amount totaled Ch$27,600 million at December 31,2007, with which the Company’s dollar-denominated debt is hedged.

 

The following tablesummarizes the financial instruments denominated in US dollars we held as ofDecember 31, 2007.

 

76

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| ** **                      | ** ** | **Expected Maturity Date** | ** ** | **Estimated  Fair Market** | ** ** |
|---------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|
| ** **                      | ** ** | **2008**                             | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Value** | ** ** |
| ** **                      | ** ** | **MCh$**                             | ** ** | **MCh$**                        | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** |
| **Assets**                      |       |                                 |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| US$ denominated:           |       |                                 |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                            |       | 2,541                                |       | 0                               |       | 0 |   | 0 |   | 0 |   | 0 |   | 2,541 |   | 2,541 |   |
| Money market  mutual funds      |       | 18                                   |       | 0                               |       | 0 |   | 0 |   | 0 |   | 0 |   | 18 |   | 18 |   |
| Time deposit and  credit link   |       | 42,736                               |       | 0                               |       | 0 |   | 0 |   | 0 |   | 0 |   | 42,736 |   | 42,736 |   |
| Bonds                           |       | 1,004                                |       | 0                               |       | 0 |   | 0 |   | 0 |   | 0 |   | 1,004 |   | 1,015 |   |
| Foreign currency  contracts     |       | 17,322                               |       | 0                               |       | 0 |   | 0 |   | 0 |   | 0 |   | 17,322 |   | 17,322 |   |
| **Liabilities**                 |       |                                 |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| US$ denominated:           |       |                                 |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term  liabilities:         |       |                                 |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Bonds                           |       | 19                                   |       | 0                               |       | 0 |   | 0 |   | 0 |   | 994 |   | 1,013 |   | 1,099 |   |
| Weighted average  interest rate |       | 7.63                                 | %          | 0                               |       | 0 |   | 0 |   | 0 |   | 7.63 | % | 7.07 | % |   |   |

 

**ITEM 12.****                      ****DESCRIPTION OFSECURITIES OTHER THAN EQUITY SECURITIES**

 

Not applicable.

 

**PART II**

 

**ITEM 13.****                      ****DEFAULTS, DIVIDENDARREARAGES AND DELINQUENCIES**

 

Not applicable.

 

**ITEM 14.****                      ****MATERIAL MODIFICATIONSTO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS**

 

The information requestedby this item has been previously provided in the annual report for the year2004. See “Item 4. Information on the Company—Part A. History andDevelopment of the Company.”

 

**ITEM 15.****                      ****CONTROLS AND PROCEDURES**

 

*Evaluation of disclosure controlsand procedures*.

 

Under the supervision andwith the participation of our management, including our Chief Executive Officer,Chief Financial Officer and Controller, we have evaluated the effectiveness ofthe design and operation of our disclosure controls and procedures as ofDecember 31, 2007. Based on that evaluation, our Chief ExecutiveOfficer, Chief Financial Officer and Controller have concluded that thesecontrols and procedures are effective to ensure that information required to bedisclosed in the reports that we file or submit under the Securities ExchangeAct of 1934, as amended, is recorded, processed, summarized and reported withinthe time periods specified in the SEC’s rules and forms, and that suchinformation is accumulated and communicated to management as appropriate toallow timely decisions regarding required disclosure.

 

*Management’s Annual Report on InternalControl over Financial Reporting.*

 

Company management isresponsible for establishing and maintaining adequate internal control overfinancial reporting. Internal control over financial reporting is definedin Rule 13a-15(f) or 15d-15(f) promulgated under the SecuritiesExchange Act of 1934, as amended, as a process designed by, or under thesupervision of, the Company’s Chief Executive Officer, ChiefFinancial Officer and Controller and effected by the Company’s Board ofDirectors, management and other personnel, to provide reasonable assuranceregarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles and includes those policies and proceduresthat:

 

·                  pertain to the maintenance of recordsthat in reasonable detail accurately and fairly reflect the transactions and dispositionsof the assets of the Company;

 

·                  provide reasonable assurance thattransactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and

 

77

----

 

expenditures ofthe Company are being made only in accordance with authorizations ofmanagement and directors of the Company; and

 

·                  provide reasonable assurance regardingprevention or timely detection of unauthorized acquisitions, useor disposition of the Company’s assets that could have a material effecton the financial statements.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Projections of any evaluation of effectiveness as tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

 

The Company’s managementassessed the effectiveness of the Company’s internal control overfinancial reporting as of December 31, 2007. In making thisassessment, the Company’s management used the criteria set forth by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control-Integrated Framework. Based on our assessment, managementconcluded that, as of December 31, 2007, the Company’s internalcontrol over financial reporting was effective based on those criteria.

 

The effectiveness of theCompany’s internal control over financial reporting as of December 31,2007 has been audited by the Company’s registered independent accounting firm,which opinion is stated in their report, included herein.

 

*Changes in internal controls overfinancial reporting.*

 

There were no changes inour internal control over financial reporting during the year endedDecember 31, 2007 that materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting.

 

**ITEM 16A.****             ****AUDIT COMMITTEE FINANCIAL EXPERT**

 

Our board of directorshas determined that Mr. Heriberto Urzúa Sánchez is our “audit committeefinancial expert” as defined in Item 16A of Form 20-F. Our board ofdirectors has also determined that Mr. Heriberto Urzúa Sánchez is an“independent director” as defined in Section 303A.02 of the NYSE’s ListedCompany Manual.

 

**ITEM 16B.****             **** CODE OF ETHICS**

 

We have adopted a “Codeof Business Conduct” that constitutes a code of ethics for our employees. Thiscode applies to our chief executive officer and all senior financial officersof our Company, including the chief financial officer, controller, or any otherpersons performing similar functions, as well as to all other officers andemployees of the Company. Our code of ethics is available on our websites, freeof charge, at **www.koandina.com**. Ifwe make any substantive amendment to the code of ethics or grant any waivers,including any implicit waiver, from a provision of the codes of ethics, we willdisclose the nature of such amendment or waiver on the above mentioned website.

 

**ITEM 16C.****             **** PRINCIPAL ACCOUNTANT FEES ANDSERVICES**

 

***Fees Paid To Independent Public Accountants***

 

The following table setsforth, for each of the years indicated, the kinds of fees paid to our externalauditors and the percentage of each of the fees out of the total amount paid tothem.

 
| ** **                 | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------|------------|--------------------------------------------|------------|
| ** **                 | ** ** | **2007**                                   | ** ** | **2006** | ** ** |
| **Services rendered** | ** ** | **Fees  MCh$**                             | ** ** | **% of Total  Fees** | ** ** | **Fees  MCh$** | ** ** | **% of   Total  Fees** | ** ** |
| Audit fees(1)              |       | 589                                        |       | 96 | % | 373 |   | 87 | % |
| Audit-related  fees(2)     |       | 4                                          |       | 1 | % | 34 |   | 8 | % |
| Tax fees(3)                |       | 18                                         |       | 3 | % | 20 |   | 5 | % |
| Total                      |       | 611                                        |       | 100 | % | 427 |   | 100 | % |

 

----

| (1) | Audit fees consist of services that would normally  be provided in connection with statutory and regulatory filings or  engagements, including services that generally only the independent  accountant can reasonably provide. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

78

----

 
| (2) | Audit-related fees relate to assurance and  associated services that traditionally are performed by the independent  accountant, including: attest services that are not required by statute or  regulation; accounting consultation and audits in connection with mergers, acquisitions  and divestitures; employee benefit plans audits; and consultation concerning  financial accounting and reporting standards. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (3) | Tax fees relate to services performed by the tax  division for tax compliance, planning, and advice.                                                                                                                                                                                                                                                                                                                  |

 

***Directors’ Committee and Audit Committee Pre-ApprovalPolicies and Procedures***

 

We have adoptedpre-approval policies and procedures under which all audit and non-auditservices provided by our external auditors must be pre-approved by ourdirector’s committee and audit committee. Any service proposals submitted byexternal auditors need to be discussed and approved by the directors’ committeeand audit committee during its meetings, which take place at least four times ayear. Once the proposed service is approved, we or our subsidiaries formalizethe engagement of services. In addition, the members of our board of directorsare briefed on matters discussed by the different committees of our board ofdirectors.

 

**ITEM 16D.****              **** EXEMPTIONS FROMTHE LISTING STANDARDS FOR AUDIT COMMITTEES**

 

Not Applicable.

 

**ITEM 16E.****               **** PURCHASERS OFEQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS**

 

During 2007, no issuer oraffiliated parties made purchases pursuant to publicly announced plans orprograms or not pursuant to such plans.

 

**PART III**

 

**ITEM 17.****                       ****FINANCIAL STATEMENTS**

 

Reference is made toItem 18 for a list of all financial statements filed as part of thisannual report.

 

**ITEM 18.****                       ****FINANCIAL STATEMENTS**

 

The following financialstatements, together with the report of independent registered accounting firm,are filed as part of this annual report:

 
| ** **                                                                                                                                        | ** ** | **Page** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|
| Index to  Consolidated Financial Statements                                                                                                       |       |     |       |
| Management’s Report on Internal Controls over  Financial Reporting                                                                           |       | F-1      |       |
| Report of Independent Registered Public Accounting  Firm                                                                                          |       | F-2      |       |
| Consolidated  Balance Sheets at December 31, 2007 and 2006                                                                                   |       | F-4      |       |
| Consolidated Statements of Income for the years ended  December 31, 2007, 2006 and 2005                                                      |       | F-6      |       |
| Consolidated Statements of Cash Flows for the years  ended December 31, 2007, 2006 and 2005                                                  |       | F-7      |       |
| Notes to the Consolidated Financial Statements at  December 31, 2007 and 2006 and for the years ended December 31,  2007, 2006 and 2005 |       | F-9      |       |

 

 

79

----

 

 

**ITEM 19.               EXHIBITS**

 

The exhibits filed withor incorporated by reference in this annual report are listed in the exhibitindex below.

 

**EXHIBITINDEX**

 
| **Item** | ** ** | **Description**                                                                                                                                                                                                            |
|----------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |       |                                                                                                                                                                                                                       |
| 1.1      |       | English translation of our Bylaws (filed with the  U.S. Securities and Exchange Commission in our annual report on  Form 20-F for the fiscal year ended December 31, 1996 and  incorporated herein by reference) |
|     |       |                                                                                                                                                                                                                       |
| 8.1      |       | List of our subsidiaries (filed herewith).                                                                                                                                                                                 |
|     |       |                                                                                                                                                                                                                       |
| 12.1     |       | Certification of Jaime Garcia pursuant to  Rule 13-a14(a) (17 CFR 240.13a-12(a)) or  Rule 15d-14(a) (17 CFR 240.15d-14(a)) (filed herewith).                                                           |
|     |       |                                                                                                                                                                                                                       |
| 12.2     |       | Certification of Osvaldo Garay pursuant to  Rule 13-a14(a) (17 CFR 240.13a-12(a)) or  Rule 15d-14(a) (17 CFR 240.15d-14(a)) (filed herewith).                                                          |
|     |       |                                                                                                                                                                                                                       |
| 13.1     |       | Certification of Jaime Garcia pursuant to 18 U.S.C.  Chapter 63, Section 1350, (filed herewith).                                                                                                                      |
|     |       |                                                                                                                                                                                                                       |
| 13.2     |       | Certification of Osvaldo Garay pursuant to 18 U.S.C.  Chapter 63, Section 1350, (filed herewith).                                                                                                                     |

 

80

----

 

**SIGNATURE**

 

Pursuant to therequirements of Section 12 of the Securities Exchange Act of 1934, theRegistrant certifies that it meets all of the requirements for filing onForm 20-F and has duly caused this Annual Report on Form 20-F to besigned on its behalf by the undersigned, thereunto duly authorized, in the cityof Santiago, Chile on June 27, 2008.

 
|   | EMBOTELLADORA ANDINA S.A.  (ANDINA BOTTLING COMPANY) |
|--------|------------------------------------------------------|
|   |                                                 |
|   | /s/ Osvaldo Garay                                    |
|   | Osvaldo Garay                                        |
|   | Chief Financial Officer                              |

 

Date: June 27, 2008

 

81

----

 

EMBOTELLADORA ANDINA S.A.AND SUBSIDIARIES

 

Consolidated financialstatements

 

Asof December 31, 2007 and 2006 and for each

   of the three years in the period ended December 31,2007

 

CONTENTS

 
| Management’s  Report on Internal Control over Financial Reporting | F-1 |
|------------------------------------------------------------------------|-----|
| Report  of Independent Registered Public Accounting Firm               | F-2 |
| Consolidated  Balance Sheets                                           | F-4 |
| Consolidated Statements of Income                                      | F-6 |
| Consolidated Statements of Cash Flows                                  | F-7 |
| Notes to the Consolidated Financial Statements                         | F-9 |

 
|   | Ch$    | - | Chilean pesos                                                              |   |
|--------|--------|---|----------------------------------------------------------------------------|--------|
|   | ThCh$  | - | Thousands of Chilean  pesos                                                |   |
|   | US$    | - | United States dollars                                                      |   |
|   | ThUS$  | - | Thousands of United  States dollars                                        |   |
|   | UF     | - | Unidades de Fomento  (Chilean government inflation-indexed monetary units) |   |
|   | A$     | - | Argentine pesos                                                            |   |
|   | R$     | - | Brazilian reals                                                            |   |
|   | € | - | Euros                                                                      |   |

 

 

 

----

 

**Management’sReport on Internal Control over Financial Reporting**

 

Themanagement of Embotelladora Andina S.A. (the “Company”), including the ChiefExecutive Officer and the Chief Financial Officer, is responsible forestablishing and maintaining adequate internal control over financialreporting, as such term is defined in Rules 13a-15(f) and 15d-15funder the Securities Exchange Act of 1934, as amended.

 

TheCompany’s internal control over financial reporting is a process designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. The Company’s internal control overfinancial reporting includes those policies and procedures that (i) pertainto the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the Company; (ii) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the Company; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use or dispositionof the Company’s assets that could have a material effect on the financialstatements.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation of theeffectiveness of internal control to future periods are subject to the riskthat controls may become inadequate because of changes in conditions, and thatthe degree of compliance with the policies or procedures may deteriorate.

 

EmbotelladoraAndina’s management, including the Chief Executive Officer and the ChiefFinancial Officer,  has assessed the effectivenessof the Company’s internal control over financial reporting as of December 31,2007 based on the criteria established in Internal Control - “IntegratedFramework” issued by the Committee of Sponsoring Organizations of the TreadwayCommission (“COSO”) and, based on such criteria, Embotelladora Andina’smanagement has concluded that, as of December 31, 2007, the Company’sinternal control over financial reporting is effective.

 

TheCompany’s internal control over financial reporting effectiveness as of December 31,2007 has been audited by PricewaterhouseCoopers Consultores, Auditores yCompañía Limitada, an independent registered public accounting firm, as statedin their report which appears herein.

 

 
| By         | Jaime García Rioseco   |   |
|------------|-----------------------------|--------|
| ** ** | **Chief Executive Officer** |   |

 

 
|   | Osvaldo Garay Arriola       |   |
|--------|-----------------------------|--------|
|   | **Chief Financial Officer** |   |

 

June 27,2008

 

F-1

----

 

### **Report of Independent RegisteredPublic Accounting Firm**

 

Tothe Board of Directors and Shareholders of Embotelladora Andina S.A.

 

Inour opinion, the accompanying consolidated balance sheets and the relatedconsolidated statements of income and of cash flows present fairly, in allmaterial respects, the financial position of Embotelladora Andina S.A. and itssubsidiaries at December 31, 2007 and 2006, and the results of theiroperations and their cash flows for each of the three years in the period endedDecember 31, 2007 in conformity with accounting principles generallyaccepted in Chile.  Also in our opinion,the Company maintained, in all material respects, effective internal controlover financial reporting as of December 31, 2007, based on criteriaestablished in *Internal Control - Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO).  The Company’s management isresponsible for these financial statements, for maintaining effective internalcontrol over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanyingManagement’s Report on Internal Control over Financial Reporting.  Our responsibility is to express opinions onthese financial statements and on the Company’s internal control over financialreporting based on our audits (which was an integrated audit in 2007).  We conducted our audits in accordance withthe standards of the Public Company Accounting Oversight Board (United States)and auditing standards generally accepted in Chile.  Those standards require that we plan andperform the audits to obtain reasonable assurance about whether the financialstatements are free of material misstatement and whether effective internalcontrol over financial reporting was maintained in all material respects.  Our audits of the financial statements includedexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation.  Our audit ofinternal control over financial reporting included obtaining an understandingof internal control over financial reporting, assessing the risk that amaterial weakness exists, and testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk.  Our audits also included performing suchother procedures as we considered necessary in the circumstances. We believethat our audits provide a reasonable basis for our opinions.

 

Accountingprinciples generally accepted in Chile vary in certain significant respectsfrom accounting principles generally accepted in the United States of America (“U.S.GAAP”). Information relating to the nature and effect of such differences ispresented in Note 30 to the consolidated financial statements.

 

F-2

----

 

Acompany’s internal control over financial reporting is a process designed toprovide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company’s internal control over financial reporting includes thosepolicies and procedures that (i) pertain to the maintenance of recordsthat, in reasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (ii) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (iii) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements.  Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

 

/s/PricewaterhouseCoopers

 

 

Santiago,Chile

June 27,2008

 

F-3

----

 

EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES

 

CONSOLIDATEDBALANCE SHEETS

 

(Restated for general price-level changes andexpressed in

thousands of constant Chilean pesos of December 31,2007)

 
| ** **                                             | ** ** | ** **              | ** ** | **At December 31,** | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|-------------------------------|------------|
| ** **                                             | ** ** | **Note**                | ** ** | **2007**                      | ** ** | **2006** | ** ** |
| ** **                                             | ** ** | ** **              | ** ** | **ThCh$ **               | ** ** | **ThCh$** | ** ** |
| ASSETS                                                 |       |                    |       |                          |       |   |   |
| CURRENT ASSETS                                         |       |                    |       |                          |       |   |   |
| Cash                                                   |       |                    |       | 24,754,142                    |       | 17,551,601 |   |
| Time deposits                                          |       | 3                       |       | 49,088,381                    |       | 7,704,145 |   |
| Marketable securities                                  |       | 4                       |       | 48,533,561                    |       | 27,970,558 |   |
| Trade accounts receivable (net)                        |       | 5                       |       | 44,280,949                    |       | 38,811,661 |   |
| Notes receivable (net)                                 |       | 5                       |       | 14,553,358                    |       | 13,387,208 |   |
| Other receivables (net)                                |       | 5                       |       | 16,031,584                    |       | 12,511,404 |   |
| Accounts receivable from related companies             |       |     6 a) |       | 1,847,050                     |       | 3,107,695 |   |
| Inventories (net)                                      |       | 7                       |       | 27,298,620                    |       | 24,370,223 |   |
| Recoverable taxes                                      |       |                    |       | 9,716,707                     |       | 8,496,968 |   |
| Prepaid expenses                                       |       |                    |       | 1,904,080                     |       | 1,729,828 |   |
| Deferred income taxes                                  |       |     8 b) |       | 5,234,679                     |       | 956,324 |   |
| Other current assets                                   |       | 9                       |       | 22,576,016                    |       | 19,672,432 |   |
| Total current assets                                   |       |                    |       | 265,819,127                   |       | 176,270,047 |   |
|                                                   |       |                    |       |                          |       |   |   |
| PROPERTY, PLANT AND EQUIPMENT                          |       |  11                |       |                          |       |   |   |
| Land                                                   |       |                    |       | 16,751,276                    |       | 15,475,103 |   |
| Buildings and improvements                             |       |                    |       | 98,502,738                    |       | 91,348,992 |   |
| Machinery and equipment                                |       |                    |       | 229,584,693                   |       | 231,550,546 |   |
| Other property, plant and equipment                    |       |                    |       | 217,489,779                   |       | 222,663,321 |   |
| Technical reappraisal of property, plant and equipment |       |                    |       | 2,208,110                     |       | 2,208,366 |   |
| Less: Accumulated depreciation                         |       |                    |       | (395,953,016                  | )          | (410,693,053 | ) |
| Total property, plant and equipment                    |       |                    |       | 168,583,580                   |       | 152,553,275 |   |
|                                                   |       |                    |       |                          |       |   |   |
| OTHER ASSETS                                           |       |                    |       |                          |       |   |   |
| Investments in unconsolidated affiliates               |       |  12                |       | 24,961,690                    |       | 24,129,151 |   |
| Investments in other companies                         |       |                    |       | 133,944                       |       | 60,085 |   |
| Goodwill (net)                                         |       |  13                |       | 57,062,478                    |       | 72,908,499 |   |
| Long-term receivables                                  |       |                    |       | 37,511                        |       | 55,153 |   |
| Accounts receivable from related companies             |       |     6 a) |       | 49,736                        |       | 38,853 |   |
| Intangibles (net)                                      |       |                    |       | 162,478                       |       | 179,843 |   |
| Long-term investments and other long-term assets       |       |  14                |       | 23,617,723                    |       | 125,410,579 |   |
| Total other assets                                     |       |                    |       | 106,025,560                   |       | 222,782,163 |   |
| Total assets                                           |       |                    |       | 540,428,267                   |       | 551,605,485 |   |

 

The accompanying Notes 1 to 30 are an integral part ofthese consolidated financial statements.

 

F-4

----

 
| ** **                                                   | ** ** | ** **                     | ** ** | **At December 31,** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------|------------|-------------------------------|------------|
| ** **                                                   | ** ** | **Note**                       | ** ** | **2007**                      | ** ** | **2006** | ** ** |
| ** **                                                   | ** ** | ** **                     | ** ** | **ThCh$**                     | ** ** | ** ThCh$** | ** ** |
| LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY |       |                           |       |                          |       |   |   |
| CURRENT LIABILITIES                                          |       |                           |       |                          |       |   |   |
| Short-term bank borrowings                                   |       |      15 a) |       | 3,950,822                     |       | 2,674,272 |   |
| Current portion of long-term bank borrowings                 |       |      15 b) |       | 122,361                       |       | 471,317 |   |
| Current portion of bonds payable                             |       | 17                             |       | 6,914,470                     |       | 32,190,444 |   |
| Dividends payable                                            |       |                           |       | 5,810,563                     |       | 5,061,518 |   |
| Trade accounts payable                                       |       |                           |       | 54,585,035                    |       | 46,040,374 |   |
| Other creditors                                              |       |                           |       | 4,988,474                     |       | 3,411,368 |   |
| Amounts payable to related companies                         |       |     6  b)  |       | 19,157,342                    |       | 11,613,224 |   |
| Other accrued liabilities                                    |       | 18                             |       | 3,475,223                     |       | 3,098,739 |   |
| Withholdings                                                 |       |                           |       | 20,653,598                    |       | 21,168,418 |   |
| Income taxes payable                                         |       |                           |       | 17,206,020                    |       | 4,330,722 |   |
| Unearned income                                              |       |                           |       | 466,466                       |       | 536,513 |   |
| Other current liabilities                                    |       |                           |       | 1,335,008                     |       | 5,014,867 |   |
| Total current liabilities                                    |       |                           |       | 138,665,382                   |       | 135,611,776 |   |
|                                                         |       |                           |       |                          |       |   |   |
| LONG-TERM LIABILITIES                                        |       |                           |       |                          |       |   |   |
| Long-term bank borrowings                                    |       | 16                             |       | 740,645                       |       | 448,971 |   |
| Bonds payable                                                |       | 17                             |       | 73,597,622                    |       | 81,651,038 |   |
| Other creditors                                              |       |                           |       | 79,559                        |       | 143,150 |   |
| Amounts payable to related companies                         |       |     6  b)  |       | 3,340,602                     |       | 3,812,304 |   |
| Other accrued liabilities                                    |       | 18                             |       | 16,927,953                    |       | 18,363,766 |   |
| Deferred income taxes                                        |       |     8  b)  |       | 12,375,536                    |       | 4,433,103 |   |
| Other long-term liabilities                                  |       | 20                             |       | 12,264,686                    |       | 10,820,242 |   |
| Total long-term liabilities                                  |       |                           |       | 119,326,603                   |       | 119,672,574 |   |
|                                                         |       |                           |       |                          |       |   |   |
| MINORITY INTEREST                                            |       | 21                             |       | 1,287,144                     |       | 1,257,528 |   |
|                                                         |       |                           |       |                          |       |   |   |
| COMMITMENTS AND CONTINGENCIES                                |       | 27                             |       |                          |       |   |   |
|                                                         |       |                           |       |                          |       |   |   |
| SHAREHOLDERS’ EQUITY                                    |       | 22                             |       |                          |       |   |   |
| Paid-in capital                                              |       |                           |       | 217,013,513                   |       | 217,013,513 |   |
| Other reserves                                               |       |                           |       | (11,443,442                   | )          | 1,879,795 |   |
| Retained earnings from prior years                           |       |                           |       | 11,171,454                    |       | 10,745,409 |   |
| Net income for the year                                      |       |                           |       | 81,601,944                    |       | 79,857,372 |   |
| Interim dividends                                            |       |                           |       | (17,194,331                   | )          | (14,432,482 | ) |
| Total shareholders’ equity                              |       |                           |       | 281,149,138                   |       | 295,063,607 |   |
| Total liabilities and shareholders’ equity              |       |                           |       | 540,428,267                   |       | 551,605,485 |   |

 

The accompanying Notes 1 to 30 are an integral part ofthese consolidated financial statements.

 

F-5

----

 

EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES

 

CONSOLIDATEDSTATEMENTS OF INCOME

 

(Restated for general price-level changes andexpressed in

thousands of constant Chilean pesos of December 31,2007)

 
| ** **                                             | ** ** | ** **               | ** ** | **For the years ended December 31,** | ** ** |
|--------------------------------------------------------|------------|--------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                             | ** ** | ** **               | ** ** | **2007**                                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                             | ** ** | **Note**                 | ** ** | **ThCh$**                                                     | ** ** | ** ThCh$** | ** ** | **ThCh$** | ** ** |
| OPERATING INCOME                                       |       |                     |       |                                                          |       |   |   |   |   |
| Net sales                                              |       |                     |       | 636,689,030                                                   |       | 587,189,979 |   | 511,301,050 |   |
| Cost of sales                                          |       |                     |       | (351,451,736                                                  | )          | (335,170,666 | ) | (301,774,918 | ) |
| Gross profit                                           |       |                     |       | 285,237,294                                                   |       | 252,019,313 |   | 209,526,132 |   |
| Administrative and selling expenses                    |       |                     |       | (169,742,952                                                  | )          | (149,922,624 | ) | (124,095,752 | ) |
| Operating income                                       |       |                     |       | 115,494,342                                                   |       | 102,096,689 |   | 85,430,380 |   |
|                                                   |       |                     |       |                                                          |       |   |   |   |   |
| NON-OPERATING INCOME AND EXPENSE                       |       |                     |       |                                                          |       |   |   |   |   |
| Financial income                                       |       |                     |       | 22,935,160                                                    |       | 13,459,664 |   | 31,275,926 |   |
| Share of gain from unconsolidated affiliates           |       | 12                       |       | 668,498                                                       |       | 553,706 |   | 843,838 |   |
| Other non-operating income                             |       | 23                       |       | 12,130,183                                                    |       | 6,117,101 |   | 8,019,084 |   |
| Amortization of goodwill                               |       | 13                       |       | (6,502,674                                                    | )          | (6,983,589 | ) | (6,830,343 | ) |
| Financial expense                                      |       |                     |       | (15,161,028                                                   | )          | (16,510,471 | ) | (23,150,636 | ) |
| Other non-operating expense                            |       | 23                       |       | (6,534,893                                                    | )          | (7,930,321 | ) | (8,485,280 | ) |
| Price-level restatement                                |       |                     |       | (4,543,047                                                    | )          | (339,154 | ) | (625,092 | ) |
| Exchange gains (losses), net                           |       |                     |       | (9,971,405                                                    | )          | 3,983,953 |   | (15,666,567 | ) |
| Non-operating expense                                  |       |                     |       | (6,979,206                                                    | )          | (7,649,111 | ) | (14,619,070 | ) |
| Income before income tax expense and minority interest |       |                     |       | 108,515,136                                                   |       | 94,447,578 |   | 70,811,310 |   |
| Income tax expense                                     |       |     8  c) |       | (26,870,391                                                   | )          | (14,558,419 | ) | (9,374,486 | ) |
| Income before minority interest                        |       |                     |       | 81,644,745                                                    |       | 79,889,159 |   | 61,436,824 |   |
| Income attributable to minority interest               |       | 21                       |       | (42,801                                                       | )          | (31,787 | ) | 13,346 |   |
| Net income                                             |       |                     |       | 81,601,944                                                    |       | 79,857,372 |   | 61,450,170 |   |

 

The accompanying Notes 1 to 30 are an integral part ofthese consolidated financial statements.

 

F-6

----

 

EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES

 

##### CONSOLIDATEDSTATEMENTS OF CASH FLOWS

 

(Restated for general price-level changes andexpressed in

thousands of constant Chilean pesos of December 31,2007

 
| ** **                                                       | ** ** | **For the years ended December 31,** | ** ** |
|------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                       | ** ** | **2007**                                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                       | ** ** | **ThCh$  **                                         | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES                             |       |                                                          |       |   |   |   |   |
| Collection of trade receivables                                  |       | 861,758,139                                                   |       | 777,119,009 |   | 743,104,037 |   |
| Financial income received                                        |       | 20,944,402                                                    |       | 12,002,443 |   | 23,278,206 |   |
| Dividends and other distributions received                       |       | 3,310,687                                                     |       | 1,593,786 |   | 1,537,839 |   |
| Collection of other receivables                                  |       | 58,538                                                        |       | 19,204 |   | 27,147 |   |
| Payments to suppliers and personnel                              |       | (602,907,835                                                  | )          | (528,278,609 | ) | (545,214,144 | ) |
| Interest paid                                                    |       | (17,398,601                                                   | )          | (13,676,988 | ) | (21,942,444 | ) |
| Income tax payments                                              |       | (21,337,617                                                   | )          | (11,639,754 | ) | (5,465,418 | ) |
| VAT and other similar items paid                                 |       | (107,288,665                                                  | )          | (100,825,152 | ) | (89,153,316 | ) |
| Net cash provided by operating activities                        |       | 137,139,048                                                   |       | 136,313,939 |   | 106,171,907 |   |
|                                                             |       |                                                          |       |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                             |       |                                                          |       |   |   |   |   |
| Borrowings from banks                                            |       | 52,597,852                                                    |       | 47,761,041 |   | 59,961,045 |   |
| Dividends paid                                                   |       | (78,347,834                                                   | )          | (79,136,331 | ) | (79,556,796 | ) |
| Payments of loans                                                |       | (51,328,372                                                   | )          | (76,446,381 | ) | (92,737,776 | ) |
| Repayments of bonds                                              |       | (13,659,106                                                   | )          | (12,804,970 | ) | (12,807,101 | ) |
| Net cash used in financing activities                            |       | (90,737,460                                                   | )          | (120,626,641 | ) | (125,140,628 | ) |
|                                                             |       |                                                          |       |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                             |       |                                                          |       |   |   |   |   |
| Proceeds from sales of property, plant and equipment             |       | 698,325                                                       |       | 2,199,027 |   | 3,717,806 |   |
| Proceeds from sales of permanent investments                     |       | —                                                        |       | 5,495,867 |   | — |   |
| Proceeds from sales of other investments                         |       | 108,329,808                                                   |       | 39,863,022 |   | 66,010,652 |   |
| Additions to property, plant and equipment                       |       | (56,024,449                                                   | )          | (39,742,692 | ) | (30,040,247 | ) |
| Permanent investments                                            |       | (3,651,700                                                    | )          | — |   | (350,351 | ) |
| Purchases of other investments                                   |       | (17,906,465                                                   | )          | (1,389,970 | ) | (27,376,796 | ) |
| Net cash provided by investing activities                        |       | 31,445,519                                                    |       | 6,425,254 |   | 11,961,064 |   |
| Net cash flows from operating, financing and investingactivities |       | 77,847,107                                                    |       | 22,112,552 |   | (7,007,657 | ) |
| PRICE — LEVEL RESTATEMENT OF CASH AND CASH EQUIVALENTS      |       | (1,124,534                                                    | )          | (654,338 | ) | (632,161 | ) |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             |       | 76,722,573                                                    |       | 21,458,214 |   | (7,639,818 | ) |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                   |       | 44,649,133                                                    |       | 23,190,919 |   | 30,830,737 |   |
| CASH AND CASH EQUIVALENTS AT END OF YEAR                         |       | 121,371,706                                                   |       | 44,649,133 |   | 23,190,919 |   |

 

The accompanying Notes 1 to 30 are an integral part ofthese consolidated financial statements.

 

F-7

----

 
| ** **                                                                           | ** ** | **For the years ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                           | ** ** | **2007**                                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                           | ** ** | **ThCh$**                                                     | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| RECONCILIATION BETWEEN NET INCOME AND NETCASH FLOWS PROVIDED BY OPERATING ACTIVITIES |       |                                                          |       |   |   |   |   |
| Net income                                                                           |       | 81,601,944                                                    |       | 79,857,372 |   | 61,450,170 |   |
| Income on sales of assets:                                                           |       |                                                          |       |   |   |   |   |
| Loss (gain) on sale of property, plant and equipment                                 |       | 146,702                                                       |       | 2,285,690 |   | (293,695 | ) |
| Gain on divesture of Vital S.A                                                       |       | —                                                        |       | — |   | (4,265,980 | ) |
| Loss on divesture of Cican S.A.                                                      |       | 85,549                                                        |       | — |   | — |   |
| Loss (gain) on sale of other assets                                                  |       | 84,741                                                        |       | — |   | (2,369 | ) |
| Adjustments to reconcile net income to netcash provided by operating activities:     |       |                                                          |       |   |   |   |   |
| Depreciation                                                                         |       | 29,147,969                                                    |       | 31,740,874 |   | 31,840,657 |   |
| Amortization of intangibles                                                          |       | 237,000                                                       |       | 210,268 |   | 355,717 |   |
| Write-offs and provisions                                                            |       | 1,088,696                                                     |       | 3,054,561 |   | 1,786,571 |   |
| Share of gain from unconsolidated affiliates                                         |       | (668,498                                                      | )          | (553,706 | ) | (843,838 | ) |
| Amortization of goodwill                                                             |       | 6,502,674                                                     |       | 6,983,589 |   | 6,830,343 |   |
| Price-level restatement                                                              |       | 4,543,047                                                     |       | 339,154 |   | 625,092 |   |
| Exchange gains (losses), net                                                         |       | 9,971,405                                                     |       | (3,983,953 | ) | 15,666,569 |   |
| Other credits to income that do not represent cash flows                             |       | (2,812,986                                                    | )          | (433,873 | ) | (3,189,550 | ) |
| Other charges to income that do not represent cash flows                             |       | 3,533,358                                                     |       | — |   | — |   |
| (Increase) decrease in operating assets:                                             |       |                                                          |       |   |   |   |   |
| Trade accounts receivable                                                            |       | (280,050                                                      | )          | 1,722,221 |   | (2,661,681 | ) |
| Inventories                                                                          |       | (5,406,713                                                    | )          | (5,048,033 | ) | 2,654,613 |   |
| Other assets                                                                         |       | (27,189,797                                                   | )          | (16,285,209 | ) | (31,297,277 | ) |
| Increase (decrease) in operating liabilities:                                        |       |                                                          |       |   |   |   |   |
| Accounts payable related to operating income                                         |       | 2,953,033                                                     |       | 10,364,880 |   | (6,248,904 | ) |
| Interest payable                                                                     |       | 9,339,661                                                     |       | 10,509,022 |   | 13,916,252 |   |
| Income taxes payable                                                                 |       | 11,482,335                                                    |       | 8,591,816 |   | 6,190,998 |   |
| Other accounts payable related to non-operating income                               |       | 7,057,325                                                     |       | 4,694,966 |   | 5,918,577 |   |
| VAT and other similar items                                                          |       | 5,678,852                                                     |       | 2,232,513 |   | 7,752,988 |   |
| Income attributable to minority interest                                             |       | 42,801                                                        |       | 31,787 |   | (13,346 | ) |
| Net cash provided by operating activities                                            |       | 137,139,048                                                   |       | 136,313,939 |   | 106,171,907 |   |

 

The accompanying Notes 1 to 30 are an integral part ofthese consolidated financial statements.

 

F-8

----

 

## EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATEDFINANCIAL STATEMENTS

 

AT DECEMBER 31, 2007 AND 2006

 

NOTE1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Embotelladora Andina S.A. is registered under No. 00124in the Securities Registry and is subject to the regulations of the ChileanSuperintendency of Securities and Insurance Companies (the “SVS”).

The primary activity of Embotelladora Andina S.A. (“Andina”,and together with its subsidiaries, the “Company”) is the production and saleof Coca-Cola products and other beverages. The Company has bottling operationsin Santiago, Chile and, through its subsidiaries, in Rio de Janeiro, EspírituSanto and Nova Iguaçu,Brazil, and Mendoza, Córdoba, and Rosario, Argentina. The Company holdsfranchises from The Coca-Cola Company covering each of its Chilean, Brazilianand Argentine operations. The franchises for the Chilean Territories, ArgentineTerritories and for the Brazilian Territories expire in 2012. All these franchisesmay be extended at the option of The Coca-Cola Company. Such franchises areexpected to be renewed upon expiration.

* *

*Legal reorganizations and jointventures:*

 

OnJune 5, 2006 Andina Inversiones Societarias S.A., a consolidatedsubsidiary of the Company was divided,creating “Andina Inversiones Societarias Dos S.A.” by the contribution at bookvalue of Envases Multipack Ltda., a consolidated subsidiary. On August 15,2006, Andina Inversiones Societarias Dos S.A. became a limited liabilitycorporation and changed its name to Andina Inversiones Societarias Dos Ltda. OnNovember 15, 2006, Andina Inversiones Societarias Dos Ltda. and EnvasesMultipack Ltda. were merged into Embotelladora Andina S.A.

 

OnDecember 22, 2005 the production and packaging business of water, juicesand non-carbonated beverages licensed by The Coca-Cola Company (“TCCC”) inChile was restructured.  Vital Aguas S.A.was created with the purpose of developing the process, production andpackaging business of Vital Mineral Water and other water products according tothe terms of the contracts and authorizations agreed upon by Vital Aguas S.A.and TCCC.  Consequently, Vital S.A., aconsolidated subsidiary of the Company which prior to the creation of VitalAguas S.A developed and produced water products for the Company, will focus onjuices and non-carbonated beverages. As part of the restructuring,Embotelladora Andina S.A., Embonor S.A. and Embotelladora Coca-Cola Polar S.A.,have taken an interest of 56.5%, 26.4% and 17.1%, respectively, in the newlyformed Vital Aguas S.A.

 

F-9

----

 

Accountingpolicies

 

*a) Presentation*

 

The consolidated financial statements of the Companyhave been prepared in accordance with accounting principles generally acceptedin Chile (“Chilean GAAP”) and regulations established by the SVS.

 

The preparation of financial statements in conformitywith generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities, revenues and expenses and disclosures of contingent liabilities.Management makes its best estimate of the ultimate outcome for these itemsbased on historical trends and other information available when the financialstatements are prepared. Changes in estimates are recognized in accordance withthe accounting rules for the estimate, which is typically in the periodwhen new information becomes available to management. Areas where the nature ofthe estimate makes it reasonably possible that actual results could materiallydiffer from amounts estimated include: the carrying value of property, plantand equipment, the adequacy of the allowance for doubtful accounts, thecarrying value of goodwill and investments in unconsolidated affiliates, thedetermination of the liability for deposits for bottles and containers and thevaluation of deferred income tax assets.

 

The Company has issued its audited statutoryconsolidated financial statements in Spanish and in conformity with ChileanGAAP, which include certain notes and additional information required by theSVS for statutory purposes. Management believes that these additional notes andinformation are not essential for the complete understanding of theconsolidated financial statements and accordingly, these notes and additionalinformation have been excluded from the accompanying consolidated financialstatements.

* *

*b) Consolidation*

 

The accompanying financial statements reflect theconsolidated results of operations of Andina and its subsidiaries. Allsignificant intercompany transactions have been eliminated on consolidation.The Company consolidates the financial statements of the companies in which itcontrols a majority of voting shares or has the ability, direct or indirect, todirect the management and policies of the company.

 

F-10

----

 

*c) Price-level restatement*

 

The financial statements, which are expressed inChilean pesos, have been restated to reflect the effects of variations in thepurchasing power of the Chilean peso during each year. For this purpose and inconformity with current Chilean regulations, non-monetary assets andliabilities and equity accounts have been restated by charges or credits toincome. Furthermore, the income and expense accounts have been restated interms of year-end constant pesos. In accordance with Chilean tax regulationsand accounting practices, the restatements were calculated based on theofficial Chilean Consumer Price Index published by the National Institute ofStatistics (the “CPI”), applied one month in arrears, which was 3.6%, 2.1% and7.4% for the years ended November 30, 2005, 2006 and 2007, respectively.This index is considered by the business community, the accounting professionand the Chilean government to be the index which most closely complies with thetechnical requirement to reflect the variation in the general level of pricesin the country and, consequently, is widely used for financial reportingpurposes in Chile. The above-mentioned price-level restatements do not purportto present appraisal or replacement values and are only intended to restate allnon-monetary financial statement components in terms of local currency of asingle purchasing power and to include in the net result for each year the gainor loss in purchasing power arising from the holding of assets and liabilitiesexposed to the effects of inflation.

 

Assets and liabilities that are denominated in inflation-indexed monetaryunits are stated at year-end values. The principal inflation-indexed monetaryunit used in Chile is the UF that changes daily to reflect the changes in theCPI. Values for the UF are as follows (historical pesos per UF):

 
| ** **               | ** ** | **December 31,** | ** ** |
|--------------------------|------------|-----------------------|------------|
| ** **               | ** ** | **2007**              | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **               | ** ** | **Ch$**               | ** ** | **Ch$ ** | ** ** | **Ch$** | ** ** |
| Unidades de Fomento (UF) |       | 19,622.66             |       | 18,336.38 |   | 17,974.81 |   |

 

All amounts in the financial statements and notes are expressed in Chileanpesos of December 31, 2007 purchasing power, unless otherwise stated. Forcomparative purposes, the 2005 and 2006 financial statements, and the amountsdisclosed in the related footnotes, have been restated in terms of Chileanpesos of December 31, 2007 purchasing power. This updating does not changethe prior year’s statements or information in any way except to update the amountsto Chilean pesos of similar purchasing power.

* *

*d) Assets and liabilities denominated in foreigncurrencies*

 

Assets and liabilities denominated in foreign currencies were translatedinto Chilean pesos at the exchange rates reported by the Central Bank of Chileas follows:

 
| ** **                  | ** ** | **December 31,** | ** ** |
|-----------------------------|------------|-----------------------|------------|
| ** **                  | ** ** | **2007**              | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                  | ** ** | **Ch$**               | ** ** | **Ch$** | ** ** | **Ch$** | ** ** |
| United States dollars (US$) |       | 496.89                |       | 532.39 |   | 512.50 |   |
| Argentine pesos (A$)        |       | 157.79                |       | 173.87 |   | 169.03 |   |
| Brazilian Real (R$)         |       | 280.52                |       | 249.01 |   | 222.37 |   |
| Euros (€)              |       | 730.94                |       | 702.08 |   | 606.08 |   |

 

F-11

----

 

*e) Time deposits and marketable securities*

 

Time deposits are shown at cost plus accrued interest, which approximatesmarket value. Marketable securities include money market funds which are statedat market value based on year-end quoted values and bonds are valued at thelesser of restated cost plus accrued interest and market value.

 

*f) Allowance for doubtful accounts*

 

The allowance for doubtful accounts consists of a provision determined onthe basis of the aging of accounts receivable and additional allowances forspecific customers where collection is doubtful. In the opinion of the Company’smanagement, the allowances are reasonable and the net balances are recoverable.

 

*g) Securities purchased under agreements to resell*

* *

These securities represent investment in promissorynotes issued by the Central Bank of Chile, which were purchased at a discountunder agreements to resell at a fixed price. They are valued at their present value calculated on the basis of theinterest yield used to determine the price of each instrument on the date ofacquisition.  Interest earned is recordedas financial income.

 

*h) Inventories*

 

Inventories are stated at purchase and/or production cost, adjusted forprice-level restatements and are computed pursuant to the average cost method.Provisions are made for obsolescence on the basis of turnover of raw materialsand finished products. The stated values of inventories do not exceed theirestimated net realizable value.

 

*i) Recoverable taxes*

 

Recoverable taxes represent a net receivable relatedto value-added taxes on purchases and sales and prepayments based onanticipated income tax.

 

*j) Income taxes and deferred incometaxes*

 

Effective January 1, 2000, the effects ofdeferred income taxes arising from temporary differences between the basis ofassets and liabilities for tax and financial statement purposes are recorded inaccordance with Technical Bulletins Nos. 60, 68 and 69 of the Chilean Instituteof Accountants and Circular No. 1,466 of the SVS. The effects of deferredincome taxes at January 1, 2000 that were not previously recorded, wererecognized, in accordance with the transitional provision provided by TechnicalBulletin No. 60, against asset or liability accounts (“complementaryaccounts”) and were recorded to offset the effects of the deferred tax assetsand liabilities not recorded prior to January 1, 2000. Complementaryaccounts are amortized to income over the estimated average reversal periodscorresponding to underlying temporary differences to which the deferred taxasset or liability related.

 

Deferred income tax assets are reduced by a valuationallowance if, based on the weight of available evidence, some portion or all ofthe deferred income tax assets will not be realized.

 

F-12

----

 

*k) Property, plant and equipment anddepreciation*

 

Property, plant and equipment are carried at cost plusprice-level restatements less accumulated depreciation.  Expenditures for significant improvements, orreplacement parts, which extend the useful life of an asset for more than oneyear are capitalized, while maintenance and repair costs are charged tooperations as incurred. Gains and losses arising from normal retirement anddisposal of property, plant and equipment are reflected in other non-operatingincome or expense in the consolidated statements of income.

 

Containers in the Company’s possession at plants andwarehouses, as well as bottles and plastic containers held by third parties,are stated at cost plus price-level restatements, net of depreciation. Brokenbottles or spoiled containers at warehouses or plants are expensed in eachaccounting period.

 

Software currently in use mainly corresponds to computerpackages purchased from third parties which are capitalized and amortized overa maximum period of four years.

 

During 1979, the SVS authorized a technical appraisalof certain property, plant and equipment, which is included in technicalreappraisal of property, plant and equipment in the consolidated balancesheets.

 

Depreciation expense wasdetermined using the straight-line method, based on the estimated useful livesof the assets, which are as follows:

 
| ** **                 | ** ** | **Years** | ** ** |
|----------------------------|------------|-----------|------------|
| Buildings and improvements |       | 25-60     |       |
| Machinery and equipment    |       | 10        |       |
| Containers                 |       | 2-5       |       |
| Other                      |       | 1-10      |       |

 

*l)Deposits for containers*

 

TheCompany records a liability for cash guarantees received from customers forcontainers delivered with the purchase of its products.  These guarantees are not adjusted forprice-level restatements.  If a customerdid not return the containers in a five-year period as from the invoice date,the Company may cash the deposit partially or in all with no further proceeding,the effect of which is recognized in the consolidated statements of income.

 

Consideringthat the number of new containers in circulation during a year is historicallygreater than the number of containers returned by clients in that same period,the liability for cash guarantees received, amounting to ThCh$ 9,181,721and ThCh$ 9,345,222 as of December 31, 2007 and 2006, respectively,is presented under Other long-term liabilities in the balance sheet.

 

F-13

----

 

*m) Investments in unconsolidated affiliates*

 

Investments in companies in which the Company’s ownership interest exceeds20% but is less than 50% are accounted for using the equity method.  The Company’s proportionate share in netincome and loss of unconsolidated affiliates is recognized in othernon-operating income or expense in the consolidated statements of income, aftereliminating any unrealized profits or losses from transactions between relatedcompanies.

 

Investments in which the Company’s ownership interest is below 20% areaccounted for at cost plus price-level restatements, except for subsidiaries inwhich the Company has significant influence which are also accounted for usingthe equity method.

 

*n) Long-term investments*

 

Long-term investments mainly include investments in bonds and time depositswhich are recorded at cost plus accrued interest.

 

*o) Goodwill*

 

Until December 31, 2003, the Company classified the cost in excess ofbook value of the net assets of companies acquired in purchase transactions asgoodwill. Effective January 1, 2004, Technical Bulletin No. 72 requires thedetermination of goodwill and negative goodwill based on the fair value of theacquired company. Goodwillgenerated on acquisitions is amortized on a straight-line basis over20 years. The Company evaluates the recoverability of goodwill on aperiodic basis.

 

*p) Bonds payable*

 

Bonds payable includes placement of Yankee Bonds inthe US markets and placement of bonds in UF in Chile, which are carried at parvalue. The purchase discounts, the difference in the par value and the proceedsreceived, are included in other long-term assets in the consolidated balancesheets. This asset is amortized using the straight-line method over the term ofthe respective obligations.

 

The issuance and placement costs of bonds are shown inother current assets and other long-term assets in the consolidated balancesheets and are being amortized on a straight-line basis over the life of therespective instruments. Costs include legal fees, reports on riskclassification, printing, and commissions on issuance and are presented net ofaccumulated amortization.

 

F-14

----

 

*q) Staff severance indemnities andretention plan*

 

The Company has recorded a liability for long-termseverance indemnities in accordance with the collective bargaining agreementsentered into with its employees in Chile. The indemnity is payable to employeesat the rate of one full month’s salary for every year of service with the Company.This liability is shown at the present value of the projected benefits,considering the impacts of inflation, discounted at a rate of 7%. The benefitaccrued as of the end of the year considers the average future service periodfor all employees covered by such agreements. The staff severance indemnitiesare included in short-term and long-term Other accrued liabilities in theconsolidated balance sheets. Beginning in 2005 the Company also maintains aseparate management retention plan which entitles certain selected executivesto receive a fixed lump sum payment on a pre-determined date upon completion ofservice.  The resulting obligation underthe provisions of this plan is shown under Other accrued liabilities in theconsolidated balance sheets.

 

*r) Sales recognition*

 

The Company records sales revenue based on thephysical delivery of finished products to its customers, in accordance withTechnical Bulletin No. 70 issued by the Chilean Institute of Accountants.

 

Value added taxes collected from customers andremitted to governmental authorities are accounted for on a net basis andtherefore are excluded from revenues in the consolidated statements of income.

 

*s) Franchise incentives*

 

The Coca-Cola Company, in its sole discretion,provides the Company with various benefits and incentives, includingadvertising and promotional support. The amounts received from The Coca-ColaCompany for such support are included within the captions that composeoperating income, depending on the nature of the support given.

 

*t) Derivative transactions*

 

Derivativefinancial instruments are accounted for in accordance with Technical Bulletin No. 57of the Chilean Institute of Accountants (“TB 57”). Under TB 57 all derivativefinancial instruments are recognized on the balance sheet at their fair value.In addition, TB 57 requires that derivative financial instruments be classifiedas hedging instruments and non-hedging (investment) instruments.

 

Hedginginstruments are accounted for as follows:

 

Hedgesof recognized assets, liabilities or firm commitments — Futures contracts forthe sale of sugar to hedge changes in the fair value of purchase commitments:

 

Thedifference resulting from the changes in the fair value of the hedged item andthe derivative instrument should be accounted for as follows:

 

·                  If the net effect is a loss, it should berecognized in the statement of income in the period of change.

 

·                  If the net effect is a gain, it should bedeferred and recognized in the income statement when the contract is settled.

 

F-15

----

 

Hedgesof forecasted transactions – Foreign-currency forward exchange contracts andcross-currency swap agreements to hedge foreign exchange risk on forecastedcash flows in US dollars:

 

Thederivative instrument is stated at its fair value on the consolidated balancesheets and any change in the fair value of the derivative instrument isrecognized on the balance sheets as an unrealized gain or loss (Otherliabilities or Other assets, respectively). When the contract is settled, theunrealized gain or loss on the instrument is recognized as a financial incomeor expense in the consolidated statements of income.

 

Non-hedging(investment) instruments are presented at their fair value, with changes in fairvalue reflected in earnings in the period in which the change in fair valueoccurs.

 

*u)  Raw materials purchasecommitments*

 

Probablelosses arising from fixed-price purchase commitments of raw materials arerecognized in the consolidated statements of income at their fair value.

 

*v)   Translation of financialstatements in foreign currencies*

 

TheCompany’s investments in subsidiaries located in Argentina and Brazil arerecorded in accordance with Technical Bulletin No. 64 of the ChileanInstitute of Accountants. Under this pronouncement, the financial statements offoreign subsidiaries, which operate in countries that are exposed tosignificant risks, restrictions or inflation/currency fluctuations must firstbe remeasured into U.S. dollars and then translated into Chilean pesos at theyear-end exchange rate of the Chilean peso to the U.S. dollar. As a result, noeffect is given to price-level restatements based on inflation in thosecountries and the U.S. dollar is considered to be the functional currency ofthese operations. Accordingly, the financial statements of these subsidiariesare prepared in accordance with Chilean GAAP, excluding the application ofmonetary correction, and then remeasured into U.S. dollars as follows:

 

·                  monetary assets and liabilities are translated at the closing exchange ratefor the period;

·                  all other assets and liabilities and shareholders’ equity are translated athistorical rates of exchange;

·                  income and expense accounts are translated at average rates during theperiod; and

·                  the resulting exchange adjustments are included in the results ofstatements of income.

 

Theresulting foreign currency amounts are then translated to Chilean pesos at theclosing exchange rate at the balance sheet date. The difference between theinvestments’ equity value arising from the financial statements remeasured asexplained above and the net equity value at the beginning of the year restatedby Chilean inflation, plus the proportional share of the investments’ income(or loss) for the year, is recorded as a “Cumulative Translation Adjustment” inshareholders’ equity in the consolidated balance sheets.

 

*w)   Cash flows*

 

Forpurposes of the consolidated statement of cash flows, in accordance withTechnical Bulletin No. 50 of the Chilean Institute of Accountants andCircular No. 1,501 of the Superintendencia de Valores y Seguros (ChileanSuperintendency of Securities and Insurance) the Company has considered cashequivalents to be investments in fixed-income, money market funds, timedeposits and securities purchased under agreements to resell, maturing within90 days.

 

F-16

----

 

Cashflows from operating activities include all business-related cash flows as wellas interest paid, financial income and, in general, all cash flows not definedas from financing or investing activities. The operating concept used in thisstatement is broader than that in the consolidated statements of income.

 

NOTE2 - CHANGES IN ACCOUNTING PRINCIPLES

 

Thereare no changes in the application of generally accepted accounting principlesin Chile in relation to the previous year which could significantly affect thecomparability of these financial statements.

 

NOTE 3 - TIME DEPOSITS

 

Time deposits at eachyear-end consisted of the following:

 
| ** **                | ** ** | **At December 31,** | ** ** |
|---------------------------|------------|-------------------------------|------------|
| ** **                | ** ** | **2007**                      | ** ** | **2006** | ** ** |
| ** **                | ** ** | **ThCh$**                     | ** ** | **ThCh$** | ** ** |
| Local currency deposits   |       | 48,971,392                    |       | — |   |
| Foreign currency deposits |       | 116,989                       |       | 7,704,145 |   |
| Total                     |       | 49,088,381                    |       | 7,704,145 |   |

 

NOTE4 - MARKETABLE SECURITIES

 

Marketablesecurities at each year-end consisted of the followings:

 
| ** **                                    | ** ** | **At December 31,** | ** ** |
|-----------------------------------------------|------------|-------------------------------|------------|
| ** **                                    | ** ** | **2007**                      | ** ** | **2006** | ** ** |
| ** **                                    | ** ** | **ThCh$**                     | ** ** | **ThCh$** | ** ** |
| Money market funds                            |       | 47,529,183                    |       | 21,923,542 |   |
| Bonds United States Treasury (restricted) (1) |       | 1,004,378                     |       | — |   |
| Bonds Sudamericano Bank.                      |       | —                        |       | 4,836,405 |   |
| Bonds Petróleos Mexicanos S.A.           |       | —                        |       | 1,210,611 |   |
| Total                                         |       | 48,533,561                    |       | 27,970,558 |   |

 

----

(1)              Collateral guarantee requiredfor operating at the London International Financial Futures and OptionsExchange.

 

F-17

----

 

# NOTE 5 - RECEIVABLES

 

Ofthe portfolio of receivables at December 31, 2007 98.6% corresponded tothe softdrinks and other beverage business and 1.4% to the containerbusiness.  Details of receivables are asfollows:

 
| ** **                               | ** ** | **At December 31,** | ** ** |
|------------------------------------------|------------|-------------------------------|------------|
| ** **                               | ** ** | **2007**                      | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **ThCh$ **               | ** ** | **ThCh$** | ** ** |
| Trade accounts receivable                |       | 45,161,270                    |       | 39,918,567 |   |
| Allowance for doubtful accounts          |       | (880,321                      | )          | (1,106,906 | ) |
| Subtotal trade accounts receivable (net) |       | 44,280,949                    |       | 38,811,661 |   |
| Notes receivable                         |       | 15,041,566                    |       | 13,881,321 |   |
| Allowance for doubtful accounts          |       | (488,208                      | )          | (494,113 | ) |
| Subtotal notes receivable (net)          |       | 14,553,358                    |       | 13,387,208 |   |
| Other receivables                        |       | 16,199,351                    |       | 12,568,935 |   |
| Allowance for doubtful accounts          |       | (167,767                      | )          | (57,531 | ) |
| Subtotal other receivables               |       | 16,031,584                    |       | 12,511,404 |   |
| Total receivables                        |       | 76,402,187                    |       | 66,368,823 |   |
| Total allowance for doubtful accounts    |       | (1,536,296                    | )          | (1,658,550 | ) |
| Total net receivables                    |       | 74,865,891                    |       | 64,710,273 |   |

 

Notes receivable consisted primarily of post-datedchecks for the purchases of goods.  Otherreceivables consisted primarily of advance payments made to suppliers andamounts due from employees.

 

Gross balances outstanding for 90 days or less wereThCh$ 75,025,687 and ThCh$ 64,510,333 at December 31, 2007 and2006, respectively. Gross balances outstanding for more than 90 days wereThCh$ 1,376,500 and ThCh$ 1,858,490 at December 31, 2007 and2006, respectively.

 

The Company’s bad debt expense totaled ThCh$ 318,227in 2007, ThCh$ 226,533 in 2006 and ThCh$ 643,779 in 2005.

 

F-18

----

 

# NOTE 6 - AMOUNTSAND TRANSACTIONS WITH RELATED COMPANIES

 

Amounts payable and receivable with relatedcompanies correspond to transactions made on market terms.  These balances are generally due withinapproximately 45 days.

 

a)         Amounts receivable

 
| ** **                         | ** ** | ** **       | ** ** | **At December 31,**   | ** ** |
|------------------------------------|------------|------------------|------------|---------------------------------|------------|
| ** **                         | ** ** | ** **       | ** ** | **Short – term** | ** ** | **Long – term** | ** ** |
| **Company**                        | ** ** | **Transaction**  | ** ** | **2007**                        | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                         | ** ** | ** **       | ** ** | **ThCh$**                       | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Coca Cola de Chile S.A.            |       | Advertising      |       | —                          |       | 1,628,685 |   | 49,736 |   | 38,853 |   |
| Embonor S.A.                       |       | Sale of products |       | 1,298,769                       |       | 898,596 |   | — |   | — |   |
| Embotelladora Coca Cola Polar S.A. |       | Sale of products |       | 548,281                         |       | 580,414 |   | — |   | — |   |
| Total                              |       |             |       | 1,847,050                       |       | 3,107,695 |   | 49,736 |   | 38,853 |   |

 

b)        Amounts payable

 
| ** **                             | ** ** | ** **                                        | ** ** | **At December 31,**   | ** ** |
|----------------------------------------|------------|---------------------------------------------------|------------|---------------------------------|------------|
| ** **                             | ** ** | ** **                                        | ** ** | **Short – term** | ** ** | **Long – term** | ** ** |
| **Company**                            | ** ** | **Transaction**                                   | ** ** | **2007**                        | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                             | ** ** | ** **                                        | ** ** | **ThCh$**                       | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Recofarma Industrias do Amazonas Ltda. |       | Purchase of concentrate                           |       | 7,380,961                       |       | 4,846,471 |   | — |   | — |   |
| Coca Cola de Chile S.A.                |       | Advertising                                       |       | 5,943,519                       |       | — |   | — |   | — |   |
| Envases CMF S.A.                       |       | Purchase of raw materials                         |       | 2,770,984                       |       | 3,485,613 |   | — |   |   |   |
| SPBR S.R.L                             |       | Purchase of concentrate                           |       | 1,785,694                       |       | 2,136,477 |   | — |   |   |   |
| Envases Central S.A.                   |       | Raw materials and finished  products transactions |       | 1,148,326                       |       | 749,203 |   | — |   | — |   |
| Cican S.A.                             |       | Raw materials and finished  products transactions |       | —                          |       | 321,236 |   | — |   | — |   |
| Envases del Pacífico S.A.         |       | Purchase of raw materials                         |       | 127,858                         |       | 74,224 |   | — |   |   |   |
| Embonor S.A.                           |       | Unearned income from sale  commitments (1)        |       | —                          |       | — |   | 2,655,346 |   | 3,035,318 |   |
| Embotelladora Coca Cola Polar S.A.     |       | Unearned income from sale  commitments (1)        |       | —                          |       | — |   | 685,256 |   | 776,986 |   |
| Total                                  |       |                                              |       | 19,157,342                      |       | 11,613,224 |   | 3,340,602 |   | 3,812,304 |   |

 

----

(1)          Corresponds tounearned income from sale commitments of Vital S.A.’s products to Embonor S.A.and Embotelladora Coca Cola Polar S.A., which will be realized along withfuture deliveries.

 

F-19

----

 

c)             Transactions with relatedcompanies, exceeding ThCh$ 200,000, were as follows:

 
| **Company**                               | ** ** | **Relation**          | ** ** | **Transaction**                     | ** ** | **2007**   | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|-------------------------------------------|------------|-----------------------|------------|-------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                | ** ** | ** **            | ** ** | ** **                          | ** ** | **ThCh$**  | ** ** | **ThCh$**  | ** ** | **ThCh$**  | ** ** |
| Coca-Cola de Chile S.A.                   |       | Shareholder           |       | Concentrate purchases               |       | 49,328,091 |       | 43,630,671 |       | 44,780,947 |       |
|                                      |       |                  |       | Payment of advertisingparticipation |       | 4,130,800  |       | 1,952,142  |       | 3,120,956  |       |
|                                      |       |                  |       | Water source rental                 |       | 1,690,491  |       | 1,445,155  |       | 1,651,040  |       |
|                                      |       |                  |       | Sales of advertisement              |       | 3,550,348  |       | 2,907,005  |       | 3,498,992  |       |
| Recofarma Industrias doAmazonas Ltda.     |       | Shareholder related   |       | Concentrate purchases               |       | 54,838,897 |       | 43,802,173 |       | 32,389,309 |       |
|                                      |       |                  |       | Payment of advertisingparticipation |       | 3,308,899  |       | 3,447,790  |       | 3,430,457  |       |
|                                      |       |                  |       | Reimbursement and other  purchases  |       | 518,321    |       | 579,947    |       | 467,362    |       |
| SPBR S.R.L.                               |       | Shareholder           |       | Concentrate purchases               |       | 27,115,345 |       | 24,375,249 |       | 22,034,518 |       |
| Envases Central S.A.                      |       | Equity investee       |       | Finished product purchases          |       | 16,866,737 |       | 16,474,307 |       | 15,122,749 |       |
|                                      |       |                  |       | Sales of raw materials andsupplies  |       | 1,677,076  |       | 1,580,946  |       | 1,099,562  |       |
| Envases CMF S.A.                          |       | Equity investee       |       | Purchase of containers              |       | 16,121,863 |       | 17,685,751 |       | 17,439,417 |       |
|                                      |       |                  |       | Sale of finished products           |       | 216,344    |       | —     |       | —     |       |
|                                      |       |                  |       | Dividend payment                    |       | 3,210,000  |       | 1,589,666  |       | 1,368,499  |       |
| Iansagro S.A.                             |       | Director in common    |       | Purchase of sugar                   |       | 15,709,142 |       | 10,521,224 |       | 13,357,739 |       |
| Coca Cola Embonor S.A.                    |       | Shareholder related   |       | Sale of shares                      |       | —     |       | —     |       | 3,332,882  |       |
|                                      |       |                  |       | Sale of finished products           |       | 8,711,620  |       | 7,455,203  |       | —     |       |
|                                      |       |                  |       | Parchase of products                |       | 280,009    |       | —     |       | —     |       |
| Embotelladora Coca ColaPolar S.A.         |       | Shareholder related   |       | Sale of shares                      |       | —     |       | —     |       | 2,154,151  |       |
|                                      |       |                  |       | Sale of finished products           |       | 5,163,952  |       | 4,635,081  |       | —     |       |
| Vendomática S.A.                     |       | Director related      |       | Finished product purchases          |       | 1,462,596  |       | 1,549,708  |       | 1,226,841  |       |
| Cican S.A.                                |       | Shareholder related   |       | Purchases of finished  producst     |       | 1,456,354  |       | 1,370,471  |       | 230,004    |       |
| Envases del Pacífico S.A.            |       | Shareholder related   |       | Purchase of raw materials           |       | 225,946    |       | 457,569    |       | 855,702    |       |
| BBVA AdministradoraGeneral de Fondos S.A. |       | Shareholder related   |       | Investments in mutual funds         |       | 44,510,881 |       | 85,011,396 |       | —     |       |
|                                      |       |                  |       | Redemption of mutual funds          |       | 46,341,441 |       | 76,251,852 |       | —     |       |
| Inmobiliaria y ConstructoraEl Golf S.A.   |       | Shareholder in common |       | Purchase of real estate  property   |       | —     |       | —     |       | 17,661     |       |
| Inversiones Caburga S.A.                  |       | Shareholder           |       | Sale of real estate property        |       | —     |       | —     |       | 1,122,626  |       |

 

d)    Othertransactions

 

In 2006, the Company entered into a supply agreementwith Empresas Iansa S.A. and Iansagro S.A. for the purchase of 172,000 tons ofsugar.  This agreement will expire in January 2009.The agreement provides for the payment of a fixed price for part of the volumeto be purchased and a variable price, determined in accordance with marketvalues observed in international markets, for the remaining commitments. For the year ended December 31,2006, the Company recorded a loss of ThCh$ 803,849 on purchase commitmentsstated at fixed prices, based on fair values at year-end (nil for the yearended December 31, 2007).

 

F-20

----

 

# NOTE 7 - INVENTORIES

 

Inventoriesat each year-end consisted of the following:

 
| ** **               | ** ** | **At December 31,** | ** ** |
|--------------------------|------------|-------------------------------|------------|
| ** **               | ** ** | **2007**                      | ** ** | **2006** | ** ** |
| ** **               | ** ** | **Gross********value**        | ** ** | **Obsolescence********provision** | ** ** | **Net**** ****value** | ** ** | **Gross********value** | ** ** | **Obsolescence********provision** | ** ** | **Net**** ****value** | ** ** |
| ** **               | ** ** | **ThCh$**                     | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Finished products        |       | 14,753,515                    |       | (559,736 | ) | 14,193,779 |   | 11,643,760 |   | (395,919 | ) | 11,247,841 |   |
| Products in process      |       | 1,353,429                     |       | — |   | 1,353,429 |   | 742,244 |   | — |   | 742,244 |   |
| Raw materials            |       | 11,624,291                    |       | (249,308 | ) | 11,374,983 |   | 11,034,986 |   | (180,254 | ) | 10,854,732 |   |
| Raw materials in transit |       | 376,429                       |       | — |   | 376,429 |   | 1,525,406 |   | — |   | 1,525,406 |   |
| Total                    |       | 28,107,664                    |       | (809,044 | ) | 27,298,620 |   | 24,946,396 |   | (576,173 | ) | 24,370,223 |   |

 

NOTE8 - INCOME TAXES AND DEFERRED INCOME TAXES

 

a)      General:

 

AtDecember 31, 2007 and 2006, the Company has no accumulated taxable profitswith shareholders credit.

 

b)      Deferred income taxes at each year-end were as follows:

 
| ** **                                   | ** ** | **December 31, 2007** | ** ** | **December 31, 2006** | ** ** |
|----------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                   | ** ** | **Assets**                      | ** ** | **Liabilities**                 | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
| ** **                                   | ** ** | **Short- term**            | ** ** | **Long-term**                   | ** ** | **Short- term** | ** ** | **Long-term** | ** ** | **Short- term** | ** ** | **Long-term** | ** ** | **Short- term** | ** ** | **Long-term** | ** ** |
| ** **                                   | ** ** | **ThCh$**                       | ** ** | **ThCh$**                       | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Temporary Differences                        |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for doubtful accounts              |       | 250,944                         |       | 86,243                          |       | — |   | — |   | 227,423 |   | 41,744 |   | — |   | — |   |
| Vacation accrual                             |       | 215,299                         |       | —                          |       | — |   | — |   | 202,537 |   | — |   | — |   | — |   |
| Production expenses                          |       | 3,375                           |       | —                          |       | — |   | 98,465 |   | 9,533 |   | — |   | — |   | — |   |
| Depreciation of property, plantand equipment |       | —                          |       | —                          |       | 162,024 |   | 5,738,902 |   | — |   | 500 |   | 126,135 |   | 4,388,999 |   |
| Staff severance indemnities                  |       | 53,874                          |       | —                          |       | 22,096 |   | 171,415 |   | 97,893 |   | 7,120 |   | 36,043 |   | 235,772 |   |
| Impaired assets                              |       | 704,461                         |       | 665,978                         |       | — |   | — |   | 351,660 |   | 1,499,559 |   | — |   | — |   |
| Provision for labor andcommercial lawsuits   |       | —                          |       | 1,346,483                       |       | — |   | — |   | — |   | 1,349,682 |   | — |   | — |   |
| Tax loss carryforwards                       |       | 2,392,586                       |       | 1,257,078                       |       | — |   | — |   | 2,281,003 |   | 4,099,972 |   | — |   | — |   |
| Deposits in guarantee                        |       | —                          |       | —                          |       | — |   | — |   | — |   | — |   | — |   | 2,412,480 |   |
| Local bond issue expenses                    |       | —                          |       | —                          |       | — |   | 147,028 |   | — |   | — |   | — |   | 167,565 |   |
| Contingency provision                        |       | —                          |       | 223,046                         |       | — |   | — |   | — |   | 229,059 |   | — |   | — |   |
| Social contributions                         |       | 861,331                         |       | 452,548                         |       | — |   | — |   | 821,161 |   | 1,348,252 |   | — |   | — |   |
| Accrued interest foreignCompanies            |       | —                          |       | —                          |       | — |   | — |   | — |   | — |   | 4,255,872 |   | — |   |
| Exchange rate difference                     |       | —                          |       | —                          |       | — |   | 12,604,169 |   | — |   | — |   | — |   | 9,213,333 |   |
| Income participation provision               |       | 791,234                         |       | —                          |       | — |   | — |   | 790,595 |   | — |   | — |   | — |   |
| Other                                        |       | 145,720                         |       | 362,817                         |       | 25 |   | — |   | 592,569 |   | 397,653 |   | — |   | — |   |
|                                         |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Others                                       |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Complementary accounts, net ofAmortization   |       | —                          |       | —                          |       | — |   | (1,990,250 | ) | — |   | — |   | — |   | (3,011,505 | ) |
| Total                                        |       | 5,418,824                       |       | 4,394,193                       |       | 184,145 |   | 16,769,729 |   | 5,374,374 |   | 8,973,541 |   | 4,418,050 |   | 13,406,644 |   |

 

Short-term deferred tax assets are presented net ofshort-term deferred tax liabilities. Long-term deferred tax liabilities are presented net of long-termdeferred tax assets.

 

F-21

----

 

c)     Income tax expense for eachyear was as follows:

 
| ** **                                                                    | ** ** | **For the year ended December 31,** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **2007**                                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                    | ** ** | **ThCh$**                                                    | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Current income tax expense                                                    |       | (23,554,651                                                  | )          | (10,280,054 | ) | (9,825,898 | ) |
| Tax expense adjustment (previous period)                                      |       | 373,906                                                      |       | (124,121 | ) | (171,899 | ) |
| Deferred income tax expense over assetsor liabilities                         |       | (2,822,775                                                   | )          | (19,976,322 | ) | (3,240,888 | ) |
| Amortization of deferred income tax asset and liabilitycomplementary accounts |       | (1,059,998                                                   | )          | 4,021,631 |   | (1,031,770 | ) |
| Change in valuation allowance                                                 |       | —                                                       |       | 11,990,065 |   | 5,067,297 |   |
| Other                                                                         |       | 193,127                                                      |       | (189,618 | ) | (171,328 | ) |
| Total                                                                         |       | (26,870,391                                                  | )          | (14,558,419 | ) | (9,374,486 | ) |

 

d)             Total income (loss) beforeincome taxes and minority interest arising from the different geographicsources is as follows:

 
| **Year ended**** ****December 31,** | ** ** | **Chilean********and others** | ** ** | **Brazil** | ** ** | **Argentina** | ** ** | **The Company********(consolidated)** | ** ** |
|----------------------------------------------------|------------|------------------------------------|------------|------------|------------|---------------|------------|--------------------------------------------|------------|
| ** **                                         | ** ** | **ThCh$**                          | ** ** | **ThCh$**  | ** ** | **ThCh$**     | ** ** | **ThCh$**                                  | ** ** |
| 2007                                               |       | 54,741,580                         |       | 44,448,467 |       | 9,325,089     |       | 108,515,136                                |       |
| 2006                                               |       | 54,934,814                         |       | 32,557,731 |       | 6,955,033     |       | 94,447,578                                 |       |
| 2005                                               |       | 56,547,117                         |       | 9,320,454  |       | 4,943,739     |       | 70,811,310                                 |       |

 

NOTE 9 - OTHER CURRENT ASSETS

 

Other current assets at each year-end consisted of thefollowing:

 
| ** **                                      | ** ** | **At December 31,** | ** ** |
|-------------------------------------------------|------------|-------------------------------|------------|
| ** **                                      | ** ** | **2007**                      | ** ** | **2006** | ** ** |
| ** **                                      | ** ** | **ThCh$**                     | ** ** | **ThCh$** | ** ** |
| Cross-currency swap current portion             |       | 17,394,865                    |       | 12,949,090 |   |
| Supplies                                        |       | 4,574,986                     |       | 3,282,493 |   |
| Securities purchased under agreements to resell |       | —                        |       | 1,042,106 |   |
| Futures contracts                               |       | 90,964                        |       | 271,478 |   |
| Other                                           |       | 515,201                       |       | 2,127,265 |   |
| Total                                           |       | 22,576,016                    |       | 19,672,432 |   |

 

F-22

----

 

NOTE 10 - SECURITIES PURCHASED UNDER AGREEMENTS TORESELL

 

At December 31, 2006, the balance of financialinstruments purchased under agreements to resell is as follows:

 
| **Dates**          | ** ** | ** **         | ** ** | ** **                | ** ** | **Subscription** | ** ** | ** **      | ** ** | **Book** | ** ** | **Value at** | ** ** | ** **     | ** ** |
|--------------------|------------|--------------------|------------|---------------------------|------------|------------------|------------|-----------------|------------|----------|------------|-------------------|------------|----------------|------------|
| **Start**          | ** ** | **Expiration**     | ** ** | **Counterparty**          | ** ** | **Currency**     | ** ** | **Value**       | ** ** | **Rate** | ** ** | **Value**         | ** ** | **settlement** | ** ** | **Instrument Id.** | ** ** |
| ** **         | ** ** | ** **         | ** ** | ** **                | ** ** | ** **       | ** ** | **ThCh$ ** | ** ** | **%**    | ** ** | **ThCh$ **   | ** ** | **ThCh$**      | ** ** | ** ** | ** ** |
| Dec. 29, 2006 |       | Jan. 3,  2007 |       | Santander  —Santiago |       | Ch$              |       | 429,600         |       | 0.47     | %          | 429,734           |       | 429,936        |       | D$SAN  051207 |   |
| Dec. 29, 2006 |       | Jan. 4,  2007 |       | Santander  —Santiago |       | Ch$              |       | 322,200         |       | 0.47     | %          | 322,301           |       | 322,503        |       | D$SAN  191207 |   |
| Dec. 29, 2006 |       | Jan. 4,  2007 |       | Santander  —Santiago |       | Ch$              |       | 289,980         |       | 0.47     | %          | 290,071           |       | 290,253        |       | D$SAN  191207 |   |
|               |       |               |       |                      |       |             |       | 1,041,780       |       |     |       | 1,042,106         |       | 1,042,692      |       |   |   |

 

NOTE11 - PROPERTY, PLANT AND EQUIPMENT

 

Property,plant and equipment consists principally of land, buildings, improvements andmachinery. Machinery and equipment includes production lines and supportingequipment, sugar processing and liquefying equipment, transportation machinery,and computer equipment. The Company has purchased insurance to cover its fixedassets and inventories.  These assets aredistributed as follows:

 

Chile             : Santiago, Renca,Rancagua, San Antonio and Rengo

Argentina    : Buenos Aires, Mendoza,Córdoba, and Rosario

Brazil            : Rio de Janeiro,Niteroi, Campos, Cabo Frio, Nova Iguazú, Espíritu Santo and Vitoria

 

During 2007 and 2006, the Company and its subsidiariesadjusted property, plant and equipment that management deemed to remaininactive for an indefinite amount of time, to their estimated realizationvalue.  The resulting write-downs wererecorded as Other non-operating expense, as follows:

 
| ** **                                             | ** ** | **2007**  | ** ** | **2006**  | ** ** |
|--------------------------------------------------------|------------|-----------|------------|-----------|------------|
| ** **                                             | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Computer software (Other property plant and equipment) |       | —    |       | 2,460,652 |       |
| Riles plant (Machinery and equipment)                  |       | —    |       | 1,169,815 |       |
| Containers (Other property, plant and equipment)       |       | 673,278   |       | —    |       |
| Others (Other property, plant and equipment)           |       | 352,371   |       | 359,420   |       |
| Total                                                  |       | 1,025,649 |       | 3,989,887 |       |

 

a)             Principal components of property,plant and equipment at each year-end are as follows:

 
| ** **                                            | ** ** | **Balances at December 31, 2007** | ** ** | **Balances at December 31, 2006** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                            | ** ** | **Assets**                                            | ** ** | **Accumulated********depreciation**                   | ** ** | **Net property,********plant and********equipment** | ** ** | **Assets** | ** ** | **Accumulated********depreciation** | ** ** | **Net property,********plant and********equipment** | ** ** |
| ** **                                            | ** ** | **ThCh$**                                             | ** ** | **ThCh$**                                             | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Land                                                  |       | 16,751,276                                            |       | —                                                |       | 16,751,276 |   | 15,475,103 |   | — |   | 15,475,103 |   |
| Buildings and improvements                            |       | 98,502,738                                            |       | (36,285,064                                           | )          | 62,217,674 |   | 91,348,992 |   | (35,712,197 | ) | 55,636,795 |   |
| Machinery and equipment                               |       | 229,584,693                                           |       | (178,948,855                                          | )          | 50,635,838 |   | 231,550,546 |   | (185,724,682 | ) | 45,825,864 |   |
| Other property, plant and equipment                   |       | 217,489,779                                           |       | (180,048,122                                          | )          | 37,441,657 |   | 222,663,321 |   | (188,586,825 | ) | 34,076,496 |   |
| Technical reappraisal of property,plant and equipment |       | 2,208,110                                             |       | (670,975                                              | )          | 1,537,135 |   | 2,208,366 |   | (669,349 | ) | 1,539,017 |   |
| Total                                                 |       | 564,536,596                                           |       | (395,953,016                                          | )          | 168,583,580 |   | 563,246,328 |   | (410,693,053 | ) | 152,553,275 |   |

 

F-23

----

 

b)   Other property, plant andequipment at each year-end are as follows:

 
| ** **                                | ** ** | **At December 31,** | ** ** |
|-------------------------------------------|------------|-------------------------------|------------|
| ** **                                | ** ** | **2007**                      | ** ** | **2006** | ** ** |
| ** **                                | ** ** | **ThCh$**                     | ** ** | **ThCh$** | ** ** |
| Containers                                |       | 125,547,798                   |       | 126,711,610 |   |
| Refrigeration equipment and other assets  |       | 55,369,800                    |       | 58,042,547 |   |
| Furniture and tools                       |       | 7,841,943                     |       | 7,962,050 |   |
| Other                                     |       | 28,730,238                    |       | 29,947,114 |   |
| Total other property, plant and equipment |       | 217,489,779                   |       | 222,663,321 |   |

 

c)   Technical reappraisal of property, plant and equipment at eachyear-end was as follows:

 
| ** **                 | ** ** | **Balances at December 31, 2007** | ** ** | **Balances at December 31, 2006** | ** ** |
|----------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                 | ** ** | **Assets**                                            | ** ** | **Accumulated********depreciation**                   | ** ** | **Net property,********plant and********equipment** | ** ** | **Assets** | ** ** | **Accumulated********depreciation** | ** ** | **Net property,********plant and********equipment** | ** ** |
| ** **                 | ** ** | **ThCh$**                                             | ** ** | **ThCh$**                                             | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Land                       |       | 1,474,779                                             |       | —                                                |       | 1,474,779 |   | 1,474,779 |   | — |   | 1,474,779 |   |
| Buildings and improvements |       | 206,469                                               |       | (149,234                                              | )          | 57,235 |   | 206,468 |   | (144,350 | ) | 62,118 |   |
| Machinery and equipment    |       | 526,862                                               |       | (521,741                                              | )          | 5,121 |   | 527,119 |   | (524,999 | ) | 2,120 |   |
| Total                      |       | 2,208,110                                             |       | (670,975                                              | )          | 1,537,135 |   | 2,208,366 |   | (669,349 | ) | 1,539,017 |   |

 

d)             Depreciation chargesfor the period amounted to ThCh$ 29,147,969 (ThCh$ 31,740,874 andThCh$ 31,840,657 in 2006 and 2005, respectively) of which ThCh$ 21,471,798(ThCh$ 23,056,625 and ThCh$ 25,088,146 in 2006 and 2005,respectively) are included under Cost of sales and ThCh$7,676,171(ThCh$ 8,684,249 and ThCh$ 6,752,511 in 2006 and 2005, respectively)under Administrative and selling expenses in the income statement.

 

NOTE12 - INVESTMENT IN UNCONSOLIDATED AFFILATES

 

Investments in related companies and therelated direct participation in equity and unrealized results at each year-endwere as follows:

 
| ** **                 | ** ** | ** **  | ** ** | **Functional** | ** ** | **Ownership(*)********interest** | ** ** | **Accrued income** | ** ** | **Participation in Equity** | ** ** | **Unrealized losses** | ** ** | **Book value of********investment** | ** ** |
|----------------------------|------------|-------------|------------|----------------|------------|----------------------------------|------------|-------------------------|------------|---------------------------------------|------------|----------------------------|------------|-----------------------------------------------|------------|
| **Company**                | ** ** | **Country** | ** ** | **Currency**   | ** ** | **2007**                         | ** ** | **2006**                | ** ** | **2007**                              | ** ** | **2006**                   | ** ** | **2005**                                      | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                 | ** ** | ** **  | ** ** | ** **     | ** ** | **%**                            | ** ** | **%**                   | ** ** | **ThCh$**                             | ** ** | **ThCh$**                  | ** ** | **ThCh$**                                     | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Envases CMF S.A.           |       | Chile       |       | Chilean pesos  |       | 50.00                            |       | 50.00                   |       | 740,423                               |       | 407,617                    |       | 299,338                                       |       | 18,761,269 |   | 20,174,482 |   | (1,054,912 | ) | (1,133,054 | ) | 17,706,357 |   | 19,041,428 |   |
| Holdfab ParticipacoesLtda. |       | Brazil      |       | US dollars     |       | 14.73                            |       | —                  |       | 102,009                               |       | —                     |       | —                                        |       | 4,001,117 |   | — |   | — |   | — |   | 4,001,117 |   | — |   |
| Envases Central S.A.       |       | Chile       |       | Chilean pesos  |       | 49.91                            |       | 49.91                   |       | 832                                   |       | (24,147                    | )          | (402,222                                      | )          | 2,391,671 |   | 2,386,935 |   | (241,646 | ) | (241,646 | ) | 2,150,025 |   | 2,145,289 |   |
| Kaik ParticipacoesLtda.    |       | Brazil      |       | US dollars     |       | 11.32                            |       | 11.32                   |       | 103,040                               |       | 73,331                     |       | 530,673                                       |       | 1,104,191 |   | 1,669,248 |   | — |   | — |   | 1,104,191 |   | 1,669,248 |   |
| Cican S.A.                 |       | Argentina   |       | US dollars     |       | —                           |       | 15.20                   |       | (277,806                              | )          | 96,905                     |       | 416,049                                       |       | — |   | 1,273,186 |   | — |   | — |   | — |   | 1,273,186 |   |
| Total                      |       |        |       |           |       |                             |       |                    |       | 668,498                               |       | 553,706                    |       | 843,838                                       |       | 26,258,248 |   | 25,503,851 |   | (1,296,558 | ) | (1,374,700 | ) | 24,961,690 |   | 24,129,151 |   |

 

----

(*)         Corresponds to thenumber of shares and rights of Andina over the total shares and rights in eachof the companies.  This percentage equalsthe voting right in each entity, where there are no preferential shares.

 

F-24

----

 

1                  The main changesthat occurred in the reported periods are the following:

 

·                      In November 2007,the Company ́s subsidiary Embotelladoradel Atlantico S.A. sold its 15.20% ownership interest in Cican S.A. to Femsa atThCh$679.501. This sale resulted in a loss of ThCh$85,549 which was recorded inthe Income Statement under other non-operating expenses.

 

·                      On October 4, 2007, the Company ́s subsidiary Rio de JaneiroRefrescos Ltda (“Refrescos”), acquired a 14.732% ownership interest in HoldfabParticipações Ltda. for ThR$12,831.63. In turn, Holdfab Participações Ltda. holds a 50% ownership interest inAmarantina Participações S.A.

 

·                  On June 5, 2006 AndinaInversiones Societarias S.A., a consolidated subsidiary of the Company wasdivided, creating “Andina Inversiones Societarias Dos S.A.” by thecontribution at book value of Envases Multipack Ltda., a consolidatedsubsidiary. On August 15, 2006, Andina Inversiones Societarias Dos S.A.became a limited liability corporation and changed its name to Andina InversionesSocietarias Dos Ltda. On November 15, 2006, Andina Inversiones SocietariasDos Ltda. and Envases Multipack Ltda. were absorbed and merged intoEmbotelladora Andina S.A.

 

·                  On December 22, 2005 theproduction and packaging business of water, juices and non-carbonated beverageslicensed by The Coca-Cola Company (“TCCC”) in Chile was restructured.  Vital Aguas S.A. was created with the purposeof developing the process, production and packaging business of Vital deChanqueahue Mineral Water and other water products according to the terms ofthe contracts and authorizations agreed upon by Vital Aguas S.A. and TCCC.  Consequently, Vital S.A. will focus on juicesand non-carbonated beverages.

 

Accordingly,the Company, Embonor S.A. and Embotelladora Coca-Cola Polar S.A. have taken aninterest of 56.5%, 26.4% and 17.1%, respectively, in Vital Aguas S.A., whichwill conduct the business of the processing, production and bottling of the *Vital de Chanqueahue* Mineral Water andother water and products, according to the terms of the contracts andauthorizations agreed upon by Vital Aguas S.A. and TCCC.

 

The equity interests of Embonor and Polar in the newlycreated Vital Aguas S.A. were purchased from the Company, through itssubsidiary, Andina Inversiones Societarias S.A., for UF 169,306 andUF 109,428, respectively.  This saleby the Company of a portion of its ownership in Vital Aguas S.A. generatedearnings of ThCh$ 4,265,980 (UF 215,919), which is presented in OtherNon-Operating Income in 2005.

 

·                  The equity investee CentralliRefrigerante S.A., Brazil, has negative shareholders ́ equity, which isprovisioned in the corresponding equity proportion. Ownership is 25%. As of December 31,2007 and 2006, such provision amounted to ThCh$ 41,281 andThCh$ 41,830, respectively, and is included under Other long-termliabilities.

 

·                  Theinvestment in Envases Central S.A. is presented net of unrealized incomegenerated in December 1996 related to the sale of the property located inRenca. Total unrealized income amounted to ThCh$ 241,646 and will be recognizedupon the sale of the land to a third party.

 

F-25

----

 

·                  Theinvestment in Envases CMF S.A. is presented net of unrealized income ofThCh$1,054,912 originated in June 2001 from the purchase of machinery andequipment from the Company’s subsidiary Envases Multipack S.A.   Unrealized income is recognized in earningsover the remaining useful life of the assets sold to Envases CMF S.A.  In 2007 and 2006, the Company realizedThCh$ 78,142 each year for this concept.

 

·                  Theequity gain recognized from the investment in Envases CMF S.A. is presented netof unrealized income related to the sale of bottles from Envases CMF S.A. toAndina.  As of December 31, 2007this amounts to ThCh$ 1,056,366 (ThCh$ 1,441,781 and ThCh$ 1,285,671 as of December 31,2006 and 2005, respectively).

 

·                  During2007, Envases CMF S.A. distributed dividends to Andina amounting toThCh$ 3,209,750 (ThCh$ 1,589,666 during 2006).

 

·                  During2007, Kaik Participacoes Ltda. distributed dividends to Refrescos amounting toThCh$ 744,415.

 

2                  Income available to beremitted by subsidiaries abroad which have not been taxed in Chile amount toUS$ 286 million.

 

3                  Theinvestment in Kaik Partipacoes Ltda. (Brazil), where the Company holds an indirect ownership of 11.32%, has been accounted for under theequity method, as described in Note 1 m), since the Company has the right todesignate a director.

 

# NOTE13 - GOODWILL

 

Goodwillat each year-end and the corresponding amortization for each year were asfollows:

 
| ** **                            | ** ** | **At December 31,**               | ** ** |
|---------------------------------------|------------|---------------------------------------------|------------|
| ** **                            | ** ** | **2007**                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                            | ** ** | **Amortization  during the year** | ** ** | **Goodwill  balance** | ** ** | **Amortization  during the year** | ** ** | **Goodwill  balance** | ** ** | **Amortization  during the year** | ** ** | **Goodwill  balance** | ** ** |
| ** **                            | ** ** | **ThCh$**                                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$ ** | ** ** | **ThCh$** | ** ** |
|                                  |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Rio de Janeiro Refrescos Ltda.        |       | 3,361,883                                   |       | 35,545,203 |   | 3,846,316 |   | 44,585,702 |   | 3,744,429 |   | 47,353,584 |   |
| Embotelladora del Atlántico S.A. |       | 2,603,243                                   |       | 21,517,275 |   | 2,995,633 |   | 27,756,235 |   | 2,944,275 |   | 30,224,645 |   |
| Vital S.A.                            |       | 537,548                                     |       | — |   | 141,640 |   | 566,562 |   | 141,639 |   | 708,203 |   |
| Total                                 |       | 6,502,674                                   |       | 57,062,478 |   | 6,983,589 |   | 72,908,499 |   | 6,830,343 |   | 78,286,432 |   |

 

Accumulated amortization of goodwill wasThCh$ 107,156,238 and ThCh$ 100,653,564 at December 31, 2007and 2006, respectively.

 

F-26

----

 

# NOTE14 - OTHER LONG-TERM ASSETS

 

Other long-term assets at each year-end were asfollows:

 
| ** **                                                   | ** ** | **At December 31,** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                   | ** ** | **2007**                      | ** ** | **2006** | ** ** |
| ** **                                                   | ** ** | **ThCh$**                     | ** ** | **ThCh$** | ** ** |
| Long-term investments                                        |       |                          |       |   |   |
| Bonds:                                                       |       |                          |       |   |   |
| Celulosa Arauco S.A.                                         |       | —                        |       | 13,034,667 |   |
| Enap  S.A.                                                   |       | —                        |       | 10,114,063 |   |
| Endesa  S.A.                                                 |       | —                        |       | 8,646,373 |   |
| Soberano  Chile                                              |       | —                        |       | 8,196,110 |   |
| Petróleos Mexicanos S.A.                                |       | —                        |       | 6,744,087 |   |
| Compañía  Manufacturera de Papeles y Cartones S.A. |       | —                        |       | 7,918,651 |   |
| Teléfonos  de México S.A.                          |       | —                        |       | 7,646,302 |   |
| Codelco  S.A.                                                |       | —                        |       | 5,821,395 |   |
| Soberano  México                                        |       | —                        |       | 5,309,002 |   |
| Federal Home Loan Bank (FHLB)                                |       | —                        |       | 2,865,239 |   |
| Brasil Telecom S.A.                                          |       | —                        |       | 2,276,706 |   |
| Raytheon Company                                             |       | —                        |       | 2,321,958 |   |
| International Paper Company                                  |       | —                        |       | 2,287,147 |   |
| Altria Group                                                 |       | —                        |       | 1,306,844 |   |
| United States Treasury (1)                                   |       | —                        |       | 1,188,786 |   |
| Alcoa Inc.                                                   |       | —                        |       | 1,165,721 |   |
| Credit link Endesa                                           |       | —                        |       | 5,900,847 |   |
| Cross currency swap receivable                               |       | —                        |       | 15,870,336 |   |
| Subtotal long-term investments                               |       | —                        |       | 108,614,234 |   |
|                                                         |       |                          |       |   |   |
| Other                                                        |       |                          |       |   |   |
| Judicial deposits (Brazil)                                   |       | 6,949,232                     |       | 5,354,528 |   |
| Recoverable taxes                                            |       | 5,451,956                     |       | 1,550,583 |   |
| Bond issuance expense and par value difference               |       | 2,898,159                     |       | 3,211,022 |   |
| Prepaid expenses                                             |       | 3,298,477                     |       | 2,239,743 |   |
| Non-operating assets                                         |       | 2,406,482                     |       | 1,215,425 |   |
| Supplies                                                     |       | 2,556,258                     |       | 2,788,294 |   |
| Other                                                        |       | 57,159                        |       | 436,750 |   |
| Subtotal Other                                               |       | 23,617,723                    |       | 16,796,345 |   |
| Total                                                        |       | 23,617,723                    |       | 125,410,579 |   |

 

----

(1)            Collateralguarantee required for operating at the London International Financial Futuresand Options Exchange.

 

F-27

----

 

NOTE 15 - SHORT-TERM BANK BORROWINGS

 

a)              Short-termbank borrowings were as follows:

 
| ** **                           | ** ** | **At December 31,**                        | ** ** |
|--------------------------------------|------------|------------------------------------------------------|------------|
| ** **                           | ** ** | **Currency or indexation adjustment** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                           | ** ** | **Foreign currencies**                          | ** ** | **Non-indexed Ch$** | ** ** | ** Total** | ** ** |
| ** **                           | ** ** | **2007**                                             | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                           | ** ** | **ThCh$**                                            | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Banco Galicia                        |       | 1,671,991                                            |       | — |   | — |   | — |   | 1,671,991 |   | — |   |
| Banco do Brasil                      |       | 1,009,882                                            |       | 2,674,260 |   | — |   | — |   | 1,009,882 |   | 2,674,260 |   |
| Banco BBVA.                          |       | —                                               |       | — |   | 1,268,949 |   |   |   | 1,268,949 |   | — |   |
| Citibank N.A.                        |       | —                                               |       | — |   | — |   | 12 |   | — |   | 12 |   |
| Total                                |       | 2,681,873                                            |       | 2,674,260 |   | 1,268,949 |   | 12 |   | 3,950,822 |   | 2,674,272 |   |
| Principal due                        |       | 2,650,134                                            |       | 2,674,260 |   | 1,268,949 |   | 12 |   | 3,919,083 |   | 2,674,272 |   |
| Weighted averageannual interest rate |       |                                                 |       |   |   |   |   |   |   | 8.91 |   | 8.75 |   |

 

At December 31, 2007 and 2006, the Companyhad approximately Ch$102,327and Ch$62,013 million, respectively, availablethrough short-term lines of credit.  Theaggregate outstanding amount of these lines of credit at December 31, 2007and 2006 was approximately Ch$3.709 million and Ch$866 million, respectively.

 

b)             Currentportion of long-term bank borrowings:

 
| ** **                           | ** ** | **At December 31,**                                                  | ** ** |
|--------------------------------------|------------|--------------------------------------------------------------------------------|------------|
| ** **                           | ** ** | **Currency or indexation adjustment:  Foreign currencies** | ** ** |
| **Bank**                             | ** ** | **2007**                                                                       | ** ** | **2006** | ** ** |
| ** **                           | ** ** | **ThCh$**                                                                      | ** ** | **ThCh$** | ** ** |
|                                 |       |                                                                           |       |   |   |
| Banco Alfa                           |       | 118,264                                                                        |       | 5,040 |   |
| BankBoston                           |       | 2,168                                                                          |       | 11,344 |   |
| Banco Votorantim                     |       | 1,929                                                                          |       | — |   |
| Banco Santander                      |       | —                                                                         |       | 454,933 |   |
| Total                                |       | 122,361                                                                        |       | 471,317 |   |
| Principal due                        |       | 119,201                                                                        |       | 388,151 |   |
| Weighted average annualinterest rate |       | 11.89                                                                          | %          | 15.66 | % |

 

F-28

----

 

NOTE 16 - LONG-TERM BANK BORROWINGS

 

Long — term bank borrowings were as follows:

 
| ** **       | ** ** | ** **   | ** ** | **At December 31,**   | ** ** |
|------------------|------------|--------------|------------|---------------------------------|------------|
| ** **       | ** ** | ** **   | ** ** | **Current year-end**       | ** ** | **Prior year-end** | ** ** |
| ** **       | ** ** | ** **   | ** ** | **Years to maturity** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Bank**         | ** ** | **Currency** | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **Total  long-term  at year-end** | ** ** | **Average  annual  interest  rate** | ** ** | **Total  long-term  at year-end** | ** ** | **Average  annual  interest  rate** | ** ** |
| ** **       | ** ** | ** **   | ** ** | **ThCh$**                       | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **%** | ** ** | **ThCh$** | ** ** | **%** |   |
|             |       |         |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Banco Votorantim |       | R$           |       | —                          |       | 229,187 |   | 116,136 |   | 109,469 |   | 454,792 |   | 9.40 |   | — |   | — |   |
| Banco Alfa       |       | R$           |       | 118,100                         |       | 118,100 |   | 49,653 |   | — |   | 285,853 |   | 10.79 |   | 445,894 |   | 15.59 |   |
| Banco Boston     |       | R$           |       | —                          |       | — |   | — |   | — |   | — |   | — |   | 3,077 |   | 16.02 |   |
| Total            |       |         |       | 118,100                         |       | 347,287 |   | 165,789 |   | 109,469 |   | 740,645 |   | 9.94 |   | 448,971 |   | 15.59 |   |

 

NOTE 17 - BONDS PAYABLE

 

1             Detailsof bonds payable are as follows:

 
| ** **                               | ** ** | ** ** | ** ** | ** **  | ** ** | ** **   | ** ** | ** **   | ** ** | ** **             | ** ** | ** **    | ** ** | **Next**         | ** ** | ** **         | ** ** | **Placement**     | ** ** |
|------------------------------------------|------------|------------|------------|-------------|------------|--------------|------------|--------------|------------|------------------------|------------|---------------|------------|------------------|------------|--------------------|------------|-------------------|------------|
| **Instrument subscription or** | ** ** | ** ** | ** ** | **Nominal** | ** ** | ** **   | ** ** | **Interest** | ** ** | ** **             | ** ** | **Interest**  | ** ** | **capital**      | ** ** | **Par value** | ** ** | **in Chile** | ** ** |
| **identification number**           | ** ** | **Series** | ** ** | **value**   | ** ** | **Currency** | ** ** | **rate**     | ** ** | **Maturity date** | ** ** | **paid**      | ** ** | **amortization** | ** ** | **2007**           | ** ** | **2006**          | ** ** | **or abroad** | ** ** |
| ** **                               | ** ** | ** ** | ** ** | ** **  | ** ** | ** **   | ** ** | **%**        | ** ** | ** **             | ** ** | ** **    | ** ** | ** **       | ** ** | **ThCh$**          | ** ** | ** ThCh$**   | ** ** | ** ** | ** ** |
|                                     |       |       |       |        |       |         |       |         |       |                   |       |          |       |             |       |               |       |              |       |   |   |
| Current portion of bonds payable         |       |       |       |        |       |         |       |         |       |                   |       |          |       |             |       |               |       |              |       |   |   |
| Yankee bonds                             |       | A          |       | —      |       | US$          |       | 7.000        |       | October 1,  2007  |       | Half  -yearly |       | Oct.   2007 |       | —             |       | 18,661,596        |       | Foreign |   |
| Yankee bonds                             |       | B          |       | 2,000,000   |       | US$          |       | 7.625        |       | October 1,  2027  |       | Half  -yearly |       | Oct.   2027 |       | 18,944             |       | 43,600            |       | Foreign |   |
| Register 254 SVS June 13, 2001      |       | A          |       | 330,000     |       | UF           |       | 6.200        |       | June 1,  2008     |       | Half  -yearly |       | June 2008   |       | 6,508,446          |       | 13,096,776        |       | Chile |   |
| Register 254 SVS June 13, 2001      |       | B          |       | 3,700,000   |       | UF           |       | 6.500        |       | June 1,  2026     |       | Half  -yearly |       | Dec. 2009   |       | 387,080            |       | 388,472           |       | Chile |   |
| Total current maturities                 |       |       |       |        |       |         |       |         |       |                   |       |          |       |             |       | 6,914,470          |       | 32,190,444        |       |   |   |
|                                     |       |       |       |        |       |         |       |         |       |                   |       |          |       |             |       |               |       |              |       |   |   |
| Long - term portion of bonds payable     |       |       |       |        |       |         |       |         |       |                   |       |          |       |             |       |               |       |              |       |   |   |
| Yankee bonds                             |       | B          |       | 2,000,000   |       | US$          |       | 7.625        |       | October 1,  2027  |       | Half  -yearly |       | Oct.   2027 |       | 993,780            |       | 2,287,152         |       | Foreign |   |
| Register 254 SVS June 13, 2001      |       | A          |       | 330,000     |       | UF           |       | 6.200        |       | June 1,  2008     |       | Half  -yearly |       | June 2008   |       | —             |       | 6,498,779         |       | Chile |   |
| Register 254 SVS June 13, 2001      |       | B          |       | 3,700,000   |       | UF           |       | 6.500        |       | June 1,  2026     |       | Half  -yearly |       | Dec. 2009   |       | 72,603,842         |       | 72,865,107        |       | Chile |   |
| Total long-term                          |       |       |       |        |       |         |       |         |       |                   |       |          |       |             |       | 73,597,622         |       | 81,651,038        |       |   |   |

 

**Accrued interest included in current portion of bondspayable on the consolidated balance sheets amounted to ThCh$ 438,992 andThCh$ 852,249 at December 31, 2007 and 2006, respectively.**

 

2             Scheduledmaturities of the long-term bonds payable at December 31, 2007 were as follows:

 
| ** **                          | ** ** | **Years to maturity** | ** ** | **Total  long-term** | ** ** |
|-------------------------------------|------------|---------------------------------|------------|----------------------|------------|
| ** **                          | ** ** | **Series**                      | ** ** | **2009**             | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **Thereafter** | ** ** | **at year-end** | ** ** |
|                                |       | ** **                      | ** ** | **ThCh$**            | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** |   |
|                                |       |                            |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Yankee Bonds                        |       | B                               |       | —               |       | — |   | — |   | — |   | 993,780 |   | 993,780 |   |
| Register 254 SVS June 13, 2001 |       | B                               |       | 2,135,407            |       | 4,270,814 |   | 4,270,814 |   | 4,270,814 |   | 57,655,993 |   | 72,603,842 |   |
| Total                               |       |                            |       | 2,135,407            |       | 4,270,814 |   | 4,270,814 |   | 4,270,814 |   | 58,649,773 |   | 73,597,622 |   |

 

F-29

----

 

TheCompany’s restrictions regarding the issue of bonds are set forth in Note 26.

 

3                  Therisk classification of outstanding bonds is as follows:

 

Bonds issued in the US market:

 
| A-   | : | Rating  issued by Fitch Ratings                   |
|------|---|---------------------------------------------------|
| BBB+ | : | Rating  issued by Standard & Poor’s |

 

Bonds issued in the local market:

 
| AA | : | Rating issued by Fitch Chile            |
|----|---|-----------------------------------------|
| AA | : | Rating issued by Feller & Rate |

 

4                  Bondrepurchases

 

During 2000, 2001, 2002 and 2007, the Companyrepurchased bonds it issued in the U.S. market, through its subsidiary Abisa CorpS.A.(formerly Pacific Sterling), for a total amount of US$ 198 million of theUS$ 200 million aggregate principal amount issued. The bonds purchased by AbisaCorp S.A. have not been canceled and remain outstanding. The related asset andliability have been eliminated on consolidation.

 

5                  Bonds issued by Rio de Janeiro Refrescos Ltda.

 

The Company’s subsidiary Refrescos issued bonds forUS$ 75 million maturing in December 2012 which requires semiannualinterest payments. At December 31, 2007 and 2006, those bonds are owned bythe Company’s subsidiary Abisa Corp S.A. (formerly Pacific Sterling).  Consequently, the related asset and liabilityhave been eliminated on consolidation.

 

# NOTE 18 - OTHERACCRUED LIABILITIES

 

Otheraccrued liabilities at each year-end consisted of the following:

 
| ** **                                    | ** ** | **At December 31,**   | ** ** |
|-----------------------------------------------|------------|---------------------------------|------------|
| ** **                                    | ** ** | **Short – term** | ** ** | **Long – term** | ** ** |
| ** **                                    | ** ** | **2007**                        | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                    | ** ** | **ThCh$**                       | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| ** **                                    | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Staff severance indemnities andretention plan |       | 708,748                         |       | 681,047 |   | 6,425,121 |   | 6,007,790 |   |
| Contingency provisions                        |       | 47,660                          |       | 86,291 |   | 2,480,194 |   | 2,985,941 |   |
| Provision for Brazilian banking taxes (1)     |       | 2,718,815                       |       | 2,331,401 |   | 8,022,638 |   | 9,370,035 |   |
| Total                                         |       | 3,475,223                       |       | 3,098,739 |   | 16,927,953 |   | 18,363,766 |   |

 

F-30

----

 

----

(1)          In 1999, the Company’s subsidiary Rio Janeiro Refrescos Ltda. brought atax lawsuit against the Brazilian Treasury for alleged unconstitutionality inthe collection of the tax called CPMF (*Contribui**çãoProvisória sobre Movimentação**Financeira*) on the debits and creditsto bank current accounts. While the subsidiary obtained a provisionalsuspension of said payments from the Courts of Justice, the corresponding taxobligation was still provisioned. In November 2006, the Courts of Justiceruled the constitutionality of the referred tax and Refrescos came to anagreement with the Brazilian Treasury to divide payments in 60 installments.

 

NOTE19 - STAFF SEVERANCE INDEMNITIES AND RETENTION PLAN

 

Movementsin the provision for staff severance indemnities and retention plan were asfollows:

 
| ** **               | ** ** | **2007**   | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|--------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **               | ** ** | **ThCh$**  | ** ** | **ThCh$**  | ** ** | **ThCh$**  | ** ** |
| ** **               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Beginning balance        |       | 6,227,968  |       | 5,874,385  |       | 2,979,801  |       |
| Provision for the period |       | 1,074,404  |       | 1,001,129  |       | 3,276,798  |       |
| Payments                 |       | (168,503   | )          | (186,677   | )          | (258,851   | )          |
| Ending balance           |       | 7,133,869  |       | 6,688,837  |       | 5,997,748  |       |

 

NOTE 20 - OTHER LONG-TERM LIABILITIES

 

Other long – term liabilities at each year-endconsisted of the following:

 
| ** **              | ** ** | **At December 31,** | ** ** |
|-------------------------|------------|-------------------------------|------------|
| ** **              | ** ** | **2007**                      | ** ** | **2006** | ** ** |
| ** **              | ** ** | **ThCh$**                     | ** ** | **ThCh$** | ** ** |
| ** **              | ** ** | ** **                    | ** ** | ** ** | ** ** |
| Deposits for containers |       | 9,181,721                     |       | 9,345,222 |   |
| Other                   |       | 3,082,965                     |       | 1,475,020 |   |
| Total                   |       | 12,264,686                    |       | 10,820,242 |   |

 

F-31

----

 

NOTE21 - MINORITY INTEREST

 
| ** **                            | ** ** | **For the year ended December 31,** | ** ** |
|---------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                            | ** ** | **2007**                                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                            | ** ** | **ThCh$**                                                    | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| ** **                            | ** ** | ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Composition of Minority  interest:    | ** ** | ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                  | ** ** | ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Vital Aguas S.A.                      |       | 1,278,073                                                    |       | 1,236,030 |   | 1,206,118 |   |
| Embotelladora del Atlántico S.A. |       | 9,055                                                        |       | 21,458 |   | 19,250 |   |
| Andina Inversiones Societarias S.A.   |       | 16                                                           |       | 40 |   | 62 |   |
| Total                                 |       | 1,287,144                                                    |       | 1,257,528 |   | 1,225,430 |   |

 

 
| Composition of Income attributable to minority interest: |   |    |   |    |   |   |   |
|----------------------------------------------------------|--------|---------|--------|---------|--------|--------|--------|
|                                                     |   |    |   |    |   |   |   |
| Vital Aguas S.A.                                         |   | (42,044 | )      | (29,911 | )      | 14,947 |   |
| Embotelladora del Atlántico S.A.                    |   | (751    | )      | (1,873  | )      | (1,599 | )      |
| Andina Inversiones Societarias S.A.                      |   | (6      | )      | (3      | )      | (2     | )      |
| Total.                                                   |   | (42,801 | )      | (31,787 | )      | 13,346 |   |

 

F-32

----

 

NOTE 22 - SHAREHOLDERS’ EQUITY

 

a)              The movements in shareholders’ equity of the Company during each of thethree years ended December 31, 2007 were as follows:

 
| ** **                                                                                   | ** ** | **Paid-in********capital** | ** ** | **Other********reserves** | ** ** | **Retained********earnings********from********prior years** | ** ** | **Net income********for the********year** | ** ** | **Interim********dividends** | ** ** | **Total**   | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------|------------|---------------------------|------------|------------------------------------------------------------------|------------|-----------------------------------------------------|------------|------------------------------|------------|-------------|------------|
| ** **                                                                                   | ** ** | **ThCh$**                  | ** ** | **ThCh$**                 | ** ** | **ThCh$**                                                        | ** ** | **ThCh$**                                           | ** ** | **ThCh$**                    | ** ** | **ThCh$**   | ** ** |
| ** **                                                                                   | ** ** | ** **                 | ** ** | ** **                | ** ** | ** **                                                       | ** ** | ** **                                          | ** ** | ** **                   | ** ** | ** **  | ** ** |
| At January 1, 2005                                                                      |       | 191,027,986                |       | 14,574,144                |       | 56,671,256                                                       |       | 40,158,726                                          |       | (11,583,482                  | )          | 290,848,630 |       |
| Prior year income allocation                                                                 |       | —                     |       | —                    |       | 28,575,244                                                       |       | (40,158,726                                         | )          | 11,583,482                   |       | —      |       |
| Dividends paid                                                                               |       | —                     |       | —                    |       | (59,711,964                                                      | )          | —                                              |       | (11,495,351                  | )          | (71,207,315 | )          |
| Price-level restatement of equity                                                            |       | 6,877,008                  |       | 524,669                   |       | 799,819                                                          |       | —                                              |       | (145,608                     | )          | 8,055,888   |       |
| Cumulative translation adjustmentof foreign investments                                      |       | —                     |       | (15,299,958               | )          | —                                                           |       | —                                              |       | —                       |       | (15,299,958 | )          |
| Net income for the year                                                                      |       | —                     |       | —                    |       | —                                                           |       | 56,039,346                                          |       | —                       |       | 56,039,346  |       |
| At December 31, 2005                                                                    |       | 197,904,994                |       | (201,145                  | )          | 26,334,355                                                       |       | 56,039,346                                          |       | (11,640,959                  | )          | 268,436,591 |       |
|                                                                                         |       |                       |       |                      |       |                                                             |       |                                                |       |                         |       |        |       |
| Balance at December 31, 2005restated in constant Chilean pesosof December 31, 2007 |       | 217,013,513                |       | (220,566                  | )          | 28,877,042                                                       |       | 61,450,170                                          |       | (12,764,940                  | )          | 294,355,219 |       |
|                                                                                         |       |                       |       |                      |       |                                                             |       |                                                |       |                         |       |        |       |
| At January 1, 2006                                                                      |       | 197,904,994                |       | (201,145                  | )          | 26,334,355                                                       |       | 56,039,346                                          |       | (11,640,959                  | )          | 268,436,591 |       |
| Prior year income allocation                                                                 |       | —                     |       | —                    |       | 44,398,387                                                       |       | (56,039,346                                         | )          | 11,640,959                   |       | —      |       |
| Dividends paid                                                                               |       | —                     |       | —                    |       | (61,053,087                                                      | )          | —                                              |       | (13,411,243                  | )          | (74,464,330 | )          |
| Price-level restatement of equity                                                            |       | 4,156,005                  |       | (4,224                    | )          | 325,381                                                          |       | —                                              |       | (26,822                      | )          | 4,450,340   |       |
| Cumulative translation adjustmentof foreign investments                                      |       | —                     |       | 1,955,644                 |       | —                                                           |       | —                                              |       | —                       |       | 1,955,644   |       |
| Net income for the year                                                                      |       | —                     |       | —                    |       | —                                                           |       | 74,355,094                                          |       | —                       |       | 74,355,094  |       |
| At December 31, 2006                                                                    |       | 202,060,999                |       | 1,750,275                 |       | 10,005,036                                                       |       | 74,355,094                                          |       | (13,438,065                  | )          | 274,733,339 |       |
|                                                                                         |       |                       |       |                      |       |                                                             |       |                                                |       |                         |       |        |       |
| Balance at December 31, 2006restated in constant Chilean pesosof December 31, 2007 |       | 217,013,513                |       | 1,879,795                 |       | 10,745,409                                                       |       | 79,857,372                                          |       | (14,432,482                  | )          | 295,063,607 |       |
|                                                                                         |       |                       |       |                      |       |                                                             |       |                                                |       |                         |       |        |       |
| At January 1, 2007                                                                      |       | 202,060,999                |       | 1,750,275                 |       | 10,005,036                                                       |       | 74,355,094                                          |       | (13,438,065                  | )          | 274,733,339 |       |
| Prior year income allocation                                                                 |       | —                     |       | —                    |       | 60,917,029                                                       |       | (74,355,094                                         | )          | 13,438,065                   |       | —      |       |
| Dividends paid                                                                               |       | —                     |       | —                    |       | (60,917,378                                                      | )          | —                                              |       | (16,764,054                  | )          | (77,681,432 | )          |
| Price-level restatement of equity                                                            |       | 14,952,514                 |       | 129,522                   |       | 1,166,767                                                        |       | —                                              |       | (430,277                     | )          | 15,818,526  |       |
| Cumulative translation adjustmentof foreign investments                                      |       | —                     |       | (13,323,239               | )          | —                                                           |       | —                                              |       | —                       |       | (13,323,239 | )          |
| Net income for the year                                                                      |       | —                     |       | —                    |       | —                                                           |       | 81,601,944                                          |       | —                       |       | 81,601,944  |       |
| At December 31, 2007                                                                    |       | 217,013,513                |       | (11,443,442               | )          | 11,171,454                                                       |       | 81,601,944                                          |       | (17,194,331                  | )          | 281,149,138 |       |

 

b)             Number of shares:

 
| **Series** | ** ** | **Subscribed********shares** | ** ** | **Paid-in********shares** | ** ** | **Shares with********voting rights** | ** ** |
|------------|------------|------------------------------|------------|---------------------------|------------|------------------------------------------------|------------|
| ** ** | ** ** | ** **                   | ** ** | ** **                | ** ** | ** **                                     | ** ** |
| A          |       | 380,137,271                  |       | 380,137,271               |       | 380,137,271                                    |       |
| B          |       | 380,137,271                  |       | 380,137,271               |       | 380,137,271                                    |       |

 

Thepreferential rights of each series of shares are as follows:

 

·                  Series A:            The right to elect 6 of the 7 directors and their respective alternates.

·                  Series B:              The right to receive 10% more of all dividend distributions than Series Ashareholders and to elect 1 of the 7 directors.

 

F-33

----

 

b)        Capital:

 
| **Series** | ** ** | **Subscribed********capital** | ** ** | **Paid-in********capital** | ** ** |
|------------|------------|-------------------------------|------------|----------------------------|------------|
| ** ** | ** ** | **ThCh$**                     | ** ** | **ThCh$**                  | ** ** |
| ** ** | ** ** | ** **                    | ** ** | ** **                 | ** ** |
| A          |       | 108,506,756                   |       | 108,506,756                |       |
| B          |       | 108,506,757                   |       | 108,506,757                |       |
|       |       |                          |       |                       |       |
| Total      |       | 217,013,513                   |       | 217,013,513                |       |

 

d)        Other reserves:

 

Other reserves at each year-end were as follows:

 
| ** **                                                         | ** ** | **2007**    | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|--------------------------------------------------------------------|------------|-------------|------------|------------|------------|------------|------------|
| ** **                                                         | ** ** | **ThCh$**   | ** ** | **ThCh$**  | ** ** | **ThCh$**  | ** ** |
| ** **                                                         | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Reserve for cumulative translation adjustments (1)                 |       | (12,527,145 | )          | 796,092    |       | (1,304,271 | )          |
| Reserve for technical reappraisal of property, plant and equipment |       | 67,287      |       | 182,566    |       | 182,566    |       |
| Other reserves                                                     |       | 1,016,416   |       | 901,137    |       | 901,139    |       |
|                                                               |       |        |       |       |       |       |       |
| Total                                                              |       | (11,443,442 | )          | 1,879,795  |       | (220,566   | )          |

 

----

(1)          The reserve for cumulativetranslation adjustments complies with Technical Bulletin No. 64 of  the Chilean Institute of Accountants andOfficial letter No. 5,294 issued by the SVS.

 

Thecomposition of this reserve was as follows:

 
| **Subsidiary**                        | ** ** | **Balance at********January 1, 2007** | ** ** | **Foreign exchange********losses generated********during the year** | ** ** | **Release /********transfers of********reserve(*)** | ** ** | **Balance at********December 31,********2007** | ** ** |
|---------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                            | ** ** | **ThCh$**                                            | ** ** | **ThCh$**                                                                               | ** ** | **ThCh$**                                                     | ** ** | **ThCh$**                                                | ** ** |
| ** **                            | ** ** | ** **                                           | ** ** | ** **                                                                              | ** ** | ** **                                                    | ** ** | ** **                                               | ** ** |
| Rio de Janeiro Refrescos Ltda         |       | (840,476                                             | )          | (9,366,852                                                                              | )          | 2,632,526                                                     |       | (7,574,802                                               | )          |
| Embotelladora del Atlántico S.A. |       | 1,636,568                                            |       | (7,533,072                                                                              | )          | 944,161                                                       |       | (4,952,343                                               | )          |
|                                  |       |                                                 |       |                                                                                    |       |                                                          |       |                                                     |       |
| Total                                 |       | 796,092                                              |       | (16,899,924                                                                             | )          | 3,576,687                                                     |       | (12,527,145                                              | )          |

 

----

(*)         During 2007, the Company received dividend payments from its subsidiaryRio de Janeiro Refrescos Ltda. for ThCh$31,040,621. In 2007 it alsoreceived   capital remittances fromEmbotelladora del Atlántico S.A. for ThCh$26,657,617. The dividendsdistribution and the capital remittances triggered a pro-rata recognition inincome of the cumulative translation reserve.

 

F-34

----

 
| **Subsidiary**                        | ** ** | **Balance at********January 1, 2006** | ** ** | **Foreign exchange********gains generated********during the year** | ** ** | **Release /********transfers of********reserve (*)** | ** ** | **Balance at********December 31,  2006** | ** ** |
|---------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                            | ** ** | **ThCh$**                                            | ** ** | **ThCh$ **                                                                        | ** ** | **ThCh$**                                                           | ** ** | **ThCh$**                                          | ** ** |
| ** **                            | ** ** | ** **                                           | ** ** | ** **                                                                             | ** ** | ** **                                                          | ** ** | ** **                                         | ** ** |
| Rio de Janeiro Refrescos Ltda         |       | (2,445,480                                           | )          | 1,461,626                                                                              |       | 143,378                                                             |       | (840,476                                           | )          |
| Embotelladora del Atlántico S.A. |       | 1,141,209                                            |       | 495,359                                                                                |       | —                                                              |       | 1,636,568                                          |       |
|                                  |       |                                                 |       |                                                                                   |       |                                                                |       |                                               |       |
| Total                                 |       | (1,304,271                                           | )          | 1,956,985                                                                              |       | 143,378                                                             |       | 796,092                                            |       |

 

----

(*)             During2006, the Company received dividend payments from its subsidiary Rio de JaneiroRefrescos Ltda. for ThCh$18,535,847. The dividends distribution triggered apro-rata recognition in income of the cumulative translation reserve.

 
| **Subsidiary**                        | ** ** | **Balance at********January 1, 2005** | ** ** | **Foreign exchange********losses generated********during the year** | ** ** | **Release /********transfers of********reserve** | ** ** | **Balance at********December 31,  2005** | ** ** |
|---------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                            | ** ** | **ThCh$**                                            | ** ** | **ThCh$**                                                                               | ** ** | **ThCh$ **                                            | ** ** | **ThCh$**                                          | ** ** |
| ** **                            | ** ** | ** **                                           | ** ** | ** **                                                                              | ** ** | ** **                                                 | ** ** | ** **                                         | ** ** |
| Rio de Janeiro Refrescos Ltda         |       | 8,745,665                                            |       | (11,191,145                                                                             | )          | —                                                     |       | (2,445,480                                         | )          |
| Embotelladora del Atlántico S.A. |       | 6,727,294                                            |       | (5,586,085                                                                              | )          | —                                                     |       | 1,141,209                                          |       |
|                                  |       |                                                 |       |                                                                                    |       |                                                       |       |                                               |       |
| Total                                 |       | 15,472,959                                           |       | (16,777,230                                                                             | )          | —                                                     |       | (1,304,271                                         | )          |

 

F-35

----

 

NOTE23 - OTHER NON-OPERATING INCOME AND EXPENSES

 

Othernon-operating income during each year was as follows:

 
| ** **                                        | ** ** | **For the year ended December 31,** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                        | ** ** | **2007**                                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                        | ** ** | **ThCh$**                                                    | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Reversal of PIS - COFINS tax provision (1)        |       | —                                                       |       | 4,488,874 |   | — |   |
| Tax recoveries - Pis Cofins                       |       | 1,371,898                                                    |       | — |   | — |   |
| Recovery of prior year taxes                      |       | 2,712,775                                                    |       | — |   | — |   |
| Reversal of impairment loss on fixed asset (2)    |       | 4,596,549                                                    |       | — |   | — |   |
| Adjustments to guarantees received for containers |       | 351,022                                                      |       | 526,341 |   | — |   |
| Gain on sale of Vital Aguas S.A.’s shares    |       | —                                                       |       | — |   | 4,265,980 |   |
| Gain on sale of plant, property and equipment     |       | —                                                       |       | — |   | 293,695 |   |
| Other income                                      |       | 299,723                                                      |       | 668,013 |   | 269,859 |   |
| Subtotal                                          |       | 9,331,967                                                    |       | 5,683,228 |   | 4,829,534 |   |
| Translation adjustment (3)                        |       | 2,798,216                                                    |       | 433,873 |   | 3,189,550 |   |
|                                              |       |                                                         |       |   |   |   |   |
| Total                                             |       | 12,130,183                                                   |       | 6,117,101 |   | 8,019,084 |   |

 

Other non-operating expenses during each year wereas follows:

 
| ** **                                                   | ** ** | **For the year ended December 31,** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **2007**                                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                   | ** ** | **ThCh$**                                                    | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                                         |       |                                                         |       |   |   |   |   |
| Obsolescence and write-offs of property, plant and equipment |       | (1,025,649                                                   | )          | (3,989,887 | ) | (1,220,937 | ) |
| Loss on sale of property, plant and equipment                |       | (146,702                                                     | )          | (2,285,690 | ) | — |   |
| Provision for labor, tax and commercial lawsuits             |       | (703,079                                                     | )          | (803,070 | ) | (597,017 | ) |
| Lawsuit fees                                                 |       | —                                                       |       | (470,261 | ) | (551,464 | ) |
| Cumulative translation reserve realized (4)                  |       | (3,580,267                                                   | )          | (143,378 | ) | — |   |
| Provision for equity investee Centralli Refrigerantes S.A.   |       | —                                                       |       | (69,228 | ) | (66,689 | ) |
| Provision for PIS - COFINS                                   |       | —                                                       |       | — |   | (2,500,382 | ) |
| Provision for staff severance indemnities and retention plan |       | —                                                       |       | — |   | (2,636,120 | ) |
| Other expenses                                               |       | (1,079,196                                                   | )          | (168,807 | ) | (912,671 | ) |
|                                                         |       |                                                         |       |   |   |   |   |
| Total                                                        |       | (6,534,893                                                   | )          | (7,930,321 | ) | (8,485,280 | ) |

 

F-36

----

 

----

(1)          The Company’s subsidiary Riode Janeiro Refrescos Ltda. contested in the courts the increase in thecalculation basis of Social Integration Program – (“PIS”) and SocialContribution on Revenues (“COFINS”). The final sentence for this case waspassed on November 6, 2006 by the Supreme Court of last resort and wasfavorable to the Company. Based on this decision, the Company reversed theprovision recorded.

 

(2)          During 2007, the Company evaluated the estimatedfuture cash flows expected from its plants. As a result of the evaluation, the Company concluded that a previousimpairment provision on some of its plants was no longer required.  Accordingly, such provision was reversed witheffect in earnings.

 

(3)          Refers to the effects of thetranslation of the financial statements corresponding to investment in foreigncompanies (translation of local currency to US dollars), in accordance withTechnical Bulletin No. 64 issued by the Chilean Institute of Accountants,which are recorded on the consolidated statements of income under Other non-operatingincome or expenses, as appropriate.

 

(4)          During 2007 and 2006, the Company received dividend payments from itssubsidiary Rio de Janeiro Refrescos Ltda. for ThCh$31,040,621 andThCh$18,535,847 respectively. In 2007 it also received   capital remittances from Embotelladora delAtlántico S.A. for ThCh$26,657,617. The dividends distribution and the capitalremittances triggered a pro-rata recognition in income of the cumulativetranslation reserve.

 

NOTE 24 - FOREIGN CURRENCY

 

**At December 31, 2007 and 2006, the Company had thefollowing assets and liabilities denominated or measured in U.S. dollars,Brazilian reals and Argentine pesos, which have been translated into Chileanpesos in accordance with Note 1 d) and 1 t):**

 
| ** **                               | ** ** | **2007**                | ** ** | **2006**                   | ** ** |
|------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                               | ** ** | **US********dollars**   | ** ** | **Brazilian********reals** | ** ** | **Argentine********pesos** | ** ** | **US********dollars** | ** ** | **Brazilian********reals** | ** ** | **Argentine  pesos** | ** ** |
| ** **                               | ** ** | **(in thousands)** | ** ** | **(in thousands)**    | ** ** |
| Assets                                   |       |                    |       |                       |       |   |   |   |   |   |   |   |   |
| Cash                                     |       | 5,113                   |       | 45,492                     |       | 12,361 |   | 1,040 |   | 37,293 |   | 7,728 |   |
| Time deposits                            |       | 36                      |       | 353                        |       | — |   | 6,277 |   | 11,198 |   | 6,000 |   |
| Marketable securities (net)              |       | 88,027                  |       | —                     |       | 11,391 |   | 38,280 |   | — |   | — |   |
| Receivables (net)                        |       | 253                     |       | 122,784                    |       | 40,789 |   | 4,496 |   | 105,879 |   | 19,891 |   |
| Inventories                              |       | 2,054                   |       | 44,980                     |       | 34,841 |   | 2,649 |   | 40,625 |   | 34,144 |   |
| Other current assets                     |       | 36,196                  |       | 53,677                     |       | 8,286 |   | 28,010 |   | 31,721 |   | 11,658 |   |
| Property, plant and equipment            |       | 164,178                 |       | —                     |       | — |   | 151,114 |   | — |   | — |   |
| Investments in unconsolidated affiliates |       | —                  |       | 18,199                     |       | — |   | 2,227 |   | 6,242 |   | — |   |
| Investments in other companies           |       | 178                     |       | —                     |       | — |   | 25 |   | — |   | — |   |
| Goodwill (net)                           |       | 112,655                 |       | —                     |       | — |   | 126,519 |   | — |   | — |   |
| Other long-term assets                   |       | 1,086                   |       | 53,173                     |       | 18,887 |   | 190,270 |   | 25,692 |   | 23,007 |   |
| Total assets                             |       | 409,776                 |       | 338,658                    |       | 126,555 |   | 550,907 |   | 258,650 |   | 102,428 |   |

 

F-37

----

 
| ** **                                       | ** ** | **2007**                | ** ** | **2006**                   | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
|                                             | ** ** | **US********Dollars**   | ** ** | **Brazilian********Reals** | ** ** | **Argentine********pesos** | ** ** | **US********dollars** | ** ** | **Brazilian********reals** | ** ** | **Argentine********pesos** | ** ** |
| ** **                                       | ** ** | **(in thousands)** | ** ** | **(in thousands)**    | ** ** |
| Liabilities                                      |       |                    |       |                       |       |   |   |   |   |   |   |   |   |
| Obligations with banks andfinancial institutions |       | —                  |       | 6,676                      |       | 10,596 |   | — |   | 13,441 |   | — |   |
| Accounts payable                                 |       | 5,322                   |       | 100,034                    |       | 94,079 |   | 3,219 |   | 89,122 |   | 60,785 |   |
| Other accrued liabilities                        |       | —                  |       | 41,647                     |       | 9,752 |   | — |   | 48,254 |   | 9,716 |   |
| Bonds payable                                    |       | 2,038                   |       | —                     |       | — |   | 36,714 |   | — |   | — |   |
| Other                                            |       | —                  |       | 108,438                    |       | 63,922 |   | 872 |   | 37,015 |   | 43,490 |   |
| Total liabilities                                |       | 7,360                   |       | 256,795                    |       | 178,349 |   | 40,805 |   | 187,832 |   | 113,991 |   |
| Total net assets (liabilities)                   |       | 402,416                 |       | 81,863                     |       | (51,794 | ) | 510,102 |   | 70,818 |   | (11,563 | ) |

 

NOTE 25 - CONSOLIDATED STATEMENT OF CASH FLOWS

 

For the projection of future cash flows, there are notransactions or events to consider which have not been revealed in thesefinancial statements and accompanying notes.

 

The following are investing and financing activitiesduring the period that affect recognized assets or liabilities but that do notresult in cash receipts or cash payments:

 
| ** **                            | ** ** | **For the years ended December 31,** | ** ** |
|---------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                            | ** ** | **2007**                                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                            | ** ** | **ThCh$**                                                     | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Investing activities:                 |       |                                                          |       |   |   |   |   |
| Fixed assets additions                |       | 5,982,941                                                     |       | 5,371,709 |   | 3,265,091 |   |
| Sale of property, plant and equipment |       | 3,015                                                         |       | 14,368 |   | 72,274 |   |
|                                  |       |                                                          |       |   |   |   |   |
| Financing activities:                 |       |                                                          |       |   |   |   |   |
| Dividend payment                      |       | 5,588,018                                                     |       | 4,801,225 |   | 4,201,758 |   |

 

# NOTE26 - DERIVATIVE CONTRACTS

 

For the year ended December 31, 2007, the Companyrecorded a net gain from derivative instruments of ThCh$ 13,383,114 asFinancial income in the consolidated statements of income (ThCh$ 1,148,083 forthe year ended December 31, 2006 and ThCh$ 10,138,566 for the year ended December 31,2005).

 

The Company had thefollowing derivative contracts at December 31, 2007 (individual contractsare aggregated and presented according to the quarter they will mature):

 
| ** **          | ** ** | ** **       | ** ** | ** **               | ** ** | **Net carrying** | ** ** | **Deferred**    | ** ** |
|---------------------|------------|------------------|------------|--------------------------|------------|-----------------------|------------|-----------------|------------|
| **Derivative**      | ** ** | **Maturity**     | ** ** | **Description**          | ** ** | **values**            | ** ** | **gain/(loss)** | ** ** |
| ** **          | ** ** | ** **       | ** ** | ** **               | ** ** | **ThCh$**             | ** ** | **ThCh$**       | ** ** |
| Cross-Currency Swap |       | I Quarter 2008   |       | Currency exchange US$/UF |       | 4,741,627             |       | —          |       |
| Cross-Currency Swap |       | II Quarter 2008  |       | Currency exchange US$/UF |       | 4,778,401             |       | —          |       |
| Cross-Currency Swap |       | III Quarter 2008 |       | Currency exchange US$/UF |       | 7,874,837             |       | 13,042          |       |
| Forward contract    |       | I Quarter 2008   |       | Currency exchange US$    |       | —                |       | (89,507         | )          |
| Forward contract    |       | II Quarter 2008  |       | Currency exchange US$    |       | —                |       | (131,057        | )          |
| Forward contract    |       | III Quarter 2008 |       | Currency exchange US$    |       | —                |       | (19,765         | )          |
| Forward contract    |       | IV Quarter 2008  |       | Currency exchange US$    |       | —                |       | (56,982         | )          |
| Forward contract    |       | I Quarter 2009   |       | Currency exchange US$    |       | —                |       | (19,953         | )          |
| Futures contract    |       | I Quarter 2008   |       | Sugar sales              |       | 90,964                |       | 140,019         |       |
| Total               |       |             |       |                     |       | 17,485,829            |       | (164,203        | )          |

 

F-38

----

 

As of December 31,2007, total notional amounts for derivative contracts outstanding were:

 
| Cross-currency  swaps: | US$54,210,000 and  UF 2,253,744               |
|------------------------|-----------------------------------------------|
| Forward contracts:     | US$94,630,000 (Buy)  and US$21,000,000 (Sell) |
| Futures contracts:     | 4,150 tons.                                   |

 

The Company had thefollowing derivative contracts at December 31, 2006 (individual contractsare aggregated and presented according to the quarter they will mature):

 
| ** **          | ** ** | ** **       | ** ** | ** **               | ** ** | **Net carrying** | ** ** | **Deferred**    | ** ** |
|---------------------|------------|------------------|------------|--------------------------|------------|-----------------------|------------|-----------------|------------|
| **Derivative**      | ** ** | **Maturity**     | ** ** | **Description**          | ** ** | **values**            | ** ** | **gain/(loss)** | ** ** |
| ** **          | ** ** | ** **       | ** ** | ** **               | ** ** | **ThCh$**             | ** ** | **ThCh$**       | ** ** |
| Cross-Currency Swap |       | I Quarter 2007   |       | Currency exchange US$/UF |       | 1,274,010             |       | 5,899           |       |
| Cross-Currency Swap |       | III Quarter 2007 |       | Currency exchange US$/UF |       | 1,277,933             |       | 121,062         |       |
| Cross-Currency Swap |       | IV Quarter 2007  |       | Currency exchange US$/UF |       | 10,039,264            |       | 1,302,303       |       |
| Cross-Currency Swap |       | I Quarter 2008   |       | Currency exchange US$/UF |       | 3,808,943             |       | 468,834         |       |
| Cross-Currency Swap |       | II Quarter 2008  |       | Currency exchange US$/UF |       | 3,784,326             |       | 612,461         |       |
| Cross-Currency Swap |       | III Quarter 2008 |       | Currency exchange US$/UF |       | 6,086,947             |       | 804,146         |       |
| Cross-Currency Swap |       | I Quarter 2013   |       | Currency exchange US$/UF |       | 2,548,004             |       | 951,460         |       |
| Forward contract    |       | I Quarter 2007   |       | Currency exchange US$    |       | —                |       | (77,988)        |       |
| Forward contract    |       | II Quarter 2007  |       | Currency exchange US$    |       | —                |       | (67,167)        |       |
| Forward contract    |       | III Quarter 2007 |       | Currency exchange US$    |       | —                |       | 34,183          |       |
| Forward contract    |       | IV Quarter 2007  |       | Currency exchange US$    |       | —                |       | 54,439          |       |
| Futures contract    |       | I Quarter 2007   |       | Sugar sales              |       | —                |       | 38,996          |       |
| Futures contract    |       | II Quarter 2007  |       | Sugar  sales             |       | 26,833                |       | 36,767          |       |
| Futures contract    |       | III Quarter 2007 |       | Sugar  sales             |       | 79,455                |       | 35,336          |       |
| Futures contract    |       | IV Quarter 2007  |       | Sugar  sales             |       | 75,626                |       | 60,462          |       |
| Futures contract    |       | I Quarter 2008   |       | Sugar  sales             |       | 89,565                |       | 72,523          |       |
| Total               |       |             |       |                     |       | 29,090,906            |       | 4,453,716       |       |

 

As of December 31,2006, total notional amounts for derivative contracts outstanding were:

 
| Cross-currency  swaps: | US$ 149,210,000 and  UF 5,773,977                    |
|------------------------|-----------------------------------------------------------|
| Forward contracts:     | US$ 38,289,000  (Buy) and US$ 38,067,470 (Sell) |
| Futures contracts:     | 17,150 tons.                                              |

 

# NOTE 27 - COMMITMENTS ANDCONTINGENCIES

 

a.          Litigation and other legal actions:

 

There are various judicial actions and otherout-of-court claims pending against the Company incidental to its business andoperations.  Management believes, basedon the opinion of its legal counsel, that none of these proceedings will have amaterial adverse effect on the Company’s financial position or results ofoperations.  Current lawsuits aredescribed below:

 

1)              Embotelladoradel Atlántico S.A. faces labor and other lawsuits.  Accounting provisions at December 31,2007 for any probable loss contingency arising from these lawsuits amounted toThCh$ 1,538,745.  Management believes,based on the opinion of its legal counsel, that these lawsuits will notmaterially affect the Company’s consolidated financial position, operatingresults or cash flows when resolved in the future.

 

F-39

----

 

2)              Refrescosfaces labor, tax and other legal proceedings. Accounting provisions at December 31,2007 for any probable loss contingency arising from these lawsuits amounted toThCh$ 941,439.  Management believes,based on the opinion of its legal counsel, that these matters will notmaterially affect the  Company’sconsolidated financial position, operating results or cash flows when resolvedin the future.

 

3)              Andinafaces labor, tax, commercial and other legal proceedings.  Accounting provisions for any probable losscontingency arising from these lawsuits amounted to ThCh$ 20,424 at December 31,2007. Management believes, based on the opinion of its legal counsel, that thesematters will not materially affect the Company’s consolidated financialposition, operating results or cash flows when resolved in the future.

 

b.              Restrictions

 

The issue and placement of bonds in the USmarket of US$ 350 million imposes certain restrictions on liens, sale andleaseback transactions, assets sales and subsidiary indebtedness andcertain other conditions in the event of a merger or consolidation.

 

The bond issue and placement by Andina in theChilean market in 2001 of UF 7,000,000 is subject to the followingrestrictions:

 

·                  Andina must maintain a leverage ratio,defined as total debt/consolidated equity lower than 1.20. For purposes ofcalculating the leverage ratio, total debt includes; (i) short-term bankliabilities, (ii) the current portion of long-term bank liabilities, (iii) short-termliabilities and promisory notes, (iv) the current portion of bondspayable, v) long-term bank liabilities, and (vi) long-term bondspayable.  Consolidated equity means totalshareholders’ equity plus minority interest.

 

·                  Andina must maintain consolidated assets freeof any pledge, mortgage or other encumbrance for an amount equal to at least1.30 times the consolidated liabilities that are not guaranteed by theinvestee.

 

·                  Andinamust retain and, in no way, sell, assign or dispose of, to a third party, thegeographical zone denominated “Region Metropolitana”, as a franchised territoryin Chile of The Coca-Cola Company, for the preparation, production, sale anddistribution of the products and brands in accordance with the Bottler Agreementwith Andina, renewable from time to time.

 

·                  TheCompany must retain and, in no way, sell, assign or dispose of to a thirdparty, the franchised territory in Argentina or Brazil by The Coca-ColaCompany, for the preparation, production, sale, and distribution of theproducts and brands of The Coca-Cola Company, as long as the referred territoryrepresents more than 40% of the Company’s consolidated operating cash flows.

 

F-40

----

 

AtDecember 31, 2007 and 2006 the Company was in compliance with theaforementioned covenants.

 

c.     Directguarantees and restricted assets

 

Direct guarantees and restricted assets at December 31,2007 were as follows:

 
| ** **                             | ** ** | **Debtor**                            | ** ** | **Assets involved** | ** ** | **Book**             | ** ** | **Balances pending********payment********at year end** | ** ** | **Year of********expiration********December 31,** | ** ** |
|----------------------------------------|------------|---------------------------------------|------------|--------------------------|------------|----------------------|------------|-----------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| **Guarantee creditor**            | ** ** | **Name**                              | ** ** | **Relation**             | ** ** | **Guarantee**        | ** ** | **Type**                                                              | ** ** | **Value**                                                   | ** ** | **2007** | ** ** | **2006** | ** ** | **2008** | ** ** | **2009** | ** ** |
| ** **                             | ** ** | ** **                            | ** ** | ** **               | ** ** | ** **           | ** ** | ** **                                                            | ** ** | **ThCh$**                                                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$ ** | ** ** |
|                                   |       |                                  |       |                     |       |                 |       |                                                                  |       |                                                        |       |   |   |   |   |   |   |   |   |
| Estado Rio de Janeiro                  |       | Rio de Janeiro Refrescos  Ltda.       |       | Subsidiary               |       | Mortgage             |       | Real estateproperty                                                   |       | 11,190,568                                                  |       | 11,391,888 |   | 10,860,605 |   | — |   | — |   |
|                                   |       |                                  |       |                     |       |                 |       |                                                                  |       |                                                        |       |   |   |   |   |   |   |   |   |
| Poder Judiciario                       |       | Rio de JaneiroRefrescos Ltda.         |       | Subsidiary               |       | Judicial deposit     |       | Judicial deposit                                                      |       | 9,575,388                                                   |       | — |   | — |   | — |   | — |   |
|                                   |       |                                  |       |                     |       |                 |       |                                                                  |       |                                                        |       |   |   |   |   |   |   |   |   |
| Aga S.A.                               |       | Embotelladora Andina S.A.             |       | Parent company           |       | Performance bond     |       | Perfomance bond                                                       |       | —                                                      |       | — |   | 171,536 |   | — |   | 149,067 |   |
|                                   |       |                                  |       |                     |       |                 |       |                                                                  |       |                                                        |       |   |   |   |   |   |   |   |   |
| Municipalidad de Santiago              |       | Embotelladora Andina S.A.             |       | Parent company           |       | Performance bond     |       | Perfomancebond                                                        |       | —                                                      |       | — |   | 11,019 |   | — |   | 10,981 |   |
|                                   |       |                                  |       |                     |       |                 |       |                                                                  |       |                                                        |       |   |   |   |   |   |   |   |   |
| Escuela Militar                        |       | Embotelladora Andina S.A.             |       | Parent company           |       | Performance bond     |       | Performance bond                                                      |       | —                                                      |       | — |   | — |   | 328 |   | — |   |
|                                   |       |                                  |       |                     |       |                 |       |                                                                  |       |                                                        |       |   |   |   |   |   |   |   |   |
| Aduana de Ezeiza                       |       | Embotelladora del Atlántico S.A. |       | Subsidiary               |       | Guaranty insurance   |       | Inventories                                                           |       | 9,152                                                       |       | — |   | — |   | — |   | — |   |
|                                   |       |                                  |       |                     |       |                 |       |                                                                  |       |                                                        |       |   |   |   |   |   |   |   |   |
| Aduana de CBA                          |       | Embotelladora del Atlántico S.A. |       | Subsidiary               |       | Guaranty insurance   |       | Inventories                                                           |       | 534                                                         |       | — |   | — |   | — |   | — |   |
|                                   |       |                                  |       |                     |       |                 |       |                                                                  |       |                                                        |       |   |   |   |   |   |   |   |   |
| Municipalidad de Maipú            |       | Embotelladora Andina S.A.             |       | Parent Company           |       | Performance bond     |       | Performance bond                                                      |       | —                                                      |       | — |   | — |   | — |   | — |   |
|                                   |       |                                  |       |                     |       |                 |       |                                                                  |       |                                                        |       |   |   |   |   |   |   |   |   |
| Financial Futures and Options Exchange |       | Embotelladora Andina S.A.             |       | Parent Company           |       | Collateral guarantee |       | United States Treasury Notes                                          |       | 74,235                                                      |       | — |   | — |   | 74,235 |   | — |   |

 

d.   Contractualobligations

 

The following tablesummarizes our contractual obligations and commercial commitments as of December 31,2007:
| ** **                                   | ** ** | **Payments due by period** | ** ** | ** **      | ** ** |
|----------------------------------------------|------------|-------------------------------------------|------------|-----------------|------------|
| ** **                                   | ** ** | **Maturity**                              | ** ** | ** **      | ** ** |
| ** **                                   | ** ** | ** **                                | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | **More than** | ** ** | ** ** | ** ** |
| ** **                                   | ** ** | **2008**                                  | ** ** | **2009**        | ** ** | **2010** | ** ** | **2011** | ** ** | **4 years** | ** ** | **Total** | ** ** |
| ** **                                   | ** ** | **ThCh$**                                 | ** ** | **ThCh$**       | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                         |       |                                      |       |            |       |   |   |   |   |   |   |   |   |
| Long-term debt                               |       | 122,361                                   |       | 118,100         |       | 347,287 |   | 165,789 |   | 109,469 |   | 863,006 |   |
| Short-term debt                              |       | 3,950,822                                 |       | —          |       | — |   | — |   | — |   | 3,950,822 |   |
| Bonds payable                                |       | 6,914,470                                 |       | 2,135,407       |       | 4,270,814 |   | 4,270,814 |   | 62,920,587 |   | 80,512,092 |   |
| Purchase obligations                         |       | 577,632                                   |       | 84,450          |       | 44,835 |   | 16,833 |   | — |   | 723,750 |   |
| Brazilian banking taxes                      |       | 2,718,815                                 |       | 2,831,519       |       | 2,831,519 |   | 2,359,600 |   | — |   | 10,741,453 |   |
|                                         |       |                                      |       |            |       |   |   |   |   |   |   |   |   |
| Subtotal-included in ourbalance  sheet  |       | 14,284,100                           |       | 5,169,476  |       | 7,494,455  |   | 6,813,036  |   | 63,030,056  |   | 96,791,123  |   |
|                                         |       |                                      |       |            |       |   |   |   |   |   |   |   |   |
| Operating lease obligations                  |       | 1,464,983                                 |       | —          |       | — |   | — |   | — |   | 1,464,983 |   |
| Purchase obligations                         |       | 18,526,934                                |       | 9,012,828       |       | 705,805 |   | 315,149 |   | — |   | 28,560,716 |   |
| Other                                        |       | 6,249,675                                 |       | 5,633,863       |       | 5,020,203 |   | 4,391,211 |   | 30,990,516 |   | 52,285,468 |   |
| Subtotal-not included in our                 |       |                                      |       |            |       |   |   |   |   |   |   |   |   |
| balance sheet                                |       | 26,241,592                                |       | 14,646,691      |       | 5,726,008 |   | 4,706,360 |   | 30,990,516 |   | 82,311,167 |   |
|                                         |       |                                      |       |            |       |   |   |   |   |   |   |   |   |
| Total contractual obligations                |       | 40,525,692                                |       | 19,816,167      |       | 13,220,463 |   | 11,519,396 |   | 94,020,572 |   | 179,102,290 |   |

 

F-41

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NOTE 28 - GUARANTEES RECEIVED FROM THIRD PARTIES

 

Guarantees received from third parties at December 31,2007 were as follows:

 
| **Guarantor**                                | ** ** | **Type of Guarantee** | ** ** | **Amount** | ** ** | **Currency** | ** ** | **Transaction**                             | ** ** |
|----------------------------------------------|------------|---------------------------------|------------|------------|------------|--------------|------------|---------------------------------------------|------------|
|                                         |       |                            |       |       |       |         |       |                                        |       |
| Russel W. Coffin                             |       | Letter  of credit               |       | 52,113,600 |       | US$          |       | Purchase of Nitvitgov  Refrigerantes S.A.   |       |
| Confab                                       |       | Mortgage                        |       | 30,000,000 |       | US$          |       | Purchase of Rio de Janeiro  Refrescos Ltda. |       |
| Other Clients                                |       | Deposits                        |       | 3,223,190  |       | US$          |       | Guaranty over containers                    |       |
| Compañía Azucarera Concepción |       | Guaranty  insurance             |       | 2,940,314  |       | US$          |       | Supplier                                    |       |
| Soc. Com. Champfer                           |       | Mortgage                        |       | 1,677,103  |       | US$          |       | Distributor credit                          |       |
| Mac Coke Dist. Beb.                          |       | Mortgage                        |       | 1,179,924  |       | US$          |       | Distributor credit                          |       |
| Franciscana Dist.                            |       | Mortgage                        |       | 824,253    |       | US$          |       | Distributor credit                          |       |
| Dist Real Cola -229628                       |       | Mortgage                        |       | 796,026    |       | US$          |       | Distributor credit                          |       |
| Zulemar Comercio de Bebidas                  |       | Mortgage                        |       | 663,355    |       | US$          |       | Distributor credit                          |       |
| Asxt Fluminense Dist. Bebidas                |       | Mortgage                        |       | 660,532    |       | US$          |       | Distributor credit                          |       |
| Aga S.A.                                     |       | Receipt                         |       | 600,000    |       | US$          |       | Supplier agreement                          |       |
| Rosas de Casimiro                            |       | Mortgage                        |       | 491,165    |       | US$          |       | Distributor credit                          |       |
| Motta Distribuidora de Bebidas               |       | Mortgage                        |       | 479,874    |       | US$          |       | Distributor credit                          |       |
| Aguiar Dist. de Bebidas                      |       | Mortgage                        |       | 462,937    |       | US$          |       | Distributor credit                          |       |
| Atanor - S.C.A                               |       | Guaranty  insurance             |       | 330,785    |       | US$          |       | Supplier                                    |       |
| Ledesma – S.A.A.I.                      |       | Guaranty  insurance             |       | 632,837    |       | US$          |       | Supplier                                    |       |
| Soberana De Carmo Dist Beb                   |       | Mortgage                        |       | 282,279    |       | US$          |       | Distributor credit                          |       |
| Catering Argentina S.A.                      |       | Guaranty  insurance             |       | 116,769    |       | US$          |       | Supplier                                    |       |

 

NOTE29 - SUBSEQUENT EVENTS

 

·                  On January 31, 2008Embotelladora Andina S.A. (“Andina”) signed a new Bottler Agreement for itsChilean operations, for a 5 year-term beginning January 1, 2008.  The new agreement, called NEW BA, doesnot significantly differ from the agreements previously signed by Andina ́sbottlers in the other countries where it has operations.

 

·                  On April 24,2008, final dividend N° 160 was paid from 2007 revenues as follows:

 

a)     Ch$9.13for each series A share; and

b)    Ch$10.043for each series B share.

 

OnMay 14, 2008, final additional dividend number 161 was paid from retainedearnings as follows:

 

a)              Ch$60.00 for each series Ashare; and

b)     Ch$66.00 for each series B share.

 

·                  Noother significant events have occurred between December 31, 2007 and theissuance date of these financial statements that could significantly affect thepresentation of these financial statements.

 

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NOTE 30 – DIFFERENCES BETWEEN CHILEAN AND UNITED STATESGENERALLY ACCEPTED ACCOUNTING PRINCIPLES

 

Chilean GAAP varies in certain significant respects from the accountingprinciples generally accepted in the United States (“U.S. GAAP”).  Such differences involve methods formeasuring the amounts shown in the financial statements as well as additionaldisclosures required by U.S. GAAP.

 

The principal methods applied in the preparation of the accompanyingfinancial statements which have resulted in amounts that differ from those thatwould have otherwise been determined under U.S. GAAP are as follows:

 

1      Differencesin measurement methods

 

a)     Inflationaccounting

 

The cumulative inflation rate in Chile as measured bythe CPI in the three-year period ended December 31, 2007 was approximately13.7%.

 

Chilean GAAP requires that the financial statements berestated to reflect the full effects of the loss in the purchasing power of theChilean peso on the financial position and results of operations of reportingentities.  The method, described in Note1 c), is based on a model which enables calculation of net inflation gains orlosses caused by monetary assets and liabilities exposed to changes in thepurchasing power of local currency.  Themodel prescribes that the historical cost of all non-monetary accounts be restatedfor general price-level changes between the date of origin of each item and theyear-end.

 

The inclusion of price-level adjustments in thesefinancial statements is considered appropriate under the prolonged inflationaryconditions affecting the Chilean economy even though the cumulative inflationrate for the last-three years does not exceed 100%.  Accordingly, the effect of price-levelchanges is not eliminated in the reconciliation to U.S. GAAP included underparagraph (n) below.

 

The price-level restatement was determined underChilean GAAP by restating the following non-monetary assets and liabilities asfollows:

 
| ** **                              | ** ** | **For the year ended December 31,** | ** ** |
|-----------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                              | ** ** | **2007**                                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                              | ** ** | **ThCh$**                                                    | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                    |       |                                                         |       |   |   |   |   |
| Shareholders’ equity               |       | (15,818,526                                                  | )          | (4,779,665 | ) | (8,833,717 | ) |
| Liabilities                             |       | (9,849,762                                                   | )          | (3,385,792 | ) | (6,420,209 | ) |
| Property, plant and equipment           |       | 6,122,335                                                    |       | 1,600,049 |   | 2,959,077 |   |
| Current assets                          |       | 3,229,058                                                    |       | 838,252 |   | 2,801,912 |   |
| Other assets                            |       | 13,884,646                                                   |       | 5,937,823 |   | 10,636,257 |   |
|                                    |       |                                                         |       |   |   |   |   |
| Adjustment of balance sheet accounts    |       | (2,432,249                                                   | )          | 210,667 |   | 1,143,320 |   |
| Adjustment of income statement accounts |       | (2,110,798                                                   | )          | (549,821 | ) | (1,768,412 | ) |
| Price level restatement expense         |       | (4,543,047                                                   | )          | (339,154 | ) | (625,092 | ) |

 

F-43

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b)    Translationof financial statements of non-Chilean operations

 

In accordance with Technical Bulletin No. 64 ofthe Chilean Institute of Accountants, the financial statements of foreignsubsidiaries whose activities do not constitute an extension of the Chileancompany’s operations, or which operate in countries that are exposed tosignificant risks, restrictions or inflation/exchange fluctuations must beremeasured into U.S. dollars and translated into Chilean pesos at the year-endexchange rate.  Accordingly, thefinancial statements of the Company’s subsidiaries in Argentina and Brazil wereconsidered to be operating in countries that are exposed to significant risks,restrictions and exchange fluctuations and were prepared in accordance withChilean GAAP, with the exception of monetary correction, and then wereremeasured into U.S. dollars as follows:

 

·           Monetary assetsand liabilities were translated at year-end rates of exchange between the U.S.dollar and the local currency.

 

·           All non-monetaryassets and liabilities and shareholders’ equity were translated at historicalrates of exchange between the U.S. dollar and the local currency.

 

·           Income andexpense accounts were translated at average rates of exchange between the U.S.dollar and the local currency.

 

·           Any exchangedifferences were included in the results of operations for the period.

 

The resulting foreign currency amounts are thentranslated to Chilean pesos at the closing exchange rate at the balance sheetdate.  Thedifference between the investments’ equity value arising from the financialstatements remeasured as explained above and the net equity value at thebeginning of the year restated by Chilean inflation, plus the proportionalshare of the investments’ income (or loss) for the year, is recorded as otherreserves in shareholders’ equity in the consolidated balance sheets.

 

Inthe opinion of management of the Company, the Chilean GAAP procedures describedabove are part of the comprehensive basis of preparation of price-leveladjusted financial statements required by Chilean GAAP.  Inclusion of inflation and translationeffects in the financial statements is considered appropriate under theinflationary conditions that have historically affected the Chilean economy and,accordingly, are not eliminated in the reconciliation to U.S. GAAP.

 

c)   Revaluationof property, plant and equipment

 

As described in Note 1 k), certain property, plant andequipment has been reported in the financial statements at amounts determinedin accordance with a technical appraisal.  The revaluation of property, plant andequipment is an accounting principle not generally accepted under U.S. GAAP.The effects of the reversal of this revaluation as well as the relatedaccumulated depreciation and depreciation expense for the year is shown in theChilean GAAP to U.S. GAAP reconciliation below under paragraph (o).

 

F-44

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d)   Incometaxes

 

Under Chilean GAAP, effective January 1, 2000,the Company began applying Technical Bulletin No. 60 of the ChileanInstitute of Accountants (“TB 60”) concerning deferred income taxes.  TB 60 requires the recognition ofdeferred income taxes for all temporary differences, whether recurring or not,using an asset and liability approach.  The effects of deferred income taxes at January 1, 2000 that werenot previously recorded, were recognized, in accordance with the transitionalprovision provided by TB 60, against asset or liability accounts (“complementaryaccounts”) and were recorded to offset the effects of the deferred tax assetsand liabilities not recorded prior to January 1, 2000. Complementaryaccounts are amortized to income over the estimated average reversal periodscorresponding to underlying temporary differences to which the deferred taxasset or liability related.  A valuationallowance is provided if, based on the weight of available evidence, someportion, or all, of the deferred income tax assets will not be realized.

 

For U.S. GAAP purposes, the Company applied SFAS No. 109,“Accounting for Income Taxes”, whereby income taxes are also recognized usingsubstantially the same asset and liability approach, with deferred income taxassets and liabilities established for temporary differences between thefinancial reporting basis and tax basis of the Company’s assets and liabilitiesat enacted rates expected to be in effect when such amounts will berealized.  A valuation allowance isprovided against deferred tax assets that are not recoverable on amore-likely-than-not basis. In this regard, in 2005 the Company released itsvaluation allowance related to the net operating losses of its Braziliansubsidiary Refrescos.

 

The effect of provisioning for deferred income taxesfor the differences between the amounts shown for assets and liabilities in theconsolidated balance sheets and the tax bases of those assets and liabilitiesunder US GAAP and the remaining effects from the implementation of TB 60 areincluded in paragraph (o) below and certain disclosures required underSFAS No. 109 are set forth under paragraph 2 a) below.

 

e)   Accountingfor investments in related companies

 

TheCompany began accounting for its 11.32% interest in Kaik Participacoes Ltda.under the equity method in 1999 as described in Note 12. In prior years, asappropriate financial information was not available, the Company accounted forthis investment under the cost method. Under U.S. GAAP, as the Companyonly holds 11.32% interest and the investee’s shares do not trade on anyexchange, the cost method has been applied for all years presented. The effectsfor the difference in accounting for thisinvestment pursuant to the cost method of accounting for U.S. GAAP for allperiods presented are included in the reconciliation of Chilean GAAP to U.S.GAAP included under paragraph (o) below.

 

f)     Goodwill

 

UnderChilean GAAP, until December 31, 2003, the excess of cost over the netbook value of a purchased company was recorded as goodwill (the book valuepurchase method), which is then amortized to income over a maximum period oftwenty years.  Amortization of goodwillmay be accelerated if the acquired company generates sufficient income toabsorb the additional amortization in any given year.  The excess of net book value over the cost ofan investment is considered to be negative goodwill under Chilean GAAP and isalso amortized to income over a maximum period of twenty years.  The amortization of negative goodwill may beaccelerated if the acquired company sustains losses. Effective January 1,2004, Technical Bulletin No. 72 requires thedetermination of goodwill and negative goodwill based on the fair value of theacquired company.

 

F-45

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UnderU.S. GAAP, goodwill and other intangibles are accounted for under SFAS No. 141,“Business Combinations” and SFAS No. 142, “Goodwill and Other IntangibleAssets”.  SFAS No. 141 requires thatthe purchase method of accounting be used for all business combinationsinitiated after June 30, 2001 and prohibits the use of thepooling-of-interests method of accounting after this date.  Withrespect to the purchase method of accounting, the cost of an investment isassigned to the tangible and identified intangible assets acquired andliabilities assumed on the basis of their fair values at the date of acquisition.Any excess of cost over the fair value of net assets acquired is recorded asgoodwill.  If an excess of acquired netassets over cost arises, the excess is allocated to reduce proportionally thevalues assigned to noncurrent assets (except long-term investments inmarketable securities) in determining their fair values.  If the allocation reduces the noncurrentassets to zero value, the remainder of the excess over cost (negative goodwill)is written off immediately as an extraordinary gain.  SFAS No. 141 establishes specificcriteria for the recognition of intangible assets separately from goodwill andrequires unallocated negative goodwill to be written off immediately as anextraordinary gain (instead of being deferred and amortized).

 

SFASNo. 142, “Goodwill and Other Intangible Assets” establishes the following:

 

·             The accounting for arecognized intangible asset is based on its useful life to the reportingentity. An intangible asset with a finite useful life is amortized over thelife of the asset, but goodwill and other intangible assets with indefiniteuseful lives are not amortized.

·             The remaininguseful lives of intangible assets being amortized are evaluated each reportingperiod to determine whether events and circumstances warrant a revision to theremaining period of amortization.  If theestimate of an intangible asset’s remaining useful life is changed, theremaining carrying value of the intangible asset is amortized prospectivelyover the revised remaining useful life.

·             Goodwill and other intangibleassets with indefinite useful lives that are not subject to amortization aretested for impairment at least annually.

·             All goodwill must be assignedto a reporting unit, which is defined as an operating segment or one levelbelow an operating segment.

 

SFAS No. 142 becameeffective for years beginning after December 15, 2001.  Accordingly, goodwill amortization was ceased forU.S. GAAP purposes beginning in 2002. The effects of eliminating goodwill amortization recognized for ChileanGAAP purposes are included in the reconciliation of Chilean GAAP to U.S. GAAPunder paragraph (o) below.

 

g)   Joint venture accounting

 

In accordance withChilean GAAP, in June 2001 the Company recognized a gain of ThCh$7,001,192 on the sale of property, plant and equipment to CMF upon theformation of this joint venture with Cristalerías.  In addition, the Company wrote-off the basisdifference of ThCh$ 2,069,881 between its investment in and its share of thenet equity of the joint venture.  Accordingly,the Company recognized a net gain before income taxes of ThCh$ 4,931,311.

 

Under U.S. GAAP, again can be recognized only if appreciated assets (excluding land) arecontributed to a venture, cash or near-cash assets are received, and no otherfactors exist that could impact realization of the gain (such as guarantees ofdebt, puts or calls that may result in acquisition of the venture, etc.).Additionally, the gain would be limited to the proportion of the assets deemedsold and any basis difference would be amortized based on the lives of theassets that gave rise to the difference. Finally, all contributions of appreciated assets to the venture wouldgenerally be recorded at the carrying value of the joint venture shareholder.

 

F-46

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The shareholders’agreement for CMF that establishes joint control of the venture by the Companyand Cristalerías also contains provisions that could require the Company topurchase Cristalerías’ shares of CMF. Accordingly, the gain recognized for Chilean GAAP purposes is notconsidered realized under U.S. GAAP.  Theeffects of reversing the gain and write-off of the basis difference in theinvestment, amortizing the basis difference in accordance with U.S. GAAP andadjusting the results of CMF for the Company’s share of the amortization ofexcess value assigned to the assets of CMF under Chilean GAAP are included inparagraph (o) below.

 

h)   Investment securities

 

Under Chilean GAAP, long-term investments in bonds andtime deposits held by the Company are carried at cost plus accruedinterest.  Under SFAS No. 115, “Accountingfor Certain Investments in Debt and Equity Securities”, investment securities,which include debt and certain equity securities, are accounted for as follows:

 

·             Debt securities that the Company has the positive intent and ability tohold to maturity are classified as held-to-maturity securities and are reportedat amortized cost.

 

·             Debt and equity securities that are bought and held principally for thepurpose of selling them in the near term are classified as trading securities andare reported at fair value, with unrealized gains and losses included inearnings.

 

·             Debt and equity securities not classified as either held-to-maturity ortrading securities are classified as available-for-sale securities and reportedat fair value, with unrealized gains and losses excluded from earnings andreported in a separate component of shareholders’ equity.

 

For the purposes of SFAS No. 115, the Company’slong-term investments in bonds are classified as available for sale securitiesand time deposits are classified as held-to-maturity. The effect of thedifference between Chilean GAAP and U.S. GAAP in accounting for the Company’slong-term investments in bonds is included in the reconciliation of ChileanGAAP to U.S. GAAP in paragraph (o) below.

 

i)    Staff severance indemnities

 

Under Chilean GAAP, the Company has recorded a liability for long-termseverance indemnities in accordance with the collective bargaining agreementsentered into with its employees in Chile. This liability is shown at the present value of the projected benefits,considering the effects of inflation. The benefit accrued as of the end of the year considers the averagefuture service period for all employees covered by such agreements.

 

F-47

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Under U.S. GAAP, the liability for staff severance indemnities would bemeasured by projecting future expected severance payments using an assumedsalary progression rate and discounting the resulting amounts to their presentvalue. In practice, the Company believes that the salary progression rate willnot differ significantly from the general inflation rate.  In the opinion of management of the Company,the application of U.S. GAAP would not have produced results materiallydifferent from the accepted method under Chilean GAAP.

 

j)    Accumulated translation adjustment of foreign investments

 

As described in Notes 22 and 23, the Company recognized a gain upon therealization of a portion of its accumulated translation adjustment of foreign investmentsaccount in accordance with Technical Bulletin No. 64.  Under Chilean GAAP, a partial liquidation ofan investment in a foreign entity is deemed to have occurred upon therepatriation of capital or of earnings in excess of net income for the year.  In the case of a partial liquidation, theproportionate share of the accumulated translation adjustment of foreigninvestments account related to the foreign investment should be reversed andrecorded in the results of the period.

 

During 2007, the dividends paid by the Company’ssubsidiary Río de Janeiro Refrescos Ltda. and the capital remittances fromEmbotelladora del Atlántico S.A., generated a loss ofThCh$ 3,576,687 due to the reversal of the cumulative translation reserve.

 

Under U.S. GAAP as set forth in SFAS No. 52, “Foreign CurrencyTranslation”, the accumulated translation adjustment of foreign investmentsaccount is realized in the results of the period only upon the sale or upon thecomplete or substantially complete liquidation of an investment in a foreignentity.  The effect of reversing thisloss is included in the reconciliation of Chilean GAAP to U.S. GAAP inparagraph (o) below.

 

k)   Derivative financial instruments

 

At December 31, 2007, 2006 and 2005, the Company had derivativecontracts consisting of forward contracts to purchase US dollars andcross-currency swap agreements (UF/US$). The forward contracts were obtained to protect the Company from foreignexchange risk, mainly with respect to future purchases of raw materialsdenominated in US dollars.  Thecross-currency swap agreements were obtained to mitigate foreign exchange riskwith respect to the US dollar-denominated bond investments held by theCompany.  In2006, the Company also entered into futures contracts for the sale ofsugar.  Thiscontracts will expire in March 2008.  These contracts were obtained to hedge thechanges in the fair value of purchase commitments originated by marketfluctuations in the price of sugar.

 

UnderChilean GAAP, derivatives are accounted for in accordance with TechnicalBulletin N° 57.  Under TB 57, allderivative financial instruments are recognized on the balance sheet at theirfair value. In addition, TB 57 requires that derivative financial instruments beclassified as non-hedging (investment) instruments and hedging instruments, thelatter further divided into those covering assets, liabilities or firmcommitments and those covering forecasted transactions.

 

F-48

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Contractsto hedge assets, liabilities or firm commitments act as hedging instrumentsagainst the risk of a change in the fair value of a hedged item. Thedifferences resulting from the changes in the fair value of both the hedgeditem and the derivative instrument should be accounted for as follows:

 

a.          If the net effectis a loss, it should be recognized in the statements of income in the period ofchange.

b.         If the net effect is a gain,it should be recognized when the contract is closed and accordingly deferred onthe balance sheet.

c.          If the net effect is a gainand net losses were recorded on the transaction in prior years, a gain shouldbe recognized in the statements of income in the current period up to theamount of net losses recorded previously.

d.         If the effect is a net loss andnet gains were recorded (as a deferred revenue) on the transaction in prioryears, the gain should be utilized to offset the net loss before recording theremaining loss in the statements of income for the year.

 

Contractsto hedge forecasted transactions are those that have the objective ofprotecting cash flow risks of a transaction expected to occur in the future (acash flow hedge). The hedging instrument should be recorded at its fair valueand the changes in fair value should be stated on the balance sheet asunrealized gains or losses. When the contract is closed, the unrealized gainsor losses on the derivative instrument should be recognized in earnings withoutaffecting the cost or sales price of the asset acquired or sold in thetransaction.

 

Non-hedging(investment) instruments are also presented at their fair value, with changesin fair value reflected in the earnings of the period in which the change infair value occurs.

 

Under Chilean GAAP in accordance with TB 57, the Company has designatedcertain futures contracts as hedges of firm commitments.  Forward contracts and cross-currency swapagreements have been designated as hedges of forecasted transactions.

 

ForU.S. GAAP reconciliation purposes only, the Company has adopted SFAS No. 133“Accounting for Derivative Instruments and Hedging Activities”, as amended bySFAS 137, SFAS 138 and SFAS 149 on the same matter (collectively referred toherein as “SFAS 133”).  SFAS 133 establishesaccounting and reporting standards for derivative instruments, includingcertain derivative instruments embedded in other contracts, and for hedgingactivities. It requires that an entity recognized all derivatives as eitherassets or liabilities in its consolidated balance sheet and measure thoseinstruments at fair value. If certain conditions are met, a derivative may bespecifically designated as (a) a hedge of the exposure to changes in thefair value of a recognized asset or liability or an unrecognized firmcommitment, (b) a hedge of the exposure to variable cash flows of aforecasted transaction or to the variability of the cash flows that are to bereceived or paid in connection with a recognized asset or liability or (c) ahedge of the foreign currency exposure of a net investment in a foreignoperation, an unrecognized firm commitment, an available-for-sale security, aforeign-currency-denominated forecasted transaction or a recognized asset orliability.

 

Theaccounting for changes in the fair value of a derivative depends on theintended use of the derivative and the resulting designation.

 

F-49

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The Company has not completed the documentation necessary to qualify thecontracts designated as hedges for Chilean GAAP purpose, as hedges for U.S.GAAP purposes.  Accordingly, theunrealized loss deferred under Chilean GAAP of ThCh$ 164,203 in 2007 (gaindeferred of ThCh$ 4,453,716 in 2006) represents a difference from U.S.GAAP that is included in paragraph (o) below.  Additional information concerning derivativefinancial instruments that is required to be disclosed under SFAS 133 is setforth below in paragraph 2 e).

 

l)                 Mandatory dividend

 

Asrequired by the Chilean Company law, unless otherwise decided by the holders ofa majority of the shares represented at the General Shareholders’ Meeting, theCompany has to distribute a cash dividend in an amount equal to at least 30% ofthe Company’s net income under Chilean GAAP. Since the payment of the dividend out of each year’s net income is alegal requirement in Chile, an accrual would have been made for US GAAPpurposes to recognize the dividend obligation under Chilean law.  The effect of this accrual would be todecrease Shareholders’ equity by ThCh$ 7,286,252 and ThCh$ 9,524,730at December 31, 2007 and 2006 respectively.

 

m)           Reversal of impairment loss on fixed assets

 

In previous years the Companyrecorded an asset impairment related to some of its plants.  The impairment considered a projection oflosses associated with the use of certain production lines and on-going cashflows deficits.  In 2007, the Company’sestimates of future cash flows associated with these plants’ existing servicepotencial resulted in the reversal of impairment losses previously recognizedamounting to ThCh$ 4,596,549, with the effect being included in Othernon-operating income in the consolidated statement of income.  Under USGAAP, the restoration of a previouslyrecognized impairment loss for a depreciable long-lived asset is prohibited.

 

n)             Initial application of SAB 108

 

In September 2006,the SEC staff issued Staff Accounting Bulletin No. 108, “Considering theEffects of Prior Year Misstatements when Quantifying Misstatements in CurrentYear Financial Statements”.  SAB 108 wasissued in order to eliminate the diversity of practice surrounding how publiccompanies quantify financial statement misstatements.

 

Traditionally,there have been two widely-recognized methods for quantifying the effects offinancial statement misstatements:  the “roll-over”method and the “iron curtain” method. The roll-over method focuses primarily on the impact of a misstatementon the income statement—including the reversing effect of prior yearmisstatements—but its use can lead to the accumulation of misstatements in thebalance sheet.  The iron-curtain method,on the other hand, focuses primarily on the effect of correcting the period-endbalance sheet with less emphasis on the reversing effects of prior year errorson the income statement.  Prior to ourapplication of the guidance in SAB 108, the Company used the roll-over methodfor quantifying financial statement misstatements.

 

In SAB108, the SEC staff established an approach that requires quantification offinancial statement misstatements based on the effects of the misstatements oneach of the company’s financial statements and the related financial statementdisclosures.  This model is commonlyreferred to as a “dual approach” because it requires quantification of errorsunder both the iron curtain and the roll-over methods.

 

F-50

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SAB108 permits existing public companies to initially apply its provisions eitherby (i) restating prior financial statements as if the “dual approach” hadalways been applied or (ii) recording the cumulative effect of initiallyapplying the “dual approach” as adjustments to the carrying values of assets andliabilities as of January 1, 2006 with an offsetting adjustment recordedto the opening balance of retained earnings. The Company elected to record the effects of applying SAB 108 using thecumulative effect transition method.  Thefollowing table summarizes the effects (up to January 1, 2006) of applyingthe guidance in SAB 108 under U.S. GAAP:

 
| ** **                               | ** ** | **Period in which the********misstatement originated(1)** | ** ** | ** **                             | ** ** |
|------------------------------------------|------------|-------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                               | ** ** | **Cumulative  prior to  January 1,**                                | ** ** | **Year ended  December 31,** | ** ** | **Adjustment  recorded as of********January 1,** | ** ** |
| ** **                               | ** ** | **2004**                                                                      | ** ** | **2004**                               | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **ThCh$**                                                                     | ** ** | **ThCh$**                              | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                     |       |                                                                          |       |                                   |       |   |   |   |   |
| Deferred  tax liability(2)               |       | 3,627,363                                                                     |       | 1,427,210                              |       | 2,096,766 |   | 7,151,339 |   |
| Impact on other comprehensive income (2) |       | —                                                                        |       | 222,358                                |       | 407,159 |   | 629,517 |   |
| Impact  on net income(3)                 |       | 3,627,363                                                                     |       | 1,649,568                              |       | 2,503,925 |   | 7,780,856 |   |
| Retained  earnings(4)                    |       |                                                                          |       |                                   |       |   |   | 7,151,339 |   |

 

----

(1)          The Company previously quantified this misstatement under the roll-overmethod and concluded that it was immaterial.

 

(2)          Under U.S. GAAP, the Company’s subsidiary Refrescos was not recognizinga deferred tax liability on foreign exchange gains generated by its US$75million bonds maturing in December 2012 as required by SFAS 109. As aresult of this misstatement, the Company’s income tax expense was understatedby ThCh$ 3,627,364 in years prior to 2004, by ThCh$ 1,649,568 in 2004and by ThCh$ 2,503,925 in 2005 and the cumulative translation adjustment(included in other comprehensive income) was understated by ThCh$ 222,358 in2004 and by ThCh$ 407,159 in 2005. The Company recorded a ThCh$ 7,151,339increase in its deferred tax liability as of January 1, 2006 with acorresponding reduction in retained earnings to correct this misstatement.

 

(3)          Represents the net over-statement of net income for the indicatedperiods resulting from this misstatement.

 

(4)          Represents the net reduction to retained earnings recorded under U.S.GAAP as of January 1, 2006 to give effect to the initial application ofSAB 108.

 

Under Chilean GAAP, the deferred tax liability on thereferred foreign exchange gain was recorded with a corresponding charge to theincome tax expense in the consolidated statement of income for the year 2006.Before 2006, the initial difference between taxable income and accountingincome related to the aforementioned foreign exchange was not deemed to reverseuntil indefinite future periods or was never deemed to reverse, thus, nodeferred tax liability was recorded under Chilean GAAP. The effect of thedifference in accounting between Chilean GAAP and U.S. GAAP for deferred taxeson the related foreign exchange gain and the initial application of SAB 108 isincluded in the reconciliation of Chilean GAAP to U.S. GAAP in paragraph (o) below.

 

F-51

----

 

o)        Effects of conforming to U.S. GAAP

 

The adjustments to reported net income for the periodsindicated required to conform with U.S. GAAP are as follows:

 
| ** **                                                                                         | ** ** | **For the year ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                                                         | ** ** | **2007**                                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                                         | ** ** | **ThCh$**                                                    | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Net income as shown in the Chilean GAAPfinancial statements                                        |       | 81,601,944                                                   |       | 79,857,372 |   | 61,450,170 |   |
| Reversal of additional depreciation on revaluation of property, plant  and equipment (paragraph c) |       | 1,882                                                        |       | 5,718 |   | 11,027 |   |
| Adjustment to deferred income tax provision (paragraph d)                                          |       | 2,077,902                                                    |       | (12,760,594 | ) | 9,221,133 |   |
| Difference in accounting for investments in relatedcompanies (paragraph e)                         |       | 565,057                                                      |       | (242,059 | ) | (400,678 | ) |
| Amortization of goodwill (paragraph f)                                                             |       | 6,502,674                                                    |       | 6,983,589 |   | 6,830,343 |   |
| Joint venture accounting (paragraph g)                                                             |       | 460,440                                                      |       | 460,440 |   | 460,440 |   |
| Accumulated translation adjustment offoreign investments (paragraph j)                             |       | 3,576,687                                                    |       | 143,378 |   | — |   |
| Derivative financial instruments (paragraph k)                                                     |       | (4,617,919                                                   | )          | 311,844 |   | 4,870,982 |   |
| Reversal of impairment loss on fixed assets (paragraph m)                                          |       | (4,596,549                                                   | )          | — |   | — |   |
| Initial application of SAB 108 (paragraph n)                                                       |       | —                                                       |       | 7,780,856 |   | — |   |
|                                                                                               |       |                                                         |       |   |   |   |   |
| Net income in accordance with U.S. GAAP                                                            |       | 85,572,118                                                   |       | 82,540,544 |   | 82,443,417 |   |

 
| ** **                                                                                                                                                                                              | ** ** | **For the year ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                                                                                                                                                              | ** ** | **2007**                                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                                                                                                                                              | ** ** | **ThCh$**                                                    | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Components of other comprehensive (loss) income:                                                                                                                                                        |       |                                                         |       |   |   |   |   |
| Cumulative translation adjustment for foreign investments                                                                                                                                               |       | (16,899,924                                                  | )          | 1,956,985 |   | (16,777,230 | ) |
| Effect on cumulative translation adjustment of initial application of  SAB 108 (paragraph m)                                                                                                            |       | —                                                       |       | (629,517 | ) | — |   |
| Unrealized (loss) gain on investment securities, net of applicableincome tax expense (benefit) of  ThCh$ 52,680 in 2007, ThCh$ 2,760  in 2006 and ThCh$ (741,637) in  2005 (paragraph h) |       | 877,234                                                      |       | (664,590 | ) | (3,585,269 | ) |
|                                                                                                                                                                                                    |       |                                                         |       |   |   |   |   |
| Subtotal other comprehensive income (loss)                                                                                                                                                              |       | (16,022,690                                                  | )          | 662,878 |   | (20,362,499 | ) |
|                                                                                                                                                                                                    |       |                                                         |       |   |   |   |   |
| Comprehensive income (loss) in accordance with U.S. GAAP(paragraph 2 b)                                                                                                                                 |       | 69,549,428                                                   |       | 83,203,422 |   | 62,080,918 |   |

 

Accumulated othercomprehensive income amounted to ThCh$ 13,649,081, ThCh$ 29,671,771 andThCh$ 29,008,893 as of December 31, 2007, 2006 and 2005, respectively.

 

F-52

----

 

Thechanges in other comprehensive income (loss) determined under U.S. GAAP were asfollows:

 
| ** **                                                                     | ** ** | **For the year ended December 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                                     | ** ** | **2007**                                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                     | ** ** | **ThCh$**                                                    | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Other comprehensive income (loss), before income tax:                          |       |                                                         |       |   |   |   |   |
| Cumulative translation adjustment for foreign investments                      |       | (16.899,924                                                  | )          | 1,956,985 |   | (16,777,230 | ) |
| Effect on cumulative translation adjustment of initial application of  SAB 108 |       | —                                                       |       | (629,517 | ) | — |   |
| Unrealized gains (losses) on securities                                        |       |                                                         |       |   |   |   |   |
| Unrealized holding gains (losses) arising during period                        |       | 929,914                                                      |       | (661,830 | ) | (1,571,861 | ) |
| Less: Reclassification adjustment for losses includedin net income             |       | —                                                       |       | — |   | (2,755,044 | ) |
| Other comprehensive income (loss), before income tax                           |       | (15,970,010                                                  | )          | 665,638 |   | (21,104,135 | ) |
| Income tax related to items of other comprehensive income                      |       | (52,680                                                      | )          | (2,760 | ) | 741,637 |   |
| Other comprehensive income (loss), net of income tax                           |       | (16,022,690                                                  | )          | 662,878 |   | (20,362,498 | ) |

 

TheCompany’s earnings per share under U.S. GAAP are as follows:

 
| ** **                                                               | ** ** | **For the year ended December 31,** | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                               | ** ** | **2007**                                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                               | ** ** | **ThCh$**                                                    | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| ** **                                                               | ** ** | **Series A**                                            | ** ** | **Series B** | ** ** | **Series A** | ** ** | **Series B** | ** ** | **Series A** | ** ** | **Series B** | ** ** |
|                                                                     |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted net income per share                                   |       | 107.20                                                       |       | 117.91 |   | 103.40 |   | 113.73 |   | 103.28 |   | 113.60 |   |
| Weighted average number of common stockoutstanding (thousands of shares) |       | 380,137                                                      |       | 380,137 |   | 380,137 |   | 380,137 |   | 380,137 |   | 380,137 |   |

 

Since Series B shares are entitled to a 10%higher dividend than Series A shares, Series B shareholders areentitled to 52.38% of earnings, and Series A shareholders are entitled to47.62% of earnings.  In accordance tothis calculation, earnings per share are composed as follows for the periodsindicated:

 
| ** **                                                                                  | ** ** | **For the year ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                                                  | ** ** | **2007**                                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                                  | ** ** | **ThCh$**                                                    | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| ** **                                                                                  | ** ** | ** **                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income in accordance with U.S. GAAP                                                     |       | 85,572,118                                                   |       | 82,540,544 |   | 82,443,417 |   |
| (less): Income available to Series B                                                   |       | (44,822,675                                                  | )          | (43,234,737 | ) | (43,183,861 | ) |
| Basic EPS                                                                                   |       |                                                         |       |   |   |   |   |
| Income available to Series A                                                           |       | 40,749,443                                                   |       | 39,305,807 |   | 39,259,556 |   |
| Weighted average number of common sharesoutstanding (thousands of shares)  Series A    |       | 380,137                                                      |       | 380,137 |   | 380,137 |   |
| Basic and diluted net income per share Series A                                        |       | 107.20                                                       |       | 103.40 |   | 103.28 |   |
| Basic EPS                                                                                   |       |                                                         |       |   |   |   |   |
| Income available to Series B                                                           |       | 44,822,675                                                   |       | 43,234,737 |   | 43,183,861 |   |
| Weighted average number of preferred sharesoutstanding (thousands of shares)  Series B |       | 380,137                                                      |       | 380,137 |   | 380,137 |   |
| Basic and diluted net income per share Series B                                        |       | 117.91                                                       |       | 113.73 |   | 113.60 |   |

 

F-53

----

 

The adjustments required to conformshareholders’ equity to U.S. GAAP are as follows:

 
| ** **                                                                                 | ** ** | **At December 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                                 | ** ** | **2007**                      | ** ** | **2006** | ** ** |
| ** **                                                                                 | ** ** | **ThCh$**                     | ** ** | **ThCh$** | ** ** |
| Shareholders’ equity as shown in the Chilean GAAPfinancial statements                 |       | 281,149,138                   |       | 295,063,607 |   |
| Reversal of revaluation of property, plant and equipment,net of depreciation (paragraph c) |       | (1,537,135                    | )          | (1,539,017 | ) |
| Adjustment to deferred income tax provision (paragraph d)                                  |       | (350,940                      | )          | (2,376,162 | ) |
| Difference in accounting for investments inrelated companies (paragraph e)                 |       | 1,758,383                     |       | 1,193,326 |   |
| Amortization of goodwill (paragraph f)                                                     |       | 30,938,636                    |       | 24,435,962 |   |
| Joint venture accounting (paragraph g)                                                     |       | (1,841,754                    | )          | (2,302,194 | ) |
| Unrealized gain (loss) on investment securities (paragraph h)                              |       | 10,271                        |       | (919,643 | ) |
| Derivative financial instruments (paragraph k)                                             |       | (164,203                      | )          | 4,453,716 |   |
| Minimum dividend (paragraph l)                                                             |       | (7,286,252                    | )          | (9,524,730 | ) |
| Reversal of impairment loss on fixed assets (paragraph m)                                  |       | (4,596,549                    | )          | — |   |
| Shareholders’ equity in accordance with U.S. GAAP                                     |       | 298,079,595                   |       | 308,484,864 |   |

 

The changes in shareholders’ equity determined underU.S. GAAP were as follows:

 
| ** **                                                                                  | ** ** | **ThCh$**   | ** ** |
|---------------------------------------------------------------------------------------------|------------|-------------|------------|
| BALANCE AT DECEMBER 31, 2004                                                                |       | 341,856,415 |       |
|                                                                                        |       |        |       |
| Distribution of dividends                                                                   |       | (80,730,475 | )          |
| Increase in cumulative translation adjustment of foreign investments                        |       | (16,777,230 | )          |
| Decrease in net unrealized losses on investment securities                                  |       | (3,585,269  | )          |
| Minimum dividend                                                                            |       | (5,670,111  | )          |
| Net income for the year                                                                     |       | 82,443,416  |       |
|                                                                                        |       |        |       |
| BALANCE AT DECEMBER 31, 2005                                                                |       | 317,536,746 |       |
|                                                                                        |       |        |       |
| Adjustment to retained earnings for initial application of SAB 108  (paragraph n)           |       | (629,517    | )          |
| Distribution of dividends                                                                   |       | (81,249,347 | )          |
| Increase in cumulative translation adjustment of foreign investments                        |       | 1,956,985   |       |
| Effect on cumulative translation adjustment for initial applicationof SAB 108 (paragraph n) |       | (7,151,339  | )          |
| Increase in net unrealized losses on investment securities                                  |       | (664,590    | )          |
| Minimum dividend                                                                            |       | (3,854,618  | )          |
| Net income for the year                                                                     |       | 82,540,544  |       |
|                                                                                        |       |        |       |
| BALANCE AT DECEMBER 31, 2006                                                                |       | 308,484,864 |       |
|                                                                                        |       |        |       |
| Distribution of dividends                                                                   |       | (82,193,175 | )          |
| Increase in cumulative translation adjustment of foreign investments                        |       | (16,899,924 | )          |
| Increase in net unrealized gains on investment securities                                   |       | 877,234     |       |
| Minimum dividend                                                                            |       | 2,238,478   |       |
| Net income for the year                                                                     |       | 85,572,118  |       |
|                                                                                        |       |        |       |
| BALANCE AT DECEMBER 31, 2007                                                                |       | 298,079,595 |       |

 

F-54

----

 

2                  Additional disclosure requirements:

 

a)              Income taxes

 

The accounting for income taxes under Chilean GAAP and U.S. GAAP differsfor deferred income taxes.  Under U.S.GAAP, as set forth in SFAS No. 109, “Accounting for Income Taxes”,all temporary differences arising from transactions that have differentaccounting and tax treatments are recognized as deferred tax assets andliabilities as of the balance sheet date. A valuation allowance is provided against deferred tax assets that arenot recoverable on a more-likely-than-not basis. Under Chilean GAAP, effective January 1,2000, the Company began applying Technical Bulletin No. 60 of the ChileanInstitute of Accountants concerning deferred income taxes.  Prior to the implementation of TechnicalBulletin No. 60, only deferred tax assets and liabilities that wereexpected to materialize in the future were recognized in these consolidatedfinancial statements.

 

The provisions for income taxes included in the consolidated statementsof income were as follows:

 
| ** **                                                                                | ** ** | **For the year ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                                                | ** ** | **2007**                                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                                | ** ** | **ThCh$**                                                    | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                                                                      |       |                                                         |       |   |   |   |   |
| Current tax expense as per tax returns                                                    |       | (22,987,618                                                  | )          | (10,593,793 | ) | (10,169,125 | ) |
| Deferred tax expense as previouslycalculated under Chilean GAAP                           |       | (3,882,773                                                   | )          | (3,964,626 | ) | 794,639 |   |
| Charge for the year under Chilean GAAP                                                    |       | (26,870,391                                                  | )          | (14,558,419 | ) | (9,374,486 | ) |
|                                                                                      |       |                                                         |       |   |   |   |   |
| U.S.  GAAP adjustments: Deferred  tax effect of applying SFAS 109 to Chilean GAAP results |       | 2,077,902                                                    |       | (12,760,594 | ) | 9,221,133 |   |
| Charge from continuous operationsfor the year under U.S. GAAP                             |       | (24,792,489                                                  | )          | (27,319,013 | ) | (153,353 | ) |

 

F-55

----

 

The above table can be broken down into geographic sources as follows:

 
| **2007**                                                        | ** ** | **Chilean********and others** | ** ** | **Brazil**  | ** ** | **Argentina** | ** ** | **The Company  (consolidated)** | ** ** |
|-----------------------------------------------------------------|------------|------------------------------------|------------|-------------|------------|---------------|------------|--------------------------------------|------------|
| ** **                                                      | ** ** | **ThCh$**                          | ** ** | **ThCh$**   | ** ** | **ThCh$**     | ** ** | **ThCh$**                            | ** ** |
|                                                            |       |                               |       |        |       |          |       |                                 |       |
| Current tax expense as per tax return                           |       | (12,439,732                        | )          | (6,577,486  | )          | (3,970,400    | )          | (22,987,618                          | )          |
| Deferred tax expense as previouslycalculated under Chilean GAAP |       | 5,861,097                          |       | (7,985,586  | )          | (1,758,284    | )          | (3,882,773                           | )          |
| Charge for the year underChilean GAAP                           |       | (6,578,635                         | )          | (14,563,072 | )          | (5,728,684    | )          | (26,870,391                          | )          |
| U.S. GAAP adjustments:                                          |       |                               |       |        |       |          |       |                                 |       |
| Deferred tax effect of applying SFAS 109                        |       | 804,522                            |       | 305,691     |       | 967,689       |       | 2,077,902                            |       |
| Charge from continuous operationsfor the year under U.S. GAAP   |       | (5,774,113                         | )          | (14,257,381 | )          | (4,760,995    | )          | (24,792,489                          | )          |

 
| **2006**                                                                  | ** ** | **Chilean********and others** | ** ** | **Brazil**  | ** ** | **Argentina** | ** ** | **The Company********(consolidated)** | ** ** |
|---------------------------------------------------------------------------|------------|------------------------------------|------------|-------------|------------|---------------|------------|--------------------------------------------|------------|
| ** **                                                                | ** ** | **ThCh$**                          | ** ** | **ThCh$**   | ** ** | **ThCh$**     | ** ** | **ThCh$**                                  | ** ** |
|                                                                      |       |                               |       |        |       |          |       |                                       |       |
| Current tax expense as per tax return                                     |       | (6,358,468                         | )          | (4,235,325  | )          | —        |       | (10,593,793                                | )          |
| Deferred tax (expense) benefit as previouslycalculated under Chilean GAAP |       | (126,721                           | )          | (1,559,745  | )          | (2,278,160    | )          | (3,964,626                                 | )          |
| Charge for the year underChilean GAAP                                     |       | (6,485,189                         | )          | (5,795,070  | )          | (2,278,160    | )          | (14,558,419                                | )          |
| U.S. GAAP adjustments:                                                    |       |                               |       |        |       |          |       |                                       |       |
| Deferred tax effect of applying SFAS 109                                  |       | 928,718                            |       | (13,673,050 | )          | (16,262       | )          | (12,760,594                                | )          |
| (Charge) benefit from continuous operationsfor the year under U.S. GAAP   |       | (5,556,471                         | )          | (19,468,120 | )          | (2,294,422    | )          | (27,319,013                                | )          |

 
| **2005**                                                                  | ** ** | **Chilean  and others** | ** ** | **Brazil** | ** ** | **Argentina** | ** ** | **The Company********(consolidated)** | ** ** |
|---------------------------------------------------------------------------|------------|------------------------------|------------|------------|------------|---------------|------------|--------------------------------------------|------------|
| ** **                                                                | ** ** | **ThCh$**                    | ** ** | **ThCh$**  | ** ** | **ThCh$**     | ** ** | **ThCh$**                                  | ** ** |
|                                                                      |       |                         |       |       |       |          |       |                                       |       |
| Current tax expense as per tax return                                     |       | (6,375,772                   | )          | (3,079,870 | )          | (713,483      | )          | (10,169,125                                | )          |
| Deferred tax (expense) benefit as previouslycalculated under Chilean GAAP |       | 39,053                       |       | 994,467    |       | (238,881      | )          | 794,639                                    |       |
| (Charge) benefit for the year underChilean GAAP                           |       | (6,336,719                   | )          | (2,085,403 | )          | (952,364      | )          | (9,374,486                                 | )          |
| U.S. GAAP adjustments:                                                    |       |                         |       |       |       |          |       |                                       |       |
| Deferred tax effect of applying SFAS 109                                  |       | (347,098                     | )          | 9,450,044  |       | 118,187       |       | 9,221,133                                  |       |
| (Charge) benefit from continuous operationsfor the year under U.S. GAAP   |       | (6,683,817                   | )          | 7,364,641  |       | (834,177      | )          | (153,353                                   | )          |

 

F-56

----

 

Deferred taxassets (liabilities) as of balance sheet dates are summarized as follows:

 
| ** **                                               | ** ** | **For the year ended December 31,** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                               | ** ** | **2007**                                                     | ** ** | **2006** | ** ** |
| ** **                                               | ** ** | **ThCh$**                                                    | ** ** | **ThCh$** | ** ** |
| Deferred tax assets:                                     |       |                                                         |       |   |   |
| Tax loss carryforwards                                   |       | 3,649,664                                                    |       | 6,380,975 |   |
| Social contribution                                      |       | 1,313,879                                                    |       | 2,169,413 |   |
| Provision for labor and trade lawsuits                   |       | 1,569,529                                                    |       | 1,578,741 |   |
| Provision for assets written-off                         |       | 2,262,273                                                    |       | 1,851,218 |   |
| Allowance for doubtful accounts                          |       | 337,187                                                      |       | 269,167 |   |
| Vacation accrual                                         |       | 215,299                                                      |       | 202,537 |   |
| Provisions for employee benefits                         |       | 791,234                                                      |       | 790,594 |   |
| Joint venture accounting                                 |       | 476,081                                                      |       | 595,102 |   |
| Fair value of derivatives not considered to be hedge     |       | 51,962                                                       |       | — |   |
| Unrealized loss on investments securities                |       | —                                                       |       | 50,934 |   |
| Other                                                    |       | 786,966                                                      |       | 1,105,270 |   |
|                                                     |       |                                                         |       |   |   |
| Total deferred tax assets                                |       | 11,454,074                                                   |       | 14,993,951 |   |
|                                                     |       |                                                         |       |   |   |
| Deferred tax liabilities:                                |       |                                                         |       |   |   |
| Depreciation                                             |       | 5,900,926                                                    |       | 4,515,134 |   |
| Guarantees on bottles                                    |       | —                                                       |       | 2,412,480 |   |
| Staff severance indemnities                              |       | 193,511                                                      |       | 271,815 |   |
| Financial expenses                                       |       | —                                                       |       | 4,255,872 |   |
| Fair value of derivatives not considered to be hedge     |       | —                                                       |       | 10,693 |   |
| Unrealized loss on investments securities                |       | 1,747                                                        |       | — |   |
| Exchange rate difference                                 |       | 12,604,169                                                   |       | 9,213,333 |   |
| Other                                                    |       | 245,518                                                      |       | 167,565 |   |
|                                                     |       |                                                         |       |   |   |
| Total deferred tax liabilities                           |       | 18,945,871                                                   |       | 20,846,892 |   |
|                                                     |       |                                                         |       |   |   |
| Net deferred tax (liabilities) assets under U.S. GAAP    |       | (7,491,797                                                   | )          | (5,852,941 | ) |
|                                                     |       |                                                         |       |   |   |
| Net deferred tax liabilities under Chilean GAAP          |       | (7,140,857                                                   | )          | (3,476,779 | ) |
|                                                     |       |                                                         |       |   |   |
| Effect of U.S. GAAP adjustments on deferred income taxes |       | (350,940                                                     | )          | (2,376,162 | ) |

 

F-57

----

 

The provision for income taxes differs from the amount of income taxdetermined by applying the applicable Chilean statutory income tax rate topretax income calculated according to U.S. GAAP as a result of the following:

 
| ** **                                                    | ** ** | **For the year ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                    | ** ** | **2007**                                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                    | ** ** | **ThCh$**                                                    | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                                          |       |                                                         |       |   |   |   |   |
| Income tax provision at statutory Chilean tax rates           |       | 18,761,983                                                   |       | 18,676,124 |   | 14,041,450 |   |
| Increase (decrease) in provision resulting from:              |       |                                                         |       |   |   |   |   |
| Tax effects resulting from foreign operations                 |       | 9,234,755                                                    |       | 6,786,720 |   | 2,170,143 |   |
| Permanent differences                                         |       | (354,146                                                     | )          | 6,665,281 |   | (199,183 | ) |
| Effect of remeasurement to U.S. dollars(Brazil and Argentina) |       | (950,758                                                     | )          | (139,776 | ) | (1,085,787 | ) |
| Change in valuation allowance                                 |       | —                                                       |       | (2,567,489 | ) | (14,489,873 | ) |
| Adjustments in prior year income taxes                        |       | (373,906                                                     | )          | 124,121 |   | 171,899 |   |
| Other                                                         |       | (1,525,439                                                   | )          | (2,225,968 | ) | (455,295 | ) |
| Effective tax provision                                       |       | 24,792,489                                                   |       | 27,319,013 |   | 153,354 |   |

 

The Chilean statutory first category (corporate)income tax rate was 17.0% for 2007, 2006 and 2005.  In accordance with Chilean law, the Companyand each of its subsidiaries computes and pays income taxes on a separatebasis.

 

The Brazilian federal statutory income tax rate was approximately 25%for 2007, 2006 and 2005.   Additionally,an additional surtax of 9% for 2007, 2006 and 2005 is charged in Brazil on netincome with respect to a social contribution similar in nature to income tax.

 

The Argentine income tax rate was 35% for 2007, 2006and 2005 in accordance with currently enacted tax legislation.

 

The Company had netoperating tax loss carryforwards related to its Brazilian subsidiaries ofapproximately ThCh$ 14,598,628 at December 31, 2007 that can becarried forward indefinitely.

 

Tax loss carryforwardsrelated to the Argentinean subsidiaries were fully utilized during 2007.

 

Tax years that remainsubject to income tax audits by taxing authorities by country are as follows:

 
| Chile     | From 2005 |
|-----------|-----------|
| Argentina | From 2003 |
| Brazil    | From 2002 |

 

Interest and penaltiesrelated to income tax liabilities are included in income tax expense.

 

F-58

----

 

b)             Comprehensive income (loss)

 

Comprehensive income (loss) is the change in equity ofa business enterprise during a period from transactions and other events andcircumstances from non-owner sources. For U.S. GAAP purposes, companies are required to report comprehensiveincome and its components in a full set of general purpose financialstatements. U.S. GAAP requires that all items that are required to berecognized under accounting standards as components of comprehensive income bereported in a financial statement that is displayed with the same prominence asother financial statements.  Theinformation required by this standard is shown in paragraph 1 n), above.

 

c)              Statementsof cash flows

 

i)                 For the purpose of the statements of cash flowsusing U.S. GAAP classifications, the Company considers all highly liquidinvestments purchased with an original maturity of three months or less to becash equivalents.  In accordance with theCompany’s policy, certain cash equivalents that are managed as part of theCompany’s investment portfolio are excluded from the amount shown as cash andcash equivalents in the statements of cash flows.  The detail of cash and cash equivalents is asfollows:

 
| ** **                                      | ** ** | **For the year ended December 31,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                      | ** ** | **ThCh$**                                                    | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                            |       |                                                         |       |   |   |   |   |
| Cash                                            |       | 24,754,142                                                   |       | 17,551,601 |   | 15,804,118 |   |
| Time deposits                                   |       | 49,088,381                                                   |       | 7,704,145 |   | 4,889,027 |   |
| Money market funds                              |       | 47,529,183                                                   |       | 18,351,281 |   | 2,497,774 |   |
| Securities purchased under agreements to resell |       | —                                                       |       | 1,042,106 |   | — |   |
| Total cash and cash equivalents                 |       | 121,371,706                                                  |       | 44,649,133 |   | 23,190,919 |   |

 

ii)              Additional cash flow disclosures required underU.S. GAAP that are shown net in Chilean GAAP are as follows:

 
| ** **                                                 | ** ** | **For the year ended December 31,** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                 | ** ** | **2007**                                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                 | ** ** | **ThCh$**                                                    | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                                       |       |                                                         |       |   |   |   |   |
| Short-term borrowings with banks andfinancial institutions |       | 52,564,680                                                   |       | 47,323,646 |   | 59,961,045 |   |
| Long-term borrowings with banks andfinancial institutions  |       | 33,172                                                       |       | 437,395 |   | — |   |
| Repayment of short-term bank borrowings                    |       | (50,806,948                                                  | )          | (52,757,900 | ) | (68,858,575 | ) |
| Repayment of long-term bank borrowings                     |       | (521,424                                                     | )          | (23,688,481 | ) | (23,879,201 | ) |
| Net bank borrowings                                        |       | 1,269,480                                                    |       | (28,685,340 | ) | (32,776,731 | ) |

 

F-59

----

 

d)        Segment information

 

The Company operates principally in three segmentswhich comprise the production and sales of goods for (i) Coca-Cola softdrinks, (ii)  Other beverages (juices, mineral water and beer), and (iii) Packaging.  Total revenues by segment include sales tounaffiliated customers, as reported in the Company’s consolidated incomestatements, and inter-segment sales, which are accounted for at invoice price.

 

The Company measures its reportable segments andevaluates their performance based on operating income under Chilean GAAP.

 

The Coca-Cola soft drink segment comprises theproduction and sales of Coca-Cola, Sprite, Fanta and other Coca-Cola softdrinks.  The Other beverages segmentincludes the sales of mineral water, fruit juices and, in Brazil, beer.  The Packaging segment consists of theproduction of PET containers.

 

The accounting policies for the segments are the same as those describedin “Note 1 - Nature of operations and summary of significant accountingpolicies”.

 

F-60

----

 

A summary of the Company’s operations by segment calculated underChilean GAAP is as follows:

 
| ** **                       | ** ** | **For the year ended December 31,** | ** ** |
|----------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                       | ** ** | **2007**                                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                       | ** ** | **ThCh$**                                                    | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Revenue:                         |       |                                                         |       |   |   |   |   |
| Sales to unaffiliated customers: |       |                                                         |       |   |   |   |   |
| Soft drinks                      |       | 559,300,469                                                  |       | 517,345,962 |   | 445,358,295 |   |
| Other beverages                  |       | 71,014,867                                                   |       | 62,828,656 |   | 52,743,524 |   |
| Packaging                        |       | 6,373,694                                                    |       | 7,015,361 |   | 13,199,231 |   |
| Subtotal                         |       | 636,689,030                                                  |       | 587,189,979 |   | 511,301,050 |   |
|                             |       |                                                         |       |   |   |   |   |
| Intersegment sales:              |       |                                                         |       |   |   |   |   |
| Soft drinks                      |       | —                                                       |       | — |   | — |   |
| Other beverages                  |       | 20,041,944                                                   |       | 17,421,835 |   | 17,008,599 |   |
| Packaging                        |       | 11,388,770                                                   |       | 11,792,209 |   | 10,904,029 |   |
| Eliminations                     |       | (31,430,714                                                  | )          | (29,214,044 | ) | (27,912,628 | ) |
| Subtotal                         |       | —                                                       |       | — |   | — |   |
| Total revenue                    |       | 636,689,030                                                  |       | 587,189,979 |   | 511,301,050 |   |
|                             |       |                                                         |       |   |   |   |   |
| Operating income:                |       |                                                         |       |   |   |   |   |
| Soft drinks                      |       | 107,000,601                                                  |       | 91,888,091 |   | 75,492,615 |   |
| Other beverages                  |       | 6,774,564                                                    |       | 8,069,820 |   | 7,629,869 |   |
| Packaging                        |       | 1,719,177                                                    |       | 2,138,778 |   | 2,307,896 |   |
| Total operating income           |       | 115,494,342                                                  |       | 102,096,689 |   | 85,430,380 |   |
|                             |       |                                                         |       |   |   |   |   |
| Financial income:                |       |                                                         |       |   |   |   |   |
| Soft drinks                      |       | 22,871,516                                                   |       | 13,445,056 |   | 31,270,144 |   |
| Other beverages                  |       | 63,644                                                       |       | 9,225 |   | 3,088 |   |
| Packaging                        |       | —                                                       |       | 5,383 |   | 2,694 |   |
| Total financial income           |       | 22,935,160                                                   |       | 13,459,664 |   | 31,275,926 |   |
|                             |       |                                                         |       |   |   |   |   |
| Financial expenses:              |       |                                                         |       |   |   |   |   |
| Soft drinks                      |       | 14,967,080                                                   |       | 16,388,846 |   | 23,041,326 |   |
| Other beverages                  |       | 91,688                                                       |       | 6,992 |   | 3,285 |   |
| Packaging                        |       | 102,260                                                      |       | 114,633 |   | 106,025 |   |
| Total financial expenses         |       | 15,161,028                                                   |       | 16,510,471 |   | 23,150,636 |   |

 

F-61

----

 
| ** **                                                   | ** ** | **For the year ended December 31,** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **2007**                                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                   | ** ** | **ThCh$**                                                    | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Share of income from unconsolidatedaffiliates:               |       |                                                         |       |   |   |   |   |
| Soft drinks                                                  |       | (276,974                                                     | )          | 72,758 |   | 13,827 |   |
| Other beverages                                              |       | 205,049                                                      |       | 73,331 |   | 530,673 |   |
| Packaging                                                    |       | 740,423                                                      |       | 407,617 |   | 299,338 |   |
| Total share of income fromunconsolidated affiliates Subtotal |       | 668,498                                                      |       | 553,706 |   | 843,838 |   |
|                                                         |       |                                                         |       |   |   |   |   |
| Income tax expenses:                                         |       |                                                         |       |   |   |   |   |
| Soft drinks                                                  |       | 25,823,581                                                   |       | 14,185,321 |   | 6,683,864 |   |
| Other beverages                                              |       | 377,836                                                      |       | 395,696 |   | 1,992,734 |   |
| Packaging                                                    |       | 668,974                                                      |       | (22,598 | ) | 697,888 |   |
| Total income tax expenses                                    |       | 26,870,391                                                   |       | 14,558,419 |   | 9,374,486 |   |
|                                                         |       |                                                         |       |   |   |   |   |
| Depreciation:                                                |       |                                                         |       |   |   |   |   |
| Soft drinks                                                  |       | 27,085,609                                                   |       | 29,487,713 |   | 29,589,444 |   |
| Other beverages                                              |       | 1,215,103                                                    |       | 1,177,946 |   | 1,233,176 |   |
| Packaging                                                    |       | 847,257                                                      |       | 1,075,215 |   | 1,018,037 |   |
| Total depreciation                                           |       | 29,147,969                                                   |       | 31,740,874 |   | 31,840,657 |   |
|                                                         |       |                                                         |       |   |   |   |   |
| Segment assets:                                              |       |                                                         |       |   |   |   |   |
| Soft drinks                                                  |       | 281,628,830                                                  |       | 373,103,504 |   | 387,249,286 |   |
| Other beverages                                              |       | 10,665,332                                                   |       | 10,238,963 |   | 15,152,178 |   |
| Packaging                                                    |       | 4,163,227                                                    |       | 7,039,762 |   | 12,031,891 |   |
| Total segment assets                                         |       | 296,457,389                                                  |       | 390,382,229 |   | 414,433,355 |   |
|                                                         |       |                                                         |       |   |   |   |   |
| Capital expenditures:                                        |       |                                                         |       |   |   |   |   |
| Soft drinks                                                  |       | 53,880,905                                                   |       | 37,611,954 |   | 28,994,987 |   |
| Other beverages                                              |       | 1,569,174                                                    |       | 1,797,043 |   | 730,003 |   |
| Packaging                                                    |       | 574,370                                                      |       | 333,695 |   | 315,257 |   |
| Total capital expenditures                                   |       | 56,024,449                                                   |       | 39,742,692 |   | 30,040,247 |   |

 

F-62

----

 

Ageographical summary of the Company’s operations by segment calculated under ChileanGAAP is as follows:

 
| ** **                                          | ** ** | **For the year ended December 31,** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                          | ** ** | **2007**                                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                          | ** ** | **ThCh$**                                                    | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Revenue:                                            |       |                                                         |       |   |   |   |   |
| Sales to unaffiliated customers:                    |       |                                                         |       |   |   |   |   |
| Chile                                               |       | 244,655,928                                                  |       | 236,055,836 |   | 227,742,140 |   |
| Brazil                                              |       | 269,999,017                                                  |       | 235,103,415 |   | 178,201,135 |   |
| Argentina                                           |       | 122,034,085                                                  |       | 116,030,728 |   | 105,357,775 |   |
| Total revenue                                       |       | 636,689,030                                                  |       | 587,189,979 |   | 511,301,050 |   |
|                                                |       |                                                         |       |   |   |   |   |
| Operating income:                                   |       |                                                         |       |   |   |   |   |
| Chile                                               |       | 52,114,557                                                   |       | 51,711,697 |   | 50,983,609 |   |
| Brazil                                              |       | 49,437,206                                                   |       | 37,514,506 |   | 22,457,743 |   |
| Argentina                                           |       | 13,942,579                                                   |       | 12,870,486 |   | 11,989,028 |   |
| Total operating income                              |       | 115,494,342                                                  |       | 102,096,689 |   | 85,430,380 |   |
|                                                |       |                                                         |       |   |   |   |   |
| Financial income:                                   |       |                                                         |       |   |   |   |   |
| Chile                                               |       | 20,421,952                                                   |       | 7,760,866 |   | 26,373,273 |   |
| Brazil                                              |       | 2,170,107                                                    |       | 5,606,319 |   | 4,025,841 |   |
| Argentina                                           |       | 343,101                                                      |       | 92,479 |   | 876,812 |   |
| Total financial income                              |       | 22,935,160                                                   |       | 13,459,664 |   | 31,275,926 |   |
|                                                |       |                                                         |       |   |   |   |   |
| Financial expenses:                                 |       |                                                         |       |   |   |   |   |
| Chile                                               |       | 9,497,447                                                    |       | 9,673,363 |   | 14,682,925 |   |
| Brazil                                              |       | 3,626,265                                                    |       | 4,191,961 |   | 3,472,461 |   |
| Argentina                                           |       | 2,037,316                                                    |       | 2,645,147 |   | 4,995,250 |   |
| Total financial expenses                            |       | 15,161,028                                                   |       | 16,510,471 |   | 23,150,636 |   |
|                                                |       |                                                         |       |   |   |   |   |
| Share of income from unconsolidatedaffiliates:      |       |                                                         |       |   |   |   |   |
| Chile                                               |       | 741,255                                                      |       | 383,470 |   | (102,883 | ) |
| Brazil                                              |       | 205,049                                                      |       | 73,331 |   | 530,672 |   |
| Argentina                                           |       | (277,806                                                     | )          | 96,905 |   | 416,049 |   |
| Total share of income fromunconsolidated affiliates |       | 668,498                                                      |       | 553,706 |   | 843,838 |   |
|                                                |       |                                                         |       |   |   |   |   |
| Income tax expenses (benefit):                      |       |                                                         |       |   |   |   |   |
| Chile                                               |       | 6,578,635                                                    |       | 6,485,189 |   | 6,336,719 |   |
| Brazil                                              |       | 14,563,072                                                   |       | 5,795,071 |   | 2,085,403 |   |
| Argentina                                           |       | 5,728,684                                                    |       | 2,278,159 |   | 952,364 |   |
| Total income tax expenses                           |       | 26,870,391                                                   |       | 14,558,419 |   | 9,374,486 |   |

 

F-63

----

 
| ** **                            | ** ** | **At December 31,** | ** ** |
|---------------------------------------|------------|-------------------------------|------------|
| ** **                            | ** ** | **2007**                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                            | ** ** | **ThCh$**                     | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                  |       |                          |       |   |   |   |   |
| Depreciation:                         |       |                          |       |   |   |   |   |
| Chile                                 |       | 12,724,082                    |       | 13,964,156 |   | 14,646,095 |   |
| Brazil                                |       | 9,912,275                     |       | 10,455,348 |   | 9,877,850 |   |
| Argentina                             |       | 6,511,612                     |       | 7,321,370 |   | 7,316,712 |   |
| Total depreciation                    |       | 29,147,969                    |       | 31,740,874 |   | 31,840,657 |   |
|                                  |       |                          |       |   |   |   |   |
| Identificable long-lived assets:      |       |                          |       |   |   |   |   |
| Chile                                 |       | 107,252,416                   |       | 162,942,470 |   | 191,100,482 |   |
| Brazil                                |       | 109,547,869                   |       | 138,066,891 |   | 129,496,751 |   |
| Argentina                             |       | 57,808,855                    |       | 74,326,077 |   | 78,585,797 |   |
| Total identificable long-lived assets |       | 274,609,140                   |       | 375,335,438 |   | 399,183,030 |   |

 

A reconciliation of total segment assets byproduct, and long-lived assets by country to total consolidated assets for theyears ended December 31, 2007, 2006 and 2005 is as follows:

 
| ** **                               | ** ** | **At December 31,** | ** ** |
|------------------------------------------|------------|-------------------------------|------------|
| **Industry**                             | ** ** | **2007**                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                               | ** ** | **ThCh$**                     | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                     |       |                          |       |   |   |   |   |
| Total segment assets                     |       | 296,457,389                   |       | 390,382,229 |   | 414,433,355 |   |
| Cash                                     |       | 24,754,142                    |       | 17,551,601 |   | 15,804,118 |   |
| Financial instruments                    |       | 97,621,942                    |       | 35,674,703 |   | 43,537,419 |   |
| Amounts due from related parties         |       | 1,896,786                     |       | 3,146,548 |   | 6,151,286 |   |
| Recoverable taxes                        |       | 9,716,707                     |       | 8,496,968 |   | 10,724,489 |   |
| Deferred income taxes                    |       | 5,234,679                     |       | 956,324 |   | 741,816 |   |
| Investments in related companies         |       | 24,961,690                    |       | 24,129,151 |   | 23,450,981 |   |
| Investment in other companies            |       | 133,944                       |       | 60,085 |   | 59,839 |   |
| Intangible assets (net)                  |       | 162,478                       |       | 179,843 |   | 192,828 |   |
| Liabilities deducted from segment assets |       | 79,488,510                    |       | 71,028,033 |   | 61,745,659 |   |
| Total assets                             |       | 540,428,267                   |       | 551,605,485 |   | 576,841,790 |   |
|                                     |       |                          |       |   |   |   |   |
| Identifiable long-lived assets           |       | 274,609,140                   |       | 375,335,438 |   | 399,183,030 |   |
| Current assets                           |       | 265,819,127                   |       | 176,270,047 |   | 177,658,760 |   |
| Total assets                             |       | 540,428,267                   |       | 551,605,485 |   | 576,841,790 |   |

 

F-64

----

 

e)     Derivative financialinstruments

 

Derivative financial instruments are used by the Company principally inthe management of foreign currency risk and its exposure to changes in theprice of sugar.  The Company does nothold or issue derivative financial instruments for trading purposes.  See Note 26 above for the detail of thederivative instruments outstanding at December 31, 2007 and 2006.

 

Asdescribed in paragraph 1k), under U.S. GAAP, the Company applies SFAS 133.  SFAS 133 requires that all derivativeinstruments be recognized on the balance sheet at fair value and that changesin the fair value be recognized in income when they occur, the only exceptionbeing derivatives that qualify as hedges. To qualify the derivative instrument as a hedge, the Company must meetstrict hedge effectiveness and contemporaneous documentation requirements atthe initiation of the hedge and assess the hedge effectiveness on an ongoingbasis over the life of the hedge.  Noneof the Company’s derivative financial instruments were designated as hedges forU.S. GAAP reconciliation purposes.

 

Thefinancial instruments used by the Company involve elements of market risk andcredit risk. Market risk is the possibility that future changes in foreignexchange may make the financial instruments more or less valuable. Credit riskis the possibility of default by the counterparties. The loss that the Companywould incur if a counterparty defaulted is significantly less than theinstruments’ notional value and the loss exposure is the fair value of theinstrument. The Company does not require collateral or other security for theinstruments except for operations undertaken on the London InternationalFinancial Futures and Options Exchange futures market, for which a margindeposit of US$ 1,800 for each 50 tons of sugar transacted is required.

 

F-65

----

 

f)     Operating income

 

UnderChilean GAAP, the following income and expenses arising during the years ended2007, 2006 and 2005 are classified as “Non-operating income and expense”whereas under U.S. GAAP they would be included within “Operating income”:

 
| ** **                                                    | ** ** | **At December 31,** | ** ** |
|---------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                    | ** ** | **2007**                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                    | ** ** | **ThCh$**                     | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                                          |       |                          |       |   |   |   |   |
| Operating income as reported under Chilean GAAP               |       | 115,494,342                   |       | 102,096,689 |   | 85,430,380 |   |
| Gain on sale of, plant property and equipment                 |       | —                        |       | — |   | 293,695 |   |
| Reversal of Pis Cofins provision                              |       | —                        |       | 4,488,874 |   | — |   |
| Tax recoveries - Pis Cofins                                   |       | 1,371,898                     |       | — |   | — |   |
| Staff severance indemnities                                   |       | —                        |       | — |   | (2,636,120 | ) |
| Lawsuit fees                                                  |       | —                        |       | (470,261 | ) | (551,464 | ) |
| Realization of deposits in guaranty over containers           |       | 351,022                       |       | 526,341 |   | — |   |
| Provision PIS Cofins                                          |       | —                        |       | — |   | (2,500,382 | ) |
| Provision for labor, tax and commercial lawsuits              |       | (703,079                      | )          | (803,070 | ) | (597,017 | ) |
| Obsolescence and write-off of property, plant and equipment   |       | (1,025,649                    | )          | (3,989,887 | ) | (1,220,937 | ) |
| Loss on sale of property, plant and equipment                 |       | (146,702                      | )          | (2,285,690 | ) | — |   |
| Provision for equity investee in Centralli Refrigerantes S.A. |       | —                        |       | (69,228 | ) | (66,689 | ) |
| Operating income under U.S. GAAP format                       |       | 115,341,832                   |       | 99,493,768 |   | 78,151,466 |   |

 

g)   Concentrationsof credit risk

 

The assets of the Company that are potentially subjectto significant concentrations of credit risk are deposits held with banks andfinancial institutions, investments in derivative instruments and tradeaccounts receivable.

 

The Company holds accounts with a variety of banks anddoes not hold significant deposits or derivative instruments with any singlebank.  The Company has a wide customerbase and trades with a large number of small customers.  Consequently, the Company does not believethat it had any significant concentrations of credit risk at December 31,2007.

 

F-66

----

 

h)    Disclosuresregarding the fair values of financial instruments

 

The estimated fair values of the Company’s financial instruments were asfollows:

 
| ** **                         | ** ** | **At December 31,** | ** ** |
|------------------------------------|------------|-------------------------------|------------|
| ** **                         | ** ** | **2007**                      | ** ** | **2006** | ** ** |
| ** **                         | ** ** | **Carrying  value**           | ** ** | **Fair********value** | ** ** | **Carrying********value** | ** ** | **Fair********value** | ** ** |
| ** **                         | ** ** | **ThCh$**                     | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Cash                               |       | 24,754,142                    |       | 24,754,142 |   | 17,551,601 |   | 17,551,601 |   |
| Time deposits                      |       | 49,088,381                    |       | 49,088,381 |   | 7,704,145 |   | 7,704,745 |   |
| Marketable securities              |       | 48,533,561                    |       | 48,543,838 |   | 27,970,558 |   | 27,959,410 |   |
| Trade accounts receivable (net)    |       | 44,280,949                    |       | 44,280,949 |   | 38,811,661 |   | 38,811,661 |   |
| Notes receivable (net)             |       | 14,553,358                    |       | 14,553,358 |   | 13,387,208 |   | 13,387,208 |   |
| Other receivables (net)            |       | 16,031,584                    |       | 16,031,584 |   | 12,511,404 |   | 12,511,404 |   |
| Long-term credits                  |       | —                        |       | — |   | 5,900,847 |   | 5,900,847 |   |
| Long-term investment in bonds      |       | —                        |       | — |   | 88,332,921 |   | 87,424,427 |   |
| Long-term receivables              |       | 37,511                        |       | 37,511 |   | 55,153 |   | 55,153 |   |
| Cross-currency swaps               |       | 17,407,907                    |       | 17,407,907 |   | 33,085,594 |   | 33,085,594 |   |
| Foreign-currency forward contracts |       | (317,264                      | )          | (317,264 | ) | (56,534 | ) | (56,534 | ) |
| Futures contracts                  |       | 230,983                       |       | 230,983 |   | 515,562 |   | 515,562 |   |

 
| ** **                               | ** ** | **At December 31,** | ** ** |
|------------------------------------------|------------|-------------------------------|------------|
| ** **                               | ** ** | **2007**                      | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **Carrying  value**           | ** ** | **Fair********value** | ** ** | **Carrying  value** | ** ** | **Fair  value** | ** ** |
| ** **                               | ** ** | **ThCh$**                     | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Short and long-termterm  bank borrowings |       | 4,813,828                     |       | 4,813,828 |   | 3,594,560 |   | 3,594,560 |   |
| Bonds payable                            |       | 80,512,092                    |       | 98,505,383 |   | 113,841,482 |   | 133,487,941 |   |
| Dividends payable                        |       | 5,810,563                     |       | 5,810,563 |   | 5,061,518 |   | 5,061,518 |   |
| Accounts payable                         |       | 54,585,035                    |       | 54,585,035 |   | 46,040,374 |   | 46,040,374 |   |
| Other creditors short and long-term      |       | 5,068,033                     |       | 5,068,033 |   | 3,554,518 |   | 3,554,518 |   |

 

Cash, receivables and account payable: the carryingamounts approximate fair value due to the short-term maturity of theseinstruments.

 

Time deposits, marketable securities and depositcredits:  Fair value of time deposits anddeposit credits was determined using rates currently available in the marketand the fair value of marketable securities is based on quoted market pricesfor the marketable securities.

 

Long-term investment in bonds: The fair value of theinvestment in bonds was determined based on quoted market prices.

 

Bonds payable: The fair value of bonds payable, including current portion, is estimatedbased on the quoted market price of the Company’s US dollar - denominated bondspayable.

 

Foreign currency contracts:  The estimated fair values of the forward andswaps contracts are based on quoted market prices at year end.

 

Futures contracts: The estimated fair values of the forward and swaps contracts are basedon quoted market prices at year end.

 

F-67

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A decline in the market valueof any available-for-sale or held-to-maturity security below cost that isdeemed to be other-than-temporary results in an impairment to reduce thecarrying amount to fair value. The impairment is charged to earnings and a newcost basis for the security is established. To determine whether an impairmentis other-than-temporary, the Company considers whether it has the ability andintent to hold the investment until a market price recovery and considerswhether evidence indicating the cost of the investment is recoverable outweighsevidence to the contrary. Evidence considered in this assessment includes thereasons for the impairment, the severity and duration of the impairment,changes in value subsequent to year-end, forecasted performance of theinvestee, and the general market condition in the geographic area or industrythe investee operates in.

 

Premiums and discounts areamortized or accreted over the life of the related held-to-maturity oravailable-for-sale security as an adjustment to yield using theeffective-interest method. Such amortization and accretion is included in the “InterestExpense” line item in the statements of income. Dividend and interest incomeare recognized when earned.

 

i)          Available-for-sale securities

 

The following are required disclosures for investmentsclassified as available for-sale in accordance with SFAS 115. Realized gainsand losses are determined using the proceeds from sale less the cost of theinvestments identified to be sold. Gross gains and losses realized on the saleof available-for-sale securities for the year ended December 31, 2007,2006 and 2005 are as follows:

 
| ** **                  | ** ** | **Years ended December 31,** | ** ** |
|-----------------------------|------------|---------------------------------------------|------------|
| ** **                  | ** ** | **2007**                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                  | ** ** | **ThCh$**                                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Proceeds on realized gains  |       | 8,617,648                                   |       | — |   | 33,984,534 |   |
| Realized gains              |       | 90,684                                      |       | — |   | 2,755,045 |   |
| Proceeds on realized losses |       | 70,970,565                                  |       | — |   | — |   |
| Realized losses             |       | (815,327                                    | )          | — |   | — |   |

 

The carrying value and market value of securitiesavailable-for-sale as of December 31, 2007, 2006 and 2005 are as follows:

 
| ** **                      | ** ** | **Year ended December 31, 2007** | ** ** |
|---------------------------------|------------|------------------------------------------------------|------------|
| ** **                      | ** ** | **Cost**                                             | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross********Unrealized  Losses** | ** ** | **Estimated  Fair  Value** | ** ** |
| ** **                      | ** ** | **ThCh$**                                            | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Available-for-sale-investments: |       |                                                 |       |   |   |   |   |   |   |
| Foreign investments             |       | 1,004,378                                            |       | 10,271 |   | — |   | 1,014,649 |   |
| Total                           |       | 1,004,378                                            |       | 10,271 |   | — |   | 1,014,649 |   |

 
| ** **                              | ** ** | **Year ended December 31, 2006** | ** ** |
|-----------------------------------------|------------|------------------------------------------------------|------------|
| ** **                              | ** ** | **Cost**                                             | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross********Unrealized  Losses** | ** ** | **Estimated  Fair Value** | ** ** |
| ** **                              | ** ** | **ThCh$**                                            | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Available-for-sale-investments:         |       |                                                 |       |   |   |   |   |   |   |
| Chilean treasury bonds                  |       | 8,397,902                                            |       | — |   | (103,038 | ) | 8,294,864 |   |
| Other securities of Chileaninstitutions |       | 51,124,206                                           |       | 271,655 |   | (992,985 | ) | 50,402,876 |   |
| Foreign investments                     |       | 34,857,829                                           |       | 211,420 |   | (306,695 | ) | 34,762,554 |   |
| Total                                   |       | 94,379,937                                           |       | 483,075 |   | (1,402,718 | ) | 93,460,294 |   |

 

F-68

----

 
| ** **                              | ** ** | **Year ended December 31, 2005** | ** ** |
|-----------------------------------------|------------|------------------------------------------------------|------------|
| ** **                              | ** ** | **Cost**                                             | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross********Unrealized  Losses** | ** ** | **Estimated  Fair  Value** | ** ** |
| ** **                              | ** ** | **ThCh$**                                            | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Available-for-sale-investments:         |       |                                                 |       |   |   |   |   |   |   |
| Chilean treasury bonds                  |       | 8,283,786                                            |       | — |   | (49,722 | ) | 8,234,064 |   |
| Other securities of Chileaninstitutions |       | 50,575,861                                           |       | 362,383 |   | (568,915 | ) | 50,369,329 |   |
| Foreign investments                     |       | 36,305,637                                           |       | 212,662 |   | (214,220 | ) | 36,304,079 |   |
| Total                                   |       | 95,165,284                                           |       | 575,045 |   | (832,857 | ) | 94,907,472 |   |

 

F-69

----

 

The contractual maturities of securities classified bythe Company as available-for-sale are as follows:

 
| ** **                      | ** ** | **Year ended December 31, 2006** | ** ** |
|---------------------------------|------------|------------------------------------------------------|------------|
| ** **                      | ** ** | **Within one  year**                            | ** ** | **After one  year but  within five  years** | ** ** | **After five  years but  within ten  years** | ** ** | **After ten  years** | ** ** | **Total** | ** ** |
| ** **                      | ** ** | **ThCh$**                                            | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Available-for-sale-investments: |       |                                                 |       |   |   |   |   |   |   |   |   |
| Foreign investments             |       | 1,004,378                                            |       | — |   | — |   | — |   | 1,004,378 |   |
| Total                           |       | 1,004,378                                            |       | — |   | — |   | — |   | 1,004,378 |   |

 

j)                 Goodwill

 

TheCompany has performed the impairment test of goodwill as required by SFASNo.142, which did not result in any impairment.

 

Totalcarrying value of goodwill, net of accumulated amortization calculated up to December 31,2001, amounts to ThCh$ 88,001,114 as of December 31, 2007 and hasbeen allocated to the Softdrinks business segment.

 

k)              Concentrations of other risks

 

The majority of the Company’s net sales are derivedfrom the distribution of Coca-Cola soft drinks. The Company produces, markets and distributes Coca-Cola soft drinksthrough standard bottler agreements between the Company’s individual bottlersubsidiaries and The Coca-Cola Company. Under the bottler agreements, TheCoca-Cola Company unilaterally sets the prices for Coca-Cola soft drinkconcentrates sold to the Company.

 

The Company is dependent on The Coca-Cola Company torenew such bottler agreements.  Thebottler agreements are subject to termination by The Coca-Cola Company in theevent of default by the Company or upon expiration in accordance with theirrespective terms.  No assurance can begiven that the bottler agreements will be renewed upon their expiration.  Termination or non-renewal of the bottleragreements would have a material adverse effect on the Company’s business.

 

The soft drink and non-alcoholic beverage business ishighly competitive in each of the Company’s franchise territories. In each ofits franchise territories, the Company competes with bottlers of PepsiCo Inc.as well as bottlers of regional brands. The Company’s soft drink products also compete generally with othernon-alcoholic beverages.

 

F-70

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l)                 Consolidated valuation and qualifying accounts

 
| **Description**                                   | ** ** | **Balance at********Beginning********of period** | ** ** | **Additions********(charged to********costs and********expenses)** | ** ** | **Deductions********(debits to********the********allowance)** | ** ** | **Balance at********end of period** | ** ** |
|---------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                        | ** ** | **ThCh$**                                                  | ** ** | **ThCh$**                                                                    | ** ** | **ThCh$**                                                          | ** ** | **ThCh$**                                          | ** ** |
| Allowance for doubtful accounts (1):              |       |                                                       |       |                                                                         |       |                                                               |       |                                               |       |
| Year ended December 31, 2005                 |       | 3,898,620                                                  |       | 643,779                                                                      |       | (2,501,291                                                         | )          | 2,041,108                                          |       |
| Year ended December 31, 2006                 |       | 2,041,108                                                  |       | 226,533                                                                      |       | (609,091                                                           | )          | 1,658,550                                          |       |
| Year ended December 31, 2007                 |       | 1,658,550                                                  |       | 318,227                                                                      |       | (440,481                                                           | )          | 1,536,296                                          |       |
|                                              |       |                                                       |       |                                                                         |       |                                                               |       |                                               |       |
| Allowance for obsolescence of inventories:        |       |                                                       |       |                                                                         |       |                                                               |       |                                               |       |
| Year ended December 31, 2005                 |       | 253,105                                                    |       | 315,171                                                                      |       | (403,118                                                           | )          | 165,158                                            |       |
| Year ended December 31, 2006                 |       | 165,158                                                    |       | 985,327                                                                      |       | (574,312                                                           | )          | 576,173                                            |       |
| Year ended December 31, 2007                 |       | 576,173                                                    |       | 706,815                                                                      |       | (473,944                                                           | )          | 809,044                                            |       |
|                                              |       |                                                       |       |                                                                         |       |                                                               |       |                                               |       |
| Valuation allowance for deferred tax assets  (2): |       |                                                       |       |                                                                         |       |                                                               |       |                                               |       |
| Year ended December 31, 2005                 |       | 18,987,998                                                 |       | (7,203,495                                                                   | )          | —                                                             |       | 11,784,503                                         |       |
| Year ended December 31, 2006                 |       | 11,784,503                                                 |       | (11,784,503                                                                  | )          | —                                                             |       | —                                             |       |
| Year ended December 31, 2007                 |       | —                                                     |       | —                                                                       |       | —                                                             |       | —                                             |       |

 

----

(1)          Includes allowances for trade, non-trade and other receivables.

 

(2)          The balances and changes in the valuation allowance for deferred taxassets are expressed in accordance with Chilean GAAP.

 

F-71

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m)           Recent accounting pronouncements

 

*(a)**      ** Recently Issued Accounting Standards*

 

In December 2007,the FASB issued FASB Statement No. 141R, *BusinessCombinations*(Statement 141R) and FASB Statement No. 160, *Noncontrolling Interests in Consolidated FinancialStatements*– *an amendment to ARB No. 51*(Statement 160). Statements 141R and 160 require most identifiableassets, liabilities, noncontrolling interests, and goodwill acquired in abusiness combination to be recorded at “full fair value” and requirenoncontrolling interests (previously referred to as minority interests) to bereported as a component of equity, which changes the accounting fortransactions with noncontrolling interest holders. Both Statements areeffective for periods beginning on or after December 15, 2008, and earlieradoption is prohibited. Statement 141R will be applied to business combinationsoccurring after the effective date. Statement 160 will be applied prospectivelyto all noncontrolling interests, including any that arose before the effectivedate. The Company is currently evaluating the impact of adopting Statement 141Rand Statement 160 on its results of operations and financial position.

 

In February 2007,the FASB issued Statement of Financial Accounting Standards No. 159, *The Fair Value Option for Financial Assets andFinancial Liabilities – including an amendment of FASB Statement No. 115*(Statement159). Statement 159 gives the Company the irrevocable option to carry mostfinancial assets and liabilities at fair value that are not currently requiredto be measured at fair value. If the fair value option is elected, changes infair value would be recorded in earnings at each subsequent reporting date.SFAS 159 is effective for the Company’s 2008 fiscal year. The Company iscurrently evaluating the impact the adoption of this statement could have onits financial condition, results of operations and cash flows.

 

In September 2006,the FASB issued FASB Statement No. 157, *FairValue Measurement*(Statement 157). Statement 157 defines fair value,establishes a framework for the measurement of**fair value, and enhances disclosures about fair value measurements.The Statement does not require any new fair value measures. The Statement iseffective for fair value measures already required or permitted by otherstandards for fiscal years beginning after November 15, 2007. The Companyis required to adopt Statement 157 beginning on January 1, 2008. Statement157 is required to be applied prospectively, except for certain financialinstruments. Any transition adjustment will be recognized as an adjustment toopening retained earnings in the year of adoption. In November 2007, theFASB proposed a one-year deferral of Statement 157’s fair-value measurementrequirements for nonfinancial assets and liabilities that are not required or permittedto be measured at fair value on a recurring basis. The Company is currentlyevaluating the impact of adopting Statement 157 on its results of operationsand financial position.

 

*(b)**      **Recently Adopted Accounting Standards*

 

EffectiveJanuary 1, 2007, the Company adopted provisions of FIN 48. FIN 48addresses the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements and prescribes a threshold ofmore-likely-than-not for recognition and derecognition of tax positions takenor expected to be taken in a tax return. FIN 48 also provides related guidanceon measurement, classification, interest and penalties, and disclosure. Theadoption of FIN 48 had no effect on the Company’s results of operations andfinancial position.

 

F-72

----