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**As filedwith the Securities and Exchange Commission on June 30, 2009**

** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 20-F**

 

| **o**      | **REGISTRATION STATEMENT PURSUANT  TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934**                                    |
|------------|----------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                                             |
| **OR**     |
| ** ** | ** **                                                                                                                             |
| **x**      | **ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the fiscal year ended December 31, 2008** |
| ** ** | ** **                                                                                                                             |
| **OR**     |
| ** ** | ** **                                                                                                                             |
| **o**      | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 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) of the Act

 
| **7.625% Notes due October 1, 2027** |
|--------------------------------------|
|                                 |
| **7.875% Notes due October 1, 2097** |

 

Thenumber of outstanding shares of the issuer’s stock as of December 31, 2008 was760,274,542 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 inRule 405 of the Securities Act.

x Yes   o No

 

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   x No

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

x Yes   o No

 

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. (Checkone):

 

| 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 o |   | International Financial Reporting Standards as issued  by the international Accounting Standards Board o |   | Other x |
|-------------|--------|----------------------------------------------------------------------------------------------------------|--------|---------|

 

IfOther has been checked in response to the previous question, indicate by checkmark which financial statement item the registrant has elected to follow

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                            | 53       |
| ITEM 8.        | FINANCIAL  INFORMATION                                                        | 57       |
| ITEM 9.        | THE OFFER AND  LISTING                                                        | 59       |
| ITEM 10.       | ADDITIONAL  INFORMATION                                                       | 61       |
| ITEM 11.       | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 72       |
| ITEM 12.       | DESCRIPTION  OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 73       |
|           |                                                                          |     |
| PART II   |                                                                          | 73       |
|           |                                                                          |     |
| ITEM 13.       | DEFAULTS,  DIVIDEND ARREARAGES AND DELINQUENCIES                              | 73       |
| ITEM 14.       | MATERIAL  MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 73       |
| ITEM 15.       | CONTROLS AND  PROCEDURES                                                      | 73       |
| ITEM 16A. | AUDIT  COMMITTEE FINANCIAL EXPERT                                             | 74       |
| ITEM 16B.      | CODE OF ETHICS                                                                | 74       |
| ITEM 16C.      | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                       | 74       |
| ITEM 16D. | EXEMPTIONS  FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   | 75       |
| ITEM 16E.      | PURCHASERS  OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS      | 75       |
| ITEM 16G.      | CORPORATE  GOVERNANCE                                                         |     |
|           |                                                                          |     |
| PART III  |                                                                          | 78       |
|           |                                                                          |     |
| ITEM 17.       | FINANCIAL  STATEMENTS                                                         | 78       |
| ITEM 18.       | FINANCIAL  STATEMENTS                                                         | 78       |
| ITEM 19.       | EXHIBITS                                                                      | 79       |
|           |                                                                          |     |
|           | EX-8.1: LIST OF OUR  SUBSIDIARIES                                             |     |
|           | EX-12.1: CERTIFICATION                                                        |     |
|           | EX-12.2: CERTIFICATION                                                        |     |
|           | EX-13.1: CERTIFICATION                                                        |     |
|           | EX-13.2: CERTIFICATION                                                        |     |

 

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**INTRODUCTION**

 

**References**

 

Unlessthe context otherwise requires, as used in this annual report the followingterms have the meanings set forth below:

 

·                          the “Company” and “we” means Andina andits consolidated subsidiaries;

 

·                          “Andina” meansEmbotelladora Andina S.A.;

 

·                          “Refrescos” meansthe Company’s subsidiary, Rio de Janeiro Refrescos Ltda. and its subsidiaries;

 

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

 

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

 

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

 

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

 

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

 

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

 

Inaddition, 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 themajority of the State of Rio de Janeiro, and the totality of the State ofEspírito Santo; and

 

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

 

**PRESENTATIONOF FINANCIAL AND CERTAIN OTHER INFORMATION**

 

Unlessotherwise specified, references herein to “dollars,” “U.S. dollars” or “US$”are to United States dollars; references to “pesos,” “Chilean pesos”, “Ch$” 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.

 

Forthe convenience of the reader, this annual report contains translations ofcertain Chilean peso amounts into U.S. dollars at specified rates. Unlessotherwise indicated, U.S. dollar equivalent information for amounts in Chileanpesos is based on the Observed Exchange Rate (as defined under “Item 3. KeyInformation—Exchange Rates”) reported by the *BancoCentral de Chile*(the Central Bank of Chile), which we refer to asthe “Central Bank,” for December 31, 2008, which was Ch$636.45=US$1.00.The Observed Exchange Rate for June 24, 2009 was Ch$533.80  per US$1.00. The Federal Reserve Bank of NewYork does not report a noon buying rate in New York City for Chilean pesos. Norepresentation is made that the peso or U.S. dollar figures presented in thisannual report could have 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**

 

Thisannual report contains or incorporates by reference statements that constitute“forward-looking statements,” in that they include statements regarding theintent, belief or current expectations of our directors and officers withrespect to our future operating performance. Such statements include anyforecasts, projections and descriptions of anticipated cost savings or othersynergies. Words such as “anticipate,” “expect,” “intend,” “plan,” “believe,”“seek,” “estimate,” variations of such words, and similar expressions areintended to identify such forward-looking statements. You should be aware thatany such forward-looking statements are not guarantees of future performance andmay involve risks and uncertainties, and that actual results may differ fromthose set forth in the forward-looking statements as a result of variousfactors (including, without limitations, the actions of competitors, futureglobal economic conditions, market conditions, foreign exchange rates, 

 

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and operating andfinancial risks related to managing growth and integrating acquiredbusinesses), many of which are beyond our control. The occurrence of any suchfactors not currently expected by us would significantly alter the results setforth in these statements. You should not place undue reliance on suchstatements, 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**

 

Wehave computed the information contained in this annual report regarding annualvolume and per capita growth rates and levels, and market share, productsegment, packaging and population data in bottling and franchise territories,and it is based upon statistics accumulated and certain assumptions we havemade. Additional data was obtained from third parties. Sales informationpresented with respect to soft drinks and beer is based on data supplied byA.C. Nielsen Company (“A.C. Nielsen”) and is believed to be accurate althoughno assurances to that effect can be given. To the extent estimates arecontained in this annual report, we believe that to the best of our knowledgesuch estimates are reliable. Market data used throughout this annual reportwere derived from reports prepared by unaffiliated third-party sources. Suchreports generally state that the information contained therein has been obtainedfrom sources believed by such sources to be reliable. Certain market dataherein (including percentage amounts) may not sum due to rounding.

 

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**PART I**

 

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

 

**Not Applicable**

 

**ITEM 2.          OFFER STATISTICS AND EXPECTED TIMETABLE**

 

**Not Applicable**

 

**ITEM 3.          KEY INFORMATION**

 

**Selected Financial Data**

 

Thefollowing table presents our selected consolidated and other financial andoperating information at the dates and for the periods indicated. The selectedfinancial information at December 31, 2007 and 2008 and for each of thethree years ended December 31, 2008 has been derived from, should be readin conjunction with, and is qualified in its entirety by reference to ourConsolidated Financial Statements and the notes thereto, included elsewhere inthis annual report in Item 18, that we refer to in this annual report asthe “Consolidated Financial Statements.” Our Consolidated Financial Statementsare prepared in accordance with Chilean GAAP, which differs in certainsignificant respects from accounting principles generally accepted in theUnited States which we refer to as “U.S. GAAP.” Note 30 of the notes to theConsolidated Financial Statements provides a description of the principaldifferences between Chilean GAAP and U.S. GAAP as they relate to us and areconciliation to U.S. GAAP of net income and total shareholders’ equity forthe periods and as of the dates covered thereby.

 

Ourconsolidated financial results include the results of our subsidiaries locatedoutside Chile, principally in Brazil and Argentina. Our subsidiaries outsideChile prepare their financial statements in accordance with Chilean GAAP and,to comply with local regulations, in accordance with accounting principlesgenerally accepted in their country of operation. Our Consolidated FinancialStatements reflect the Chilean GAAP results of our subsidiaries outside Chiletranslated into Chilean pesos. Chilean GAAP requires monetary assets andliabilities to be translated at year-end rates of exchange, non-monetary assetsand liabilities to be translated at historical rates of exchange as of the dateof acquisition or incurrence, as the case may be, and income and expenseaccounts to be translated at the average monthly exchange rate for the month inwhich income or expense is recognized. Unless otherwise specified, ourfinancial data is presented herein in constant Chilean pesos (which factors inthe purchasing power of the Chilean peso) as of December 31, 2008. SeeNotes 1(c) and 30(a) and (b) to our Consolidated FinancialStatements.

 

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Thefollowing table presents our selected consolidated financial information. Thisinformation should be read in conjunction with, and is qualified in itsentirety by reference to, our Consolidated Financial Statements, including thenotes thereto in Item 18. The selected financial information containedherein is presented on a consolidated basis, and is not necessarily indicativeof our financial position or results of operations at or for any future date orperiod.

 
| *** ***                                                                       |       | **For the year ended  December 31,**                                                                                                                                                                                          |       |
|------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| *** ***                                                                       |       | **2008**                                                                                                                                                                                                                           | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** |   |
| *** ***                                                                       |       | **(in million constant Ch$ as of December 31, 2008 and million US$, except ratios, per share and per ADS data,  and sales volume)** |       |
| ** **                                                                         | ** ** | **US$**                                                                                                                                                                                                                            | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** |
| ***Income Statement  Data:***                                                      |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| ***Chilean GAAP*****:**                                                            |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| **Net sales**                                                                      |       | 1,331                                                                                                                                                                                                                              |       | 847,301 |   | 693,354 |   | 639,450 |   | 556,807 |   | 499,975 |   |
| Cost of sales                                                                      |       | (739                                                                                                                                                                                                                               | )          | (470,651 | ) | (382,731 | ) | (365,001 | ) | (328,633 | ) | (301,907 | ) |
| Administrative and selling expenses                                                |       | (374                                                                                                                                                                                                                               | )          | (237,974 | ) | (184,850 | ) | (163,266 | ) | (135,140 | ) | (120,268 | ) |
| Operating income                                                                   |       | 218                                                                                                                                                                                                                                |       | 138,677 |   | 125,773 |   | 111,183 |   | 93,034 |   | 77,800 |   |
|                                                                               |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Non-operating (expense) income, net                                                |       | (17                                                                                                                                                                                                                                | )          | (10,996 | ) | (519 | ) | (725 | ) | (8,482 | ) | (14,652 | ) |
| Income taxes and minority interest                                                 |       | (40                                                                                                                                                                                                                                | )          | (25,233 | ) | (29,308 | ) | (15,889 | ) | (10,194 | ) | (4,884 | ) |
| Amortization of goodwill                                                           |       | (12                                                                                                                                                                                                                                | )          | (7,612 | ) | (7,081 | ) | (7,605 | ) | (7,438 | ) | (8,581 | ) |
| **Net income**                                                                     |       | 149                                                                                                                                                                                                                                |       | 94,836 |   | 88,865 |   | 86,965 |   | 66,919 |   | 49,683 |   |
|                                                                               |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| **Basic and diluted earnings per share**                  |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Series A                                                                      |       | 0.19                                                                                                                                                                                                                               |       | 118.80 |   | 111.32 |   | 108.94 |   | 83.83 |   | 62.24 |   |
| Series B                                                                      |       | 0.21                                                                                                                                                                                                                               |       | 130.68 |   | 122.45 |   | 119.83 |   | 92.21 |   | 68.46 |   |
| **Basic and diluted earnings per ADS(3)**                 |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Series A                                                                      |       | 1.12                                                                                                                                                                                                                               |       | 712.81 |   | 667.93 |   | 653.65 |   | 502.98 |   | 373.42 |   |
| Series B                                                                      |       | 1.23                                                                                                                                                                                                                               |       | 784.06 |   | 734.69 |   | 718.98 |   | 553.26 |   | 410.75 |   |
|                                                                               |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| ***U.S.GAAP:***                                                                    |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| **Net income**                                                                     |       | 161.10                                                                                                                                                                                                                             |       | 102,531 |   | 93.188 |   | 89.887 |   | 89.781 |   | 63.798 |   |
| **Total number of shares:**                                                        |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Series A                                                                      |       |                                                                                                                                                                                                                               |       | 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 |   |
| **Dividends declared per series:**                                                 |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Series A                                                                      |       | 53.83                                                                                                                                                                                                                              |       | 34,262 |   | 36,991 |   | 35,459 |   | 33,908 |   | 22,504 |   |
| Series B                                                                      |       | 59.22                                                                                                                                                                                                                              |       | 37,688 |   | 40,690 |   | 39,005 |   | 37,299 |   | 24,755 |   |
|                                                                               |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| **Basic and diluted earnings per  share**                                          |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Series A                                                                      |       | 0.20                                                                                                                                                                                                                               |       | 128.44 |   | 116.74 |   | 112.60 |   | 112.47 |   | 79.92 |   |
| Series B                                                                      |       | 0.22                                                                                                                                                                                                                               |       | 141.28 |   | 128.41 |   | 123.86 |   | 123.71 |   | 87.91 |   |
| **Basic and diluted earnings per  ADS(3)**                                    |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Series A                                                                      |       | 1.21                                                                                                                                                                                                                               |       | 770.65 |   | 700.42 |   | 675.61 |   | 674.81 |   | 479.52 |   |
| Series B                                                                      |       | 1.33                                                                                                                                                                                                                               |       | 847.68 |   | 770.44 |   | 743.14 |   | 742.27 |   | 527.45 |   |
|                                                                               |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| ***Balance Sheet  Data:***                                                         |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| ***Chilean GAAP:***                                                                |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Total assets                                                                       |       | 947                                                                                                                                                                                                                                |       | 602,957 |   | 580,718 |   | 600,698 |   | 628,181 |   | 717,207 |   |
| Short-term debt (1)                                                                |       | 14                                                                                                                                                                                                                                 |       | 8,804 |   | 11,966 |   | 38,481 |   | 50,278 |   | 41,443 |   |
| Long-term debt                                                                     |       | 122                                                                                                                                                                                                                                |       | 77,453 |   | 80,954 |   | 89,407 |   | 122,110 |   | 194,659 |   |
| **Total shareholders’ equity**                                                |       | 544                                                                                                                                                                                                                                |       | 346,249 |   | 306,171 |   | 321,324 |   | 320,553 |   | 359,819 |   |
| ***U.S.GAAP:***                                                                    |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| **Total shareholders’ equity**                                                |       | 576                                                                                                                                                                                                                                |       | 366,572 |   | 324,609 |   | 335,940 |   | 345,798 |   | 372,282 |   |
|                                                                               |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| ***Other Financial  Information:***                                                |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| ***Chilean GAAP:***                                                                |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Cash flows from operating activities                                               |       | 250                                                                                                                                                                                                                                |       | 159,331 |   | 149,344 |   | 148,446 |   | 115,621 |   | 86,957 |   |
| Cash flows from investing activities                                               |       | (119                                                                                                                                                                                                                               | )          | (75,466 | ) | 34,244 |   | 6,997 |   | 13,026 |   | (46,506 | ) |
| Cash flows from financing activities                                               |       | (125                                                                                                                                                                                                                               | )          | (79,293 | ) | (98,813 | ) | (131,362 | ) | (136,278 | ) | (54,185 | ) |
| Depreciation                                                                       |       | 60                                                                                                                                                                                                                                 |       | 38,057 |   | 31,742 |   | 34,566 |   | 34,674 |   | 38,907 |   |
| Capital expenditures                                                               |       | 105                                                                                                                                                                                                                                |       | 67,074 |   | 61,011 |   | 43,280 |   | 32,714 |   | 31,227 |   |
|                                                                               |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Ratio of total debt to total capitalization (2) |       | 0.20                                                                                                                                                                                                                               |       | 0.20 |   | 0.23 |   | 0.28 |   | 0.35 |   | 0.40 |   |
|                                                                               |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| ***Other Operating  Data:***                                                       |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Sales volume of :                                                                  |       |                                                                                                                                                                                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Coca-Cola Soft Drinks (million UCs)(5)                                             |       | 411.2                                                                                                                                                                                                                              |       | 411.2 |   | 402.4 |   | 381.9 |   | 360.1 |   | 336.3 |   |
| Other Beverages (million UCs) (4)(5)                                          |       | 43.3                                                                                                                                                                                                                               |       | 43.3 |   | 38.9 |   | 33.3 |   | 29.3 |   | 27.8 |   |

 

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| (1)    | Includes  short-term bank liabilities and the portion of long—term bank liabilities and  bonds payable within 12 months.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (2)    | Total  debt is calculated as the sum of short—term and long—term financial debt.  Total capitalization is calculated as the sum of total financial debt,  minority interest and total shareholders’ equity. Shareholders’ equity under  U.S. GAAP differs from Chilean GAAP in certain important respects. For a summary  of the principal differences between U.S. GAAP and Chilean GAAP as they  relate to us, see “Item 5 — Operating and Financial Review and Prospects —  U.S. GAAP Reconciliation” and Note 30 to our Consolidated Financial  Statements included elsewhere herein. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (3)    | Each ADS represents six  shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

 

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

 

(5)      Unit cases (“UCs”) refer to192 ounces of finished beverage product (24 eight-ounce servings) or 5.68liters.

 

**Exchange Rates**

 

Thefollowing table sets forth the annual low, high, average and period-end ObservedExchange Rate for U.S. dollars for each year beginning in 2004 and for eachmonth during the six months immediately preceding the month of this annualreport, as reported by the Central Bank.

 
| ** **         | ** ** | **Daily Observed Exchange Rate Ch$ per US$(1)** | ** ** |
|--------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **         | ** ** | **Low(2)**                                                                    | ** ** | **High(2)** | ** ** | **Average(3)** | ** ** | **Period End** | ** ** |
| **Year**           | ** ** | ** **                                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| 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 |   |
| 2008               |       | 431.22                                                                        |       | 676.75 |   | 522.35 |   | 636.45 |   |
|               |       |                                                                          |       |   |   |   |   |   |   |
| **Month**          |       |                                                                          |       |   |   |   |   |   |   |
| December 2008 |       | 625.59                                                                        |       | 674.83 |   | 647.91 |   | 636.45 |   |
| January 2009  |       | 610.09                                                                        |       | 643.87 |   | 623.01 |   | 617.10 |   |
| February 2009 |       | 583.32                                                                        |       | 623.87 |   | 605.10 |   | 599.04 |   |
| March 2009    |       | 572.39                                                                        |       | 614.85 |   | 592.21 |   | 583.26 |   |
| April 2009    |       | 575.12                                                                        |       | 601.04 |   | 583.03 |   | 580.10 |   |
| May 2009      |       | 558.95                                                                        |       | 573.65 |   | 564.69 |   | 560.58 |   |

 

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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. |

 

The Observed ExchangeRate on June 24, 2009 was Ch$533.80 per US$1.00.

 

**Risk Factors**

 

TheCompany is subject to various economic, political, social and competitiveconditions. Any of the following risks, if they materialize, could materiallyand adversely affect our business, results of operations, prospects andfinancial condition.

 

**Risks Related to our Company**

 

***We rely heavily on our relationship with The Coca-ColaCompany which has substantial influence over our business and operations***

 

Approximately88% of our net sales in 2008 were derived from the distribution of Coca-Colasoft drinks and 9% from the distribution of other beverages bearing trademarksowned by The Coca-Cola Company. We produce, market and distribute Coca-Colaproducts through standard bottler agreements between our bottler subsidiariesand, in each case, the local subsidiary of The Coca-Cola Company or, in thecase of fruit juices and nectars, The Minute Maid Company, a subsidiary of TheCoca-Cola Company. The Coca-Cola Company has the ability to exercisesubstantial influence over our business through its rights under the BottlerAgreements. See “Item 7. Major Shareholders and Related PartyTransactions—Bottler Agreements.” Under the Bottler Agreements, The Coca-ColaCompany unilaterally sets the prices for Coca-Cola soft drink concentrates andCoca-Cola beverages (in the case of soft drinks pre-mixed by The Coca-ColaCompany) sold to us. The Coca-Cola Company also monitors pricing changes weinstitute and has the right to review and approve our marketing, operationaland advertising plans. These factors may impact our profit margins which couldadversely affect our net income and results of operations. Our marketingcampaigns for all Coca-Cola products are designed and controlled by TheCoca-Cola Company. Pursuant to the Bottler Agreements, we are required tosubmit a business plan to The Coca-Cola Company for prior approval on a yearlybasis. In accordance with the Bottler Agreements, The Coca-Cola Company may,among other things, require that we demonstrate financial ability to meet ourbusiness plan and if we are not able to demonstrate our 

 

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financial capacity TheCoca-Cola Company may terminate our rights to produce, market and distributeCoca-Cola soft drinks or other Coca-Cola beverages in territories where we havesuch approval. Under the Bottler Agreements, we are prohibited from producing,bottling, distributing or selling any products that could be substituted for,be confused with or be considered an imitation of, Coca-Cola soft drinks orother Coca-Cola beverages and products.

 

Wedepend on The Coca-Cola Company to renew the Bottler Agreements which aresubject to termination by The Coca-Cola Company in the event we default or uponexpiration of their respective terms. We cannot assure you that the BottlerAgreements will be renewed or extended upon their expiration, and even if theyare renewed, we cannot be certain that renewal will be granted on the sameterms as those currently in effect. Termination, non-extension or non-renewalof any of the Bottler Agreements would have a material adverse effect on ourbusiness, financial condition and results of operation.

 

Inaddition, any acquisition we make of bottlers of Coca-Cola products in othercountries may require, among other things, the consent of The Coca-Cola Companyunder bottler agreements to which such other bottlers are subject. We cannotassure you that The Coca-Cola Company will consent to any future geographicexpansion of our Coca-Cola beverage business. In addition, we cannot assure youthat our relationship with The Coca-Cola Company will not undergo significantchanges in the future. If such changes do occur, our operations, and financialresults and condition could be materially affected.

 

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

 

Thesoft drink and non-alcoholic beverage businesses are highly competitive in eachof our Company’s franchise territories. In our franchise territories we competewith bottlers of regional brands, including low cost “B brand” beverages andPepsi products.  In Argentina and Brazilwe compete with Companhia de Bebidas das Americas, commonly referred to asAmBev, the largest brewer in Latin America and a subsidiary of InBev S.A.,which sells Pepsi products, in addition to a portfolio that includes localbrands with flavors such as guaraná. This competition is likely to continue,and we cannot assure you that it will not intensify in the future which couldmaterially and adversely affect our financial condition and results ofoperations. See “Item 4. Information on the Company — Part B. BusinessOverview— Soft Drink Business—Competition.”

 

***Changes in the nonalcoholic beveragesbusiness environment could adversely affect our financial results.***

 

Thenonalcoholic beverages business environment is rapidly evolving as a result of,among other things, changes in consumer preferences, including changes based onhealth and nutrition considerations and obesity concerns, shifting consumertastes and needs, changes in consumer lifestyles and competitive product andpricing pressures. In addition, the industry is being affected by the trendtoward consolidation in the retail channel. If we are unable to successfullyadapt to this rapidly changing environment, our net income, share of sales andvolume growth could be negatively affected.

 

***Raw material prices may be subject to U.S.dollar/local currency exchange risk and price volatility which could increaseour costs of operations***

 

Numerousraw materials, including sugar and resin, are used in producing beverages andcontainers. We purchase raw materials from both domestic and internationalsuppliers. See “Item 4. Information on the Company—Part B. BusinessOverview—Soft Drink Business—Raw Materials and Supplies.” Because the prices ofraw materials are fixed in U.S. dollars, we are subject to local currency riskin each of our operations. If the Chilean peso, Brazilian real or Argentinepeso were to depreciate significantly against the U.S. dollar, the cost ofcertain raw materials could rise significantly, which could have an adverseeffect on our financial condition and results of operations. We cannot assureyou that these currencies will not lose value against the U.S. dollar in thefuture.   Additionally, these rawmaterials are subject to international price volatility that could also have amaterial negative effect over our profitability.

 

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

 

Ouroperations depend on a stable supply of utilities and fuel in the countrieswhere we operate. Given recent economic instability, particularly in Argentina,we cannot assure you that such instability will not impair our ability to procurerequired utility services or fuel in the future which could adversely impactour results or operations. Increases in oil prices have adversely affected ourcost of energy and transportation in the three countries we operate and weexpect that they will continue to do so in the future.   We believe that the increase of energyprices will not have a significant effect over our results of operations.

 

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***Water scarcity and poor quality could negatively impact the Company’sproduction costs and capacity.***

 

Water is the main ingredientin substantially all of our products. It is also a limited resource in manyparts of the world, facing unprecedented challenges from overexploitation,increasing pollution and poor management. As demand for water continues toincrease around the world, and as the quality of available water deteriorates,the Company may incur increasing production costs or face capacity constraintsthat could adversely affect our profitability or net operating revenues in thelong run.

 

***Significant additional labeling or warning requirements may inhibitsales of affected products.***

 

In the countries in which weoperate, authorities may seek to adopt significant additional product labelingor warning requirements relating to the chemical content or perceived adversehealth consequences of certain of the Coca-Cola products. These types ofrequirements, if they become applicable to one or more of the Coca-Colaproducts under current or future environmental or health laws or regulations,may inhibit sales of such products.

 

***If we are unable to protect our information systems against datacorruption, cyber-based attacks or network security breaches, our operationscould be disrupted.***

 

We are increasinglydependent on information technology networks and systems, including theInternet, to process, transmit and store electronic information. In particular,we depend on our information technology infrastructure for digital marketingactivities and electronic communications among the Company and our clients,suppliers and also among our subsidiaries. Security breaches of thisinfrastructure can create system disruptions, shutdowns or unauthorizeddisclosure of confidential information. If we are unable to prevent suchbreaches, our operations could be disrupted, or we may suffer financial damageor loss because of lost or misappropriated information.

 

***Perception of risk in emerging economiesmay impede our access to international capital markets, hinder our ability tofinance our operations and adversely affect the market price of our commonshares and American Depositary Shares .***

 

As ageneral rule, international investors consider Argentina, and to a lesserextent Chile and Brazil, to be emerging market economies. Consequently,economic conditions and the market for securities of emerging market countriesinfluence investors’ perceptions of Chile, Brazil and Argentina and theirevaluation of companies’ securities located in these countries.

 

Duringperiods of heightened investor concern regarding emerging market economies,Brazil and Argentina, in particular, have experienced significant outflows ofU.S. dollars. In addition, Brazilian and Argentine companies have faced highercosts for raising funds, both domestically and abroad, as well as limitedaccess to international capital markets, which have negatively affected theprices of Brazilian and Argentine securities. Although economic conditions aredifferent in each of the emerging-market countries, investors’ reactions todevelopments in one of these countries may affect the securities of issuers inthe others, including Chile. For example, adverse developments in other developingor emerging market countries may lead to decreased investor interest ininvesting in Chile or in the securities of Chilean companies, includingsecurities of the Company.

 

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

 

We area *sociedad anónima*, or stockcorporation, organized under the laws of Chile. Some of our directors,executive officers and controlling persons reside in Chile or outside of theUnited States. In addition, all or a substantial portion of the assets of thesepersons and of our assets are located outside of the United States. As aresult, it may not be possible for investors to effect service of processwithin the United States upon such persons, or to enforce against them in U.S.courts judgments predicated upon civil liability provisions of the federalsecurities laws of the United States or otherwise obtained in U.S. courts.Because our assets are located outside of the United States, any judgment obtainedin the United States against us may not be fully collectible in the UnitedStates.

 

***If we experience strikes, work stoppages or labor unrest, ourbusiness would suffer.***

 

Strikes, work stoppages orother forms of labor unrest at any of our production facilities could impairour ability to supply products to customers, which would reduce our revenuesand could expose us to customer claims.

 

**Risks Relating to Chile**

 

***Our growth and profitability depend oneconomic conditions in Chile***

 

Approximately49% of our assets and 33% of our net sales in 2008 were derived from ouroperations in Chile. Thus, our financial condition and results of operationsdepend significantly on economic conditions prevailing in Chile. According 

 

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to data published by theCentral Bank, the Chilean economy grew at a rate of 6.0%, in 2004, 5.7% in2005, 4.0% in 2006 5.3% in 2007 and 3.2% in 2008. Our financial condition andresults of operations could also be adversely affected by changes over which wehave no control, including, without limitation:

 

·                          the economic or other policies of theChilean government, which has a substantial influence over many aspects of theprivate sector;

 

·                          other political or economic developmentsin or affecting Chile;

 

·                          regulatory changes or administrativepractices of Chilean authorities;

 

·                          inflation and governmental policies tocombat inflation;

 

·                          currency exchange movements; and

 

·                          global and regional economic conditions.

 

***Inflation in Chile may disrupt our businessand have an adverse effect on our financial condition and results of operations***

 

Chileexperienced high rates of inflation in the past, and although they hadmoderated in recent years, there was a sharp increase in 2008.  The annual rates of inflation (as measured bychanges in the consumer price index and as reported by the Chilean NationalInstitute of Statistics) in 2006, 2007 and 2008 were 2.6%, 7.8% and 8.9,respectively.   High levels of inflationin Chile could adversely affect the Chilean economy and have a material adverseeffect on our financial condition and results of operations. We cannot assureyou that Chilean inflation will not continue to increase significantly. Wecannot assure you that, under competitive pressure, we will be able to realizeprice increases, which could adversely impact our financial condition andresults of operations.

 

***The Chilean peso is subject to depreciationand volatility which could adversely affect the value of an investment in oursecurities***

 

TheChilean government’s economic policies and any future changes in the value ofthe Chilean peso against the U.S. dollar, could adversely affect our operationsand financial results and the dollar value of an investor’s return on aninvestment in our securities. The Chilean peso has been subject to largenominal devaluations in the past and may be subject to significant fluctuationsin the future. Based on the Observed Exchange Rates for U.S. dollars in theperiod from 1997 to 2002 the value of the Chilean peso relative to the U.S.dollar decreased approximately 38.9% in nominal terms (without adjusting forinflation) and decreased 27.8% in real terms (adjusting for inflation), in theperiod from, 2002 to 2008, the value of the Chilean peso relative to the U.S.dollar appreciated 11.4% in nominal terms (without adjusting for inflation) andappreciated 39.2% in real terms (adjusting for inflation). During 2008 thevalue of the Chilean peso relative to the U.S. dollar depreciated 28.1% innominal terms (without adjusting for inflation) and 19.2% in real terms(adjusted for inflation). See “—Exchange Rates.”

 

Our Class Ashares and Class B shares are traded in Chilean pesos on the Chilean StockExchanges. Cash distributions with respect to the shares will be received inChilean pesos by the depositary, currently The Bank of New York MellonCorporation or the depositary (as depositary for the Series A and Series Bshares represented by the Series A and Series B ADSs), which willconvert such Chilean pesos to U.S. dollars at the then prevailing exchange rateto make U.S. dollar payments in respect of the ADSs. If the value of theChilean peso depreciates relative to the U.S. dollar, the value of the ADSs andany distributions to be received from the depositary would be adverselyaffected. In addition, the depositary will incur costs (to be ultimately borneby the holders of the ADSs) in connection with the foreign currency conversionand subsequent distribution of dividends or other payments with respect to ourADRs.

 

***Exchange controls and withholding taxes inChile may limit repatriation of your investment***

 

Equityinvestments in Chile by persons who are not Chilean residents are generallysubject to various exchange control regulations that govern the convertibilityand repatriation of the investments and earnings. The ADSs are governed by anAgreement among us, the depositary and the Central Bank of Chile (the “ForeignInvestment Agreement”). The Foreign Investment Agreement guarantees thedepositary 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 shares withdrawn from the ADR facility, thereby enabling them toacquire currencies necessary to repatriate investments in the shares andearnings there from.  Pursuant to currentChilean law, the Foreign Investment Agreement may not be amended unilaterallyby the Central Bank of Chile, and there are judicial precedents (which are notbinding with respect to future judicial decisions) indicating that the ForeignInvestment Agreement may not be voided by future legislative changes.

 

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Dividendsreceived by holders of ADSs are paid net of foreign currency exchange fees andexpenses of the depositary and are subject to Chilean withholding tax, currentlyimposed at a rate of 35%, subject to credits in certain cases as describedunder “Item 10. Additional Considerations —Tax Considerations Relating toEquity Securities”.

 

Wecannot assure you that additional restrictions applicable to the holders ofADRs, the disposition of the shares underlying the ADRs and the convertibilityand/or the repatriation of the proceeds from such disposition or the payment ofdividends will not be imposed in the future, nor can we advise as to theduration or impact of such restrictions if imposed. If for any reason,including changes in the Foreign Investment Agreement or Chilean law, thedepositary was unable to convert Chilean pesos to U.S. dollars, investors wouldreceive dividends or other distributions, if any, in Chile and in Chileanpesos.

 

**Risks Relating to Brazil**

 

***The Brazilian government has exercised andcontinues to exercise influence over the Brazilian economy, which together withhistorically volatile Brazilian political and economic conditions, could adverselyaffect our financial condition and results of operations and the market priceof our shares and ADSs***

 

Approximately34% of our assets and 44% of our consolidated net sales in 2008 were derivedfrom our operations in Brazil. Because demand for soft drinks and beverageproducts is usually correlated to economic conditions prevailing in therelevant local market, which in turn is dependent on the macroeconomiccondition of the country in which the market is located, our financialcondition and results of operations to a considerable extent are dependent uponpolitical and economic conditions prevailing in Brazil.

 

Thelevel of confidence in the Brazilian economy has improved consistentlyresulting in an 8.7% and 17.2% appreciation in the value of the real againstthe U.S. dollar during 2006 and 2007 respectively before the recent worldcrisis of the year 2008 which affected the Brazilian economy, resulting in a31.9% devaluation of the Brazilian real. Historically, the Brazilian governmenthas changed monetary, credit, tariff, and other policies to influence thecourse of Brazil’s economy. Such government actions have included wage andprice controls as well as other measures such as freezing bank accounts,imposing exchange controls and imposing limits on imports and exports. Changesin policy and other political and economic developments could adversely affectthe Brazilian economy and have a material adverse effect on our business,financial condition and results of operations.

 

Brazil’scurrent President, Luiz Inácio Lula da Silva, was elected in October 2002and took office on January 1, 2003. During 2006 he was reelected and willcontinue in office until the end of 2010. In the period leading up to andfollowing President Lula’s election, there was substantial uncertaintyregarding the policies the new government would pursue, including the potentialimplementation of macroeconomic policies that could have differed significantlyfrom those of the prior administration. Due to the current world economy, we cannotassure you that present 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 has stabilizedin recent years, increased inflation may adversely affect the operations ofRefrescos which could adversely impact our financial condition and results ofoperations***

 

Asmeasured by theBrazilian *Índice Nacional de Preços aoConsumidor* or INPC, inflation in Brazil was 2.8%, 5.2%, and 6.5% in2006, 2007 and 2008, respectively. Inflation, governmental efforts to controlit and public speculation about future governmental actions, have had asignificant impact over the Brazilian economy and the Company’s operations inBrazil and may continue to do so.  Highinflation rates in the past have resulted in lower consumer purchasing power onbehalf of consumers and lower sales volume for Refrescos. We cannot assure youthat levels of inflation in Brazil will not increase in future years and have amaterial adverse effect on our business, financial condition or results ofoperations. Inflationary pressures may lead to further government interventionin the economy, including the introduction of government policies that couldadversely affect the results of operations of Refrescos and consequently ourfinancial condition and results of operations and the market price of our sharesand ADSs.

 

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

 

During2006 and 2007, the *real*appreciated 8.7% and 17.2%, respectively against the U.S. dollar compared tothe prior year period and in 2008, the *real*depreciated 31.9%.  In the event of adevaluation of the real, the financial condition and results of operations ofour Brazilian subsidiary could be adversely affected.

 

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Depreciationof the *real* relative to the U.S.dollar may increase the cost of servicing foreign currency-denominated debtthat we may incur in the future, which could adversely affect our results ofoperations and financial condition. In addition, depreciation of the *real*can create inflationary pressures in Brazil that may negativelyaffect our results of operations. Depreciation generally curtails access tointernational capital markets and combined with other macroeconomic aspects,may prompt recessionary government intervention. It also reduces the U.S.dollar value of our revenues, distributions and dividends, and the U.S. dollarequivalent of the market price of our common shares. On the other hand, theappreciation of the real against the U.S. dollar may lead to the deteriorationof Brazil’s public accounts and balance of payments, as well as to lowereconomic growth from exports.

 

***The Brazilian government imposes certainrestrictions on currency conversions and remittances abroad which could affectthe timing and amount of any dividend or other payment we receive***

 

Brazilianlaw guarantees foreign shareholders of Brazilian companies the right torepatriate their invested capital and to receive all dividends in foreigncurrency provided that their investment is registered with the *Banco Central do Brazil*, which we refer toas the Brazilian Central Bank. We registered our investment in Refrescos withthe Brazilian Central Bank on October 19, 1995. Although dividend paymentsrelated to profits obtained subsequent to January 1, 1996 are not subjectto income tax, after the sum of repatriated capital and invested capitalexceeds the investment amount registered with the Brazilian Central Bank,repatriated capital is subject to a capital gains tax of 15%. Under currentChilean tax law, we will realize a tax credit in respect of all Brazilian taxespaid relating to Refrescos. There can be no assurance that the Braziliangovernment 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 some extent oneconomic conditions in Argentina***

 

Approximately17% of our assets and 23% of our net sales in 2008 were derived from ouroperations in Argentina. Because demand for soft drinks and beverage productsusually is correlated to economic conditions prevailing in the local market,which in turn is dependent on the macroeconomic condition of the country inwhich the market is located, the financial condition and results of operationsof our franchise in Argentina are, to a considerable extent, dependent uponpolitical and economic conditions prevailing in Argentina. In 2008, theArgentine economy continued recovering following the acute economic crisis thatprevailed from 1998 through 2003, recording positive GDP growth, stability inits fiscal accounts, and growth in exports. The Argentine crisis had a materialadverse effect on our operations in Argentina. Notwithstanding the positiveeconomic results recorded from 2003 until 2008, we cannot assure you thateconomic conditions will continue to improve or that our operations inArgentina will continue to experience improved results.

 

***Political and economic instability mayrecur which could have a material adverse effect on our Argentine operationsand on our financial condition and results of operations.***

 

In theperiod from 1998 through 2003, Argentina experienced acute economic problemsthat culminated with the restructuring of substantially all of Argentina’ssovereign bond indebtedness. A succession of presidents were inaugurated duringthis crisis period and various states of emergency were declared that suspendedcivil liberties and instituted restrictions on transfers of funds abroad andforeign exchange controls, among other measures. Argentina’s GDP contracted by10.9% in 2002. Beginning 2003, Argentine GDP began to recover and from 2004 to2007 recorded an average rate of growth of 9%. According to official records, GDP growth for the year 2008 was 7%%.

 

Themacroeconomic condition in Argentina has been characterized by:

 

·                  increasedinflation which has been slightly controlled by price control;

 

·                  deeper stateintervention in the economy;

 

·                  high nominalexchange rate;

 

·                  primary fiscalsurplus and commercial surplus, with a decreasing tendency; and

 

·                  strong salarypressures.

 

TheArgentine economy reached its fifth year of strong growth in 2008, resulting ina cumulative 63% increase in GDP compared to 2002.

 

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Theexchange rate underwent a 9% depreciation during 2008, and as of December 31,2008, the exchange rate was AR$3.45 per U.S. dollar. The employment situationcontinued improving as the unemployment rate reached 7.2% during the fourthquarter of 2008.

 

Due tothe global financial crisis unfastened towards the end of 2008, economicperspectives are worsened, resulting in no growth for 2009 or even a decreasein GDP.  The crisis has strongly impactedthe price of commodities and the drop in the price of soya has had significantconsequences over the Argentine economy.

 

Despitethe marked improvement of the Argentine economy in the 2003-2008 period, the currentadministration still has to address many of the same structural problems thathave contributed to Argentina’s past political crises. A number of unpopulardecisions may be necessary to address these problems, which may or may notaffect popular support for current and future presidential administrations andpolitical stability in Argentina. Congress may oppose the administration’sproposals.  Unstable economic conditionshave had, and could have, a material adverse effect on our financial condition andresults of operation.

 

TheArgentine government may again be faced with the possibility of default on itsissued bonds if economic recovery abates and a new economic crisis emergeswhich could again have a material adverse effect on our results of operationand prospects.

 

TheArgentine government continues to face significant exposure to litigation fromholders of its defaulted debt that did not participate in the Argentinegovernment’s exchange offer. At present, there are legal proceedings against theArgentine government in the United States, Italy and Germany. Although it isimpossible to predict the outcome of these proceedings will be, a judgmentagainst the Argentine government in such cases could result in a reduction infunding sources and investment capital, which could have a significant effecton the Argentine government’s capacity to implement reforms and reinstatesustainable economic growth, all of which could adversely affect our results ofoperations.

 

***The Argentine government imposes certainrestrictions on currency conversions and remittances abroad which could affectthe timing and amount of any dividends or other payment we receive from ourArgentine franchise***

 

Until December 2001, the Argentine peso waspegged 1-to-1 to the U.S. dollar. From January 1st, 2002, the Argentine peso has been allowed to floatfreely against the U.S. dollar and other foreign currencies.

 

Since2003 and following a series of restrictive measures in the money market andfund movements, the Argentine Central Bank removed several of the foreignexchange restrictions, including elimination of the requirement that theArgentine Central Bank approve the repayment of principal of financialindebtedness, extended the term for the repatriation of export proceeds, allowedearlier payments of imports, and as beginning 2004, increased up to US$2million, the monthly amount that Argentine-domiciled individuals orcorporations are allowed to purchase and transfer abroad.

 

Therecan be no assurance that the Argentine Central Bank will not once again requireits prior authorization for the transfer of funds abroad in the form ofdividends or payment of inter-company or third party loans. Any such inabilityto transfer funds outside of Argentina, in the form of dividends or otherwise,could adversely affect the value of our Argentine operations and the marketvalue of our ADSs.

 

***Inflation in Argentina may adversely affectour operations which could adversely impact our financial condition and resultsof operations***

 

Argentinahas experienced high levels of inflation in recent decades, resulting in largedevaluations of its currency. Argentina’s historically high rates of inflationresulted mainly from its lack of control over fiscal policy and the moneysupply. The official annual rates of inflation (published by INDEC-InstitutoNacional de Estadisticas y Censos- National Statistics and Census Institute asmeasured by changes in the consumer price index) between 2004 and 2008 were6.1%, 12.3%, 9.8% 8.5 and 7.2%, respectively for each year.  However, unofficial records place theconsumer index at levels close to 25% for 2008, High levels of inflation inArgentina could adversely affect the Argentine economy and have a materialadverse effect on our financial condition and results of operations.

 

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

 

TheArgentine government’s economic policies and any future devaluation of theArgentine peso against the U.S. dollar could adversely affect our financialcondition and results of operations. The Argentine peso has been subject tolarge devaluations in the past and may be subject to significant fluctuationsin the future.

 

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ThePublic Emergency Law and Foreign Exchange Regime Reform Law of 2002 put an endto more than ten years of U.S. dollar-peso parity and authorized the Argentinegovernment to set the exchange rate. Subsequent to the devaluation of theArgentine peso in early 2002 and since the beginning of the Argentine economiccrisis, there have been significant fluctuations in the value of the Argentinepeso causing repeated Argentine Central Bank interventions to stabilize theArgentine peso through purchases and sales of U.S. dollars said devaluation ofthe Argentine peso has had a negative impact on our results.

 

Wecannot assure you that the policies to be implemented by the Argentinegovernment in the future will stabilize the value of the Argentine peso againstforeign currencies. Therefore, the Argentine peso may continue to be subject tosignificant fluctuations and further depreciations which might significantlyand adversely affect our financial condition and the results of our operations.

 

***Argentina continues to face political andeconomic uncertainty***

 

Thestrong deterioration of global and local economic conditions, the rapid andradical nature of the changes in the Argentine social, political, economic andlegal environment over the past years and the absence of a clear politicalconsensus in favor of any particular set of economic policies raises doubtsabout Argentina’s economic and political future. It is possible that, despiterecent economic growth, Argentina could return to a deeper recession, higherinflation and unemployment and greater social unrest. We cannot assure you thatlaws and regulations implemented by the Argentine government to regulate theeconomy will not continue to change in the future or that any changes will notadversely affect our business, financial condition or results of operations.

 

***Risk Factors Relating to the ADSs and theShares***

 

***Preemptive rights may be unavailable to holdersof our ADSs***

 

Accordingto the *Ley de Sociedades Anónimas*No. 18.046 and the *Reglamento deSociedades Anónimas* (collectively, the “Chilean Companies Law”),whenever we issue new shares for cash, we are required to grant preemptiverights to holders of our shares (including shares represented by ADSs), givingthem the right to purchase a sufficient number of shares to maintain theirexisting ownership percentage. However, we may not be able to offer shares toUnited States holders of ADSs pursuant to preemptive rights granted to ourshareholders in connection with any future issuance of shares unless aregistration statement under the U.S. Securities Act of 1933, as amended, iseffective with respect to such rights and shares, or an exemption from the registrationrequirements of the U.S. Securities Act of 1933, as amended, is available.

 

Underthe procedure established by the Central Bank of Chile, the foreign investmentagreement of a Chilean company with an existing ADR program will become subjectto an amendment (which will also be deemed to incorporate all laws andregulations applicable to international offerings in effect as of the date ofthe amendment) that will extend the benefits of such contract to new sharesissued pursuant to a preemptive rights offering to existing ADS owners and toother persons residing and domiciled outside of Chile that exercise preemptiverights, upon request to the Central Bank of Chile. We intend to evaluate at thetime of any rights offering the costs and potential liabilities associated withany such registration statement as well as the indirect benefits to us ofenabling United States holders of ADSs to exercise preemptive rights and anyother factors that we consider appropriate at the time, and then make a decisionas to whether to file such registration statement.

 

Wecannot assure you that any registration statement would be filed. To the extentholders of ADSs are unable to exercise such rights because a registrationstatement has not been filed, the depositary will attempt to sell such holders’preemptive rights and distribute the net proceeds thereof if a secondary marketfor such rights exists and a premium can be recognized over the cost of anysuch sale. If such rights cannot be sold, they will expire and holders of ADSswill not realize any value from the grant of such preemptive rights. In anysuch case, such holder’s equity interest in the Company would be dilutedproportionately.

 

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

 

Underthe United States federal securities laws, as a foreign private issuer, we areexempt from certain rules that apply to domestic United States issuerswith equity securities registered under the United States Securities ExchangeAct of 1934, as amended, including the proxy solicitation rules, the rules requiringdisclosure of share ownership by directors, officers and certain shareholders.We are also exempt from certain of the corporate governance requirements of theSarbanes-Oxley Act of 2002 and the New York Stock Exchange, Inc.,including the requirements concerning independent directors.

 

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Ourcorporate affairs are governed by the laws of Chile and our *estatutos* or bylaws, which function notonly as our bylaws but also as our articles of incorporation. Under such laws,our shareholders may have fewer or less well-defined rights than they mighthave as shareholders of a corporation incorporated in a U.S. jurisdiction.

 

Pursuantto Law No. 19,705, enacted in December 2000, the controllingshareholders of an open stock corporation can only sell their controllingshares via a tender offer issued to all shareholders in which the bidder wouldhave to buy all the offered shares up to the percentage determined by it, whenthe price paid is substantially higher than the market price (that is, when theprice paid was higher than the average market price of a period starting 90days before the proposed transaction and ending 30 days before such proposedtransaction, plus 10%).

 

***The market for our shares may be volatileand illiquid***

 

TheChilean securities markets are substantially smaller, less liquid and morevolatile than major securities markets in the United States. The *Bolsa de Comercio de Santiago* (the “SantiagoStock Exchange”), which is Chile’s principal securities exchange, had a marketcapitalization of approximately US$132,595 million at December 31, 2008and an average monthly trading volume of approximately US$42,790 million for2008. The lack of liquidity owing, in part, to the relatively small size of theChilean securities markets may have a material adverse effect on the tradingprices of our shares. Because the market for our ADSs depends, in part, oninvestors’ perception of the value of our underlying shares, this lack ofliquidity for our shares in Chile may have a significant effect on the tradingprices of our ADSs.

 

**ITEM 4.****                             ****INFORMATION ON THECOMPANY**

 

**A.****                    ****History and developmentof the Company**

 

Ourlegal name is Embotelladora Andina S.A. and our commercial name for advertisingand publicity purposes is Andina. We were incorporated and organized on February 7,1946 under the Chilean Companies Law as a *sociedadanónima* (stock corporation). An abstract of our bylaws is registeredwith the *Registro de Comercio de Santiago*(Public Registry 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.

 

Ourshares of common stock are listed and traded on the Santiago Stock Exchange andalso traded on the *Bolsa de Comercio deValparaiso* (the Valparaiso Stock Exchange) and *Bolsa Electrónica de Chile*(the ChileanElectronic Stock Exchange)*.*Our Series Aand Series B ADSs representing our Series A and Series B shares,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 iswww.embotelladoraembotelladoraandina.com.

 

Ourdepositary agent for the ADSs in the United States is The Bank of New YorkMellon Corporation, located at One Wall Street, New York, New York 10286. Ourdepositary agent’s telephone number is (212) 815-2296. Our authorizedrepresentative in the United States is Puglisi & Associates, locatedat 850 Library Avenue, Suite 204, Newark, Delaware 19711, United Statesand their phone number is (302) 738-6680.

 

**History**

 

In1941, The Coca-Cola Company licensed a private Chilean company to producecoca-cola soft drinks in Chile, and production began in 1943. In 1946, theoriginal licensee withdrew from the license arrangement, and a group of U.S.and Chilean investors formed Andina, which became The Coca-Cola Company’s solelicensee in Chile. Between 1946 and the early 1980s, Andina developed theChilean market for Coca-Cola soft drinks with a system of production anddistribution facilities covering the central and southern regions of Chile. Inthe early 1980s, Andina sold its Coca-Cola licenses for most areas outside theSantiago metropolitan region and concentrated on the development of its softdrink business in the Santiago area. Although no longer the sole Coca-Colabottler in Chile, Andina has been the principal manufacturer of Coca-Colaproducts in Chile for an uninterrupted period of 63 years.

 

In1985, a majority of Andina’s shares was acquired by Inversiones Freire Ltda.and certain related persons. On December 31, 2008, Freire and entitiescontrolled by Freire owned 52.6% of our outstanding Series A shares, whichhave preferred voting rights and thereby control the Company. On the other handFreire and entities controlled by Freire owned 42.4% of our outstanding Series Bshares, consequently the Controlling Shareholders of Andina hold a 47.5%ownership interest in the Company.  Further information regarding our Controlling Shareholders can be foundon page 74 of our 2008 Annual Report which is available at our website:www.embotelladoraandina.com.

 

Refrescos,our Brazilian subsidiary, began production and distribution of Coca-Cola softdrinks in Rio de Janeiro in 1942. In June 1994, we acquired 100% of thecapital stock of Refrescos for approximately US$120 million and contributed

 

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an additional US$31million to Refrescos’ capital immediately after the acquisition to repaycertain indebtedness of Refrescos.   In2000, we purchased through Refrescos, from the Coffin Group, a Coca-Colafranchise license for a territory in Brazil comprising the State of EspíritoSanto and part of the States of Rio de Janeiro and Minas Gerais (NVG), forUS$74.5 million. 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.

 

Productionof Coca-Cola soft drinks in the Argentine territory began in 1943 with thestart-up of operations in the province of Córdoba, Argentina, through IntiS.A.I.C., which we refer to as Inti. In July 1995, we (through Inversionesdel Atlántico S.A., an investment company incorporated in Argentina), which werefer to as IASA, acquired a 59% interest in Edasa, the parent company ofRosario Refrescos S.A. and Mendoza Refrescos S.A. These entities weresubsequently merged to create Rosario Mendoza Refrescos S.A., which we refer toas Romesa. In 1996 we acquired an additional 35.9% interest in Edasa, anadditional 78.7% interest in Inti, a 100% interest in Cipet located in BuenosAires (a PET plastic bottle and packaging business) and a 15.2% interest inCican S.A.. Edasa is the Coca-Cola bottler in the provinces of Entre Rios, SanLuis, San Juan, Mendoza, part of Santa Fe and part of Buenos Aires (San Nicolásy Ramallo). During 1997, the operations of Romesa were merged into Inti. In1999, Edasa was merged into IASA. In 2000, IASA was merged into Inti, which inturn changed its corporate name to Embotelladora del Atlántico S.A. (EDASA). In2002 Cipet merged into Edasa. During 2007 EDASA’s ownership interest in CicanS.A. was sold to Femsa for a total amount of Ch$679,501 thousand (US$1.4million), this sale resulted in a loss of Ch$86,549 thousand.

 

In1998, 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 regarding ownershipof Vital was terminated. The restructuring of the water and juice business inChile enhanced our focus on the production of soft drinks, water andjuice.  During 2005, the production andpackaging business of water, juice and non-carbonated beverages licensed by TheCoca-Cola Company in Chile was restructured. Vital Aguas S.A., which we referto as VASA, was created to develop the production and packaging businesses ofVital de Chanqueahue, mineral water and other water products. VASA is focused ondeveloping juice 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*.  In 2001, weand Cristalerías de Chile S.A. formed 50/50 joint venture (Envases CMF S.A.) inorder to develop the PET production in Chile Cristalerías de Chile S.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.

 

In1996, the Superintendence of Pension Fund Managers (*Superintendencia de Administradores de Fondos de Pensiones*)decreed that Chilean pension funds would not be permitted to acquire Series BShares due to their limited voting rights. Later, during 2004, theSuperintendence approved Series B shares as investment instruments forChilean Pension funds. Series A shares have always been eligible asinvestment instruments.

 

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**Capital Expenditures**

 

Thefollowing table sets forth our capital expenditures by territory and line ofbusiness for the periods indicated:

 
| ** **                       | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **2008**                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                       | ** ** | **MCh$**                         | ** ** | **MCh$** | ** ** | **MCh$** | ** ** |
| **Soft Drinks:**                 |       |                             |       |   |   |   |   |
| Chilean  territory               |       | 23,948                           |       | 36,778 |   | $ | 17,506 |   |
| Brazilian  territory             |       | 33,844                           |       | 16,887 |   | 17,094 |   |
| Argentine  territory             |       | 6,743                            |       | 5,010 |   | 6,360 |   |
| **Other Beverages:**             |       |                             |       |   |   |   |   |
| Vital  S.A. and Vital Aguas S.A. |       | 1,894                            |       | 1,709 |   | 1,957 |   |
| **PET Packaging:**               |       |                             |       |   |   |   |   |
| Argentine  territory             |       | 645                              |       | 627 |   | 363 |   |
| Total                            |       | $                                | 67,074     |   | $ | 61,011 |   | $ | 43,280 |   |
|                                  |            |                                  |            |  |  |  |  |  |  |  |

 

During 2008, the companydisbursed approximately Ch$3,631 million to improve its industrial process,industrial waste metering equipment, laboratory analysis, environmental impactconsultancy and other studies.

 

Ourtotal capital expenditures were Ch$67,074 million in 2008, Ch$61,011 million in2007 and Ch$43,280 million in 2006. In 2008, capital expenditures wereprincipally related to the following:

 

**Soft drinks:**

 

***Chile***

 

·                  Returnable bottles (glass and PET bottles) and bottlecases;

 

·                  Cooling equipments, freezers, post mix and other pointof sale equipments;

 

·                  New equipment to increase efficiency and productioncapacity; and

 

·                  Improvements at the Distribution Centers

 

***Brazil***

 

·                  Glass bottles and bottle cases;

 

·                  Coolers, freezers, post-mix and other point-of-saleequipment; and

 

·                  Building the new logistics and distribution center atSão Gonçalo and São Pedro D’Aldeia.

 

***Argentina***

 

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

 

·                  New equipment to increase operating efficiency; and

 

·                  Investments in coolers and freezers.

 

**Juices and Waters**

 

**Juices**

 

Increaseproduction capacity and extension of useful life of the lines of PET and glassbottles

Increasecapacity and technological change of aseptic line, by the incorporation ofthree *A3 Flex Tetra Pak* machines of greaterproductivity and lower energy consumption.

Automationprocess for the preparation of boxes in the Tetra Pak aseptic line.

Increasestorage capacity of finished product warehouse and extension of cargo platform.

 

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Extensionof useful life of process equipment and service networks of the formulationroom.

Newhomogenizing equipment for formulation that increases process capacity from14,000 to 20,000 liters/hour.

 

**Waters**

 

·                  Increase production capacity of bin line,by the installation of new filler.

·                  Purchase of new formats for labeling LineN° 4 Dasani Antiox.

·                  New ELT generator of 550 kva.

·                  Installation of 2 water storage tanks of200 and 60 cubic meters, respectively.

·                  Installation of hydro-opticaldisinfection system.

·                  Incorporation of laser technology forcodification of PET formats.

·                  Acquisition of self-adhesive labelingequipment for PET line.

 

**PET Packaging**

 

Investmentsin PET package facilities during 2008 included ordinary course maintenance andinvestment designed to increase efficiency and reliability.

 

In2008, we invested approximately Ch$1,982 million in improvements to industrialprocesses, industrial waste flow measurement equipment, laboratory analysis,environmental impact consulting services and other studies.

 

**Divestitures**

 

In November 2007,Edasa sold to Femsa for a total amount of US$1.4 million, its 15.20% ownershipinterest in Cican S.A., an Argentine company dedicated to the canning ofCoca-Cola products and the packaging of Cepita juices.

 

During2006, Refrescos sold the warehouse located in Itambi, Rio de Janeiro, Brazilfor a total amount of US$1.4 million.

 

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

 

We arethe largest producer of soft drinks in Chile and one of the largest soft drinkproducers in Brazil and Argentina. Our principal business is the production anddistribution of Coca-Cola soft drinks, which accounted for 87.6% of ourconsolidated net sales in 2008. Through Andina, we are the sole producer anddistributor of Coca-Cola soft drinks in the Chilean territory; throughRefrescos, the sole producer and distributor of Coca-Cola soft drinks in theBrazilian territory; and through Edasa, the sole producer and distributor ofCoca-Cola soft drinks in the Argentine territory. In 2008, we recordedconsolidated net sales of Ch$742,186 million and total sales volume of411.2 million unit cases of Coca-Cola soft drinks.

 

Inaddition to the Coca-Cola soft drinks business, through Vital S.A., we produceand distribute fruit juices and other fruit-flavored beverages in Chile undertrademarks owned by The Coca-Cola Company. Through Vital Aguas S.A., we produceand sell mineral water and purified water in Chile under trademarks owned byThe Coca-Cola Company.  Through EnvasesCentral S.A. we produce flavored waters and certain formats for softdrinks.  We also manufacture PET bottlesprimarily for our own use in the packaging of Coca-Cola soft drinks in Chileand Argentina. In Brazil, we also distribute the beer brands Sol, Kaiser,Heineken, Bavaria, Xingú, and Dos Equis (XX).

 

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**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:

 
| ** **                            | ** ** | **Chile** | ** ** | **Brazil** | ** ** | **Argentina** | ** ** |
|---------------------------------------|------------|-----------|------------|------------|------------|---------------|------------|
| Andina                                |       | x         | ** ** | ** ** | ** ** | ** **    | ** ** |
| Andina Frut                           |       | x         |       |       |       |          |       |
| Andina Frut Light                     |       | x         |       |       |       |          |       |
| Andina Néctar                    |       | x         |       |       |       |          |       |
| Andina Néctar Light              |       | x         |       |       |       |          |       |
| Aquarius                              |       |      |       | x          |       |          |       |
| Aquarius Fresh                        |       |      |       | x          |       |          |       |
| Bavaria                               |       |      |       | x          |       |          |       |
| Benedictino                           |       | x         |       |       |       |          |       |
| Bonaqua                               |       |      |       | x          |       |          |       |
| Burn                                  |       | x         |       | x          |       |          |       |
| Cepita Manzana                        |       |      |       |       |       | x             |       |
| Cepita Multifruta                     |       |      |       |       |       | X             |       |
| Cepita Naranja                        |       |      |       |       |       | x             |       |
| Cepita Naranja Light                  |       |      |       |       |       | x             |       |
| Cepita 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         |       |       |       |          |       |
| Dasani Anti-Ox                        |       | x         |       |       |       |          |       |
| Dos Equis (XX)                        |       |      |       | x          |       |          |       |
| Fanta China                           |       |      |       | x          |       |          |       |
| Fanta Exotica sabor frutos tropicales |       | x         |       |       |       |          |       |
| Fanta Limón                      |       | x         |       |       |       | x             |       |
| Fanta Mundo                           |       |      |       | x          |       |          |       |
| Fanta Naranja                         |       | x         |       | x          |       | x             |       |
| Fanta Naranja Light                   |       |      |       | x          |       | x             |       |
| Fanta Zero Naranja                    |       | x         |       |       |       |          |       |
| Fanta Uva                             |       |      |       | x          |       |          |       |
| Fanta Uva Light                       |       |      |       | x          |       |          |       |
| Guaraná Kuat                     |       |      |       | x          |       |          |       |
| I9                                    |       |      |       | x          |       |          |       |
| Heineken                              |       |      |       | x          |       |          |       |
| Kaiser                                |       |      |       | x          |       |          |       |
| Kaiser Summer                         |       |      |       | x          |       |          |       |
| Kapo                                  |       | x         |       | x          |       |          |       |
| Kapo chocolate (leche saborizada)     |       |      |       | x          |       |          |       |
| Kuat com Laranja                      |       |      |       | x          |       |          |       |
| Kuat Zero                             |       |      |       | x          |       |          |       |
| Minute Maid Mais (16 flavors)         |       |      |       | x          |       |          |       |
| Nestea                                |       | x         |       |       |       |          |       |
| Nestea Light                          |       | 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         |       |       |       |          |       |
| Powerade Naranja                      |       |      |       |       |       | x             |       |
| Powerade Manzana                      |       |      |       |       |       | x             |       |
| Powerade Mountain Blast               |       |      |       |       |       | x             |       |
| Powerade Light                        |       | x         |       |       |       | x             |       |

 

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| Powerade Light Naranja      |   |   |   |   |   | x      |   |
|-----------------------------|--------|--------|--------|--------|--------|--------|--------|
| Quatro Light                |   | x      |   |   |   |   |   |
| 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      |   |   |   |
| Sol                         |   |   |   | x      |   |   |   |
| Sprite                      |   | x      |   | x      |   | x      |   |
| Sprite Zero                 |   | x      |   | x      |   | 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 Drink Sales Volumes**

 
| ** ** | ** ** | **Year ended December 31,** | ** ** |
|------------|------------|----------------------------------|------------|
| ** ** | ** ** | **200****8**                     | ** ** | **200****7** | ** ** | **200****6** | ** ** |
| ** ** | ** ** | **(millions of UCs)**            | ** ** |
| Chile      |       | 127.6                            |       | 123.9 |   | 119.0 |   |
| Brazil     |       | 163.5                            |       | 164.9 |   | 155.4 |   |
| Argentina  |       | 120.1                            |       | 113.6 |   | 107.5 |   |

 

In 2008, our Coca-Cola soft drinks businessaccounted for net sales of Ch$742,186 million and operating income ofCh$127,620 million representing 87.6% and 92.0% of our consolidated net salesand operating income, respectively.

 

Our Chilean soft drink operations accounted for netsales in 2008 of Ch$225,137 million; the Brazilian soft drink operations fornet sales of Ch$329,433 million; and the Argentine soft drink operations fornet sales of Ch$ 187,616 million.

 

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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,  2008** | ** ** |
|----------------------|------------|----------------------------------------|------------|
| ** **           | ** ** | **Chile**                              | ** ** | **Brazil** | ** ** | **Argentina** | ** ** |
| ** **           | ** ** | **MCh$**                               | ** ** | **MUCs** | ** ** | **MCh$** | ** ** | **MUCs** | ** ** | **MCh$** | ** ** | **MUCs** | ** ** |
| Colas                |       | 180,603                                |       | 104.0 |   | 272,772 |   | 135.5 |   | 143,993 |   | 90.4 |   |
| Flavored soft drinks |       | 44,534                                 |       | 23.6 |   | 56,661 |   | 28.0 |   | 43,623 |   | 29.7 |   |
| Total                |       | 225,137                                |       | 127.6 |   | 329,433 |   | 163.5 |   | 187,616 |   | 120.1 |   |

 
| ** **           | ** ** | **Year ended December 31,  200****7** | ** ** |
|----------------------|------------|--------------------------------------------|------------|
| ** **           | ** ** | **Chile**                                  | ** ** | **Brazil** | ** ** | **Argentina** | ** ** |
| ** **           | ** ** | **MCh$**                                   | ** ** | **MUCs** | ** ** | **MCh$** | ** ** | **MUCs** | ** ** | **MCh$** | ** ** | **MUCs** | ** ** |
| Colas                |       | 179,932                                    |       | 102 |   | 214,812 |   | 134.5 |   | 91,332 |   | 85.2 |   |
| Flavored soft drinks |       | 40,939                                     |       | 21.9 |   | 49,590 |   | 30.4 |   | 32,473 |   | 28.4 |   |
| Total                |       | 220,871                                    |       | 123.9 |   | 264,402 |   | 164.9 |   | 123,805 |   | 113.6 |   |

 
| ** **           | ** ** | **Year ended December 31,  2006** | ** ** |
|----------------------|------------|----------------------------------------|------------|
| ** **           | ** ** | **Chile**                              | ** ** | **Brazil** | ** ** | **Argentina** | ** ** |
| ** **           | ** ** | **MCh$**                               | ** ** | **MUCs** | ** ** | **MCh$** | ** ** | **MUCs** | ** ** | **MCh$** | ** ** | **MUCs** | ** ** |
| Colas                |       | 171,109                                |       | 96.1 |   | 191,483 |   | 124.7 |   | 88,364 |   | 79.8 |   |
| Flavored soft drinks |       | 42,143                                 |       | 22.9 |   | 41,757 |   | 30.7 |   | 28,534 |   | 27.7 |   |
| Total                |       | 213,252                                |       | 119.0 |   | 233,240 |   | 155.4 |   | 116,898 |   | 107.5 |   |

 

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-mixsyrup.  Regarding Juices, they aredistributed in non-returnable glass and PET bottles, in bi-laminated sachettes,cardboard Tetra Pack containers and bag-in-box as concentrated juice that ismixed with water at the point of sale. Waters are distributed in returnableglass bottles and 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 Drink Sales by Packaging Type**

 
| ** **     | ** ** | **Year  Ended December 31,** | ** ** |
|----------------|------------|-----------------------------------|------------|
| ** **     | ** ** | **2008**                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **     | ** ** | **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                              |       | 14.3 |   | 48.8 |   | 61.0 |   | 13.7 |   | 48.3 |   | 61.1 |   | 13.3 |   | 47.2 |   |
| Non-returnable |       | 35.1                              |       | 82.7 |   | 50.5 |   | 34.9 |   | 83.5 |   | 51.0 |   | 34.9 |   | 84.0 |   | 52.0 |   |
| Post Mix       |       | 3.9                               |       | 2.9 |   | 0.7 |   | 4.1 |   | 2.8 |   | 0.7 |   | 4.0 |   | 2.7 |   | 0.8 |   |
| Total          |       | 100.0                             |       | 100.0 |   | 100.0 |   | 100.0 |   | 100.0 |   | 100.0 |   | 100.0 |   | 100.0 |   | 100.0 |   |

 

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**Customers and Distribution**

 

As of December 31, 2008, we sold our productsto approximately 44,354 customers in Chile, 60,967 customers in Brazil, and47,188 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:

 

**Soft Drink Sales by Type of Customer**

 
| ** **                                                 | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                 | ** ** | **2008**                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                 | ** ** | **Chile**                        | ** ** | **Brazil** | ** ** | **Argentina** | ** ** | **Chile** | ** ** | **Brazil** | ** ** | **Argentina** | ** ** | **Chile** | ** ** | **Brazil** | ** ** | **Argentina** | ** ** |
| ** **                                                 | ** ** | **(%)**                          | ** ** |
| Small- and medium-sized retail establishments for  takeout |       | 47                               |       | 19 |   | 38 |   | 49 |   | 26 |   | 37 |   | 46 |   | 27 |   | 19 |   |
| Wholesale distributors                                     |       | 8                                |       | 22 |   | 28 |   | 9 |   | 20 |   | 29 |   | 8 |   | 21 |   | 30 |   |
| Supermarkets                                               |       | 23                               |       | 28 |   | 16 |   | 23 |   | 28 |   | 15 |   | 23 |   | 28 |   | 15 |   |
| Restaurants, hotels and bars                               |       | 6                                |       | 24 |   | 3 |   | 6 |   | 20 |   | 3 |   | 6 |   | 19 |   | 4 |   |
| Fast food outlets                                          |       | 3                                |       | 3 |   | 1 |   | 3 |   | 2 |   | 1 |   | 3 |   | 2 |   | 1 |   |
| Convenience stores                                         |       | 8                                |       | 1 |   | 11 |   | 9 |   | 1 |   | 12 |   | 9 |   | 1 |   | 29 |   |
| Others                                                     |       | 6                                |       | 3 |   | 3 |   | 1 |   | 3 |   | 3 |   | 5 |   | 2 |   | 2 |   |
| Total                                                      |       | 100                              |       | 100 |   | 100 |   | 100 |   | 100 |   | 100 |   | 100 |   | 100 |   | 100 |   |

 

*Chile*. As of December 31, 2008, Andina’ssales force in Chile consisted of 193 salespeople (162 workers hiredindefinitely and 31 hired on a fixed term basis) who call on most customers onaverage 1.8 times per week. For sales to major supermarkets, we employapproximately 5 key account managers, 13 field supervisors and 496 promoters(444 full time and 53 part time) who are on-site supervisors who handle ourproducts, monitor displays and track the pricing and marketing strategies ofour competitors. Account executives are also assigned to major fast foodoutlets to work with the customer to develop sales on a consistent basis. Ourdistribution system for our soft drink products consisted of a group of 18exclusive distributors, which are independent businesses that collectivelydeploy approximately 350 trucks (26 of which are company property), dependingon seasonal demand. The 18 distributors collectively service all of our Chileancustomers. In most cases, the distributor collects payment from the customer incash or check. Where applicable, the driver also either collects emptyreturnable glass or PET bottles of the same type and quantity as the bottlesbeing delivered, or collects cash deposits for the net returnable bottles delivered.This task is particularly significant in the Chilean territory where returnablecontainers accounted for approximately 61% of total unit cases of soft drinkssold in 2008. Certain important customers (such as supermarkets), maintainaccounts receivables with us, which are settled on average every 44 days afterinvoices are issued. On average, accounts receivable from all clients areliquidated on a 22-day term.

 

*Brazil*. As of December 31, 2008, Refrescos’sales force in Brazil consisted of an average of 371 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 2008, 10.7% were distributed by exclusivedistributors, and 89.3% by independent transport companies. Distribution of allof Refrescos’ beverages takes place from distribution centers and productionfacilities. High volume customers such as supermarkets are serviced exclusivelyfrom the distribution centers located at Refrescos’ production facilities. In2008, approximately 18% of Refrescos’ soft drink sales were paid for in cash atthe time of delivery, 23% were paid by check to be cashed between one and tendays after delivery and 59% were paid between 10 and 45 days after delivery byinvoice.

 

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*Argentina*. As of December 31, 2008, our salesforce in Argentina consisted of 403 employees, grouped in salespeople,merchandisers, and Contact Center personnel. In 2008, 72% of Edasa’s Coca-Colasoft drinks were distributed by direct distribution (trucking) and 28% bywholesale distribution. All of the direct distribution is done by a group ofindependent transport companies (each with three or more trucks). In 2008,approximately 80% of Edasa’s soft drink sales were paid for in cash and 20%were credit sales. Approximately 0.1% of credit sales were paid by short-termcredit to be paid for within one to eight days after delivery and the rest iscredited to the current account.

 

**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 Chilean beverageindustry is highly competitive. The most important areas of competition areproduct image, pricing, advertising, ability to deliver product in popularbottle sizes, distribution capacity, and the amount of returnable bottles heldby retailers or by consumers. Returnable bottles can be exchanged at the timeof new purchases in lieu of paying a bottle deposit, thereby decreasing thepurchase 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 Hook in theprovinces of Córdoba, Santa Fe and Mendoza. In the province of Santa Fe, Baggiosells Mocoretá. In the province of Mendoza, San Isidro Refrescos S.A. sellsBeach, Royal Crown, Upper 10, Sao, Sunkist and Seagram’s products, and CahizaHermanos sells Chyc.

 

Based on reports by A.C. Nielsen, we estimate thatin 2008, our average soft drink market share within our franchise territoriesreached 67.3%, 56.8%, and 51.4% 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,** | ** ** |
|------------------------------|------------|----------------------------------|------------|
| ** **                   | ** ** | **2008**                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                   | ** ** | **Chile**                        | ** ** | **Brazil** | ** ** | **Argentina** | ** ** | **Chile** | ** ** | **Brazil** | ** ** | **Argentina** | ** ** | **Chile** | ** ** | **Brazil** | ** ** | **Argentina** | ** ** |
| ** **                   | ** ** | **(%)**                          | ** ** |
| Coca-Cola soft drinks        |       | 67                               |       | 57 |   | 51 |   | 67 |   | 57 |   | 51 |   | 68 |   | 57 |   | 50 |   |
| ECUSA soft drinks            |       | 21                               |       | — |   | — |   | 20 |   | — |   | — |   | 19 |   | — |   | — |   |
| Pepsi-Cola and 7 Up products |       | 3                                |       | 5 |   | 22 |   | 3 |   | 6 |   | 20 |   | 3 |   | 5 |   | 18 |   |
| Pritty products              |       |                             |       |   |   | 9 |   | — |   | — |   | 9 |   | — |   | — |   | 10 |   |
| Antarctica products          |       |                             |       | 10 |   |   |   | — |   | 10 |   | — |   | — |   | 10 |   | — |   |
| Brahma products              |       |                             |       | 1 |   |   |   | — |   | 1 |   | — |   | — |   | 1 |   | — |   |
| Other                        |       | 9                                |       | 27 |   | 18 |   | 10 |   | 26 |   | 20 |   | 10 |   | 27 |   | 22 |   |
| Total                        |       | 100                              |       | 100 |   | 100 |   | 100 |   | 100 |   | 100 |   | 100 |   | 100 |   | 100 |   |

* *

Source: A.C. Nielsen

 

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**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 during the South American winter (April throughSeptember). Our Chilean and Argentine operations generally experience higherlevels of seasonal price fluctuations 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 from IndustriaAzucarera Nacional S.A., IANSA, the only producer of sugar in Chile, althoughwe may purchase sugar in the international market when prices are favorable,and have done 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 andnon-returnable PET pre-forms which are blown at our San Joaquín plant. Wepurchase glass bottles principally from Cristalerías de Chile S.A. andCristalerías Toro S.A.I.C.  Bottle capsare purchased from Alusud, Alucaps Mexicana S.A. de C.V., Inyecal S.A. andother suppliers.

 

During 2008 74% of cost of sales for soft drinksproduced by Andina corresponded to main raw materials. The cost of eachraw material within the total of main raw materials is the following:concentrate represents 62%; sugar and artificial sweeteners 20%; non-returnablebottles 13%; bottle caps 5% 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 been designatedas a duty-free development zone by the Brazilian government. Refrescospurchases sugar from Brazilian suppliers, in particular from Copersucar Ltda.It purchases carbon dioxide gas mainly from Companhia White Martins Gases S.Aand Linde Gases Ltda.  PET pre-forms fromAmcor Ltd., Braspla Ltda., and from Edasa’s Packaging Division.  Glass bottles are purchased fromOwens-Illinois and metal bottle caps from Aro S.A. Plastic bottle caps arepurchased from CSI and Rexam..  Refrescospurchases water from the municipality of Rio de Janeiro.

 

During 2008, 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., Atanor S.C.A. and Copersucar Cooop de Brasil;  fructose from Productos de Maíz S.A. andLedesma S.A.A.I., and carbon dioxide gas from Praxair S.A. and Air Liquide S.A.Edasa produces non-returnable and returnable PET bottles through Edasa’sPackaging Division, and glass bottles from Cattorini Hermanos S.A. and fromCristalerías de Chile S.A. and

 

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

 

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CristaleríasToro de Chile, plastic bottle caps from Alusud S.A. and Inyecal S.A.,  and metal caps from Metalgráfica CearenseS.A. and Aro S.A. in Brazil. Regarding water supply for the production of softdrink, Edasa owns water wells and pays a fee to the Dirección Provincial deAguas Sanitarias.  Edasa also buysstretch wrap from Manuli Packaging Argentina, Plastiandino S.A., SanlufilmS.A., Atiles S.A., IPESA Ind. Plast. S.A. and Rio Chico S.A., and carton fromCartocor S.A. and Papeltecnica S.A.

 

During 2008, 75% 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 52%; sugar and artificial sweeteners 21%;non-returnable bottles 19; bottle caps 45 and carbon dioxide 1%, and theremaining 2% correspond to packaging. Water does not represent a significantcost as raw material.  Additionally, thecost of finished products purchased from third parties is included within thecost of sales of soft drinks. These costs represent 3% of the total costsof sales of soft drinks and correspond to can formats, juices and some bottledwater products.

 

*PET Packaging - Raw Materials.* The principal raw material required forproduction of PET bottles is PET resin, during 2008 this raw material was fromDAK Américas de Argentina S.A.  In 2008,the Edasa Packaging Division’s costs for PET resin accounted for 93.3% of thetotal variable cost of its sales of PET bottles.

 

**Marketing**

 

We and The Coca-Cola Companyjointly promote and market Coca-Cola soft drinks in our franchise territories,in accordance with the terms of our respective Bottler Agreements. During 2008,we paid approximately 50% of the advertising and promotional expenses incurredby The Coca-Cola Company in our franchise territories. Nearly all mediaadvertising and promotional materials for Coca-Cola soft drinks are producedand distributed by The Coca-Cola Company. See “Item 7. Major Shareholders andRelated Party Transactions—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 continueinvesting to increase pre-sale coverage in our territories.

 

*Marketing Expenditure.* Our consolidated total marketing andadvertising expenditures in 2008 were Ch$24,651 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.

 

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**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 Forte, Andina Calcio + Dand Kapo.  The line of sports drinks issold under the brand Powerade and ready-to-drink tea is sold as Nestea. Waterproducts are produced and sold under the brands Vital (mineral water), Dasani (purifiedand flavored water), and Benedictino (purified water).

 

*Brazil*. We distribute beer under the Kaiser,Bavaria, Heineken, Sol, Xingu and Dos Equis (XX) labels. We also distributewater under the Bonaqua and Aquarius labels and sell and distribute ready-to-drinkjuices under the Kapo and Minute Maid Mais labels, milk and cocoa-basedbeverages under the Kapo Chocolate brand, energy drinks under the Burn brandname, isotonics under i9 brand name and Nestea ready-to-drink tea.

 

*Argentina*. We distribute ready-to-drink juices underthe Cepita brand name. We also produce and sell water (sparkling and still)under the Dasani brand name. In April of 2008 we launched Powerade in theisotonic segment. .

 

The trademarks “Andina Frut”, “Andina Néctar”, “AndinaHi-C”, “Kapo”, “Powerade”, “Cepita”, “Bonaqua”, “Aquarius”, “Mais”, “i9”, “Burn”,“Vital”, “Dasani” and “Benedictino” are owned by The Coca-Cola Company. Weproduce and/or sell non-soft drink beverages bearing these trademarks underbottling agreements with The Coca-Cola Company.   The “Nestea” trademark is owned by Nestlé injoint venture with The Coca-Cola Company.

 

**Waters andJuices in Chile**

 

Through Vital S.A., wecompete in the fruit juice, nectars, fruit flavor tea based beverages, sportsdrinks and other non carbonated fruit flavored beverages in the beverage marketin Chile.  Through Vital Aguas S.A. wecompete in the mineral water and purified water segments of the beverage marketin Chile. Vital S.A. sells non-soft drink beverage products under five differentbrand names: Andina Frut (natural fruit juices), Andina Néctar (fruit nectarsKapo (artificially flavored fruit drinks), Powerade (sports drinks) and Nestea(fruit flavored tea based beverage). On the other hand Vital Aguas S.A. sellsits products under three brand names: Vital (mineral water)  Dasani (flavored and unflavored purifiedwater) and Benedecitino (purified water).

 

*Sales*. In 2008,net sales of waters and juices in Chile represented 5.9% of our consolidatednet sales. On a consolidated basis, sales of waters and juices in Chile wereCh$50,352 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 2008, the waters and juices industryin Chile experienced a 13.0% 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 and Juices Sales by Net Sales and Volume(1)**

** **
| ** **                   | ** ** | **Year-ended December 31,**                                                                         | ** ** |
|------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|
| ** **                   | ** ** | **2008**                                                                                                 | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                   | ** ** | **(in millions of constant Ch$ as  of December 31, 2008, and millions of UCs, as applicable)** | ** ** |
| ** **                   | ** ** | **Ch$**                                                                                                  | ** ** | **UCs** | ** ** | **Ch$** | ** ** | **UCs** | ** ** | **Ch$** | ** ** | **UCs** | ** ** |
| Andina Frut                  |       | 11,467                                                                                                   |       | 6.9 |   | 12,029 |   | 5.3 |   | 9,124 |   | 4.1 |   |
| Andina Néctar           |       | 9,637                                                                                                    |       | 4.5 |   | 8,038 |   | 5.2 |   | 6,983 |   | 4.4 |   |
| Kapo                         |       | 4,685                                                                                                    |       | 3.4 |   | 4,334 |   | 3.2 |   | 4,118 |   | 3.1 |   |
| Andina HI-C                  |       | 0                                                                                                        |       | — |   | 36 |   | — |   | 417 |   | 0.2 |   |
| Powerade                     |       | 1,191                                                                                                    |       | 0.4 |   | 1,025 |   | 0.4 |   | 689 |   | 0.2 |   |
| Nestea                       |       | 380                                                                                                      |       | 0.3 |   | 343 |   | 0.1 |   | 0 |   | — |   |
| Dasani (purified water)      |       | 1,448                                                                                                    |       | 1.4 |   | 2,481 |   | 2.1 |   | 4,456 |   | 3.6 |   |
| Benedictino (purified water) |       | 1,235                                                                                                    |       | 2.1 |   | 0 |   | — |   | 0 |   | — |   |
| Vital (mineral water)        |       | 8,125                                                                                                    |       | 11.9 |   | 7,885 |   | 11.1 |   | 6,609 |   | 9.1 |   |
| **Total(2)**                 | ** ** | **38,168**                                                                                               | ** ** | **30.9** | ** ** | **36,171** | ** ** | **27.4** | ** ** | **32,396** | ** ** | **24.7** | ** ** |

 

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

(2)Includessales to related companies which are eliminated upon consolidation.

 

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*Marketing.* Marketing and promotional programs, includingtelevision, radio and print advertising, point-of-sale advertising, salespromotions and entertainment are developed by The Coca-Cola Company for allVital and Vital Aguas’ products.

 

*Customers and Distribution*. Juices and waters throughout Chile are distributedby means of distribution agreements between us and two other Coca-Colabottlers. In 2008, Andina distributed approximately 54% of Vital’s products,and the other two Coca-Cola bottlers in Chile distributed an aggregate of 46%.Each Coca-Cola bottler in Chile distributes Vital and Vital Aguas products inits respective franchise territory. Under Vital and Vital Aguas’ distributionagreements, each bottler has the exclusive right to distribute waters andjuices in its territory and each agrees not to distribute competing products.

 

Ourmanagement believes that our distribution arrangements for waters and juicesprovide an effective means of distributing those products throughout Chileusing the extensive distribution system of the Coca-Cola bottlers. We have agood working relationship with the Coca-Cola bottlers that distribute watersand juices. If any Coca-Cola bottler were to cease distribution, our managementbelieves it could arrange alternative distribution arrangements, but thetransition to the new arrangements could involve significant delays indistributing products and would involve additional costs and an initialreduction in sales.

 

*Competition*. Vital Aguas’ principal competitor(1) regarding wateris CCU with the Cachantún brand.  Additionally there are low priced brands (B-brands) in the water segmentin Chile.   Vital S.A.’s principal competitorsregarding juices are, Watt’s-CCU, Corpora Tres Montes and three of the leadingdairy producers in Chile: Soprole S.A., Nestlé Chile S.A. and Loncoleche S.A.,who is also a subsidiary of Watt’s S.A. During 2006, the largest Chileanbrewery CCU acquires from Watts S.A. a 50% ownership interest of the juicebrands in Chile, creating a joint venture for the management of this businessarea. The Chilean market for fruit-flavored beverages and waters also includeslow-cost, lower-quality fruit juice concentrates and artificially flavoredpowdered beverage mixes. We do not consider these products to compete with ourwaters and juices business because we believe that these products are of lowerquality and value.

 

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(1)  Until mid 2007 the Benedictino brand belongedto Aguas del Sur, a company which was acquired by a subsidiary of EmbotelladoraCoca-Cola Polar.   In October of 2007,Coca-Cola de Chile acquired from said subsidiary the Benedictino brand.

 

Basedon reports by A.C. Nielsen, we estimate that in 2008, our market share withinour Chilean franchise territories reached 28.6% for Juices  33.7%for sports drinks, 46.6% for ready todrink tea flavored and fruit flavored beverages and 34.2% for Water.

 

*Raw material for Juices*. The principal raw materials used by Vital S.A. inthe production of juices and as a percentage of total raw material costs, aresweeteners 9.7%, fruit pulp and juices 13.0%, flavors, aromas and citric acid17.0%, containers 28.7% and wrapping material 5.3%, all of which during 2008 accountedfor 79.5% of total costs for sales of juice, including packaging.

 

*Raw materials for Waters:* The principal raw materials used by Vital Aguas S.A.in the production of mineral water and purified unflavored and purifiedflavored water and as a percentage of total raw material costs are: Nonreturnable PET packaging 46.0%, mineral water, flavor, aromas, sweeteners andcitric acid 25.6%, packaging material 5.1%, caps 4.6% and carbonation 0.6%, allof which during 2008 accounted for 85.3% of total costs for sales of water,including packaging.

 

**Beer, Juices and Waters in Brazil**

 

*Sales*. In 2008, net sales of beer, juices, waters, tea based beverages,isotonics and energy drinks in Brazil were Ch$41,298 million, representing 4.9%of our consolidated net sales.

 

Refrescosuses its distribution system to distribute beer in the Brazilian territory.Refrescos started distributing beer in the 1980s as a result of the acquisitionof Kaiser by a consortium of Coca-Cola bottlers (including Refrescos) inBrazil. In March 2002, the Canadian brewing company Molson Inc. acquiredCervejarias Kaiser S.A. (“Kaiser”). In 2006, Femsa acquired from Molson thecontrolling ownership interest over Kaiser.  Refrescos began the distribution of the beer brand Dos Equis (XX) during2007.

 

Refrescosbuys beer from Femsa at a price determined by Femsa and sells it to itscustomers with a fixed margin. In the case of certain discount sales that havebeen approved by Femsa, Femsa shares between 50% and 100% of the cost of suchdiscounts. In 2008, Refrescos’ net sales of beer were Ch$19,177 million, ofwhich Bavaria brand beer accounted for 50.7%, Sol for 22.2%, Kaiser for 15.6%,Heineken for 9.1%, Xingu for 2.2%, % and Dos Equis (XX)  for 0.2% of net sales.

 

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*Competition*. In the beer sector, Refrescos’ main competitor isAmbev that during 2008 had a very dominant position in the Brazilian market.

 

*TheDistribution Agreements. *The Coca-Cola Company, and the BrazilianAssociation of Coca-Cola Manufacturers entered into an agreement regarding thedistribution through the Coca-Cola System of beer produced and imported byFemsa. The agreements were signed May 30, 2003, and are renewable for a periodof 20 years.

 

Refrescosis not allowed to produce, bottle, sell or obtain any interest in any bottledor tap beer under any other label or in any bottle or packaging that could beconfused with brand beers, except as may be mutually agreed in writing betweenRefrescos and Femsa.

 

Underthe terms of the distribution agreement, Femsa assumes all responsibility forplanning and managing advertising, marketing and promotional activities relatedto beer.  Refrescos, however, is free toundertake marketing or promotional activities with Femsa ́s prior approval. Theparties have agreed to assume joint responsibility for the costs of certainpromotional activities (radio or television) and for certain outdoor events whichtake place in the Rio de Janeiro region. Refrescos has agreed to devote atleast 3% of its sales net of taxes of Femsa products to such promotionalactivities or events.

 

Refrescosis prohibited from assigning, transferring, or otherwise encumbering the Femsadistribution agreement or any interest therein for the benefit of third partieswithout prior written consent from Femsa. Femsa may terminate the Femsadistribution agreement immediately in the event that Refrescos (i) declaresbankruptcy, is made a party to bankruptcy proceedings or is placed underjudicial administration, (ii) is dissolved or liquidated or its assets arenationalized, expropriated, attached or intervened, (iii) undergoes a change ofbusiness or of control, (iv) ceases to be a franchisee of The Coca-Cola Companyor (v) causes a material breach of the Femsa distribution agreement. Inaddition, Femsa may terminate the Femsa distribution agreement one year afterdelivery of notice that Refrescos is not complying with the terms thereof.Refrescos may terminate the Femsa distribution agreement in the event of amaterial breach thereof by Femsa.

 

**3. PET Packaging**

 

**Overview and Background**

 

Weproduce PET bottles in both returnable and non-returnable formats. 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, wine andpersonal hygiene products In 2008, the Edasa Packaging Division was one of thelargest manufacturers of PET products in Argentina. In Brazil, Refrescos purchases70% of its PET performs from Brasalpla, 7% from Amcor, and 23% from the EdasaPackaging Division.

 

*Sales*. In 2008, the Edasa Packaging Division had net salesof Ch$29,880 million with sales to Edasa Soft Drinks Division amounting toCh$16,496 million and to Rio de Janeiro Refrescos amounted to Ch$3,670 millionThe Edasa Packaging Division also sold PET bottles to third parties accountingfor approximately Ch$9,714 million.

 

*Competition*. We are suppliers of returnable and nonreturnable PET bottles for Coca-Cola bottlers in Argentina and Chile. Accordingto the pre-existing agreements between The Coca-Cola Company and the otherCoca-Cola bottlers within South America, we must obtain the consent andassistance of The Coca-Cola Company to expand our sales of returnable PETbottles to said bottlers.

 

In Chile, we do not have any principal  competitors in the non—returnable PET bottlesmarket for oils, wines and personal hygiene. There are a few producers of non returnable PET bottles in Chile who aresignificantly smaller than CMF. Plasco S.A., the second Chilean manufacturer ofnon returnable PET bottles, does not compete with us because it is theexclusive supplier of PET bottles for ECUSA. (The Chilean Pepsi bottler).

 

InArgentina, we compete principally with Alpla S.A. and Amcor. The EdasaPackaging Division is the supplier of returnable PET bottles to all Coca-Colabottlers in Argentina.

 

Variousbottle manufacturers produce returnable PET bottles in Chile and other SouthAmerican countries for competitors of The Coca-Cola Company, and numerousmanufacturers in various countries produce non-returnable PET bottles forbeverages and other products.

 

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**4. Patents and Licenses**

 

TheCompany has entered into Bottling Agreements with The Coca-Cola Company, bywhich it has the license to produce and distribute Coca-Cola brand productswithin its operating franchise territories in Chile, Brazil and Argentina. TheCompany’s operations are highly dependent on maintaining and renewing theBottler Agreements which provide for the production and distribution ofCoca-Cola brand products. The duration, renewal and maintenance terms of theBottler Agreements are set forth in “Item 7 — Major Shareholders and RelatedParty Transactions — Bottler Agreements.”

 

**5. Regulation**

 

**General**

 

We aresubject to the full range of government regulations generally applicable tocompanies engaged in business in our franchise territories, including but notlimited to labor, social security, public health, consumer protection,environmental, sanitation, employee safety, securities and anti-trust laws.Currently, no material legal or administrative proceedings are pending againstus with respect to any regulatory matter in any of our franchise territoriesexcept those listed as such in “Item 8. Financial Information—LegalProceedings.” We believe, to the best of our knowledge that we are in compliancein all material respects with applicable statutory and administrativeregulations relating to our business in each of our franchise territories.

 

*Chile*. There are no special licenses or permits required to manufacture anddistribute soft drinks and juices in the Chilean territory. Food and beverageproducers in Chile, however, must obtain authorization from (and theiractivities are subject to supervision by) the Chilean Environmental ProtectionServices (*Servicio Sanitario Metropolitanodel Ambiente*), which inspects plants and takes liquid samples foranalysis on a regular basis. Our permit from the Chilean EnvironmentalProtection Authority was obtained on January 8, 1992 and is in effectindefinitely. In addition, production and distribution of mineral water issubject to special regulation such that mineral water may be drawn only fromsources designated for such purpose by presidential decree. Certification ofcompliance with such decree is provided by the National Health Service todaythe 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 mandating employee benefits, includeregulations to ensure sanitary and safe working conditions in our productionfacilities located in Brazil. Food and beverage producers in Brazil mustregister their products with and receive a ten-year permit from the Ministry ofAgriculture and Provisioning and the Ministry of Health, which oversees dietproducts, which we together refer to as the Ministries. Our permits from theMinistries are valid and in force for a term of ten years for each product weproduce. Although we cannot assure you that they will be renewed, we have notexperienced any material difficulties in renewing our permits in the past nordo we expect to experience any difficulties in the future. The Ministries donot regularly inspect facilities but they do send inspectors to investigate anycomplaints it receives.

 

*Argentina*. While most laws applicable to Edasa are enforced atthe federal level, some, such as sanitary and environmental regulations, areprimarily enforced by provincial and municipal governments. There are nolicenses or permits required for the manufacture or distribution of soft drinksin the Argentine territory. However, our production facilities are subject toregistration with federal and provincial authorities and to supervision bymunicipal health agencies, which certify compliance with applicable laws.

 

**Environmental Matters**

 

It isour policy to conduct environmentally sound operations on a basis consistentwith applicable laws and with criteria established by The Coca-Cola Company.Although regulation of matters relating to the protection of the environment isnot as well-developed in the franchise territories as in the United States andother industrialized countries, we expect that additional laws and regulationsmay be enacted in the future with respect to environmental matters that mayimpose additional restrictions on us which could materially or adversely affectour results of operations in the future. There are no material legal oradministrative 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 several regulations governing environmentalmatters relating to our operations. For instance, Law 3,133 regulates dischargeof residual industrial waste, and the Sanitary Code contains provisionsrelating to liquid and solid waste disposal, basic environmental conditions inthe workplace, and the protection of water for human consumption. In 1993, theChilean government published regulations that updated the provisions of Law3,133. These regulations place limits on the disposal of harmful substanceswhich may be hazardous to water used in irrigation or water for consumption bypeople or animals without prior authorization from the Ministry of Public Worksand a favorable 

 

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determination from theSuperintendence of Sanitary Services. The regulations also mandate governmentalapproval of any systems to treat or discharge liquid industrial waste(regulated by Supreme Decree 90 for discharges to open courses and by SupremeDecree 609 for discharges to sewage collectors). In 1996, we installed a liquidindustrial waste treatment plant to comply with the Chilean liquid wasteemissions standards, in effect since 1998. As of May of 2006, the first stagesof liquid industrial waste treatment are done at our facilities and then it iscompleted at La Farfana.  Currently thereis an outsourcing agreement with the company Ecoriles for the treatment ofliquid industrial waste.

 

Law19,300, passed in March 1994, addresses general environmental concerns that maybe applicable to our activities and which, if applicable, would require us tohire independent experts to conduct environmental impact studies ordeclarations of any future projects or activities that could be impacted by theregulations of Law 19,300. Law 19,300 creates the National Commission on theEnvironment, which is supported by regional commissions to superviseenvironmental impact studies and declarations for all new projects, to enforcethe regulations of Law 19,300 and to grant discretionary power to regulators.There can be no assurance that future legislative regulatory developments willnot impose further restrictions that would be material to our operations inChile.   We believe that, to the best ofour knowledge we believe we are in compliance with all material aspects of theChilean environmental regulations.

 

In October 2006 The Coca-Cola Company issued its auditregarding Certifications of Quality, Security and Environment Systems known asPHASE 3, and we have become the first production facility in Chile to receivethis certification with the maximum qualifications. Additionally and thanks toour commitment lead to the first place achievement in the 2006 Quality Contestfor Bottler in the Coca-Cola System in Chile.

 

In Mayof 2006, our Company received the 2005 National Award for Quality in thecategory for Large Corporations based on the evaluation of performanceexcellence, known as Malcolm Balridge in the United States. It is the firsttime this distinction is awarded to a company of the consumer productsindustry, a recognition to the performance of Embotelladora Andina S.A. thatduring over 60 years of trajectory has proven excellence in its procedures,client service and social responsibility.

 

DuringOctober of 2005, following pre-certification and certification proceduresdeveloped through audits carried out by a third party (SGS Chile), the Companywas recommended for the ISO 14001:2004. As a result, the production facilitylocated at Carlos Valdovinos 560, San Joaquin, in Santiago, Chile, became thefirst plant in Latin America to achieve the four Quality System Certifications,Nourishing Security (HACCP), Environment (ISO 14001:2004), Security andOccupational Health (OHSAS 18001:1999 and Quality (ISO 9001:2000), In Septemberof 2007, these certifications were extended for another 3 years.

 

In2003, the plants of Rengo and Vital were certified under the *Codex Alimentarius* and the Chileanregulation 2861:2004 for their production processes, Hazard Analysis andCritical Control Point (“HACCP”) system. This certification was renewed in 2006.

 

Andina’smanagement believes it maintains good relationships with its employees.  In Chile, Andina received three awards fromindependent organizations praising our labor relations and the positive effectsof these over our business.  During 2002and 2003 Andina was awarded with the Corcin award from an important ChileanTraining Center (Centro Intermedio de Capacitación de ASEXMA) as a membercompany with the greatest commitment and investment for training purposes.  During 2003 Embotelladora Andina was awardedthe Carlos Vial Espantoso award, which distinguishes the most relevant Chileancompany in terms permanent training, security and risk prevention, bonus andother policies aimed towards benefiting the families of our workers.

 

*Brazil*. Our Brazilian operations are subject to several environmental laws,none of which currently impose substantial restrictions on us. The BrazilianConstitution establishes the broad guidelines for the new treatment ofenvironmental concerns, dedicating an entire chapter (Chapter VI, Article 225)to the protection of the environment, along with several other articles relatedto the environmental law and urban law. Environmental issues are regulated atthe federal, state and municipal levels and the Brazilian Constitution empowersthe public authorities to develop regulations designed to preserve and restorethe environment and to control industrial processes that affect human life.Violations of these regulations are subject to criminal, civil andadministrative penalties.

 

Inaddition, Law No. 6,938 of August 31, 1981, known as the BrazilianEnvironmental Policy, introduced an entirely different environmental regime bywhich no environmental damage is exempt from coverage. The legislation is basedon the idea that even a polluting waste tolerated under the establishedstandards could cause environmental damage, and therefore subjects the partycausing such damage to payment of an indemnity. Moreover, as mentioned above,activities damaging to 

 

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the environment lead tocriminal and administrative penalties, provided for in Law 9,605 of February 12,1998 or the Environmental Crimes Act.

 

Numerousgovernmental bodies have jurisdiction over environmental matters. At thefederal level, the *Ministério do MeioAmbiente* (Brazilian Ministry of Environment) and the *Conselho Nacional do Meio-Ambiente* orCONAMA dictate environmental policy, including, without limitation, initiatingenvironmental improvement projects, establishing a system of fines andadministrative penalties and reaching agreements on environmental matters withoffending industries. The *Instituto Brasileiro do Meio Ambiente e dos Recursos NaturaisRenováveis* or IBAMA enforces environmental regulations set byCONAMA. In addition,various federal authorities have jurisdiction over specific industrial sectors,but none of these currently affect us. Finally, various state and localauthorities regulate environmental matters in the Brazilian territory includingthe *Fundação Estadual de Engenharia doMeio-Ambiente* or FEEMA, the principal environmental authority in Riode Janeiro and the *Instituto Estadual deMedio Ambiente e Recursos Hídricos* or IEMA, the principalenvironmental authority in Espírito Santo. FEEMA and IEMA periodically inspectindustrial sites and tests liquid waste for contamination. We believe to thebest of our knowledge that we are in compliance in all material respects withthe standards established by all the governmental authorities applicable to ouroperations in Brazil. We cannot assure you, however, that additional regulationswill not be enacted in the future, and that such restrictions would not have amaterial adverse effect on our results or operations.

 

*Argentina*. The Argentine Constitution, as amended in 1994,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 bebrought in the future. Though provincial governments have primary regulatoryauthority over environmental matters, municipal and federal authorities arealso competent 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 July2002, the National Congress approved federal Law No. 25,612, *Gestión Integral de Residuos Industriales y deActividades de Servicios (*Integral Management of Industrial Residuesand Service Activities*)*and onNovember, 2002, Law No. 25,675, *Ley General del Ambiente**(*General Environmental Law)establishing minimum guidelines for the protection of the sustainableenvironmental management and the protection of biodiversity, applicablethroughout Argentina. The law establishes the purposes, principles andinstruments of the national environmental policy, the concept of “minimumguidelines,” the judicial competence and the rules governing environmentaleducation and information, citizens’ participation and self-management, amongother provisions.

 

Provincialgovernments within the Argentine territory have enacted laws establishing aframework for the preservation of the environment (Law No. 7,343 in Córdoba,Law No. 5,961 in Mendoza and Law No. 11.717 in Santa Fe). These laws containprinciples on environmental policy and management, as well as rules onenvironmental impact assessment. They also give certain agencies competence inenvironmental issues.

 

Almostall provinces as well as many municipalities have established rules regardingthe use of water, the sewage system and the disposal of liquids intounderground flows of water or rivers. There are currently no claims pendingagainst us on this matter. The violation of these rules usually results infines.

 

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

 

Thefollowing table presents information relating to the main activity of ourprincipal subsidiaries, our ownership interest in them as of December 31, 2008.

 
| **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, produce and  sell plastic products or products derived from the plastic industry, mainly  in the packaging area.                                                                                                                                                                                                                                              |       | Argentina                      |       | 99.98                     |       |
|                                  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |                           |       |                      |       |
| Abisa  Corp.                          |       | Financial  investment company.                                                                                                                                                                                                                                                                                                                                                                                                        |       | British Virgin Islands         |       | 99.99                     |       |

 

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The followingchart presents in summary form the Company’s direct and indirect ownershipparticipations in subsidiaries and affiliates:

 

 

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**D.****                    ****Property, Plants andEquipment**

 

Wemaintain production plants in each of the principal population centers thatcomprise the franchise territories. In addition, we maintain distributioncenters and administrative offices in each of the franchise territories. Thefollowing table sets forth in square meters, our principal properties andfacilities 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 pre-forms                       |       | 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                              |       | Offices / Production of PET bottles and pre-forms                       |       | 27,043                   |       |

 

Wehave full ownership of our properties which are not subject to materialencumbrances.

 

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**Capacity by Line of Business**

 

Setforth below is certain information concerning the installed capacity andapproximate average utilization of our production facilities, by line ofbusiness.

 
| ** **                               | ** ** | **Year Ended December 31,**            | ** ** |
|------------------------------------------|------------|----------------------------------------|------------|
| ** **                               | ** ** | **2008**                               | ** ** | **2007** | ** ** |
| ** **                               | ** ** | **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                                    |       | 71 |   | 82 |   | 157 |   | 70 |   | 97 |   |
| Brazil                                   |       | 209                                    |       | 80 |   | 94 |   | 209 |   | 79 |   | 94 |   |
| Argentina                                |       | 141                                    |       | 85 |   | 95 |   | 141 |   | 82 |   | 100 |   |
| Other beverages (millions of UCs)        |       | 49                                     |       | 65 |   | 77 |   | 49 |   | 58 |   | 69 |   |
| PET packaging (millions of bottles)      |       | 639                                    |       | 94 |   | 100 |   | 639 |   | 95 |   | 98 |   |

 

Totalinstalled annual production capacity assumes production of the mix of productsand containers produced in 2008. In 2008, we continued to modernize andrenovate our manufacturing facilities in order to maximize efficiency andproductivity. At present, we estimate we have the capacity in each of thefranchise territories to meet consumer demand for each product format. Becausebottling is a seasonal business with significantly higher demand during theSouth American summer and because soft drinks are perishable, it is necessaryfor bottlers to carry significant over-capacity in order to meet thesubstantially greater seasonal demand. We maintain quality control laboratoriesat each production facility where raw materials are tested and soft drinksamples are analyzed.

 

As of December31, 2008, we had total installed annual production capacity, including softdrinks, fruit waters and juices, of 556 million unit cases. Our primaryfacilities include:

 

·                          through Embotelladora Andina, in theChilean territory,  one soft drinkproduction facility with eight production lines with total installed annualcapacity of 157 million unit cases (28% of our total installed annualcapacity);

·                          through Vital S.A. in the Chileanterritory, one fruit juice production facility, with six production lines, withtotal installed annual capacity of 21 million unit cases (4% of our total installedannual 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 our totalinstalled 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 unit cases(38% of our total installed annual capacity); and

·                          through Embotelladora del Atlántico inthe Argentine territory, one soft drink production facility with sevenproduction lines with a total installed annual capacity of 141 million unitcases (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**

 

Thefollowing discussion should be read in conjunction with and is qualified in itsentirety by reference to the Consolidated Financial Statements, including thenotes thereto, included in Item 18. We prepare our financial statements inaccordance with Chilean GAAP, which differs in certain important respects fromU.S. GAAP. Note 30 of the notes to the Consolidated Financial Statementsprovides a description of the principal differences between Chilean GAAP andU.S. GAAP and a reconciliation to U.S. GAAP of net income and totalshareholders’ equity.

 

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ChileanGAAP requires that financial statements recognize the effects of inflation.Accordingly, all of our financial information, unless otherwise indicated, hasbeen restated to eliminate the distorting effects of changes in the purchasingpower of the Chilean peso on non-monetary assets and liabilities andshareholders’ equity, such that all such information is presented in comparablemonetary terms. The general price-level gain or loss reflected in the incomestatement indicates the effect of inflation on our net holdings of monetaryassets and liabilities during a period of inflation. Assets and liabilities areconsidered “monetary” for purposes of general price-level accounting if theiramounts are fixed by contract or otherwise in terms of number of currencyunits, regardless of changes in specific prices or in the general price level.Examples of “monetary” assets and liabilities include accounts receivable, accountspayable and cash.

 

Incomereported on a U.S. GAAP basis differs from that reported in accordance withChilean GAAP principally due to basic differences in property, plant andequipment, accounting for deferred income taxes, acquisition through theissuance of shares, difference in accounting for investments in relatedcompanies and different goodwill amounts, difference in accounting fortranslation adjustment of foreign investments, difference in joint ventureaccounting, and differences in amortization periods for goodwill. The effect ofinflation accounting under Chilean GAAP has not been reversed in thereconciliation to U.S. GAAP. See Note 30 of the notes to the ConsolidatedFinancial Statements.

 

**Factors Affecting Comparability**

 

During2008, there were no changes in the application of Chilean GAAP as compared tothe previous year that could materially affect the comparability of thefinancial statements.

 

**Critical Accounting Estimates**

 

*Discussion of critical accounting estimates*

 

In theordinary course of business, we have made a number of estimates and assumptionsrelating to the reporting of our results of operations and financial positionin the preparation of financial statements in conformity with Chilean GAAP andU.S. GAAP (with respect to the reconciliation of net income and shareholders’equity and additional disclosures required by U.S. GAAP). We cannot assure youthat actual results will not differ from those estimates. We believe that thefollowing discussion addresses our most critical accounting policies, which arethose that are most important to the portrayal of our financial condition andresults of operations and require management’s most difficult, subjective andcomplex judgments, often as a result of the need to make estimates andassumptions about the effect of matters that are inherently uncertain. For amore detailed discussion of accounting policies significant to our operations,please see Note 1 to our Consolidated Financial Statements.

 

*Allowance for doubtful accounts*

 

Weevaluate the collectability of our trade accounts receivable based on a numberof factors. In circumstances where we are aware of a specific customer’sinability to meet its financial obligations to us, a specific reserve for baddebts is estimated and recorded which reduces the recognized receivable to theestimated amount we believe will ultimately be collected. In addition tospecific identification of potential bad customer debts, bad debt charges arerecorded based on, among other factors, our recent loss history and an overallassessment of past due trade accounts receivable outstanding. As of December 31,2008, our accounts receivable balance was Ch$74,124 million, net of allowancesfor doubtful accounts of Ch$1,560 million. Historically, on a consolidatedbasis, doubtful accounts have averaged less than 1% of consolidated net sales.

 

*Property, plant and equipment*

 

Property,plant and equipment (excluding the technical reappraisal that occurred in 1979which was eliminated in the reconciliation to U.S. GAAP) is recorded at costplus price-level restatements and is depreciated on a straight-line basis overthe estimated useful lives of such assets. Changes in circumstances such astechnological advances, changes to our business model or changes in our capitalstrategy could result in the actual useful lives differing from our estimates.In those cases where we determine that the useful life of property, plant andequipment should be shortened, we depreciate the net book value in excess ofthe estimated salvage value over its revised remaining useful life. Factorssuch as changes in the planned use of manufacturing equipment, vendingequipment, transportation equipment or software could result in shorteneduseful lives. We review long-lived assets for impairment whenever events orchanges in circumstances indicate that the carrying amount of any such assetmay not be recoverable. The estimate of future cash flow is based upon, amongother things, certain assumptions about expected future operating performance.Our estimates of undiscounted cash flows may differ from actual cash flows dueto, among other things, technological changes, economic conditions and changesto our business model or changes in operating performance. If the sum of theprojected undiscounted cash flows (excluding interest) is less than thecarrying value of the asset, the asset will be written down to its estimatedfair value. Free cash flows in Brazil and Argentina 

 

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discounted at a rate of12% resulted in a higher result than the amount for the corresponding assets(including goodwill) of the Company’s Brazilian and Argentine subsidiaries.

 

*Goodwill and other intangible assets*

 

Goodwilland other intangible assets are recorded at cost plus price-level restatementsand are amortized, principally on a straight-line basis, over the estimatedfuture periods benefited (not exceeding 20 years). Intangible assets consistprimarily of bottling and distribution rights in specific territories. Goodwilland other intangible assets are periodically reviewed for impairment wheneverevents or changes occur that indicate the carrying value of the business orassets to which they relate may not be recoverable. As such events or changesoccur, management estimates the future cash flows expected to result from theuse and, if applicable, the eventual disposition of the assets and relatedgoodwill. The key variables which management must estimate include salesvolume, prices, marketing expenses and other economic factors. Significantmanagement judgment is involved in estimating these variables, and they includeinherent uncertainties; however, the assumptions used are consistent with ourinternal planning. Therefore, management periodically evaluates and updates theestimates based on the conditions that influence these variables. If suchassets are considered impaired, they are written down to fair value as appropriate.In 2001, we adopted the provisions of Statement of Financial AccountingStandards No. 142, “Goodwill and Other Intangible Assets,” for the purposes ofU.S. GAAP reporting. We performed the impairment tests of our goodwill andconcluded that no impairment charge was necessary.

 

*Deferred tax assets*

 

Werecord a valuation allowance to reduce the carrying value of our deferred taxassets to an amount that is more likely to be realized. While we haveconsidered future taxable income and prudent and feasible tax planningstrategies in assessing the need for the valuation allowance, should wedetermine that it would not be possible to realize all or part of net deferredtax assets in the future, an adjustment to the carrying value of the deferredtax assets would be charged to income in the period in which such determinationwas made.

 

*Liability for deposits for bottles and cases*

 

Wehave a liability for deposits received for bottles and cases provided to ourcustomers and distributors. The liability represents the deposit value that wemay be required to remit upon receipt from the customer or distributor of thebottles and cases, in good condition, along with the original invoice. Theliability is not subjected to price level restatements as per current agreementswith customers and distributors. We estimate the liability for deposits basedon an annual inventory of bottles sold to customers and distributors, estimatesof bottles in circulation and a weighted average historical deposit value perbottle or case. Additionally, because the amount of bottles and cases hasgenerally increased over time, the liability is presented as a long-termliability. Significant management judgment is involved in estimating the numberof bottles in circulation, the deposit value that could be subject toredemption and the timing of disbursements related to this liability.

 

Since February2001, liability for deposits was changed to a system in which customers havefive years from the date of invoicing to recover the deposit after returningthe bottles and cases to us in good condition together with the originalinvoice. After that date, if the customer does not exercise the option, theCompany is allowed to reverse the liability in accordance with Chilean GAAP.

 

**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 followingtable sets forth, for the periods indicated, the net sales and operating incomefor the Company’s operations in Chile, Brazil and Argentina, respectively,expressed in each case in millions of Chilean pesos with purchasing power as ofDecember 31, 2008, and as a percentage of consolidated net sales or operatingincome, as the case may be:

 

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| ** **                     | ** ** | **Year ended December 31,** | ** **  |
|--------------------------------|------------|-----------------------------|-------------|
| ** **                     | ** ** | **2008**                    | ** **  | **2007** | ** ** | **2006** | ** ** |
| ** **                     | ** ** | **MCh$**                    | ** **  | **%** | ** ** | **MCh$** | ** ** | **%** | ** ** | **MCh$** | ** ** | **%** | ** ** |
| **Net sales:**                 | ** ** | ** **                  | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Chile                          |       | $                           | 275,489     |   | 32.5 | % | $ | 266,430 |   | 38.4 | % | $ | 257,065 |   | 40.2 | % |
| Brazil                         |       | $                           | 370,731     |   | 43.7 |   | $ | 294,029 |   | 42.4 |   | $ | 256,028 |   | 40.0 |   |
| Argentina                      |       | $                           | 204,751     |   | 24.2 |   | $ | 136,423 |   | 19.7 |   | $ | 130,935 |   | 20.5 |   |
| Inter-country eliminations (1) |       | $                           | (3,670      | ) | -0.4 |   | $ | (3,528 | ) | -0.5 |   | $ | (4,578 | ) | -0.7 |   |
| **Total**                      | ** ** | **$**                       | **847,301** | ** ** | **$** | **100** | ** ** | **$** | **693,354** | ** ** | **$** | **100** | ** ** | **$** | **639,450** | ** ** | **$** | **100** | ** ** |
| **Operating income:**          | ** ** | ** **                  | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Chile                          |       | $                           | 57,938      |   | 41.8 | % | $ | 62,189 |   | 49.4 | % | $ | 60,340 |   | 54,3 | % |
| Brazil                         |       | $                           | 61,443      |   | 44.3 |   | $ | 52,288 |   | 41.6 |   | $ | 40,018 |   | 36,0 |   |
| Argentina                      |       | $                           | 22,153      |   | 16.0 |   | $ | 14,183 |   | 11.3 |   | $ | 13,456 |   | 12,1 |   |
| Corporate expenses (2)         |       | $                           | (2,857      | ) | -2.1 |   | $ | (2,887 | ) | -2.3 |   | $ | (2,631 | ) | -2,4 |   |
| **Total**                      | ** ** | **$**                       | **138,677** | ** ** | **$** | **100** | ** ** | **$** | **125,773** | ** ** | **$** | **100** | ** ** | **$** | **111,183** | ** ** | **$** | **100** | ** ** |

 

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(1)           Eliminationsrepresent intercompany sales.

(2)           Corresponds tocorporate expenses that are not distributable in the operations.

 

Thefollowing table sets forth, for the periods indicated, the net sales andoperating income contributed by each of our business segments, expressed ineach case in millions of Chilean pesos with purchasing power as of December 31,2008, and as a percentage of consolidated net sales or operating income, as thecase may be:

 
| ** **            | ** ** | **Year ended December 31,** | ** ** |
|-----------------------|------------|-----------------------------|------------|
| ** **            | ** ** | **2008**                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **            | ** ** | **MCh$**                    | ** ** | **%** | ** ** | **MCh$** | ** ** | **%** | ** ** | **MCh$** | ** ** | **%** | ** ** |
| **Net sales:**        | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Soft drinks           |       | 742,186                     |       | 87.6 | % | $ | 609,078 |   | 87.8 | % | $ | 563,390 |   | 88.1 | % |
| Other beverages(1)    |       | 95,401                      |       | 11.3 |   | $ | 77,335 |   | 11.2 |   | $ | 68,421 |   | 10.7 |   |
| Packaging             |       | 9,715                       |       | 1.1 |   | $ | 6,941 |   | 1.0 |   | $ | 7,639 |   | 1.2 |   |
| **Total**             | ** ** | **847,301**                 | ** ** | **100** | **%** | **$** | **693,354** | ** ** | **100** | **%** | **$** | **639,450** | ** ** | **100** | **%** |
| **Operating income:** | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Soft drinks           |       | 127,620                     |       | 92.0 | % | $ | 116,523 |   | 92.6 | % | $ | 100,066 |   | 90.0 | % |
| Other beverages(1)    |       | 8,580                       |       | 6.2 |   | $ | 7,378 |   | 5.9 |   | $ | 8,788 |   | 7.9 |   |
| Packaging             |       | 2,477                       |       | 1.8 |   | $ | 1,872 |   | 1.5 |   | $ | 2,329 |   | 2.1 |   |
| **Total**             | ** ** | **138,677**                 | ** ** | **100** | **%** | **$** | **125,773** | ** ** | **100** | **%** | **$** | **111,183** | ** ** | **100** | **%** |

 

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

 

Thefollowing table sets forth, for the periods indicated, information derived fromour consolidated income statements, expressed in millions of Chilean pesos withpurchasing power as of December 31, 2008:

 
| ** **                            | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------|------------|-----------------------------|------------|
| ** **                            | ** ** | **2008**                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                            | ** ** | **MCh$**                    | ** ** | **%** | ** ** | **MCh$** | ** ** | **%** | ** ** | **MCh$** | ** ** | **%** | ** ** |
| **Net sales**                         | ** ** | **847,301**                 | ** ** | **100** | **%** | **693,354** | ** ** | **100** | **%** | **639,450** | ** ** | **100** | **%** |
| Cost of sales                         |       | (470,651                    | )          | -55.5 |   | (382,731 | ) | -55.2 |   | (365,001 | ) | -57.1 |   |
| Gross profit                          |       | 376,651                     |       | 44.5 |   | 310,623 |   | 44.8 |   | 274,449 |   | 42.9 |   |
| Administrative and selling expenses   |       | (237,974                    | )          | -28.1 |   | (184,850 | ) | -26.7 |   | (163,266 | ) | -25.5 |   |
| Operating income                      |       | 138,677                     |       | 16.4 |   | 125,773 |   | 18.1 |   | 111,183 |   | 17.4 |   |
| Non-operating income (expenses), net  |       | (18,608                     | )          | -2.2 |   | (7,600 | ) | (1.1 | ) | (8,330 | ) | -1.3 |   |
| Income taxes, minority interest (net) |       | (25,233                     | )          | -3.0 |   | (29,308 | ) | (4.2 | ) | (15,889 | ) | -2.5 |   |
| **Net income**                        | ** ** | **94,836**                  | ** ** | **11.2** | ** ** | **88,865** | ** ** | **12.8** | **%** | **86,964** | ** ** | **13.6** | **%** |

 

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**Results of Operations for the Years Ended December 31, 2008and 2007**

** **
| ** **                              | ** ** | **Chile**                | ** ** | **Brazil** | ** ** | **Argentina** | ** ** | **Total****(1)** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|------------|------------|---------------|------------|------------------|------------|
| ** **                              | ** ** | **2008**                 | ** ** | **2007**   | ** ** | **2008**      | ** ** | **2007**         | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                              | ** ** | **(in millions of Ch$)** | ** ** |
| Net sales                               |       | 275,489                  |       | 266,430    |       | 370,731       |       | 294,029          |       | 204,751 |   | 136,423 |   | 847,301 |   | 693,354 |   |
| Cost of sales                           |       | (155,740                 | )          | (148,146   | )          | (197,432      | )          | (155,416         | )          | (121,148 | ) | (82,698 | ) | (470,651 | ) | (382,731 | ) |
| Gross profit                            |       | 119,749                  |       | 118,284    |       | 173,299       |       | 138,613          |       | 83,603 |   | 53,726 |   | 376,651 |   | 310,623 |   |
| Administrative and selling  expenses(2) |       | (61,811                  | )          | (56,095    | )          | (111,856      | )          | (86,325          | )          | (61,450 | ) | (39,543 | ) | (235,117 | ) | (181,963 | ) |
| Corporate expenses                      |       |                     |       |       |       |          |       |             |       |   |   |   |   | (2,857 | ) | (2,887 | ) |
| Operating income                        |       | 57,938                   |       | 62,189     |       | 61,443        |       | 52,288           |       | 22,153 |   | 14,183 |   | 138,677 |   | 125,773 |   |

 

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(1)      The total does not equal the sum of allthe franchise territories due to inter-country eliminations.

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

 

***Net Sales***

 

Our consolidated netsales in 2008 were Ch$847,301 million, representing a 22.2% improvement overthe Ch$693,354 million recorded in 2007. Resulting from higher volumes, priceadjustments in the three countries where we operate and in the case of Braziland Argentina, a favorable exchange rate upon translation of figures.Consolidated Sales Volume amounted to 454.5 million unit cases, reflecting a3.0% growth. Soft Drinks increased 2.2%, while the other categories of, Juices,Waters and Beer together increased by 11.4%, driven by several launchingsduring the year. Net sales of Coca-Cola soft drinks represented 87.6% of totalConsolidated Net Sales, reflecting a decrease compared to the year 2007.

 

#### In Chile, total net salesamounted to Ch$275,489 million in 2008, which shows a 3.4% increase whencomparing to 2007,  as a result of highervolumes and offset by a 1.3% decrease in real terms of the average income perunit case (prices increased less than the inflation recorded for theperiod.  Sales Volume amounted to 158.5million unit cases, a 4.8% growth compared to the Full Year ended December 31,2007.  This growth was a result ofincreased soft drink volumes (+3.0.%) as well as an increase in the Juices andWaters segment (+13.0%).   In addition tothe volume contributed by the water brand Benedictino, launched in February,and by the energy drink BURN, launched in May, the Company also launched, FantaZero, seeking to modernize the brand, Nestea Green Tea, Fanta Limón and DasaniAnti-Ox during the last quarter.  In year2008, our average volume market share in the soft drink market in Chileremained stable at 67.4 reflecting that we maintain a strong competitiveposition. Our average value market share was 71% during 2008 compared to 70.6%in 2007.

####  

Softdrink net sales in Chile amounted to Ch$225,137 million during 2008,representing a 1.9% increase regarding the previous year, principally explainedby a 3.0% increase of volumes and offset by the decrease of the average incomeper unit case . Net sales of fruit juices and waters in Chile was Ch$50,352million in 2008, showing an increase of 10.5% from 2007. This growth was led bya 13.0% increase of sales volume of these segments.

 

In Brazil, net sales in2008 reached Ch$370,731 million, 26.1% higher than in 2007. This increase isprincipally explained by the price adjustments and a favorable exchange rateupon translation of figures.  . The increaseof soft drink net sales per unit case was 26.6%. The 6.5% average appreciationof the Brazilian real had a positive impact upon the translation of figures,which was partially offset by the 0.4% appreciation of the Chilean peso end ofperiod exchange rate. Net sale of Coca-Cola soft drinks in Brazil wereCh$329,433 million, representing a 24.6% increase compared to 2007.  Sales Volume amounted to 174.0 million unitcases, remaining stable compared to 2007, strongly affected by the contractionin consumer demand and heavier rain in the territories within our franchisethan those recorded during 2007. On the other hand, the Company’s beer, watersand juices operations in Brazil generated net sales in 2008 of Ch$41,298million, representing a 39.4% increase from 2007.

 

In Argentina, net salesin 2008 were Ch$204,751 million, representing a 50.1% increase from 2007. Thisincrease is principally explained by higher sales volume of 5.8% and priceadjustments during the period, and by the effect upon translation of figures.Sales volume of Coca-Cola soft drinks in 2008 grew 5.8% from 2007, amounting to120.1 million unit cases of soft drinks sold, driven by the increase insalaries and private consumption observed during the period along withlaunchings of *Cepita Light* and *Cepita 100% Jugo de Naranja* that took place during August of2008.

 

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Netsales of PET packaging in Argentina were Ch$13,385 million in 2008,representing an increase of 27.8% compared to 2007.

 

***Cost of Sales***

 

Cost of sales were Ch$470,651 million in 2008,representing 55.5% of net sales, compared to Ch$382,731 million, or 55.2% ofnet sales in 2007. The increase in cost of sales as a percentage of net salesin 2008 was principally due to (i) increased concentrate costs in the Brazilianand Argentine franchises resulting from higher prices and in Chile due to theincidence factor; (ii) increased labor costs in Chile and Argentina; and (iii) increaseddepreciation in the three franchises. All of which was partially offset by a lower price for sugar in Chileand Brazil resulting from negotiations with the suppliers.  In Chile cost of sales per unit case remainedstable.  In Brazil, cost of sales perunit case increased 27.5%, mainly due to the effect upon translation offigures, increased depreciation and an increase in the price of certain rawmaterials.  All of these factors werepartially offset by the lower price of sugar and a 6.5% average appreciation ofthe Brazilian *real* during theyear, resulting in a positive impact over the costs of U.S. dollar-denominatedraw materials.  In Argentina, cost ofsales per unit case increased 38.4% mainly explained by increased costs ofconcentrate (as a result of price increases), sugar and PET resin, higher laborcosts and the effect upon translation of figures.

 

Forour Chilean operations, cost of sales represented 56.5% of Chilean net salesfor 2008 and 55.6% for 2007. For our Brazilian operations, cost of salesrepresented 53.3% of Brazilian net sales in 2008, compared to 52.9% in 2007.For the Argentine operations, cost of sales represented 59.2% of Argentine netsales in 2008, compared to 60.6% in 2007.

 

***Gross Profit***

 

Due tothe aforementioned, gross profit in 2008 increased by 21.3%, reachingCh$376,651 million, or 44.5% of net sales, compared to Ch$310,623 million, or44.8% of net sales in 2007.

 

***Administrative and Selling Expenses***

 

Selling andadministrative expenses amounted to Ch$237,974 million in 2008, thisrepresented 28.1% of net sales for 2008 and a 28.7% growth with respect to theCh$184,850 million in 2007, that represented 26.7% of net sales for that year.As a percentage of net sales, the Company’s Chilean operations recorded sellingand administrative expenses of 22.4% in 2008 compared to 21.1% in 2007. Sellingand administrative expenses in our Brazilian operations were 30.2% in 2008compared with 29.4% in 2007 and the selling and administrative expenses in ourArgentine operations were 30.0% in 2008 compared with 29.0% in 2007.  SG&A increased as a result of highervolumes, a one-time effect over labor costs and increased freight fees, whichrose due to higher labor costs and fuel prices as well as road blockages in Argentinadue the agricultural workers’ strike. In addition these expenses were impactedby the effect upon translation of figures of our operations in Brazil andArgentina, and increased advertising investments in our Argentine operation.

 

InChile, selling and administrative expenses in 2008 increased by 10.2%, inBrazil 29.6%, and in Argentina 55.4% from 2007. These higher selling andadministrative expenses are, in general terms, explained by increases infreight distribution expenses as a result of greater fuel prices and highervolumes. Higher selling and administrative expenses in Argentina were also dueto increases in wages due to government decrees and strong pressures from laborunions. Higher selling and administrative expenses in Brazil and Argentina werealso impacted by the figure conversion effect, given the higher averageappreciation of the real and Argentine peso over the end of period Chileanpeso.

 

***Operating Income***

 

As aconsequence of the aforementioned, operating income increased 10.3% in 2008,amounting to Ch$138,677 million, or 16.4% of net sales, compared to Ch$125,773million, or 18.1% of net sales in 2007.

 

***Non-operating Income (Expense), Net***

 

Thefollowing table sets forth, for the periods indicated, the items ofnon-operating income (expense), net:

 

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| ** **                                        | ** ** | **As of December 31,** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|
| ** **                                        | ** ** | **2008**               | ** ** | **2007** | ** ** |
| ** **                                        | ** ** | **MCh$**               | ** ** | **MCh$** | ** ** |
| Financial  income                                 |       | 11,884                 |       | 24,976 |   |
| Share  of income from affiliated companies        |       | 1,879                  |       | 813 |   |
| Other  non-operating income                       |       | 6,350                  |       | 13,376 |   |
| Amortization  of goodwill                         |       | (7,612                 | )          | (7,081 | ) |
| Financial  expenses                               |       | (27,577                | )          | (13,549 | ) |
| Other  non-operating expenses                     |       | (16,432                | )          | (10,329 | ) |
| Price-level  restatement and exchange gain (loss) |       | 12,899                 |       | (15,806 | ) |
|                                              |       |                   |       |   |   |
| Non-operating  income (expense), net              |       | (18,608                | )          | (7,600 | ) |

 

Non-operatingincome (expense), net, was a loss of Ch$18,608 million in 2008, compared to aloss of Ch$7,600 million in 2007, representing a decrease of 144.8% in 2008compared to 2007. This increased loss in the non-operating result line is bestexplained by:

 

·      FinancialExpense:  Strongly affected by a negativevariation basically resulting from losses in hedging operations (a 28.1%devaluation of the Chilean peso during 2008 compared to the 6.7% revaluationrecorded during 2007.)

·      Price LevelRestatement: Resulted in profits compared to a loss during 2007, mainly due toa higher exchange rate over our U.S. dollar asset position compensating thepreviously mentioned factor.

·      OtherNon-Operating Income/Expenses:  Resultedin a higher loss compared to the previous period given that provisions werereversed and taxes were recovered during 2007, which did not occur during 2008.

 

***Income Taxes***

 

Incometaxes in 2008 decreased 13.7% to Ch$25,248 million compared to Ch$29,262million in 2007. The decrease is principally explained by:  Deferredtax income resulting from lower future income tax due to the restatement ofliabilities in US Dollars in Brazil.  Thepositive effect results from higher exchange rate differences charged to futureincome tax as a result of the devaluation of the Brazilian *real*during 2008.

 

***Net Income***

 

As aresult of the aforementioned, net income in 2008 was Ch$94,836 million,representing 11.2% of net sales and an increase of 6.7% compared to net incomeof Ch$88,865 million in 2007.

 

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

** **
| ** **                              | ** ** | **Chile**                | ** ** | **Brazil** | ** ** | **Argentina** | ** ** | **Total(1)** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|------------|------------|---------------|------------|--------------|------------|
| ** **                              | ** ** | **2007**                 | ** ** | **2006**   | ** ** | **2007**      | ** ** | **2006**     | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                              | ** ** | **(in millions of Ch$)** | ** ** |
| Net sales                               |       | 266,430                  |       | 257,065    |       | 294,029       |       | 256,027      |       | 136,423 |   | 130,936 |   | 693,354 |   | 639,450 |   |
| Cost of sales                           |       | (148,146                 | )          | (143,018   | )          | (155,416      | )          | (143,832     | )          | (82,698 | ) | (82,728 | ) | (382,731 | ) | (365,001 | ) |
| Gross profit                            |       | 118,284                  |       | 114,046    |       | 138,613       |       | 112,195      |       | 53,726 |   | 48,208 |   | 310,623 |   | 274,449 |   |
| Administrative and selling  expenses(2) |       | (56,095                  | )          | (53,706    | )          | (86,325       | )          | (72,177      | )          | (39,543 | ) | (34,752 | ) | (181,963 | ) | (160,635 | ) |
| Corporate expenses                      |       |                     |       |       |       |          |       |         |       |   |   |   |   | (2,887 | ) | (2,631 | ) |
| Operating income                        |       | 62,189                   |       | 60,340     |       | 52,288        |       | 40,019       |       | 14,183 |   | 13,456 |   | 125,773 |   | 111,183 |   |

 

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(1)   The totaldoes not equal the sum of all the franchise territories due to intercountryeliminations.

(2)   Themajority of corporate expenses were distributed in the operations.

 

***Net Sales***

 

Ourconsolidated net sales in 2007 were Ch$693,354 million, representing a 8.4%improvement over the Ch$639,450 million recorded in 2006. Consolidated SalesVolume amounted to 441.3 million unit cases, reflecting a 6.3% growth. Softdrinks grew 5.4%, waters 8.5% and juices 26.8%. This reflects that in the threecountries where we operate, the consumption of our main products (soft drinks)has increased, also consolidating growth opportunities through waters, juicesand beer, which altogether grew 16.9%. Net sales of Coca-Cola soft drinksrepresented 87.8% of total Consolidated Net Sales, reflecting a decreasecompared to the year 2006.

 

InChile, total net sales amounted to Ch$266,430 million in 2007, which shows a3.6% increase when comparing to 2006. The increase of total net sales in Chilewas as a result of a 5.3% increase in sales volume amounting to 151.3 millionunit cases, partially offset by a lower average income, due to a change of theproduct mix. In year 2007, our average volume market share in the soft drinkmarket in Chile decreased from 67.8% during 2006 to 67.4% primarily due toprice increases carried out during the year, however, we maintain our strongcompetitive position. Our average value market share was 70.6% during 2007compared to 70.8% in 2006.

 

Softdrink net sales in Chile amounted to Ch$220,871 million during 2007,representing a 3.6% increase regarding the previous year, principally explainedby a 4.1% increase of soft drink volumes.Net sales of fruit waters and juicesin Chile was Ch$45,559 million in 2007, showing an increase of 4.0% from 2006.This growth was led by an increase of sales volume of these segments,especially the Juice category, with an 18.0% growth.

 

InBrazil, net sales in 2007 reached Ch$294,029 million, 14.8% higher than in2006. Net sales of Coca-Cola soft drinks in Brazil were Ch$264,402 million,representing a 13.4% increase compared to 2006. This increase is principallyexplained by the increase in soft drinks volume of 6.1% from 2006, reaching164.9 million unit cases in 2006 as a result of price adjustments carried outduring 2006 in Brazil and exchange rates that benefited the conversion offigures. The increase of soft drink net sales per unit case was 6.9%. The 10.3%average appreciation of the Brazilian real had a positive impact upon thetranslation of figures, which was partially offset by the 6.7% appreciation ofthe Chilean peso end of period exchange rate.

 

On theother hand, the Company’s beer, waters and juices operations in Brazilgenerated net sales in 2007 of Ch$29,627 million, representing a 30.0% increasefrom 2006.

 

InArgentina, net sales in 2007 were Ch$136,423 million, representing an 4.2%increase from 2006. This increase is principally explained by higher salesvolume of 5.9% and price adjustments during the period, partially offset by theeffect upon translation of figures due to the devaluation of the Argentine peso(1.4% average for the period). Sales volume of Coca-Cola soft drinks in 2006grew 5.7% from 2006, amounting to 113.6 million unit cases of soft drinks sold,driven by the launch of Coca-Cola Zero in the Light segment (3.5% of the softdrinks portfolio) and the increase in salaries.

 

Netsales of PET packaging in Argentina were Ch$10,470 million in 2007, representinga decrease of 14.3% compared to 2006, explained by changes in the businessmodel and a lower resin prices.

 

***Cost of Sales***

 

Costof sales were Ch$382,731 million in 2007, representing 55.2% of net sales,compared to Ch$365,001 million, or 57.1% of net sales in 2006. The decrease incost of sales as a percentage of net sales in 2007 was principally due to the 

 

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decrease of PET resincosts and the positive effect of the revaluation of currencies, partiallyoffset by the increase in sugar and labor costs.

 

Forour Chilean operations, cost of sales represented 55.6% of Chilean net salesfor both 2007 and 2006. For our Brazilian operations, cost of sales represented52.9% of Brazilian net sales in 2007, compared to 56.2% in 2006. For theArgentine operations, cost of sales represented 60.6% of Argentine net sales in2007, compared to 63.2% in 2006.

 

***Gross Profit***

 

Due tothe aforementioned, gross profit in 2007 increased by 13.2%, reachingCh$310,623 million, or 44.8% of net sales, compared to Ch$274,449 million, or42.9% of net sales in 2006.

 

***Administrative and Selling Expenses***

 

Sellingand administrative expenses amounted to Ch$184,850 million in 2007, thisrepresented 26.7% of net sales for 2007 and a 13.2% growth with respect to theCh$163,266 million in 2006, that represented 25.5% of net sales for that year.As a percentage of net sales, the Company’s Chilean operations recorded sellingand administrative expenses of 21.1% in 2007 compared to 20.8% in 2006. Sellingand administrative expenses in our Brazilian operations were 29.4% in 2007compared with 28.2% in 2006 and the selling and administrative expenses in ourArgentine operations were 29.0% in 2007 compared with 26.5% in 2006.

 

InChile, selling and administrative expenses in 2007 increased by 4.4%, in Brazil19.6%, and in Argentina 13.8% from 2006. These higher selling andadministrative expenses are, in general terms, explained by increases infreight distribution expenses as a result of greater fuel prices and highervolumes. Higher selling and administrative expenses in Argentina were also dueto increases in wages due to government decrees and strong pressures from laborunions. Higher selling and administrative expenses in Brazil were also impactedby the figure conversion effect, given the higher average appreciation of thereal over the depreciation of the end of period Chilean peso.

 

***Operating Income***

 

As aconsequence of the aforementioned, operating income increased 13.1% in 2007,amounting to Ch$125,773 million, or 18.1% of net sales, compared toCh$111,183  million, or 17.4% of netsales in 2006.

 

***Non-operating Income (Expense), Net***

 

Thefollowing table sets forth, for the periods indicated, the items ofnon-operating income (expense), net:

 
| ** **                                       | ** ** | **As of December 31,** | ** ** |
|--------------------------------------------------|------------|------------------------|------------|
| ** **                                       | ** ** | **2007**               | ** ** | **2006** | ** ** |
| ** **                                       | ** ** | **MCh$**               | ** ** | **MCh$** | ** ** |
| Financial income                                 |       | 24,976                 |       | 14,658 |   |
| Share of income from affiliated companies        |       | 813                    |       | 688 |   |
| Other non-operating income                       |       | 13,376                 |       | 6,576 |   |
| Amortization of goodwill                         |       | (7,081                 | )          | (7,605 | ) |
| Financial expenses                               |       | (13,549                | )          | (14,661 | ) |
| Other non-operating expenses                     |       | (10,329                | )          | (11,955 | ) |
| Price-level restatement and exchange gain (loss) |       | (15,806                | )          | 3,969 |   |
| **Non-operating income (expense), net**          | ** ** | **(7,600**             | **)**      | **(8,330** | **)** |

 

Non-operatingincome (expense), net, was a loss of Ch$7,600 million in 2007, compared to aloss of Ch$8,330 million in 2006, representing a decrease of 8.8% in 2007compared to 2006.

 

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*** ***

***Income Taxes***

 

Income taxes in 2007 increased 84.6% to Ch$29,262million compared to Ch$15,854 million in 2006. The increase is principallyexplained by:

 

·                          higher profits in the three operations

 

·                          increased charges to results due todeferred taxes in Brazil, resulting from financial earnings from the effect ofrevaluation of the real with respect to the U.S. dollar over liabilities inU.S. dollars.

 

·                          Increased charges to results due toincome taxes resulting from the extinction of tax loss carry forwards.

 

***Net Income***

 

As a result of the aforementioned, net income in 2007was Ch$88,865 million, representing 12.8% of net sales and an increase of 2.2%compared to net income of Ch$86,965 million in 2006.

 

**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 significant effecton our net income. The size of the price-level restatement for any period willprimarily depend on the amount of local and foreign currency- denominatedmonetary assets and liabilities and the effect of inflation and the foreignexchange 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 Bulletin No. 64was approved and applied retroactively to January 1, 1998. In our 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:

 
| ** **                     | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------|------------|--------------------------------------------|------------|
| ** **                     | ** ** | **2008**                                   | ** ** | **200****7** | ** ** | **2006** | ** ** |
| Consumer price index variation |       | 8.9                                        | %          | 7.4 | % | 2.1 | % |
| UF variation                   |       | 9.3                                        | %          | 7.0 | % | 2.0 | % |
| U.S. dollar variation          |       | 28.1                                       | %          | -6.7 | % | 3.9 | % |

 

The effects of price-level restatement are summarizedbelow:

 

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|                                              |   | **Year ended  December 31,** |    |
|---------------------------------------------------|--------|-----------------------------------|---------|
|                                              |   | **2008**                          |    | **2007** |   | **2006** |   |
|                                              |   | **MCh$**                          |    | **MCh$** |   | **MCh$** |   |
| Shareholders’ equity                         |   | $                                 | (20,696 | ) | $ | (17,226 | ) | $ | (5,205 | ) |
| Liabilities                                       |   | $                                 | (9,127  | ) | $ | (10,726 | ) | $ | (3,687 | ) |
| Property, plant and  equipment                    |   | $                                 | 9,031   |   | $ | 6,667 |   | $ | 1,742 |   |
| Other assets                                      |   | $                                 | 21,644  |   | $ | 18,636 |   | $ | 7,379 |   |
| Balance sheet adjustments                         |   | $                                 | 852     |   | $ | (2,649 | ) | $ | 229 |   |
| Income statement adjustments                      |   | $                                 | (2,942  | ) | $ | (2,299 | ) | $ | (599 | ) |
| Foreign exchange (loss) gain                      |   | $                                 | 14,989  |   | $ | (10,859 | ) | $ | 4,339 |   |
| Price-level restatement and  exchange (loss) gain |   | $                                 | 12,899  |   | $ | (15,807 | ) | $ | 3,969 |   |

 

**Impact of Foreign Currency Fluctuations**

 

We use numerous raw materials, including sugar, resin,and aluminum in producing beverages and containers. We purchase these rawmaterials 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 earnings of Ch$14,989 million in 2008due to the devaluation of the Chilean peso, compared to a negative  impact of foreign currency fluctuations in2007 in the amount of approximately Ch$10,859 million, due to our net assetposition in U.S. dollars amounting to a total of approximately US$112 million.In Argentina and Brazil we recognized losses amounting in the aggregate toCh$4,095 million in 2008 and earnings amounting to Ch$3,299 million in 2007.These resulted from currency conversion undertaken in our financial statementsas of December 31, 2008 and 2007, in accordance with the methodology setforth in Technical Bulletin No. 64 issued by the Chilean Institute ofAccountants, which are reflected on our consolidated statements of income inother non-operating income.

 

We use hedge agreements, including cross-currencyswaps and forwards, to protect against foreign currency risk. In 2006, 2007 and2008, 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 economic conditionsprevailing 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.

 

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 equity

 

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offeringsand privately negotiated share subscriptions; (ii) borrowings fromcommercial banks, both internationally and in the local markets where we haveoperations, namely, Chile, Brazil and Argentina; and (iii) debt offeringsin the Chilean and foreign capital markets.

 

There are no restrictions to transfer funds among ouroperating subsidiaries. In the past, we have transferred funds from Argentinato Chile through capital reductions and during 2006, 2007 and 2008 we receiveddividends from our Brazilian subsidiary, and we also expect to receive them in2009.

 

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 for businesspurposes, and never for speculative purposes. Forward currency contracts areused to cover the risk of local currency devaluation relative to the U.S.dollar in an amount approximately equal to our budgeted purchases of U.S.dollar-denominated raw materials. Depending on market conditions, instead offorward currency contracts, from time to time we prefer to utilize our cashsurplus to purchase raw materials in advance to obtain better prices and afixed exchange rate.

 

***InvestingActivities***

 

Additions to property, plants and equipment during2008 totaled Ch$67,074 million. Capital expenditures during 2008 were fundedwith cash flows from operations.

 

At December 31, 2008, 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 2009 will be in the range of US$100 millionand plans to fund such additions through cash flows from operations.

 

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, 2008, we had Ch$132,686million invested in time deposits and other short-term investments.  As of that date, we had available short-termcredit lines in an amount equivalent to approximately Ch$109,306 million. Theaggregate unused portion of such lines of credit at that date was equivalent toCh$101,801million.

 

Our unused sources of liquidity include 11 lines ofcredit. In Chile, we had the equivalent of Ch$7,636 million in credit availablefrom three separate lines. In Brazil, we had the equivalent of Ch$78,610million in credit available with four lines. In Argentina, we had theequivalent of Ch$23,060 million in credit available with four lines.

 

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***Liabilities***

 

For the period ending December 31, 2008, ourtotal liabilities, excluding minority interest, were Ch$255,322 million,representing a 6.5% decrease compared to December 31, 2007. The decreasein total liabilities resulted principally from a reduction in short andlong-term bond debt, partially offset by higher accounts payable. As of December 31,2008, our long term liabilities included (i) long-term bank debt of Ch$413million, (ii) long-term bond debt of Ch$77,040 million, (iii) long-termaccounts payable  of Ch$55 million, a (iv) longterm notes and accounts payable to related companies of Ch$3,137 million, (v) longterm deferred taxes of Ch$11,502 million, and (vi) other long-term accruedliabilities and provisions of Ch$29,771 million, for a total of Ch$121,919million of long-term liabilities in 2008 compared to total long-termliabilities of Ch$129,947 million as of December 31, 2007.

 

Our short term liabilities, as of December 31,2008 included (i) short-term bank debt of Ch$5,820 million, (ii) currentportion of long-term bank liabilities of Ch$226 million, (iii) currentportion of long-term bond debt of Ch$2,758 million, (iv) trade accountspayable of Ch$64,183 million, (v) notes payable to related companies ofCh$17,409 million, and (vi) other short-term liabilities, principallyprovisions, withholdings and income tax payable, for Ch$43,007 million, for atotal of Ch$133,403 million of short-term liabilities in 2008 compared to totalshort-term liabilities of Ch$143,198 million as of December 31, 2007.

 

As of December 31, 2008, our bond liabilities hada 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, 2008:

 

*Unsecured Notes*. On October 1, 1997 we entered intoan indenture 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 Notesdue 2007;

·                          US$100 million of 7.625% Unsecured Notesdue 2027; and

·                          US$100 million of 7.875% Unsecured Notesdue 2097.

 

During 2000, 2001, 2007 and 2008 the Companyrepurchased, through our subsidiary The Sterling Pacific Corp. (now AbisaCorp.), for cash at par value the notes outstanding and the following noteswere tendered:

 

·                          US$118 million of the 7.00% UnsecuredNotes due 2007;

·                          US$100 million of the 7.625% UnsecuredNotes due 2027; and

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

 

During 2001, Andina completed a local bond placementin the Chilean capital markets of two series of bonds as follows:

 

·                          UF 3.3 million series of bonds due December 1,2008 with annual interest rate over inflation of 6.20%; and 

·                          UF 3.7 million series of bonds due2026, with annual interest rate over inflation of 6.50%, being outstanding at December 31,2008.

 

The bond issue and placement in the Chilean market issubject 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 assetsfree of any pledge, mortgage or other encumbrances for an amount equal to atleast 1.30 times the consolidated liabilities that are not guaranteed by theinvestee.

 

·                          Andina may not lease, sell, assign ordispose of the franchise territory in Chile.

 

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·                          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 andlicenses**

 

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 is anotherfactor that could limit our ability to grow, and thus negatively affect ourresults.

 

Finally, exchange rate fluctuations, in particular thepotential devaluations relative to the U.S. dollar of local currencies in thecountries in which we operate, may adversely affect our results because of theimpact on the cost of U.S. dollar-denominated raw materials and the conversionof monetary assets.

 

**E.****                    ****Off-Balance Sheet Arrangements**

 

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, 2008:

 
| ** **                            | ** ** | ** **                                                                                             | ** ** | **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, 2008)** | ** ** |
| ** **                            | ** ** | **MCh$**                                                                                               | ** ** | **MCh$**                                     | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** |
| Long-term debt(1)                     |       | 776                                                                                                    |       | 295                                          |       | 450 |   | 31 |   | — |   |
| Short-term debt                       |       | 6,021                                                                                                  |       | 6,021                                        |       | — |   | — |   | — |   |
| Bonds payable(2)                      |       | 127,092                                                                                                |       | 7,904                                        |       | 18,848 |   | 17,634 |   | 82,706 |   |
| Operating lease obligations           |       | 2,319                                                                                                  |       | 2,319                                        |       | — |   | — |   | — |   |
| Purchase obligations                  |       | 19,696                                                                                                 |       | 17,371                                       |       | 2,265 |   | 59 |   | — |   |
| Other short and long term obligations |       | 10,134                                                                                                 |       | 3,841                                        |       | 6,293 |   | — |   | — |   |
| **Total contractual obligations**     |       | 166,037                                                                                                |       | 37,751                                       |       | 27,856 |   | 17,724 |   | 82,706 |   |

 

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(1)                 See Notes 15(b) and 16of the Notes to the Consolidated Financial Statements for additionalinformation.

(2)                 See Note 17 ofthe Notes to the Consolidated Financial Statements for additional 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.

 

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| ** **                                                           | ** ** | ** **                                                                                | ** ** | **Maturity  Years** | ** ** |
|----------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|---------------------|------------|
| ** **                                                           | ** ** | **Total**                                                                                 | ** ** | **1-3 Years**  | ** ** | **3-5 Years** | ** ** | **More than  5 Years** | ** ** |
| ** **                                                           | ** ** | **(in million  constant Ch$ as of December 31, 2008)** | ** ** |
| ** **                                                           | ** ** | **MCh$**                                                                                  | ** ** | **MCh$**            | ** ** | **MCh$** | ** ** | **MCh$** | ** ** |
| Provisions                                                           |       | 11,105                                                                                    |       | $                   | 3,594      |   | — |   | $ | 7,511 |   |
| Deferred taxes                                                       |       | 11,502                                                                                    |       | 10,449              |       | 1,053 |   | — |   |
| Other long-term liabilities                                          |       | 16,201                                                                                    |       | 7,660               |       | 361 |   | 8,180 |   |
| Total long-term liabilities not included in  contractual obligations |       | $                                                                                         | 38,808     |                | $          | 21,703 |   | $ | 1,414 |   | $ | 15,691 |   |
|                                                                      |            |                                                                                           |            |                     |            |  |  |  |  |  |  |  |  |

 

**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 andtranslation of financial statements of non-Chilean operations; (ix) theaccounting for derivative instruments, and (x) the reversal of impairmentloss on fixed assets. Note 30 of the notes to the Consolidated FinancialStatements provides a description of the principal differences between ChileanGAAP and U.S. GAAP as they relate to us and a reconciliation to U.S. GAAP ofnet income and shareholders’ equity.

 

Net income after reconciliation to U.S. GAAP wasCh$2,922 million higher in 2006, Ch$4,324 million higher in 2007, and Ch$7,695million higher in 2008, 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 31,2007, was Ch$306,171 million, compared to Ch$324,609 million under U.S. GAAP,representing a difference of 6.0%. Under Chilean GAAP, shareholders’ equity asof December 31, 2008 was Ch$346,249 million, compared to Ch$366,572million under U.S. GAAP, representing a difference of 5.9%.

 

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**ITEM 6.****                             ****DIRECTORS, SENIORMANAGEMENT AND EMPLOYEES**

 

**Management and Board of Directors**

 

Pursuantto Chilean law, we are managed by a group of executive officers under thesupervision of our board of directors. The Company’s operations in Chile, Brazil and Argentina report to theCorporate Office.

 

**PrincipalOfficers**

 

Thefollowing table includes information regarding our senior executives as of December 31,2008:

 
| **Name**                  | ** ** | **Title**                                        | ** ** | **Biography**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|---------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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  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                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                      |       |                                             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Jaime Cohen A.            |       | Chief Legal Officer                              |       | Joined the Company in  2008, as chief legal officer. Prior to joining Andina, he held similar  position at Socovesa S.A. since 2004. Prior to that he formed part of the  legal division of Citibank since the year 2000.  He also was an attorney at the law offices  of Cruzat, Ortuzar & Mackenna, Baker & McKenzie from 1996  until 1999.  He began his professional  career in 1993 as lawyer at Banco de A. Edwards.  Date of birth: October 14, 1967                                                                                                                                                                                                       |
|                      |       |                                             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 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                                                                                                                                                                                                                   |
|                      |       |                                             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Pablo Court G.            |       | Chief Human Resources  and CSR Officer           |       | Joined the Company in  2008 as Chief Human Resources and CSR Officer .  Prior to joining Andina he was strategic  planning and human resources corporate officer at Indura S.A. from 1998.  Before that he was the human resources  manager of Watt’s Alimentos S.A. (from 1993-2007); human resources manager of  Pesquera San José S.A. (from 1989 – 1993); and human resources manager of  Compañía Minera Disputada Las Condes (1986-1989).  He did business consulting since 1980.  Date of birth: September 22, 1956                                                                                                                            |
|                      |       |                                             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 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 Teléfonos 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 |

 

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| **Name**                | ** ** | **Title**                                                | ** ** | **Biography**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|-------------------------|------------|----------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                    |       |                                                     |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 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 haveany incentive plans other than salaries. The compensation system is a mixedone, composed by a base salary and participation, which are in accordancewith each market and the competitive conditions of each one. For GeneralManagers it also considers use of cash flow versus the budget and marketshare versus the established goals. Amounts are different depending on eachofficer, position and/or responsibility, but it is applicable to all ofthe Company. For the year ended December 31, 2008, compensation paid outto the principal officers of Embotelladora Andina S.A. amounted toCh$4,042 million (Ch$4,085 million in 2007).   Ofthe Ch$4,042 million paid to the main officers of Embotelladora Andina S.A.,the variable portion was 47% and for the period ended December 31, 2007 ofthe Ch$4,085 million paid to the main officers of Embotelladora Andina S.A.,the variable portion was 53%. Severance payments to former managers or formerprincipal officers for the period ended December 31, 2008 amountedto Ch$776.6 million.  We do not makeavailable public information as to the compensation of our executive officerson an individual basis, as disclosure of such information is not required underChilean law.

 

**Board ofDirectors**

 

Inaccordance with our bylaws, the board of directors must consist of sevenregular directors and seven alternate directors. Each director is assigned aspecific alternate director. The directors may or may not be shareholders andare elected for a term of three years subject to indefinite re-election. In thecase of Series A shares, it is necessary to have 14.29% of the totalshares represented in a shareholders’ meeting in order to elect one directorassuming there is 100% shareholder vote participation. In the case of series Bshares, it is necessary to have a total of 50.1% of the total sharesrepresented in a shareholders’ meeting to elect a director if it is alsoassumed that there is 100% shareholder vote participation. All members of theboard of directors are nominated and elected every three years by and duringthe ordinary annual shareholders’ meeting. Cumulative voting is permitted forthe election of directors.

 

In theevent of a vacancy, the designated alternate director fills the vacancy for theremaining period of the director’s term. If the alternate director is unable orunwilling to serve, the board of directors may appoint a replacement to fillthe vacancy, and the entire board of directors must be elected or re-elected atthe next regularly scheduled shareholders’ meeting.

 

Themajority shareholders’ agreement for the election of directors is contained inInversiones Freire S.A.’s Shareholder Agreement and further explained onItem 7 “Major Shareholders and Related Companies”. In addition, pursuantto the terms and conditions of the Deposit Agreement, if no instructions arereceived by The Bank of New York, as depositary, it shall give a discretionaryproxy to a person designated by the chairman of the board of directors ofEmbotelladora Andina with respect to the shares or other deposited securitiesthat represent the ADRs.

 

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As of December 31,2008, our board of directors consisted of the following directors and alternatedirectors:

 
| **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. y Energía Andina.  Date of birth: November 7, 1950                                                                                                   |
|                                     |       |                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Arturo Majlis                            |       | Vice Chairman of the  Board of Directors 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 y CompañíaOther directorships: Asesorías e Inversiones Til Til S.A.; Asesorias e  Inversiones MJS Ltda., Banchile Seguros de Vida and Mathiesen Group.  Date of birth: April 7, 1962                                                                                     |
|                                     |       |                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| José Antonio  Garcés, Jr. |       | Director                                                       |       | Has been a member of  the board of directors since April 1992.  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                                                                                                |
|                                     |       |                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Gonzalo Said (1)                         |       | Director                                                       |       | Has been a member of  the board of directors since April 1993.  Principal occupation: General manager and director of Newport Ltda.  Other directorships: BBVA Administradora General de Fondos S.A., Inmobiliaria  Don Aurelio Ltda., Telemercados Europa S.A. and Club Deportivo Palestino  S.A.D.P.  Date of birth: October 16, 1964                                                                                                         |
|                                     |       |                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Salvador Said (1)                        |       | Director                                                       |       | Has been a member of  the board of directors since April 1992.  Principal occupation: Director of Said Holding Group  Other directorships: Edelpa S.A., Parque Arauco S.A., The Endeavour  Chile,  Isapre Cruz Blanca S.A., BBVA  Sociedad de Leasing Inmobiliario S.A., BBVA Administradora General de Fondos  Mutuos, Generación Empresarial, Telmex Chile and Club Deportivo Palestino S.A.D.P.  Date of birth: September 16, 1964 |
|                                     |       |                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| James Robert Quincey                     |       | Director                                                       |       | Has been a member of  the board of directors since April 2006.  Principal occupation: President of Northwestern Europe and Nordic Business  Unit for The Coca-Cola Company  Other directorships: Coca-Cola Embonor S.A.  Date of birth: January 8, 1965                                                                                                                                                                                         |
|                                     |       |                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 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., La Polar S.A., Trefilado Bonatti,  Aceros Otero and Armacero 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 2005.  Principal occupation: Company directorships  Other directorships: Banco BBVA and Factorline S.A.  Date of birth: March 18, 1945                                                                                                                                                                                                                                                 |
|                                     |       |                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 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: Viña Santa Carolina S.A,   Multiexport Foods S.A., Stel Chile S.A., and Empresas Hites S.A.  Date of birth: March 1, 1964                                                                                                                                                       |
|                                     |       |                                                           |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 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, and 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.;, 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                               |

 

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| **Name**                        | ** ** | **Title**                                   | ** ** | **Information**                                                                                                                                                                                                                                                                                                                                                                                  |
|---------------------------------|------------|---------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                            |       |                                        |       |                                                                                                                                                                                                                                                                                                                                                                                             |
| Jorge Hurtado                   |       | Alternate Director to  James Quincey        |       | Has been a member of  the board of directors since January 2004.  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.  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 is the cousin of Gonzalo Said .

 

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

 

Directors and alternatedirectors are paid an annual fee for attendance to meetings of the board ofdirectors and committees. The total compensation paid to each director oralternate director during 2008, which was approved by our shareholders, was asfollows:

 
| ** **                                | ** ** | **Compensation********(million Ch$)(1)** | ** ** |
|-------------------------------------------|------------|-----------------------------------------------|------------|
| Juan  Claro G.                            |       | 109                                           |       |
| Arturo  Majlis A.                         |       | 99                                            |       |
| José Antonio Garcés S. (junior) |       | 104                                           |       |
| Gonzalo  Said H.                          |       | 99                                            |       |
| Salvador  Said S.                         |       | 106                                           |       |
| James  Quincey B.                         |       | 50                                            |       |
| Heriberto  Urzúa S.                  |       | 60                                            |       |
| Ernesto  Bertelsen R.                     |       | 20                                            |       |
| José  M. Barros V.                   |       | 20                                            |       |
| José  D. Eluchans U.                 |       | 20                                            |       |
| Patricio  Parodi G.                       |       | 20                                            |       |
| Jorge  Hurtado G.                         |       | 20                                            |       |
| José  Eyzaguirre B.                  |       | 20                                            |       |
| Pedro  A. Vicente M.                      |       | 20                                            |       |

* *

----

(1)                   The amounts paid to each director and director’salternate for attendance at board meetings varies in accordance with theposition held and the time period during which such position was held.

 

Forthe year that ended on December 31, 2008, the aggregate amount ofcompensation we paid to all directors and executive officers as a group wasCh$4,808 million of which Ch$4,042 million was paid to our executive officers.We do not disclose to our shareholders or otherwise make available publicinformation as to the compensation of our executive officers on an individualbasis. We do not maintain any pension or retirement programs for our directorsor executive officers. See “—Employees.”

 

**Board Practices**

 

Ourboard of directors has regularly scheduled meetings at least once a month, andextraordinary meetings are convened when called by the chairman or whenrequested by one or more directors. The quorum for a meeting of the board ofdirectors is established by the presence of an absolute majority of its regulardirectors, without taking alternate directors into

 

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consideration, unlessregular directors are absent. Resolutions are passed by the affirmative vote ofan absolute majority of those directors present at the meeting, with thechairman 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. Arturo Majlis Albala, Mr. JoséAntonio Garcés Silva (junior), Mr. Gonzalo Said Handal and Mr. SalvadorSaid Somavía, who were elected during the Regular Board Session N° 1017 held April 22,2008. It is also comprised by the Chairman of the Board, Mr. Juan ClaroGonzález and by the Chief Executive Officer, Mr. Jaime García Rioseco, whoparticipate by own right. This committee meets permanently throughout the yearand 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.

 

In accordance withShareholders’ Meeting held April 15, 2008 and during Board Session N°1017held April 22, 2008 the following Directors were ratified as members ofthis Committee: Mr. Juan Claro González (Committee Chairman), Mr. SalvadorSaid Somavía 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. JoséDomingo Eluchans Urenda and Mr.Pedro Arturo Vicente Molina, respectively.

 

The duties developed bythis Committee during 2008, following the same categorization of faculties andresponsibilities established by Article 50 bis of Company Law N°18,046were the following:

 

1.             To examine the reports of external auditors and accountinspectors, accordingly, of the balance sheets and other financial statements,presented by the administrators or liquidators of the Company to theshareholders, and to take a position on such reports before they are presentedto shareholders for their approval.

 

In 2008 these matterswere addressed during Sessions: N°56 on January 28; N°57 on February 6;N°60 on April 21; N°63 on July 22; N°64 on August 26; and N°66on October 21.

 

2.             To propose the External Auditors and Private RatingAgencies to the Board of Directors that will then be submitted to theShareholders’ Meeting.  In the event ofdisagreements with the Committee, the Board of Directors may make its ownproposals and both will be submitted to the Shareholders’ Meeting.

 

This matter was addressedduring Session N°58 on March 24, 2008.

 

3.             Examine information regarding the operations referred toby Articles 44 and 89 and report on these operations.

 

In 2008 these matterswere addressed during Sessions: N°56 on January 28; N°58 on March 24;N°59 on April 11; N°61 on May 27; N°64 on August 26; N°65 on September 30;and N°66 on October 21.

 

4.             Examine salary and compensation plans for Managers andPrincipal Officers.

 

This matter was addressedduring Session N°67 on November 25, 2008.

 

5.             All other matters required by company bylaws or that maybe required by the Shareholders’ Meeting or by the Board of Directors.  The following matters were addressed during2008:

 

·              ReviewAnonymous Reports: Sessions: N° 56 on January 28; N°58 on March 24;N°60 on April 21; N°61 on May 27: N°62 on June 24; N°63 on July 22:N°64 on August 26; N°65 on September 30; N°66 on October 21;N°67 on November 25; and N°68 on December 23.

·              Reviewand approve 2007 Annual Report: Session N° 58 on March 24.

·              Reviewand approve 2007 20F: Session N°62 on June 24.

·              ReviewContingencies:  Session N°67 on November 25.

·              2008Operating Budget Directors’ Committee: Session N°58 on March 24.

·              Presentationof schedule for the application of IFRS rules and Official Communication457 of the SVS: Sessions: N°59 on April 11; N°63 on July 22; and N°65on September 30.

 

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·              PrivilegedInformation Handbook: Session N°61 on May 27.

·              SarbanesOxley Supplementary Rule 404: Session N°62 on June 24.

·              Auditors’Compensation: Session N°63 on July 22.

·              Presentationof new partner of Price WaterhouseCoopers, internal control reports, receptionof Auditors’ independence letter: Session N°68 on December 23, 2008.

 

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

 

**Sarbanes-OxleyAudit Committee(1)**

 

In accordance with NYSEand SEC requirements regarding compliance with the Sarbanes-Oxley Act, theBoard of Directors established the first Audit Committee on July 26,2005.  This Audit Committee is renewedevery year. During Board Session N° 1017 held April 22, 2008, Mr. JuanClaro González (Committee Chairman), Mr. Salvador Said Somavía and Mr. HeribertoUrzúa Sánchez were elected 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 been appointed by the Board ofDirectors as the financial expert in accordance with the definitions of thelisting standards of the NYSE and the Sarbanes-Oxley Act.

 

The resolutions,agreements and organization of the Audit Committee are governed by the rules relatingto Board Meetings and to the Company’s Directors’ Committee. Since itscreation, the sessions of the Audit Committee have been held with the Directors’Committee, since some of the functions are very similar and the members of bothof these Committees are the same.

 

The Audit CommitteeCharter defines the duties and responsibilities of this Committee.  The Audit Committee is responsible foranalyzing financial statements; supporting the financial supervision andrendering of accounts; ensuring management’s development of reliable internalcontrols; ensuring compliance by the audit department and external auditorswith their respective roles; and reviewing of auditing practices.

 

----

(1)The main expensesincurred by this Committee have been those resulting from counseling in theimplementation of the new IFRS regulations, counseling regarding hedging andthe Sarbanes & Oxley Act. During 2008 these expenses amounted toCh$155.9 million.

 

**Employees**

 

On December 31, 2008, we had approximately 5,200employees, including 1,540 in Chile, 1,992 in Brazil, and 1,667 in Argentina.Of these employees, 401 were temporary employees in Chile and 240 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 31,2008, 726, 251, and 1,048 of our employees in Chile, Brazil and Argentina,respectively, were members of unions.

 

Thefollowing table represents a breakdown of our employees for the years ended December 31,2008, 2007 and 2006:

 
| ** **                     | ** ** | **2008**  | ** ** |
|--------------------------------|------------|-----------|------------|
| ** **                     | ** ** | **Chile** | ** ** | **Brazil** | ** ** | **Argentina** | ** ** |
| ** **                     | ** ** | **Total** | ** ** | **Union** | ** ** | **Non-  Union** | ** ** | **Total** | ** ** | **Union** | ** ** | **Non-  Union** | ** ** | **Total** | ** ** | **Union** | ** ** | **Non-  Union** | ** ** |
| Executives                     |       | 38        |       | 0 |   | 38 |   | 69 |   | 0 |   | 69 |   | 72 |   | 0 |   | 72 |   |
| Technicians  and professionals |       | 451       |       | 162 |   | 289 |   | 1,106 |   | 95 |   | 1,011 |   | 330 |   | 0 |   | 330 |   |
| Workers                        |       | 653       |       | 564 |   | 89 |   | 840 |   | 156 |   | 684 |   | 1,025 |   | 830 |   | 195 |   |
| Temporary  workers             |       | 401       |       | 0 |   | 401 |   | 0 |   | 0 |   | 0 |   | 240 |   | 218 |   | 22 |   |
| Total                          |       | 1,543     |       | 726 |   | 817 |   | 2,015 |   | 251 |   | 1,764 |   | 1,667 |   | 1,048 |   | 619 |   |

 

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| ** **                     | ** ** | **200****7** | ** ** |
|--------------------------------|------------|--------------|------------|
| ** **                     | ** ** | **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 |       | 399          |       | 178 |   | 221 |   | 1,136 |   | 93 |   | 1,043 |   | 317 |   | 0 |   | 317 |   |
| Workers                        |       | 538          |       | 456 |   | 82 |   | 803 |   | 197 |   | 606 |   | 961 |   | 765 |   | 196 |   |
| Temporary  workers             |       | 273          |       | 0 |   | 273 |   | 0 |   | 0 |   | 0 |   | 305 |   | 285 |   | 20 |   |
| Total                          |       | 1,245        |       | 634 |   | 611 |   | 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                     |       | 34        |       | 0 |   | 34 |   | 70 |   | 2 |   | 68 |   | 67 |   | 0 |   | 67 |   |
| Technicians  and professionals |       | 362       |       | 140 |   | 222 |   | 980 |   | 121 |   | 859 |   | 325 |   | 0 |   | 325 |   |
| Workers                        |       | 543       |       | 457 |   | 86 |   | 1,110 |   | 132 |   | 978 |   | 918 |   | 750 |   | 168 |   |
| Temporary  workers             |       | 140       |       | 0 |   | 140 |   | 0 |   | 0 |   | 0 |   | 288 |   | 261 |   | 27 |   |
| Total                          |       | 1,079     |       | 597 |   | 482 |   | 2,160 |   | 255 |   | 1,905 |   | 1,598 |   | 1,011 |   | 587 |   |

 

Managementbelieves that it has good relations with its employees.

 

InChile we make provision for severance indemnities in accordance with ourCollective Bargaining Agreements and labor legislations, in the amount of onemonth’s salary for every year of employment subject to certain restrictions. Inaddition, we complement our employees’ contribution to our health insurancesystem, thus decreasing health costs for the employees’ families. Employees arerequired to contribute funds for financing pension funds, which are mainlymanaged by private entities. In Chile, 65% of employees are members of laborunions.

 

On June 1,2007, Andina signed with anticipation a new Collective Bargaining Agreementwith Union N°2 that mainly represents personnel from the areas of managements,logistics, 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 CollectiveBargaining Agreement with Union N°1 that mainly represents employees from theBottling area, for a period of 2 years (beginning June 1, 2007 until May 31,2009). Said agreement was signed after a 20-day legal strike that affected 223workers in Chile. In Brazil, 12% of employees are members of labor unions.Collective bargaining agreements are negotiated on an industry-wide basis.Individual companies can therefore negotiate special terms for their affiliatesthat apply to all employees in each jurisdiction where companies have a plant.Collective bargaining agreements are generally binding for one year. Withrespect to Refrescos, there are seven collective bargaining agreementscurrently in force: (1) four agreements for employees in the State of Riode Janeiro; (a) the Soft Drink Industry Employees’ Union agreement from July 1,2008  to June 30, 2009; (b) theSalesmen Union agreement from October 1, 2007 to September 30, 2009; (c) the“Stack Machine” Operator Union agreement from May 1, 2008 to April 30,2009; (d) the Driver and Helper of the Lagos Region Union agreement from May 1,2008 through April 30, 2009 and (2) two agreements for employees inthe State of Espírito Santo: (a) the Nourishment Union agreement from July 1,2008 to June 30, 2009; (b) the Salesmen Union agreement from December 1,2007 to November 30, 2009. 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.

 

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In Argentina, Edasa’semployees are parties to collective bargaining agreements and 64% of them,including the Packaging Division are represented by local workers’ unionsassociated with a national federation of unions. The Argentine Chamber ofNon-Alcoholic Beverages of the Argentine Republic (*Cámara Argentina de Industria de Bebidas sin Alcohol de la RepúblicaArgentina* (the “Chamber”) and the Argentine Workers Federation ofCarbonated Water (*Federación Argentina deTrabajadores de Aguas Gaseosas)*(the “Federation”) are parties to acollective bargaining agreement that began June 21, 2007 establishingsalaries, non-salary benefits and company contributions which expired on April 30,2008.  This agreement was postponed on May 15,2008 until July 31, 2008.  On July 29, 2008, theChamber and the Federation entered into a new collective bargaining agreement establishing new salaries,new non salary benefits and company contributions that is in full force andeffect until April 30, 2009.

 

Argentine law requires severance payments upondismissal without cause in an amount at least equal to an average of one-month’swages for each year of employment or a fraction thereof if employed longer thanthree months. Severance payments are subject to maximum and minimum amounts.

 

As of December 31,2008, Edasa had no pension fund liabilities. Employees contributed during 2008,on the basis of automatic withholding, to either the privately administeredretirement funds or to the government social security system. At the end of2008 Congress sanctioned Law N° 26,425 by which beginning 2009, private pensionfunds were eliminated instructing that all employee contributions must bedestined to the government social security system,  Most of the health system in the Argentineterritory is run by the unions through contributions from union and non-unionemployees.

 

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

 

Thefollowing table sets forth the amount and percentage of our shares beneficiallyowned by our directors, members of the Directors’ Committee and seniorexecutives as of December 31, 2008.

 
| ** **                                   | ** ** | **Series A** | ** ** | **Series B** | ** ** |
|----------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                   | ** ** | **Beneficial**    | ** ** | **%**             | ** ** | **Direct** | ** ** | **%** | ** ** | **Indirect** | ** ** | **%** | ** ** | **Beneficial** | ** ** | **%** | ** ** | **Direct** | ** ** | **%** | ** ** | **Indirect** | ** ** | **%** | ** ** |
| ** **                                   | ** ** | **Owner**         | ** ** | **Class**         | ** ** | **Owner** | ** ** | **Class** | ** ** | **Owner** | ** ** | **Class** | ** ** | **Owner** | ** ** | **Class** | ** ** | **Owner** | ** ** | **Class** | ** ** | **Owner** | ** ** | **Class** | ** ** |
| **Shareholder**                              |       |              |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| José Antonio Garcés Silva (junior) |       | —            |       | —            |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   | 4,693,696 |   | 1.2347 |   |
| Arturo Majlis Albala                         |       | —            |       | —            |       | — |   | — |   | 2,150 |   | 0.0006 |   | — |   | — |   | 5,220 |   | 0.0014 |   | — |   | — |   |
| Salvador Said Somavía                   |       | —            |       | —            |       | — |   | — |   | 1,000 |   | 0.0003 |   | — |   | — |   | — |   | — |   | 1,000 |   | 0.0003 |   |
| Gonzalo Said Handal                          |       | 50,001,651        |       | 13.1536           |       | — |   | — |   | — |   | — |   | 11,761,462 |   | 3.094 |   | — |   | — |   | 4,241,565 |   | 1.1158 |   |

 

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

 

**Major Shareholders**

 

Thefollowing table sets forth certain information concerning beneficial ownershipof our capital stock at December 31, 2008, with respect to the principalshareholders known to us who maintain at least a 5% beneficial ownership in ourshares and with respect to all of our directors and executive officers as agroup:

 
| ** **                                               | ** ** | **Series A** | ** ** | **Series B** | ** ** |
|----------------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| **Shareholder**                                          | ** ** | **Shares**        | ** ** | **% Class**  | ** ** | **Shares** | ** ** | **% Class** | ** ** |
| Freire(1)(2)                                             |       | 200,006,603       |       | 52.61             |       | 161,269,184 |   | 42.42 |   |
| The  Bank of New York Mellon(3)                          |       | 10,076,838        |       | 2.65              |       | 50,452,716 |   | 13.27 |   |
| 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)                 |       | 71,954,954        |       | 18.93             |       | 23,893,852 |   | 6.29 |   |
| Principal  foreign mutual funds as a group               |       | 6,845,765         |       | 1.80              |       | 7,657,204 |   | 2.01 |   |
| Executive  officers as a group                           |       | 165,474           |       | 0.04              |       | 180,474 |   | 0.05 |   |
| Directors  as a group(4)                                 |       | 50,004,801        |       | 13.15             |       | 20,702,943 |   | 5.45 |   |

* *

----

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

 

(2)          Freire does not hold either directly or indirectly anySeries B shares. The amounts set forth correspond to Series B sharesheld 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 Said Handal, JoséAntonio Garcés Silva (junior), Salvador Said Somavía and Arturo Majlis Albalawould claim direct and indirect.

 

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InversionesFreire S.A. holds a controlling interest in Andina. Freire is beneficiallyowned in equal interests by Alberto Hurtado F., José Said S., José AntonioGarcés S. (Senior), and Gonzalo Said H., the latter also a Director of Andina.Pursuant to an agreement among partners, dated May 29, 1992, which shallremain in effect for so long as Freire is in existence, each partner in Freireshall not, dispose of his pro rata portion of his shares of stock, unless inaccordance with the previously mentioned Agreement.

 

At anextraordinary shareholders’ meeting held on September 30, 1996, ourshareholders approved the Reclassification whereby each outstanding share ofcommon stock was replaced by one newly issued Series A share and one Series Bshare. Series A shares have full voting power and are entitled to electsix of seven regular and alternate directors. Series B shares have novoting power besides the power to elect one regular and one alternate directorand are entitled to a dividend equal to 10% more than any dividends received bySeries A shareholders. The Reclassification was consummated on April 27,1997. See “Item 4. Information on the Company—Part A. History andDevelopment of the Company—History.” The Company’s major shareholders do not havedifferent voting rights from those granted by the ownership of Series Ashares and Series B shares.

 

Inconnection with The Coca-Cola Company’s investment in Andina, the Coca-Colashareholders and Freire entered into a Shareholders’ Agreement dated September 2,1996 (the “Shareholders’ Agreement”), providing for certain restrictions on thetransfer of shares of Andina capital stock by the Coca-Cola Shareholders andFreire. Specifically, Freire is restricted from transferring its Series Ashares without the prior authorization of The Coca-Cola Company. TheShareholders’ Agreement also provides for certain corporate governance andother matters, including the right of the Coca-Cola shareholders collectivelyto elect one regular and one alternate member of our board of directors so longas The Coca-Cola Company and its subsidiaries collectively own, in aggregate,at least 4% of the Series A shares. In addition, in related agreements,Freire granted the Coca-Cola shareholders an option, exercisable upon the occurrenceof certain changes in the beneficial ownership of Freire, to acquire, all butnot part, of our Series A shares held by Freire at a price and inaccordance with procedures established in such agreements.

 

Thetotal number of registered ADR holders Andina had at December 2008 was 35(23 in the Series A ADRs and 12 in the Series B ADRs). At December 31,2008, the ADRs represented 8.0% of the total number of our issued andoutstanding shares. The Bank of New York Mellon, as depositary, is the only U.S.shareholder of record.

 

**Related Party Transactions**

 

In theordinary course of our business, we engage in a variety of transactions withcertain of our affiliates and related parties. Financial information concerningthese transactions is set forth in Note 6 to our Consolidated FinancialStatements. Article 89 of the *Ley deSociedades Anónimas* (the “Chilean Companies Law”) requires that ourtransactions with related parties be on a market basis or on similar terms tothose customarily prevailing in the market. We are required under Article 89,to compare the terms of any such transaction to those prevailing in the marketat the date the transaction is to be entered into. Directors of companies thatviolate Article 89 are liable for losses resulting from such violation. Inaddition, Article 44 of the Chilean Public Companies Law, provides thatany transaction in which a director has a personal interest or is acting onbehalf of a third-party, must be previously approved by the board of directors,which will do so only when it has been informed of such director’s interest andthe terms of such transaction are similar to those prevailing in the market.

 

Pursuantto an amendment introduced to the Chilean Public Companies Law in December 2000,if the proposed transaction involves material amounts, the board of directorsmust previously declare that such transaction is consistent with conditionsprevailing in the market. If it is not possible to reach such a judgment, theboard of directors may appoint two independent evaluators. The evaluators’final conclusions must be presented to the shareholders’ and directors’ fortheir consideration for a period of 20 business days, during which shareholdersrepresenting 5% or more of the issued voting shares may request the board ofdirectors to call a shareholders’ meeting to resolve the matter by a majorityof two-thirds of the issued voting shares. For the purposes of this regulation,the Chilean Public Companies Law provides that the amount of a proposedtransaction will be material when it exceeds 1% of the company’s paid incapital and reserves so long as the transaction is greater than UF 2,000. Inall cases, a transaction is considered material when it exceeds UF 20,000. Ourdirectors’ committee is charged with evaluating transactions with relatedparties and to report on these transactions to the full board of directors. See“Item 6. Directors, Senior Management and Employees—Directors’ Committee.”

 

Allresolutions approving such transactions must be reported to the company’sshareholders at the next annual shareholders’ meeting. Violation of Article 44may result in administrative or criminal sanctions and civil liability toshareholders or third parties who suffer losses as a result of such violation.However, the violation of Article 44 does not affect the validity of thetransaction. Such a violation will grant the business entity, the shareholdersor interested third parties the right to be indemnified for damages, and forcethe director involved in the transaction to make reparations to the business

 

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entity in an amountequivalent to the benefits that would have been derived for the businessentity, absent negotiations by such director, his relatives, or hisrepresentatives, that do not imply other administrative or criminal sanctions.

 

Ourmanagement believes, to the best of its knowledge, that it has complied, in allmaterial respects with Article 89 and Article 44 of the ChileanPublic Company Law in all transactions with related parties. There can be noassurance, however, that the aforementioned regulations will not be modified inthe future.

 

**Bottler Agreements**

 

In thecourse of our business, we have entered into agreements with The Coca-ColaCompany. Bottler Agreements (as defined hereunder) are international standardcontracts The Coca-Cola Company enters into with bottlers outside the UnitedStates for the sale of concentrates and beverage basis for certain Coca-Colasoft drinks and non-soft drink beverages. See “We rely heavily on ourrelationship with The Coca-Cola Company which has substantial influence overour business and operations.”

 

We are a party to thefollowing bottler agreements:  (i) withrespect to the Chilean territory, a bottler agreement entered into betweenAndina and The Coca-Cola Company (the “Chilean Bottler Agreement”), celebratedon January 1, 2008 for a 5-year term until December 31, 2012; (ii) withrespect to the Brazilian territory, a bottler agreement between Refrescos andC-C Brazil with The Coca-Cola Company as an intervening party (collectively,the “Brazilian Bottler Agreement”), which was executed in advance of itseffective date and will expire on October 4, 2013; (iii) with respectto the Argentine territory, bottler agreements, between Edasa and The Coca-ColaCompany (the “Argentine Bottler Agreements”), which will expire in February of2012; (iv) with respect to the Chilean territory, a Juice BottlingAgreement was entered into on December 22, 2005 between Vital S.A. and TheCoca-Cola Company for the production, processing, and bottling of productsunder the brands Andina Frut, Andina Hi-C and Kapo, which will expire on December 31,2015; (v) with respect to the Chilean territory, a Water Manufacturing andPackaging Agreement was subscribed on December 22, 2005 between TheCoca-Cola Company and Vital Aguas S.A. for the preparation and packaging ofbeverages that will be in effect until December 31, 2015, regarding thebrands Vital, Chanqueahue, Vital de Chanqueahue and Dasani (purified waterversion) and (vi) with respect to the Argentine territory a Juice andWater Bottler Agreement was subscribed on February 10, 2007 that will bein effect for two years.

 

Bottler Agreements arerenewable upon request by the bottler and at the sole discretion of TheCoca-Cola Company. We cannot assure you that the Bottler Agreements will berenewed upon their expiration, and even if they are renewed, we cannot assureyou that the agreements will be renewed on the existing terms.

 

TheBottler Agreements provide that we will purchase our entire requirement ofconcentrates and beverage basis for Coca-Cola soft drinks and other Coca-Colabeverages from The Coca-Cola Company and other authorized suppliers. Althoughunder the Bottler Agreements The Coca-Cola Company, in its sole discretion, mayset the price of concentrates and beverage basis, among other terms, we set theprice of products sold to retailers at our discretion, subject only to certainprice restraints.

 

We arethe sole producer of Coca-Cola soft drinks and other Coca-Cola beverages in ourfranchise territories. Although this right is not exclusive, The Coca-ColaCompany has never authorized any other entity to produce or distributeCoca-Cola soft drinks or other Coca-Cola beverages in such territories,although we cannot assure you that in the future it will not do so. In the caseof post-mix soft drinks, the Bottler Agreements explicitly establish suchnon-exclusive rights.

 

TheBottler Agreements include an acknowledgment by us that The Coca-Cola Companyis the sole owner of the trademarks that identify the Coca-Cola soft drinks andother Coca-Cola beverages and of any secret formula used in concentrates.

 

Alldistribution must be in authorized containers. The Coca-Cola Company has theright to approve, at its sole discretion, any and all kinds of packages andcontainers for beverages, including their size, shape and any of theirattributes. The Coca-Cola Company has the authority at its sole discretion toredesign or discontinue any package of any of the Coca-Cola products, subjectto certain limitations, so long as Coca-Cola soft drinks and other Coca-Colabeverages are not all discontinued at the same time. We are prohibited fromproducing or handling any other beverage products, other than those of TheCoca-Cola Company, or other products or packages that would imitate, infringeor cause confusion with the products, trade dress, containers or trademarks ofThe Coca-Cola Company, or from acquiring or holding an interest in a party thatengages in such activities. The Bottler Agreements also impose restrictionsconcerning the use of certain trademarks, authorized containers, packaging andlabeling of The Coca-Cola Company and prohibit bottlers from distributingCoca-Cola soft drinks or other Coca-Cola beverages outside their designatedterritories.

 

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TheBottler Agreements require us to maintain adequate production and distributionfacilities; inventories of bottles, caps, boxes, cartons and other exterior packagingor materials; to undertake adequate quality control measures prescribed by TheCoca-Cola Company; to develop, stimulate, and fully satisfy the demand forCoca-Cola soft drinks and other Coca-Cola beverages and to use all approvedmeans, and spend such funds on advertising and other forms of marketing, as maybe reasonably required to meet that objective; and to maintain such soundfinancial capacity as may be reasonably necessary to assure performance by usand our affiliates of our obligations to The Coca-Cola Company. All BottlerAgreements require us annually to submit our business plans for such franchiseterritories to The Coca-Cola Company, including without limitation, marketing,management and promotional and advertising plans for the ensuing year.

 

TheCoca-Cola Company has no obligation to contribute to our expenditures derivedfrom advertising and marketing, but it may, at its discretion, contribute tosuch expenditures and undertake independent advertising and marketingactivities, as well as cooperative advertising and sales promotion that wouldrequire our cooperation and support. In each of the franchise territories, TheCoca-Cola Company has been contributing approximately 50% of advertising andmarketing expenses, but no assurances can be given that equivalentcontributions will be made in the future.

 

Eachbottler is prohibited from, directly or indirectly, assigning, transferring orpledging its Bottler Agreement, or any interest therein, whether voluntarily,involuntarily or by operation of law, without the consent of The Coca-ColaCompany, and each Bottler Agreement is subject to termination by The Coca-ColaCompany in the event of default by us. Moreover, the bottler may not undergo amaterial change of ownership or control without the consent of The Coca-ColaCompany.

 

TheCoca-Cola Company may terminate a Bottler Agreement immediately, by writtennotice to the bottler, in the event that, inter alia, (i) the bottlersuspends payments to creditors, declares bankruptcy, is declared bankrupt, isexpropriated or nationalized, is liquidated, dissolved, changes its legalstructure, or pledges or mortgages its assets; (ii) the bottler does notcomply with instructions and standards established by The Coca-Cola Companyrelating to the production of its authorized soft drink products; (iii) thebottler ceases to be controlled by its controlling shareholders; or (iv) theterms of the Bottler Agreement come to violate applicable law.

 

Eitherparty to any Bottler Agreement may, with 60 days’ notice thereof to the otherparty, terminate the Bottler Agreement in the event of non-compliance by theother party with the terms thereof so long as the party in non-compliance hasnot remedied such non-compliance during this period. In addition, if a bottlerdoes not wish to pay the required price for concentrate for any Coca-Colaproducts, it must notify The Coca-Cola Company within 30 days of receipt of TheCoca-Cola Company’s new prices. In the case of any Coca-Cola soft drink orother Coca-Cola beverages other than Coca-Cola concentrate, the franchiseregarding such product shall be deemed automatically canceled three monthsafter The Coca-Cola Company’s receipt of the bottler’s notice of refusal. Inthe case of Coca-Cola concentrate, the Bottler Agreements shall be deemedterminated three months after The Coca-Cola Company’s receipt of the bottler’snotice of refusal. The Coca-Cola Company may also terminate the BottlerAgreements if the bottler or any individual or legal entity that controls, ownsa majority share in or directly or indirectly influences the management of thebottler, engages in the production of any non-Coca-Cola beverage, whetherthrough 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**

 

On June 29,2001, through our respective subsidiaries, Multipack and Crowpla ReicoliteS.A., we and Cristalerías de Chile S.A. signed a series of contracts forming a jointventure for the development of a PET production facility in Chile through theformation of Envases CMF S.A. We contributed the assets necessary to furtherthe development of the joint venture from Multipack. Our subsidiary AndinaInversiones Societarias S.A. holds a 50% stake in the joint venture whileCristalerías de Chile S.A. retains the other 50% interest.

 

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**OtherTransactions with Related Companies**

 

Other transactions withrelated companies are outlined in the following table:

 
| ** **                                 | ** ** | ** **               | ** ** | ** **                                              | ** ** | **For the year ended December 31,** | ** ** |
|--------------------------------------------|------------|--------------------------|------------|---------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                 | ** ** | ** **               | ** ** | ** **                                              | ** ** | **2008**                                 | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                 | ** ** | ** **               | ** ** | ** **                                              | ** ** | ** **                               | ** ** | **Effect  on  income** | ** ** | ** ** | ** ** | **Effect on  income** | ** ** | ** ** | ** ** | **Effect on  income** | ** ** |
| **Company**                                | ** ** | **Relationship**         | ** ** | **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                    |       | 1,542                                    |       | 264 |   | 1,826 |   | 43 |   | 1,722 |   | 390 |   |
|                                       |       |                     |       | Finished product purchase                               |       | 16,885                                   |       | 0 |   | 18,368 |   | 0 |   | 17,941 |   | 0 |   |
| Coca-Cola de Chile S.A.                    |       | Shareholder              |       | Concentrate purchases                                   |       | 56,182                                   |       | 0 |   | 53,718 |   | 0 |   | 47,514 |   | 0 |   |
|                                       |       |                     |       | Payment of advertising  participation                   |       | 3,093                                    |       | (3,093 | ) | 4,498 |   | (4,498 | ) | 2,126 |   | (2,126 | ) |
|                                       |       |                     |       | Water source rental                                     |       | 2,107                                    |       | (2,107 | ) | 1,841 |   | (1,841 | ) | 1,574 |   | (1,574 | ) |
|                                       |       |                     |       | Sales of advertisement                                  |       | 1,741                                    |       | 0 |   | 3,866 |   | 0 |   | 3,166 |   | 0 |   |
|                                       |       |                     |       | Other sales                                             |       | 506                                      |       | 0 |   | 162 |   | 0 |   | 0 |   | 0 |   |
| Serv. y Prod para Bebidas Refrescantes SRL |       | Shareholder              |       | Concentrate purchases                                   |       | 36,048                                   |       | 0 |   | 29,529 |   | 0 |   | 26,545 |   | 0 |   |
| Envases del Pacífico S.A.             |       | Director in common       |       | Purchase of raw materials                               |       | 566                                      |       | 0 |   | 246 |   | 0 |   | 499 |   | 0 |   |
| Recofarma Industrias do Amazonas Ltda.     |       | Shareholder related      |       | Concentrate purchases                                   |       | 74,131                                   |       | 0 |   | 59,720 |   | 0 |   | 47,701 |   | 0 |   |
|                                       |       |                     |       | Payment of advertising  participation                   |       | 8,338                                    |       | (8,338 | ) | 3,603 |   | (3,603 | ) | 3,755 |   | (3,755 | ) |
|                                       |       |                     |       | Others                                                  |       | 1,601                                    |       | 1,601 |   | 564 |   | 564 |   | 632 |   | 632 |   |
| Envases CMF S.A.                           |       | Equity Investee          |       | Purchase of containers                                  |       | 16,179                                   |       | 0 |   | 17,557 |   | 0 |   | 19,260 |   | 0 |   |
|                                       |       |                     |       | Sale of finished products                               |       | 0                                        |       | 0 |   | 235 |   | 0 |   | 0 |   | 0 |   |
|                                       |       |                     |       | Dividend payment                                        |       | 2,700                                    |       | 0 |   | 3,496 |   | 0 |   | 1,731 |   | 0 |   |
|                                       |       |                     |       | Purchase of machinery and  equipment                    |       | 753                                      |       | 0 |   | 0 |   | 0 |   | 0 |   | 0 |   |
| Coca-Cola Embonor S.A.                     |       | Shareholder Related      |       | Sale of finished products                               |       | 9,931                                    |       | 2,214 |   | 9,487 |   | 2,172 |   | 8,118 |   | 2,937 |   |
|                                       |       |                     |       | Purchase of products                                    |       | 303                                      |       | 0 |   | 305 |   | 0 |   | 0 |   | 0 |   |
| Embotelladora Coca Cola Polar S.A.         |       | Shareholder Related      |       | Sale of finished products                               |       | 5,597                                    |       | 649 |   | 5,624 |   | 1,128 |   | 5,048 |   | 1,795 |   |
| Iansagro S.A.                              |       | Director in common       |       | Purchase of sugar                                       |       | 20,143                                   |       | 0 |   | 19,137 |   | 0 |   | 11,457 |   | 0 |   |
| Cican S.A.                                 |       | Shareholder related      |       | Purchase of finished products                           |       | 0                                        |       | 0 |   | 1,586 |   | 0 |   | 1,492 |   | 0 |   |
| Vendomática                           |       | Director related company |       | Sale of finished products                               |       | 1,570                                    |       | 471 |   | 1,593 |   | 478 |   | 1,688 |   | 286 |   |
| BBVA Administradora General de Fondos S.A. |       | Shareholder related      |       | Investments in mutual funds  Redemption of mutual funds |       | 15,569  15,569                           |       | 0  0 |   | 48,472  50,465 |   | 0  0 |   | 92,577  83,038 |   | 0  357 |   |

 

**ITEM 8.                  FINANCIALINFORMATION**

 

See “Item18 —Financial Statements” for our Consolidated Financial Statements filed aspart of this annual report.

 

**Legal Proceedings**

 

We areparty to certain legal proceedings that have arisen during the normal course ofbusiness, and we believe none of them are likely to have a material adverseeffect on our financial condition. The following is a summary of the mainproceedings to which we and our subsidiaries are a party:

 

*Embotelladora Andina S.A.(Chile)*

 

As of December 31, 2008, Embotelladora AndinaS.A. faces, labor, tax, commercial and other lawsuits. Accounting provisionsfor potential loss contingencies stemming from these lawsuits amount toapproximately ThCh$8,047. The Company considers it unlikely that thecontingencies that are not provisioned for will adversely affect the results ofthe Company in a material manner.

 

*Rio Janeiro Refrescos Ltda.(Brazil)*

 

As of December 31,2008, Refrescos was also involved in labor and tax litigation. Provisions inthe amount of approximately ThCh$1,109,801 have been made for these proceedingsin accordance with generally accepted accounting principles.

 

*Embotelladora del Atlántico S.A.(Argentina)*

 

As of December 31,2008, Embotelladora del Atlántico S.A. was involved in labor litigation andother legal proceedings, for which provisions of approximately ThCh$1,592,099were made. No provisions were made for those contingencies that in our opinionare unlikely to have a material adverse effect on our results of operations.

 

**Provisions**

 

           In accordance with accountingprinciples, the provisions regarding legal proceedings must be recorded if saidprocedures are reasonably probable to be resolved against the Company.Management believes that the constituted provisions reasonably cover the riskexposures.

 

**Dividend Policy**

 

Pursuantto Chilean law, we must distribute cash dividends equal to at least 30% of ourannual net income, calculated in accordance with Chilean GAAP, unless otherwiseprovided for by a unanimous vote of the Series A shareholders. If there 

 

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is no net income in agiven year, we are not legally required to distribute dividends from retainedearnings. At the annual meeting of shareholders held in April 2008, theshareholders authorized the board of directors to distribute, at itsdiscretion, interim dividends during July and October 2008 and January 2009.A U.S. holder of Series A or Series B ADSs may effectively berequired to receive a cash dividend, in the absence of a registration statementin effect pursuant to the Securities Market Law of Chile or an effectiveexemption from the 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.

 

During2006, 2007, and 2008, the respective shareholders’ meetings approvedextraordinary dividend payments to be paid from retained earnings fund in lightof significant cash generation. There can be no assurance that dividend paymentswill be available in the future.

 

Thefollowing table sets forth the nominal amount in Chilean pesos of dividendsdeclared and paid per share each year and the U.S. dollar amounts on a pershare basis actually paid to holders of ADSs, on each of the respective paymentdates:

 
| ** ** | ** ** | ** **              | ** ** | ** **                                                                   | ** ** | **Series A**                 | ** ** | **Series B**      | ** ** |
|------------|------------|-------------------------|------------|------------------------------------------------------------------------------|------------|-----------------------------------|------------|------------------------|------------|
| **Year**   | ** ** | **Date Dividend  Paid** | ** ** | **Fiscal year with respect  to  which dividend was declared** | ** ** | **Ch$ per share  (nominal)** | ** ** | **US$ per share** | ** ** | **Ch$ per share  (nominal)** | ** ** | **US$ per share** | ** ** |
| ** ** |       |                    |       |                                                                         |       |                              |       |                   |       |   |   |   |   |
| 2009       |       | 22-Jan                  |       | 2008                                                                         |       | 7.00                              |       | 0.01125                |       | 7.70 |   | 0.01237 |   |
|       |       | 30-Apr                  |       | 2008                                                                         |       | 14.13                             |       | 0.02401                |       | 15.54 |   | 0.02641 |   |
|       |       | 28-May                  |       | Retained Earnings                                                            |       | 43.00                             |       | 0.07603                |       | 47.30 |   | 0.08363 |   |
| 2008       |       | 24-Jan                  |       | 2007                                                                         |       | 7.00                              |       | 0.01485                |       | 7.70 |   | 0.01633 |   |
|       |       | 24-Apr                  |       | 2007                                                                         |       | 9.13                              |       | 0.02036                |       | 10.04 |   | 0.02239 |   |
|       |       | 14-May                  |       | Retained Earnings                                                            |       | 60.00                             |       | 0.12806                |       | 66.00 |   | 0.14087 |   |
|       |       | 31-Jul                  |       | 2008                                                                         |       | 7.00                              |       | 0.01382                |       | 7.70 |   | 0.01520 |   |
|       |       | 23-Oct                  |       | 2008                                                                         |       | 7.00                              |       | 0.01075                |       | 7.70 |   | 0.01182 |   |
| 2007       |       | 31-Jan                  |       | 2006                                                                         |       | 5.60                              |       | 0.01028                |       | 6.16 |   | 0.01131 |   |
|       |       | 26-Apr                  |       | 2006                                                                         |       | 11.12                             |       | 0.02108                |       | 12.23 |   | 0.02319 |   |
|       |       | 5-Jul                   |       | Retained Earnings                                                            |       | 65.19                             |       | 0.12442                |       | 71.71 |   | 0.13686 |   |
|       |       | 26-Jul                  |       | 2007                                                                         |       | 7.00                              |       | 0.01337                |       | 7.70 |   | 0.01470 |   |
|       |       | 24-Oct                  |       | 2007                                                                         |       | 7.00                              |       | 0.01387                |       | 7.70 |   | 0.01526 |   |
| 2006       |       | 26-Jan                  |       | 2005                                                                         |       | 4.80                              |       | 0.00907                |       | 5.28 |   | 0.00998 |   |
|       |       | 27-Apr                  |       | 2005                                                                         |       | 6.48                              |       | 0.01249                |       | 7.13 |   | 0.01374 |   |
|       |       | 1-Jun                   |       | Retained Earnings                                                            |       | 70.00                             |       | 0.13158                |       | 77.00 |   | 0.14474 |   |
|       |       | 26-Jul                  |       | 2006                                                                         |       | 5.60                              |       | 0.01032                |       | 6.16 |   | 0.01135 |   |
|       |       | 26-Oct                  |       | 2006                                                                         |       | 5.60                              |       | 0.01068                |       | 6.16 |   | 0.01175 |   |
| 2005       |       | 27-Jan                  |       | 2004                                                                         |       | 4.80                              |       | 0.00819                |       | 5.28 |   | 0.00901 |   |
|       |       | 28-Apr                  |       | 2004                                                                         |       | 4.80                              |       | 0.00824                |       | 5.28 |   | 0.00906 |   |
|       |       | 19-May                  |       | Retained Earnings                                                            |       | 70.00                             |       | 0.12079                |       | 77.00 |   | 0.13287 |   |
|       |       | 28-Jul                  |       | 2005                                                                         |       | 4.80                              |       | 0.00852                |       | 5.28 |   | 0.00937 |   |
|       |       | 26-Oct                  |       | 2005                                                                         |       | 4.80                              |       | 0.00878                |       | 5.28 |   | 0.00966 |   |

 

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

 

Sharesof Andina’s common stock have traded in the United States on the New York StockExchange (“NYSE”) since July 14, 1994 in the form of ADSs, eachrepresenting six shares of common stock, with the ADSs in turn evidenced byADRs. The Depositary for the ADSs is The Bank of New York Mellon. Shares ofAndina’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 tablebelow shows the high and low daily closing prices of the common stock inChilean pesos and the trading volume of the common stock on the Santiago StockExchange for the periods indicated. It also shows the high and low dailyclosing prices of the ADSs and the volume traded in the New York StockExchange.

 
| ** **       | ** ** | **Share Volume**   | ** ** | ** **             | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------|------------|--------------------|------------|------------------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **       | ** ** | **(in thousands)** | ** ** | **Ch$ per Share** | ** ** |
| ** **       | ** ** | **Series A**  | ** ** | **Series B**      | ** ** | **Series A** | ** ** | **Series B** | ** ** |
| ** **       | ** ** | ** **         | ** ** | ** **             | ** ** | **High**          | ** ** | **Low**           | ** ** | **High**   | ** ** | **Low** | ** ** |
| 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             |       | 93,092             |       | 150,791                |       | 1,400             |       | 1,080             |       | 1,530      |       | 1,190 |   |
| 2007             |       |               |       |                   |       |              |       |              |       |       |       |   |   |
| 1st Quarter      |       | 14,399             |       | 30,311                 |       | 1,600             |       | 1,390             |       | 1,800      |       | 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 |   |
| 2008             |       |               |       |                   |       |              |       |              |       |       |       |   |   |
| 1st Quarter      |       | 12,798             |       | 33,078                 |       | 1,412             |       | 1,040             |       | 1,529      |       | 1,165 |   |
| 2nd Quarter      |       | 29,284             |       | 52,739                 |       | 1,426             |       | 1,180             |       | 1,581      |       | 1,273 |   |
| 3rd Quarter      |       | 25,204             |       | 27,820                 |       | 1,403             |       | 1,180             |       | 1,539      |       | 1,262 |   |
| 4th Quarter      |       | 8,798              |       | 33,507                 |       | 1,255             |       | 919               |       | 1,456      |       | 1,164 |   |
| Last six months: |       |               |       |                   |       |              |       |              |       |       |       |   |   |
| Dec-08           |       | 307                |       | 8,994                  |       | 1,238             |       | 1,113             |       | 1,407      |       | 1,296 |   |
| Jan-09           |       | 1,284              |       | 8,460                  |       | 1,270             |       | 1,130             |       | 1,520      |       | 1,371 |   |
| Feb-09           |       | 1,753              |       | 1,702                  |       | 1,250             |       | 1,200             |       | 1,525      |       | 1,430 |   |
| Mar-09           |       | 976                |       | 3,727                  |       | 1,250             |       | 1,125             |       | 1,470      |       | 1,300 |   |
| Apr-09           |       | 23,742             |       | 18,263                 |       | 1,270             |       | 1,200             |       | 1,525      |       | 1,395 |   |
| May-09           |       | 24,476             |       | 18,796                 |       | 1,285             |       | 1,200             |       | 1,590      |       | 1,451 |   |

 
| ** **       | ** ** | **ADS Volume**     | ** ** | ** **             | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
|------------------|------------|--------------------|------------|------------------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **       | ** ** | **(in thousands)** | ** ** | **US$ per Share** | ** ** |
| ** **       | ** ** | **Series A**  | ** ** | **Series B**      | ** ** | **Series A** | ** ** | **Series B** | ** ** |
| ** **       | ** ** | ** **         | ** ** | ** **             | ** ** | **High**          | ** ** | **Low**           | ** ** | **High**   | ** ** | **Low** | ** ** |
| 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             |       | 1,781              |       | 4,745                  |       | 16.02             |       | 11.52             |       | 17.46      |       | 13.00 |   |
| 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 |   |
| 2008             |       |               |       |                   |       |              |       |              |       |       |       |   |   |
| 1st Quarter      |       | 662                |       | 1,277                  |       | 19.25             |       | 14.06             |       | 20.39      |       | 15.83 |   |
| 2nd Quarter      |       | 478                |       | 1,443                  |       | 20.10             |       | 13.45             |       | 21.79      |       | 14.91 |   |
| 3rd Quarter      |       | 509                |       | 1,636                  |       | 16.72             |       | 12.71             |       | 18.48      |       | 14.26 |   |
| 4th Quarter      |       | 915                |       | 1,103                  |       | 13.50             |       | 8.41              |       | 15.02      |       | 10.53 |   |
| Last six months: |       |               |       |                   |       |              |       |              |       |       |       |   |   |
| Dec-08           |       | 57                 |       | 193                    |       | 10.76             |       | 9.57              |       | 13.49      |       | 11.47 |   |
| Jan-09           |       | 75                 |       | 302                    |       | 12.35             |       | 10.50             |       | 15.34      |       | 13.17 |   |
| Feb-09           |       | 168                |       | 135                    |       | 12.94             |       | 11.61             |       | 15.40      |       | 14.00 |   |
| Mar-09           |       | 109                |       | 198                    |       | 13.00             |       | 10.75             |       | 16.05      |       | 12.63 |   |
| Apr-09           |       | 40                 |       | 606                    |       | 13.20             |       | 12.15             |       | 15.57      |       | 14.21 |   |
| May-09           |       | 58                 |       | 301                    |       | 14.63             |       | 12.60             |       | 17.20      |       | 14.90 |   |

 

*Sources:*Santiago Stock Exchange Official Quotations Bulletinand New York Stock Exchange.

 

On December 31,2008, the closing price for the Series A shares on the Santiago StockExchange was Ch$1,175 per share (US$10.52 per Series A ADR), and Ch$1,425for the Series B shares (US$13.75 per Series B ADR). At December 31,2008, there were 1,679,473 Series A ADRs (equivalent to 10,076,838 Series Ashares) and 8,408,786 Series B ADRs 

 

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(equivalent to 50,452,716Series B shares). Andina’s ADSs represented at such date 8.0% of the totalnumber of our issued and outstanding shares.

 

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, 2008, Andina’s shares weretraded on the Santiago Stock Exchange on an average of approximately 99.2% and100.0% of such trading days, for Series A and Series B sharesrespectively.

 

Pursuantto the terms of the Shareholders’ Agreement dated September 5, 1996 (the “Agreement”),among Inversiones Freire Ltda., and Inversiones Freire Dos Ltda. (together, the“Freire Shareholders”), the Company and the other parties thereto, none of theshareholders, party to the Agreement, may transfer Series A shares of theCompany they hold unless it involves:

 

·                          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.

 

Otherthan as discussed above, we are not aware of any other existing contracts ordocuments that impose material limitations or qualifications on the rights ofshareholders of our listed securities.

 

**The Yankee Bonds**

 

Our 7 5/8% Notes due 2027 and 7 7/8%Notes due 2097 are not listed on any stock exchange or other regulated market.Trading in these notes takes place primarily in the over-the counter marketand, accordingly, we are not able to obtain reliable information on trading inthese notes.

 

**Debt Securities**

 

TheCentral Bank is responsible, *inter alia*,for Chile’s monetary policies and exchange controls. The Central Bank hasauthorized Chilean issuers to offer bonds in Chile and abroad under the termsof 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.

 

EffectiveApril 19, 2001 the new CFER greatly simplified the procedure to registercapital contributions, investments and foreign loans, including bondsissuances.  Payments or remittances offunds, to or from Chile, in connection with credits granted abroad should bemade through the Formal Exchange Market, which is composed by the maincommercial banks that operate in Chile. When foreign currency resulting fromloans or bonds is made available to the beneficiary in the country, theintervening bank should issue the pertinent “Form” and request certaininformation from the debtor and creditor, as applicable, pursuant to ChapterXIV.

 

Paymentsor remittances of foreign currency as capital, interest, adjustments, profitsand other benefits originating in the transactions regulated under Chapter XIVmust be reported to the Central Bank as follows: (i) if the foreigncurrency represents a remittance made from Chile, the intervening FormalExchange Market bank should issue the above form; (ii) the issuer orborrower should inform the Central Bank, within the first 10 days of the monthfollowing the date of the transaction, if the foreign currency used to make thepertinent payments originates from credit transactions for which the foreigncurrency has been used directly abroad or if the corresponding paymentobligation is fulfilled abroad using funds other than those indicated inChapter XIV.

 

Anychange in the terms of the transaction must be reported to the Central Bankwithin 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.

 

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Exchangerule amendments dated April 2001 established that transactionsrecorded prior to April 19, 2001 will continue to be governed by the rules inforce at the time they were recorded, but that the parties may choose to applythe new regulations.

 

Theseprocedures also apply to foreign loans obtained through the placement ofconvertible bonds, in which case the issuer shall report to the Central Bankany increase or decrease in their registered amount as a result of theconversion of convertible bonds denominated and payable in Chilean pesos, forother convertible bonds denominated and payable in foreign currency or shares,as applicable, acquired by foreign investors with proceeds that had enteredChile under the terms of Chapter XIV.

 

Accordingto Chapter XIV, the Central Bank established that credits relating to acts,agreements or contracts which create a direct obligation of payment orremittance of foreign currency abroad by persons domiciled or residing inChile, that exceed on an individual basis the sum of US$100,000 or theequivalent in other foreign currencies, absent any special rule in theCFER, shall be reported to the Chilean Central Bank by the obligor eitherdirectly or through a Formal Exchange Market entity using the forms containedin the CFER, within 10 days from formalization.

 

In February 1999,after obtaining the requisite authorization from the Central Bank, we issuedbonds in the international markets, subject to the exchange regulations ineffect at that time.

 

TheCentral Bank unilaterally decides whether to grant authorizations forinternational bond offerings, and although other authorizations of the CentralBank have never been cancelled once issued, the Central Bank did request thatlenders renegotiate the terms of their loans during the restructuring of Chile’sforeign debt in the eighties.

 

Wecannot give any assurance that the Central Bank will not impose futurerestrictions applicable to the holders of debt securities, nor can we make anyevaluation of the duration or impact of such restrictions, if imposed.

 

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

 

**Material Contracts**

 

On December 16, 2008 Refrescos entered into aCession Agreement with Recofarma (a company from the Coca-Cola group in Brazil)along with the other Coca-Cola Bottlers and Jugos del Valle S.A.P.I. de C.V.(México) for the total share of Holdfab Particapacoes Ltda. Of the Sucos delValle Brasil Ltda. Company (Sucos del Valle) whereby the Coca-Cola bottlers nowhold a 50% ownership interest of this company. With this joint venture Refrescsos now holds a total ownership interestof 6.164% of capital chare of the joint Venture (Sucos Mais + Sucos delValle)  By this Cession Agreement, Sucosdel Valle will produce and supply on an exclusive basis to all Coca-Colabottlers so that they in turn can commercialize the products in theirrespective territories.

 

During 2008, EDASA enteredinto an agreement to expand the plant of effluent treatment. It also enteredinto a n agreement for the supply of electrical energy with Central PiedrabuenaS.A.

 

Pursuant to a Joint Venture Agreement or JV dated October 4,2007 Refrescos and all Coca-Cola bottlers in Brazil entered into a jointventure to exploit the Brazilian juice market, through the incorporation of acompany called “MAIS INDUSTRIA DE ALIMENTOS S.A.” or “Sucos Mais”. Sucos Maiswas structured as follows: 50% of its capital was subscribed by the 18Coca-Cola bottlers in Brazil and 50% by the company representing Coca-Cola inthe country (called “Recofarma Industria do Amazonas Ltda.”).  Refrescos holds an interest of 7.35% in thecapital of Sucos Mais.

 

On October 17, 2005, Andina, Vital, Coca-ColaEmbonor S.A. or Embonor and Embotelladoras Coca-Cola Polar S.A. or Polarentered into a letter of intent to carry out the transactions described belowin order to re-structure production and packing of products in the businesscategories of Water, Juices and Non-Carbonated Beverages, licensed by TheCoca-Cola Company in Chile. On December 22, 2005, the definitiveagreements were implemented to give effect to this letter of intent, asdescribed below:

 

a) Inthe category of Water, Andina, Embonor (through its subsidiary, EmbonorS.A.) and Polar have taken an interest of 56.5%, 26.4% and 17.1%, respectively,in Vital Aguas S.A., which will conduct the business of the processing,production and bottling of the *Vital deChanqueahue* Mineral Water and other waters, according to the termsof the contracts and authorizations agreed upon by Vital Aguas S.A. and TheCoca-Cola Company.

 

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Theequity interests of Embonor and Polar in Vital Aguas S.A. were acquired bypurchase from Andina and its subsidiary, Andina Inversiones Societarias S.A.,at prices equivalent to UF 169,306 and UF 109,428, respectively. Said amountswere adjusted and paid during January 2006.

 

Inaddition, Andina, Vital, Embonor and Polar agreed to the respective contractsand authorizations with The Coca-Cola Company to produce, bottle and sell the “Dasani”water.

 

b) Inthe category of Juices and Non-carbonated Beverages, contracts were signedwhereby Embonor and Polar have become the holders of the rights to acquireproducts 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 each bottler and TheCoca-Cola Company. The right to purchase these products from Vital S.A. will beat the prices and under the conditions applicable to volumes and maximumperiods determined by the parties that will last, in all cases, until December 31,2015.

 

Embonorand Polar agreed to pay to Andina’s subsidiary, Vital S.A., advances for theaforementioned rights, equal to UF 196,486 and UF 51,981, respectively. Saidamounts were adjusted and paid during January 2006.

 

Inaddition, Andina, Vital, Embonor and Polar have agreed to the respectivecontracts and authorizations with The Coca-Cola Company to produce, bottle andsell these products at their respective plants.

 

On August 10,2004, Refrescos entered into an agreement with Recofarma Industria do AmazonasLtda. or Recofarma, Refrigerantes Minas Gerais Ltda. or RMG and CompanhiaMineira de Refrescos S.A. or CMR, and together with Recofarma and RMG, theCounterparties, pursuant to which the parties agreed to swap franchiseterritories for the production and distribution of Coca-Cola brand soft drinks.Pursuant to the terms of this transaction, Refrescos sold its equity stake in anewly-formed company named Franquia 2299-Atendimento Personalisado Ltda., towhich it had previously contributed all of the assets, production anddistribution rights for Coca-Cola soft drinks in the territory denominatedGovernador Valadares in the State of Minas Gerais, to the Counterparties. Inconsideration for this transfer, Refrescos received all of the Counterparties’equity interest in Zohhal Industria de Refrigerantes Ltda. or Zohhal, whichowned all of the assets, production and distribution rights for Coca-Cola softdrinks in the territory known as Nova Iguaçú in the State of Rio de Janeiro. OnAugust 28, 2004, after completion of all operational transitions andadjustments provided for in the agreement, the parties formalized the transfersof their respective territories and Refrescos acquired all rights to produceand distribute Coca-Cola brand products in the Nova Iguaçu territory. Asrequired by Brazilian law, all filings and registrations required in connectionwith this transaction were presented with the Commercial Board of Rio deJaneiro.

 

On March 19,2002, The Coca-Cola Company, Kaiser, Molson and the Association of Brazilian Producersof Coca-Cola soft drinks (of which Refrescos is a member) executed a memorandumof understanding and an agreement with a term of 20 years for the distributionof beers produced or imported by Kaiser through the Coca-Cola distributionsystem with a term of 20 years and renewable for another 20-year period. On May 30,2003, Kaiser and its distributors (including Refrescos) executed a newtwenty-year distribution agreement which is renewable for another twenty-yearperiod.

 

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

 

Law No. 20,123brought significant changes to Chile’s employment law. First, it allowedcompanies (the “principal companies”) to engage a “contractor” or “contractingcompany” to hire employees, who would then be responsible for the employmentrelationship.  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 employeesto provide services to third parties (“end-users”) on a temporary basis.

 

During2007, we engaged a contractor to hire employees under this new law and took therequisite measures to ensure compliance with its requirements, includingchanges to commercial agreements and the creation of a new system to monitorlabor conditions and obligations

 

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**Foreign Investment and Exchange Controls in Chile**

 

TheCentral Bank is responsible, among other matters, for setting monetary policiesand exchange controls in Chile. As of April 19, 2001, the Chilean CentralBank eliminated prior foreign exchange controls, imposed certain reportingrequirements and determined that certain operations be conducted through theFormal Exchange Market. The main purpose of these amendments, as declared bythe Central Bank, is to facilitate the flow of capital into Chile and outsidethe country and to foster foreign investment.

 

Equityinvestments in Chile (including investments in stock) by non-resident personsor entities must comply with some of the existing exchange control restrictions.Foreign investments may be registered with the Foreign Investment Committee (*Comité de Inversiones Extranjeras*) inaccordance with Law N° 600 of 1974 and amendments or with the Central Bank inaccordance with Chapter XIV of the Compendium of Foreign Exchange Regulations (*Compendio de Normas de Cambios Internacionales*or CFER) of the Central Bank. In the case of Decree Law N° 600, foreigninvestors execute a foreign investment agreement with Chile, thus guaranteeingaccess the FEM.  However, investors underDecree Law N° 600 will only be able to repatriate capital one-year after theinvestment. Earnings can be remitted abroad at any time. In the case of CFER,capital as well as earnings can be repatriated at any time, without anagreement with the Central Bank.

 

As of April 19,2001 the Central Bank eliminated certain exchange controls.  For instance, it revoked Chapter XXVI of theCFER, which regulated the issuance and placement of ADRs by Chileancorporations. Pursuant to the new rules, the Central Bank’s approval is nolonger a pre-condition for ADR issuances or foreign investment contracts withthe Central Bank. ADR issuances are now regarded as an ordinary foreigninvestment, and the only requirements are that the Chilean Central Bank beinformed of the transaction, by fulfilling the rules of Chapter XIV of theCFER, that mainly establishes that the monies come in or leave the countryexclusively through the Formal Exchange Market, if the recipient of theinvestment decides to enter the foreign currency to the country or if itcarries out payments or remittances from Chile.

 

Notwithstandingthese changes, exchange transactions authorized prior to April 19, 2001remained subject to the rules in force as of the date of suchtransactions.  The new exchange regimedid not affect Chapter XXVI of the CFER and the Foreign InvestmentContract - FIC between Andina, the Central Bank and The Bank of New York Mellon(as depositary of the shares represented by ADSs).  Notwithstanding the previous, the parties tothe FIC may choose to adopt the norms imposed by the Chilean Central Bank,resigning to those of the FIC, and which has been the option we have takenuntil his date. The FIC is the agreement by which access to the ForeignExchange Market is given to the depositary and ADR holders.  The FIC adopted the dispositions of ChapterXXVI and was celebrated pursuant to Article 47 of the ConstitutionalOrganic Act of the Chilean Central Bank.

 

Bancode Chile was initially appointed as our custodian bank, 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.

 

UnderChapter XXVI of the CFER, if the funds to purchase the common shares underlyingthe ADSs are brought into Chile, the depositary must deliver, on behalf offoreign investors, an annex providing information on the transaction to theFormal Exchange Market entity involved, together with a letter instructing suchentity to deliver the foreign currency or the equivalency in pesos, on orbefore the date the foreign currency is brought or is to be brought into Chile.

 

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 the repatriationmust provide certain information to the Chilean Central Bank on the followingbanking business day.

 

UnderChapter XXVI and the FIC, the Chilean Central Bank agreed to grant to thedepositary, on behalf of Series A and Series B ADR holders, and toany investor not residing nor domiciled in Chile who acquire Series Ashares or Series B shares or replace Series A or Series B ADRsfor Series A or Series B shares , which we refer to as the WithdrawnShares, Formal Exchange Market access to convert Chilean pesos into 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;

 

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(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 resulting from capital decreases or earningsor liquidations; 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.

 

Theguarantee of Formal Exchange Market access under the FIC will extend to theparticipants of the ADS offering if the following requirements are met: (1) thefunds to purchase the Series A shares or Series B shares underlyingthe ADSs are brought into Chile and converted into Chilean pesos through theFormal Exchange Market; (2) the purchase of the underlying Series Ashares or Series B shares is made on a Chilean stock exchange; and (3) withinfive business days from the conversion of the funds into Chilean pesos, theChilean Central Bank is informed that the funds thus converted were used topurchase the underlying Series A shares or Series B shares.

 

ChapterXXVI provides that Formal Exchange Market access in connection with dividendpayments is conditioned to our certifying to the Chilean Central Bank that adividend payment has been made and that any applicable tax has been withheld.We agreed to provide this certification. Chapter XXVI also provides that FormalExchange Market access in connection with the sale of Withdrawn Shares, ordistribution thereon, is conditioned upon receipt by the Chilean Central Bankof (1) a certificate by the depositary or custodian, as the case may be,that the Series A shares or Series B shares have been withdrawn inexchange for delivery of the appropriate ADRs, and (2) a waiver of thebenefits of the FIC with respect to ADRs (except in connection with theproposed sale of the Series A shares or Series B shares) until theWithdrawn Shares are re-deposited.

 

ChapterXXVI and the FIC provide that an entity or person who is not domiciled inChile nor a Chilean resident, who brings foreign currency into Chile topurchase Series A shares or Series B shares pursuant to the FIC mustconvert that foreign currency into Chilean pesos on the date of entry intoChile, and must invest in Series A or Series B shares within fivebanking business days in order to receive the benefits of the FIC. If thatentity or person does not invest in Series A or Series B shareswithin that period, it can access the Formal Exchange Market to reacquireforeign currency, provided that the request is submitted to the Chilean CentralBank within seven banking business days of the initial conversion into pesos. Series Ashares or Series B shares acquired as described above may be deposited inexchange for ADRs and the entity or person will receive the benefits of theFIC, subject to: (1) receipt by the Chilean Central Bank of a certificatefrom the depositary that the Series A or Series B shares have beendeposited and that the related ADRs have been issued; and (2) receipt bythe custodian of a declaration from the person making the deposit waiving thebenefits granted by the FIC with respect to the deposited Series A or Series Bshares, which will be held by the depositary .

 

FEMaccess under any of the circumstances described above is not automatic.Pursuant to Chapter XXVI, such access needs the Chilean Central Bank’s approvalon a request submitted to that end through a banking institution established inChile. The FIC provides that if the Chilean Central Bank has not acted upon therequest within seven banking days, the request is deemed to have been granted.

 

Undercurrent Chilean law, the Chilean Central Bank cannot unilaterally change theFIC. The Chilean Courts (although not binding on future judicial decisions)also have established that the FIC cannot be annulled by future legislativechanges. No assurance can be given, however, that additional Chileanrestrictions applicable to the holders of ADRs, to the disposition ofunderlying Series A or Series B shares, or to the repatriation ofproceeds from their disposition, will not be imposed in the future; nor canthere be any assessment of the duration or impact of any restrictions thatmight be imposed. If for whatever reason, including changes in the FIC orChilean law, the Depositary is prevented from converting Chilean pesos intoU.S. dollars; the investors shall receive dividends or other payments inChilean pesos, which shall subject the investors to exchange rate risks. Itcannot be assured that the CFER, as amended, or any other exchange regulationwill not be amended in the future, or that if new regulations are enacted thatthey shall have no material bearing on Andina or the holders of the ADS.

 

Noassurance can be given that Andina will be able to purchase U.S. Dollars in theLocal Exchange Market at any time in the future, nor that any such purchasewill be for the amounts necessary to pay any sum due under any of its capitalor debt instruments. Likewise, it is not possible to guarantee that changes tothe regulations of the Chilean Central Bank or other legislative changesrelating to exchange controls will not restrict nor impair Andina’s ability topurchase U.S. Dollars in order to make payment on its debt instruments.

 

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Allpayments and distributions regarding the Series A or Series B ADSsmust be transacted in the Formal Exchange Market.

 

**TaxConsiderations Relating to Equity Securities**

 

***Chilean Tax Considerations***

 

Thefollowing discussion summarizes the material Chilean income tax consequences ofan investment in Andina’s stock or ADSs by an individual who is not domiciledor resident in Chile or a legal entity that is not organized under the laws ofChile and does not have a permanent establishment in Chile (a “foreign holder”).This discussion is based upon Chilean income tax laws presently in force,including Ruling No. 324 of January 29, 1990 of the *Servicio de Impuestos Internos* (theChilean Internal Revenue Service or “SII”) and other applicable regulations andrulings that are subject to change without notice. The discussion is notintended as a tax advice to any particular investor, which can be rendered onlyin light of that investor’s particular tax situation. Each investor orpotential investor is encouraged to seek independent tax advice with respect toconsequences of investing in Andina’s stock or the ADSs.

 

UnderChilean law, all matters regarding taxation such as tax rates (including taxrates applicable to foreign investors), the computation of taxable income forChilean purposes, the manner 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, the SII is empowered to issue rulings and regulations of eithergeneral or specific application, and to interpret the provisions of Chilean taxlaw. Chilean tax may not be assessed retroactively against taxpayers who act ingood faith relying on such rulings, regulations and interpretations, but theSII may change said rulings, regulations and interpretations prospectively.There is no income tax treaty in force between Chile and the United States.

 

*Cash Dividends and Other Distributions*

 

Dividendswe pay with respect to the shares of stock held by a foreign holder will besubject to Chilean withholding tax at a rate of 35% (the “Withholding Tax”).The tax paid by 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          | %          |

 

Forpurposes of determining the amount of First Category Tax we pay on profits fromwhich the dividends are paid, dividends are attributed to our oldest retainedprofits.

 

Dividenddistributions made in property will be subject to the same Chilean tax rules ascash dividends. Our stock dividends are not subject to Chilean taxation.

 

*Capital Gains*

 

Gainsrecognized from the sale or exchange of ADSs (or ADRs evidencing ADSs) by aforeign holder outside Chile will not be subject to Chilean taxation.

 

Gainsrecognized on a sale or exchange of shares of stock (as distinguished fromsales or exchanges of ADSs representing such shares) will be subject to boththe First Category Tax and the Withholding Tax (the former being creditedagainst the latter) if either (i) the foreign holder has held the sharesof common stock for less than one year since exchanging ADSs for the shares ofcommon stock, (ii) the foreign holder acquired and disposed of the sharesof common stock in the ordinary course of its business or as an habitual traderof shares or (iii) the foreign holder transfers shares of common stock toa related person, as defined by Chilean tax law. In all other cases, gain onthe disposition of shares of common stock will be

 

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subject only to the FirstCategory Tax, currently imposed at a rate of 17%, except if it is for sharesresulting from an exchange of ADSs for shares (flow back) in which case, theChilean Internal Revenue Service pursuant to Oficio 1,705 dated May 15,2006 has interpreted that said shares may benefit from article 18 ter if theADS were acquired through a stock broker or by any other circumstancestipulated by that norm.

 

The depositor withdrawal of shares of common stock in exchange for ADSs is not subject toany Chilean taxes. The tax basis of shares of common stock received in exchangefor ADSs will be determined in accordance with the valuation procedure setforth in the deposit agreement, which values shares of common stock at thehighest reported sales price at which they trade on the Santiago Stock Exchangeon the date of the withdrawal of the shares of common stock from thedepositary. Consequently, the conversion of ADSs into shares of common stock,and the immediate sale of the shares for the value established under thedeposit agreement, will not generate a capital gain subject to taxation inChile. However, in the case where the sale of the shares is made on a day thatis different than the date in which the exchange is recorded, capital gainsubject to taxation in Chile may be generated. In connection thereto, on October 1,1999 the Chilean Internal Revenue Service issued Ruling No. 3708 wherebyit allowed Chilean issuers of ADSs to amend the deposit agreements to whichthey are parties in order to include a clause that states that, in the casethat the exchanged shares are sold by the ADSs’ holders on a Chilean StockExchange either on the same day in which the exchange is recorded or within thetwo business days prior to such date, the acquisition price of such exchangedshares shall be the price registered in the invoice issued by the stock brokerthat participated in the sale transaction. Consequently, should this amendmentbe included in the deposit agreement, the capital gain that may be generated ifthe exchange date is different than the date in which the shares received inexchange for ADSs were sold, will not be subject to taxation. We reiterate thatif a contributor in good faith adopts Oficio 1,705, then the excess value willnot be subject to taxation in Chile.

 

Thedistribution and exercise of preemptive rights relating to the shares of commonstock will not be subject to Chilean taxation. Any gain on the sale orassignment of preemptive rights relating to the shares of common stock will besubject to both the First Category Tax and the Withholding Tax (the formerbeing credited against the latter).

 

*Other Chilean Taxes*

 

NoChilean inheritance, gift or succession taxes apply to the transfer ordisposition of the ADSs by a foreign holder, but such taxes generally willapply to the transfer at death or by gift of shares of common stock by aforeign holder. No Chilean stamp, issue, registration or similar taxes orduties apply to foreign holders of ADSs or shares of common stock.

 

*Withholding Tax Certificates*

 

Uponrequest, we will provide to foreign holders appropriate documentationevidencing the payment of Chilean withholding taxes.

 

***United States Tax Considerations***

 

Thefollowing discussion summarizes certain U.S. federal income tax consequences ofan investment in ADSs or shares of common stock. This discussion is based uponU.S. federal income tax laws presently in force. The discussion is not a fulldescription of all tax considerations that may be relevant to a decision topurchase ADSs or shares of common stock. In particular, the discussion isdirected only to U.S. holders (as defined below) that hold ADSs or shares ofcommon stock as capital assets, and it does not address the tax treatment ofholders that are subject to special tax rules under the Internal RevenueCode of 1986 as amended (the “Code”), such as financial institutions, regulatedinvestment companies, real estate investment trusts, investors in pass-throughentities, dealers in securities or currencies, traders in securities that electto use a mark-to-market method of accounting for their securities holdings,insurance companies, tax-exempt entities, persons holding ADSs or shares ofcommon stock as part of a hedging, integrated, conversion or constructive saletransaction or a straddle, holders of 10% or more of our voting shares, personsliable for alternative minimum tax or persons whose “functional currency” isnot the U.S. dollar. Furthermore, the discussion below is based upon theprovisions of the Code and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked ormodified so as to result in U.S. federal income tax consequences different fromthose discussed below. In addition, the discussion below assumes that theDeposit Agreement, and all other related agreements, will be performed inaccordance with their terms. If a partnership holds our ADSs or shares ofcommon stock, the tax treatment of a partner will generally depend upon thestatus of the partner and the activities of the partnership. Partners in apartnership holding ADSs or shares of common stock should consult their taxadvisors. This summary does not contain a detailed description of all theUnited States federal income tax consequences to a holder in light of itsparticular circumstances and does not address the effects of any state, localor non-United States tax laws. **Prospectivepurchasers should consult their tax advisors about the federal, state, localand foreign tax consequences to them of the purchase, ownership and dispositionof ADSs or shares of common stock.**

 

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Asused herein, the term “U.S. holder” means a holder of ADSs or shares of commonstock that is (i) an individual U.S. citizen or resident, (ii) acorporation (or any other entity treated as a corporation for U.S. federalincome tax purposes) created or organized in or under the laws of the UnitedStates, any state thereof or the District of Columbia, (iii) an estate theincome of which is subject to U.S. federal income taxation regardless of itssource or (iv) a trust (x) that is subject to the primary supervisionof a court within the United States and with respect to which one or more U.S.persons have the authority to control all substantial decisions 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.

 

*ADSs*

 

If theobligations contemplated by the deposit agreement are performed in accordancewith its terms, holders of ADSs (or ADRs evidencing ADSs) generally will betreated for U.S. federal income tax purposes as the owners of the shares ofcommon stock represented by those ADSs. Deposits or withdrawals of shares ofcommon stock by U.S. holders in exchange for ADSs will not result in therealization of gain or loss for U.S. federal income tax purposes. The U.S.Treasury has expressed concerns that parties to whom ADSs are released may betaking actions that are inconsistent with the claiming of foreign tax creditsfor U.S. holders of ADSs. Such actions would also be inconsistent with theclaiming of the reduced rate of tax, described below, applicable to dividendsreceived by certain non-corporate holders. Accordingly, the analysis of thecreditability of Chilean taxes and the availability of the reduced tax rate fordividends received by certain non-corporate holders, each described below,could be affected by actions taken by parties to whom the ADSs are released.

 

*Cash Dividends and Other Distributions*

 

Cashdividends (including the amount of any Chilean taxes withheld) paid to U.S.holders with respect to the ADSs or shares of common stock generally will betreated as dividend income to such U.S. holders, to the extent paid out ofcurrent or accumulated earnings and profits, as determined under U.S. federalincome tax principles. Such income will be includable in the gross income of aU.S. holder as ordinary income on the day received by the Depositary, in thecase of ADSs, or by the U.S. holder, in the case of shares of common stock. Thedividends will not be eligible for the dividends received deduction allowed tocorporations under the Code. With respect to non-corporate U.S. holders,certain dividends received before January 1, 2011 from a qualified foreigncorporation may be subject to reduced rates of taxation. A foreign corporationis treated as a qualified foreign corporation with respect to dividendsreceived from that corporation on shares (or ADSs backed by such shares) thatare readily tradable on an established securities market in the United States.U.S. Treasury Department guidance indicates that our ADSs (which are listed onthe New York Stock Exchange), but not our shares of common stock, are readilytradable on an established securities market in the United States. Thus, we donot believe that dividends that we pay on our shares of our common stock thatare not backed by ADSs currently meet the conditions required for these reducedtax rates. 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.

 

Dividendspaid in Chilean pesos will be includable in a U.S. dollar amount based on theexchange rate in effect on the day of receipt by the Depositary, in the case ofADSs, or by the U.S. holder in the case of shares of common stock, regardlessof whether the Chilean pesos are converted into U.S. dollars. If the Chileanpesos received as dividends are not converted into U.S. dollars on the date ofreceipt, a U.S. holder will have a basis in Chilean pesos equal to their U.S.dollar value on the date of receipt. Any gain or loss realized on a subsequentconversion or other disposition of the Chilean pesos will be treated as U.S.source ordinary income or loss, regardless of whether the pesos are convertedinto U.S. dollars.

 

TheChilean Withholding Tax (net of any credit for the First Category Tax) paid byor for the account of any U.S. holder may be eligible, subject to generallyapplicable limitations and conditions, for credit against the U.S. holder’sfederal income tax liability. For purposes of calculating the foreign taxcredit, dividends paid with respect to the ADSs or shares of common stockgenerally will be foreign source income and will generally constitute passiveincome. Further, in certain circumstances, a U.S. holder that (i) has heldADSs or shares of common stock for less than a specified minimum period duringwhich it is not protected from risk of loss or (ii) is obligated to makepayments related to the dividends will not be allowed a foreign tax credit forforeign taxes imposed on dividends paid on ADSs or shares of common stock. The rules governingthe foreign tax credit are complex. Investors are urged to consult their taxadvisors regarding the availability of the foreign tax credit under theirparticular circumstances.

 

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Distributionsto U.S. holders of additional shares of common stock or preemptive rights withrespect to shares of common stock that are made as part of a pro ratadistribution to all shareholders of the Company generally should not be subjectto U.S. federal income tax.

 

To theextent that the amount of any distribution exceeds our current and accumulatedearnings and profits for a taxable year, as determined under U.S. federalincome tax principles, the distribution will first be treated as a tax-freereturn of capital, causing a reduction in the adjusted basis of the ADSs orshares of common stock (thereby increasing the amount of gain, or decreasingthe amount of loss, to be recognized by the investor on a subsequentdisposition of the ADSs or shares of common stock), and the balance in excessof adjusted basis will be taxed as capital gain recognized on a sale orexchange. Consequently, such distributions in excess of our current andaccumulated earnings and profits generally would not give rise to foreignsource income and a U.S. holder generally would not be able to use the foreigntax credit arising from any Chilean withholding tax imposed on suchdistributions unless such credit can be applied (subject to applicablelimitations) against U.S. taxes due on other foreign source income in theappropriate category for foreign tax credit purposes. However, we do not expectto keep earnings and profits in accordance with U.S. federal income taxprinciples. Therefore, a U.S. holder should expect that a distribution willgenerally by treated as a dividend (as discussed above).

 

We donot believe that we are, for U.S. federal income tax purposes, a passiveforeign investment company (a “PFIC”), and expect to continue our operations insuch a manner that we will not be a PFIC. If, however, we are or become a PFIC,U.S. holders could be subject to additional U.S. federal income taxes on gainrecognized with respect to the ADSs or shares of common stock and on certaindistributions, plus an interest charge on certain taxes treated as having beendeferred by the U.S. holder under the PFIC rules of the U.S. federalincome tax laws.

 

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

 

*Capital Gains*

 

U.S.holders that hold ADSs or shares of common stock as capital assets willrecognize capital gain or loss for federal income tax purposes on the sale orother disposition of such ADSs or shares (or preemptive rights with respect tosuch shares) held by the U.S. holder or the Depositary. Capital gains ofindividuals derived with respect to capital assets held for more than one yearare eligible for reduced rates of taxation. The deductibility of capital lossesis subject to limitations. Any gain or loss recognized by a U.S. holdergenerally will be treated as U.S. source gain or loss. Consequently, in thecase of a disposition of shares of common stock (which, unlike a disposition ofADSs, may be taxable in Chile), the U.S. holder may not be able to use theforeign tax credit for Chilean tax imposed on the gain unless it can apply(subject to applicable limitations) the credit against tax due on other incomefrom foreign sources.

 

*Estate and Gift Taxation*

 

Asdiscussed above under “Chilean Tax Considerations — Other Chilean Taxes,” thereare no Chilean inheritance, gift or succession taxes applicable to the transferor disposition of ADSs by a foreign holder, but such taxes generally will applyto the transfer at death or by gift of shares of common stock by a foreignholder. The amount of any inheritance tax paid to Chile may be eligible forcredit against the amount of U.S. federal estate tax imposed on the estate of aU.S. holder. U.S. holders should consult their personal tax advisors todetermine whether and to what extent they may be entitled to such credit. TheChilean gift tax generally will not be treated as a creditable foreign tax forU.S. tax purposes.

 

*Information Reporting and Backup Withholding*

 

Ingeneral, information reporting requirements will apply to dividends in respectof ADSs or the shares of common stock or the proceeds received on the sale,exchange, or redemption of the ADSs paid within the United States (and incertain cases, outside of the United States) to U.S. holders other than certainexempt recipients (such as corporations). A backup withholding tax may apply tosuch payments if the U.S. holder fails to provide an accurate taxpayeridentification number or certification of other exempt status or fails toreport interest and dividends required to be shown on its federal income taxreturns. The amount of any backup withholding from a payment to a U.S. holderwill be allowed as a credit against the U.S. holder’s U.S. federal income taxliability provided the required information is furnished to the InternalRevenue Service.

 

**TaxConsiderations Relating to Debt Securities**

 

***General***

 

In October 1997, weissued US$150 million 7% Notes Due 2007 (the “2007 Notes”), US$100 million 7 5/8% Notes due 2027 (the “2027 Notes”) and US$100 million7 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

 

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tax considerations relating to the purchase, ownership and dispositionof Debt Securities. The summary does not purport to be a comprehensivedescription of all tax considerations that may be relevant to a decision topurchase Debt Securities. This summary does not describe any tax consequencesarising under the laws of any state, locality or taxing jurisdiction other thanthe United States and Chile.

 

Thissummary is based on the tax laws of Chile and the United States as in effect onthe date hereof, as well as regulations, rulings and decisions of Chile and theUnited States available on or before such date and now in effect. All of theforegoing is subject to change, which change could apply retroactively andcould affect the continued validity of this summary.

 

Thereis currently no tax treaty between the United States and Chile.

 

***Chilean Tax Considerations***

 

Thefollowing is a general summary of the material consequences under Chilean taxlaw, as currently in effect, of an investment in the Debt Securities made by aForeign Holder. The term “Foreign Holder” means: (i) an individual, who isnot a resident in Chile (for purposes of Chilean taxation, an individual isresident in Chile if he or she has resided in Chile for more than six months inone calendar 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.

 

UnderChile’s Income Tax Law, because the issuance of the Debt Securities isregistered with the Central Bank, payments of interest or premium, if any, thatwe make in respect of the Debt Securities to a Foreign Holder will generally besubject to a Chilean withholding tax (the “Chilean Interest Withholding Tax”)currently assessed at a rate of 4.0%. If the Debt Securities are issued throughour offshore branch, payment to Foreign Holders of Debt Securities by suchbranch generally will not be subject to the Chilean withholding tax.

 

Chile’sIncome Tax Law provides that any capital gains realized on the sale or otherdisposition by a Foreign Holder of the Debt Securities generally will not besubject to any Chilean income taxes provided that such sale or otherdisposition occurs outside of Chile (except that any premium payable onredemption of the Debt Securities will be treated as interest and subject tothe Chilean Interest Withholding Tax as described above).

 

AForeign Holder will not be liable for estate, gift, inheritance or similartaxes with respect to the Debt Securities unless such Debt Securities (i) arelocated in Chile at the time of such Foreign Holder’s death or (ii) werepurchased or acquired with money obtained from Chilean sources.

 

Theinitial issuance of the Debt Securities is subject to stamp tax and a foreignor Chilean holder will not be liable for Chilean stamp, registration or similartaxes because these would be payable only by the Company.

 

***United States Tax Considerations***

 

Thefollowing summary describes certain U.S. federal income tax consequences of theownership of Debt Securities by U.S. holders (as defined below) as of the datehereof. Except where noted, it deals only with Debt Securities held as capitalassets and does not deal with special situations, such as those of dealers insecurities or currencies, financial institutions, insurance companies,regulated investment companies, real estate investment trusts, tax-exemptentities, investors in pass-through entities, persons holding the DebtSecurities as a part of a hedging, integrated, conversion or constructive saletransaction or a straddle, traders in securities that elect to use amark-to-market method of accounting for their securities holdings, personsliable for the alternative minimum tax or holders of Debt Securities whose “functionalcurrency” is not the U.S. dollar. Furthermore, the discussion below is basedupon the provisions of the Code, and regulations, rulings and judicialdecisions there under as of the date hereof, and such authorities may berepealed, revoked or modified so as to result in U.S. federal income taxconsequences different from those discussed below. If a partnership holds ourDebt Securities, the tax treatment of a partner will generally depend upon thestatus of the partner and the activities of the partnership. Partners in apartnership holding our Debt Securities should consult their tax advisors.

 

**Persons considering the purchase, ownership or disposition ofthe Debt Securities should consult their own tax advisors concerning thefederal income tax consequences in light of their particular situations as wellas any consequences arising under the laws of any other taxing jurisdiction.**

 

Asused herein, a “U.S. holder” of the Debt Securities means a holder of the DebtSecurities that is (i) an individual U.S. citizen or resident, (ii) acorporation (or any other entity treated as a corporation for U.S. federalincome tax purposes) created or organized in or under the laws of the UnitedStates, any state thereof or the District of Columbia, (iii) an estate the

 

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income of which is subject to U.S. federal income taxation regardlessof its source or (iv) a trust (x) that is subject to the primarysupervision of a court within the United States and with respect to which oneor more U.S. persons have the authority to control all substantial decision ofthe trust or (y) that has a valid election in effect under applicable U.S.Treasury regulations to be treated as a U.S. person.

 

*Payments of Interest*

 

Intereston the Debt Securities will generally be taxable to a U.S. holder as ordinaryincome at the time it is paid or accrued in accordance with the U.S. holder’smethod of accounting for tax purposes. In addition to interest on the DebtSecurities, a U.S. holder will be required to include in income any AdditionalAmounts and any tax withheld from interest payments notwithstanding that suchwithheld tax is not in fact received by such U.S. holder. A U.S. holder may beentitled to deduct or credit such tax, subject to applicable limitations in theCode, including that the election to deduct or credit foreign taxes applies toall of the 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. holdersunder U.S. federal tax laws. A U.S. holder will generally be denied a foreigntax credit for Chilean taxes imposed with respect to the Debt Securities wheresuch a holder does not meet a minimum holding period requirement during whichthe holder is not protected from risk of loss. The rules governing theforeign tax credit are complex. We urge investors to consult their tax advisorsregarding the availability of the foreign tax credit under their particularcircumstances.

 

*Market Discount*

 

If aU.S. holder purchases a Debt Security for an amount that is less than itsprincipal amount, the amount of the difference will be treated as “marketdiscount” for U.S. federal income tax purposes, unless that difference is lessthan a specified de minimis amount. Under the market discount rules, the U.S.holder will be required to treat any principal payment on, or any gain on thesale, exchange, retirement or other disposition of, a Debt Security as ordinaryincome to the extent of the market discount that the U.S. holder has notpreviously included in income and is treated as having accrued on the DebtSecurity at the time of its payment or disposition.

 

Inaddition, the U.S. holder may be required to defer, until the maturity of theDebt Security or its earlier disposition in a taxable transaction, thededuction of all or a portion of the interest expense on any indebtednessattributable to the Debt Security. A U.S. holder may elect, on a bond-by-bondbasis, to deduct the deferred interest expense in a tax year prior to the yearof disposition. U.S. holders should consult their own tax advisors beforemaking this election.

 

Anymarket discount will be considered to accrue ratably during the period from thedate of acquisition to the maturity date of the Debt Security, unless the U.S.holder elects to accrue on a constant interest method. A U.S. holder may electto include market discount in income currently as it accrues, on either aratable or constant interest method, in which case the rule describedabove regarding deferral of interest deductions will not apply.

 

*Amortizable Bond Premium*

 

A U.S.holder that purchases a Debt Security for an amount in excess of its principalamount will be considered to have purchased the Debt Security at a “premium.”The U.S. holder may elect to amortize the premium over the remaining term ofthe Debt Security on a constant yield method as an offset to interest whenincludible in income under the holder’s regular accounting method. If the U.S.holder does not elect to amortize bond premium, that premium will decrease thegain or increase the loss the holder would otherwise recognize on dispositionof the Debt Security.

 

*Sale, Exchange and Retirement of Debt Securities*

 

Uponthe sale, exchange, retirement or other disposition of the Debt Securities, aU.S. holder will recognize gain or loss equal to the difference between theamount realized upon the sale, exchange, retirement or other disposition (lessany accrued interest, which will be taxable as such if not previously includedin income) and the U.S. holder’s adjusted tax basis in the Debt Securities. AU.S. holder’s tax basis in the Debt Securities generally will be the U.S.holder’s cost therefore, increased by market discount previously included inincome, and reduced by any amortized premium. Except as described above withrespect to market discount, gain or loss realized by a U.S. holder on the sale,exchange, retirement or other disposition of the Debt Securities will generallybe capital 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 derivedwith respect

 

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to capital assets held for more than one year are eligible for reducedrates of taxation. The deductibility of capital losses is subject tolimitations.

 

*Information Reporting and Backup Withholding*

 

Ingeneral, information reporting requirements will apply to certain payments ofprincipal and interest on the Debt Securities and to the proceeds of the saleof the Debt Securities made to U.S. holders other than certain exemptrecipients (such as corporations). A backup withholding tax will apply to suchpayments if the U.S. holder fails to provide its taxpayer identification numberor a certification of exempt status, or, in the case of interest payments,fails either to report in full dividend and interest income or to make certaincertifications.

 

Anyamounts withheld under the backup withholding rules will be allowed as arefund or a credit against the U.S. holder’s U.S. federal income tax liabilityprovided the required information is furnished to the Internal Revenue Service.

 

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

 

As aresult of the 2097 Debentures’ 100 year term, it is not certain whether suchDebentures will be treated as debt or as equity for U.S. federal income taxpurposes. We have taken the position that the 2097 Debentures constitute debtfor financial reporting and U.S. federal income tax purposes. Our position,however, is not binding on the Internal Revenue Service. Althoughclassification of the 2097 Debentures as equity generally would notsignificantly affect a U.S. holder’s taxable income resulting from aninvestment in the 2097 Debentures, the discussion that follows also brieflydescribes certain U.S. federal income tax consequences that would arise if the2097 Debentures were not treated as debt for U.S. federal income tax purposes.

 

If the2097 Debentures are treated as equity for U.S. federal income tax purposes, thepotential differences in the U.S. federal income tax treatment to U.S. holdersof the 2097 Debentures that would result include (i) payments denominatedas interest 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 suchpayments will generally be treated as dividends). Amounts treated as dividendswill not be eligible for the dividends received deduction generally allowedU.S. corporations. In addition, because our 2097 Debentures are not readilytradable on an established securities market in the United States, we do notbelieve that any amounts treated as dividends currently meet the conditionsrequired for the reduced tax rates that apply to qualified dividend income receivedby non-corporate U.S. holders. **Personsconsidering the purchase, ownership or disposition of the 2097 Debenturesshould consult their own tax advisors concerning additional potential taxconsequences, including those arising upon a sale, exchange or redemption ofthe 2097 Debentures, which could result from the treatment of the 2097Debentures as equity for U.S. federal income tax purposes.**

 

**Documentson Display**

 

We aresubject to the informational reporting requirements of the U.S. SecuritiesExchange Act of 1934, as amended, which requires that we file periodic reportsand other information with the SEC. As a foreign private issuer, we file annualreports on Form 20-F as opposed to Form 10-K. We do not filequarterly reports on Form 10-Q but furnish reports in relation to materialevents on Form 6-K. As a foreign private issuer, we are exempt from the rules underthe U.S. Securities Exchange Act of 1934, as amended, prescribing thefurnishing and content of proxy statements and short-swing profit disclosureand liability.

 

Youmay read and copy all or any portion of the annual report or other informationin our files in the SEC’s public reference room at 100 F Street, N.E.,Washington, D.C. 20549. You can also access these documents through the SEC’s websiteat 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.

 

Wealso file reports with the Chilean *Superintendencia deValores y Seguros*. You may read and copy any materials filed withthe SVS directly from its website www.svs.cl of from our corporate websitewww.embotelladoraandina.com or request a hard copy to ir@koandina.com. Thedocuments referred to in this annual report can be inspected at El Golf 40

 

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Oficina 401, Las Condes, Santiago, Chile. Chilean law may restrict ourshareholders’ right of inspection to certain days and times.

 

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

 

Marketrisk generally represents the risk that losses may occur in the values offinancial instruments as a result of movements in interest rates, foreigncurrency exchange rates and commodity prices. We are exposed to changes infinancial market conditions in the normal course of our business due to our useof certain financial instruments as well as transacting in various foreigncurrencies and translation of our foreign subsidiaries’ financial statementsinto the Chilean peso.

 

**InterestRate Risk**

 

Ourprimary interest rate exposures relate to U.S. dollar denominated and UFlong-term fixed rate bond liabilities and other long-term variable and fixed ratebank liabilities. We also invest in certain medium-term bond securities thatbear a fixed interest rate. We monitor our exposure to interest ratefluctuations regularly depending on market conditions.

 

The following tableprovides information about our long-term debt and bond investments that aresensitive to changes in market interest rates as of December 31, 2008.

 
| ** **                        | ** ** | **Expected  Maturity Date** | ** ** | **Estimated Fair  Market Value** | ** ** |
|-----------------------------------|------------|-----------------------------|------------|---------------------------------------|------------|
| ** **                        | ** ** | **2009**                    | ** ** | **2010**                              | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Total** | ** ** |
| ** **                        | ** ** | **MCh$**                    | ** ** | **MCh$**                              | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** |
| **Interest  Earning Assets**      | ** ** | ** **                  |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Time deposits and credit  links   |       | 81,721                      |       | 0                                     |       | 0 |   | 0 |   | 0 |   | 0 |   | 81,721 |   | 81,721 |   |
| Weighted average interest  rate   |       | 5.22                        | %          |                                  |       |   |   |   |   |   |   |   |   | 5.22 | % |   |   |
| **Interest  Bearing Liabilities** |       |                        |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term debt                    |       | 2,758                       |       | 4,669                                 |       | 4,669 |   | 4,669 |   | 4,669 |   | 58,364 |   | 79,798 |   | 88,195 |   |
| Fixed Rate                        |       | 6.50                        | %          | 6.50                                  | %          | 6.50 | % | 6.50 | % | 6.50 | % | 6.50 | % | 6.50 | % |   |   |
| Bank liabilities                  |       | 5,820                       |       | 0                                     |       | 0 |   | 0 |   | 0 |   | 0 |   | 5,820 |   | 5,820 |   |
| Weighted average interest  rate   |       | 17.64                       | %          |                                  |       |   |   |   |   |   |   |   |   | 17.64 | % |   |   |
| Variable Rate                     |       |                        |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Bank liabilities                  |       | 226                         |       | 225                                   |       | 160 |   | 28 |   |   |   |   |   | 639 |   | 639 |   |
| Weighted average interest  rate   |       | 10.51                       | %          | 10.54                                 | %          | 10.26 | % | 9.86 | % |   |   |   |   | 10.43 | % |   |   |

 

**Foreign Currency Risk**

 

At December 31,2008, the Company does not have long-term interest bearing debt subject toexchange rate fluctuations between the Chilean peso and the U.S. dollar. Thecompany maintains cash, short term deposits and money market mutual funds  in U.S. dollars amounting to Ch$25,550million at December 31, 2008, Our dollar-denominated financial assets arepartially protected against fluctuations in the exchange rate for U.S. dollarsby means of  hedge agreements. The hedgedamount totaled Ch$14,955 million at December 31, 2008, with which theCompany’s net asset and liability dollar-denominated exposure is significantlyhedged.

 

Thefollowing table summarizes the financial instruments denominated in US dollarswe held as of December 31, 2008.

 
| ** **                 | ** ** | **Expected Maturity Date** | ** ** | **Estimated Fair** | ** ** |
|----------------------------|------------|----------------------------|------------|--------------------|------------|
| ** **                 | ** ** | **2009**                   | ** ** | **2010**           | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Market Value** | ** ** |
| ** **                 | ** ** | **MCh$**                   | ** ** | **MCh$**           | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** | **MCh$** | ** ** |
| Assets                     |       |                       |       |               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| US$ denominated:      |       |                       |       |               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                       |       | 1,531                      |       | 0                  |       | 0 |   | 0 |   | 0 |   | 0 |   | 1,531 |   | 1,531 |   |
| Time deposits              |       | 13,747                     |       | 0                  |       | 0 |   | 0 |   | 0 |   | 0 |   | 13,747 |   | 13,747 |   |
| Money market mutual funds  |       | 10,272                     |       | 0                  |       | 0 |   | 0 |   | 0 |   | 0 |   | 10,272 |   | 10,272 |   |
| Foreign currency contracts |       | 1,040                      |       | 0                  |       | 0 |   | 0 |   | 0 |   | 0 |   | 1,040 |   | 1,040 |   |

 

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**ITEM 12.****       ****DESCRIPTION OF SECURITIES OTHER THANEQUITY SECURITIES**

 

Notapplicable.

 

**PART II**

 

**ITEM 13.****       ****DEFAULTS, DIVIDEND ARREARAGES ANDDELINQUENCIES**

 

Notapplicable.

 

**ITEM 14.****       ****MATERIAL MODIFICATIONS TO THE RIGHTSOF SECURITY HOLDERS AND USE OF PROCEEDS**

 

Theinformation requested by this item has been previously provided in the annualreport for the year 2004. See “Item 4. Information on the Company—Part A.History and Development of the Company.”

 

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

 

*Evaluationof disclosure controls and procedures*.

 

Underthe supervision and with the participation of our management, including ourChief Executive Officer, Chief Financial Officer and Controller, we haveevaluated the effectiveness of the design and operation of our disclosurecontrols and procedures as of December 31, 2008. Based on thatevaluation, our Chief Executive Officer, Chief Financial Officer and Controllerhave concluded that these controls and procedures are effective to ensure thatinformation required to be disclosed in the reports that we file or submitunder the Securities Exchange Act of 1934, as amended, is recorded, processed,summarized and reported within the time periods specified in the SEC’s rules andforms, and that such information is accumulated and communicated to managementas appropriate to allow timely decisions regarding required disclosure.

 

*Management’sAnnual Report on Internal Control over Financial Reporting.*

 

Companymanagement is responsible for establishing and maintaining adequate internalcontrol over financial reporting. Internal control over financialreporting is defined in Rule 13a-15(f) or 15d-15(f) promulgatedunder the Securities Exchange Act of 1934, as amended, as a processdesigned by, or under the supervision of, the Company’s Chief ExecutiveOfficer, Chief Financial Officer and Controller and effected by theCompany’s Board of Directors, management and other personnel, to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordancewith generally accepted accounting principles and includes those policiesand procedures that:

 

·      pertain to the maintenance of records that inreasonable detail accurately and fairly reflect the transactionsand dispositions of the assets of the Company;

 

·      provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and that receipts andexpenditures of the Company are being made only in accordance withauthorizations of management and directors of the Company; and

 

·      provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisitions, 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. Projections of any evaluation ofeffectiveness as to future periods are subject to the risk thatcontrols may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate.

 

TheCompany’s management assessed the effectiveness of the Company’s internalcontrol over financial reporting as of December 31, 2008. In makingthis assessment, the Company’s management used the criteria set forth bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control-Integrated Framework. Based on our assessment, managementconcluded that, as of December 31, 2008, the Company’s internalcontrol over financial reporting was effective based on those criteria.

 

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The effectiveness of the Company’s internalcontrol over financial reporting as of December 31, 2008 has been auditedby the Company’s registered independent accounting firm, which opinion isstated in their report, included herein.

 

*Changesin internal controls over financial reporting.*

 

Therewere no changes in our internal control over financial reporting during theyear ended December 31, 2008 that materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.

 

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

 

Ourboard of directors has determined that Mr. Heriberto Urzúa Sánchez is our “auditcommittee financial expert” as defined in Item 16A of Form 20-F. Ourboard of directors has also determined that Mr. Heriberto Urzúa Sánchez isan “independent director” as defined in Section 303A.02 of the NYSE’sListed Company Manual.

 

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

 

Wehave adopted a “Code of Business Conduct” that constitutes a code of ethics forour employees. This code applies to our chief executive officer and all seniorfinancial officers of our Company, including the chief financial officer,controller, or any other persons performing similar functions, as well as toall other officers and employees of the Company. Our code of ethics isavailable on our websites, free of charge, at **www.embotelladoraandina.com**. If we make any substantive amendment to thecode of ethics or grant any waivers, including any implicit waiver, from aprovision of the codes of ethics, we will disclose the nature of such amendmentor waiver on the above mentioned website.

 

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

 

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

 

Thefollowing table sets forth, for each of the years indicated, the kinds of feespaid to our external auditors and the percentage of each of the fees out of thetotal amount paid to them.

 
| ** **             | ** ** | **Year Ended December 31,** | ** ** |
|------------------------|------------|----------------------------------|------------|
| ** **             | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| **Services rendered**  | ** ** | **Fees********MCh$ **       | ** ** | **% of Total  Fees** | ** ** | **Fees********MCh$ ** | ** ** | **% of Total  Fees** | ** ** |
| Audit  fees(1)         |       | 569                              |       | 98 | % | 641 |   | 96 | % |
| Audit-related  fees(2) |       | 5                                |       | 1 | % | 4 |   | 1 | % |
| Tax  fees(3)           |       | 3                                |       | 1 | % | 20 |   | 3 | % |
| Total                  |       | 577                              |       | 100 | % | 665 |   | 100 | % |

 

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(1)      Audit fees consist of services that wouldnormally be provided in connection with statutory and regulatory filings orengagements, including services that generally only the independent accountantcan reasonably provide.

(2)      Audit-related fees relate to assuranceand associated services that traditionally are performed by the independentaccountant, including: attest services that are not required by statute orregulation; accounting consultation and audits in connection with mergers,acquisitions and divestitures; employee benefit plans audits; and consultationconcerning financial accounting and reporting standards.

(3)      Tax fees relate to services performed bythe tax division for tax compliance, planning, and advice.

 

***Directors’ Committee and Audit CommitteePre-Approval Policies and Procedures***

 

Wehave adopted pre-approval policies and procedures under which all audit andnon-audit services provided by our external auditors must be pre-approved byour director’s committee and audit committee. Any service proposals submittedby external auditors need to be discussed and approved by the directors’committee and audit committee during its meetings, which take place at leastfour times a year. Once the proposed service is approved, we or oursubsidiaries formalize the engagement of services. In addition, the members ofour board of directors are briefed on matters discussed by the differentcommittees of our board of directors.

 

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**ITEM 16D.****    ****EXEMPTIONS FROM THE LISTING STANDARDSFOR AUDIT COMMITTEES**

 

SalvadorSaid was appointed to the Audit Committee of Embotelladora Andina S.A. by theRegular Meeting of the Board of Directors of the Company held on April 22,2008, replacing José Antonio Garcés (Junior), as duly informed by the Form 6Kfiled with the Securities and Exchange Commission on April 23, 2008.

 

TheCompany discloses that, with respect to the current membership of Mr. Saidand the previous membership of Mr. Garcés Silva on the Company’s AuditCommittee, it has relied on the exemption from the independence requirementsprovided by Rule 10A-3(b)(1)(iv)(D) of the Securities and ExchangeAct of 1934, as amended (the “Exchange Act”). Pursuant to Rule 10A-3(b)(1)(iv)(D),a director who is either an affiliate or a representative of an affiliate ofthe listed company may serve as a member of the audit committee to the extentthe director is not a voting member or chairperson of the audit committee andto the extent that neither the director nor the affiliate the directorrepresents is an executive officer of the listed company.

 

Mr. Saidmeets, as did Mr. Garcés Silva for the duration of his membership, therequirements of Rule 10A-3(b)(1)(iv)(D) because he (i) is arepresentative of the controlling shareholder of the Company, InversionesFreire S.A.; (ii) has only observer status on the audit committee of theCompany; and (iii) is not an executive officer of the Company.

 

TheCompany’s reliance on the exemption provided by Rule 10A-3(b)(1)(iv)(D) ofthe Exchange Act would not materially adversely affect the ability of the auditcommittee of the Company to act independently.

 

**ITEM 16E.****    ****PURCHASERS OF EQUITY SECURITIES BYTHE ISSUER AND AFFILIATED PURCHASERS**

 

During2008, no issuer or affiliated parties made purchases pursuant to publiclyannounced plans or programs or not pursuant to such plans.

 

**ITEM16F.   CHANGE IN REGISTRANT’S CERTIFYINGACCOUNTANT**

 

Not applicable to thisannual report. Application of this item will start with our annual report forthe fiscal year ending December 31, 2009.

 

**ITEM 16G.CORPORATE GOVERNANCE**

 

**NYSEand Chilean Corporate Governance Requirements**

 

Inaccordance with Section 303A.11 of the NYSE’s Listed Company Manual, thefollowing table sets forth significant differences between Chilean corporategovernance practices and those corporate governance practices followed bydomestic corporations under NYSE listing standards. Significant ways in whichour corporate governance practices differ from those followed by U.S. companiesunder NYSE listing standards are also publicly available on our website at **www.embotelladoraandina.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. |

 

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| **ITEM**                                        | ** ** | **NYSE REQUIREMENTS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | ** ** | **CHILEAN LAW REQUIREMENTS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|-------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 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. |

 

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| **ITEM**                                         | ** ** | **NYSE REQUIREMENTS**                                                                                                                                                                                                                                                                                                                                                                                       | ** ** | **CHILEAN LAW REQUIREMENTS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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 the creation or amendment of compensation plans  regarding board members, executives and employees.                                                                                                                                                                                                                                                      |       | Directors’ compensation  is annually approved during the Company’s General Shareholders’ Meeting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                             |       |                                                                                                                                                                                                                                                                                                                                                                                                        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 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 Ethics and 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.embotelladoraandina.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- |       | 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**                                                                                                                  |
|---------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------|
|                      |       | 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. |       |                                                                                                                                          |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                                                                                                                                          |
| 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). |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                                                                                                                                          |
| 303A.14  Company Website  |       | Listed  Companies subject to Sections 303A.04, .05, .07(c), .09 or .010 must have a  company website which is accessible from the United States. The website must  contain its Corporate Governance Committees’ By Laws, its corporate  governance requirements, its Code of Business Conduct and the summary  required by Section 303A.11                                                                                                                                      |       | No similar obligation  exists under Chilean law                                                                                               |

 

**PART III**

 

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

 

Referenceis made to Item 18 for a list of all financial statements filed as part ofthis annual report.

 

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

 

Thefollowing financial statements, together with the report of independentregistered 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, 2008 and 2007                                                                                   |     | F-4 |
| Consolidated  Statements of Income for the years ended December 31, 2008, 2007 and  2006                                                     |     | F-6 |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2008, 2007 and  2006                                                 |     | F-7 |
| Notes to  the Consolidated Financial Statements at December 31, 2008 and 2007 and  for the years ended December 31, 2008, 2007 and 2006 |     | F-9 |

 

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** **

**ITEM 19.****              ****EXHIBITS**

 

Theexhibits filed with or incorporated by reference in this annual report arelisted in the exhibit index below.

 

**EXHIBIT INDEX**

 
| **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).                                                                                                                    |

 

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**SIGNATURE**

 

Pursuantto the requirements of Section 12 of the Securities Exchange Act of 1934,the Registrant certifies that it meets all of the requirements for filing on Form 20-Fand has duly caused this Annual Report on Form 20-F to be signed on itsbehalf by the undersigned, thereunto duly authorized, in the city of Santiago,Chile on June 30, 2009.

 
|   | EMBOTELLADORA ANDINA  S.A.

(ANDINA BOTTLING COMPANY) |
|--------|-------------------------------------------------------|
|   |                                                  |
|   | /s/ Osvaldo Garay                                     |
|   | Osvaldo Garay                                         |
|   | Chief Financial Officer                               |

 

Date: June 30, 2009

 

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EMBOTELLADORAANDINA S.A. AND SUBSIDIARIES

 

Consolidatedfinancial statements

 

Asof December 31, 2008 and 2007 and for each of the three years in theperiod ended December 31, 2008

 

CONTENTS

 
| Report of Independent  Registered Public Accounting Firm |
|----------------------------------------------------------|
| Consolidated Balance Sheets                              |
| Consolidated Statements of  Income                       |
| Consolidated Statements of  Cash Flows                   |
| Notes  to the Consolidated Financial Statements          |

 
| 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                                                                      |

 

 

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### Reportof Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholders ofEmbotelladora Andina S.A.

 

In our opinion, the accompanying consolidated balancesheets and the related consolidated statements of income and of cash flowspresent fairly, in all material respects, the financial position ofEmbotelladora Andina S.A. and its subsidiaries at December 31, 2008 and2007, and the results of their operations and their cash flows for each of thethree years in the period ended December 31, 2008 in conformity withaccounting principles generally accepted in Chile.  Also in our opinion, the Company maintained,in all material respects, effective internal control over financial reportingas of December 31, 2008, based on criteria established in *Internal Control - Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company’s management is responsible forthese financial statements, for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting, included in Management’s Report on InternalControl over Financial Reporting appearing under item 15.  Our responsibility is to express opinions onthese financial statements and on the Company’s internal control over financialreporting based on our integrated audits. We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States) and auditing standardsgenerally accepted in Chile. Those standards require that we plan and performthe 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.

 

Accounting principles generally accepted in Chile varyin certain significant respects from accounting principles generally acceptedin the United States of America (“U.S. GAAP”). Information relating to thenature and effect of such differences is presented in Note 30 to the consolidatedfinancial statements.

 

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A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles.  A company’s internal control over financialreporting includes those policies and procedures that (i) pertain to themaintenance 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.

 

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

 

/s/PricewaterhouseCoopers

 

 

Santiago, Chile

June 30, 2009

 

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EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES

 

CONSOLIDATEDBALANCE SHEETS

 

(Restated for general price-level changes andexpressed in

thousands of constant Chilean pesos of December 31,2008)

 
| ** **                                              | ** ** | ** ** | ** ** | **At December 31,** | ** **   |
|---------------------------------------------------------|------------|------------|------------|--------------------------|--------------|
| ** **                                              | ** ** | **Note**   | ** ** | **2008**                 | ** **   | **2007** | ** ** |
| ** **                                              | ** ** | ** ** | ** ** | **ThCh$**                | ** **   | **ThCh$** | ** ** |
| ASSETS                                                  | ** ** | ** ** | ** ** | ** **               | ** **   | ** ** | ** ** | ** ** |
| CURRENT ASSETS                                          |       |       |       |                     |         |   |   |   |
| Cash                                                    |       |       |       |                     | 21,250,102   |   | 26,957,261 |   |
| Time deposits                                           |       |       | 3          |                     | 81,721,481   |   | 53,457,247 |   |
| Marketable securities                                   |       |       | 4          |                     | 26,281,107   |   | 52,853,048 |   |
| Trade accounts receivable  (net)                        |       |       | 5          |                     | 46,751,190   |   | 48,221,953 |   |
| Notes receivable (net)                                  |       |       | 5          |                     | 14,116,657   |   | 15,848,607 |   |
| Other receivables (net)                                 |       |       | 5          |                     | 13,256,520   |   | 17,458,395 |   |
| Accounts receivable from  related companies             |       |       | 6 a)       |                     | 2,942,896    |   | 2,011,437 |   |
| Inventories (net)                                       |       |       | 7          |                     | 31,227,350   |   | 29,728,197 |   |
| Recoverable taxes                                       |       |       |       |                     | 5,985,290    |   | 2,772,754 |   |
| Prepaid expenses                                        |       |       |       |                     | 2,435,882    |   | 2,073,543 |   |
| Deferred income taxes                                   |       |       | 8 b)       |                     | 3,637,016    |   | 5,700,565 |   |
| Other current assets                                    |       |       | 9          |                     | 6,936,682    |   | 24,585,281 |   |
| Total current assets                                    |       |       |       |                     | 256,542,173  |   | 281,668,288 |   |
|                                                    |       |       |       |                     |         |   |   |   |
| PROPERTY, PLANT AND  EQUIPMENT                          |       |       | 10         |                     |         |   |   |   |
| Land                                                    |       |       |       |                     | 20,428,189   |   | 18,242,140 |   |
| Buildings and improvements                              |       |       |       |                     | 125,373,465  |   | 107,269,482 |   |
| Machinery and equipment                                 |       |       |       |                     | 299,696,514  |   | 250,017,731 |   |
| Other property, plant and  equipment                    |       |       |       |                     | 282,188,795  |   | 236,846,369 |   |
| Technical reappraisal of  property, plant and equipment |       |       |       |                     | 2,404,632    |   | 2,404,632 |   |
| Less: Accumulated  depreciation                         |       |       |       |                     | (502,897,614 | ) | (431,192,834 | ) |
| Total property, plant and  equipment                    |       |       |       |                     | 227,193,981  |   | 183,587,520 |   |
|                                                    |       |       |       |                     |         |   |   |   |
| OTHER ASSETS                                            |       |       |       |                     |         |   |   |   |
| Investments in  unconsolidated affiliates               |       |       | 11         |                     | 29,529,778   |   | 27,183,280 |   |
| Investments in other  companies                         |       |       |       |                     | 130,866      |   | 145,865 |   |
| Goodwill (net)                                          |       |       | 12         |                     | 65,269,071   |   | 62,141,039 |   |
| Long-term receivables                                   |       |       |       |                     | 19,862       |   | 40,849 |   |
| Accounts receivable from  related companies             |       |       | 6 a)       |                     | 34,719       |   | 54,163 |   |
| Intangibles (net)                                       |       |       |       |                     | 163,785      |   | 176,939 |   |
| Long-term investments and  other long-term assets       |       |       | 13         |                     | 24,072,320   |   | 25,719,700 |   |
| Total other assets                                      |       |       |       |                     | 119,220,401  |   | 115,461,835 |   |
| Total assets                                            |       |       |       |                     | 602,956,555  |   | 580,717,643 |   |

 

The accompanying Notes 1 to 30 are an integralpart of these consolidated financial statements.

 

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EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

(Restated for general price-level changes andexpressed in

thousands of constant Chilean pesos of December 31,2008)

 
| ** **                                                    | ** ** | ** ** | ** ** | **At December 31,** | ** **  |
|---------------------------------------------------------------|------------|------------|------------|--------------------------|-------------|
| ** **                                                    | ** ** | **Note**   | ** ** | **2008**                 | ** **  | **2007** | ** ** |
| ** **                                                    | ** ** | ** ** | ** ** | **ThCh$**                | ** **  | **ThCh$** | ** ** |
| LIABILITIES, MINORITY  INTEREST AND SHAREHOLDERS’ EQUITY |       |       |       |                     |        |   |   |   |
| CURRENT LIABILITIES                                           |       |       |       |                     |        |   |   |   |
| Short-term bank borrowings                                    |       |       | 14 a)      |                     | 5,819,629   |   | 4,302,445 |   |
| Current portion of  long-term bank borrowings                 |       |       | 14 b)      |                     | 226,412     |   | 133,251 |   |
| Current portion of bonds  payable                             |       |       | 16         |                     | 2,757,734   |   | 7,529,858 |   |
| Dividends payable                                             |       |       |       |                     | 5,756,633   |   | 6,327,703 |   |
| Trade accounts payable                                        |       |       |       |                     | 64,183,029  |   | 59,443,103 |   |
| Other creditors                                               |       |       |       |                     | 4,736,526   |   | 5,432,448 |   |
| Amounts payable to related  companies                         |       |       | 6 b)       |                     | 17,408,733  |   | 20,862,345 |   |
| Other accrued liabilities                                     |       |       | 17         |                     | 3,785,264   |   | 3,784,518 |   |
| Withholdings                                                  |       |       |       |                     | 23,518,706  |   | 22,491,768 |   |
| Income taxes payable                                          |       |       |       |                     | 3,937,065   |   | 10,928,616 |   |
| Unearned income                                               |       |       |       |                     | 29,455      |   | 507,981 |   |
| Other current liabilities                                     |       |       |       |                     | 1,243,745   |   | 1,453,824 |   |
| Total current liabilities                                     |       |       |       |                     | 133,402,931 |   | 143,197,860 |   |
|                                                          |       |       |       |                     |        |   |   |   |
| LONG-TERM LIABILITIES                                         |       |       |       |                     |        |   |   |   |
| Long-term bank borrowings                                     |       |       | 15         |                     | 413,452     |   | 806,562 |   |
| Bonds payable                                                 |       |       | 16         |                     | 77,039,965  |   | 80,147,810 |   |
| Other creditors                                               |       |       |       |                     | 55,018      |   | 86,641 |   |
| Amounts payable to related  companies                         |       |       | 6 b)       |                     | 3,137,348   |   | 3,637,916 |   |
| Other accrued liabilities                                     |       |       | 17         |                     | 16,762,461  |   | 18,434,541 |   |
| Deferred income taxes                                         |       |       | 8 b)       |                     | 11,502,194  |   | 13,476,959 |   |
| Other long-term liabilities                                   |       |       | 19         |                     | 13,008,718  |   | 13,356,243 |   |
| Total long-term liabilities                                   |       |       |       |                     | 121,919,156 |   | 129,946,672 |   |
|                                                          |       |       |       |                     |        |   |   |   |
| MINORITY INTEREST                                             |       |       | 20         |                     | 1,385,866   |   | 1,401,700 |   |
|                                                          |       |       |       |                     |        |   |   |   |
| COMMITMENTS AND  CONTINGENCIES                                |       |       | 26         |                     |        |   |   |   |
|                                                          |       |       |       |                     |        |   |   |   |
| SHAREHOLDERS’ EQUITY                                     |       |       | 21         |                     |        |   |   |   |
| Paid-in capital                                               |       |       |       |                     | 236,327,716 |   | 236,327,716 |   |
| Other reserves                                                |       |       |       |                     | 9,055,154   |   | (12,461,908 | ) |
| Retained earnings from  prior years                           |       |       |       |                     | 23,201,754  |   | 12,165,712 |   |
| Net income for the year                                       |       |       |       |                     | 94,835,957  |   | 88,864,517 |   |
| Interim dividends                                             |       |       |       |                     | (17,171,979 | ) | (18,724,626 | ) |
| Total shareholders’ equity                               |       |       |       |                     | 346,248,602 |   | 306,171,411 |   |
| Total liabilities and  shareholders’ equity              |       |       |       |                     | 602,956,555 |   | 580,717,643 |   |

 

The accompanying Notes 1 to 30 are an integralpart of these consolidated financial statements.

 

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Table ofContents

 

EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES

 

CONSOLIDATEDSTATEMENTS OF INCOME

 

(Restated for general price-level changes andexpressed in

thousands of constant Chilean pesos of December 31,2008)

 
| ** **                                              | ** ** | ** ** | ** ** | **For the years ended  December 31,** | ** **   |
|---------------------------------------------------------|------------|------------|------------|--------------------------------------------|--------------|
| ** **                                              | ** ** | **Note**   | ** ** | **2008**                                   | ** **   | **2007** | ** ** | **2006** | ** ** |
| ** **                                              | ** ** | ** ** | ** ** | **ThCh$**                                  | ** **   | **ThCh$** | ** ** | **ThCh$** | ** ** |
| OPERATING INCOME                                        |       |       |       |                                       |         |   |   |   |   |   |
| Net sales                                               |       |       |       |                                       | 847,301,262  |   | 693,354,354 |   | 639,449,887 |   |
| Cost of sales                                           |       |       |       |                                       | (470,650,678 | ) | (382,730,941 | ) | (365,000,855 | ) |
| Gross profit                                            |       |       |       |                                       | 376,650,584  |   | 310,623,413 |   | 274,449,032 |   |
| Administrative and selling  expenses                    |       |       |       |                                       | (237,973,984 | ) | (184,850,075 | ) | (163,265,738 | ) |
| Operating income                                        |       |       |       |                                       | 138,676,600  |   | 125,773,338 |   | 111,183,294 |   |
|                                                    |       |       |       |                                       |         |   |   |   |   |   |
| NON-OPERATING INCOME AND  EXPENSE                       |       |       |       |                                       |         |   |   |   |   |   |
| Financial income                                        |       |       |       |                                       | 11,884,239   |   | 24,976,389 |   | 14,657,574 |   |
| Share of gain from  unconsolidated affiliates           |       |       | 11         |                                       | 1,879,223    |   | 813,091 |   | 688,083 |   |
| Other non-operating income                              |       |       | 22         |                                       | 6,349,939    |   | 13,376,358 |   | 6,576,426 |   |
| Amortization of goodwill                                |       |       | 12         |                                       | (7,612,137   | ) | (7,081,410 | ) | (7,605,128 | ) |
| Financial expense                                       |       |       |       |                                       | (27,576,509  | ) | (13,549,064 | ) | (14,661,228 | ) |
| Other non-operating expense                             |       |       | 22         |                                       | (16,431,996  | ) | (10,329,481 | ) | (11,954,795 | ) |
| Price-level restatement                                 |       |       |       |                                       | (2,089,483   | ) | (4,947,378 | ) | (369,339 | ) |
| Exchange gains (losses),  net                           |       |       |       |                                       | 14,988,633   |   | (10,858,860 | ) | 4,338,525 |   |
| Non-operating expense                                   |       |       |       |                                       | (18,608,091  | ) | (7,600,355 | ) | (8,329,882 | ) |
| Income before income tax  expense and minority interest |       |       |       |                                       | 120,068,509  |   | 118,172,983 |   | 102,853,412 |   |
| Income tax expense                                      |       |       | 8 c)       |                                       | (25,248,075  | ) | (29,261,856 | ) | (15,854,118 | ) |
| Income before minority  interest                        |       |       |       |                                       | 94,820,434   |   | 88,911,127 |   | 86,999,294 |   |
| Income attributable to  minority interest               |       |       | 20         |                                       | 15,523       |   | (46,610 | ) | (34,616 | ) |
| Net income                                              |       |       |       |                                       | 94,835,957   |   | 88,864,517 |   | 86,964,678 |   |

 

The accompanying Notes 1 to 30 are an integralpart of these consolidated financial statements.

 

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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 31,2008

 
| ** **                                                        | ** ** | **For the years ended  December 31,** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                        | ** ** | **2008**                                   | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                        | ** ** | **ThCh$**                                  | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| CASH FLOWS FROM OPERATING  ACTIVITIES                             |       |                                       |       |   |   |   |   |
| Collection of trade  receivables                                  |       | 1,190,598,433                              |       | 938,454,613 |   | 846,282,601 |   |
| Financial income received                                         |       | 32,946,033                                 |       | 22,808,454 |   | 13,070,660 |   |
| Dividends and other  distributions received                       |       | 2,610,500                                  |       | 3,605,338 |   | 1,735,633 |   |
| Collection of other  receivables                                  |       | 82,504                                     |       | 63,748 |   | 20,913 |   |
| Payments to suppliers and  personnel                              |       | (857,618,760                               | )          | (656,566,632 | ) | (575,295,405 | ) |
| Interest paid                                                     |       | (22,547,478                                | )          | (18,947,076 | ) | (14,894,240 | ) |
| Income tax payments                                               |       | (30,570,348                                | )          | (23,236,665 | ) | (12,675,692 | ) |
| VAT and other similar items  paid                                 |       | (156,170,034                               | )          | (116,837,356 | ) | (109,798,591 | ) |
| Net cash provided by operating  activities                        |       | 159,330,850                                |       | 149,344,424 |   | 148,445,879 |   |
|                                                              |       |                                       |       |   |   |   |   |
| CASH FLOWS FROM FINANCING  ACTIVITIES                             |       |                                       |       |   |   |   |   |
| Borrowings from banks                                             |       | 83,876,548                                 |       | 57,279,061 |   | 52,011,774 |   |
| Dividends paid                                                    |       | (73,505,825                                | )          | (85,320,791 | ) | (86,179,464 | ) |
| Payments of loans                                                 |       | (82,754,232                                | )          | (55,896,597 | ) | (83,250,109 | ) |
| Repayments of bonds                                               |       | (6,909,335                                 | )          | (14,874,766 | ) | (13,944,612 | ) |
| Net cash used in financing  activities                            |       | (79,292,844                                | )          | (98,813,093 | ) | (131,362,411 | ) |
|                                                              |       |                                       |       |   |   |   |   |
| CASH FLOWS FROM INVESTING  ACTIVITIES                             |       |                                       |       |   |   |   |   |
| Proceeds from sales of  property, plant and equipment             |       | 757,650                                    |       | 760,476 |   | 2,394,740 |   |
| Proceeds from sales of  permanent investments                     |       | —                                     |       | — |   | 5,984,999 |   |
| Proceeds from sales of  other investments                         |       | 1,060,242                                  |       | 117,971,161 |   | 43,410,831 |   |
| Additions to property,  plant and equipment                       |       | (67,074,398                                | )          | (61,010,625 | ) | (43,279,792 | ) |
| Permanent investments                                             |       | (1,530,709                                 | )          | (3,976,701 | ) | — |   |
| Purchases of other  investments                                   |       | (7,484,123                                 | )          | (19,500,140 | ) | (1,513,677 | ) |
| Acquisitioninterest in Embotelladora del Sur S.A.                 |       | (1,139,982                                 | )          | — |   | — |   |
| Other investments disbursements                                   |       | (54,251                                    | )          | — |   | — |   |
| Net cash provided by  investing activities                        |       | (75,465,571                                | )          | 34,244,171 |   | 6,997,101 |   |
| Net cash flows from  operating, financing and investingactivities |       | 4,572,435                                  |       | 84,775,502 |   | 24,080,569 |   |
| PRICE — LEVEL RESTATEMENT  OF CASH AND CASH EQUIVALENTS      |       | (7,493,535                                 | )          | (1,224,618 | ) | (712,574 | ) |
| NET INCREASE (DECREASE) IN  CASH AND CASH EQUIVALENTS             |       | (2,921,100                                 | )          | 83,550,884 |   | 23,367,995 |   |
| CASH AND CASH EQUIVALENTS  AT BEGINNING OF YEAR                   |       | 132,173,790                                |       | 48,622,906 |   | 25,254,911 |   |
| CASH AND CASH EQUIVALENTS  AT END OF YEAR                         |       | 129,252,690                                |       | 132,173,790 |   | 48,622,906 |   |

 

The accompanying Notes 1 to 30 are an integralpart of these consolidated financial statements.

 

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EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Restated for general price-level changes andexpressed in

thousands of constant Chilean pesos of December 31,2008)

 
| ** **                                                                            | ** ** | **For the years ended  December 31,** | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                            | ** ** | **2008**                                   | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                            | ** ** | **ThCh$**                                  | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| RECONCILIATION BETWEEN NET  INCOME AND NETCASH FLOWS PROVIDED BY OPERATING ACTIVITIES |       |                                       |       |   |   |   |   |
| Net income                                                                            |       | 94,835,957                                 |       | 88,864,517 |   | 86,964,678 |   |
| Income on sales of assets:                                                            |       |                                       |       |   |   |   |   |
| Loss (gain) on sale of  property, plant and equipment                                 |       | (274,757                                   | )          | 159,758 |   | 2,489,116 |   |
| Loss on divesture of Cican  S.A.                                                      |       | —                                     |       | 93,163 |   | — |   |
| Loss (gain) on sale of  other assets                                                  |       | (23,591                                    | )          | 92,283 |   | — |   |
| Adjustments to reconcile  net income to netcash provided by operating activities:     |       |                                       |       |   |   |   |   |
| Depreciation                                                                          |       | 38,057,388                                 |       | 31,742,138 |   | 34,565,812 |   |
| Amortization of intangibles                                                           |       | 351,564                                    |       | 258,093 |   | 228,982 |   |
| Write-offs and provisions                                                             |       | 940,029                                    |       | 1,185,592 |   | 3,326,417 |   |
| Share of gain from  unconsolidated affiliates                                         |       | (1,879,223                                 | )          | (813,091 | ) | (688,083 | ) |
| Amortization of goodwill                                                              |       | 7,612,137                                  |       | 7,081,410 |   | 7,605,128 |   |
| Price-level restatement                                                               |       | 2,089,483                                  |       | 4,947,378 |   | 369,339 |   |
| Exchange gains (losses),  net                                                         |       | (14,988,633                                | )          | 10,858,860 |   | (4,338,525 | ) |
| Other credits to income  that do not represent cash flows                             |       | —                                     |       | (3,298,942 | ) | (472,488 | ) |
| Other charges to income  that do not represent cash flows                             |       | 6,550,726                                  |       | 3,898,911 |   | — |   |
| (Increase) decrease in  operating assets:                                             |       |                                       |       |   |   |   |   |
| Trade accounts receivable                                                             |       | 14,362,957                                 |       | (304,974 | ) | 1,875,499 |   |
| Inventories                                                                           |       | 1,113,953                                  |       | (5,887,910 | ) | (5,497,308 | ) |
| Other assets                                                                          |       | 20,716,745                                 |       | (29,340,076 | ) | (17,649,496 | ) |
| Increase (decrease) in  operating liabilities:                                        |       |                                       |       |   |   |   |   |
| Accounts payable related to  operating income                                         |       | (30,963,699                                | )          | 3,215,853 |   | 11,287,354 |   |
| Interest payable                                                                      |       | 30,553,274                                 |       | 10,170,891 |   | 11,444,325 |   |
| Income taxes payable                                                                  |       | (16,440,710                                | )          | 12,504,263 |   | 9,356,488 |   |
| Other accounts payable  related to non-operating income                               |       | (1,703,237                                 | )          | 7,685,427 |   | 5,112,818 |   |
| VAT and other similar items                                                           |       | 8,436,010                                  |       | 6,184,270 |   | 2,431,207 |   |
| Income attributable to  minority interest                                             |       | (15,523                                    | )          | 46,610 |   | 34,616 |   |
| Net cash provided by  operating activities                                            |       | 159,330,850                                |       | 149,344,424 |   | 148,445,879 |   |

 

The accompanying Notes 1 to 30 are an integralpart of these consolidated financial statements.

 

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## Table of Contents

 

## EMBOTELLADORA ANDINA S.A. AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATEDFINANCIAL STATEMENTS

 

AT DECEMBER 31, 2008 AND 2007

 

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 San Antonio and Rancagua, Chile and, through its subsidiaries, inRio de Janeiro, Espíritu Santo and NovaIguaçu, Brazil, and Mendoza, Córdoba, and Rosario,Argentina. The Company holds franchises from The Coca-Cola Company coveringeach of its Chilean, Brazilian and Argentine operations. The franchises for theChilean Territories, Argentine Territories and for the Brazilian Territoriesexpire in 2012. All these franchises may be extended at the option of TheCoca-Cola Company. Such franchises are expected to be renewed upon expiration.

 

*Legal reorganizations and jointventures:*

 

OnJune 5, 2006 Andina Inversiones Societarias S.A., a consolidatedsubsidiary of the Company wasdivided, creating“Andina Inversiones Societarias Dos S.A.” by the contribution at book value ofEnvases Multipack Ltda., a consolidated subsidiary. On August 15, 2006,Andina Inversiones Societarias Dos S.A. became a limited liability corporationand changed its name to Andina Inversiones Societarias Dos Ltda. On November 15,2006, Andina Inversiones Societarias Dos Ltda. and Envases Multipack Ltda. weremerged into Embotelladora Andina S.A.

 

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.

 

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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.

 

*c) Price-level restatement*

 

The financial statements, which are expressed in Chileanpesos, 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 2.1%, 7.4% and8.9% for the years ended November 30, 2006, 2007 and 2008, 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,** | ** ** |
|---------------------------|------------|-----------------------|------------|
| ** **                | ** ** | **2008**              | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                | ** ** | **Ch$**               | ** ** | **Ch$** | ** ** | **Ch$** | ** ** |
| Unidades de Fomento  (UF) |       | 21,452.57             |       | 19,622.66 |   | 18,336.38 |   |

 

All amounts in the financial statements and notes are expressed in Chileanpesos of December 31, 2008 purchasing power, unless otherwise stated. Forcomparative purposes, the 2006 and 2007 financial statements, and the amountsdisclosed in the related footnotes, have been restated in terms of Chileanpesos of December 31, 2008 purchasing power. This updating does not changethe prior year’s statements or information in any way except to update theamounts to Chilean pesos of similar purchasing power.

 

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*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,** | ** ** |
|------------------------------|------------|-----------------------|------------|
| ** **                   | ** ** | **2008**              | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                   | ** ** | **Ch$**               | ** ** | **Ch$** | ** ** | **Ch$** | ** ** |
| United States dollars  (US$) |       | 636.45                |       | 496.89 |   | 532.39 |   |
| Argentine pesos (A$)         |       | 184.32                |       | 157.79 |   | 173.87 |   |
| Brazilian Real (R$)          |       | 272.34                |       | 280.52 |   | 249.01 |   |
| Euros (€)               |       | 898.81                |       | 730.94 |   | 702.08 |   |

 

*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.

 

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*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.

 

*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 and disposalof property, plant and equipment are reflected in other non-operating income orexpense 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 tocomputer packages purchased from third parties which are capitalized andamortized over a 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 was determined using thestraight-line method, based on the estimated useful lives of the assets, whichare as follows:

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

 

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*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 customer didnot return the containers in a five-year period as from the invoice date, theCompany 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$ 10,102,254and ThCh$ 9,998,894 as of December 31, 2008 and 2007, respectively,is presented under Other long-term liabilities in the balance sheet.

 

*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, TechnicalBulletin No. 72 requires the determination of goodwill and negativegoodwill based on the fair value of the acquired 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.

 

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*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 theCompany. This liability is shown at the present value of the projectedbenefits, considering the impacts of inflation, discounted at a rate of 4% (7% for the previous year).The benefit accrued as of the end of the year considers the average futureservice period for all employees covered by such agreements. The staffseverance indemnities are included in short-term and long-term Other accrued liabilitiesin the consolidated balance sheets. Beginning in 2005 the Company alsomaintains a separate management retention plan which entitles certain selectedexecutives to receive a fixed lump sum payment on a pre-determined date uponcompletion of service.  The resultingobligation under the provisions of this plan is shown under Other accruedliabilities in the consolidated 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 effectis a loss, it should be recognized in the statement of income in the period ofchange.

·                  If the net effectis a gain, it should be deferred and recognized in the income statement whenthe contract is settled.

 

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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 infair value reflected in earnings in the period in which the change in fairvalue occurs.

 

*u) Rawmaterials purchase commitments*

 

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

 

*v)Translation of financial statements 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 translatedat the closing exchange rate for the period;

·                  all other assets and liabilities andshareholders’ equity are translated at historical rates of exchange;

·                  income and expense accounts are translated ataverage rates during the period; and

·                  the resulting exchange adjustments are includedin the results of statements 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) Cashflows*

 

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.

 

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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 each year-end consisted of thefollowing:

 
| ** **                 | ** ** | **At  December 31,** | ** ** |
|----------------------------|------------|---------------------------|------------|
| ** **                 | ** ** | **2008**                  | ** ** | **2007** | ** ** |
| ** **                 | ** ** | **ThCh$**                 | ** ** | **ThCh$** | ** ** |
| Local  currency deposits   |       | 67,943,378                |       | 53,329,846 |   |
| Foreign  currency deposits |       | 13,778,103                |       | 127,401 |   |
| Total                      |       | 81,721,481                |       | 53,457,247 |   |

 

NOTE4 - MARKETABLE SECURITIES

 

Marketablesecurities at each year-end consisted of the followings:

 
| ** **                                     | ** ** | **At  December 31,** | ** ** |
|------------------------------------------------|------------|---------------------------|------------|
| ** **                                     | ** ** | **2008**                  | ** ** | **2007** | ** ** |
| ** **                                     | ** ** | **ThCh$**                 | ** ** | **ThCh$** | ** ** |
| Money market funds                             |       | 26,281,107                |       | 51,759,280 |   |
| Bonds United States Treasury  (restricted) (1) |       | —                    |       | 1,093,768 |   |
| Total                                          |       | 26,281,107                |       | 52,853,048 |   |

 

----

(1)              Collateral guarantee requiredfor operating at the London International Financial Futures and OptionsExchange.

 

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# Table of Contents

 

# NOTE 5 - RECEIVABLES

 

Ofthe portfolio of receivables at December 31, 2008 98.3% corresponded tothe softdrinks and other beverage business and 1.7% to the containerbusiness.  Details of receivables are asfollows:

 
| ** **                                | ** ** | **At  December 31,** | ** ** |
|-------------------------------------------|------------|---------------------------|------------|
| ** **                                | ** ** | **2008**                  | ** ** | **2007** | ** ** |
| ** **                                | ** ** | **ThCh$**                 | ** ** | **ThCh$** | ** ** |
| Trade accounts receivable                 |       | 47,681,234                |       | 49,180,623 |   |
| Allowance for doubtful  accounts          |       | (930,044                  | )          | (958,670 | ) |
| Subtotal trade accounts receivable  (net) |       | 46,751,190                |       | 48,221,953 |   |
| Notes receivable                          |       | 14,591,709                |       | 16,380,265 |   |
| Allowance for doubtful  accounts          |       | (475,052                  | )          | (531,658 | ) |
| Subtotal notes receivable  (net)          |       | 14,116,657                |       | 15,848,607 |   |
| Other receivables                         |       | 13,411,405                |       | 17,641,093 |   |
| Allowance for doubtful  accounts          |       | (154,885                  | )          | (182,698 | ) |
| Subtotal other receivables                |       | 13,256,520                |       | 17,458,395 |   |
| Total receivables                         |       | 75,684,348                |       | 83,201,981 |   |
| Total allowance for doubtful  accounts    |       | (1,559,981                | )          | (1,673,026 | ) |
| Total net receivables                     |       | 74,124,367                |       | 81,528,955 |   |

 

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$ 73,940,287 and ThCh$ 81,702,973 at December 31, 2008 and2007, respectively. Gross balances outstanding for more than 90 days wereThCh$ 1,744,061 and ThCh$ 1,499,008 at December 31, 2008 and2007, respectively.

 

The Company’s bad debt expense totaled ThCh$ 404,812in 2008, ThCh$ 346,549 in 2007 and ThCh$ 246,694 in 2006.

 

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# Table of Contents

 

# NOTE 6 - AMOUNTS ANDTRANSACTIONS 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**   | ** ** | **2008**                 | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                         | ** ** | ** **        | ** ** | **ThCh$**                | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Coca Cola de Chile S.A.            |       | Advertising       |       | —                   |       | — |   | 34,719 |   | 54,163 |   |
| Embonor S.A.                       |       | Sale  of products |       | 2,152,900                |       | 1,414,359 |   | — |   | — |   |
| Embotelladora Coca Cola Polar S.A. |       | Sale  of products |       | 789,996                  |       | 597,078 |   | — |   | — |   |
| Total                              |       |              |       | 2,942,896                |       | 2,011,437 |   | 34,719 |   | 54,163 |   |

 

b)Amounts payable

 
| ** **                             | ** ** | ** **                                        | ** ** | **At December 31,** | ** ** |
|----------------------------------------|------------|---------------------------------------------------|------------|--------------------------|------------|
| ** **                             | ** ** | ** **                                        | ** ** | **Short – term**    | ** ** | **Long – term** | ** ** |
| **Company**                            | ** ** | **Transaction**                                   | ** ** | **2008**                 | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                             | ** ** | ** **                                        | ** ** | **ThCh$**                | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Recofarma Industrias do Amazonas Ltda. |       | Purchase  of concentrate                          |       | 4,171,314                |       | 8,037,866 |   | — |   | — |   |
| Coca Cola de Chile S.A.                |       | Advertising                                       |       | 6,361,373                |       | 6,472,492 |   | — |   | — |   |
| Envases CMF S.A.                       |       | Purchase  of raw materials                        |       | 3,646,434                |       | 3,017,602 |   | — |   | — |   |
| SPBR S.R.L                             |       | Purchase  of concentrate                          |       | 1,966,127                |       | 1,944,621 |   | — |   | — |   |
| Envases Central S.A.                   |       | Raw  materials and finished products transactions |       | 1,085,372                |       | 1,250,527 |   | — |   | — |   |
| Envases del Pacífico S.A.         |       | Purchase  of raw materials                        |       | 178,113                  |       | 139,237 |   | — |   | — |   |
| Embonor S.A.                           |       | Unearned  income from sale commitments (1)        |       | —                   |       | — |   | 2,495,911 |   | 2,891,672 |   |
| Embotelladora Coca Cola Polar S.A.     |       | Unearned  income from sale commitments (1)        |       | —                   |       | — |   | 641,437 |   | 746,244 |   |
| Total                                  |       |                                              |       | 17,408,733               |       | 20,862,345 |   | 3,137,348 |   | 3,637,916 |   |

 

----

(1)          Corresponds to unearned income from sale commitments of Vital S.A.’sproducts to Embonor S.A. and Embotelladora Coca Cola Polar S.A., which will berealized along with future deliveries.

 

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c)              Transactions with related companies, exceeding ThCh$ 200,000, wereas follows:

 
| **Company**                               | ** ** | **Relation**        | ** **                          | **Transaction**                     | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-------------------------------------------|------------|---------------------|-------------------------------------|-------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                | ** ** | ** **          | ** **                          | ** **                          | ** ** | **ThCh$**  | ** ** | **ThCh$**  | ** ** | **ThCh$**  | ** ** |
|                                      |       |                |                                |                                |       |       |       |       |       |       |       |
| Coca-Cola de Chile S.A.                   |       | Shareholder         |                                | Concentrate purchases               |       | 56,182,488 |       | 53,718,291 |       | 47,513,801 |       |
|                                      |       |                |                                | Payment of advertisingparticipation |       | 3,093,037  |       | 4,498,441  |       | 2,125,883  |       |
|                                      |       |                |                                | Water source rental                 |       | 2,106,957  |       | 1,840,945  |       | 1,573,774  |       |
|                                      |       |                |                                | Sales of advertisement              |       | 1,741,288  |       | 3,866,329  |       | 3,165,728  |       |
|                                      |       |                |                                | Other sales                         |       | 506,184    |       | 162,265    |       | —     |       |
|                                      |       |                |                                |                                |       |       |       |       |       |       |       |
| Recofarma Industrias  doAmazonas Ltda.    |       | Shareholder related |                                | Concentrate purchases               |       | 74,130,645 |       | 59,719,559 |       | 47,700,566 |       |
|                                      |       |                | Payment of advertisingparticipation |                                | 8,338,355  |       | 3,603,391  |       | 3,754,643  |       |
|                                      |       |                |                                | Reimbursement and other  purchases  |       | 1,600,912  |       | 564,452    |       | 631,562    |       |
|                                      |       |                |                                |                                |       |       |       |       |       |       |       |
| SPBR S.R.L.                               |       | Shareholder         |                                | Concentrate purchases               |       | 36,047,961 |       | 29,528,611 |       | 26,544,646 |       |
|                                      |       |                |                                |                                |       |       |       |       |       |       |       |
| Envases Central S.A.                      |       | Equity investee     |                                | Finished product purchases          |       | 16,884,635 |       | 18,367,877 |       | 17,940,520 |       |
|                                      |       |                |                                | Sales of raw materials andsupplies  |       | 1,542,469  |       | 1,826,336  |       | 1,721,650  |       |
|                                      |       |                |                                |                                |       |       |       |       |       |       |       |
| Envases CMF S.A.                          |       | Equity investee     |                                | Purchase of containers              |       | 16,178,976 |       | 17,556,709 |       | 19,259,783 |       |
|                                      |       |                |                                | Sale of finished products           |       | —     |       | 235,599    |       | —     |       |
|                                      |       |                |                                | Dividend payment                    |       | 2,700,000  |       | 3,495,690  |       | 1,731,146  |       |
|                                      |       |                |                                | Purchase of machineryand  equipment |       | 753,032    |       | —     |       | —     |       |
|                                      |       |                |                                |                                |       |       |       |       |       |       |       |
| Iansagro S.A.                             |       | Director in common  |                                | Purchase of sugar                   |       | 20,143,018 |       | 19,137,345 |       | 11,457,613 |       |
|                                      |       |                |                                |                                |       |       |       |       |       |       |       |
| Coca Cola Embonor  S.A.                   |       | Shareholder related |                                | Sale of finished products           |       | 9,930,915  |       | 9,486,954  |       | 8,118,716  |       |
|                                      |       |                |                                | Parchase of products                |       | 302,963    |       | 304,930    |       |       |       |
|                                      |       |                |                                |                                |       |       |       |       |       |       |       |
| Embotelladora Coca ColaPolar S.A.         |       | Shareholder related |                                | Sale of finished products           |       | 5,597,478  |       | 5,623,544  |       | 5,047,603  |       |
|                                      |       |                |                                |                                |       |       |       |       |       |       |       |
| Vendomática S.A.                     |       | Director related    |                                | Sale of finished products           |       | 1,569,773  |       | 1,592,767  |       | 1,687,632  |       |
|                                      |       |                |                                |                                |       |       |       |       |       |       |       |
| Cican S.A.                                |       | Shareholder related |                                | Purchases of finished  products     |       | —     |       | 1,585,970  |       | 1,492,443  |       |
|                                      |       |                |                                |                                |       |       |       |       |       |       |       |
| Envases del Pacífico  S.A.           |       | Shareholder related |                                | Purchase of raw materials           |       | 565,584    |       | 246,055    |       | 498,293    |       |
|                                      |       |                |                                |                                |       |       |       |       |       |       |       |
| BBVA AdministradoraGeneral de Fondos S.A. |       | Shareholder related |                                | Investments in mutual funds         |       | 15,569,414 |       | 48,472,349 |       | 92,577,410 |       |
|                                      |       |                |                                | Redemption of mutual funds          |       | 15,569,414 |       | 50,465,829 |       | 83,038,267 |       |

 

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 during2009. The agreement provides for the payment of a fixed price for part of thevolume to be purchased and a variable price, determined in accordance withmarket values observed in international markets, for the remaining commitments. Forthe year ended December 31, 2006, the Company recorded a loss of ThCh$875,392 on purchase commitments stated at fixed prices, based on fair values atyear-end (nil for the year ended December 31, 2008 and 2007).

 

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# NOTE 7 - INVENTORIES

 

Inventoriesat each year-end consisted of the following:

 
| ** **               | ** ** | **At December 31,** | ** ** |
|--------------------------|------------|--------------------------|------------|
| ** **               | ** ** | **2008**                 | ** ** | **2007** | ** ** |
| ** **               | ** ** | **Gross********value**   | ** ** | **Obsolescence********provision** | ** ** | **Net********value** | ** ** | **Gross********value** | ** ** | **Obsolescence********provision** | ** ** | **Net********value** | ** ** |
| ** **               | ** ** | **ThCh$**                | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                     |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Raw materials            |       | 15,696,004               |       | (294,555 | ) | 15,401,449 |   | 12,658,853 |   | (271,496 | ) | 12,387,357 |   |
| Finished products        |       | 13,161,294               |       | (188,802 | ) | 12,972,492 |   | 16,066,578 |   | (609,553 | ) | 15,457,025 |   |
| Products in process      |       | 1,528,753                |       | — |   | 1,528,753 |   | 1,473,884 |   | — |   | 1,473,884 |   |
| Raw materials in transit |       | 1,324,656                |       | — |   | 1,324,656 |   | 409,931 |   | — |   | 409,931 |   |
| Total                    |       | 31,710,707               |       | (483,357 | ) | 31,227,350 |   | 30,609,246 |   | (881,049 | ) | 29,728,197 |   |

 

NOTE8 - INCOME TAXES AND DEFERRED INCOME TAXES

 

a)      General:

 

AtDecember 31, 2008 and 2007, the Company has no accumulated taxable profitswith shareholders credit.

 

b)      Deferred income taxes at each year-end were as follows:

 
| ** **                                   | ** ** | **December 31, 2008** | ** ** | **December 31, 2007** | ** ** |
|----------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                   | ** ** | **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              |       | 282,639                    |       | 107,380                    |       | — |   | — |   | 273,278 |   | 93,919 |   | — |   | — |   |
| Vacation accrual                             |       | 228,166                    |       | —                     |       | — |   | — |   | 234,461 |   | — |   | — |   | — |   |
| Production expenses                          |       | 14,441                     |       | —                     |       | — |   | — |   | 3,675 |   | — |   | — |   | 107,228 |   |
| Depreciation of property, plantand equipment |       | —                     |       | —                     |       | 229,643 |   | 6,458,230 |   | — |   | — |   | 176,444 |   | 6,249,664 |   |
| Staff severance indemnities                  |       | 78,373                     |       | —                     |       | 13,324 |   | 144,126 |   | 58,669 |   | — |   | 24,063 |   | 186,671 |   |
| Impaired assets                              |       | 259,293                    |       | 573,310                    |       | — |   | 84,074 |   | 767,158 |   | 725,250 |   | — |   | — |   |
| Provision for labor andcommercial lawsuits   |       | —                     |       | 1,489,338                  |       | — |   | — |   | — |   | 1,466,320 |   | — |   | — |   |
| Tax loss carryforwards                       |       | 763,325                    |       | —                     |       | — |   | — |   | 2,605,526 |   | 1,368,958 |   | — |   | — |   |
| Deposits in guarantee                        |       | —                     |       | —                     |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Local bond issue expenses                    |       | —                     |       | —                     |       | — |   | 89,026 |   | — |   | — |   | — |   | 160,113 |   |
| Contingency provision                        |       | —                     |       | 328,171                    |       | — |   | — |   | — |   | 242,897 |   | — |   | — |   |
| Social contributions                         |       | 877,530                    |       | —                     |       | — |   | — |   | 937,989 |   | 492,825 |   | — |   | — |   |
| Exchange rate difference                     |       | —                     |       | —                     |       | — |   | 8,307,796 |   | — |   | — |   | — |   | 13,725,941 |   |
| Temporary differencefiscal incentives-Brazil |       | —                     |       | —                     |       | — |   | 944,972 |   | — |   | — |   | — |   | — |   |
| Income participation provision               |       | 612,577                    |       | —                     |       | — |   | — |   | 861,654 |   | — |   | — |   | — |   |
| Other                                        |       | 763,828                    |       | 371,694                    |       | 189 |   | — |   | 158,689 |   | 395,107 |   | 27 |   | — |   |
|                                         |       |                       |       |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Others                                       |       |                       |       |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Complementary accounts, net ofAmortization   |       | —                     |       | —                     |       | — |   | (1,656,137 | ) | — |   | — |   | — |   | (2,167,382 | ) |
| Total                                        |       | 3,880,172                  |       | 2,869,893                  |       | 243,156 |   | 14,372,087 |   | 5,901,099 |   | 4,785,276 |   | 200,534 |   | 18,262,235 |   |

 

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.

 

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c)     Income tax expense for eachyear was as follows:

 
| ** **                                                                      | ** ** | **For the  year ended December 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                      | ** ** | **2008**                                  | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                      | ** ** | **ThCh$**                                 | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                                                            |       |                                      |       |   |   |   |   |
| Current  income tax expense                                                     |       | (24,098,843                               | )          | (25,651,015 | ) | (11,194,979 | ) |
| Tax  expense adjustment (previous period)                                       |       | 475,296                                   |       | 407,184 |   | (135,168 | ) |
| Deferred  income tax expense over assetsor liabilities                          |       | (370,733                                  | )          | (3,074,002 | ) | (21,754,215 | ) |
| Amortization  of deferred income tax asset and liabilitycomplementary  accounts |       | (426,728                                  | )          | (1,154,338 | ) | 4,379,556 |   |
| Change  in valuation allowance                                                  |       | —                                    |       | — |   | 13,057,181 |   |
| Other                                                                           |       | (827,067                                  | )          | 210,315 |   | (206,493 | ) |
| Total                                                                           |       | (25,248,075                               | )          | (29,261,856 | ) | (15,854,118 | ) |

 

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$**     | ** ** | **ThCh$**                             | ** ** |
|                                    |       |                          |       |       |       |          |       |                                  |       |
| 2008                                    |       | 57,407,875                    |       | 45,299,845 |       | 17,360,789    |       | 120,068,509                           |       |
| 2007                                    |       | 59,613,580                    |       | 48,404,381 |       | 10,155,022    |       | 118,172,983                           |       |
| 2006                                    |       | 59,824,012                    |       | 35,455,369 |       | 7,574,031     |       | 102,853,412                           |       |

 

NOTE 9 - OTHER CURRENT ASSETS

 

Other current assets at each year-end consisted of thefollowing:

 
| ** **                             | ** ** | **At  December 31,** | ** ** |
|----------------------------------------|------------|---------------------------|------------|
| ** **                             | ** ** | **2008**                  | ** ** | **2007** | ** ** |
| ** **                             | ** ** | **ThCh$**                 | ** ** | **ThCh$** | ** ** |
|                                   |       |                      |       |   |   |
| Cross-currency  swap current portion   |       | —                    |       | 18,943,008 |   |
| Supplies                               |       | 5,256,491                 |       | 4,982,160 |   |
| Forward agreement over  existing items |       | 1,039,841                 |       | — |   |
| Futures  contracts                     |       | —                    |       | 99,060 |   |
| Other                                  |       | 640,350                   |       | 561,053 |   |
| Total                                  |       | 6,936,682                 |       | 24,585,281 |   |

 

F-21

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Table ofContents

 

NOTE10 - 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 2008 and 2007, 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:

 
|                                                                                         |   | **2008**  |   | **2007**  |   |
|----------------------------------------------------------------------------------------------|--------|-----------|--------|-----------|--------|
|                                                                                         |   | **ThCh$** |   | **ThCh$** |   |
| Blowing plant and  utilities implementations that will not beused (Machinery and  equipment) |   | 950,677   |   | —    |   |
| Containers (Other  property, plant and equipment)                                            |   | —    |   | 733,200   |   |
| Others (Other property,  plant and equipment)                                                |   | 184,221   |   | 383,732   |   |
| Total                                                                                        |   | 1,134,898 |   | 1,116,932 |   |

 

a)              Principal components ofproperty, plant and equipment at each year-end are as follows:

 
|                                                   |   | **Balances at December 31, 2008** | ** ** | **Balances at December 31, 2007** |       |
|--------------------------------------------------------|--------|----------------------------------------|------------|----------------------------------------|------------|
|                                                   |   | **Assets**                             | ** ** | **Accumulated********depreciation**    | ** ** | **Net property,********plant and********equipment** | ** ** | **Assets** | ** ** | **Accumulated********depreciation** | ** ** | **Net property,********plant and********equipment** |   |
|                                                   |   | **ThCh$**                              | ** ** | **ThCh$**                              | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** |   |
|                                                   |   |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Land                                                   |   | 20,428,189                             |       | —                                 |       | 20,428,189 |   | 18,242,140 |   | — |   | 18,242,140 |   |
| Buildings and improvements                             |   | 125,373,465                            |       | (48,630,648                            | )          | 76,742,817 |   | 107,269,482 |   | (39,514,435 | ) | 67,755,047 |   |
| Machinery and equipment                                |   | 299,696,514                            |       | (230,646,026                           | )          | 69,050,488 |   | 250,017,731 |   | (194,875,303 | ) | 55,142,428 |   |
| Other property, plant and  equipment                   |   | 282,188,795                            |       | (222,888,898                           | )          | 59,299,897 |   | 236,846,369 |   | (196,072,404 | ) | 40,773,965 |   |
| Technical reappraisal of  property,plant and equipment |   | 2,404,632                              |       | (732,042                               | )          | 1,672,590 |   | 2,404,632 |   | (730,692 | ) | 1,673,940 |   |
| Total                                                  |   | 730,091,595                            |       | (502,897,614                           | )          | 227,193,981 |   | 614,780,354 |   | (431,192,834 | ) | 183,587,520 |   |

 

F-22

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Table of Contents

 

b)             Other property, plant andequipment at each year-end are as follows:

 
| ** **                                | ** ** | **At  December 31,** | ** ** |
|-------------------------------------------|------------|---------------------------|------------|
| ** **                                | ** ** | **2008**                  | ** ** | **2007** | ** ** |
| ** **                                | ** ** | **ThCh$**                 | ** ** | **ThCh$** | ** ** |
|                                      |       |                      |       |   |   |
| Containers                                |       | 165,293,135               |       | 136,721,552 |   |
| Refrigeration  equipment and other assets |       | 68,965,582                |       | 60,297,712 |   |
| Furniture  and tools                      |       | 9,768,191                 |       | 8,539,876 |   |
| Other                                     |       | 38,161,887                |       | 31,287,229 |   |
| Total other property, plant and equipment |       | 282,188,795               |       | 236,846,369 |   |

 

c)              Technicalreappraisal of property, plant and equipment at each year-end was as follows:

 
| ** **                 | ** ** | **Balances at December 31, 2008** | ** ** | **Balances at December 31, 2007** | ** ** |
|----------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **                 | ** ** | **Assets**                             | ** ** | **Accumulated********depreciation**    | ** ** | **Net property,********plant and********equipment** | ** ** | **Assets** | ** ** | **Accumulated********depreciation** | ** ** | **Net property,********plant and********equipment** | ** ** |
| ** **                 | ** ** | **ThCh$**                              | ** ** | **ThCh$**                              | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                       |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Land                       |       | 1,606,035                              |       | —                                 |       | 1,606,035 |   | 1,606,035 |   | — |   | 1,606,035 |   |
| Buildings and improvements |       | 224,844                                |       | (163,426                               | )          | 61,418 |   | 224,844 |   | (162,516 | ) | 62,328 |   |
| Machinery and equipment    |       | 573,753                                |       | (568,616                               | )          | 5,137 |   | 573,753 |   | (568,176 | ) | 5,577 |   |
| Total                      |       | 2,404,632                              |       | (732,042                               | )          | 1,672,590 |   | 2,404,632 |   | (730,692 | ) | 1,673,940 |   |

 

d)             Depreciationcharges for the period amounted to ThCh$ 38,057,388 (ThCh$ 31,742,138 andThCh$ 34,565,812 in 2007 and 2006, respectively) of which ThCh$ 27,940,166(ThCh$ 23,382,788 and ThCh$ 25,108,665 in 2007 and 2006, respectively)are included under Cost of sales and ThCh$10,117,222 (ThCh$ 8,359,350 andThCh$ 9,457,147 in 2007 and 2006, respectively) under Administrative andselling expenses in the income statement.

 

NOTE11 - 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**   | ** ** | **2008**                         | ** ** | **2007**           | ** ** | **2008**                    | ** ** | **2007**              | ** ** | **2006**                            | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** |
|                       |   | ** **  | ** ** | ** **     | ** ** | **%**                            | ** ** | **%**              |       | **ThCh$**                   |       | **ThCh$**             |       | **ThCh$**                           |       | **ThCh$** |   | **ThCh$** |   | **ThCh$** |   | **ThCh$** |   | **ThCh$** |   | **ThCh$** | ** ** |
| Envases CMF S.A.           |   | Chile       |       | Chilean  pesos |       | 50.00                            |       | 50.00              |       | 1,183,591                   |       | 891,417               |       | 528,992                             |       | 19,962,727 |   | 20,431,022 |   | (1,063,703 | ) | (1,148,800 | ) | 18,899,024 |   | 19,282,222 |   |
| Holdfab ParticipacoesLtda. |   | Brazil      |       | US  dollars    |       | 14.73                            |       | 14.73              |       | 555,409                     |       | 111,088               |       | —                              |       | 7,077,190 |   | 4,357,216 |   | — |   | — |   | 7,077,190 |   | 4,357,216 |   |
| Envases Central S.A.       |   | Chile       |       | Chilean  pesos |       | 49.91                            |       | 49.91              |       | 218,017                     |       | 906                   |       | (26,296                             | )          | 2,824,543 |   | 2,604,530 |   | (263,152 | ) | (263,152 | ) | 2,561,391 |   | 2,341,378 |   |
| Kaik ParticipacoesLtda.    |   | Brazil      |       | US  dollars    |       | 11.32                            |       | 11.32              |       | (77,794                     | )          | 112,211               |       | 79,857                              |       | 992,173 |   | 1,202,464 |   | — |   | — |   | 992,173 |   | 1,202,464 |   |
| Cican S.A.                 |   | Argentina   |       | US  dollars    |       | —                           |       | —             |       | —                      |       | (302,531              | )          | 105,530                             |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Total                      |   |        |       |           |       |                             |       |               |       | 1,879,223                   |       | 813,091               |       | 688,083                             |       | 30,856,633 |   | 28,595,232 |   | (1,326,855 | ) | (1,411,952 | ) | 29,529,778 |   | 27,183,280 |   |

 

----

(*)         Corresponds to the number of shares and rights of Andina over the totalshares and rights in each of the companies. This percentage equals the voting right in each entity, where there areno preferential shares.

 

F-23

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Table of Contents

 

 

1      The main changes thatoccurred in the reported periods are the following:

 

·                  In June, 2008 EmbotelladoraAndina S.A. acquired a 48% ownership interest in Embotelladoras del Sur S.A.for ThCh$753,582.  Subsequent to theacquisition Embotelladora Andina S.A. made a ThCh$386,400 capital contributionto Embotelladoras del Sur S.A

 

Theamounts disbursed by Embotelladora Andina S.A. in the acquisition of andcapital contribution to Embotelladoras del Sur S.A., were originally recordedas an intangible since the final purpose was not the acquisition of the companybut the acquisition of the distribution’s rights of the water segment ́s products that were previously marketed byEmbotelladoras del Sur S.A.

 

Asof December 31, 2008, due to the difficulty to measure the future cashflows generated by the distribution of the “Benedictino” brand’s water andbecause the property of this brand belongs to the Coca-Cola Company, alldisbursements made in Embotelladoras del Sur S.A. were recorded against OtherNon-Operating Expense.

 

·                  In November 2007,the Company ́s subsidiary Embotelladoradel Atlantico S.A. sold its 15.20% ownership interest in Cican S.A. to Femsa atThCh$739.977. This sale resulted in a loss of ThCh$93,163 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 AndinaInversiones Societarias Dos Ltda. On November 15, 2006, Andina InversionesSocietarias Dos Ltda. and Envases Multipack Ltda. were absorbed and merged intoEmbotelladora Andina S.A.

 

·                  The equity investee CentralliRefrigerante S.A., Brazil, has negative shareholders ́ equity, which isprovisioned in the corresponding equity proportion. Ownership is 25%. As of December 31,2008 and 2007, such provision amounted to ThCh$ 151,191 andThCh$ 44,956, respectively, and is included under Other long-termliabilities.

 

·                  The investment in Envases Central S.A. is presented net of unrealizedincome generated in December 1996 related to the sale of the propertylocated in Renca. Total unrealized income amounted to ThCh$ 263,152 and will berecognized upon the sale of the land to a third party.

 

F-24

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Table of Contents

 

·                  The investment in Envases CMF S.A. is presented net of unrealized incomeof ThCh$1,063,703 originated in June 2001 from the purchase of machineryand equipment from the Company’s subsidiary Envases Multipack S.A.   Unrealized income is recognized in earningsover the remaining useful life of the assets sold to Envases CMF S.A.  In 2008 and 2007, the Company realizedThCh$ 85,097 each year for this concept.

 

·                  The equity gain recognized from the investment in Envases CMF S.A. ispresented net of unrealized income related to the sale of bottles from EnvasesCMF S.A. to Andina.  As of December 31,2008 this amounts to ThCh$ 1,133,210 (ThCh$ 1,150,383 and ThCh$ 1,570,100 as ofDecember 31, 2007 and 2006, respectively).

 

·                  During 2008, Envases CMF S.A. distributed dividends to Andina amountingto ThCh$ 2,700,000 (ThCh$ 3,495,418 during 2007).

 

·                  During 2007, Kaik Participacoes Ltda. distributed dividends to Refrescosamounting to ThCh$ 810,668.

 

2                  Income available to beremitted by subsidiaries abroad which have not been taxed in Chile amount toUS$ 227 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.

#  

# NOTE 12 - GOODWILL

 

Goodwillat each year-end and the corresponding amortization for each year were asfollows:

 
| ** **                             | ** ** | **At December 31,**                | ** ** |
|----------------------------------------|------------|-----------------------------------------|------------|
| ** **                             | ** ** | **2008**                                | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                             | ** ** | **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.        |       | 4,277,729                               |       | 41,042,712 |   | 3,661,090 |   | 38,708,727 |   | 4,188,638 |   | 48,553,829 |   |
| Embotelladora del  Atlántico S.A. |       | 3,334,408                               |       | 24,226,359 |   | 2,834,930 |   | 23,432,312 |   | 3,262,244 |   | 30,226,540 |   |
| Vital S.A.                             |       | —                                  |       | — |   | 585,390 |   | — |   | 154,246 |   | 616,986 |   |
| Total                                  |       | 7,612,137                               |       | 65,269,071 |   | 7,081,410 |   | 62,141,039 |   | 7,605,128 |   | 79,397,355 |   |

#  

# Accumulated amortization of goodwillwas ThCh$ 124,305,280 and ThCh$ 116,693,143 at December 31, 2008and 2007, respectively.

 

F-25

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Table of Contents

 

# NOTE 13 - OTHER LONG-TERMASSETS

 

Other long-term assets at each year-end were asfollows:

 
| ** **                                      | ** ** | **At  December 31,** | ** ** |
|-------------------------------------------------|------------|---------------------------|------------|
| ** **                                      | ** ** | **2008**                  | ** ** | **2007** | ** ** |
| ** **                                      | ** ** | **ThCh$**                 | ** ** | **ThCh$** | ** ** |
| Judicial  deposits (Brazil)                     |       | 8,053,225                 |       | 7,567,714 |   |
| Recoverable taxes                               |       | 5,545,258                 |       | 5,937,180 |   |
| Bond  issuance expense and par value difference |       | 2,863,744                 |       | 3,156,095 |   |
| Prepaid  expenses                               |       | 3,303,265                 |       | 3,592,041 |   |
| Non-operating  assets                           |       | 1,544,872                 |       | 2,620,659 |   |
| Supplies                                        |       | 2,706,343                 |       | 2,783,765 |   |
| Other                                           |       | 55,613                    |       | 62,246 |   |
| Total                                           |       | 24,072,320                |       | 25,719,700 |   |

 

F-26

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Table of Contents

 

NOTE 14 - SHORT-TERM BANK BORROWINGS

 

a)     Short-termbank borrowings were as follows:

 
| ** **                             | ** ** | **At December 31,**              | ** ** |
|----------------------------------------|------------|---------------------------------------|------------|
| ** **                             | ** ** | **Currency or indexation adjustment** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                             | ** ** | **Foreign currencies**                | ** ** | **Non-indexed Ch$** | ** ** | **Total** | ** ** |
| ** **                             | ** ** | **2008**                              | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                             | ** ** | **ThCh$**                             | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Banco Galicia                          |       | 3,742,361                             |       | 1,820,798 |   | — |   | — |   | 3,742,361 |   | 1,820,798 |   |
| Banco do Brasil                        |       | —                                |       | 1,099,762 |   | — |   | — |   | — |   | 1,099,762 |   |
| Banco BBVA                             |       | —                                |       | — |   | — |   | 1,381,885 |   | — |   | 1,381,885 |   |
| Banco de Chile                         |       | —                                |       | — |   | 1,000 |   |   |   | 1,000 |   | — |   |
| Banco BBVA Francés                |       | 2,076,268                             |       | — |   | — |   | — |   | 2,076,268 |   | — |   |
| Total                                  |       | 5,818,629                             |       | 2,920,560 |   | 1,000 |   | 1,381,885 |   | 5,819,629 |   | 4,302,445 |   |
| Principal due                          |       | 5,429,478                             |       | 2,885,996 |   | 1,000 |   | 1,381,885 |   | 5,430,478 |   | 4,267,881 |   |
| Weighted average annual  interest rate |       |                                  |       |   |   |   |   |   |   | 17.64 |   | 9.74 |   |

 

At December 31, 2008 and 2007, the Companyhad approximately Ch$109,306 and Ch$111,434 million, respectively, availablethrough short-term lines of credit.  Theaggregate outstanding amount of these lines of credit at December 31, 2008and 2007 was approximately Ch$7,505 million and Ch$4,039 million, respectively.

 

b)    Currentportion of long-term bank borrowings:

 
| ** **                            | ** ** | **At December 31,**                | ** ** |
|---------------------------------------|------------|-----------------------------------------|------------|
| ** **                            | ** ** | **Currency or indexation  adjustment:** | ** ** |
| ** **                            | ** ** | **Foreign currencies**                  | ** ** |
| **Bank**                              | ** ** | **2008**                                | ** ** | **2007** | ** ** |
| ** **                            | ** ** | **ThCh$**                               | ** ** | **ThCh$** | ** ** |
| Banco Alfa                            |       | 114,657                                 |       | 128,789 |   |
| BankBoston                            |       | —                                  |       | 2,361 |   |
| Banco Votorantim                      |       | 111,755                                 |       | 2,101 |   |
| Total                                 |       | 226,412                                 |       | 133,251 |   |
| Principal due                         |       | 225,756                                 |       | 129,810 |   |
| Weighted average annualinterest  rate |       | 10.51                                   | %          | 11.89 | % |

 

F-27

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Table ofContents

 

NOTE 15 - LONG-TERM BANK BORROWINGS

 

Long — term bank borrowings were as follows:

 
| ** **       | ** ** | ** **   | ** ** | **At December 31,** | ** ** |
|------------------|------------|--------------|------------|--------------------------|------------|
| ** **       | ** ** | ** **   | ** ** | **Current year-end**     | ** ** | **Prior year-end** | ** ** |
| ** **       | ** ** | ** **   | ** ** | **Years to maturity**    | ** ** | **Total  long-term** | ** ** | **Average  annual  interest** | ** ** | **Total  long-term** | ** ** | **Average  annual  interest** | ** ** |
| **Bank**         | ** ** | **Currency** | ** ** | **2010**                 | ** ** | **2011** | ** ** | **2012** | ** ** | **at year-end** | ** ** | **rate** | ** ** | **at year-end** | ** ** | **rate** | ** ** |
| ** **       | ** ** | ** **   | ** ** | **ThCh$**                | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **%** | ** ** | **ThCh$** | ** ** | **%** | ** ** |
| Banco Votorantim |       | R$           |       | 110,460                  |       | 112,130 |   | 28,116 |   | 250,706 |   | 9.86 |   | 495,268 |   | 9.40 |   |
| Banco Alfa       |       | R$           |       | 114,764                  |       | 47,982 |   | — |   | 162,746 |   | 11.20 |   | 311,294 |   | 10.79 |   |
| Total            |       |         |       | 225,224                  |       | 160,112 |   | 28,116 |   | 413,452 |   | 10.39 |   | 806,562 |   | 9.94 |   |

 

NOTE 16 - BONDS PAYABLE

 

1    Detailsof bonds payable are as follows:

 
| **Instrument subscription or**       | ** ** | ** ** | ** ** | **Nominal** | ** ** | ** **   | ** ** | **Interest** | ** ** | ** **           | ** ** | **Interest**      | ** ** | **Next********capital** | ** ** | **Par value** | ** ** | **Placement********in Chile** | ** ** |
|--------------------------------------|------------|------------|------------|-------------|------------|--------------|------------|--------------|------------|----------------------|------------|-------------------|------------|-------------------------|------------|---------------|------------|-------------------------------|------------|
| **identification number**            | ** ** | **Series** | ** ** | **value**   | ** ** | **Currency** | ** ** | **rate**     | ** ** | **Maturity date**    | ** ** | **paid**          | ** ** | **amortization**        | ** ** | **2008**      | ** ** | **2007**                      | ** ** | **or abroad** | ** ** |
| ** **                           | ** ** | ** ** | ** ** | ** **  | ** ** | ** **   | ** ** | **%**        | ** ** | ** **           | ** ** | ** **        | ** ** | ** **              | ** ** | **ThCh$**     | ** ** | **ThCh$**                     | ** ** | ** ** | ** ** |
| Current portion of bonds payable     |       |       |       |        |       |         |       |         |       |                 |       |              |       |                    |       |          |       |                          |       |   |   |
| Yankee bonds                         |       | B          |       | 2,000,000   |       | US$          |       | 7.625        |       | October 1, 2027 |       | Half -yearly |       | Oct.  2027         |       | —        |       | 20,630                        |       |   | Foreign |   |
| Register 254 SVS June 13, 2001  |       | A          |       | 330,000     |       | UF           |       | 6.200        |       | June 1, 2008    |       | Half -yearly |       | June 2008          |       | —        |       | 7,087,698                     |       |   | Chile |   |
| Register 254 SVS June 13, 2001  |       | B          |       | 3,700,000   |       | UF           |       | 6.500        |       | June 1, 2026    |       | Half -yearly |       | Dec. 2009          |       | 2,757,734     |       | 421,530                       |       |   | Chile |   |
| Total current maturities             |       |       |       |        |       |         |       |         |       |                 |       |              |       |                    |       | 2,757,734     |       | 7,529,858                     |       |   |   |
|                                 |       |       |       |        |       |         |       |         |       |                 |       |              |       |                    |       |          |       |                          |       |   |   |
| Long - term portion of bonds payable |       |       |       |        |       |         |       |         |       |                 |       |              |       |                    |       |          |       |                          |       |   |   |
| Yankee bonds                         |       | B          |       | 2,000,000   |       | US$          |       | 7.625        |       | October 1, 2027 |       | Half -yearly |       | Oct.  2027         |       | —        |       | 1,082,226                     |       |   | Foreign |   |
| Register 254 SVS June 13, 2001  |       | B          |       | 3,700,000   |       | UF           |       | 6.500        |       | June 1, 2026    |       | Half -yearly |       | Dec. 2009          |       | 77,039,965    |       | 79,065,584                    |       |   | Chile |   |
| Total long-term                      |       |       |       |        |       |         |       |         |       |                 |       |              |       |                    |       | 77,039,965    |       | 80,147,810                    |       |   |   |

 

**Accrued interest included in current portion of bondspayable on the consolidated balance sheets amounted to ThCh$ 423,190 andThCh$ 478,062 at December 31, 2008 and 2007, respectively.**

 

2    Scheduledmaturities of the long-term bonds payable at December 31, 2008 were asfollows:

 
| ** **                                              | ** ** | ** ** | ** ** | ** **            | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | **Total**       | ** ** |
|---------------------------------------------------------|------------|------------|------------|-----------------------|------------|---------------|------------|------------|------------|------------|------------|----------------|------------|-----------------|------------|
| ** **                                              | ** ** | ** ** | ** ** | **Years to maturity** | ** ** | **long-term** | ** ** |
| ** **                                              | ** ** | **Series** | ** ** | **2010**              | ** ** | **2011**      | ** ** | **2012**   | ** ** | **2013**   | ** ** | **Thereafter** | ** ** | **at year-end** | ** ** |
| ** **                                              | ** ** | ** ** | ** ** | **ThCh$**             | ** ** | **ThCh$**     | ** ** | **ThCh$**  | ** ** | **ThCh$**  | ** ** | **ThCh$**      | ** ** | **ThCh$**       | ** ** |
| Register 254 SVS June 13, 2001 |       | B          |       | 4,669,089             |       | 4,669,089     |       | 4,669,089  |       | 4,669,089  |       | 58,363,609     |       | 77,039,965      |       |
| Total                                                   |       |       |       | 4,669,089             |       | 4,669,089     |       | 4,669,089  |       | 4,669,089  |       | 58,363,609     |       | 77,039,965      |       |

 

The Company’s restrictions regarding the issue ofbonds are set forth in Note 26.

 

3      The riskclassification 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 |

 

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Bonds issued in the local market:

 
| AA+ | : | Rating issued by Fitch Chile            |
|-----|---|-----------------------------------------|
| AA  | : | Rating issued by Feller & Rate |

 

4      Bondrepurchases

 

During2000, 2001, 2002, 2007 and 2008, the Company repurchased bonds it issued in theU.S. market through its subsidiary, Abisa Corp S.A. (formerly PacificSterling), for a total amount of US$350 million of which US$200 areoutstanding. The bonds purchased byAbisa Corp S.A. have not been canceled and remain outstanding. The relatedasset and liability have been eliminated on consolidation.

 

5      Bondsissued 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, 2008 and 2007, 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 17 - OTHERACCRUED LIABILITIES

 

Otheraccrued liabilities at each year-end consisted of the following:

 
| ** **                                         | ** ** | **At December 31,** | ** ** |
|----------------------------------------------------|------------|--------------------------|------------|
| ** **                                         | ** ** | **Short – term**    | ** ** | **Long – term** | ** ** |
| ** **                                         | ** ** | **2008**                 | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                         | ** ** | **ThCh$**                | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Staff severance indemnities and (1) retention plan |       | 789,890                  |       | 771,827 |   | 8,398,043 |   | 6,996,957 |   |
| Contingency provisions                             |       | 43,440                   |       | 51,902 |   | 2,706,542 |   | 2,700,931 |   |
| Provision for Brazilian  banking taxes (2)         |       | 2,951,934                |       | 2,960,789 |   | 5,657,876 |   | 8,736,653 |   |
| Total                                              |       | 3,785,264                |       | 3,784,518 |   | 16,762,461 |   | 18,434,541 |   |

 

----

| (1)    | As of December 31,  2008, the Company modified the discount rate of the present value of accrued  staff benefits from 7% to 4% to adjust to current market conditions. The  impact of this change was a ThCh$954,595 charge to income and was recorded  under Other Non-Operating Expenses.                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (2)    | In 1999, the Company’s subsidiary Rio Janeiro  Refrescos Ltda. brought a tax lawsuit against the Brazilian Treasury for  alleged unconstitutionality in the collection of the tax called CPMF (*Contribui**ção Provisória sobre  Movimentação**Financeira*) on the debits and credits to bank current accounts. While the  subsidiary obtained a provisional suspension of said payments from the Courts  of Justice, the corresponding tax obligation was still provisioned. In  November 2006, the Courts of Justice ruled the constitutionality of the  referred tax and Refrescos came to an agreement with the Brazilian Treasury  to divide payments in 60 installments. |

 

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NOTE18 - STAFF SEVERANCE INDEMNITIES AND RETENTION PLAN

 

Movementsin the provision for staff severance indemnities and retention plan were asfollows:

 
| ** **               | ** ** | **At December 31,** | ** ** |
|--------------------------|------------|--------------------------|------------|
| ** **               | ** ** | **2008**                 | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **               | ** ** | **ThCh$**                | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Beginning balance        |       | 7,133,867                |       | 6,782,257 |   | 6,397,205 |   |
| Provision for the period |       | 3,052,355                |       | 1,170,026 |   | 1,090,229 |   |
| Payments                 |       | (998,289                 | )          | (183,499 | ) | (203,291 | ) |
| Ending balance           |       | 9,187,933                |       | 7,768,784 |   | 7,284,143 |   |

 

NOTE 19 - OTHER LONG-TERM LIABILITIES

 

Other long — term liabilities at each year-endconsisted of the following:

 
|                                 |   |   |   | **At December 31,** |   |
|--------------------------------------|--------|--------|--------|--------------------------|--------|
|                                 |   |   |   | **2008**                 |   | **2007** |   |
|                                 |   |   |   | **ThCh$**                |   | **ThCh$** |   |
| Deposits for containers              |   |   |   | 10,102,254               |   | 9,998,894 |   |
| Participation acquisition of  assets |   |   |   | 2,050,828                |   | 2,956,920 |   |
| Advertising agreements               |   |   |   | 277,787                  |   | 355,473 |   |
| Other                                |   |   |   | 577,849                  |   | 44,956 |   |
| Total                                |   |   |   | 13,008,718               |   | 13,356,243 |   |

 

NOTE20 - MINORITY INTEREST

 

As of December 31, 2008, 2007 and 2006, Minority Interest iscomprised as follow:

 
| ** **                                                | ** ** | **For the year ended  December 31,** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                | ** ** | **2008**                                  | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                | ** ** | **ThCh$**                                 | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Composition of Minority interest:                         | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Vital Aguas S.A.                                          |       | 1,374,240                                 |       | 1,391,821 |   | 1,346,037 |   |
| Embotelladora del Atlántico S.A.                     |       | 11,605                                    |       | 9,862 |   | 23,368 |   |
| Andina Inversiones Societarias S.A.                       |       | 21                                        |       | 17 |   | 44 |   |
| Total                                                     |       | 1,385,866                                 |       | 1,401,700 |   | 1,369,449 |   |
|                                                      |       |                                      |       |   |   |   |   |
| Composition of Income attributable to minority  interest: |       |                                      |       |   |   |   |   |
|                                                      |       |                                      |       |   |   |   |   |
| Vital Aguas S.A.                                          |       | 17,583                                    |       | (45,786 | ) | (32,573 | ) |
| Embotelladora del Atlántico S.A.                     |       | (2,056                                    | )          | (817 | ) | (2,040 | ) |
| Andina Inversiones Societarias S.A.                       |       | (4                                        | )          | (7 | ) | (3 | ) |
| Total                                                     |       | 15,523                                    |       | (46,610 | ) | (34,616 | ) |

 

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Table ofContents

 

NOTE 21 - SHAREHOLDERS’ EQUITY

 

a)              Themovements in shareholders’ equity of the Company during each of the three yearsended December 31, 2008 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, 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 adjustment of 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, 2008 |       | 236,327,716                |       | 2,047,097                 |       | 11,701,750                                                  |       | 86,964,677                                |       | (15,716,973                  | )          | 321,324,267 |       |
|                                                                                           |       |                       |       |                      |       |                                                        |       |                                      |       |                         |       |        |       |
| 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 |       |
|                                                                                           |       |                       |       |                      |       |                                                        |       |                                      |       |                         |       |        |       |
| Balance  at December 31, 2007 restated in constant Chilean pesos of December 31, 2008          |       | 236,327,716                |       | (12,461,908               | )          | 12,165,712                                                  |       | 88,864,517                                |       | (18,724,626                  | )          | 306,171,411 |       |
|                                                                                           |       |                       |       |                      |       |                                                        |       |                                      |       |                         |       |        |       |
| At January 1, 2008                                                                        |       | 217,013,513                |       | (11,443,442               | )          | 11,171,454                                                  |       | 81,601,944                                |       | (17,194,331                  | )          | 281,149,138 |       |
| Prior year income allocation                                                                   |       | —                     |       | —                    |       | 64,407,613                                                  |       | (81,601,944                               | )          | 17,194,331                   |       | —      |       |
| Dividends paid                                                                                 |       | —                     |       | —                    |       | (55,185,668                                                 | )          | —                                    |       | (16,764,054                  | )          | (71,949,722 | )          |
| Price-level restatement of  equity                                                             |       | 19,314,203                 |       | (1,018,466                | )          | 2,808,355                                                   |       | —                                    |       | (407,925                     | )          | 20,696,167  |       |
| Cumulative translation  adjustmentof foreign  investments                                      |       | —                     |       | 21,517,062                |       | —                                                      |       | —                                    |       | —                       |       | 21,517,062  |       |
| Net income for the year                                                                        |       | —                     |       | —                    |       | —                                                      |       | 94,835,957                                |       | —                       |       | 94,835,957  |       |
| At December 31, 2008                                                                      |       | 236,327,716                |       | 9,055,154                 |       | 23,201,754                                                  |       | 94,835,957                                |       | (17,171,979                  | )          | 346,248,602 |       |

 

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 A shareholders and to elect 1 of the 7  directors. |

 

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c)   Capital:

 
| **Series** |   |   |   |   |   |   |   |   |   | **Subscribed********capital** | ** ** | **Paid-in********capital** |   |
|------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------------------------|------------|----------------------------|--------|
| ** ** |   |   |   |   |   |   |   |   |   | **ThCh$**                     | ** ** | **ThCh$**                  |   |
| A          |   |   |   |   |   |   |   |   |   | 118,163,858                   |       | 118,163,858                |   |
| B          |   |   |   |   |   |   |   |   |   | 118,163,858                   |       | 118,163,858                |   |
| Total      |   |   |   |   |   |   |   |   |   | 236,327,716                   |       | 236,327,716                |   |

 

d)   Other reserves:

 

Other reserves at each year-end were as follows:

 
| ** **                                                          | ** ** | **2008**  | ** ** | **2007**    | ** ** | **2006**  | ** ** |
|---------------------------------------------------------------------|------------|-----------|------------|-------------|------------|-----------|------------|
| ** **                                                          | ** ** | **ThCh$** | ** ** | **ThCh$**   | ** ** | **ThCh$** | ** ** |
| Reserve for cumulative  translation adjustments (1)                 |       | 7,875,000 |       | (13,642,062 | )          | 866,944   |       |
| Reserve for technical  reappraisal of property, plant and equipment |       | 71,048    |       | 73,276      |       | 198,814   |       |
| Other reserves                                                      |       | 1,109,106 |       | 1,106,878   |       | 981,338   |       |
| Total                                                               |       | 9,055,154 |       | (12,461,908 | )          | 2,047,096 |       |

 

----

(1)   The reserve for cumulative translation adjustments complies withTechnical Bulletin No. 64 of  theChilean Institute of Accountants and Official letter No. 5,294 issued bythe SVS.

 

Thecomposition of this reserve was as follows:

 
| **Subsidiary**                         | ** ** | **Balance at********January 1, 2008** | ** ** | **Foreign exchange********losses generated********during the year** | ** ** | **Release /********transfers of********reserve(*)** | ** ** | **Balance at********December 31,********2008** | ** ** |
|----------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                             | ** ** | **ThCh$**                                  | ** ** | **ThCh$**                                                           | ** ** | **ThCh$**                                           | ** ** | **ThCh$**                                           | ** ** |
| Rio de Janeiro Refrescos Ltda          |       | (8,248,960                                 | )          | 12,621,279                                                          |       | 127,703                                             |       | 4,500,022                                           |       |
| Embotelladora  del Atlántico S.A. |       | (5,393,102                                 | )          | 6,440,485                                                           |       | 2,327,595                                           |       | 3,374,978                                           |       |
| Total                                  |       | (13,642,062                                | )          | 19,061,764                                                          |       | 2,455,298                                           |       | 7,875,000                                           |       |

 

----

| (*) | During 2008, the Company received dividend payments  from its subsidiaries Rio de Janeiro Refrescos Ltda. and Embotelladora del  Atlántico S.A. for ThCh$38,022,780 and ThCh$7,943,622 respectively. The  dividends distribution and the capital remittances triggered a pro-rata  recognition in income of the cumulative translation reserve. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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| **Subsidiary**                         | ** ** | **Balance at********January 1, 2007** | ** ** | **Foreign exchange********gains generated********during the year** | ** ** | **Release /********transfers of********reserve (*)** | ** ** | **Balance at********December 31,********2007** | ** ** |
|----------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                             | ** ** | **ThCh$**                                  | ** ** | **ThCh$**                                                          | ** ** | **ThCh$**                                            | ** ** | **ThCh$**                                           | ** ** |
| Rio de Janeiro Refrescos Ltda          |       | (915,278                                   | )          | (10,200,502                                                        | )          | 2,866,820                                            |       | (8,248,960                                          | )          |
| Embotelladora  del Atlántico S.A. |       | 1,782,223                                  |       | (8,203,517                                                         | )          | 1,028,192                                            |       | (5,393,102                                          | )          |
| Total                                  |       | 866,945                                    |       | (18,404,019                                                        | )          | 3,895,012                                            |       | (13,642,062                                         | )          |

 

----

| (*) | During 2007, the Company received dividend payments  from its subsidiary Rio de Janeiro Refrescos Ltda. for ThCh$33,803,236. In  2007 it also received   capital  remittances from Embotelladora del Atlántico S.A. for ThCh$29,030,145. The  dividends distribution and the capital remittances triggered a pro-rata  recognition in income of the cumulative translation reserve. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| **Subsidiary**                         | ** ** | **Balance at********January 1, 2006** | ** ** | **Foreign exchange********losses generated********during the year** | ** ** | **Release /********transfers of********reserve(*)** | ** ** | **Balance at********December 31,********2006** | ** ** |
|----------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                             | ** ** | **ThCh$**                                  | ** ** | **ThCh$**                                                           | ** ** | **ThCh$**                                           | ** ** | **ThCh$**                                           | ** ** |
| Rio de Janeiro Refrescos Ltda          |       | (2,663,128                                 | )          | 1,591,711                                                           |       | 156,139                                             |       | (915,278                                            | )          |
| Embotelladora  del Atlántico S.A. |       | 1,242,777                                  |       | 539,446                                                             |       | —                                              |       | 1,782,223                                           |       |
| Total                                  |       | (1,420,351                                 | )          | 2,131,157                                                           |       | 156,139                                             |       | 866,945                                             |       |

 

----

| (*) | During 2006, the Company received dividend payments  from its subsidiary Rio de Janeiro Refrescos Ltda. for ThCh$20,185,537. The  dividends distribution triggered a pro-rata recognition in income of the  cumulative translation reserve. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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NOTE 22 - OTHER NON-OPERATING INCOME AND EXPENSES

 

Othernon-operating income during each year was as follows:

 
| ** **                                         | ** ** | **For the  year ended December 31,** | ** ** |
|----------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                         | ** ** | **2008**                                  | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                         | ** ** | **ThCh$**                                 | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Reversal of PIS - COFINS tax  provision (1)        |       | —                                    |       | — |   | 4,888,384 |   |
| Tax recoveries - Pis Cofins                        |       | —                                    |       | 1,493,997 |   | — |   |
| Recovery of prior year taxes                       |       | —                                    |       | 2,954,212 |   | — |   |
| Reversal of impairment loss  on fixed asset (2)    |       | 5,221,075                                 |       | 5,005,642 |   | — |   |
| Adjustments to guarantees  received for containers |       | —                                    |       | 382,263 |   | 573,185 |   |
| Gain on sale of plant,  property and equipment     |       | 274,757                                   |       | — |   | — |   |
| Other income                                       |       | 854,107                                   |       | 241,302 |   | 642,369 |   |
| Subtotal                                           |       | 6,349,939                                 |       | 10,077,416 |   | 6,103,938 |   |
| Translation adjustment (3)                         |       | —                                    |       | 3,298,942 |   | 472,488 |   |
| Total                                              |       | 6,349,939                                 |       | 13,376,358 |   | 6,576,426 |   |

 

Other non-operating expenses during each year wereas follows:

 
| ** **                                                    | ** ** | **For the  year ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                    | ** ** | **2008**                                  | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                    | ** ** | **ThCh$**                                 | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Bank taxes (4)                                                |       | (2,675,187                                | )          | (3,212,981 | ) | (3,318,676 | ) |
| Obsolescence  and write-offs of property, plant and equipment |       | (1,134,898                                | )          | (1,116,932 | ) | (4,344,987 | ) |
| Write-off intangible  Benedictino                             |       | (1,139,981                                | )          | — |   | — |   |
| Loss  on sale of property, plant and equipment                |       | —                                    |       | (159,758 | ) | (2,489,116 | ) |
| Provision  for labor, tax and commercial lawsuits             |       | (949,984                                  | )          | (765,653 | ) | (874,543 | ) |
| Lawsuit fees                                                  |       | (929,253                                  | )          | — |   | (512,114 | ) |
| Cumulative translation  reserve realized (5)                  |       | (2,455,298                                | )          | (3,898,911 | ) | (156,139 | ) |
| Provision  for equity investee Centralli Refrigerantes S.A.   |       | (113,628                                  | )          | — |   | (75,389 | ) |
| One-time previous years  territory taxes in Brazil            |       | (405,624                                  | )          | — |   | — |   |
| Provision  for staff severance indemnities and retention plan |       | (954,595                                  | )          | — |   | — |   |
| Donations                                                     |       | (339,657                                  | )          |   |   |   |   |
| Other  expenses                                               |       | (1,238,463                                | )          | (1,175,246 | ) | (183,831 | ) |
| Subtotal                                                      |       | (12,336,568                               | )          | (10,329,481 | ) | (11,954,795 | ) |
| Translation adjustment (3)                                    |       | (4,095,428                                | )          | — |   | — |   |
| Total                                                         |       | (16,431,996                               | )          | (10,329,481 | ) | (11,954,795 | ) |

 

F-34

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----

(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 2008 and 2007, the Company evaluated theestimated future cash flows expected from its plants.  As a result of the evaluation, the Companyconcluded that a previous impairment provision on some of its plants was nolonger required.  Accordingly, suchprovision was reversed with effect 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 Othernon-operating income or expenses, as appropriate.

 

(4)   Relates to taxes charged inthe normal course of business due to banking Accounts movements in our foreignsubsidiaries and are not related to the acquirement of financial resources.

 

(5)   During2008, 2007 and 2006, the Company received dividend payments from its subsidiaryRio de Janeiro Refrescos Ltda. for ThCh$38,022,780, ThCh$33,803,236, and ThCh$20,185,537respectively. In 2008 it also received dividend payments for ThCh$7,943,622. In2007 it also received capital remittances from Embotelladora del Atlántico S.A.for ThCh$29,030,145 respectively. The dividends distribution and the capitalremittances triggered a pro-rata recognition in income of the cumulativetranslation reserve.

 

NOTE 23 - FOREIGN CURRENCY

 

**At December 31, 2008 and 2007, 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 v):**

 
|                                      |   | **2008**              |       | **2007**                   |       |
|-------------------------------------------|--------|-----------------------|------------|----------------------------|------------|
| **Assets**                                |   | **US********dollars** | ** ** | **Brazilian********reals** | ** ** | **Argentine********pesos** | ** ** | **Euros** | ** ** | **US********dollars** | ** ** | **Brazilian********reals** | ** ** | **Argentine********pesos** | ** ** | **Euros** |   |
|                                      |   | **(in thousands)**    |       | **(in thousands)**         |       |
| Cash                                      |   | 2,405                 |       | 26,817                     |       | 12,806 |   | — |   | 5,113 |   | 45,492 |   | 12,361 |   | — |   |
| Time deposits                             |   | 21,599                |       | 115                        |       | — |   | — |   | — |   | 353 |   | 115 |   | — |   |
| Marketable securities (net)          |   | 16,140                |       | 221                        |       | — |   | — |   | 88,027 |   | — |   | 11,391 |   | — |   |
| Receivables (net)                         |   | 1,517                 |       | 104,480                    |       | 47,892 |   | — |   | 253 |   | 122,784 |   | 40,789 |   | — |   |
| Inventories                               |   | 2,000                 |       | 46,368                     |       | 49,068 |   | — |   | 2,054 |   | 44,980 |   | 34,841 |   | — |   |
| Other current assets                      |   | 2,018                 |       | 21,785                     |       | 14,112 |   | — |   | 36,196 |   | 33,972 |   | 8,286 |   | — |   |
| Property, plant and  equipment            |   | 199,199               |       | —                     |       | — |   | — |   | 164,178 |   | — |   | — |   | — |   |
| Investments in  unconsolidated affiliates |   | —                |       | 29,630                     |       | — |   | — |   | — |   | 18,199 |   | — |   | — |   |
| Investments in other  companies           |   | 116                   |       | —                     |       | — |   | — |   | 178 |   | — |   | — |   | — |   |
| Goodwill (net)                            |   | 102,552               |       | —                     |       | — |   | — |   | 112,655 |   | — |   | — |   | — |   |
| Other long-term assets                    |   | 275                   |       | 59,268                     |       | 18,864 |   | — |   | 1,086 |   | 53,173 |   | 18,887 |   | — |   |
| Total assets                              |   | 347,821               |       | 288,684                    |       | 142,742 |   | — |   | 409,740 |   | 318,953 |   | 126,670 |   | — |   |

 

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| ** **                                         | ** ** | **2008**              | ** ** | **2007**                   | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|----------------------------|------------|
| **Liabilities**                                    | ** ** | **US********dollars** | ** ** | **Brazilian********reals** | ** ** | **Argentine********pesos** | ** ** | **Euros** | ** ** | **US********dollars** | ** ** | **Brazilian********reals** | ** ** | **Argentine********pesos** | ** ** | **Euros** | ** ** |
| ** **                                         | ** ** | **(in thousands)**    | ** ** | **(in thousands)**         | ** ** |
| Obligations with banks and  financial institutions |       | —                |       | 9,973                      |       | 20,304 |   | — |   | — |   | 6,676 |   | 10,596 |   | — |   |
| Accounts payable                                   |       | 5,905                 |       | 88,445                     |       | 89,905 |   | 12 |   | 5,322 |   | 100,034 |   | 94,079 |   | 20 |   |
| Other accrued liabilities                          |       | —                |       | 35,836                     |       | 8,638 |   | — |   | — |   | 41,647 |   | 9,752 |   | — |   |
| Bonds payable                                      |       | —                |       | —                     |       | — |   | — |   | 2,038 |   | — |   | — |   | — |   |
| Other                                              |       | —                |       | 69,085                     |       | 86,473 |   | — |   | — |   | 82,729 |   | 64,184 |   | — |   |
| Total liabilities                                  |       | 5,905                 |       | 203,339                    |       | 205,320 |   | 12 |   | 7,360 |   | 231,086 |   | 178,611 |   | 20 |   |
| Total net assets  (liabilities)                    |       | 341,916               |       | 85,345                     |       | (62,578 | ) | (12 | ) | 402,380 |   | 87,867 |   | (51,941 | ) | (20 | ) |

 

NOTE 24 - 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,** | ** ** |
|----------------------------------------|------------|--------------------------------------------|------------|
| ** **                             | ** ** | **2008**                                   | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                             | ** ** | **ThCh$**                                  | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Investing activities:                  |       |                                       |       |   |   |   |   |
| Fixed assets additions                 |       | 1,127,487                                  |       | 6,515,422 |   | 5,849,791 |   |
| Sale  of property, plant and equipment |       | 20,645                                     |       | 3,283 |   | 15,647 |   |
|                                   |       |                                       |       |   |   |   |   |
| Financing activities:                  |       |                                       |       |   |   |   |   |
| Dividend payment                       |       | 5,588,018                                  |       | 6,085,352 |   | 5,228,534 |   |

 

# NOTE25 - DERIVATIVE CONTRACTS

 

For the year ended December 31, 2008, the Companyrecorded a net loss from derivative instruments of ThCh$ 12,366,001 asFinancial income in the consolidated statements of income (net gain of ThCh$14,574,211 and ThCh$1,250,262 for the year ended December 31, 2007 and2006 respectively).

 

The Company had thefollowing derivative contracts at December 31, 2008 (for presentationpurposes, individual contracts were summarized and allocated to each quarterbases on their maturities):

 
| ** **       | ** ** | ** **       | ** ** | ** **             | ** ** | **Net carrying** | ** ** | **Deferred**    | ** ** |
|------------------|------------|------------------|------------|------------------------|------------|------------------|------------|-----------------|------------|
| **Derivative**   | ** ** | **Maturity**     | ** ** | **Description**        | ** ** | **values**       | ** ** | **gain/(loss)** | ** ** |
| ** **       | ** ** | ** **       | ** ** | ** **             | ** ** | **ThCh$**        | ** ** | **ThCh$**       | ** ** |
| Forward contract |       | I  Quarter 2009  |       | Currency  exchange US$ |       | 1,039,841        |       | 180,101         |       |
| Forward contract |       | II  Quarter 2009 |       | Currency  exchange US$ |       | —           |       | (6,890          | )          |
| Total            |       |             |       |                   |       | 1,039,841        |       | 173,211         |       |

 

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As of December 31,2008, total notional amounts for derivative contracts outstanding were:

 
| Forward contracts: | US$19,206,398 (Buy)  and US$32,885,556 (Sell) |
|--------------------|-----------------------------------------------|

 

The Company had thefollowing derivative contracts at December 31, 2007 (for presentationpurposes, individual contracts were summarized and allocated to each quarterbases on their maturities):

 
| ** **          | ** ** | ** **        | ** ** | ** **                | ** ** | **Net carrying** | ** ** | **Deferred**    | ** ** |
|---------------------|------------|-------------------|------------|---------------------------|------------|------------------|------------|-----------------|------------|
| **Derivative**      | ** ** | **Maturity**      | ** ** | **Description**           | ** ** | **values**       | ** ** | **gain/(loss)** | ** ** |
| ** **          | ** ** | ** **        | ** ** | ** **                | ** ** | **ThCh$**        | ** ** | **ThCh$**       | ** ** |
| Cross-Currency Swap |       | I  Quarter 2008   |       | Currency  exchange US$/UF |       | 5,163,632        |       | —          |       |
| Cross-Currency Swap |       | II  Quarter 2008  |       | Currency  exchange US$/UF |       | 5,203,679        |       | —          |       |
| Cross-Currency Swap |       | III  Quarter 2008 |       | Currency  exchange US$/UF |       | 8,575,697        |       | 14,203          |       |
| Forward contract    |       | I  Quarter 2008   |       | Currency  exchange US$    |       | —           |       | (97,474         | )          |
| Forward contract    |       | II  Quarter 2008  |       | Currency  exchange US$    |       | —           |       | (142,721        | )          |
| Forward contract    |       | III  Quarter 2008 |       | Currency  exchange US$    |       | —           |       | (21,524         | )          |
| Forward contract    |       | IV  Quarter 2008  |       | Currency  exchange US$    |       | —           |       | (62,053         | )          |
| Forward contract    |       | I  Quarter 2009   |       | Currency  exchange US$    |       | —           |       | (21,729         | )          |
| Futures contract    |       | I  Quarter 2008   |       | Sugar  sales              |       | 99,060           |       | 152,481         |       |
| Total               |       |              |       |                      |       | 19,042,068       |       | (178,817        | )          |

 

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.                                              |

 

# NOTE 26 - 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 of operations.  Current lawsuits are described below:

 

1)     Embotelladoradel Atlántico S.A. faces labor and other lawsuits.  Accounting provisions at December 31,2008 for any probable loss contingency arising from these lawsuits amounted to ThCh$1,592,099.  Management believes, based onthe opinion of its legal counsel, that these lawsuits will not materiallyaffect the Company’s consolidated financial position, operating results or cashflows when resolved in the future.

 

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2)     Refrescosfaces labor, tax and other legal proceedings. Accounting provisions at December 31,2008 for any probable loss contingency arising from these lawsuits amounted to ThCh$1,109,801.  Management believes, based onthe opinion of its legal counsel, that these matters will not materially affectthe  Company’s consolidated financialposition, operating results or cash flows when resolved in the future.

 

3)     Andinafaces labor, tax, commercial and other legal proceedings.  Accounting provisions for any probable losscontingency arising from these lawsuits amounted to ThCh$ 8,047 at December 31,2008. Management believes, based on the opinion of its legal counsel, thatthese matters 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$ 200 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 3,700,000 is subject to the followingrestrictions:

 

·                  Andina must maintain aleverage ratio, defined as total debt/consolidated equity lower than 1.20. Forpurposes of calculating the leverage ratio, total debt includes; (i) short-termbank liabilities, (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 maintainconsolidated assets free of any pledge, mortgage or other encumbrance for anamount equal to at least 1.30 times the consolidated liabilities that are notguaranteed by the investee.

 

·                  Andina must retain and, in no way, sell, assign or dispose of, to athird party, the geographical zone denominated “Region Metropolitana”, as afranchised territory in Chile of The Coca-Cola Company, for the preparation,production, sale and distribution of the products and brands in accordance withthe Bottler Agreement with Andina, renewable from time to time.

 

·                  The Company must retain and, in no way, sell, assign or dispose of to athird party, 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.

 

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At December 31, 2008 and 2007 the Company was incompliance with the aforementioned covenants.

 

c.     Directguarantees and restricted assets

 

Direct guarantees and restricted assets at December 31,2008 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**                                              | ** ** | **2008** | ** ** | **2007** | ** ** | **2009** | ** ** | **2011** |   |
| ** **                | ** ** | ** **                             | ** ** | ** **          | ** ** | ** **         | ** ** | ** **                                             | ** ** | **ThCh$**                                              | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** |   |
| Estado Rio de Janeiro     |       | Rio  de Janeiro   Refrescos Ltda.      |       | Subsidiary          |       | Mortgage           |       | Real  estateproperty                                   |       | 14,333,629                                             |       | 11,059,440 |   | 11,391,888 |   | — |   | — |   |
|                      |       |                                   |       |                |       |               |       |                                                   |       |                                                   |       |   |   |   |   |   |   |   |   |
| Poder Judiciario          |       | Rio  de JaneiroRefrescos Ltda.         |       | Subsidiary          |       | Judicial  deposit  |       | Judicial  deposit                                      |       | 11,064,316                                             |       | — |   | — |   | — |   | — |   |
|                      |       |                                   |       |                |       |               |       |                                                   |       |                                                   |       |   |   |   |   |   |   |   |   |
| Aduana de Ezeiza          |       | Embotelladora del  Atlántico S.A. |       | Subsidiary          |       | Guaranty insurance |       | Export  of molds                                       |       | 10,690                                                 |       | — |   | — |   | — |   | — |   |
|                      |       |                                   |       |                |       |               |       |                                                   |       |                                                   |       |   |   |   |   |   |   |   |   |
| Aga S.A.                  |       | Embotelladora    Andina S.A.           |       | Parent  company     |       | Performance  bond  |       | Perfomance  bond                                       |       | —                                                 |       | — |   | — |   | — |   | 190,935 |   |
|                      |       |                                   |       |                |       |               |       |                                                   |       |                                                   |       |   |   |   |   |   |   |   |   |
| Municipalidad de Santiago |       | Embotelladora    Andina S.A.           |       | Parent  company     |       | Performance  bond  |       | Perfomancebond                                         |       | —                                                 |       | — |   | — |   | 12,004 |   | — |   |
|                      |       |                                   |       |                |       |               |       |                                                   |       |                                                   |       |   |   |   |   |   |   |   |   |
| Escuela Militar           |       | Embotelladora    Andina S.A.           |       | Parent  company     |       | Performance  bond  |       | Performance  bond                                      |       | —                                                 |       | — |   | — |   | 1,000 |   | — |   |
|                      |       |                                   |       |                |       |               |       |                                                   |       |                                                   |       |   |   |   |   |   |   |   |   |
| Escuela Militar           |       | Embotelladora    Andina S.A.           |       | Parent  company     |       | Performance  bond  |       | Performance  bond                                      |       | —                                                 |       | — |   | — |   | 1,014 |   | — |   |
|                      |       |                                   |       |                |       |               |       |                                                   |       |                                                   |       |   |   |   |   |   |   |   |   |
| Escuela Militar           |       | Embotelladora    Andina S.A.           |       | Parent  company     |       | Performance  bond  |       | Performance  bond                                      |       | —                                                 |       | — |   | — |   | 1,083 |   | — |   |

 

d.   Contractualobligations

 

The following tablesummarizes the contractual obligations and commercial commitments as of December 31,2008:

 
| ** **                                     | ** ** | **Payments due by period** | ** ** | ** ** | ** ** |
|------------------------------------------------|------------|----------------------------|------------|------------|------------|
| ** **                                     | ** ** | **Maturity**               | ** ** | ** ** | ** ** |
| ** **                                     | ** ** | **2009**                   | ** ** | **2010**   | ** ** | **2011** | ** ** | **2012** | ** ** | **More than 4  years** | ** ** | **Total** | ** ** |
| ** **                                     | ** ** | **ThCh$**                  | ** ** | **ThCh$**  | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Long-term debt                                 |       | 226,412                    |       | 225,224    |       | 160,112 |   | 28,116 |   | — |   | 639,864 |   |
| Short-term debt                                |       | 5,819,629                  |       | —     |       | — |   | — |   | — |   | 5,819,629 |   |
| Bonds payable                                  |       | 2,757,734                  |       | 4,669,089  |       | 4,669,089 |   | 4,669,089 |   | 63,032,698 |   | 79,797,699 |   |
| Brazilian banking taxes                        |       | 2,951,935                  |       | 2,951,935  |       | 2,705,940 |   | — |   | — |   | 8,609,810 |   |
| Subtotal-included in our****balance sheet      |       | 11,755,710                 |       | 7,846,248  |       | 7,535,141 |   | 4,697,205 |   | 63,032,698 |   | 94,867,002 |   |
|                                           |       |                       |       |       |       |   |   |   |   |   |   |   |   |
| Operating lease obligations                    |       | 2,319,152                  |       | —     |       | — |   | — |   | — |   | 2,319,152 |   |
| Purchase obligations                           |       | 17,371,259                 |       | 1,604,567  |       | 660,482 |   | 49,251 |   | 10,025 |   | 19,695,584 |   |
| Others                                         |       | 6,305,197                  |       | 5,447,766  |       | 4,761,498 |   | 4,302,602 |   | 28,338,450 |   | 49,155,513 |   |
| Subtotal-not included in  our****Balance sheet |       | 25,995,608                 |       | 7,052,333  |       | 5,421,980 |   | 4,351,853 |   | 28,348,475 |   | 71,170,249 |   |
| Total contractual  obligations                 |       | 37,751,318                 |       | 14,898,581 |       | 12,957,121 |   | 9,049,058 |   | 91,381,173 |   | 166,037,251 |   |

 

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NOTE 27 - GUARANTEES RECEIVED FROM THIRD PARTIES

 

Guarantees received from third parties at December 31,2008 were as follows:

 
| **Guarantor**                                     | ** ** | **Type of Guarantee** | ** ** | **Amount** | ** ** | **Currency** | ** ** | **Transaction**                            |
|---------------------------------------------------|------------|-----------------------|------------|------------|------------|--------------|------------|--------------------------------------------|
|                                              |       |                  |       |       |       |         |       |                                       |
| Ruseel  W. Coffin                                 |       | Letter  of Credit     |       | 39,498,853 |       | US$          |       | Purchase  of Nitvitgov Refrigerantes S.A.  |
| Confab                                            |       | Mortgage              |       | 30,000,000 |       | US$          |       | Purchase of Rio de Janeiro Refrescos Ltda. |
| Juan Pablo Gálvez Figueroa y Cía. Ltda. |       | Receipt               |       | 202,400    |       | US$          |       | Supplier  agreement                        |
| Soc.  Com. Champfer                               |       | Mortgage              |       | 1,271,139  |       | US$          |       | Distributor  credit                        |
| Atanor                                            |       | Guaranty  Receipt     |       | 1,186,492  |       | US$          |       | Supplier                                   |
| Franciscaca  Dist.                                |       | Mortgage              |       | 1,159,606  |       | US$          |       | Distributor  credit                        |
| Atanor                                            |       | Guaranty  Receipt     |       | 889,869    |       | US$          |       | Supplier                                   |
| Atanor                                            |       | Guaranty  Receipt     |       | 889,869    |       | US$          |       | Supplier                                   |
| Atanor                                            |       | Guaranty  Receipt     |       | 889,869    |       | US$          |       | Supplier                                   |
| Mac  Coke Dist. Beb.                              |       | Mortgage              |       | 830,124    |       | US$          |       | Distributor  credit                        |
| Motta  Distribuidora de Bebidas                   |       | Mortgage              |       | 663,243    |       | US$          |       | Distributor  credit                        |
| Aguiar  Dist. de Bebidas                          |       | Mortgage              |       | 650,407    |       | US$          |       | Distributor  credit                        |
| Dist  Real Cola                                   |       | Mortgage              |       | 603,338    |       | US$          |       | Distributor  credit                        |
| Aga  S.A.                                         |       | Receipt               |       | 600,000    |       | US$          |       | Supplier  agreement                        |
| Zulemar  Comercio de Bebidas                      |       | Mortgage              |       | 588,361    |       | US$          |       | Distributor  credit                        |
| Asxt  Fluminense Dist. Bebidas                    |       | Mortgage              |       | 546,855    |       | US$          |       | Distributor  credit                        |
| Rosas  de Casimiro                                |       | Mortgage              |       | 323,492    |       | US$          |       | Distributor  credit                        |
| Soberana  de Carmo Dist Beb                       |       | Mortgage              |       | 284,553    |       | US$          |       | Distributor  credit                        |
| Ecopreneur  SA                                    |       | Guaranty  Receipt     |       | 212,653    |       | US$          |       | Supplier                                   |
| Catering  Argentina S.A.                          |       | Guaranty  Receipt     |       | 149,566    |       | US$          |       | Supplier                                   |
| Transporte Rigar S.R.L.                           |       | Guaranty  Receipt     |       | 92,159     |       | US$          |       | Supplier                                   |
| Distribuidora  de Bebidas Cavarú             |       | Mortgage              |       | 80,445     |       | US$          |       | Distributor  credit                        |

 

NOTE28 - SUBSEQUENT EVENTS

 
| · | On  April 30, 2009, final dividend number 165 was paid from 2008  revenues as follows:                                                                                                                |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                            |
| a)     | Ch$14.13 for each series A share; and                                                                                                                                                                           |
| b)     | Ch$15.543 for each series B share.                                                                                                                                                                              |
|   |                                                                                                                                                                                                            |
| · | On  May 28, 2009, final additional dividend number 166 was paid from  retained earnings as follows:                                                                                                        |
|   |                                                                                                                                                                                                            |
| a)     | Ch$43.00  for each series A share; and                                                                                                                                                                          |
| b)     | Ch$47.30  for each series B share.                                                                                                                                                                              |
|   |                                                                                                                                                                                                            |
| · | No  other significant events have occurred between December 31, 2008 and the  issuance date of these financial statements that could significantly affect  the presentation of these financial statements. |

 

NOTE29 — IMPLEMENTATION OF INTERNATIONAL ACCOUNTING STANDARDS

 

Itis of public knowledge that the country is committed to the development of aconvergence plan to fully adopt International Financial Reporting Standards(IFRS), based on a progressive calendar as from year 2009.   Inaccordance with the regulations established by the Chilean Institute ofAccountants on this matter and what has been specifically established byofficial letters N°427 and N°485 of the Superintendencia de Valores y Seguros *(*Superintendence of 

 

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Securities and Insurance), the Company has chosen topresent its financial statements for the year ended December 31, 2009under the current norm, including only as pro-forma information within the 2009the financial statements, the information adjusted in accordance tointernational accounting standards.

 

Consequently,2010 will be the first year in which the Company will perform a completeapplication of IFRS. The Company is developing a plan to integrally face theimpacts of this change.

 

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      | Differences  in measurement methods |
|--------|-------------------------------------|
|   |                                |
| a)     | Inflation accounting                |

 

The cumulative inflation rate in Chile as measured bythe CPI in the three-year period ended December 31, 2008 was approximately19.5%.

 

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 berestated for general price-level changes between the date of origin of eachitem and the year-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 (o) below.

 

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Theprice-level restatement was determined under Chilean GAAP by restating thefollowing non-monetary assets and liabilities as follows:

 
| ** **                               | ** ** | **For the year ended December 31,** | ** ** |
|------------------------------------------|------------|-------------------------------------|------------|
| ** **                               | ** ** | **2008**                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **ThCh$**                           | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Shareholders’ equity                |       | (20,696,167                         | )          | (17,226,375 | ) | (5,205,055 | ) |
| Liabilities                              |       | (9,126,820                          | )          | (10,726,392 | ) | (3,687,127 | ) |
| Property, plant and  equipment           |       | 9,031,134                           |       | 6,667,223 |   | 1,742,453 |   |
| Current assets                           |       | 10,079,592                          |       | 3,516,443 |   | 912,856 |   |
| Other assets                             |       | 11,564,489                          |       | 15,120,380 |   | 6,466,289 |   |
| Adjustment of balance  sheet accounts    |       | 852,228                             |       | (2,648,721 | ) | 229,416 |   |
| Adjustment of income  statement accounts |       | (2,941,711                          | )          | (2,298,657 | ) | (598,755 | ) |
| Price level restatement expense          |       | (2,089,483                          | )          | (4,947,378 | ) | (369,339 | ) |

 

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b)    Translationof financial statements of non-Chilean operations

 

In accordance with Technical Bulletin No. 64 of theChilean 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, the financialstatements 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 assets and liabilities weretranslated at year-end rates of exchange between the U.S. dollar and the localcurrency.

 

·                  All non-monetary assets andliabilities and shareholders’ equity were translated at historical rates ofexchange between the U.S. dollar and the local currency.

 

·      Income and expense accounts weretranslated at average rates of exchange between the U.S. dollar and the localcurrency.

 

·      Any exchange differences were included inthe results of operations for the period.

 

Theresulting foreign currency amounts are then translated to Chilean pesos at theclosing exchange rate at the balance sheet date.  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 economyand, 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 and equipment is an accountingprinciple not generally accepted under U.S. GAAP. The effects of the reversalof this revaluation as well as the related accumulated depreciation anddepreciation expense for the year is shown in the Chilean GAAP to U.S. GAAPreconciliation below under paragraph (o).

 

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d)   Incometaxes

 

Under Chilean GAAP, effective January 1, 2000, theCompany began applying Technical Bulletin No. 60 of the Chilean Institute ofAccountants (“TB 60”) concerning deferred income taxes.  TB 60 requires the recognition of deferredincome taxes for all temporary differences, whether recurring or not, using anasset and liability approach.  The effects of deferred income taxes at January 1, 2000 that were notpreviously 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. Complementary accountsare 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.

 

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 under SFAS 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 11. In prior years, asappropriate financial information was not available, the Company accounted forthis investment under the cost method. Under U.S. GAAP, as the Company onlyholds 11.32% interest and the investee’s shares do not trade on any exchange,the cost method has been applied for all years presented. The effects for the difference in accounting for this investment pursuant to thecost method of accounting for U.S. GAAP for all periods presented are includedin 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 net bookvalue of a purchased company was recorded as goodwill (the book value purchasemethod), which is then amortized to income over a maximum period of twentyyears.  Amortization of goodwill may beaccelerated if the acquired company generates sufficient income to absorb theadditional amortization in any given year. The excess of net book value over the cost of an investment isconsidered to be negative goodwill under Chilean GAAP and is also amortized toincome over a maximum period of twenty years. The amortization of negative goodwill may be accelerated if the acquiredcompany sustains losses. Effective January 1, 2004, Technical Bulletin No. 72 requires the determination of goodwill andnegative goodwill based on the fair value of the acquired company.

 

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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 Intangible Assets”.  SFAS No. 141 requires that the purchasemethod of accounting be used for all business combinations initiated after June30, 2001 and prohibits the use of the pooling-of-interests method of accountingafter this date.  With respect to thepurchase method of accounting, the cost of an investment is assigned to thetangible and identified intangible assets acquired and liabilities assumed onthe basis of their fair values at the date of acquisition. Any excess of costover the fair value of net assets acquired is recorded as goodwill.  If an excess of acquired net assets over costarises, the excess is allocated to reduce proportionally the values assigned tononcurrent assets (except long-term investments in marketable securities) indetermining their fair values.  If theallocation reduces the noncurrent assets to zero value, the remainder of theexcess over cost (negative goodwill) is written off immediately as anextraordinary gain.  SFAS No. 141establishes specific criteria for the recognition of intangible assetsseparately from goodwill and requires unallocated negative goodwill to bewritten off immediately as an extraordinary gain (instead of being deferred andamortized).

 

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 remaining useful lives ofintangible assets being amortized are evaluated each reporting period todetermine whether events and circumstances warrant a revision to the remainingperiod of amortization.  If the estimateof an intangible asset’s remaining useful life is changed, the remainingcarrying value of the intangible asset is amortized prospectively over therevised 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 became effective for years beginningafter December 15, 2001. Accordingly,  goodwillamortization was ceased for U.S. GAAP purposes beginning in 2002.  The effects of eliminating goodwill amortizationrecognized for Chilean GAAP purposes are included in the reconciliation ofChilean GAAP to U.S. GAAP under paragraph (o) below.

 

g)   Joint venture accounting

 

In accordance withChilean GAAP, in June 2001 the Company recognized a gain of ThCh$ 7,624,298 onthe sale of property, plant and equipment to CMF upon the formation of thisjoint venture with Cristalerías.  Inaddition, the Company wrote-off the basis difference of ThCh$ 2,254,100 betweenits investment in and its share of the net equity of the joint venture.  Accordingly, the Company recognized a netgain before income taxes of ThCh$ 5,370,198.

 

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.

 

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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

 

UnderChilean GAAP, long-term investments in bonds and time deposits held by theCompany are carried at cost plus accrued interest.  Under SFAS No. 115, “Accounting for CertainInvestments in Debt and Equity Securities”, investment securities, whichinclude debt and certain equity securities, are accounted for as follows:

 

·             Debt securitiesthat the Company has the positive intent and ability to hold to maturity areclassified as held-to-maturity securities and are reported at amortized cost.

 

·             Debt and equitysecurities that are bought and held principally for the purpose of selling themin the near term are classified as trading securities and are reported at fairvalue, with unrealized gains and losses included in earnings.

 

·             Debt and equitysecurities not classified as either held-to-maturity or trading securities areclassified as available-for-sale securities and reported at fair value, withunrealized gains and losses excluded from earnings and reported in a separatecomponent of shareholders’ equity.

 

Forthe purposes of SFAS No. 115, the Company’s long-term investments in bonds areclassified as available for sale securities and time deposits are classified asheld-to-maturity. The effect of the difference between Chilean GAAP and U.S.GAAP in accounting for the Company’s long-term investments in bonds is includedin the reconciliation of Chilean GAAP 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.

 

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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 21 and 22, the Company recognized a gain upon therealization of a portion of its accumulated translation adjustment of foreigninvestments account 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 2008 and 2007, the dividends paid by theCompany’s subsidiary Río de Janeiro Refrescos Ltda. and the capital remittancesfrom Embotelladora del Atlántico S.A., generated a loss of ThCh$ 2,455,298and ThCh$3,895,012 respectively due to the reversal of the cumulative translationreserve.

 

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, 2008, 2007 and 2006, 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.  Thesecontracts expired 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 instrumentsbe classified as non-hedging (investment) instruments and hedging instruments,the latter further divided into those covering assets, liabilities or firmcommitments and those covering forecasted transactions.

 

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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 lossand net 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 “Accountingfor Derivative Instruments and Hedging Activities”, as amended by SFAS 137,SFAS 138 and SFAS 149 on the same matter (collectively referred to herein as “SFAS133”).  SFAS 133 establishes accountingand reporting standards for derivative instruments, including certainderivative instruments embedded in other contracts, and for hedging activities.It requires that an entity recognized all derivatives as either assets orliabilities in its consolidated balance sheet and measure those instruments atfair value. If certain conditions are met, a derivative may be specificallydesignated as (a) a hedge of the exposure to changes in the fair value of arecognized asset or liability or an unrecognized firm commitment, (b) a hedgeof the exposure to variable cash flows of a forecasted transaction or to thevariability of the cash flows that are to be received or paid in connectionwith a recognized asset or liability or (c) a hedge of the foreign currencyexposure of a net investment in a foreign operation, an unrecognized firmcommitment, an available-for-sale security, a foreign-currency-denominatedforecasted transaction or a recognized asset or liability.

 

Theaccounting for changes in the fair value of a derivative depends on theintended use of the derivative and the resulting designation.

 

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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 income deferred under Chilean GAAP of ThCh$ 173,211 in 2008 (lossdeferred of ThCh$ 178,817 in 2007) represents a difference from U.S. GAAP thatis included in paragraph (o) below. Additional information concerning derivative financial instruments that isrequired to be disclosed under SFAS 133 is set forth 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, the Company has to distribute a cash dividend in anamount equal to at least 30% of the Company’s net income under ChileanGAAP.  Since the payment of the dividendout of each year’s net income is a legal requirement in Chile, an accrual wouldhave been made for US GAAP purposes to recognize the dividend obligation underChilean law.  The effect of this accrualwould be to decrease Shareholders’ equity by ThCh$ 11,278,809 and ThCh$ 7,934,728at December 31, 2008 and 2007 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 2008 and 2007, theCompany’s estimates of future cash flows associated with these plants’ existingservice potencial resulted in the reversal of impairment losses previouslyrecognized amounting to ThCh$ 5,221,075 and ThCh$ 5,005,642 respectively, withthe effect being included in Other non-operating income in the consolidatedstatement of income.  Under USGAAP, therestoration of a previously recognized impairment loss for a depreciablelong-lived asset is prohibited.

 

n)    Initial application of SAB 108

 

In September2006, 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.

 

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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” had alwaysbeen applied or (ii) recording the cumulative effect of initially applying the “dualapproach” as adjustments to the carrying values of assets and liabilities as ofJanuary 1, 2006 with an offsetting adjustment recorded to the opening balanceof retained earnings.  The Companyelected to record the effects of applying SAB 108 using the cumulative effecttransition method.  The following tablesummarizes the effects (up to January 1, 2006) of applying the guidance in SAB108 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)                 |       | 3,950,198                                                  |       | 1,554,232                          |       | 2,283,378 |   | 7,787,808 |   |
| Impact on other  comprehensive income (2) |       | —                                                     |       | 242,148                            |       | 443,396 |   | 685,544 |   |
| Impact on net income(3)                   |       | 3,950,198                                                  |       | 1,796,380                          |       | 2,726,774 |   | 8,473,352 |   |
| Retained earnings(4)                      |       |                                                       |       |                               |       |   |   | 7,787,808 |   |

 

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(1)          The Company previously quantified thismisstatement under the roll-over method and concluded that it was immaterial.

 

(2)          Under U.S. GAAP, the Company’s subsidiaryRefrescos was not recognizing a deferred tax liability on foreign exchangegains generated by its US$75 million bonds maturing in December 2012 asrequired by SFAS 109. As a result of this misstatement, the Company’s incometax expense was understated by ThCh$ 3,950,198 in years prior to 2004, by ThCh$1,796,380 in 2004 and by ThCh$ 2,726,774 in 2005 and the cumulative translationadjustment (included in other comprehensive income) was understated by ThCh$242,148 in 2004 and by ThCh$ 443,396 in 2005. The Company recorded a ThCh$7,787,808 increase 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 netincome for the indicated periods resulting from this misstatement.

 

(4)          Represents the net reduction to retainedearnings recorded under U.S. GAAP as of January 1, 2006 to give effect to theinitial application of SAB 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. Before2006, the initial difference between taxable income and accounting incomerelated to the aforementioned foreign exchange was not deemed to reverse untilindefinite future periods or was never deemed to reverse, thus, no deferred taxliability was recorded under Chilean GAAP. The effect of the difference inaccounting between Chilean GAAP and U.S. GAAP for deferred taxes on the relatedforeign exchange gain and the initial application of SAB 108 is included in thereconciliation of Chilean GAAP to U.S. GAAP in paragraph (o) below.

 

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o)   Effectsof 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,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                         | ** ** | **2008**                             | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                                         | ** ** | **ThCh$**                            | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Net income as shown in the  Chilean GAAPfinancial  statements                                      |       | 94,835,957                           |       | 88,864,517 |   | 86,964,678 |   |
| Reversal of additional  depreciation on revaluation of property, plant and equipment (paragraph c) |       | 1,350                                |       | 2,049 |   | 6,227 |   |
| Adjustment to deferred  income tax provision (paragraph d)                                         |       | 1,783,600                            |       | 2,262,835 |   | (13,896,287 | ) |
| Difference in accounting for  investments in related companies (paragraph e)                       |       | 210,291                              |       | 615,347 |   | (263,602 | ) |
| Amortization of goodwill  (paragraph f)                                                            |       | 7,612,137                            |       | 7,081,410 |   | 7,605,128 |   |
| Joint venture accounting  (paragraph g)                                                            |       | 501,419                              |       | 501,419 |   | 501,419 |   |
| Accumulated translation  adjustment offoreign  investments (paragraph j)                           |       | 2,455,298                            |       | 3,895,012 |   | 156,139 |   |
| Derivative financial  instruments (paragraph k)                                                    |       | 352,028                              |       | (5,028,914 | ) | 339,598 |   |
| Reversal of impairment loss  on fixed assets (paragraph m)                                         |       | (5,221,075                           | )          | (5,005,642 | ) | — |   |
| Initial application of SAB  108 (paragraph n)                                                      |       | —                               |       | — |   | 8,473,352 |   |
| Net income in accordance  with U.S. GAAP                                                           |       | 102,531,005                          |       | 93,188,033 |   | 89,886,652 |   |

 
| ** **                                                                                                                                                                                           | ** ** | **For the  year ended December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                                                                                                           | ** ** | **2008**                             | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                                                                                                                                           | ** ** | **ThCh$**                            | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Components of other  comprehensive (loss) income:                                                                                                                                                    |       |                                 |       |   |   |   |   |
| Cumulative translation  adjustment for foreign investments                                                                                                                                           |       | 19,061,764                           |       | (18,404,019 | ) | 2,131,157 |   |
| Effect on cumulative  translation adjustment of initial application of SAB 108 (paragraph m)                                                                                                         |       | —                               |       | — |   | (685,544 | ) |
| Unrealized (loss) gain on  investment securities, net of applicableincome tax expense (benefit) of ThCh$ (1,901)  in 2008,ThCh$ 57,369 in  2007 andThCh$ 3,006 in  2006 (paragraph h) |       | (9,284                               | )          | 955,308 |   | (723,739 | ) |
| Subtotal other comprehensive  income (loss)                                                                                                                                                          |       | 19,052,480                           |       | (17,448,711 | ) | 721,874 |   |
| Comprehensive income (loss)  in accordance with U.S. GAAP(paragraph 2 b)                                                                                                                             |       | 121,583,485                          |       | 75,739,322 |   | 90,608,526 |   |

 

Accumulated othercomprehensive income amounted to ThCh$ 33,916,330, ThCh$ 14,863,850 and ThCh$32,312,561 as of December 31, 2008, 2007 and 2006, respectively.

 

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Thechanges in other comprehensive income (loss) determined under U.S. GAAP were asfollows:

 
| ** **                                                                     | ** ** | **For the  year ended December 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                     | ** ** | **2008**                             | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                     | ** ** | **ThCh$**                            | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Other  comprehensive income (loss), before income tax:                         |       |                                 |       |   |   |   |   |
| Cumulative  translation adjustment for foreign investments                     |       | 19.061,764                           |       | (18,404,019 | ) | 2,131,157 |   |
| Effect  on cumulative translation adjustment of initial application of SAB 108 |       | —                               |       | — |   | (685,544 | ) |
| Unrealized  gains (losses) on securities                                       |       |                                 |       |   |   |   |   |
| Unrealized  holding gains (losses) arising during period                       |       | (11,185                              | )          | 1,012,677 |   | (720,733 | ) |
| Other  comprehensive income (loss), before income tax                          |       | 19,050,579                           |       | (17,391,342 | ) | 724,880 |   |
| Income  tax related to items of other comprehensive income                     |       | 1,901                                |       | (57,369 | ) | (3,006 | ) |
| Other  comprehensive income (loss), net of income tax                          |       | 19,052,480                           |       | (17,448,711 | ) | 721,874 |   |

 

TheCompany’s earnings per share under U.S. GAAP are as follows:

 
| ** **                                                                 | ** ** | **For the  year ended December 31,** | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                 | ** ** | **2008**                             | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                 | ** ** | **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                                    |       | 128.44                               |       | 141.28 |   | 116.74 |   | 128.41 |   | 112.60 |   | 123.86 |   |
| 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% higherdividend than Series A shares, Series B shareholders are entitled to 52.38% ofearnings, and Series A shareholders are entitled to 47.62% of earnings.  In accordance to this calculation, earningsper share are composed as follows for the periods indicated:

 
| ** **                                                                             | ** ** | **For the year ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                             | ** ** | **2008**                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                             | ** ** | **ThCh$**                           | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Net income in accordance  with U.S. GAAP                                               |       | 102,531,005                         |       | 93,188,033 |   | 89,886,652 |   |
| (less): Income available  to Series B                                                  |       | (53,705,741                         | )          | (48,811,893 | ) | (47,082,629 | ) |
| Basic EPS                                                                              |       |                                |       |   |   |   |   |
| Income available to Series  A                                                          |       | 48,825,264                          |       | 44,376,140 |   | 42,804,023 |   |
| 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                                       |       | 128.44                              |       | 116.74 |   | 112.60 |   |
| Basic EPS                                                                              |       |                                |       |   |   |   |   |
| Income available to Series  B                                                          |       | 53,705,741                          |       | 48,811,893 |   | 47,082,629 |   |
| 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                                       |       | 141.28                              |       | 128.41 |   | 123.86 |   |

 

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The adjustments required to conformshareholders’ equity to U.S. GAAP are as follows:

 
| ** **                                                                                  | ** ** | **At December 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|---------------------|------------|
| ** **                                                                                  | ** ** | **2008**            | ** ** | **2007** | ** ** |
| ** **                                                                                  | ** ** | **ThCh$**           | ** ** | **ThCh$** | ** ** |
| Shareholders’ equity as  shown in the Chilean GAAPfinancial statements                 |       | 346,248,602         |       | 306,171,411 |   |
| Reversal of revaluation of  property, plant and equipment,net of depreciation (paragraph c) |       | (1,672,590          | )          | (1,673,940 | ) |
| Adjustment to deferred  income tax provision (paragraph d)                                  |       | 1,403,328           |       | (382,173 | ) |
| Difference in accounting for  investments inrelated  companies (paragraph e)                |       | 2,125,170           |       | 1,914,879 |   |
| Amortization of goodwill  (paragraph f)                                                     |       | 41,304,312          |       | 33,692,175 |   |
| Joint venture accounting  (paragraph g)                                                     |       | (1,504,255          | )          | (2,005,674 | ) |
| Unrealized gain (loss) on  investment securities (paragraph h)                              |       | —              |       | 11,185 |   |
| Derivative financial  instruments (paragraph k)                                             |       | 173,211             |       | (178,817 | ) |
| Minimum dividend (paragraph  l)                                                             |       | (11,278,809         | )          | (7,934,728 | ) |
| Reversal  of impairment loss on fixed assets (paragraph m)                                  |       | (10,226,717         | )          | (5,005,642 | ) |
| Shareholders’ equity in  accordance with U.S. GAAP                                     |       | 366,572,252         |       | 324,608,676 |   |

 

The changes in shareholders’ equity determined underU.S. GAAP were as follows:

 
| ** **                                                                                   | ** ** | **ThCh$**   | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------|------------|
| BALANCE AT DECEMBER 31, 2005                                                                 |       | 345,797,516 |       |
|                                                                                         |       |        |       |
| Adjustment to retained  earnings for initial application of SAB 108 (paragraph n)            |       | (685,544    | )          |
| Distribution of dividends                                                                    |       | (88,480,539 | )          |
| Increase in cumulative  translation adjustment of foreign investments                        |       | 2,131,157   |       |
| Effect on cumulative  translation adjustment for initial applicationof SAB 108 (paragraph n) |       | (7,787,808  | )          |
| Decrease in net unrealized  losses on investment securities                                  |       | (723,739    | )          |
| Minimum dividend                                                                             |       | (4,197,679  | )          |
| Net income for the year                                                                      |       | 89,886,652  |       |
|                                                                                         |       |        |       |
| BALANCE AT DECEMBER 31, 2006                                                                 |       | 335,940,016 |       |
|                                                                                         |       |        |       |
| Distribution of dividends                                                                    |       | (89,508,365 | )          |
| Decrease in cumulative  translation adjustment of foreign investments                        |       | (18,404,019 | )          |
| Increase in net unrealized  losses on investment securities                                  |       | 955,308     |       |
| Minimum dividend                                                                             |       | 2,437,703   |       |
| Net income for the year                                                                      |       | 93,188,033  |       |
|                                                                                         |       |        |       |
| BALANCE AT DECEMBER 31, 2007                                                                 |       | 324,608,676 |       |
|                                                                                         |       |        |       |
| Distribution of dividends                                                                    |       | (76,275,828 | )          |
| Increase in cumulative  translation adjustment of foreign investments                        |       | 19,061,764  |       |
| Increase in net unrealized  gains on investment securities                                   |       | (9,284      | )          |
| Minimum dividend                                                                             |       | (3,344,081  | )          |
| Net income for the year                                                                      |       | 102,531,005 |       |
|                                                                                         |       |        |       |
| BALANCE AT DECEMBER 31, 2008                                                                 |       | 366,572,252 |       |

 

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2      Additionaldisclosure requirements:

 

a)     Incometaxes

 

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”, alltemporary differences arising from transactions that have different accountingand tax treatments are recognized as deferred tax assets and liabilities as ofthe balance sheet date.  A valuationallowance is provided against deferred tax assets that are not recoverable on amore-likely-than-not basis. Under Chilean GAAP, effective January 1, 2000, theCompany began applying Technical Bulletin No. 60 of the Chilean Institute ofAccountants concerning deferred income taxes. Prior to the implementation of Technical Bulletin No. 60, only deferredtax assets and liabilities that were expected to materialize in the future wererecognized in these consolidated financial statements.

 

The provisions for income taxes included in the consolidated statementsof income were as follows:

 
| ** **                                                       | ** ** | **For the year ended December 31,** | ** ** |
|------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                       | ** ** | **2008**                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                       | ** ** | **ThCh$**                           | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Current tax expense as per tax returns                           |       | (24,450,614                         | )          | (25,033,516 | ) | (11,536,641 | ) |
| Deferred tax expense as previouslycalculated under Chilean  GAAP |       | (797,461                            | )          | (4,228,340 | ) | (4,317,477 | ) |
| Charge for the year under Chilean GAAP                           |       | (25,248,075                         | )          | (29,261,856 | ) | (15,854,118 | ) |
|                                                             |       |                                |       |   |   |   |   |
| U.S. GAAP adjustments:                                           |       |                                |       |   |   |   |   |
| Deferred tax effect of applying SFAS 109 toChilean GAAP results  |       | 1,783,600                           |       | 2,262,835 |   | (13,896,287 | ) |
| Charge from continuous operationsfor the year under U.S. GAAP    |       | (23,464,475                         | )          | (26,999,021 | ) | (29,750,405 | ) |

 

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The above table can be broken down into geographic sources as follows:

 
| **2008**                                                         | ** ** | **Chilean********and others** | ** ** | **Brazil** | ** ** | **Argentina** | ** ** | **The Company********(consolidated)** | ** ** |
|------------------------------------------------------------------|------------|-------------------------------|------------|------------|------------|---------------|------------|---------------------------------------|------------|
| ** **                                                       | ** ** | **ThCh$**                     | ** ** | **ThCh$**  | ** ** | **ThCh$**     | ** ** | **ThCh$**                             | ** ** |
| Current tax expense as per tax return                            |       | (7,390,383                    | )          | (9,434,477 | )          | (7,625,754    | )          | (24,450,614                           | )          |
| Deferred tax expense as previouslycalculated under Chilean  GAAP |       | (1,367,538                    | )          | 456,621    |       | 113,456       |       | (797,461                              | )          |
| Charge for the year underChilean GAAP                            |       | (8,757,921                    | )          | (8,977,856 | )          | (7,512,298    | )          | (25,248,075                           | )          |
| U.S. GAAP adjustments:Deferred tax effect of applying SFAS 109   |       | 515,757                       |       | (47,547    | )          | 1,315,390     |       | 1,783,600                             |       |
| Charge from continuous operationsfor the year under U.S. GAAP    |       | (8,242,164                    | )          | (9,025,403 | )          | (6,196,908    | )          | (23,464,475                           | )          |

 
| **2007**                                                                   | ** ** | **Chilean********and others** | ** ** | **Brazil**  | ** ** | **Argentina** | ** ** | **The Company********(consolidated)** | ** ** |
|----------------------------------------------------------------------------|------------|-------------------------------|------------|-------------|------------|---------------|------------|---------------------------------------|------------|
| ** **                                                                 | ** ** | **ThCh$**                     | ** ** | **ThCh$**   | ** ** | **ThCh$**     | ** ** | **ThCh$**                             | ** ** |
| Current tax expense as per tax return                                      |       | (13,546,868                   | )          | (7,162,882  | )          | (4,323,766    | )          | (25,033,516                           | )          |
| Deferred tax (expense) benefit as previouslycalculated under Chilean  GAAP |       | 6,382,735                     |       | (8,696,303  | )          | (1,914,772    | )          | (4,228,340                            | )          |
| Charge for the year underChilean GAAP                                      |       | (7,164,133                    | )          | (15,859,185 | )          | (6,238,538    | )          | (29,261,856                           | )          |
| U.S. GAAP adjustments:Deferred tax effect of applying SFAS 109             |       | 876,124                       |       | 332,897     |       | 1,053,814     |       | 2,262,835                             |       |
| (Charge) benefit from continuous operationsfor the year under U.S. GAAP    |       | (6,288,009                    | )          | (15,526,288 | )          | (5,184,724    | )          | (26,999,021                           | )          |

 
| **2006**                                                                   | ** ** | **Chilean********and others** | ** ** | **Brazil**  | ** ** | **Argentina** | ** ** | **The Company********(consolidated)** | ** ** |
|----------------------------------------------------------------------------|------------|-------------------------------|------------|-------------|------------|---------------|------------|---------------------------------------|------------|
| ** **                                                                 | ** ** | **ThCh$**                     | ** ** | **ThCh$**   | ** ** | **ThCh$**     | ** ** | **ThCh$**                             | ** ** |
| Current tax expense as per tax return                                      |       | (6,924,372                    | )          | (4,612,269  | )          | —        |       | (11,536,641                           | )          |
| Deferred tax (expense) benefit as previouslycalculated under Chilean  GAAP |       | (137,999                      | )          | (1,698,562  | )          | (2,480,916    | )          | (4,317,477                            | )          |
| (Charge) benefit for the year underChilean GAAP                            |       | (7,062,371                    | )          | (6,310,831  | )          | (2,480,916    | )          | (15,854,118                           | )          |
| U.S. GAAP adjustments:Deferred tax effect of applying SFAS 109             |       | 1,011,374                     |       | (14,889,951 | )          | (17,710       | )          | (13,896,287                           | )          |
| (Charge) benefit from continuous operationsfor the year under U.S. GAAP    |       | (6,050,997                    | )          | (21,200,782 | )          | (2,498,626    | )          | (29,750,405                           | )          |

 

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Deferred taxassets (liabilities) as of balance sheet dates are summarized as follows:

 
| ** **                                                | ** ** | **For the  year ended December 31,** | ** ** |
|-----------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                | ** ** | **2008**                             | ** ** | **2007** | ** ** |
| ** **                                                | ** ** | **ThCh$**                            | ** ** | **ThCh$** | ** ** |
| Deferred tax assets:                                      |       |                                 |       |   |   |
| Tax loss carryforwards                                    |       | 763,325                              |       | 3,974,484 |   |
| Social contribution                                       |       | 877,530                              |       | 1,430,814 |   |
| Provision for labor and  trade lawsuits                   |       | 1,817,509                            |       | 1,709,217 |   |
| Provision for assets written-off                          |       | 3,532,675                            |       | 2,704,480 |   |
| Allowance for doubtful  accounts                          |       | 390,019                              |       | 367,197 |   |
| Vacation accrual                                          |       | 228,166                              |       | 234,461 |   |
| Provisions for employee  benefits                         |       | 612,577                              |       | 861,654 |   |
| Joint venture accounting                                  |       | 388,839                              |       | 518,452 |   |
| Fair value of derivatives  not considered to be hedge     |       | —                               |       | 56,587 |   |
| Other                                                     |       | 1,228,336                            |       | 616,141 |   |
| Total deferred tax assets                                 |       | 9,838,976                            |       | 12,473,487 |   |
|                                                      |       |                                 |       |   |   |
| Deferred tax liabilities:                                 |       |                                 |       |   |   |
| Depreciation                                              |       | 6,687,873                            |       | 6,426,108 |   |
| Staff severance indemnities                               |       | 157,450                              |       | 210,733 |   |
| Fair value of derivatives  not considered to be hedge     |       | 29,446                               |       | — |   |
| Unrealized loss on  investments securities                |       | —                               |       | 1,901 |   |
| Exchange rate difference                                  |       | 8,307,796                            |       | 13,725,940 |   |
| Fiscal incentives Brazil                                  |       | 944,972                              |       | — |   |
| Other                                                     |       | 173,289                              |       | 267,372 |   |
| Total deferred tax  liabilities                           |       | 16,300,826                           |       | 20,632,054 |   |
| Net deferred tax  (liabilities) assets under U.S. GAAP    |       | (6,461,850                           | )          | (8,158,567 | ) |
| Net deferred tax liabilities  under Chilean GAAP          |       | (7,865,178                           | )          | (7,776,394 | ) |
| Effect of U.S. GAAP  adjustments on deferred income taxes |       | 1,403,328                            |       | (382,173 | ) |

 

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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,** | ** ** |
|---------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                    | ** ** | **2008**                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                    | ** ** | **ThCh$**                           | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Income tax provision at statutory Chilean tax rates           |       | 21,419,232                          |       | 20,431,799 |   | 20,338,299 |   |
| Increase (decrease) in provision resulting from:              |       |                                |       |   |   |   |   |
| Tax effects resulting from foreign operations                 |       | 10,825,916                          |       | 10,056,648 |   | 7,390,738 |   |
| Permanent differences                                         |       | (8,145,538                          | )          | (385,665 | ) | 7,258,491 |   |
| Effect of remeasurement to U.S. dollars(Brazil and Argentina) |       | 1,377,552                           |       | (1,035,375 | ) | (152,216 | ) |
| Change in valuation allowance                                 |       | —                              |       | — |   | (2,795,996 | ) |
| Adjustments in prior year income taxes                        |       | (475,296                            | )          | (407,184 | ) | 135,168 |   |
| Other                                                         |       | (1,537,391                          | )          | (1,661,202 | ) | (2,424,079 | ) |
| Effective tax provision                                       |       | 23,464,475                          |       | 26,999,021 |   | 29,750,405 |   |

 

The Chilean statutory first category (corporate)income tax rate was 17.0% for 2008, 2007 and 2006.  In accordance with Chilean law, the Companyand each of its subsidiaries computes and pays income taxes on a separate basis.

 

The Brazilian federal statutory income tax rate was approximately 25%for 2008, 2007 and 2006.   Additionally,an additional surtax of 9% for 2008, 2007 and 2006 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 2008, 2007and 2006 in accordance with currently enacted tax legislation.

 

The Company had netoperating tax loss carryforwards related to its Brazilian subsidiaries ofapproximately ThCh$ 4,826,038 at December 31, 2008 that can be carried forwardindefinitely.

 

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 2006 |
|-----------|-----------|
| Argentina | From 2004 |
| Brazil    | From 2003 |

 

Interest and penaltiesrelated to income tax liabilities are included in income tax expense.

 

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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 thestatements of cash flows using U.S. GAAP classifications, the Company considersall highly liquid investments purchased with an original maturity of threemonths or less to be cash equivalents. In accordance with the Company’s policy, certain cash equivalents thatare managed as part of the Company’s investment portfolio are excluded from theamount shown as cash and cash equivalents in the statements of cash flows.  The detail of cash and cash equivalents is asfollows:

 
| ** **                                      | ** ** | **For the year ended December 31,** | ** ** |
|-------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                      | ** ** | **2008**                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                      | ** ** | **ThCh$**                           | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Cash                                            |       | 21,250,102                          |       | 26,957,261 |   | 19,113,693 |   |
| Time deposits                                   |       | 81,721,481                          |       | 53,457,247 |   | 8,389,814 |   |
| Money market funds                              |       | 26,281,107                          |       | 51,759,282 |   | 19,984,545 |   |
| Securities purchased under agreements to resell |       | —                              |       | — |   | 1,134,854 |   |
| Total cash and cash equivalents                 |       | 129,252,690                         |       | 132,173,790 |   | 48,622,906 |   |

 

ii)              Additional cashflow disclosures required under U.S. GAAP that are shown net in Chilean GAAPare as follows:

 
| ** **                                                 | ** ** | **For the year ended December 31,** | ** ** |
|------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                 | ** ** | **2008**                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                 | ** ** | **ThCh$**                           | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Short-term borrowings with banks andfinancial institutions |       | 83,876,548                          |       | 57,242,937 |   | 51,535,450 |   |
| Long-term borrowings with banks andfinancial institutions  |       | —                              |       | 36,124 |   | 476,324 |   |
| Repayment of short-term bank borrowings                    |       | (82,586,805                         | )          | (55,328,766 | ) | (57,453,353 | ) |
| Repayment of long-term bank borrowings                     |       | (167,427                            | )          | (567,831 | ) | (25,796,756 | ) |
| Net bank borrowings                                        |       | 1,122,316                           |       | 1,382,464 |   | (31,238,335 | ) |

 

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d)   Segmentinformation

 

The Company operates principally in three segmentswhich comprise the production and sales of goods for (i) Coca-Cola soft drinks,(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”.

 

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A summary of the Company’s operations by segment calculated underChilean GAAP is as follows:

 
| ** **                       | ** ** | **For the year ended December 31,** | ** ** |
|----------------------------------|------------|-------------------------------------|------------|
| ** **                       | ** ** | **2008**                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                       | ** ** | **ThCh$**                           | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Revenue:                         |       |                                |       |   |   |   |   |
| Sales to unaffiliated customers: |       |                                |       |   |   |   |   |
| Soft drinks                      |       | 742,185,657                         |       | 609,078,211 |   | 563,389,753 |   |
| Other beverages                  |       | 95,401,074                          |       | 77,335,190 |   | 68,420,406 |   |
| Packaging                        |       | 9,714,531                           |       | 6,940,953 |   | 7,639,728 |   |
| Subtotal                         |       | 847,301,262                         |       | 693,354,354 |   | 639,449,887 |   |
|                             |       |                                |       |   |   |   |   |
| Intersegment sales:              |       |                                |       |   |   |   |   |
| Soft drinks                      |       | —                              |       | — |   | — |   |
| Other beverages                  |       | 22,074,804                          |       | 21,825,677 |   | 18,972,378 |   |
| Packaging                        |       | 16,495,590                          |       | 12,402,371 |   | 12,841,716 |   |
| Eliminations                     |       | (38,570,394                         | )          | (34,228,048 | ) | (31,814,094 | ) |
| Subtotal                         |       | —                              |       | — |   | — |   |
| Total revenue                    |       | 847,301,262                         |       | 693,354,354 |   | 639,449,887 |   |
|                             |       |                                |       |   |   |   |   |
| Operating income:                |       |                                |       |   |   |   |   |
| Soft drinks                      |       | 127,619,707                         |       | 116,523,654 |   | 100,066,131 |   |
| Other beverages                  |       | 8,579,518                           |       | 7,377,500 |   | 8,788,034 |   |
| Packaging                        |       | 2,477,375                           |       | 1,872,184 |   | 2,329,129 |   |
| Total operating income           |       | 138,676,600                         |       | 125,773,338 |   | 111,183,294 |   |
|                             |       |                                |       |   |   |   |   |
| Financial income:                |       |                                |       |   |   |   |   |
| Soft drinks                      |       | 11,838,672                          |       | 24,907,081 |   | 14,641,666 |   |
| Other beverages                  |       | 45,567                              |       | 69,308 |   | 10,046 |   |
| Packaging                        |       | —                              |       | — |   | 5,862 |   |
| Total financial income           |       | 11,884,239                          |       | 24,976,389 |   | 14,657,574 |   |
|                             |       |                                |       |   |   |   |   |
| Financial expenses:              |       |                                |       |   |   |   |   |
| Soft drinks                      |       | 27,569,866                          |       | 13,337,854 |   | 14,528,779 |   |
| Other beverages                  |       | 4,158                               |       | 99,849 |   | 7,614 |   |
| Packaging                        |       | 2,485                               |       | 111,361 |   | 124,835 |   |
| Total financial expenses         |       | 27,576,509                          |       | 13,549,064 |   | 14,661,228 |   |

 

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| ** **                                                    | ** ** | **For the year ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                    | ** ** | **2008**                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                    | ** ** | **ThCh$**                           | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Share of income from unconsolidatedaffiliates:                |       |                                |       |   |   |   |   |
| Soft drinks                                                   |       | 218,016                             |       | (301,625 | ) | 79,234 |   |
| Other beverages                                               |       | 477,616                             |       | 223,299 |   | 79,857 |   |
| Packaging                                                     |       | 1,183,591                           |       | 891,417 |   | 528,992 |   |
| Total share of income fromunconsolidated affiliates  Subtotal |       | 1,879,223                           |       | 813,091 |   | 688,083 |   |
|                                                          |       |                                |       |   |   |   |   |
| Income tax expenses:                                          |       |                                |       |   |   |   |   |
| Soft drinks                                                   |       | 23,793,202                          |       | 28,121,880 |   | 15,447,815 |   |
| Other beverages                                               |       | 489,824                             |       | 411,463 |   | 430,912 |   |
| Packaging                                                     |       | 965,049                             |       | 728,513 |   | (24,609 | ) |
| Total income tax expenses                                     |       | 25,248,075                          |       | 29,261,856 |   | 15,854,118 |   |
|                                                          |       |                                |       |   |   |   |   |
| Depreciation:                                                 |       |                                |       |   |   |   |   |
| Soft drinks                                                   |       | 36,004,892                          |       | 29,496,228 |   | 32,112,119 |   |
| Other beverages                                               |       | 1,355,456                           |       | 1,323,247 |   | 1,282,784 |   |
| Packaging                                                     |       | 697,040                             |       | 922,663 |   | 1,170,909 |   |
| Total depreciation                                            |       | 38,057,388                          |       | 31,742,138 |   | 34,565,812 |   |
|                                                          |       |                                |       |   |   |   |   |
| Segment assets:                                               |       |                                |       |   |   |   |   |
| Soft drinks                                                   |       | 324,613,576                         |       | 306,693,796 |   | 406,309,716 |   |
| Other beverages                                               |       | 10,785,931                          |       | 11,614,547 |   | 11,150,231 |   |
| Packaging                                                     |       | 6,866,884                           |       | 4,533,754 |   | 7,666,301 |   |
| Total segment assets                                          |       | 342,266,391                         |       | 322,842,097 |   | 425,126,248 |   |
|                                                          |       |                                |       |   |   |   |   |
| Capital expenditures:                                         |       |                                |       |   |   |   |   |
| Soft drinks                                                   |       | 64,534,668                          |       | 58,676,306 |   | 40,959,418 |   |
| Other beverages                                               |       | 1,893,912                           |       | 1,708,830 |   | 1,956,980 |   |
| Packaging                                                     |       | 645,818                             |       | 625,489 |   | 363,394 |   |
| Total capital expenditures                                    |       | 67,074,398                          |       | 61,010,625 |   | 43,279,792 |   |

 

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Ageographical summary of the Company’s operations by segment calculated underChilean GAAP is as follows:

 
| ** **                                          | ** ** | **For the year ended December 31,** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                          | ** ** | **2008**                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                          | ** ** | **ThCh$**                           | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Revenue:                                            |       |                                |       |   |   |   |   |
| Sales to unaffiliated customers:                    |       |                                |       |   |   |   |   |
| Chile                                               |       | 275,489,064                         |       | 266,430,305 |   | 257,064,805 |   |
| Brazil                                              |       | 370,731,419                         |       | 294,028,930 |   | 256,027,619 |   |
| Argentina                                           |       | 201,080,779                         |       | 132,895,119 |   | 126,357,463 |   |
| Total revenue                                       |       | 847,301,262                         |       | 693,354,354 |   | 639,449,887 |   |
|                                                |       |                                |       |   |   |   |   |
| Operating income:                                   |       |                                |       |   |   |   |   |
| Chile                                               |       | 57,937,861                          |       | 62,189,340 |   | 60,339,743 |   |
| Brazil                                              |       | 61,442,876                          |       | 52,288,226 |   | 40,018,369 |   |
| Argentina                                           |       | 22,153,114                          |       | 14,182,994 |   | 13,455,911 |   |
| Corporate expenses                                  |       | (2,857,251                          | )          | (2,887,222 | ) | (2,630,729 | ) |
| Total operating income                              |       | 138,676,600                         |       | 125,773,338 |   | 111,183,294 |   |
|                                                |       |                                |       |   |   |   |   |
| Financial income:                                   |       |                                |       |   |   |   |   |
| Chile                                               |       | 9,612,716                           |       | 22,239,505 |   | 8,451,583 |   |
| Brazil                                              |       | 2,215,205                           |       | 2,363,247 |   | 6,105,281 |   |
| Argentina                                           |       | 56,318                              |       | 373,637 |   | 100,710 |   |
| Total financial income                              |       | 11,884,239                          |       | 24,976,389 |   | 14,657,574 |   |
|                                                |       |                                |       |   |   |   |   |
| Financial expenses:                                 |       |                                |       |   |   |   |   |
| Chile                                               |       | 23,528,935                          |       | 10,342,720 |   | 10,534,292 |   |
| Brazil                                              |       | 2,574,256                           |       | 2,714,180 |   | 2,890,842 |   |
| Argentina                                           |       | 1,473,318                           |       | 492,164 |   | 1,236,094 |   |
| Total financial expenses                            |       | 27,576,509                          |       | 13,549,064 |   | 14,661,228 |   |
|                                                |       |                                |       |   |   |   |   |
| Share of income from unconsolidatedaffiliates:      |       |                                |       |   |   |   |   |
| Chile                                               |       | 1,401,608                           |       | 892,323 |   | 502,696 |   |
| Brazil                                              |       | 477,615                             |       | 223,299 |   | 79,857 |   |
| Argentina                                           |       | —                              |       | (302,531 | ) | 105,530 |   |
| Total share of income fromunconsolidated affiliates |       | 1,879,223                           |       | 813,091 |   | 688,083 |   |
|                                                |       |                                |       |   |   |   |   |
| Income tax expenses (benefit):                      |       |                                |       |   |   |   |   |
| Chile                                               |       | 8,757,921                           |       | 7,164,134 |   | 7,062,371 |   |
| Brazil                                              |       | 8,977,856                           |       | 15,859,185 |   | 6,310,832 |   |
| Argentina                                           |       | 7,512,298                           |       | 6,238,537 |   | 2,480,915 |   |
| Total income tax expenses                           |       | 25,248,075                          |       | 29,261,856 |   | 15,854,118 |   |

 

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| ** **                            | ** ** | **At December 31,** | ** ** |
|---------------------------------------|------------|---------------------|------------|
| ** **                            | ** ** | **2008**            | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                            | ** ** | **ThCh$**           | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Depreciation:                         |       |                |       |   |   |   |   |
| Chile                                 |       | 15,631,467          |       | 13,856,526 |   | 15,206,966 |   |
| Brazil                                |       | 14,255,909          |       | 10,794,467 |   | 11,385,874 |   |
| Argentina                             |       | 8,170,012           |       | 7,091,145 |   | 7,972,972 |   |
| Total depreciation                    |       | 38,057,388          |       | 31,742,138 |   | 34,565,812 |   |
|                                  |       |                |       |   |   |   |   |
| Identificable long-lived assets:      |       |                |       |   |   |   |   |
| Chile                                 |       | 125,140,776         |       | 116,797,883 |   | 177,444,350 |   |
| Brazil                                |       | 149,155,292         |       | 119,297,629 |   | 150,354,844 |   |
| Argentina                             |       | 72,118,314          |       | 62,953,843 |   | 80,941,098 |   |
| Total identificable long-lived assets |       | 346,414,382         |       | 299,049,355 |   | 408,740,292 |   |

 

A reconciliation of total segment assets by product,and long-lived assets by country to total consolidated assets for the yearsended December 31, 2008, 2007 and 2006 is as follows:

 
| ** **                                | ** ** | **At December 31,** | ** ** |
|-------------------------------------------|------------|---------------------|------------|
| **Industry**                              | ** ** | **2008**            | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                | ** ** | **ThCh$**           | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Total segment assets                      |       | 342,266,391         |       | 322,842,097 |   | 425,126,247 |   |
| Cash                                      |       | 21,250,102          |       | 26,957,261 |   | 19,113,693 |   |
| Financial instruments                     |       | 108,002,588         |       | 106,310,295 |   | 38,849,752 |   |
| Amounts due from related  parties         |       | 2,977,615           |       | 2,065,600 |   | 3,426,591 |   |
| Recoverable taxes                         |       | 5,985,290           |       | 2,772,754 |   | 9,253,198 |   |
| Deferred income taxes                     |       | 3,637,016           |       | 5,700,565 |   | 1,041,437 |   |
| Investments in related  companies         |       | 29,529,778          |       | 27,183,280 |   | 26,276,645 |   |
| Investment in other  companies            |       | 130,866             |       | 145,865 |   | 65,433 |   |
| Intangible assets (net)                   |       | 163,785             |       | 176,939 |   | 195,849 |   |
| Liabilities deducted from  segment assets |       | 89,013,124          |       | 86,562,987 |   | 77,349,528 |   |
| Total assets                              |       | 602,956,555         |       | 580,717,643 |   | 600,698,373 |   |
|                                      |       |                |       |   |   |   |   |
| Identifiable long-lived  assets           |       | 346,414,382         |       | 299,049,355 |   | 408,740,292 |   |
| Current assets                            |       | 256,542,173         |       | 281,668,288 |   | 191,958,081 |   |
| Total assets                              |       | 602,956,555         |       | 580,717,643 |   | 600,698,373 |   |

 

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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, 2008 and 2007.

 

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.

 

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f)     Operating income

 

UnderChilean GAAP, the following income and expenses arising during the years ended2008, 2007 and 2006 are classified as “Non-operating income and expense”whereas under U.S. GAAP they would be included within “Operating income”:

 
| ** **                                                     | ** ** | **At December 31,** | ** ** |
|----------------------------------------------------------------|------------|---------------------|------------|
| ** **                                                     | ** ** | **2008**            | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                     | ** ** | **ThCh$**           | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Operating income as reported under Chilean GAAP                |       | 138,676,600         |       | 125,773,338 |   | 111,183,294 |   |
| Gain on sale of, plant property and equipment                  |       | 274,757             |       | — |   | — |   |
| Reversal of Pis Cofins provision                               |       | —              |       | — |   | 4,888,384 |   |
| Tax recoveries - Pis Cofins                                    |       | —              |       | 1,493,997 |   | — |   |
| Staff severance indemnities                                    |       | (954,595            | )          | — |   | — |   |
| Lawsuit fees                                                   |       | (929,253            | )          | — |   | (512,114 | ) |
| Realization of deposits in guaranty over containers            |       | —              |       | 382,263 |   | 573,185 |   |
| Provision PIS Cofins                                           |       | —              |       | — |   | — |   |
| Provision for labor, tax and commercial lawsuits               |       | (949,984            | )          | (765,653 | ) | (874,543 | ) |
| Obsolescence and write-off of property, plant and  equipment   |       | (1,134,898          | )          | (1,116,932 | ) | (4,344,987 | ) |
| Loss on sale of property, plant and equipment                  |       | —              |       | (159,758 | ) | (2,489,116 | ) |
| Provision for equity investee in Centralli  Refrigerantes S.A. |       | (113,628            | )          | — |   | (75,389 | ) |
| Operating income under U.S. GAAP format                        |       | 134,868,999         |       | 125,607,255 |   | 108,348,714 |   |

 

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 Companyholds accounts with a variety of banks and does not hold significant depositsor derivative instruments with any single bank. The Company has a wide customer base and trades with a large number ofsmall customers.  Consequently, theCompany does not believe that it had any significant concentrations of creditrisk at December 31, 2008.

 

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h)            Disclosures regarding the fairvalues of financial instruments

 

The estimated fair values of the Company’s financial instruments were asfollows:

 
| ** **                          | ** ** | **At  December 31,** | ** ** |
|-------------------------------------|------------|---------------------------|------------|
| ** **                          | ** ** | **2008**                  | ** ** | **2007** | ** ** |
| ** **                          | ** ** | **Carrying********value** | ** ** | **Fair********value** | ** ** | **Carrying********value** | ** ** | **Fair********value** | ** ** |
| ** **                          | ** ** | **ThCh$**                 | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Cash                                |       | 21,250,102                |       | 21,250,102 |   | 26,957,261 |   | 26,957,261 |   |
| Time deposits                       |       | 81,721,481                |       | 81,721,481 |   | 53,457,247 |   | 53,457,247 |   |
| Marketable securities               |       | 26,281,107                |       | 26,281,107 |   | 52,853,048 |   | 52,864,240 |   |
| Trade accounts receivable  (net)    |       | 46,751,190                |       | 46,751,190 |   | 48,221,953 |   | 48,221,953 |   |
| Notes receivable (net)              |       | 14,116,657                |       | 14,116,657 |   | 15,848,607 |   | 15,848,607 |   |
| Other receivables (net)             |       | 13,256,520                |       | 13,256,520 |   | 17,458,395 |   | 17,458,935 |   |
| Long-term credits                   |       | —                    |       | — |   | — |   | — |   |
| Long-term investment in  bonds      |       | —                    |       | — |   | — |   | — |   |
| Long-term receivables               |       | 19,862                    |       | 19,862 |   | 40,849 |   | 40,849 |   |
| Cross-currency swaps                |       | —                    |       | — |   | 18,957,211 |   | 18,957,211 |   |
| Foreign-currency forward  contracts |       | 1,039,841                 |       | 1,039,841 |   | (345,500 | ) | (345,500 | ) |
| Futures contracts                   |       | —                    |       | — |   | 251,540 |   | 251,540 |   |

 
| ** **                              | ** ** | **At  December 31,** | ** ** |
|-----------------------------------------|------------|---------------------------|------------|
| ** **                              | ** ** | **2008**                  | ** ** | **2007** | ** ** |
| ** **                              | ** ** | **Carrying********Value** | ** ** | **Fair********value** | ** ** | **Carrying********value** | ** ** | **Fair********Value** | ** ** |
|                                    |       | **ThCh$**                 | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Short and long-termterm bank borrowings |       | 6,459,493                 |       | 6,459,493 |   | 5,242,258 |   | 5,242,258 |   |
| Bonds payable                           |       | 79,797,699                |       | 88,195,420 |   | 87,677,668 |   | 107,272,362 |   |
| Dividends payable                       |       | 5,756,633                 |       | 5,756,633 |   | 6,327,703 |   | 6,327,703 |   |
| Accounts payable                        |       | 64,183,029                |       | 64,183,029 |   | 59,443,103 |   | 59,443,103 |   |
| Other creditors short and long-term     |       | 4,791,544                 |       | 4,791,544 |   | 5,519,089 |   | 5,519,089 |   |

 

Cash,receivables and account payable: the carrying amounts approximate fair valuedue to the short-term maturity of these instruments.

 

Timedeposits, marketable securities and deposit credits:  Fair value of time deposits and depositcredits was determined using rates currently available in the market and thefair value of marketable securities is based on quoted market prices for themarketable 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.

 

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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)    Fair value of financial instruments

 

Effective January 1, 2008, the Companyadopted FASB Statement No. 157, “Fair Value Measurements” (SFAS No. 157).This Statement defines fair value, establishes a framework for measuring fairvalue and expands the disclosures about fair value measurements.

 

SFAS No. 157 defines fair value as theprice that would be received to sell an asset or paid to transfer a liabilityin an orderly transaction between market participants at the measurement datein a principal or most advantageous market. Fair value is a market-basedmeasurement that is determined based on inputs, which refer broadly to assumptionsthat market participants use in pricing assets or liabilities. These inputs canbe readily observable, market corroborated, or generally unobservable firminputs. The Company often makes certain assumptions that market participantswould use in pricing the asset or liability, including assumptions about risk,and the risks inherent in the inputs to valuation techniques. The Company usesvaluation techniques that maximize the use of observable inputs and minimizethe use of unobservable inputs.

 

SFAS No. 157 requires consideration ofthe impact of nonperformance risk (including credit risk) from a marketparticipant perspective in the measurement of the fair value of assets andliabilities. At December 31, 2008, the Company determined that nonperformancerisk would have no material impact on their financial position or results ofoperations. To assess nonperformance risk, the Company considered informationsuch as collateral requirements, master netting arrangements, letters of creditand parent company guarantees, and applied a market-based method by using thecounterparty (for an asset) or the Company’s (for a liability) credit defaultswaps rates.

 

SFAS No. 157 established a fair valuehierarchy, which prioritizes the inputs to valuation techniques used to measurefair value in three broad levels. The standard requires that assets andliabilities be classified in their entirety based on the level of input that issignificant to the fair value measurement. Assessing the significance of aparticular input may require judgment considering factors specific to the assetor liability, and may affect the valuation of the asset or liability and theirplacement within the fair value hierarchy. The Company classifies fair valuebalances based on the fair value hierarchy defined by SFAS No. 157 asfollows:

 

·                  Level 1 — Consists of assets or liabilities whose value is based onunadjusted quoted prices in active markets at the measurement date. An activemarket is one in which transactions for assets

 

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or liabilities occur with sufficient frequency and volume to providepricing information on an ongoing basis. This category includes contractstraded on active exchange markets valued using unadjusted prices quoteddirectly from the exchange.

 

·                  Level 2 — Consists of assets or liabilities valued using industrystandard models and based on prices, other than quoted prices within Level 1,that are either directly or indirectly observable as of the measurement date.The industry standard models consider observable assumptions including timevalue, volatility factors, and current market and contractual prices for theunderlying commodities, in addition to other economic measures. This categoryincludes contracts traded on active exchanges or in over-the-counter marketspriced with industry standard models.

 

·                  Level 3 — Consists of assets or liabilities whose fair value isestimated based on internally developed models or methodologies using inputsthat are generally less readily observable and supported by little, if any,market activity at the measurement date. Unobservable inputs are developedbased on the best available information and subject to cost benefitconstraints. This category includes contracts priced using models that areinternally developed and contracts placed in illiquid markets. It also includescontracts that expire after the period of time for which quoted prices areavailable and internal models are used to determine a significant portion ofthe value.

 

As of December 31,2008, the Company held certain items that are required to be measured at fairvalue on a recurring basis.  These included:

 

(i)                     Investments in short term mutual funds (cashequivalents),

(ii)                  Foreign exchange derivative asset

(iii)               Bonds Payable

 

The following tableprovides information by level for assets and liabilities that are measured atfair value, as defined by SFAS 157, on a recurring basis:

 
| ** **                             | ** ** | **Fair value at  December 31,** | ** ** | **Fair value measurements  using inputs considered as** | ** ** |
|----------------------------------------|------------|--------------------------------------|------------|---------------------------------------------------------|------------|
| **Descrption**                         | ** ** | **2008**                             | ** ** | **Level 1**                                             | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| ** **                             | ** ** | **ThCh$**                            | ** ** | **ThCh$**                                               | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Assets                                 |       |                                 |       |                                                    |       |   |   |   |   |
| Investments in short term mutual funds |       | 26,281,107                           |       | 26,281,107                                              |       | — |   | — |   |
| Foreign exchange derivative asset      |       | 1,039,841                            |       | —                                                  |       | 1,039,841 |   | — |   |
| Liabilities                            |       | —                               |       | —                                                  |       | — |   | — |   |
| Bonds Payable                          |       | 88,195,420                           |       | 88,195,420                                              |       | — |   | — |   |

 

Investments in shortterm mutual funds are valued using publicly available year end quotes,therefore, they have been classified as Level 1.

 

Foreign exchange derivativeassets:  The estimated fair values of theforward and swaps contracts are based on quoted market prices at year end, theyhave been classified as Level 2.

 

Bonds payable:  The fair value of bonds payable, includingcurrent portion, is estimated based on the quoted market price of the Company’sUS dollar - denominated bonds payable, they have been classified as Level 2.

 

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j)    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, 2008,2007 and 2006 are as follows:

 
| ** **                  | ** ** | **Years  ended December 31,** | ** ** |
|-----------------------------|------------|------------------------------------|------------|
| ** **                  | ** ** | **2008**                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                  | ** ** | **ThCh$**                          | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Proceeds on realized gains  |       | —                             |       | 9,384,619 |   | — |   |
| Realized gains              |       | —                             |       | 98,755 |   | — |   |
| Proceeds on realized losses |       | —                             |       | 77,286,945 |   | — |   |
| Realized losses             |       | —                             |       | (887,891 | ) | — |   |

 

The carrying value and market value of securitiesavailable-for-sale as of December 31, 2008, 2007 and 2006 are as follows:

 
| ** **                      | ** ** | **Year  ended December 31, 2008** | ** ** |
|---------------------------------|------------|----------------------------------------|------------|
| ** **                      | ** ** | **Cost**                               | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Estimated  Fair Value** | ** ** |
| ** **                      | ** ** | **ThCh$**                              | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Available-for-sale-investments: |       |                                   |       |   |   |   |   |   |   |
| Foreign investments             |       | —                                 |       | — |   | — |   | — |   |
| Total                           |       | —                                 |       | — |   | — |   | — |   |

 
| ** **                      | ** ** | **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             |       | 1,093,768                              |       | 11,185 |   | — |   | 1,104,953 |   |
| Total                           |       | 1,093,768                              |       | 11,185 |   | — |   | 1,104,953 |   |

 
| ** **                              | ** ** | **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                  |       | 9,145,315                              |       | — |   | (112,208 | ) | 9,033,107 |   |
| Other securities of Chileaninstitutions |       | 55,674,260                             |       | 295,832 |   | (1,081,361 | ) | 54,888,731 |   |
| Foreign investments                     |       | 37,960,176                             |       | 230,236 |   | (333,991 | ) | 37,856,421 |   |
| Total                                   |       | 102,779,751                            |       | 526,068 |   | (1,527,560 | ) | 101,778,259 |   |

 

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k)     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$ 106,573,383 as of December 31, 2008 and hasbeen allocated to the Softdrinks business segment.

 

l)      Concentrationsof 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.

 

m)    Consolidatedvaluation 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, 2006                |       | 2,222,767                                          |       | 246,694                                                              |       | (663,300                                                       | )          | 1,806,161                             |       |
| Year ended  December 31, 2007                |       | 1,806,161                                          |       | 346,549                                                              |       | (479,684                                                       | )          | 1,673,026                             |       |
| Year ended  December 31, 2008                |       | 1,673,026                                          |       | 404,812                                                              |       | (517,857                                                       | )          | 1,559,981                             |       |
|                                              |       |                                               |       |                                                                 |       |                                                           |       |                                  |       |
| Allowance for  obsolescence of inventories:       |       |                                               |       |                                                                 |       |                                                           |       |                                  |       |
| Year ended  December 31, 2006                |       | 179,857                                            |       | 1,073,021                                                            |       | (625,426                                                       | )          | 627,452                               |       |
| Year ended  December 31, 2007                |       | 627,452                                            |       | 769,722                                                              |       | (516,125                                                       | )          | 881,049                               |       |
| Year ended  December 31, 2008                |       | 881,049                                            |       | 656,466                                                              |       | (1,054,158                                                     | )          | 483,357                               |       |
|                                              |       |                                               |       |                                                                 |       |                                                           |       |                                  |       |
| Valuation allowance for  deferred tax assets (2): |       |                                               |       |                                                                 |       |                                                           |       |                                  |       |
| Year ended  December 31, 2006                |       | 12,833,324                                         |       | (12,833,324                                                          | )          | —                                                         |       | —                                |       |
| Year ended December 31,  2007                |       | —                                             |       | —                                                               |       | —                                                         |       | —                                |       |
| Year ended  December 31, 2008                |       | —                                             |       | —                                                               |       | —                                                         |       | —                                |       |

 

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(1)          Includes allowances for trade,non-trade and other receivables.

 

(2)          The balances and changes inthe valuation allowance for deferred tax assets are expressed in accordancewith Chilean GAAP.

 

n)    Recent accounting pronouncements

 

InDecember 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosuresabout Postretirement Benefit Plan Assets.” This FSP amends FASB Statement No. 132,“Employers’ Disclosures about Pensions and Other Postretirement Benefits,” andrequires an employer to separately disclose the fair value of each major categoryof plan assets of a defined benefit pension or postretirement plan. Inaddition, employers are required to disclose information enabling users tounderstand investment policies and strategies, assess the inputs and valuationtechniques used to develop fair value measurements, and to disclose anysignificant concentrations of risks within plan assets. This FSP is effectivefor fiscal years ending after December 15, 2009, earlier application ispermitted. The Company is currently evaluating the impact of this FSP on thedisclosures for defined benefit pension and postretirement plan assets.

 

InDecember 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, “Disclosuresby Public Entities (Enterprises) about Transfers of Financial Assets andInterests in Variable Interest Entities.” This FSP amends FASB Statement No. 140,“Accounting for Transfers and Servicing of Financial Assets and Extinguishmentsof Liabilities” and FASB Interpretation No. 46, “Consolidation of VariableInterest Entities,” to expand financial statement disclosures required. ThisFSP is effective for the first reporting period ending after December 15,2008. The application of this FSP did not have a material impact on theCompany ́s financial position, results of operations or liquidity. However, itdid require additional disclosures regarding variable interest entities.

 

InNovember 2008, the FASB issued EITF Issue No. 08-6, “Equity MethodInvestment Accounting Considerations,” which provides clarification on themeasurement of the initial carrying value of an equity investment, impairmentassessment of underlying indefinite-lived intangible assets of an equity methodinvestment, accounting for an equity method investee’s issuance of shares, andhow to account for a change in investment from the equity method to the costmethod. The guidance in this EITF is effective for fiscal years beginning on orafter December 15, 2008, and is to be applied prospectively. The Companyis currently evaluating the impact of this FSP on their financial position,results of operations and liquidity.

 

InOctober 2008, the FASB issued FSP No. FAS 157-3, “Determining theFair Value of a Financial Asset When the Market for That Asset Is Not Active.”This FSP would amend FASB Statement No. 157, “Fair Value Measurements,” toclarify its application in an inactive market by providing an illustrativeexample to demonstrate how the fair value of a financial asset is determinedwhen the market for that financial asset is inactive. The FSP was effectiveupon issuance, including prior periods for which financial statements have notbeen issued. The application of this FSP did not have a material impact on theCompanies’ financial position, results of operations or liquidity.

 

InSeptember 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, “Disclosuresabout Credit Derivatives and Certain Guarantees; An Amendment of FASB StatementNo. 133 and FASB Interpretation No. 45; and Clarification of theEffective Date of FASB Statement No. 161,” to expand financial statementdisclosures required for credit derivatives within the scope of Statement No. 133and guarantees within the scope of Interpretation 45, as well as clarifying theeffective date of FASB Statement No. 161. The FSP is effective forreporting periods ending after November 15, 2008. The 

 

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applicationof this FSP did not have a material impact on the Companies’ financialposition, results of operations or liquidity.

 

InMay 2008, the FASB issued Statement No. 162, “The Hierarchy ofGenerally Accepted Accounting Principles.” This Statement identifies thesources of accounting principles and the framework for selecting the principlesused in the preparation of financial statements of nongovernmental entitiesthat are presented in conformity with generally accepted accounting principlesin the United States. This Statement is effective 60 days following theSecurities and Exchange Commission’s approval of the Public Company AccountingOversight Board amendments to AU Section 411, “The Meaning of PresentFairly in Conformity With Generally Accepted Accounting Principles.” The Boarddoes not expect that this Statement will result in a change in currentpractice. The adoption of this Statement is not expected to have a materialimpact on the Company’s financial position, results of operations or liquidity.

 

InMay 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible DebtInstruments That May Be Settled in Cash upon Conversion (Including PartialCash Settlement).” This FSP applies to convertible debt instruments that may besettled in cash, or other assets, upon conversion and are not addressed by APBOpinion No. 14 “Accounting for Convertible Debt Instruments and DebtIssued with Stock Purchase Warrants.” If the embedded conversion option isrequired to be separately accounted for as a derivative, then such convertibledebt instruments should be accounted for under FASB Statement No. 133, “Accountingfor Derivative Instruments and Hedging Activities” and this FSP does not apply..This FSP is effective for financial statements issued for fiscal yearsbeginning after December 15, 2008, and interim periods within those fiscalyears. Early adoption is prohibited. This FSP is not expected to have amaterial impact on the Company’s financial position, results of operations orliquidity.

 

InApril 2008, the FASB issued FSP No. 142-3, “Determination of theUseful Life of Intangible Assets.” This FSP amends the factors that should beconsidered in developing renewal or extension assumptions used to determine theuseful life of a recognized intangible asset under FASB Statement No. 142,“Goodwill and Other Intangible Assets.” The intent of this FSP is to improvethe consistency between the useful life of a recognized intangible asset underStatement 142 and the period of expected cash flows used to measure the fairvalue of the asset under FASB Statement No. 141 (revised 2007), “BusinessCombinations,” and other U.S. generally accepted accounting principles. ThisFSP is effective for financial statements issued for fiscal years beginningafter December 15, 2008, and interim periods within those fiscal years.Early adoption is prohibited. The Company is currently evaluating the impact ofthis FSP on their financial position, results of operations and liquidity.

 

InMarch 2008, the FASB issued Statement No. 161, “Disclosures aboutDerivative Instruments and Hedging Activities.” This Statement amends andexpands the disclosure requirements of Statement 133 with the intent to provideusers of financial statements with enhanced disclosures about (a) how andwhy an entity uses derivative instruments, (b) how derivative instrumentsand related hedged items are accounted for under Statement 133 and its relatedinterpretations, and (c) how derivative instruments and related hedgeditems affect an entity’s financial position, financial performance, and cashflows. The Statement requires qualitative disclosures about objectives andstrategies for using derivatives, quantitative disclosures about fair valueamounts of and gains and losses on derivative instruments and disclosures aboutcredit-risk-related contingent features in derivative agreements. This Statementis effective for financial statements issued for fiscal years and interimperiods beginning after November 15, 2008. The Company is currentlyevaluating the impact of this Statement on their disclosures of financialposition, results of operations and liquidity.

 

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InFebruary 2008, the FASB issued FSP No. 157-1, “Application of FASBStatement No. 157 to FASB Statement No. 13 and Other AccountingPronouncements that Address Fair Value Measurements for Purposes of LeaseClassification or Measurement under Statement 13,” and FSP No. FAS 157-2, “EffectiveDate of FASB Statement No. 157.” FSP No. 157-1 amends FASB Statement No. 157to exclude FASB Statement No. 13, “Accounting for Leases,” and otheraccounting pronouncements that address fair value measurements for purposes oflease classification and measurement under Statement No. 13. This FSP waseffective upon the initial adoption of SFAS 157. FSP No. FAS 157-2 delaysthe effective date of SFAS 157 for nonfinancial assets and nonfinancialliabilities, except for items that are recognized or disclosed at fair value inthe financial statements on a recurring basis (at least annually) to fiscalyears beginning after November 15, 2008 and interim periods within thosefiscal years for items within the scope of this FSP. The adoption of both FSP No. 157-1and FSP No. FAS 157-2 did not have a material impact on the Company’sfinancial position, results of operations or liquidity.

 

InJanuary 2008, the FASB issued Statement 133 Implementation Issue No. E23,“Hedging—General: Issues Involving the Application of the Shortcut Method underParagraph 68.” Issue E23 amends paragraph 68 of SFAS 133 with respect to theconditions that must be met in order to apply the shortcut method for assessinghedge effectiveness. The implementation guidance in this Issue is effective forhedging relationships designated on or after January 1, 2008. The adoptionof Issue E23 did not have a material impact on the Company’s financialposition, results of operations or liquidity.

 

Statement of Financial Accounting Standards (“SFAS”) No. 141(R),*Business Combinations*(“SFAS 141(R)”),and No. 160, *Noncontrolling Interests in Consolidated FinancialStatements*— *an amendment to ARB No. 51*(“SFAS 160”): SFAS141(R) and SFAS 160 require most identifiable assets, liabilities,noncontrolling interests, and goodwill acquired in a business combination to berecorded at “full fair value” and require noncontrolling interests (previouslyreferred to as minority interests) to be reported as a component of equity,which changes the accounting for transactions with noncontrolling interestholders. Both statements are effective for periods beginning on or after December 15,2008, and earlier adoption is prohibited. SFAS 141(R) will be applied tobusiness combinations occurring after the effective date. SFAS 160 will beapplied prospectively to all noncontrolling interests, including any that arosebefore the effective date. The Company is currently evaluating the impact ofadopting SFAS 141(R) and SFAS 160 on its consolidated financial positionand results of operations.

 

Financial Accounting Standards Board (“FASB”) StaffPosition FAS 141(R)-1, “*Accounting for assetsacquired and liabilities assumed in a business combination that arise fromcontingencies*” (“FSP FAS 141(R)-1”): FSP FAS 141(R)-1 amends andclarifies SFAS 141® to address application issues raised by preparers, auditors,and members of the legal profession on initial recognition and measurement,subsequent measurement and accounting, and disclosure of assets and liabilitiesarising from contingencies in a business combination. Under the new guidance,assets acquired and liabilities assumed in a business combination that arisefrom contingencies should be recognized at fair value on the acquisition dateif fair value can be determined during the measurement period. If fair valuecannot be determined, companies should typically account for the acquiredcontingencies using existing guidance. This FSP is effective for assets orliabilities arising from contingencies in business combinations for which theacquisition date is on or after the beginning of the first annual reportingperiod beginning on or after December 15, 2008. The Company is currentlyevaluating the impact of adopting FSP FAS 141(R)-1 on its consolidatedfinancial position and results of operations.

 

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