For North America, the year 2005 was characterized by a collection of issues and challenges that each held the potential for derailing our performance. We faced devastating hurricanes, rapidly increasing raw material prices, and the continued evolution of consumer tastes and preferences.

Despite these challenges, North America achieved balanced volume and pricing growth, buoyed by the skill and dedication of our front-line managers and employees and by our successful work to tightly control operating expenses. In the end, we made substantial progress toward our goals: generating sustained, consistent growth and being the best beverage selling and distribution company in North America.

Central to that goal – a goal we describe as North America’s “winning destination” – is our work last year to redesign our North American business model. This new model creates seven business units, including Canada, and 45 smaller market units, thus simplifying and flattening our organization. The benefits will include substantially improving our decision-making process, speeding our ability to seize developing opportunities in the marketplace, and creating more time for our front-line managers and employees to do what they do best: serve our customers and build our business.

Our “Winning Destination”
In addition to this new model, there are three other key components essential to our ability to reach our “winning destination”:
• Achieving world class capabilities in customer service, revenue growth management, and supply chain;
• Being number one or a strong number two in the categories in which we choose to compete;
• Consistently delivering our financial plan.

An example of how these components will help drive our business is our ongoing effort to strengthen our revenue management capabilities. This clearly proved critical in our ability to generate 3 percent** net pricing per case growth last year, while our efficiency efforts – efforts which will continue to pay dividends in 2006 and beyond – helped hold operating expense growth in a very low single-digit range.

Our commitment to world class service capabilities – to being our customers’ most valued supplier – was also demonstrated by Wal-Mart’s decision to name us supplier of the year for 2005, covering more than 2,000 suppliers in the food and beverage category.

New Products, Brand Extensions Drive Growth
Our work with Wal-Mart, and with each of our customers, was vital as we continued to enhance our brand portfolio in important ways. First, we successfully executed against an unprecedented number of new product introductions and line extensions. During our “100 Days of Diets,” we introduced both Coca-Cola Zero and Diet Coke sweetened with Splenda®, and later added new Fresca packaging and flavors. And second, we strengthened our noncarbonated portfolio with the addition of Dasani flavored waters and new Powerade products, including Powerade Option. This was a key factor in our ability to generate renewed, higher margin immediate consumption growth of 2 percent for the year.

Importantly, we became a major competitor in the fast growing energy category, adding Full Throttle in January and Rockstar in June through the benefit of a new distribution agreement. These new brands performed exceptionally, enabling us to grow from a low single-digit share of the energy drink category to a share in the upper teens. This success is very important because, even though energy drinks will remain a small component of our total case sales, we expect this category to generate more retail profit growth than any other beverage category in 2006.

As we look to 2006, we will have the full-year benefit of each of these brand and product initiatives, as well as the benefit of another aggressive full-year innovation calendar. Two key introductions are Black Cherry Vanilla Coca-Cola, in regular and diet, and Vault, a new citrus soda that performed very well in test markets in 2005. These new products, coupled with the benefits of our reorganization and cost control efforts, give us confidence in our ability to achieve another year of balanced volume and price growth in North America.

Terry Marks
Executive Vice President and
President, North American Group