Pepsi 2011 Annual Report Download - page 32

saturated fat and added sugar; increased regulatory scrutiny of, and
increased litigation involving, product claims and concerns regard-
ing the eects on health of ingredients in, or attributes of, certain
of our products; state consumer protection laws; taxation require-
ments, including taxes that would increase the cost of our products
to consumers; competition laws; privacy laws; laws regulating the
price we may charge for our products; laws regulating access to
and use of water or utilities; and environmental laws, including laws
relating to the regulation of water rights and treatment. New laws,
regulations or governmental policy and their related interpreta-
tions, or changes in any of the foregoing, may alter the environment
in which we do business and, therefore, may impact our results or
increase our costs or liabilities.
Governmental entities or agencies in jurisdictions where we
operate may also impose new labeling, product or production
requirements, or other restrictions. Studies are underway by third
parties to assess the health implications of consumption of carbon-
ated soft drinks as well as certain ingredients present in some of our
products. In addition, third- party studies are also underway to assess
the eect on humans due to acrylamide in the diet. Acrylamide is
a chemical compound naturally formed in a wide variety of foods
when they are cooked (whether commercially or at home), including
french fries, potato chips, cereal, bread and coee. Certain of these
studies have found that it is probable that acrylamide causes cancer
in laboratory animals when consumed in extraordinary amounts.
If consumer concerns about the health implications of consump-
tion of carbonated soft drinks, certain ingredients present in some
of our products or acrylamide increase as a result of these studies,
other new scientic evidence, or for any other reason, whether or
not valid, demand for our products could decline and we could be
subject to lawsuits or new regulations that could aect sales of our
products, any of which could have an adverse eect on our busi-
ness, nancial condition or results of operations.
We are also subject to Proposition 65 in California, a law which
requires that a specic warning appear on any product sold in
California that contains a substance listed by that State as having
been found to cause cancer or birth defects. If we were required to
add warning labels to any of our products or place warnings in cer-
tain locations where our products are sold, sales of those products
could suer not only in those locations but elsewhere.
In many jurisdictions, compliance with competition laws is of
special importance to us due to our competitive position in those
jurisdictions. Regulatory authorities under whose laws we operate
may also have enforcement powers that can subject us to actions
such as product recall, seizure of products or other sanctions, which
could have an adverse eect on our sales or damage our reputa-
tion. Although we have policies and procedures in place that are
designed to promote legal and regulatory compliance, our employ-
ees or suppliers could take actions that violate these policies and
procedures or applicable laws or regulations. Violations of these
laws or regulations could subject us to criminal or civil enforcement
actions which could have a material adverse eect on our business.
In addition, we and our subsidiaries are party to a variety of
legaland environmental remediation obligations arising in the
normal course of business, as well as environmental remediation,
product liability, toxic tort and related indemnication proceed-
ings in connection with certain historical activities and contractual
obligations of businesses acquired by our subsidiaries. Due to
regulatory complexities, uncertainties inherent in litigation and the
risk of unidentied contaminants on current and former properties
of ours and our subsidiaries, the potential exists for remediation,
liability and indemnication costs to dier materially from the costs
we have estimated. We cannot assure you that our costs in relation to
these matters will not exceed our established liabilities or otherwise
have an adverse eect on our results of operations. See also “Our
nancial performance could be adversely aected if we are unable
to grow our business in developing and emerging markets or as a
result of unstable political conditions, civil unrest or other develop-
ments and risks in the markets where our products are sold.” above.
If we are not able to build and sustain proper information technology
infrastructure, successfully implement our ongoing business
transformation initiative or outsource certain functions effectively,
ourbusiness could suffer.
We depend on information technology as an enabler to improve
the eectiveness of our operations, to interface with our custom-
ers, to maintain nancial accuracy and eciency, to comply with
regulatory nancial reporting, legal and tax requirements, and for
digital marketing activities and electronic communication among
our locations around the world and between our personnel and the
personnel of our independent bottlers, contract manufacturers and
suppliers. If we do not allocate and eectively manage the resources
necessary to build and sustain the proper information technology
infrastructure, we could be subject to transaction errors, processing
ineciencies, the loss of customers, business disruptions, the loss of
or damage to intellectual property, or the loss of sensitive or con-
dential data through security breach or otherwise.
We have embarked on multi- year business transformation ini-
tiatives to migrate certain of our nancial processing systems to
enterprise- wide systems solutions. There can be no certainty that
these initiatives will deliver the expected benets. The failure to
deliver our goals may impact our ability to (1) process transactions
accurately and eciently and (2) remain in step with the changing
needs of the trade, which could result in the loss of customers. In
addition, the failure to either deliver the applications on time, or
anticipate the necessary readiness and training needs, could lead to
business disruption and loss of customers and revenue.
In addition, we have outsourced certain information technol-
ogy support services and administrative functions, such as payroll
processing and benet plan administration, to third- party service
providers and may outsource other functions in the future to
achieve cost savings and eciencies. If the service providers that
we outsource these functions to do not perform or do not perform
eectively, we may not be able to achieve the expected cost sav-
ings and may have to incur additional costs to correct errors made
by such service providers. Depending on the function involved,
such errors may also lead to business disruption, processing inef-
ciencies, the loss of or damage to intellectual property through
Management’s Discussion and Analysis
PepsiCo, Inc.  Annual Report
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