Pepsi 2012 Annual Report Download - page 47

with these activities could include, among other things, our
ability to realize the full extent of the benefits or cost savings
that we expect to realize as a result of the completion of an
acquisition, divestiture or refranchising, or the formation of
a joint venture, within the anticipated time frame, or at all;
receipt of necessary consents, clearances and approvals in
connection with an acquisition, joint venture, divestitureor
refranchising; and diversion of management’s attention from
base strategies and objectives. With respect to acquisitions,
the following also pose potential risks: our ability to suc-
cessfully combine our businesses with the business of the
acquired company, including integrating the manufacturing,
distribution, sales and administrative support activities and
information technology systems between our Company and
the acquired company and successfully operating in new cat-
egories; motivating, recruiting and retaining executives and
key employees; conforming standards, controls (including
internal control over financial reporting), procedures and poli-
cies, business cultures and compensation structures between
our Company and the acquired company; consolidating and
streamlining corporate and administrative infrastructures;
consolidating sales and marketing operations; retaining exist-
ing customers and attracting new customers; identifying
and eliminating redundant and underperforming operations
and assets; coordinating geographically dispersed organiza-
tions; and managing tax costs or inefficiencies associated
with integrating our operations following completion of the
acquisitions. With respect to joint ventures, we share owner-
ship and management responsibility of a company with one
or more parties who may or may not have the same goals,
strategies, priorities or resources as we do and joint ventures
are intended to be operated for the benefit of all co-owners,
rather than for our exclusive benefit. In addition, acquisitions
and joint ventures outside of the United States increase our
exposure to risks associated with operations outside of the
United States, including fluctuations in exchange rates and
compliance with the Foreign Corrupt Practices Act and other
anti-corruption and anti-bribery laws, and laws and regula-
tions outside the United States. With respect to divestitures
and refranchisings, we may not be able to complete such
transactions on terms commercially favorable to us or at all.
In addition, as divestitures and refranchisings may reduce our
direct control over certain aspects of our business, any failure
to maintain good relations with divested or refranchised busi-
nesses in our supply or sales chain may adversely impact sales
or business performance. If an acquisition or joint venture is
not successfully completed or integrated into our existing
operations, or if a divestiture or refranchising is not success-
fully completed or managed, our business, financial condition
and results of operations could be adversely impacted.
If we are unable to hire or retain key employees or a highly
skilled and diverse workforce, it could have a negative
impact on our business.
Our continued growth requires us to hire, retain and develop
our leadership bench and a highly skilled and diverse work-
force. We compete to hire new employees and then must
train them and develop their skills and competencies. Any
unplanned turnover or our failure to develop an adequate suc-
cession plan to backfill current leadership positions, including
our Chief Executive Officer, or to hire and retain a diverse
workforce could deplete our institutional knowledge base and
erode our competitive advantage. In addition, our operating
results could be adversely affected by increased costs due to
increased competition for employees, higher employee turn-
over or increased employee benefit costs.
Trade consolidation or the loss of any key customer could
adversely affect our financial performance.
We must maintain mutually beneficial relationships with our
key customers, including Wal-Mart, as well as other retailers,
to effectively compete. The loss of any of our key customers,
including Wal-Mart, could have an adverse effect on our finan-
cial performance. In addition, our industry has been affected
by increasing concentration of retail ownership, particularly
in the United States and Europe, which may impact our abil-
ity to compete as such retailers may demand lower pricing
and increased promotional programs. Further, should larger
retailers increase utilization of their own distribution net-
works and private label brands, the competitive advantages
we derive from our go-to-market systems and brand equity
may be eroded. Failure to appropriately respond to any such
actions or to offer effective sales incentives and marketing
programs to our customers could reduce our ability to secure
adequate shelf space at our retailers and adversely affect our
financial performance.
Our borrowing costs and access to capital and credit
markets may be adversely affected by a downgrade or
potential downgrade of our credit ratings.
Our objective is to maintain credit ratings that provide us with
ready access to global capital and credit markets. Any down-
grade of our credit ratings by a credit rating agency, especially
any downgrade to below investment grade, could increase our
future borrowing costs and impair our ability to access capital
and credit markets on terms commercially acceptable to us,
or at all. In addition, any downgrade of our current short-term
credit ratings could impair our ability to access the commercial
paper market with the same flexibility that we have experi-
enced historically, and therefore require us to rely more heavily
on more expensive types of debt financing. Our borrowing
costs and access to the commercial paper market could also
Management’s Discussion and Analysis
2012 PEPSICO ANNUAL REPORT 45