Pepsi 2013 Annual Report Download - page 33

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Unfavorable economic conditions may have an adverse impact on our business results or financial
condition.
Many of the countries in which we operate, including the United States and several of the members of the
European Union, have experienced and continue to experience unfavorable economic conditions. Our
business or financial results may be adversely impacted by these unfavorable economic conditions, including:
adverse changes in interest rates, tax laws or tax rates; volatile commodity markets and inflation; contraction
in the availability of credit in the marketplace due to legislation or other economic conditions such as the
European sovereign debt crisis, which may potentially impair our ability to access the capital markets on
terms commercially acceptable to us or at all; the effects of government initiatives to manage economic
conditions, including changes to or cessation of any such initiatives; reduced demand for our products
resulting from a slow-down in the general global economy or a shift in consumer preferences for economic
reasons or otherwise to regional, local or private label products or other economy products, or to less profitable
channels; impairment of assets; or a decrease in the fair value of pension or post-retirement assets that could
increase future employee benefit costs and/or funding requirements of our pension or post-retirement plans.
In addition, we cannot predict how current or worsening economic conditions will affect our critical
customers, suppliers, bottlers, distributors, joint venture partners or other third parties and any negative
impact on any of the foregoing may also have an adverse impact on our business results or financial condition.
In addition, some of the major financial institutions with which we execute transactions, including U.S. and
non-U.S. commercial banks, insurance companies, investment banks and other financial institutions, may
be exposed to a ratings downgrade, bankruptcy, liquidity, default or similar risks as a result of unfavorable
economic conditions. A ratings downgrade, bankruptcy, receivership, default or similar event involving a
major financial institution may limit the availability of credit or willingness of financial institutions to extend
credit on terms commercially acceptable to us or at all or, with respect to financial institutions who are parties
to our financing arrangements, leave us with reduced borrowing capacity or unhedged against certain
currencies or price risk associated with forecasted purchases of raw materials which could have an adverse
impact on our business results or financial condition. See also “Imposition of new taxes, disagreements with
tax authorities or additional tax liabilities could adversely affect our financial performance.”
Our operating results may be adversely affected by increased costs, disruption of supply or shortages of
raw materials and other supplies.
We and our business partners use various raw materials and other supplies in our business. The principal
ingredients we use include apple, orange and pineapple juice and other juice concentrates, aspartame, corn,
corn sweeteners, flavorings, flour, grapefruit and other fruits, oats, oranges, potatoes, raw milk, rice,
seasonings, sucralose, sugar, vegetable and essential oils, and wheat. Our key packaging materials include
plastic resins, including PET and polypropylene resin used for plastic beverage bottles and film packaging
used for snack foods, aluminum used for cans, glass bottles, closures, cardboard and paperboard cartons.
Fuel and natural gas are also important commodities for us due to their use in our facilities and in the trucks
delivering our products. Some of these raw materials and supplies are sourced internationally and some are
available from a limited number of suppliers or are in short supply when seasonal demand is at its peak. We
are exposed to the market risks arising from adverse changes in commodity prices, affecting the cost of our
raw materials and energy, including fuel. The raw materials and energy which we use for the production of
our products are largely commodities that are subject to price volatility and fluctuations in availability caused
by changes in global supply and demand, weather conditions, agricultural uncertainty or governmental
incentives and controls. We purchase these materials and energy mainly in the open market. If commodity
price changes result in unexpected increases in raw materials and energy costs, we may not be able to increase
our prices to offset these increased costs without suffering reduced volume, revenue and operating results.
In addition, we use derivatives to hedge price risk associated with forecasted purchases of certain raw materials
and energy, including fuel. Certain of these derivatives that do not qualify for hedge accounting treatment