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12
In this Annual Report on Form 10-K, all information regarding the beverage market in the U.S. is from Beverage Digest, and,
except as otherwise indicated, is from 2011. All information regarding our brand market positions in the U.S. is from Nielsen and
is based on retail dollar sales in 2012.
ITEM 1A. RISK FACTORS
RISKS RELATED TO OUR BUSINESS
In addition to the other information set forth in this report, you should carefully consider the risks described below, which
could materially affect our business, financial condition or future results. Any of the following risks, as well as other risks and
uncertainties, could harm our business and financial condition.
We operate in highly competitive markets.
The LRB industry is highly competitive and continues to evolve in response to changing consumer preferences. Competition
is generally based upon brand recognition, taste, quality, price, availability, selection and convenience. We compete with
multinational corporations with significant financial resources. Our two largest competitors in the LRB market are Coca-Cola and
PepsiCo, which represent approximately 61% of the U.S. LRB market by volume, according to Beverage Digest. We also compete
against other large companies, including Nestle, Kraft Foods Group, Inc. and Campbell Soup. These competitors can use their
resources and scale to rapidly respond to competitive pressures and changes in consumer preferences by introducing new products,
reducing prices or increasing promotional activities. As a bottler and manufacturer, we also compete with a number of smaller
bottlers and distributors and a variety of smaller, regional and private label manufacturers, such as Cott. Smaller companies may
be more innovative, better able to bring new products to market and better able to quickly exploit and serve niche markets. We
have lower exposure to energy drinks, some of the faster growing NCBs and the bottled water segments in the overall LRB market.
In Canada, Mexico and the Caribbean, we compete with many of these same international companies as well as a number of
regional competitors.
If we are unable to compete effectively, our sales could decline. As a result, we would have to reduce our prices or increase
our spending on marketing, advertising and product innovation. Any of these could negatively affect our business and financial
performance.
We may not comply with applicable government laws and regulations, and new or proposed beverage regulations could
impact our sales.
We are subject to a variety of federal, state and local laws and regulations in the U.S., Canada, Mexico and other countries
in which we do business. These laws and regulations apply to many aspects of our business including the manufacture, safety,
labeling, transportation, advertising and sale of our products. See "Regulatory Matters" in Item 1, "Business," of this Annual Report
on Form 10-K for more information regarding many of these laws and regulations.
Violations of these laws or regulations in the manufacture, safety, labeling, transportation and advertising of our products
could damage our reputation and/or result in regulatory actions with substantial penalties. In addition, any significant change in
such laws or regulations or their interpretation, or the introduction of higher standards or more stringent laws or regulations, could
result in increased compliance costs or capital expenditures. For example, changes in recycling and bottle deposit laws or special
taxes on soft drinks or ingredients could increase our costs. Regulatory focus on the health, safety and marketing of food products
is increasing. Certain state warning and labeling laws, such as California's "Prop 65," which requires warnings on any product
with substances that the state lists as potentially causing cancer or birth defects, are or could become applicable to our products.
Additionally, local and regional governments and school boards have enacted, or have proposed to enact, regulations restricting
the sale of certain types or sizes of soft drinks in municipalities and schools as a result of concerns about the public health
consequences and health care costs associated with obesity. In addition, federal, state, local and foreign governments could impose
taxes on sugar-sweetened beverages as a result of these concerns, which could cause us to raise our prices. Any changes of
regulations or imposed taxes may reduce consumer demand for our products, which could have a material adverse effect on our
profitability and negatively affect our business and financial performance.