Pepsi 2005 Annual Report Download - page 32

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these programs will deliver the expected
benefits. The failure to deliver our goals
may impact our ability to (1) process trans-
actions accurately and efficiently 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 application on time, or antici-
pate the necessary readiness and training
needs, could lead to business disruption.
As with all large systems, our informa-
tion systems could be penetrated by outside
parties intent on extracting information,
corrupting information or disrupting
business processes. Such unauthorized
access could disrupt our business and
could result in the loss of assets.
Disruption of our supply chain could have an
adverse effect on our business, financial
condition and results of operations.
Our ability to make, move and sell prod-
ucts is critical to our success. Damage
or disruption to our manufacturing or
distribution capabilities due to weather,
natural disaster, fire or explosion, terrorism,
pandemic, strikes or other reasons could
impair our ability to manufacture or sell
our products. Failure to take adequate
steps to mitigate the likelihood or potential
impact of such events, or to effectively
manage such events if they occur, could
adversely affect our business, financial
condition and results of operations, as well
as require additional resources to restore
our supply chain.
Trade consolidation or the loss of any key
customer could adversely affect our financial
performance.
There is a greater concentration of our
customer base around the world generally
due to the continued consolidation of retail
trade. As retail ownership becomes more
concentrated, retailers demand lower pricing
and increased promotional programs.
Further, as larger retailers increase utiliza-
tion of their own distribution networks 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 these
trends 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.
We must maintain mutually beneficial
relationships with our key customers,
including our retailers and anchor bottlers,
to effectively compete. Loss of any of our
key customers could have an adverse
effect on our business, financial condition
and results of operations. See “Our
Customers,” “Our Related Party Bottlers”
and Note 8 to our consolidated financial
statements for more information on our
customers, including our anchor bottlers.
Our business may be adversely impacted by
unfavorable economic or environmental con-
ditions or political or other developments and
risks in the countries in which we operate.
Unfavorable global economic or environ-
mental changes, political conditions or
other developments may result in business
disruption, supply constraints, foreign
currency devaluation, inflation, deflation or
decreased demand. Economic conditions
in North America could also adversely
impact growth. For example, rising fuel
costs may impact the sales of our products
in convenience stores where our products
are generally sold in higher margin single
serve packages. Our international opera-
tions accounted for over a third of our
evenue for the period ended December 31,
2005. Unstable economic and political
conditions or civil unrest in the countries
in which we operate could have adverse
impacts on our business results or
financial condition.
Regulatory decisions and changes in the
legal and regulatory environment could
increase our costs and liabilities or limit our
business activities.
The conduct of our businesses, and the
production, distribution, sale, advertising,
labeling, safety, transportation and use of
many of our products, are subject to vari-
ous laws and regulations administered by
federal, state and local governmental
agencies in the United States, as well as to
foreign laws and regulations administered
by government entities and agencies in
markets in which we operate. In many
jurisdictions, compliance with competition
laws is of special importance to us due to
our competitive position in those
jurisdictions. These laws and regulations
may change, sometimes dramatically, as a
result of political, economic or social
events. Changes in laws, regulations or
governmental policy and the related
interpretations may alter the environment
in which we do business and, therefore, may
impact our results or increase our costs or
liabilities. Such regulatory environment
changes include changes in food and drug
laws, laws related to advertising and
deceptive marketing practices, accounting
standards, taxation requirements,
competition laws and environmental laws,
including California Proposition 65 and the
regulation of water consumption and treat-
ment. In particular, governmental bodies in
countries where we operate may impose
new labeling, product or production
requirements, or other restrictions.
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 effect on our sales or damage
our reputation. See also “Regulatory
Environment and Environmental
Compliance.”
If we are unable to hire or retain key
employees, it could have a negative impact
on our business.
Our continued growth requires us to
develop our leadership bench and to
implement programs, such as our long-
term incentive program, designed to retain
talent. However, there is no assurance that
we will continue to be able to hire or retain
key employees. We compete to hire new
employees, and then must train them and
develop their skills and competencies. Our
Our ability to make, move
and sell products is critical
to our success. Changes in laws, regulations
or governmental policy may
alter the environment in
which we do business.