Pepsi 2007 Annual Report Download - page 40

Download and view the complete annual report

Please find page 40 of the 2007 Pepsi annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 90

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90

increased employee benefi t costs. Any
unplanned turnover could deplete our
institutional knowledge base and erode
our competitive advantage.
Our business may be adversely
impacted by unfavorable economic
or environmental conditions 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, infl ation, defl ation
or decreased demand. Unstable economic
and political conditions or civil unrest in
the countries in which we operate could
have adverse impacts on our business
results or fi nancial condition. Our opera-
tions outside of the U.S. accounted for
44% and 35% of our net revenue and
operating profi t, respectively, for the year
ended December 29, 2007. Our contin-
ued success depends on our ability to
broaden and strengthen our presence in
emerging markets, such as Brazil, Russia,
India and China, and to create scale in key
international markets.
Forward-Looking and Cautionary
Statements
We discuss expectations regarding our
future performance, such as our busi-
ness outlook, in our annual and quarterly
reports, press releases, and other written
and oral statements. These “forward-
looking statements” are based on
currently available information, operating
plans and projections about future events
and trends. They inherently involve risks
and uncertainties that could cause actual
results to differ materially from those
predicted in any such forward-looking
statements. Investors are cautioned not
to place undue reliance on any such
forward-looking statements, which speak
only as of the date they are made. We
undertake no obligation to update any
forward-looking statement, whether as a
result of new information, future events
or otherwise. The discussion of risks above
and elsewhere in this annual report is by
no means all inclusive but is designed to
highlight what we believe are important
factors to consider when evaluating our
trends and future results.
In the normal course of business, we
manage these risks through a variety of
strategies, including productivity initia-
tives, global purchasing programs and
hedging strategies. Ongoing productivity
initiatives involve the identifi cation and
effective implementation of meaningful
cost saving opportunities or effi ciencies.
Our global purchasing programs include
fi xed-price purchase orders and pricing
agreements. Our hedging strategies
include the use of derivatives. Certain
derivatives are designated as either cash
fl ow or fair value hedges and qualify for
hedge accounting treatment, while others
do not qualify and are marked to market
through earnings. We do not use deriva-
tive instruments for trading or speculative
purposes, and we limit our exposure to
individual counterparties to manage credit
risk. The fair value of our derivatives fl uc-
tuates based on market rates and prices.
The sensitivity of our derivatives to these
market fl uctuations is discussed below.
See Note 10 for further discussion of
these derivatives and our hedging policies.
See “Our Critical Accounting Policies” for
a discussion of the exposure of our pen-
sion plan assets and pension and retiree
medical liabilities to risks related to stock
prices and discount rates.
Infl ationary, defl ationary and recession-
ary conditions impacting these market
risks also impact the demand for and
pricing of our products.
Market RisksMarket Risks
We are exposed to market risks arising from adverse changes in:
• commodity prices, affecting the cost of our raw materials
and energy,
• foreign exchange rates, and
• interest rates.
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.
Our continued success depends
on our ability to broaden and
strengthen our presence in
emerging markets, such as Brazil,
Russia, India and China.
We manage market risks through
a variety of strategies, including
productivity initiatives, global
purchasing programs and
hedging strategies.
38