Pepsi 2011 Annual Report Download - page 30

sugar or other product ingredients or attributes; changes in social
trends that impact travel, vacation or leisure activity patterns;
changes in weather patterns or seasonal consumption cycles; nega-
tive publicity (whether or not valid) resulting from regulatory action
or litigation against us or other companies in our industry; a down-
turn in economic conditions; or taxes that would increase the cost of
our products to consumers. Any of these changes may reduce con-
sumers’ willingness to purchase our products. See also “Our nancial
performance could suer if we are unable to compete eectively.”,
“Unfavorable economic conditions may have an adverse impact
on our business results or nancial condition.”, “Any damage to our
reputation could have a material adverse eect on our business,
nancial condition and results of operations.” and “Changes in the
legal and regulatory environment could limit our business activities,
increase our operating costs, reduce demand for our products or
result in litigation.”
Our continued success is also dependent on our product innova-
tion, including maintaining a robust pipeline of new products and
improving the quality of existing products, and the eectiveness
of our product packaging, advertising campaigns and marketing
programs, including our ability to successfully adapt to a rapidly
changing media environment, such as through use of social media
and online advertising campaigns and marketing programs.
Although we devote signicant resources to the actions mentioned
above, there can be no assurance as to our continued ability to
develop and launch successful new products or variants of existing
products or to eectively execute advertising campaigns and mar-
keting programs. In addition, both the launch and ongoing success
of new products and advertising campaigns are inherently uncer-
tain, especially as to their appeal to consumers. Our failure to make
the right strategic investments to drive innovation or successfully
launch new products or variants of existing products could decrease
demand for our existing products by negatively aecting consumer
perception of existing brands, as well as result in inventory write- os
and other costs.
Our financial performance could suffer if we are unable to
compete effectively.
The food, snack and beverage industries in which we operate are
highly competitive. We compete with major international food,
snack and beverage companies that, like us, operate in multiple
geographic areas, as well as regional, local and private label manu-
facturers and other value competitors. In many countries where we
do business, including the United States, The Coca- Cola Company
is our primary beverage competitor. We also compete with other
large companies in each of the food, snack and beverage categories,
including Nestlé S.A., Kraft Foods Inc. and Dr Pepper Snapple Group,
Inc. We compete on the basis of brand recognition, taste, price, qual-
ity, product variety, distribution, marketing and promotional activity,
convenience, service and the ability to identify and satisfy consumer
preferences. If we are unable to compete eectively, we may be
unable to grow or maintain sales or gross margins in the global
market or in various local markets. This may have a material adverse
impact on our revenues and prot margins. See also “Unfavorable
economic conditions may have an adverse impact on our business
results or nancial condition.”
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 nancial results may be adversely
impacted by these unfavorable economic conditions, including:
adverse changes in interest rates, tax laws or tax rates; volatile com-
modity markets and ination; contraction in the availability of credit
in the marketplace, potentially impairing our ability to access the
capital markets on terms commercially acceptable to us or at all; the
eects of government initiatives to manage economic conditions;
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 protable chan-
nels; impairment of assets; or a decrease in the fair value of pension
assets that could increase future employee benet costs and/or
funding requirements of our pension plans. In addition, we cannot
predict how current or worsening economic conditions will aect
our critical customers, suppliers and distributors and any negative
impact on our critical customers, suppliers or distributors may also
have an adverse impact on our business results or nancial condi-
tion. In addition, some of the major nancial institutions with which
we execute transactions, including U.S. and non- U.S. commercial
banks, insurance companies, investment banks, and other nancial
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 nancial institution may limit
the availability of credit or willingness of nancial institutions to
extend credit on terms commercially acceptable to us or at all or,
with respect to nancial institutions who are parties to our nanc-
ing 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 nancial condition.
Any damage to our reputation could have a material adverse effect
on our business, financial condition and results of operations.
Maintaining a good reputation globally is critical to selling our
branded products. Product contamination or tampering, the
failure to maintain high standards for product quality, safety and
integrity, including with respect to raw materials and ingredients
obtained from suppliers, or allegations of product quality issues,
mislabeling or contamination, even if untrue, may reduce demand
for our products or cause production and delivery disruptions. If
any of our products becomes unt for consumption, causes injury
or is mislabeled, we may have to engage in a product recall and/or
be subject to liability. A widespread product recall or a signicant
product liability issue could cause our products to be unavailable
Management’s Discussion and Analysis
PepsiCo, Inc.  Annual Report
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