Pepsi 2012 Annual Report Download - page 43

and the effectiveness 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
significant 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 effectively execute advertising campaigns and
marketing programs. In addition, both the launch and ongoing
success of new products and advertising campaigns are inher-
ently uncertain, especially as to their appeal to consumers. Our
failure to make the right strategic investments to drive innova-
tion or successfully launch new products or variants of existing
products could decrease demand for our existing products by
negatively affecting consumer perception of existing brands,
as well as result in inventory write-offs and other costs.
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.
The conduct of our businesses, including the production, stor-
age, distribution, sale, advertising, marketing, labeling, health
and safety practices, transportation and use of many of our
products, are subject to various laws and regulations adminis-
tered by federal, state and local governmental agencies in the
United States, as well as to laws and regulations administered
by government entities and agencies outside the United States
in markets in which our products are made, manufactured or
sold, including in emerging and developing markets where
legal and regulatory systems may be less developed. These
laws and regulations and interpretations thereof may change,
sometimes dramatically, as a result of political, economic or
social events. Such changes may include changes in: food and
drug laws; laws related to product labeling, advertising and
marketing practices; laws regarding the import of ingredients
used in our products; laws regarding the import or export of
our products; laws and programs aimed at reducing ingre-
dients present in certain of our products, including sodium,
saturated fat and added sugar; regulatory actions targeting
the snack food or beverage industries such as restrictions
on the sale of snack and beverage products in publicly regu-
lated venues or restrictions on the use of the Supplemental
Nutrition Assistance Program to purchase certain snacks or
beverages; increased regulatory scrutiny of, and increased
litigation involving, product claims and concerns regarding
the effects on health of ingredients in, or attributes of, cer-
tain of our products, including without limitation those found
in energy drinks; state consumer protection laws; taxation
requirements, including taxes that would increase the cost of
our products to consumers; competition laws; employment
laws; privacy laws; laws regulating the price we may charge for
our products; laws regulating access to and use of water or
utilities; and environmental laws, including laws relating to the
regulation of water rights and treatment. New laws, regula-
tions or governmental policy and their related interpretations,
or changes in any of the foregoing, may alter the environment
in which we do business and, therefore, may impact our results
or increase our costs or liabilities.
Governmental entities or agencies in jurisdictions where we
operate may also impose new labeling, product or production
requirements, or other restrictions. Studies are underway by
third parties to assess the health implications of consump-
tion of certain ingredients present in some of our products,
including sugar, artificial sweeteners, as well as substances
such as acrylamide that are naturally formed in a wide variety
of foods when they are cooked (whether commercially or at
home), including french fries, potato chips, cereal, bread and
coffee. Certain of these studies of acrylamide found that it is
probable that acrylamide causes cancer in laboratory animals
when consumed in extraordinary amounts. If consumer con-
cerns about the health implications of consumption of certain
ingredients present in some of our products, including sugar,
artificial sweeteners, or acrylamide increase as a result of
these studies, other new scientific evidence, or for any other
reason, whether or not valid, demand for our products could
decline and we could be subject to lawsuits or new regulations
that could affect sales of our products, any of which could
have an adverse effect on our business, financial condition or
results of operations.
We are also subject to Proposition 65 in California, a law
which requires that a specific warning appear on any product
sold in California that contains a substance listed by that State
as having been found to cause cancer or birth defects. If we
were required to add warning labels to any of our products or
place warnings in certain locations where our products are
sold, sales of those products could suffer not only in those
locations but elsewhere.
In many jurisdictions, compliance with competition laws is
of special importance to us due to our competitive position in
those jurisdictions. Regulatory authorities under whose laws
we operate may also have enforcement powers that can sub-
ject 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. Although we have policies and
procedures in place that are designed to promote legal and
regulatory compliance, our employees or suppliers could take
actions that violate these policies and procedures or applicable
laws or regulations. Violations of these laws or regulations
could subject us to criminal or civil enforcement actions which
could have a material adverse effect on our business.
Management’s Discussion and Analysis
2012 PEPSICO ANNUAL REPORT 41