Pepsi 2012 Annual Report Download - page 48

be adversely affected if a credit rating agency announces that
our ratings are under review for a potential downgrade.
If we are not able to build and sustain proper information
technology infrastructure, successfully implement our
ongoing business transformation initiative or outsource
certain functions effectively, our business could suffer.
We depend on information technology as an enabler to
improve the effectiveness of our operations, to interface
with our customers, to maintain financial accuracy and effi-
ciency, to comply with regulatory financial reporting, legal
and tax requirements, and for digital marketing activities and
electronic communication among our locations around the
world and between our personnel and the personnel of our
independent bottlers, contract manufacturers, joint ventures,
suppliers or other third-party partners. If we do not allocate
and effectively manage the resources necessary to build and
sustain the proper information technology infrastructure, we
could be subject to transaction errors, processing inefficien-
cies, the loss of customers, business disruptions, the loss of
or damage to intellectual property, or the loss of sensitive or
confidential data through security breach or otherwise.
We have embarked on multi-year business transformation
initiatives to migrate certain of our financial processing sys-
tems to enterprise-wide systems solutions. There can be no
certainty that these initiatives will deliver the expected ben-
efits. The failure to deliver our goals may impact our ability to
process transactions accurately and efficiently and 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 applications on time, or anticipate the necessary readiness
and training needs, could lead to business disruption and loss
of customers and revenue.
In addition, we have outsourced certain information tech-
nology support services and administrative functions, such as
payroll processing and benefit plan administration, to third-
party service providers and may outsource other functions
in the future to achieve cost savings and efficiencies. If the
service providers that we outsource these functions to do not
perform or do not perform effectively, we may not be able to
achieve the expected cost savings and may have to incur addi-
tional costs to correct errors made by such service providers.
Depending on the function involved, such errors may also lead
to business disruption, processing inefficiencies, the loss of or
damage to intellectual property through security breach, the
loss of sensitive data through security breach or otherwise, liti-
gation or remediation costs and could have a negative impact
on employee morale.
Our information systems could also be penetrated by out-
side parties intent on extracting confidential information,
corrupting information or disrupting business processes.
Such unauthorized access could disrupt our business and
could result in the loss of assets, litigation, remediation costs,
damage to our reputation and loss of revenue resulting from
unauthorized use of confidential information or failure to
retain or attract customers following such an event.
Fluctuations in exchange rates may have an adverse
impact on our business results or financial condition.
We hold assets and incur liabilities, earn revenues and pay
expenses in a variety of currencies other than the U.S. dollar.
Because our consolidated financial statements are presented
in U.S. dollars, the financial statements of our subsidiaries
outside the United States are translated into U.S. dollars. Our
operations outside of the U.S. generate a significant portion of
our net revenue. Fluctuations in exchange rates may therefore
adversely impact our business results or financial condition.
See also “Market Risks” and Note1 to our consolidated finan-
cial statements.
Climate change, or legal, regulatory or market measures
to address climate change, may negatively affect our
business and operations.
There is concern that carbon dioxide and other greenhouse
gases in the atmosphere may have an adverse impact on global
temperatures, weather patterns and the frequency and sever-
ity of extreme weather and natural disasters. In the event
that such climate change has a negative effect on agricultural
productivity, we may be subject to decreased availability or
less favorable pricing for certain commodities that are neces-
sary for our products, such as sugar cane, corn, wheat, rice,
oats, potatoes and various fruits. We may also be subjected to
decreased availability or less favorable pricing for water as a
result of such change, which could impact our manufacturing
and distribution operations. In addition, natural disasters and
extreme weather conditions may disrupt the productivity of
our facilities or the operation of our supply chain. The increas-
ing concern over climate change also may result in more
regional, federal and/or global legal and regulatory require-
ments to reduce or mitigate the effects of greenhouse gases.
In the event that such regulation is more aggressive than the
sustainability measures that we are currently undertaking to
monitor our emissions and improve our energy efficiency, we
may experience significant increases in our costs of opera-
tion and delivery. In particular, increasing regulation of fuel
emissions could substantially increase the cost of energy,
including fuel, required to operate our facilities or transport
Management’s Discussion and Analysis
2012 PEPSICO ANNUAL REPORT46