Pepsi 2014 Annual Report Download - page 38

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in global supply and demand, weather conditions, disease, agricultural uncertainty, governmental incentives
and controls, political uncertainties or governmental instability. Shortage of some of these raw materials and
other supplies, sustained interruption in their supply or an increase in their costs could adversely affect our
business, financial condition or results of operations. Many of our ingredients, raw materials and commodities
are purchased in the open market. The prices we pay for such items are subject to fluctuation, and we manage
this risk through the use of fixed-price contracts and purchase orders, pricing agreements and derivatives. If
commodity price changes result in unexpected or significant increases in raw materials and energy costs, we
may not be able to increase our product prices or effectively hedge against commodity price increases to
offset these increased costs without suffering reduced volume, revenue, margins and operating results. In
addition, certain of the derivatives used to hedge price risk do not qualify for hedge accounting treatment
and therefore can result in increased volatility in our net earnings in any given period due to changes in the
spot prices of the underlying commodities.
Water is also a limited resource in many parts of the world. The lack of available water of acceptable quality
and increasing pressure to conserve water in areas of scarcity and stress may lead to supply chain disruption,
adverse effects on our operations or higher production costs that could adversely affect our business, financial
condition or results of operations.
See also “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.”, “Unfavorable economic conditions
may have an adverse impact on our business, financial condition or results of operations.”, “Climate change,
or legal, regulatory or market measures to address climate change, may negatively affect our business and
operations.” and “Market Risks” contained in “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and Note 10 to our consolidated financial statements.
Failure to realize anticipated benefits from our productivity initiatives or global operating model could
have an adverse impact on our business, financial condition or results of operations.
Our future success and earnings growth depend in part on our ability to reduce costs and improve efficiencies.
Our productivity initiatives help fund our growth initiatives and contribute to our results of operations. We
are implementing strategic plans that we believe will position our business for future success and long-term
sustainable growth by allowing us to achieve a lower cost structure and operate more efficiently in the highly
competitive beverage, food and snack industries. We are also continuing to implement our global operating
model to improve efficiency, decision making, innovation and brand management across the global PepsiCo
organization to enable us to compete effectively. In order to capitalize on our cost reduction efforts and our
global operating model, it will be necessary to make certain investments in our business, which may be
limited due to capital constraints. In addition, it is critical that we have the appropriate personnel in place to
continue to lead and execute our plans. If we are unable to successfully implement our productivity initiatives,
fail to implement these initiatives as timely as we anticipate, do not achieve expected savings as a result of
these initiatives or incur higher than expected or unanticipated costs in implementing these initiatives, or fail
to identify and implement additional productivity opportunities in the future, our business, financial condition
or results of operations could be adversely impacted.
Business disruptions could have an adverse impact on our business, financial condition or results of
operations.
Our ability, and that of our suppliers and other third parties, including our independent bottlers, contract
manufacturers, joint venture partners, independent distributors and retailers, to make, manufacture, transport,
distribute and sell products is critical to our success. Damage or disruption to our or their operations due to
any of the following could impair the ability to make, manufacture, transport, distribute or sell our products:
adverse weather conditions or natural disaster, such as a hurricane, earthquake or flooding; government
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