Sysco 2010 Annual Report Download - page 30
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Please find page 30 of the 2010 Sysco 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.costs, competitive demands and natural disasters or other catastrophic events (including, but not limited to food-borne illnesses). Our inability to
obtain adequate supplies of foodservice and related products as a result of any of the foregoing factors or otherwise could mean that we could not
fulfill our obligations to customers, and customers may turn to other distributors.
Adverse Publicity about us or Lack of Confidence in our Products Could Negatively Impact our Reputation and Reduce Earnings
Maintaining a good reputation and public confidence in the safety of the products we distribute is critical to our business, particularly to selling
Sysco Brand products. Anything that damages that reputation or the public’s confidence in our products, whether or not justified, including adverse
publicity about the quality, safety or integrity of our products, could quickly affect our revenues and profits. Reports, whether true or not, of food-
borne illnesses, such as e-coli, avian flu, bovine spongiform encephalopathy, hepatitis A, trichinosis or salmonella, and injuries caused by food
tampering could also severely injure our reputation or negatively impact the public’s confidence in our products. If patrons of our restaurant
customers become ill from food-borne illnesses, our customers could be forced to temporarily close restaurant locations and our sales and
profitability would be correspondingly decreased. In addition, instances of food-borne illnesses or food tampering or other health concerns, such as
flu epidemics or other pandemics, even those unrelated to the use of Sysco products, or public concern regarding the safety of our products, can
result in negative publicity about the food service distribution industry and cause our sales and profitability to decrease dramatically.
Product Liability Claims Could Materially Impact our Business
We, like any other seller of food, face the risk of exposure to product liability claims in the event that the use of products sold by Sysco causes
injury or illness. With respect to product liability claims, we believe we have sufficient primary or excess umbrella liability insurance. However, this
insurance may not continue to be available at a reasonable cost or, if available, may not be adequate to cover all of our liabilities. We generally seek
contractual indemnification and insurance coverage from parties supplying our products, but this indemnification or insurance coverage is limited, as
a practical matter, to the creditworthiness of the indemnifying party and the insured limits of any insurance provided by suppliers. If Sysco does not
have adequate insurance or contractual indemnification available, product liability relating to defective products could materially reduce our net
earnings and earnings per share.
Expanding into International Markets and Complimentary Lines of Business Presents Unique Challenges, and our Expansion Efforts with respect to Inter-
national Operations and Complimentary Lines of Business may not be Successful
In addition to our domestic activities, an element of our strategy includes the possibility of further expansion of operations into international
markets. Our ability to successfully operate in international markets may be adversely affected by local laws and customs, legal and regulatory
constraints, including compliance with the Foreign Corrupt Practices Act, political and economic conditions and currency regulations of the
countries or regions in which we currently operate or intend to operate in the future. Risks inherent in our existing and future international operations
also include, among others, the costs and difficulties of managing international operations, difficulties in identifying and gaining access to local
suppliers, suffering possible adverse tax consequences, maintaining product quality and greater difficulty in enforcing intellectual property rights.
Additionally, foreign currency exchange rates and fluctuations may have an impact on our future costs or on future sales and cash flows from our
international operations.
Another element of our strategy includes the possibility of expansion into businesses that are closely related or complimentary to, but not
currently part of, our core foodservice distribution business. Our ability to successfully operate in these complimentary business markets may be
adversely affected by legal and regulatory constraints, including compliance with regulatory programs to which we become subject. Risks inherent in
branching out into such complimentary markets also include the costs and difficulties of managing operations outside of our core business, which
may require additional skills and competencies, as well as difficulties in identifying and gaining access to suppliers or customers in new markets.
We Must Finance and Integrate Acquired Businesses Effectively
Historically, a portion of our growth has come through acquisitions. If we are unable to integrate acquired businesses successfully or realize
anticipated economic, operational and other benefits and synergies in a timely manner, our earnings per share may decrease. Integration of an acquired
business may be more difficult when we acquire a business in a market in which we have limited expertise, or with a culture different from Sysco’s. A
significant expansion of our business and operations, in terms of geography or magnitude, could strain our administrative and operational resources.
Significant acquisitions may also require the issuance of material additional amounts of debt or equity, which could materially alter our debt to equity
ratio, increase our interest expense and decrease earnings per share, and make it difficult for us to obtain favorable financing for other acquisitions or
capital investments.
We Need Access to Borrowed Funds in Order to Grow and Any Default by Us Under our Indebtedness Could Have a Material Adverse Impact
A substantial part of our growth historically has been the result of acquisitions and capital expansion. We anticipate additional acquisitions and
capital expansion in the future. As a result, our inability to finance acquisitions and capital expenditures through borrowed funds could restrict our
ability to expand. Moreover, any default under the documents governing our indebtedness could have a significant adverse effect on our cash flows,
as well as the market value of our common stock.
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