Sysco 2011 Annual Report Download - page 30

also subject to delays caused by interruption in production and increases in product costs based on conditions outside of our control. These
conditions include work slowdowns, work interruptions, strikes or other job actions by employees of suppliers, short-term weather conditions or
more prolonged climate change, crop conditions, product recalls, water shortages, transportation interruptions, unavailability of fuel or increases
in fuel 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.
If we Fail to Comply with Requirements Imposed by Applicable Law or Other Governmental Regulations, we Could Become Subject to Lawsuits,
Investigations and Other Liabilities and Restrictions on our Operations that Could Significantly and Adversely Affect our Business
We are subject to governmental regulation at the federal, state, international, national, provincial and local levels in many areas of our
business, such as food safety and sanitation, minimum wage, overtime, wage payment, wage and hour and employment discrimination,
immigration, human health and safety, including regulations of the FDA, USDA, U.S. Occupational Safety and Health Administration, federal motor
carrier safety, data privacy, environmental protection, the import and export of goods and customs regulations, the False Claims Act, the Foreign
Corrupt Practices Act and the services we provide in connection with governmentally funded entitlement programs. From time to time, both
federal and state governmental agencies have conducted audits of our billing practices as part of investigations of providers of services under
governmental contracts, or otherwise. We also receive requests for information from governmental agencies in connection with these audits.
While we attempt to comply with all applicable laws and regulations, we cannot assure you that we are in full compliance with all applicable laws
and regulations or interpretations of these laws and regulations at all times or that we will be able to comply with any future laws, regulations or
interpretations of these laws and regulations. If we fail to comply with applicable laws and regulations or encounter disagreements with respect to
our contracts subject to governmental regulations, including those referred to above, we may be subject to investigations, criminal sanctions or
civil remedies, including fines, injunctions, prohibitions on exporting, seizures or debarments from contracting with the government. The cost of
compliance or the consequences of non-compliance, including debarments, could have a material adverse effect on our business and results of
operations. In addition, governmental units may make changes in the regulatory frameworks within which we operate that may require either the
corporation as a whole or individual businesses to incur substantial increases in costs in order to comply with such laws and regulations.
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.
Competition in our Industry may Adversely Impact our Margins and our Ability to Retain Customers
The foodservice industry is highly competitive and numerous regional and local competitors exist. Additionally, new competition could arise
from non-traditional sources or consolidation among competitors. New competitive sources may result in increased focus on pricing and on
limiting price increases, or may require increased discounting. Such competition may result in margin erosion and/or make it difficult for us to
attract and retain customers.
Increased competition within the industry and general economic conditions have served to further increase pressure on the industry’s profit
margins, and continued margin pressure within the industry may have a material adverse impact on our operating results and profitability. If we
are unable to effectively differentiate ourselves from our competitors, our market share, sales and profitability, through increased expendituresor
decreased prices, could be adversely impacted.
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.
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