Sysco 2013 Annual Report Download - page 20

SYSCO CORPORATION-Form10-K 9
PARTI
ITEM1ARisk Factors
Another element of our strategy includes the possibility of expansion into businesses that are closely related or complementary to, but not currently part
of, our core foodservice distribution business. Our ability to successfully operate in these complementary 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
complementary markets also include the costs and dif culties of managing operations outside of our core business, which may require additional skills
and competencies, as well as dif culties in identifying and gaining access to suppliers or customers in new markets.
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 signifi cantly
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, and
due to 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 represent 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. We have received notice from
the State of California and certain county district attorneys alleging violations of statutes related to the use of drop sites, which are temporary facilities for
holding products prior to distributing them to customers. We are fully cooperating with these parties in their investigations. We have discontinued the use
of drop sites across the enterprise. While we believe we have mitigated the risk, we may face  nes and penalties.
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  nes, 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.
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. We cannot be sure that consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims
or lawsuits relating to such matters. Further, even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding
any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate
and brand image. With respect to product liability claims, we believe we have suf cient 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 indemni cation and insurance coverage from parties supplying our products, but this indemni cation 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 indemni cation available, product liability relating to defective products could materially reduce our net earnings
and earnings per share.
We must fi nance 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 bene ts and synergies in a timely manner, our earnings per share may be materially adversely impacted. Integration of
an acquired business may be more dif cult when we acquire a business in a market in which we have limited expertise, or with a culture different from
Sysco’s. A signi cant expansion of our business and operations, in terms of geography or magnitude, could strain our administrative and operational
resources. Signi cant 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 dif cult for us to obtain favorable  nancing 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 on cash fl ow and liquidity
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  nance 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 signi cant adverse effect on our cash  ows, as well as the market
value of our common stock.