US Foods Annual Report 2018

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ANNUAL REPORT 2018

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To Our Stockholders,

At US Foods®, everything we do is
focused on helping our customers
Make It. It’s our promise to our
customers, and the reason we’re so
passionate about our GREAT FOOD.
MADE EASY.™ strategy.

In 2018, we continued to deliver
on this promise, while making
operational improvements to
strengthen the foundation of
our business.

Fiscal 2018 Highlights

We finished the year with 3.9%
independent restaurant case growth
for the fourth quarter. We continued
to be good stewards of capital,
enhancing our focus on cost control
and increasing our investment in
continuous improvement.

Our 2018 financial highlights include:

• Grew full-year net sales to $24.2

billion while increasing gross profit
by more than 2%

• Delivered net income of $407

million and grew adjusted EBITDA
by 4.3% to $1.1 billion

• Continued a multiyear trend of
growing our gross profit dollars
per case at a faster rate than
operating expenses per case,
despite pressure on wages due to
an unusually tight labor market

• Increased private brand penetration

by 100 basis points

• Further reduced debt while

continuing to significantly invest in
the business

Our Strategy

We remain confident in our GREAT
FOOD. MADE EASY. differentiation
strategy, which is aimed at providing
customers with the innovative
products and technology solutions
they need to run their businesses
profitably. Through this strategy, we
have built three critical differentiators
– product innovation, technology and
team-based selling – that we believe
will continue to serve us well into
the future.

Great Food

Keeping a menu fresh is challenging,
and customers count on US Foods for
new, innovative products that will help
them attract diners. The centerpiece of
this commitment to innovation is Scoop™,
a program that introduces customers
to a range of versatile and on-trend
products multiple times a year. Our Fall
2018 Scoop was our best yet, with more
than 40% of our customers purchasing
at least two cases of Scoop products, a
key loyalty indicator and demonstration
of the universal appeal of products
launched through Scoop. A growing
part of our Scoop portfolio is our
Serve Good® program, which features
more than 350 products that are
responsibly sourced or contribute to
waste reduction. In 2018, we also
introduced our Unpronounceables List™
initiative, cleaning up the ingredient
profiles of our Metro Deli®, Rykoff
Sexton®, Chef’s Line® and Stock Yards®*
private brand products.

Made Easy

Running a successful restaurant goes
far beyond serving great food. US Foods
provides technology, expertise and other
tools that make it easier to transact with
us and easier for operators to run their
businesses. Our technology continues
to lead the industry with a personalized
e-commerce ordering experience and
easy-to-use business analytics tools.
We’ve also seen growing adoption
of our value-added services that help
customers address key pain points
like food waste, labor and staffing and
driving more diner traffic.

In 2018, we made progress on
our strategy, piloting US Foods Direct™,
an online ordering platform with
thousands of specialty products shipped
directly to operators, and expanding our
US Foods Pronto™ service, which lets
restaurant operators receive smaller
orders more frequently. We also added
two new CHEF’STORE® locations
to provide more customers with a
retail option.

Our products and services are delivered
through a unique team-based selling
approach that provides customers
access to a diverse team of experts
including chefs, center of the plate and
produce specialists and restaurant
operations consultants.

In 2018, we also announced our
planned acquisition of Services Group
of America’s Food Group of Companies,
which will expand our network in the
Northwest region of the country and
enhance our logistics, center of the

U S F O O D S A N N U A L R E P O R T 2 0 1 8

plate and produce capabilities. We look
forward to welcoming the Food Group
associates to the US Foods family.

Delivering with Excellence

To ensure our execution is as strong as
our strategy, in 2018 we invested more
heavily in our operations. This included:

• Completing centralization of our

replenishment function, which we
expect will improve our service platform
and gross profit over time

• Significantly improving on-time delivery

to customers, while also reducing
the number of miles driven to serve
customers

• Mitigating headwinds from higher

freight costs through improved freight
management

We’ve also doubled down on embedding
continuous improvement in our operations
to help us increase consistency and
efficiency and engage employees in
improving our day-to-day processes. This
work has already started to come to life
in areas like our supply chain and shared
business services, where we’ve begun
to implement new routines and embed
continuous improvement resources.

Together, these investments gave us
momentum at the end of the year and
put us on the right footing for 2019
and beyond.

2019 and the Road Ahead

Looking ahead, we believe we have
the right strategy to make the most of
the continued growth in food-away-
from-home consumption and consumer
preferences for innovative, on-trend
flavors. In 2019, we expect to continue
to grow with our target customers,
particularly independent restaurants,
healthcare and hospitality, while driving
increased penetration of our private
brand products. We’ll continue to focus
on managing operational cost pressures,
such as wage and freight rates, through
continuous improvement, process
efficiencies and strong cost discipline.

Finally, our success is powered by the
more than 25,000 US Foods employees
who come to work every day with one
goal in mind: to help our customers
Make It. I’m constantly inspired by their
passion, commitment and talent. It’s a
privilege to work with them.

Pietro Satriano
Chairman and Chief Executive Officer

*Does not include product marketed
and sold by third-party licensees.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the fiscal year ended December 29, 2018
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission File No. 001-37786

US FOODS HOLDING CORP.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of
incorporation or organization)

24-0347906

(I.R.S. Employer
Identification Number)

9399 W. Higgins Road, Suite 100
Rosemont, IL 60018
(847) 720-8000
(Address, including Zip Code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Non-accelerated filer

Accelerated filer

Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes

At June 29, 2018, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the
registrant's common stock held by non-affiliates was $8.2 billion (based on the reported closing sale price of the registrant’s common stock on
such date on the New York Stock Exchange). 217,611,476 of the registrant’s common stock were outstanding as of February 8, 2019.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under
the Securities Exchange Act of 1934, relating to the registrant’s Annual Meeting of Stockholders to be held on May 1, 2019, are incorporated
herein by reference for purposes of Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K. The definitive proxy statement
will be filed with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year ended December 29, 2018.

US Foods Holding Corp.
Annual Report on Form 10-K
TABLE OF CONTENTS

Page No.

PART I.

Item 1.

Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2.

Properties

Item 3.

Legal Proceedings

Item 4. Mine Safety Disclosures

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities

Item 6.

Selected Financial Data

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8.

Financial Statements and Supplementary Data

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14.

Principal Accounting Fees and Services

PART IV

Item 15. Exhibits, Financial Statement Schedules

Item 16.

Form 10-K Summary

Signatures

(PAGE INTENTIONALLY LEFT BLANK)

Basis of Presentation

We operate on a 52 or 53 week fiscal year, with all periods ending on a Saturday. When a 53-week fiscal year
occurs, we report the additional week in the fiscal fourth quarter. The fiscal years ended December 29, 2018,
December 30, 2017, December 31, 2016, January 2, 2016 and December 27, 2014 are also referred to herein as
fiscal years 2018, 2017, 2016, 2015 and 2014, respectively. Our fiscal years 2018, 2017, 2016 and 2014 were 52-
week fiscal years. Our fiscal year 2015 was a 53-week fiscal year.

Forward-Looking Statements

This Annual Report on Form 10-K (“Annual Report”) contains “forward-looking statements” within the meaning of
the federal securities laws. Forward-looking statements include information concerning our liquidity and our
possible or assumed future results of operations, including descriptions of our business strategies. These statements
often include words such as “believe,” “expect,” “project,” “anticipate,” “intend,” “plan,” “estimate,” “target,”
“seek,” “will,” “may,” “would,” “should,” “could,” “forecasts,” “mission,” “strive,” “more,” “goal,” or similar
expressions. The statements are based on assumptions that we have made based on our experience in the industry as
well as our perceptions of historical trends, current conditions, expected future developments, and other factors we
think are appropriate. We believe these judgments are reasonable. However, you should understand that these
statements are not guarantees of performance or results. Our actual results could differ materially from those
expressed in the forward-looking statements.

There are a number of risks, uncertainties, and other important factors, many of which are beyond our control, that
could cause our actual results to differ materially from the forward-looking statements contained in this Annual
Report. These risks, uncertainties, and other important factors include, among others, the risks, uncertainties, and
factors set forth in Item 1A of Part I, “Risk Factors,” and Item 7 of Part II, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” of this Annual Report.

In light of these risks, uncertainties and other important factors, the forward-looking statements in this Annual
Report might not prove to be accurate, and you should not place undue reliance on them. All forward-looking
statements attributable to us, or others acting on our behalf, are expressly qualified in their entirety by the cautionary
statements above. All of these statements speak only as of the date made, and we undertake no obligation to
publicly update or revise any forward-looking statements, whether because of new information, future events or
otherwise, except as required by law.

Comparisons of results between current and prior periods are not intended to express any future trends, or
indications of future performance, unless expressed as such, and should be viewed only as historical data.

Item 1.

Business

PART I

US Foods Holding Corp., a Delaware corporation, and its consolidated subsidiaries are referred to in this Annual
Report as “we,” “our,” “us,” “the Company,” or “US Foods.” US Foods Holding Corp. conducts all of its operations
through its wholly owned subsidiary US Foods, Inc. (“USF”) and its subsidiaries.

Our Company

We are among America’s great food companies and leading foodservice distributors. Built through organic growth
and acquisitions, we trace our roots back over 150 years to a number of heritage companies with rich legacies in
food innovation and customer service. These include Monarch Foods (established in 1853), Sexton (1883), PYA
(1903), Rykoff (1911) and Kraft Foodservice (1976). US Foodservice was organized as a corporation in Delaware
in 1989. In November 2011, we rebranded from “US Foodservice” to “US Foods.”

Our mission is to be First In Food. We strive to inspire and empower chefs and foodservice operators to bring great
food experiences to consumers. This mission is supported by our strategy of Great Food. Made Easy., which centers
on providing our customers a broad and innovative offering of high-quality products, as well as a comprehensive
suite of industry-leading e-commerce, technology, and business solutions. We operate as one business with
standardized business processes, shared systems infrastructure, and an organizational model that optimizes national
scale with local execution, allowing us to manage the business as a single operating segment. We have centralized
activities where scale matters and our local field structure focuses on customer facing activities. As we say on our
trucks, we are Keeping Kitchens Cooking across America.

We supply approximately 250,000 customer locations nationwide. These customer locations include independently
owned single and multi-unit restaurants, regional restaurant concepts, national restaurant chains, hospitals, nursing
homes, hotels and motels, country clubs, government and military organizations, colleges and universities, and retail
locations. We provide approximately 400,000 fresh, frozen, and dry food stock-keeping units, or SKUs, as well as
non-food items, sourced from approximately 5,000 suppliers. Approximately 4,000 sales associates manage
customer relationships at local, regional, and national levels. They are supported by sophisticated marketing and
category management capabilities, as well as a sales support team that includes world-class chefs and restaurant
operations consultants, new business development managers and others that help us provide more comprehensive
service to our customers. Our extensive network of 63 distribution facilities and fleet of approximately 6,000 trucks
allow us to operate efficiently and provide high levels of customer service. This operating model allows us to
leverage our nationwide scale and footprint while executing locally.

Our Business Strategy

While we serve many customer types, our strategy is primarily focused on independent restaurants, small and
regional chains, and healthcare and hospitality customers. Among other factors, their expected growth, mix of
product and category purchases, and adoption of value-added solutions make them attractive to us.

We offer innovative products and services that help chefs and operators succeed. Our e-commerce tools and mobile
solutions make it easier for customers to do business with us. We execute on these elements of our strategy while
delivering on the fundamental requirements that are important to all of our customers.

Growth from acquisitions remains an important part of our strategy. We believe there remain attractive acquisition
opportunities for us that will allow us to grow with our target customer types and generate an attractive return on
investment, including from the synergies we may capture from integration. As an example, in July 2018, we
announced that we entered into a Stock Purchase Agreement with Services Group of America, Inc. (“SGA”) under
which we agreed to acquire SGA’s Food Group of Companies, including Food Services of America, Inc., Systems
Services of America, Inc., Amerifresh, Inc., Ameristar Meats, Inc. and Gampac Express, Inc. (collectively, the “SGA
Food Group Companies”), for $1.8 billion in cash. The closing of the acquisition remains subject to customary
conditions, including the receipt of required regulatory approvals.

Our Industry

The U.S. foodservice distribution industry has a large number of companies competing in the space, including
local, regional, and national distributors. Foodservice distributors typically fall into three categories, representing
differences in customer focus, product offering, and supply chain:

•

Broadline distributors which offer a “broad line” of products and services;

System distributors which carry products specified for large chains; and

Specialized distributors which primarily focus on specific product categories (e.g., meat or produce) or
customer types.

A number of adjacent competitors also serve the U.S. foodservice distribution industry, including cash-and-carry
retailers, commercial wholesale outlets and warehouse clubs, commercial website outlets, and grocery stores.

There is a high degree of customer overlap, particularly across the broadline, specialized and cash-and-carry
categories, as many customers purchase from multiple distributors. Most buying decisions are based on the type of
product offered, quality and price, and a distributor’s ability to completely and accurately fill orders and provide
timely deliveries. Since switching costs are low, customers can make supplier and distribution channel changes
quickly. Existing foodservice competitors can extend their shipping distances and add truck routes and warehouses
relatively quickly to serve new markets or customers.

We believe, based upon industry trade data, that we are the second largest foodservice distributor in the U.S. by
annual sales, with over $24 billion in net sales during fiscal 2018. Given our mix of products and services, we are
considered a broadline distributor.

The U.S. foodservice distribution industry is comprised of different customer types of varying sizes, growth profiles,
and product and service requirements.

•

Independent restaurants/small chains and regional chains. Independent restaurants and small and
regional chains typically differentiate themselves in the market based on the dining experience they
provide to consumers and the quality and diversity of their menu. Many value business solutions that
help them attract diners, improve the effectiveness of their menu offering, and drive efficiency in their
operations.

Healthcare customers. Healthcare customers generally fall into either acute care (e.g. hospital systems)
or senior living (e.g. nursing homes and long-term care facilities). Healthcare customers have complex
foodservice needs given their scale, need for menu diversity, and logistics considerations. Food is also
not as central to their overall business as it is for a restaurant, but it is a key contributor to patient
satisfaction. As a result, some healthcare providers utilize third party contract management companies
to operate their foodservice facilities. Many use group purchasing organizations, or GPOs, as
intermediaries in order to gain procurement scale. In our experience, healthcare customers purchasing
directly, through GPOs, or through contract foodservice operators value strong relationships with their
foodservice distributors, particularly those that bring national scale, a broad product offering, and strong
transactional and logistics capabilities.

Hospitality customers. Hospitality customers are a diverse group, ranging from large hotel chains and
conference centers to local banquet halls, country clubs, casinos, and entertainment and sports
complexes. Food is a key contributor to guest satisfaction for these customers, and they value solutions
related to menu planning and efficiency improvements in their kitchens and restaurants. With complex
foodservice needs, hospitality customers value streamlined purchasing processes and expect high
service levels in fulfilling their orders.

National restaurant chains. National chains tend to in-source most activities except distribution, where
they often rely on system distributors primarily for freight and logistics.

In fiscal year 2018, no single customer represented more than 3% of our total customer sales. Sales to our top 50
customers/GPOs represented approximately 44% of our net sales in fiscal year 2018. We have relationships with
GPOs that act as agents for their members in negotiating pricing, delivery and other terms. Some customers who are
members of GPOs purchase their products directly from us under the terms negotiated by their GPOs. In fiscal year
2018, GPO members accounted for about 26% of our total customer purchases. GPO members are primarily

comprised of customers in the healthcare, hospitality, education, and government/military industries, as well as
restaurant chains.

We believe that a broad array of value-added solutions offered by foodservice distributors makes customers more
effective and efficient and can help foodservice distributors profitably grow their businesses. These services require
distributors to invest in their capabilities, resulting in a higher cost-to-serve. When customers benefit from product
and service solutions, they purchase a more attractive and profitable mix of items and tend to have stronger
commercial relationships and loyalty.

We believe that the customer types that we target, which include independent restaurants, small and regional chains,
and healthcare and hospitality customers, have greater growth prospects and/or benefit from the types of value-
added solutions we offer to a greater extent than other customer types.

There are several important dynamics affecting the industry, including:

•

Evolving consumer tastes and preferences. Consumers demand healthy and authentic food alternatives
with fewer artificial ingredients, and they value locally harvested and sustainably manufactured
products. In addition, many ethnic food offerings are becoming more mainstream as consumers show a
greater willingness to try new flavors and cuisines. Changes in consumer preferences create
opportunities for new and innovative products and for unique food-away-from-home destinations. This,
in turn, is expected to create growth, expand margins, and produce better customer retention
opportunities for those distributors with the flexibility to balance national scale and local preferences.
We believe foodservice distributors will likely need broader product assortments, extended supplier
networks, effective supply chain management capabilities, and strong food safety programs to meet
these needs.

Generational shifts with millennials and baby boomers. Given their purchasing power, millennials and
baby boomers will continue to significantly influence food consumption and the food-away-from-home
market. According to a U.S. Census Bureau survey, there were 83 million individuals born between
1982 and 2000 in the United States. That makes these millennials the largest demographic cohort. We
believe they are key to driving growth in the broader U.S. food industry as their disposable income
increases. Baby boomers continue to shape the industry as they remain in the workplace longer, which
is expected to prolong their contribution to food-away-from-home expenditures.

Growing importance of e-commerce. We see significant future growth in e-commerce and in the
adoption of mobile technology solutions by foodservice operators. E-commerce solutions increase
customer retention. They also deepen the relationship between foodservice distributors and customers,
creating new insights and services that can make both more efficient. We think deeper, technology-
enabled relationships with customers will accelerate the adoption of new products and increase
customer loyalty. As a result, distributors that have invested in creating these capabilities have a
competitive edge. We believe this trend will accelerate, as millennials and Generation Z become key
influencers and decision-makers within the industry, particularly at the customer level. We believe
foodservice distributors will need to strengthen technology, data analytics, and related capabilities to
address these changes.

We believe that we have the scale, foresight and agility required to proactively address these trends and, in turn,
benefit from higher growth, greater customer retention and improved profitability.

Products, Brands, and Other Intellectual Property

We have a broad assortment of product categories and brands to meet customers’ needs. In many categories, we
offer products under a spectrum of private brands based on price and quality.

The table below presents the sales mix for our principal product categories for the 2018, 2017 and 2016 fiscal years.

Meats and seafood

Dry grocery products

Refrigerated and frozen grocery products

Dairy

Equipment, disposables and supplies

Beverage products

Produce

2018

8,635

4,239

3,898

2,520

2,298

1,315

1,270

Fiscal Years
2017

(in millions)
8,692
$

4,266

3,799

2,533

2,243

1,306

1,308

2016

8,121

4,127

3,653

2,380

2,166

1,268

1,204

24,175

24,147

22,919

We have registered the trademarks US Foods®, Food Fanatics® and Chef’Store® in connection with our overall US
Foods brand strategy and our retail outlets. We have also registered or applied for trademark protection in the U.S.
for the following brands in our brand portfolio:

• Chef’s Line®
• Metro Deli®

Our Best-Quality Brands – Distinction and Superior Taste
• Rykoff Sexton®
• Stock Yards®

Brands You Can Trust for Quality, Performance and Value

• Cattleman’s Selection® • Harbor Banks®
• Hilltop Hearth®
• Cross Valley Farms®
• Molly’s Kitchen®
• Devonshire®
• Monarch®
• del Pasado™
• Harvest Value®
• Glenview Farms®

• Monogram®
• Rituals®
• Monogram® Clean Force® • Roseli®
• Optimax®
• Pacific Jade®
• Patuxent Farms®

• Superior®
• Thirster®
• Valu+Plus®

Other than these trademarks, we do not believe that intellectual property is material to our business.

Suppliers

We purchase from approximately 5,000 individual suppliers, none of which accounted for more than 5% of our
aggregate purchases in fiscal year 2018. Our suppliers generally are large corporations selling national brand name
and private brand products. Additionally, regional and local suppliers support targeted geographic initiatives and
private label programs requiring regional and local distribution. We generally negotiate supplier agreements on a
centralized basis.

Seasonality

Our business does not fluctuate significantly from quarter to quarter, and as a result, is not considered seasonal.

Working Capital

Our operations and strategic objectives require continuing capital investment, and our resources include cash
provided by operations, as well as access to capital from bank borrowings and other types of debt and financing
arrangements. See discussion in “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations” regarding our liquidity and capital resources.

Government Regulation

As a marketer and distributor of food products in the U.S., US Foods must comply with various laws and regulations
from certain U.S. federal, state and local regulatory agencies. A summary of some of these laws and regulations is
provided below.

Food Handling and Processing

We are subject to various U.S. federal, state and local laws and regulations relating to the manufacturing, handling,
storage, transportation, sale and labeling of food products, including the applicable provisions of the Federal Food,
Drug and Cosmetic Act, Bioterrorism Act, Food Safety Modernization Act (“FSMA”), Federal Meat Inspection Act,
Poultry Products Inspection Act, Perishable Agricultural Commodities Act, Country of Origin Labeling Act, and
regulations issued by the U.S. Food and Drug Administration (“FDA”) and the U.S. Department of Agriculture
(“USDA”).

Our distribution facilities must be registered with the FDA biennially and are subject to periodic government agency
inspections by federal and/or state authorities. We have a small number of processing facilities for some meat,
poultry, seafood and produce products. These units are registered and inspected by the USDA (with respect to meat
and poultry) and the FDA (with respect to produce and seafood).

We also distribute a variety of non-food products, such as food containers, kitchen equipment and cleaning
materials, and are subject to various U.S. federal, state and local laws and regulations relating to the storage,
transportation, distribution, sale and labeling of those non-food products, including requirements to provide
information about the hazards of certain chemicals present in some of the products we distribute.

Our customers include several departments of the U.S. federal government, as well as certain state and local
governmental entities. These customer relationships subject us to additional regulations applicable to government
contractors.

Employment

The U.S. Department of Labor and its agencies, the Employee Benefits Security Administration, the Occupational
Safety and Health Administration, and the Office of Federal Contract Compliance Programs, regulate our
employment practices and standards for workers. We are also subject to laws that prohibit discrimination in
employment based on non-merit categories, including Title VII of the Civil Rights Act and the Americans with
Disabilities Act, and other laws relating to accessibility and the removal of barriers. Our workers’ compensation
self-insurance is subject to regulation by the jurisdictions in which we operate.

Our facilities are subject to inspections under the Occupational Safety and Health Act with respect to our compliance
with certain manufacturing, health and safety standards to protect our employees from accidents. We are also
subject to the National Labor Relations Act, which governs the process for collective bargaining between employers
and employees and protects the rights of both employers and employees in the workplace.

Trade

For the purchase of products produced, harvested or manufactured outside of the U.S., and for the shipment of
products to customers located outside of the U.S., we are subject to applicable customs laws regarding the import
and export of various products. Certain activities, including working with customs brokers and freight forwarders,
are subject to applicable regulation by U.S. Customs and Border Protection, which is part of the Department of
Homeland Security.

Ground Transportation

The U.S. Department of Transportation and its agencies, the Surface Transportation Board, the Federal Highway
Administration, the Federal Motor Carrier Safety Administration, and the National Highway Traffic Safety
Administration, regulate our trucking operations through the regulation of operations, safety, insurance and
hazardous materials. We must comply with the safety and fitness regulations promulgated by the Federal Motor
Carrier Safety Administration, including those relating to drug and alcohol testing and hours of service. Matters
such as weight and dimension of equipment also fall under U.S. federal and state regulations.

Environmental

Our operations are also subject to a broad range of U.S. federal, state, and local environmental laws and regulations,
as well as zoning and building regulations. Environmental laws and regulations cover a variety of procedures,
including appropriately managing wastewater and stormwater; complying with clean air laws, including those
governing vehicle emissions; properly handling and disposing of solid and hazardous wastes; protecting against and
appropriately investigating and remediating spills and releases; and monitoring and maintaining underground and
aboveground storage tanks for diesel fuel and other petroleum products.

Anticorruption

Because we are organized under the laws of a state in the U.S. and our principal place of business is in the U.S., we
are considered a “domestic concern” under the Foreign Corrupt Practices Act (“FCPA”) and are covered by the anti-
bribery provisions of the FCPA. The anti-bribery provisions of the FCPA prohibit any domestic concern and any
officer, director, employee, or agent acting on behalf of the domestic concern from paying or authorizing payment of
anything of value to: (i) influence any act or decision by a foreign official; (ii) induce a foreign official to do or omit
to do any act in violation of his/her lawful duty; (iii) secure any improper advantage; or (iv) induce a foreign official
to use his/her influence to assist the payor in obtaining or retaining business or directing business to another person.

Employees

As of December 29, 2018, we had approximately 25,000 employees, of which approximately 24,800 were full-time
employees. Approximately 4,400 employees were members of local unions associated with the International
Brotherhood of Teamsters and other labor organizations. Approximately one-third of our distribution facilities have
employees represented by unions with collective bargaining agreements (“CBAs”).

During fiscal year 2018, 11 CBAs covering approximately 900 employees were renegotiated. During fiscal 2019,
15 CBAs covering approximately 1,400 employees will be subject to renegotiation. While we have experienced
work stoppages in the past, we generally believe we have good relations with both union and non-union employees,
and we believe we are a well-regarded employer in the communities in which we operate.

Executive Officers

Name
Pietro Satriano

Dirk J. Locascio

Kristin M. Coleman

Steven Guberman

Andrew Iacobucci

Jay A. Kvasnicka

David Rickard

Keith D. Rohland

David Works

Age Position
56

Chairman and Chief Executive Officer

Chief Financial Officer

Executive Vice President, General Counsel and Chief Compliance Officer

Executive Vice President, Nationally Managed Business

Chief Merchandising Officer and Interim Chief Supply Chain Officer

Executive Vice President, Locally Managed Business and Field Operations

Executive Vice President, Strategy and Revenue Management

Chief Information Officer

Chief Human Resources Officer

Mr. Satriano has served as Chief Executive Officer and a director of US Foods since July 2015. In December 2017,
Mr. Satriano was elected Chairman of the Board of Directors. From February 2011 until July 2015, Mr. Satriano
served as our Chief Merchandising Officer. Prior to joining US Foods, Mr. Satriano was President of LoyaltyOne
Co., a Canadian provider of loyalty marketing and programs, from 2009 to 2011. From 2002 to 2008, he served in a
number of leadership positions at Loblaw Companies Limited, a Canadian food retailer, including Executive Vice
President, Loblaw Brands, and Executive Vice President, Food Segment. Mr. Satriano began his career in strategy
consulting, first in Toronto, Canada with The Boston Consulting Group and then in Milan, Italy with the Monitor
Company. Mr. Satriano currently serves on the board of directors of CarMax, Inc.

Mr. Locascio has served as Chief Financial Officer since February 2017. Mr. Locascio served the Company as
Senior Vice President, Financial Accounting and Analysis from November 2016 to February 2017, Senior Vice
President, Operations Finance and Financial Planning from May 2015 to November 2016, and Senior Vice
President, Financial Planning and Analysis from May 2013 to May 2015. Mr. Locascio joined US Foods in
June 2009 as Senior Vice President, Corporate Controller. Prior to joining US Foods, Mr. Locascio held senior
finance roles with United Airlines, a global airline, and Arthur Andersen LLP, a public accounting firm.

Ms. Coleman has served as Executive Vice President, General Counsel and Chief Compliance Officer since
February 2017. Ms. Coleman joined US Foods from Sears Holdings Corporation, a retailer, where she served as
Senior Vice President, General Counsel and Corporate Secretary after joining in July 2014. Prior to joining Sears,
she served as the Vice President, General Counsel and Corporate Secretary of Brunswick Corporation, a
manufacturing company, from May 2009 to July 2014.

Mr. Guberman has served as Executive Vice President, Nationally Managed Business since August 2016 and served
as Chief Merchandising Officer from July 2015 to January 2017. Mr. Guberman served the Company as Senior Vice
President, Merchandising and Marketing Operations from January 2012 to July 2015 and as Division President from
August 2004 through December 2012. Mr. Guberman joined US Foods as part of its acquisition of Alliant
Foodservice in 2001.

Mr. Iacobucci has served as Chief Merchandising Officer since January 2017 and Interim Chief Supply Chain
Officer since January 2019. Prior to joining US Foods, Mr. Iacobucci served as Executive Vice President,
Merchandising for Ahold USA, Inc., a food retailer, from April 2016 to January 2017. Prior to joining Ahold, he
served from February 2012 to November 2015 in several senior roles at Loblaw Companies Limited, a Canadian
food retailer, including President, Discount Division.

Mr. Kvasnicka has served as Executive Vice President, Locally Managed Business and Field Operations since
August 2015 and Executive Vice President, Field Operations since September 2016. Mr. Kvasnicka served the
Company as Region President from April 2013 to July 2015, and Division President from October 2011 to
March 2013. Mr. Kvasnicka served as Vice President of Sales for the Stock Yards division, President of the Stock
Yards division and in various other roles between 2005 and 2011. He was Vice President of Sales for the
Minneapolis Division from 2003 to 2005. Mr. Kvasnicka joined US Foods as a part of its acquisition of Alliant
Foodservice in 2001.

Mr. Rickard has served as Executive Vice President, Strategy and Revenue Management since November 2015.
Prior to joining US Foods, Mr. Rickard served from March 2014 to November 2015 as Vice President at Uline
Corporation, a distributor of shipping, industrial, and packing materials, and was responsible for identifying, leading
and implementing improvement initiatives across all aspects of the organization. From September 1997 to
March 2014, Mr. Rickard was a Partner and Managing Director at the Boston Consulting Group, a consulting firm.

Mr. Rohland has served as Chief Information Officer since April 2011. Prior to joining US Foods, Mr. Rohland
served in several leadership positions at Citigroup, Inc., an investment bank and financial services provider, from
March 2007 until April 2011, including Managing Director of Risk and Program Management. Prior to joining
Citigroup, Mr. Rohland was Chief Information Officer for Volvo Car Corporation of Sweden, an automaker, from
November 2005 to March 2007 and held a number of leadership positions at Ford Motor Company, also an
automaker, from November 2003 to November 2005.

Mr. Works has served as Chief Human Resources Officer since February 2018. Mr. Works joined US Foods from
Hackensack Meridian Health, an integrated health care network, where he served as Chief Human Resources Officer
after joining in July 2017. Prior to joining Hackensack, he served as President - Enterprise of Windstream Holdings,
Inc., a voice and data communications provider, from December 2014 to August 2016, Executive Vice President and
Chief Human Resources Officer of Windstream from February 2012 to December 2014, and Senior Vice President
and President, Talent and Human Capital Services of Sears Holdings Corporation, a retailer, from September 2009 to
January 2012.

Our Website and Availability of Information

Our corporate website is located at www.usfoods.com. We file annual, quarterly and special reports and other
information with the Securities and Exchange Commission (“SEC”). Our filings with the SEC are available to the
public on the SEC’s website at www.sec.gov. Those filings are also available to the public on, or accessible through,
our corporate website for free via the “Investors” section at https://ir.usfoods.com/investors. The information
contained on or accessible through our corporate website or any other website that we may maintain is not
incorporated by reference into and is not part of this Annual Report.

Item 1A. Risk Factors

We are subject to many risks and uncertainties. Some of these risks and uncertainties may cause our business,
financial position, results of operations and cash flows to vary, and they may materially or adversely affect our
financial performance. The risks and uncertainties described below in this Annual Report are not the only ones we
face. Other risks and uncertainties, which are not currently known to us or which we currently believe are
immaterial, may adversely affect our business, financial position, results of operations and cash flows.

Risks Relating to Our Business and Industry

Our business is a low-margin business, and our profitability is directly affected by cost deflation or inflation,
commodity volatility and other factors.

The U.S. foodservice distribution industry is characterized by relatively high inventory turnover with relatively low
profit margins. Volatile commodity costs have a direct impact on our industry. We make a significant portion of our
sales at prices that are based on the cost of products we sell, plus a margin percentage or markup. As a result, our
profit levels may be negatively affected during periods of product cost deflation, even though our gross profit
percentage may remain relatively constant. Prolonged periods of product cost inflation also may reduce our profit
margins and earnings, if product cost increases cannot be passed on to customers because they resist paying higher
prices. In addition, periods of rapid inflation may have a negative effect on our business. There may be a lag
between the time of the price increase and the time at which we are able to pass it along to customers, as well as the
impact it may have on discretionary spending by consumers.

Competition in our industry is intense, and we may not be able to compete successfully.

The U.S. foodservice distribution industry is highly competitive. Foodservice distributors with a national footprint
have great financial and other resources. Furthermore, there are a large number of local and regional distributors.
These companies often align themselves with other smaller distributors through purchasing cooperatives and
marketing groups. The goal is to enhance their geographic reach, private label offerings, overall purchasing power,
cost efficiencies, and ability to meet customer distribution requirements. These distributors also rely on local
presence as a source of competitive advantage, and they may have lower costs and other competitive advantages due
to geographic proximity. Additionally, adjacent competition, such as cash-and-carry operations, commercial
wholesale outlets, club stores and grocery stores, continue to serve the commercial foodservice market. We also
experience competition from online direct food wholesalers. We generally do not have exclusive service agreements
with our customers, and they may switch to other suppliers that offer lower prices or differentiated products or
customer service. The cost of switching suppliers is very low, as are the barriers to entry into the U.S. foodservice
distribution industry. We believe most purchasing decisions in the U.S. foodservice distribution industry are based
on the quality and price of the product, plus a distributor’s ability to completely and accurately fill orders and
provide timely deliveries.

Increased competition has caused the U.S. foodservice distribution industry to change as distributors seek to lower
costs, further increasing pressure on the industry’s profit margins. Heightened competition among our suppliers,
significant pricing initiatives and discount programs established by competitors, new entrants, and trends toward
consolidation and vertical integration could create additional competitive pressures that reduce margins and
adversely affect our business, financial condition, and results of operations.

We rely on third party suppliers, and our business may be affected by interruption of supplies or increases in
product costs.

We obtain most of our foodservice and related products from third party suppliers. We typically do not have long-
term contracts with suppliers. Although our purchasing volume can provide leverage when dealing with suppliers,
suppliers may not provide the foodservice products and supplies we need in the quantities and at the time and prices
requested. We do not control the actual production of most of the products we sell. This means we are also subject
to delays caused by interruption in production and increases in product costs based on conditions outside our
control. These conditions include work slowdowns, work interruptions, strikes or other job actions by employees of
suppliers; severe weather; crop conditions; product recalls; transportation interruptions; unavailability of fuel or
increases in fuel costs; competitive demands; and natural disasters, terrorist attacks or other catastrophic events
(including, but not limited to, the outbreak of food-borne illnesses in the United States). Our inability to obtain

adequate supplies of foodservice and related products because of any of these or other factors could mean that we
could not fulfill our obligations to our customers and, as a result, our customers may turn to other distributors.

Our relationships with our customers and GPOs may be materially diminished, terminated or otherwise changed,
which could reduce our profitability.

Most of our customers buy from us pursuant to individual purchase orders, and we often do not enter into long-term
agreements with these customers. Because these customers are not contractually obligated to continue purchasing
products from us, we cannot be assured that the volume and/or number of our customers’ purchase orders will
remain consistent or increase or that we will be able to maintain our existing customer base.

Further, some of our customers purchase their products under arrangements with GPOs. GPOs act as agents on
behalf of their members by negotiating pricing, delivery, and other terms with us. Our customers who are members
of GPOs purchase products directly from us on the terms negotiated by their GPO. GPOs use the combined
purchasing power of their members to negotiate more favorable prices than their members would typically be able to
negotiate on their own, and we have experienced some pricing pressure from customers which associate themselves
with a GPO. While no single customer represented more than 3% of our total net sales in fiscal year 2018,
approximately 26% of our net sales in fiscal year 2018 were made to customers under terms negotiated by GPOs
(including approximately 13% of our net sales in fiscal year 2018 that were made to customers that are members of
one GPO). If an independent restaurant customer which becomes a member of a GPO that has a contract with us,
we may be forced to lower our prices to that customer, which would negatively impact our operating margin. In
addition, if we are unable to maintain our relationships with GPOs, or if GPOs are able to negotiate more favorable
terms for their members with our competitors, we could lose some or all of that business.

Market competition, customer requirements, customer financial condition and customer consolidation through
mergers and acquisitions also could adversely affect our ability to continue or expand our relationships with
customers and GPOs. There is no guarantee that we will be able to retain or renew existing agreements, maintain
relationships with any of our customers or GPOs on acceptable terms or at all or collect amounts owed to us from
insolvent customers. Our customer and GPO agreements are generally terminable upon advance written notice
(typically ranging from 30 days to six months) by either us or the customer or GPO, which provides our customers
and GPOs with the opportunity to renegotiate their contracts with us or to award more business to our competitors.

Significant decreases in the volume and/or number of our customers’ purchase orders, or the loss of one or more of
our major customers or GPOs or our inability to grow to our current customer base, could adversely affect our
business, financial condition, and results of operations.

If we fail to increase or maintain our sales to independent restaurant customers, our profitability may suffer.

Our most profitable customers are independent restaurants. We tend to work closely with these customers,
providing them access to our customer value added tools and as a result are able to earn a higher operating margin
on sales to them. Our ability to continue to gain market share of independent restaurant customers is critical to
achieving increased operating profits. Changes in the buying practices of independent restaurant customers,
including their ability to require us to sell to them at discounted rates, or decreases in our sales to this type of
customer could have a material negative impact on our profitability.

We may fail to effectively integrate the businesses we acquire.

Historically, a portion of our growth has come through acquisitions. In July 2018, we announced that we agreed to
acquire the SGA Food Group Companies for $1.8 billion in cash, the closing of which remains subject to receipt of
required regulatory approvals and other customary conditions. To fund a substantial portion of the consideration, we
entered into a commitment letter with JPMorgan Chase Bank, N.A., Bank of America, N.A. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated (collectively, the “Committed Parties”) under which the Committed Parties
committed to provide us with a $1.5 billion senior secured term loan facility.

If we are unable to integrate acquired businesses successfully or realize anticipated synergies in a timely manner, we
may not realize our projected return on investment and our business and results of operations may be adversely
affected. Integrating acquired businesses may be more difficult in a region or market where we have limited
expertise. A significant expansion of our business and operations, in terms of geography or magnitude, could strain
our administrative and/or operational resources. Significant acquisitions may also require incurring additional debt.

This could increase our interest expense and make it difficult for us to obtain financing for other significant
acquisitions or capital investments in the future.

We may be unable to achieve some or all of the benefits that we expect from our cost savings initiatives.

We may not be able to realize some or all of our expected cost savings. A variety of factors could cause us not to
realize some of the expected cost savings, including, among others, delays in the anticipated timing of activities
related to our cost savings initiatives, lack of sustainability in cost savings over time, and unexpected costs
associated with operating our business. All of these factors could negatively affect our results of operations and
financial condition.

Significant increases in fuel costs could hurt our business.

The high cost of fuel can negatively affect consumer confidence and discretionary spending. This may reduce the
frequency and amount spent by consumers for food prepared away from home. The high cost of fuel may also
increase the price we pay for products, as well as the costs we incur to deliver products to our customers. These
factors may, in turn, negatively affect our sales, margins, operating expenses, and operating results. Although, from
time to time, we enter into forward purchase commitments for some of our fuel requirements at prices equal to the
then-current market price, these forward purchases may prove ineffective and result in us paying higher than market
costs for part of our fuel.

An economic downturn, or other factors affecting consumer confidence, could reduce the amount of food
prepared and consumed away from home, which could harm our business.

The U.S. foodservice distribution industry is sensitive to national, regional and local economic conditions. In the
past, an uneven level of general U.S. economic activity, uncertainty in the financial markets, and slow job growth
had a negative impact on consumer confidence and discretionary spending. A decline in economic activity or the
frequency and amount spent by consumers for food prepared away from home, as well as other macroenvironmental
factors which could decrease general consumer confidence (including volatile financial markets or an uncertain
political environment), may could negatively impact our business and results of operations.

Changes in consumer eating habits could materially and adversely affect our business and results of operations.

Changes in consumer eating habits (such as a decline in consuming food away from home, a decline in portion sizes,
or a shift in preferences toward restaurants that are not our customers) could reduce demand for our products and
adversely affect our business and results of operations. Consumer eating habits could be affected by a number of
factors, including changes in attitudes regarding diet and health or new information regarding the health effects of
consuming certain foods. There is a growing consumer preference for sustainable, organic and locally grown
products. Changing consumer eating habits also occur due to generational shifts. Millennials, the largest
demographic group in the U.S. in terms of spend, generally seek new and different as well as more ethnic menu
options and menu innovation. Millennials also generally value diversity. If consumer eating habits change
significantly, we may be required to modify or discontinue sales of certain items in our product portfolio, and we
may experience higher costs associated with the implementation of those changes. Changing consumer eating habits
may reduce the frequency with which consumers purchase meals outside of the home. Additionally, changes in
consumer eating habits may result in the enactment or amendment of laws and regulations that impact the
ingredients and nutritional content of our food products, or laws and regulations requiring us to make additional
disclosure regarding the nutritional content of our food products. Compliance with these laws and regulations, as
well as others regarding the ingredients and nutritional content of our food products, may be costly and time-
consuming. If we are not able to effectively respond to changes in consumer health perceptions or resulting new
laws or regulations or to adapt our menu offerings to trends in eating habits, our business and results of operations
could suffer.

Any negative media exposure or other event that harms our reputation could hurt our business and results of
operations.

Maintaining a good reputation is critical to our business, particularly in selling our private label products. Any event
that damages our reputation, justified or not, could quickly and negatively affect our business and results of
operations. This includes adverse publicity about the quality, safety or integrity of our products. Reports, whether or

not they are true, 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 severely injure our reputation. If patrons of
our customers become ill from food-borne illnesses, the customers could be forced to temporarily close locations
and our sales would correspondingly decrease. In addition, instances of food-borne illnesses or food tampering or
other health concerns, even those unrelated to our products, can result in negative publicity about the U.S.
foodservice distribution industry and adversely affect our business and results of operations.

We face risks related to labor relations and costs.

As of December 29, 2018, we had approximately 25,000 employees, of which approximately 4,400 were members
of local unions associated with the International Brotherhood of Teamsters and other labor organizations. Our
failure to effectively renegotiate any CBAs could result in work stoppages. From time to time, we may be subject to
increased efforts to subject us to multi-location labor disputes, as individual labor agreements expire or labor
disputes arise. This would place us at greater risk of being unable to continue to operate one or more facilities,
delaying deliveries, possibly causing customers to seek alternative suppliers, or otherwise being materially adversely
affected by labor disputes. When there are labor related issues at a facility represented by a local union, sympathy
strikes may occur at other facilities that are represented by other local unions. While we believe we have generally
satisfactory relationships with our employees, including the unions that represent some of our employees, a work
stoppage due to our failure to renegotiate union contracts or for other reasons could have a material adverse effect on
our business and results of operations.

Further, potential changes in labor legislation and case law could result in current non-union portions of our
workforce, including our warehouse and delivery personnel, being subjected to greater organized labor influence. If
additional portions of our workforce became subject to CBAs, this could result in increased costs of doing business
as we would become subject to mandatory, binding arbitration or labor scheduling, costs and standards, which may
reduce our operating flexibility.

We are subject to a wide range of labor costs. Because our labor costs are, as a percentage of net sales, higher than
many other industries, even if we are able to successfully renegotiate CBAs and avoid work stoppages, we may be
significantly impacted by labor cost increases. In addition, labor is a significant cost of many of our customers in
the U.S. food-away-from-home industry. Any increase in their labor costs, including any increases in costs as a
result of increases in minimum wage requirements, could reduce the profitability of our customers and reduce their
demand for our products.

If we are unable to attract or retain a qualified and diverse workforce, our business could be negatively affected.

The success of our business depends on our ability to attract, train, develop and retain a highly skilled and diverse
workforce. Recruiting and retention efforts, and actions to increase productivity, may not be successful, and we
could encounter a shortage of qualified employee talent in the future. Changes in immigration laws and policies
could also make it more difficult for us to recruit or relocate qualified employee talent to meet our business needs. A
labor shortage could potentially increase labor costs, reduce our profitability and/or decrease our ability to
effectively serve customers.

If our competitors implement a lower cost structure and offer lower prices to our customers, we may be unable to
adjust our cost structure to compete profitably and retain those customers.

Over the last several decades, the U.S. food retail industry has undergone a significant change. Companies such as
Wal-Mart and Costco have developed a lower cost structure, providing their customers with an everyday low-cost
product offering. In addition, commercial wholesale outlets, such as Restaurant Depot, offer an additional low-cost
option in the markets they serve. As a large-scale U.S. foodservice distributor, we have similar strategies to remain
competitive in the marketplace by reducing our cost structure. However, to the extent more of our competitors adopt
an everyday low price strategy, we would potentially be pressured to offer lower prices to our customers. That would
require us to achieve additional cost savings to offset these reductions. If we are unable to change our cost structure
and pricing practices rapidly enough to successfully compete in that environment, our business and results of
operations may be adversely affected.

Changes in applicable tax laws and regulations and the resolution of tax disputes could negatively affect our
financial results.

We are subject to income and other taxes in the U.S. and various state and local jurisdictions and changes in tax laws
or regulations or tax rulings may have an adverse impact on our effective tax rate. The U.S. and many state and
local jurisdictions where we do business have recently enacted or are actively considering changes in relevant tax,
accounting and other laws, regulations and interpretations. For example, on December 22, 2017, the U.S. federal
government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the
“Tax Act”). The Tax Act made broad and complex changes to the U.S. federal income tax code, the impacts of
which are described elsewhere in this Annual Report. Given the unpredictability of possible changes to U.S. federal
and state and local tax laws and regulations, it is very difficult to predict their cumulative effect on our results of
operations and cash flows, but new and changed laws and regulations could adversely impact our results of
operations. We are also subject to the examination of our tax returns and other tax matters by the Internal Revenue
Service (the “IRS”) and other state and local tax authorities and governmental bodies, for which we regularly assess
the likelihood of an adverse outcome. If the ultimate determination of these examinations is that taxes are owed by
us for an amount in excess of amounts previously accrued, our financial condition, results of operations and cash
flows could be adversely affected.

Our business is subject to significant environmental, health and safety and other government regulation. Failure
to comply with these regulations could lead to lawsuits, investigations and other liabilities and restrictions on our
operations that could significantly and adversely affect our business.

Our operations are subject to a broad range of U.S. federal, state and local laws and regulations relating to the
protection of the environment, health and safety. These laws and regulations govern many issues, including
discharges to air, soil and water; the handling and disposal of hazardous substances; the investigation and
remediation of contamination resulting from the release of petroleum products and other hazardous substances;
employee health and safety; food safety; and fleet safety. In the course of our operations, we operate and maintain
vehicle fleets, use and dispose of hazardous substances, and store fuel in on-site aboveground and underground
storage tanks. At several current and former facilities, we are investigating and remediating known or suspected
contamination from historical releases of fuel and other hazardous substances that is not currently the subject of any
administrative or judicial proceeding, but we may be subject to administrative or judicial proceedings in the future
for contamination related to releases of fuel or other hazardous substances. Some jurisdictions in which we operate
have laws and regulations that affect the composition and operation of truck fleets, such as limits on diesel emissions
and engine idling. A number of our facilities have ammonia or freon-based refrigeration systems, propane, and
battery powered forklifts, which could cause injury or environmental damage. Proposed or recently enacted legal
requirements, such as those requiring the phase-out of certain ozone-depleting substances or otherwise regulating
greenhouse gas emissions, may require us to upgrade or replace equipment or may otherwise increase our operating
costs. We are additionally subject to governmental regulation at the U.S. federal, state, and local levels in many
other areas of our business, including trade, anticorruption, and employment. As an example, due to contracts we
have with federal and state governmental entities, governmental agencies have, from time to time, conducted audits
of or requested information regarding our pricing practices as part of investigations of providers of services under
governmental contracts.

Failing to comply with applicable legal and regulatory requirements, or encountering disagreements with respect to
our contracts subject to governmental regulation, could result in a number of adverse situations. These could include
investigations; administrative, civil, or criminal penalties or fines; mandatory or voluntary product recalls; cease and
desist orders against operations that are not in compliance; closing facilities or operations; debarments from
contracting with governmental entities; and loss or modification of existing, or rejection of additional, licenses,
permits, registrations, or approvals. These laws and regulations may change in the future. The costs of compliance
and consequences of non-compliance could have a material adverse effect on our business, financial condition, or
results of operations.

We may be subject to or affected by liability claims related to products we distribute and manufacture.

As a seller and manufacturer of food, we may be exposed to potential product liability claims in the event that the
products we sell and/or manufacture cause injury or illness. We believe we have sufficient primary or excess
umbrella liability insurance to cover product liability claims. We also generally seek contractual indemnification and
insurance coverage from parties supplying products to us. If our current insurance does not continue to be available
at a reasonable cost or is inadequate to cover all of our liabilities, or if our indemnification or insurance coverage is
limited, as a practical matter, by the creditworthiness of the indemnifying party or the insured limits of our suppliers’

insurance coverage, the liability related to defective products we sell and/or manufacture could adversely affect our
business and results of operations.

Adverse judgments or settlements resulting from legal proceedings in which we are or may be involved in the
normal course of our business could limit our ability to operate our business and adversely affect our results of
operations.

In the normal course of our business, we are involved in various legal proceedings. The outcome of these
proceedings cannot be predicted. If any of these proceedings were determined adversely to us or require a settlement
involving a payment of a material sum of money, it could materially and adversely affect our business and results of
operations. Additionally, we could become the subject of future claims by third parties, including our employees,
suppliers, customers, our investors, or regulators. Any significant adverse judgments or settlements could reduce
our profits and limit our ability to operate our business.

We rely heavily on technology, and any disruption in existing technology or delay in implementing new
technology could adversely affect our business.

Our ability to control costs and maximize profits, as well as to serve customers most effectively, depends on the
reliability of our information technology systems and related data entry processes in our transaction intensive
business. We rely on software and other information technology to manage significant aspects of our business, such
as purchasing, order processing, warehouse/inventory management, truck loading and logistics and optimization of
storage space. Any disruption to this information technology could negatively affect our customer service, decrease
the volume of our business, and result in increased costs. We have invested and continue to invest in technology
security initiatives, business continuity, and disaster recovery plans in order to insulate ourselves from technology
disruption that could impair operations and profits.

Information technology evolves rapidly. To compete effectively, we are required to integrate new technologies in a
timely and cost-effective manner. If competitors implement new technologies before we do, allowing them to
provide lower priced or enhanced services of superior quality compared to those we provide, our business and
results of operations could be adversely affected.

A cybersecurity incident or other technology disruptions could negatively affect our business and our
relationships with customers.

We rely upon information technology networks and systems to process, transmit and store electronic information, to
process online credit card payments, and to manage or support virtually all of our business processes and activities.
We also use mobile devices, social networking and other online activities to connect with our employees, suppliers,
business partners and customers. These uses give rise to cybersecurity risks, including security breach, espionage,
system disruption, theft, online platform hijacking that could redirect online credit card payments to another credit
card processing website, and inadvertent or unauthorized release of information. Our business involves the storage
and transmission of numerous classes of sensitive and/or confidential information and intellectual property,
including personal information of customers and suppliers, private information about employees, and financial and
strategic information about us and our business partners. Further, we are also expanding and improving our
information technologies, resulting in a larger technological presence and corresponding increase in exposure to
cybersecurity risk. Additionally, while we have implemented measures to prevent security breaches and cyber
incidents, our preventative measures and incident response efforts may not be entirely effective. The theft,
destruction, loss, misappropriation, or release of sensitive and/or confidential information or intellectual property, or
interference with our information technology systems or the technology systems of third parties on which we rely,
could result in business disruption, negative publicity, brand damage, violation of privacy laws, loss of customers,
potential liability, and competitive disadvantage, which in turn could adversely affect our business and results of
operations.

Our retirement benefits could give rise to significant expenses and liabilities in the future.

We sponsor defined benefit pension and other postretirement plans. These pension and postretirement obligations
give rise to costs that are dependent on various assumptions including those discussed in Note 18, Retirement Plans,
in our consolidated financial statements. In addition to the plans we sponsor, we also contribute to various
multiemployer pension plans administered by labor unions representing some of our employees. We make periodic

contributions to these plans to allow them to meet their pension benefit obligations to their participants. In the event
that we withdraw from participating in one of these plans, then applicable law could require us to make additional
withdrawal liability payments to the plan based on the applicable plan’s funding status.

In addition, in the ordinary course of our renegotiation of CBAs with labor unions that maintain these plans, we
could decide to discontinue participation in a plan. In that event, we could also face withdrawal liability. We could
also be treated as withdrawing from participation in one of these plans, if the number of our employees participating
in these plans is reduced to a certain degree over certain periods of time. A reduction in the number of employees
participating in these plans could occur as a result of changes in our business or operations, such as facility closures
or consolidations. Some multiemployer plans, including ones to which we contribute, are reported to have
significant underfunded liabilities, which could increase the size of our potential withdrawal liability. Any
withdrawal liability payments that we are required to make, including for the reasons stated above, could adversely
affect our financial condition or results of operations.

Extreme weather conditions and natural disasters, and other catastrophic events, may interrupt our business, or
our customers’ businesses, which could have a material adverse effect on our business, financial condition, or
results of operations.

Some of our facilities and our customers’ facilities are located in areas that may be subject to extreme, and
occasionally prolonged, weather conditions, including, but not limited to, hurricanes, tornadoes, blizzards, and
extreme cold. Extreme weather conditions may interrupt our operations in such areas. Furthermore, extreme
weather conditions may interrupt or impede access to our customers’ facilities or otherwise reduce the number of
consumers who visit our customers’ facilities, all of which could have an adverse effect on our business, financial
condition, or results of operations.

In addition, our business could be affected by large-scale terrorist acts or the outbreak or escalation of armed
hostilities (especially those directed against or otherwise involving the U.S.), the widespread outbreak of infectious
diseases or the occurrence of other catastrophic events (including, but not limited to, the outbreak of food-borne
illnesses in the U.S.). Any of these events could impair our ability to manage our business and/or cause disruption
of economic activity, which could have an adverse effect on our business, financial condition, or results of
operations.

We rely on trademarks, trade secrets, and other forms of intellectual property protections, which may not be
adequate to protect us from misappropriation or infringement of our intellectual property.

We rely on a combination of trademark, trade secret and other intellectual property laws in the U.S. We have
applied for registration of a limited number of trademarks in the U.S. and in certain other countries, some of which
have been registered or issued. We cannot guarantee that our applications will be approved by the applicable
governmental authorities, or that third parties will not seek to oppose or otherwise challenge our registrations or
applications. We also rely on unregistered proprietary rights, including common law trademark protection. Third
parties may use trademarks identical or confusingly similar to ours, or independently develop trade secrets or know-
how similar or equivalent to ours. If our proprietary information is divulged to third parties, including our
competitors, or our intellectual property rights are otherwise misappropriated or infringed, our business could be
harmed or adversely affected.

Our products may infringe the intellectual property rights of others, which may cause us to incur unexpected
costs or prevent us from selling our products.

We cannot be certain that our products do not and will not infringe intellectual property rights of others. We may be
subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged
infringement of intellectual property rights of third parties by us or our customers in connection with their use of our
products. Any such claims, whether or not meritorious, could result in costly litigation and divert the efforts of our
management and personnel. Moreover, if we were found liable for infringement, we may be required to enter into
licensing agreements (if available on acceptable terms or at all) or to pay damages and to cease making or selling
certain products, which could cause us to incur significant costs and/or prevent us from selling or manufacturing
certain products.

Risks Relating to Our Indebtedness

Our level of indebtedness could adversely affect our financial condition and our ability to raise additional capital
or obtain financing in the future, react to changes in our business, and make required payments on our debt.

As of December 29, 2018, we had $3,457 million of indebtedness, net of $11 million of unamortized deferred
financing costs.

Our level of indebtedness could have important consequences to us, including the following:

•

a substantial portion of our cash flows from operations must be dedicated to the payment of principal
and interest on our indebtedness, thereby reducing the funds available to us for other purposes,
including for working capital, capital expenditures, acquisitions, debt service requirements and general
corporate purposes;

we are exposed to the risk of increased interest rates because approximately 41% of the principal
amount of our borrowings was at variable rates of interest as of December 29, 2018;

it may be difficult for us to satisfy our obligations to our lenders, resulting in possible defaults on and
acceleration of such indebtedness;

we may be more vulnerable to general adverse economic and industry conditions;

we may be at a competitive disadvantage compared to our competitors with less debt or comparable
debt at more favorable interest rates and they, as a result, may be better positioned to withstand
economic downturns;

our ability to refinance indebtedness and obtain additional financing may be limited or the associated
costs of refinancing and obtaining additional financing may increase; and

our flexibility to adjust to changing market conditions and ability to withstand competitive pressures
could be limited, and we may be prevented from carrying out capital spending that is necessary or
important to our growth strategy and efforts to improve operating margins of our business.

Our indebtedness may further increase from time to time and we may be able to incur substantial additional
indebtedness, including secured debt, in the future for various reasons. Although the agreements governing our
indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a
number of significant qualifications and exceptions and, under certain circumstances, the amount of indebtedness
that could be incurred in compliance with these restrictions could be substantial. In order to fund a substantial
portion of the consideration in our contemplated acquisition of the SGA Food Group Companies, the closing of
which remains subject to receipt of required regulatory approvals and other customary conditions, we entered into a
commitment letter under which the Committed Parties committed to provide us with a $1.5 billion senior secured
term loan facility. Incurring substantial additional indebtedness could further exacerbate the risks associated with our
level of indebtedness.

The agreements governing our indebtedness contain restrictions and limitations that could significantly impact
our ability to operate our business.

The agreements governing our indebtedness contain covenants that, among other things, restrict our ability to do the
following:

•

dispose of assets;

incur additional indebtedness (including guarantees of additional indebtedness);

pay dividends and make certain payments;

create liens on assets;

make investments (including entering joint ventures);

engage in certain business combination transactions;

engage in certain transactions with affiliates;

change the business conducted by us; and

amend specific debt agreements.

In addition, the agreements governing our indebtedness subject us to various financial covenants. Our ability to
comply with these provisions in future periods will depend on our ongoing financial and operating performance, as
discussed under the caption “Risks Related to Our Business and Industry,” above. Our ability to comply with these
provisions in future periods will also depend substantially on the pricing of our products, our success at
implementing cost reduction initiatives and our ability to successfully implement our overall business strategy.

The restrictions under the agreements governing our indebtedness may prevent us from taking actions that we
believe would be in the best interest of our business, and may make it difficult for us to successfully execute our
business strategy or effectively compete with companies that are not similarly restricted. We may also incur future
debt obligations that might subject us to additional restrictive and financial covenants that could affect our financial
and operational flexibility. We cannot assure that we will be granted waivers of or amendments to these obligations
if for any reason we are unable to comply with them or that we will be able to refinance our debt on terms
acceptable to us, or at all.

Our ability to comply with the covenants and restrictions contained in the agreements governing our indebtedness
may be affected by economic, financial and industry conditions beyond our control. The breach of any of these
covenants or restrictions could result in a default under the agreements governing our indebtedness that would
permit the applicable lenders or note holders, as the case may be, to declare all amounts outstanding thereunder to be
due and payable, together with accrued and unpaid interest. If we are unable to repay debt, lenders having secured
obligations could proceed against the collateral securing the debt. In any such case, we may be unable to borrow
under and may not be able to repay the amounts due under our indebtedness. This could have serious consequences
to our financial condition and results of operations and could cause us to become bankrupt or insolvent.

Our ability to generate the significant amount of cash needed to pay interest and principal on our debt facilities
and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on many
factors beyond our control.

Our ability to make scheduled payments on, or to refinance our obligations under, our debt facilities depends on our
financial and operating performance and prevailing economic and competitive conditions. Certain of these financial
and business factors, many of which may be beyond our control, are described under the caption “Risks Related to
our Business and Industry,” above.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to
reduce or delay capital expenditures, sell assets, raise additional equity capital or restructure our debt. However,
there is no assurance that such alternative measures may be successful or permitted under the agreements governing
our indebtedness and, as a result, we may not be able to meet our scheduled debt service obligations. In the absence
of such operating results and resources, we could face substantial liquidity problems and might be required to
dispose of material assets or operations to meet our debt service and other obligations.

Our accounts receivable financing facility (the “ABS Facility”) and our asset-backed senior secured revolving loan
facility (“ABL Facility”) both mature in 2020. Our senior secured term loan facility (the “Term Loan Facility”) will
mature in 2023. Our 5.875% unsecured senior notes (the “Senior Notes”) will mature in 2024. We cannot assure
that we will be able to refinance our indebtedness or obtain additional financing on satisfactory terms, or at all,
particularly due to our level of indebtedness and the debt incurrence restrictions imposed by the agreements
governing our indebtedness. Further, the cost and availability of credit are subject to changes in the economic
environment. If conditions in major credit markets deteriorate, our ability to refinance our indebtedness or obtain
additional financing on satisfactory terms, or at all, may be negatively affected.

Increases in interest rates and potential upcoming regulatory changes could increase the cost of servicing our
debt and have an adverse effect on our results of operations and cash flows.

After considering interest rate swaps that fixed the interest rate on $1.1 billion of principal of our Term Loan
Facility, approximately 41% of the principal amount of our debt bears interest at variable rates as of December 29,
2018. As a result, additional increases in interest rates would increase the cost of servicing our debt and could have
an adverse effect on our results of operations and cash flows. The impact of such an increase could be more
significant for us than it would be for some other companies because of our level of indebtedness.

In addition, in July 2017, the United Kingdom’s Financial Conduct Authority, which regulates the London Interbank
Offered Rate (“LIBOR”), announced that it intends to phase out LIBOR by the end of 2021. It is unclear if LIBOR
will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist. Each
of our ABL Facility, ABS Facility, and Term Loan Facility utilizes U.S. dollar LIBOR as a factor in determining the
applicable interest rate. As such, depending on the future of LIBOR, we may need to renegotiate certain terms of the
agreements governing our indebtedness to replace U.S. dollar LIBOR with a new standard, which could increase the
cost of servicing our debt and have an adverse effect on our results of operations and cash flows.

Risks Relating to Ownership of Our Common Stock

Our stock price may change significantly, and you may not be able to sell your shares of our common stock at or
above the price you paid or at all, and you could lose all or part of your investment as a result.

The stock market routinely experiences periods of large or extreme volatility. In some instances, this volatility is
unrelated or disproportionate to the operating performance of particular companies.

The trading price of our common stock may be adversely affected due to a number of factors, including those
described under the caption “Risks Relating to Our Business and Industry,” above, and the following, many of
which we cannot control:

•

results of operations that vary from the expectations of securities analysts and investors;

results of operations that vary from those of our competitors;

changes in expectations as to our or our industry’s future financial performance, including financial
estimates and investment recommendations by securities analysts and investors, and the publication of
research reports regarding the same;

declines in the market prices of stocks, trading volumes and company valuations, particularly those of
foodservice distribution companies;

strategic actions by us or our competitors;

changes in preferences of our customers and purchasing habits of consumers;

announcements by us or our competitors of significant contracts, new products, acquisitions, joint
marketing relationships, joint ventures, other strategic relationships, or capital commitments;

changes in general economic or market conditions or trends in our industry or markets;

changes in business or regulatory conditions;

future issuances or sales or purchases of our common stock or other securities;

investor perceptions or the investment opportunity associated with our common stock relative to other
investment alternatives;

a default on our indebtedness or a downgrade in our or our competitors’ credit ratings;

the public’s response to press releases or other public announcements by us or third parties, including
our filings with the SEC;

changes in senior management or other key personnel;

announcements relating to litigation;

guidance, if any, that we provide to the public, any changes in this guidance, or our failure to meet this
guidance;

the sustainability of an active trading market for our common stock;

changes in accounting principles;

occurrences of extreme or inclement weather; and

other events or factors, including those resulting from natural disasters, war, or acts of terrorism, and
responses to these events.

In the past, following periods of market volatility or material announcements or events, stockholders have instituted
securities class action litigation against various companies. If we were involved in securities litigation, it could have

a substantial cost and divert resources and the attention of executive management from our business regardless of
the outcome of such litigation.

Because we have no current plans to pay cash dividends on our common stock, you may not receive any return
on investment unless you sell your common stock for a price greater than that which you paid for it.

We have no current plans to pay any cash dividends for the foreseeable future. The declaration, amount, and
payment of any future dividends on shares of common stock will be at the sole discretion of our Board of Directors.
Our Board of Directors may take into account general and economic conditions, our financial condition and results
of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax,
and regulatory restrictions, implications of the payment of dividends by us to our stockholders or by our subsidiaries
to us, and such other factors as our Board of Directors may deem relevant. In addition, our ability to pay dividends
is limited by covenants in the agreements governing our indebtedness and may be limited by covenants relating to
any future indebtedness we or our subsidiaries incur. As a result, you may not receive any return on an investment
in our common stock unless you sell our common stock for a price greater than that which you paid for it.

Anti-takeover provisions in our organizational documents and Delaware law could delay or prevent a change of
control.

Certain provisions of our Restated Certificate of Incorporation (our “Certificate of Incorporation”) and our Third
Amended and Restated Bylaws (our “Bylaws”), as well as the laws of the State of Delaware, our jurisdiction of
incorporation, may have an anti-takeover effect and may delay, defer, or prevent a merger, acquisition, tender offer,
takeover attempt, or other change of control transaction that a stockholder might consider in its interest, including
those attempts that might result in a premium over the market price for the shares of our common stock held by
stockholders.

Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing
market price of our common stock if the provisions are viewed as discouraging takeover attempts in the future.
Certain provisions in our Certificate of Incorporation and Bylaws, as well as the laws of the State of Delaware, may
also make it difficult for stockholders to replace or remove members of our Board of Directors. These provisions
may facilitate management entrenchment that may delay, deter, render more difficult or prevent a change in control
of the Company.

Our Certificate of Incorporation contains provisions limiting the personal liability of our directors for breaches
of fiduciary duty under Delaware law.

Our Certificate of Incorporation contains provisions permitted under the laws of the State of Delaware relating to the
liability of directors. These provisions eliminate a director’s personal liability to the fullest extent permitted by the
laws of the State of Delaware for monetary damages resulting from a breach of fiduciary duty, except in
circumstances involving:

•

breaches of the director’s duty of loyalty;

acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of
the law;

unlawful dividends; or

transactions from which the director derives an improper personal benefit.

The principal effect of the limitation on liability provision is that the consequences of a stockholder prosecuting an
action for monetary damages against a director may be limited, unless the stockholder can demonstrate a basis for
liability for which indemnification is not available under the laws of the State of Delaware. These provisions,
however, should not limit or eliminate our rights or any stockholder’s rights to seek non-monetary relief, such as an
injunction or rescission, in the event of a breach of a director’s fiduciary duty. These provisions will not alter a
director’s liability under federal securities laws. The inclusion of this provision in our Certificate of Incorporation

may discourage or deter stockholders or management from bringing a lawsuit against directors for a breach of their
fiduciary duties, even though such an action, if successful, might otherwise have benefited us and our stockholders.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

As of January 31, 2019, we maintained 79 primary operating facilities, including 63 distribution centers and other
supporting facilities. Approximately 78% were owned, and 22% were leased. Our real estate includes our corporate
headquarters in Rosemont, Illinois and our shared services center in Tempe, Arizona, both of which are leased. Our
properties also include a number of local sales offices, trailer “drop-sites,” and vacant land not included in the count
above. In addition, there is a minimal amount of surplus owned or leased property not included in the count above.
Leases on these properties expire at various dates from 2019 to 2028, although certain of these leases include
options for renewal.

The following table lists our operating facilities, by state, and their aggregate square footage. The table reflects our
material operating facilities, including distribution centers that may contain multiple locations or buildings and other
supporting facilities. It does not include retail sales locations, Chef’Stores, or US Foods Culinary Equipment &
Supply outlet locations. It also does not include closed locations, vacant properties or ancillary use properties, such
as temporary storage, remote sales offices and parking lots. In addition, the table shows the square footage of our
leased Rosemont headquarters and Tempe shared services center locations:

Number of
Facilities

2
2
1
5
1
1
5
2
3
1
1
1
1
1
3
1
3
2
4
1
3
1
3
3
2
3
1
6
2
1
2
4
1
2
1
1
2
79
Owned

Leased

Square
Feet
438,804
317,071
135,009
1,314,847
314,883
239,899
1,194,226
691,017
528,295
233,784
114,250
350,859
69,304
276,003
414,963
287,356
602,947
246,430
840,219
533,237
1,073,375
133,486
388,683
954,736
221,314
501,894
308,307
1,179,319
1,220,499
47,400
602,270
963,732
267,180
629,318
216,500
220,537
354,127
18,426,080
14,420,646

4,005,434

337,331

133,225

78%

22%

Location
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Florida
Georgia
Illinois
Indiana
Iowa
Kansas
Louisiana
Michigan
Minnesota
Mississippi
Missouri
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Pennsylvania
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Washington
West Virginia
Wisconsin
Total

Headquarters: Rosemont, Illinois

Shared Services Center: Tempe, Arizona

Item 3.

Legal Proceedings

From time to time, we may be party to legal proceedings that arise in the ordinary course of our business. We do not
believe there are any pending legal proceedings that, separately or in the aggregate, will have a material adverse
effect on our results of operations, financial condition, or cash flows.

Item 4. Mine Safety Disclosures

None.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock began trading publicly on the New York Stock Exchange (“NYSE”) under the symbol “USFD” as of
May 26, 2016. Prior to that time, there was no public market for our common stock. As of January 28, 2019, there were 23,721
holders of record of our common stock. This stockholder figure does not include a substantially greater number of “street” holders
whose shares are held of record by banks, brokers and other financial institutions.

Unregistered Sales of Equity Securities

None.

Dividends

We have not paid any dividends on our common stock since our common stock began trading publicly on the NYSE.

We have no plans to pay dividends on our common stock currently or in the foreseeable future. The declaration, amount, and
payment of any future dividends on shares of common stock will be at the sole discretion of our Board of Directors. Our Board of
Directors may take into account the factors discussed in Item 1A of Part I, “Risk Factors-Risks Relating to Ownership of Our
Common Stock.” Because US Foods Holding Corp. is a holding company and has no direct operations, it will be able to pay
dividends only from funds received from its subsidiaries. In addition, our ability to pay dividends is limited by covenants in the
agreements governing our existing indebtedness and may be further limited by the agreements governing additional indebtedness we
or our subsidiaries incur in the future. See Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources-Indebtedness.”

Stock Performance Graph

The following stock performance graph compares the cumulative total stockholder return of the Company’s common stock since
May 26, 2016, the date the Company’s common stock began trading on the NYSE, with the cumulative total return of the S&P 500
Index and the S&P Food and Staples Retailing Index. The graph assumes the investment of $100 in our common stock and each of
such indices on May 26, 2016 and the reinvestment of dividends, if applicable. Performance data for the Company, the S&P 500
Index and the S&P Food and Staples Retailing Index is provided as of the last trading day of each of our last three fiscal years. This
stock price performance graph is not indicative of future stock price performance.

US Foods Holding Corp.

S&P 500

S&P Food and Staples Retailing Index

100

110

107

128

134

132

127

128

131

5/26/16

12/31/16

12/30/17

12/29/18

The stock performance graph above and related information shall not be deemed “soliciting material” or “filed” with the SEC or
subject to the SEC’s proxy rules or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and shall not be deemed to be incorporated by reference into any prior or future filings under the Securities Act of
1933, as amended (the “Securities Act”) or the Exchange Act, except to the extent that the Company specifically incorporates it by
reference into any of those filings.

Item 6.

Selected Financial Data

The selected historical consolidated statements of operations data for fiscal years 2018, 2017 and 2016, and the
related selected balance sheet data as of the fiscal years ended 2018 and 2017, have been derived from our
consolidated financial statements and related notes contained elsewhere in this Annual Report. The selected
historical consolidated statements of operations data for fiscal years 2015 and 2014 and the selected balance sheet
data as of the fiscal years ended 2016, 2015, and 2014, have been derived from our consolidated financial statements
not included in this Annual Report.

The following selected consolidated financial data should be read together with Item 7 of Part II, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial
statements and related notes included in Item 8 of Part II.

The following tables set forth our selected financial data for the periods and as of the dates indicated:

Consolidated Statements of Operations Data:

Net sales

Cost of goods sold

Gross profit

Operating expenses:

Distribution, selling and administrative costs

Restructuring charges (benefit) and tangible asset impairments

Total operating expenses

Operating income

Formerly Proposed Sysco Acquisition termination fees—net

Other (income) expense—net

Interest expense—net

Loss on extinguishment of debt

Income (loss) before income taxes

Income tax provision (benefit)

Net income (loss)

Earnings (loss) per share:

Basic
Diluted(1)

Weighted-average number of shares used in per share amounts:

Basic
Diluted(1)

Other Data:

Cash flows—operating activities

Cash flows—investing activities

Cash flows—financing activities

Capital expenditures
EBITDA(2)
Adjusted EBITDA(2)
Adjusted net income(2)
Free cash flow(3)

2018

2017*

Fiscal Year
2016*

2015*

2014*

(in millions, except per share data)

24,175

24,147

22,919

23,127

23,020

19,869

4,306

19,929

4,218

18,866

4,053

19,114

4,013

19,222

3,798

3,647

3,648

658

—

(13)

175

—

496

407

1.88

1.87

216.1

217.8

3,631

(1)

3,630

588

—

170

—

404

(40)

444

2.00

1.97

222.4

225.7

3,581

3,634

419

—

229

131

(79)

210

1.05

1.03

200.1

204.0

3,651

173

3,824

189

288

(1)

285

—

193

168

0.99

0.98

169.6

171.1

609

749

549

555

(232)

(391)

235

1,011

1,103

442

374

(356)

(405)

221

952

1,058

312

528

(762)

(180)

164

782

972

321

385

(271)

(110)

187

876

875

154

368

3,553

—

3,553

245

—

(7)

289

—

(37)

(73)

(0.43)

169.5

402

(118)

(120)

147

664

866

126

255

Balance Sheet Data:
Cash, cash equivalents and restricted cash
Total assets
Total debt
Total shareholders’ equity

2018

2017*

As of Fiscal Year
2016*
(in millions)

2015*

2014*

105
9,186
3,457
3,229

119
9,037
3,757
2,751

131
8,944
3,782
2,538

524
9,239
4,745
1,873

350
9,023
4,714
1,622

Prior year amounts may be rounded to conform with the current year presentation or may not add due to rounding.

(*)
(1) When there is a loss for the applicable period, weighted average fully diluted shares outstanding was not used in the

(2)

(3)

computation as the effect would be antidilutive.
EBITDA, Adjusted EBITDA, and Adjusted net income are financial measures that are not in accordance with accounting
principles generally accepted in the United States of America (“GAAP”). These non-GAAP measures are used by
management to measure operating performance. EBITDA is defined as net income (loss), plus interest expense—net,
income tax provision (benefit), and depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for
(1) Former Sponsor (as defined below) fees; (2) restructuring (benefit) charges and tangible asset impairments; (3) share-
based compensation expense; (4) the non-cash impact of last-in first-out (“LIFO”) reserve adjustments; (5) loss on
extinguishment of debt; (6) pension settlements; (7) business transformation costs; (8) Formerly Proposed Sysco
Acquisition related costs, as further described below; (9) Formerly Proposed Sysco Acquisition termination fees—net, as
further described below; and (10) other gains, losses, or charges as specified in the agreements governing our
indebtedness. Adjusted net income is defined as net income (loss) excluding the items used to calculate Adjusted
EBITDA listed above and further adjusted for the tax effect of the exclusions and discrete tax items. EBITDA, Adjusted
EBITDA, and Adjusted net income as presented in this Annual Report are supplemental measures of our performance that
are not required by, or presented in accordance with, GAAP. They are not measurements of our performance under GAAP
and should not be considered as alternatives to net income (loss) or any other performance measures derived in accordance
with GAAP.
Free cash flow is a non-GAAP financial measure that is defined as cash flows provided by operating activities less capital
expenditures. Free cash flow is used by management as a supplemental measure of our liquidity. For additional
information, see the discussion under the caption “Non-GAAP Reconciliations” below.

Non-GAAP Reconciliations

We provide EBITDA, Adjusted EBITDA, Adjusted net income, and Free cash flow as supplemental measures to
GAAP regarding our operational performance. These non-GAAP financial measures exclude the impact of certain
items and, therefore, have not been calculated in accordance with GAAP.

We believe EBITDA and Adjusted EBITDA provide meaningful supplemental information about our operating
performance because they exclude amounts that we do not consider part of our core operating results when assessing
our performance. Items excluded from Adjusted EBITDA include restructuring (benefit) charges and tangible asset
impairments, loss on extinguishment of debt, fees of Clayton, Dubilier & Rice, LLC (“CD&R”) and Kohlberg
Kravis Roberts & Co., L.P. (“KKR” and, together with CD&R, the “Former Sponsors”), share-based compensation
expense, the non-cash impact of LIFO reserve adjustments, pension settlements, business transformation costs (costs
associated with the redesign of systems and processes), Formerly Proposed Sysco Acquisition related costs, as
further described below, Formerly Proposed Sysco Acquisition termination fees-net, as further described below, and
other items as specified in the agreements governing our indebtedness.

We believe that Adjusted net income is a useful measure of operating performance for both management and
investors because it excludes items that are not reflective of our core operating performance and provides an
additional view of our operating performance including depreciation, amortization, interest expense, and income
taxes on a consistent basis from period to period. Adjusted net income is net income (loss) excluding such items as
restructuring (benefit) charges and tangible asset impairments, loss on extinguishment of debt, Former Sponsor fees,
as further described below, share-based compensation expense, the non-cash impact of LIFO reserve adjustments,
pension settlements, business transformation costs (costs associated with redesign of systems and process), and other
items as specified in the agreements governing our indebtedness, and adjusted for the tax effect of the exclusions
and discrete tax items. We believe that Adjusted net income may be used by investors, analysts and other interested
parties to facilitate period-over-period comparisons and provides additional clarity as to how factors and trends
impact our operating performance.

Management uses these non-GAAP financial measures (1) to evaluate our historical and prospective financial
performance as well as our performance relative to our competitors as they assist in highlighting trends, (2) to set
internal sales targets and spending budgets, (3) to measure operational profitability and the accuracy of forecasting,
(4) to assess financial discipline over operational expenditures, and (5) as an important factor in determining
variable compensation for management and employees. EBITDA and Adjusted EBITDA are also used in
connection with certain covenants and activity restrictions under the agreements governing our indebtedness. We
also believe these and similar non-GAAP financial measures are frequently used by securities analysts, investors,
and other interested parties to evaluate companies in our industry.

We use free cash flow to review the liquidity of our operations. We measure free cash flow as cash flows provided
by operating activities less capital expenditures. We believe that free cash flow is a useful financial metric to assess
our ability to pursue business opportunities and investments. Free cash flow is not a measure of our liquidity under
GAAP and should not be considered as an alternative to cash flows provided by operating activities.

We caution readers that amounts presented in accordance with our definitions of EBITDA, Adjusted EBITDA,
Adjusted net income, and free cash flow may not be the same as similar measures used by other companies. Not all
companies and analysts calculate EBITDA, Adjusted EBITDA, Adjusted net income or free cash flow in the same
manner. We compensate for these limitations by using these non-GAAP financial measures as supplements to
GAAP financial measures and by presenting the reconciliations of the non-GAAP financial measures to their most
comparable GAAP financial measures.

The following table reconciles EBITDA, Adjusted EBITDA, Adjusted net income and free cash flow to the most
directly comparable GAAP financial performance and liquidity measures for the periods indicated:

Fiscal Year
2016*
(in millions)
$

210

2018

2017*

Net income (loss)

Interest expense—net

Income tax provision (benefit)

Depreciation and amortization expense

EBITDA

Adjustments:

407

175

340

1,011

Former Sponsor fees(1)
Restructuring charges (benefit) and tangible asset impairments(2)
Share-based compensation expense(3)
Net LIFO reserve change(4)
Loss on extinguishment of debt(5)
Pension settlements(6)
Business transformation costs(7)
Formerly Proposed Sysco Acquisition termination fees—net(8)
Formerly Proposed Sysco Acquisition related costs(9)
SGA acquisition related costs and other(10)

—

444

170

(40)

378

952

—

(1)

—

Adjusted EBITDA

Depreciation and amortization expense

Interest expense—net
Income tax provision, as adjusted(11)

Adjusted net income

Free cash flow

Cash flows from operating activities

Capital expenditures

Free cash flow

1,103

1,058

(340)

(175)

(146)

442

609

(235)

374

(378)

(170)

(198)

312

749

(221)

528

2015*

2014*

168

285

399

876

173

(74)

—

(288)

875

(399)

(285)

(37)

154

555

(187)

368

(73)

289

412

664

—

866

(412)

(289)

(39)

126

402

(147)

255

229

(79)

421

782

(18)

—

972

(421)

(229)

(1)

321

549

(164)

385

(*)
(1)

Prior year amounts may be rounded to conform with the current year presentation.
Consists of fees paid to the Former Sponsors for consulting and management advisory services. On June 1, 2016, the
consulting agreements with each of the Former Sponsors were terminated for an aggregate termination fee of $31 million.

(2)

(3)
(4)
(5)

Consists primarily of facility related closing costs, including severance and related costs, tangible asset impairment
charges and gains on sale, organizational realignment costs and estimated multiemployer pension withdrawal liabilities
and settlements.
Share-based compensation expense for expected vesting of stock awards and share purchase plan.
Represents the non-cash impact of net LIFO reserve adjustments.
Includes fees paid to debt holders, third party costs, the write off of certain pre-existing unamortized deferred financing
costs related to the 2016 and 2013 debt refinancing transactions; early redemption premium and the write-off of
unamortized issue premium related to the June 2016 debt refinancing; and the loss related to the September 2016
defeasance of our commercial mortgage backed securities (the “CMBS Fixed Facility”). See Note 12, Debt, in our
consolidated financial statements for a further description of the 2016 debt transactions.
Consists of settlement charges resulting from lump-sum payments to retirees and former employees participating in
several Company sponsored pension plans. See Note 18, Retirement Plans, in our consolidated financial statements for a
further description of the 2017 pension settlement charges.
Consists primarily of costs related to significant process and systems redesign across multiple functions.
Consists of net fees received in connection with the termination of the Agreement and Plan of Merger dated December 8,
2013 with Sysco Corporation (“Sysco”), through which Sysco would have acquired US Foods (the “Formerly Proposed
Sysco Acquisition”).
(9)
Consists of costs related to the Formerly Proposed Sysco Acquisition, including certain employee retention costs.
(10) 2018 primarily consists of acquisition related costs related to the announced acquisition of SGA Food Group Companies.
Prior year amounts include gains, losses or charges as specified under the agreements governing our indebtedness.

(7)
(8)

(6)

(11) Represents our income tax provision (benefit) adjusted for the tax effect of pre-tax items excluded from Adjusted net
income and the removal of applicable discrete tax items. Applicable discrete tax items include changes in tax laws or
rates, changes related to prior year unrecognized tax benefits, discrete changes in valuation allowances, excess tax benefits
associated with share-based compensation, and the tax benefits recognized in continuing operations due to the existence of
a gain in other comprehensive income and loss in continuing operations. The tax effect of pre-tax items excluded from
Adjusted net income is computed using a statutory tax rate after taking into account the impact of permanent differences
and valuation allowances. We released a valuation allowance against federal and certain state net deferred tax assets in
fiscal year 2016. We were required to reflect the portion of the valuation allowance release related to 2016 ordinary
income in the estimated annual effective tax rate and the portion of the valuation allowance release related to future years’
income discretely in fiscal year 2016. We maintained a valuation allowance against federal and state net deferred tax
assets for fiscal years 2014 and 2015. The result was an immaterial tax effect related to pre-tax items excluded from
Adjusted net income for fiscal years 2014 through 2016.

A reconciliation between the GAAP income tax provision (benefit) and the income tax provision, as adjusted, is as
follows:

2018

2017*

Fiscal Year
2016*
(in millions)

2015*

2014*

GAAP income tax provision (benefit)

Tax impact of pre-tax income adjustments

Discrete tax items

Income tax provision, as adjusted

146

(40) $

(79) $

199

198

—

(*) Prior year amounts may be rounded to conform with the current year presentation.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to help the reader understand the Company, our financial
condition and results of operations and our present business environment. It should be read together with Item 6 of
Part II, “Selected Financial Data,” and our consolidated financial statements and related notes contained elsewhere
in this Annual Report. The following discussion and analysis contain certain financial measures that are not required
by, or presented in accordance with, GAAP. We believe these non-GAAP measures provide meaningful
supplemental information about our operating performance, because they exclude amounts that our management
does not consider part of core operating results when assessing our performance and underlying trends. Information
regarding reconciliations of and the rationale for these measures is discussed in “Non-GAAP Reconciliations” in
Item 6 of Part II, “Selected Financial Data.”

Operating Metrics

Case growth — Case growth, by customer type (e.g., independent restaurants) is reported as of a point in time.
Customers periodically are reclassified, based on changes in size or other characteristics, and when those changes
occur, the respective customer’s historical volume follows its new classification.

Organic growth — Organic growth includes growth from operating business that has been reflected in our results of
operations for at least 12 months.

Industry Trends

Within the foodservice distribution industry, there have recently been mixed sales results among different customer
types having varying sizes and growth profiles and differing product and service requirements. Independent
restaurants, a customer type of strategic focus for us, grew during 2018. We believe we have capitalized on
innovative product offerings and our e-commerce and technology solutions to grow our mix with independent
restaurants, and have made gains in this area. National chain restaurants experienced mild industry growth during
2018; however, we experienced declines with this customer type from strategically planned exits from certain
national chain business.

Highlights

Our case volume in 2018 decreased 1.2%. Strategically planned national chain customer exits were partially offset
by organic independent restaurant case growth and growth due to acquisitions completed in 2017. Net sales
increased slightly due to year over year inflation, as a significant portion of our business is based on markups over
cost, and net sales from acquisitions offset the decline in case volume.

Gross profit increased $88 million, or 2.1%, to $4,306 million in 2018. As a percentage of net sales, gross profit was
17.8% as compared to 17.5% in 2017. This increase was primarily attributable to the impact of margin expansion
initiatives and year over year LIFO inventory reserve adjustments.

Total operating expenses increased $18 million, or 0.5%, to $3,648 million in 2018, primarily as a result of
acquisition related costs and higher payroll and related costs, which were partially offset by lower amortization
expense.

Outlook

With favorable trends in consumer confidence and the unemployment rate, we expect positive growth in the U.S.
foodservice distribution industry in 2019. General economic trends and conditions, including demographic
changes, inflation, deflation, consumer confidence, and disposable income, coupled with changing tastes and
preferences, influence the amount that consumers spend on food-away-from-home, which can affect our
customers and, in turn, our sales. On balance, we believe that these general trends will support positive real
growth in food-away-from-home consumption and the growth of the U.S. foodservice distribution industry sales,
particularly to our target customer types. We expect competitive pressures to remain high and a moderate amount
of inflation in 2019. Given that a large portion of our business is based on a contracted margin percentage or
markups over cost, sudden inflation or prolonged deflation could negatively impact our sales and gross profit. We

expect sales to our independent restaurant customers, which generally have higher margins, to continue to be an
increasing proportion of our sales mix. Favorable customer mix, additional volume from acquisitions and other
sourcing initiatives should also continue to contribute to our ability to expand our margins. In July 2018, we
announced that we agreed to acquire the SGA Food Group Companies for $1.8 billion in cash, the closing of
which remains subject to receipt of required regulatory approvals and other customary conditions. Additionally,
we believe our investments in a common technology platform, efficient transactional and operational model, e-
commerce and analytic tools that support our team-based selling approach, coupled with product innovation, will
enable us to continue to leverage our costs, maintain our sales, and differentiate us from our competitors.

Our strategy includes continued focus on executing our growth strategies, adding value for and differentiating
ourselves with our customers, and driving continued operational improvement in the business.

Results of Operations

The following table presents selected consolidated results of operations of our business for the last three fiscal years:

Consolidated Statements of Operations:

Net sales

Cost of goods sold

Gross profit

Operating expenses:

Distribution, selling and administrative costs

Restructuring charges (benefit) and tangible asset impairments

Total operating expenses

Operating income

Other (income) expense—net

Interest expense—net

Loss on extinguishment of debt

Income before income taxes

Income tax provision (benefit)

Net income

Percentage of Net Sales:

Gross profit

Distribution, selling and administrative costs

Operating expense

Operating income

Net income
Adjusted EBITDA(1)

Other Data:

Cash flows—operating activities

Cash flows—investing activities

Cash flows—financing activities

Capital expenditures
EBITDA(1)
Adjusted EBITDA(1)
Adjusted net income(1)
Free cash flow(2)

2018

Fiscal Year
2017*
(in millions)

2016*

$ 24,175

$ 24,147

$ 22,919

19,869

4,306

19,929

4,218

18,866

4,053

3,647

3,648

658

(13)

175

—

496

407

17.8%

15.1%

2.7%

1.7%

4.6%

3,631

(1)

3,630

588

170

—

404

(40)

444

17.5%

15.0%

2.4%

1.8%

4.4%

3,581

3,634

419

229

131

(79)

210

17.7%

15.6%

15.9%

1.8%

0.9%

4.2%

609

749

549

(232)

(391)

235

1,011

1,103

442

374

(356)

(405)

221

952

1,058

312

528

(762)

(180)

164

782

972

321

385

(*)
(1)

(2)

Prior year amounts may be rounded to conform with the current year presentation.
EBITDA, Adjusted EBITDA, and Adjusted net income are non-GAAP measures used by management to measure
operating performance. EBITDA is defined as net income (loss), plus interest expense—net, income tax provision
(benefit), and depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for (1) Former Sponsor
fees; (2) restructuring (benefit) charges and tangible asset impairments; (3) share-based compensation expense; (4) the
non-cash impact of LIFO reserve adjustments; (5) loss on extinguishment of debt; (6) pension settlements; (7) business
transformation costs; and (8) other gains, losses, or charges as specified in the agreements governing our indebtedness.
Adjusted net income is defined as net income (loss) excluding the items used to calculate Adjusted EBITDA listed above
and further adjusted for the tax effect of the exclusions and discrete tax items. EBITDA, Adjusted EBITDA, and Adjusted
net income as presented in this Annual Report are supplemental measures of our performance that are not required by—or
presented in accordance with—GAAP. They are not measurements of our performance under GAAP and should not be
considered as alternatives to net income (loss) or any other performance measures derived in accordance with GAAP.
Free cash flow is a non-GAAP measure that is defined as cash flows provided by operating activities less capital
expenditures. Free cash flow is used by management as a supplemental measure of our liquidity. We believe that free
cash flow is a useful financial metric to assess our ability to pursue business opportunities and investments. Free cash
flow is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows provided
by operating activities.

See additional information regarding the reconciliation of these measures in “Non-GAAP Reconciliations” in Item 6
of Part II, “Selected Financial Data.”

Fiscal Years Ended December 29, 2018 and December 30, 2017

Highlights

•

Total case volume decreased 1.2% and independent restaurant case volume increased 3.8% in 2018.

Net sales of $24,175 million were slightly higher as compared to 2017.

Operating income increased $70 million, or 11.9%, to $658 million in 2018. As a percentage of net
sales, operating income increased to 2.7% in 2018, as compared to 2.4% in 2017.

Net income was $407 million in 2018, as compared to $444 million in 2017.

Adjusted EBITDA increased $45 million, or 4.3%, to $1,103 million in 2018. As a percentage of net
sales, Adjusted EBITDA increased to 4.6% in 2018, as compared to 4.4% in 2017.

Net Sales

Total case volume decreased 1.2% in 2018. The decrease reflected select planned chain customer exits, which were
partially offset by growth with independent restaurants. Organic case volume decreased 1.6% in 2018, reflecting
similar customer trends.

Net sales of $24,175 million in 2018 were slightly higher as compared to the prior year. A 1.3%, or $320 million,
increase in the overall net sales rate per case, was partially offset by a 1.2%, or $292 million, decrease in case
volume. Acquisitions completed in 2017 increased net sales by approximately $137 million, or 0.4%, in 2018.
Sales of private brands represented approximately 35% and 34% of total net sales in 2018 and 2017, respectively.

The overall net sales rate per case increased 1.3% compared to 2017, which increase was mostly comprised of
inflation. We experienced year over year inflation in the beef and grocery categories, which benefited net sales, as a
significant portion of our business is based on markups over cost.

Gross Profit

Gross profit increased $88 million, or 2.1%, to $4,306 million in 2018. As a percentage of net sales, gross profit
increased 0.3% in 2018, from 17.5% in 2017 to 17.8% in 2018, primarily due to the favorable rate impact from
margin expansion initiatives and year over year LIFO adjustments. Our LIFO method of inventory costing resulted
in de minimis expense in 2018 compared to expense of $14 million in 2017, which was driven by lower product
inflation in certain categories in 2018 compared to 2017.

Operating Expenses

Operating expenses, comprised of distribution, selling and administrative costs and restructuring charges (benefit),
increased $18 million, or 0.5%, to $3,648 million in 2018. Operating expenses as a percentage of net sales were
15.1% in 2018, up from 15.0% in 2017. The increase includes $32 million of 2018 acquisition related costs,
$17 million of additional depreciation expense related to recent property and equipment additions and $14 million of
higher diesel fuel costs, which were partially offset by a reduction in amortization expense of $55 million, driven
primarily by the completed amortization of the customer relationship intangible asset initially recognized in
connection with the acquisition of the Company by the Former Sponsors in 2007.

Operating Income

Operating income increased $70 million, or 11.9%, to $658 million in 2018. Operating income as a percentage of
net sales was 2.7% in 2018, up from 2.4% in 2017. The change was due to the relevant factors discussed above.

Other (Income) Expense-Net

Other (income) expense-net includes components of net periodic (credits) benefit costs, exclusive of the service cost
component associated with our defined benefit and other postretirement plans. We recognized other income of
$13 million in 2018, primarily due to the improved funded status of our defined benefit and other postretirement
retirement plans as of December 30, 2017. The $14 million of expense incurred in 2017 was primarily due to
settlement charges resulting from a voluntary lump sum offer to former participants in our defined benefit pension
plan.

Interest Expense—Net

Interest expense—net increased $5 million in 2018, primarily due to the general increase in benchmark interest rates
in 2018 compared to 2017, and partially offset by lower debt levels in 2018.

Income Taxes

On December 22, 2017, the U.S. federal government enacted the Tax Act. The Tax Act made broad and complex
changes to the U.S. tax code, including, but not limited to, (1) a reduction of the U.S. federal corporate tax rate; and
(2) bonus depreciation that permits full expensing of qualified property. The Tax Act reduced the corporate tax rate
to 21%, which was effective January 1, 2018.

Our effective tax rate for 2018 of 18% varied from the 21% federal statutory rate, primarily as a result of state
income taxes and the recognition of a tax benefit of $21 million. This tax benefit primarily related to (1) the
reduction of an unrecognized tax benefit due to the receipt of an affirmative written consent from the IRS to change
a method of accounting, (2) a tax benefit of $6 million, primarily related to excess tax benefits associated with share-
based compensation and (3) a tax benefit of $8 million resulting from the adjustments to finalize provisional
amounts recorded as of December 30, 2017 related to the reduction of the federal corporate tax rate. The effective
tax rate for 2017 of (10)% varied from the 35% federal statutory rate, primarily from a tax benefit of $173 million
related to the aforementioned reduction in the federal corporate tax rate, and a benefit of $26 million related to
excess tax benefits associated with share-based compensation, which were partially offset by state income taxes.
See Note 21, Income Taxes, in our consolidated financial statements for a reconciliation of our effective tax rates to
the statutory rate.

Net Income

Our net income was $407 million in 2018, compared to $444 million in 2017. The decrease in net income was due
to the relevant factors discussed above.

Fiscal Years Ended December 30, 2017 and December 31, 2016

Highlights

•

Total case volume increased 2.9% and independent restaurant case volume increased 5.2% in 2017.

Net sales increased $1,228 million, or 5.4%, to $24,147 million in 2017.

Operating income increased $169 million, or 40.3%, to $588 million in 2017. As a percentage of net
sales, operating income increased to 2.4% in 2017, compared to 1.8% in 2016.

Net income was $444 million in 2017, as compared to $210 million in 2016.

Adjusted EBITDA increased $86 million, or 8.8%, to $1,058 million in 2017. As a percentage of net
sales, Adjusted EBITDA increased 4.4% in 2017, compared to 4.2% in 2016.

Net Sales

Total case growth in 2017 was 2.9%. The increase reflected growth with independent restaurants, healthcare, and
hospitality, which was partially offset by declines in education. Organic case volume increased 1.7% and reflected
similar customer growth trends and some planned exits from national chains.

Net sales increased $1,228 million, or 5.4%, to $24,147 million in 2017, comprised of a 2.9%, or $675 million,
increase in case volume and a 2.5%, or $553 million, increase in the overall net sales rate per case. Acquisitions
increased net sales by approximately $387 million, or 1.6%, in 2017. Sales of private brands represented
approximately 34% and 33% of total net sales in 2017 and 2016, respectively.

The overall net sales rate per case increase of 2.5% in 2017 compared to 2016, which was mostly attributable to
inflation, as a significant portion of our business is based on markups over cost. We experienced year over year
inflation in the grocery, poultry, seafood, pork, and fresh produce product categories, partially offset by deflation in
beef.

Gross Profit

Gross profit increased $165 million, or 4.1%, to $4,218 million in 2017 due to higher volume and margin expansion
initiatives. As a percentage of net sales, gross profit decreased 0.2% from 17.7% in 2016 to 17.5% in 2017. Gross
profit from acquisitions was offset by lower organic margins, including higher inbound freight costs, and the adverse
impact of year over year LIFO adjustments. Our LIFO method of inventory costing resulted in $14 million of
expense in 2017 compared to a benefit of $18 million in 2016, which was driven by product inflation in 2017
compared to deflation in 2016.

Distribution, Selling and Administrative Costs

Distribution, selling and administrative costs increased $50 million, or 1.4%, to $3,631 million in 2017. The
increase includes $90 million from salaries and wages, which was primarily driven by wage inflation and volume,
and $11 million due to the absence of a net insurance benefit in the prior year related to a facility tornado loss. The
additional volume contributed to $11 million of additional repairs and maintenance inclusive of our vehicle fleet and
additional insurance costs on the fleet portfolio. In 2017, we also experienced $7 million of higher bad debt
provisions, $5 million of additional IT costs, and approximately $11 million of other net costs that were not
individually significant. These increases were partially offset by the absence of $36 million of costs incurred under
a consulting and management agreement with the Former Sponsors in 2016, including a $31 million contract
termination fee incurred concurrently with our initial public offering (“IPO”), and $46 million of lower depreciation
and amortization in 2017 primarily driven by the completed amortization of the customer relationship intangible
asset initially recognized upon acquisition of the Company by the Former Sponsors in 2007.

As a percentage of net sales, distribution, selling and administrative costs decreased 0.6% to 15.0% in 2017,
compared to 15.6% in 2016. This decrease was primarily attributable to the absence of the Former Sponsor
termination fee and lower amortization discussed above. We also experienced improvement in the rate of
distribution, selling and administrative costs as a percent of net sales due to net sales inflation experienced during
2017.

Restructuring (Benefit) Charges and Tangible Asset Impairments

Restructuring charges decreased $54 million to a benefit of $1 million in 2017. During 2017, net costs of $2 million
were recognized related to initiatives launched in 2016 to centralize certain field procurement and replenishment
activities and reduce corporate and administrative costs. These costs were offset by a $3 million gain on the sale of
a distribution facility that closed in 2016.

During 2016, we incurred a net charge of $53 million associated with our plan to streamline our field operations
model, the closure of a distribution facility, and certain other corporate and administrative cost reduction initiatives.
Included in the charge was a benefit of $4 million related to a favorable settlement of substantially all of our
multiemployer pension withdrawal liabilities related to previously closed facilities. Finally, we also incurred
$3 million related to a lease termination settlement, which is included in the $53 million net charge.

Operating Expenses

Operating expenses, comprised of distribution, selling and administrative costs and restructuring (benefit) charges,
decreased $4 million, or 0.1%, to $3,630 million in 2017. Operating expenses as a percentage of net sales were
15.0% in 2017, down from 15.9% in 2016. The change was due to the relevant factors discussed above.

Operating Income

Operating income increased $169 million, or 40.3%, to $588 million in 2017. Operating income as a percent of net
sales was 2.4% in 2017, up from 1.8% in 2016. The change was due to the relevant factors discussed above.

Other (Income) Expense-Net

Other (income) expense-net includes components of net periodic (credits) benefit costs, exclusive of the service cost
component associated with our defined benefit and other postretirement plans. We incurred $14 million and
$5 million of net expense in 2017 and 2016, respectively, primarily due to non-cash settlement charges resulting
from lump sum payments to former participants in our defined benefit pension plan.

Interest Expense—Net

Interest expense—net decreased $59 million, primarily due to the reduction of substantial debt with the proceeds
from our 2016 IPO and the defeasance and refinancing of certain other debt during 2016. For additional information,
see Note 12, Debt, in our consolidated financial statements.

Loss on Extinguishment of Debt

As discussed in Note 12, Debt, in our consolidated financial statements, we incurred a $54 million loss on
extinguishment of debt in 2016 related to the June 2016 debt redemption and refinancing and the CMBS Fixed
Facility defeasance.

Income Taxes

On December 22, 2017, the U.S. federal government enacted the Tax Act. The Tax Act made broad and complex
changes to the U.S. federal income tax code, including, but not limited to, (1) a reduction of the U.S. federal
corporate income tax rate and (2) the full expensing of qualified property. The Tax Act reduced the U.S. federal
corporate income tax rate to 21%, effective January 1, 2018. Consequently, we have reduced our deferred tax
liabilities by $173 million and recognized a deferred income tax benefit of $173 million for fiscal year 2017.

We released the previously recorded valuation allowance against our federal net deferred tax assets and certain of
our state net deferred tax assets in 2016, as we determined it was more likely than not the deferred tax assets would
be realized. We maintained a valuation allowance on certain state net operating loss and tax credit carryforwards
expected to expire unutilized as a result of insufficient forecasted taxable income in the carryforward period or
limited utilization. The decision to release the valuation allowance was made after management considered all
available evidence, both positive and negative, including, but not limited to, historical operating results, cumulative
income in recent years, forecasted earnings, and a reduction of uncertainty regarding forecasted earnings, as a result
of developments in certain customer and strategic initiatives during 2016.

Our effective tax rate for 2017 of (10.0)% varied from the 35% federal statutory rate, primarily as a result of a tax
benefit of $173 million related to the aforementioned reduction in the U.S. federal corporate income tax rate, and a
tax benefit of $26 million related to excess tax benefits associated with share-based compensation, which were
partially offset by state income taxes. Our effective tax rate for 2016 of (60)% varied from the 35% federal statutory
rate primarily as a result of a change in the valuation allowance. During 2016, the valuation allowance decreased
$128 million, primarily as a result of the year-to-date pre-tax income and the partial release of the valuation
allowance. See Note 21, Income Taxes, in our consolidated financial statements for a reconciliation of our effective
tax rates to the statutory rate.

Net Income

Our net income was $444 million in 2017, compared to $210 million in 2016. The improvement in net income was
due to the relevant factors discussed above.

Liquidity and Capital Resources

Our ongoing operations and strategic objectives require working capital and continuing capital investment. Our
primary sources of liquidity include cash provided by operations, as well as access to capital from bank borrowings
and other types of debt and financing arrangements.

Indebtedness

As of December 29, 2018, the aggregate carrying value of our indebtedness was $3,457 million, net of $11 million
of unamortized deferred financing costs.

As of December 29, 2018, we had aggregate commitments for additional borrowings under our ABL Facility and
our ABS Facility of $1,372 million, of which $1,302 million was available based on our borrowing base.

The ABL Facility provides for loans of up to $1,300 million, with its capacity limited by our borrowing base. As of
December 29, 2018, we had outstanding borrowings of $81 million and had issued letters of credit totaling
$372 million under the ABL Facility. There was available capacity on the ABL Facility of $847 million at
December 29, 2018, based on our borrowing base.

The maximum capacity under the ABS Facility is $800 million, with its capacity limited by our borrowing base.
Borrowings under the ABS Facility were $275 million at December 29, 2018. At our option, we can request
additional ABS Facility borrowings up to the maximum commitment, provided sufficient eligible receivables are
available as collateral. There was available capacity on the ABS Facility of $455 million at December 29, 2018,
based on our borrowing base.

The Term Loan Facility had a carrying value of $2,145 million as of December 29, 2018, net of $6 million of
unamortized deferred financing costs. On June 22, 2018, we amended the Term Loan Facility to lower the interest
rate margins on outstanding borrowings, among other things. During 2017, we entered into four-year interest rate
swaps with a notional amount of $1.1 billion, reducing to $825 million in the fourth year. These swaps effectively
converted approximately half of the principal amount of the Term Loan Facility from a variable to a fixed rate loan.
We effectively pay an aggregate rate of 3.71% on the notional amount covered by the interest rate swaps, comprised
of a rate of 1.71% plus a spread of 2.00%. For the remaining portion of the principal amount of the Term Loan
Facility, the interest rate is an alternative base rate (“ABR”) plus 1.00%, or LIBOR plus 2.00%, which we may
periodically elect at our option.

As of December 29, 2018, our Senior Notes had a carrying value of $595 million, net of $5 million of unamortized
deferred financing costs. The Senior Notes bear interest at 5.875% and mature on June 15, 2024. On or after
June 15, 2019, the Senior Notes are redeemable, at our option, in whole or in part at a price of 102.938% of their
remaining principal amount, plus accrued and unpaid interest, if any, to the redemption date. On or after
June 15, 2020 and June 15, 2021, the optional redemption price for the Senior Notes declines to 101.469% and
100.0%, respectively, of their remaining principal amount, plus accrued and unpaid interest, if any, to the
redemption date. Prior to June 15, 2019, up to 40% of the Senior Notes may be redeemed with the aggregate
proceeds from certain equity offerings at a redemption premium of 105.875%.

As of December 29, 2018, we also had $352 million of obligations under capital leases for transportation equipment
and building leases.

The ABL Facility and the ABS Facility mature in 2020. The Term Loan Facility and the Senior Notes mature in
2023 and 2024, respectively, with scheduled principal payments of $2.1 billion and $600 million, respectively. As
economic conditions permit, we will consider further opportunities to repurchase, refinance or otherwise reduce our
debt obligations on favorable terms. Any further potential debt reduction or refinancing could require significant use
of our other available liquidity and capital resources.

We believe that the combination of cash generated from operations, together with availability under the agreements
governing our indebtedness and other financing arrangements, will be adequate to permit us to meet our debt service
obligations, ongoing costs of operations, working capital needs, and capital expenditure requirements for the next 12
months.

Our credit facilities, loan agreements, and indentures contain customary covenants. These include, among other
things, covenants that restrict USF’s ability to incur certain additional indebtedness, create or permit liens on assets,

pay dividends, or engage in mergers or consolidations. For additional information, see Item 1A of Part I, “Risk
Factors-Risks Relating to Our Indebtedness.” As of December 29, 2018, USF had $991 million of restricted
payment capacity under these covenants, and approximately $2,238 million of its net assets were restricted after
taking into consideration the net deferred tax assets and intercompany balances that eliminate in consolidation.

Certain of our agreements governing our indebtedness also contain customary events of default. These include,
without limitation, the failure to pay interest or principal when it is due under the agreements, cross default
provisions, the failure of representations and warranties contained in the agreements to be true, and certain
insolvency events. If an event of default occurs and remains uncured, the principal amounts outstanding, together
with all unpaid interest and other amounts owed, may be declared immediately due and payable by the lenders.
Were such an event to occur, we would be forced to seek new financing that may not be on as favorable terms as our
current facilities. Our ability to refinance our indebtedness on favorable terms, or at all, is directly affected by the
current economic and financial conditions. In addition, our ability to incur secured indebtedness (which may enable
us to achieve more favorable terms than the incurrence of unsecured indebtedness) depends in part on the value of
our assets. This, in turn, is dependent on the strength of our cash flows, results of operations, economic and market
conditions and other factors. As of December 29, 2018, we were in compliance with all of our debt covenants.

Our future financial and operating performance, ability to service or refinance our debt, and ability to comply with
covenants and restrictions contained in the agreements governing our indebtedness will be subject to: (1) future
economic conditions, (2) the financial health of our customers and suppliers, and (3) financial, business, and other
factors, many of which are beyond our control.

Every quarter, we review rating agency changes for all of the lenders that have a continuing obligation to provide us
with funding. We are not aware of any facts that indicate our lenders will not be able to comply with the contractual
terms of their agreements with us. We continue to monitor the credit markets generally and the strength of our
lender counterparties.

From time to time, we repurchase or otherwise retire our debt and take other steps to reduce our debt or otherwise
improve our leverage. These actions may include open market repurchases, negotiated repurchases, and other
retirements of outstanding debt. The amount of debt that may be repurchased or otherwise retired, if any, will
depend on market conditions, our debt trading levels, our cash position, and other considerations.

SGA Food Group Acquisition

On July 28, 2018, we entered into a Stock Purchase Agreement with SGA under which we agreed to acquire the
SGA’s Food Group of Companies for $1.8 billion in cash. The closing of the contemplated transaction is subject to
customary conditions, including the receipt of required regulatory approvals. To fund a substantial portion of the
consideration, we also entered into a commitment letter under which the Committed Parties committed to provide
USF with a $1.5 billion senior secured term loan facility.

Cash Flows

The following table presents condensed highlights from our Consolidated Statements of Cash Flows for fiscal years
2018, 2017 and 2016:

Net income
Changes in operating assets and liabilities, net of business acquisitions
Other adjustments
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net decrease in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash—beginning of year
Cash, cash equivalents and restricted cash—end of year

(*) Prior year amounts may be rounded to conform with the current year presentation.

2018

Fiscal Year
2017*
(in millions)

2016*

407
(235)
437
609
(232)
(391)
(14)
119
105

444
7
298
749
(356)
(405)
(12)
131
119

210
(84)
423
549
(762)
(180)
(393)
524
131

Operating Activities

Cash flows provided by operating activities decreased $140 million to $609 million in 2018. The year over year
decrease was primarily driven by a $35 million incremental contribution to our defined benefit pension plan, higher
income tax payments and other working capital changes in 2018.

Cash flows provided by operating activities increased $200 million to $749 million in 2017. The year over year
increase was primarily driven by an improvement in operating income and lower interest costs due to our 2016 debt
redemption, defeasance, and refinancings.

Investing Activities

Cash flows used in investing activities in 2018 included investments of $235 million in property and equipment for
fleet replacement, investments in information technology, and new construction and/or expansion of distribution
facilities.

During 2017, business acquisitions included three broadline distributors and two specialty distributors. Total
consideration consisted of cash of $182 million. The $221 million of cash spending on property and equipment was
up from the prior year primarily due to investments in information technology, investments in distribution facilities,
including warehouse equipment, and the timing of payments for certain fleet assets acquired at the end of 2016.
Cash flows used in investing activities in 2017 were partially offset by $25 million from property and equipment
sales, primarily consisting of a distribution facility sale, and $22 million in proceeds from the redemption of a self-
funded industrial revenue bond. See “Financing Activities” below, for discussion of the offsetting cash outflow.

During 2016, business acquisitions included two broadline distributors and two specialty distributors. Total net
consideration consisted of cash of $122 million, plus $8 million for the estimated fair value of contingent
consideration. We also purchased a noncontrolling interest valued at approximately $8 million in a technology
company that provides point-of-sale business intelligence to restaurants and serves to support our sales initiatives.
In 2016, approximately $164 million of purchases were made for property and equipment. Proceeds from sales of
property and equipment included $12 million from sales of closed facilities. Cash flows used in investing activities
in 2016 also included the purchase of $485 million of U.S. government securities that were subsequently used to
defease our $472 million principal CMBS Fixed Facility.

Capital expenditures in 2018, 2017, and 2016 included fleet replacement and investments in information technology
to improve our business, as well as new construction and/or expansion of distribution facilities. Additionally, we
entered into $101 million, $91 million, and $80 million of capital lease obligations for fleet replacement in 2018,
2017, and 2016, respectively.

We expect total capital additions in 2019 to be between $335 million and $345 million, inclusive of approximately
$75 million in fleet capital leases. We expect to fund our capital expenditures with available cash or cash generated
from operations.

Financing Activities

Cash flows used in financing activities of $391 million in 2018 included $304 million of net payments on our
revolving credit facilities and $113 million of scheduled payments on non-revolving debt and capital leases.
Financing activities in 2018 also included $19 million of proceeds from the exercise of employee stock options and
$19 million of proceeds from share purchases under our employee stock purchase plan, partially offset by the
remittance of $6 million of employee tax withholdings paid in connection with vested equity awards.

Cash flows used in financing activities of $405 million in 2017 included $15 million of net payments on our
revolving credit facilities, repayment of a $22 million self-funded industrial revenue bond, see “Investing Activities”
above, for discussion of the offsetting cash inflow, and $85 million of scheduled payments on non-revolving debt
and capital leases. Financing activities in 2017 also included $18 million and $16 million of proceeds from the
exercise of employee stock options and share purchases under our employee stock purchase plan, respectively. This
cash inflow was partially offset by the remittance of $28 million of employee tax withholdings for vesting and net
share-settled equity awards.

During 2017, we completed four secondary offerings of our common stock held primarily by investment funds
associated with or designated by the Former Sponsors. We did not receive any proceeds from the offerings. The
December 4, 2017 offering also included our repurchase of 10,000,000 shares of our common stock from the

underwriter for $280 million, utilizing borrowings from our revolving credit facilities. The shares of our common
stock that were repurchased by the Company were retired, as the Company does not maintain treasury shares.

Cash flows used in financing activities of $180 million in 2016 included net proceeds from our IPO of
$1,114 million and net proceeds from debt issuances and refinancing transactions. We used the proceeds from these
transactions to redeem the $1,348 million in principal of our 8.5% Senior Notes due June 30, 2019 (the “Old Senior
Notes”), plus an early redemption premium of $29 million, and to purchase the U.S. government securities that were
subsequently used to defease our CMBS Fixed Facility. In addition to the early redemption premium, we incurred
approximately $26 million of other debt financing costs and fees in connection with the debt refinancing
transactions and defeasance. Prior to the IPO, we paid a $666 million one-time special cash distribution to our
shareholders, of which $657 million was paid to the Former Sponsors. We funded the distribution through a
$75 million borrowing under the ABS Facility, a $239 million borrowing under the ABL Facility and $352 million in
available cash.

Retirement Plans

We have a qualified retirement plan and a nonqualified retirement plan that pay benefits to certain employees at
retirement, generally using formulas based on a participant’s years of qualified service and eligible compensation.
In addition, we maintain several postretirement health and welfare plans that provide benefits for eligible retirees
and their dependents. We contributed $71 million to our defined benefit and other postretirement plans in 2018, of
which $35 million represented an additional, voluntary contribution to the defined benefit plan.

Certain employees are eligible to participate in our 401(k) savings plan. This plan provides that, under certain
circumstances and subject to applicable IRS limits, we may match participant contributions of up to 100% of the
first 3% of a participant’s eligible compensation and 50% of the next 2% of a participant’s eligible compensation, for
a maximum employer matching contribution of 4%. We made employer matching contributions to the 401(k) plan
of $47 million, $46 million, and $44 million in 2018, 2017, and 2016, respectively.

We also contribute to various multiemployer benefit plans under certain CBAs. Our contributions to these plans
were $35 million, $34 million, and $33 million in 2018, 2017, and 2016, respectively.

Contractual Obligations

The following table includes information about our significant contractual obligations as of December 29, 2018 that
affect our liquidity and capital needs. The table includes information about payments due under specified
contractual obligations and the maturity profile of our consolidated debt, operating leases and other long-term
liabilities.

Recorded Contractual Obligations:
Debt, including capital lease
obligations
Financing lease obligation(1)
Self-insured liabilities(2)
Pension plans and other postretirement benefits
contributions(3)

Unrecorded Contractual Obligations:

Interest payments on debt(4)
Operating leases
Multiemployer contractual minimum pension
contributions(5)
Purchase obligations(6)

Total contractual cash obligations

Payments Due by Period

Less Than
1 Year

Total

1-3 Years 3-5 Years

More Than
5 Years

3,468
20
169

691
132

106
3
40

159
31

18
826
5,332

4
777
1,121

542
8
41

288
54

7
40
982

2,175
9
22

227
40

7
9
2,491

645
—
66

17
7

—
—
738

(1) Represents installment payments on a real estate lease obligation through 2023.
(2) Represents the estimated undiscounted payments on our self-insurance programs for general, fleet and

workers compensation liabilities. Actual payments may differ from these estimates.

(3) Represents estimated contributions and benefit payments for Company sponsored pension and other

postretirement benefit plans. Estimates beyond 2019 are not available for the Company's defined benefit
pension plan.

(4) Represents future interest payments on fixed rate debt, capital leases, a financing lease obligation, and

$1.4 billion of variable rate debt at interest rates as of December 29, 2018. The amounts shown in the table
include interest payments under interest rate swap agreements.

(5) Represents minimum contributions to the Central States Teamsters Southeast and Southwest Area Pension

Fund through 2023.

(6) Represents purchase obligations for purchases of product in the normal course of business, for which all

significant terms have been confirmed, information technology commitments and forward fuel and electricity
purchase obligations. The balance does not include 2019 capital additions expected to be between
$335 million to $345 million, inclusive of approximately $75 million in fleet capital leases. See "Investing
Activities" above.

Other long-term liabilities at December 29, 2018 as disclosed in Note 13, Accrued Expenses and Other Long-Term
Liabilities, in our consolidated financial statements, consist primarily of an uncertain tax position liability of
$31 million, inclusive of interest and penalties, for which the timing of payment is uncertain, and a $8 million non-
cash fair value adjustment recorded in purchase accounting for off-market operating leases, each of which has been
excluded from the table above.

Off-Balance Sheet Arrangements

As of December 29, 2018, we entered into $298 million of letters of credit in favor of certain commercial insurers
securing our obligations with respect to our self-insurance programs. Additionally, we entered into $73 million of
letters of credit to secure our obligations with respect to certain real estate leases, and $1 million of letters of credit
for other obligations.

Except as disclosed above, we have no off-balance sheet arrangements that currently have or are reasonably likely to
have a material effect on our consolidated financial condition, changes in financial condition, results of operations,
liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Estimates

Except as otherwise set forth, we have prepared the financial information in this Annual Report in accordance with
GAAP. Preparing these consolidated financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during these reporting periods. We base
our estimates and judgments on historical experience and other factors we believe are reasonable under the
circumstances. These assumptions form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Our most critical accounting policies and estimates
pertain to the valuation of goodwill and other intangible assets, vendor consideration and income taxes.

Valuation of Goodwill and Other Intangible Assets

Goodwill and other intangible assets include the cost of the acquired business in excess of the fair value of the
tangible net assets recorded in connection with each acquisition. Other intangible assets include customer
relationships, non-compete agreements, the brand names comprising our portfolio of private brands, and trademarks.
We assess goodwill and other intangible assets with indefinite lives for impairment each year, or more frequently if
events or changes in circumstances indicate an asset may be impaired. For goodwill and indefinite-lived intangible
assets, our policy is to assess for impairment at the beginning of each fiscal third quarter. For other intangible assets
with definite lives, we assess for impairment only if events occur that indicate that the carrying amount of an asset
may not be recoverable.

For goodwill, the reporting unit used in assessing impairment is the Company’s one business segment as described
in Note 25, Business Information, in our consolidated financial statements. Our 2018 assessment for impairment of

goodwill was performed using a qualitative approach to determine whether it is more likely than not that the fair
value of goodwill is less than its carrying value. In performing the qualitative assessment, we identified and
considered the significance of relevant key factors, events, and circumstances that affect the fair value of its
goodwill. These factors include external factors such as macroeconomic, industry, and market conditions, as well as
entity-specific factors, such as actual and planned financial performance. Based on our qualitative fiscal year 2018
annual impairment analysis for goodwill, we concluded that it is more likely than not that the fair value of goodwill
exceeded its carrying value.

Our fair value estimates of the brand name and trademark indefinite-lived intangible assets are based on a relief
from royalty method. The fair value of each intangible asset is determined for comparison to the corresponding
carrying value. If the carrying value of the asset exceeds its fair value, an impairment loss is recognized in an
amount equal to the excess.

The fair value of our trademark indefinite-lived intangible asset and brand name indefinite-lived intangible asset
exceeded their respective carrying values by substantial margins. These margins would not be materially impacted
by a 50 basis point increase in the discount rate. The recoverability of our indefinite-lived intangible assets could be
impacted if estimated future cash flows are not achieved.

Due to the many variables inherent in estimating fair value and the relative size of the goodwill and indefinite-lived
intangible assets, differences in assumptions could have a material effect on the results of the Company’s
impairment analysis in future periods.

Vendor Consideration

We participate in various rebate and promotional incentives with our suppliers, primarily through purchase-based
programs. Consideration under these incentives is estimated during the year based on purchasing activity, as our
obligations under the programs are fulfilled primarily when products are purchased. Consideration is typically
received in the form of invoice deductions, or less often in the form of cash payments. Changes in the estimated
amount of incentives earned are treated as changes in estimates and are recognized in the period of change.
Historically, adjustments to our estimates for vendor consideration or related allowances have not been significant.

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that have been included in the consolidated
financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences
between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that includes the enactment date. We record net deferred
tax assets to the extent we believe these assets will more likely than not be realized.

An uncertain tax position is recognized when it is more likely than not that the position will be sustained upon
examination, including resolutions of any related appeals or litigation processes, based on the technical merits.
Uncertain tax positions are recorded at the largest amount that is more likely than not to be sustained. We adjust the
amounts recorded for uncertain tax positions when our judgment changes as a result of the evaluation of new
information not previously available. These differences are reflected as increases or decreases to income tax
expense in the period in which they are determined. At this time, we believe it is reasonably possible that the
liability for unrecognized tax benefits will decrease by approximately $1 million in the next 12 months as a result of
the completion of tax audits or the expiration of the statute of limitations.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, refer to Note 3, Recent Accounting Pronouncements, in our
consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to certain risks arising from both our business operations and overall economic conditions. We
principally manage our exposures to a wide variety of business and operational risks through managing our core
business activities. We manage economic risks, including interest rate, liquidity, and credit risk, primarily by
managing the amount, sources, and duration of our debt funding. During 2017, we entered into derivative financial
instruments to assist in managing our exposure to variable interest rate terms on certain borrowings. We do not enter
into derivatives or other financial instruments for trading or speculative purposes.

Interest Rate Risk

Market risk is the possibility of loss from adverse changes in market rates and prices, such as interest rates and
commodity prices. As of December 29, 2018, after considering interest rate swaps that fixed the interest rate on
$1.1 billion of principal of our variable rate Term Loan Facility, approximately 41% of the principal amount of our
debt bore interest at floating rates based on LIBOR or ABR, as defined in our credit agreements. A 1% change in
the applicable rate would cause the interest expense on our floating rate debt to change by approximately
$14 million per year (see Note 12, Debt, in our consolidated financial statements).

Fuel Price Risk

We are also exposed to risk due to fluctuations in the price and availability of diesel fuel. Increases in the cost of
diesel fuel can negatively affect consumer spending, raise the prices we pay for products, and increase the costs we
incur to deliver products to our customers. To minimize fuel cost risk, we enter into forward purchase commitments
for a portion of our projected diesel fuel requirements. As of December 29, 2018, we had diesel fuel forward
purchase commitments totaling $100 million through June 2020. These lock in approximately 50% of our projected
diesel fuel purchase needs for the contracted periods. Our remaining fuel purchase needs will occur at market rates.
Using published market price projections for diesel and estimated fuel consumption needs, a 10% unfavorable
change in diesel prices from the projected market prices could result in approximately $11 million in additional fuel
cost on such uncommitted volumes.

Item 8.

Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Audited Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 29, 2018 and December 30, 2017

Consolidated Statements of Comprehensive Income for the Fiscal Years Ended

December 29, 2018, December 30, 2017 and December 31, 2016

Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended

December 29, 2018, December 30, 2017 and December 31, 2016

Page No.

Consolidated Statements of Cash Flows for the Fiscal Years Ended

December 29, 2018, December 30, 2017 and December 31, 2016

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of US Foods Holding Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of US Foods Holding Corp. and subsidiaries (the
"Company") as of December 29, 2018 and December 30, 2017, the related consolidated statements of
comprehensive income, shareholders' equity, and cash flows, for each of the three fiscal years in the period ended
December 29, 2018 and the related notes (collectively referred to as the "financial statements"). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of December 29,
2018 and December 30, 2017, and the results of its operations and its cash flows for each of the three fiscal years in
the period ended December 29, 2018, in conformity with accounting principles generally accepted in the United
States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 29, 2018, based on
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 14, 2019, expressed an unqualified
opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois
February 14, 2019

We have served as the Company's auditor since 2006.

US FOODS HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
(In millions, except par value)*

ASSETS
CURRENT ASSETS:

Cash and cash equivalents

Accounts receivable, less allowances of $29 and $26

Vendor receivables, less allowances of $3

Inventories—net

Prepaid expenses

Assets held for sale

Other current assets

Total current assets

PROPERTY AND EQUIPMENT—Net

GOODWILL
OTHER INTANGIBLES—Net

DEFERRED TAX ASSETS

OTHER ASSETS

TOTAL ASSETS
LIABILITIES AND EQUITY
CURRENT LIABILITIES:

Cash overdraft liability

Accounts payable

Accrued expenses and other current liabilities

Current portion of long-term debt

Total current liabilities

LONG-TERM DEBT

DEFERRED TAX LIABILITIES

OTHER LONG-TERM LIABILITIES

Total liabilities

COMMITMENTS AND CONTINGENCIES (Note 22)

SHAREHOLDERS’ EQUITY:

Common stock, $0.01 par value—600 shares authorized;
217 and 215 issued and outstanding as of
December 29, 2018 and December 30, 2017, respectively

Additional paid-in capital

Retained earnings

Accumulated other comprehensive loss

Total shareholders’ equity

TOTAL LIABILITIES AND EQUITY

(*) Prior year amounts may be rounded to conform with the current year presentation.

See Notes to Consolidated Financial Statements.

December 29,
2018

December 30,
2017

104

1,347

106

1,279

106

2,979

1,842

3,967
324

119

1,302

1,208

2,819

1,801

3,967
364

9,186

9,037

157

1,359

454

106

2,076

3,351

298

232

5,957

2,780

531
(84)
3,229

154

1,289

451

109

2,003

3,648

263

372

6,286

2,720

124
(95)
2,751

9,037

9,186

US FOODS HOLDING CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions, except share and per share data)*

December 29,
2018

Fiscal Years Ended
December 30,
2017

December 31,
2016

24,175

24,147

19,869

4,306

3,647

3,648

658
(13)
175

—
496

407

19,929

4,218

3,631
(1)
3,630

588

170

—
404
(40)
444

418

468

22,919

18,866

4,053

3,581

3,634

419

229

54
131
(79)
210

(45)
—

165

1.88

1.87

2.00

1.97

1.05

1.03

216,112,021

222,383,038

200,129,868

217,825,545

225,663,785

204,024,726

NET SALES

COST OF GOODS SOLD

Gross profit

OPERATING EXPENSES:

Distribution, selling and administrative costs

Restructuring charges (benefit)

Total operating expenses

OPERATING INCOME

OTHER (INCOME) EXPENSE—Net

INTEREST EXPENSE—Net

LOSS ON EXTINGUISHMENT OF DEBT

Income before income taxes

INCOME TAX PROVISION (BENEFIT)

NET INCOME

OTHER COMPREHENSIVE INCOME (LOSS)—Net of tax:

Changes in retirement benefit obligations

Unrecognized gain on interest rate swaps

COMPREHENSIVE INCOME

EARNINGS PER SHARE

Basic

Diluted

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

Basic

Diluted

(*) Prior year amounts may be rounded to conform with the current year presentation.

See Notes to Consolidated Financial Statements.

US FOODS HOLDING CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In millions)*

Number of
Common
Shares

Common
Shares at
Par Value

Additional
Paid-In
Capital

Accumulated
Earnings
(Deficit)

Accumulated
Other
Comprehensive
Loss

Total
Shareholders'
Equity

BALANCE-January 2, 2016

167

Settlements/reclassifications of redeemable common stock

Share-based compensation expense

Net proceeds from initial public offering

Cash distribution to shareholders ($3.94 per share - Note 15)

Proceeds from employee share purchase plan

Common stock and share-based awards settled

Changes in retirement benefit obligations, net of income tax

Net income

—

BALANCE-December 31, 2016

221

Share-based compensation expense

Proceeds from employee share purchase plan

Exercise of stock options

Net share-settled stock options

Tax withholding payments for
net share-settled equity awards

Common stock repurchased

Changes in retirement benefit obligations, net of income tax

Unrecognized gain on interest rate swaps, net of income tax

Net income

—

(10)

—

BALANCE-December 30, 2017

215

Share-based compensation expense

Proceeds from employee share purchase plan

Exercise of stock options

Tax withholding payments for
net share-settled equity awards

Changes in retirement benefit obligations, net of income tax

Unrecognized gain on interest rate swaps, net of income tax

Net income

—

BALANCE-December 29, 2018

217

—

2,292

(346)

(74)

1,873

1,113

(666)

(9)

—

210

—

(45)

—

1,114

(666)

(9)

(45)

210

2,791

(136)

(119)

2,538

—

(28)

(96)

—

2,720

(6)

—

2,780

—

(184)

—

444

124

—

407

531

—

(28)

(280)

444

(95)

2,751

—

(84)

(6)

407

3,229

(*) Prior year amounts may be rounded to conform with the current year presentation.

See Notes to Consolidated Financial Statements.

US FOODS HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)*

Fiscal Years Ended

December 29,
2018

December 30,
2017

December 31,
2016

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income
Adjustments to reconcile net income to net cash provided by operating activities:

407

444

Depreciation and amortization
Gain on disposal of property and equipment, net
Tangible asset impairment charges
Loss on extinguishment of debt
Amortization of deferred financing costs
Amortization of Senior Notes original issue premium
Insurance proceeds related to operating activities
Insurance benefit in net income
Deferred tax provision (benefit)
Share-based compensation expense
Provision for doubtful accounts

Changes in operating assets and liabilities, net of business acquisitions:

(Increase) decrease in receivables
(Increase) decrease in inventories
Increase in prepaid expenses and other assets
Increase in accounts payable and cash overdraft liability
(Decrease) increase in accrued expenses and other liabilities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of businesses—net of cash
Proceeds from sales of property and equipment
Purchases of property and equipment
Investments in marketable securities and other
Proceeds from redemption of industrial revenue bonds
Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from debt borrowings
Proceeds from debt refinancing
Principal payments on debt and capital leases
Repayment of industrial revenue bonds
Redemption of Old Senior Notes
Payment for debt financing costs and fees
Net proceeds from initial public offering
Cash distribution to shareholders
Contingent consideration paid for business acquisitions
Proceeds from employee share purchase plan
Proceeds from exercise of stock options
Tax withholding payments for net share-settled equity awards
Proceeds from common stock sales
Common stock repurchased
Common stock and share-based awards settled

Net cash used in financing activities

NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of year
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of year
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the year for:

Interest (net of amounts capitalized)
Income taxes paid—net

NON-CASH INVESTING AND FINANCING ACTIVITIES

Property and equipment purchases included in accounts payable
Capital lease additions
Cashless exercise of equity awards
Contingent consideration payable for acquisition of businesses
Marketable securities transferred in connection with the legal
defeasance of the CMBS Fixed Loan Facility

CMBS Fixed Loan Facility defeasance

(*) Prior year amounts may be rounded to conform with the current year presentation.

See Notes to Consolidated Financial Statements.

340
(1)
1
—
7
—
—
—
45
28
17

(71)
(72)
(45)
79
(126)
609

—
3
(235)
—
—
(232)

4,178
—
(4,595)
—
—
(1)
—
—
(5)
19
19
(6)
—
—
—
(391)
(14)
119
105

160
78

28
101
2
—

—

378
(4)
2
—
6
—
—
—
(123)
21
18

(67)
40
(24)
17
41
749

(182)
25
(221)
—
22
(356)

2,550
—
(2,651)
(22)
—
(1)
—
—
(6)
16
18
(28)
—
(280)
(1)
(405)
(12)
131
119

158
11

31
91
30
4

—

210

421
(6)
—
54
7
(2)
10
(10)
(80)
18
11

22
(101)
—
131
(136)
549

(122)
17
(164)
(493)
—
(762)

2,707
2,214
(4,141)
—
(1,377)
(26)
1,114
(666)
—
3
—
—
3
—
(11)
(180)
(393)
524
131

223
5

50
80
—
8

485

472

US FOODS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables in millions, except share and per share data, unless otherwise noted)

1. OVERVIEW AND BASIS OF PRESENTATION

US Foods Holding Corp., a Delaware corporation, and its consolidated subsidiaries are referred to in these
consolidated financial statements as “we,” “our,” “us,” the “Company,” or “US Foods.” US Foods Holding
Corp. conducts all of its operations through its wholly owned subsidiary US Foods, Inc. (“USF”) and its
subsidiaries. All of the Company’s indebtedness, as further described in Note 12, Debt, is a direct obligation
of USF and its subsidiaries.

Business Description—The Company, through USF, operates in one business segment in which it markets
and distributes fresh, frozen and dry food and non-food products to foodservice customers throughout the
United States. These customers include independently owned single and multi-unit restaurants, regional
concepts, national restaurant chains, hospitals, nursing homes, hotels and motels, country clubs, government
and military organizations, colleges and universities, and retail locations.

Basis of Presentation—The Company operates on a 52 or 53 week fiscal year, with all periods ending on a
Saturday. When a 53-week fiscal year occurs, the Company reports the additional week in the fiscal fourth
quarter. The fiscal years ended December 29, 2018, December 30, 2017, and December 31, 2016, also
referred to herein as fiscal years 2018, 2017, and 2016, respectively, were 52-week fiscal years. Prior year
amounts in tables may be rounded to conform with the current year presentation in millions.

Initial Public Offering—On June 1, 2016, the Company closed its initial public offering (“IPO”) selling
51,111,111 shares of common stock for a cash offering price of $23.00 per share ($21.9075 per share net of
underwriter discounts and commissions and before offering expenses). The net proceeds of the IPO were used
to redeem $1,090 million principal of the Company’s 8.5% Senior Notes due June 30, 2019 (the “Old Senior
Notes”) and pay the related $23 million early redemption premium.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation —The Company's consolidated financial statements include the accounts of US Foods
and its wholly owned subsidiary, USF, and its subsidiaries. Intercompany transactions have been eliminated in
consolidation.

Use of Estimates—The Company's consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”). This requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.

Cash and Cash Equivalents—The Company considers all highly liquid investments purchased with a maturity of
three or fewer months to be cash equivalents.

Accounts Receivable —Accounts receivable represent amounts due from customers in the ordinary course of
business and are recorded at the invoiced amount and do not bear interest. Receivables are presented net of the
allowance for doubtful accounts in the Company's accompanying Consolidated Balance Sheets. The Company
evaluates the collectability of its accounts receivable and determines the appropriate allowance for doubtful
accounts based on a combination of factors. When the Company determines that a loss is probable, a specific
allowance for doubtful accounts is recorded, reducing the receivable to the net amount we reasonably expect to
collect. In addition, allowances are recorded for all other receivables based on historic collection trends, write-offs
and the aging of receivables. The Company uses specific criteria to determine uncollectible receivables to be
written off, including bankruptcy, accounts referred to outside parties for collection, and accounts past due over
specified periods.

Vendor Consideration and Receivables—The Company participates in various rebate and promotional incentives
with its suppliers, primarily through purchase-based programs. Consideration earned is estimated during the year as
the Company’s obligations under the programs are fulfilled, which is primarily when products are purchased.
Changes in the estimated amount of incentives earned are recognized in the period of change.

Vendor consideration is typically deducted from invoices or collected in cash within 30 days of being earned.
Vendor receivables represent the uncollected balance of the vendor consideration. Since collections occur primarily

from deducting the consideration from the amounts due to the vendor, the Company does not experience significant
collectability issues. The Company evaluates the collectability of its vendor receivables based on specific vendor
information and vendor collection history.

Inventories—The Company’s inventories, consisting mainly of food and other foodservice-related products, are
primarily considered finished goods. Inventory costs include the purchase price of the product, freight charges to
deliver it to the Company’s warehouses, and depreciation and labor related to processing facilities and equipment,
and are net of certain cash or non-cash consideration received from vendors. The Company assesses the need for
valuation allowances for slow-moving, excess and obsolete inventories by estimating the net recoverable value of
such goods based upon inventory category, inventory age, specifically identified items, and overall economic
conditions.

The Company records inventories at the lower of cost or market using the last-in, first-out (“LIFO”) method. The
base year values of beginning and ending inventories are determined using the inventory price index computation
method. This “links” current costs to original costs in the base year when the Company adopted LIFO. The LIFO
balance sheet reserves were $130 million at both December 29, 2018 and December 30, 2017. As a result of net
changes in LIFO reserves, cost of goods sold increased $14 million for fiscal year 2017 and decreased $18 million
in fiscal year 2016.

Property and Equipment—Property and equipment are stated at cost. Depreciation of property and equipment is
calculated using the straight-line method over the estimated useful lives of the assets, which range from three to 40
years. Property and equipment under capital leases and leasehold improvements are amortized on a straight-line
basis over the shorter of the remaining term of the related lease or the estimated useful lives of the assets.

Routine maintenance and repairs are charged to expense as incurred. Applicable interest charges incurred during
the construction of new facilities or development of software for internal use are capitalized as one of the elements
of cost and are amortized over the useful life of the respective assets.

Property and equipment held and used by the Company are tested for recoverability whenever events or changes in
circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. For purposes of
evaluating the recoverability of property and equipment, the Company compares the carrying value of the asset or
asset group to the estimated, undiscounted future cash flows expected to be generated by the long-lived asset or
asset group. If the future cash flows do not exceed the carrying value, the carrying value is compared to the fair
value of such asset. If the carrying value exceeds the fair value, an impairment charge is recorded for the excess.

The Company also assesses the recoverability of its closed facilities actively marketed for sale. If a facility’s
carrying value exceeds its fair value, less an estimated cost to sell, an impairment charge is recorded for the excess.
Assets held for sale are not depreciated.

Impairments are recorded as a component of restructuring and tangible asset impairments in the Company's
Consolidated Statements of Comprehensive Income, and a reduction of the asset’s carrying value in the Company's
Consolidated Balance Sheets.

Goodwill and Other Intangible Assets—Goodwill and other intangible assets include the cost of the acquired
business in excess of the fair value of the net tangible assets acquired. Other intangible assets include customer
relationships, noncompete agreements, the brand names comprising our portfolio of exclusive brands, and
trademarks. As required, we assess goodwill and intangible assets with indefinite lives for impairment annually, or
more frequently if events occur that indicate an asset may be impaired. For goodwill and indefinite-lived intangible
assets, our policy is to assess for impairment at the beginning of each fiscal third quarter. For other intangible assets
with definite lives, we assess for impairment only if events occur that indicate that the carrying amount of an asset
may not be recoverable. All goodwill is assigned to the consolidated Company as the reporting unit.

Self-Insurance Programs—The Company estimates its liabilities for claims covering general, fleet, and workers’
compensation. Amounts in excess of certain levels, which range from $1 million to $10 million per occurrence, are
insured as a risk reduction strategy, to mitigate catastrophic losses. The workers’ compensation liability is
discounted, as the amount and timing of cash payments is reliably determinable given the nature of benefits and the
level of historic claim volume to support the actuarial assumptions and judgments used to derive the expected loss
payment pattern. The amount accrued is discounted using an interest rate that approximates the U.S. Treasury rate
consistent with the duration of the liability. The inherent uncertainty of future loss projections could cause actual
claims to differ from our estimates.

We are self-insured for group medical claims not covered under collective bargaining agreements. The Company
accrues its self-insured medical liability, including an estimate for incurred but not reported claims, based on known
claims and past claims history. These accruals are included in accrued expenses and other long-term liabilities in
the Company's Consolidated Balance Sheets.

Share-Based Compensation—Certain directors, officers and employees participate in the 2016 US Foods Holding
Corp. Omnibus Incentive Plan (the “2016 Plan”) which provides a means through which the Company may grant
equity and equity incentive awards of US Foods common stock. Certain officers and employees also hold
outstanding equity awards granted pursuant to the 2007 Stock Incentive Plan for Key Employees of USF Holding
Corp. and its Affiliates, as amended (the “2007 Plan”), which terminated according to its terms on
December 21, 2017. The termination of the 2007 Plan has no effect on any outstanding awards; however, no future
equity awards may be granted under the 2007 Plan. Additionally, most of the Company’s employees are eligible to
participate in the US Foods Holding Corp. Amended and Restated Employee Stock Purchase Plan (the “Stock
Purchase Plan”), which allows for the purchase of US Foods common stock at a discount of up to 15% of the fair
market value of a share at periodic acquisition dates. Shares issued to satisfy employee share-based award
programs come from shares reserved for issuance under the respective award programs. The Company does not
maintain treasury shares, as shares repurchased by the Company are retired upon reacquisition.

The Company measures compensation expense for stock-based awards at fair value at the date of grant, and
recognizes compensation expense over the service period for awards expected to vest. Forfeitures are recognized as
incurred. Fair value is the closing price per share for the Company’s common stock as reported on the New York
Stock Exchange. Prior to the IPO, the grant date fair value was measured at the end of each fiscal quarter using the
combination of a market and income approach. The computed value was applied to all stock and stock award
activity in the subsequent quarter.

Compensation expense for the Stock Purchase Plan represents the difference between the fair market value at
acquisition date and the employee purchase price.

Redeemable Common Stock—Redeemable common stock is a security with redemption features that are outside
the control of the issuer, is not classified as an asset or liability in conformity with GAAP, and is not mandatorily
redeemable. Prior to the IPO, common stock owned by management and key employees, including vested
restricted shares and vested restricted stock units, was subject to certain redemption features and, accordingly was
classified as redeemable common stock. In connection with the IPO, the management stockholder’s agreement was
amended, and common stock no longer has a redemption feature that is outside the Company’s control that could
require the Company to redeem these shares. Accordingly, the amounts previously reflected in redeemable
common stock were reclassified to shareholders’ equity during the second quarter of 2016.

Business Acquisitions—The Company accounts for business acquisitions under the acquisition method. Assets
acquired and liabilities assumed are recorded at fair value as of the acquisition date. The operating results of the
acquired companies are included in the Company’s consolidated financial statements from the date of acquisition.

Cost of Goods Sold—Cost of goods sold includes amounts paid to vendors for products sold, net of vendor
consideration, including in-bound freight necessary to bring the products to the Company’s distribution facilities.
Depreciation related to processing facilities and equipment is presented in cost of goods sold. Because the majority
of the inventories are finished goods, depreciation related to warehouse facilities and equipment is presented in
distribution, selling and administrative costs. See “Inventories” above for discussion of the LIFO impact on cost of
goods sold.

Shipping and Handling Costs—Shipping and handling costs, which include costs related to the selection of
products and their delivery to customers, are presented in distribution, selling and administrative costs. Shipping
and handling costs were $1.7 billion in 2018 and $1.6 billion in 2017 and in 2016.

Income Taxes—The Company accounts for income taxes under the asset and liability method. This requires the
recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been
included in the Company's consolidated financial statements. Under this method, deferred tax assets and liabilities
are determined based on the differences between the financial statement carrying amounts and tax basis of assets
and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. The
effect of a change in tax rates on deferred tax assets and liabilities is recognized in income during the period that
includes the enactment date. Net deferred tax assets are recorded to the extent the Company believes these assets
will more likely than not be realized.

An uncertain tax position is recognized when it is more likely than not that the position will be sustained upon
examination, including resolutions of any related appeals or litigation processes, based on the technical merits.
Uncertain tax positions are recorded at the largest amount that is more likely than not to be sustained. The
Company adjusts the amounts recorded for uncertain tax positions when its judgment changes, as a result of
evaluating new information not previously available. These differences are reflected as increases or decreases to
income tax expense in the period in which they are determined.

Derivative Financial Instruments— The Company utilizes derivative financial instruments to assist in managing
its exposure to variable interest rates on certain borrowings. The Company does not enter into derivatives or other
financial instruments for trading or speculative purposes. Interest rate swaps, designated as cash flow hedges, are
recorded in the Company’s Consolidated Balance Sheet at fair value.

In the normal course of business, the Company enters into forward purchase agreements to procure fuel, electricity
and product commodities related to its business. These agreements often meet the definition of a derivative.
However, the Company does not measure its forward purchase commitments at fair value as the amounts under
contract meet the physical delivery criteria in the normal purchase exception under GAAP guidance.

Concentration Risks—Financial instruments that subject the Company to concentrations of credit risk consist
primarily of cash equivalents and accounts receivable. The Company’s cash equivalents are invested primarily in
money market funds at major financial institutions. Credit risk related to accounts receivable is dispersed across a
larger number of customers located throughout the United States. The Company attempts to reduce credit risk
through initial and ongoing credit evaluations of its customers’ financial condition. There were no receivables from
any one customer representing more than 5% of our consolidated gross accounts receivable at December 29, 2018.

RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging
Activities, to better align a company’s risk management activities and financial reporting for hedging relationships,
simplify the hedge accounting requirements, and improve the disclosures of hedging arrangements. ASU 2017-12
was further amended in October 2018 by ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the
Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for
Hedge Accounting. This guidance is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018, with early adoption permitted. The Company’s only hedging activities are its
interest rate swaps designated as cash flow hedges. As discussed in Note 22, Commitments and Contingencies, the
Company does not measure its forward purchase commitments for fuel and electricity at fair value, as the amounts
under contract meet the physical delivery criteria in the normal purchase exception in Accounting Standards
Codification (“ASC”) 815, Derivatives and Hedging. The Company prospectively adopted this guidance at the
beginning of fiscal year 2018, with no impact to its financial position or results of operations.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of
Modification Accounting. This ASU provides guidance on determining which changes to the terms and conditions
of share-based payment awards require an entity to apply modification accounting. This ASU should be applied
prospectively to an award modified on or after the adoption date. This guidance is effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2017. The Company adopted this guidance
at the beginning of fiscal year 2018, with no impact to its financial position or results of operations, as the Company
has not modified any share-based payment awards since adoption.

In March 2017, the FASB issued ASU No. 2017-07, Compensation—Retirement Benefits (Topic 715): Improving
the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU requires an
employer to report the service cost component of net periodic pension cost and net periodic postretirement benefit
cost in the same line item as other compensation costs arising from services rendered by the pertinent employees
during the period. It also requires the other components of net periodic pension cost and net periodic postretirement
benefit cost to be presented in the statement of comprehensive income separately from the service cost component
and outside of operating income. Additionally, only the service cost component is eligible for capitalization, when
applicable. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2017. The amendments in this update require retrospective presentation in the statement of
comprehensive income. The amendments allow a practical expedient that permits an employer to use the amounts
disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the
estimation basis for applying the retrospective presentation requirements. The Company retrospectively adopted
this guidance at the beginning of fiscal year 2018. For fiscal years 2017 and 2016, $14 million and $5 million,
respectively, of net periodic benefit credits, other than the service cost components, were reclassified to other
(income) expense—net, in the Company's Consolidated Statement of Comprehensive Income.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating Step 2
from the goodwill impairment test. The amendment also eliminates the requirement for any reporting unit with a

zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform
Step 2 of the goodwill impairment test. An entity has the option to perform the qualitative assessment for a
reporting unit to determine if the quantitative impairment test is necessary. This guidance is effective for the annual
or any interim goodwill impairment tests for fiscal years beginning after December 15, 2019, with early adoption
permitted. The Company adopted this guidance as of the first day of its fiscal third quarter of 2018, in conjunction
with its annual impairment assessment for goodwill, with no impact to its financial position or results of operations.
See Note 10, Goodwill and Other Intangibles, for a discussion of the Company's fiscal year 2018 annual impairment
analysis.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash,
which clarifies the presentation of restricted cash on the statement of cash flows. Amounts generally described as
restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling
the beginning and ending cash balances on the statement of cash flows. The Company retrospectively adopted this
standard at the beginning of fiscal year 2018, resulting in immaterial increases in the beginning and ending balances
of cash, cash equivalents and restricted cash in the Company’s Consolidated Statement of Cash Flows for fiscal year
2017 and 2016. Restricted cash was immaterial at December 29, 2018 and December 30, 2017.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities, to amend the guidance on the
classification and measurement of financial instruments. ASU No. 2016-01 was further amended in February 2018
by ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic
825-10)—Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance requires
entities to measure equity investments that do not result in consolidation and are not accounted for under the equity
method at fair value and recognize any changes in fair value in net income. The new guidance also amends certain
disclosure requirements associated with the fair value of financial instruments. The Company adopted the guidance
in this ASU at the beginning of fiscal year 2018, with no impact to its financial position or results of operations.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, and has issued
subsequent amendments which have been introduced as ASC Topic 606. Topic 606, as amended, replaces Topic
605, the previous revenue recognition guidance. The new standard’s core principle is for companies to recognize
revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is,
payment) to which the Company expects to be entitled in exchange for those goods or services. The new standard
also results in enhanced disclosures about revenue, provides guidance for transactions that were not previously
addressed comprehensively (for example, service revenue and contract modifications) and improves guidance for
multiple-element arrangements. The Company adopted this standard at the beginning of fiscal year 2018, with no
significant impact to its financial position or results of operations, using the modified retrospective method. See
Note 4, Revenue Recognition.

Recently Issued Accounting Pronouncements

In February 2018, the FASB issued ASU No. 2018-02, Income Statement, Reporting Comprehensive Income (Topic
220), Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income. This ASU permits
an entity to reclassify the income tax effects of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) on items within
accumulated other comprehensive income to retained earnings. The Company adopted this standard at the
beginning of fiscal year 2019 and elected not to reclassify the income tax effects of the Tax Act from accumulated
other comprehensive income to retained earnings.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases.
The FASB has issued subsequent amendments to improve and clarify the implementation guidance of Topic 842.
The new standard requires an entity to recognize leases on the balance sheet and to disclose key information about
the entity's leasing arrangements. The Company adopted this standard at the beginning of fiscal year 2019 using the
modified retrospective transition approach, including certain practical expedients, for all leases existing at
December 30, 2018, the effective and initial application date. The estimated impact of the adoption to the
Company's consolidated financial statements included the recognition of operating lease liabilities of approximately
$100 million with corresponding right-of-use assets of approximately the same amount based on the present value
of the remaining lease payments for existing operating leases. This standard is not expected to have a material
impact on the Company's results of operations. The Company has revised its relevant policies and procedures, as
applicable, to meet the new accounting, reporting and disclosure requirements of Topic 842 and has updated
internal controls accordingly.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software
(Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement
That Is a Service Contract, which provides new guidance on the accounting for implementation, set-up, and other
upfront costs incurred in a hosted cloud computing arrangement. Under the new guidance, entities will apply the
same criteria for capitalizing implementation costs as they would for an internal-use software license arrangement.
This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2019, with early adoption permitted. This ASU can be adopted prospectively to eligible costs incurred on or
after the date of adoption or retrospectively. The Company does not expect the adoption of the new guidance under
the standard to materially affect its financial position or results of operations.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments, which requires entities to use a forward looking, expected loss model to
estimate credit losses. It also requires additional disclosure related to credit quality of trade and other receivables,
including information related to management’s estimate of credit allowances. ASU 2016-13 was further amended in
November 2018 by ASU 2018-19, Codification Improvements to Topic 236, Financial Instrument-Credit Losses.
This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2019, with early adoption permitted. The Company does not expect the adoption of the provisions of
the new standard to materially affect its financial position or results of operations.

REVENUE RECOGNITION

In accordance with ASC 606, Revenue from Contracts with Customers, revenue is recognized when a
customer obtains control of promised goods or services. The Company adopted this standard at the beginning
of fiscal year 2018, with no significant impact to its financial position or results of operations, using the
modified retrospective method. The amount of revenue recognized reflects the consideration to which the
Company expects to be entitled to receive in exchange for these goods or services. To achieve this core
principle, the Company applies the following five steps:

Identify the contract with a customer
A contract with a customer exists when (i) the Company enters into an enforceable contract with a
customer that defines each party’s rights regarding the goods or services to be transferred and identifies
the payment terms related to these goods or services, (ii) the contract has commercial substance and (iii)
the Company determines that collection of substantially all consideration for goods or services that are
transferred is probable based on the customer’s intent and ability to pay the promised consideration. For
the Company, the contract is the approved sales order, which may also be supplemented by other
agreements that formalize various terms and conditions with customers, including restaurant chains,
government organizations or group purchase organizations. The Company applies judgment in
determining the customer’s ability and intention to pay, which is based on a variety of factors including
the customer’s historical payment experience or, in the case of a new customer, published credit and
financial information pertaining to the customer.

Identify the performance obligation in the contract
Performance obligations promised in a contract are identified based on the goods or services that will be
transferred to the customer. For the Company, this includes the delivery of food and food-related
products, which provides immediate benefit to the customer. While certain additional services may be
identified within a contract, we have concluded that those services are individually immaterial in the
context of the contract with the customer and therefore not assessed as performance obligations.

3) Determine the transaction price

The transaction price is determined based on the consideration to which the Company will be entitled in
exchange for transferring goods or services to the customer, and is generally stated on the approved sales
order. Variable consideration, which typically includes volume-based rebates or discounts, is estimated
utilizing the most likely amount method.

4) Allocate the transaction price to performance obligations in the contract

Since our contracts contain a single performance obligation, delivery of food and food-related products,
the transaction price is allocated to that single performance obligation.

5) Recognize revenue when or as the Company satisfies a performance obligation

The Company recognizes revenue from the sale of food and food-related products when title and risk of
loss passes and the customer accepts the goods, which occurs at delivery. Customer sales incentives such
as volume-based rebates or discounts are treated as a reduction of sales at the time the sale is recognized.
Sales taxes invoiced to customers and remitted to governmental authorities are excluded from net sales.
Shipping and handling costs are treated as fulfillment costs and presented in distribution, selling and
administrative costs. At December 29, 2018, the Company does not have any material outstanding
performance obligations, contract assets and liabilities or capitalized contract acquisition costs. Customer
receivables, which are included in Accounts receivable, less allowances in the Company’s Consolidated
Balance Sheets, were $1.3 billion at both December 29, 2018 and December 30, 2017.

The following table presents the sales mix for the Company’s principal product categories for the last three
fiscal years:

Meats and seafood
Dry grocery products
Refrigerated and frozen grocery products
Dairy
Equipment, disposables and supplies
Beverage products
Produce

BUSINESS ACQUISITIONS

2018

2017

2016

8,635
4,239
3,898
2,520
2,298
1,315
1,270

8,692
4,266
3,799
2,533
2,243
1,306
1,308

8,121
4,127
3,653
2,380
2,166
1,268
1,204

24,175

24,147

22,919

There were no business acquisitions completed during fiscal year 2018.

Acquisitions completed during fiscal year 2017 included three broadline and two specialty distributors for
aggregate cash consideration of approximately $182 million.

Business acquisitions periodically provide for contingent consideration, including earnout payments in the event
certain operating results are achieved during a defined post-closing period. During fiscal year 2018, the Company
paid approximately $5 million of contingent consideration related to 2017 and 2016 business acquisitions. During
fiscal year 2017, the Company paid approximately $8 million of earnout contingent consideration related to 2016
business acquisitions, of which $6 million was included as part of the fair value of the acquisition date assets and
liabilities, and is reflected in the Company’s Consolidated Statement of Cash Flows in cash flows from financing
activities. As of December 29, 2018, the Company had no material outstanding contingent consideration for
business acquisitions.

The 2017 acquisitions, reflected in the Company’s consolidated financial statements commencing from the date of
acquisition, did not materially affect the Company’s results of operations or financial position and, therefore, pro
forma financial information has not been provided. The 2017 acquisitions were integrated into the Company’s
foodservice distribution network and funded primarily with cash from operations.

The Company finalized the purchase accounting for the 2017 acquisitions during fiscal year 2018.

The following table summarizes the purchase price allocations for the 2017 business acquisitions as follows:

Accounts receivable
Inventories
Other current assets
Property and equipment
Goodwill
Other intangible assets
Accounts payable
Accrued expenses and other current liabilities
Deferred income taxes

Cash paid for acquisitions

2017

17
25
1
29
59
72
(8)
(6)
(7)
182

ALLOWANCE FOR DOUBTFUL ACCOUNTS

A summary of the activity in the allowance for doubtful accounts for the last three fiscal years is as follows:

Balance at beginning of year

Charged to costs and expenses

Customer accounts written off—net of recoveries

Balance at end of year

2018

2017

2016

17
(14)
29

18
(17)
26

11
(9)
25

This table excludes the vendor receivable related allowance for doubtful accounts of $3 million at both
December 29, 2018 and December 30, 2017 and $2 million at December 31, 2016.

ACCOUNTS RECEIVABLE FINANCING PROGRAM

Under its accounts receivable financing facility dated as of August 27, 2012, as amended (the “ABS Facility”),
USF sells, on a revolving basis, its eligible receivables to a wholly owned, special purpose, bankruptcy remote
subsidiary (the “Receivables Company”). The Receivables Company, in turn, grants a continuing security
interest in all of its rights, title and interest in the eligible receivables to the administrative agent, for the
benefit of the lenders as defined by the ABS Facility. The Company consolidates the Receivables Company
and, consequently, the transfer of the receivables is a transaction internal to the Company and the receivables
have not been derecognized from the Company’s Consolidated Balance Sheets. On a daily basis, cash from
accounts receivable collections is remitted to the Company as additional eligible receivables are sold to the
Receivables Company. If, on a weekly settlement basis, there are not sufficient eligible receivables available
as collateral, the Company is required to either provide cash collateral or, in lieu of providing cash collateral,
it can pay down its borrowings on the ABS Facility to cover the shortfall. Due to sufficient eligible
receivables available as collateral, no cash collateral was held at December 29, 2018 or December 30, 2017.
Included in the Company’s accounts receivable balance as of December 29, 2018 and December 30, 2017 was
approximately $1.0 billion of receivables held as collateral in support of the ABS Facility. See Note 12, Debt,
for a further description of the ABS Facility.

ASSETS HELD FOR SALE

The Company classifies its closed facilities as assets held for sale at the time management commits to a plan
to sell the facility, the facility is actively marketed and available for immediate sale, and the sale is expected to
be completed within one year. Due to market conditions, certain facilities may be classified as assets held for
sale for more than one year as the Company continues to actively market the facilities at reasonable prices.

During fiscal year 2018, the Company closed a distribution facility and transferred its business activities to
another of the Company's distribution facilities. During fiscal year 2017, two closed distribution facilities
were sold for aggregate proceeds of $22 million, resulting in a $3 million gain. Additionally, an excess

portion of a parcel of land, purchased earlier in the year, was transferred to assets held for sale, along with an
operating facility that was closed due to the consolidation of operations into a recently acquired facility.

The changes in assets held for sale for fiscal years 2018 and 2017 were as follows:

Balance at beginning of year
Transfers in
Assets sold
Tangible asset impairment charges
Balance at end of the year

2018

2017

5
3
—
(1)
7

21
4
(19)
(1)
5

PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

Land
Buildings and building improvements
Transportation equipment
Warehouse equipment
Office equipment, furniture and software
Construction in process

Less accumulated depreciation and amortization
Property and equipment—net

December 29,
2018

December 30,
2017

Range of
Useful Lives

323
1,252
1,031
418
858
77
3,959
(2,117)
1,842

313
1,190
949
384
803
88
3,727
(1,926)
1,801

10–40 years
5–10 years
5–12 years
3–7 years

Transportation equipment included $544 million and $444 million of capital lease assets at December 29,
2018 and December 30, 2017, respectively. Buildings and building improvements included $36 million and
$97 million of capital lease assets at December 29, 2018 and December 30, 2017, respectively. Accumulated
amortization of capital lease assets was $247 million and $181 million at December 29, 2018 and
December 30, 2017, respectively. Interest capitalized was $2 million for fiscal years 2018 and 2017.

Depreciation and amortization expense of property and equipment, including amortization of capital lease
assets, was $300 million, $283 million and $266 million for fiscal years 2018, 2017 and 2016, respectively.

10. GOODWILL AND OTHER INTANGIBLES

Goodwill includes the cost of acquired businesses in excess of the fair value of the tangible net assets
acquired. Other intangible assets include customer relationships, noncompete agreements, the brand names
comprising the Company’s portfolio of exclusive brands, and trademarks. Brand names and trademarks are
indefinite-lived intangible assets, and accordingly, are not subject to amortization.

Customer relationships and noncompete agreements are intangible assets with definite lives, and are carried at
the acquired fair value less accumulated amortization. Customer relationships and noncompete agreements
are amortized over the estimated useful lives (two to four years). Amortization expense was $40 million,
$95 million and $155 million for fiscal years 2018, 2017 and 2016, respectively. The weighted-average
remaining useful life of all customer relationship intangibles was approximately 2 years at December 29,
2018. Amortization of these customer relationship assets is estimated to be $39 million for fiscal year 2019,
$24 million fiscal year 2020 and $6 million fiscal year 2021.

Goodwill and Other intangibles consisted of the following:

December 29,
2018

December 30,
2017

3,967

Goodwill
Other intangibles—net

Customer relationships—amortizable:
Gross carrying amount
Accumulated amortization
Net carrying value
Noncompete agreements—amortizable:
Gross carrying amount
Accumulated amortization
Net carrying value
Brand names and trademarks—not amortizing

154
(85)
69

3
(1)
2
253

154
(46)
108

4
(1)
3
253

364

Total other intangibles—net

324

The Company assesses goodwill and other intangible assets with indefinite lives for impairment annually, or
more frequently if events occur that indicate an asset may be impaired. For goodwill and indefinite-lived
intangible assets, the Company’s policy is to assess for impairment at the beginning of each fiscal third
quarter. For intangible assets with definite lives, the Company assesses impairment only if events occur that
indicate that the carrying amount of an asset may not be recoverable. The Company completed its most recent
annual impairment assessment for goodwill and indefinite-lived intangible assets as of July 1, 2018, the first
day of the third quarter of 2018, with no impairments noted.

For goodwill, the reporting unit used in assessing impairment is the Company’s one business segment as
described in Note 25, Business Information. The Company performed the annual goodwill impairment
assessment using a qualitative approach to determine whether it is more likely than not that the fair value of
goodwill is less than its carrying value. In performing the qualitative assessment, the Company identified and
considered the significance of relevant key factors, events, and circumstances that affect the fair value of its
goodwill. These factors include external factors such as market conditions, macroeconomic, and industry, as
well as entity-specific factors, such as actual and planned financial performance. Based upon the Company’s
qualitative fiscal 2018 annual goodwill impairment analysis, the Company concluded that it is more likely
than not that the fair value of goodwill exceeded its carrying value and there is no risk of impairment.

The Company’s fair value estimates of the brand names and trademarks indefinite-lived intangible assets are
based on a relief-from-royalty method. The fair value of these intangible assets is determined for comparison
to the corresponding carrying value. If the carrying value of these assets exceeds its fair value, an impairment
loss is recognized in an amount equal to the excess. Based upon the Company’s fiscal 2018 annual
impairment analysis, the Company concluded the fair value of its brand names and trademarks exceeded its
carrying value.

Due to the many variables inherent in estimating fair value and the relative size of the recorded indefinite-
lived intangible assets, differences in assumptions may have a material effect on the results of the Company’s
impairment analysis in future periods.

11. FAIR VALUE MEASUREMENTS

The Company follows the accounting standards for fair value, where fair value is a market-based
measurement, not an entity-specific measurement. The Company’s fair value measurements are based on the
assumptions that market participants would use in pricing the asset or liability. As a basis for considering
market participant assumptions in fair value measurements, fair value accounting standards establish a fair
value hierarchy which prioritizes the inputs used in measuring fair value as follows:

•

Level 1—observable inputs, such as quoted prices in active markets

•

Level 2—observable inputs other than those included in Level 1, such as quoted prices for similar assets
and liabilities in active or inactive markets that are observable either directly or indirectly, or other
inputs that are observable or can be corroborated by observable market data

Level 3—unobservable inputs for which there is little or no market data, which require the reporting
entity to develop its own assumptions

Any transfers of assets or liabilities between Level 1, Level 2, and Level 3 of the fair value hierarchy will be
recognized at the end of the reporting period in which the transfer occurs. There were no transfers between
fair value levels in any of the periods presented below.

The Company’s assets and liabilities measured at fair value on a recurring basis as of December 29, 2018 and
December 30, 2017, aggregated by the level in the fair value hierarchy within which those measurements fall,
were as follows:

Assets

Money market funds
Interest rate swaps

Assets

Money market funds
Interest rate swaps

Liabilities

Contingent consideration payable for business acquisitions

Level 1

December 29, 2018
Level 3
Level 2

Total

1
—
1

— $
19
19

— $
—
— $

1
19
20

Level 1

December 30, 2017
Level 3
Level 2

Total

1
—
1

— $
13
13

— $
—
— $

— $

1
13
14

There were no significant assets or liabilities on the Company's Consolidated Balance Sheets measured at fair
value on a nonrecurring basis.

Recurring Fair Value Measurements

Money Market Funds

Money market funds include highly liquid investments with a maturity of three or fewer months. They are
valued using quoted market prices in active markets and are classified under Level 1 within the fair value
hierarchy.

Derivative Financial Instruments

The Company uses interest rate swaps, designated as cash flow hedges, to manage its exposure to interest rate
movements in connection with its variable-rate Term Loan Facility (as defined in Note 12, Debt).

On August 1, 2017, USF entered into four-year interest rate swap agreements with a notional amount of
$1.1 billion, reducing to $825 million in the fourth year. These swaps effectively converted approximately half
of the principal amount of the Term Loan Facility from a variable to a fixed rate loan. After giving effect to
the June 22, 2018 amendment to the Term Loan Facility, the Company now effectively pays an aggregate rate
of 3.71% on the notional amount covered by the interest rate swaps, comprised of a rate of 1.71% plus a
spread of 2.00% (See Note 12, Debt).

The Company records its interest rate swaps in its Consolidated Balance Sheets at fair value, based on
projections of cash flows and future interest rates. The determination of fair value includes the consideration
of any credit valuation adjustments necessary, giving consideration to the creditworthiness of the respective
counterparties or the Company, as appropriate. The following table presents the balance sheet location and
fair value of the interest rate swaps at December 29, 2018 and December 30, 2017:

Derivatives designated as hedging instruments
Interest rate swaps
Interest rate swaps

Balance Sheet Location

Fair Value

December 29,
2018

December 30,
2017

Other current assets
Other noncurrent assets
Total

8
11
19

1
12
13

Gains and losses on the interest rate swaps are initially recorded in accumulated other comprehensive loss and
reclassified to interest expense during the period in which the hedged transaction affects income. The
following table presents the effect of the Company’s interest rate swaps in its Consolidated Statement of
Comprehensive Income for the fiscal years ended December 29, 2018 and December 30, 2017:

Derivatives in Cash Flow Hedging Relationships

For the year ended December 29, 2018

Interest rate swaps

For the year ended December 30, 2017

Interest rate swaps

Amount of Gain
Recognized in
Accumulated
Other
Comprehensive
Loss, net of tax

Location of Amounts
Reclassified from
Accumulated Other
Comprehensive Loss

Amount of (Gain)
Loss Reclassified
from Accumulated
Other
Comprehensive
Loss to Income,
net of tax

Interest expense—net

(2)

During the next twelve months, the Company estimates that $9 million will be reclassified from accumulated
other comprehensive loss to income.

Credit Risk-Related Contingent Features—The interest rate swap agreements contain a provision whereby
the Company could be declared in default on its hedging obligations if more than $75 million of the
Company’s other indebtedness is accelerated. As of December 29, 2018, none of our indebtedness was
accelerated.

We review counterparty credit risk and currently are not aware of any facts that indicate our counterparties
will not be able to comply with the contractual terms of their agreements.

Contingent Consideration Relating to Business Acquisitions

As discussed in Note 5, Business Acquisitions, contingent consideration may be paid under an earnout
arrangement in connection with a business acquisition in the event certain operating results are achieved
during a defined post-closing period. The amount included in the above table for fiscal year 2017, classified
under Level 3 within the fair value hierarchy, represents the estimated fair value of the earnout liability for the
respective period. This earnout liability was settled in fiscal year 2018. We estimated the fair value of the
earnout liability based on financial projections of the acquired businesses and estimated probability of
achievement. Changes in fair value resulting from changes in the estimated amount of contingent
consideration are included in distribution, selling and administrative costs in the Company's Consolidated
Statements of Comprehensive Income.

Other Fair Value Measurements

The carrying value of cash, restricted cash, accounts receivable, bank checks outstanding, accounts payable
and accrued expenses approximate their fair values due to their short-term maturities.

The fair value of the Company’s total debt approximated its carrying value of $3.5 billion and $3.8 billion as
of December 29, 2018 and December 30, 2017, respectively. The December 29, 2018 and December 30, 2017

fair value of the Company’s 5.875% unsecured Senior Notes due June 15, 2024 (the “Senior Notes”),
estimated at $0.6 billion, at the end of each period, was classified under Level 2 of the fair value hierarchy,
with fair value based upon the closing market price at the end of the reporting period. The fair value of the
balance of the Company’s debt is primarily classified under Level 3 of the fair value hierarchy, with fair value
estimated based upon a combination of the cash outflows expected under these debt facilities, interest rates
that are currently available to the Company for debt with similar terms, and estimates of the Company’s
overall credit risk.

12. DEBT

Total debt consisted of the following:

Debt Description
ABL Facility
ABS Facility
Term Loan Facility (net of $6 and $10
of unamortized deferred financing costs)
Senior Notes (net of $5 and $6
of unamortized deferred financing costs)
Obligations under capital leases
Other debt
Total debt
Current portion of long-term debt
Long-term debt

Maturity
October 20, 2020
September 21, 2020

Interest Rate at
December 29, 2018
7.00%
3.52%

June 27, 2023

4.34%

June 15, 2024
2019–2025
2021–2031

5.88%
2.31% - 6.19%
5.75% - 9.00%

December 29,
2018

December 30,
2017

81
275

2,145

595
352
9
3,457
(106)
3,351

80
580

2,157

594
336
10
3,757
(109)
3,648

At December 29, 2018, after considering interest rate swaps that fixed the interest rate on $1.1 billion of principal of
the Term Loan Facility, as described in Note 11, Fair Value Measurements, approximately 41% of the Company’s
total debt was at a floating rate.

Principal payments to be made on outstanding debt, exclusive of deferred financing costs, as of December 29, 2018,
were as follows:

2019
2020
2021
2022
2023
Thereafter

106
455
87
72
2,103
645
3,468

The following is a description of each of the Company’s debt instruments outstanding as of December 29, 2018:

ABL Facility—The Amended and Restated ABL Credit Agreement, dated as of October 20, 2015, as further
amended, sets forth USF’s asset backed senior secured revolving loan facility (the “ABL Facility”) and provides for
loans under its two tranches: ABL Tranche A-1 and ABL Tranche A, with its capacity limited by a borrowing base.
The maximum borrowing available is $1,300 million, with ABL Tranche A-1 at $100 million, and ABL Tranche A
at $1,200 million.

As of December 29, 2018, USF had $81 million of outstanding borrowings, and had issued letters of credit totaling
$372 million, under the ABL Facility. Outstanding letters of credit included: (1) $298 million issued in favor of
certain commercial insurers securing USF’s obligations with respect to its self-insurance program, (2) $73 million
issued to secure USF’s obligations with respect to certain real estate leases, and (3) $1 million issued for other
obligations. There was available capacity on the ABL Facility of $847 million at December 29, 2018. As of
December 29, 2018, on Tranche A-1 borrowings, USF may periodically elect to pay interest at an alternative base
rate (“ABR”), as defined in the ABL Facility, plus 1.50% or the London Interbank Offered Rate (“LIBOR”) plus
2.50%. On Tranche A borrowings, USF can periodically elect to pay interest at ABR plus 0.25% or LIBOR plus
1.25%. The interest rate spreads are the lowest provided for in the agreement, based upon USF’s consolidated
secured leverage ratio, as defined in the agreement. The ABL Facility also carries letter of credit fees of 1.25% and
an unused commitment fee of 0.25%. The weighted-average interest rate on outstanding borrowings for the ABL
Facility was 5.12% and 4.29% for fiscal years 2018 and 2017, respectively.

ABS Facility—Under the ABS Facility, USF sells, on a revolving basis, its eligible receivables to the Receivables
Company. See Note 7, Accounts Receivable Financing Program.

The maximum capacity under the ABS Facility is $800 million. Borrowings under the ABS Facility were
$275 million at December 29, 2018. The Company, at its option, can request additional borrowings up to the
maximum commitment, provided sufficient eligible receivables are available as collateral. There was available
capacity on the ABS Facility of $455 million at December 29, 2018 based on receivables eligible as collateral. The
ABS Facility bears interest at LIBOR plus 1.00%, and carries an unused commitment fee of 0.35%. The weighted-
average interest rate on outstanding borrowings for the ABS Facility was 3.00% and 2.18% for fiscal years 2018
and 2017, respectively.

Term Loan Facility—The Credit Agreement, dated as of May 11, 2011, as amended, provides USF with a senior
secured term loan facility (the “Term Loan Facility”) with an outstanding balance of $2.1 billion at December 29,
2018. Principal repayments of $5.5 million are payable quarterly with the balance due at maturity. The debt may
require mandatory repayments if certain assets are sold, as set forth in the agreement.

On June 22, 2018, the Term Loan Facility was further amended to lower the interest rate margins under the Term
Loan Facility to 2.00% for LIBOR borrowings and 1.00% for ABR borrowings, among other things. The table
above reflects the December 29, 2018 interest rate on the unhedged portion of the Term Loan Facility. With respect
to the portion of the Term Loan Facility subject to interest rate hedging agreements ($1.1 billion as of December 29,
2018), the June 22, 2018 amendment reduced the effective interest rate to 3.71%.

In connection with the June 22, 2018 amendment of the Term Loan Facility, under accounting guidance, the
Company applied modification accounting to the majority of the continuing lenders as the terms were not
substantially different from the terms that applied to those lenders prior to the amendment. For the remaining
lenders, the Company applied debt extinguishment accounting. The Company recorded a debt extinguishment loss
of $3 million in interest expense, consisting primarily of a write-off of unamortized deferred financing costs related
to the June 22, 2018 amendment. Unamortized deferred financing costs of $7 million at June 30, 2018 were carried
forward and will be amortized through June 27, 2023, the maturity date of the Term Loan Facility.

The Term Loan Facility was also amended on February 17, 2017 and November 30, 2017 (the “2017
Amendments”), in each case to reduce the interest rate spread on outstanding borrowings, among other things.

In connection with the 2017 Amendments of the Term Loan Facility, under accounting guidance, the Company
applied modification accounting to the majority of the continuing lenders as the terms were not substantially
different from the terms that applied to those lenders prior to the amendment. For the remaining lenders, the
Company applied debt extinguishment accounting. The Company recorded a debt extinguishment loss of
$2 million in interest expense, consisting primarily of write-offs of unamortized deferred financing costs related to
the 2017 Amendments.

Senior Notes—The Senior Notes due 2024, with a carrying value of $595 million at December 29, 2018, net of
$5 million of unamortized deferred financing costs, bear interest at 5.875%. On or after June 15, 2019, this debt is
redeemable, at USF’s option, in whole or in part at a price of 102.938% of the remaining principal, plus accrued and
unpaid interest, if any, to the redemption date. On June 15, 2020 and June 15, 2021, the optional redemption price
for the debt declines to 101.469% and 100.0%, respectively, of the remaining principal amount, plus accrued and
unpaid interest, if any, to the redemption date. Prior to June 15, 2019, up to 40% of the debt may be redeemed with
the aggregate proceeds from equity offerings, as defined in the Senior Notes indenture, as supplemented, at a
redemption premium of 105.875%.

Capital Leases–Obligations under capital leases of $352 million at December 29, 2018 consist of amounts due for
transportation equipment and building leases.

2016 Debt Transactions and Loss on Extinguishment

IPO Proceeds

As discussed in Note 1, Overview and Basis of Presentation, in June 2016, US Foods completed its IPO. Net
proceeds of $1,114 million were used to redeem $1,090 million in principal of USF’s Old Senior Notes and pay the
related $23 million early redemption premium. The balance of the Old Senior Notes was redeemed with proceeds
from the June 2016 refinancings further discussed below.

June 2016 Refinancings

In June 2016, USF entered into a series of transactions to refinance the $2,042 million principal of its Term Loan
Facility, redeem the remaining $258 million principal of its Old Senior Notes and pay the related $6 million early
redemption premium. The aggregate principal amount outstanding of the Term Loan Facility was increased to
$2,200 million. Additionally, USF issued $600 million in principal amount of Senior Notes.

The debt redemption and refinancing transactions completed in June 2016 resulted in a loss on extinguishment of
debt of $42 million, consisting of a $29 million early redemption premium related to the Old Senior Notes,
$7 million of lender and third party fees, and a $6 million write-off of certain pre-existing unamortized deferred
financing costs and premiums related to the refinanced and redeemed facilities.

CMBS Fixed Facility Defeasance

On September 23, 2016, USF, through a wholly owned subsidiary, legally defeased the commercial mortgage
backed securities facility (the “CMBS Fixed Facility”), scheduled to mature on August 1, 2017. The CMBS Fixed
Facility had an outstanding balance of $471 million net of unamortized deferred financing costs of $1 million. The
cash outlay for the defeasance of $485 million represented the purchase price of U.S. government securities that
would generate sufficient cash flow to fund interest payments from the effective date of the defeasance through, and
including the repayment of, the $472 million principal for the CMBS Fixed Facility on February 1, 2017, the
earliest date the loan could be prepaid. The defeasance resulted in a loss on extinguishment of debt of
approximately $12 million, consisting of the difference between the purchase price of the U.S. government
securities, not attributable to accrued interest through the effective date of the defeasance, and the outstanding
principal of the CMBS Fixed Facility, and other costs of $1 million, consisting of unamortized deferred financing
costs and other third party costs.

Security Interests

Substantially all of the Company’s assets are pledged under the various agreements governing our indebtedness.
Debt under the ABS Facility is secured by certain designated receivables and, in certain circumstances, by restricted
cash. The ABL Facility is secured by certain other designated receivables not pledged under the ABS Facility, as
well as inventory and tractors and trailers owned by the Company. Additionally, the lenders under the ABL Facility
have a second priority interest in the assets pledged under the Term Loan Facility. USF’s obligations under the
Term Loan Facility are secured by all of the capital stock of USF and its direct and indirect wholly owned domestic
subsidiaries, as defined in the agreements, and substantially all non-real estate assets of USF and its subsidiaries not
pledged under the ABS Facility or the ABL Facility. Additionally, the lenders under the Term Loan Facility have a
second priority interest in the inventory and tractors and trailers pledged under the ABL Facility. USF’s interest rate
swap obligations are secured by the collateral securing the ABL Facility. Pursuant to the terms of the interest rate
swap agreement between each of the interest rate swap counterparties and USF, each of the interest rate swap
counterparties has agreed that its right to receive payment from the sale of the collateral is subordinate to the rights
of the lenders under the ABL Facility. USF is not required to provide additional collateral to its hedge
counterparties.

Restrictive Covenants

USF's credit facilities, loan agreements and indentures contain customary covenants. These include, among other
things, covenants that restrict USF’s ability to incur certain additional indebtedness, create or permit liens on assets,
pay dividends, or engage in mergers or consolidations. As of December 29, 2018, USF had $991 million of
restricted payment capacity under these covenants, and approximately $2,238 million of its net assets were

restricted after taking into consideration the net deferred tax assets and intercompany balances that eliminate in
consolidation.

Certain agreements governing our indebtedness also contain customary events of default. Those include, without
limitation, the failure to pay interest or principal when it is due under the agreements, cross default provisions, the
failure of representations and warranties contained in the agreements to be true when made, and certain insolvency
events. If an event of default occurs and remains uncured, the principal amounts outstanding, together with all
accrued unpaid interest and other amounts owed, may be declared immediately due and payable by the lenders.
Were such an event to occur, the Company would be forced to seek new financing that may not be on as favorable
terms as its current facilities. The Company’s ability to refinance its indebtedness on favorable terms, or at all, is
directly affected by the current economic and financial conditions. In addition, the Company’s ability to incur
secured indebtedness (which may enable it to achieve more favorable terms than the incurrence of unsecured
indebtedness) depends in part on the value of its assets. This, in turn, is dependent on the strength of its cash flows,
results of operations, economic and market conditions, and other factors.

13. ACCRUED EXPENSES AND OTHER LONG-TERM LIABILITIES

Accrued expenses and other long-term liabilities consisted of the following.

Accrued expenses and other current liabilities:

Salary, wages and bonus expenses
Operating expenses
Workers’ compensation, general and fleet liability
Group medical liability
Customer rebates and other selling expenses
Property and sales tax
Interest payable
Other

Total accrued expenses and other current liabilities
Other long-term liabilities:

Workers’ compensation, general and fleet liability
Accrued pension and other postretirement benefit obligations
Financing lease obligation
Uncertain tax positions
Other

Total Other long-term liabilities

December 29,
2018

December 30,
2017

132
75
39
28
96
30
13
41
454

120
40
21
31
20
232

161
68
49
29
85
28
6
25
451

121
130
24
81
16
372

Self-Insured Liabilities —The Company is self-insured for general liability, fleet liability and workers’
compensation claims. Claims in excess of certain levels are insured. The workers’ compensation liability,
included in the table above under “workers’ compensation, general liability and fleet liability,” is recorded at
present value. This table summarizes self-insurance liability activity for the last three fiscal years:

Balance at beginning of the year

Charged to costs and expenses

Reinsurance recoverable

Payments
Balance at end of the year

Discount rate

2018

2017

2016

170

7
(74)
159

164

8
(66)
170

172

—
(67)
164

2.50%

1.98%

1.47%

Estimated future payments for self-insured liabilities are as follows:

2019
2020
2021
2022
2023
Thereafter
Total self-insured liability
Less amount representing interest
Present value of self-insured liability

40
24
17
12
10
66
169
(10)
159

14. RESTRUCTURING LIABILITIES

The following table summarizes the changes in the restructuring liabilities for the last three fiscal years:

Balance at January 2, 2016

Current year charges

Change in estimate

Payments and usage—net of accretion

Balance at December 31, 2016

Current year charges

Change in estimate

Payments and usage—net of accretion

Balance at December 30, 2017

Current year charges

Payments and usage—net of accretion

Balance at December 29, 2018

Severance and
Related Costs

Facility
Closing Costs

Total

119

— $

71
(21)
(147)
22

7
(5)
(20)
4

1
(4)
1

—
(2)
1

—

119

74
(21)
(149)
23

7
(5)
(20)
5

1
(4)
2

The Company periodically closes or consolidates distribution facilities and implements initiatives in its
ongoing efforts to reduce costs and improve operating effectiveness. In connection with these activities, the
Company incurs various costs including multiemployer pension withdrawal liabilities and settlements,
severance and other employee separation costs that are included in the above table.

2018 Activities

During fiscal year 2018, $1 million was recognized primarily for severance and related costs associated with a
2018 distribution facility closure and additional costs for current year and prior year initiatives.

2017 Activities

During fiscal year 2017, the Company incurred a net charge of $2 million, primarily for severance and related
costs associated with its efforts to streamline its corporate back office organization and centralize
replenishment activities.

2016 Activities

During fiscal year 2016, the Company incurred a net charge of $50 million for severance and related costs
associated with its efforts to streamline its field operations model, streamline its corporate back office
organization, centralize replenishment activities and complete the closure of a distribution facility. The
Company also incurred $3 million in facility closing costs related to a lease termination settlement.

15. RELATED PARTY TRANSACTIONS

During fiscal year 2017, the Company completed four secondary offerings of its common stock held primarily
by investment funds associated with or designated by Clayton, Dubilier & Rice, LLC (“CD&R”) and
Kohlberg Kravis Roberts & Co., L.P. (“KKR” and, together with CD&R, the “Former Sponsors”). Following
the completion of the final offering in December 2017, the Former Sponsors no longer held any shares of the
Company’s common stock. The Company did not receive any proceeds from the offerings. The December
2017 offering also included the Company’s repurchase of 10,000,000 shares of common stock from the
underwriter at $28.00 per share, which was the price the underwriter purchased the shares from the Former
Sponsors in the offering. The $280 million paid for the share repurchase reduced additional paid-in capital
$96 million, with the remaining $184 million recognized in retained earnings as a constructive dividend.

The closing of the Company’s share repurchase occurred substantially concurrently with the closing of the
offering, and the repurchased shares were retired. In accordance with terms of the prior registration rights
agreement with the Former Sponsors, the Company incurred approximately $5 million of expenses in
connection with the offerings, approximately $1 million of which was incurred in 2016. Underwriting
discounts and commissions were paid by the selling stockholders.

KKR Capital Markets LLC (“KKR Capital Markets”), an affiliate of KKR, received a de minimis fee for
services rendered in connection with the February 2017 amendment of the Term Loan Facility. Additionally,
KKR Capital Markets received underwriter discounts and commissions of $5 million in connection with the
Company’s IPO, and $1 million for services rendered in connection with the Company's June 2016 debt
refinancing transactions.

The Company was previously a party to consulting agreements with each of the Former Sponsors pursuant to
which each Former Sponsor provided the Company with ongoing consulting and management advisory
services and received fees and reimbursement of related out of pocket expenses. On June 1, 2016, the
consulting agreements with each of the Former Sponsors were terminated. For fiscal year 2016, the Company
recorded $36 million in fees and expenses, including an aggregate termination fee of $31 million. All fees
paid to the Former Sponsors, including the termination fees, were reported in distribution, selling and
administrative costs in the Company's Consolidated Statements of Comprehensive Income.

On January 8, 2016, the Company paid a $666 million, or $3.94 per share, one-time special cash distribution
to its stockholders of record as of January 4, 2016, of which $657 million was paid to the Former Sponsors.
The distribution was funded with cash on hand and approximately $314 million of additional borrowings
under the Company’s credit facilities. The Company has no plans to pay dividends currently, or in the
foreseeable future, and has never paid dividends on its common stock, other than the January 2016 one-time
special cash distribution. Any decision to declare and pay dividends in the future will be made at the sole
discretion of our Board of Directors.

16. SHARE-BASED COMPENSATION, COMMON STOCK ISSUANCES AND COMMON STOCK

Since June 2016, the Company has granted stock-based awards to its directors, officers and other eligible
employees under the US Foods Holding Corp. 2016 Omnibus Incentive Plan (the “2016 Plan”). Up to
9 million shares of common stock are available for issuance under the 2016 Plan. Prior to June 2016, share-
based awards were granted to the Company’s directors, officers and other eligible employees under the 2007
Stock Incentive Plan (the “2007 Plan”). The 2007 Plan terminated according to its terms on December 21,
2017, which meant that no shares were available for future issues under that plan. However, the termination
of the 2007 Plan had no effect on any previously granted and outstanding stock-based awards.

Total compensation expense related to share-based arrangements was $28 million, $21 million and $18 million
for fiscal years 2018, 2017 and 2016, respectively, and is reflected in distribution, selling and administrative
costs in the Company's Consolidated Statement of Comprehensive Income. No share-based compensation
cost was capitalized as part of the cost of an asset during those years. The total income tax benefit associated
with share-based compensation recorded in the Company's Consolidated Statement of Comprehensive Income
was $6 million, $7 million and $6 million for fiscal years 2018, 2017 and 2016, respectively.

Common Stock Issuances—Certain employees purchased shares of our common stock, pursuant to a
management stockholder’s agreement associated with the 2007 Plan. These shares are subject to the terms and
conditions (including certain restrictions on transfer) of each management stockholder’s agreement, other
documents signed at the time of purchase, and pursuant to the applicable law.

In August 2016, the Company established the US Foods Holding Corp. Employee Stock Purchase Plan (the
“ESPP”) to provide its eligible employees with the opportunity to acquire common shares of the Company. In
May 2018, the ESPP was amended and restated to increase the number of shares available for purchase under
the plan from 1,250,000 to 4,750,000. The ESPP provides participants with a discount of 15% of the fair
market value of the common stock on the date of purchase, and as such, the plan is considered compensatory
for tax purposes. The Company recorded $3 million, $3 million and $1 million of stock-based compensation
expense for fiscal years 2018, 2017 and 2016, respectively, associated with the ESPP.

Stock Options—The Company has granted to certain directors, officers and employees time-based options
(“Time Options”) and performance-based options (“Performance Options” and, together with the Time
Options, the “Options”) to purchase shares of our common stock. These Options are subject to the terms and
conditions set forth in the relevant incentive plan documents and stock option agreements pursuant to which
they were granted. The Options also contain certain anti-dilution provisions.

The Time Options vest and become exercisable ratably over periods of three to four years, either on the
anniversary date of the grant or the last day of each fiscal year, beginning with the fiscal year issued.
Compensation expense related to Time Options was $7 million in fiscal year 2018 and $4 million for fiscal
years 2017 and 2016.

The Performance Options also vest and become exercisable ratably over four years, either on the anniversary
date of the grant or the last day of each fiscal year, beginning with the fiscal year issued, provided that the
Company achieves an annual financial performance target established by the Compensation Committee of our
Board of Directors (the “Committee”). Awards granted prior to 2016 were subject to annual and, if applicable,
cumulative performance targets for each of the four fiscal years, which were established by the Committee at
the beginning of each respective fiscal year. As a result, under GAAP, the Performance Options were deemed
to have been granted each year on the date when the annual financial performance target for the respective
tranche of the option was established by the Committee. Performance Options granted prior to the 2016
award contain a catch-up vesting provision to the extent that the applicable annual financial performance
target is not met.

The Company recorded compensation expense of $1 million, $3 million and $4 million for fiscal years 2018,
2017 and 2016, respectively, for the expected vesting of the Performance Options.

The Options are nonqualified, with exercise prices equal to the estimated fair value of a share of common
stock at the date of the grant. Exercise prices range from $8.51 to $33.56 per share and generally have a 10-
year life. The fair value of each Option is estimated as of the date of grant using a Black-Scholes option-
pricing model.

The weighted-average assumptions for Options granted in fiscal years 2018, 2017 and 2016 are included in
the following table.

Expected volatility
Expected dividends
Risk-free interest rate
Expected term (in years)

2018

2017

2016

35.7%
—
2.6%
5.4

31.8%
—
1.9%
5.8

28.8%
—
1.5%
5.9

Expected volatility is calculated leveraging the historical volatility of public companies similar to US Foods.
The assumed dividend yield is zero, because the Company has not historically paid dividends. However, as
further discussed in Note 15, Related Party Transactions, the Company paid a one-time, special cash
distribution to stockholders before the IPO in January 2016. The risk-free interest rate is the implied zero-
coupon yield for U.S. Treasury securities having a maturity approximately equal to the expected term, as of
the grant date. Due to a lack of relevant historical data, the simplified approach was used to determine the
expected term of the options.

The summary of Options outstanding and changes during fiscal year 2018 are presented below.

Time
Options

Performance
Options

Total
Options

Weighted-
Average
Fair Value

Weighted-
Average
Exercise
Price

Weighted-
Average
Remaining
Contractual
Years

Outstanding at December 30, 2017

3,009,552

1,605,417

4,614,969

680,863

365,381

1,046,244

(726,989)

(699,135)

(1,426,124) $

(249,862)

(48,831)

(298,693) $

10.50

7.47

14.55

6.55

18.79

28.69

14.34

26.59

22.44

17.97

7.1

6.1

Outstanding at December 29, 2018

2,713,564

1,222,832

3,936,396

Vested and exercisable at December 29, 2018

1,103,649

883,591

1,987,240

9.45

7.55

Granted

Exercised

Forfeited

The weighted-average grant date fair value of Options granted for fiscal years 2018, 2017 and 2016 was
$14.55, $11.08 and $6.28, respectively.

During fiscal year 2018, Options were exercised with a total intrinsic value of $28 million, representing the
excess of fair value over exercise price. During fiscal year 2017, Options were exercised with a total intrinsic
value of $86 million, representing the excess of fair value over exercise price. During fiscal year 2016,
Options were exercised by terminated employees for a cash outflow of $4 million, representing the excess of
fair value over exercise price.

As of December 29, 2018, there were $12 million of total unrecognized compensation costs related to
unvested Options expected to vest, which is expected to be recognized over a weighted-average period of two
years.

Restricted Shares—Certain officers and employees were granted restricted shares (the “Restricted Shares”) in
fiscal years 2018, 2017 and 2016 granted under the 2016 Plan. Prior to 2017, the Restricted Shares contained
time-based vesting (the “Time-Based Restricted Shares”) and non-forfeitable dividend rights, none of which
remain unvested. In fiscal year 2018 and 2017, the restricted shares were subject to performance conditions
(the “Performance Restricted Shares”) and contained forfeitable dividend rights.

The Performance Restricted Shares were granted assuming the maximum award amount and vest on the third
anniversary of the grant date if specific performance goals over a three-year performance period are achieved.
The number of shares eligible to vest on the vesting date range from zero to 200% of the target award amount,
based on the achievement of the performance goals. The fair value of the Performance Restricted Shares is
measured using the fair market value of our common stock on the date of grant and recognized over the three-
year vesting period for the portion of the award that is expected to vest. Compensation expense for the
Performance Restricted Shares is remeasured at the end of each reporting period, based on management’s
evaluation of whether it is probable that performance conditions will be met.

The summary of unvested Performance Restricted Shares outstanding and changes during fiscal year 2018 is
presented below:

Unvested at December 30, 2017
Granted
Vested
Forfeited
Unvested at December 29, 2018

Performance
Restricted
Shares

Weighted-
Average
Fair
Value

241,313
249,314

$
$
— $
(41,804) $
$
448,823

30.39
33.56
—
31.90
32.01

The weighted-average grant date fair value for the Performance Restricted Shares granted in fiscal years 2018,
2017 and 2016 was $33.56, $30.39 and $14.58, respectively. Compensation expense for the Restricted Shares
was $2 million, $1 million and $2 million for fiscal years 2018, 2017 and 2016, respectively. At
December 29, 2018, there was $4 million of unrecognized compensation expense related to the Performance
Restricted Shares that is expected to be recognized over a weighted average period of two years.

Restricted Stock Units—Certain directors, officers and employees have been granted time-based restricted
stock units (the “Time-Based RSUs”) and/or performance-based restricted stock units (the “Performance
RSUs” and, collectively with the Time-Based RSUs, the “RSUs”) pursuant to the 2007 Plan and, after the
IPO, pursuant to the 2016 Plan. The RSUs contain certain anti-dilution provisions. The Time-Based RSUs
generally vest ratably over three to four years, starting on the anniversary date of grant. For fiscal years 2018,
2017 and 2016, the Company recognized $12 million, $6 million and $4 million, respectively, in
compensation expense related to the Time-Based RSUs.

Prior to fiscal year 2017, the Performance RSUs vested ratably over four years, either on the anniversary of
the date of grant, or the last day of each fiscal year (beginning with the fiscal year in which they were
granted), based on the achievement of an annual operating performance target applicable to each tranche. For
grants of Performance RSUs made prior to fiscal year 2016, those targets also provided for catch-up vesting if
the respective annual financial performance target was not achieved but a subsequent cumulative financial
performance target was achieved. Beginning in fiscal year 2017, the Performance RSUs vest at the end of a
three-year vesting period based on achievement of certain, pre-established year over year Adjusted EBITDA
growth and return on invested capital goals during a three-year performance period. The number of shares
earned at the end of the vesting period range from zero to 200% based on the relative achievement of the
performance goals.

The fair value of each share underlying the Performance RSUs is measured at the fair market value of our
common stock on the date of grant and recognized over the vesting period for the portion of the award that is
expected to vest. Compensation expense for the Performance RSUs is remeasured at the end of each reporting
period, based on management’s evaluation of whether it is probable that the performance conditions will be
met.

The Company recognized $3 million of compensation expense in fiscal year 2018 for Performance RSUs that
are expected to vest. The Company recognized $3 million of compensation expense in fiscal year 2017 for the
Performance RSUs that, at the end of fiscal year 2017 were expected to vest. The Company recognized
$4 million of compensation expense in fiscal year 2016 for the Performance RSUs that, at the end of fiscal
year 2016, were expected to vest.

A summary of unvested RSUs outstanding and changes during fiscal year 2018 is presented below.

Unvested at December 30, 2017

Granted

Vested

Forfeited

Time-Based
RSUs

Performance
RSUs

Total
RSUs

909,292

564,951

(310,495)

(126,907)

276,553

269,116

1,185,845

834,067

(127,276)

(437,771) $

(61,677)

(188,584) $

Unvested at December 29, 2018

1,036,841

356,716

1,393,557

Weighted-
Average
Fair
Value

26.79

33.48

25.91

29.45

30.71

The weighted-average grant date fair values for the RSUs granted in fiscal years 2018, 2017, and 2016 was
$33.48, $29.77 and $18.75, respectively.

At December 29, 2018, there was $27 million of unrecognized compensation cost related to the RSUs that is
expected to be recognized over a weighted-average period of two years.

Equity Appreciation Rights—The Company has an Equity Appreciation Rights (“EAR”) plan for certain
employees. Each EAR represents one phantom share of our common stock. The EARs also contain certain
anti-dilution provisions. The EARs vest and become payable at the time of a participant's involuntary
termination of employment or a change in control of the Company, in each case, as defined in the applicable
agreement. EARs are forfeited upon voluntary termination of the participant’s employment. The EARs are
settled in cash upon vesting and, accordingly, are considered liability instruments. No EARs were granted
during fiscal years 2018, 2017 and 2016. Compensation expense for the EARs which vested for participants
whose employment was involuntarily terminated during fiscal years 2018, 2017 and 2016 was de minimis.

As the EARs are liability instruments, the fair value of the awards is re-measured each reporting period until
the award vests and is settled. Since vesting of all outstanding EARs is contingent upon performance
conditions, as defined in the EAR plan, which are not considered probable, no compensation expense has been
recorded to date for the outstanding EARs, except for that related to participants whose employment was
involuntarily terminated, and as such, no liability has been recognized. As of December 29, 2018, there were
a total of 344,359 EARs outstanding with a weighted average exercise price of $9.81 per share.

17. LEASES

The Company leases various warehouse and office facilities and certain equipment under operating and capital
lease agreements that expire at various dates, and in some instances contain renewal provisions. The Company
expenses operating lease costs, including any scheduled rent increases, rent holidays or landlord concessions, on a
straight-line basis over the lease term. The Company also has a financing lease obligation on a distribution facility
through 2023.

Future minimum lease payments under the above mentioned noncancelable lease agreements, together with
contractual sublease income, as of December 29, 2018, were as follows:

2019

2020

2021

2022

2023

Thereafter

Total minimum lease payments (receipts)

Less amount representing interest

Present value of minimum lease payments

Financing Lease
Obligation

Capital
Leases
$

385
(33)
352

—

24
(4)
20

Operating
Leases

Sublease
Income
$

(1) $
—

Net

129

118

101

540

—

—
(1) $

132

Total operating lease expense, included in distribution, selling and administrative costs in the Company’s
Consolidated Statements of Comprehensive Income, was $46 million, $44 million and $43 million for fiscal years
2018, 2017 and 2016, respectively.

18. RETIREMENT PLANS

The Company has defined benefit and defined contribution retirement plans for its employees, and provides
certain postretirement health and welfare benefits to eligible retirees and their dependents. Also, the Company
contributes to various multiemployer plans under certain of its collective bargaining agreements.

Company Sponsored Defined Benefit Plans —The Company maintains a qualified retirement plan and a
nonqualified retirement plan (“Retirement Plans”) that pay benefits to certain employees at retirement, using
formulas based on a participant’s years of service and compensation. The Company also maintains
postretirement health and welfare plans for certain employees. Amounts related to the defined benefit and
other postretirement plans recognized in the Company's consolidated financial statements are determined on
an actuarial basis.

The components of net periodic pension benefit (credits) costs for the last three fiscal years were as follows:

Components of net periodic pension (credits) benefit costs:

Service cost
Interest cost
Expected return on plan assets
Amortization of net loss
Settlements

Net periodic pension (credits) benefit costs

2018

2017

2016

2
36
(52)
3
—
(11) $

2
40
(48)
4
18
16

4
41
(48)
8
4
9

Other postretirement (credits) benefit costs were de minimis for fiscal years 2018, 2017 and 2016.

The service cost component of net periodic (credits) benefit costs is included in distribution, selling and
administrative costs, while the other components of net periodic (credits) benefit costs are included in other
income—net, respectively, in the Company's Consolidated Statements of Comprehensive Income.

The Company contributed approximately $71 million to its defined benefit and other postretirement plans
during fiscal year 2018, of which $35 million represented an additional, voluntary contribution to the defined
benefit plan. As a result of the incremental voluntary contribution, the Company remeasured its defined
benefit pension liability as of May 31, 2018, resulting in a reduction in the benefit obligation of $33 million,
with a corresponding benefit to accumulated other comprehensive loss. The remeasurement had an
immaterial impact on the 2018 annual net periodic (credits) benefit costs.

The Company incurred non-cash settlement charges of $18 million and $4 million for fiscal years 2017 and
2016, respectively, resulting from lump sum benefit payments. No non-cash settlement charges were incurred
in 2018. All lump sum benefit payments were paid from plan assets.

Changes in plan assets and benefit obligations recorded in accumulated other comprehensive loss for pension
benefits for the last three fiscal years were as follows:

Changes recognized in accumulated other comprehensive loss:

Actuarial gain (loss)
Prior year correction(1)
Amortization of net loss
Settlements

Net amount recognized

2018

2017

2016

6
—
3
—
9

— $
—
4
18
22

(63)
(22)
8
4
(73)

(1)

In the second quarter of fiscal year 2016, the Company recorded a $22 million increase to its pension obligation,
with a corresponding increase to accumulated other comprehensive loss, to correct a computational error related to
a 2015 pension plan freeze. The Company determined the error did not materially impact the financial statements
for any of the periods reported.

Changes in plan assets and benefit obligations recorded in accumulated other comprehensive loss for other
postretirement benefits for the last three fiscal years were de minimis.

The funded status of the defined benefit plans for the last three fiscal years was as follows:

Change in benefit obligation:

Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Prior year correction
Settlements
Benefit disbursements

Benefit obligation at end of year

Change in plan assets:

Fair value of plan assets at beginning of year
Return on plan assets
Employer contribution
Settlements
Benefit disbursements

Fair value of plan assets at end of year

Pension Benefits
2017

2018

2016

976
2
36
(97)
—
—
(46)
871

851
(40)
71
—
(46)
836

966
2
40
76
—
(87)
(21)
976

799
124
36
(87)
(21)
851

863
4
41
73
22
(16)
(21)
966

742
58
36
(16)
(21)
799

Net funded status

(35) $

(125) $

(167)

The fiscal year 2018 pension benefits actuarial gain of $97 million was primarily due to an increase in the
discount rate. The 2017 and 2016 pension benefits actuarial losses of $76 million and $73 million,
respectively, were primarily due to decreases in discount rates.