US Foods

Annual Report 2016

Introduction

Our Mission

First in Food.

Our Strategy

Great Food. Made Easy.

US Foods is one of America’s great food companies and a leading foodservice distributor, partnering with approximately 250,000 chefs, restaurants and foodservice operators to help their businesses succeed with a broad array of products, easy-to-use technology and passionate people. With nearly 25,000 employees and more than 60 locations nationwide, US Foods provides its customers with a broad and innovative food offering and a comprehensive suite of e-commerce, technology and business solutions.

image - ourMission 01

image - shareholders 01 1

To our Stockholders

2016 was a milestone year for US Foods. We completed our initial public offering on the New York Stock Exchange and continued to advance our strategy of great food. made easy. Through these efforts, we delivered strong financial results, while positioning ourselves to deliver long-term value to our customers, employees and shareholders.

Read More

Pietro Satriano

President and Chief Executive Officer

Close

2016 Highlights

Throughout the year, we built strong sales momentum across our target customer groups, while expanding gross margins and reducing operating expenses. Our 2016 financial highlights* include:

  • Delivered full-year net sales of $22.9 billion and increased gross profit to $4.1 billion despite deflation across many of our product categories.
  • Grew total case volume by 1.4% and Independent Restaurant case volume by 4.7%. Excluding the extra week, total case volume grew 2.9% and Independent Restaurant case volume grew 6.4%, of which 4.5% was organic.
  • Excluding the extra week, decreased operating expenses by 3.6% through a consistent focus on driving operational efficiency.
  • Grew net income 25.4% and adjusted EBITDA 11.1%. Excluding the extra week, net income grew 29.6% and Adjusted EBITDA grew 12.5%.

Our financial achievements for the year demonstrate that our strategy is resonating with our customers and generating positive results for the company and our stockholders.

Our Strategy

When we rebranded the company in 2011, we set out to reinvent our relationship with customers and build an offering of products and services like none other in the industry. It’s a strategy grounded in a deep understanding of our customers’ challenges and a conviction that US Foods is uniquely positioned to help our customers “Make It.”

Our strategy begins with a focus on Great Food. By providing our customers access to a broad offering of innovative, high-quality products, we help them inspire their menus and attract new diners. The centerpiece of this effort is Scoop, a national program that introduces our customers to a range of versatile, on-trend products three times a year. Since the launch of Scoop in 2011, we have introduced more than 400 of these exclusive products, codeveloped with our manufacturing partners, enabling the success of our customers and driving increased case volume.

Serving great food is not enough, our customers must also focus on their bottom line. Made Easy reflects our commitment to helping our customers increase their efficiency and profitability. Through our e-commerce and mobile technology platforms as well as our portfolio of business solutions, we help our customers improve their operations – everything from their inventory management to menu development and design. These services supplement our team-based selling model that includes chefs and restaurant operations consultants to help our customers identify and solve their operational challenges. We believe this consultative approach is a competitive advantage for US Foods and for our customers.

Our Great Food. Made Easy. strategy resonates with customers across the foodservice spectrum, particularly with the independent restaurants, hospitality, healthcare and regional chains that represent the core of our customer base. In 2016, our unique offering of innovative products and easy-to-use technology helped us grow with independent restaurants at an estimated twice the market rate.

By continuing to execute on our strategy, US Foods is well-positioned in the large and fragmented foodservice industry. We believe this fragmentation provides ample opportunities for growth, both organically and through acquisitions, and we have the scale to take advantage of those opportunities. In 2016, we demonstrated our ability to quickly capture synergies by integrating five acquisitions that strengthened our geographic footprint and bolstered our capabilities in seafood and produce.

Driving Operational Excellence

Our focus on the customer is complemented by our ongoing commitment to becoming more effective and efficient as a business. Through a portfolio of multiyear initiatives, we’re reducing operating costs while improving the effectiveness of our operations. We recently deployed a new multisite field management structure that generated significant cost savings while creating a more effective operating model. At the same time, we continue to optimize our network, investing in facilities and consolidating when necessary to ensure we have an efficient warehouse and delivery network.

Strengthening Our Capital Structure

We raised $1.1 billion through our initial public offering and used these proceeds to strengthen our capital structure. We reduced our total debt by $951.4 million to $3.8 billion, extended our maturities and refinanced loans at lower interest rates. Going forward, we intend to continue to pay down debt and reinvest in our business.

Looking ahead, broader macroeconomic and demographic factors remain positive and should continue to fuel our growth. Food-away-from-home consumption is steadily increasing and the overall foodservice industry is expected to continue to grow over the coming years. We intend to capitalize on these trends by leveraging our Great Food. Made Easy. strategy to grow sales, while at the same time driving increased efficiency across our own organization to improve profitability.

Finally, I want to thank our team for an extraordinary year. Day in and day out, it is their hard work that allows our customers to win, and this is a big reason why I look forward to even greater success in 2017 and beyond.

Pietro Satriano

President and Chief Executive Officer

* These financial highlights include Non-GAAP measures. A reconciliation of these Non-GAAP measures can be found on page 33 of our Annual Report on Form 10-K. References to the exclusion of the “extra week” refer to the 53rd week in fiscal 2015 fourth quarter and are presented to provide comparable 52-week and 13-week period results on a year-over-year basis.

By the numbers

14,000
Private Label Products
4,000
Sales Associates
400,000
Fresh, Frozen,
and Dry SKUs
250,000
Customer Locations
25,000
Employees
5,000
Suppliers

Stock Performance*

graph - line 02

*$100 invested on 5/26/16 in stock or 4/30/16 in index, including reinvestment of dividends. Fiscal year ending December 31.

US Foods at New York Stock Exchange

Net Income

$ in millions

($73)
2014
$168
2015
$210
2016

% Volume Growth

Independent Restaurant

0.2%
2014
4.0%
2015
6.4%
2016

Adjusted EBITDA

$ in millions

$866
2014
$875
2015
$972
2016

Note: In 2013, volume growth with Independent Restaurant customers was 3.5%. In 2014, growth was negatively impacted by the proposed Sysco merger, which was terminated on June 26, 2015. The 2015 and 2016 Independent Restaurant volume growth listed above has been adjusted for the impact of the extra week.


graph - pyramid

Our Strategy

Great Food. Made Easy.

Food Leadership

Innovative Products; Best Everyday Center-of-Plate and Produce; Great Brands; Local and Sustainable

Easy Customer Experience

Great Food Sellers; Most Valued Business Solutions; Inspiring Content and Programs; Easiest to Transact Across Channels

Flawless Fundamentals

Deliver Perfect Orders; Right Product, Right Price; Leading Food Safety; Optimized Cost to Serve

People. Processes. Infrastructure. Insights.

Our strategy is centered on providing customers with innovative products and easy access to the business solutions they need to succeed. This focus is supported by our strong operational foundation and a commitment to executing flawlessly on the fundamentals.


Our Customers

We Help You Make It

Restaurant operators want to serve great food and run a successful business. Our job is to help them “Make It.” Through our innovative, on-trend products, we help chefs’ inspire their menus. With digital solutions, social media tools and menu design, we help restaurants attract more customers. With tools like food-cost management and consulting services, we help a variety of foodservice operators increase their profit and reduce costs. When it comes to supporting our customers’ businesses, we’ve got the entire operation covered.

image - customers 01

Our Culture

Talk Straight

Talk Straight

We seek the truth and exchange objective feedback.

Team Up

We engage the right people, in the right way, at the right time.

Team Up
Second to None

Second to None

We challenge the status quo every day to be the best.

Walk the Talk

We take accountability to deliver on our commitments.

Walk the Talk

Our Corporate Citizenship

To us, corporate citizenship means making a positive difference in our industry and the communities where we live and work. It’s about playing our part in creating a better tomorrow.

Our Communities

Each year, US Foods makes donations and devotes employee volunteer time, all focused on a common theme close to our hearts…food. By focusing our efforts in areas like hunger relief and encouraging young chefs to pursue their dreams through our work with organizations like Feeding America and the Careers through Culinary Arts Program (C-CAP), we are able to make a positive difference in communities across America.

LEED Silver Certified Building, Austin TX

LEED Silver Certified Building
Austin, Texas

Serve Good

Our Products

In 2016, the company launched its Serve Good™ program, featuring products that are responsibly sourced or contribute to waste reduction, both in the process of manufacturing and in a customers’ operations. From sustainably sourced seafood to compostable kitchen towels, these items help our customers meet the growing diner demand for sustainable menu items and products.

Our Operations

We continually seek new ways to increase our operational efficiency while decreasing our environmental footprint. Through energy audits and new building management practices, we’re reducing energy use in our distribution facilities. At the same time, we’re working to reduce the overall miles driven by our fleet and to right-size our vehicles where possible to improve our transportation efficiency.

Feeding America
9,984,647
Total meals provided by US Foods to Feeding America through food donations and financial contributions in 2016

Our Leadership

Executive Leadership Team

Pictured Left to Right:

Pietro Satriano

President and Chief Executive Officer

Dirk Locascio

Chief Financial Officer

Andrew Iacobucci

Chief Merchandising Officer

David Rickard

Executive Vice President,

Strategy and Revenue Management

Tiffany Monroe

Chief Human Resources Officer

Jay Kvasnicka

Executive Vice President,

Locally Managed Business and Field Operations

Keith Rohland

Chief Information Officer

Steve Guberman

Executive Vice President,

Nationally Managed Business

Kristin Coleman

Executive Vice President,

General Counsel and Chief Compliance Officer

US Foods Executive Leadership Team

Board of Directors

John C. Compton

Chairman of the Board of Directors
Partner

Clayton, Dubilier & Rice, LLC

Court D. Carruthers

Former Senior Vice President and Group President, Americas

W.W. Grainger, Inc.

Robert M. Dutkowsky

Chief Executive Officer

Tech Data Corporation

Kenneth A. Giuriceo

Partner

Clayton, Dubilier & Rice, LLC

John A. Lederer

Director

Tim Hortons, Inc.

Vishal Patel

Director, Private Equity

Kohlberg Kravis Roberts & Co. L.P.

Carl Andrew “Andy” Pforzheimer

Co-founder

Barcelona Restaurants

Pietro Satriano

President and Chief Executive Officer

US Foods

Richard J. Schnall

Partner

Clayton, Dubilier & Rice, LLC

Nathaniel H. Taylor

Member and Head of Consumer Retail–Americas

Kohlberg Kravis Roberts & Co. L.P.

David M. Tehle

Former Executive Vice President and Chief Financial Officer

Dollar General Corporation

Thank you.

usfoods.com

Stockholder Information

Company Headquarters

US Foods
9399 West Higgins Road, Suite 500
Rosemont, Illinois 60018

Annual Meeting

The 2017 Annual Meeting of Stockholders will be held at:
The Westin O’Hare
6100 North River Road
Rosemont, Illinois 60018
The meeting will begin at 9:00 a.m. CDT on May 10, 2017.

Auditors

Deolitte & Touche LLP
111 South Wacker Drive
Chicago, Illinois 60606

Common Stock Listing

The company’s common stock is listed on the New York Stock Exchange under the trading symbol USFD.

Transfer Agent And Registrar

Instructions and inquiries regarding transfers, certificates, changes of title or address, consolidation of accounts and elimination of multiple mailings should be directed to:

American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, New York 11219
(800) 937-5449

Investor Inquiries

(847) 720-2815
ir@usfoods.com

US Foods’ Annual Report, Form 10-K, Form 10-Q, proxy statement and other filings with the Securities and Exchange Commission, as well as news releases, can be accessed free of charge at the Investor Relations section of the company’s website, or by visiting the EDGAR on the SEC website. Requests for other company-related information should be made to: Kristin Coleman, Executive Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary, at the company’s headquarters.