NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

US Foods, Inc. and its consolidated subsidiaries are referred to here as “we,” “our,” “us,” the “Company,” or “US Foods.” US Foods is a wholly owned subsidiary of USF Holding Corp. (“USF Holding”), a Delaware corporation formed and controlled by investment funds associated with or designated by Clayton, Dubilier & Rice, Inc. (“CD&R”), and Kohlberg Kravis Roberts & Co. (“KKR” and CD&R, collectively, the “Sponsors”).

Terminated Acquisition by Sysco— On December 8, 2013, USF Holding entered into an agreement and plan of merger (the “Merger Agreement”) with Sysco Corporation (“Sysco”); Scorpion Corporation I, Inc., a wholly owned subsidiary of Sysco (“Merger Sub One”); and Scorpion Company II, LLC, a wholly owned subsidiary of Sysco (“Merger Sub Two”), through which Sysco would have acquired USF Holding (the “Acquisition”) on the terms and subject to the conditions set forth in the Merger Agreement. The closing of the Acquisition was subject to customary conditions, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

On February 2, 2015, USF Holding, US Foods and certain of its subsidiaries, and Sysco entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Performance Food Group, Inc. (“PFG”), through which PFG agreed to purchase, subject to the terms and conditions of the Asset Purchase Agreement, 11 US Foods distribution centers and related assets and liabilities, in connection with (and subject to) the closing of the Acquisition.

On February 19, 2015, the U.S. Federal Trade Commission (the “FTC”) voted by a margin of 3-2 to seek to block the proposed Acquisition by filing a federal district court action in the District of Columbia for a preliminary injunction. The preliminary injunctive hearing in federal district court commenced on May 5, 2015 and, on June 23, 2015, the federal district court granted the FTC’s request for a preliminary injunction to block the proposed Acquisition.

On June 26, 2015, USF Holding, Sysco, Merger Sub One and Merger Sub Two entered into an Agreement and Release to terminate the Merger Agreement. Upon the termination of the Merger Agreement, the Asset Purchase Agreement automatically terminated and the indenture (the “Senior Notes Indenture”) with respect to the 8.5% unsecured Senior Notes due June 30, 2019 (the “Senior Notes”) reverted to its prior form as if the amendments that modified certain definitions in such indenture had never become operative. See Note 10—Debt for a further description of the Senior Notes Indenture.

Sysco paid a termination fee of $300 million to USF Holding in connection with the termination of the Merger Agreement. The Company paid a termination fee of $12.5 million to PFG pursuant to the terms of the Asset Purchase Agreement.

Business Description —US Foods 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-location restaurants, regional concepts, national chains, hospitals, nursing homes, hotels and motels, country clubs, fitness centers, government and military organizations, colleges and universities, and retail locations.

Basis of Presentation —The Company operates on a 52-53 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 Company’s fiscal year 2015 is a 53-week fiscal year. The accompanying Unaudited Consolidated Financial Statements include the accounts of US Foods and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

The accompanying Unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and disclosures required by GAAP for annual financial statements. These Unaudited Consolidated Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 27, 2014 (the “Company’s 2014 Annual Report”). Certain footnote disclosures included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to applicable rules and regulations for interim financial statements.

The Consolidated Financial Statements have been prepared by the Company, without audit, with the exception of the December 27, 2014 Consolidated Balance Sheet which was included in the Audited Consolidated Financial Statements in the Company’s 2014 Annual Report. The preparation of the Consolidated Financial Statements in accordance with GAAP 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. The Unaudited Consolidated Financial Statements reflect all adjustments which are of a normal and recurring nature that are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for interim periods are not necessarily indicative of the results that might be achieved for the full year.

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Public Filer Status —During the 2013 fiscal second quarter, the Company completed the registration of $1,350 million aggregate principal amount of the Senior Notes and became subject to rules and regulations of the SEC, including periodic and current reporting requirements under the Securities Exchange Act of 1934, as amended. The Company did not receive any proceeds from the registration of the Senior Notes. Presently, the Company files periodic reports as a voluntary filer pursuant to contractual obligations in the Senior Notes Indenture.

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This ASU amends the FASB’s Accounting Standards Codification Subtopic 350-40, Intangibles—Goodwill and Other—Internal-Use Software to provide customers with guidance on determining whether a cloud computing arrangement contains a software license that should be accounted for as internal-use software. The ASU cites “software as a service, platform as a service, infrastructure as a service, and other similar hosting arrangements” as examples of cloud computing arrangements. This guidance is effective for fiscal years—and interim periods within those fiscal years—beginning after December 15, 2015, with early adoption permitted. The Company is currently reviewing the provisions of this ASU.

In April 2015, the FASB issued ASU No. 2015-04, Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets. This ASU gives an employer whose fiscal year-end does not coincide with a calendar month-end (e.g., an entity that has a 52-week or 53-week fiscal year) the ability, as a practical expedient, to measure defined benefit retirement obligations and related plan assets as of the month-end that is closest to its fiscal year-end. This guidance is effective for fiscal years—and interim periods within those fiscal years—beginning after December 15, 2015, with early adoption permitted. The Company expects to elect the practical expedient for the measurement of its defined benefit retirement obligations and related plan assets in fiscal 2015. The adoption of this guidance is not expected to materially affect the Company’s financial statements and related disclosures.

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. This guidance is effective for fiscal years—and interim periods within those fiscal years—beginning after December 15, 2015, with early adoption permitted. The Company is currently reviewing the provisions of this ASU.

In May 2014, the FASB issued ASU No. 2014-09  Revenue from Contracts with Customers, which will be introduced into the FASB’s Accounting Standards Codification as Topic 606. Topic 606 replaces Topic 605, the previous revenue recognition guidance. The new standard 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 will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. The new standard will be effective for the Company in the 2018 fiscal first quarter, with early adoption permitted in the 2017 fiscal first quarter. The new standard permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years, and one requiring prospective application of the new standard with disclosure of results under old standards. The Company is currently evaluating the impact of this ASU and has not yet selected an implementation approach.

The Company’s inventories—consisting mainly of food and other foodservice-related products—are considered finished goods. Inventory costs include the purchase price of the product and freight charges to deliver it to the Company’s warehouses, and are net of certain cash or non-cash considerations 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. At June 27, 2015, and December 27, 2014, the LIFO balance sheet reserves were $186 million and $208 million, respectively. As a result of net changes in LIFO reserves, Cost of goods sold increased $2 million and $24 million for the 13-weeks ended June 27, 2015 and June 28, 2014, respectively, and decreased $22 million and increased $49 million for the 26-weeks ended June 27, 2015 and June 28, 2014, respectively.

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Under its accounts receivable financing program and the related financing facility (the “2012 ABS Facility”), the Company and certain of its subsidiaries sell—on a revolving basis—their 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 2012 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 Unaudited 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 2012 ABS Facility to cover the shortfall. Due to sufficient eligible receivables available as collateral, no cash collateral was held at June 27, 2015 or December 27, 2014. Included in the Company’s Accounts receivable balance as of June 27, 2015 and December 27, 2014 was $955 million and $941 million, respectively, of receivables held as collateral in support of the 2012 ABS Facility. See Note 10—Debt for a further description of the 2012 ABS Facility.

The Company classifies its closed facilities as Assets held for sale at the time management commits to a plan to sell the facility and it is unlikely the plan will be changed, 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.

The change in Assets held for sale for the 26-weeks ended June 27, 2015 was as follows (in thousands):

One facility classified as Assets held for sale was sold for proceeds of $1 million during the fiscal first quarter of 2015. During the fiscal first quarter of 2015, certain Assets held for sale were adjusted to equal their estimated fair value, less cost to sell, resulting in an asset impairment charge of $1 million. See Note 8—Fair Value Measurements.

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 respective leases or the estimated useful lives of the assets. At June 27, 2015 and December 27, 2014, Property and equipment-net included accumulated depreciation of $1,424 million and $1,313 million, respectively. Depreciation expense was $61 million and $68 million for the 13-weeks ended June 27, 2015 and June 28, 2014, respectively, and $123 million and $130 million for the 26-weeks ended June 27, 2015 and June 28, 2014, respectively. Due to the termination of the Merger Agreement, in the fiscal second quarter of 2015, the Company incurred an asset impairment charge of $5 million to write off technology related integration assets.

Goodwill and Other intangible assets include the cost of acquired businesses in excess of the fair value of the tangible net assets recorded in connection with acquisitions. Other intangible assets include customer relationships, noncompete agreements, the brand names and trademarks 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 relationship intangible assets have definite lives, so they are carried at the acquired fair value less accumulated amortization. Customer relationship intangible assets are amortized over the estimated useful lives (four to ten years). Amortization expense was $37 million for the 13-weeks ended June 27, 2015 and June 28, 2014, respectively, and $74 million and $75 million for the 26-weeks ended June 27, 2015 and June 28, 2014, respectively.

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Goodwill and Other intangibles, net, consisted of the following (in thousands):

The 2015 decrease in the gross carrying amount of customer relationships is attributable to the write-off of fully amortized intangible assets.

As required, 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 Other 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. All goodwill is assigned to the consolidated Company as the reporting unit.

The Company completed its most recent annual impairment assessment for Goodwill and its indefinite-lived intangible assets as of June 29, 2014—the first day of the 2014 fiscal third quarter—with no impairments noted. There have been no events that would indicate the need for impairment testing of the Goodwill or other intangible assets as of June 27, 2015, although Goodwill and other intangible assets will be tested in connection with the Company’s financial reporting for the third quarter of 2015 as the Company’s selected annual impairment evaluation date falls within that reporting period.

The Company follows the accounting standards for fair value, whereas 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:

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.

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The Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis as of June 27, 2015 and December 27, 2014, aggregated by the level in the fair value hierarchy within which those measurements fall, were as follows (in thousands):

Recurring Fair Value Measurements

Money Market Funds

Money market funds include highly liquid investments with an original maturity of three or fewer months. They are valued using quoted market prices in active markets.

Nonrecurring Fair Value Measurements

Assets Held for Sale

The Company is required to record Assets held for sale at the lesser of the carrying amount or estimated fair value less cost to sell. Certain Assets held for sale were adjusted to equal their estimated fair value, less cost to sell, resulting in asset impairment charges of $1 million and $2 million during the 26-weeks ended June 27, 2015 and June 28, 2014, respectively. Fair value was estimated by the Company based on information received from real estate brokers.

The amounts included in the tables above, classified under Level 3 within the fair value hierarchy, represent the estimated fair values of those Assets held for sale that became the new carrying amounts at the time the impairments were recorded.

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 carrying value of the self-funded industrial revenue bond asset and the corresponding long-term liability approximate their fair values. See Note 10—Debt, for a further description of the industrial revenue bond agreement.

The fair value of the Company’s total debt approximated $4.8 billion at June 27, 2015 and December 27, 2014, as compared to its aggregate carrying value of $4.8 billion and $4.7 billion as of June 27, 2015 and December 27, 2014, respectively. At June 27, 2015 and December 27, 2014, the fair value, estimated at $1.4 billion, of the Senior Notes was classified under Level 2 of the fair value hierarchy, with fair valued 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 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. See Note 10—Debt for further description of the Company’s debt.

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In April 2014, the Company entered into a sublease and future purchase of a distribution facility. Under these agreements, the facility will be purchased in May 2018, commensurate with the sublease termination date. The facility is the only asset owned by an investment trust, the landlord to the original lease. The Company determined the investment trust is a variable interest entity (“VIE”) for which the Company is the primary beneficiary.

Despite ongoing efforts, the Company was unable to obtain the information necessary to include the accounts and activities of the investment trust in its Unaudited Consolidated Financial Statements. As such, the Company has opted to invoke the scope exception available under VIE accounting guidance and will not consolidate the VIE. Since the Company was not be able to consolidate the investment trust under VIE guidance, applicable lease guidance has been applied to the transaction itself. The Company concluded that the sublease and purchase agreements, together, qualify for capital lease treatment. Accordingly at June 27, 2015, a capital asset and related lease and purchase obligation totaling $27 million and $23 million, respectively, are recorded in the Company’s Unaudited Consolidated Balance Sheet. The Company depreciates the asset balance over its estimated useful life and reduces the capital lease and purchase obligation as payments are made.

At June 27, 2015, $2,058 million of the total debt was at a fixed rate.

Revolving Credit Agreement

The Company’s asset backed senior secured revolving loan facility (the “ABL Facility”) provides for loans of up to $1,100 million, with its capacity limited by borrowing base calculations. As of June 27, 2015, the Company had no outstanding borrowings, but had issued letters of credit totaling $369 million under the ABL Facility. Outstanding letters of credit included: (1) $80 million issued to secure the Company’s obligations with respect to certain facility leases, (2) $279 million issued in favor of certain commercial insurers securing the Company’s obligations with respect to its self-insurance program, and (3) $10 million in letters of credit for other obligations of the Company. There was available capacity on the ABL Facility of $731 million at June 27, 2015, according to the borrowing base calculation. As of June 27, 2015, on borrowings up to $75 million, the Company can periodically elect to pay interest at Prime plus 1.75% or the London Inter Bank Offered Rate (“LIBOR”) plus 2.75%. On borrowings in excess of $75 million, the Company can periodically elect to pay interest at Prime plus 0.50% or LIBOR plus 1.50%. The ABL Facility also carries letter of credit fees of 1.50% and an unused commitment fee of 0.25%.

On June 19, 2015, the ABL Facility was amended whereby the maturity date was extended one year to May 11, 2017 and the interest rate on outstanding borrowings and letter of credit fees were each reduced 50 basis points. The Company incurred $0.7 million of lender fees and third party costs related to the ABL Facility amendment.

Accounts Receivable Financing Facility

Under the 2012 ABS Facility, the Company and certain of its subsidiaries sell—on a revolving basis—their eligible receivables to 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 2012 ABS Facility.

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The maximum capacity under the 2012 ABS Facility is $800 million. Borrowings under the 2012 ABS Facility were $636 million at June 27, 2015 and December 27, 2014. 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 2012 ABS Facility of $65 million at June 27, 2015 based on eligible receivables as collateral. The portion of the 2012 ABS Facility held by the lenders who fund the 2012 ABS Facility with commercial paper bears interest at the lender’s commercial paper rate, plus any other costs associated with the issuance of commercial paper plus 1.00%, and an unused commitment fee of 0.35%. The portion of the 2012 ABS Facility held by lenders that do not fund the 2012 ABS Facility with commercial paper bears interest at LIBOR plus 1.00%, and an unused commitment fee of 0.35%. The Company intends to restructure or refinance the 2012 ABS Facility on or before its August 5, 2016 maturity. See Note 4—Accounts Receivable Financing Program.

Term Loan Agreement

The Company’s senior secured term loan (the “Amended 2011 Term Loan”) consisted of a senior secured term loan with outstanding borrowings of $2,063 million at June 27, 2015. The Amended 2011 Term Loan bears interest equal to Prime plus 2.50%, or LIBOR plus 3.50%, with a LIBOR floor of 1.00%, based on a periodic election of the interest rate by the Company. Principal repayments of $5 million are payable quarterly with the balance at maturity. The Amended 2011 Term Loan may require mandatory repayments if certain assets are sold, or based on excess cash flow generated by the Company, as defined in the debt agreement. The interest rate for all borrowings on the Amended 2011 Term Loan was 4.50%—the LIBOR floor of 1.00% plus 3.50%— at June 27, 2015. At June 27, 2015, entities affiliated with KKR held $236 million of the Company’s Amended 2011 Term Loan debt.

Senior Notes

The Senior Notes, with outstanding principal of $1,348 million at June 27, 2015, bear interest at 8.50%. There was unamortized issue premium costs associated with the Senior Notes issuances of $13 million at June 27, 2015. The premium is amortized as a decrease to Interest expense-net over the remaining life of the debt facility. In February 2015, the Company repurchased all of the Senior Notes held by the entities affiliated with KKR, as further discussed in Note 12—Related Party Transactions.

Effective December 19, 2013, upon consent of the note holders, the Senior Notes Indenture was amended so that the proposed Acquisition would not constitute a “Change of Control,” as defined in the Senior Notes Indenture. In the event of a “Change of Control,” the holders of the Senior Notes would have had the right to require the Company to repurchase all or any part of their Senior Notes at a price equal to 101.00% of the principal amount, plus accrued and unpaid interest to the date of repurchase. The Senior Notes Indenture reverted to its original terms upon the termination of the Merger Agreement.

CMBS Fixed Facility

The CMBS Fixed Facility provides financing of $472 million and is currently secured by mortgages on 34 properties, consisting of distribution facilities. The CMBS Fixed Facility bears interest at 6.38%. Security deposits and escrow amounts related to certain properties collateralizing the CMBS Fixed Facility of $6 million at June 27, 2015 and December 27, 2014 are included in the Company’s Unaudited Consolidated Balance Sheets in Other assets.

Other Debt

Obligations under capital leases consist of amounts due for transportation equipment and building leases.

Other debt of $32 million and $12 million at June 27, 2015 and December 27, 2014, respectively, consists primarily of various state industrial revenue bonds.

To obtain certain tax incentives related to the construction of a new distribution facility, in January 2015, the Company and a wholly owned subsidiary entered into an industrial revenue bond agreement with a state for the issuance of a maximum of $40 million in Taxable Demand Revenue Bonds (the “TRB’s”). The TRB’s are self-funded as the Company’s wholly owned subsidiary purchases the TRB’s, and the state loans the proceeds back to the Company. The TRB’s, which mature January 1, 2030, can be prepaid without penalty one year after issuance. Interest on the TRB’s and the loan is 6.25%. At June 27, 2015, $21 million has been drawn on TRBs and recorded as a $21 million long-term asset and a corresponding long-term liability in the Company’s Unaudited Consolidated Balance Sheet.

Security Interests

Substantially all of the Company’s assets are pledged under the various debt agreements. Debt under the 2012 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 2012 ABS Facility, inventories and tractors and trailers owned by the Company. The CMBS Fixed Facility is collateralized by mortgages on 34 related properties. The Company’s obligations under

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the Amended 2011 Term Loan are secured by all of the capital stock of its subsidiaries, each of the direct and indirect wholly owned domestic subsidiaries (as defined in the agreements), and are secured by substantially all assets of the Company and its subsidiaries not pledged under the 2012 ABS Facility or the CMBS Fixed Facility. The Amended 2011 Term Loan has priority over certain collateral securing the ABL Facility, and it has second priority to collateral securing the ABL Facility. As of June 27, 2015, nine properties remain in a special purpose, bankruptcy remote subsidiary, and are not pledged as collateral under any of the Company’s debt agreements.

Restrictive Covenants

The Company’s credit facilities, loan agreements and indentures contain customary covenants. These include, among other things, covenants that restrict the Company’s ability to incur certain additional indebtedness, create or permit liens on assets, pay dividends, or engage in mergers or consolidations. Certain debt agreements also contain various and customary events of default with respect to the loans. 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, and certain insolvency events. If a default event occurs and continues, 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, relies on the strength of its cash flows, results of operations, economic and market conditions and other factors.

During the fiscal second quarter of 2015, the Company announced its plan to close its Lakeland, Florida distribution facility in the fiscal third quarter of 2015, and transfer its business activities to other Company distribution facilities. The Company accrued a restructuring charge of approximately $1 million related to the Lakeland closure, consisting of severance and related costs.

During the fiscal second quarter of 2015, the Company also announced its tentative decision to close the Baltimore, Maryland distribution facility. The Company is currently engaged in discussions with unions representing certain employees regarding this tentative decision. A final decision regarding the Baltimore facility will be made once negotiations with the unions are concluded. In anticipation of a potential closure of the Baltimore facility, the Company accrued a restructuring charge estimated at $51 million, including $46 million of estimated multiemployer pension withdrawal liabilities and $5 million related to estimated severance and related costs. The estimated multiemployer pension liability was based on the latest available information received from the respective plans’ administrator and represents an estimate for a calendar year 2014 withdrawal. Due to the lack of current information, including changes in market conditions, and funded status of the related multiemployer pension plans, the settlement of these multiemployer pension withdrawal liabilities could materially differ from this estimate.

The $105 million Severance and Related Costs balance as of June 27, 2015, also includes $48 million of multiemployer pension withdrawal liabilities relating to facilities closed prior to 2015. These are payable in monthly installments through 2031 at effective interest rates ranging from 5.90% to 6.70%.

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The Company pays a monthly management fee of $0.8 million to investment funds associated with or designated by the Sponsors. For each of the 13-weeks ended June 27, 2015 and June 28, 2014, the Company recorded management fees and related expenses of $2 million. For each of the 26-weeks ended June 27, 2015 and June 28, 2014, the Company recorded management fees and related expenses of $5 million. These were reported as Distribution, selling and administrative costs in the Unaudited Consolidated Statements of Comprehensive Income (Loss).

As discussed in Note 10—Debt, entities affiliated with the Sponsors hold various positions in some of the Company’s debt. At June 27, 2015, entities affiliated with KKR held $236 million in aggregate principal of the Company’s debt facilities. At June 27, 2015, entities affiliated with CD&R had no holdings of the Company’s debt facilities.

In February 2015, the Company repurchased all of the $2 million of Senior Notes held by the entities affiliated with KKR at market, for a cost of $2 million, including accrued interest.

The Company files a consolidated federal income tax return together with USF Holding, its parent. USF Holding’s federal and state income taxes incurred are paid by the Company and settled with USF Holding pursuant to a tax sharing agreement. The Company recorded a $7.3 million receivable from USF Holding related to its tax sharing agreement. See Note 15—Income Taxes.

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

The components of net pension and other postretirement benefit costs for Company sponsored plans for the periods presented were as follows (in thousands):

The Company contributed $48 million and $24 million to its defined benefit and other postretirement plans during the 26-weeks ended June 27, 2015 and June 28, 2014, respectively. The Company expects to make $49 million in total contributions to its pension plans and other postretirement plans during fiscal year 2015.

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The determination of the Company’s overall effective tax rate requires the use of estimates. The effective tax rate reflects the income earned and taxed in various United States federal and state jurisdictions. Tax law changes, increases and decreases in permanent differences between book and tax items, tax credits and the Company’s change in income in each jurisdiction all affect the overall effective tax rate.

The Company estimated its annual effective tax rate to be applied to the results of the 26-weeks ended June 27, 2015 and June 28, 2014. For the 26-weeks ended June 27, 2015, the Company utilized an annual effective tax rate for purposes of determining its year-to-date tax expense. The Company included the effect of the valuation allowance impact of the tax amortization of goodwill and trademarks in the annual effective tax rate for purposes of determining its year-to-date tax expense because the annual effective tax rate was deemed to be reliable for use in quarterly reporting of income taxes.

For the 26-weeks ended June 28, 2014, the Company utilized an annual effective tax rate for purposes of determining its year-to-date tax expense, excluding the effect of the valuation allowance impact of the tax amortization of goodwill and trademarks, which was instead measured discretely by quarter to calculate the income taxes. Management concluded that to use the forecasted annual effective tax rate with the amortization of tax goodwill and trademarks included would not be reliable for use in quarterly reporting of income taxes due to such rate’s significant sensitivity to minimal changes in forecasted annual pre-tax income. As a result, the Company reflected the accretion of the valuation allowance on a discrete, ratable basis into the income tax provision for the 26-weeks ended June 28, 2014.

The valuation allowance against the net deferred tax assets was $232 million at December 27, 2014. The deferred tax assets related to federal and state net operating losses, increased $62 million during the 26-weeks ended June 27, 2015, which resulted in a $294 million total valuation allowance at June 27, 2015. A full valuation allowance on the net deferred tax assets will be maintained until sufficient positive evidence related to sources of future taxable income exists to support a reversal of the valuation allowance.

The effective tax rate for the 13-weeks ended June 27, 2015 and June 28, 2014 of 110% and 101%, respectively, varied from the 35% federal statutory rate primarily due to a change in the valuation allowance. During the 13-weeks ended June 27, 2015 and June 28, 2014, the valuation allowance increased $84 million and $16 million, respectively, as a result of a change in deferred tax assets (net operating losses) not covered by future reversals of deferred tax liabilities.

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The effective tax rate for the 26-weeks ended June 27, 2015 and June 28, 2014 of 34% and 28%, respectively, varied from the 35% federal statutory rate primarily due to a change in the valuation allowance. During the 26-weeks ended June 27, 2015 and June 28, 2014, the valuation allowance increased $62 million and $48 million, respectively, as a result of a change in deferred tax assets (net operating losses) not covered by future reversals of deferred tax liabilities.

US Foods is a member of USF Holding’s consolidated group, and as a result the Company’s operations are included in the consolidated income tax return of USF Holding. The Company has computed the components of its tax provision under the “separate return” approach. Under this approach, the Company’s financial statements recognize the current and deferred income tax consequences that result from the Company’s activities as if the Company were a separate taxpayer rather than a member of USF Holding’s consolidated group.

Based on the “separate return” approach, the Company has computed federal and state net operating losses (“NOL”) for the quarter ended June 27, 2015, resulting in an income tax benefit and a deferred tax asset attributable to the NOL. The Company has determined that the NOL will not be realized; therefore, a valuation allowance has been recorded to offset the deferred tax asset and the income tax benefit attributable to the NOL as described above.

Under the “separate return” approach, the Company had gross federal and state NOL carryforwards of approximately $380 million and $2.1 billion, respectively as of June 27, 2015. These NOLs do not reflect the tax position of the USF Holding consolidated tax return. USF Holding estimates to generate federal taxable income on its consolidated return in the amount of $286 million for its fiscal year 2015, which is solely caused by the $300 million merger termination fee received from Sysco. Therefore, USF Holding will utilize NOLs available at the consolidated level to offset its regular tax liability. These NOLs were generated by US Foods. Despite the use of NOLs, USF Holding will be subject to federal Alternative Minimum Tax (“AMT”) and state income tax expense for its fiscal year 2015, which are estimated at $5.5 million and $1.8 million, respectively.

USF Holding’s federal and state income taxes incurred are paid by the Company and settled with USF Holding pursuant to a tax sharing agreement. The agreement further states that the Company shall pay on behalf of USF Holding the federal and state return taxes. If the consolidated federal and state return taxes for USF Holding exceed the federal and state taxes calculated for the Company as a separate filing group, USF Holding is required to make a payment to the Company equal to such excess. Likewise, if the federal and state taxes calculated at the separate return level for the Company exceed the consolidated taxes, the Company is required to make payment to USF Holding equal to such excess. As the tax sharing agreement does not commit USF Holding to compensate the Company for the use of its NOLs nor does USF Holding currently intend to compensate the Company for the NOLs used, the Company has not recorded an intercompany receivable for these NOLs. US Foods has recorded an intercompany receivable totaling $7.3 million for the AMT and state income taxes USF Holding is estimating for the 2015 consolidated income tax returns, since US Foods will pay this on behalf of USF Holding per its tax sharing agreement.

Purchase Commitments —The Company enters into purchase orders with vendors and other parties in the ordinary course of business. Additionally, the Company has a limited number of purchase contracts with certain vendors that require it to buy a predetermined volume of products, which are not recorded in the Unaudited Consolidated Balance Sheets. As of June 27, 2015, the Company’s purchase orders and purchase contracts with vendors, all to be delivered in fiscal year 2015, were $654 million.

To minimize fuel cost risk, the Company enters into forward purchase commitments for a portion of its projected diesel fuel requirements. At June 27, 2015, the Company had diesel fuel forward purchase commitments totaling $140 million through December 2016. The Company also enters into forward purchase agreements for procuring electricity. At June 27, 2015, the Company had electricity forward purchase commitments totaling $9 million through October 2017. The Company does not measure its forward purchase commitments for fuel and electricity at fair value, as the amounts under contract are used in its operations.

Florida State Pricing Subpoena –In May 2011, the State of Florida Department of Financial Services issued a subpoena to the Company requesting a broad range of information regarding vendors, logistics/freight as well as pricing, allowances, and rebates that the Company obtained from the sale of products and services for the term of the contract. The subpoena focused on all pricing and rebates earned during this period relative to the Florida Department of Corrections. In 2011, the Company learned of two qui tam suits, filed in Florida state court, against the Company, one of which was filed by a former official in the Florida Department of Corrections. In April 2015, the Company and the State of Florida agreed in principle to a settlement under which the Company would pay $16 million, and the State of Florida would dismiss all complaints, including the two qui tam suits. In June 2015, the parties finalized the settlement agreement and payment was made to the Florida Department of Financial Services .

Eagan Labor Dispute –In 2008, the Company closed its Eagan, Minnesota and Fairfield, Ohio divisions, and recorded a liability of approximately $40 million for the related multiemployer pension withdrawal liability. In 2010, the Company received formal notice and demand for payment of a $40 million withdrawal liability, which is payable in monthly installments

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through November 2023. During the 2011 fiscal third quarter, the Company was assessed an additional $17 million multiemployer pension withdrawal liability for the Eagan facility, the final payment of which was made on April 1, 2015. The parties agreed to arbitrate this matter, and discovery began during the 2012 fiscal third quarter. In March 2015, the arbitrator issued an award confirming the second assessment of $17 million, after previously denying the Company’s request to reopen the first assessment. The pension fund sought enforcement of the arbitrator’s award and shortly thereafter the Company filed a counterclaim seeking to vacate the arbitrator’s award in the Federal District Court for the Northern District of Illinois. The standard of review in the District Court is de novo on the legal issues because arbitration was compelled by statute and there are no factual disputes as to which the court should give deference to the arbitrator. The Company believes it has meritorious defenses against the assessment for the additional $17 million of pension withdrawal liability. The Company does not believe, at this time, that a loss from such obligation is probable and, accordingly, no liability has been recorded. However, it is reasonably possible the Company may ultimately lose its challenge to the second assessment of $17 million.

Other Legal Proceedings – In addition to those described above, the Company and its subsidiaries are parties to a number of other legal proceedings arising from the normal course of business. These legal proceedings—whether pending, threatened or unasserted, if decided adversely to or settled by the Company, may result in liabilities material to its financial position, results of operations, or cash flows. The Company recognized provisions with respect to the proceedings where appropriate. These are reflected in the Unaudited Consolidated Balance Sheets. It is possible that the Company could be required to make expenditures, in excess of the established provisions, in amounts that cannot be reasonably estimated. However, the Company believes that the ultimate resolution of these proceedings will not have a material adverse effect on its consolidated financial position, results of operations, or cash flows. It is the Company’s policy to expense attorney fees as incurred.

Insurance Recoveries—Tornado Loss —On April 28, 2014, a tornado damaged a distribution facility and its contents, including building improvements, equipment and inventory. In order to service customers, business from the damaged facility was reassigned to other Company distribution facilities. The Company has insurance coverage on the distribution facility and its contents, as well as business interruption insurance.

As of June 27, 2015, the Company’s insurance carriers have approved $30 million of losses incurred, of which $16 million was received in fiscal year 2015 and $14 million was received in fiscal year 2014. The proceeds were allocated first to recover the book value of inventory and property lost and costs incurred. The proceeds received to date were recognized as a $10 million insurance recovery gain included in Distribution, selling and administrative costs in the Unaudited Consolidated Statements of Comprehensive Income (Loss) in fiscal year 2015. The Company expects to reach a final settlement with its insurance carriers in 2015; the timing of and amounts of ultimate insurance recoveries is not known at this time.

Of the $16 million of insurance recoveries received in 2015, the Company classified $3 million related to the damaged distribution facility as Cash Flows from Investing Activities, and the remaining $13 million related to damaged inventory and business interruption costs as Cash Flows from Operating Activities in its Unaudited Consolidated Statements of Cash Flows.

The following consolidating schedules present condensed financial information of: (1) the Company; (2) certain of its subsidiaries (the “Guarantors”) that guarantee certain Company obligations, including the Senior Notes, the ABL Facility and the Amended 2011 Term Loan; and (3) its other subsidiaries (the “Non-Guarantors”). The Guarantors under the Senior Notes are identical to the Guarantors under the ABL Facility and the Amended 2011 Term Loan. Separate financial statements and other disclosures with respect to the Guarantors have not been provided because the Company believes the following information is sufficient, as the Guarantors are wholly owned by the Company, and all guarantees under the Senior Notes are full and unconditional and joint and several, subject to certain release provisions that the Company has concluded are customary and, therefore, consistent with the Company’s ability to present condensed financial information of the Guarantors. Under the

Senior Notes, a Guarantor’s guarantee may be released when any of the following occur: (1) the sale of the Guarantor or all of its assets, (2) a merger or consolidation of the Guarantor with and into the Company or another Guarantor, (3) upon the liquidation of the Guarantor following the transfer of all of its assets to the Company or another Guarantor, (4) the rating on the securities is changed to investment grade, (5) the requirements for legal defeasance or covenant defeasance or discharge of the obligation have been satisfied, (6) the Guarantor is declared unrestricted for covenant purposes, or (7) the Guarantor’s guarantee of other indebtedness is terminated or released.

Notwithstanding these customary release provisions under the Senior Notes, (1) each subsidiary guarantee is in place throughout the life of the Senior Notes, and no Guarantor may elect to opt out or cancel its guarantee solely at its option; (2) there are no restrictions, limitations or caps on the guarantees; and (3) there are no provisions that would delay the payments that would be required of the Guarantors under the guarantees.

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