2014-15 Annual Review

For the fourth consecutive year, the Firm’s distributions outpaced capital calls. CD&R’s distributed-to-invested capital ratio is more than 3x since 2010. In total, we have distributed approximately $15 billion (more than $19 billion, including CD&R-managed co-investment vehicles) to our investors over that period. Measured in dollars returned, the last 12 months have been the most active period for realizations in CD&R’s 37-year history.

We have capitalized on exit opportunities both in the public markets and through strategic sales. Since the beginning of 2014, we have distributed approximately $7.0 billion, including public share sales of B&M Retail, Envision Healthcare, Exova, HD Supply, NCI Building Systems, Rexel, ServiceMaster and SPIE. Managing exits starts at the outset of an investment and is a core part of our operating rhythm. We consider the question of exit in our investment committee reviews, and our semi-annual Projected Returns sessions ensure that we are prepared when opportunity knocks.

On the deployment side, we continue to uncover attractive investment opportunities. We have consistently invested approximately $1.0 billion to $1.5 billion annually since 2009. Roughly half of our investments over this period have been partnership transactions where sellers have selected CD&R as a partner and retained significant minority stakes. Based on CD&R’s reputation for proven value-building skills and as a trusted counter-party, we have established

Since the beginning of 2014, we have
distributed approximately $7.0 billion

strong working relationships with corporations willing to sell assets to us in partnership structures. Since 2009, we have put $2.3 billion to work in investments with this type of profile, utilizing convertible preferred or similar securities that boost returns while placing us in a lower risk position in the capital structure. In a period when virtually all private equity firms tout operating prowess, we believe the partnership transactions that we have completed represent strong independent validation from both corporate and family sellers.

Working to Ensure Sustained Success

People are the core of our success. And the caliber of talent that we can attract will determine our ability to sustain our performance in the years ahead. Today we could not be more pleased with the strength and quality of the entire CD&R team.

Our senior team of investment professionals has an average tenure at the Firm approaching twenty years.² Our roster of Operating Partners, supplemented by Operating Advisors engaged by our funds, continues to deliver a key source of differentiation evidenced in the performance of our portfolio companies, which, on average, have improved margins at nearly four and half times the rate of their industry peers.³ Our immensely talented and motivated principal and associate group has expanded in recent years, allowing us to field more deal teams and, by extension, increase the number of new opportunities we evaluate.

The Firm’s record of attractive exceptional talent is another measure of competitive strength.

John Compton, former President of Pepsico, joined CD&R as a full-time Operating Partner in January of 2015 after first serving as an Advisor. John’s deep experience in the consumer/retail and business services sectors has helped steer the very significant operational recovery at TruGreen.

We have active and ongoing discussions with business leaders about potential operating roles at the Firm as well as advisory engagements with the CD&R Funds, and we would expect to add additional operating resources over the next 12 to 18 months.

Second, Ravi Sachdev joined CD&R as a Partner of the Firm in June 2015 and is a strong addition to our healthcare investment team. Ravi, formerly of JP Morgan, is an established strategic advisor to senior healthcare company executives and will help us intensify our focus in this dynamic sector where we are seeing a number of attractive opportunities.

Finally, we continue to invest in our administrative and operations infrastructure to ensure that we maintain pace with increasing information technology, financial reporting and regulatory compliance demands. We recently established two new positions, appointing Jillian Griffiths, a 22-Year veteran

of PwC and longstanding advisor to CD&R, as Chief Operating Officer, and Terrianne Patnode, formerly of Debevoise & Plimpton LLP, as In-House Counsel.

Portfolio Performance

Overall, the portfolio is in strong shape. As of June 2015, we owned 20 businesses, and most of our companies started 2015 with positive momentum. However, headwinds from the oil price dislocation and foreign exchange translations have negatively affected the year-to-date results of selected companies.

2015 budgets for our companies anticipate average revenue and EBITDA growth of 6% and 15%, respectively

In aggregate, 2015 forecasts for our companies anticipate average revenue and EBITDA growth of 6% and 15%, respectively, led by double-digit top-line growth in our

healthcare businesses, with more modest single-digit growth across the balance of our industry exposures.

Fund IX

Fund IX is 43% committed across eight market-leading businesses that were purchased for an average entry multiple of approximately 8.5x EBITDA, which compares favorably with Fund VIII’s average entry multiple of 8.4x.

Fund IX’s portfolio construction exhibits a number of characteristics similar to Fund VIII’s. Nearly half (47%) of the capital is committed to partnership transactions (Brand, CHC, Motor Fuel Group and Vets First Choice), where CD&R was selected by the sellers who retained significant stakes. About 27% of Fund IX capital is invested in three healthcare services investments (PharMEDium, Healogics and Vets First Choice), which, similar to our Fund VIII

investments in Envision Healthcare and AssuraMed, are direct beneficiaries of the rapidly changing dynamics affecting healthcare. Finally, approximately 28% of Fund IX invested opportunities and business models well-positioned for a global industrial recovery.

We anticipate filling out the Fund IX portfolio with an additional 5-8 investments, which would bring the total portfolio to 13-16 companies. Fund IX was held at 1.2x cost as of March 31, 2015 (1.1x net).

Fund VIII

Fund VIII continues to demonstrate good underlying performance and was marked at 2.5x as of March 31, 2015 (2.0x net).

Two recent exits (Envision and BCA) completed in the first half of 2015 provided further momentum to the return prospects for the fund overall.

Envision is a remarkable story and one for the CD&R record books. The investment generated a 5.3x Gross MOI and the largest dollar gain - nearly $5 billion including amounts realized by CD&R-managed co-investment vehicles - of any investment investment by the Firm. Acquired in a take-private transaction almost four years ago, Envision’s revenue and EBITDA increased under our ownership 50% and 68%, respectively, through a combination of contract growth, expanded services, margin improvement, and the development of a comprehensive care management solutions platform. Taken together, these operating initiatives created a stronger company that is well-positioned to capitalize on the long-term transition underway in global healthcare, which is driving industry consolidation, innovation, the emergence of new business models and strategic partnerships.

BCA was acquired by a publicly-listed investment vehicle in a transaction valued at 2.9x the invested cost basis. As part of the transaction consideration, Fund VIII retained a £25 million residual equity interest in the publicly listed vehicle, which is locked up until July 2015.

Under our ownership, BCA built an online capability through the acquisition of We Buy Any Car (“WBAC”), expanded in continental Europe and Brazil, and launched a range of new value-added service offerings. The result was an increase in EBITDA of approximately 85% and an attractive growth profile to match.

In total, we have exited four Fund VIII investments as of May 2015. In addition to Envision and BCA, AssuraMed

(3.3x) and Diversey (2.4x) were both sold to strategic buyers. We have also completed partial realizations of several companies, including B&M Retail (4.3x) ⁴, Hussmann (3.2x), NCI Building Systems (3.5x) ⁵, SPIE (1.6x), and Wilsonart (1.5x), and several of our companies are positioning for realization events over the next 12 to 24 months.

To that end, both SPIE and Univar successfully completed initial public offerings in June 2015, thereby establishing the foundation for our exit strategy from both of these strongly performing investments.

In total, 195% of the fund’s entire cost basis has been returned or is publicly traded, with approximately 32% of that cost basis still privately held.

Fund VII

We also are actively managing exits for the four remaining Fund VII investments.

Exova and ServiceMaster are public, and we will continue to actively monitor for realization opportunities. As of March 31, 2015, ServiceMaster was valued at 2.6x cost and Exova at 1.1x cost, both net of a 10% discount to closing share price.

Sysco and US Foods have terminated their merger agreement after a regulatory challenge from the Federal Trade Commission. Despite the uncertainty of the past 18 months, US Foods has continued to invest in the company in areas like technology, fleet and new facilities and as a result, remains competitively well-positioned as an independent company. Our attention remains firmly focused on making US Foods an even more valuable enterprise by continuing to drive operational excellence.

Finally, TruGreen continues to deliver very strong performance as a standalone entity. EBITDA was $45 million in 2014 versus a $5 million loss the prior year, and that momentum has carried forward into this year. The company, which John Compton chairs, strongly executed its business plan in 2014. New account sales were up over 5%; customer retention increased 450 bps; and total customer accounts also increased by 44,000, or 3%.

Industry Verticals

Healthcare

Healthcare is a sector where we’ve been investing for over a decade and have enjoyed considerable success. In recent years, we’ve gradually added specialized resources to augment our healthcare team led by Rick Schnall. In addition to Ravi Sachdev joining the Firm as a Partner, CD&R funds have engaged Operating Advisors Ron Williams, former

Chairman and CEO of Aetna; John Dineen, former head of GE Healthcare; and John Ballbach, former CEO of our laboratory supplies business, VWR.

We believe the dramatic ongoing upheaval in this industry will produce many attractive investment opportunities. Healthcare remains an incredibly inefficient industry, with massive dislocation now that healthcare reform is unfolding, particularly on the service side of the industry. The move from a cost-plus business model to a pay-for-performance model creates many new and exciting investment angles.

We’ve seen how healthcare business models like AssuraMed and Envision, both Fund VIII investments, benefit from the sharper focus on cost containment and improved outcomes. The three healthcare investments to date in Fund IX, PharMEDium, Healogics and Vets First Choice, are similarly positioned on the right side of healthcare reform and are on track to outperform their peers.

Consumer/Retail

Consumer/retail has accounted for 32% of our investment activity since 2005. Our consumer/retail exposure today consists of US Foods, ServiceMaster and TruGreen in Fund VII, B&M Retail and David’s Bridal in Fund VIII and Motor Fuel Group,⁶ the second largest independent gas station and convenience retail operator in the U.K., in Fund IX.

We have owned B&M, the #2 discount retailer in the U.K., for just over two years, and the progress has been very strong. Our partnership with the Arora family is functioning well, and under CD&R ownership, the company is executing rapid store expansion in the UK and Germany and delivering earnings growth to match. We took the company public in 2014 and to date have returned almost 3.0x our invested cost basis. Including the value of our remaining shares at a 10% discount to the March 31, 2015 closing share price, the B&M investment is held at 4.3x invested cost.

David’s Bridal, which is pushing against some difficult demographic trends related to marriage activity, posted disappointing performance in 2014. At March 31, 2015, we held the investment at 0.5x our cost basis. The management team is executing several initiatives to improve performance, including a strengthened product offering, new pricing and promotional strategies, and an enhanced store experience for customers, along with more traditional productivity and systems enhancements.

Industrials/Services

Industrials and services, which represent 57% of our investment activity since 2005, are subject to a broader mix of operating trends and are generally performing well.

Our construction-related businesses, such as Atkore, NCI, RSG and Wilsonart, are exposed more to the later stages of an economic recovery, so the expected strong profit growth has not fully materialized. We are seeing positive momentum in bookings trends across these businesses.

Hussmann and John Deere Landscapes, two partnership transactions which we consummated with Ingersoll-Rand and Deere & Co., respectively, have performed well, posting 2014 EBITDA growth of 33% and 14%, respectively. As of March 31, 2015, the Hussmann investment was held at 3.2x Fund VIII’s invested cost and JDL, just over one year into the investment, at 1.6x.

At CHC, a transportation services business to the offshore oil and gas industry, we are leading a number of significant cost and productivity actions to ensure the business emerges from the global energy dislocation as an even stronger competitor. Offshore transportation services is one of the more defensive subsectors in the energy industry. It’s a mission critical and non-discretionary service. The company has long-term customer contracts with fixed monthly charges and very high contract retention rates. CHC is recognized in the industry for its strong safety and operational excellence, two key purchasing criteria for customers.

The balance of the industrial/service portfolio (Exova, Spie, Univar, Solenis, Mauser and Brand) is generally performing well and in line with expectations, which should set the foundation for further exit activity. In June 2015, SPIE and Univar executed successful IPOs. Including a prior dividend and the secondary shares sold in the IPO, the SPIE investment has returned 62% of the original capital invested. CD&R funds did not sell any shares in the Univar IPO, and leverage was reduced to 4.5x EBITDA.

Outlook

On the macro-economic front, volatility continues to be the most prominent feature of the landscape due to the divergence in economic progress of various countries. We see modest economic expansion globally, built primarily around gradual strengthening in North America and augmented somewhat by the UK and Germany.

Nevertheless, the global economy and markets will need to adjust to the impact of Fed tapering at some stage and Eurozone uncertainty related to the Greek financial crisis.

We are confident that the Firm’s success can and will persist because of our culture, solid leadership architecture, exceptional talent at all levels of the organization, and unswerving commitment to build, renew and invest for the future

Credit markets remain strong, but with some banks showing more caution because of the Federal Reserve’s leverage guidelines. Keep in mind, there is no bright-line test. The banks have the burden to prove that the credit can be amortized. If a transaction has the right cash flow characteristics, banks are willing to make exceptions to the 6x limit. Underlying demand from yield-hungry investors is clearly a driver.

On the deployment side, the key is identifying undermanaged assets in the face of generally steep valuations. We continue to see attractive partnership transactions—such as Motor Fuel Group—in the pipeline.

We expect to capture great investments from a steady flow of carve outs driven by resurgent corporate M&A activity, voluntary corporate efforts to improve performance by focusing on core operations, and management efforts to streamline to unlock value forced by activist shareholders, all of which inevitably lead to divestitures. Increasingly, CEOs and boards of directors accept that strategic sales of non-core businesses can be a potent tool to create value for the parent company.

We are confident that the Firm’s success can and will persist because of our culture, solid leadership architecture, exceptional talent at all levels of the organization, and unswerving commitment to build, renew and invest for the future.

We are balancing caution with aggressiveness, and we will continue to be disciplined and discerning about what we pursue.

Sincerely,

Donald J. Gogel
Chairman and Chief Executive Officer
Clayton, Dubilier & Rice, LLC