##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No.: 0-22192
 PERFORMANCE FOOD GROUP COMPANY
  Tennessee
    
    54-0402940(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)12500 West Creek Parkway 
Richmond, Virginia
    
    23238(Address of Principal 
Executive Offices)
    
    (Zip Code)
 
  Title of each class
    
    Name of each exchange on which registeredCommon Stock, $0.01 par value per share 
Rights to Purchase Preferred Stock
    
    Nasdaq Global Select Market
Nasdaq Global Select Market
 
 þ o
 o þ
 þ o
 o
  þ o o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE
 Part of Form 10-K
    
    Documents from which portions are incorporated by referencePart III
    
    Portions of the registrants Proxy Statement relating to the registrants Annual Meeting of Shareholders to be held on May 15, 2007 are
incorporated by reference into Items 10, 11, 12, 13 and 14.




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##### 



Forward-Looking Statements
    
    
    3Part IItem 1.
    
    Business
    
    
    3The Company and its Business Strategy
    
    
    3Growth Strategies
    
    
    4Customers and Marketing
    
    
    5Products and Services
    
    
    6Information Systems
    
    
    7Suppliers and Purchasing
    
    
    8Operations
    
    
    8Competition
    
    
    10Regulation
    
    
    10Intellectual Property
    
    
    11Employees
    
    
    11Executive Officers
    
    
    11Item 1A.
    
    Risk Factors
    
    
    12Item 1B.
    
    Unresolved Staff Comments
    
    
    14Item 2.
    
    Properties
    
    
    15Item 3.
    
    Legal Proceedings
    
    
    16Item 4.
    
    Submission of Matters to a Vote of Shareholders
    
    
    16Part IIItem 5.
    
    Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    17Item 6.
    
    Selected Consolidated Financial Data
    
    
    18Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 8.
    
    Financial Statements and Supplementary Data
    
    
    33Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    33Item 9A.
    
    Controls and Procedures
    
    
    33Item 9B.
    
    Other Information
    
    
    34Part IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    35Item 11.
    
    Executive Compensation
    
    
    35Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    35Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    35Item 14.
    
    Principal Accountant Fees and Services
    
    
    35Part IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    36EX-10.42 NAMED EXECUTIVE OFFICER AND DIRECTOR COMPENSATION SUMMARYEX-10.43 AMENDMENT TO PERFORMANCE FOOD GROUP COMPANY EMPLOYEE STOCK PURCHASE PLANEX-21 LIST OF SUBSIDIARIESEX-23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEO & CFO
  2




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PERFORMANCE FOOD GROUP COMPANY
  
 Forward-Looking Statements
   
 PART I
 
 Item 1. Business.
 
 The Company and its Business Strategy
    Broadline
  3




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Customized
  
 Growth Strategies
   Increase sales to street customers.
 Improve category management.
  Increase Broadline sales to existing customers and within existing markets.
  4




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Grow our Customized segment with existing and selected new customers.
 Improve operating efficiencies through systems and technology. ®
 Actively pursue strategic acquisitions.
 
 Customers and Marketing
  Street Customers
  Chain Customers
  5




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Products and Services
  Proprietary brands
  National brands
  Value-added services
  6




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Percentage of Net Sales (1)2006
    
    2005
    
    2004Center-of-the-plate
    
    
    41
    %
    
    
    42
    %
    
    
    42
    %Canned and dry groceries
    
    
    18
    
    
    
    18
    
    
    
    18Frozen foods
    
    
    17
    
    
    
    17
    
    
    
    17Refrigerated and dairy products
    
    
    10
    
    
    
    10
    
    
    
    10Paper products and cleaning supplies
    
    
    7
    
    
    
    7
    
    
    
    7Produce
    
    
    4
    
    
    
    3
    
    
    
    4Procurement, merchandising and other services
    
    
    2
    
    
    
    2
    
    
    
    1Equipment and supplies
    
    
    1
    
    
    
    1
    
    
    
    1Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 
 (1)
    
    2004 amounts have been restated to remove discontinued operations to conform with the 2006 and 2005 presentation. 
 Information Systems
 ® ®
 Sales & Margin Management.
 Warehouse Management.
 Logistics.
 Business Intelligence.
  7




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Suppliers and Purchasing
   
 Operations
   8




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Approx.Number ofCustomerLocationsLocation of
    
    CurrentlyName of Subsidiary/Division
    
    Principal Region(s)
    
    Facilities
    
    Served
    
    
    Major CustomersBroadline:AFFLINK
    
    Nationwide
    
    Tuscaloosa, AL
    
    
    500
    
    
    Independent paper distributorsPFG  AFI Foodservice
    
    New Jersey and New
    
    Elizabeth, NJ
    
    
    3,800
    
    
    Restaurants, healthcareYork City metropolitan area
    
    
    
    
    
    
    
    facilities and schoolsPFG  Batesville
    
    Mississippi
    
    Batesville, MS
    
    
    1,600
    
    
    Restaurants, healthcarefacilities and schoolsPFG  Caro Foods
    
    South
    
    Houma, LA
    
    
    1,600
    
    
    Churchs, Copelands,Popeye's and otherrestaurants, healthcarefacilities and schoolsPFG  Carroll County Foods
    
    Baltimore, MD and
    
    New Windsor, MD
    
    
    2,100
    
    
    Restaurants, healthcareWashington, DC area
    
    
    
    
    
    
    
    facilities and schoolsPFG  Empire Seafood
    
    Florida
    
    Miami, FL
    
    
    1,500
    
    
    Cruise lines and restaurantsPFG  Florida
    
    Florida
    
    Tampa, FL
    
    
    1,600
    
    
    Restaurants, healthcarefacilities and schoolsPFG  Hale
    
    Kentucky, Tennessee
    
    Morristown, TN
    
    
    1,600
    
    
    Restaurants, healthcareand Virginia
    
    
    
    
    
    
    
    facilities and schoolsPFG  Lester
    
    South
    
    Lebanon, TN
    
    
    2,400
    
    
    Restaurants, healthcarefacilities and schoolsPFG  Little Rock
    
    Arkansas, Missouri,
    
    Little Rock, AR
    
    
    5,800
    
    
    Subway and other restaurants,Oklahoma, Tennessee
    
    
    
    
    
    
    
    healthcare facilities andand Texas
    
    
    
    
    
    
    
    schoolsPFG  Magee
    
    Louisiana and
    
    Magee, MS
    
    
    1,900
    
    
    Subway and other restaurants,Mississippi
    
    
    
    
    
    
    
    healthcare facilities andschoolsPFG  Middendorf
    
    St. Louis, Missouri
    
    St. Louis, MO
    
    
    1,900
    
    
    Restaurants, clubs, hotelsand surrounding areas
    
    
    
    
    
    
    
    and other foodservice facilitiesPFG  Miltons
    
    South and Southeast
    
    Atlanta, GA
    
    
    5,700
    
    
    Subway, Zaxbys and otherrestaurants, healthcarefacilities and schoolsPFG  NorthCenter
    
    Maine, Massachusetts
    
    Augusta, ME
    
    
    4,300
    
    
    Restaurants, healthcareand New Hampshire
    
    
    
    
    
    
    
    facilities and schoolsPFG  Powell
    
    Alabama, Florida and
    
    Thomasville, GA
    
    
    800
    
    
    Restaurants, healthcareGeorgia
    
    
    
    
    
    
    
    facilities and schoolsProgressive Group Alliance
    
    Nationwide
    
    Boise, ID
    
    
    400
    
    
    Independent foodserviceRichmond, VA
    
    
    
    
    
    distributors and vendorsPFG  Springfield
    
    New England and
    
    Springfield, MA
    
    
    3,100
    
    
    Restaurants, healthcareportions of New
    
    
    
    
    
    
    
    facilities and schoolsYork State
 9




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##### Table of Contents



Approx.Number ofCustomerLocationsLocation of
    
    CurrentlyName of Subsidiary/Division
    
    Principal Region(s)
    
    Facilities
    
    Served
    
    
    Major CustomersPFG  Temple
    
    South and Southwest
    
    Temple, TX
    
    
    4,100
    
    
    Churchs, Popeyes, Subwayand other restaurants,healthcare facilities andschoolsPFG  Thoms-Proestler
    
    Chicago metropolitan
    
    Rock Island, IL
    
    
    3,300
    
    
    Restaurants, healthcareCompany
    
    area and other portions
    
    
    
    
    
    
    
    facilities and schoolsof Illinois, Indiana,Iowa and WisconsinPFG  Victoria
    
    South and Southwest
    
    Victoria, TX
    
    
    2,300
    
    
    Subway and other restaurants,healthcare facilities andschoolsPFG  Virginia Foodservice
    
    Virginia
    
    Richmond, VA
    
    
    1,900
    
    
    Texas Steakhouse and otherrestaurants and healthcarefacilitiesCustomized
    
    Nationwide
    
    Shafter, CA
    
    
    3,500
    
    
    Cracker Barrel, OutbackElkton, MD
    
    
    
    
    
    Steakhouse, Ruby Tuesday,Rock Hill, SC
    
    
    
    
    
    T.G.I. Friday's, and otherGainesville, FL
    
    
    
    
    
    casual-dining restaurantsKendallville, INLebanon, TNMcKinney, TXWestampton, NJ
 
 Competition
  
 Regulation
     10




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Intellectual Property
 ®
 
 Employees
  
 Executive Officers
  Name
    
    Age
    
    PositionRobert C. Sledd
    
    
    54
    
    
    Chairman of the BoardSteven L. Spinner
    
    
    47
    
    
    President and Chief Executive OfficerJohn D. Austin
    
    
    45
    
    
    Senior Vice President and Chief Financial OfficerThomas Hoffman
    
    
    67
    
    
    Senior Vice President, President and Chief Executive Officer  Customized DivisionJoseph J. Paterak, Jr.
    
    
    55
    
    
    Senior Vice President of Strategy and Support ServicesCharlotte L. Perkins
    
    
    48
    
    
    Chief Human Resources OfficerJoseph J. Traficanti
    
    
    55
    
    
    Senior Vice President, General Counsel, Chief Compliance Officer, Corporate SecretaryJ. Keith Middleton
    
    
    40
    
    
    Senior Vice President and Controller
 Robert C. Sledd
 Steven L. Spinner -
 John D. Austin -
 Thomas Hoffman -
 11




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Joseph J. Paterak, Jr.
 Charlotte L. Perkins
 Joseph J. Traficanti
 J. Keith Middleton
 Available Information
 www.pfgc.com
 
 Item 1A. Risk Factors.
 Foodservice distribution is a low-margin business and may be sensitive to economic conditions.
 We rely on major customers.
 12




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Our growth is dependent on our ability to complete acquisitions and integrate operations of
acquired businesses.
   Managing our growth may be difficult and our growth rate may decline
 Our debt agreements contain restrictive covenants, and our debt and lease obligations require, or
may require, substantial future payments.
  
    
    increasing our vulnerability to general adverse economic and industry conditions;
    
    limiting our ability to obtain additional financing;
    
    limiting our flexibility in planning for or reacting to changes in our business and the
industry in which we compete; and
 13




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
    
    placing us at a possible competitive disadvantage compared to competitors with less
leverage or better access to capital resources.
  Product liability claims could have an adverse effect on our business.
 Competition in our industry is intense, and we may not be able to compete successfully.
 Our success depends on our senior management.
 The market price for our common stock may be volatile.
 
    
    our quarterly operating results or the operating results of other distributors of food and
non-food products;
    
    changes in general conditions in the economy, the financial markets or the food
distribution or foodservice industries;
    
    changes in financial estimates or recommendations by stock market analysts regarding us or our competitors;
    
    announcements by us or our competitors of significant acquisitions;
    
    increases in labor, energy, fuel costs or the costs of food products; and
    
    natural disasters, severe weather conditions or other developments affecting us or our competitors.
  
 Item 1B. Unresolved Staff Comments.
  14




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Item 2. Properties.
  Approx. Area
    
    
    
    Owned/LeasedLocation
    
    In Square Feet
    
    Operating Segment
    
    (Expiration Date if Leased)AFFLINKTuscaloosa, AL
    
    
    45,000
    
    
    Broadline
    
    Leased (2016)PFG  AFI FoodserviceElizabeth, NJ
    
    
    267,000
    
    
    Broadline
    
    Leased (2033)(1)PFG  BatesvilleBatesville, MS
    
    
    183,000
    
    
    Broadline
    
    OwnedPFG  Caro FoodsHouma, LA
    
    
    157,000
    
    
    Broadline
    
    OwnedPFG  Carroll County FoodsNew Windsor, MD
    
    
    98,000
    
    
    Broadline
    
    OwnedPFG  CustomizedShafter, CA
    
    
    140,000
    
    
    Customized
    
    OwnedElkton, MD
    
    
    316,000
    
    
    Customized
    
    OwnedRock Hill, SC
    
    
    170,000
    
    
    Customized
    
    OwnedGainesville, FL
    
    
    256,000
    
    
    Customized
    
    OwnedKendallville, IN
    
    
    225,000
    
    
    Customized
    
    OwnedLebanon, TN
    
    
    287,000
    
    
    Customized
    
    OwnedMcKinney, TX
    
    
    194,000
    
    
    Customized
    
    OwnedWestampton, NJ
    
    
    122,000
    
    
    Customized
    
    Leased (2012)PFG  Empire SeafoodMiami, FL
    
    
    154,000
    
    
    Broadline
    
    Leased (2030)(1)PFG  FloridaTampa, FL
    
    
    145,000
    
    
    Broadline
    
    OwnedPFG  HaleMorristown, TN
    
    
    100,000
    
    
    Broadline
    
    Leased (2025)PFG  LesterLebanon, TN
    
    
    160,000
    
    
    Broadline
    
    Leased (2025)PFG  Little RockLittle Rock, AR
    
    
    269,000
    
    
    Broadline
    
    Leased (2026)PFG  MageeMagee, MS
    
    
    182,000
    
    
    Broadline
    
    Leased (2024)PFG  MiddendorfSt. Louis, MO
    
    
    96,000
    
    
    Broadline
    
    OwnedPFG  MiltonsAtlanta, GA
    
    
    260,000
    
    
    Broadline
    
    OwnedPFG  NorthCenterAugusta, ME
    
    
    145,000
    
    
    Broadline
    
    OwnedPFG  PowellThomasville, GA
    
    
    75,000
    
    
    Broadline
    
    OwnedProgressive Group AllianceBoise, ID
    
    
    8,000
    
    
    Broadline
    
    Leased (2009)Richmond, VA
    
    
    33,000
    
    
    Broadline
    
    Leased (2024)PFG  RichmondRichmond, VA
    
    
    91,000
    
    
    Corporate
    
    Leased (2025)PFG  SpringfieldSpringfield, MA
    
    
    127,000
    
    
    Broadline
    
    Owned
 15




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Approx. Area
    
    
    
    Owned/LeasedLocation
    
    In Square Feet
    
    Operating Segment
    
    (Expiration Date if Leased)PFG  TempleTemple, TX
    
    
    290,000
    
    
    Broadline
    
    Leased (2025)PFG  Thoms-Proestler
CompanyRock Island, IL
    
    
    256,000
    
    
    Broadline
    
    Owned(2)PFG  VictoriaVictoria, TX
    
    
    250,000
    
    
    Broadline
    
    OwnedPFG  Virginia FoodserviceRichmond, VA
    
    
    182,000
    
    
    Broadline
    
    Leased (2024)
 
 (1)
    
    Includes all renewal options that we believe will be exercised.(2)
    
    In January 2007, the PFG-Thoms Proestler Company facility was included as part of a
sale-leaseback transaction. See Note 20 to our consolidated financial statements for additional
information. 
 Item 3. Legal Proceedings.
   
 Item 4. Submission of Matters to a Vote of Shareholders.
  16




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PART II
 
 Item 5.
    
    Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
  2006High
    
    LowFirst Quarter
    
    $
    32.49
    
    
    $
    25.45Second
Quarter
    
    
    33.45
    
    
    
    29.24Third Quarter
    
    
    30.96
    
    
    
    23.30Fourth
Quarter
    
    
    29.75
    
    
    
    26.26For the Year
    
    $
    33.45
    
    
    $
    23.30
 2005High
    
    LowFirst Quarter
    
    $
    29.58
    
    
    $
    23.79Second
Quarter
    
    
    30.42
    
    
    
    25.89Third Quarter
    
    
    32.00
    
    
    
    28.18Fourth
Quarter
    
    
    32.27
    
    
    
    26.99For the Year
    
    $
    32.27
    
    
    $
    23.79
   17




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Item 6. Selected Consolidated Financial Data. (1)
 (Dollar and share amounts in thousands, except pershare amounts)
    
    2006
    
    2005
    
    2004(2)
    
    2003(2)(7)
    
    2002(2)STATEMENT OF EARNINGS DATA:Net sales
    
    $
    5,826,732
    
    
    $
    5,721,372
    
    
    $
    5,173,078
    
    
    $
    4,602,792
    
    
    $
    3,613,724Cost of goods sold
    
    
    5,052,097
    
    
    
    4,973,966
    
    
    
    4,496,117
    
    
    
    3,982,182
    
    
    
    3,123,403Gross profit
    
    
    774,635
    
    
    
    747,406
    
    
    
    676,961
    
    
    
    620,610
    
    
    
    490,321Operating expenses
    
    
    699,525
    
    
    
    676,928
    
    
    
    613,281
    
    
    
    548,285
    
    
    
    433,166Operating profit
    
    
    75,110
    
    
    
    70,478
    
    
    
    63,680
    
    
    
    72,325
    
    
    
    57,155Other income (expense):Interest income
    
    
    2,164
    
    
    
    4,651
    
    
    
    340
    
    
    
    280
    
    
    
    724Interest expense
    
    
    (1,732
    )
    
    
    (3,246
    )
    
    
    (8,274
    )
    
    
    (9,845
    )
    
    
    (9,544
    )Loss on sale of receivables
    
    
    (7,351
    )
    
    
    (5,156
    )
    
    
    (2,421
    )
    
    
    (1,765
    )
    
    
    (1,832
    )Loss on redemption of convertible notes
    
    
    
    
    
    
    
    
    
    
    (10,127
    )
    
    
    
    
    
    
    Other, net
    
    
    351
    
    
    
    365
    
    
    
    141
    
    
    
    14
    
    
    
    98Other expense, net
    
    
    (6,568
    )
    
    
    (3,386
    )
    
    
    (20,341
    )
    
    
    (11,316
    )
    
    
    (10,554
    )Earnings from continuing operations
before income taxes
    
    
    68,542
    
    
    
    67,092
    
    
    
    43,339
    
    
    
    61,009
    
    
    
    46,601Income tax expense from continuing operations
    
    
    25,642
    
    
    
    25,328
    
    
    
    16,781
    
    
    
    23,206
    
    
    
    17,554Earnings from continuing operations, net of tax
    
    
    42,900
    
    
    
    41,764
    
    
    
    26,558
    
    
    
    37,803
    
    
    
    29,047Earnings from discontinued operations, net of tax
    
    
    
    
    
    
    18,499
    
    
    
    26,000
    
    
    
    36,388
    
    
    
    37,429(Loss) gain on sale of fresh-cut segment, net of tax
    
    
    (114
    )
    
    
    186,875
    
    
    
    
    
    
    
    
    
    
    
    Total (loss) earnings from discontinued
operations
    
    
    (114
    )
    
    
    205,374
    
    
    
    26,000
    
    
    
    36,388
    
    
    
    37,429Net earnings
    
    $
    42,786
    
    
    $
    247,138
    
    
    $
    52,558
    
    
    $
    74,191
    
    
    $
    66,476PER SHARE DATA:Weighted average common shares outstanding:Basic
    
    
    34,348
    
    
    
    43,233
    
    
    
    46,398
    
    
    
    45,583
    
    
    
    44,445Diluted
    
    
    34,769
    
    
    
    43,795
    
    
    
    47,181
    
    
    
    53,002
    
    
    
    52,047Basic net earnings per common share:Continuing operations
    
    $
    1.25
    
    
    $
    0.97
    
    
    $
    0.57
    
    
    $
    0.83
    
    
    $
    0.66Discontinued operations
    
    
    
    
    
    
    4.75
    
    
    
    0.56
    
    
    
    0.80
    
    
    
    0.84Net earnings
    
    $
    1.25
    
    
    $
    5.72
    
    
    $
    1.13
    
    
    $
    1.63
    
    
    $
    1.50Diluted net earnings per common share:Continuing operations
    
    $
    1.23
    
    
    $
    0.95
    
    
    $
    0.56
    
    
    $
    0.80
    
    
    $
    0.65Discontinued operations
    
    
    
    
    
    
    4.69
    
    
    
    0.55
    
    
    
    0.74
    
    
    
    0.77Net earnings
    
    $
    1.23
    
    
    $
    5.64
    
    
    $
    1.11
    
    
    $
    1.54
    
    
    $
    1.42Book value per share (3)
    
    $
    22.78
    
    
    $
    21.82
    
    
    $
    18.69
    
    
    $
    17.53
    
    
    $
    15.79Closing price per share
    
    $
    27.64
    
    
    $
    28.37
    
    
    $
    26.91
    
    
    $
    35.75
    
    
    $
    33.73BALANCE SHEET AND OTHER DATA:Working capital
    
    $
    140,745
    
    
    $
    143,194
    
    
    $
    84,824
    
    
    $
    112,951
    
    
    $
    81,082Property, plant and equipment, net
    
    
    291,947
    
    
    
    255,816
    
    
    
    201,248
    
    
    
    182,842
    
    
    
    146,276Depreciation and amortization
    
    
    28,869
    
    
    
    26,380
    
    
    
    24,996
    
    
    
    23,706
    
    
    
    21,146Capital expenditures
    
    
    53,688
    
    
    
    77,576
    
    
    
    40,635
    
    
    
    56,973
    
    
    
    20,785Total assets
    
    
    1,359,775
    
    
    
    1,312,290
    
    
    
    1,827,765
    
    
    
    1,736,468
    
    
    
    1,617,717Current debt (including current installments
of long-term debt)
    
    
    583
    
    
    
    573
    
    
    
    661
    
    
    
    875
    
    
    
    1,513Long-term debt
    
    
    11,664
    
    
    
    3,250
    
    
    
    263,859
    
    
    
    338,919
    
    
    
    354,620Shareholders equity
    
    
    794,809
    
    
    
    776,517
    
    
    
    874,313
    
    
    
    803,815
    
    
    
    714,869Total capital
    
    
    807,056
    
    
    
    780,340
    
    
    
    1,138,833
    
    
    
    1,143,609
    
    
    
    1,071,002Debt-to-capital ratio(4)
    
    
    1.5
    %
    
    
    0.5
    %
    
    
    23.2
    %
    
    
    29.7
    %
    
    
    33.3
    %Return on equity (5)
    
    
    5.6
    %
    
    
    4.7
    %
    
    
    3.2
    %
    
    
    5.0
    %
    
    
    4.4
    %Price/earnings ratio (6)
    
    
    22.5
    
    
    
    29.9
    
    
    
    24.2
    
    
    
    23.2
    
    
    
    23.8
 18




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##### Table of Contents



(1)
    
    Selected consolidated financial data includes the effect of acquisitions from the date of each acquisition. See Managements Discussion and
Analysis of Financial Condition and Results of Operations  Business Combinations and the notes to our consolidated financial statements included
elsewhere in this Form 10-K and in our Form 10-K for the 2003 and 2002 fiscal years for additional information about these acquisitions.(2)
    
    2004, 2003 and 2002 amounts have been restated to remove discontinued operations to conform with 2006 and 2005 presentation.(3)
    
    Book value per share is calculated by dividing shareholders equity by the number of common shares outstanding at the end of the fiscal year.(4)
    
    The debt-to-capital ratio is calculated by dividing total debt, including capital lease obligation, by the sum of total debt and shareholders equity.(5)
    
    Return on equity is calculated by dividing net earnings of continuing operations by average shareholders equity.(6)
    
    The price/earnings ratio is calculated by dividing the closing market price of our common stock on the last trading day of the fiscal year by diluted
net earnings from continuing operations per common share for 2006 and 2005 and by diluted net earnings per share (including both continuing
operations and discontinued operations) in 2004, 2003 and 2002.(7)
    
    As discussed previously in this Form 10-K, 2003 was a 53 week fiscal year. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Overview
        19




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##### Table of Contents



Sale of Fresh-cut Segment
 Accounting for the Impairment or Disposal of Long-Lived Assets
 Results of Operations
 Net sales
 2006
    
    
    2005
    
    
    2004Net
    
    
    % of
    
    
    Net
    
    
    % of
    
    
    Net
    
    
    % of(In thousands)
    
    Sales
    
    
    total
    
    
    Sales
    
    
    total
    
    
    Sales
    
    
    totalBroadline
    
    $
    3,478,733
    
    
    
    59.7
    %
    
    $
    3,481,446
    
    
    
    60.8
    %
    
    $
    3,121,306
    
    
    
    60.3
    %Customized
    
    
    2,348,738
    
    
    
    40.3
    %
    
    
    2,240,802
    
    
    
    39.2
    %
    
    
    2,052,880
    
    
    
    39.7
    %Inter-segment*
    
    
    (739
    )
    
    
    
    
    
    
    (876
    )
    
    
    
    
    
    
    (1,108
    )
    
    
    Total net sales
    
    $
    5,826,732
    
    
    
    100.0
    %
    
    $
    5,721,372
    
    
    
    100.0
    %
    
    $
    5,173,078
    
    
    
    100.0
    %
 *
    
    Inter-segment sales are sales between the segments, which are eliminated in consolidation. Consolidated.
 Broadline.
   20




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##### Table of Contents



Customized.
   Cost of goods sold
  Broadline.
 Customized.
 Gross profit
  Operating expenses
 Consolidated.
 Broadline.
 Customized.
 21




---



##### Table of Contents



Corporate.
 Operating profit
 2006
    
    2005
    
    2004Operating
    
    % of
    
    Operating
    
    % of
    
    Operating
    
    % of(In thousands)
    
    Profit
    
    Sales
    
    Profit
    
    Sales
    
    Profit
    
    SalesBroadline
    
    $
    71,619
    
    
    
    2.1
    %
    
    $
    71,723
    
    
    
    2.1
    %
    
    $
    65,877
    
    
    
    2.1
    %Customized
    
    
    30,736
    
    
    
    1.3
    %
    
    
    24,981
    
    
    
    1.1
    %
    
    
    21,538
    
    
    
    1.0
    %Corporate and inter-segment
    
    
    (27,245
    )
    
    
    
    
    
    
    (26,226
    )
    
    
    
    
    
    
    (23,735
    )
    
    
    Total operating profit
    
    $
    75,110
    
    
    
    1.3
    %
    
    $
    70,478
    
    
    
    1.2
    %
    
    $
    63,680
    
    
    
    1.2
    %
 Consolidated.
 Broadline.
 Customized.
 Other expense, net
  22




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##### Table of Contents



Income tax expense
  Earnings from continuing operations
  Diluted net earnings per share
  Liquidity and Capital Resources
   23




---



##### Table of Contents



Operating activities of continuing operations
   Investing activities of continuing operations
    Financing activities of continuing operations
  24




---



##### Table of Contents



(In thousands)
    
    Payments Due By Period1 Year
    
    Years 2
    
    Years 4
    
    More ThanContractual Obligations
    
    Total
    
    and Less
    
    and 3
    
    and 5
    
    5 YearsLong-term debt obligations, (excluding
interest)
    
    $
    3,247
    
    
    $
    583
    
    
    $
    1,291
    
    
    $
    1,066
    
    
    $
    307Operating and capital lease obligations
    
    
    260,763
    
    
    
    35,383
    
    
    
    58,290
    
    
    
    38,533
    
    
    
    128,557Purchase obligations
    
    
    16,030
    
    
    
    16,030
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    280,040
    
    
    $
    51,996
    
    
    $
    59,581
    
    
    $
    39,599
    
    
    $
    128,864
 25




---



##### Table of Contents



Stock Based Compensation
 Accounting for Stock Issued to Employees, Accounting for Stock-Based Compensation,
 Share-Based Payment,
  26




---



##### Table of Contents



Discontinued Operations
 Accounting for the Impairment or Disposal of Long-Lived Assets,
 Allocation of
Interest to Discontinued Operations,
 Off Balance Sheet Activities
    27




---



##### Table of Contents



Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
 Business Combinations
   Subsequent Events
 Sale-leaseback Transaction
 Accounting for Leases: Sale-Leaseback Transactions
Involving Real Estate,
 Bond Repayment
  28




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##### Table of Contents



Application of Critical Accounting Policies
  Allowance for Doubtful Accounts.
 Inventory Valuation.
 Goodwill and Other Intangible Assets.
   29




---



##### Table of Contents



Accounting for the Impairment or Disposal of Long-lived Assets.
 Insurance Programs.
 Vendor Rebates and Other Promotional Incentives. Accounting by a Customer (Including a Reseller) for Certain Consideration Received
from a Vendor Application of Issue No. 02-16 by Resellers to Sales Incentives
Offered to Consumers by Manufacturers.
   Income Taxes. Accounting for Income
Taxes.
  30




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##### Table of Contents



Share-Based Compensation.
   Recently Issued Accounting Pronouncements
 Accounting
for Servicing of Financial Assets
 Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement 109.
 31




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##### Table of Contents



Quarterly Results and Seasonality
  2006(In thousands, except per share amounts)
    
    1st Quarter
    
    2nd Quarter
    
    3rd Quarter
    
    4th QuarterNet sales
    
    $
    1,469,493
    
    
    $
    1,448,027
    
    
    $
    1,429,765
    
    
    $
    1,479,447Gross profit
    
    
    187,254
    
    
    
    193,203
    
    
    
    194,353
    
    
    
    199,825Operating profit
    
    
    10,722
    
    
    
    21,530
    
    
    
    20,111
    
    
    
    22,747Earnings from continuing operations before income
taxes
    
    
    9,290
    
    
    
    19,754
    
    
    
    18,753
    
    
    
    20,745Earnings from continuing operations
    
    
    5,674
    
    
    
    12,168
    
    
    
    12,175
    
    
    
    12,883(Loss) earnings from discontinued operations
    
    
    (32
    )
    
    
    13
    
    
    
    (132
    )
    
    
    36Net earnings
    
    $
    5,642
    
    
    $
    12,181
    
    
    $
    12,043
    
    
    $
    12,919Basic earnings per common share:Continuing operations
    
    $
    0.16
    
    
    $
    0.36
    
    
    $
    0.35
    
    
    $
    0.37Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings
    
    $
    0.16
    
    
    $
    0.36
    
    
    $
    0.35
    
    
    $
    0.38Diluted earnings per common share:Continuing operations
    
    $
    0.16
    
    
    $
    0.35
    
    
    $
    0.35
    
    
    $
    0.37Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings
    
    $
    0.16
    
    
    $
    0.35
    
    
    $
    0.35
    
    
    $
    0.37
 2005(In thousands, except per share amounts)
    
    1st Quarter
    
    
    2nd Quarter
    
    
    3rd Quarter
    
    
    4th QuarterNet sales
    
    $
    1,422,807
    
    
    $
    1,456,735
    
    
    $
    1,401,780
    
    
    $
    1,440,050Gross profit
    
    
    179,916
    
    
    
    189,392
    
    
    
    185,868
    
    
    
    192,230Operating profit
    
    
    9,426
    
    
    
    21,951
    
    
    
    17,623
    
    
    
    21,478Earnings from continuing operations before income
taxes
    
    
    7,611
    
    
    
    19,817
    
    
    
    19,206
    
    
    
    20,457Earnings from continuing operations
    
    
    4,683
    
    
    
    12,246
    
    
    
    11,911
    
    
    
    12,923Earnings (loss) from discontinued operations
    
    
    9,012
    
    
    
    191,549
    
    
    
    (464
    )
    
    
    5,278Net earnings
    
    $
    13,695
    
    
    $
    203,795
    
    
    $
    11,447
    
    
    $
    18,201Basic earnings (loss) per common share:Continuing operations
    
    $
    0.10
    
    
    $
    0.26
    
    
    $
    0.28
    
    
    $
    0.35Discontinued operations
    
    
    0.19
    
    
    
    4.08
    
    
    
    (0.01
    )
    
    
    0.14Net earnings
    
    $
    0.29
    
    
    $
    4.34
    
    
    $
    0.27
    
    
    $
    0.49Diluted earnings (loss) per common share:Continuing operations
    
    $
    0.10
    
    
    $
    0.26
    
    
    $
    0.28
    
    
    $
    0.35Discontinued operations
    
    
    0.19
    
    
    
    4.02
    
    
    
    (0.01
    )
    
    
    0.14Net earnings
    
    $
    0.29
    
    
    $
    4.28
    
    
    $
    0.27
    
    
    $
    0.49
 32




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
   
 Item 8. Financial Statements and Supplementary Data.
 Page of Form 10-KFinancial Statements:Reports of Independent Registered Public Accounting Firm
    
    
    42Consolidated Balance Sheets
    
    
    44Consolidated Statements of Earnings
    
    
    45Consolidated Statements of Shareholders Equity
    
    
    46Consolidated Statements of Cash Flows
    
    
    47Notes to Consolidated Financial Statements
    
    
    48Financial Statement Schedules:Report of Independent Registered Public Accounting Firm
    
    
    67Schedule II  Valuation and Qualifying Accounts
    
    
    68
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control Over Financial Reporting
  33




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##### Table of Contents



Internal
Control  Integrated Framework
 Changes in Internal Control Over Financial Reporting
  
 Item 9B. Other Information.
  34




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##### Table of Contents



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.
  Number of Shares to be
    
    Weighted AverageIssued upon Exercise of
    
    Exercise Price of
    
    Number of Shares Remaining Available for FutureOutstanding Options
    
    Outstanding Options
    
    Issuance Under Equity Compensation PlansPlan Category
    
    and Warrants
    
    and Warrants
    
    (Excluding Shares Reflected in First Column)*Equity compensation
plans approved by
shareholders
    
    
    2,863,480
    
    
    $
    27.75
    
    
    
    2,402,079Equity compensation
plans not approved
by shareholders
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    2,863,480
    
    
    $
    27.75
    
    
    
    2,402,079
 *
    
    Includes 409,072 shares available for future issuance under our Employee Stock Purchase Plan
as of December 30, 2006, of which approximately 56,000 were issued on January 15, 2007.  
 Item 13. Certain Relationships and Related Transactions, and Director Independence.
  
 Item 14. Principal Accountants Fees and Services.
  35




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##### Table of Contents



PART IV
 
 Item 15. Exhibits, Financial Statement Schedules.
 (a)
    
    1 Financial Statements. See index
to Financial Statements above.
2 Financial Statement Schedules. See index to Financial Statement
Schedules above. 
3 Exhibits:
 ExhibitNumber
    
    DescriptionA.
    
    Incorporated by reference to our Registration Statement on Form S-1 (No. 33-64930) (File
No. 0-22192), filed June 24, 1993:3.2
    
    Restated Bylaws of Registrant.4.1
    
    Specimen Common Stock certificate.4.2
    
    Article 5 of the Registrants Restated Charter (included in Exhibit 3.1).4.3
    
    Article 6 of the Registrants Restated Bylaws (included in Exhibit 3.2).10.1
    
    1993 Outside Directors Stock Option Plan.*10.2
    
    Form of Pocahontas Food Group, Inc. Executive Deferred Compensation Plan.*10.3
    
    Form of Indemnification Agreement.B.
    
    Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended
January 1, 1994 (File No. 0-22192), filed March 29, 1994:10.4
    
    First Amendment to the Trust Agreement for Pocahontas Food Group, Inc. Employee Savings
and Stock Ownership Plan.10.5
    
    Performance Food Group Employee Stock Purchase Plan.*C.
    
    Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended
December 28, 1996 (File No. 0-22192), filed March 27, 1997:10.6
    
    Performance Food Group Company Employee Savings and Stock Ownership Plan Savings Trust.D.
    
    Incorporated by reference to our Report on Form 8-K dated May 20, 1997 (File No.
0-22192), filed May 20, 1997:10.7
    
    Rights Agreement dated as of May 16, 1997 between Performance Food Group Company and
First Union National Bank of North Carolina, as Rights Agent.E.
    
    Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended
December 27, 1997 (File No. 0-22192), filed March 26, 1998:10.8
    
    Form of Change in Control Agreement dated October 29, 1997 with John D. Austin, Thomas
Hoffman and Robert C. Sledd.*10.9
    
    Form of Change in Control Agreement dated October 27, 1997 with certain key executives.*F.
    
    Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended
January 2, 1999 (File No. 0-22192), filed April 1, 1999:10.10
    
    Performance Food Group Company Executive Deferred Compensation Plan.*
 36




---



##### Table of Contents



ExhibitNumber
    
    DescriptionG.
    
    Incorporated by reference to our Report on Form 8-K dated November 27, 2000 (File No.
0-22192), filed November 27, 2000:10.11
    
    Amendment No. 1 to Rights Agreement dated June 30, 1999 between Performance Food Group
Company and American Stock Transfer Trust Company, as subsequent Rights Agent.10.12
    
    Amendment No. 2 to Rights Agreement dated November 22, 2000 between Performance Food
Group Company and American Stock Transfer Trust Company, as subsequent Rights Agent.H.
    
    Incorporated by reference to our Registration Statement on Form S-4 (Registration No
333-61612) (File No. 0-22192), filed May 25, 2001:3.1
    
    Restated Charter of Registrant.I.
    
    Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended June
30, 2001 (File No. 0-22192), filed August 14, 2001:10.13
    
    Receivables Purchase Agreement dated July 3, 2001, by and among PFG Receivables
Corporation, as Seller, Performance Food Group Company, as Servicer, Jupiter
Securitization Corporation and Bank One, NA as Agent. (Schedules and other exhibits are
omitted from this filing, but the Registrant will furnish supplemental copies of the
omitted material to the Securities and Exchange Commission upon request.)J.
    
    Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended
December 29, 2001 (File No. 0-22192), filed March 29, 2002:10.14
    
    1993 Employee Stock Incentive Plan (restated electronically for SEC filing purposes
only).*K.
    
    Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended June
29, 2002 (File No. 0-22192), filed August 13, 2002:10.15
    
    Amendment to Receivable Purchase Agreement dated as of July 12, 2002, by and among PFG
Receivables Corporation, as Seller, Performance Food Group Company, as Servicer, Jupiter
Securitization Corporation and Bank One, NA, as Agent.L.
    
    Incorporated by reference to our Registration Statement on Form S-8 (File No.
333-105082), filed May 8, 2003:10.16
    
    2003 Equity Incentive Plan.*M.
    
    Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended June
28, 2003 (File No. 0-22192), filed August 12, 2003:10.17
    
    Amendment to Receivables Purchase Agreement dated as of June 30, 2003, by and among PFG
Receivables Corporation, as Seller, Performance Food Group Company, as Servicer, Jupiter
Securitization Corporation and Bank One, NA, as Agent.N.
    
    Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended
February 3, 2004 (File No. 0-22192), filed March 18, 2004:10.18
    
    Performance Food Group Company Supplemental Executive Retirement Plan.*10.19
    
    Amended and Restated Performance Food Group Company Employee Savings and Stock Ownership
Plan, as amended.*O.
    
    Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended
April 3, 2004 (File No. 0-22192), filed May 12, 2004:
 37




---



##### Table of Contents



ExhibitNumber
    
    Description10.20
    
    Lease agreement for our Little Rock, Arkansas facility.10.21
    
    Severance agreement with C. Michael Gray.*P.
    
    Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended July
3, 2004 (File No. 0-22192), filed August 11, 2004:10.22
    
    Amendment to Receivables Purchase Agreement dated as of June 28, 2004 by and between PFG
Receivables Corporation, as Seller, Performance Food Group Company, as Servicer, Jupiter
Securitization Corporation and Bank One, NA, as Agent.Q.
    
    Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended
October 2, 2004 (File No. 0-22192), filed November 12, 2004:10.23
    
    Form of Non-Qualified Stock Option Agreement.*10.24
    
    Form of Incentive Stock Option Agreement.*R.
    
    Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended
January 1, 2005:10.25
    
    Trust Agreement for the Performance Food Group Employee Savings and Stock Ownership Plan.S.
    
    Incorporated by reference to our Current Report on Form 8-K dated January 6, 2005 (File
No. 0-22192):10.26
    
    Senior Management Severance Plan.*T.
    
    Incorporated by reference to our Current Report on Form 8-K dated February 28, 2005 (File
No. 0-22192):2.1
    
    Stock Purchase Agreement, dated as of February 22, 2005, between Performance Food Group
Company and Chiquita Brands International, Inc. (Pursuant to Item 601(b)(2) of Regulation
S-K the schedules and exhibits to this agreement have been omitted from this filing.)U.
    
    Incorporated by reference to our Current Report on Form 8-K dated March 21, 2005 (File
No. 0-22192):10.27
    
    Performance Food Group Company 2005 Cash Incentive Plan.*10.28
    
    Form of Restricted Share Award Agreement.*V.
    
    Incorporated by reference to our Current Report on Form 8-K dated April 28, 2005 (File
No. 0-22192):10.29
    
    Amendment and Waiver, dated as of April 26, 2005 among Performance Food Group Company,
the Lenders party to the Credit Agreement and Wachovia Bank, National Association, as
Administrative Agent for the Lenders.W.
    
    Incorporated by reference to our Current Report on Form 8-K dated May 24, 2005 (File No.
0-22192):10.30
    
    Form of Non-Qualified Stock Option Agreement.*X.
    
    Incorporated by reference to our Current Report on Form 8-K dated June 30, 2005 (File No.
0-22192):
 38




---



##### Table of Contents



ExhibitNumber
    
    Description10.31
    
    Amendment to Receivables Purchase Agreement dated as of June 27,
2005 by and between PFG Receivables Corporation, as Seller,
Performance Food Group Company, as Servicer, Jupiter
Securitization Corporation and JPMorgan Chase Bank, N.A.,
successor by merger to Bank One, NA, as Agent.Y.
    
    Incorporated by reference to our Current Report on Form 8-K dated
August 29, 2005 (File No. 0-22192):10.32
    
    Director Compensation Summary.*Z.
    
    Incorporated by reference to our Current Report on Form 8-K dated
October 11, 2005 (File No. 0-22192):10.33
    
    Second Amended and Restated Credit Agreement dated as of October
7, 2005 by and among Performance Food Group Company, the Lenders a
party thereto, and Wachovia Bank, National Association as
Administrative Agent for the Lenders.10.34
    
    Form of Revolving Credit Note.AA.
    
    Incorporated by reference to our Current Report on Form 8-K dated
March 1, 2006 (File No. 0-22192):10.35
    
    Performance Food Group Company 2006 Cash Incentive Plan.*BB.
    
    Incorporated by reference to our Current Report on Form 8-K dated
April 13, 2006 (File No. 0-22192):10.36
    
    Form of Non-Qualified Stock Option Agreement.*CC.
    
    Incorporated by reference to our Current Report on Form 8-K dated
May 17, 2006 (File No. 0-22192):10.37
    
    Form of Non-Employee Director Restricted Share Award Agreement.*DD.
    
    Incorporated by reference to our Current Report on Form 8-K dated
June 29, 2006 (File No. 0-22192):10.38
    
    Amendment to Receivables Purchase Agreement dated as of June 26, 2006 by and between PFG
Receivables Corporation, as Seller, Performance Food Group Company, as Servicer, Jupiter
Securitization Corporation and JPMorgan Chase Bank, N.A., successor by merger to Bank One,
NA (Main Office Chicago).EE.
    
    Incorporated by reference to our Current Report on Form 8-K dated August 21, 2006
(File No. 0-22192)10.39
    
    Steven L. Spinner Executive
Compensation Summary.*FF.
    
    Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2006 (File No. 0-22192) filed November 7, 2006:10.40
    
    Amendment No. 3 to Rights Agreement dated September 8, 2006 between Performance
Food Group Company and Bank of New York, as subsequent Rights Agent.GG.
    
    Incorporated by reference to our Current Report on Form 8-K dated November 22,
2006 (File No. 0-22192):
 39




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##### Table of Contents



ExhibitNumber
    
    Description10.41
    
    Amendment to Performance Food Group Company Supplemental Executive Retirement
Plan.*HH.
    
    Filed herewith:10.42
    
    Named Executive Officer and
Director Compensation Summary.*10.43
    
    Amendment to Performance Food Group
Company Employee Stock Purchase Plan.*21
    
    List of Subsidiaries.23.1
    
    Consent of Independent Registered Public Accounting Firm.31.1
    
    Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Management contract or compensatory plan or
arrangement 40




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##### Table of Contents



SIGNATURES
  PERFORMANCE FOOD GROUP COMPANYBy:
    
    /s/ Steven L. SpinnerSteven L. SpinnerPresident and Chief Executive Officer
  Signature
    
    Title
    
    Date/s/ Steven L. Spinner
    
    Director, President and Chief
    
    February 27, 2007Steven L. Spinner
    
    Executive
Officer (PrincipalExecutive Officer)/s/ John D. Austin
    
    Senior Vice President and
    
    February 27, 2007John D. Austin
    
    Chief
Financial Officer(Principal Financial andAccounting Officer)/s/ Robert C. Sledd
    
    Chairman of the Board
    
    February 27, 2007Robert C. Sledd/s/ Charles E. Adair
    
    Director
    
    February 27, 2007Charles E. Adair/s/ Mary C. Doswell
    
    Director
    
    February 27, 2007Mary C. Doswell/s/ Fred C. Goad, Jr.
    
    Director
    
    February 27, 2007Fred C. Goad, Jr./s/ Timothy M. Graven
    
    Director
    
    February 27, 2007Timothy M. Graven/s/ John E. Stokely
    
    Director
    
    February 27, 2007John E. Stokely
 41




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Managements Report on
Internal Control over Financial Reporting, Internal Control-Integrated Framework
    Internal Control-Integrated Framework Internal
Control-Integrated Framework
   
 42




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     Internal
Control-Integrated Framework
  
 43




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##### Table of Contents



PERFORMANCE FOOD GROUP COMPANY
 
 CONSOLIDATED BALANCE SHEETS
 (Dollar amounts in thousands, except per share amounts)
    
    2006
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    75,087
    
    
    $
    99,461Accounts receivable, net, including residual interest in securitized receivables
    
    
    226,058
    
    
    
    190,481Inventories
    
    
    308,901
    
    
    
    303,073Prepaid expenses and other current assets
    
    
    9,991
    
    
    
    9,328Income taxes receivable
    
    
    
    
    
    
    6,448Deferred income taxes
    
    
    23,161
    
    
    
    13,412Current assets from discontinued operations (Note 3)
    
    
    2,267
    
    
    
    10,115Total current assets
    
    
    645,465
    
    
    
    632,318Goodwill, net
    
    
    356,509
    
    
    
    356,597Property, plant and equipment, net
    
    
    291,947
    
    
    
    255,816Other intangible assets, net
    
    
    47,575
    
    
    
    51,213Other assets
    
    
    18,279
    
    
    
    16,346Total assets
    
    $
    1,359,775
    
    
    $
    1,312,290LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Outstanding checks in excess of deposits
    
    $
    88,023
    
    
    $
    100,335Current installments of long-term debt
    
    
    583
    
    
    
    573Trade accounts payable
    
    
    269,590
    
    
    
    258,791Accrued expenses
    
    
    141,162
    
    
    
    122,885Current liabilities from discontinued operations (Note 3)
    
    
    5,362
    
    
    
    6,540Total current liabilities
    
    
    504,720
    
    
    
    489,124Long-term debt, excluding current installments
    
    
    11,664
    
    
    
    3,250Deferred income taxes
    
    
    48,582
    
    
    
    43,399Total liabilities
    
    
    564,966
    
    
    
    535,773Shareholders equity:Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued,
preferences to be defined when issued
    
    
    
    
    
    
    Common stock, $.01 par value; 100,000,000 shares authorized, 34,894,380 and
35,581,925 shares issued and outstanding
    
    
    349
    
    
    
    356Additional paid-in capital
    
    
    155,783
    
    
    
    180,270Retained earnings
    
    
    638,677
    
    
    
    595,891Total shareholders equity
    
    
    794,809
    
    
    
    776,517Total liabilities and shareholders equity
    
    $
    1,359,775
    
    
    $
    1,312,290
 See accompanying notes to consolidated financial statements.
 44




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##### Table of Contents



PERFORMANCE FOOD GROUP COMPANY
 
 CONSOLIDATED STATEMENTS OF EARNINGS
 (In thousands, except per share amounts)
    
    2006
    
    2005
    
    2004Net sales
    
    $
    5,826,732
    
    
    $
    5,721,372
    
    
    $
    5,173,078Cost of goods sold
    
    
    5,052,097
    
    
    
    4,973,966
    
    
    
    4,496,117Gross profit
    
    
    774,635
    
    
    
    747,406
    
    
    
    676,961Operating expenses
    
    
    699,525
    
    
    
    676,928
    
    
    
    613,281Operating profit
    
    
    75,110
    
    
    
    70,478
    
    
    
    63,680Other income (expense):Interest income
    
    
    2,164
    
    
    
    4,651
    
    
    
    340Interest expense
    
    
    (1,732
    )
    
    
    (3,246
    )
    
    
    (8,274
    )Loss on sale of receivables
    
    
    (7,351
    )
    
    
    (5,156
    )
    
    
    (2,421
    )Loss on redemption of convertible notes (Note 10)
    
    
    
    
    
    
    
    
    
    
    (10,127
    )Other, net
    
    
    351
    
    
    
    365
    
    
    
    141Other expense, net
    
    
    (6,568
    )
    
    
    (3,386
    )
    
    
    (20,341
    )Earnings from continuing operations before income taxes
    
    
    68,542
    
    
    
    67,092
    
    
    
    43,339Income tax expense from continuing operations
    
    
    25,642
    
    
    
    25,328
    
    
    
    16,781Earnings from continuing operations, net of tax
    
    
    42,900
    
    
    
    41,764
    
    
    
    26,558Earnings from discontinued operations, net of tax
    
    
    
    
    
    
    18,499
    
    
    
    26,000(Loss) gain on sale of fresh-cut segment, net of tax
    
    
    (114
    )
    
    
    186,875
    
    
    
    Total (loss) earnings from discontinued operations (Note 3)
    
    
    (114
    )
    
    
    205,374
    
    
    
    26,000Net earnings
    
    $
    42,786
    
    
    $
    247,138
    
    
    $
    52,558Weighted average common shares outstanding:Basic
    
    
    34,348
    
    
    
    43,233
    
    
    
    46,398Diluted
    
    
    34,769
    
    
    
    43,795
    
    
    
    47,181Basic earnings per common share:Continuing operations
    
    $
    1.25
    
    
    $
    0.97
    
    
    $
    0.57Discontinued operations
    
    
    
    
    
    
    4.75
    
    
    
    0.56Net earnings
    
    $
    1.25
    
    
    $
    5.72
    
    
    $
    1.13Diluted earnings per common share:Continuing operations
    
    $
    1.23
    
    
    $
    0.95
    
    
    $
    0.56Discontinued operations
    
    
    
    
    
    
    4.69
    
    
    
    0.55Net earnings
    
    $
    1.23
    
    
    $
    5.64
    
    
    $
    1.11
 See accompanying notes to consolidated financial statements.
 45




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##### Table of Contents



PERFORMANCE FOOD GROUP COMPANY
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 Common Stock
    
    Additional
    
    Deferred
    
    
    
    
    
    Total Shareholders(Dollar amounts in thousands)
    
    Shares
    
    Amount
    
    Paid-in Capital
    
    Compensation
    
    Retained Earnings
    
    EquityBalance at January 3, 2004
    
    
    45,862,479
    
    
    $
    459
    
    
    $
    507,161
    
    
    $
    
    
    
    $
    296,195
    
    
    $
    803,815Issuance of shares for acquisitions, net
of shares returned
    
    
    8,904
    
    
    
    
    
    
    
    400
    
    
    
    
    
    
    
    
    
    
    
    400Issuance of shares for equity based
awards
    
    
    899,277
    
    
    
    9
    
    
    
    12,633
    
    
    
    
    
    
    
    
    
    
    
    12,642Tax benefit from exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    4,898
    
    
    
    
    
    
    
    
    
    
    
    4,898Net earnings-continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,558
    
    
    
    26,558Net earnings-discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,000
    
    
    
    26,000Balance at January 1, 2005
    
    
    46,770,660
    
    
    
    468
    
    
    
    525,092
    
    
    
    
    
    
    
    348,753
    
    
    
    874,313Issuance of shares for equity based
awards, net of cancellations
    
    
    977,694
    
    
    
    10
    
    
    
    18,116
    
    
    
    (5,475
    )
    
    
    
    
    
    
    12,651Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    999
    
    
    
    
    
    
    
    999Repurchase and retirement of common stock
    
    
    (12,166,429
    )
    
    
    (122
    )
    
    
    (361,596
    )
    
    
    
    
    
    
    
    
    
    
    (361,718
    )Tax benefit from exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    3,134
    
    
    
    
    
    
    
    
    
    
    
    3,134Net earnings-continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,764
    
    
    
    41,764Net earnings-discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    205,374
    
    
    
    205,374Balance at December 31, 2005
    
    
    35,581,925
    
    
    
    356
    
    
    
    184,746
    
    
    
    (4,476
    )
    
    
    595,891
    
    
    
    776,517Issuance of shares for equity based
awards, net of cancellations
    
    
    772,410
    
    
    
    8
    
    
    
    16,309
    
    
    
    (8,092
    )
    
    
    
    
    
    
    8,225Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    2,105
    
    
    
    2,775
    
    
    
    
    
    
    
    4,880Repurchase and retirement of common stock
    
    
    (1,459,955
    )
    
    
    (15
    )
    
    
    (39,602
    )
    
    
    
    
    
    
    
    
    
    
    (39,617
    )Tax benefit from exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    2,018
    
    
    
    
    
    
    
    
    
    
    
    2,018Net earnings-continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,900
    
    
    
    42,900Net loss-discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (114
    )
    
    
    (114
    )Balance at December 30, 2006
    
    
    34,894,380
    
    
    $
    349
    
    
    $
    165,576
    
    
    $
    (9,793
    )
    
    $
    638,677
    
    
    $
    794,809
 See accompanying notes to consolidated financial statements.
 46




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##### Table of Contents



PERFORMANCE FOOD GROUP COMPANY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollar amounts in thousands)
    
    2006
    
    
    2005
    
    
    2004Cash flows from operating activities of continuing operations:Earnings from continuing operations
    
    $
    42,900
    
    
    $
    41,764
    
    
    $
    26,558Adjustments to reconcile net earnings to net cash provided
by operating activities:Depreciation
    
    
    25,557
    
    
    
    22,818
    
    
    
    21,370Amortization
    
    
    3,312
    
    
    
    3,562
    
    
    
    3,626Stock compensation expense
    
    
    4,880
    
    
    
    999
    
    
    
    Deferred income taxes
    
    
    (4,566
    )
    
    
    2,919
    
    
    
    3,690Tax benefit from exercise of equity awards
    
    
    1,115
    
    
    
    3,134
    
    
    
    4,898Write-off of debt issuance costs
    
    
    
    
    
    
    
    
    
    
    3,801Other
    
    
    952
    
    
    
    611
    
    
    
    1,239Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (35,577
    )
    
    
    (19,290
    )
    
    
    (4,976
    )Increase in inventories
    
    
    (5,828
    )
    
    
    (16,054
    )
    
    
    (57,403
    )(Increase) decrease in prepaid expenses and other current assets
    
    
    (663
    )
    
    
    374
    
    
    
    (636
    )Increase in other assets
    
    
    (1,933
    )
    
    
    (2,843
    )
    
    
    (2,992
    )Increase in trade accounts payable
    
    
    10,799
    
    
    
    30,909
    
    
    
    31,825Increase in accrued expenses
    
    
    10,643
    
    
    
    11,661
    
    
    
    9,295Change in income taxes payable/receivable, net
    
    
    14,082
    
    
    
    (4,394
    )
    
    
    7,315Net cash provided by operating activities of continuing operations
    
    
    65,673
    
    
    
    76,170
    
    
    
    47,610Cash flows from investing activities of continuing operations:Purchases of property, plant and equipment
    
    
    (53,688
    )
    
    
    (77,576
    )
    
    
    (40,635
    )Net cash paid for acquisitions
    
    
    
    
    
    
    (3,917
    )
    
    
    (3,086
    )Proceeds from sale of property, plant and equipment
    
    
    462
    
    
    
    290
    
    
    
    967Cash paid for intangibles
    
    
    
    
    
    
    (150
    )
    
    
    Net cash used in investing activities of continuing operations
    
    
    (53,226
    )
    
    
    (81,353
    )
    
    
    (42,754
    )Cash flows from financing activities of continuing operations:(Decrease) increase in outstanding checks in excess of deposits
    
    
    (12,312
    )
    
    
    (3,613
    )
    
    
    45,446Net (payments on) proceeds from revolving credit facility
    
    
    
    
    
    
    (210,000
    )
    
    
    126,771Principal payments on long-term debt
    
    
    (576
    )
    
    
    (697
    )
    
    
    (202,046
    )Proceeds from employee stock option, incentive and purchase plans
    
    
    8,225
    
    
    
    12,651
    
    
    
    12,642Excess tax benefit from exercise of equity awards
    
    
    903
    
    
    
    
    
    
    
    Cash paid for debt issuance costs
    
    
    
    
    
    
    (864
    )
    
    
    (461
    )Repurchase of common stock
    
    
    (39,617
    )
    
    
    (361,718
    )
    
    
    Net cash used in financing activities of continuing operations
    
    
    (43,377
    )
    
    
    (564,241
    )
    
    
    (17,648
    )Net cash used in continuing operations
    
    
    (30,930
    )
    
    
    (569,424
    )
    
    
    (12,792
    )Cash flows from discontinued operations (Note 3):Cash provided by operating activities of discontinued operations
    
    
    6,670
    
    
    
    1,121
    
    
    
    68,364Cash (used in) provided by investing activities of discontinued operations
    
    
    (114
    )
    
    
    611,083
    
    
    
    (42,520
    )Cash provided by financing activities of discontinued operations
    
    
    
    
    
    
    4,359
    
    
    
    354Total cash provided by discontinued operations
    
    
    6,556
    
    
    
    616,563
    
    
    
    26,198Net (decrease) increase in cash and cash equivalents
    
    
    (24,374
    )
    
    
    47,139
    
    
    
    13,406Cash and cash equivalents, beginning of year
    
    
    99,461
    
    
    
    52,322
    
    
    
    38,916Cash and cash equivalents, end of year
    
    $
    75,087
    
    
    $
    99,461
    
    
    $
    52,322Supplemental disclosure of non-cash transaction:Debt assumed through capital lease obligation
    
    $
    9,000
    
    
    
    
    
    
    
    
 See accompanying notes to consolidated financial statements.
 47




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##### Table of Contents



PERFORMANCE
FOOD GROUP COMPANY
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    Description of BusinessPerformance Food Group Company and subsidiaries (the Company) market and distribute over 68,000
national and proprietary brand food and non-food products to over 41,000 customers in the
foodservice or foodawayfromhome industry. The Company services both of the major customer
types in the foodservice industry: street foodservice customers, which include independent
restaurants, hotels, cafeterias, schools, healthcare facilities and
other institutional customers,
and multi-unit, or chain customers, which include regional and national family and casual dining
and quick-service restaurants.The Company services these customers through two operating segments: broadline foodservice
distribution (Broadline) and customized foodservice distribution (Customized). Broadline
markets and distributes more than 65,000 national and proprietary brand food and non-food products
to over 41,000 street and chain customers. The Broadline segment has 19 distribution facilities
that design their own product mix, distribution routes and delivery schedules to accommodate the
needs of a large number of customers whose individual purchases vary in size. Broadlines
customers are typically located within 250 miles of one of the Companys Broadline distribution
centers in the Eastern, Midwestern and Southern United States. Customized services casual and
family dining chain restaurants. These customers generally prefer a centralized point of contact
that facilitates item and menu changes, tailored distribution routing and customer service.
Customized segment customers can be located up to 1,800 miles away from one of its eight
distribution centers, located throughout the United States. The Customized segment also supplies
products to some of its customer locations internationally.The fiscal years ended December 30, 2006, December 31, 2005 and January 1, 2005 are referred to
herein as the years 2006, 2005 and 2004, respectively. The Company uses a 52/53-week fiscal year
ending on the Saturday closest to December 31. Consequently, the Company periodically has a
53-week fiscal year.In 2005, the Company sold all its stock in the subsidiaries that comprised its fresh-cut segment
to Chiquita Brands International, Inc. (Chiquita). In accordance with Statement of Financial
Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets(SFAS 144), depreciation and amortization were discontinued beginning February 23, 2005,
the day after the Company entered into a definitive agreement to sell its fresh-cut segment.
Accordingly, unless otherwise noted, all amounts presented in the accompanying consolidated
financial statements, including all note disclosures, contain only information related to the
Companys continuing operations. See Note 3 for additional discontinued operations disclosures.2.
    
    Summary of Significant Accounting PoliciesPrinciples of ConsolidationThe consolidated financial statements include the accounts of Performance Food Group Company and
its majority-owned subsidiaries. All significant inter-company balances and transactions have been
eliminated.Use of EstimatesThe preparation of the consolidated financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the Companys consolidated financial statements and notes
thereto. The most significant estimates used by management are related to the accounting for the
allowance for doubtful accounts, reserve for inventories, goodwill and other intangible assets,
reserves for claims under self-insurance programs, vendor rebates and other promotional
incentives, bonus accruals, depreciation, amortization, share-based
compensation and income taxes. Actual results could
differ from these estimates.Cash and Cash EquivalentsThe Company considers all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.Accounts ReceivableAccounts receivable represent receivables from customers in the ordinary course of business, are
recorded at the invoiced amount and do not bear interest. Receivables are recorded net of the
allowance for doubtful accounts in the accompanying
 48




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##### Table of Contents



consolidated balance sheets. The Company evaluates the collectibility of its accounts receivable
based on a combination of factors. The Company regularly analyzes its significant customer
accounts, and when it becomes aware of a specific customers inability to meet its financial
obligations to the Company, such as in the case of bankruptcy filings or deterioration in the
customers operating results or financial position, the Company records a specific reserve for bad
debt to reduce the related receivable to the amount it reasonably believes is collectible. The
Company also records reserves for bad debt for all other customers based on a variety of factors,
including the length of time the receivables are past due, the financial health of the customer,
macroeconomic considerations and historical experience. If circumstances related to specific
customers change, the Companys estimates of the recoverability of receivables could be further
adjusted. At December 30, 2006 and December 31, 2005, the allowance for doubtful accounts was $7.0
million and $7.8 million, respectively.InventoriesThe Companys inventories consist primarily of food and non-food products. The Company values
inventories at the lower of cost or market using the first-in, first-out (FIFO) method. At
December 30, 2006 and December 31, 2005, the Companys inventory balances of $308.9 million and
$303.1 million, respectively, consisted primarily of finished goods. Costs in inventory include
the purchase price of the product and freight charges to deliver the product to the Companys
warehouses. The Company maintains reserves for slow-moving, excess and obsolete inventories. These
reserves are based upon inventory category, inventory age, specifically identified items and
overall economic conditions.Property, Plant and EquipmentProperty, plant and equipment are stated at cost. Depreciation of property, plant and equipment,
including capital lease assets, is calculated primarily using the straight-line method over the
estimated useful lives of the assets, which range from three to 39 years, and is included in
operating expenses on the consolidated statements of earnings.When assets are retired or otherwise disposed of, the costs and related accumulated depreciation
are removed from the accounts. The difference between the net book value of the asset and proceeds
from disposition is recognized as a gain or loss. Routine maintenance and repairs are charged to
expense as incurred, while costs of betterments and renewals are capitalized.Goodwill and Other Intangible AssetsGoodwill and other intangible assets include the cost of acquired subsidiaries in excess of the
fair value of the tangible net assets recorded in conjunction with acquisitions. Other intangible
assets include customer relationships, trade names, trademarks, patents and non-compete
agreements. SFAS No. 142, Goodwill and Other Intangible Assets(SFAS 142), requires the Company
to assess goodwill and other intangible assets with indefinite lives for impairment annually, or
more often if other circumstances indicate. If impaired, the assets are written down to their fair
values. To perform the assessment of goodwill, the Company compared the net assets of its
Broadline segment to the discounted expected future operating cash flows of the segment. To
perform the assessment of significant other non-amortized intangible assets, the Company compared
the book value of the asset to the discounted expected future operating cash flows generated by
the specific asset. The Companys Customized segment has no goodwill or other intangible assets.
Based on the Companys assessments for 2006, 2005 and 2004, no impairment losses were recorded.In accordance with SFAS 142, the Company ceased amortizing goodwill and other intangible assets
with indefinite lives as of the beginning of 2002. Intangible assets with definite lives are
carried at cost less accumulated amortization. Amortization is computed over the estimated useful
lives of the respective assets, generally three to 40 years.Impairment of Long-Lived AssetsLong-lived assets held and used by the Company are tested for recoverability whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For
purposes of evaluating the recoverability of long-lived assets, 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, as required by SFAS 144.Based on the Companys
assessments for 2006, 2005 and 2004, no impairment losses were recorded.Insurance ProgramThe Company maintains a self-insured program covering portions of general and vehicle liability,
workers compensation and group medical insurance. The amounts in excess of the self-insured
levels are fully insured, subject to certain limitations and exclusions. The Company accrues its
estimated liability for these self-insured programs, including an estimate for
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incurred but not reported claims, based on known claims and past claims history. These accruals
are included in accrued expenses on the Companys consolidated balance sheets. The provisions for
insurance claims include estimates of the frequency and timing of claims occurrences, as well as
the ultimate amounts to be paid.Revenue RecognitionThe Company recognizes sales when persuasive evidence of an arrangement exists, the price is fixed
and determinable, the product has been delivered to the customer and there is reasonable assurance
of collection of the sales proceeds. Sales returns are recorded as reductions of sales.Cost of Goods SoldCost of goods sold includes amounts paid to manufacturers for products sold, plus the cost of
transportation necessary to bring the products to the Companys facilities.Operating ExpensesOperating expenses include warehouse, delivery, selling and administrative expenses, which include
occupancy, insurance, depreciation, amortization, salaries and wages and employee benefits
expenses.Vendor Rebates and Other Promotional IncentivesThe Company participates in various rebate and promotional incentives with its suppliers,
primarily including volume and growth rebates, annual and multi-year incentives and promotional
programs. Consideration received under these incentives is generally recorded as a reduction of
cost of goods sold. However, in certain circumstances the consideration is recorded as a reduction
of costs incurred by the Company. Consideration received may be in the form of cash and/or invoice
deductions. Changes in the estimated amount of incentives to be received are treated as changes in
estimates and are recognized in the period of change.Consideration received for incentives that contain volume and growth rebates and annual and
multi-year incentives are recorded as a reduction of cost of goods sold. The Company
systematically and rationally allocates the consideration for these incentives to each of the
underlying transactions that results in progress by the Company toward earning the incentives. If
the incentives are not probable and reasonably estimable, the Company records the incentives as
the underlying objectives or milestones are achieved. The Company records annual and multi-year
incentives when earned, generally over the agreement period. The Company uses current and
historical purchasing data, forecasted purchasing volumes and other factors in estimating whether
the underlying objectives or milestones will be achieved. Consideration received to promote and
sell the suppliers products is typically a reimbursement of costs incurred by the Company and is
recorded as a reduction of the Companys costs. If the amount of consideration received from the
suppliers exceeds the Companys costs, any excess is recorded as a reduction of cost of goods
sold. The Company follows the requirements of Emerging Issues Task Force (EITF) No. 02-16,
Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor
and EITF No. 03-10, Application of Issue No. 02-16 by Resellers to Sales incentives offered to
Consumers by Manufacturers.Stock Based CompensationEffective January 1, 2006, in accordance with SFAS No. 123(R), Share-Based Payment(SFAS
123(R)), the Company began to recognize compensation expense in its consolidated statement of
operations for all of its equity awards based on the grant date fair value of the awards. Stock
option pricing methods require the input of highly subjective assumptions, including the expected
stock price volatility, expected term of the option and expected forfeitures. Compensation cost is
recognized ratably over the vesting period of the related equity award.Shipping and Handling Fees and CostsShipping and handling fees billed to customers are included in net sales. Shipping and handling
costs of $309.8 million, $308.0 million and $271.7 million in 2006, 2005 and 2004, respectively,
are recorded in operating expenses in the consolidated statements of earnings.
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Income TaxesThe Company follows SFAS No. 109, Accounting for Income Taxes,which requires the use of the asset
and liability method of accounting for deferred income taxes. Deferred tax assets and liabilities
are recognized for the expected future tax consequences of temporary differences between the tax
bases of assets and liabilities and their reported amounts. Future tax benefits, including net
operating loss carry-forwards, are recognized to the extent that realization of such benefits is
more likely than not.ReclassificationsCertain prior years amounts have been reclassified to conform to the current years presentation.Recently Issued Accounting PronouncementsIn March 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 156, Accounting
for Servicing of Financial Assets(SFAS 156). SFAS 156 requires an entity to recognize a
servicing asset or liability each time it undertakes an obligation to service a financial asset by
entering into a servicing contract in certain situations and requires all separately recognized
servicing assets and liabilities to be initially measured at fair value, if practicable. SFAS 156
will be effective for the Companys 2007 fiscal year. The adoption of SFAS 156 will not have a
material impact on the Companys consolidated financial position or results of operations.In July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes-an interpretation of FASB Statement 109.FIN 48 prescribes a comprehensive model for
recognizing, measuring, presenting and disclosing in the financial statements tax positions taken
or expected to be taken on a tax return, including a decision whether to file or not to file
income tax returns in a particular jurisdiction. FIN 48 is effective for fiscal years beginning
after December 15, 2006. If there are changes in net assets as a result of the adoption of FIN 48,
any adjustments will be accounted for as an adjustment to beginning retained earnings. The Company
will adopt the provisions of FIN 48 in its first fiscal quarter of 2007. The Company does not
expect the adoption of FIN 48 to have a material impact on the Companys consolidated financial
position or results of operations.3.
    
    Discontinued OperationsIn 2005, the Company sold all its stock in the subsidiaries that comprised its fresh-cut segment
to Chiquita for $860.6 million and recorded a net gain of approximately $186.8 million, net of
approximately $77.0 million in net tax expense. Of the net gain, approximately $5.8 million
represents post closing adjustments occurring after the initial gain was calculated upon closing
of the transaction, primarily related to final tax basis calculations. In accordance with SFAS
144, depreciation and amortization were discontinued beginning February 23, 2005, the day after
the Company entered into a definitive agreement to sell its fresh-cut segment. During 2006 the net
gain on sale was decreased by $114,000, as a result of post-closing adjustments related to the
working capital finalization and tax return reconciliation.Earnings from discontinued operations for 2005, excluding gain on sale, were $18.5 million, net of
tax expense of $14.3 million. In accordance with Emerging Issues Task Force No. 87-24, Allocation
of Interest to Discontinued Operations,the Company allocated to discontinued operations certain
interest expense on debt that was required to be repaid as a result of the sale and a portion of
interest expense associated with the Companys revolving credit facility and subordinated
convertible notes. The allocation percentage was calculated based on the ratio of net assets of
the discontinued operations to consolidated net assets. Interest expense allocated to discontinued
operations in 2005 and 2004 totaled $3.2 million and $8.5 million, respectively.
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The assets and liabilities of the discontinued fresh-cut segment reflected on the consolidated
balance sheets at December 30, 2006 and December 31, 2005 were comprised of the following:
 (In thousands)
    
    2006
    
    2005AssetsAccounts receivable, net
    
    $
    610
    
    
    $
    8,229Deferred income taxes
    
    
    1,657
    
    
    
    1,886Total assets
    
    $
    2,267
    
    
    $
    10,115LiabilitiesOther current
liabilities
    
    $
    5,362
    
    
    $
    6,540Total liabilities
    
    $
    5,362
    
    
    $
    6,540
 The net sales and earnings before income taxes of the Companys discontinued operations were as
follows:
 (In thousands)
    
    2006
    
    2005
    
    2004Net sales
    
    $
    
    
    
    $
    510,987
    
    
    $
    975,845Earnings before income
taxes
    
    $
    629
    
    
    $
    295,828
    
    
    $
    41,337
 4.
    
    Business CombinationsDuring 2005, the Company paid approximately $2.7 million related to contractual obligations in the
purchase agreements for companies it acquired in 2002 and 2004. Also during 2005, the Company paid
approximately $1.3 million related to the settlement of an earnout agreement with the former
owners of Middendorf Meat Company (Middendorf Meat); this amount was accrued, with a
corresponding increase to goodwill, in 2004.In 2004, the Company paid $3.1 million and issued approximately 9,000 shares of its common stock,
net, valued at approximately $400,000, related to contractual obligations in the purchase
agreements for Carroll County Foods, Inc. (Carroll County Foods), All Kitchens, Inc. (All
Kitchens) and other companies acquired. The Company recorded these amounts as additional purchase
price, with corresponding increases to goodwill. As discussed above, the Company also accrued
approximately $1.3 million in 2004 related to the settlement of an earnout agreement with the
former owners of Middendorf Meat.
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5.
    
    Goodwill and Other Intangible AssetsThe following table presents details of the Companys intangible assets as of December 30, 2006
and December 31, 2005:
 2006
    
    2005Gross
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    Accumulated
    
    
    
    
    
    Carrying
    
    Accumulated(In thousands)
    
    Amount
    
    Amortization
    
    Net
    
    Amount
    
    Amortization
    
    NetIntangible assets with definite lives:Customer relationships
    
    $
    32,859
    
    
    $
    12,100
    
    
    $
    20,759
    
    
    $
    32,859
    
    
    $
    9,875
    
    
    $
    22,984Trade names and trademarks
    
    
    17,228
    
    
    
    3,539
    
    
    
    13,689
    
    
    
    17,228
    
    
    
    2,797
    
    
    
    14,431Deferred financing costs
    
    
    3,570
    
    
    
    2,332
    
    
    
    1,238
    
    
    
    3,573
    
    
    
    2,008
    
    
    
    1,565Non-compete agreements
    
    
    3,353
    
    
    
    3,198
    
    
    
    155
    
    
    
    3,353
    
    
    
    2,854
    
    
    
    499Total intangible assets with definite lives
    
    $
    57,010
    
    
    $
    21,169
    
    
    $
    35,841
    
    
    $
    57,013
    
    
    $
    17,534
    
    
    $
    39,479Intangible assets with indefinite lives:Goodwill*
    
    $
    368,535
    
    
    $
    12,026
    
    
    $
    356,509
    
    
    $
    368,623
    
    
    $
    12,026
    
    
    $
    356,597Trade names*
    
    
    11,869
    
    
    
    135
    
    
    
    11,734
    
    
    
    11,869
    
    
    
    135
    
    
    
    11,734Total intangible assets with indefinite
lives
    
    $
    380,404
    
    
    $
    12,161
    
    
    $
    368,243
    
    
    $
    380,492
    
    
    $
    12,161
    
    
    $
    368,331
 *Amortization was recorded before the Companys adoption of SFAS No. 142. The Company recorded amortization expense of $3.6 million, $4.2 million and $5.0 million in
2006, 2005 and 2004, respectively. These amounts include amortization of deferred financing costs
of approximately $0.3 million, $0.7 million and $1.4 million in 2006, 2005 and 2004, respectively.
The estimated future amortization expense on intangible assets as of December 30, 2006 is as
follows:
 (In thousands)2007
    
    $
    3,3412008
    
    
    3,1482009
    
    
    3,1462010
    
    
    3,0562011
    
    
    2,791Thereafter
    
    
    20,359Total amortization
expense
    
    $
    35,841
 The following table presents the changes in the net carrying amount of goodwill, all of which is
allocated to the Companys Broadline segment, as defined in Note 19, during 2006 and 2005:
 (In thousands)Balance as of January 1, 2005
    
    $
    354,037Goodwill acquired
    
    
    2,710Purchase accounting
adjustments
    
    
    (150
    )Balance as of December 31,
2005
    
    
    356,597Purchase accounting
adjustments
    
    
    (88
    )Balance as of December 30,
2006
    
    $
    356,509
 6.
    
    Net Earnings per Common ShareBasic net earnings per common share (EPS) is computed by dividing net earnings available to
common shareholders by the weighted-average number of common shares outstanding during the period.
Diluted EPS is calculated using the weighted-average number of common shares and dilutive
potential common shares outstanding during the period. In computing diluted EPS, the average stock
price for the period is used in determining the number of shares assumed to be purchased with the
proceeds from the exercise of stock options under the treasury stock method.
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In October 2001, the Company issued $201.3 million aggregate principal amount of 51/2% subordinated
convertible notes due in 2008 (the Convertible Notes). The calculation of diluted EPS is done on
an if-converted basis and without conversion of the Convertible Notes. If the calculation of
diluted EPS is more dilutive assuming conversion of the Convertible Notes, the after-tax interest
on the Convertible Notes is added to net earnings in the numerator and the shares into which the
Convertible Notes are convertible are added to the dilutive shares in the denominator. As
described in Note 10, the Company redeemed the Convertible Notes on October 18, 2004. For
purposes of the calculation of diluted EPS, the Convertible Notes are considered outstanding only
until the redemption date. In 2004, the Convertible Notes were anti-dilutive and were not
included within the computation of diluted EPS. A reconciliation of the numerators and
denominators for the basic and diluted EPS computations is as follows:
 2006
    
    2005
    
    2004(In thousands, except per share
    
    
    
    
    
    
    
    
    
    Per - Share
    
    
    
    
    
    
    
    
    
    Per - Share
    
    
    
    
    
    
    
    
    
    Per - Shareamounts)
    
    Net Earnings
    
    Shares
    
    Amount
    
    Net Earnings
    
    Shares
    
    Amount
    
    Net Earnings
    
    Shares
    
    AmountAmounts reported for basic EPS
    
    $
    42,900
    
    
    
    34,348
    
    
    $
    1.25
    
    
    $
    41,764
    
    
    
    43,233
    
    
    $
    0.97
    
    
    $
    26,558
    
    
    
    46,398
    
    
    $
    0.57Dilutive effect of equity awards
    
    
    
    
    
    
    421
    
    
    
    
    
    
    
    
    
    
    
    562
    
    
    
    
    
    
    
    
    
    
    
    783Amounts reported for diluted EPS
    
    $
    42,900
    
    
    
    34,769
    
    
    $
    1.23
    
    
    $
    41,764
    
    
    
    43,795
    
    
    $
    0.95
    
    
    $
    26,558
    
    
    
    47,181
    
    
    $
    0.56
 Options to purchase approximately 2.1 million shares outstanding at December 30, 2006 were
excluded from the computation of diluted EPS because of their anti-dilutive effect on EPS for 2006.
The exercise prices of these options ranged from $28.02 to $41.15. Options to purchase
approximately 1.5 million shares outstanding at December 31, 2005 were excluded from the
computation of diluted EPS because of their anti-dilutive effect on EPS for 2005. The exercise
prices of these options ranged from $29.40 to $41.15. Options to purchase approximately 2.8 million
shares outstanding at January 1, 2005 were excluded from the computation of diluted EPS because of
their anti-dilutive effect on EPS for 2004. The exercise prices of these options ranged from $25.18
to $41.15.7.
    
    Receivables FacilityIn 2001, the Company entered into a receivables purchase facility (the Receivables Facility)
under which PFG Receivables Corporation, a wholly owned, special-purpose subsidiary, sold an
undivided interest in certain of the Companys trade receivables. PFG Receivables Corporation was
formed for the sole purpose of buying receivables generated by certain of the Companys operating
units and selling an undivided interest in those receivables to a financial institution. Under the
Receivables Facility, certain of the Companys operating units sell their accounts receivable to
PFG Receivables Corporation, which in turn, subject to certain conditions, may from time to time
sell an undivided interest in these receivables to a financial institution. The Companys
operating units continue to service the receivables on behalf of the financial institution at
estimated market rates. Accordingly, the Company has not recognized a servicing asset or
liability.The Company received $78.0 million of proceeds from the sale of the undivided interest in
receivables under the Receivables Facility in 2001 and has continued to securitize its accounts
receivable. Under the original terms of the Receivables Facility, the amount of the undivided
interest in the receivables owned by the financial institution could not exceed $90.0 million at
any one time. In June 2003, the Company increased the amount of the undivided interest in the
receivables that can be owned by the financial institution to $165.0 million. In July 2003, the
Company sold an incremental undivided interest in receivables under the Receivables Facility and
received an additional $32.0 million of proceeds, and in 2004, the Company sold an additional
undivided interest in receivables under the Receivables Facility and received an additional $20.0
million of proceeds. These proceeds were used to repay borrowings under the Companys revolving
credit facility and to fund working capital needs. In June 2006, the Company extended the term of
the Receivables Facility through June 25, 2007.At December 30, 2006, securitized accounts receivable totaled $250.8 million, including $130.0
million sold to the financial institution and derecognized from the consolidated balance sheet.
Total securitized accounts receivable includes the Companys residual interest in accounts
receivable (Residual Interest) of $120.8 million. At December 31, 2005, securitized accounts
receivable totaled $237.1 million, including $130.0 million sold to the financial institution and
derecognized from the consolidated balance sheet and the Residual Interest of $107.1 million. The
Residual Interest represents the Companys retained interest in receivables held by PFG Receivables
Corporation. The Residual Interest was measured using the estimated discounted cash flows of the
underlying accounts receivable based on estimated collections and a discount rate approximately
equivalent to the Companys incremental borrowing rate. The loss on sale of the undivided interest
in receivables of $7.4 million, $5.2 million and $2.4 million in 2006, 2005 and 2004, respectively,
is included in other expense, net, in the consolidated statements of earnings and represents the
Companys cost of securitizing those receivables with the financial institution.The Company records the sale of the undivided interest in accounts receivable to the financial
institution in accordance with SFAS No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. Accordingly,
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at the time the undivided interest in
receivables is sold, the receivables are removed from the Companys consolidated balance sheet.
The Company records a loss on the sale of the undivided interest in these receivables, which
includes a discount, based upon the receivables credit quality and a financing cost for the
financial institution, based upon a 30-day commercial-paper rate. At December 30, 2006, the rate
under the Receivables Facility was 5.7% per annum.The key economic assumptions used to measure the Residual Interest at December 30, 2006 were a
discount rate of 6% and an estimated life of approximately 1.5 months. At December 30, 2006, an
immediate adverse change in the discount rate and estimated life of 10% and 20%, with other factors
remaining constant, would reduce the fair value of the Residual Interest with a corresponding
increase in the loss on sale of receivables but would not have a material impact on the Companys
consolidated financial position or results of operations.8.
    
    Concentration of Sales and Credit RiskTwo of the Companys Customized segment customers, Outback Steakhouse (Outback) and CRBL Group
(Cracker Barrel), account for a significant portion of the Companys consolidated net sales. Net
sales to Outback accounted for approximately 13% of consolidated net sales for both 2006 and 2005
and 14% of the Companys consolidated net sales for 2004. Net sales to Cracker Barrel accounted
for approximately 11% of consolidated net sales for each of 2006, 2005 and 2004. At both December
30, 2006 and December 31, 2005, amounts receivable from Outback represented 12% of consolidated
gross trade accounts receivable. Amounts receivable from Cracker Barrel represented less than 10%
of consolidated gross trade accounts receivable at both December 30, 2006 and December 31, 2005.Financial instruments that potentially expose the Company to concentrations of credit risk consist
primarily of trade accounts receivable. The remainder of the Companys customer base includes a
large number of individual restaurants, national and regional chain restaurants and franchises and
other institutional customers. The credit risk associated with accounts receivable is minimized by
the Companys large customer base and ongoing control procedures that monitor customers
creditworthiness.9.
    
    Property, Plant and EquipmentProperty, plant and equipment as of December 30, 2006 and December 31, 2005 consisted of the
following:
 (In thousands)
    
    2006
    
    2005
    
    Range of LivesLand
    
    $
    15,783
    
    
    $
    15,783Buildings and building improvements
    
    
    232,374
    
    
    
    216,422
    
    
    15  39 yearsTransportation equipment
    
    
    10,144
    
    
    
    11,667
    
    
    7  12 yearsWarehouse and plant equipment
    
    
    50,753
    
    
    
    49,400
    
    
    3  10 yearsOffice equipment, furniture and fixtures
    
    
    66,902
    
    
    
    56,884
    
    
    3  10 yearsLeasehold improvements
    
    
    21,478
    
    
    
    2,870
    
    
    Lease termConstruction-in-process
    
    
    26,910
    
    
    
    17,961424,344
    
    
    
    370,987Less:
accumulated depreciation and amortization
    
    
    (132,397
    )
    
    
    (115,171
    )Property, plant and equipment, net
    
    $
    291,947
    
    
    $
    255,816
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10.
    
    Long-term DebtLong-term debt as of December 30, 2006 and December 31, 2005
consisted of the following:
 (In thousands)
    
    2006
    
    2005Industrial Revenue Bonds
    
    $
    2,642
    
    
    $
    3,138Other notes payable
    
    
    605
    
    
    
    685Long-term debt
    
    
    3,247
    
    
    
    3,823Capital lease obligation
    
    
    9,000
    
    
    
    Total long-term debt
    
    
    12,247
    
    
    
    3,823Less: current installments
    
    
    (583
    )
    
    
    (573
    )Total
long-term debt, excluding current installments
    
    $
    11,664
    
    
    $
    3,250
 Credit FacilityOn October 7, 2005, the Company entered into a Second Amended and Restated Credit Agreement (the
Credit Agreement) that provides the Company with up to $400 million in borrowing capacity, with a
$100 million sublimit for letters of credit, under a senior revolving credit facility that expires
on October 7, 2010 (the Credit Facility). The Company has the right, without the consent of the
lenders, to increase the total amount of the facility to $600 million. Borrowings under the Credit
Agreement bear interest, at the Companys option, at the Base Rate (defined as the greater of the
Administrative Agents prime rate or the overnight federal funds rate plus 0.50%) or LIBOR plus a
spread of 0.50% to 1.25%. The Credit Agreement also provides for a fee ranging between 0.125% and
0.225% of unused commitments. The Credit Agreement requires the maintenance of certain financial
ratios, as described in the Credit Agreement, and contains customary events of default. At
December 30, 2006, the Company had no borrowings outstanding, $48.1 million of letters of credit
outstanding and $351.9 million available under the Credit Facility, subject to compliance with
customary borrowing conditions.Industrial Revenue BondsIn 1997 and 1999, prior to its acquisition by the Company, Middendorf Meat issued tax-exempt
private activity revenue bonds totaling $3.7 million and $2.0 million, respectively. Payments on
these bonds are due monthly through June 2011. These bonds bear interest at fixed rates of 6.69%
and 7.14% per annum, respectively. At December 30, 2006, the Company had a total of $2.6 million
outstanding under these bonds. Subsequent to the balance sheet date, the Company paid off the
remaining principal balance on these bonds. See Note 20 for additional detail.Convertible NotesOn October 18, 2004, the Company redeemed all of its $201.3 million aggregate principal amount of
51/2% convertible subordinated notes due in 2008. The Company paid the registered holders of the
Convertible Notes the redemption price of 103.1429% of the $201.3 million principal amount of the
Convertible Notes plus accrued but unpaid interest. The Company recorded a loss on the early
redemption of the Convertible Notes of $10.1 million, which consisted of the redemption premium and
the write-off of unamortized debt issuance costs. This loss is included in other expense, net, on
the consolidated statement of earnings. The Company funded the redemption of the Convertible Notes
with additional borrowings under its then existing revolving credit facility.Senior NotesIn 1998, the Company issued $50.0 million of unsecured 6.77% Senior Notes due in May 2010 in a
private placement. On June 28, 2005, the Company redeemed all of the Senior Notes with a portion
of the proceeds from the sale of its fresh-cut segment.
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Maturities of long-term debt, excluding capital lease obligation, are as follows:
 (In thousands)2007
    
    $
    5832008
    
    
    6242009
    
    
    6672010
    
    
    7152011
    
    
    351Thereafter
    
    
    307Total long-term debt, excluding capital lease
obligation
    
    $
    3,247
 Capital Lease ObligationIn 2006, the Company entered into a lease at one of its Broadline operating companies that is being
accounted for as a capital lease in accordance with SFAS No. 13, Accounting for Leases; as such the
present value of the minimum lease payments was recorded as a liability and corresponding asset,
which is included in property, plant and equipment on the consolidated balance sheet. The present
value of the minimum lease payments at lease inception was
$9.0 million and total
interest expense over the life of the lease will be approximately $20.5 million. As of December 30, 2006, the future
minimum lease payments under the capital lease, including interest payments, were $0.8 million in
2007, $0.9 million in each of 2008, 2009, 2010 and 2011 and $23.9 million thereafter, which
includes $9.0 million of principal; as such, the capital lease obligation is classified as a
non-current liability at December 30, 2006.11.
    
    Fair Value of Financial InstrumentsFor both continuing and discontinued operations, the carrying value of cash and cash equivalents,
accounts receivable, outstanding checks in excess of deposits, trade accounts payable and accrued
expenses approximate their fair values due to the relatively short maturities of those instruments.
The carrying value of the Companys floating-rate, long-term debt and the value of its Receivables
Facility not recorded on the Companys consolidated balance sheets approximate fair value due to
the variable nature of their interest rates. The Companys Residual Interest in the Receivables
Facility is recorded using the estimated discounted cash flows of the underlying accounts
receivable, based on estimated collections and a discount rate approximately equivalent to the
Companys incremental borrowing rate. Therefore, the carrying amount of the Residual Interest
approximates fair value. See Note 7 for more information about the Receivables Facility.12.
    
    LeasesThe Company leases various warehouse and office facilities and certain equipment under long-term
operating lease agreements that expire at various dates. The Company expenses operating lease
costs, including any rent increases, rent holidays or landlord concessions, on a straight-line
basis over the lease term. At December 30, 2006, the Company is obligated under non-cancelable
operating lease agreements to make future minimum lease payments as follows:
 (In thousands)2007
    
    $
    34,5422008
    
    
    30,3882009
    
    
    26,1442010
    
    
    20,2372011
    
    
    16,430Thereafter
    
    
    104,614Total minimum lease
payments
    
    $
    232,355
 Total rent expense for operating leases in 2006, 2005 and 2004 was $48.3 million, $53.6 million
and $49.8 million, respectively.The Company has residual value guarantees to its lessors under certain of its operating leases.
These leases and related guarantees are discussed in Note 18. These residual value guarantees are
not included in the above table of future minimum lease payments.
 57




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13.
    
    Income TaxesIncome tax expense consisted of the following:
 (In thousands)
    
    2006
    
    2005
    
    2004Current:Federal
    
    $
    25,063
    
    
    $
    18,674
    
    
    $
    13,961State
    
    
    5,145
    
    
    
    3,385
    
    
    
    1,92930,208
    
    
    
    22,059
    
    
    
    15,890Deferred:Federal
    
    
    (2,986
    )
    
    
    3,449
    
    
    
    1,868State
    
    
    (1,580
    )
    
    
    (180
    )
    
    
    (977
    )(4,566
    )
    
    
    3,269
    
    
    
    891Total income tax expense
    
    $
    25,642
    
    
    $
    25,328
    
    
    $
    16,781
 The Companys effective income tax rates for continuing operations for 2006, 2005 and 2004 were
37.4%, 37.8% and 38.7%, respectively. Actual income tax expense differs from the amount computed
by applying the applicable U.S. federal corporate income tax rate of 35% to earnings before income
taxes as follows:
 (In thousands)
    
    2006
    
    2005
    
    2004Federal income taxes computed at statutory rate
    
    $
    23,990
    
    
    $
    23,482
    
    
    $
    15,169Increase (decrease) in income taxes resulting from:State income taxes, net of federal income tax benefit
    
    
    1,879
    
    
    
    1,820
    
    
    
    1,228Non-deductible expenses
    
    
    1,198
    
    
    
    224
    
    
    
    593Tax credits
    
    
    (1,338
    )
    
    
    (332
    )
    
    
    (379
    )Change in valuation allowance for deferred tax assets
    
    
    (216
    )
    
    
    139
    
    
    
    1,076Other, net
    
    
    129
    
    
    
    (5
    )
    
    
    (906
    )Total income tax expense
    
    $
    25,642
    
    
    $
    25,328
    
    
    $
    16,781
 Deferred income taxes are recorded based upon the tax effects of differences between the financial
statement and tax bases of assets and liabilities and available tax loss and credit carry-forwards.
Temporary differences and carry-forwards that created significant deferred tax assets and
liabilities at December 30, 2006 and December 31, 2005, were as follows:
 (In thousands)
    
    2006
    
    2005Deferred tax assets:Allowance for doubtful accounts
    
    $
    2,853
    
    
    $
    2,900Inventories
    
    
    5,673
    
    
    
    3,198Accrued employee benefits
    
    
    7,951
    
    
    
    5,142Self-insurance reserves
    
    
    3,868
    
    
    
    4,766Deferred income
    
    
    2,841
    
    
    
    1,039Net
operating loss carry-forwards
    
    
    3,816
    
    
    
    3,347Tax credit
carry-forwards
    
    
    247
    
    
    
    268Other accrued expenses
    
    
    4,665
    
    
    
    2,750Total gross deferred tax assets
    
    
    31,914
    
    
    
    23,410Less: Valuation allowance
    
    
    (999
    )
    
    
    (1,215
    )Total net deferred tax assets
    
    
    30,915
    
    
    
    22,195Deferred tax liabilities:Property, plant and equipment
    
    
    16,704
    
    
    
    14,870Basis difference in intangible assets
    
    
    35,347
    
    
    
    30,928Other
    
    
    4,285
    
    
    
    6,384Total deferred tax liabilities
    
    
    56,336
    
    
    
    52,182Net deferred tax liability
    
    $
    25,421
    
    
    $
    29,987
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The net deferred tax liability is presented in the December 30, 2006 and December 31, 2005
consolidated balance sheets as follows:
 (In thousands)
    
    2006
    
    2005Current deferred tax asset
    
    $
    23,161
    
    
    $
    13,412Non-current deferred tax
liability
    
    
    48,582
    
    
    
    43,399Net deferred tax liability
    
    $
    25,421
    
    
    $
    29,987
 The state income tax credit carry-forwards expire in years 2018 through 2021. The net operating
loss carry-forwards expire in years 2007 through 2026. In 2006, the Company reduced the valuation
allowance against state net operating loss carry-forwards by $0.2 million. The Company believes
that it is more likely than not that the net deferred tax assets will be realized.14.
    
    Shareholders EquityShareholders Rights PlanIn 1997, the Companys board of directors approved a shareholders rights plan. A dividend of one
stock purchase right (a Right) per common share was distributed to shareholders of record.
Common shares issued subsequent to the adoption of the rights plan automatically have Rights
attached to them. Under certain circumstances, each Right entitles the shareholders to
one-hundredth of one share of preferred stock, par value $.01 per share, at an initial exercise
price of $50 per Right. The Rights will be exercisable only if a person or group acquires 20% or
more of the Companys outstanding common stock. Until the Rights become exercisable, they have no
dilutive effect on the Companys net earnings per common share. The Company can redeem the
Rights, which are non-voting, at any time prior to the Rights becoming exercisable at a redemption
price of $.001 per Right. The Rights will expire in May 2007, unless redeemed earlier or extended
by the Company.Share Repurchase and RetirementIn 2006, the Company completed purchases under its $100 million repurchase program announced in
August 2005, resulting in the repurchase of approximately 1.5 million additional shares of its common stock at
prices ranging from $25.93 to $29.61, for a total purchase price of $39.6 million, including
transaction costs.In 2005, with the proceeds generated from the sale of the companies comprising its former fresh-cut
segment, the Company repurchased approximately 12.2 million shares of its common stock at prices
ranging from $27.55 to $30.17, for a total purchase price of $361.7 million, including transaction
costs.15.
    
    Retirement PlansThe Company sponsors the Performance Food Group Company Employee Savings and Stock Ownership Plan
(the Savings Plan). The Savings Plan consists of three components: a leveraged employee stock
ownership plan (the ESOP), a defined contribution plan covering substantially all full-time
employees (the 401(k) Plan) and a profit sharing plan (the Profit Sharing Plan).In 1988, the ESOP acquired approximately 3.6 million shares of the Companys common stock from
existing shareholders, financed with assets transferred from predecessor plans and the proceeds of
a note payable to a commercial bank (the ESOP Loan). During 2003, the Company made its final
loan payment on the 15-year ESOP Loan and the final allocation of shares were released from the
trust. The ESOP will continue to maintain participant balances.Employees participating in the 401(k) Plan may elect to contribute between 1% and 50% of their
qualified compensation, up to a maximum dollar amount as specified by the provisions of the
Internal Revenue Code. In 2006, 2005 and 2004, the Company matched employee contributions as
follows: 200% of the first 1%, 100% of the next 1% and 50% of the next 2%, for a total match of 4%.
A portion of this match, 50% of the first 1% of employee contributions, was made by the Company in
shares of its common stock instead of in cash. Matching contributions totaled $9.1 million, $8.4
million and $7.5 million in 2006, 2005 and 2004, respectively. The Company, at the discretion of
its Board of Directors, may make additional contributions to the 401(k) Plan. The Company made no
discretionary contributions under the 401(k) Plan in 2006, 2005 or 2004.
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In 2004, the Company added the Profit Sharing Plan to the Savings Plan. The Company makes
contributions to the Profit Sharing Plan based on the Companys performance. The Profit Sharing
Plans requirements for eligibility, allocation methodology, and vesting requirements are
structured similar to the ESOP. The contributions are at the discretion of the Board of Directors
and will be made in the Companys common stock. The Company expensed approximately $0.7 million,
$0.4 million and $0.6 million in 2006, 2005 and 2004, respectively, associated with this plan.In 2004, the Company implemented a non-qualified Supplemental Executive Retirement Plan (SERP)
covering certain key executives. Under the plan, the Company will make defined contributions to
the SERP based on the participants qualified compensation and the Companys performance.
Annually, the Companys Board of Directors determines the appropriate performance threshold. In
2006, 2005 and 2004, the Company recorded expense of $0.3 million, $0.5 million and $0.4 million,
respectively, related to the SERP.16.
    
    Stock Based CompensationPrior to January 1, 2006, the Company accounted for its stock incentive plans and the Performance
Food Group Employee Stock Purchase Plan (the Stock Purchase Plan) using the intrinsic value
method of accounting provided under the Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees(APB 25), and related interpretations, as permitted by SFAS No. 123,
Accounting for Stock-Based Compensation(SFAS 123), under which no compensation expense was
recognized for stock option grants and issuances of stock pursuant to the Stock Purchase Plan.
Share-based compensation was a pro forma disclosure in the financial statement footnotes and
continues to be provided for periods prior to fiscal 2006.Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123(R)
using the modified-prospective transition method. Under this transition method, compensation cost
recognized in fiscal 2006 includes: 1) compensation cost for all share-based payments granted
through December 31, 2005, but for which the requisite service period had not been completed as of
December 31, 2005, based on the grant date fair value estimated in accordance with the original
provisions of SFAS 123 and 2) compensation cost for all share-based payments granted subsequent to
December 31, 2005, based on the grant date fair value estimated in accordance with the provisions
of SFAS 123(R). Results for prior years have not been restated.On February 22, 2005, the Compensation Committee of the Companys Board of Directors voted to
accelerate the vesting of certain unvested options to purchase approximately 1.8 million shares of
the Companys common stock held by certain employees and officers under the 1993 Employee Stock
Incentive Plan (the 1993 Plan) and the 2003 Equity Incentive Plan (the 2003 Plan), which had
exercise prices greater than the closing price of the Companys common stock on February 22, 2005.
These options were accelerated such that upon the adoption of SFAS 123(R), effective January 1,
2006, the Company would not be required to incur any compensation cost related to the accelerated
options. The Company believes this decision was in the best interest of the Company and its
shareholders. This acceleration resulted in the Company not being required to recognize any
compensation cost in its consolidated statement of earnings for the fiscal year ended December 31,
2005, as all stock options that were accelerated had exercise prices that were greater than the
market price of the Companys common stock on the date of modification; however, the Company was
required to recognize all unvested compensation cost in its pro forma SFAS 123 disclosure in the
period of acceleration. The pro forma expense of the acceleration was approximately $7.3 million,
net of tax, which represents all future compensation expense of the accelerated stock options on
February 22, 2005, the date of modification.The Company provides compensation benefits to employees and non-employee directors under several
share-based payment arrangements, including the 2003 Plan and the Stock Purchase Plan.Stock Option and Incentive PlansIn May 2003, the 2003 Plan was approved by shareholders. The 2003 Plan replaced the 1993 Plan and
the Directors Plan, defined below. The 2003 Plan set aside approximately 2,325,000 shares of the
Companys common stock, including an aggregate of approximately 125,000 shares carried over from
the 1993 Plan and the Directors Plan, defined below.The 2003 Plan provides for the award of equity-based incentives to officers, key employees,
directors and consultants of the Company. Awards under the 2003 Plan may be in the form of stock
options, stock appreciation rights, restricted stock, deferred stock, stock purchase rights or
other stock-based awards. Stock options granted under the 2003 Plan have an exercise price equal to
the market price of the Companys common stock at the date of grant. The stock options granted
under the 2003 Plan typically have terms of 10 years and vest four years from the date of grant. At
December 30, 2006, approximately 1,302,000 options were outstanding under the 2003 Plan,
approximately 928,000 of which were exercisable. Restricted stock is granted under the 2003 Plan
and typically vests four years from the date of grant. Approximately 443,000 and 199,000 shares of
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restricted stock were issued but unvested at December 30, 2006 and December 31, 2005, respectively.
No restricted shares were issued prior to 2005. The expense associated with stock options and
restricted stock is recognized ratably over the vesting period, less expected forfeitures.
Approximately $1.3 million of stock compensation expense was recognized in the consolidated
statement of earnings in 2006 for stock option grants and $2.8 million and $1.0 million in 2006 and
2005, respectively, for restricted stock grants. There was no stock compensation expense recognized
in the consolidated statement of earnings in 2005 and 2004 for stock option grants, or in 2004 for
restricted stock grants. The Company has not made any grants of other stock based awards under the
2003 Plan.The Company also sponsored the 1993 Outside Directors Stock Option Plan (the Directors Plan). A
total of 210,000 shares were authorized for issuance under the Directors Plan. The Directors Plan
provided for an initial grant to each non-employee member of the board of directors of 10,500
options and an annual grant of 5,000 options at the current market price on the date of grant. As
discussed above, in May 2003 the Directors Plan was replaced by the 2003 Plan. Options granted
under the Directors Plan have an exercise price equal to the market price of the Companys common
stock on the grant date, vest one year from the date of grant and have terms of 10 years from the
grant date. At December 30, 2006, approximately 101,000 options were outstanding under the
Directors Plan, all of which were exercisable.The 1993 Plan provided for the award of up to 5,650,000 shares of equity based incentives to
officers, key employees and consultants of the Company. As discussed above, in May 2003 the 1993
Plan was replaced by the 2003 Plan. Stock options granted under the 1993 Plan have an exercise
price equal to the market price of the Companys common stock at the grant date. The stock options
granted under the 1993 Plan have terms of 10 years and vest four years from the date of grant. At
December 30, 2006, approximately 1,460,000 options were outstanding under the 1993 Plan,
approximately 1,435,000 of which were exercisable.A summary of the Companys stock option activity for the year ended December 30, 2006 is as
follows:
 2006WeightedAverage Exercise(In thousands, except per share data)
    
    Shares
    
    PriceOutstanding at beginning of period
    
    
    3,149
    
    
    $
    26.16Granted
    
    
    207
    
    
    
    29.99Exercised
    
    
    (334
    )
    
    
    12.55Canceled
    
    
    (159
    )
    
    
    31.46Outstanding at end of period
    
    
    2,863
    
    
    $
    27.75Vested or expected to vest at end of period(1)
    
    
    2,843
    
    
    $
    27.74Options exercisable at end of period
    
    
    2,464
    
    
    $
    27.50
 (1)
    
    Total outstanding less expected
forfeitures At December 30, 2006, the weighted average remaining contractual term for stock options
vested or expected to vest and stock options exercisable was 5.5 and 5.1 years, respectively. At
December 30, 2006, the aggregate intrinsic value for stock options vested or expected to vest and
stock options exercisable was $9.9 million and $9.8 million, respectively. Stock options exercised
during 2006, 2005 and 2004 had total intrinsic values of $5.7 million, $8.8 million and $13.4
million, respectively.The following table summarizes information about stock options outstanding at December 30, 2006:
 (Number of shares in thousands)
    
    
    
    
    
    Options Outstanding
    
    Options ExercisableWeightedAverage
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    Weighted AverageShares Unexercised
    
    Contractual
    
    Exercise
    
    Exercisable at
    
    ExerciseRange of Exercise Prices
    
    at Dec. 30, 2006
    
    Life in Years
    
    Price
    
    Dec. 30, 2006
    
    Price$9.06
    
    -
    
    $
    18.44
    
    
    
    593
    
    
    
    2.46
    
    
    $
    11.66
    
    
    
    593
    
    
    $
    11.6621.97
    
    -
    
    
    28.48
    
    
    
    678
    
    
    
    5.99
    
    
    
    27.48
    
    
    
    468
    
    
    
    27.5128.91
    
    -
    
    
    31.82
    
    
    
    574
    
    
    
    6.95
    
    
    
    31.40
    
    
    
    415
    
    
    
    31.4632.05
    
    -
    
    
    34.58
    
    
    
    584
    
    
    
    6.80
    
    
    
    34.01
    
    
    
    554
    
    
    
    34.0835.07
    
    -
    
    
    41.15
    
    
    
    434
    
    
    
    5.48
    
    
    
    36.95
    
    
    
    434
    
    
    
    36.95$9.06
    
    -
    
    $
    41.15
    
    
    
    2,863
    
    
    
    5.54
    
    
    $
    27.75
    
    
    
    2,464
    
    
    $
    27.50
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A summary of the Companys restricted stock activity for the 2006 period is as follows:
 2006Weighted AverageGrant Date(In thousands, except per share
data)
    
    Shares
    
    Fair ValueNon-vested at beginning of period
    
    
    199
    
    
    $
    28.19Awarded
    
    
    279
    
    
    
    30.93Vested
    
    
    (12
    )
    
    
    28.31Forfeited
    
    
    (23
    )
    
    
    29.29Non-vested at end of period
    
    
    443
    
    
    $
    29.85
 The fair value of each option award is estimated as of the date of grant using a Black-Scholes
option pricing model. Expected volatility is based on historical volatility of the Companys
common stock. The Company utilizes historical data to estimate expected terms of stock options;
separate groups of employees that have similar historical exercise behavior are considered
separately for valuation purposes. The risk-free rate for the expected term of the option is based
on the U.S. Treasury yield curve in effect at the time of grant. The weighted average assumptions
for the periods indicated were as follows:
 2006
    
    2005
    
    2004Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    38.3
    %
    
    
    38.1
    %
    
    
    41.6
    %Risk-free interest rate
    
    
    4.9
    %
    
    
    4.0
    %
    
    
    3.2
    %Expected term (in years)
    
    
    8.3
    
    
    
    8.0
    
    
    
    6.5Weighted average grant date fair value
of stock options
    
    $
    15.99
    
    
    $
    13.99
    
    
    $
    15.92Weighted average grant date fair value
of restricted stock
    
    $
    30.93
    
    
    $
    28.18
    
    
    
    
 Employee Stock Purchase PlanThe Company maintains the Stock Purchase Plan, which permits eligible employees to invest, through
periodic payroll deductions, in the Companys common stock. For the purchase period from January
15, 2006 to July 14, 2006, and all prior purchase periods, the purchase price was 85% of the
lesser of the market price on the last day of the purchase period or average market price, as
defined in the plan document. The Company amended the plan effective for the period beginning July
15, 2006 such that the purchase price was equal to 85% of the market price on the last day of the
purchase period. The Company is authorized to issue 1,725,000 shares under the Stock Purchase
Plan, of which approximately 409,000 shares remained available at December 30, 2006. Purchases
under the Stock Purchase Plan are made twice a year on January 15th and July
15th. Shares purchased under the Stock Purchase Plan totaled approximately 177,000,
247,000 and 228,000 during 2006, 2005 and 2004, respectively, and the grant date weighted average
fair values of the right to purchase a share of common stock under the Stock Purchase Plan were
estimated to be $4.56, $5.24 and $5.43, respectively. As a result of SFAS 123(R), stock
compensation expense recognized in the consolidated statement of earnings was approximately $0.8
million in 2006 for the Stock Purchase Plan. There was no stock compensation cost recognized in
the consolidated statements of earnings in 2005 or 2004 for the Stock Purchase Plan.All Share-Based Compensation PlansThe total share-based compensation cost recognized in operating expenses in the consolidated statements of earnings in 2006 and 2005 was $4.9 million and $1.0 million,
respectively, which represents the expense associated with our stock options, restricted stock and
shares purchased under the Stock Purchase Plan. There was no share-based compensation cost
recognized in 2004.At December 30, 2006, there was approximately $4.1 million and $8.3 million of total unrecognized
compensation cost related to unvested stock options and restricted stock, respectively, which will
be recognized over the remaining weighted average vesting periods of 3.0 and 2.8 years,
respectively.
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Pro Forma Net Earnings
  (In thousands)
    
    2005
    
    2004Net earnings, as reported
    
    $
    247,138
    
    
    $
    52,558Add: Stock-based compensation included in net
earnings, net of related tax effects
    
    
    621
    
    
    
    228Deduct: Total stock-based employee compensation
expense determined under the fair value based
method for all awards, net of related tax effects
(includes approximately $7.3 million in 2005
related to the accelerated vesting of certain
awards)
    
    
    (10,328
    )
    
    
    (8,424
    )Pro forma net earnings
    
    $
    237,431
    
    
    $
    44,362Net earnings per common share:Basic  as reported
    
    $
    5.72
    
    
    $
    1.13Basic  pro forma
    
    $
    5.49
    
    
    $
    0.96Diluted  as reported
    
    $
    5.64
    
    
    $
    1.11Diluted  pro forma
    
    $
    5.42
    
    
    $
    0.95
 As a result of adopting SFAS 123(R) on January 1, 2006, the Companys earnings before income taxes
and net earnings for 2006 were $2.1 million and $1.3 million lower, respectively, and basic EPS
and diluted EPS for 2006 were both $0.04 lower than if the Company had continued to account for
share-based compensation under APB 25.The adoption of SFAS 123(R) resulted in a modification of the treasury stock method calculation
utilized to compute the dilutive effect of stock options. Under SFAS 123(R), the amount of
compensation cost attributed to future services and not yet recognized and the amount of tax
benefits that would be credited to shareholders equity assuming exercise of outstanding stock
options is included in the determination of proceeds under the treasury stock method.Prior to the adoption of SFAS 123(R), in accordance with SFAS No. 95, Statement of Cash Flows,the
Company presented all tax benefits resulting from the exercise of stock options as operating cash
flows in the consolidated statements of cash flows. In accordance with the requirements
of SFAS 123(R), the Company began presenting the tax benefit in excess of the tax benefit related
to the compensation cost incurred as financing activities in the consolidated statements of cash
flows during 2006.17.
    
    Supplemental Cash Flow InformationSupplemental disclosures of cash flow information for 2006, 2005 and 2004 are as follows:
 (In thousands)
    
    2006
    
    2005
    
    2004Cash paid during the year for:Interest  continuing operations
    
    $
    1,010
    
    
    $
    3,209
    
    
    $
    8,718Interest  discontinued operations
    
    $
    
    
    
    $
    3,551
    
    
    $
    8,515Income taxes, net of refunds  continuing operations
    
    $
    14,284
    
    
    $
    23,829
    
    
    $
    11,712Income taxes, net of refunds  discontinued operations
    
    $
    14
    
    
    $
    163,332
    
    
    $
    6,078Effects of companies acquired:Fair value of assets acquired
    
    $
    
    
    
    $
    3,917
    
    
    $
    4,650Fair value of liabilities assumed
    
    
    
    
    
    
    
    
    
    
    (1,164
    )Stock issued for acquisitions, net
    
    
    
    
    
    
    
    
    
    
    (400
    )Net cash paid for acquisitions
    
    $
    
    
    
    $
    3,917
    
    
    $
    3,086
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18.
    
    Commitments and ContingenciesThe Companys Broadline and Customized segments had outstanding contracts and purchase orders for
capital projects totaling $14.6 million and $1.4 million, respectively, at December 30, 2006.
Amounts due under these contracts were not included on the Companys consolidated balance sheet as
of December 30, 2006, in accordance with generally accepted accounting principles.The Company has entered into numerous operating leases, including leases of buildings, equipment,
tractors and trailers. In certain of the Companys leases of tractors, trailers and other vehicles
and equipment, the Company has provided residual value guarantees to the lessors. Circumstances
that would require the Company to perform under the guarantees include either (1) the Companys
default on the leases with the leased assets being sold for less than the specified residual
values in the lease agreements, or (2) the Companys decisions not to purchase the assets at the
end of the lease terms combined with the sale of the assets, with sales proceeds less than the
residual value of the leased assets specified in the lease agreements. The Companys residual
value guarantees under these operating lease agreements typically range between 4% and 20% of the
value of the leased assets at inception of the lease. These leases have original terms ranging
from two to eight years and expiration dates ranging from 2007 to 2013. As of December 30, 2006,
the undiscounted maximum amount of potential future payments under the Companys guarantees
totaled $7.6 million, which would be mitigated by the fair value of the leased assets at lease
expiration. The assessment as to whether it is probable that the Company will be required to make
payments under the terms of the guarantees is based upon the Companys actual and expected loss
experience. Consistent with the requirements of FASB Interpretation No. (FIN) 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others,the Company has recorded $80,000 of the $7.6 million of potential future
guarantee payments on its consolidated balance sheet as of December 30, 2006.In connection with the sale of its former fresh-cut segment, the Company remained obligated on a
guarantee of the future lease payments of one of the fresh-cut segment facilities that was sold to
Chiquita. The Company will be required to perform under the guarantee if Chiquita defaults on its
lease obligations. In connection with the sale of the former fresh-cut segment to Chiquita,
Chiquita assumed the Companys obligation under the guarantee and agreed to indemnify the Company
for any losses the Company suffers as a result of Chiquitas failure to perform its assumed
obligations. Consistent with the requirements of FIN 45, the Company has recorded an estimated
liability of $2.5 million in its consolidated financial statements as of December 30, 2006.
Subsequent to the balance sheet date, the Company entered into a substitution of collateral and
sale-leaseback transaction involving the property subject to the
guarantee and one of the Companys Broadline operating companys facilities. As a result, the Company was
released from the guarantee. For additional detail, see Note 20.In November 2003, certain of the former shareholders of PFG  Empire Seafood, a wholly owned
subsidiary which the Company acquired in 2001, brought a lawsuit against the Company in the
Circuit Court, Eleventh Judicial Circuit in Dade County, seeking unspecified damages and alleging
breach of their employment and earnout agreements. Additionally, the former shareholders seek to
have their non-compete agreements declared invalid. The Company intends to vigorously defend
itself and has asserted counterclaims against the former shareholders. The Company currently
believes that this lawsuit will not have a material adverse effect on the Companys consolidated
financial condition or results of operations.From time to time, the Company is involved in various legal proceedings and litigation arising in
the ordinary course of business. In the opinion of management, the outcome of such proceedings and
litigation currently pending will not have a material adverse effect on the Companys consolidated
financial condition or results of operations.19.
    
    Segment InformationThe Company markets and distributes food and non-food products to customers in the foodservice, or
food-away-from-home, industry. The Company has aggregated its subsidiaries into two segments, as
defined by SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information
(SFAS 131) based upon their respective economic characteristics. The Broadline segment markets
and distributes food and non-food products to both street and chain customers. The Customized
segment services family and casual dining chain restaurants nationwide and internationally. As
discussed in Note 3, the sale of the Companys fresh-cut segment was completed in 2005 and, as
such, it is accounted for as a discontinued operation. The accounting policies of the segments are
the same as those described in Note 2. Inter-segment sales represent sales between the segments,
which are eliminated in consolidation.Effective January 1, 2006, the Company realigned its management reporting structure. As a result,
certain functions and their related costs, assets and liabilities previously reported under the
Corporate segment are now reported under the Broadline segment in accordance with SFAS 131.The
Company has reclassified certain prior year amounts to conform with the current year segment
presentation, which resulted in reclassifications of operating expenses from the Corporate segment
to the
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Broadline segment of approximately $5.1 million and $4.3 million in 2005 and 2004, respectively,
which are reflected in the segment tables below.
 Corporate &(In thousands)
    
    Broadline
    
    Customized
    
    Intersegment
    
    Consolidated2006Net external sales
    
    $
    3,478,206
    
    
    $
    2,348,526
    
    
    $
    
    
    
    $
    5,826,732Inter-segment sales
    
    
    527
    
    
    
    212
    
    
    
    (739
    )
    
    
    Total sales
    
    
    3,478,733
    
    
    
    2,348,738
    
    
    
    (739
    )
    
    
    5,826,732Operating profit
    
    
    71,619
    
    
    
    30,736
    
    
    
    (27,245
    )
    
    
    75,110Interest expense (income)
    
    
    15,436
    
    
    
    5,864
    
    
    
    (19,568
    )
    
    
    1,732Loss (gain) on sale of
receivables
    
    
    9,937
    
    
    
    3,038
    
    
    
    (5,624
    )
    
    
    7,351Depreciation
    
    
    18,969
    
    
    
    6,294
    
    
    
    294
    
    
    
    25,557Amortization
    
    
    3,312
    
    
    
    
    
    
    
    
    
    
    
    3,312Capital expenditures
    
    
    48,206
    
    
    
    5,172
    
    
    
    310
    
    
    
    53,6882005
    
    (Reclassified)
    
    
    
    
    
    (Reclassified)Net external sales
    
    $
    3,480,793
    
    
    $
    2,240,579
    
    
    $
    
    
    
    $
    5,721,372Inter-segment sales
    
    
    653
    
    
    
    223
    
    
    
    (876
    )
    
    
    Total sales
    
    
    3,481,446
    
    
    
    2,240,802
    
    
    
    (876
    )
    
    
    5,721,372Operating profit
    
    
    71,723
    
    
    
    24,981
    
    
    
    (26,226
    )
    
    
    70,478Interest expense (income)
    
    
    16,998
    
    
    
    2,963
    
    
    
    (16,715
    )
    
    
    3,246Loss (gain) on sale of
receivables
    
    
    7,832
    
    
    
    2,849
    
    
    
    (5,525
    )
    
    
    5,156Depreciation
    
    
    17,341
    
    
    
    5,174
    
    
    
    303
    
    
    
    22,818Amortization
    
    
    3,562
    
    
    
    
    
    
    
    
    
    
    
    3,562Capital expenditures
    
    
    29,212
    
    
    
    48,252
    
    
    
    112
    
    
    
    77,5762004
    
    (Reclassified)
    
    
    
    
    
    (Reclassified)Net external sales
    
    $
    3,120,500
    
    
    $
    2,052,578
    
    
    $
    
    
    
    $
    5,173,078Inter-segment sales
    
    
    806
    
    
    
    302
    
    
    
    (1,108
    )
    
    
    Total sales
    
    
    3,121,306
    
    
    
    2,052,880
    
    
    
    (1,108
    )
    
    
    5,173,078Operating profit
    
    
    65,877
    
    
    
    21,538
    
    
    
    (23,735
    )
    
    
    63,680Interest expense (income)
    
    
    12,366
    
    
    
    747
    
    
    
    (4,839
    )
    
    
    8,274Loss (gain) on sale of
receivables
    
    
    7,845
    
    
    
    2,596
    
    
    
    (8,020
    )
    
    
    2,421Depreciation
    
    
    16,728
    
    
    
    4,355
    
    
    
    287
    
    
    
    21,370Amortization
    
    
    3,626
    
    
    
    
    
    
    
    
    
    
    
    3,626Capital expenditures
    
    
    19,053
    
    
    
    20,770
    
    
    
    812
    
    
    
    40,635
 Total assets by reportable segment and reconciliation to the consolidated balance sheets are
as follows:
 (In thousands)
    
    2006
    
    2005(Reclassified)Broadline
    
    $
    901,752
    
    
    $
    858,211Customized
    
    
    261,975
    
    
    
    250,397Corporate &
Intersegment
    
    
    193,781
    
    
    
    193,567Discontinued operations
    
    
    2,267
    
    
    
    10,115Total assets
    
    $
    1,359,775
    
    
    $
    1,312,290
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The sales mix for the Companys principal product and service categories is as follows
(unaudited):
 (In thousands)
    
    2006
    
    2005
    
    2004Center-of-the-plate
    
    $
    2,393,103
    
    
    $
    2,393,658
    
    
    $
    2,171,304Canned and dry groceries
    
    
    1,040,222
    
    
    
    1,006,854
    
    
    
    911,691Frozen foods
    
    
    1,003,986
    
    
    
    981,013
    
    
    
    864,829Refrigerated and dairy products
    
    
    576,892
    
    
    
    576,908
    
    
    
    537,363Paper products and cleaning supplies
    
    
    432,547
    
    
    
    417,375
    
    
    
    360,590Produce
    
    
    223,954
    
    
    
    198,337
    
    
    
    184,255Procurement, merchandising and other
services
    
    
    116,801
    
    
    
    107,115
    
    
    
    93,130Equipment and supplies
    
    
    39,227
    
    
    
    40,112
    
    
    
    49,916Total
    
    $
    5,826,732
    
    
    $
    5,721,372
    
    
    $
    5,173,078
 20.
    
    Subsequent EventsSale-leaseback TransactionIn January 2007, the Company entered into a substitution of collateral and sale-leaseback
transaction involving one of its Broadline operating facilities and one of the Companys former
fresh-cut segment operating facilities, as discussed in Note 18. This transaction resulted in the
Company being released from a guarantee of future lease payments on the former fresh-cut segment
facility that was sold to Chiquita, as discussed in Note 18. The Companys Broadline operating
facility was sold to a third party and leased back to the Company pursuant to a lease agreement
with an initial term expiring in 2026. This transaction resulted in a gain of approximately $2.9
million. Included within the gain is the $2.5 million liability that was established in connection
with the Companys guarantee. In accordance with SFAS No. 98, Accounting for Leases: Sale-Leaseback
Transactions Involving Real Estate, the gain will be amortized over the life of the lease.Bond RepaymentIn January 2007, the Company paid off the remaining principal balance outstanding on its Middendorf
Meat tax-exempt private activity revenue bonds. See Note 10 for further description of these
bonds.
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Report of Independent Registered Public Accounting Firm
 
   /s/ KPMG LLP 
 67




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PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
 
 VALUATION AND QUALIFYING ACCOUNTS
 (In thousands)
    
    Beginning Balance
    
    Additions(1)
    
    Deductions
    
    Ending BalanceAllowance for Doubtful AccountsJanuary 1, 2005
    
    $
    5,956
    
    
    $
    7,793
    
    
    $
    5,067
    
    
    $
    8,682December 31, 2005
    
    
    8,682
    
    
    
    8,415
    
    
    
    9,278
    
    
    
    7,819December 30, 2006
    
    
    7,819
    
    
    
    5,558
    
    
    
    6,413
    
    
    
    6,964
 
 (1)
    
    Includes provisions and recoveries 68