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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549
 
 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  Commission File No.: 0-22192 PERFORMANCE FOOD GROUP COMPANY 
  Tennessee
    
    54-0402940(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 12500 West Creek ParkwayRichmond, Virginia
    
    23238(Address of Principal
    
    (Zip Code)Executive Offices)
 Registrants telephone number, including area code:
(804) 484-7700 Securities registered pursuant to Section 12(b) of the Act:
None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value per share
Rights to Purchase Preferred Stock 
  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. þ
 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). þ
 The aggregate market value of the voting stock held by non-affiliates of the registrant on July 3, 2004 was $1,236,305,342. The
market value calculation was determined using the closing sale price of the registrants common stock on July 3, 2004 as reported
by the NASDAQ Stock Market. Shares of common stock outstanding on March 14, 2005 were 46,919,905. 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 18,
2005 are incorporated by reference into Items 10, 11, 12, 13 and
14.




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TABLE OF CONTENTS Forward-Looking Statements
    
    
    4Part IItem 1. Business
    
    
    4The Company and its Business Strategy
    
    
    4Growth Strategies
    
    
    5Customers and Marketing
    
    
    6Products and Services
    
    
    8Information Systems
    
    
    9Suppliers and Purchasing
    
    
    10Operations
    
    
    10Competition
    
    
    12Regulation
    
    
    12Intellectual Property
    
    
    13Employees
    
    
    13Executive Officers
    
    
    13Risk Factors
    
    
    14Item 2. Properties
    
    
    17Item 3. Legal Proceedings
    
    
    19Item 4. Submission of Matters to a Vote of Shareholders
    
    
    19Part IIItem 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    19Item 6. Selected Consolidated Financial Data
    
    
    21Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 8. Financial Statements and Supplementary Data
    
    
    37Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    38Item 9A. Controls and Procedures
    
    
    38Item 9B. Other Information
    
    
    39Part IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    39Item 11. Executive Compensation
    
    
    39Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    39Item 13. Certain Relationships and Related Transactions
    
    
    39Item 14. Principal Accountants Fees and Services
    
    
    39Part IVItem 15. Exhibits and Financial Statement Schedules
    
    
    40EX-10.35 TRUST AGREEMENTEX-21 LIST OF SUBSIDIARIESEX-23.1 CONSENT OF INDEPENDENT AUDITORSEX-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 Unless this Form 10-K indicates otherwise or the content otherwise requires, the terms we, our
or Performance Food Group as used in this Form 10-K refer to Performance Food Group Company and
its subsidiaries. References in this Form 10-K to the years 2005, 2004, 2003, 2002, 2001 and 2000
refer to our fiscal years ending or ended December 31, 2005, January 1, 2005, January 3, 2004,
December 28, 2002, December 29, 2001 and December 30, 2000, respectively, unless otherwise
expressly stated or the context otherwise requires. We use a 52/53-week fiscal year ending on the
Saturday closest to December 31. Consequently, we periodically have a 53-week fiscal year. Our
2003 fiscal year was a 53-week year. All share and per-share data have been adjusted to reflect
the two-for-one common stock split that we paid on April 30, 2001. The following discussion and
analysis should be read in conjunction with Selected Consolidated Financial Data and our
consolidated financial statements and the related notes included elsewhere in this Form 10-K. 
 Forward-Looking Statements This Form 10-K and the documents incorporated by reference herein contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements, which are based on assumptions and
estimates and describe our future plans, strategies and expectations, are generally identifiable by
the use of the words anticipate, will, believe, estimate, expect, intend, seek,
should or similar expressions. These forward-looking statements may address, among other things,
our anticipated earnings, capital expenditures, contributions to our net sales by acquired
companies, sales momentum, customer and product sales mix, expected efficiencies in our business
and our ability to realize expected synergies from acquisitions. These forward-looking statements
are subject to risks, uncertainties and assumptions. Important factors that could cause actual
results to differ materially from the forward-looking statements we make or incorporate by
reference in this Form 10-K are described under Risk Factors and in the documents incorporated by
reference herein. If one or more of these risks or uncertainties materialize, or if any underlying assumptions prove
incorrect, our actual results, performance or achievements may vary materially from future results,
performance or achievements expressed or implied by these forward-looking statements. All
forward-looking statements attributable to us or to persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements in this section. We undertake no
obligation to publicly update or revise any forward-looking statement to reflect future events or
developments. 
 PART I 
 Item 1. Business 
 The Company and its Business Strategy Performance Food Group, a Tennessee corporation, was founded in 1987 through the combination of
various foodservice businesses and has grown internally through increased sales to existing and new
customers and through acquisitions of existing businesses. Further discussion of acquisitions is
contained in Managements Discussion and Analysis of Financial Condition and Results of Operations
 Business Combinations. Performance Food Group is the nations third largest Broadline
foodservice distributor based on 2004 net sales. We market and distribute over 65,000 national and
proprietary brand food and non-food products to more than 44,000 customers. Our extensive product
line and distribution system allow us to service both of the major customer types in the
foodservice or food-away-from-home 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. In addition, we are a major processor of fresh-cut
produce that we market and distribute to retail and foodservice customers. In September 2004, we announced that we were considering strategic alternatives for our Fresh-cut
produce business. The alternatives we evaluated included, but were not limited to, the possible
sale of the segment as an ongoing business; the creation of a stand-alone company operating the
Fresh-cut produce business; and keeping the Fresh-cut segment as part of Performance Food Group.
We retained the services of Goldman, Sachs & Co. to assist us with our review. On February 22,
2005, we entered into a definitive agreement to sell the companies comprising our Fresh-cut segment
to Chiquita Brands International, Inc. While we expect the transaction to close in the second
quarter of 2005, its consummation is subject to the expiration of the waiting period under the
Hart-Scott-Rodino Act and other customary conditions. 3




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We service our customers through three operating segments. Note 20 to the consolidated financial
statements in this Form 10-K presents financial information for these segments. Broadline
Our Broadline distribution segment markets and distributes a total of more than 61,000
national and proprietary brand food and non-food products to more than 43,000 customers,
including street customers and certain corporate-owned and franchisee locations of chains
such as Burger King, Churchs, Compass, Popeyes and Subway. In the Broadline distribution
segment, we design our product mix, distribution routes and delivery schedules to accommodate
the needs of a large number of customers whose individual purchases vary in size. Generally,
Broadline distribution customers are located within 250 miles from one of our 19 Broadline
distribution facilities, which serve customers in the Eastern, Midwestern, Northeastern,
Southern and Southeastern United States. Customized
Our Customized distribution segment focuses on serving casual and family dining chain
restaurants such as Cracker Barrel Old Country Store, Inc., Outback Steakhouse, Inc., Ruby
Tuesday, Inc. and T.G.I. Fridays. We believe that these customers generally prefer a
centralized point of contact that facilitates item and menu changes, tailored distribution
routing and customer service. We generally can service these customers more efficiently than
our Broadline distribution customers because we warehouse only those stock keeping units, or
SKUs, specific to our Customized customers and we make larger, more consistent deliveries.
We have seven Customized distribution facilities located nationwide. Customized services 15
restaurant chains nationwide and four restaurant chains internationally. Fresh-cut
Our Fresh-cut segment purchases, processes, packages and distributes a variety of packaged,
ready-to-eat salads and other fresh-cut produce nationwide from seven processing/distribution
facilities and two distribution facilities located throughout the United States. Fresh-cut
distributes about 300 different Fresh Express® label products nationwide to food retailers
such as Albertsons, Food Lion, Kroger, Safeway and Wal-Mart, as well as to foodservice
distributors, operators and quick-service restaurants. The segment also distributes over 500
fresh produce foodservice offerings, primarily to third-party distributors for resale mainly
to quick-service restaurants located throughout the United States such as McDonalds, KFC,
Pizza Hut, Subway and Taco Bell. As noted above, we have entered into a definitive agreement
to sell the companies comprising our Fresh-cut segment to Chiquita Brands International, Inc. 
 Growth Strategies Our business strategy is to grow our foodservice distribution businesses through both internal
growth and acquisitions and to improve our operating profit margin. We believe that we have the
resources and competitive advantages to maintain our strong internal growth and that we are well
positioned to take advantage of any future consolidation occurring in our industry. Our key growth strategies are as follows: Increase Broadline sales to existing customers and within existing markets.We seek to become a
principal supplier for more of our Broadline distribution customers and to increase sales per
delivery to those customers. To accomplish this, we focus on selling our customers
center-of-the-plate products. We believe that providing consistent, high-quality,
center-of-the-plate items to our customers helps us gain a greater share of our customers
business. We believe that a higher penetration of our existing Broadline customers and markets
will allow us to strengthen our relationships with these customers and to realize economies of
scale driven by greater utilization of our existing distribution infrastructure. We believe that we can increase our penetration of the Broadline customer base through focused
sales efforts that leverage our distribution infrastructure, quality products and value-added
services. Value-added services include assisting foodservice customers in helping them control
costs through, among other means, increased computer communications, more efficient deliveries and
consolidation of suppliers. We also believe that the typical Broadline customer in our markets
uses one or two principal suppliers for the majority of its foodservice needs, but also relies upon
a limited number of secondary Broadline suppliers and specialty food suppliers. We believe those
customers within our existing markets for which we are not the principal supplier represent an
additional market opportunity for us. Increase sales to street customers.Within our Broadline segment, we are focusing on increasing
sales to street customers, which typically utilize more of our proprietary brands and value-added
services. Sales to these customers typically generate higher operating margins than sales to our
chain customers. We are focusing on increasing our penetration of the 4




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street customer base by leveraging our broad range of products and value-added services and by
continuing to invest in enhancing the quality of our sales force through improvements in our hiring
and training efforts and in our utilization of technology. Our training program and sales
compensation system are designed to encourage our sales force to grow sales to new and existing
street customers. Increase sales of proprietary brands.We seek to increase sales of our proprietary brands and
believe that our proprietary brands, which include AFFLAB, Bay Winds, Brilliance, Empires
Treasure, First Mark, Gourmet Table, Guest House, Heritage Ovens, PFG Custom Meats, Pocahontas,
Raffinato, Roasters Exchange, Village Garden and West Creek, offer customers greater value than
national brands. We believe that as we continue to grow our scale of operations and sales of our
proprietary brands, these sales can generate higher margins than comparable national brands. We
seek to increase our sales of proprietary brands through our sales force training program and sales
compensation system. Grow our Customized segment with existing and selected new customers.We seek to strengthen our
existing Customized distribution relationships by continuing to provide on-time delivery, complete
orders, perishable food-handling expertise, clean, safe facilities and equipment, and electronic
data transfers of restaurant orders, inventory information and invoices. A key initiative is
expanding existing distribution centers and building additional centers to provide capacity for new
customers and to reduce the miles driven to service existing customers. We seek to selectively add
new customers within the Customized distribution segment. We believe potential customers include
new or growing restaurant chains that have yet to establish a relationship with a customized
foodservice distributor, as well as customers that are dissatisfied with their existing distributor
relationships and large chains that have traditionally relied on in-house distribution networks. Improve operating efficiencies through systems and technology.We seek to continually increase our
operating efficiencies by investing in training and technology-related initiatives to provide
increased productivity. These productivity-related initiatives include our Foodstar® software,
which handles order management throughout our Broadline distribution centers. Most of our
Customized segment customers use our Internet-based ordering system, PFG-Connection, to place
orders, make product inquiries and view purchase histories. Additionally, PFG-Connection provides
customers with a Web-based e-catalog for viewing pictures of table-top, smallwares and disposables.
Our other initiatives include an automated warehouse management system that uses radio-frequency
barcode scanning for inventory put-away and selection and computerized truck routing systems. In
addition, we have an on-line ordering system that provides customers real-time access to order
placement, product information, inventory levels and their purchasing histories. We also have
implemented a centralized inbound logistics system that optimizes consolidated deliveries from our
suppliers. Additionally, we seek to maintain our price competitiveness in Broadline by investing in technology
aimed at enhancing our purchasing leverage. We are currently implementing a program to standardize
product descriptions and codes across our Broadline information systems, which will allow us to
enhance coordination of our buying and marketing activities. In addition, we are continuing to
invest in other technologies to provide our sales force with better information to assist our
Broadline customers and to grow sales. Actively pursue strategic acquisitions.Since our founding, we have supplemented our internal
growth through selective, strategic acquisitions. We believe that the consolidation trends in the
foodservice distribution industry will continue to present acquisition opportunities for us, and we
intend to target acquisitions both in geographic markets that we already serve, which we refer to
as fold-in acquisitions, as well as in new markets. We believe that fold-in acquisitions can allow
us to increase the efficiency of our operations by leveraging our fixed costs and driving more
sales through our existing facilities. Acquisitions in new markets expand our geographic reach
into markets we do not currently serve and can allow us to leverage fixed costs. 
 Customers and Marketing Foodservice distribution
In our foodservice distribution business, we have two closely related
business segments - Broadline
and Customized. Our Broadline segment primarily services two types of customers  street customers
and chain customers. Our Customized segment distributes to casual and family dining chain
customers. We believe that a foodservice customer selects a distributor based on timely and
accurate delivery of orders, consistent product quality, value-added services and price. In
addition, we believe that some of our larger street and chain customers gain operational
efficiencies by dealing with one, or a limited number of, foodservice distributors. Street Customers
Our Broadline segment services our street customers, which include independent restaurants,
hotels, cafeterias, schools, healthcare facilities and other institutional customers. We
seek to increase our sales to street customers because, despite the generally higher selling
and delivery costs that we incur in servicing these customers, street customers typically
utilize more of our proprietary brands and value-added services. Sales to street customers
are 5




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typically at higher price points than sales to chain customers, due to the higher costs
involved in those sales. As of January 1, 2005, our Broadline segment supported sales to
street customers with over 850 sales and marketing representatives and product specialists.
Our sales representatives service customers in person, by telephone and through the Internet,
accepting and processing orders, reviewing account balances, disseminating new product
information and providing business assistance and advice where appropriate. Sales
representatives are generally compensated through a combination of salary and commission
based on factors relating to profitability and collections. These representatives typically
use laptop computers to assist customers by entering orders, checking product availability
and pricing and developing menu-planning ideas on a real-time basis. Chain Customers
Both our Broadline and Customized segments service chain customers. Our principal chain
customers are franchisees and corporate-owned units of casual and family dining and
quick-service restaurants. Our Broadline segment customers include numerous locations of
Burger King, Churchs, KFC, Popeyes, Sonic, Subway and Zaxbys quick-service restaurants.
Our Customized segment customers include family and casual dining restaurant concepts, such
as Carrabbas Italian Grill, Cracker Barrel, Logans, Outback Steakhouse, Ruby Tuesday and
T.G.I. Fridays. Our sales programs to chain customers are tailored to the individual
customer and include a more specialized product offering than the sales programs to our
street customers. Sales to chain customers are typically higher volume, lower gross margin
sales, which require fewer, but larger deliveries than those to street customers. These
programs offer operational and cost efficiencies for both the customer and us, which can help
compensate for the lower gross margins. Dedicated account representatives are responsible
for managing the overall chain customer relationship, including ensuring complete order
fulfillment and customer satisfaction. Members of senior management assist in identifying
potential new chain customers and managing long-term account relationships. Two of our chain
customers, Outback Steakhouse, Inc. (OSI) and CRBL Group, Inc. (CRBL), account for a
significant portion of our consolidated net sales. Net sales to OSI accounted for 12%, 11%
and 12% of our consolidated net sales for 2004, 2003 and 2002, respectively. Net sales to
CRBL accounted for 10%, 10% and 11% of our consolidated net sales for 2004, 2003 and 2002,
respectively. No other chain customer accounted for more than 6% of our consolidated net
sales in 2004, 2003 or 2002. Fresh-cut produce
In our Fresh-cut segment, we service two customer types  retail customers and foodservice
customers: Retail customers
Our Fresh-cut segment provides packaged, ready-to-eat salads to both national and regional
food retailers, including over 15,000 Albertsons, Food Lion, Kroger, Safeway, Wal-Mart and
other food retail stores. Our retail packaged salad business is supported by a dedicated
sales and marketing organization that has regional business managers who are responsible for
sales to retail grocery accounts within their geographic regions. Sales managers work with a
network of brokers across the country to sell our products, gain business with new retail
accounts and introduce new products to existing retail accounts. We also have business
development managers who focus on specific geographic areas or retail accounts. Brokers are
responsible for store-level selling and merchandising activities on our behalf. We have a
marketing department that focuses primarily on packaged products and assists the sales
department in the development of account-specific sales promotion plans. This department is
also responsible for market, product line and customer profitability analysis. Foodservice customers
Our Fresh-cut segment also provides fresh-cut products, such as lettuce, tomatoes, spinach,
cabbage, broccoli, cauliflower, onions and peppers to foodservice distributors, including
McLane Foodservice, Inc., and to other foodservice distributors who resell these products to
foodservice operators, including over 24,000 McDonalds, KFC, Pizza Hut, Subway, Taco Bell
and other foodservice customers. Our customer sales representatives and account managers
service our foodservice customers. 
 Products and Services We distribute more than 65,000 national and proprietary brand food and non-food products to over
44,000 customers. These products include a broad selection of center-of-the-plate entrées, canned
and dry groceries, fresh-cut produce, frozen foods, refrigerated and dairy products, paper products
and cleaning supplies, other produce, restaurant equipment and other supplies. We also provide our
customers with value-added services in the normal course of providing full-service distributor
services. Proprietary brands
We offer our customers an extensive line of products under our proprietary brands, including
AFFLAB, Bay Winds, Brilliance, Empires Treasure, First Mark, Guest House, Gourmet Table,
Heritage Ovens, PFG Custom 6




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Meats, Roasters Exchange, Pocahontas, Raffinato, Village Garden and West Creek. The
Pocahontas brand name has been recognized in the food industry for over 100 years. Products
offered under our proprietary brands include canned and dry groceries, tabletop sauces, meat,
baked goods, shortenings and oils, among others. Our proprietary brands enable us to offer
customers an alternative to comparable national brands across a wide range of products and
price points. For example, the Raffinato brand consists of a line of premium pastas,
cheeses, tomato products, sauces and oils tailored for the Italian foods market, while our
Empires Treasure brand consists of high-quality frozen seafood. We seek to increase the
sales of our proprietary brands, as they can have higher margins than comparable national
brand products. We also believe that sales of our proprietary brands can help to promote
customer loyalty. National brands
We offer our customers a broad selection of national brand products. We believe that these
brands are attractive to chain, street and other customers seeking recognized national brands
throughout their operations. We believe that distributing national brands has strengthened
our relationships with many national suppliers who provide us with important sales and
marketing support. These sales complement sales of our proprietary brand products. Fresh-cut produce
We believe that the ability to provide quality products with an acceptable shelf life is key
to the success of our fresh-cut produce business. We distribute about 300 packaged,
ready-to-eat salads and fresh-cut produce products under the Fresh Express® label to
retailers, sold under three product lines: Garden Salads, World Blends and Specialty Kits.
Garden Salads include traditional iceberg and romaine garden salads and coleslaw. World
Blends contain a combination of more exotic, darker leaf lettuces and vegetables that
generally sell at higher price points than Garden Salads. World Blends include our tender
leaf premium salad products. Our tender leaf salad products include Spring Mix Blends,
Blends Plus, Baby Spinach and foodservice premium salad products. Specialty Kits contain
ready-to-eat salads along with other items such as croutons, salad dressings or cheese and
crackers. We are testing additional new produce offerings as part of our ongoing efforts to
develop innovative new products. These include a fresh-cut fruit product line. In addition,
we offer fresh-cut produce to foodservice operators, including pre-cut lettuce, onions, green
peppers, coleslaw and diced, sliced and bulk tomatoes that we market under our Redi-Cut
label. As restaurant operators seek to increase their profitability by reducing reliance on
labor-intensive tasks conducted on-site, we believe that there is an opportunity for us to
capture market share by introducing innovative products. We also offer controlled atmosphere
systems to third parties for their packaging and shipping needs. Value-added services
As part of developing and strengthening our customer relationships, we provide some of our
customers with value-added services including assistance in managing inventories and
improving efficiency. As described below, we also provide procurement and merchandising
services to approximately 400 independent foodservice distributor facilities and over 500
independent paper and janitorial supply distributor facilities, as well as to our own
distribution network. These procurement and merchandising services include negotiating
vendor supply agreements and providing quality assurance related to our proprietary and
national brand products. 7




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The following table sets forth the percentage of our consolidated net sales by product and service
category in 2004, 2003 and 2002: Percentage of Net Sales2004
    
    2003
    
    2002Center-of-the-plate
    
    
    35
    %
    
    
    33
    %
    
    
    30
    %Canned and dry groceries
    
    
    15
    
    
    
    17
    
    
    
    17Fresh-cut produce
    
    
    15
    
    
    
    16
    
    
    
    17Frozen foods
    
    
    14
    
    
    
    13
    
    
    
    13Refrigerated and dairy products
    
    
    9
    
    
    
    9
    
    
    
    9Paper products and cleaning supplies
    
    
    6
    
    
    
    6
    
    
    
    6Other produce
    
    
    4
    
    
    
    4
    
    
    
    6Equipment and supplies
    
    
    1
    
    
    
    1
    
    
    
    1Procurement, merchandising and other services
    
    
    1
    
    
    
    1
    
    
    
    1Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 
 Information Systems In our Broadline segment, 16 of our 19 distribution operations currently manage the ordering,
receiving, warehousing and delivery of products through our Foodstar® software. Foodstar allows
our customers to electronically place orders with us and permits us to record sales, billing and
inventory information. This software also assists in the timely and accurate financial reporting
by our subsidiaries to our corporate headquarters. Our Broadline information technology staff
performs software development and maintenance on this platform. We are continually enhancing this
platform by providing standardized product identifiers to leverage our purchasing volume across our
distribution network. In addition, we continue to enhance our warehouse management system that
uses barcode scanning to track products within our distribution centers. This technology enhances
productivity by reducing errors in inventory put-away and selection. Our warehouse management
system also tracks employee productivity, driving overall warehouse efficiencies. All of our
Broadline distribution locations use truck-routing software to optimize the distribution routes
traveled by our trucks by reducing excess mileage and improving the timeliness of customer
deliveries. For inbound freight, we use a centralized inbound logistics system that optimizes
consolidated deliveries from our suppliers. Lastly, we have an on-line ordering system that allows
customers to have real-time access to product information, inventory levels and their purchasing
histories. In our Customized segment, we use a similar software platform managed and located at our Customized
headquarters in Lebanon, Tennessee. This software has been tailored to manage large national
accounts, multiple warehouses and centralized purchasing, payables and receivables. The accounts
receivable module of this software automatically applies payment details received from customers
electronically, enabling the efficient processing of large volumes of transactions. Our Customized
segment uses a nationally recognized purchasing system for product procurement. This segment also
has a warehouse management system that utilizes barcode technology to improve inventory receiving,
put-away, replenishment and tracking. This software enables rotation of all products, including
perishable products, using wireless technology to facilitate computer-directed product retrieval.
Our Customized segment also uses a truck-routing system that determines the most efficient method
of delivery for our nationwide delivery system. Most of our Customized segment customers use our Internet-based ordering system, PFG-Connection, to
place orders, make product inquiries and view purchase histories. A real-time, customer
order-processing system allows our customers and customer service representatives to review and
correct orders online. This software has allowed our customers to reduce costs through improved
order accuracy. Our Fresh-cut segment manages its manufacturing, distribution, accounting and customer service and
information technology from Salinas, California. Our Fresh-cut segment uses enterprise resource
planning software at all of its locations. This software allows each of our Fresh-cut operations
to execute various components of its manufacturing supply chain including customer orders,
scheduling, receiving, production and distribution. It also serves as a platform for the raw
product supply chain, including purchasing, receiving, cooling and distribution of produce items to
the manufacturing plants. Fresh-cuts systems are also used to manage product quality and food
safety standards across all growing and production operations. Additionally, all of our Fresh-cut
processing facilities and raw product operations centers use supply-chain software for daily truck
routing and trailer cube maximization, providing efficient, timely deliveries to customers. At our corporate headquarters, we use a financial systems suite that includes general ledger,
accounts payable and fixed asset modules. In addition, we utilize software for financial
consolidations. In the human resources area, we use a common human resources suite, including
human capital management, benefits and payroll modules in our Broadline, Customized and Corporate
segments. 8




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Suppliers and Purchasing Our Broadline and Customized segments obtain products from large national and regional food
manufacturers, consumer products companies, meat processors and produce shippers, as well as from
local suppliers, food brokers and merchandisers. We seek to enhance our purchasing power through
volume purchasing. Although each of our subsidiaries generally is responsible for placing its own
orders and can select the products that appeal to its own customers, we encourage each subsidiary
to participate in company-wide purchasing programs, which enable it to take advantage of our
consolidated purchasing power. We were not dependent on a single source for any significant item
and no third-party supplier represented more than 4% of our total product purchases during 2004. Our wholly owned subsidiary known as Progressive Group Alliance (formerly Pocahontas Foods, USA)
selects foodservice products for our Brilliance, Colonial Tradition, Gourmet Table, Healthy USA,
Pocahontas, Premium Recipe and Raffinato brands and markets these brands, as well as nationally
branded foodservice products, through our own distribution operations and to approximately 400
independent foodservice distributor facilities nationwide. For our services, we receive marketing
fees paid by suppliers. Approximately 10,000 of the products sold through Progressive Group
Alliance are sold under our proprietary brands. Approximately 1,100 suppliers, located throughout
the United States, supply products through the Progressive Group Alliance distribution network.
Because Progressive Group Alliance negotiates purchase agreements on behalf of its independent
distributors as a group, the distributors that utilize Progressive Group Alliances procurement and
merchandising group can enhance their purchasing power. Our Fresh-cut segment purchases produce from growers in various locations. Our Fresh-cut segment
often enters into contracts to purchase raw materials to help mitigate supply risk and manage
exposure to fluctuations in costs. The Fresh-cut segment also works with suppliers to develop
innovative, quality-enhancing and cost-effective production techniques. These techniques include
removing the core of the lettuce in the field, which reduces transportation costs, production costs
and processing time, and developing larger crop beds to increase yield. 
 Operations Our subsidiaries have substantial autonomy in their operations, subject to overall corporate
management controls and guidance. Our corporate management provides centralized direction in the
areas of strategic planning, general and financial management, human resources and information
systems strategy and development. Although individual marketing efforts are undertaken at the
subsidiary level, our name recognition in the foodservice business is based on both the trade names
of our individual subsidiaries and the Performance Food Group name. Each subsidiary has primary
responsibility for its own human resources, governmental compliance programs, accounting, billing
and collections. Financial information reported by our subsidiaries is consolidated and reviewed
by our corporate management. Distribution operations are conducted from 19 Broadline and seven Customized distribution centers.
Our Broadline distribution centers are located in Arkansas, Florida, Georgia, Illinois, Louisiana,
Maine, Maryland, Massachusetts, Mississippi, Missouri, New Jersey, Tennessee, Texas and Virginia.
Our Broadline customers are generally located no more than 250 miles from our Broadline
distribution facilities. Our seven Customized distribution centers are located in California,
Florida, Maryland, New Jersey, South Carolina, Tennessee and Texas. Our Customized segment
distributes to customer locations nationwide and internationally. For all of our distribution
operations, customer orders are assembled in our distribution facilities and then sorted, placed on
pallets, and loaded onto trucks and trailers in delivery sequence. Deliveries are generally made
in large tractor-trailers that we generally lease. We use a computer system to design efficient
route sequences for the delivery of our products. Fresh-cut produce operations are conducted out of seven processing/distribution plants and two
distribution facilities, located in California, Georgia, Illinois, Missouri, Pennsylvania and
Texas. Once harvested, produce is typically shipped by temperature-controlled trucks to one of our
facilities where we inspect, process, package and box it for shipment. We generally ship orders
for packaged, ready-to-eat salads and other fresh-cut produce within 24 hours from the time of
processing, primarily to customer distribution centers or third-party distributors for further
redistribution. We make deliveries in temperature-controlled trucks that we own, lease or contract
for hire. 9




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The following table summarizes certain information for our principal operating divisions: 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
York City
metropolitan area
    
    Elizabeth, NJ
    
    
    3,100
    
    
    Restaurants, healthcare
facilities and schoolsPFG  Batesville
    
    Mississippi
    
    Batesville, MS
    
    
    1,500
    
    
    Subway and other restaurants,
healthcare facilities and
schoolsPFG  Caro Foods
    
    South
    
    Houma, LA
    
    
    1,500
    
    
    Churchs, Copelands,
Popeyes and other
restaurants, healthcare
facilities and schoolsPFG  Carroll County Foods
    
    Baltimore, MD and
Washington, DC area
    
    New Windsor, MD
    
    
    1,900
    
    
    Restaurants, healthcare
facilities and schoolsPFG  Empire Seafood
    
    Florida
    
    Miami, FL
    
    
    2,500
    
    
    Cruise lines and restaurantsPFG  Florida
    
    Florida
    
    Tampa, FL
    
    
    2,000
    
    
    Restaurants, healthcare
facilities and schoolsPFG  Hale
    
    Kentucky, Tennessee
and Virginia
    
    Morristown, TN
    
    
    1,600
    
    
    Restaurants, healthcare
facilities and schoolsPFG  Lester
    
    South
    
    Lebanon, TN
    
    
    2,500
    
    
    Restaurants, healthcare
facilities and schoolsPFG  Little Rock
    
    Arkansas, Missouri,
Oklahoma, Tennessee
and Texas
    
    Little Rock, AR
    
    
    6,300
    
    
    Subway and other restaurants,
healthcare facilities and
schoolsPFG  Magee
    
    Louisiana and
Mississippi
    
    Magee, MS
    
    
    1,800
    
    
    Subway and other restaurants,
healthcare facilities and
schoolsPFG  Middendorf
    
    St. Louis, Missouri
and surrounding
areas
    
    St. Louis, MO
    
    
    2,300
    
    
    Restaurants, clubs, hotels
and other foodservice
facilitiesPFG  Miltons
    
    South and Southeast
    
    Atlanta, GA
    
    
    5,900
    
    
    Copelands, Subway, Zaxbys
and other restaurants,
healthcare facilities and
schoolsPFG  NorthCenter
    
    Maine,
Massachusetts and
New Hampshire
    
    Augusta, ME
    
    
    5,400
    
    
    Restaurants, healthcare
facilities and schoolsPFG  Powell
    
    Alabama, Florida
and Georgia
    
    Thomasville, GA
    
    
    1,000
    
    
    Restaurants, healthcare
facilities and schoolsPFG  Progressive Group Alliance
    
    Nationwide
    
    Boise, ID
Richmond, VA
    
    
    400
    
    
    Independent foodservice
distributors and vendorsPFG  Springfield
    
    New England and
portions of New
York State
    
    Springfield, MA
    
    
    3,700
    
    
    Restaurants, healthcare
facilities and schools
 10




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Approx.Number ofCustomerLocationsLocation of
    
    CurrentlyName of Subsidiary/Division
    
    Principal Region(s)
    
    Facilities
    
    Served
    
    Major CustomersPFG  Temple, TX
    
    South and Southwest
    
    Temple, TX
    
    
    3,800
    
    
    Churchs, Dairy Queen, KFC,
Popeyes, Subway and other
restaurants, healthcare
facilities and schoolsPFG  Thoms-Proestler Company
    
    Chicago
Metropolitan area
and other portions
of Illinois,
Indiana, Iowa and
Wisconsin
    
    Rock Island, IL
    
    
    4,800
    
    
    Popeyes and other
restaurants, healthcare
facilities and schoolsPFG  Victoria
    
    South and Southwest
    
    Victoria, TX
    
    
    2,600
    
    
    Burger King, Subway and other
restaurants, healthcare
facilities and schoolsPFG  Virginia Foodservice
    
    Virginia
    
    Richmond, VA
    
    
    1,700
    
    
    Copelands, Texas Steakhouse
and other restaurants and
healthcare facilitiesPFG Customized
    
    Nationwide
    
    Bakersfield, CA
Elkton, MD
Fort
Mill, SC
Gainesville, FL
Lebanon, TN
McKinney, TX
Westampton, NJ
    
    
    3,000
    
    
    Cracker Barrel, Outback
Steakhouse, Ruby Tuesday,
T.G.I. Fridays, and other
casual-dining restaurantsFresh-cut
    
    Nationwide
    
    Atlanta, GA
Carrollton, GA
Chicago, IL
Franklin Park, IL
Geneva, IL
Grand
Prairie, TX
Greencastle, PA 
Kansas City, MO 
Salinas, CA
    
    
    39,000
    
    
    Over 15,000 food retail
locations, including
Albertsons, Food Lion,
Kroger, Safeway and Wal-Mart.
Distributors who resell our
products primarily to over
24,000 chain restaurant
locations, including
McDonalds, KFC, Pizza Hut,
Subway, Taco Bell and other
foodservice customers.
 
 Competition The foodservice distribution industry is highly competitive. We compete with numerous smaller
distributors on a local level, as well as with a limited number of national foodservice
distributors. Certain of these distributors have greater financial and other resources than we do.
Bidding for contracts or arrangements with customers, particularly chain and other large

customers, is highly competitive and distributors may market their services to a particular
customer over a long period of time before they are invited to bid. We believe that most
purchasing decisions in the foodservice business are based on the distributors ability to
completely and accurately fill orders and provide timely deliveries, on the quality of the product
and on price. In the Fresh-cut segment of our business, we compete with a variety of branded and
private label competitors in the packaged, ready-to-eat salad market. The competitors in this
market include Dole Food Company and several regional and local processors. Fresh-cuts
competition in the foodservice area comes mainly from national, regional and local processors, and
we encounter intense competition from national and large regional processors when selling produce
to chain restaurants and independent foodservice distributors. 
 Regulation Our operations are subject to regulation by state and local health departments, the U.S. Department
of Agriculture and the Food and Drug Administration, which generally impose standards for product
quality and sanitation and are responsible for the administration of recent bioterrorism
legislation. Our seafood operations are also specifically regulated by Federal and state laws,
including those administered by the National Marine Fisheries Service, established for the
preservation of certain species of marine life, including fish and shellfish. State and/or federal
authorities generally inspect our facilities at least annually. In addition, we are subject to
regulation by the Environmental Protection Agency with respect to the disposal of wastewater and
the handling of chemicals used in cleaning. The Federal Perishable Agricultural Commodities Act, which specifies standards for the sale,
shipment, inspection and rejection of agricultural products, governs our relationships with our
fresh food suppliers with respect to the grading and commercial acceptance of product shipments.
We are also subject to regulation by state authorities for the accuracy of our weighing and
measuring devices. Some of our distribution facilities have underground and aboveground storage tanks for diesel fuel
and other petroleum products that are subject to laws regulating such storage tanks. These laws
have not had a material adverse effect on our results of operations or financial condition. 11




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The Surface Transportation Board and the Federal Highway Administration regulate our trucking
operations. In addition, interstate motor carrier operations are subject to safety requirements
prescribed by the U.S. Department of Transportation and other relevant federal and state agencies.
Such matters as weight and dimension of equipment are also subject to federal and state
regulations. We believe that we are in substantial compliance with applicable regulatory
requirements relating to our motor carrier operations. Failure to comply with the applicable motor
carrier regulations could result in substantial fines or revocation of our operating permits. 
 Intellectual Property Except for the Fresh Express®, Pocahontas®, Redi-Cut and TECHTROL® trade names, we do not own or
have the right to use any patent, trademark, trade name, license, franchise or concession, the loss
of which would have a material adverse effect on our results of operations or financial condition. In our Fresh-cut segment, we have patents covering a number of our proprietary technologies,
including atmospheres used in packaging our salads and protecting products from decomposing, and
methods of harvesting and maintaining produce products. These patents expire at various times from
2005 through 2021, including renewals. No material or significant patents expired in 2004 or will
be expiring prior to 2006. In connection with some of our other fresh-cut produce processing, we
rely heavily on certain proprietary machinery and processes that we use to prepare some of our
products. Although we believe that the cost and complexity of our machinery has been and will
continue to be a barrier to entry to other potential competitors in the Fresh-cut segment, we have
not protected that machinery or those processes through patents or other methods. As a result,
some of our existing or potential competitors could develop similar machinery or processes. If
this occurred, it could substantially increase competition in the Fresh-cut segment, thereby
reducing prices and materially adversely affecting our results of operations in this segment. 
 Employees As of January 1, 2005, we had approximately 11,000 full-time employees, including approximately
3,000 in management, administration, marketing and sales and the remainder in operations. As of
January l, 2005, union or collective bargaining units represented about 2,000 of our employees. We
have entered into 10 collective bargaining and similar agreements with respect to our unionized
employees. Our agreements with our union employees expire at various times from October 2005 to
December 2008. 
 Executive Officers The following table sets forth certain information concerning our executive officers: Name
    
    Age
    
    PositionRobert C. Sledd
    
    
    52
    
    
    Chairman of the Board, President and Chief Executive OfficerMark J. Drever
    
    
    48
    
    
    Senior Vice President, Chief Executive Officer  Fresh-cut DivisionThomas Hoffman
    
    
    65
    
    
    Senior Vice President, Chief Executive Officer  Customized
DivisionSteven Spinner
    
    
    45
    
    
    Senior Vice President, Chief Executive Officer  Broadline DivisionJohn D. Austin
    
    
    43
    
    
    Senior Vice President, Chief Financial OfficerJ. Keith Middleton
    
    
    39
    
    
    Controller
 Robert C. Sleddhas served as Chairman of the Board of Directors since February 1995 and has served
as a director of Performance Food Group since 1987. Since March 2004, Mr. Sledd has served as
President and Chief Executive Officer of Performance Food Group. Mr. Sledd also served as Chief
Executive Officer of Performance Food Group from 1987 to August 2001, and as, President from 1987
to February 1995. Mr. Sledd served as a director of Taylor & Sledd Industries, Inc., a predecessor
of Performance Food Group, since 1974, and served as President and Chief Executive Officer of that
company from 1984 to 1987. Mr. Sledd also serves as a director of SCP Pool Corporation, a supplier
of swimming pool supplies and related products. Mark J. Dreverhas served as Senior Vice President of Performance Food Group and President and
Chief Executive Officer  Fresh-cut Division since June 2004. Mr. Drever served as President of
Fresh Express from 1993 to June 2004. From 1991 to 1993, Mr. Drever was Vice President of Fresh
Express. Mr. Drever served as Director of Foodservice Sales and Marketing from 1989 to 1991 and as
a regional director of Fresh Express from 1988 to 1989. Prior to joining Fresh Express, Mr. Drever
practiced law, specializing in business transactions, new ventures and securities law. Thomas Hoffmanhas served as Senior Vice President of Performance Food Group and Chief Executive
Officer - Customized Division since February 1995. Mr. Hoffman served as President of
Kenneth O. Lester Company, Inc., a wholly owned subsidiary of Performance Food Group from December
1989 until September 2002. Prior to joining 12




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Performance Food Group, Mr. Hoffman served in executive capacities at Booth Fisheries Corporation,
a subsidiary of Sara Lee Corporation, as well as C.F.S. Continental, Miami and International
Foodservice, Miami, two foodservice distributors. Steven Spinnerhas served as Senior Vice President of Performance Food Group and Chief Executive
Officer - Broadline Division since February 2002, and served as Broadline Division President
of Performance Food Group from August 2001 to February 2002. Mr. Spinner served as Broadline
Regional President of Performance Food Group from October 2000 to August 2001, and served as
President of AFI Foodservice Distributors, Inc., a wholly owned subsidiary of Performance Food
Group, from October 1997 to October 2000. From 1989 to October 1997, Mr. Spinner served as Vice
President of AFI Foodservice. John D. Austinhas served as Senior Vice President and Chief Financial Officer since April 2003 and
as Secretary of Performance Food Group since March 2000. Mr. Austin served as Vice President
- Finance from January 2001 to April 2003. Mr. Austin served as Corporate Treasurer from
1998 to January 2001. Mr. Austin served as Corporate Controller of Performance Food Group from
1995 to 1998. From 1991 to 1995, Mr. Austin was Assistant Controller for General Medical
Corporation, a distributor of medical supplies. Prior to that, Mr. Austin was an accountant with
Deloitte & Touche LLP. Mr. Austin is a certified public accountant. J. Keith Middletonhas served as Controller of Performance Food Group since June 2002. From March
2000 to May 2002, Mr. Middleton was General Ledger Manager with Perdue Farms Incorporated. Mr.
Middleton was employed as an accountant with Trice Geary & Myers LLC from July 1998 through
February 2000. Prior to that, Mr. Middleton was an accountant at Arthur Andersen LLP from May 1988
to June 1998. Mr. Middleton is a certified public accountant. 
 Risk Factors Foodservice distribution is a low-margin business and may be sensitive to economic conditions.We
operate in the foodservice distribution industry, which is characterized by a high volume of sales
with relatively low profit margins. Certain of our sales are at prices that are based on product
cost plus a percentage markup. As a result, our results of operations may be negatively impacted
when the price of food goes down, even though our percentage markup may remain constant. Certain
of our sales are on a fixed fee-per-case basis. Therefore, in an inflationary environment, our
gross profit margins may be negatively affected. In addition, our results of operations may be
negatively impacted by product cost increases that we may not be able to pass on to our customers.
The foodservice industry may also be sensitive to national and regional economic conditions, and
the demand for our foodservice products has been adversely affected from time to time by economic
downturns. In addition, our operating results are particularly sensitive to, and may be materially
adversely impacted by, difficulties with the collectibility of accounts receivable, inventory
control, price pressures, severe weather conditions and increases in wages or other labor costs,
energy costs and fuel or other transportation-related costs. One or more of these events could
adversely affect our future operating results. We have experienced losses due to the
uncollectibility of accounts receivable in the past and could experience such losses in the future.
In addition, although we have sought to limit the impact of the recent increases in fuel prices by
imposing fuel surcharges on customers, increases in fuel prices may adversely affect our results of
operations. We rely on major customers.We derive a substantial portion of our net sales from customers within
the restaurant industry, particularly certain chain customers. Net sales to OSI accounted for 12%
and 11% of our consolidated net sales in 2004 and 2003, respectively. Net sales to CRBL accounted
for 10% of our consolidated net sales in both 2004 and 2003. Sales to these customers by our
Customized segment generally have lower operating margins than sales to customers in other areas of
our business. We have agreements with certain of our customers to purchase specified amounts of
goods from us and the prices paid by them may depend on the actual level of their purchases. Some
of these agreements may be terminated by the customer with an agreed-upon notice to us; however,
certain of these agreements may not be terminated by either party except for a material breach by
the other party. We cannot always guarantee the level of future purchases by our customers. A
material decrease in sales to any of our major customers or the loss of any of our major customers
would have a material adverse impact on our operating results. In addition, to the extent we add
new customers, whether following the loss of existing customers or otherwise, we may incur
substantial start-up expenses in initiating services to new customers. Also, certain of our
customers have from time to time experienced bankruptcy, insolvency, and/or an inability to pay
debts to us as they come due, and similar events in the future could have a material adverse impact
on our operating results. We may be unable to successfully consummate the sale of our Fresh-cut segment.On February 22,
2005, we signed a definitive agreement to sell all of the stock we own in the companies that make
up our Fresh-cut segment to Chiquita Brands International, Inc. Consummation of the sale is
subject to the expiration of the waiting period under the Hart-Scott-Rodino Act and the
satisfaction of other customary conditions to our and Chiquitas obligation to close the
transaction. While we expect the transaction to close in the second quarter of 2005, we can give
no assurance that the transaction will close within this time frame or that it will close at all.
In the definitive agreement, we have agreed to conduct the Fresh-cut 13




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segments business in the ordinary course consistent with past practice during this interim period
and to refrain from taking, without the prior written consent of Chiquita, certain actions with
respect to changes in capital stock, indebtedness, contractual obligations and other restrictions
similar to those normally imposed on an acquisition target. If we are unable to successfully
consummate the sale of our Fresh-cut segment, the segment may experience operating difficulties as
a result of the announcement of, and failure to consummate, the transaction which may negatively
impact the results of operations of the segment and our results of operations generally. In
addition, if the attention of the Fresh-cut segments management is materially diverted from the
day-to-day operations of the segments business because of increased demands on them as a result of
the sale process, the results of operations of the segment, and the Company as a whole, may be
negatively impacted. The cost of fresh produce, especially lettuce, has had and could continue to have an adverse effect
on our business.Prices of high quality, fresh produce can be volatile and supplies may be limited
due to, among other things, factors such as weather, disease and level of agricultural production.
Although we have contracts to purchase a vast majority of our lettuce and some of our other
produce, the cost and quality of available produce, particularly during periods of severe shortages
of high-quality produce, could have a material adverse effect on both our sales and results of
operations. In addition, because we generally do not have contracts with foodservice customers of
our Fresh-cut segment, our ability to recover cost increases from those customers may be limited. Our growth is dependent on our ability to complete acquisitions and integrate operations of
acquired businesses.A significant portion of our historical growth has been achieved through
acquisitions of other businesses, and our growth strategy includes additional acquisitions. We may
not be able to make acquisitions in the future and any acquisitions we do make may not be
successful. Furthermore, future acquisitions may have a material adverse effect upon our operating
results, particularly in periods immediately following the consummation of those transactions while
the operations of the acquired businesses are being integrated into our operations. Achieving the benefits of acquisitions depends on the timely, efficient and successful execution of
a number of post-acquisition events, including integrating the business of the acquired company
into our purchasing programs, distribution network, marketing programs and reporting and
information systems. We may not be able to successfully integrate the acquired companys
operations or personnel, or realize the anticipated benefits of the acquisition. Our ability to
integrate acquisitions may be adversely affected by many factors, including the relatively large
size of a business and the allocation of our limited management resources among various integration
efforts. In connection with the acquisitions of businesses in the future, we may decide to consolidate the
operations of any acquired business with our existing operations or make other changes with respect
to the acquired business, which could result in special charges or other expenses. Our results of
operations also may be adversely affected by expenses we incur in making acquisitions, by
amortization of acquisition-related intangible assets with definite lives and by additional
depreciation expense attributable to acquired assets. Any of the businesses we acquire may also
have liabilities or adverse operating issues, including some that we fail to discover before the
acquisition, and our indemnity for such liabilities typically has been limited and may, with
respect to future acquisitions, also be limited. Additionally, our ability to make any future
acquisitions may depend upon obtaining additional financing. We may not be able to obtain
additional financing on acceptable terms or at all. To the extent that we seek to acquire other
businesses in exchange for our common stock, fluctuations in our stock price could have a material
adverse effect on our ability to complete acquisitions. Managing our growth may be difficult and our growth rate may decline.We have rapidly expanded our
operations since inception. This growth has placed and will continue to place significant demands
on our administrative, operational and financial resources, and we may not be able to successfully
integrate the operations of acquired businesses with our existing operations, which could have a
material adverse effect on our business. This growth may not continue. To the extent that our
customer base and our services continue to grow, this growth is also expected to place a
significant demand on our managerial, administrative, operational and financial resources. Our
future performance and results of operations will depend in part on our ability to successfully
implement enhancements to our business management systems and to adapt those systems as necessary
to respond to changes in our business. Similarly, our growth has created a need for expansion of
our facilities and processing capacity from time to time. As we near maximum utilization of a
given facility or maximize our processing capacity, operations may be constrained and
inefficiencies have been and may be created, which could adversely affect our operating results
unless the facility is expanded, volume is shifted to another facility, or additional processing
capacity is added. Conversely, as we add additional facilities or expand existing operations or
facilities, excess capacity may be created. Any excess capacity may also create inefficiencies and
adversely affect our operating results. Our debt agreements contain restrictive covenants, and our debt and lease obligations require
substantial future payments.At January 1, 2005, we had $279.5 million of outstanding
indebtedness, including $210.0 million outstanding under our revolving credit facility, referred to
as the Credit Facility, and $50.0 million of outstanding 6.77% unsecured senior notes due in 2010,
referred to as the Senior Notes. In addition, at January 1, 2005, we were a party to operating
leases requiring 14




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$301.5 million in future minimum lease payments. Accordingly, the total amount of our obligations
with respect to indebtedness and leases is substantial. In addition, we could make additional
borrowings under our Credit Facility, as needed, in connection with funding our future business
needs, including capital expenditures and acquisitions. Our debt instruments contain financial covenants and other restrictions that limit our operating
flexibility, limit our flexibility in planning for and reacting to changes in our business and make
us more vulnerable to economic downturns and competitive pressures. Our indebtedness and lease
obligations could have significant negative consequences, including:  
    increasing our vulnerability to general adverse economic and industry conditions;
    limiting our ability to obtain additional financing;
    requiring that a substantial portion of our cash flows from operations be applied to pay
principal and interest on our indebtedness and lease payments under our leases, thereby
reducing cash flows available for other purposes;
    limiting our flexibility in planning for or reacting to changes in our business and the
industry in which we compete; and
    placing us at a possible competitive disadvantage compared to competitors with less
leverage or better access to capital resources. In addition, some of our borrowings, including borrowings under our Credit Facility are and will
continue to be at variable rates based upon prevailing interest rates, which expose us to risk of
increased interest rates. Some of our debt instruments, including our Credit Facility and our
Senior Notes, require that we comply with various financial tests and impose certain restrictions
on us, including, among other things, restrictions on our ability to incur additional indebtedness,
create liens on assets, make loans or investments and pay dividends. Product liability claims could have an adverse effect on our business.Like any other distributor
and processor of food, we face an inherent risk of exposure to product liability claims if the
products we sell cause injury or illness. We may be subject to liability, which could be
substantial, because of actual or alleged contamination in products sold by us, including products
sold by companies before we acquired them. We have, and the companies we have acquired have had,
liability insurance with respect to product liability claims. This insurance may not continue to
be available at a reasonable cost or at all, and may not be adequate to cover product liability
claims against us or against companies we have acquired. We generally seek contractual
indemnification from resellers of our product, but any such indemnification is limited, as a
practical matter, to the creditworthiness of the indemnifying party. If we or any of our acquired
companies do not have adequate insurance or contractual indemnification available, product
liability claims and costs associated with product recalls, including a loss of business, could
have a material adverse effect on our business, operating results and financial condition. Competition in our industry is intense, and we may not be able to compete successfully.The
foodservice distribution industry is highly competitive. We compete with numerous smaller
distributors on a local level, as well as with a limited number of national foodservice
distributors. Some of these distributors have substantially greater financial and other resources
than we do. Bidding for contracts or arrangements with customers, particularly chain and other
large customers, is highly competitive and distributors may market their services to a particular
customer over a long period of time before they are invited to bid. We believe that most
purchasing decisions in the foodservice business are based on the distributors ability to
completely and accurately fill orders, provide timely deliveries, on the quality of the product and
on price. In the fresh-cut produce area of our business, competition comes mainly from national,
regional and local processors, and we encounter intense competition from national and large
regional processors when selling produce to chain restaurants. In the Fresh-cut segment, we also
compete with a variety of branded and private label competitors in the packaged, ready-to-eat salad
market. The competitors in this market include Dole Food Company and several regional and local
processors. Our failure to compete successfully could have a material adverse effect on our
business, operating results and financial condition. Our success depends on our senior management.Our success is largely dependent on the skills,
experience and efforts of our senior management. The loss of one or more of our members of senior
management could have a material adverse effect upon our business and development. We do not have
any employment agreements with or maintain key man life insurance on any of these employees.
Additionally, any failure to attract and retain qualified employees in the future could have a
material adverse effect on our business. 15




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The market price for our common stock may be volatile.In recent periods, there has been
significant volatility in the market price of our common stock. In addition, the market price of
our common stock could fluctuate substantially in the future in response to a number of factors,
including the following:  
    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;
    the results of the informal inquiry of the Securities and Exchange Commission, or SEC,
into certain alleged accounting improprieties at one of our Broadline operating
subsidiaries and the alleged improper transfer of inventory within the Broadline segment;
    failure to consummate the sale of our Fresh-cut segment;
    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 produce or other food products; and
    natural disasters, severe weather conditions or other developments affecting our competitors or us. In addition, in recent years the stock market has experienced extreme price and volume
fluctuations. This volatility has had a significant effect on the market prices of securities
issued by many companies for reasons unrelated to their operating performance. These broad market
fluctuations may materially adversely affect our stock price, regardless of our operating results. An adverse outcome of the SECs informal inquiry into anonymous allegations questioning certain
accounting practices at one of our Broadline operating subsidiaries and the alleged improper
transfer of inventory within the Broadline segment, and any claims made with respect thereto could
have a material adverse effect on us.In February 2005, we announced that we had received
anonymous allegations questioning certain accounting practices at one of our Broadline operating
subsidiaries. Our Audit Committee immediately began investigating these allegations and retained
independent counsel, who also retained an independent accounting firm, to assist the Audit
Committee in reviewing these allegations. Subsequently, the staff of the SEC informed us that it
had opened an informal inquiry into these allegations, as well as an allegation that our Broadline
operating subsidiaries may have made improper inter-company transfers of inventory to avoid
internally established reserve requirements for aged inventory. The Audit Committee conducted a
thorough investigation and found no basis for any change to our previously reported
financial results; however, the SECs informal inquiry into these allegations is ongoing. The
costs associated with the SEC inquiry or any enforcement action could be significant and an adverse
outcome of any inquiry or enforcement action could have a material adverse effect on our financial
condition or results of operations. In addition, in the event of an adverse outcome of the SECs
inquiry, it is possible that claims may be brought against us by our shareholders, and the costs
related to the claims, including defense costs, could also have an adverse effect on our financial
condition or results of operations. Available Information Our Internet address is: www.pfgc.com. Please note that our website address is provided as
an inactive textual reference only. We make available free of charge through our website our Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports
filed pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable
after such documents are electronically filed with the Securities and Exchange Commission. In
addition, our earnings conference calls and presentations to securities analysts are web cast live
via our website. Our Internet website and the information contained therein or connected thereto
are not intended to be incorporated into this Form 10-K. 16




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##### Table of Contents



Item 2. Properties. The following table presents information about our primary real properties and facilities and our
operating subsidiaries and divisions. Note 12 to the consolidated financial statements included
elsewhere in this Form 10-K contains information on the costs of these and other operating leases. Owned/LeasedApprox. Area
    
    
    
    (Expiration DateLocation
    
    In Square Feet
    
    Operating Segment
    
    if Leased)AFFLINKTuscaloosa, AL
    
    
    45,000
    
    
    Broadline
    
    Leased (2016)PFG - AFI FoodserviceElizabeth, NJ
    
    
    160,000
    
    
    Broadline
    
    Leased (2024)Newark, NJ
    
    
    21,000
    
    
    Broadline
    
    Leased (2025)PFG - BatesvilleBatesville, MS
    
    
    183,000
    
    
    Broadline
    
    OwnedPFG - Caro FoodsHouma, LA
    
    
    157,000
    
    
    Broadline
    
    OwnedPFG - Carroll County FoodsNew Windsor, MD
    
    
    98,000
    
    
    Broadline
    
    OwnedPFG - CustomizedBakersfield, CA
    
    
    65,000
    
    
    Customized
    
    Leased (2005)Elkton, MD
    
    
    305,000
    
    
    Customized
    
    OwnedFort Mill, SC
    
    
    90,000
    
    
    Customized
    
    Leased (2005)Gainesville, FL
    
    
    160,000
    
    
    Customized
    
    OwnedLebanon, TN
    
    
    270,000
    
    
    Customized
    
    OwnedMcKinney, TX
    
    
    160,000
    
    
    Customized
    
    OwnedWestampton, NJ
    
    
    122,000
    
    
    Customized
    
    Leased (2005)PFG - Empire SeafoodMiami, FL
    
    
    66,000
    
    
    Broadline
    
    Leased (2006)Fresh-cutAtlanta, GA
    
    
    270,000
    
    
    Fresh-cut
    
    OwnedCarrollton, GA
    
    
    105,000
    
    
    Fresh-cut
    
    OwnedChicago, IL
    
    
    53,000
    
    
    Fresh-cut
    
    OwnedFranklin Park, IL
    
    
    184,000
    
    
    Fresh-cut
    
    Leased (2006 and 2010)Geneva, IL
    
    
    53,000
    
    
    Fresh-cut
    
    Leased (2006)Grand Prairie, TX
    
    
    105,000
    
    
    Fresh-cut
    
    Leased (2024)Greencastle, PA
    
    
    57,000
    
    
    Fresh-cut
    
    OwnedKansas City, MO
    
    
    54,000
    
    
    Fresh-cut
    
    OwnedSalinas, CA
    
    
    321,000
    
    
    Fresh-cut
    
    OwnedPFG - 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
    
    Owned
 17




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##### Table of Contents



Owned/LeasedApprox. Area
    
    
    
    (Expiration DateLocation
    
    In Square Feet
    
    Operating Segment
    
    if Leased)PFG - 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
    
    OwnedPFG - Temple, TexasTemple, TX
    
    
    290,000
    
    
    Broadline
    
    Leased (2025)PFG - Thoms-Proestler
CompanyRock Island, IL
    
    
    256,000
    
    
    Broadline
    
    OwnedPFG - VictoriaVictoria, TX
    
    
    250,000
    
    
    Broadline
    
    OwnedPFG - Virginia FoodserviceRichmond, VA
    
    
    182,000
    
    
    Broadline
    
    Leased (2024)
 
 Item 3. Legal Proceedings In February 2005, we announced that we had received anonymous allegations questioning certain
accounting practices at one of our Broadline operating subsidiaries. Our Audit Committee
immediately began investigating these allegations and retained independent counsel, who also
retained an independent accounting firm, to assist the Audit Committee in reviewing these
allegations. Subsequently, the staff of the SEC informed us that it had opened an informal inquiry
into these allegations, as well as an allegation that our Broadline operating subsidiaries may have
made improper inter-company transfers of inventory to avoid internally established reserve
requirements for aged inventory. The Audit Committee conducted a thorough investigation and found
no basis for any material change to our previously reported financial results. The costs
associated with the SEC inquiry or any enforcement action could be significant and an adverse
outcome of the inquiry or any enforcement action could have a material adverse effect on our
financial condition or results of operations. In November 2003, certain of the former shareholders of PFG - Empire Seafood, a wholly owned
subsidiary which we acquired in 2001, brought a lawsuit against us in the Circuit Court, Eleventh
Judicial Circuit in Dade County, seeking unspecified damages and alleging breach of their
employment and earnout agreements. Additionally, they seek to have their non-compete agreements
declared invalid. We intend to vigorously defend ourselves and may assert counterclaims against
the former shareholders. Management currently believes that this lawsuit will not have a material
adverse effect on our financial condition or results of operations. From time to time, we are 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 our financial condition or
results of operations. 
 Item 4. Submission of Matters to a Vote of Shareholders No matters were submitted to a vote of shareholders during the quarter ended January 1, 2005. 
 PART II 
 Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity
Securities Our common stock is quoted on the NASDAQ Stock Markets National Market under the symbol PFGC.
The following table sets forth, on a per share basis, for the fiscal quarters indicated, the high
and low bid prices for our common stock as reported on the NASDAQ Stock Markets National Market. 18




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##### Table of Contents



2004High
    
    
    LowFirst Quarter
    
    $
    38.14
    
    
    $
    30.14Second Quarter
    
    
    35.92
    
    
    
    25.57Third Quarter
    
    
    27.25
    
    
    
    20.97Fourth Quarter
    
    
    27.15
    
    
    
    21.73For the Year
    
    
    38.14
    
    
    
    20.97
 2003High
    
    
    LowFirst Quarter
    
    $
    34.82
    
    
    $
    25.34Second Quarter
    
    
    38.25
    
    
    
    30.20Third Quarter
    
    
    41.10
    
    
    
    34.93Fourth Quarter
    
    
    41.24
    
    
    
    35.58For the Year
    
    
    41.24
    
    
    
    25.34
 As of March 14, 2005, we had approximately 14,000 shareholders of record, including shareholders
in our employee stock ownership plans (see Notes 15 and 16 to our consolidated financial statements
included elsewhere in this Form 10-K), and approximately 23,000 additional shareholders based on
an estimate of individual participants represented by security position listings. We have not
declared any cash dividends, and the present policy of our board of directors is to retain all
earnings to support operations and to finance our growth. We did not repurchase any shares of our common stock during the quarter ended January 1, 2005. 19




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##### Table of Contents



Item 6. Selected Consolidated Financial Data(1) (2 ) (Dollar amounts in thousands, except per share amounts)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000STATEMENT OF EARNINGS DATA:Net sales
    
    $
    6,148,923
    
    
    $
    5,519,811
    
    
    $
    4,438,383
    
    
    $
    3,237,248
    
    
    $
    2,605,468Cost of goods sold
    
    
    5,229,059
    
    
    
    4,665,275
    
    
    
    3,717,445
    
    
    
    2,780,128
    
    
    
    2,254,394Gross profit
    
    
    919,864
    
    
    
    854,536
    
    
    
    720,938
    
    
    
    457,120
    
    
    
    351,074Operating expenses
    
    
    806,918
    
    
    
    715,806
    
    
    
    595,240
    
    
    
    381,135
    
    
    
    302,176Operating profit
    
    
    112,946
    
    
    
    138,730
    
    
    
    125,698
    
    
    
    75,985
    
    
    
    48,898Other income (expense):Interest expense
    
    
    (16,829
    )
    
    
    (19,123
    )
    
    
    (18,763
    )
    
    
    (8,807
    )
    
    
    (6,593
    )Loss on sale of receivables
    
    
    (2,421
    )
    
    
    (1,765
    )
    
    
    (1,832
    )
    
    
    (1,445
    )
    
    
    Loss on redemption of convertible notes
    
    
    (10,127
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other, net
    
    
    1,107
    
    
    
    1,821
    
    
    
    1,259
    
    
    

    (438
    )
    
    
    (66
    )Other expense, net
    
    
    (28,270
    )
    
    
    (19,067
    )
    
    
    (19,336
    )
    
    
    (10,690
    )
    
    
    (6,659
    )Earnings before income taxes
    
    
    84,676
    
    
    
    119,663
    
    
    
    106,362
    
    
    
    65,295
    
    
    
    42,239Income tax expense
    
    
    32,118
    
    
    
    45,472
    
    
    
    39,886
    
    
    
    24,812
    
    
    
    16,051Net earnings
    
    $
    52,558
    
    
    $
    74,191
    
    
    $
    66,476
    
    
    $
    40,483
    
    
    $
    26,188PER SHARE DATA:(3)Weighted average common shares outstanding
    
    
    46,398
    
    
    
    45,483
    
    
    
    44,445
    
    
    
    37,957
    
    
    
    28,336Basic net earnings per common share
    
    $
    1.13
    
    
    $
    1.63
    
    
    $
    1.50
    
    
    $
    1.07
    
    
    $
    0.92Weighted average common shares and dilutive
potential common shares outstanding
    
    
    47,181
    
    
    
    53,002
    
    
    
    52,047
    
    
    
    39,328
    
    
    
    29,539Diluted net earnings per common share
    
    $
    1.11
    
    
    $
    1.54
    
    
    $
    1.42
    
    
    $
    1.03
    
    
    $
    0.89Book value per share (4)
    
    
    18.69
    
    
    
    17.53
    
    
    
    15.79
    
    
    
    13.90
    
    
    
    10.06Closing price per share
    
    
    26.91
    
    
    
    35.75
    
    
    
    33.73
    
    
    
    36.10
    
    
    
    25.64BALANCE SHEET AND OTHER DATA:Working capital (5)
    
    $
    84,824
    
    
    $
    112,951
    
    
    $
    81,082
    
    
    $
    69,755
    
    
    $
    95,572Property, plant and equipment, net
    
    
    394,701
    
    
    
    363,052
    
    
    
    293,994
    
    
    
    247,197
    
    
    
    143,142Depreciation and amortization
    
    
    58,699
    
    
    
    51,229
    
    
    
    44,862
    
    
    
    31,981
    
    
    
    17,877Capital expenditures
    
    
    83,471
    
    
    
    112,819
    
    
    
    57,656
    
    
    
    30,136
    
    
    
    30,992Total assets
    
    
    1,827,765
    
    
    
    1,736,468
    
    
    
    1,617,717
    
    
    
    1,277,791
    
    
    
    710,271Short-term debt (including current installments
of long-term debt)
    
    
    936
    
    
    
    1,358
    
    
    
    2,504
    
    
    
    1,879
    
    
    
    1,966Long-term debt
    
    
    278,584
    
    
    
    353,919
    
    
    
    370,095
    
    
    
    270,594
    
    
    
    114,492Shareholders equity
    
    
    874,313
    
    
    
    803,815
    
    
    
    714,869
    
    
    
    608,197
    
    
    
    357,024Total capital
    
    
    1,153,833
    
    
    
    1,159,092
    
    
    
    1,087,468
    
    
    
    880,670
    
    
    
    473,482Debt-to-capital ratio(6)
    
    
    24.2
    %
    
    
    30.7
    %
    
    
    34.3
    %
    
    
    30.9
    %
    
    
    24.6
    %Return on equity (7)
    
    
    6.3
    %
    
    
    9.8
    %
    
    
    10.1
    %
    
    
    9.2
    %
    
    
    12.1
    %Price/earnings ratio (8)
    
    
    24.2
    
    
    
    23.2
    
    
    
    23.8
    
    
    
    35.0
    
    
    
    28.8
   (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 for additional information about these acquisitions.(2)
    
    We adopted Statement of Financial Accounting Standards, or SFAS, No. 142, Goodwill and Other Intangible Assets, at the
beginning of 2002. As a result, operating expenses in 2003 and 2002 do not include amortization expense on goodwill and other
intangible assets with indefinite lives. For further details of the impact of the adoption of SFAS No. 142, see Note 2 to our
consolidated financial statements included elsewhere in this Form 10-K.(3)
    
    Per share data has been restated to give retroactive effect to an April 2001 two-for-one stock split for all periods presented.(4)
    
    Book value per share is calculated by dividing shareholders equity by the number of common shares outstanding at the end of
the fiscal year.(5)
    
    In July 2001, we entered into a receivables purchase facility under which we have sold and in the future intend to sell
undivided interests in some of our receivables to a financial institution. These sales have resulted in lower current assets
and working capital since July 2001. For additional information on the receivables purchase facility, see Managements
Discussion and Analysis of Financial Condition and Results of Operations  Liquidity and Capital Resources and Note 6 to our
consolidated financial statements included elsewhere in this Form 10-K.(6)
    
    The debt-to-capital ratio is calculated by dividing total debt by the sum of total debt and shareholders equity.(7)
    
    Return on equity is calculated by dividing net earnings by average shareholders equity. Return on equity for 2001 and 2000
has been adjusted for the impact of the common stock offerings completed in October 2001 and December 2000.(8)
    
    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 per common share. 20




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with Selected Consolidated
Financial Data and our consolidated financial statements and the related notes included elsewhere
in this Form 10-K. The following text contains references to years 2005, 2004, 2003 and 2002,
which refer to our fiscal years ending or ended December 31, 2005, January 1, 2005, January 3, 2004
and December 28, 2002, respectively, unless otherwise expressly stated or the context otherwise
requires. We use a 52/53-week fiscal year ending on the Saturday closest to December 31.
Consequently, we periodically have a 53-week fiscal year. Our 2003 year was a 53-week fiscal year. Overview We earn revenues primarily from the sale of food and non-food products to the foodservice, or
food-away-from-home, industry. We also sell pre-cut produce to food retailers. Our expenses
consist mainly of cost of goods sold, which includes the amounts paid to manufacturers or growers
for products and processing costs of our fresh-cut produce, and operating expenses, which include
primarily labor-related expenses, delivery costs and occupancy expenses related to our facilities.
For discussion of our business and strategies, see the Business section of this Form 10-K. According to industry research, nearly half of all meals are consumed away from home and
approximately 20 percent of all meals are consumed in automobiles. Another industry research firm
is projecting foodservice distributor sales to continue to grow in 2005. We believe the trends
that are fueling the demand for food-away-from-home include the aging Baby Boomer generation,
rising incomes and more women working outside of the home. According to industry research, older
adults on average spend significantly more on food away from home than younger adults do. In
addition, younger and higher-income consumers are increasingly starved for time and looking for
ways to save time by shifting meal preparation to others by dining out or buying prepared or
convenience foods. The foodservice distribution industry is fragmented and consolidating. In the last decade, the 10
largest broadline foodservice distributors have significantly increased their collective market
share through both acquiring smaller foodservice distributors and internal growth. Over the past
decade, we have supplemented our internal growth through selective, strategic acquisitions. We
believe that the consolidation trends in the foodservice distribution industry will continue to
present acquisition opportunities for us. Consumers are seeking healthier menu choices. Several national casual dining restaurants,
including certain of our customers, have introduced low-carb menu items in an effort to meet the
demands of consumers seeking to reduce their carbohydrate intake. In addition, in an effort to
reduce meal preparation time, consumers are seeking prepared or partially prepared food items from
retail establishments. Our Fresh Express® branded products sold by retailers are targeting
ready-to-eat convenience foods, which we believe is one of the fastest-growing categories for
retailers. Our net sales in 2004 increased 11.4% over 2003, with all of our sales growth coming from existing
operations. Our 2003 fiscal year included a 53rd week, which added approximately $101.1
million to net sales in 2003. Food price inflation contributed approximately 5% to our growth in
net sales in 2004. Our Broadline and Customized segments, in particular, experienced significant
inflation in 2004. Gross profit margin, which we define as gross profit as a percentage of net sales, declined in 2004
compared to 2003, driven primarily by our inability to leverage our cost infrastructure in the
Fresh-cut segment as we transition our customer and product mix to a more stable base of business.
Gross margins were also negatively impacted by a shift in product mix toward more
center-of-the-plate products in the Broadline segment and by the impact of food product inflation
in our Customized segment, which operates primarily on a fixed fee-per-case basis. Our operating expense ratio, which we define as operating expenses as a percentage of net sales,
increased in 2004 compared to 2003. Higher fuel and insurance costs in all of our segments
contributed to the increase in the operating expense ratio in 2004 compared to 2003. In addition,
our Fresh-cut segment experienced increased warehouse and delivery expenses related primarily to
inefficiencies in our production and distribution network because of the rationalization of
certain foodservice customers. Selling expenses also increased in Fresh-cut due to increased
promotional spending. Broadlines operating expenses were affected by incremental start-up costs
related to new multi-unit business. We were able to offset these increased costs in Broadline with
improved operating efficiencies. Going forward, we continue to be very focused on executing our strategies, adding new capacity and
driving operational improvements in each of our business segments. We continue to seek innovative
means of servicing our customers to distinguish ourselves from others in the marketplace. 21




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##### Table of Contents



Sale of Fresh-cut Segment In September 2004, we announced that we were considering strategic alternatives for our Fresh-cut
produce business. The alternatives we evaluated included, but were not limited to, the possible
sale of the segment as an ongoing business; the creation of a stand-alone company operating the
Fresh-cut produce business; and keeping the Fresh-cut segment as part of PFG. We retained the
services of Goldman, Sachs & Co. to assist us with our review. On February 22, 2005, we signed a
definitive agreement to sell all of the stock we own in the companies that make up our Fresh-cut
segment to Chiquita Brands International, Inc. for a purchase price of $855.0 million.
Consummation of the sale is subject to the expiration of the waiting period under the
Hart-Scott-Rodino Act and the satisfaction of other customary conditions to our and Chiquitas
obligation to close the transaction. We expect net proceeds after taxes and expenses related to
the transaction to be approximately $695.0 million. We expect to use approximately $290.0 million
from the net proceeds of the sale to repay all of our indebtedness, including estimated prepayment
penalties. The balance of these net proceeds will be used primarily for a return of capital to
shareholders through share repurchases, cash dividends or some combination of the two. We expect
this will leave the Company well positioned to pursue continued growth opportunities in the future.
Effective in the first quarter of 2005, we will classify the assets and liabilities of the Fresh-cut segment as discontinued operations and will report the results of operations for Fresh-cut in discontinued operations in accordance with Statement of Financial Accounting Standards, or SFAS, No. 144,
Accounting for the Impairment or Disposal of Long-lived Assets. Results of Operations Net sales 2004
    
    
    2003
    
    
    2002Net
    
    
    % of
    
    
    Net
    
    
    % of
    
    
    Net
    
    
    % of(In thousands)
    
    Sales
    
    
    total
    
    
    Sales
    
    

    total
    
    
    Sales
    
    
    totalBroadline
    
    $
    3,121,306
    
    
    
    50.7
    %
    
    $
    2,805,977
    
    
    
    50.8
    %
    
    $
    2,204,807
    
    
    
    49.7
    %Customized
    
    
    2,052,880
    
    
    
    33.4
    
    
    
    1,798,219
    
    
    
    32.6
    
    
    
    1,409,594
    
    
    
    31.7Fresh-cut
    
    
    989,042
    
    
    
    16.1
    
    
    
    933,371
    
    
    
    16.9
    
    
    
    837,002
    
    
    
    18.9Inter-segment*
    
    
    (14,305
    )
    
    
    (0.2
    )
    
    
    (17,756
    )
    
    
    (0.3
    )
    
    
    (13,020
    )
    
    
    (0.3
    )Total net sales
    
    $
    6,148,923
    
    
    
    100.0
    %
    
    $
    5,519,811
    
    
    
    100.0
    %
    
    $
    4,438,383
    
    
    
    100.0
    %
 *Inter-segment sales are sales between the segments, which are eliminated in consolidation. Consolidated.In 2004, net sales increased $629.1 million, or 11.4% over 2003. In 2003, net sales
increased $1.08 billion, or 24.4%, from 2002. All of our net sales growth in 2004 was from
existing operations. Net sales in our existing operations contributed 16.8% to our increase in net
sales in 2003. Net sales in existing operations exclude the net sales of an acquired business for
the first 12 months following the acquisition date of that business. Acquisitions contributed 7.6%
to our total net sales growth for 2003. We estimate that food price inflation contributed
approximately 5% and 2% to net sales growth in 2004 and 2003, respectively. Our 2003 fiscal year
included a 53rd week, which contributed approximately $101.1 million, or 2.3%, to net
sales growth in 2003. Each segments sales are discussed in more detail in the following
paragraphs. Broadline.In 2004, Broadline net sales increased $315.3 million, or 11.2%, over 2003. In 2003,
Broadline net sales increased $601.2 million, or 27.3%, from 2002. Net sales in existing
operations contributed 12.0% to Broadline net sales growth in 2003. Acquisitions contributed 15.3%
to Broadline net sales growth in 2003. We estimate that food price inflation contributed
approximately 5% and 4% to Broadline net sales growth in 2004 and 2003, respectively. The
53rd week contributed approximately $47.7 million, or 2.2%, to 2003 Broadline net sales
growth. In 2004 and 2003, we continued to increase sales to independent restaurants and generated
incremental sales to existing customers and markets. We refer to independent restaurants serviced
by our sales representatives as street customers. Street customers tend to use more of our
proprietary brands and value-added services, resulting in higher margin sales. We continued to
increase sales of our proprietary brands, which typically generate higher margins than national
brands. Sales of our proprietary brands represented 25% of street sales in 2004, compared to 23%
in 2003 and 20% in 2002. In 2004, we also continued to increase sales and sales per delivery at
Quality Foods, Inc., one of our Broadline companies that we acquired in May 2002, and we continued
to increase our sales of center-of the-plate items, including beef, poultry, seafood and other
proteins. We believe that selling more center-of the-plate items positions us favorably with our
customers. We discontinued service to certain Wendys quick-service restaurant locations in the first quarter
of 2004. Our 2003 annual sales to these Wendys locations totaled $129.9 million. However, we
rolled out new multi-unit chain business during the first and early second quarters of 2004, which
we expect to generate approximately $80.0 million of annualized sales. In 22




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the third and fourth quarters of 2004, we rolled out additional new multi-unit chain business,
which is expected to result in approximately $250 million of annualized net sales. We incurred
incremental costs in 2004 related to this new business. Broadline acquisition net sales growth in 2003 resulted mainly from our acquisitions of Quality
Foods in May 2002; and Middendorf Meat Company and Thoms-Proestler Company and TPC Logistics, Inc.,
collectively TPC, in July 2002. These acquisitions are discussed below in Business Combinations. Broadline net sales represented 50.7%, 50.8% and 49.7% of our consolidated net sales in 2004, 2003
and 2002, respectively. The decrease as a percentage of our consolidated net sales in 2004
compared to 2003 is due mainly to the new business in our Customized segment, discussed below. The
increase as a percentage of our consolidated net sales in 2003 compared to 2002 is due primarily to
the acquisitions of Quality Foods, Middendorf Meat and TPC. Customized.In 2004, Customized net sales increased $254.7 million, or 14.2%, over 2003. In 2003,
Customized net sales increased $388.6 million, or 27.6%, from 2002. We estimate that our
Customized segment experienced food product inflation of 6% in 2004 and nominal food product
inflation in 2003. The 53rd week contributed approximately $38.1 million, or 2.7%, to
net sales growth in 2003. Growth in sales to existing customers combined with inflation mainly led to the increase in
Customized net sales in 2004. The increase in Customized net sales in 2004 is also partially due
to sales to 100 additional Ruby Tuesday locations that began in the second quarter of 2003 and
sales to 70 Mimis Café casual-dining restaurants that began in the first quarter of 2003. The
increase in Customized net sales in 2003 is primarily due to approximately $410 million of
annualized sales to 200 additional Ruby Tuesday restaurant locations beginning in the third quarter
of 2002, 265 additional TG.I. Fridays casual-dining restaurants beginning in the fourth quarter
of 2002, 70 Mimis Café restaurants beginning in the first quarter of 2003, and 100 additional Ruby
Tuesday locations beginning in the second quarter of 2003. Additionally, in the fourth quarter of
2002, we discontinued our relationship with Avado Brands, Inc., which accounted for approximately
$100 million, or approximately 7%, of our Customized net sales in 2002. Sales growth in both 2004
and 2003 also benefited from the continued growth in sales to existing customers. Customized net sales represented 33.4%, 32.6% and 31.7% of our consolidated net sales in 2004, 2003
and 2002, respectively. The increase as a percentage of our consolidated net sales in 2004
compared to 2003 and 2003 compared to 2002 is due primarily to sales to the new customers discussed
above. Fresh-cut.In 2004, Fresh-cut net sales increased $55.7 million, or 6.0%, over 2003. In 2003,
Fresh-cut net sales increased $96.4 million, or 11.5%, over 2002. All of our 2004 and 2003 net
sales growth was from existing operations. We estimate that food product inflation contributed
approximately 1% to Fresh-cut net sales growth in both 2004 and 2003. The 53rd week
contributed approximately $15.7 million, or 1.9%, to 2003 Fresh-cut net sales growth. In 2004, Fresh-cut net sales grew mainly due to higher sales volumes to retail customers. While
retail sales continued to grow, the rate of growth in the retail packaged salad category
industry-wide slowed compared to historical levels, which negatively impacted sales growth. In
2003, Fresh-cut net sales grew because of increased sales volume to foodservice and retail
customers and favorable changes in product mix towards higher value-added products. The increase
in sales volume is due mainly to increased sales of tender leaf premium salad products to
quick-service restaurants and retail customers. The tender leaf products for retail customers and
premium salads for foodservice operators sell at a higher price per pound than products consisting
mainly of iceberg lettuce. Fresh-cut segment net sales represented 16.1%, 16.9% and 18.9% of our consolidated net sales in
2004, 2003 and 2002, respectively. The decrease as a percentage of our consolidated net sales in
2004 compared to 2003 and 2003 compared to 2002 is due to the sales growth in our Customized
segment, discussed above. Cost of goods sold In 2004, cost of goods sold increased $563.8 million, or 12.1%, to $5.23 billion. In 2003, cost of
goods sold increased $947.8 million, or 25.5%, to $4.67 billion from $3.72 billion in 2002. Cost
of goods sold as a percentage of net sales, or the cost of goods sold ratio, was 85.0% in 2004,
84.5% in 2003 and 83.8% in 2002. The increase in the cost of goods sold ratio in 2004 compared to
2003 and 2003 compared to 2002 is due to the factors discussed below. Broadline.Our Broadline segments cost of goods sold as a percentage of net sales in 2004
increased compared to 2003. Broadlines cost of goods sold ratio increased due to a higher
mix of center-of-the-plate items, which we believe positions us
favorably with our customers and due to increased sales to multi-unit
customers, which carry a lower gross margin percentage than sales to
street customers.
Center-of-the-plate items typically have a lower gross margin percentage than other products, due
to their higher cost per case and are usually sold on a cost-per-pound basis rather than a
percentage markup. Products in the meat category have been particularly affected by inflation in
2004. Although a higher sales mix of 23




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center-of-the-plate items can result in a lower gross margin, our strength in this category is an
important part of our strategy to grow our higher margin street sales. Additionally, Quality
Foods, one of our Broadline companies, which we acquired in May 2002, has experienced erosion in
its cost of goods sold ratio due to a shift in sales mix. We expect the impact of this trend at
the Quality Foods locations, which includes PFG-Little Rock, PFG-Magee, and PFG-Batesville, to
continue into 2005 at a reduced rate. Reducing cost of goods sold in the Broadline segment in 2003 was $2.0 million of additional
insurance proceeds received in the fourth quarter of 2003, related to the Springfield Foodservice
ammonia leak. In July 2002, we discovered an ammonia leak in the refrigeration system at our
Springfield Foodservice facility in Massachusetts. Although there were no injuries and the leak
was confined to the facility, the leak did cause physical damage at the facility and negatively
affected the 2002 sales and operating profit of our Broadline segment. In 2002, Broadlines cost
of goods sold included $3.3 million related to damaged inventory, net of $1.0 million of insurance
coverage, attributable to the ammonia leak. Customized.Our Customized segments cost of goods sold ratio increased in 2004 from 2003 due
mainly to food product inflation. Although the higher food cost was passed on to customers and did
not negatively impact the Customized segments gross profit dollars, it resulted in lower gross
profit as a percentage of net sales. Our Customized segments cost of goods sold ratio declined in
2003 compared to 2002 as a result of changes in pricing, product mix and customer mix. Fresh-cut.Our Fresh-cut segments cost of goods sold ratio increased in 2004 compared to 2003
because of several factors. Our long-term plan had been to rationalize some of Fresh-cuts
non-value-added foodservice business. However, the transition moved at a faster pace than planned
and the loss of sales from certain foodservice customers who exited during 2004, including
competitors of Performance Food Groups distribution business, contributed to the increase in the
cost of goods sold ratio. We will continue to experience a higher cost of goods sold ratio until
we can adjust our cost structure to reflect this loss of foodservice revenue. In 2004, we rolled
out new fruit products to certain customers more quickly than planned and incurred certain start-up
inefficiencies, which also increased our cost of goods sold ratio. In addition, increased
production overhead, including depreciation, repairs and maintenance and insurance related costs,
negatively impacted our cost of goods sold ratio. Fresh-cuts cost of goods sold ratio increased in 2003 compared to 2002 related to the growth of
our tender leaf premium salad products and increased lettuce costs. The unexpected, rapid growth
in sales of our tender leaf salad products in 2003, discussed in Net sales, created
inefficiencies in our processing and warehousing activities due to the slower speeds of the tender
leaf processing equipment, and the related physical capacity consumed by these processing lines.
During the second quarter of 2003, the cost of lettuce was affected by industry-wide increased
demand from quick-service restaurants for new premium salad products supplied by our Fresh-cut
segment. This level of demand was not anticipated when growers made their planting decisions,
which resulted in a significant increase in market prices for lettuce. While we routinely contract
for the vast majority of our lettuce needs, the success of these products meant that we had to make
additional market purchases at higher prices to satisfy increased customer demand. We were able to
recoup some, but not all, of these higher costs from increased pricing to our customers. Also
during 2003, the industry experienced raw material supply disruptions caused by abnormal weather
conditions during the crop-growing cycle. In a continuing effort to maintain supplies to meet
customer demand for our products, we made additional market purchases at substantially higher than
historical prices, with the intention of recouping these higher costs by increasing prices to our
customers. When market prices of raw products unexpectedly declined sharply in late December 2003,
we were unable to recoup all of these higher costs through continued price increases to our
customers. Gross profit In 2004, gross profit increased $65.3 million, or 7.6%, to $919.9 million. In 2003, gross
profit increased $133.6 million, or 18.5%, to $854.5 million from $720.9 million in 2002. Gross
profit margin was 15.0% in 2004, 15.5% in 2003 and 16.2% in 2002. The decline in gross profit
margins in 2004 compared to 2003 and 2003 compared to 2002 is discussed above in Cost of goods
sold. Operating expenses Consolidated.In 2004, operating expenses increased $91.1 million, or 12.7%, to $806.9 million.
In 2003, operating expenses increased $120.6 million, or 20.3%, to $715.8 million from $595.2
million in 2002. The operating expense ratio was 13.1% in 2004, 13.0% in 2003 and 13.4% in 2002.
Higher fuel and insurance costs in all of our segments contributed to the increase in the operating
expense ratio in 2004 compared to 2003. In addition, our Fresh-cut segment experienced increased
warehouse and delivery expenses related primarily to inefficiencies in our production and
distribution network because of the rationalization of certain foodservice customers. Selling
expenses also increased in Fresh-cut due to increased promotional spending. Broadlines operating
expenses were affected by incremental start-up costs related to new multi-unit business. We were
able to offset these increased costs in Broadline with improved operating efficiencies. 24




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The decrease in the operating expense ratio in 2003 compared to 2002 was due mainly to improvements
in our Broadline segment and decreased overhead costs in our Fresh-cut segment, discussed below.
These improvements were partially offset by increased estimated workers compensation and vehicle
liability insurance costs in all of our business segments and increased operating expenses in our
Customized segment related to the labor dispute discussed below. Broadline.Our Broadline segments operating expense ratio declined in 2004 from 2003 because of
improved warehouse efficiencies, partially offset by higher fuel and insurance costs and start-up
costs related to the new multi-chain business discussed in Net Sales. Broadlines operating
expense ratio declined in 2003 from 2002, due primarily to our concentrated efforts to increase
efficiencies in warehousing and transportation, partially offset by increased estimated workers
compensation and vehicle liability self-insurance costs. In 2002, operating expenses included $2.1
million of costs attributable to the ammonia leak at Springfield Foodservice, discussed above in
Cost of goods sold. Customized.Our Customized segments operating expense ratio declined in 2004 compared to 2003 due
primarily to the effects of food product inflation on net sales. These declines were partially
offset by higher fuel and insurance costs. In the fourth quarter of 2003, certain drivers at the
Elkton, Maryland facility went on strike. We incurred incremental costs in both 2004 and 2003 to
engage replacement drivers to maintain the service level to our customers, to provide additional
security at the facility, and to pay our legal counsel. In the third quarter of 2004, we received
a petition from a majority of our drivers in Elkton, Maryland, stating that they no longer wished
to be represented by the union. Accordingly, we were legally obligated to withdraw recognition of
the union. Incremental costs resulting from the Elkton labor dispute declined throughout 2004. Our Customized segments operating expense ratio increased slightly in 2003 from 2002, mainly due
to increased estimated workers compensation and vehicle liability self-insurance costs and costs
related to the labor dispute at our Elkton, Maryland distribution facility. Fresh-cut.Our Fresh-cut segments operating expense ratio increased in 2004 from 2003 mainly
because of increased operating expenses compounded by the loss of foodservice revenue. A major
initiative continues to be optimizing our logistics infrastructure as we continue this transition.
See Cost of goods sold above. In addition, selling expenses increased in 2004 due to higher
promotional spending. Operating expenses also increased due to higher employee-related expenses,
insurance costs and legal and consulting fees. Our Fresh-cut segments operating expense ratio declined in 2003 from 2002 mainly because of
decreased overhead costs partially offset by increased estimated workers compensation and vehicle
liability self-insurance costs. Corporate.Our Corporate segments operating expenses increased in 2004 compared to 2003 primarily
because of increased professional fees related mainly to our compliance program associated with
Section 404 of the Sarbanes-Oxley Act of 2002, increased audit and consulting fees, increased
insurance costs and personnel and severance costs. Operating profit 2004
    
    
    2003
    
    
    2002Operating
    
    
    % of
    
    
    Operating
    
    
    % of
    
    
    Operating
    
    
    % of(In thousands)
    
    Profit
    
    
    Sales
    
    
    Profit
    
    
    Sales
    
    
    Profit
    
    
    SalesBroadline
    
    $
    70,196
    
    
    
    2.2
    %
    
    $
    69,664
    
    
    
    2.5
    %
    
    $
    55,232
    
    
    
    2.5
    %Customized
    
    
    21,538
    
    
    
    1.0
    
    
    
    19,704
    
    
    
    1.1
    
    
    
    15,903
    
    
    
    1.1Fresh-cut
    
    
    49,266
    
    
    
    5.0
    
    
    
    66,405
    
    
    
    7.1
    
    
    
    68,543
    
    
    
    8.2Corporate and inter-segment
    
    
    (28,054
    )
    
    
    
    
    
    
    (17,043
    )
    
    
    
    
    
    
    (13,980
    )
    
    
    Total operating profit
    
    $
    112,946
    
    
    
    1.8
    %
    
    $
    138,730
    
    
    
    2.5
    %
    
    $
    125,698
    
    
    
    2.8
    %
 Consolidated.In 2004, operating profit decreased $25.8 million, or 18.6%. In 2003, operating
profit increased $13.0 million, or 10.4%. Operating profit margin, defined as operating profit as
a percentage of net sales, was 1.8% in 2004, 2.5% in 2003 and 2.8% in 2002. The decrease in
operating profit margin in 2004 compared to 2003 is due mainly to increased operating expenses in
our Fresh-cut and Corporate segments, discussed above. The decrease in operating profit margin in
2003 compared to 2002 was driven mainly by a decline in gross profit margin, partially offset by
reduced operating expenses as a percentage of net sales, as discussed above. 25




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Broadline.Our Broadline segments operating profit margin was 2.2% in 2004 and 2.5% in both 2003
and 2002. Operating profit margin in 2004 declined due to a decrease in gross profit margin,
discussed above in Cost of goods sold. Operating profit margin in 2003 was favorably impacted by
the recovery of $2.0 million of insurance proceeds related to the Springfield Foodservice ammonia
leak and negatively impacted by the results of our Quality Foods subsidiary, both discussed above.
Operating profit margin for 2002 was negatively impacted by approximately $6.6 million of costs
attributable to the Springfield Foodservice ammonia leak, discussed above. Customized.Our Customized segments operating profit margin was 1.0% in 2004 and 1.1% in 2003 and
2002. In 2004, a decline in the gross profit margin was partially offset by decreased operating
expenses. In 2003, an increase in the gross profit margin was offset by increased operating
expenses. See Cost of goods sold and Operating expenses above for further discussion. Fresh-cut.Our Fresh-cut segments operating profit margin was 5.0% in 2004, 7.1% in 2003 and 8.2%
in 2002. The decline in operating profit margins in 2004 compared to 2003 was due mainly to
increased operating expenses, discussed above in Operating expenses. The decline in operating
profit margin in 2003 compared to 2002 was due to increased cost of goods sold, discussed in Cost
of goods sold, partially offset by decreased overhead expenses, discussed in Operating expenses. Other expense, net Other expense, net, was $28.3 million in 2004, $19.1 million in 2003 and $19.3 million in 2002.
Included in other expense, net, was interest expense of $16.8 million, $19.1 million and $18.8
million in 2004, 2003 and 2002, respectively. Interest expense was lower in 2004 compared to 2003
because of the redemption of our 51/2% convertible subordinated notes due in 2008, referred to as the
Convertible Notes, with lower interest-rate debt, discussed below, partially offset by higher
interest rates. Interest expense was higher in 2003 compared to 2002 because of higher average
borrowing levels to fund our capital expenditures and acquisitions, partially offset by lower
interest rates. On October 18, 2004, we redeemed our $201.3 million aggregate principal amount of Convertible
Notes. We used additional borrowings under our revolving credit facility, as amended, to fund the
redemption. (For further discussion of the revolving credit facility, see Financing Activities
below.) We paid the registered holders of the Convertible Notes a redemption price of 103.1429% of
the principal amount of the Convertible Notes plus accrued interest. Other expense, net, in 2004
included 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. Other expense, net, also included a loss on the sale of the undivided interest in receivables of
$2.4 million in 2004 and $1.8 million in 2003 and 2002. This loss is related to our receivables
purchase facility, referred to as the Receivables Facility, and represents the discount from
carrying value that we incur from our sale of receivables to the financial institution. The
Receivables Facility is discussed below in Liquidity and Capital Resources. The increase in the
loss on sale of receivables in 2004 compared to 2003 is due to higher average levels of receivables
sold under the Receivables Facility combined with increased average interest rates. Income tax expense Income tax expense was $32.1 million in 2004, $45.5 million in 2003 and $39.9 million in 2002. As
a percentage of earnings before income taxes, the provision for income taxes was 37.9%, 38.0% and
37.5% in 2004, 2003 and 2002, respectively. Net earnings In 2004, net earnings decreased $21.6 million, or 29.2%, to $52.6 million. In 2003, net earnings
increased $7.7 million, or 11.6%, to $74.2 million from $66.5 million in 2002. Net earnings as a
percentage of net sales were 0.9% in 2004, 1.3% in 2003 and 1.5% in 2002. Diluted net earnings Diluted net earnings per common share, or EPS, is compared by dividing net income available to
common shareholders plus dilutive after-tax interest on the Convertible Notes (numerator) by the
weighted-average number of common shares and dilutive potential common shares outstanding during
the period. In 2004, diluted EPS decreased 27.9% to $1.11. In 2003, diluted EPS increased 8.5% to
$1.54, compared to $1.42 in 2002. After-tax interest expense of $7.5 million and common share
equivalents of 6.1 million related to the Convertible Notes are included in the calculation of
diluted EPS for 26




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2003 and 2002. On October 18, 2004, we redeemed our Convertible Notes. For 2004, the Convertible
Notes were excluded from the calculation of diluted EPS because of their anti-dilutive effect on
EPS. Liquidity and Capital Resources We have historically financed our operations and growth primarily with cash flows from
operations, borrowings under our credit facilities, the issuance of long-term debt, operating
leases, normal trade credit terms and the sale of our common stock. Despite our growth in net
sales, we have reduced our working capital needs by financing our investment in inventory
principally with accounts payable and outstanding checks in excess of deposits. We typically fund
our acquisitions, and expect to fund future acquisitions, with our existing cash, additional
borrowings under our revolving credit facility and the issuance of debt or equity securities. Cash and cash equivalents totaled $52.3 million at January 1, 2005, an increase of $13.4 million
from January 3, 2004. The increase of cash was due to cash provided by operating activities of
$116.0 million, partially offset by cash used in investing activities of $85.3 million and cash
used in financing activities of $17.3 million. At January 3, 2004, cash and cash equivalents
totaled $38.9 million, an increase of $5.3 million from December 28, 2002. The increase was mainly
due to cash provided by operating activities of $127.0 million, partially offset by cash used in
investing activities and financing activities of $121.7 million and $40,000, respectively.
Operating, investing and financing activities are discussed below. Operating activities During 2004, we generated cash from operating activities of $116.0 million, compared to $127.0
million in 2003 and $118.0 million in 2002. Cash provided by operating activities for all three
years was primarily due to increased sales in all of our business segments, partially offset by
increased cost of goods sold and operating expenses, discussed above in Results of Operations. In October 2004 and July 2003, we received an additional $20.0 million and $32.0 million,
respectively, of proceeds from the sales of incremental undivided interests in receivables under
our Receivables Facility. These proceeds are reflected in the change in accounts receivable on our
Consolidated Statements of Cash Flows. See Off Balance Sheet Activities below for further
discussion of our Receivables Facility. Despite the sale of the incremental undivided interest in
receivables under our Receivables Facility in 2004 and 2003, accounts
receivable increased by $3.5
million in 2004 and $18.2 million in 2003. The increase in accounts receivable was due primarily
to higher average daily sales in December 2004 compared to December 2003 and December 2002.
Inventories increased by $57.3 million in 2004, compared to an increase of $13.6 million in 2003.
Inventories increased in 2004 due to increased sales volume, incremental inventory for new and
existing multi-unit customers, inflation and the rollout of new menu items for certain Customized
segment customers near the end of 2004. Inventories increased in 2003 mainly due to increased
sales volume and the rollout of new menu items for certain Customized segment customers near the
end of 2003. Trade accounts payable increased by $32.3 million in 2004, due mainly to higher
inventory levels and the timing of payments made. Accrued expenses increased by $13.5 million in
2004, compared to an increase of $26.8 million in 2003. The 2004 increase in accrued expenses was
due mainly to increased estimated self-insurance costs for workers compensation, vehicle liability
and group medical insurance. The 2003 increase in accrued expenses was partially due to increased
estimated self-insurance costs for workers compensation, vehicle liability and group medical
insurance. See Application of Critical Accounting Policies below for further discussion of these
estimates. Increased employee-related costs and increased deferred revenue for marketing programs
also contributed to the increase in accrued expenses in 2003. In 2003, deferred income taxes
increased $24.4 million, due primarily to accelerated depreciation deductions taken on assets for
tax purposes in excess of deductions for book purposes. In 2003, income taxes, net, decreased
$18.4 million due to excess tax payments made during the year, primarily as a result of lower than
expected taxable earnings. On October 18, 2004, we redeemed our $201.3 million aggregate principal amount of Convertible
Notes. In connection with that redemption, we wrote off $3.8 million of unamortized debt
issuance costs. We also paid a redemption premium to the registered holders of the Convertible
Notes, consisting of 103.1429% of the principal amount of the Convertible Notes plus accrued
interest. Other expense, net, in 2004 included 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. Investing activities During 2004, we used $85.3 million for investing activities, compared to $121.7 million in 2003 and
$272.2 million in 2002. Investing activities include the acquisition of businesses and additions
to and disposals of property, plant and equipment. Capital expenditures totaled $83.5 million in
2004, $112.8 million in 2003 and $57.7 million in 2002. In 2004, capital expenditures totaled
$15.1 million in our Broadline segment, $20.8 million in our Customized segment, $42.8 27




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million in our Fresh-cut segment and $4.8 million in our Corporate segment. Capital expenditures
in our Broadline segment included expansions of several existing warehouses. Capital expenditures
in our Customized segment included costs for our new Indiana, California and South Carolina
distribution centers. Capital expenditures in our Fresh-cut segment consisted mainly of an
expansion of one of our processing facilities and additional fruit and tender leaf processing
equipment. In 2003, capital expenditures totaled $32.3 million in our Broadline segment, $21.6 million in our
Customized segment, $55.8 million in our Fresh-cut segment and $3.1 million in our Corporate
segment. During 2003, our Broadline segment purchased three distribution centers totaling $23.7
million. We purchased one of these distribution centers from one of our master operating lease
facilities, discussed below in Off Balance Sheet Activities. We had previously leased the other
two distribution centers under operating leases. In 2003, our Customized segment purchased its
Maryland distribution center from one of our master operating lease facilities for $10.4 million,
and subsequently spent $8.0 million expanding it. During 2003, our Fresh-cut segments capital
expenditures included investing in a new automated salad line, additional tender leaf processing
lines, upgrades of existing salad lines, an expansion of one of its processing plants, facility
consolidation and other enhancements to its processing equipment, plants, distribution centers and
technology. We expect our total 2005 capital expenditures to range between $80 million and $100
million, assuming the anticipated sale of our Fresh-cut segment during the second quarter of 2005. In 2004, net cash paid for acquisitions consisted of $3.1 million, related to contractual
obligations in the purchase agreements for Carroll County Foods, Inc., which we acquired in 2000;
All Kitchens, Inc., which we acquired in 2000 and other companies acquired. In 2004, we also
accrued approximately $1.3 million related to the settlement of the earnout agreement with
Middendorf Meat; this amount was paid in the first quarter of 2005. In 2003, net cash paid for
acquisitions was $14.0 million, including $11.0 million paid to the former shareholders of Fresh
Express for certain contractual obligations and associated taxes related to the purchase agreement
for Fresh Express. We acquired Fresh Express in 2001. Also, in 2003, we paid $5.2 million related
to contractual obligations in the purchase agreements for All Kitchens, Inc., TPC, Carroll County
Foods and other companies acquired. We acquired All Kitchens and TPC in 2002. Cash paid for
acquisitions in 2003 was net of $2.2 million received related to the closing net worth adjustment
and certain related claims in connection with our 2002 acquisition of Middendorf Meat. In 2003, we
also received $4.5 million from the sale of our investment in a fresh-cut produce-processing
facility. We recorded a gain on the sale of this investment of $956,000. Net cash paid for acquisitions in 2002 was $215.1 million, including $15.6 million, $84.1 million,
$22.2 million and $90.3 million paid for the acquisitions of All Kitchens, TPC, Middendorf Meat,
and Quality Foods, respectively, net of cash acquired. Net cash paid for acquisitions in 2002 also
included $2.9 million paid to the former shareholders of Carroll County Foods and AFFLINK
Incorporated (formerly Affiliated Paper Companies, Inc.), which were acquired in 2000 and 1998,
respectively, as a result of certain contractual obligations under the purchase agreements related
to those acquisitions. For further discussion of acquisitions, see Business Combinations. Financing activities In 2004, we reduced our total debt by $75.8 million, through a combination of debt repayments of
$202.5 million, partially offset by additional borrowings of $126.8 million on our revolving credit
facility, as amended, described below. At January 1, 2005, total debt recorded on our consolidated
balance sheet was $279.5 million. On October 18, 2004, we redeemed our Convertible Notes with
additional borrowings under our revolving credit facility, as amended, described below. We paid
the registered holders of the Convertible Notes the redemption price of 103.1429% of the principal
amount of the Convertible Notes plus accrued interest. Other expense, net, in 2004 included 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. In September 2004, we amended our revolving credit facility, referred to as the Credit Facility.
This amendment modified the financial covenants related to certain ratios that we are required to
maintain under the Credit Facility and allowed us to redeem our Convertible Notes. In April 2003,
we also amended and restated the Credit Facility, which, among other things, increased the facility
to $350.0 million from $200.0 million. The Credit Facility expires in 2006 and bears interest at a
floating rate equal to, at our election, the agent banks prime rate or a spread over LIBOR. This
rate varies based upon our senior leverage ratio, which excludes subordinated debt, and is defined
in the credit agreement. The Credit Facility has an annual commitment fee, ranging from 0.20% to
0.25% of the average daily-unused portion of the total facility, based on our senior leverage
ratio, as defined in the credit agreement. The Credit Facility also requires the maintenance of
certain financial ratios, as defined in the credit agreement, and contains customary events of
default. The Credit Facility allows for the issuance of up to $90.0 million of standby letters of
credit, which reduce borrowings available under the Credit Facility. At January 1, 2005 we had
$210.0 million of borrowings outstanding, $54.3 million of letters of credit outstanding and $85.7
million available under the Credit Facility, subject to compliance with customary borrowing
conditions. At January 1, 2005, our borrowings under the Credit Facility bore interest at a rate
of 2.91% per annum. Interest is payable monthly. 28




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In 2003, we reduced our total debt by $17.3 million, of which $14.8 million repaid borrowings
outstanding under our Credit Facility, defined below. In July 2003, we sold an incremental
undivided interest in receivables under our Receivables Facility, obtaining $32.0 million in
proceeds. We used a portion of these proceeds to repay borrowings under our Credit Facility. In
2002, we borrowed $98.0 million from our Credit Facility, defined below, primarily to finance our
acquisitions of Quality Foods, Middendorf Meat, TPC and All Kitchens. Our associates who exercised stock options and purchased our stock under the Employee Stock
Purchase Plan provided $12.6 million of proceeds in 2004, compared to $11.0 million in 2003. See
Note 16 to our consolidated financial statements for details of our employee stock option plans and
Employee Stock Purchase Plan. Checks in excess of deposits increased by $46.3 million in 2004 and $7.0 million in 2003. Checks
in excess of deposits represent checks that we have written that are not yet cashed by the payee
and in total exceed the current available cash balance at the respective bank. The increases in
checks in excess of deposits are related to higher inventory levels and timing of payments due to
our efforts to improve cash management. We believe that our cash flows from operations, borrowings under our Credit Facility and the sale
of undivided interests in receivables under our Receivables Facility, discussed below, will be
sufficient to fund our operations and capital expenditures for the foreseeable future. However, we
will likely require additional sources of financing to the extent that we make acquisitions in the
future. The table below presents contractual minimum cash obligations under long-term debt, capital leases,
operating leases and purchase obligations as of January 1, 2005. Long-term debt on our
consolidated balance sheets includes both debt and capital leases. Lease payments include payments
due under our existing non-cancelable operating leases. In the table below, Purchase obligations
refers to specific agreements to purchase goods, which are enforceable and legally binding.
Purchase obligations do not include outstanding purchase orders for inventory in the normal course
of business, other than those discussed below, and do not include non-cancelable service contracts.
The table does not include liabilities for deferred income taxes or the Receivables Facility.
This table should be read in conjunction with Notes 10, 12 and 18 to our consolidated financial
statements. (In thousands)
    
    Payments Due by PeriodMore1 Year
    
    
    Year 2
    
    
    Year 4
    
    
    Than 5Contractual Obligations
    
    Total
    
    
    and Less
    
    
    and 3
    
    
    and 5
    
    
    YearsLong-term debt obligations
    
    $
    279,520
    
    
    $
    936
    
    
    $
    211,779
    
    
    $
    1,921
    
    
    $
    64,884Operating lease obligations
    
    
    301,530
    
    
    
    46,325
    
    
    
    68,953
    
    
    
    45,118
    
    
    
    141,134Purchase obligations
    
    
    188,209
    
    
    
    168,799
    
    
    
    19,410
    
    
    
    
    
    
    
    Total
    
    $
    769,259
    
    
    $
    216,060
    
    
    $
    300,142
    
    
    $
    47,039
    
    
    $
    206,018
 Our Fresh-cut segment has contracts to purchase produce, some of which have variable quantities,
with minimum and maximum limits. Our minimum commitments under produce purchase contracts, totaled
$142.3 million at January 1, 2005. Our Fresh-cut, Broadline and Customized segments also had
outstanding purchase orders for capital projects totaling $2.0 million, $4.1 million and $36.0
million, respectively, at January 1, 2005. These contracts and purchase orders expire at various
times throughout 2005 and 2006. Also, at January 1, 2005, our Broadline segment had contracts to
purchase products totaling $3.8 million, which expire throughout 2005. These purchase commitments
are included in Purchase obligations in the above table. Amounts due under these contracts were
not included on our consolidated balance sheet at January 1, 2005, in accordance with United States
generally accepted accounting principles. We expect to use future cash flows from operations,
combined with cash received from the anticipated sale of our Fresh-cut segment to fund these
obligations (see Subsequent Event). In addition to the above minimum cash obligations, in connection with certain acquisitions, we have
entered into earnout agreements with certain of the former owners of the businesses that we have
acquired. These agreements are based upon certain sales, operating profit, net earnings and
affiliate distributor targets, as defined in each agreement, and discussed in more detail in Note 3
to the consolidated financial statements. These earnout obligations, to the extent earned, may
include payments in cash and/or shares of our common stock. As of January 1, 2005, the maximum
potential earnout obligation, assuming all future earnout targets are met in their earliest
possible years, totaled $13.5 million, excluding approximately $1.3 million accrued in 2004 related to an earnout
settlement with the former owners of Middendorf Meat, all of which can be potentially earned in
2005. These contingent payments are not recorded on our consolidated balance sheet at January 1, 29




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2005, in accordance with generally accepted accounting principles. If paid, these earnout payments
would increase the goodwill of the companies acquired. If the future earnout targets are not met,
these maximum amounts will be lower, or we may not be required to make any payments. We have entered into numerous operating leases, including leases of buildings, equipment, tractors
and trailers. In certain of these leases, we have provided residual value guarantees to the
lessors. Circumstances that would require us to perform under the guarantees include either (1)
our default on the leases with the leased assets being sold for less than the specified residual
values in the lease agreements, or (2) our decision 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. Our 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 one to nine years and
expiration dates ranging from 2005 to 2011. At January 1, 2005, the undiscounted maximum amount of
potential future payments under these guarantees totaled $6.2 million, which would be mitigated by
the fair value of the leased assets at lease expiration. Our assessment as to whether it is
probable that we will be required to make payments under the terms of the guarantees is based upon
our actual and expected loss experience. Consistent with the requirements of Financial Accounting
Standard Board Interpretation No. 45, we have recorded $55,000 of the $6.2 million of potential
future payments under these guarantees on our consolidated balance sheet as of January 1, 2005.
Additionally, we do not consider payments under these guarantees, if any, reasonably likely to have
a material impact on our future consolidated financial condition, results of operations or cash
flows. Note 2 and 18 to our consolidated financial statements provide further discussion of these
guarantees and the related accounting and disclosure requirements. Off Balance Sheet Activities We have a Receivables Facility, which is generally described as off balance sheet financing. In
addition, we had two master operating lease facilities, generally considered to be off balance
sheet financing, which we terminated in June 2003. In Financing Activities above, we describe
certain purchase obligations, earnout agreements with certain of the former owners of the
businesses that we have acquired, and residual value guarantees, all of which could be considered
off balance sheet items. Refer to the discussion in Financing Activities above and Notes 12 and
18 to our consolidated financial statements for further discussion of our commitments,
contingencies and leases. The Receivables Facility represents off balance sheet financing because the transaction and the
financial institutions ownership interest in certain of our accounts receivable results in assets
being removed from our consolidated balance sheet to the extent that the transaction qualifies for
sale treatment under generally accepted accounting principles. This treatment requires us to
account for the transaction with the financial institution as a sale of the undivided interest in
the accounts receivable instead of reflecting the financial institutions net investment of $130.0
million as debt. We believe that the Receivables Facility provides us with additional liquidity at
a very competitive cost compared to other forms of financing. In July 2001, we entered into the Receivables Facility, under which PFG Receivables Corporation, a
wholly owned, special-purpose subsidiary, sold an undivided interest in certain of our trade
receivables. PFG Receivables Corporation was formed for the sole purpose of buying receivables
generated by certain of our operating units and selling an undivided interest in those receivables
to a financial institution. Under the Receivables Facility, certain of our operating units sell a
portion of 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 the
financial institution. Our operating units continue to service the receivables on behalf of the
financial institution at estimated market rates. Accordingly, we have not recognized a servicing
asset or liability. We received $78.0 million of proceeds from the sale of the undivided interest in receivables under
the Receivables Facility in 2001. In June 2003, we 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,
we sold an incremental undivided interest in receivables under the Receivables Facility and
received an additional $32.0 million in proceeds. We used these proceeds to repay borrowings under
our Credit Facility and to fund working capital needs. On October 4, 2004, we sold another
incremental undivided interest in receivables under the Receivables Facility and received an
additional $20.0 million in proceeds. We used these proceeds to reduce amounts outstanding under
the Credit Facility. On June 28, 2004, we extended the term of the Receivables Facility to June
27, 2005. If the Receivables Facility terminates, either at its scheduled termination date or upon
the occurrence of specified events (similar to events of default), payments on accounts receivable
sold would be remitted to the financial institution in an amount equal to the institutions
undivided interest. At January 1, 2005, securitized accounts receivable totaled $225.6 million, including $130.0
million sold to the financial institution and derecognized from our consolidated balance sheet.
Total securitized accounts receivable includes our residual interest in accounts receivable of
$95.6 million. The Residual Interest represents our retained interest in receivables held by PFG
Receivables Corporation. We measure the Residual Interest using the estimated discounted cash 30




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flows of the underlying accounts receivable, based on estimated collections and a discount rate
approximately equivalent to our incremental borrowing rate. Losses on the sale of the undivided
interest in receivables of $2.4 million in 2004 and $1.8 million in 2003 and 2002 are included in
other expense, net, in our consolidated statements of earnings and represent our cost of
securitizing those receivables with the financial institution. We record the sale of the undivided interest in accounts receivable to the financial institution
according to Statement of Financial Accounting Standards, or SFAS, No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. Accordingly, at
the time the undivided interest in receivables is sold, the receivables are removed from our
consolidated balance sheet. We record 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 January 1, 2005,
the rate under the Receivables Facility was 2.77% per annum In June 2003, we terminated our two master operating lease facilities. In June 2003, the lessor
sold two of the three distribution centers included in the first master operating lease facility
(the First Facility) to third parties unaffiliated with us. We concurrently entered into
operating leases with those unaffiliated third parties for these distribution centers. The
operating leases have initial terms of 22 years, plus five renewal options of five years each. The
future minimum lease payments for these leases are included in the above table of contractual
obligations. In addition, we purchased the remaining distribution center in the First Facility
from the lessor for $10.4 million. This distribution center is recorded on our consolidated
balance sheet at January 1, 2005 in our Customized segment. In June 2003, the lessor sold one of the distribution centers and the office building included in
our other master operating lease facility (the Second Facility) to third parties unaffiliated
with us. We also sold land and a building under construction to a third party unaffiliated with
us. We concurrently entered into operating leases with those unaffiliated third parties for all of
these properties. The operating leases have initial terms of 22 years, plus five renewal options
of five years each. The future minimum lease payments for these leases are included in the above
table of contractual obligations. In addition, we purchased the remaining distribution center in
the Second Facility from the lessor for $4.9 million. This distribution center is recorded on our
consolidated balance sheet at January 1, 2005 in our Broadline segment. Business Combinations In 2004, we paid $3.1 million and issued approximately 9,000 shares of our common stock, net,
valued at approximately $400,000, related to contractual obligations in the purchase agreements for
All Kitchens, which we acquired in 2002; Carroll County Foods, which we acquired in 2000, and other
companies acquired. We also accrued approximately $1.3 million related to an earnout settlement
with the former owners of Middendorf Meat, which we acquired in 2002. In 2003, we paid $11.0 million to the former shareholders of Fresh Express. These payments were
for certain contractual obligations and associated taxes related to the purchase agreement for
Fresh Express, which we acquired in 2001. Also in 2003, we paid $5.2 million and issued
approximately 25,000 shares of our common stock, valued at approximately $891,000, related to
contractual obligations in the purchase agreements for All Kitchens, TPC, Carroll County Foods and
other companies acquired. We acquired All Kitchens and TPC in 2002. We recorded these earnout
payments as additional purchase price, with corresponding increases in goodwill. In October 2002, a wholly owned subsidiary of ours, known as Progressive Group Alliance, acquired
all of the assets of All Kitchens, a privately owned procurement and merchandising firm based in
Boise, Idaho. All Kitchens provides procurement and merchandising services to its distributors.
We believe that this acquisition increases our services to existing Progressive Group Alliance and
All Kitchens distributors, and expands our geographic base of independent foodservice
distributors. We paid $15.6 million in cash for All Kitchens, and assumed $3.5 million of trade
payables and accrued expenses with the acquisition. In connection with the acquisition, we will be
required to pay the prior owner of the acquired assets up to $3.0 million in cash, if certain
affiliate distributor targets are achieved through September 2005. We will record and have
recorded these earnout payments as additional price resulting in a corresponding increase in
goodwill. In July 2002, we acquired all of the outstanding common stock of TPC, a privately owned, broadline
foodservice distributor based in Rock Island, Illinois. TPC services customers located throughout
the states of Illinois, Indiana, Iowa and Wisconsin, including the major metropolitan area of
Chicago. We believe that our acquisition of TPC extends our Broadline service area in the Midwest
region. We paid $100.0 million for the acquisition of TPC, consisting of $84.1 million in cash and
common stock valued at $15.9 million. The purchase price included the repayment of outstanding
debt. We also assumed $18.4 million of trade payables and accrued expenses with the acquisition of
TPC. In recording the acquisition, we valued the approximately 500,000 common shares issued based
on the measurement criteria in Emerging Issues Task Force Issue No. 99-12 (EITF No. 99-12),
Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a
Purchase Business Combination. 31




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In July 2002, we also acquired all of the outstanding common stock of Middendorf Meat, a privately
owned, broadline foodservice distributor based in St. Louis, Missouri, through the merger of
Middendorf Meat with a wholly owned subsidiary of ours. Middendorf Meat distributes custom-cut
steaks and other foodservice items to independent restaurants, private clubs, hotels and other
foodservice establishments in St. Louis and surrounding areas. We believe that our acquisition of
Middendorf Meat extends our service area to a region that is geographically contiguous to our other
Broadline businesses. We paid $33.8 million for the acquisition of Middendorf Meat, consisting of
$22.2 million in cash and common stock valued at $11.6 million. The purchase price included the
repayment of a portion of Middendorf Meats outstanding debt. We also assumed $11.7 million in
trade payables, accrued expenses, deferred taxes and debt with the acquisition of Middendorf Meat.
In the second quarter of 2003, we finalized the purchase price of Middendorf Meat, resulting in the
return of $2.2 million in cash and $1.4 million in our common stock from the former owners of
Middendorf Meat, related to the closing net worth adjustment and certain related claims. We
recorded this adjustment to the purchase price as a reduction of goodwill. In recording the
acquisition, we valued the approximately 46,000 common shares issued, net, based on the measurement
criteria of EITF No. 99-12. In May 2002, we acquired all of the outstanding stock of Quality Foods, a privately owned,
broadline foodservice distributor based in Little Rock, Arkansas, with distribution centers in
Little Rock, and Batesville and Magee, Mississippi. Quality Foods provides products and services
to traditional foodservice accounts in a region covering Arkansas, Louisiana, Mississippi,
Missouri, Oklahoma, Tennessee and Texas. We believe that our acquisition of Quality Foods extends
our service area to a region that is geographically contiguous to our other Broadline businesses.
We paid $90.3 million, net of cash acquired, for Quality Foods. The purchase price included the
repayment of outstanding debt. We also assumed $25.5 million of trade payables and accrued
expenses with the acquisition of Quality Foods. In connection with the acquisition, we entered
into an earnout agreement whereby we will be required to pay the former shareholders of Quality
Foods up to $24.0 million in cash if Quality Foods achieves certain targeted levels of growth in
operating profit, as defined, over a three-year period following the acquisition. We will record
any earnout payments as additional purchase price, resulting in a corresponding increase in
goodwill. Also in 2002, we paid a total of $2.9 million in cash and issued approximately 15,000 shares of our
common stock, valued at approximately $500,000, to the former shareholders of Carroll County Foods
and AFFLINK, which were acquired in 2000 and 1998, respectively, as a result of certain contractual
obligations in the purchase agreements relating to those acquisitions. We have recorded these
earnout payments as additional purchase price, resulting in corresponding increases in goodwill. Application of Critical Accounting Policies We have prepared our consolidated financial statements and the accompanying notes in accordance
with generally accepted accounting principles applied on a consistent basis. In preparing our
financial statements, management must often make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the
financial statements and during the reporting periods. Some of those judgments can be subjective
and complex; consequently, actual results could differ from those estimates. We continually
evaluate the accounting policies and estimates we use to prepare our financial statements.
Managements estimates are generally based upon historical experience and various other assumptions
that we determine to be reasonable in light of the relevant facts and circumstances. We believe
that our critical accounting estimates include goodwill and other intangible assets, allowance for
doubtful accounts, our insurance program, reserve for inventories, sales incentives, vendor rebates
and other promotional incentives and income taxes. Goodwill and Other Intangible Assets.Our goodwill and other intangible assets include the cost of
acquired subsidiaries in excess of the fair value of the tangible net assets recorded in connection
with acquisitions. Other intangible assets include customer relationships, trade names,
trademarks, patents and non-compete agreements. We use estimates and assumptions to determine the
fair value of assets acquired and liabilities assumed, assigning lives to acquired intangibles and
evaluating those assets for impairment after acquisition. These estimates and assumptions include
indicators that would trigger an impairment of assets, whether those indicators are temporary,
economic or competitive factors that affect valuation, discount rates and cash flow estimates.
When we determine that the carrying value of such assets is not recoverable, or the estimated lives
assigned to such assets are improper, we must reduce the carrying value of the assets to the net
realizable value or adjust the amortization period of the asset, recording any adjustment in our
consolidated statements of earnings. As of January 1, 2005, our unamortized goodwill was $586.5
million and other intangible assets totaled $184.9 million, net. SFAS No. 142 was effective at the beginning of 2002, except for goodwill and other intangible
assets resulting from business combinations completed subsequent to June 30, 2001, for which the
standard was effective beginning July 1, 2001. In accordance with SFAS No. 142, we ceased
amortizing goodwill and other intangible assets with indefinite lives as of the beginning of 2002.
SFAS No. 142 requires us to assess goodwill and other intangible assets with indefinite lives for
impairment annually in the absence of an indicator of possible impairment and immediately upon an
indicator of possible 32




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impairment. SFAS No. 142 requires us to estimate the fair value of our reporting units and our
intangible assets with indefinite lives. If we determine that the fair values of our reporting
units are less than the carrying amount of goodwill, we must recognize an impairment loss in our
financial statements. To perform the assessment of significant other non-amortized intangible
assets, we compare the book value of the asset to the discounted expected future operating cash
flows generated by the specific asset. If we determine the discounted future operating cash flows
are less than the recorded values of other unamortized assets, we must recognize an impairment loss
in our financial statements. Annually, we are also required to evaluate the remaining useful life
of intangible assets that are not being amortized to determine whether events and circumstances
continue to support an indefinite useful life. In the fourth quarter of 2004, we performed our annual impairment assessment of goodwill and other
intangible assets with indefinite lives for our Broadline and Fresh-cut segments, in accordance
with the provisions of SFAS No.142. Our Customized segment has no goodwill or other intangible
assets. In 2004, 2003 and 2002, we recorded no impairment loss based on these assessments. In
testing for potential impairment, we measured the estimated fair value of our reporting units and
intangible assets with indefinite lives based upon discounting future operating cash flows using an
appropriate discount rate. A 10% change in our estimates of projected future operating cash flows
or discount rate used in our calculation of the fair value of the reporting units would have no
impact on the reported value of our goodwill and other intangible assets with indefinite lives on
our consolidated balance sheet as of January 1, 2005. We report intangible assets with definite lives at cost less accumulated amortization. We compute
amortization over the estimated useful lives of the respective assets, generally three to forty
years. We test these intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of a particular asset may not be recoverable, in accordance with
SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets.In order to evaluate
the recoverability of an asset, we compare the carrying value of the asset to the estimated
undiscounted future cash flows expected to be generated by the asset. If we determine that the
estimated, undiscounted future cash flows of the asset are less than its carrying amount on our
consolidated balance sheet, we must record an impairment loss in our financial statements. In
2004, 2003 and 2002, we recorded no impairment loss for intangible assets with definite lives. Due
to the numerous variables associated with our judgments and assumptions related to the valuation of
the reporting units and intangible assets with definite lives, and the effects of changes in
circumstances affecting these valuations, both the precision and reliability of the resulting
estimates are subject to uncertainty. Therefore, as we become aware of additional information, we
may change our estimates. Allowance For Doubtful Accounts.We evaluate the collectibility of our accounts receivable based
on a combination of factors. We regularly analyze our significant customer accounts, and when we
become aware of a specific customers inability to meet its financial obligations to us, such as in
the case of bankruptcy filings or deterioration in the customers operating results or financial
position, we record a specific reserve for bad debt to reduce the related receivable to the amount
we reasonably believe is collectible. We also record 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, we may need to adjust our estimates of the
recoverability of receivables. In 2004, 2003 and 2002, we wrote off uncollectible accounts
receivable of $7.1 million, $4.6 million and $3.4 million, respectively, against the allowance for
doubtful accounts. In 2004, 2003 and 2002, we recorded estimates of $9.0 million, $5.5 million and
$3.4 million, respectively, in operating expenses to increase our allowance for doubtful accounts. Insurance Program.We maintain a self-insurance program covering portions of our general and
vehicle liability, workers compensation and group medical insurance. The amounts in excess of the
self-insured levels are fully insured by third parties, subject to certain limitations and
exclusions. The Company utilizes a third party actuary to assist in the calculation of these
reserves. We accrue an estimated liability for these self-insured programs, including an estimate
for incurred but not reported claims, based on known claims and past claims history. These
accruals are included in accrued expenses on our consolidated balance sheets. The provisions for
insurance claims include estimates of the frequency and timing of claim occurrences, as well as the
ultimate amounts to be paid. The accounting estimate of the self-insurance liability includes both
known and incurred but not reported insurance claims. This estimate is highly susceptible to
change from period to period if claims differ from past claims history, which could have a material
impact on our financial position and results of operations. If we experience claims in excess of
our estimates by 5%, our insurance expense and related insurance liability would increase by $2.8
million, negatively affecting our consolidated financial statements. Reserve for Inventories.We maintain reserves for slow-moving and obsolete inventories. These
reserves are based upon inventory category, inventory age, specifically identified inventory items
and overall economic conditions. A sudden and unexpected change in consumer preferences could
result in a significant change in the reserve balance and a corresponding charge to earnings. 33




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Sales Incentives.We, primarily through our Fresh-cut segment, offer sales incentives and
promotions to our customers (resellers) and to consumers. These incentives primarily include
volume and growth rebates, exclusivity and placement fees (fees paid to retailers for product
display), consumer coupons and promotional discounts. We follow the requirements of EITF No. 01-9,
Accounting for Consideration Given by a Vendor to a Customer (including a Reseller of the Vendors
Products).Consideration given to customers and consumers related to sales incentives is recorded
as a reduction of sales. We treat changes in the estimated amount of incentives to be paid as
changes in estimates and recognize them in the period of change. We systematically and rationally allocate the cost of volume and growth rebates and exclusivity and
placement fees to each of the underlying revenue transactions that resulted in progress by the
customer toward earning the incentives. If we cannot reasonably estimate the amount of future
incentives, we record the maximum potential amount. We use a customers prior purchasing volume
and other factors to assist us in estimating the total incentives to be paid, if any. We record
promotional discounts primarily as a reduction to the customers invoice for goods purchased based
on an underlying agreement with the customer. We record the cost of consumer coupons at the later of the date that we offer the coupon or the
date we recognize the related revenue. In recording coupon expense, we estimate the amount of
refunds or rebates that will be redeemed by consumers. We primarily use historical coupon
redemption data and forecasted sales volumes to estimate the amount to be redeemed. If we cannot
reasonably and reliably estimate this amount, we record the maximum potential amount. We believe that the estimates we have recorded for volume and growth rebates, exclusivity and
placement fees and coupon allowances are reasonable and appropriate, based on facts and
circumstances known at the time we recorded the estimates. A significant change in customer
purchase volumes, coupon redemption rates or consumer purchase volumes, among other factors, could
result in a significant change in our net sales and earnings. Vendor Rebates and other Promotional Incentives.We participate in various rebate and promotional
incentives with our suppliers, including volume and growth rebates, annual and multi-year
incentives and promotional programs. In accounting for vendor rebates, we follow the guidance in
EITF No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received
from a Vendorand EITF No. 03-10, Application of Issue No. 02-16 by Resellers to Sales Incentives
Offered to Consumers by Manufacturers. We generally record consideration received under these incentives as a reduction of cost of goods
sold. However, in certain circumstances, we record the consideration as a reduction of costs that
we incur. We may receive consideration in the form of cash and/or invoice deductions. We treat
changes in the estimated amount of incentives to be received as changes in estimates and recognize
them in the period of change. We record consideration that we receive for incentives containing volume and growth rebates and
annual and multi-year incentives as a reduction of cost of goods sold. We systematically and
rationally allocate the consideration for these incentives to each of the underlying transactions
that results in progress by us toward earning the incentives. If the incentives are not probable
and reasonably estimable, we record the incentives as the underlying objectives or milestones are
achieved. We record annual and multi-year incentives when we earn them, generally over the
agreement period. We estimate whether we will achieve the underlying objectives or milestones
using current and historical purchasing data, forecasted purchasing volumes and other factors. We
record consideration received to promote and sell the suppliers products as a reduction of our
costs, as the consideration is typically a reimbursement of costs incurred by us. If we receive
consideration from the suppliers in excess of our costs, we record any excess as a reduction of
cost of goods sold. Income Taxes.We account for income taxes in accordance with SFAS No. 109, Accounting for Income
Taxes. We must make judgments in determining our provision for income taxes. In the ordinary
course of business, many transactions occur for which the ultimate tax outcome is uncertain at the
time of the transaction. We adjust our income tax provision in the period in which we determine
that it is probable that our actual results will differ from our estimates. Tax law and rate
changes are reflected in the income tax provision in the period in which such changes are enacted. At January 1, 2005 and January 3, 2004, we had $2.7 million and $5.3 million, respectively, of
deferred tax assets related to net operating loss carry-forwards for state income tax purposes.
The net operating loss carryforwards at January 1, 2005 expire in years 2005 through 2024.
Additionally, at January 1, 2005, we had certain state income tax credit carryforwards, which
expire in years 2011 through 2019. Our realization of these deferred tax assets is dependent upon
future taxable income. We evaluate the need to record valuation allowances that would reduce deferred tax assets to the
amount that is more likely than not to be realized. When assessing the need for valuation
allowances, we project future taxable income and consider prudent and feasible tax planning
strategies. Should a change in circumstances lead to a change in judgment about the 34




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reliability of deferred tax assets in future years, we would record valuation allowances in the
period that the change in circumstances occurs, along with a corresponding charge to net earnings.
Based on our evaluation, we recorded an allowance that is adequate to reduce the total deferred tax
asset to an amount that will more likely than not be realized. Management has discussed the development and selection of these critical accounting policies with
the audit committee of the board of directors, and the audit committee has reviewed the above
disclosure. Our financial statements contain other items that require estimation, but are not as
critical as those discussed above. These include our calculations for bonus accruals, depreciation
and amortization. Changes in estimates and assumptions used in these and other items could have an
effect on our consolidated financial statements. Recently Issued Accounting Pronouncements In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an Amendment of ARB No. 43,
Chapter 4.SFAS No. 151 requires that handling costs and waste material (spoilage) be recognized
as current-period charges regardless of whether they meet the previous requirement of being
abnormal. In addition, this Statement requires that allocations of fixed overhead to the cost of
inventory be based on the normal capacity of the production facilities. SFAS No. 151 is effective
for our 2006 fiscal year; however, we do not expect it to have a material impact on our
consolidated financial position or results of operations. In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment.SFAS No. 123R
supersedes Accounting Principles Bulletin (APB) Opinion No. 25, Accounting for Stock Issued to
Employees,and its related implementation guidance. SFAS No. 123 requires public companies to
recognize expense in the income statement for the grant-date fair value of awards of equity
instruments to employees. Expense is to be recognized over the period during which employees are
required to provide service. SFAS No. 123R also clarifies and expands guidance in several areas,
including measuring fair value, classifying an award as equity or as a liability and attributing
compensation cost to reporting periods. In addition, SFAS No. 123R amends SFAS No. 95, Statement
of Cash Flows, to require that excess tax benefits be reported as a financing cash inflow rather
than as operating cash flows. We will adopt the modified prospective application provisions of
SFAS No. 123R in our third quarter of 2005. We anticipate the adoption will have a material impact
on our results of operations. Based upon options outstanding as of January 1, 2005, and after the
effect of the Compensation Committee of the Board of Directors decision to accelerate the vesting
of certain options (see below), we estimate stock option expense after the adoption of SFAS 123R
will be approximately $500,000 for the six months ended December 31, 2005, $900,000 in 2006,
$600,000 in 2007, $200,000 in 2008 and $50,000 thereafter, in each
case net of tax. These estimated expense amounts
include options related to our Fresh-cut segment. As previously discussed, we have signed a
definitive agreement to sell our Fresh-cut segment. Assuming this transaction closes in the second
quarter of 2005 as anticipated, our future stock compensation expense after the adoption of SFAS
123R will be significantly reduced. Our future estimated expense excluding options held by our
Fresh-cut associates is estimated to be approximately $25,000 for the six months ended December 31,
2005, $50,000 for each year ended 2006, 2007 and 2008 and $50,000
thereafter, in each case net of tax. This does not
include anticipated costs associated with any options that might be granted subsequent to January
1, 2005. Subsequent Events On February 22, 2005, we signed a definitive agreement to sell all of the stock we own in the
companies that make up our Fresh-cut segment to Chiquita Brands International, Inc. for a purchase
price of $855.0 million. Consummation of the sale is subject to expiration of the waiting period
under the Hart-Scott-Rodino Act and the satisfaction of other customary conditions to our and
Chiquitas obligation to close the transaction. We expect net proceeds after taxes and expenses
related to the transaction to be approximately $695.0 million. We expect to use approximately
$290.0 million from the net proceeds of the sale to repay all of our indebtedness, including
estimated prepayment penalties. The balance of these net proceeds will be used primarily for a
return of capital to shareholders through share repurchases, cash dividends or some combination of
the two. Effective in the first quarter of 2005, we will classify the assets and liabilities of the Fresh-cut segment as discontinued operations and
will report the results of operations for Fresh-cut in discontinued
operations in accordance with Statement of Financial Accounting
Standards, or SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets. On February 22, 2005, we (acting through the Compensation Committee of the Board of Directors)
accelerated the vesting of certain unvested options to purchase approximately 1.8 million shares of
our common stock held by certain employees and officers under our 1993 Employee Stock Incentive
Plan and 2003 Equity Incentive Plan which had exercise prices greater than the closing price of the
our common stock on February 22, 2005. These options became exercisable immediately as a result of
the vesting acceleration. We currently account for stock options under the provisions of APB No. 25
and related interpretations which do not require any compensation expense to be recorded for
modification of stock options if, at the date of modification, the exercise price is greater than
the market price. As such, we will not record any compensation expense as a result of this
acceleration. 35




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Quarterly Results And Seasonality Set forth below is certain summary information with respect to our operations for the most recent
eight fiscal quarters. All of the fiscal quarters set forth below had 13 weeks, except for the
fourth quarter of 2003, which had 14 weeks. Historically, the restaurant and food service business
is seasonal, with lower sales in the first quarter. Consequently, we may experience lower net
sales during the first quarter, depending on the timing of any future acquisitions. Management
believes our quarterly net sales will continue to be impacted by the seasonality of the restaurant
business. In addition, our Fresh-cut segment experiences some seasonality, primarily due to
changes in raw material costs, as product is grown in different regions of the country in certain
times of the year. 2004(In thousands, except per share amounts)
    
    1st Quarter
    
    
    2nd Quarter
    
    
    3rd Quarter
    
    
    4th QuarterNet sales
    
    $
    1,465,067
    
    
    $
    1,555,722
    
    
    $
    1,547,783
    
    
    $
    1,580,351Gross profit
    
    
    218,518
    
    
    
    235,401
    
    
    
    231,405
    
    
    
    234,540Operating profit
    
    
    16,755
    
    
    
    35,303
    
    
    
    33,756
    
    
    
    27,132Earnings before income taxes
    
    
    12,058
    
    
    
    30,385
    
    
    
    28,696
    
    
    
    13,537Net earnings
    
    
    7,476
    
    
    
    18,796
    
    
    
    17,763
    
    
    
    8,523Basic net earnings per common share
    
    
    0.16
    
    
    
    0.41
    
    
    
    0.38
    
    
    
    0.18Diluted net earnings per common share
    
    
    0.16
    
    
    
    0.39
    
    
    
    0.37
    
    
    
    0.18
 2003(In thousands, except per share amounts)
    
    1st Quarter
    
    
    2nd Quarter
    
    
    3rd Quarter
    
    
    4th QuarterNet sales
    
    $
    1,269,105
    
    
    $
    1,366,883
    
    
    $
    1,388,334
    
    
    $
    1,495,489Gross profit
    
    
    199,338
    
    
    
    215,004
    
    
    
    215,384
    
    
    
    224,810Operating profit
    
    
    30,404
    
    
    
    43,746
    
    
    
    39,826
    
    
    
    24,754Earnings before income taxes
    
    
    26,483
    
    
    
    38,620
    
    
    
    34,846
    
    
    
    19,714Net earnings
    
    
    16,420
    
    
    
    23,944
    
    
    
    21,604
    
    
    
    12,223Basic net earnings per common share
    
    
    0.36
    
    
    
    0.53
    
    
    
    0.47
    
    
    
    0.27Diluted net earnings per common share
    
    
    0.35
    
    
    
    0.49
    
    
    
    0.44
    
    
    
    0.26
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Our primary market risks are related to fluctuations in interest rate and changes in commodity
prices. Our primary interest rate risk is from changing interest rates related to our outstanding
debt. We currently manage this risk through a combination of fixed and floating rates on these
obligations. As of January 1, 2005, our total debt consisted of fixed and floating rate debt of
$54.5 million and $225.0 million, respectively. As of January 3, 2004, our total debt consisted of
fixed and floating rate debt of $256.8 million and $98.5 million, respectively. In addition, our
Receivables Facility has a floating rate. Substantially all of our floating rates are based on
LIBOR with the exception of the rate on the Receivables Facility, which is based upon a 30-day
commercial-paper rate. A 100 basis-point increase in market interest rates on all of our
floating-rate debt and our Receivables Facility would result in a decrease in net earnings and cash
flows of approximately $2.2 million per annum, holding other variables constant. See Notes 6 and
10 to the consolidated financial statements for further discussion of our debt and Receivables
Facility, respectively. Significant commodity price fluctuations for certain commodities that we purchase, particularly for
lettuce, could have a material impact on our results of operations. In an attempt to manage our
commodity price risk, our Fresh-cut segment, in the normal course of business, enters into
contracts to purchase pre-established quantities of various types of produce, particularly lettuce,
at contracted prices based on our expected needs. To a lesser extent, our Broadline segment also
enters into contracts to purchase pre-established quantities of products in the normal course of
business. Commitments that we have entered into to purchase produce and other products in our
Fresh-cut and Broadline segments as of January 1, 2005, are included in the table of contractual
obligations in Managements Discussion and Analysis of Financial Condition and Results of
Operations - Financing Activities in this Form 10-K. In the case of produce, in the event that the amount of produce that we have contracted to purchase
is not sufficient to meet our needs, either because of unexpected demand for our products, or as a
result of disruptions in supply (for instance, due to weather or disease), we will be required to
purchase additional produce to meet our needs on the open market at prices that 36




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may be significantly higher than our contracted prices. Alternatively, we may need to enter into
contracts to meet our forecasted needs during times of elevated market prices. If the market
prices subsequently decline, we are still required to pay the contracted price for the contracted
amounts of produce. 
 Item 8. Financial Statements and Supplementary Data. Page of Form 10-KFinancial Statements:Reports of Independent Registered Public Accounting Firm
    
    
    44Consolidated Balance Sheets
    
    
    46Consolidated Statements of Earnings
    
    
    47Consolidated Statements of Shareholders Equity
    
    
    48Consolidated Statements of Cash Flows
    
    
    49Notes to Consolidated Financial Statements
    
    
    50Financial Statement Schedules:Report of Independent Registered Public Accounting Firm
    
    
    70Schedule II  Valuation and Qualifying Accounts
    
    
    71
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. 
 Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934 (the Exchange Act), which are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation,
under the supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this report. Based on
the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were effective. Managements Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial
reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. Our
management recognizes that there are inherent limitations in the effectiveness of any internal
control over financial reporting, including that it may not prevent or detect misstatements on a
timely basis. Accordingly, even effective internal control over financial reporting can provide
only reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. Further, because of changes in conditions, the effectiveness of internal control over
financial reporting may vary over time or become inadequate. Our management assessed the effectiveness of our internal control over financial reporting as of
January 1, 2005. In making this assessment, management used the criteria described in Internal
Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission. Management concluded that, as of January 1, 2005, our internal control over financial
reporting is effective based on these criteria. Our independent registered public accounting firm,
KPMG LLP, has issued an audit report on our assessment of our internal control over financial
reporting, which is included in this Annual Report on Form 10-K. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting during the quarter ended
January 1, 2005 that have materially affected, or are reasonably likely to materially affect our
internal control over financial reporting. However, in connection
with managements assessment and evaluation of the effectiveness of our internal control over financial reporting
and the related documentation and testing of our internal controls, we made certain improvements to our internal control over financial reporting, including
making changes designed to improve control over access to our information technology systems. 37




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Item 9B. Other Information. None. 
 PART III 
 Item 10. Directors and Executive Officers of the Registrant. The Proxy Statement issued in connection with the shareholders meeting to be held on May 18, 2005,
contains under the captions Proposal 1: Election of Directors and Section 16(a) Beneficial
Ownership Reporting Compliance information required by Item 10 of Form 10-K, including disclosures
about the Audit Committee, and any audit committee financial expert, and is incorporated herein by
reference. Pursuant to General Instruction G (3), certain information concerning our executive
officers is included in Part I of this Form 10-K, under the caption Executive Officers. We have adopted a code of corporate conduct for all of our associates (including officers) and
directors (the Code of Corporate Conduct), a copy of which has been posted on our website at
www.pfgc.com. Please note that our website address is provided as an inactive textual reference
only. We will make any legally required disclosures regarding amendments to, or waivers of,
provisions of our Code of Corporate Conduct in accordance with the rules and regulations of the SEC
and the National Association of Securities Dealers, Inc., and may, as such, make such disclosures
on our website at www.pfgc.com. 
 Item 11. Executive Compensation. The Proxy Statement issued in connection with the shareholders meeting to be held on May 18, 2005,
contains under the caption Executive Compensation information required by Item 11 of Form 10-K
and is incorporated herein by reference. 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters. The following table summarizes information concerning our equity compensation plans at January 1,
2005: Number of Shares to be
    
    Weighted Average
    
    Number of Shares Remaining AvailableIssued upon Exercise of
    
    Exercise Price of
    
    for Future Issuance Under EquityOutstanding Options
    
    Outstanding Options and
    
    Compensation Plans (Excluding SharesPlan Category
    
    and Warrants
    
    Warrants
    
    Reflected in First Column)*Equity compensation
plans approved by
shareholders
    
    4,311,074
    
    $25.48
    
    1,879,552Equity compensation
plans not approved
by shareholders
    
    N/A
    
    N/A
    
    N/ATotal
    
    4,311,074
    
    $25.48
    
    1,879,552
  The Proxy Statement issued in connection with the shareholders meeting to be held on May 18, 2005,
contains under the captions Security Ownership of Certain Beneficial Owners and Proposal 1:
Election of Directors, information required by Item 12 of Form 10-K and is incorporated herein by
reference. 
 Item 13. Certain Relationships and Related Transactions. The Proxy Statement issued in connection with the shareholders meeting to be held May 18, 2005,
contains under the caption Certain Transactions information required by Item 13 of Form 10-K and
is incorporated herein by reference. 
 Item 14. Principal Accountants Fees and Services. Information with respect to fees and services related to our independent registered public
accounting firm, KPMG LLP, and the disclosure of the Audit Committees pre-approval policies and
procedures related to audit fees and services are contained in the Proxy Statement issued in
connection with the shareholders meeting to be held on May 18, 2005, and are incorporated herein
by reference. 38




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PART IV 
 Item 15. Exhibits and 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
    
    Trust Agreement for Performance Food Group Employee Savings and Stock Ownership Plan.10.3
    
    Form of Pocahontas Food Group, Inc. Executive Deferred Compensation Plan.10.4
    
    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, 1994:10.5
    
    First Amendment to the Trust Agreement for Pocahontas Food Group, Inc. Employee Savings and
Stock Ownership Plan.10.6
    
    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, 1997:10.7
    
    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, 1997:10.8
    
    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 1O-K for the fiscal year ended December
27, 1997 (File No. 0-22192), filed March 26, 1998:10.9
    
    Form of Change in Control Agreement dated October 29, 1997 with, John D. Austin, Thomas Hoffman
and Robert C. Sledd.10.10
    
    Form of Change in Control Agreement dated October 27, 1997 with certain key executives.F.
    
    Incorporated by Reference to our Quarterly Report on Form 10-Q for the quarter ended June 27,
1998 (File No. 022192), filed August 11, 1998:10.11
    
    Form of Note Purchase Agreement dated as of May 8, 1998 for 6.77% Senior Notes due May 8, 2010.
 39




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ExhibitNumber
    
    DescriptionG.
    
    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, 1999:10.12
    
    Performance Food Group Company Executive Deferred Compensation Plan.H.
    
    Incorporated by Reference to our Quarterly Report on Form 10-Q for the quarter ended April 3,
1999 (File No. 0-22192), filed May 18, 1999:10.13
    
    Letter of Credit and Reimbursement Agreement by and between KMB Produce, Inc. and First Union
National Bank, dated as of March 1, 1999.10.14
    
    Guaranty Agreement by and among Performance Food Group Company and First Union National Bank,
dated as of March 1, 1999.I.
    
    Incorporated by reference to our Report on Form 8-K dated November 27, 2000 (File No. 0-22192),
filed November 27, 2000:2.1
    
    Stock and Membership Interest Purchase Agreement, dated as of October 30, 2000 by and among the
stockholders of Redi-Cut Foods, Inc., the members of Kansas City Salad, LLC, the members of
K.C. Salad Real Estate, LLC, Performance Food Group Company and K.C. Salad Holdings, Inc.
(Pursuant to Item 601(b)(2) of Regulation S-K, the schedules of this agreement are omitted, but
will be provided supplemental to the Securities and Exchange Commission upon request.)10.15
    
    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.10.16
    
    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.J.
    
    Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended March 31,
2001 (File No. 0-22192), filed May 15, 2001:10.17
    
    Trust Indenture between Fresh Advantage, Inc. and First Union National Bank dated as of
February 1, 2001.10.18
    
    Confirmation of Guaranty between Performance Food Group Company and First Union National Bank
dated as of February 1, 2001.10.19
    
    Amendment No. 1 of Irrevocable Letter of Credit with First Union National Bank dated as of
February 1, 2001.K.
    
    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 RegistrantL.
    
    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, 2001:10.20
    
    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.)M.
    
    Incorporated by reference to our Report on Form 8-K dated September 10, 2001 (File No.
0-22192), filed September 10, 2001:
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ExhibitNumber
    
    Description2.2
    
    Agreement and Plan of Merger, dated as of August 9, 2001, by and among Fresh International
Corp., Performance Food Group and PFGC Acquisition, Inc. (Pursuant to Item 601(b)(2) of
Regulation S-K, the schedules of this agreement are omitted, but will be provided supplemental
to the Securities and Exchange Commission upon request.)N.
    
    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, 2002:10.21
    
    1993 Employee Stock Incentive Plan (restated electronically for SEC filing purposes only)P.
    
    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, 2002:10.22
    
    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, N.A. as Agent.Q.
    
    Incorporated by reference to our Registration Statement on Form S-8 (File No. 333-105082),
filed May 8, 2003:10.23
    
    2003 Equity Incentive PlanR.
    
    Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended March 29,
2003 (File No. 0-22192), filed May 13, 2003:10.24
    
    Amended and Restated Credit Agreement dated as of April 28, 2003 by and among Performance Food
Group Company, as Borrower, the Lenders referred to therein and Wachovia Bank, National
Association as Administrative Agent.10.25
    
    Form of Revolving Credit Note.S.
    
    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, 2003:10.26
    
    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.T.
    
    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, 2004:10.27
    
    Performance Food Group Company Supplemental Executive Retirement Plan.10.28
    
    Amended and Restated Performance Food Group Company Employee Savings and Stock Ownership Plan,
as amended.U.
    
    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, 2004:10.29
    
    Lease agreement for our Little Rock, Arkansas facility.10.30
    
    Severance agreement with C. Michael Gray.V.
    
    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, 2004:10.31
    
    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.
 41




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ExhibitNumber
    
    DescriptionW.
    
    Incorporated by reference to our Report on Form 8-K dated September 17, 2004 (File No. 0-22192):10.32
    
    First Amendment to Amended and Restated Credit Agreement, dated as of September 15, 2004, by
and among Performance Food Group Company, the Lenders a party thereto and Wachovia Bank,
National Association, as Administrative Agent for the LendersX.
    
    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, 2004:10.33
    
    Form of Non-Qualified Stock Option Agreement.10.34
    
    Form of Incentive Stock Option Agreement.Y.
    
    Filed herewith:10.35
    
    Trust Agreement for the Performance Food Group Employee Savings and Stock Ownership Plan.21
    
    List of Subsidiaries.23.1
    
    Consent of Independent Auditors.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.
 42




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized on March 17, 2005. PERFORMANCE FOOD GROUP COMPANYBy:
    
    /s/ Robert C. SleddRobert C. SleddChairman, Chief Executive Officer and President
 Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons in the
capacities and on the dates indicated have signed this report. Signature
    
    Title
    
    Date/s/ Robert C. Sledd

Robert C. Sledd
    
    Chairman, Chief Executive
Officer and President (Principal
Executive Officer)
    
    March 17, 2005/s/ John D. Austin

John D. Austin
    
    Senior Vice President and Chief
Financial Officer(Principal
Financial and Accounting Officer)
    
    March 17, 2005/s/ Charles E. Adair

Charles E. Adair
    
    Director
    
    March 17, 2005/s/ Mary C. Doswell

Mary C. Doswell
    
    Director
    
    March 17, 2005/s/ Fred C. Goad, Jr.

Fred C. Goad, Jr.
    
    Director
    
    March 17, 2005/s/ Timothy M. Graven

Timothy M. Graven
    
    Director
    
    March 17, 2005/s/ John E. Stokely

John E. Stokely
    
    Director
    
    March 17, 2005
 43




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Report of Independent Registered Public Accounting Firm The Board of Directors
Performance Food Group Company: We have audited managements assessment, included in the accompanying Managements Report on
Internal Control over Financial Reporting,that Performance Food Group Company (the Company)
maintained effective internal control over financial reporting as of January 1, 2005, based on
criteria established in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).The Companys management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the effectiveness of the Companys internal
control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion. A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and directors of the Company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Companys assets that could have a material effect on the
financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. In our opinion, managements assessment that the Company maintained effective internal control over
financial reporting as of January 1, 2005, is fairly stated, in all material respects, based on
criteria established in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Also, in our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of January 1, 2005,
based on criteria established in Internal ControlIntegrated Frameworkissued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Performance Food Group Company and
subsidiaries as of January 1, 2005 and January 3, 2004, and the related consolidated statements of
earnings, shareholders equity, and cash flows for each of the fiscal years in the three-year
period ended January 1, 2005, and our report dated March 15, 2005 expressed an unqualified opinion
on those consolidated financial statements. /s/ KPMG LLP Richmond, Virginia
March 15, 2005 44




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Report of Independent Registered Public Accounting Firm The Board of Directors
Performance Food Group Company: We have audited the accompanying consolidated balance sheets of Performance Food Group Company and
subsidiaries (the Company) as of January 1, 2005 and January 3, 2004, and the related consolidated
statements of earnings, shareholders equity and cash flows for each of the fiscal years in the
three-year period ended January 1, 2005. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Performance Food Group Company and subsidiaries as of
January 1, 2005 and January 3, 2004, and the results of their operations and their cash flows for
each of the fiscal years in the three-year period ended January 1, 2005, in conformity with U.S.
generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of Performance Food Group Companys internal control over
financial reporting as of January 1, 2005, based on criteria established in Internal
ControlIntegrated Frameworkissued by the committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 15, 2005 expressed an unqualified opinion on
managements assessment of, and the effective operation of, internal control over financial
reporting. /s/ KPMG LLP Richmond, Virginia
March 15, 2005 45




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PERFORMANCE FOOD GROUP COMPANY 
 CONSOLIDATED BALANCE SHEETS
 
 (Dollar amounts in thousands, except per share amounts)
    
    2004
    
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    52,322
    
    
    $
    38,916Accounts receivable, net, including retained interest in
securitized receivables
    
    
    245,755
    
    
    
    242,340Inventories
    
    
    314,835
    
    
    
    257,198Prepaid expenses and other current assets
    
    
    15,325
    
    
    
    19,317Income taxes receivable
    
    
    2,054
    
    
    
    9,314Deferred income taxes
    
    
    15,628
    
    
    
    14,790Total current assets
    
    
    645,919
    
    
    
    581,875Goodwill, net
    
    
    586,510
    
    
    
    582,966Property, plant and equipment, net
    
    
    394,701
    
    
    
    363,052Other intangible assets, net
    
    
    184,871
    
    
    
    196,814Other assets
    
    
    15,764
    
    
    
    11,761Total assets
    
    $
    1,827,765
    
    
    $
    1,736,468LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Outstanding checks in excess of deposits
    
    $
    128,079
    
    
    $
    81,797Current installments of long-term debt
    
    
    936
    
    
    
    1,358Trade accounts payable
    
    
    267,657
    
    
    
    235,392Accrued expenses
    
    
    164,423
    
    
    
    150,377Total current liabilities
    
    
    561,095
    
    
    
    468,924Long-term debt, excluding current installments
    
    
    278,584
    
    
    
    353,919Deferred income taxes
    
    
    113,773
    
    
    
    109,810Total liabilities
    
    
    953,452
    
    
    
    932,653Shareholders equityPreferred 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,46,770,660 and 45,862,479 shares issued and
outstanding
    
    
    468
    
    
    
    459Additional paid-in capital
    
    
    525,092
    
    
    
    507,161Retained earnings
    
    
    348,753
    
    
    
    296,195Total shareholders equity
    
    
    874,313
    
    
    
    803,815Total liabilities and shareholders equity
    
    $
    1,827,765
    
    
    $
    1,736,468
 See accompanying notes to consolidated financial statements. 46




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PERFORMANCE FOOD GROUP COMPANY 
 CONSOLIDATED STATEMENTS OF EARNINGS
 
 (In thousands, except per share amounts)
    
    2004
    
    
    2003
    
    
    2002Net sales
    
    $
    6,148,923
    
    
    $
    5,519,811
    
    
    $
    4,438,383Cost of goods sold
    
    
    5,229,059
    
    
    
    4,665,275
    
    
    
    3,717,445Gross profit
    
    
    919,864
    
    
    
    854,536
    
    
    
    720,938Operating expenses
    
    
    806,918
    
    
    
    715,806
    
    
    
    595,240Operating profit
    
    
    112,946
    
    
    
    138,730
    
    
    
    125,698Other income (expense):Interest expense
    
    
    (16,829
    )
    
    
    (19,123
    )
    
    
    (18,763
    )Loss on sale of receivables
    
    
    (2,421
    )
    
    
    (1,765
    )
    
    
    (1,832
    )Loss on redemption of Convertible Notes
    
    
    (10,127
    )
    
    
    
    
    
    
    Other, net
    
    
    1,107
    
    
    
    1,821
    
    
    
    1,259Other expense, net
    
    
    (28,270
    )
    
    
    (19,067
    )
    
    
    (19,336
    )Earnings before income taxes
    
    
    84,676
    
    
    
    119,663
    
    
    
    106,362Income tax expense
    
    
    32,118
    
    
    
    45,472
    
    
    
    39,886Net earnings
    
    $
    52,558
    
    
    $
    74,191
    
    
    $
    66,476Weighted average common shares outstanding
    
    
    46,398
    
    
    
    45,583
    
    
    
    44,445Basic net earnings per common share
    
    $
    1.13
    
    
    $
    1.63
    
    
    $
    1.50Weighted average common shares and dilutive
potential common shares outstanding
    
    
    47,181
    
    
    
    53,002
    
    
    
    52,047Diluted net earnings per common share
    
    $
    1.11
    
    
    $
    1.54
    
    
    $
    1.42
 See accompanying notes to consolidated financial statements. 47




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PERFORMANCE FOOD GROUP COMPANY 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 
 Additional
    
    
    
    
    
    
    Loan to
    
    
    TotalCommon stock
    
    
    paid-in
    
    
    Retained
    
    
    leveraged
    
    
    shareholders(Dollar amounts in thousands)
    
    Shares
    
    
    Amount
    
    
    capital
    
    
    earnings
    
    
    ESOP
    
    
    equityBalance at December 29, 2001
    
    
    43,768,462
    
    
    $
    438
    
    
    $
    453,419
    
    
    $
    155,528
    
    
    $
    (1,188
    )
    
    $
    608,197Issuance of shares for acquisitions
    
    
    893,112
    
    
    
    9
    
    
    
    28,094
    
    
    
    
    
    
    
    
    
    
    
    28,103Employee stock option, incentive
and purchase plans
    
    
    614,419
    
    
    
    6
    
    
    
    8,114
    
    
    
    
    
    
    
    
    
    
    
    8,120Tax benefit from exercise
of stock options
    
    
    
    
    
    
    
    
    
    
    3,319
    
    
    
    
    
    
    
    
    
    
    
    3,319Principal payments on loan to
leveraged ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    654
    
    
    
    654Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66,476
    
    
    
    
    
    
    
    66,476Balance at December 28, 2002
    
    
    45,275,993
    
    
    
    453
    
    
    
    492,946
    
    
    
    222,004
    
    
    
    (534
    )
    
    
    714,869Issuance (return) of shares for
acquisitions, net
    
    
    (20,453
    )
    
    
    
    
    
    
    (509
    )
    
    
    
    
    
    
    
    
    
    
    (509
    )Employee stock option, incentive
and purchase plans
    
    
    606,939
    
    
    
    6
    
    
    
    11,030
    
    
    
    
    
    
    
    
    
    
    
    11,036Tax benefit from exercise
of stock options
    
    
    
    
    
    
    
    
    
    
    3,694
    
    
    
    
    
    
    
    
    
    
    
    3,694Principal payments on loan to
leveraged ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    534
    
    
    
    534Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,191
    
    
    
    
    
    
    
    74,191Balance 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
    
    
    
    
    
    
    
    
    
    
    
    400Employee stock option, incentive
and purchase plans
    
    
    899,277
    
    
    
    9
    
    
    
    12,633
    
    
    
    
    
    
    
    
    
    
    
    12,642Tax benefit from exercise
of stock options
    
    
    
    
    
    
    
    
    
    
    4,898
    
    
    
    
    
    
    
    
    
    
    
    4,898Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,558
    
    
    
    
    
    
    
    52,558Balance at January 1, 2005
    
    
    46,770,660
    
    
    $
    468
    
    
    $
    525,092
    
    
    $
    348,753
    
    
    $
    
    
    
    $
    874,313
 See accompanying notes to consolidated financial statements. 48




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PERFORMANCE FOOD GROUP COMPANY 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 (Dollar amounts in thousands)
    
    2004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net earnings
    
    $
    52,558
    
    
    $
    74,191
    
    
    $
    66,476Adjustments to reconcile net earnings to net cash provided
by operating activities:Depreciation
    
    
    50,582
    
    
    
    42,911
    
    
    
    36,522Amortization
    
    
    8,117
    
    
    
    8,318
    
    
    
    8,340Tax benefit from exercise of stock options
    
    
    4,898
    
    
    
    3,694
    
    
    
    3,319Gain on sale of investment
    
    
    
    
    
    
    (956
    )
    
    
    Write-off of debt issuance costs
    
    
    3,801
    
    
    
    
    
    
    
    Other
    
    
    1,330
    
    
    
    2,339
    
    
    
    1,051Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (3,547
    )
    
    
    (18,175
    )
    
    
    (28,129
    )Increase in inventories
    
    
    (57,308
    )
    
    
    (13,602
    )
    
    
    (25,710
    )Decrease (increase) in prepaid expenses and other current assets
    
    
    4,032
    
    
    
    (2,222
    )
    
    
    (3,431
    )Increase in other assets
    
    
    (4,003
    )
    
    
    (1,680
    )
    
    
    (4,058
    )Increase (decrease) in trade accounts payable
    
    
    32,265
    
    
    
    (646
    )
    
    
    23,073Increase in accrued expenses
    
    
    13,474
    
    
    
    26,834
    
    
    
    12,443Increase in deferred income taxes, net
    
    
    2,515
    
    
    
    24,443
    
    
    
    6,291Increase (decrease) in income taxes, net
    
    
    7,260
    
    
    
    (18,412
    )
    
    
    21,846Net cash provided by operating activities
    
    
    115,974
    
    
    
    127,037
    
    
    
    118,033Cash flows from investing activities:Net cash paid for acquisitions
    
    
    (3,086
    )
    
    
    (13,956
    )
    
    
    (215,129
    )Purchases of property, plant and equipment
    
    
    (83,471
    )
    
    
    (112,819
    )
    
    
    (57,656
    )Proceeds from sale of investment
    
    
    
    
    
    
    4,500
    
    
    
    Proceeds from sale of property, plant and equipment
    
    
    1,283
    
    
    
    488
    
    
    
    1,307Decrease (increase) in intangibles
    
    
    
    
    
    
    46
    
    
    
    (709
    )Net cash used in investing activities
    
    
    (85,274
    )
    
    
    (121,741
    )
    
    
    (272,187
    )Cash flows from financing activities:Increase in outstanding checks in excess of deposits
    
    
    46,282
    
    
    
    7,038
    
    
    
    15,923Net proceeds from (payments on) revolving credit facility
    
    
    126,771
    
    
    
    (14,771
    )
    
    
    98,000Principal payments on long-term debt
    
    
    (202,528
    )
    
    
    (2,551
    )
    
    
    (2,503
    )Cash paid for debt issuance costs
    
    
    (461
    )
    
    
    (792
    )
    
    
    Proceeds from employee stock option, incentive and purchase plans
    
    
    12,642
    
    
    
    11,036
    
    
    
    8,120Net cash (used in) provided by financing activities
    
    
    (17,294
    )
    
    
    (40
    )
    
    
    119,540Net increase (decrease) in cash and cash equivalents
    
    
    13,406
    
    
    
    5,256
    
    
    
    (34,614
    )Cash and cash equivalents, beginning of year
    
    
    38,916
    
    
    
    33,660
    
    
    
    68,274Cash and cash equivalents, end of year
    
    $
    52,322
    
    
    $
    38,916
    
    
    $
    33,660
 See accompanying notes to consolidated financial statements. 49




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
  1.
    Description of BusinessPerformance Food Group Company and subsidiaries (the Company) market and distribute over 65,000
national and proprietary brand food and non-food products to over 44,000 customers in the
foodservice or food-away-from home industry. In addition, the Company is a major processor of
fresh-cut produce marketed and distributed to retail and foodservice customers. 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 three operating segments: broadline foodservice
distribution (Broadline); customized foodservice distribution (Customized); and fresh-cut
produce processing (Fresh-cut). Broadline markets and distributes a total of more than 61,000
national and proprietary brand food and non-food products to over 43,000 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 seven distribution centers, located throughout the United
States. The Customized segment also supplies products to some of its customer locations
internationally. Fresh-cut purchases, processes, packages and distributes a variety of packaged,
ready-to-eat salads and other fresh-cut produce nationwide to food retailers. Fresh-cut also
distributes various fresh produce offerings, primarily to third-party distributors for resale
mainly to quick-service restaurants located throughout the United States. Fresh-cut operations are
conducted at seven processing/distribution and two distribution facilities.On February 22, 2005, the Company signed a definitive agreement to sell all of the stock in the
companies that make up its Fresh-cut segment to Chiquita Brands International, Inc. for a purchase
price of $855.0 million (see Note 21 for additional information).The fiscal years ended January 1, 2005, January 3, 2004 and December 28, 2002 are referred to
herein as the years 2004, 2003 and 2002, 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. The Companys 2003 fiscal year was a 53-week fiscal year.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, sales incentives, vendor rebates and other promotional
incentives, bonus accruals, depreciation, amortization 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. 50




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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 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 January 1, 2005 and January 3, 2004,
the allowance for doubtful accounts was $11.0 million and $9.1 million, respectively.InventoriesThe Companys inventories consist primarily of food and non-food products. The Company primarily
values inventories at the lower of cost or market using principally the first-in, first-out
(FIFO) method. Approximately 4% of the Companys inventories are accounted for using the
last-in, first-out method. 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 is
calculated primarily using the straight-line method over the estimated useful lives of the assets,
which range from three to 39 years.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.
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets
(SFAS No. 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 and Fresh-cut segments individually to the
discounted expected future operating cash flows of each 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 2004, 2003 and 2002, no impairment losses were recorded.In accordance with SFAS No. 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 No. 144, Accounting for 51




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the Impairment or Disposal of Long-lived Assets. Based on the Companys assessments for 2004, 2003 and
2002, 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 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.Comprehensive IncomeComprehensive income includes net earnings as well as other comprehensive income. In 2002, the
Company had other comprehensive income, consisting of an interest rate lock, which was initiated in
the third quarter of 2002 and was accounted for as a cash flow hedge. In the fourth quarter of
2002, the Company recorded a loss of $270,000, net of taxes, because the forecasted transaction did
not occur. This loss was recorded in the consolidated statement of earnings in 2002. The Company
had no components of other comprehensive income in 2004 or 2003.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.Sales IncentivesThe Company, primarily through its Fresh-cut segment, offers sales incentives and promotions to its
customers (resellers) and to consumers. These incentives primarily include volume and growth
rebates, exclusivity and placement fees (fees paid to retailers for product display), consumer
coupons and promotional discounts. The Company follows the requirements of the Financial
Accounting Standards Boards (FASBs) Emerging Issues Task Force (EITF) No. 01-9, Accounting
for Consideration Given by a Vendor to a Customer (including a Reseller of the Vendors Products).
Consideration given to customers and consumers related to sales incentives is recorded as a
reduction of sales. Changes in the estimated amount of incentives to be paid are treated as
changes in estimates and are recognized in the period of change.The cost of volume and growth rebates and exclusivity and placement fees is systematically and
rationally allocated to each of the underlying revenue transactions that resulted in progress by
the customer toward earning the incentives. If the Company cannot reasonably estimate the amount
of future incentives, the Company records the maximum potential amount. The Company uses a
customers prior purchasing volume and other factors to assist in estimating the total incentives
to be paid, if any. The cost of consumer coupons is recorded at the later of the date the coupon
is offered or the date the related revenue is recognized by the Company. The amount recorded is
based on the estimated amount of refunds or rebates that will be redeemed by consumers. The
Company primarily uses historical coupon redemption data and forecasted sales volumes to estimate
the amount to be redeemed. If the Company cannot reasonably and reliably estimate this amount, the
Company records the maximum potential amount. Promotional discounts are primarily recorded as a
reduction to the customers invoice for goods purchased based on an underlying agreement with the
customer.Cost of Goods SoldCost of goods sold includes amounts paid to manufacturers and growers for products sold, plus the
cost of transportation necessary to bring the products to the Companys facilities. Cost of goods
sold also includes direct processing costs and an allocation of indirect costs related to the
Fresh-cut segments produce processing operations.Operating ExpensesOperating expenses include warehouse, delivery, selling and administrative expenses, which include
occupancy, insurance, depreciation, amortization, salaries and wages and employee benefits expenses
that are not directly or indirectly related to or allocated to the Companys fresh-cut produce
processing operations. 52




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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 EITF No. 02-16, Accounting by a Customer (Including a
Reseller) for Certain Consideration Received from a Vendorand EITF No. 03-10, Application of Issue
No. 02-16 by Resellers to Sales incentives offered to Consumers by Manufacturers.Shipping and Handling Fees and CostsShipping and handling fees billed to customers are included in net sales. Shipping and handling
costs of $329.9 million, $298.3 million and $239.9 million in 2004, 2003 and 2002, respectively,
are recorded in operating expenses in the consolidated statements of earnings.Stock-Based CompensationThe Company has stock-based employee compensation plans, which are described in Note 16. The
Company accounts for these plans under the recognition and measurement principles of Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. Accordingly, no stock-based employee compensation cost was reflected in net
earnings in the consolidated statements of earnings for 2004, 2003 and 2002, except when there was
a modification to a fixed award. The following table illustrates the effect on net earnings and
net earnings per common share as if the Company had applied the fair value recognition provisions
of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.
The fair value of each option was estimated at the grant date using the Black-Scholes option
pricing method. 2004
    
    
    2003
    
    
    2002Net earnings, as reported
    
    $
    52,558
    
    
    $
    74,191
    
    
    $
    66,476Add: Stock-based compensation
included in net earnings,
net of related tax effects
    
    
    228
    
    
    
    
    
    
    
    Deduct: Stock-based
compensation determined under
the
fair-value based method
for all awards, net of
related
tax effects
    
    
    (8,424
    )
    
    
    (7,971
    )
    
    
    (7,189
    )Pro forma net earnings
    
    $
    44,362
    
    
    $
    66,220
    
    
    $
    59,287Net earnings per common share:Basic  as reported
    
    $
    1.13
    
    
    $
    1.63
    
    
    $
    1.50Basic  pro forma
    
    $
    0.96
    
    
    $
    1.45
    
    
    $
    1.33Diluted  as reported
    
    $
    1.11
    
    
    $
    1.54
    
    
    $
    1.42Diluted  pro forma
    
    $
    0.95
    
    
    $
    1.39

    
    
    $
    1.28
 53




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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 November 2004, the FASB issued SFAS No. 151, Inventory Costs, an Amendment of ARB No. 43,
Chapter 4.SFAS No. 151 requires that handling costs and waste material (spoilage) be recognized
as current-period charges regardless of whether they meet the previous requirement of being
abnormal. In addition, SFAS No. 151 requires that allocations of fixed overhead to the cost of
inventory be based on the normal capacity of the production facilities. SFAS No. 151 will be
effective for the Companys 2006 fiscal year; however, the Company does not expect it to have a
material impact on its consolidated financial position or results of operations.In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment.SFAS No. 123R
supersedes Accounting Principles Bulletin (APB) Opinion No. 25, Accounting for Stock Issued to
Employees,and its related implementation guidance. SFAS No. 123R establishes standards for the
accounting for transactions in which an entity issues equity instruments for goods or services. It
also addresses transactions in which an entity incurs liabilities in exchange for goods or services
that are based on the fair value of the entitys equity instruments or that may be settled by the
issuance of those equity instruments. SFAS No. 123R requires that the cost resulting from all
share-based payment transactions be recognized in the financial statements. SFAS No. 123R
establishes fair value as the measurement objective in accounting for share-based payment
arrangements and requires all entities to apply a fair-value-based measurement method in accounting
for share-based payment transactions with employees except for equity instruments held by employee
share ownership plans. The Company will adopt the modified prospective application provisions of
SFAS No. 123R in its third fiscal quarter of 2005. The Company anticipates the adoption of this
standard will have a material impact on its results of operations.  3.
    Business CombinationsIn 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 also accrued approximately $1.3 million
related to the settlement of an earnout agreement with the former owners of Middendorf Meat Company
(Middendorf Meat). The Company paid this amount in the first quarter of 2005. The Company
recorded these amounts as additional purchase price, with corresponding increases to goodwill.In 2003, the Company paid $11.0 million to the former shareholders of Fresh International Corp. and
its subsidiaries (collectively Fresh Express). These payments were for certain contractual
obligations and associated taxes related to the purchase of Fresh Express, which the Company
acquired in 2001. Also in 2003, the Company paid $5.2 million and issued approximately 25,000
shares of its common stock, valued at approximately $891,000, related to contractual obligations in
the purchase agreements for All Kitchens, Thoms-Proestler Company and TPC Logistics, Inc.
(collectively TPC), Carroll County Foods and other companies acquired. The Company acquired All
Kitchens and TPC in 2002 and Carroll County Foods in 2000. The Company recorded these earnout
payments as additional purchase price, with corresponding increases in goodwill.In October 2002, a wholly owned subsidiary of the Company, known as Progressive Group Alliance
(formerly Pocahontas Foods USA), acquired all of the assets of All Kitchens, a privately owned
procurement and merchandising firm based in Boise, Idaho. All Kitchens provides procurement and
merchandising services to its distributors. The Company believes that this acquisition increases
its services to existing Progressive Group Alliance and All Kitchens distributors, and expands its
geographic base of independent foodservice distributors. The Company paid $15.6 million in cash
and assumed $3.5 million of trade payables and accrued expenses in connection with the acquisition.
The Company will be required to pay the prior owner of the acquired assets up to $3.0 million in
cash if certain affiliate distributor targets are achieved through September 2005. The Company
will record and has recorded these earnout payments as additional purchase price, resulting in a
corresponding increase in goodwill. 54




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In July 2002, the Company acquired all of the outstanding common stock of TPC, a privately owned,
broadline foodservice distributor based in Rock Island, Illinois. TPC services customers located
throughout the states of Illinois, Indiana, Iowa and Wisconsin, including the major metropolitan
area of Chicago. The Company believes that its acquisition of TPC extends its Broadline service
area in the Midwest region. The Company paid $100.0 million, consisting of $84.1 million in cash
and common stock valued at $15.9 million. The purchase price included the repayment of outstanding
debt. The Company also assumed $18.4 million of trade payables and accrued expenses. In recording
the acquisition, the Company valued the approximately 500,000 common shares issued using the
measurement criteria in EITF No. 99-12, Determination of the Measurement Date for the Market Price
of Acquirer Securities Issued in a Purchase Business Combination.In July 2002, the Company also acquired all of the outstanding common stock of Middendorf Meat, a
privately owned, broadline foodservice distributor based in St. Louis, Missouri, through the merger
of Middendorf Meat with a wholly owned subsidiary of the Company. Middendorf Meat distributes
custom-cut steaks and other foodservice items to independent restaurants, private clubs, hotels and
other foodservice establishments in St. Louis and surrounding areas. The Company believes that its
acquisition of Middendorf Meat extends its service area to a region that is geographically
contiguous to its other Broadline businesses. The Company paid $33.8 million, consisting of $22.2
million in cash and common stock valued at $11.6 million. The purchase price included the
repayment of a portion of Middendorf Meats outstanding debt. The Company also assumed $11.7
million in trade payables, accrued expenses, deferred taxes and debt. In the second quarter of
2003, the Company finalized the purchase price of Middendorf Meat, resulting in the return of $2.2
million in cash and $1.4 million in the Companys common stock from the former owners of Middendorf
Meat, related to the closing net worth adjustment and certain related claims. The Company recorded
this adjustment to the purchase price as a reduction of goodwill. In recording the acquisition,
the Company determined the value of the approximately 46,000 common shares issued, net, based on
the measurement criteria of EITF No. 99-12.In May 2002, the Company acquired all of the outstanding stock of Quality Foods, Inc. (Quality
Foods), a privately owned, broadline foodservice distributor based in Little Rock, Arkansas, with
distribution centers in Little Rock, and Batesville and Magee, Mississippi. Quality Foods provides
products and services to traditional foodservice accounts in a region covering Arkansas, Louisiana,
Mississippi, Missouri, Oklahoma, Tennessee and Texas. The Company believes that its acquisition of
Quality Foods extends its service area to a region that is geographically contiguous to its other
Broadline businesses. The Company paid $90.3 million, net of cash acquired. The purchase price
included the repayment of outstanding debt. The Company also assumed $25.5 million of trade
payables and accrued expenses. In connection with the acquisition, the Company entered into an
earnout agreement whereby the Company will be required to pay the former shareholders of Quality
Foods up to $24.0 million in cash if Quality Foods achieves certain targeted levels of growth in
operating profit, as defined, over a three-year period following the acquisition. The Company will
record any earnout payments as additional purchase price, resulting in a corresponding increase in
goodwill.Also in 2002, the Company paid a total of $2.9 million in cash and issued approximately 15,000
shares of its common stock, valued at approximately $500,000, to the former shareholders of Carroll
County Foods and AFFLINK Incorporated (formerly Affiliated Paper Companies, Inc., AFFLINK), which
were acquired in 2000 and 1998, respectively, as a result of certain contractual obligations in the
purchase agreements relating to those acquisitions. The Company has recorded these earnout
payments as additional purchase price, resulting in corresponding increases in goodwill.The consolidated statements of earnings and cash flows reflect the results of the All Kitchens,
TPC, Middendorf Meat and Quality Foods acquisitions from the dates of acquisition through January
1, 2005. The unaudited consolidated results of operations for 2002 on a pro forma basis as though
these acquisitions had been consummated as of the beginning of 2002, including related purchase
price adjustments through January 1, 2005, are as follows: 55




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(In thousands, except per share amounts)
    
    2002Net sales
    
    $
    4,786,830Gross profit
    
    
    783,286Net earnings
    
    
    64,273Basic net earnings per common share
    
    
    1.43Diluted net earnings per common share
    
    
    1.37
  The pro forma results are presented for information purposes only and are not necessarily
indicative of the results that would have occurred had these acquisitions been consummated as of
the beginning of 2002.4.
    Goodwill and Other Intangible AssetsThe following table presents details of the Companys intangible assets as of January 1, 2005 and
January 3, 2004: 2004
    
    
    2003Gross Carrying
    
    
    Accumulated
    
    
    
    
    
    
    Gross Carrying
    
    
    Accumulated(In thousands)
    
    Amount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetIntangible assets with definite lives:Customer relationships
    
    $
    111,259
    
    
    $
    20,580
    
    
    $
    90,679
    
    
    $
    110,824
    
    
    $
    14,529
    
    
    $
    96,295Trade names and trademarks
    
    
    33,728
    
    
    
    3,761
    
    
    
    29,967
    
    
    
    33,733
    
    
    
    2,563
    
    
    
    31,170Deferred financing costs
    
    
    3,181
    
    
    
    1,490
    
    
    
    1,691
    
    
    
    9,408
    
    
    
    3,011
    
    
    
    6,397Non-compete agreements
    
    
    4,283
    
    
    
    3,250
    
    
    
    1,033
    
    
    
    4,778
    
    
    
    2,927
    
    
    
    1,851Patents
    
    
    350
    
    
    
    83
    
    
    
    267
    
    
    
    350
    
    
    
    48
    
    
    
    302Total intangible assets with definite lives
    
    $
    152,801
    
    
    $
    29,164
    
    
    $
    123,637
    
    
    $
    159,093
    
    
    $
    23,078
    
    
    $
    136,015Intangible assets with indefinite lives:Goodwill*
    
    $
    602,028
    
    
    $
    15,518
    
    
    $
    586,510
    
    
    $
    598,484
    
    
    $
    15,518
    
    
    $
    582,966Trade names*
    
    
    61,369
    
    
    
    135
    
    
    
    61,234
    
    
    
    60,934
    
    
    
    135
    
    
    
    60,799Total intangible assets with indefinite lives
    
    $
    663,397
    
    
    $
    15,653
    
    
    $
    647,744
    
    
    $
    659,418
    
    
    $
    15,653
    
    
    $
    643,765
 *
    
    Amortization was recorded before the Companys adoption of SFAS No. 142.  The Company recorded amortization expense of $9.5 million, $9.7 million and $8.3 million in
2004, 2003 and 2002, respectively. These amounts include approximately $1.4 million of
amortization of debt issuance costs in each of 2004 and 2003, and $1.3 million in 2002. The
estimated future amortization expense on intangible assets as of January l, 2005 is as follows: (In thousands)2005
    
    $
    8,4942006
    
    
    8,0862007
    
    
    7,7202008
    
    
    7,1522009
    
    
    7,136Thereafter
    
    
    85,049Total amortization expense
    
    $
    123,637
  The following table presents the changes in the net carrying amount of goodwill allocated to the
Companys reportable segments, as defined in Note 20, during 2004 and 2003: Broadline
    
    Fresh-cut(In thousands)
    
    
    Segment

    
    Segment
    
    
    TotalBalance as of December 28, 2002
    
    $
    357,150
    
    
    $
    218,314
    
    
    $
    575,464Goodwill acquired
    
    
    2,053
    
    
    
    11,032
    
    
    
    13,085Purchase accounting adjustments
    
    
    (8,710
    )
    
    
    3,127
    
    
    
    (5,583
    )Balance as of January 3, 2004
    
    
    350,493
    
    
    
    232,473
    
    
    
    582,966Goodwill acquired
    
    
    4,626
    
    
    
    
    
    
    
    4,626Purchase accounting adjustments
    
    
    (1,082
    )
    
    
    
    
    
    
    (1,082
    )Balance as of January 1, 2005
    
    $
    354,037
    
    
    $
    232,473
    
    
    $
    586,510
 56




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In 2003, the Company recorded goodwill of $13.1 million related to its acquisitions of All
Kitchens, TPC and Fresh Express as discussed in Note 3. In 2003, the Company adjusted goodwill by
$5.6 million, net, for deferred taxes and other purchase price allocation adjustments related to
acquisitions completed in 2002. In 2004, the Company recorded goodwill of $4.6 million related to
its acquisitions of Middendorf Meat, All Kitchens, Carroll County Foods and other companies
acquired. For further details on goodwill changes, see Note 3.5.
    Net Earnings per Common ShareBasic net earnings per common share (EPS) are 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 repurchased upon the exercise
of stock options.In October 2001, the Company issued $201.3 million
aggregate principal amount of 5 1/2% 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 not included within the
computation of diluted EPS. In 2003 and 2002, the Convertible Notes were dilutive and were
included in the computation of diluted EPS. A reconciliation of the numerators and denominators
for the basic and diluted EPS computations is as follows: 2004
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    2002(In thousands, except per share
    
    
    
    
    
    
    
    
    
    Per-
    
    
    
    
    
    
    
    
    
    
    Per-
    
    
    
    
    
    
    
    
    
    
    Per-amounts)
    
    Net Earnings
    
    
    Shares
    
    
    Share Amount
    
    
    Net Earnings
    
    
    Shares
    
    
    Share Amount
    
    
    Net Earnings
    
    
    Shares
    
    
    Share AmountAmounts reported for basic EPS
    
    $
    52,558
    
    
    
    46,398
    
    
    $
    1.13
    
    
    $
    74,191
    
    
    
    45,583
    
    
    $
    1.63
    
    
    $
    66,476
    
    
    
    44,445
    
    
    $
    1.50Effect of dilutive securities:Stock options
    
    
    
    
    
    
    783
    
    
    
    
    
    
    
    
    
    
    
    1,311
    
    
    
    
    
    
    
    
    
    
    
    1,494Convertible Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,452
    
    
    
    6,108
    
    
    
    
    
    
    
    7,509
    
    
    
    6,108Amounts reported for diluted EPS
    
    $
    52,558
    
    
    
    47,181
    
    
    $
    1.11
    
    
    $
    81,643
    
    
    
    53,002
    
    
    $
    1.54
    
    
    $
    73,985
    
    
    
    52,047
    
    
    $
    1.42
  Options to purchase approximately 2,782,000 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. Options to purchase
approximately 604,000 shares outstanding at January 3, 2004 were excluded from the computation of
diluted EPS because of their anti-dilutive effect on EPS for 2003. The exercise prices of these
options ranged from $35.76 to $40.50. Options to purchase approximately 593,000 shares outstanding
at December 28, 2002 were excluded from the computation of diluted EPS because of their
anti-dilutive effect on EPS for 2002. The exercise prices of these options ranged from $35.07 to
$38.50.6.
    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, the Companys operating units sell a portion of 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. 57




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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. In June 2004, the Company extended the term of
the Receivables Facility through June 27, 2005. On October 4, 2004, the Company sold an
incremental 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.At January 1, 2005, securitized accounts receivable totaled $225.6 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 $95.6 million. At January 3, 2004, securitized accounts
receivable totaled $189.4 million, including $110.0 million sold to the financial institution and
derecognized from the consolidated balance sheet, and including the Residual Interest of $79.4
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 $2.4 million in 2004 and $1.8 million in each of 2003 and 2002
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, 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 January 1, 2005, the rate
under the Receivables Facility was 2.77% per annum.The key economic assumptions used to measure the Residual Interest at January 1, 2005 were a
discount rate of 2.50% and an estimated life of approximately 1.5 months. At January 1, 2005, 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.7.
    Concentration of Sales and Credit RiskTwo of the Companys Customized segment customers, Outback Steakhouse, Inc. (Outback) and CRBL
Group, Inc. (Cracker Barrel), account for a significant portion of the Companys consolidated net
sales. Net sales to Outback Steakhouse accounted for approximately 12%, 11% and 12% of
consolidated net sales for 2004, 2003 and 2002, respectively. Net sales to Cracker Barrel
accounted for approximately 10%, 10% and 11% of consolidated net sales for 2004, 2003 and 2002,
respectively. At January 1, 2005, amounts receivable from these two customers represented less
than 10% of consolidated gross accounts receivable.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. 58




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##### Table of Contents



8.
    InventoriesThe following table provides details of inventories as of January 1, 2005 and January 3, 2004: (In thousands)
    
    2004
    
    
    2003Finished goods
    
    $
    297,885
    
    
    $
    239,892Raw materials, including crops in ground (1)
    
    
    16,950
    
    
    
    17,306Inventories
    
    $
    314,835
    
    
    $
    257,198
 (1)
  9.
    Property, Plant and EquipmentProperty, plant and equipment as of January 1, 2005 and January 3, 2004 consisted of the following: (In thousands)
    
    2004
    
    
    2003
    
    
    Range of LivesLand
    
    $
    34,918
    
    
    $
    31,991Buildings and building improvements
    
    
    227,231
    
    
    
    214,419
    
    
    15  39 yearsTransportation equipment
    
    
    20,374
    
    
    
    21,312
    
    
    7  12 yearsWarehouse and plant equipment
    
    
    188,324
    
    
    
    154,749
    
    
    3  10 yearsOffice equipment, furniture and fixtures
    
    
    71,550
    
    
    
    62,033
    
    
    3  10 yearsLeasehold improvements
    
    
    11,051
    
    
    
    9,325
    
    
    Lease termConstruction-in-process
    
    
    35,800
    
    
    
    22,927589,248
    
    
    
    516,756Less: accumulated depreciation and amortization
    
    
    (194,547
    )
    
    
    (153,704
    )Property, plant and equipment, net
    
    $
    394,701
    
    
    $
    363,052
  10.
    Long-term DebtLong-term debt as of January 1, 2005 and January 3, 2004 consisted of the following: (In thousands)
    
    2004
    
    
    2003Credit Facility
    
    $
    210,000
    
    
    $
    83,229Senior Notes
    
    
    50,000
    
    
    
    50,000Industrial Revenue Bonds
    
    
    18,601
    
    
    
    19,298Other notes payable
    
    
    919
    
    
    
    1,500Convertible Notes
    
    
    
    
    
    
    201,250Total long-term debt
    
    
    279,520
    
    
    
    355,277Less: current installments
    
    
    (936
    )
    
    
    (1,358
    )Long-term debt, excluding current installments
    
    $
    278,584
    
    
    $
    353,919
  Convertible NotesOn October 18, 2004, the Company redeemed all of its $201.3 million aggregate principal amount of
5 1/2% 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 revolving credit facility (the Credit Facility), as amended
(see below). 59




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Credit FacilityIn April 2003, the Company increased the Credit Facility to $350.0 million from $200.0 million.
The Credit Facility expires in 2006 and bears interest at a floating rate equal to, at the
Companys election, the agent banks prime rate or a spread over LIBOR. This rate varies based
upon the Companys senior leverage ratio, which excludes subordinated debt, and is defined in the
credit agreement. The Credit Facility has an annual commitment fee, ranging from 0.20% to 0.25% of
the average daily-unused portion of the total facility, based on the Companys senior leverage
ratio, as defined in the credit agreement. The Credit Facility also requires the maintenance of
certain financial ratios, as defined in the credit agreement, and contains customary events of
default. The Credit Facility allows for the issuance of up to $90.0 million of standby letters of
credit, which reduce borrowings available under the Credit Facility. On September 15, 2004, the
Company amended its Credit Facility to remove certain covenants in order to allow for the
redemption of the Convertible Notes (see above). At January 1, 2005, the Company had $210.0
million of borrowings outstanding, $54.3 million of letters of credit outstanding and $85.7 million
available under the Credit Facility, subject to compliance with customary borrowing conditions. At
January 1, 2005, the Companys borrowings under the Credit Facility bore interest at a rate of
2.91% per annum. Interest is payable monthly.Senior NotesIn 1998, the Company issued $50.0 million of unsecured 6.77% Senior Notes due in May 2010 in a
private placement. Interest is payable semi-annually. The Senior Notes require the maintenance of
certain financial ratios, as defined, regarding debt to capital, fixed charge coverage and minimum
net worth.Industrial Revenue BondsIn 1999, prior to its acquisition by the Company, Redi-Cut Foods, Inc. and its affiliates, Kansas
City Salad, LLC and K.C. Salad Real Estate, LLC (collectively Redi-Cut) issued Tax Exempt
Multi-Modal Industrial Development Revenue Bonds. The proceeds from the sale of these bonds,
totaling $7.0 million, were used to finance the acquisition, construction, installation and
equipment of Redi-Cuts fresh-cut produce processing facility in Kansas City, Missouri. Interest
on these bonds is payable monthly. The bonds have annual mandatory redemptions through 2020. At
January 1, 2005, the Company had $6.0 million outstanding under these bonds. Interest on the bonds
adjusts weekly and was 2.12% per annum at January 1, 2005. The bonds are secured by a letter of
credit issued by a commercial bank.In 1999, one of the Companys subsidiaries issued $9.0 million of tax-exempt industrial revenue
bonds to finance the construction of a produce-processing facility. In January 2001, these bonds
were refinanced with the proceeds of $9.0 million taxable revenue bonds, in order to free the
Company from certain restrictive covenants applicable to the subsidiary that issued the tax-exempt
bonds. Like the tax-exempt bonds, these taxable bonds bear interest at a rate determined weekly by
the remarketing agent for the bonds, are secured by a letter of credit issued by a commercial bank
and mature in March 2019. The interest rate for these bonds was 2.47% per annum at January 1,
2005.In 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 January 1, 2005, the Company had a total of $3.6 million
outstanding under these bonds.The Company is party to a tax incentive program with Clayton County, Georgia (Clayton County) in
exchange for title to all of the real and personal property at one of its Fresh-cut facilities. At
the Companys election it may re-obtain title to the real and personal property by paying Clayton
County a nominal fee ($10 dollars).Maturities of long-term debt are as follows: (In thousands)2005
    
    $
    9362006
    
    
    210,8972007
    
    
    8822008
    
    
    9342009
    
    
    987Thereafter
    
    
    64,884Total long-term debt
    
    $
    279,520
 60




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11.Fair Value of Financial Instruments  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 6
for more information about the Receivables Facility. The Companys fixed-rate, long-term debt
consists primarily of $50.0 million of Senior Notes. The Company estimates the fair value of its
Senior Notes using a discounted cash flow analysis based on market borrowing rates as of January 1,
2005 and January 3, 2004. The fair value of the Senior Notes was estimated to be approximately
$52.7 million at both January 1, 2005 and January 3, 2004. See Note 10 for additional information
about the Companys long-term debt.  12.Leases  The Company leases various warehouse and office facilities and certain equipment under long-term
operating lease agreements that expire at various dates. At January 1, 2005, the Company is
obligated under non-cancelable operating lease agreements to make future minimum lease payments as
follows: (In thousands)2005
    
    $
    46,3252006
    
    
    38,4382007
    
    
    30,5152008
    
    
    24,9032009
    
    
    20,215Thereafter
    
    
    141,134Total minimum lease payments
    
    $
    301,530
  Total rent expense for operating leases in 2004, 2003 and 2002 was $65.9 million, $63.9 million and
$45.1 million, respectively. Sublease rental income, which the Company recorded in operating
expenses in its consolidated statements of earnings, was $6.0 million, $6.6 million and $7.0
million in 2004, 2003 and 2002, respectively. As of January 1, 2005, future minimum rental income
under non-cancelable subleases totaled $8.0 million: $4.6 million in 2005; $2.4 million in 2006;
$702,000 in 2007; $174,000 in 2008 and $133,000 in 2009. These future minimum rental income
amounts are not included in the above table of future minimum lease payments.  In June 2003, the Company terminated its two master operating lease facilities. In June 2003, the
lessor sold two of the three distribution centers included in the first master operating lease
facility (the First Facility) to third parties unaffiliated with the Company. The Company
concurrently entered into operating leases with those unaffiliated third parties for these
distribution centers. The operating leases have initial terms of 22 years, plus five renewal
options of five years each. The future minimum lease payments for these operating leases are
included in the above table. In addition, the Company purchased the remaining distribution center
in the First Facility from the lessor for $10.4 million and recorded it on the Companys
consolidated balance sheet in its Customized segment.In June 2003, the lessor sold one of the distribution centers and the office building included in
the Companys other master operating lease facility (the Second Facility) to third parties
unaffiliated with the Company. The Company also sold land and a building under construction to a
third party unaffiliated with the Company. The Company concurrently entered into operating leases
with those unaffiliated third parties for all of these properties. The operating leases have
initial terms of 22 years, plus five renewal options of five years each. The future minimum lease
payments for these operating leases are included in the above table. In addition, the Company
purchased the remaining distribution center in the Second Facility from the lessor for $4.9 million
and recorded it on the Companys consolidated balance sheet in its Broadline segment.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. 61




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13.
    Income TaxesIncome tax expense consisted of the following: (In thousands)
    
    2004
    
    
    2003
    
    
    2002Current:Federal
    
    $
    26,173
    
    
    $
    21,543
    
    
    $
    30,948State
    
    
    3,431
    
    
    
    (514
    )
    
    
    2,64729,604
    
    
    
    21,029
    
    
    
    33,595Deferred:Federal
    
    
    1,873
    
    
    
    19,617
    
    
    
    5,795State
    
    
    641
    
    
    
    4,826
    
    
    
    4962,514
    
    
    
    24,443
    
    
    
    6,291Total income tax expense
    
    $
    32,118
    
    
    $
    45,472
    
    
    $
    39,886
  The Companys effective income tax rates for 2004, 2003 and 2002 were 37.9%, 38.0% and 37.5%,
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)
    
    2004
    
    
    2003
    
    
    2002Federal income taxes computed at statutory rate
    
    $
    29,636
    
    
    $
    41,882
    
    
    $
    37,227Increase (decrease) in income taxes resulting from:State income taxes, net of federal income tax benefit
    
    
    1,531
    
    
    
    2,803
    
    
    
    2,042Non-deductible expenses
    
    
    522
    
    
    
    952
    
    
    
    773Federal tax credits
    
    
    (60
    )
    
    
    (48
    )
    
    
    (183
    )Valuation allowance for deferred tax assets
    
    
    1,116
    
    
    
    
    
    
    
    Other, net
    
    
    (627
    )
    
    
    (117
    )
    
    
    27Total income tax expense
    
    $
    32,118
    
    
    $
    45,472
    
    
    $
    39,866
  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 January 1, 2005 and January 3, 2004, were as
follows: (In thousands)
    
    2004
    
    
    2003Deferred tax assets:Allowance for doubtful accounts
    
    $
    2,370
    
    
    $
    1,980Inventories
    
    
    3,352
    
    
    
    3,123Accrued employee benefits
    
    
    7,117
    
    
    
    6,180Self-insurance reserves
    
    
    6,737
    
    
    
    6,181Deferred income
    
    
    1,665
    
    
    
    876Net operating loss carry-forwards
    
    
    3,789
    
    
    
    5,347Tax credit carry-forwards
    
    
    1,114
    
    
    
    547Other accrued expenses
    
    
    2,994
    
    
    
    5,432Total gross deferred tax assets
    
    
    29,138
    
    
    
    29,666Less: Valuation allowance
    
    
    (1,116
    )
    
    
    Total net deferred tax assets
    
    
    28,022
    
    
    
    29,666Deferred tax liabilities:Property, plant and equipment
    
    
    41,351
    
    
    
    45,239Basis difference in intangible assets
    
    
    76,209
    
    
    
    70,163Other
    
    
    8,607
    
    
    
    9,284Total deferred tax liabilities
    
    
    126,167
    
    
    
    124,686Net deferred tax liability
    
    $
    98,145
    
    
    $
    95,020
 62




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The net deferred tax liability is presented in the January 1, 2005 and January 3, 2004 consolidated
balance sheets as follows: (In thousands)
    
    2004
    
    
    2003Current deferred tax asset
    
    $
    15,628
    
    
    $
    14,790Non-current deferred tax liability
    
    
    113,773
    
    
    
    109,810Net deferred tax liability
    
    $
    98,145
    
    
    $
    95,020
  The state income tax credit carry-forwards expire in years 2011 through 2019. The net operating
loss carry-forwards expire in years 2005 through 2024. In 2004, the Company recorded a valuation
allowance against state net operating loss carry-forwards for $1.1 million. The Company believes
that it is more likely than not that all remaining 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 them becoming exercisable at a redemption price of $.001
per Right. The Rights will expire in May 2007, unless redeemed earlier by the Company.15.
    Retirement PlansThe Company sponsors the Performance Food Group Company Employee Savings and Stock Ownership Plan
(the Savings Plan). At January 1, 2005, 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 3,643,000 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. ESOP expense recognized by the
Company was equal to the principal portion of the required loan payments. Interest on the ESOP
Loan was recorded as interest expense. The Company contributed approximately $542,000 and $680,000
to the ESOP in 2003 and 2002, respectively. These amounts included interest expense on the ESOP
Loan of $8,000 and $30,000 in 2003 and 2002, respectively. All ESOP shares were considered
outstanding for earnings-per-share calculations for all periods presented.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 2004 and 2003, 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. In 2002, the Company matched employee contributions
as follows: 150% of the first 1%, 100% of the next 1% and 50% of the next 2%, for a total match of
3.5%. Matching contributions totaled $10.0 million, $8.9 million and $6.4 million in 2004, 2003
and 2002, 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
401(k) Plan in 2004, 2003 or 2002.Effective January 1, 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. In 2004, the Company expensed
approximately $1.0 million associated with this plan. 63




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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
2004, the Company recorded expense of $355,000 related to the SERP .16.
    Stock Compensation PlansIn accordance with APB No. 25 and related interpretations, the Company does not record compensation
expense for its stock option plans and stock purchase plan except when there is a modification to a
fixed award. Note 2 presents the Companys net earnings and net earnings per common share had
compensation expense for those plans been determined based on the fair value at the grant date,
consistent with the method in SFAS No. 123.Stock Option and Incentive PlansIn May 2003, the 2003 Equity Incentive Plan (the 2003 Plan) was approved by shareholders. The
2003 Plan replaced the 1993 Plan and the Directors Plan, both 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.The 2003 Plan provides for the award of shares of common stock to officers, key employees,
directors and consultants of the Company. The Company expenses stock options granted to
consultants as required by SFAS No. 123. 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 grant date. The stock options granted
under the 2003 Plan have terms of 10 years and vest four years from the date of grant. Options
granted under the 2003 Plan totaled approximately 839,000 and 50,000 in 2004 and 2003,
respectively. At January 1, 2005, approximately 1,443,000 options were outstanding under the 2003
Plan, 46,000 of which were exercisable. The Company has not made other types of grants of common
stock or related rights 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 in 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 totaled 25,000 in 2002. These options 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 January 1, 2005, 158,000 options were outstanding
under the Directors Plan, all of which were exercisable.The 1993 Employee Stock Incentive Plan (the 1993 Plan) provided for the award of up to 5,650,000
shares of common stock 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 in 2003 and 2002 have terms of 10 years
and vest four years from the date of grant. Stock options granted under the 1993 Plan totaled
approximately 707,000 and 712,000 in 2003 and 2002, respectively. At January 1, 2005,
approximately 2,710,000 options were outstanding under the 1993 Plan, approximately 1,427,000 of
which were exercisable. 64




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##### Table of Contents



A summary of the Companys stock option activity and related information for all stock option plans
for 2004, 2003 and 2002 is as follows: 2004
    
    
    2003
    
    
    2002Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    Exercise(In thousands, except per share data)
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of year
    
    
    4,493
    
    
    $
    21.90
    
    
    
    4,374
    
    
    $
    19.30
    
    
    
    4,110
    
    
    $
    15.40Granted*
    
    
    839
    
    
    
    34.37
    
    
    
    757
    
    
    
    32.04
    
    
    
    737
    
    
    
    35.92Exercised
    
    
    (691
    )
    
    
    10.50
    
    
    
    (403
    )
    
    
    9.34
    
    
    
    (369
    )
    
    
    8.92Canceled
    
    
    (330
    )
    
    
    30.71
    
    
    
    (235
    )
    
    
    27.69
    
    
    
    (104
    )
    
    
    19.88Outstanding
at end of year
    
    
    4,311
    
    
    $
    25.48
    
    
    
    4,493
    
    
    $
    21.90
    
    
    
    4,374
    
    
    $
    19.30Options exercisable
at end of year
    
    
    1,631
    
    
    $
    14.19
    
    
    
    1,259
    
    
    $
    10.99
    
    
    
    1,191
    
    
    $
    8.96Weighted average fair value of
options granted during the year
    
    
    
    
    
    $
    15.92
    
    
    
    
    
    
    $
    14.41
    
    
    
    
    
    
    $
    17.46
   The fair value of each option was estimated at the grant date using the Black-Scholes
option-pricing model. The following weighted-average assumptions were used for all stock option
plan grants in 2004, 2003 and 2002, respectively: risk-free interest rates of 3.21%, 2.97% and
3.40%; expected volatilities of 41.6%, 42.8% and 43.8%; expected option lives of 6.5 years, 6.0
years and 6.6 years, and expected dividend yields of 0% in each year.  The following table summarizes information about stock options outstanding at January 1, 2005: (Number of shares in thousands)
    
    
    Options Outstanding
    
    Options ExercisableNumber
    
    
    Weighted-Average
    
    
    Weighted-
    
    
    ExercisableOutstanding at
    
    
    Remaining
    
    
    Average
    
    
    at
    
    
    Weighted-AverageRange of Exercise Prices
    
    
    Jan. 1, 2005
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    Jan. 1, 2005
    
    
    Exercise Price$  5.00
    
    
    -
    
    
    $
    9.78
    
    
    
    820
    
    
    
    3.63
    
    
    $
    9.11
    
    
    
    820
    
    
    $
    9.1110.00
    
    
    -
    
    
    
    28.08
    
    
    
    960
    
    
    
    5.58
    
    
    
    19.10
    
    
    
    623
    
    
    
    15.2628.48
    
    
    -
    
    
    
    31.62
    
    
    
    1,051
    
    
    
    7.47
    
    
    
    30.41
    
    
    
    94
    
    
    
    29.5231.82
    
    
    -
    
    
    
    34.18
    
    
    
    825
    
    
    
    9.00
    
    
    
    34.00
    
    
    
    35
    
    
    
    34.0334.38
    
    
    -
    
    
    
    41.15
    
    
    
    655
    
    
    
    7.47
    
    
    
    36.64
    
    
    
    59
    
    
    
    37.24$  5.00
    
    
    -
    
    
    $
    41.15
    
    
    
    4,311
    
    
    
    6.61
    
    
    $
    25.48
    
    
    
    1,631
    
    
    $
    14.19
  Employee Stock Purchase PlanThe Company maintains the Performance Food Group Employee Stock Purchase Plan (the Stock Purchase
Plan), which permits eligible employees to invest, through periodic payroll deductions, in the
Companys common stock at 85% of the lesser of the market price or the average market price, as
defined in the plan document. The Company is authorized to issue 1,725,000 shares under the Stock
Purchase Plan. Purchases under the Stock Purchase Plan are made twice a year on January
15th and on July 15th. Shares purchased under the Stock Purchase Plan
totaled approximately 228,000 in 2004, 256,000 in 2003 and 201,000 in 2002. At January 14, 2005,
subscriptions under the Stock Purchase Plan were outstanding for approximately 122,000 shares at
$20.54 per share. The grant date weighted-average fair value of each option to purchase under the
Stock Purchase Plan was estimated to be $5.43, $7.21 and $5.62 in 2004, 2003 and 2002,
respectively.17.
    Supplemental Cash Flow InformationSupplemental disclosures of cash flow information for 2004, 2003 and 2002 are as follows: (In thousands)
    
    2004
    
    
    2003
    
    
    2002Cash paid during the year for:Interest
    
    $
    17,233
    
    
    $
    17,757
    
    
    $
    14,222Income taxes
    
    $
    17,790
    
    
    $
    35,934
    
    
    $
    9,806Effects of companies acquired:Fair value of assets acquired
    
    $
    4,650
    
    
    $
    15,806
    
    
    $
    303,471Fair value of liabilities assumed
    
    
    (1,164
    )
    
    
    (2,359
    )
    
    
    (60,239
    )Stock issued for acquisitions, net
    
    
    (400
    )
    
    
    509
    
    
    
    (28,103
    )Net cash paid for acquisitions
    
    $
    3,086
    
    
    $
    13,956
    
    
    $
    215,129
 65




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18.
    Commitments and ContingenciesThe Companys Fresh-cut segment has contracts to purchase produce, some of which have variable
quantities, with minimum and maximum limits. The Companys minimum commitment under produce
purchase contracts, which expire at various times throughout 2005 and 2006, totaled approximately
$142.3 million at January 1, 2005. The Companys Fresh-cut, Broadline and Customized segments also
had outstanding contracts and purchase orders for capital projects totaling $2.0 million, $4.1
million and $36.0 million, respectively, at January 1, 2005. Amounts due under these Fresh-cut,
Broadline and Customized contracts were not included on the Companys consolidated balance sheet as
of January 1, 2005, in accordance with generally accepted accounting principles.In connection with certain acquisitions, the Company entered into earnout agreements with certain
of the former owners of the businesses that the Company acquired. These agreements are based upon
certain net earnings and synergy targets, as defined in each agreement. These earnout payments, to
the extent earned, are for companies acquired and may include payments in cash and shares of the
Companys common stock. As of January 1, 2005, the maximum potential earnout obligation, assuming
all future earnout targets are met in their earliest possible years, totaled $13.5 million,
excluding approximately $1.3 million accrued in 2004 related to an earnout settlement with the
former owners of Middendorf Meat, all of which can be potentially earned in 2005. These contingent
payments are not recorded on the Companys consolidated balance sheet at January 1, 2005, in
accordance with generally accepted accounting principles. If paid, these earnout payments would
increase the goodwill of the companies acquired. If the future earnout targets are not met, these
maximum amounts will be lower, or the Company may not be required to make any payments.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 one
to nine years and expiration dates ranging from 2005 to 2011. As of January 1, 2005, the
undiscounted maximum amount of potential future payments under the Companys guarantees totaled
$6.2 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 $55,000 of the $6.2 million of potential future guarantee payments on its
consolidated balance sheet as of January 1, 2005.On February 13, 2004, the Company reached a settlement with the Securities and Exchange Commission
(the SEC) with respect to the accounting errors at one of its Broadline subsidiaries. These
accounting errors were first announced in early 2002. Under the terms of the settlement, the
Company consented to the entry of an order, without admitting or denying the SECs findings, that
requires the Company to comply with certain provisions of the federal securities laws, including
keeping accurate books and records, filing accurate reports and maintaining an adequate system of
internal controls. The Company was not required to pay a monetary penalty.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, they seek to have their non-compete
agreements declared invalid. The Company intends to vigorously defend itself and may assert
counterclaims against the former shareholders. Management currently believes that this lawsuit
will not have a material adverse effect on the Companys 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 financial
condition or results of operations.19.
    Springfield Foodservice Ammonia LeakIn July 2002, the Company discovered an ammonia leak in the refrigeration system at its Springfield
Foodservice facility in Massachusetts. Springfield Foodservice resumed limited shipments of
non-refrigerated products from the facility within a 66




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##### Table of Contents



week of the incident, and resumed shipments of
refrigerated and frozen products within two weeks of the incident. The Companys Broadline
facilities based in Maine and New Jersey were able to service certain of the customers normally
served by the Springfield facility until the Springfield Foodservice facility became fully
operational.Although there were no injuries and the leak was confined to the facility, the leak did cause
physical damage at the facility and affected the 2002 sales and operating profit of the Companys
Broadline segment. The Company estimated the impact in 2002 related to the ammonia leak at the
Springfield Foodservice facility to be approximately $6.6 million before taxes (unaudited). Cost of
goods sold for 2002 in the Companys Broadline segment included $3.3 million of damaged inventory,
net of $1.0 million of insurance coverage. Other costs of $2.1 million were included in operating
expenses in 2002 in the Companys Broadline segment. Operating profit in 2002 was affected by an
additional approximately $1.2 million (unaudited) related to the estimated impact of the
interruption on Springfield Foodservices operations. In the fourth quarter of 2003, the Company
received an additional $2.0 million of insurance proceeds related to the ammonia leak, which it
recorded in cost of goods sold in its consolidated statement of earnings.20.
    Segment InformationThe Company markets and distributes food and non-food products to customers in the foodservice, or
food-away-from-home, industry. In addition, the Company is a major processor of fresh-cut
produce, which is marketed and distributed to retail and foodservice customers. The Company has
aggregated its subsidiaries into three segments, as defined by SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, 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. The Fresh-cut segment purchases, processes, packages
and distributes a variety of packaged, ready-to-eat salads and other fresh-cut produce to food
retailers and to third-party distributors for resale primarily to quick-service restaurants. 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. 67




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##### Table of Contents



Corporate &(In thousands)
    
    Broadline
    
    
    Customized
    
    
    Fresh-cut
    
    
    Inter-segment
    
    
    Consolidated2004Net external sales
    
    $
    3,120,500
    
    
    $
    2,052,578
    
    
    $
    975,845
    
    
    $
    
    
    
    $
    6,148,923Inter-segment sales
    
    
    806
    
    
    
    302
    
    
    
    13,197
    
    
    
    (14,305
    )
    
    
    Total sales
    
    
    3,121,306
    
    
    
    2,052,880
    
    
    
    989,042
    
    
    
    (14,305
    )
    
    
    6,148,923Operating profit
    
    
    70,196
    
    
    
    21,538
    
    
    
    49,266
    
    
    
    (28,054
    )
    
    
    112,946Total assets
    
    
    830,421
    
    
    
    176,827
    
    
    
    667,556
    
    
    
    152,961
    
    
    
    1,827,765Interest expense (income)
    
    
    12,366
    
    
    
    747
    
    
    
    19,741
    
    
    
    (16,025
    )
    
    
    16,829Loss (gain) on sale of
receivables
    
    
    7,845
    
    
    
    2,596
    
    
    
    
    
    
    
    (8,020
    )
    
    
    2,421Depreciation
    
    
    13,457
    
    
    
    4,355
    
    
    
    29,212
    
    
    
    3,558
    
    
    
    50,582Amortization
    
    
    3,626
    
    
    
    
    
    
    
    4,491
    
    
    
    
    
    
    
    8,117Capital expenditures
    
    
    15,089
    
    
    
    20,770
    
    
    
    42,836
    
    
    
    4,776
    
    
    
    83,4712003Net external sales
    
    $
    2,804,921
    
    
    $
    1,797,871
    
    
    $
    917,019
    
    
    $
    
    
    
    $
    5,519,811Inter-segment sales
    
    
    1,056
    
    
    
    348
    
    
    
    16,352
    
    
    
    (17,756
    )
    
    
    Total sales
    
    
    2,805,977
    
    
    
    1,798,219
    
    
    
    933,371
    
    
    
    (17,756
    )
    
    
    5,519,811Operating profit
    
    
    69,664
    
    
    
    19,704
    
    
    
    66,405
    
    
    
    (17,043
    )
    
    
    138,730Total assets
    
    
    795,566
    
    
    
    147,233
    
    
    
    667,698
    
    
    
    125,971
    
    
    
    1,736,468Interest expense (income)
    
    
    13,599
    
    
    
    325
    
    
    
    19,057
    
    
    
    (13,858
    )
    
    
    19,123Loss (gain) on sale of
receivables
    
    
    5,674
    
    
    
    2,182
    
    
    
    
    
    
    
    (6,091
    )
    
    
    1,765Depreciation
    
    
    14,038
    
    
    
    3,741
    
    
    
    22,998
    
    
    
    2,134
    
    
    
    42,911Amortization
    
    
    3,793
    
    
    
    
    
    
    
    4,525
    
    
    
    
    
    
    
    8,318Capital expenditures
    
    
    32,250
    
    
    
    21,577
    
    
    
    55,846
    
    
    
    3,146
    
    
    
    112,8192002Net external sales
    
    $
    2,204,130
    
    
    $
    1,409,594
    
    
    $
    824,659
    
    
    $
    
    
    
    $
    4,438,383Inter-segment sales
    
    
    677
    
    
    
    
    
    
    
    12,343
    
    
    
    (13,020
    )
    
    
    Total sales
    
    
    2,204,807
    
    
    
    1,409,594
    
    
    
    837,002
    
    
    
    (13,020
    )
    
    
    4,438,383Operating profit
    
    
    55,232
    
    
    
    15,903
    
    
    
    68,543
    
    
    
    (13,980
    )
    
    
    125,698Total assets
    
    
    739,574
    
    
    
    125,325
    
    
    
    610,267
    
    
    
    142,551
    
    
    
    1,617,717Interest expense (income)
    
    
    10,704
    
    
    
    468
    
    
    
    20,545
    
    
    
    (12,954
    )
    

    
    18,763Loss (gain) on sale of
receivables
    
    
    4,440
    
    
    
    1,583
    
    
    
    
    
    
    
    (4,191
    )
    
    
    1,832Depreciation
    
    
    12,778
    
    
    
    3,138
    
    
    
    19,185
    
    
    
    1,421
    
    
    
    36,522Amortization
    
    
    2,584
    
    
    
    
    
    
    
    4,531
    
    
    
    1,225
    
    
    
    8,340Capital expenditures
    
    
    7,996
    
    
    
    7,050
    
    
    
    36,871
    
    
    
    5,739
    
    
    
    57,656
  The sales mix for the Companys principal product and service categories is as follows
(unaudited): (In thousands)
    
    2004
    
    
    2003
    
    
    2002Center-of-the-plate
    
    $
    2,164,767
    
    
    $
    1,807,281
    
    
    $
    1,360,244Pre-cut produce
    
    
    932,130
    
    
    
    877,985
    
    
    
    758,147Canned and dry groceries
    
    
    914,457
    
    
    
    943,098
    
    
    
    734,962Frozen foods
    
    
    857,913
    
    
    
    698,330
    
    
    
    576,976Refrigerated and dairy products
    
    
    537,506
    
    
    
    507,975
    
    
    
    381,779Paper products and cleaning supplies
    
    
    360,009
    
    
    
    347,389
    
    
    
    269,831Other produce
    
    
    238,169
    
    
    
    232,713
    
    
    
    268,388Procurement, merchandising and other services
    
    
    92,933
    
    
    
    70,871
    
    
    
    50,462Equipment and supplies
    
    
    51,039
    
    
    
    34,169
    
    
    
    37,594Total
    
    $
    6,148,923
    
    
    $
    5,519,811
    
    
    $
    4,438,383
 68




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##### Table of Contents



21.
    Subsequent EventsOn February 22, 2005, the Company signed a definitive agreement to sell all of its stock in the
companies that make up its Fresh-cut segment to Chiquita Brands International, Inc. for a purchase
price of $855.0 million. Consummation of the sale is subject to the expiration of the waiting
period under the Hart-Scott-Rodino Act and the satisfaction of other customary conditions. The
Company expects net proceeds after taxes and expenses related to the transaction to be
approximately $695.0 million. Effective in the first quarter of 2005, the Company will classify
the assets and liabilities of the Fresh-cut segment as discontinued operations and will report the results of operations for
Fresh-cut in discontinued operations in accordance with SFAS No. 144.On February 22, 2005, the Company (acting through the Compensation Committee of the Board of
Directors) accelerated 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
Companys 1993 Employee Stock Incentive Plan and 2003 Equity Incentive Plan which had exercise
prices greater than the closing price of the Companys common stock on February 22, 2005. These
options became exercisable immediately as a result of the vesting acceleration. The Company
currently accounts for stock options under the provisions of APB No. 25 and related interpretations
which do not require any compensation expense to be recorded for modification of stock options if,
at the date of modification, the strike price is greater than the market price. As such, the
Company will not record any compensation expense as a result of this acceleration. 69




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##### Table of Contents



Report of
Independent Registered Public Accounting Firm The Board of Directors
Performance Food Group Company: Under date of March 15, 2005, we reported on the consolidated balance sheets of Performance Food
Group Company and subsidiaries (the Company) as of January 1, 2005 and January 3, 2004, and the
related consolidated statements of earnings, shareholders equity and cash flows for each of the
fiscal years in the three-year period ended January 1, 2005 as contained in the 2004 annual report
to shareholders. In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement schedule included herein.
This financial statement schedule is the responsibility of the Companys management. Our
responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material aspects, the
information set forth therein. /s/ KPMG LLP 
 70




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##### Table of Contents



PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS Beginning Balance
    
    
    Additions
    
    
    Deductions (1)
    
    
    Ending BalanceCharged to Other(In thousands)
    
    
    
    
    
    Charged to Expense
    
    
    AccountsAllowance for Doubtful
AccountsDecember 28, 2002
    
    $
    9,247
    
    
    $
    3,385
    
    
    $
    4,235
    
    
    $
    3,390
    
    
    $
    13,477January 3, 2004
    
    
    13,477
    
    
    
    5,546
    
    
    
    
    
    
    
    9,932
    
    
    
    9,091January 1, 2005
    
    
    9,091
    
    
    
    8,973
    
    
    
    
    
    
    
    7,102
    
    
    
    10,962
   (1)
    For the year ended January 3, 2004, deductions included accounts receivable write-offs, net of recoveries, of $4.6
million and purchase accounting reversals to goodwill of $5.3 million. 71