<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                            -----------------------

                                   FORM 10-K

(Mark One)

 [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
 Act of 1934

                    For the fiscal year ended July 3, 1999

                                      or

 [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
 Exchange Act of 1934

For the transition period from _________ to _________

                       Commission file number:  0-24954

                               U.S. Foodservice
            (Exact name of registrant as specified in its charter)

             Delaware                                52-1634568
  (State or other jurisdiction of        (I.R.S. Employer Identification No.)
    incorporation or organization)

    9755 Patuxent Woods Drive, Columbia, Maryland                 21046
         (Address of principal executive offices)              (Zip Code)

Registrant's telephone number, including area code: (410) 312-7100

Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
    <S>                                              <C>
        Title of each class:                    Name of each exchange on which registered:
            Common Stock                                   New York Stock Exchange
    Preferred Share Purchase Rights                        New York Stock Exchange
</TABLE>

Securities registered pursuant to Section 12(g) of the Act:  None

 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.

                  Yes X                      No___
                     ---

 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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]

 The aggregate market value of the registrant's voting stock held by non-
affiliates of the registrant at September 28, 1999, based on the closing
price of such stock on the New York Stock Exchange on such date, was
approximately $1.7 billion.

 The number of shares of the registrant's Common Stock, $.01 par value,
outstanding on September 28, 1999 was 101,480,479.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Certain information in the Proxy Statement for the 1999 Annual Meeting of
Stockholders of the registrant is incorporated by reference into Part III
hereof.
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                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                            Page
                                                                                            ----
<S>         <C>        <C>                                                                  <C>
Part I      Item 1.    Business.............................................................   1
            Item 2.    Properties...........................................................  12
            Item 3.    Legal Proceedings....................................................  13
            Item 4.    Submission of Matters to a Vote of Security Holders..................  13

Part II     Item 5.    Market for Registrant's Common Equity and Related Stockholder
                       Matters..............................................................  14
            Item 6.    Selected Financial Data..............................................  15
            Item 7.    Management's Discussion and Analysis of Financial Condition and
                       Results of Operations................................................  18
            Item 7A.   Quantitative and Qualitative Disclosures About Market Risk...........  27
            Item 8.    Financial Statements and Supplementary Data..........................  28
            Item 9.    Changes in and Disagreements With Accountants on Accounting and
                       Financial Disclosure.................................................  28

Part III.   Item 10.   Directors and Executive Officers of the Registrant...................  29
            Item 11.   Executive Compensation...............................................  29
            Item 12.   Security Ownership of Certain Beneficial Owners and Management.......  29
            Item 13.   Certain Relationships and Related Transactions.......................  29

Part IV     Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K......  30
</TABLE>


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             CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This report and the information incorporated by reference in it include
"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. We intend
the forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements in these sections. All statements regarding our
expected financial position and operating results, our business strategy, our
financing plans, forecasted demographic and economic trends relating to our
industry, our ability to complete acquisitions, to realize anticipated cost
savings and other benefits from acquisitions and to recover acquisition-related
costs and similar matters are forward-looking statements. These statements can
sometimes be identified by our use of forward-looking words such as "may,"
"will," "anticipate," "estimate," "expect" or "intend." We cannot promise you
that our expectations in such forward-looking statements will turn out to be
correct. Important factors that could cause our actual results to be materially
different from our expectations include those discussed under the caption
"Business--Risk Factors." We undertake no obligation to update or revise
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.

                                      ii
<PAGE>

                                    PART I

     Unless the context otherwise requires, references in this report to U.S.
Foodservice are to U.S. Foodservice and its consolidated subsidiaries.

     In June 1999, the U.S. Foodservice Board of Directors approved a two-for-
one stock split in the form of a stock dividend paid on August 4, 1999 to the
stockholders of record on July 20, 1999. Information in this report with respect
to common shares and common share prices reflects the stock split.

Item 1. Business

General

     U.S. Foodservice is one of the nation's largest broadline foodservice
distributors based on our 1999 fiscal year net sales of $6.2 billion. We sell
food and related products to restaurants and other institutional foodservice
establishments through our national distribution network, which provides
geographic access to more than 85% of the U.S. population. We market and
distribute more than 43,000 national and proprietary brand items to over 130,000
foodservice customers, including restaurants, hotels, healthcare facilities,
cafeterias and schools. This broad product line allows us to meet substantially
all of the food and related supply needs of our diverse customer base of
independent "street" and multi-unit "chain" businesses, which include Ruby
Tuesday, Subway, Buffet's, Inc., Perkins Family Restaurants and Pizzeria Uno.

     We supplement our internal expansion with an active program of strategic
acquisitions to take advantage of growth opportunities from ongoing
consolidation in the fragmented foodservice distribution industry. We seek to
increase penetration of our current markets through acquisitions of small,
privately owned distributors which we fold into our existing operations and to
expand into new markets through acquisitions of larger-sized distributors.

     On December 23, 1997, we acquired Rykoff-Sexton, Inc. by merger. At the
time of the acquisition, Rykoff-Sexton was the nation's third largest broadline
foodservice distributor based on net sales. Rykoff-Sexton, which is now called
U.S. Foodservice, Inc., operates as our wholly owned subsidiary. In the merger,
holders of Rykoff-Sexton common stock received U.S. Foodservice common stock
representing approximately 50% of our outstanding common stock after the merger.
We have accounted for our acquisition of Rykoff-Sexton as a pooling of interests
in accordance with generally accepted accounting principles.

     On February 27, 1998, we changed our corporate name from JP Foodservice,
Inc. to U.S. Foodservice to reflect our newly acquired nationwide distribution
capabilities. The references to U.S. Foodservice in this report prior to
February 27, 1998 are to JP Foodservice, Inc.

     U.S. Foodservice is a holding company that conducts its operations through
wholly owned subsidiaries. U.S. Foodservice was organized in 1989 under the laws
of the State of Delaware. Our principal executive offices are located at 9755
Patuxent Woods Drive, Columbia, Maryland 21046, and our telephone number at that
address is (410) 312-7100.

Foodservice Distribution Industry

     Companies in the foodservice distribution industry purchase, store, market
and transport food products, paper products and other supplies and food-related
items to establishments that prepare and serve meals to be eaten away from home.
Foodservice distribution companies are generally classified as "broadline,"
"specialty" or "system" distributors. Broadline distributors offer a
comprehensive range of food and related products from a single source of supply
and provide foodservice establishments with

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the cost savings associated with large full-service deliveries. Specialty
distributors generally are small, family-owned enterprises that supply only one
or two product categories. System distributors typically supply a narrow range
of products to a limited number of multi-unit businesses operating in a broad
geographical area.

     Net sales for the foodservice industry were approximately $147 billion in
1998. For the period from 1985 to 1998, total net sales for the foodservice
distribution industry increased at a compound annual rate of approximately 5%.
Although the foodservice distribution industry is large and growing, it remains
extremely fragmented, with over 3,000 companies in operation in 1998. Most of
these companies are small, privately owned enterprises supplying a limited
number of products within local or regional markets.

     In recent years, the industry has experienced substantial consolidation as
larger distributors have acquired small and regional distributors and have used
their superior competitive position to grow at the expense of smaller
distributors. We believe that this growth resulted from factors that include the
advantages of large-scale purchasing and distribution, warehousing efficiencies,
industry consolidation, the desire of foodservice customers to use fewer vendors
and heightened food safety concerns. U.S. Foodservice anticipates further
consolidation in the industry as smaller specialty distributors confront
increasingly difficult competitive challenges from broadline companies that have
access to the significant capital needed to construct and equip large, efficient
distribution centers, maintain a modern fleet of delivery vehicles and develop
the sophisticated information systems required for cost-efficient operations. We
believe that large, well-capitalized broadline distributors generally have
benefited from continuing industry growth as well as from favorable demographic
trends. In recent years, consumers have spent an increasing percentage of their
food dollars on meals eaten away from home. This trend reflects such demographic
factors as the aging of the "baby-boomer" segment of the population, the growth
of single parent and dual-income households and consumers' increased desire for
speed and convenience. In addition, forecasted expansion of many chain
restaurants is anticipated to generate additional sales volume for broadline
distributors that can satisfy the product and delivery requirements of this
customer segment. We expect that these demographic trends and industry growth
will continue into the foreseeable future.

Products

     In fiscal 1999, we offered to the foodservice industry a single source of
supply for more than 43,000 national and proprietary brand items.

     Food Products. Our food products include canned fruits and vegetables,
tomatoes and tomato products, juices, syrups, dressings and salad oils, baking
supplies, spices, condiments, sauces, jellies and preserves, coffee, tea and
fountain goods, prepared convenience entrees, dairy and other refrigerated
products, fresh produce, fresh meats, seafood, poultry, desserts, dietary foods,
imported and domestic cheeses and specialty and gourmet imported items.

     Frozen foods include soups, prepared convenience entrees, bakery products,
fruits and vegetables, desserts, meat, poultry, seafood and other frozen
products customarily distributed to the foodservice industry.

     Many of our product offerings feature "center-of-the-plate" entree
selections, such as meat, poultry and seafood.

     Janitorial and Paper Products. U.S. Foodservice's non-food products include
janitorial supplies such as detergents and cleaning compounds; plastic products
such as refuse container liners, cutlery, straws and sandwich bags; and paper
products such as disposable napkins, cups, hats, placemats and coasters.

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     Equipment and Supplies. We distribute light restaurant equipment and supply
items, including cookware, glassware, dinnerware and other commercial kitchen
equipment.

     Contract and Design Services. U.S. Foodservice's contract and design
services designs restaurants and eating establishments for approximately 1,000
organizations annually.

     The following table shows the product categories of the items sold by U.S.
Foodservice and the percentage of our net sales generated by product category
and by our contract and design services during fiscal 1999:

<TABLE>
       <S>                                        <C>
       Canned and dry products.............        27%
       Meats...............................        19%
       Other frozen foods..................        17%
       Dairy products......................         9%
       Poultry.............................         8%
       Paper products......................         6%
       Seafood.............................         5%
       Perishable food products............         4%
       Equipment and supplies..............         2%
       Janitorial supplies.................         2%
       Contract and design services........         1%
                                                  ---
                                                  100%
                                                  ===
</TABLE>


     National Brands. We supply more than 32,000 national brand items, which
represented approximately 76% of our net sales in fiscal 1999. We believe that
national brands are attractive to chain accounts and other customers seeking
consistent product quality throughout their operations. Our national brand
strategy has promoted closer relationships with many national suppliers, which
provide important sales and marketing support to U.S. Foodservice.

     Proprietary Brands. Our proprietary brands enable us to offer our customers
an exclusive and expanding line of product alternatives to comparable national
brands across a wide range of prices. Proprietary brands typically carry higher
margins than comparable national brand products and at the same time help to
promote customer loyalty. Our two-tier proprietary brand strategy emphasizes our
private brands as a direct alternative to national brand items and our signature
brands as foodservice "concepts" and specialties, such as ethnic and gourmet
product offerings.

          . Private Brands. We offer our customers an expanding line of products
            under our various private brands. We have developed the multi-tier
            quality system to meet the specific requirements of different market
            segments. We currently offer over 8,000 private brand products,
            including frozen and canned goods, fruits, vegetables and meats,
            under the following private labels: Rykoff-Sexton Connoisseur/TM/
            (highest quality), U.S. Foodservice/TM/ Blue, U.S. Foodservice/TM/
            Red, Chef's Variety(R), Harvest Value(R), U.S. Foodservice
            Cattleman's Choice/TM/, U.S. Foodservice Cattleman's Selection/TM/,
            Magnifry(R) and Magnifries/TM/. U.S. Foodservice also markets diet-
            modified products under the brand name Health.Diet.Life(R).

          . Signature Brands. We offer our customers an exclusive and expanding
            line of signature products which are comparable in quality to
            national brand items and priced competitively with such items. We
            market these products under the names Roseli(R) (Italian-style
            products), Hilltop Hearth(R) (bread and bakery products), Cross
            Valley Farms(R) (processed fruits and vegetables), Patuxent Farms(R)
            (processed meats), el Pasado Authentic Mexican Cuisine With A Touch
            of the Past(R) (Mexican-style

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            products), Rituals(R) (gourmet coffee), Pacific-Jade(R) (Oriental-
            style products), and Harbor Banks(R) (seafood products). We
            currently offer over 3,000 signature brand items.

     Our proprietary brand sales represented approximately 24% of our net sales
in fiscal 1999. We historically have sold a significantly lower proportion of
proprietary brand products than our primary competitors, whose proprietary brand
sales have accounted for approximately 30% to over 60% of their sales volume. We
believe there is a significant opportunity for growth of our proprietary brand
sales.

     In 1999, U.S. Foodservice substantially completed its consolidation of the
proprietary brands marketed by JP Foodservice and the proprietary brands offered
by Rykoff-Sexton prior to its acquisition by JP Foodservice. Although we intend
to continue to emphasize sales of national brand products, we plan to expand
sales of our proprietary brand product lines through national and local
advertising, promotional activities, and training of our sales force regarding
the attributes of these products.

Services

     To strengthen our customer relationships and increase account penetration,
we offer the following types of value-added services:

     Management Support and Assistance. Our sales force assists customers in
managing their foodservice operations more efficiently and profitably by
providing advice and assistance on product selection, menu planning and recipes,
nutritional information, inventory analysis and product costing and marketing
strategies. We also provide on-site training of customer personnel.

     Specialized Market Services. We offer services and programs tailored to
specialized markets. For example, through an integrated service program, we
provide healthcare service providers with special nutritional plans, customized
software packages such as directAdvantage/TM/, a variety of marketing services
and on-site training of institutional personnel. To be eligible to participate
in this program, healthcare institutions must maintain a specified minimum
volume of purchases from U.S. Foodservice.

     Publications. We promote active customer use of our other products and
services through the distribution of professionally printed publications,
including our quarterly magazines, Quintessential/TM/ and Healthnext/TM/. Our
publications highlight selected products, including proprietary brand items,
present menu suggestions, provide nutritional information and include recipes
using our products. Customers also may participate, at no cost, in our recipe
program in which we furnish participants every two weeks with recipe cards that
describe new menu concepts.

Customers

     U.S. Foodservice's customer base of over 130,000 accounts encompasses a
wide variety of foodservice establishments. The following table shows the
segments of our customer base by type of customer and percentage of net sales
generated by each type for fiscal 1999:

<TABLE>
       <S>                                             <C>
       Restaurants (limited and full menu).....         65%
       Hotels and casinos......................          8%
       Healthcare institutions.................          7%
       Schools and colleges....................          6%
       Business and industry...................          5%
       Other...................................          9%
                                                       ---
                                                       100%
                                                       ===
</TABLE>


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     Street Customers. U.S. Foodservice's street customers are independent
restaurants, hotels, schools and other foodservice businesses. Street customers
are serviced directly by our commission sales personnel who personally call on
customers, place orders, coordinate product delivery and provide the services
offered to these customers.

     Street accounts represented approximately 60% of our net sales in fiscal
1999. We pursue a long-term strategy of increasing street account sales as a
percentage of net sales by attempting to expand sales to street customers at a
faster rate than sales to chain customers.

     Chain Customers. The majority of U.S. Foodservice's chain customers consist
of franchises or corporate-owned units of national or regional family dining and
other restaurant "concepts" and, to a lesser extent, hotels and other regional
institutional operators. We have developed strong working relationships with
many of our chain accounts, which have enabled these accounts, in conjunction
with U.S. Foodservice, to develop distribution programs tailored to precise
delivery and product specifications. These distribution programs have created
operating and cost efficiencies for both the chain customers and U.S.
Foodservice. Chain customers generally are serviced by salaried sales and
service representatives who coordinate the procurement and delivery of all
products throughout the system from a central location. Gross profit margins
generally are lower for chain customers than for street customers. However,
because there are typically no commission sales costs related to chain account
sales and because chain customers usually have larger deliveries to individual
locations, sales and delivery costs generally are lower for chain accounts than
for street accounts.

     Chain accounts represented approximately 40% of our net sales in fiscal
1999. Our business strategy emphasizes supporting the growth of our existing
chain accounts. Many of our current chain customers, primarily restaurants, are
experiencing more rapid sales growth than other types of foodservice businesses.
We also target new chain customers which we believe represent attractive growth
opportunities.

     No single customer accounted for more than 5% of our net sales in fiscal
1999. Consistent with industry practice, we generally do not enter into
contracts with our customers that may not be canceled by either party at its
option.

Sales and Marketing

     U.S. Foodservice's principal marketing activities at July 3, 1999 were
conducted by approximately 2,500 street sales, 200 chain sales and 520 customer
service representatives. Our sales and service representatives are responsible
for soliciting and processing orders, servicing customers by telephone,
reviewing account balances and assisting with new product information. In
addition, our sales representatives advise customers on menu selection, methods
of preparing and serving food and other operating issues. We provide an in-house
training program for our entry-level sales and service representatives, which
includes seminars, on-the-job training and direct one-on-one supervision by
experienced sales personnel.

     Our commission program is designed to reward account profitability and
promote sales growth in our street accounts. Our strategy is to measure the
profitability of each street account and product segment and to modify our
incentive program accordingly.

     We maintain sales offices at each of our 37 full-service distribution
centers and at 35 additional locations in 20 states. We employ sales and
marketing staff at both the corporate and branch levels to solicit and manage
relationships with multi-unit chain accounts.

     We supplement our market presence with advertising campaigns in national
and regional trade publications, which typically focus on our services and our
ability to service targeted industry segments.

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We support this effort with a variety of promotional services and programs,
including our quarterly magazines and recipe program.

Distribution

     We distribute our products out of our 37 full-service distribution centers
and extend this geographic coverage through remote distribution facilities. Our
Targeted Specialty Services division warehouses and redistributes, out of two
warehouses, to the distribution centers a full line of restaurant equipment and
supplies, imported specialty food products and proprietary products. This
division allows U.S. Foodservice's distribution centers to offer a more varied
product mix while maintaining local inventories at efficient levels. Our
customers generally are located within our principal geographic service areas,
which we define as the areas within a 150-mile radius of each of our full-
service distribution centers. Our distribution network enables us to serve
customers outside of our principal service areas. Services to both street and
chain customers are generally supported by the same distribution facilities and
equipment.

     Our 37 full-service distribution centers have a total of approximately
seven million square feet of warehouse space. Each distribution center operates
from a warehouse complex that contains dry, refrigerated and frozen storage
areas as well as office space for sales, marketing, distribution and
administrative personnel.

     Products are delivered to U.S. Foodservice's distribution centers by
manufacturers, common carriers and U.S. Foodservice's own fleet of trucks. We
employ management information systems which enable us to lower our inbound
transportation costs by making more efficient use of our own fleet of trucks or
by consolidating deliveries into full truckloads. Orders from multiple suppliers
or multiple distribution centers are consolidated into single truckloads for
efficient use of available vehicle capacity and return-trip hauls.

     Orders typically are entered electronically by the commission sales force
with the appropriate distribution center through a hand-held computer device or
laptop computer. These devices facilitate order entry through the use of pre-
coded price lists which automatically price orders, apply pricing controls and
allow the sales representative to review the gross profit of each order at the
time of sale. Customers also have the option to place orders by telephone with
service representatives at each of our branches. Some of our large customers
place orders through a direct connection to our mainframe computer by means of a
computer terminal, personal computer or touch tone telephone, or through
Tranzmit/TM/, our proprietary direct order entry system.

     Under all forms of order placement, the salesperson or customer is notified
immediately about product availability, which facilitates instant product
substitution, if necessary. Products are reserved automatically at the time of
order, thereby ensuring complete fulfillment of orders upon delivery. Customers'
orders are assembled in the warehouse, sorted and shrink-wrapped to ensure order
completeness. The products are staged automatically according to the required
delivery sequence.

     Products are delivered door-to-door, typically on the day following
placement of the order. We deliver our products through our fleet of over 2,900
tractor-trailer and straight trucks, each of which is equipped with separate
temperature-controlled compartments. In dispatching trucks, U.S. Foodservice
employs a computerized routing system designed to optimize delivery efficiency
and minimize drive time, wait time and excess mileage. The majority of our fleet
utilizes on-board computer systems that monitor vehicle speeds, fuel efficiency,
idle time and other vital statistical information. We collect and analyze such
data in an effort to monitor and improve transportation efficiency and reduce
costs.

     In some of our geographic markets, we utilize our remote redistribution
facilities to achieve a higher level of customer service. We transport our
products in large tractor-trailers or double trailers to

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the redistribution facility, where the loads are then transferred to smaller
equipment for delivery in the normal fashion.

Suppliers

     At July 3, 1999, U.S. Foodservice employed approximately 450 purchasing
agents with expertise in specific product lines to purchase products for U.S.
Foodservice from approximately 7,000 suppliers located throughout the United
States and in other countries. Substantially all types of products distributed
by U.S. Foodservice are available from a variety of suppliers, and we are not
dependent on any single source of supply. We do not purchase any material
portion of our product requirements under long-term supply contracts.

     We manage our purchasing operations and negotiate all major vendor programs
from our corporate headquarters in Columbia, Maryland. We seek to concentrate
purchases with selected suppliers to ensure access to high-quality products on
advantageous terms. We cooperate closely with these suppliers to promote new and
existing products. The suppliers assist in training our sales force and
customers regarding new products, new trends in the industry and new menu ideas,
and collaborate with us in advertising and promoting these products both through
printed advertisements and through annual branch-sponsored food shows and
national trade shows.

     Before our acquisition of Rykoff-Sexton, we transacted a majority of our
purchasing activities centrally at our corporate headquarters. At the former
Rykoff-Sexton divisions, purchases were primarily transacted locally. We believe
that centralized purchasing results in lower costs through greater ordering
efficiency. As part of our restructuring plan for the businesses we acquired in
the Rykoff-Sexton acquisition, we are progressively centralizing at our
corporate headquarters the day-to-day purchasing activities currently being
performed at the former Rykoff-Sexton divisions. This transition, which is
dependent upon completion of the centralization of our management information
systems, is currently expected to be substantially completed by the end of
fiscal 2001.

     Through our purchasing department, we are able to monitor the quality of
the products offered by various suppliers and ensure consistency of product
quality across our distribution network. U.S. Foodservice maintains a
comprehensive quality control and assurance program that, at July 3, 1999,
actively involved approximately 225 employees in daily quality control
activities. The program is managed by employees engaged in purchasing
operations, including product group managers who each manage specific segments
of the product line and product line managers who purchase products for the
branches, and is supported at each branch by the merchandising manager, the
branch buyer and an inventory control specialist. The quality control process
includes the selection of suppliers and the policing of quality standards
through product sampling at both U.S. Foodservice's corporate offices and branch
locations and through visits to growing fields, manufacturing facilities and
storage operations.

     We generally require our suppliers and manufacturers to maintain specified
levels of product liability insurance and to name U.S. Foodservice as an
additional insured on the applicable insurance policies.

Competition

     The foodservice distribution industry is extremely fragmented, with over
3,000 companies in operation in 1999. In recent years, the foodservice
distribution industry has been characterized by significant consolidation and
the emergence of larger competitors. We compete in each of our markets with at
least one other large national distribution company, generally SYSCO Corporation
or Alliant Foodservice, Inc., as well as with numerous regional and local
distributors.

     U.S. Foodservice believes that, although price is an important
consideration, distributors in the foodservice industry compete principally on
the basis of service, product quality and customer relations.

                                       7
<PAGE>

We attribute our ability to compete effectively against smaller regional and
local distributors in part to our wider product selection, the cost advantages
resulting from our size and centralized purchasing operations and our ability to
offer broad and consistent market coverage. We compete against other broadline
distributors primarily by providing our customers with accurate and timely
fulfillment of orders and an array of value-added services. U.S. Foodservice
typically competes against other foodservice distribution companies and, to a
lesser extent, financial investors for potential acquisitions. We believe that
our financial resources and our ability to offer owners of acquisition targets
an interest in the combined business through ownership of our common stock
provide us with an advantage over many of our competitors.

Government Regulation

     U.S. Foodservice's operations are subject to regulation by state and local
health departments, the U.S. Department of Agriculture and the U.S. Food and
Drug Administration, which impose standards for product quality and sanitation.
U.S. Foodservice's facilities generally are inspected at least annually by state
or federal authorities.

     U.S. Foodservice's relationship with its fresh food suppliers with respect
to the grading and commercial acceptance of produce shipments is governed by the
Federal Produce and Agricultural Commodities Act, which specifies standards for
sale, shipment, inspection and rejection of agricultural products. U.S.
Foodservice also is subject to regulation by state authorities for the accuracy
of its weighing and measuring devices.

     Federal, state and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, generally are not directly
applicable to U.S. Foodservice. Some of U.S. Foodservice's distribution
facilities have underground and aboveground storage tanks for diesel fuel and
other petroleum products, which are subject to laws regulating such storage
tanks. Such laws have not had a material adverse effect on the capital
expenditures, earnings or competitive position of U.S. Foodservice.

Intellectual Property

     As of July 3, 1999, U.S. Foodservice had proprietary rights to
approximately 230 trademarks used in its business, including trademarks used in
connection with the marketing of its private and signature brand products and a
variety of customized service programs. U.S. Foodservice either has registered
or applied to register substantially all of its material trademarks with the
U.S. Patent and Trademark Office. As of July 3, 1999, approximately 250
registrations, including multiple registrations of certain trademarks, were
effective with respect to approximately 200 of U.S. Foodservice's trademarks. Of
such registrations, approximately 150 registrations and approximately 100
registrations are effective for initial periods of ten or 20 years,
respectively. The registrations are renewable for additional ten-year periods
for as long as U.S. Foodservice continues to use the

                                       8
<PAGE>

trademarks. U.S. Foodservice has registered certain of its trademarks in foreign
countries, although it does not currently conduct operations in those countries.
U.S. Foodservice considers its trademarks to be of material importance to its
business plans.

Equipment and Machinery

     Equipment and machinery owned by U.S. Foodservice and used in our
operations consist principally of electronic data processing equipment and
product handling equipment. We also operate a fleet of over 2,900 vehicles,
consisting of tractors, trailers and straight trucks, which are used for long
hauls and local deliveries. At July 3, 1999, U.S. Foodservice owned
approximately 29% of these vehicles and leased the remainder.

     We outsource our data center operations for approximately half of our
distribution centers. In connection with the centralization of our management
information systems, we plan to outsource these operations for additional
distribution centers. As our business needs warrant, we can either increase or
decrease the amount of computer capacity we purchase upon short notice to the
vendor. We believe that this arrangement provides us with more reliable and
flexible service at a lower cost than we could achieve by operating our own data
center for this segment of our business.

     We regularly evaluate the capacity of our various facilities and equipment
and make capital investments to expand capacity where necessary. In fiscal 1999,
we spent $68.4 million on capital expenditures, primarily for facility
expansion projects and continued upgrading our management information systems.
We will continue to undertake expansion or replacement of our facilities as and
when needed to accommodate our growth.

Employees

     At the end of fiscal 1999, U.S. Foodservice had approximately 13,250 full-
time employees, of whom approximately 400 were employed in corporate management
and administration and approximately 7,400 of whom were hourly employees.
Approximately 3,400 of our employees were covered by collective bargaining
contracts with approximately 40 different local unions associated with the
International Brotherhood of Teamsters and other labor organizations. Collective
bargaining contracts covering approximately 1,000 of our employees will expire
in fiscal 2000. We believe that our relations with our employees are
satisfactory.

Risk Factors

     U.S. Foodservice's business is subject to risks, including the following:

     Our business has low profit margins and is sensitive to national and
     regional economic conditions.

     Foodservice distribution companies like U.S. Foodservice purchase, store,
market and transport food and related products to establishments that prepare
and serve meals to be eaten away from home. Our industry is characterized by
relatively high inventory turnover with relatively low profit margins. We sell a
significant portion of our products at prices that are based on the cost of the
products plus a percentage markup. As a result, our profit levels may be reduced
during periods of food price deflation, even though our gross profit percentage
may remain relatively constant. Such a reduction could have a material adverse
effect on our business, operating results and financial condition.

     The foodservice distribution industry is sensitive to national and regional
economic conditions. Economic downturns could have an adverse impact on the
demand for our products. These downturns may reduce consumer spending at
restaurants and other foodservice institutions we supply.

                                       9
<PAGE>

     Our distribution and administrative expenses are relatively fixed in the
short term. As a result, unexpected decreases in our net sales, such as those
due to severe weather conditions, can have a significant short-term adverse
impact on our operating income. Our operating results also may be adversely
affected by difficulties we may encounter in collecting our account receivables
and in maintaining our profit margins in times of unexpected increases in fuel
costs. For a discussion of these factors and our operating results in our last
three fiscal years, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Results of Operations."

     We are subject to risk associated with our acquisitions of other
     foodservice businesses.

     Since we became a public company in November 1994, we have acquired a
substantial number of foodservice businesses as part of our growth strategy of
supplementing internal expansion with acquisitions. Our acquisitions may not
improve our financial performance in the short or long-term as we expect.
Acquisitions will enhance our earnings only if we can successfully integrate
those businesses into our marketing programs, centralized purchasing operations,
distribution network and information systems. Our ability to integrate acquired
businesses may be adversely affected by factors that include customer resistance
to our product brands and distribution system, our failure to retain management
and sales personnel, difficulties in converting different information systems to
our proprietary systems, the size of the acquired business and the allocation of
limited management resources among various integration efforts. In addition, we
may not eliminate as many redundant costs as we anticipated in selecting our
acquisition candidates. One or more of our acquisition candidates also may have
liabilities or adverse operating issues that we failed to discover prior to the
acquisition. Difficulties in integrating acquired businesses, as well as
liabilities or adverse operating issues relating to acquired businesses, could
have a material adverse effect on our business, operating results and financial
condition.

     Even if acquired companies eventually contribute to an increase in our
profitability, the acquisitions may adversely affect our earnings in the short
term. Our earnings may decrease as a result of transaction-related expenses we
record for the quarter in which we complete an acquisition. Our earnings may be
further reduced by the higher operating and administrative expenses we typically
incur in the quarters immediately following an acquisition as we seek to
integrate the acquired business into our own operations. The amortization of
goodwill and depreciation resulting from acquisitions also may contribute to
reduced earnings.

     A significant portion of the growth in our revenues in recent years has
resulted from acquisitions. We may not be able to increase our revenues or
earnings through new acquisitions at the same rates we have achieved through our
past acquisitions. For example, we were able to triple our revenues directly as
a result of our acquisition of Rykoff-Sexton in our 1998 fiscal year. As the
foodservice distribution industry continues to consolidate, we may find it more
difficult to identify suitable acquisition candidates than we did in the past.
We may also find that the acquisition terms are not as favorable as those in our
prior acquisitions.

     The way in which we pay for acquired businesses also involves risks. Many
of our past acquisitions have been structured as stock-for-stock transactions.
Continuing volatility in the U.S. securities markets and fluctuations in our
stock price may increase the risk that our stock-for-stock acquisitions could
dilute our earnings per share. We also pay cash for some businesses. In the
past, we have obtained funds for some of our cash acquisitions through
additional bank borrowing or by issuing common stock. If we increase our bank
borrowings or issue debt securities to finance future acquisitions, we will
increase our level of indebtedness and interest expense, while if we issue
additional common stock, we may dilute the ownership of our stockholders. In
addition, we may not be able to obtain the funds we need on acceptable terms.
These risks in the way we finance acquisitions could have a material adverse
effect on our business, operating results and financial condition.

                                       10
<PAGE>

     The failure to attain Year 2000 compliance may have an adverse impact on
     our business.

     We and other companies we do business with rely on numerous computer
programs in managing day-to-day operations. We have undertaken a program to
address the Year 2000 issues, which is a general term used to describe the
various problems that may result from the improper processing of dates and date-
sensitive calculations by computer and other machinery as the year 2000 is
approached and reached. Our failure to correct a Year 2000 problem could result
in a material interruption in, or a material failure of, our normal business
activities or operations. Our year 2000 program is focused on both our internal
computer systems and third party computer systems, including the systems of some
of our important suppliers and customers. We currently expect to continue to
incur internal staff costs and other expenses of up to $0.5 million to complete
our Year 2000-readiness work with respect to our major information systems. It
is possible that as we conduct further testing of our remediated systems these
costs could exceed this estimate. In addition, we may have to continue to
replace or upgrade systems or equipment at a substantial cost. We cannot be sure
that we will be able to resolve the Year 2000 issue in 1999. If we fail to
resolve the Year 2000 issue, or if our important suppliers and customers fail to
resolve their Year 2000 issues as they relate to U.S. Foodservice, the Year 2000
problem could have a material adverse effect on our business, operating results
and financial condition. For a discussion of our Year 2000 program and the
possible impact of the Year 2000 issue on U.S. Foodservice, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Information Systems and the Impact of the Year 2000 Issue."

     A labor dispute or work stoppage involving our employees, many of whom are
     union members, could adversely affect our business.

     As of July 3, 1999, approximately 3,400 of our employees were members of
approximately 40 different local unions associated with the International
Brotherhood of Teamsters and other labor organizations. These employees
represented approximately 26% of our full-time employees and approximately 46%
of the employees employed in our warehouse and distribution operations. In
fiscal 2000, collective bargaining contracts covering approximately 1,000 of our
employees will expire. A labor dispute or work stoppage resulting from our
failure to conclude new collective bargaining agreements or from other factors
could have a material adverse effect on our business, operating results and
financial condition.

     The foodservice distribution industry is highly competitive.

     Our industry is extremely fragmented, with over 3,000 companies in
operation in 1999. The number and diverse nature of these companies result in
highly competitive conditions. Our competition includes not only other broadline
distributors, which provide a comprehensive range of food and related products
from a single source of supply, but also specialty distributors and system
distributors. Specialty distributors generally supply one or two product
categories, while system distributors typically supply a narrow range of
products to a limited number of multi-unit businesses operating in a broad
geographical area. We compete in each of our markets with at least one other
large national distribution company, generally SYSCO Corporation or Alliant
Foodservice, Inc., as well as with numerous regional and local distributors. In
seeking acquisitions of other foodservice businesses, we compete against both
other foodservice distribution companies and financial investors. Our failure to
compete successfully could have a material adverse effect on our business,
operating results and financial condition. See "-Foodservice Distribution
Industry" for a discussion of the foodservice distribution industry and recent
industry trends and "-Competition" for a discussion of competitive
factors affecting our business.


                                       11
<PAGE>


     We currently have significant indebtedness and may incur additional
     indebtedness in the future.

     At July 3, 1999, our ratio of total debt to total capitalization was
approximately 40.5%. Our total capitalization is the sum of our total debt and
capital lease obligations plus our stockholders' equity. Our ratio of total debt
to total capitalization as of July 3, 1999 would have been approximately 52.5%
if we included as debt the $353 million sold under our accounts receivable
securitization arrangements. In accordance with generally accepted accounting
principles, we do not account for these arrangements as debt on our balance
sheet, but many lenders consider the arrangements in their credit decisions. We
may incur additional indebtedness in the future, subject to limitations
contained in the instruments governing our indebtedness, to finance capital
expenditures or for other general cash flow at or above the levels required to
service our indebtedness and meet our other cash needs. If our business fails to
generate sufficient operating cash flow in the future, or if we fail to obtain
cash from other sources such as asset sales or additional financings, we will be
restricted in our ability to continue to make acquisitions for cash and to
invest in expansion or replacement of our distribution facilities, information
systems and equipment. Such a failure could have a material adverse effect on
our business, operating results and financial condition. In addition, because a
majority of our indebtedness bears interest at floating rates, a material
increase in interest rates could adversely affect our ability to meet our
liquidity requirements. For a discussion of our financial condition, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."

     Our success largely depends on our ability to retain our senior management.

     We largely depend for our success on the efforts of members of our senior
management. Our key senior managers have many years of experience in broadline
foodservice distribution with U.S. Foodservice and other companies, as well as
in the acquisition and integration of foodservice businesses. They have
developed and coordinated implementation of U.S. Foodservice's business strategy
since our formation in 1989. If we were to lose the services of one or more of
our key senior managers, our business, operating results and financial condition
could be materially adversely affected.

     Product liability claims could have an adverse effect on our business.

     Like any other seller of food and processor of meats, we face an inherent
risk of exposure to product liability claims if the products we sell cause
injury or illness. We have obtained primary and excess umbrella liability
insurance with respect to product liability claims. We cannot assure you,
however, that this insurance will continue to be available at a reasonable cost
or, if available, will be adequate to cover liabilities. We generally seek
contractual indemnification from parties supplying our products, but any such
indemnification is limited, as a practical matter, to the creditworthiness of
the indemnifying party. If we do not have adequate insurance or contractual
indemnification available, product liability claims relating to defective
products could have a material adverse effect on our business, operating results
and financial condition.

Item 2.  Properties

     U.S. Foodservice occupies corporate headquarters in Columbia, Maryland,
which consists of a total of approximately 95,000 square feet of office space,
under a lease which expires in June 2003.

     U.S. Foodservice's 37 full-service distribution centers contain a total of
approximately seven million square feet of warehouse space. The distribution
centers range in area from approximately 75,000 square feet to approximately
525,000 square feet. The centers contain dry, refrigerated and frozen storage
areas and office space for the sales and administrative operations of the
branch. As part of our restructuring plan for the businesses we acquired in the
Rykoff-Sexton acquisition, we consolidated some overlapping distribution centers
in fiscal 1998 and fiscal 1999, and presently plan to

                                       12
<PAGE>

close one additional facility in fiscal 2000. The following table lists the
location of each of our full-service distribution centers:

Arizona             Massachusetts            Oregon
 Phoenix*            Everett                  Portland

California          Michigan                 Pennsylvania
 Union City*         Taylor                   Allentown
 La Mirada                                    Altoona
 Vista*             Minnesota                 Pittston
                     Plymouth
Connecticut                                  South Carolina
 South Windsor      Nevada                    Fort Mill
 Yantic              Las Vegas
                     Reno*                   Tennessee
Florida                                       Alcoa
 Ormond Beach       New Jersey
                     Bridgeport              Texas
Georgia              Englewood                Austin*
 Austell*            Kearny*                  Dallas*
 College Park                                 Lubbock
                    New York                  Mesquite
Illinois             Buffalo
 Glendale Heights                            Virginia
 Streator           Ohio                      Salem
                     Fairfield
Indiana                                      West Virginia
 Fort Wayne         Oklahoma                  Hurricane
                     Oklahoma City
Maryland
 Baltimore
 Severn

------------------
* Indicates facility leased by U.S. Foodservice, except for the Austin, Texas
facility, which is partially leased and partially owned by U.S. Foodservice; all
other facilities are wholly owned by U.S. Foodservice.

     Sofco, Inc., which was acquired by U.S. Foodservice on July 1, 1999,
operates two primary distribution facilities in New York for its paper product
and janitorial supply business, one of which is owned and one of which is
leased. Sofco, Inc. owns five and leases 12 additional facilities that are also
used in the operation of its business.

     U.S. Foodservice occupies 14 contract and design offices in 12 states. Of
these offices, nine are located in distribution centers, four are leased and one
is owned. U.S. Foodservice also leases one in-transit warehouse in Indiana and
manages an in-transit warehouse out of a third-party facility in California.

Item 3. Legal Proceedings

     From time to time, U.S. Foodservice is involved in litigation and
proceedings arising out of the ordinary course of our business. There are no
pending material legal proceedings or environmental investigations to which U.S.
Foodservice is a party or to which any property of U.S. Foodservice is subject.

Item 4. Submission of Matters to a Vote of Security Holders

     There were no matters submitted to U.S. Foodservice's security holders
during the fourth quarter of fiscal 1999.

                                       13
<PAGE>

                                    PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

     Our common stock has been listed on the New York Stock Exchange since
December 31, 1996. Our current symbol is "UFS." The table below shows, for the
last two fiscal years, the high and low last Reported sale prices of our common
stock on the New York Stock Exchange composite tape. All share prices have been
retroactively adjusted to reflect the two-for-one split of our common stock
effected on August 4, 1999.

<TABLE>
<CAPTION>
                                                            High            Low
                                                           ------         ------
Fiscal Year Ended June 27, 1998
<S>                                                        <C>             <C>
   First Quarter                                           $16.22         $14.35
   Second Quarter                                           17.41          13.78
   Third Quarter                                            18.60          16.16
   Fourth Quarter                                           18.63          15.75

Fiscal Year Ended July 3, 1999
   First Quarter                                           $21.25         $16.44
   Second Quarter                                           24.57          20.44
   Third Quarter                                            26.25          20.47
   Fourth Quarter                                           24.50          20.25
</TABLE>


     As of September 28, 1999, there were approximately 775 holders of record
of our common stock. On September 28, 1999, the last reported sale price of our
common stock on the New York Stock Exchange was $18.38 per share.

     We have never paid cash dividends on our common stock and we do not
anticipate that we will pay cash dividends in the foreseeable future. The
current policy of our board of directors is to retain all earnings to support
our operations and to finance the expansion of our business. We may pay cash
dividends only if we comply with financial tests and other restrictions
contained in our credit facility agreements.

     In consideration of our acquisition of Sofco, Inc., which we completed
effective July 1, 1999, we issued 2,106,924 shares of common stock valued at
approximately $44.5 million to CEX Holdings, Inc. CEX Holdings was the sole
shareholder of Sofco. See Note 4 to the financial statements appearing elsewhere
in this report for additional information on this transaction. In connection
with this issuance, U.S. Foodservice relied on the exemption from registration
provided under Section 4(2) of the Securities Act. U.S. Foodservice did not
engage in any advertising or general solicitation in connection with the offer
and sale of the securities. In addition, U.S. Foodservice provided or made
available information concerning U.S. Foodservice and the common stock, obtained
investment representations from the selling stockholder and placed restrictive
legends on the certificates evidencing the securities issued.

                                       14
<PAGE>

Item 6. Selected Financial Data

     The following table presents selected financial data of U.S. Foodservice as
of July 1, 1995, June 29, 1996, June 28, 1997, June 27, 1998 and July 3, 1999
and for each of the years then ended. The selected financial data as of June 27,
1998 and July 3, 1999 and for each of the years in the three-year period ended
July 3, 1999 are derived from the U.S. Foodservice's audited consolidated
financial statements appearing elsewhere in this report. The selected financial
data as and for the fiscal years ended July 1, 1995, June 29, 1996 and June 28,
1997 have been restated to include the financial data of Rykoff-Sexton as of and
for the years ended April 29, 1995, April 27, 1996 and June 28, 1997,
respectively.

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                    Fiscal Years Ended
                                                            --------------------------------------------------------------------
                                                              July,         June 29,      June 28,     June 27,         July 3,

                                                               1995          1996          1997         1998(2)          1999
                                                            ----------    ----------    ----------    ----------      ----------

Statements of Operations Data (1):
<S>                                                         <C>           <C>           <C>           <C>             <C>
Net sales............................................       $2,857,334    $3,238,781    $5,169,406    $5,506,949      $6,198,408

Cost of sales........................................        2,262,819     2,586,096     4,166,332     4,465,281       5,052,068
                                                            ----------    ----------    ----------    ----------      ----------

Gross profit.........................................          594,515       652,685     1,003,074     1,041,668       1,146,340

Operating expenses...................................          526,871       590,446       845,901       876,170         917,094

Amortization of intangible assets....................            2,792         4,244        15,349        15,354          17,080

Restructuring costs (reversal).......................                -        (6,441)       (4,000)       53,715               -

Charge for impairment of long-lived assets...........                -        29,700             -        35,530               -
                                                            ----------    ----------    ----------    ----------      ----------

Income from operations...............................           64,852        34,736       145,824        60,899         212,166

Interest expense and other financing
 costs, net..........................................           32,941        32,527        76,063        73,894          64,974

Nonrecurring charges.................................                -         1,517         5,400        17,822               -
                                                            ----------    ----------    ----------    ----------      ----------

Income (loss) from continuing operations
 before income taxes and extraordinary
 charge..............................................           31,911           692        64,361       (30,817)        147,192

Provision for income taxes...........................           13,608           559        26,075         6,475          58,910
                                                            ----------    ----------    ----------    ----------      ----------

Income (loss) from continuing operations
 before extraordinary charge.........................           18,303           133        38,286       (37,292)         88,282

Income from discontinued operations..................              137             -             -             -               -

Gain on disposal of discontinued
 operations..........................................           23,359             -             -             -               -
</TABLE>

                                       15
<PAGE>

<TABLE>
<S>                                                         <C>           <C>           <C>           <C>             <C>
Extraordinary charges, net of income taxes............          (4,590)            -             -        (9,712)         (5,048)
                                                          ------------   -----------   -----------   -----------     -----------

Net income (loss).....................................          37,209           133        38,286       (47,004)         83,234

Preference dividends..................................             (40)            -             -             -               -
                                                          ------------   -----------   -----------   -----------     -----------

Net income (loss) applicable to common
 shareholders (3).....................................    $     37,169   $       133   $    38,286   $   (47,004)    $    83,234
                                                          ============   ===========   ===========   ===========     ===========

Per Share Data (4):

Net income (loss) per common share:
 Basic:
   Before extraordinary charge........................    $       0.37   $      0.00   $      0.44   $     (0.41)    $      0.92

   Net income (loss)..................................    $       0.76   $      0.00   $      0.44   $     (0.52)    $      0.87

Diluted:
   Before extraordinary charge........................    $       0.37   $      0.00   $      0.43   $     (0.41)    $      0.91

   Net income (loss)..................................    $       0.76   $      0.00   $      0.43   $     (0.52)    $      0.86

Weighted average common shares (4):
   Basic..............................................          49,040        60,776        86,902        90,640          95,922

   Diluted............................................          49,134        61,030        88,126        90,640          97,190

Balance Sheet Data (at end of period):

Working capital.......................................    $    270,942   $   208,130   $   234,803  $    287,816         379,940

Total assets..........................................         939,280     1,052,211     1,732,183     1,817,791       2,012,874

Long-term debt, excluding current
 maturities...........................................         306,702       303,728       655,246       680,625         558,540

Stockholders' equity..................................         315,060       316,676       579,146       584,720         829,379
</TABLE>

-----------------------

                                       16
<PAGE>

(1)  U.S. Foodservice operates on a 52-53 week fiscal year ending on the
     Saturday closest to June 30. The fiscal year ended July 3, 1999 is a
     53-week fiscal year, while all other periods presented are 52-week fiscal
     years.

(2)  In connection with the acquisition of Rykoff-Sexton, U.S. Foodservice
     incurred restructuring costs, asset impairment charges, nonrecurring
     charges and certain other operating charges resulting from the integration
     of the two businesses (the "acquisition related costs") totaling
     approximately $138.0 million, which significantly affected U.S.
     Foodservice's results for the fiscal year ended June 27, 1998. Excluding
     the impact of the acquisition related costs, U.S. Foodservice's net income
     before extraordinary charge was $62.6 million, or $0.68 per share, on a
     diluted basis.

(3)  U.S. Foodservice has no elements of comprehensive income (loss), other than
     net income (loss). Accordingly, comprehensive income (loss) is equal to net
     income (loss) for all periods presented.

(4)  Per share data have been retroactively adjusted to reflect the two-for-one
     stock split effected on August 4, 1999.

                                       17
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

Introduction

     U.S. Foodservice's business strategy is to increase net sales through
internal growth of chain and street sales, while acquiring other foodservice
distributors to expand its distribution capabilities and increase penetration of
its existing markets. With the acquisition of Rykoff-Sexton on December 23,
1997, U.S. Foodservice, formerly JP Foodservice, Inc., became one of the largest
broadline foodservice distributors in the United States based on net sales. The
acquisition of Rykoff-Sexton expanded U.S. Foodservice's distribution
capabilities nationwide and strengthened its competitive position in several
major markets.

Acquisitions

     Fiscal 1999 Acquisitions. U.S. Foodservice has pursued an active program of
strategic acquisitions to take advantage of growth opportunities from ongoing
consolidation in the fragmented foodservice distribution industry. In the second
quarter of fiscal 1999, U.S. Foodservice acquired J.H. Haar & Sons, L.L.C.
("Haar"), a New Jersey-based broadline foodservice distributor serving the
metropolitan New York City market, and Joseph Webb Foods, Inc. ("Webb"), a
broadline foodservice distributor serving the San Diego and other southern
California markets. On July 1, 1999, U.S. Foodservice acquired Sofco, Inc.
("Sofco"), a paper products distributor serving the upper New York State market.
These three acquisitions significantly expanded U.S. Foodservice's existing
operations in those markets. U.S. Foodservice accounted for the acquisition of
Haar under the pooling of interests method of accounting and the acquisitions of
Webb and Sofco under the purchase method of accounting. The operating results of
Haar were not material to U.S. Foodservice's reported results for periods prior
to the acquisition and, accordingly, prior operating results of U.S. Foodservice
have not been restated to incorporate the results of Haar prior to the
acquisition. The operating results of Haar and Webb are included in U.S.
Foodservice's consolidated statements of operations from the dates of those
acquisitions. No results of operations for Sofco are included in U.S.
Foodservice's consolidated statement of operations.

     Fiscal 1998 Acquisition of Rykoff-Sexton. On December 23, 1997, U.S.
Foodservice acquired Rykoff-Sexton, the nation's third largest broadline
foodservice distributor based on net sales. The acquisition was accounted for
under the pooling of interests method of accounting. Accordingly, the
consolidated financial statements for periods prior to the acquisition have been
restated to include consolidated financial information for Rykoff-Sexton. In
connection with the acquisition, U.S. Foodservice incurred restructuring costs
of $56.7 million, asset impairment charges of $35.5 million, other operating
charges included in cost of sales of $8.6 million and in operating expenses of
$19.4 million, and nonrecurring charges of $17.8 million resulting from the
integration of the two businesses (the "acquisition related costs"). The
acquisition related costs aggregated approximately $138.0 million, of which
$76.6 milllion consisted of non-cash charges. For more information about the
acquisition related costs, see note 16 to the consolidated financial statements
appearing elsewhere in this report.

     Under its integration plan for the combination of the two businesses, U.S.
Foodservice believes operating costs and interest savings exceeded $20.0 million
in fiscal 1998 and $38.0 million in fiscal 1999. U.S. Foodservice achieved
operating cost savings through the consolidation and renegotiation of
purchasing programs, consolidation and realignment of distribution facilities,
consolidation of administrative functions and realization of interest savings
through the refinancing of its senior debt.

                                       18
<PAGE>

     Other Fiscal 1998 Acquisitions. In the second quarter of fiscal 1998, U.S.
Foodservice acquired Outwest Meat Company ("Outwest"), located in Las Vegas,
Nevada. In the third quarter of fiscal 1998, U.S. Foodservice acquired Westlund
Provisions, Inc. ("Westlunds"), a foodservice distributor specializing in
custom-cut meats located in Minneapolis, Minnesota. These two acquisitions
complemented U.S. Foodservice's existing operations in those markets, while
enabling U.S. Foodservice to enhance significantly its custom-cut meat
offerings. Also in the third quarter of fiscal 1998, U.S. Foodservice expanded
the scope of its distribution network in the northeastern United States by
acquiring Sorrento Food Service, Inc. ("Sorrento"), a broadline distributor
located in Buffalo, New York. U.S. Foodservice accounted for these acquisitions
under the purchase method of accounting and, accordingly, the operating results
of the acquired businesses are included in U.S. Foodservice's consolidated
statements of operations from the dates of the acquisitions.

     Fiscal 1997 Acquisitions. In fiscal 1997, U.S. Foodservice acquired Valley
Industries, Inc. ("Valley"), Arrow Paper and Supply Co. Inc. ("Arrow"), Squeri
Food Service, Inc. ("Squeri") and Mazo-Lerch Company ("Mazo"), broadline
distributors located in Las Vegas, Nevada, Norwich, Connecticut, Cincinnati,
Ohio and Alexandria, Virginia, respectively. The acquisitions of Valley and
Squeri were accounted for under the pooling of interests method of accounting
and, accordingly, the operating results for periods prior to fiscal 1997 were
restated. The acquisitions of Arrow and Mazo were accounted for under the
purchase method of accounting and, accordingly, the operating results are
included in U.S. Foodservice's consolidated statements of operations from the
dates of those acquisitions.

Results of Operations

     U.S. Foodservice sells a significant portion of its products at prices
based on product cost plus a percentage markup. Periods of inflation in food
prices result in higher product costs, which are reflected in higher sales
prices and higher gross profits. Inflation did not have a material impact on
U.S. Foodservice's operating results in any of its three most recent fiscal
years.

     Gross margins generally are lower for chain accounts than for street
accounts. However, because there are typically no commission sales costs related
to chain account sales and because chain accounts usually have larger deliveries
to individual locations, sales and delivery costs generally are lower for chain
accounts than for street accounts. Gross margins generally are higher for
proprietary brand products than for national brand products of comparable
quality. U.S. Foodservice, however, incurs additional advertising and other
marketing costs in promoting its proprietary brand products.

     The principal components of expenses include cost of sales, which
represents the amount paid to manufacturers and food processors for products
sold, and operating expenses, which include labor-related and other selling
expenses, warehousing, transportation and other distribution costs, and
administrative expenses. Because distribution and administrative expenses are
relatively fixed in the short term, unexpected changes in net sales, such as
those resulting from adverse weather, can have a significant short-term impact
on operating income.

     U.S. Foodservice's operating results historically have reflected modest
seasonal variations. For summary financial data showing the effect of these
seasonal variations in the last eight fiscal quarters, see "--Quarterly Results
and Seasonality."

Fiscal 1999 Compared to Fiscal 1998

     Net Sales. Net sales increased 12.6% in fiscal 1999 to $6.2 billion from
$5.5 billion for fiscal 1998. The acquisitions of Outwest in the second quarter
of fiscal 1998, Sorrento and Westlund in the

                                       19
<PAGE>

third quarter of fiscal 1998, and Haar and Webb in the second quarter of fiscal
1999 accounted for net sales growth of approximately 4.9%. In addition, fiscal
1999 had 53 weeks, compared to 52 weeks for fiscal 1998. The additional week of
operations in fiscal 1999 contributed net sales growth of approximately 2.1%.

     Growth in both chain account sales and street sales contributed to the
remaining increase in sales. Chain account sales increased 17.7% for fiscal
1999. A significant portion of this increase was attributable to the expansion
of sales to existing chain customers resulting from the national distribution
capability created through the acquisition of Rykoff-Sexton. Street sales
increased 9.1% for fiscal 1999 principally as a result of the growth of the
street sales force and improved sales force productivity. Because chain sales
grew at a faster rate than street sales, the street sales mix, or street sales
as a percentage of total net sales, decreased to 59.7% in fiscal 1999 from 62.2%
in fiscal 1998.

     Gross Profit. Gross profit margin decreased to 18.5% in fiscal 1999 from a
gross profit margin, prior to the acquisition related costs, of 19.1% in fiscal
1998. The decrease was primarily attributable to the continuation of U.S.
Foodservice's strategy to emphasize "center of the plate" entree product sales,
which results in more gross profit per delivery than higher-margin, lower cost
specialty products. This results in a lower gross margin but higher
profitability. The gross profit margin was also adversely affected by an
increase in chain sales as a percentage of net sales in fiscal 1999.

     Operating Expenses. Excluding the effects of the acquisition related costs
in the prior year, operating expenses increased by 7.0%, or $60.3 million, in
fiscal 1999 over fiscal 1998 and, as a percentage of net sales, decreased to
14.8% in fiscal 1999 from 15.6% in fiscal 1998. This decrease was primarily
attributable to operating efficiencies resulting from the integration plan, cost
reductions achieved through the consolidation of U.S. Foodservice's general and
administrative functions, and an increase in the average size of customer
deliveries resulting from the shifts in sales mix to increased chain account
sales and in product mix towards "center-of-the-plate" entree products.

     Amortization of Intangible Assets. Amortization of goodwill and other
intangible assets was $17.1 million in fiscal 1999 compared to $15.4 million in
fiscal 1998. The increase resulted from the goodwill recorded in connection with
the acquisitions of Sorrento, Westlund and Webb.

     Income from Operations. Excluding the acquisition related costs, income
from operations was $212.2 million in fiscal 1999 compared to $178.1 million in
fiscal 1998, representing an increase of 19.1%, or $34.1 million. The increase
was attributable to the increase in net sales and the reduction of operating
expenses as a percentage of net sales.

     Interest Expense and Other Financing Costs, Net. Interest expense and other
financing costs, net, decreased $8.9 million, or 12.1%, for fiscal 1999 from
fiscal 1998. The reduced interest expense was attributable to lower overall
interest rates under the credit facility U.S. Foodservice established in
connection with the Rykoff-Sexton acquisition.

     Provision for Income Taxes (Benefit). During fiscal 1999, U.S. Foodservice
recognized income tax expense at an effective rate of 40.0% compared to an
income tax benefit at an effective tax rate of (21.0)% for fiscal 1998. The rate
for fiscal 1998 reflects the effect on the income tax provision of the non-
deductibility of some of the acquisition related costs. U.S. Foodservice's
effective tax rate for fiscal 1998 before the effect of the acquisition related
costs was 39.9%.

                                       20
<PAGE>

     Extraordinary Charge. During fiscal 1999, U.S. Foodservice incurred an
extraordinary charge of $5.0 million, net of a $3.2 million income tax benefit,
related to the redemption and retirement of the remaining $120.2 million
principal amount of Rykoff-Sexton's 8 7/8% senior subordinated notes due 2003.
The extraordinary charge consisted of a $6.1 million redemption premium paid to
note holders and the write-off of $2.1 million of unamortized deferred
financing costs. In fiscal 1998, U.S. Foodservice recorded an extraordinary
charge of $9.7 million, net of a $6.3 million income tax benefit, related to the
write-off of deferred financing costs and to additional payments to holders of
U.S. Foodservice's senior notes due 2004, in accordance with the senior note
terms.

Fiscal 1998 Compared to Fiscal 1997

     Net Sales. Net sales increased 6.5% to $5.5 billion in fiscal 1998 from
$5.2 billion in fiscal 1997. Higher chain account and street sales contributed
significantly to net sales growth. Acquisitions of foodservice distributors
other than Rykoff-Sexton accounted for net sales growth of 3.3%. An increase of
5.8% in chain account sales reflected the continued growth in sales to U.S.
Foodservice's larger customers. Street account sales increased 6.8% in fiscal
1998 primarily as a result of the growth of the sales force and continued
improvements in sales force productivity.

     Gross Profit. Gross profit margin decreased to 18.9% in fiscal 1998 from
19.4% in fiscal 1997. The decline in gross profit margin was primarily
attributable to a continuing shift in product mix from some high-margin items to
higher turnover, lower-margin items, including "center-of-the-plate" entree
products, in the former Rykoff-Sexton operations, as well as decreased margins
at some of the operating units that were closed as part of the integration plan
related to the Rykoff-Sexton acquisition. The decline in gross profit margins
for fiscal 1998 also resulted from $8.6 million of acquisition related costs for
writedowns of inventory at operating units undergoing consolidation or
realignment. The effect on gross profit of the shift in product mix was offset
in part by an increase in street sales as a percentage of net sales and the
growth of proprietary brand product sales in fiscal 1998. Sales of proprietary
brand products increased by 5.6% in fiscal 1998 over fiscal 1997. In addition,
U.S. Foodservice estimates that it achieved approximately $9.0 million in
savings from the consolidation and renegotiation of its purchasing programs.

     Operating Expenses. Excluding the acquisition related costs in fiscal 1998,
operating expenses increased by 1.8%, or $14.9 million, in fiscal 1998 over
fiscal 1997 and, as a percentage of net sales, declined to 15.6% in fiscal 1998
from 16.3% in fiscal 1997. The decrease was primarily attributable to operating
efficiencies resulting from the integration plan related to the Rykoff-Sexton
acquisition, an increase in the average size of customer deliveries, and cost
reductions achieved through the consolidation of general and administrative
functions. A $7.4 million curtailment gain was recognized in fiscal 1998 upon
the suspension of all participation and benefit accruals under one of Rykoff-
Sexton's defined benefit plans.

     Amortization of Other Intangible Assets. Amortization of goodwill and other
intangible assets totaled $15.3 million in fiscal 1997 and $15.4 million in
fiscal 1998.

     Restructuring Cost and Asset Impairment Charges. Restructuring costs of
$53.7 million related to the Rykoff-Sexton acquisition consisted primarily of
change in control payments made to former executives of Rykoff-Sexton and
severance, idle facility and facility closure costs related to U.S.
Foodservice's plan to consolidate and realign some operating units and
consolidate various overhead functions. These costs were offset in part by a
reversal of $3.0 million of unutilized reserves from a prior restructuring. The
reversal related to activities for which the actual costs were overestimated or
for which the contemplated restructuring plans were ultimately changed.

                                       21
<PAGE>

     Asset impairment charges of $35.5 million consisted of writedowns to net
realizable value of assets and facilities at operating units that were
consolidated or realigned and assets related to management information systems
which are being replaced and not currently utilized.

     Income from Operations. Excluding the impact of the acquisition related
costs, income from operations increased 22.1% to $178.1 million in fiscal 1998
from $145.8 million in fiscal 1997. This increase resulted in an operating
margin of 3.2% in fiscal 1998 compared to an operating margin of 2.8% in fiscal
1997 and was primarily attributable to reduced operating expenses and the cost
reductions achieved in integrating the Rykoff-Sexton operations.

     Interest Expense and Other Financing Costs, Net. Interest expense and other
financing costs, net, decreased 2.9% to $73.9 million in fiscal 1998 from $76.1
million in fiscal 1997. The decrease was primarily attributable to the
refinancing of indebtedness of U.S. Foodservice. U.S. Foodservice's new credit
facility reduced average borrowing costs by approximately 275 basis points
during the second half of fiscal 1998 from the level in fiscal 1997. The
interest rate reduction was offset in part by higher average borrowings, which
were primarily attributable to the nonrecurring charges associated with the
Rykoff-Sexton acquisition.

     Nonrecurring Charges. Nonrecurring charges of $17.8 million principally
related to fees for financial advisory, legal, accounting and other professional
services incurred to consummate the Rykoff-Sexton acquisition.

     During fiscal 1997, U.S. Foodservice recorded nonrecurring charges of $5.4
million with respect to legal and other professional fees required to complete
the acquisitions of Valley and Squeri.

     Provision for Income Taxes (Benefit). During fiscal 1998, U.S. Foodservice
recognized an income tax benefit at an effective rate of (21.0)% compared to an
income tax expense at an effective rate of 40.5% for fiscal 1997. The rate for
fiscal 1998 reflects the effect on the income tax provision of the non-
deductibility of some of the acquisition related costs. U.S. Foodservice's
effective tax rate for fiscal 1998 before the effect of the acquisition related
costs was 39.9%.

     Extraordinary Charge. In fiscal 1998, U.S. Foodservice recorded an
extraordinary charge of $9.7 million, net of a $6.3 million income tax benefit,
related to the write-off of deferred financing costs with respect to the
extinguished debt and additional payments to holders of U.S. Foodservice's
senior notes due 2004, in accordance with the senior note terms.

Quarterly Results and Seasonality

     U.S. Foodservice's operating results historically have reflected modest
seasonal variations. U.S. Foodservice generally experiences lower net sales and
income from operations during its third quarter, which includes the winter
months. Winter weather conditions in some regions of the country typically
result in reduced patronage at restaurants and other foodservice establishments
and contribute to higher distribution costs. In the second and third quarters of
fiscal 1998, U.S. Foodservice incurred acquisition related costs totaling
approximately $138.0 million, which significantly affected U.S. Foodservice's
reported results for those quarters. See note 16 to the consolidated
financial statements appearing elsewhere in this report for more information
about these costs.


                                       22
<PAGE>

     The following tables present selected statement of operations data for each
of the last eight fiscal quarters:

<TABLE>
<CAPTION>
                                                                   (Dollars in thousands, except per share amounts)

                                                                           Fiscal Year Ended June 27, 1998
                                                       -----------------------------------------------------------------------
                                                             1st             2nd                3rd                  4th
                                                       --------------  ----------------   ----------------    ----------------
                                                           Quarter         Quarter(1)        Quarter(2)            Quarter
                                                       --------------  ----------------   ----------------    ----------------
<S>                                                    <C>             <C>                <C>                 <C>
Net sales........................................          $1,338,828        $1,373,258         $1,338,138          $1,456,725
Gross profit.....................................             256,246           256,497            248,126             280,799
Income (loss) from operations....................              35,720           (49,735)            12,710              62,204
Operating margin.................................                 2.7%            (3.6)%               0.9%                4.3%
Income (loss) before extraordinary charge........          $    9,791        $  (70,622)        $   (3,260)         $   26,799
Net income (loss) per common share (3):
 Basic:
    Before extraordinary charge..................          $     0.11        $    (0.78)        $    (0.04)         $     0.29
    Net income (loss)............................          $     0.11        $    (0.89)        $    (0.04)         $     0.29
 Diluted:
    Before extraordinary charge..................          $     0.11        $    (0.78)        $    (0.04)         $     0.29
    Net income (loss)............................          $     0.11        $    (0.89)        $    (0.04)         $     0.29

<CAPTION>

                                                                          Fiscal Year Ended July 3, 1999
                                                       -----------------------------------------------------------------------
                                                             1st             2nd                3rd                  4th
                                                       --------------  ----------------   ----------------    ----------------
                                                           Quarter         Quarter            Quarter              Quarter(4)
                                                       --------------  ----------------   ----------------    ----------------
<S>                                                    <C>             <C>                <C>                 <C>
Net sales........................................          $1,478,370        $1,533,089         $1,471,076          $1,715,873
Gross profit.....................................             269,977           282,082            273,281             321,000
Income from operations...........................              45,039            51,249             43,586              72,292
Operating margin.................................                 3.0%              3.3%               3.0%                4.2%
Income before extraordinary charge...............          $   16,912        $   20,608         $   16,481          $   34,281
Net income per common share (3):
 Basic:
    Before extraordinary charge..................          $     0.18        $     0.22         $     0.17          $     0.35
    Net income...................................          $     0.18        $     0.19         $     0.17          $     0.32
 Diluted:
    Before extraordinary charge..................          $     0.18        $     0.21         $     0.17          $     0.34
    Net income...................................          $     0.18        $     0.19         $     0.17          $     0.32
</TABLE>

(1) In the second quarter of fiscal 1998, U.S. Foodservice incurred $112.6
    million of the total $138.0 million of acquisition related costs. Excluding
    these charges, gross profit would have been $262.5 million, income from
    operations would have been $42.0 million, the operating margin would have
    been 3.1%, income before extraordinary charge would have been $12.8 million
    and diluted earnings per common share, before extraordinary charge, would
    have been $.14 per share.

(2) In the third quarter of fiscal 1998, U.S. Foodservice incurred $25.4 million
    of the total $138.0 million of acquisition related costs. Excluding these
    charges, gross profit would have been $250.6 million, income from operations
    would have been $38.1 million, the operating margin would have been 2.8%,
    income before extraordinary charge would have been $13.3 million and diluted
    earnings per common share, before extraordinary charge, would have been $.15
    per share.

(3) Per share data have been retroactively adjusted to reflect the two-for-one
    stock split effected on August 4, 1999.

(4) Represents a 14-week period compared to 13 weeks for all other periods.

                                       23
<PAGE>

Liquidity and Capital Resources

     U.S. Foodservice historically has financed its operations and growth
primarily with cash flow from operations, equity offerings, borrowings under its
credit facilities, and operating and capital leases.

     Cash Flows from Operating Activities. Net cash flows provided by operating
activities were $172.0 million in fiscal 1999, $70.7 million in fiscal 1998 and
$116.1 million in fiscal 1997. The $101.5 million increase in net cash flow from
operations in fiscal 1999 primarily reflected $83.2 million of net income and a
$57.6 million deferred gain on the sale of manufacturing assets recorded in
fiscal 1999 as well as $100 million of proceeds from the additional sale of
accounts receivable under U.S. Foodservice's accounts receivable securitization
arrangements. These amounts were offset in part by a $59.4 million increase in
inventories and a $37.9 million decrease in accounts payable and accrued
expenses.

     U.S. Foodservice's net working capital requirements generally average
between 5.0% and 6.0% of annual sales. U.S. Foodservice's working capital
balance, excluding the current portion of long-term debt, of $386.8 million at
July 3, 1999 increased by $91.4 million from the balance at June 27, 1998. The
higher working capital balances were primarily attributable to increased net
sales and acquisitions.

     Cash Flows from Investing Activities. Net cash used in investing activities
was $49.4 million in fiscal 1999, $102.3 million in fiscal 1998 and $106.8
million in fiscal 1997.

     Net cash flows used in investing activities in fiscal 1999 included $68.4
million of capital expenditures. U.S. Foodservice's capital expenditures were
for facility expansion projects and upgrading of management information systems.
Cash flows required for capital expenditures were offset in part by proceeds of
$36.9 million received from the sale of manufacturing division assets and the
sale of idle facilities acquired in the Rykoff-Sexton acquisition. Net cash
flows used for investing activities in fiscal 1999 also included $18.1 million
of costs related to the acquisitions of Webb and Sofco.

     U.S. Foodservice currently expects to make net capital expenditures of
approximately $50.3 million in fiscal 2000, including approximately $34.9
million to upgrade and expand its existing facilities.

     Cash Flows from Financing Activities. Net cash flows provided by (used in)
financing activities were ($100.7) million in fiscal 1999, $15.0 million in
fiscal 1998 and $30.8 million in fiscal 1997. Net cash flows used in financing
activities in fiscal 1999 included $120.2 million used to redeem and retire
Rykoff-Sexton's 8 7/8% senior subordinated notes due 2003 and $41.6 million of
principal payments on long-term debt. These amounts were offset in part by $43.2
million received from the sale of common stock in a public offering and proceeds
of $19.7 million from employee stock purchases.

     U.S. Foodservice has a bank credit facility which provides for a $550.0
million five-year revolving credit facility and a $200.0 million term
facility (the "credit facility"). Borrowings under the credit facility bear
interest at U.S. Foodservice's option at a rate equal to the sum of (a) the
London Interbank Offered Rate (LIBOR), a specified prime rate, or the federal
funds rate plus .5%, and (b) an applicable margin. The applicable margin will
vary from .175% to .55%, based on a formula tied to U.S. Foodservice's ratio of
debt to cash flow. Annual facility fees are based on the same formula and vary
between .055% and .2%. At July 3, 1999, borrowing rates were based on LIBOR plus
an applicable margin of between .35% and .375% and averaged 5.54%, excluding the
amortization of deferred financing costs. The credit facility includes a $75.0
million facility for standby and commercial letters of credit and a $50.0
million swing-line facility for same-day borrowings. At July 3, 1999, $506.0
million of borrowings and $36.9 million of letters of credit were

                                       24
<PAGE>

outstanding under the credit facility and an additional $207.1 million remained
available to finance U.S. Foodservice's working capital needs and to meet its
other liquidity requirements. The credit facility includes a number of covenants
which require U.S. Foodservice to maintain financial ratios and restrict U.S.
Foodservice's ability to incur additional indebtedness and pay cash dividends.

     U.S. Foodservice has entered into accounts receivable securitization
arrangements to sell accounts receivables on a revolving basis. In the third
quarter of fiscal 1999, U.S. Foodservice increased the maximum amount of
receivables eligible for sale under these arrangements from $250 million to $353
million, thereby increasing its borrowing capacity by $103 million. At July 3,
1999, U.S. Foodservice was utilizing $353 million of the existing capacity.

     As of July 3, 1999, U.S. Foodservice's long-term indebtedness, including
current portion, totaled $565.4 million, with an overall weighted average
interest rate of 6.3%, excluding deferred financing costs.

     From time to time, U.S. Foodservice acquires other foodservice businesses.
U.S. Foodservice may acquire any such business for cash, common stock or a
combination of cash and common stock. Accordingly, management may determine that
it is necessary or desirable to obtain financing for acquisitions through
additional bank borrowings or the issuance of debt or equity securities.

     U.S. Foodservice believes that the combination of cash flow generated by
its operations, additional capital leasing activity, sales of duplicate assets,
sales of accounts receivable under its securitization arrangements and
borrowings under the credit facility will be sufficient to enable it to finance
its growth and meet its currently projected capital expenditures and other
liquidity requirements for at least the next twelve months.

Information Systems and the Impact of the Year 2000 Issue

     The Year 2000 issue results from a programming convention in which computer
programs use two digits rather than four to define the applicable year. Software
and hardware may recognize a date using "00" as the year 1900, rather than the
year 2000. Such an inability of computer programs to recognize a year that
begins with "20" could result in system failures, miscalculations or errors
causing disruptions of operations or other business problems, including, among
others, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.

     U.S. Foodservice's Program. U.S. Foodservice has undertaken a program to
address the Year 2000 issue with respect to the following:

     .  U.S. Foodservice's information technology and operating systems,
        including its billing, accounting and financial reporting systems;

     .  U.S. Foodservice's non-information technology systems, such as
        buildings, plant, equipment, telephone systems and other infrastructure
        systems that may contain embedded microcontroller technology;

     .  selected systems of U.S. Foodservice's major vendors and significant
        service providers, insofar as these systems relate to U.S. Foodservice's
        business activities with such parties; and

     .  U.S. Foodservice's significant customers, insofar as the Year 2000 issue
        relates to U.S. Foodservice's ability to provide services to these
        customers.

                                       25
<PAGE>

As described below, U.S. Foodservice's Year 2000 program involves:

     .  an assessment of the Year 2000 problems that may affect U.S.
        Foodservice;

     .  the development and testing of remedies to address the problems
        discovered in the assessment phase; and

     .  the preparation of contingency plans to deal with worst case scenarios.

Assessment Phase. U.S. Foodservice has completed the evaluation of its own
internal systems, which include the various information systems used at U.S.
Foodservice's 37 full-service distribution centers, two specialty products,
equipment and supply warehouses, and corporate headquarters to process
transactions and meet financial reporting needs. In addition, U.S. Foodservice
has completed the process of sending letters to its major vendors and
significant service providers requesting them to provide U.S. Foodservice with
detailed, written information concerning existing or anticipated Year 2000
compliance by their systems insofar as the systems relate to these parties'
business activities with U.S. Foodservice. U.S. Foodservice has received
responses from approximately 60% of the vendors from which it has requested this
information. U.S. Foodservice is continuing to evaluate responses on Year 2000
compliance from the third parties that have responded to U.S. Foodservice's
inquiries.

Remediation and Testing Phase. The activities conducted during the remediation
and testing phase are intended to address potential Year 2000 problems in
internally-developed computer software and in U.S. Foodservice's other
information technology systems. During fiscal 1999, among other activities, U.S.
Foodservice replaced information processing systems, consisting of hardware and
software, at five distribution centers, completed software remediation efforts
at the remaining distribution centers, and installed a new payroll and human
resources information system at 35 distribution centers and its corporate
headquarters. As of the date of this report, U.S. Foodservice has completed the
remediation, testing and implementation of the Year 2000 ready programs for the
mission-critical systems at 36 of U.S. Foodservice's 37 full-service
distribution centers, two specialty products, equipment and supply warehouses,
and corporate headquarters. U.S. Foodservice plans to convert the remaining
distribution center by year-end to a Year 2000 ready system that is in use at
other distribution centers. U.S. Foodservice is continuing to conduct
enterprise-wide testing for the purpose of demonstrating functional integrated
systems operation. U.S. Foodservice is also addressing potential Year 2000
compliance issues with non-information technology equipment, including telephone
systems, heating and air conditioning.

Contingency Plans. U.S. Foodservice is continuing to develop contingency plans
to address its most reasonably likely worst case scenarios, which it has not yet
fully identified. U.S. Foodservice expects to continue to develop contingency
plans through the end of calendar 1999.

Costs Related to the Year 2000 Issue. As of July 3, 1999, U.S. Foodservice had
incurred approximately $2.5 million in costs for its Year 2000 program. These
costs do not include internal staff costs, consisting principally of payroll
costs, incurred on Year 2000 matters, because U.S. Foodservice does not
separately track these internal staff costs. As of July 3, 1999, U.S.
Foodservice also had made approximately $16.7 million of capital expenditures on
new information processing systems that are already Year 2000 compliant. U.S.
Foodservice currently estimates that it will incur additional costs, which are
not expected to exceed $0.5 million, excluding internal staff costs, to complete
its Year 2000 compliance work with respect to U.S. Foodservice's major
information systems. All of these additional costs are expected to be incurred
during fiscal 2000. These costs will

                                       26
<PAGE>

be expensed as incurred. Actual costs may vary from the foregoing estimates
based on U.S. Foodservice's evaluation of responses to its third-party inquiries
and on the results of its remaining remediation and testing activities. U.S.
Foodservice expects to fund its Year 2000 remediation costs out of the cash
flows generated by its operations. U.S. Foodservice has not deferred any of its
material information technology projects to date as a result of the Year 2000
issue. U.S. Foodservice currently believes that the costs to resolve compliance
issues with respect to other information systems and its non-information
technology systems will not be material.

     Risks Related to the Year 2000 Issue. Although U.S. Foodservice's Year 2000
efforts are intended to minimize the adverse effects of the Year 2000 issue on
its business and operations, the actual effects of the issue and the success or
failure of U.S. Foodservice's efforts described above cannot be known until the
year 2000. Failure by U.S. Foodservice and its major vendors and significant
service providers and customers to address adequately their respective Year 2000
issues in a timely manner, insofar as these issues relate to U.S. Foodservice's
business, could have a material adverse effect on U.S. Foodservice's business,
results of operations and financial condition.

Changes in Accounting Standards

     During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activity. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities and
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value. In
accordance with the pronouncement, U.S. Foodservice will adopt SFAS No. 133, as
amended, in fiscal 2001. U.S. Foodservice is currently evaluating the impact, if
any, that SFAS No. 133 will have on its consolidated financial statements.

     During 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) No. 98-5, Reporting on the Costs of Start-Up
Activities. SOP No. 98-5 requires that costs incurred during a start-up activity
be expensed as incurred and that the initial application of this Statement of
Position, as of the beginning of the fiscal year in which it is adopted, be
reported as a cumulative effect of a change in accounting principle. U.S.
Foodservice expects to adopt SOP 98-5 in fiscal 2000. U.S. Foodservice does not
expect the cumulative effect of adoption to be material.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     U.S. Foodservice's major market risk exposure is to changing interest
rates. U.S. Foodservice's policy is to manage interest rates through the use of
a combination of fixed and floating rate debt. U.S. Foodservice uses interest
rate swap, cap and collar contracts to manage its exposure to fluctuations in
interest rates on floating long-term debt. U.S. Foodservice has implemented
management monitoring processes designed to minimize the impact of sudden and
sustained changes in interest rates. As of July 3, 1999, U.S. Foodservice had
effectively fixed its interest rate exposure at 5.97% on approximately $70
million of its floating rate debt through March 2000. In addition, as of the
same date, U.S. Foodservice had fixed its interest exposure on an additional
$129 million of floating rate debt at 8.875% through November 1, 2003. U.S.
Foodservice would have incurred a loss of approximately $0.6 million if it had
terminated each of its interest rate contracts as of July 3, 1999.

                                       27
<PAGE>

        U.S. Foodservice sells accounts receivable on a revolving basis under
accounts receivable securitization arrangements. In the third quarter of fiscal
1999, U.S. Foodservice increased the maximum amount of receivables eligible for
sale under these arrangements from $250 million to $353 million. The proceeds
received from sales of receivables under these arrangements, which is accounted
for under SFAS No. 125, is based to a large extent on LIBOR. For information
about U.S. Foodservice's accounts receivable securitization arrangements, see
note 8 to the consolidated financial statements appearing elsewhere in this
report. U.S. Foodservice also uses fixed-rate capital leases to finance some of
its trucks and trailers.

Item 8.  Financial Statements and Supplementary Data

         The financial statements and schedules listed in Item 14 are filed as
part of this report and appear on pages F-2 through F-36.

Item 9.  Changes in and Disagreements with Accountants on Acounting and
         Financial Disclosure

         Not Applicable.


                                       28
<PAGE>

                                   PART III

Item 10. Director and Executive Officers of the Registrant

         Information responsive to this Item is incorporated herein by reference
to U.S. Foodservice's definitive proxy statement for the 1999 Annual Meeting of
Stockholders.

Item 11. Executive Compensation

         Information responsive to this Item is incorporated herein by reference
to U.S. Foodservice's definitive proxy statement for the 1999 annual meeting of
stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management

         Information responsive to this Item is incorporated herein by reference
to U.S. Foodservice's definitive proxy statement for the 1999 annual meeting of
stockholders.

Item 13. Certain Relationships and Related Transactions

         Information responsive to this Item is incorporated herein by reference
to U.S. Foodservice's definitive proxy statement for the 1999 annual meeting of
stockholders.

                                      29
<PAGE>

                                    PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)      The following documents are filed as part of this report:

         1.   Financial Statements

         The following financial statements of the Company appear on pages F-2
through F-32 of this report and are incorporated by reference in Part II,
Item 8:

         Independent Accountants' Report.

         Report of Independent Public Accountants.

         Consolidated Balance Sheets as of June 27, 1998 and July 3, 1999.

         Consolidated Statements of Operations for the fiscal years ended
         June 28, 1997, June 27, 1998 and July 3, 1999.

         Consolidated Statements of Stockholders' Equity for the fiscal years
         ended June 28, 1997, June 27, 1998 and July 3, 1999.

         Consolidated Statements of Cash Flows for the fiscal years ended
         June 28, 1997, June 27, 1998 and July 3, 1999.

         Notes to Consolidated Financial Statements.

         2.   Financial Statement Schedules

              I.  - Condensed Financial Information of Registrant.

              II. - Valuation and Qualifying Accounts.

All other schedules for which provision is made in the applicable accounting
regulations of the SEC are not required under the related instructions or are
inapplicable and therefore have been omitted.

                                      30

<PAGE>

    3.     Exhibits

            3.1     Restated Certificate of Incorporation of the Company. Filed
                    as Exhibit 3.1 to the Company's Registration Statement on
                    Form S-3 (No. 333-59785) and incorporated herein by
                    reference.

            3.2     Amended and Restated By-Laws of the Company. Filed as
                    Exhibit 3 to the Company's Quarterly Report on Form 10-Q for
                    the fiscal quarter ended March 27, 1999 and incorporated
                    herein by reference.

            4.1     Specimen certificate representing common stock, par value
                    $.01 per share, of the Company. Filed as Exhibit 4.1 to the
                    Company's Registration Statement on Form S-3 (No. 333-27275)
                    and incorporated herein by reference.

            4.2.1   Rights Agreement, dated as of February 19, 1996, between the
                    Company and The Bank of New York, as Rights Agent (the
                    "Rights Agreement"). Filed as Exhibit 1 to the Company's
                    Registration Statement on Form 8-A dated February 22, 1996
                    and incorporated herein by reference.

            4.2.2   Amendment No. 1 to the Rights Agreement, dated as of May 17,
                    1996. Filed as Exhibit 10.26 to Amendment No. 1 to the
                    Company's Registration Statement on Form S-3 (No. 333-07321)
                    and incorporated herein by reference.

            4.2.3   Amendment No. 2 to the Rights Agreement, dated as of
                    September 26, 1996. Filed as Exhibit 10.1 to Amendment No. 2
                    to the Company's Registration Statement on Form S-3 (No.
                    333-14039) and incorporated herein by reference.

            4.2.4   Amendment No. 3 to the Rights Agreement, dated as of June
                    30, 1997. Filed as Exhibit 4.1 to the Company's Current
                    Report on Form 8-K filed on July 2, 1997 and incorporated
                    herein by reference.

            4.2.5   Amendment No. 4 to the Rights Agreement, dated as of
                    December 23, 1997. Filed as Exhibit 10.1 to the Company's
                    Current Report on Form 8-K filed on January 7, 1998 and
                    incorporated herein by reference.

            4.2.6   Amendment No. 5 to the Rights Agreement, dated as of March
                    25, 1999 Filed as Exhibit 4.1 to the Company's Current
                    Report on Form 8-K filed on March 26, 1999 and incorporated
                    herein by reference.

            4.2.7   Amendment No. 6 to Rights Agreement, dated as of April 22,
                    1999 Filed as Exhibit 4.1 to the Company's Current Report on
                    Form 8-K filed on April 22, 1999 and incorporated herein by
                    reference.

            4.3     Common Stock Purchase Warrant Expiring September 30, 2005
                    issued to Bankers Trust New York Corporation. Filed as
                    Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q
                    for the quarterly period ended December 27, 1997 and
                    incorporated herein by reference.

            10.1    Employment Agreement, dated as of July 3, 1989, as amended,
                    between the Company and James L. Miller. Filed as Exhibit
                    10.1 to the Company's Registration Statement on Form S-1
                    (No. 33- 82724) and incorporated herein by reference.


            10.2    Second Amendment, dated as of June 27, 1995, to Employment
                    Agreement, dated as of July 3, 1989, as amended, between the
                    Company and James L. Miller. Filed as Exhibit 10.1 to the
                    Company's Quarterly Report on Form 10-Q for the quarterly
                    period ended December 30, 1995 and incorporated herein by
                    reference.

            10.3    Employment Agreement, dated as of January 4, 1996, between
                    the Company and James L. Miller. Filed as Exhibit 10.1 to
                    the Company's Quarterly Report on Form 10-Q for the
                    quarterly period ended March 30, 1996 and incorporated
                    herein by reference.

            10.4    Severance Agreement, dated as of September 27, 1995, between
                    the Company and Mark P. Kaiser. Filed as Exhibit 10.3 to the
                    Company's Quarterly Report on Form 10-Q for the quarterly
                    period ended December 30, 1995 and incorporated herein by
                    reference.

            10.5    Employment Agreement, dated as of January 4, 1996, between
                    the Company and Mark P. Kaiser. Filed as Exhibit 10.3 to the
                    Company's Quarterly Report on Form 10-Q for the quarterly
                    period ended March 30, 1996 and incorporated herein by
                    reference.

           *10.6    Employment Agreement, dated as of June 24, 1999, between
                    the Company and George T. Megas.

            10.7    Employment Agreement, dated as of June 10, 1996, between the
                    Company and David M. Abramson. Filed as Exhibit 10.29 to the
                    Company's Annual

                                      31
<PAGE>

               Report on Form 10-K for the fiscal year ended June 29, 1996 and
               incorporated herein by reference.

     10.8      1994 Stock Incentive Plan, as amended, of U.S. Foodservice. Filed
               as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
               for the fiscal quarter ended September 26, 1998 and incorporated
               herein by reference.

     *10.9     Stock Option Plan for Outside Directors, as amended, of U.S.
               Foodservice.

     *10.10    U.S. Foodservice Supplemental Executive Retirement Plan, as
               amended.

     *10.11    U.S. Foodservice Restricted Stock Unit Plan, as amended.

     *10.12    U.S. Foodservice 1998 Stock Option and Incentive Plan, as
               amended.

     10.13     Description of material terms for payment of annual executive
               compensation. Filed as Exhibit 10.3 to the Company's Form 10-Q
               for the fiscal quarter ended March 27, 1999 and incorporated
               herein by reference.

     10.14     Description of the Company's annual bonus plan. Filed as Exhibit
               10.9 to the Company's Registration Statement on Form S-1 (No.
               33-82724) and incorporated herein by reference.

     10.15     Non-Employee Director Voluntary Deferred Compensation Plan. Filed
               as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
               for the fiscal quarter ended December 26, 1998 and incorporated
               herein by reference.

     10.16     Rykoff-Sexton, Inc. 1993 Director Stock Option Plan, as amended.
               Filed as Exhibit 10.17 to the Company's Annual Report on Form
               10-K for the fiscal year ended June 27, 1998 and incorporated
               herein by reference.

     10.17.1   Five Year Credit Agreement, dated as of December 23, 1997, among
               Rykoff-Sexton, Inc. and JP Foodservice Distributors, Inc., the
               Lenders Parties Thereto, NationsBank, N.A., as Administrative
               Agent, NationsBanc Montgomery Securities, Inc. and Chase
               Securities, Inc., as Co-Arrangers, The Chase Manhattan Bank, as
               Syndication Agent, and Bank of America, NT & SA, as Documentation
               Agent. Filed as Exhibit 10.1.1 to the Company's Quarterly Report
               on Form 10-Q for the quarterly period ended December 27, 1997 and
               incorporated herein by reference.

     10.17.2   Five Year Guaranty Agreement, dated as of December 23, 1997,
               among JP Foodservice, Inc., the Subsidiaries of the Borrowers
               identified therein and NationsBank, N.A., as Administrative
               Agent. Filed as Exhibit 10.1.2 to the Company's Quarterly Report
               on Form 10-Q for the quarterly period ended December 27, 1997 and
               incorporated herein by reference.

     10.18.1   364-Day Credit Agreement, dated as of December 23, 1997, among
               Rykoff-Sexton, Inc. and JP Foodservice Distributors, Inc., the
               Lenders Parties Thereto, NationsBank, N.A., as Administrative
               Agent, NationsBanc Montgomery Securities, Inc. and Chase
               Securities, Inc., as Co-Arrangers, The Chase Manhattan Bank, as
               Syndication Agent, and Bank of America, NT & SA, as Documentation
               Agent. Filed as Exhibit 10.2.1 to the Company's

                                       32
<PAGE>

               Quarterly Report on Form 10-Q for the quarterly period ended
               December 27, 1997 and incorporated herein by reference.

     10.18.2   364-Day Guaranty Agreement, dated as of December 23, 1997, among
               JP Foodservice, Inc., the Subsidiaries of the Borrowers
               identified therein and NationsBank, N.A., as Administrative
               Agent. Filed as Exhibit 10.2.2 to the Company's Quarterly Report
               on Form 10-Q for the quarterly period ended December 27, 1997 and
               incorporated herein by reference.

     *10.19.1  Participation Agreement, dated as of April 29, 1994, entered into
               among Rykoff-Sexton, Inc., as Lessee ("Lessee"), Tone Brothers,
               Inc., as Sublessee ("Sublessee"), BA Leasing & Capital
               Corporation, as Agent ("Agent"), Manufacturers Bank and Pitney
               Bowes Credit Corporation, as Lessors (the "Lessors").

     10.19.2   Waiver, Consent and Fifth Amendment to Participation Agreement,
               dated as of December 23, 1997, among Lessee, Hudson Acquisition
               Corp., Agent and the Lessors. Filed as Exhibit 10.3.7 to the
               Company's Quarterly Report on Form 10-Q for the quarterly period
               ended December 27, 1997 and incorporated herein by reference.

     10.19.3   Guaranty, dated as of December 23, 1997, of the Company in favor
               of Agent. Filed as Exhibit 10.3.8 to the Company's Quarterly
               Report on Form 10-Q for the quarterly period ended December 27,
               1997 and incorporated herein by reference.

     10.20.1   Receivables Sale Agreement, dated as of November 15, 1996, among
               Rykoff-Sexton, Inc., John Sexton & Co., Biggers Brothers, Inc.,
               White Swan, Inc., F.H. Bevevino & Company, Inc., Roanoke
               Restaurant Service, Inc., King's Foodservice, Inc., U.S.
               Foodservice of Florida, Inc., US Foodservice of Atlanta, Inc., RS
               Funding Inc. and US Foodservice Inc., as Servicer (incorporated
               by reference from Rykoff-Sexton, Inc.'s Annual Report on Form
               10-K for the fiscal year ended June 28, 1997) (Commission File
               No. 0-8105).

     10.20.2   Servicing Agreement, dated as of November 15, 1996, among RS
               Funding Inc., as Company, US Foodservice Inc., as Servicer,
               Rykoff-Sexton, Inc. and its other subsidiaries named therein as
               Sub-Servicers and The Chase Manhattan Bank, Trustee (incorporated
               by reference from Rykoff-Sexton, Inc.'s Annual Report on Form
               10-K for the fiscal year ended June 28, 1997). (Commission File
               No. 0-8105).

     10.20.3   Pooling Agreement, dated as of November 15, 1996, among RS
               Funding Inc., as Company, US Foodservice Inc., as Servicer, and
               The Chase Manhattan Bank, as Trustee (incorporated by reference
               from Rykoff-Sexton, Inc.'s Annual Report on Form 10-K for the
               fiscal year ended June 28, 1997). (Commission File No. 0-8105).

     10.20.4   Series 1996-1 Supplement to Pooling Agreement among RS Funding
               Inc., as Company, US Foodservice Inc., as Servicer, and The Chase
               Manhattan Bank, as Trustee (incorporated by reference from
               Rykoff-Sexton, Inc.'s Annual Report on Form 10-K for the fiscal
               year ended June 28, 1997). (Commission File No. 0-8105).

                                       33
<PAGE>

     10.20.5   Series 1998-1 Supplement, dated as of December 31, 1998, to
               Pooling Agreement, dated as of November 15, 1996, among RS
               Funding Inc., U.S. Foodservice, Inc. and The Chase Manhattan
               Bank, as Trustee. Filed as Exhibit 10.2 to the Company's
               Quarterly Report on Form 10-Q for the fiscal quarter ended
               December 26, 1998 and incorporated herein by reference.

     10.20.6   SPC Receivables Sale Agreement, dated as of December 31, 1998,
               among JPFD Funding Company and RS Funding Inc. Filed as Exhibit
               10.3 to the Company's Quarterly Report on Form 10-Q for the
               fiscal quarter ended December 26, 1998 and incorporated herein by
               reference.

     10.20.7   Additional Seller/Servicer Supplement, dated December 31, 1998,
               to (i) Receivables Sale Agreement, dated as of November 15, 1996
               (as amended, supplemented or otherwise modified from time to
               time), among the Sellers from time to time party thereto, U.S.
               Foodservice, Inc. and RS Funding Inc. and (ii) Servicing
               Agreement, dated as of November 15, 1996 (as amended,
               supplemented or otherwise modified from time to time), among U.S.
               Foodservice, Inc., RS Funding Inc., the SubServicers from time to
               time party thereto and The Chase Manhattan Bank, as Trustee.
               Filed as Exhibit 10.4 to the Company's Quarterly Report on Form
               10-Q for the fiscal quarter ended December 26, 1998 and
               incorporated herein by reference.

     10.21     Indenture of Trust, dated as of November 1, 1996, between La
               Mirada Industrial Development Authority and Bankers Trust Company
               of California, N.A. (incorporated by reference from
               Rykoff-Sexton, Inc.'s Annual Report on Form 10-K for the fiscal
               year ended June 28, 1997). (Commission File No. 0-8105).

     10.22     Loan Agreement, dated as of November 1, 1996, among La Mirada
               Industrial Development Authority and Bankers Trust Company of
               California, N.A. (incorporated by reference from Rykoff-Sexton,
               Inc.'s Annual Report on Form 10-K for the fiscal year ended June
               28, 1997). (Commission File No. 0-8105).

     10.23.1   Reimbursement Agreement, dated as of November 1, 1996, between
               Rykoff-Sexton, Inc. and the First National Bank of Chicago
               (incorporated by reference from Rykoff-Sexton, Inc.'s Annual
               Report on Form 10-K for the fiscal year ended June 28, 1997).
               (Commission File No. 0-8105).

     10.23.2   Amendment, Consent and Assumption Agreement, dated as of December
               18, 1997, among Rykoff-Sexton, Inc., Hudson Acquisition Corp. and
               The First National Bank of Chicago. Filed as Exhibit 10.7.2 to
               the Company's Quarterly Report on Form 10-Q for the fiscal
               quarter ended December 27, 1997 and incorporated herein by
               reference.

     10.24.1   Commitment Agreement, dated as of August 10, 1992, between BRB
               Holdings, Inc. and its subsidiaries and Sara Lee Corporation
               (incorporated by reference from Rykoff-Sexton, Inc.'s
               Registration Statement on Form S-4 (No. 333-02715)).

     10.24.2   Amendment Number One to BRB Holdings Commitment Agreement, dated
               as of September 27, 1995, by Sara Lee Corporation and BRB
               Holdings, Inc.

                                       34
<PAGE>

               and guaranteed by US Foodservice Inc. (incorporated by reference
               from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4
               (No. 333-02715)).

     10.25.1   Commitment Agreement, dated as of August 10, 1992, between WS
               Holdings Corporation and its subsidiaries and Sara Lee
               Corporation (incorporated by reference from Rykoff-Sexton's
               Registration Statement on Form S-4 (No. 333-02715)).

     10.25.2   Amendment Number One to WS Holdings Commitment Agreement, dated
               as of September 27, 1995, by Sara Lee Corporation and WS Holdings
               Corporation (incorporated by reference from Rykoff- Sexton,
               Inc.'s Registration Statement on Form S-4 (File No. 333- 02715)).

     10.26     Participation Agreement, dated as of June 29, 1998, among JP
               Foodservice Distributors, Inc., the signatories listed on the
               signature pages thereto as Guarantors, First Security Bank,
               National Association, as Owner Trustee, the Various Banks and
               Other Lending Institutions Parties Thereto, as Holders and
               Lenders, and First Union National Bank, as Agent. Filed as
               Exhibit 10.34 to the Company's Annual Report on Form 10-K for the
               fiscal year ended June 27, 1998 and incorporated herein by
               reference.

     10.27     Credit Agreement, dated as of June 29, 1998, among First Security
               Bank, National Association, as Borrower, the Several Lenders
               Parties Thereto, and First Union National Bank, as Agent. Filed
               as Exhibit 10.35 to the Company's Annual Report on Form 10-K for
               the fiscal year ended June 27, 1998 and incorporated herein by
               reference.

     10.28     Lease Agreement, dated as of June 29, 1998, between First
               Security Bank, National Association, as Lessor, and JP
               Foodservice Distributors, Inc., as Lessee, relating to the
               corporate headquarters of U.S. Foodservice. Filed as Exhibit
               10.36 to the Company's Annual Report on Form 10-K for the fiscal
               year ended June 27, 1998 and incorporated herein by reference.

     10.29     First Amendment to Certain Operative Agreements dated as of
               January 21, 1999 by and among JP Foodservice Distributors, Inc.,
               the Guarantors referenced therein, First Security Bank, National
               Association, as Owner Trustee, the various banks and other
               lending institutions parties thereto, as Holders and Lenders, and
               First Union National Bank, as Agent. Filed as Exhibit 10.4 to the
               Company's Quarterly Report on Form 10-Q for the fiscal quarter
               ended March 27, 1999 and incorporated herein by reference.

   *+10.30     Information Technology Services Agreement, dated May 7, 1999,
               between U.S. Foodservice and Lockheed Martin Corporation.

     *21       Subsidiaries of the Company.

     *23.1     Consent of KPMG LLP, independent public accountants.

     *23.2     Consent of Arthur Andersen LLP, independent public accountants.

                                       35
<PAGE>

          *27    Financial Data Schedule.

          ---------------------
          * Filed herewith.

          + Confidential treatment has been requested for portions of this
            exhibit pursuant to Rule 24b-2 under the Securities Exchange Act.
            The copy filed as an exhibit to this report omits the information
            subject to the confidential treatment request.

   (b) Reports on Form 8-K.

The following reports on Form 8-K were filed by the Company in the fourth
quarter of fiscal 1999:

<TABLE>
<CAPTION>
              Date of Report                              Item Reported
              --------------                              -------------
              <S>                        <C>
              April 22, 1999             Item 5. (Amendment No. 6 to Rights Agreement).

               June 25, 1999             Item 5. (Cautionary Statements/Risk Factors).

               June 30, 1999             Item 5. (Two-for-one Stock Split).
</TABLE>

                                       36


<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Index to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                                        Page
<S>                                                                   <C>
Consolidated Financial Statements
  Independent Accountants' Report........................................ F-2

  Report of Independent Public Accountants............................... F-3

  Consolidated Balance Sheets as of June 27, 1998 and July 3, 1999....... F-4

  Consolidated Statements of Operations for the fiscal years ended
   June 28, 1997, June 27, 1998 and July 3, 1999......................... F-5

  Consolidated Statements of Stockholders' Equity for the fiscal
   years ended June 28, 1997, June 27, 1998 and July 3, 1999............. F-6

  Consolidated Statements of Cash Flows for the fiscal years ended
    June 28, 1997, June 27, 1998 and July 3, 1999........................ F-7

  Notes to Consolidated Financial Statements............................. F-9
</TABLE>

                                      37
<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Index to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                                        Page
<S>                                                                   <C>
Consolidated Financial Statements
  Independent Accountants' Report........................................ F-2

  Report of Independent Public Accountants............................... F-3

  Consolidated Balance Sheets as of June 27, 1998 and July 3, 1999....... F-4

  Consolidated Statements of Operations for the fiscal years ended
   June 28, 1997, June 27, 1998 and July 3, 1999......................... F-5

  Consolidated Statements of Stockholders' Equity for the fiscal
   years ended June 28, 1997, June 27, 1998 and July 3, 1999............. F-6

  Consolidated Statements of Cash Flows for the fiscal years ended
    June 28, 1997, June 27, 1998 and July 3, 1999........................ F-7

  Notes to Consolidated Financial Statements............................. F-9
</TABLE>

                                      F-1

<PAGE>

INDEPENDENT ACCOUNTANTS' REPORT


The Board of Directors and Stockholders
U.S. Foodservice:

We have audited the accompanying consolidated balance sheets of U.S. Foodservice
and subsidiaries as of June 27, 1998 and July 3, 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three year period ended July 3, 1999.  In connection
with our audits of the consolidated financial statements, we have also audited
the consolidated financial statement schedules listed under Item 14(a)(2).
These consolidated financial statements and the financial statement schedules
are the responsibility of the Company's management.  Our responsibility is to
express an opinion on these consolidated financial statements and the financial
statement schedules based on our audits.  We did not audit the consolidated
financial statements of Rykoff-Sexton, Inc. for the year ended June 28, 1997,
which consolidated financial statements reflect net sales constituting
67 percent and net income constituting 42 percent of the related 1997
consolidated financial statement totals.  Those statements were audited by other
auditors whose report has been furnished to us, and our opinion on the 1997
consolidated financial statements, insofar as it relates to the amounts included
for Rykoff-Sexton, Inc., is based solely on the report of other auditors whose
report, presented herein dated August 14, 1997, expressed an unqualified opinion
on those statements.

We conducted our audits in accordance with generally accepted auditing
standards.  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 and the report of the other auditors provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of U.S. Foodservice and subsidiaries
as of June 27, 1998 and July 3, 1999, and the results of their operations and
their cash flows for each of the years in the three year period ended July 3,
1999 in conformity with generally accepted accounting principles.  Also in our
opinion, the related consolidated financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth herein.


/s/ KPMG LLP
Baltimore, Maryland
August 16, 1999


                                      F-2

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Rykoff-Sexton, Inc.:

We have audited the consolidated statements of operations, shareholders' equity
and cash flows of Rykoff-Sexton, Inc. (a Delaware Corporation) and subsidiaries
for the fiscal year ended June 28, 1997.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
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 our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of Rykoff-Sexton, Inc. and subsidiaries'
operations and their cash flows for the fiscal year ended June 28, 1997 in
conformity with generally accepted accounting principles.


/s/ ARTHUR ANDERSEN LLP
Philadelphia, PA
August 14, 1997







                                      F-3

<PAGE>

U.S. FOODSERVICE AND SUBSIDIARIES

Consolidated Balance Sheets
(Dollars in thousands, except share amounts)

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
                                                                                 June 27,     July 3,
                                                                                  1998         1999
-----------------------------------------------------------------------------------------------------
Assets
Current assets:
<S>                                                                         <C>          <C>
   Cash and cash equivalents                                                 $    57,817 $     79,660
   Receivables, net                                                              215,459      234,107
   Residual interest in accounts receivable sold                                 106,581      102,369
   Inventories                                                                   349,583      428,193
   Other current assets                                                           28,548       31,949
   Deferred income taxes                                                          39,294       18,853
-----------------------------------------------------------------------------------------------------
Total current assets                                                             797,282      895,131

Property and equipment, net                                                      437,265      454,033
Goodwill, net of accumulated amortization of $45,960 and $64,617                 561,695      637,107
Other noncurrent assets                                                           21,549       26,603
-----------------------------------------------------------------------------------------------------
Total assets                                                                 $ 1,817,791 $  2,012,874
-----------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
   Current maturities of long-term debt                                      $       604 $        698
   Current obligations under capital leases                                        6,933        6,206
   Accounts payable                                                              381,151      393,597
   Accrued expenses                                                              120,778      114,690
-----------------------------------------------------------------------------------------------------
Total current liabilities                                                        509,466      515,191

Long-term debt                                                                   650,679      533,869
Obligations under capital leases                                                  29,946       24,671
Deferred income taxes                                                              6,064       13,051
Other noncurrent liabilities                                                      36,916       96,713
-----------------------------------------------------------------------------------------------------
Total liabilities                                                              1,233,071    1,183,495
-----------------------------------------------------------------------------------------------------
Stockholders' equity:
   Preferred stock, $.01 par value, 5,000,000 shares authorized, none
     issued                                                                           --           --
   Common stock, $.01 par value, 150,000,000 shares authorized,
     92,669,632 and 101,238,290 shares outstanding                                   926        1,012
   Additional paid-in-capital                                                    579,074      740,413
   Retained earnings                                                               4,720       87,954
-----------------------------------------------------------------------------------------------------
Total stockholders' equity                                                       584,720      829,379
-----------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (notes 9 and 17)
-----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity                                   $ 1,817,791 $  2,012,874
-----------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      F-4

<PAGE>

U.S. FOODSERVICE AND SUBSIDIARIES

Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                                 Fiscal Years Ended (Notes 3 and 4)
                                                                ----------------------------------
                                                                June 28,     June 27,      July 3,
                                                                  1997         1998          1999
--------------------------------------------------------------------------------------------------
<S>                                                        <C>            <C>          <C>
Net sales                                                  $  5,169,406   $ 5,506,949  $ 6,198,408
Cost of sales                                                 4,166,332     4,465,281    5,052,068
--------------------------------------------------------------------------------------------------
Gross profit                                                  1,003,074     1,041,668    1,146,340
Operating expenses                                              845,901       876,170      917,094
Amortization of intangible assets                                15,349        15,354       17,080
Restructuring costs (reversal)                                   (4,000)       53,715           --
Charge for impairment of long-lived assets                           --        35,530           --
--------------------------------------------------------------------------------------------------
Income from operations                                          145,824        60,899      212,166
Interest expense and other financing costs, net                  76,063        73,894       64,974
Nonrecurring charges                                              5,400        17,822           --
--------------------------------------------------------------------------------------------------

Income (loss) before income taxes and extraordinary charge       64,361       (30,817)     147,192
Provision for income taxes                                       26,075         6,475       58,910
--------------------------------------------------------------------------------------------------
Income (loss) before extraordinary charge                        38,286       (37,292)      88,282
Extraordinary charge on early extinguishment of debt,
   (net of income tax benefit of $6,325 and $3,227)                  --        (9,712)      (5,048)
--------------------------------------------------------------------------------------------------
Net and comprehensive income (loss)                        $     38,286   $   (47,004) $    83,234
--------------------------------------------------------------------------------------------------

Net income (loss) per common share:
   Basic:
      Before extraordinary charge                          $       0.44   $     (0.41) $      0.92
      Extraordinary charge                                           --         (0.11)       (0.05)
--------------------------------------------------------------------------------------------------
         Net income (loss) per common share                $       0.44   $     (0.52) $      0.87
--------------------------------------------------------------------------------------------------
    Diluted:
        Before extraordinary charge                        $       0.43   $     (0.41) $      0.91
        Extraordinary charge                                         --         (0.11)       (0.05)
--------------------------------------------------------------------------------------------------

         Net income (loss) per common share                $       0.43   $     (0.52) $      0.86
--------------------------------------------------------------------------------------------------
Weighted average common shares:
   Basic                                                         86,902        90,640       95,922
   Diluted                                                       88,126        90,640       97,190
--------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

                                      F-5

<PAGE>

U.S. FOODSERVICE AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity
(Dollars in thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                         Additional                 Distribution in
                                               Common       paid-in     Retained      excess of net
                                                stock       capital     earnings         book value          Total
------------------------------------------------------------------------------------------------------------------
<S>                                         <C>          <C>          <C>           <C>                <C>
Balance June 29, 1996                       $     808    $  486,745   $   17,611    $       (44,943)   $   460,221

Net income                                         --            --       38,286                 --         38,286
Reclassification in connection with Sara Lee
    Offering                                       --       (44,943)          --             44,943             --
Public stock offering                              62        65,913           --                 --         65,975
Stock issued in connection with business
    acquisitions                                    8         9,750           --                 --          9,758
Dividends to stockholders of acquired
    companies                                      --            --       (1,670)                --         (1,670)
Stock options exercised, including related
    tax benefit                                     6         3,689           --                 --          3,695
Treasury stock purchased and canceled              --           (12)          --                 --            (12)
Stock compensation                                 --           554           --                 --            554
Employee stock purchases                           --           837           --                 --            837
Contributions to 401(k) plan                        2         1,553           --                 --          1,555
Adjustments with respect to acquisitions           --         2,450       (2,503)                --            (53)
------------------------------------------------------------------------------------------------------------------
Balance June 28, 1997                             886       526,536       51,724                 --        579,146

Net loss                                           --            --      (47,004)                --        (47,004)
Stock issued in connection with business
    acquisitions                                   10        17,588           --                 --         17,598
Stock options exercised, including related tax
    benefit                                        26        31,996           --                 --         32,022
Treasury stock purchased and canceled              (8)      (12,409)          --                 --        (12,417)
Stock compensation                                 10        12,207           --                 --         12,217
Employee stock purchases                           --         1,197           --                 --          1,197
Contributions to 401(k) plan                        2         1,959           --                 --          1,961
------------------------------------------------------------------------------------------------------------------
Balance June 27, 1998                             926       579,074        4,720                 --        584,720

Net income                                         --            --       83,234                 --         83,234
Public stock offering                              24        43,159           --                 --         43,183
Stock issued in connection with business
    acquisitions                                   41        88,475           --                 --         88,516
Stock options exercised, including related tax
    benefit                                        12        14,176           --                 --         14,188
Warrants exercised                                 --         2,098           --                 --          2,098
Employee stock purchases                            2         3,406           --                 --          3,408
Adjustments with respect to acquisitions            7        10,025           --                 --         10,032
------------------------------------------------------------------------------------------------------------------
Balance July 3, 1999                        $   1,012   $   740,413   $   87,954    $           --     $   829,379
------------------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      F-6

<PAGE>

U.S. FOODSERVICE AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(Dollars in thousands)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                                 Fiscal Years Ended (Notes 3 and 4)
                                                                ----------------------------------
                                                                 June 28,      June 27,    July 3,
                                                                   1997         1998        1999
--------------------------------------------------------------------------------------------------
<S>                                                           <C>           <C>          <C>
Cash flows from operating activities:
 Net income (loss)                                            $     38,286  $  (47,004)  $  83,234
 Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
    Depreciation of property and equipment                          41,834      44,475      39,662
    Amortization of intangible assets                               15,349      15,354      17,080
    Gains on disposals of business assets                           (1,649)     (1,670)       (257)
    Write-off of deferred financing costs                               --       9,172       2,092
    Non-cash restructuring charge                                       --      13,110          --
    Charge for impairment of long-lived assets                          --      35,530          --
    Deferred income taxes                                            8,848       9,379      36,377
    Deferred gain on outsourcing of manufacturing division              --          --      57,635
    Changes in operating assets and liabilities, net of
     effects from purchase acquisitions:
       (Increase) decrease in receivables and residual interest
          in accounts receivable sold                               22,990     (39,765)     36,894
       (Increase) decrease in inventories                           12,952     (22,109)    (59,402)
       (Increase) decrease in other current assets                  10,623       1,905      (2,803)
       Increase (decrease) in accounts payable and
          accrued expenses                                         (33,819)     45,985     (37,859)
    Other                                                              732       6,298        (692)
--------------------------------------------------------------------------------------------------
Net cash provided by operating activities                          116,146      70,660     171,961
--------------------------------------------------------------------------------------------------

Cash flows from investing activities:
 Additions to property and equipment                               (88,436)    (95,511)    (68,413)
 Costs of businesses acquired, net of cash acquired                (35,964)    (38,742)    (18,061)
 Proceeds from disposals of business assets                         10,321      32,086      36,897
 Other                                                               7,316        (123)        129
--------------------------------------------------------------------------------------------------
Net cash used in investing activities                             (106,763)   (102,290)    (49,448)
--------------------------------------------------------------------------------------------------

                                                                                        (Continued)
</TABLE>

                                      F-7

<PAGE>

U.S. FOODSERVICE AND SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued
(Dollars in thousands)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                                 Fiscal Years Ended (Notes 3 and 4)
                                                                ----------------------------------
                                                                June 28,    June 27,     July 3,
                                                                  1997        1998         1999
--------------------------------------------------------------------------------------------------
Cash flows from financing activities:
<S>                                                           <C>          <C>          <C>
 Net increase in borrowings under revolving lines of credit   $    47,700  $  438,500   $    3,800
 Proceeds from issuance of long-term debt                          25,953          --           --
 Principal payments on long-term debt                            (105,614)   (439,843)    (161,805)
 Payments of obligations under capital lease                       (5,957)     (6,184)      (6,213)
 Net proceeds from public offerings of common stock                65,975          --       43,183
 Proceeds from other issuances of common stock                      5,086      33,219       19,694
 Dividends paid by Rykoff-Sexton, Inc.                             (1,670)         --           --
 Purchases of treasury stock                                          (12)    (12,417)          --
 Other                                                               (681)      1,740          671
--------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                30,780      15,015     (100,670)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents               40,163     (16,615)      21,843

Cash and cash equivalents:
 Beginning of period                                               34,269      74,432       57,817
--------------------------------------------------------------------------------------------------
 End of period                                                $    74,432  $   57,817   $   79,660
--------------------------------------------------------------------------------------------------
Supplemental disclosure of cash paid during the year for:
 Interest                                                     $    59,035  $   54,454   $   46,905

 Income taxes                                                 $    15,777  $      851   $   15,781
--------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      F-8

<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

NOTE 1 - DESCRIPTION OF BUSINESS

U.S. Foodservice, formerly JP Foodservice, Inc. ("JP Foodservice"), and its
consolidated subsidiaries (the "Company") operate as a broadline distributor of
fresh, frozen and packaged foods, paper products, equipment and ancillary
products to foodservice businesses. Upon the acquisition of Rykoff-Sexton, Inc.
("Rykoff-Sexton") on December 23, 1997, the Company became one of the largest
broadline foodservice distributors in the United States. The Company's market
area includes most of the continental United States. The Company's principal
customers are restaurants, hotels, healthcare facilities, cafeterias and schools
and encompass both independent "street" and multi-unit "chain" businesses. No
single customer accounts for more than 10% of the Company's customer accounts
receivable or sales for any of the periods presented. Effective February 27,
1998, the Company changed its name to U.S. Foodservice. References to JP
Foodservice generally relate to activities of the Company prior to its
acquisition of Rykoff-Sexton on December 23, 1997 (see note 3).

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A.  Principles of Consolidation

The consolidated financial statements include the accounts of U.S. Foodservice
and its wholly owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation.

B.  Fiscal Year

The Company operates on a 52-53 week fiscal calendar with its fiscal year ending
on the Saturday closest to June 30. The fiscal years ended June 28, 1997, June
27, 1998 and July 3, 1999 are referred to as "fiscal 1997," "fiscal 1998" and
"fiscal 1999," respectively. Fiscal 1997 and 1998 are 52-week years and fiscal
1999 is a 53-week year.

C.  Cash Equivalents

For purposes of consolidated financial statement disclosure, cash equivalents
consist of all highly liquid instruments with original maturities of three
months or less. The cost of these investments is equivalent to fair market
value.

                                      F-9
<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

D.  Fair Value of Financial Instruments

Based on the borrowing rates currently available to the Company for indebtedness
with similar terms and average maturities, the fair value of the Company's
long-term debt approximates carrying value. Fair values of other financial
instruments, such as receivables and payables, approximate carrying values
because of the short-term nature of these items.

E.  Revenue and Receivables
Revenue is recognized when product is shipped to the customer. Allowances are
provided for estimated uncollectible receivables based on historical experience
and review of specific accounts.

Allowances and credits received from suppliers in connection with the Company's
buying and merchandising activities are recognized upon the sale of the product,
while allowances and credits associated with the Company's merchandising
activities are recognized as the services are performed.

F.  Inventories

Inventories consist principally of fresh, frozen and packaged foods and related
non-food products. Inventories are valued at the lower of cost or market, and
include the cost of purchased merchandise (net of applicable purchase rebates)
and, for manufactured products, the cost of material, labor and factory
overhead. Cost for substantially all inventories is determined using the
first-in, first-out method. Inventories consist primarily of finished goods.

G.  Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Major
renewals and betterments are capitalized, and ordinary repairs and maintenance
are charged against operations in the period in which the costs are incurred.
Related costs and accumulated depreciation are eliminated from the accounts upon
disposition of an asset and the resulting gain or loss is reflected in the
consolidated statements of operations. The Company capitalizes the costs of
computer software developed or obtained for internal use. Such costs are
amortized over a period of five to seven years after the assets are placed into
service.

Depreciation is computed using the straight-line method over estimated useful
lives from date of acquisition as follows:

          Buildings and improvements                      15-40 years
          Machinery and equipment                          3-15 years
          Leasehold improvements                        Life of lease
          Delivery vehicles                                3-10 years

                                      F-10
<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consoldiated Financial Statements

H.  Goodwill

Goodwill is amortized using the straight-line method over the periods expected
to be benefited not to exceed 40 years. The Company assesses the recoverability
of goodwill by determining whether amortization of the goodwill over its
remaining life can be recovered through undiscounted future operating cash flows
of the acquired operations. Goodwill impairment, if any, is measured by
determining the amount by which the carrying value of the goodwill exceeds its
fair value based upon discounting future cash flows.

I.  Other Noncurrent Assets

Other noncurrent assets consist principally of deferred financing costs,
noncompete agreements, and other assets. Deferred financing costs associated
with the acquisition of loans are capitalized and amortized using the effective
interest method over the term of the related debt. Such costs are written off
upon refinancing of the related debt.

J.  Impairment of Long-Lived Assets

The recoverability of long-lived assets is assessed whenever events or changes
in circumstances indicate the carrying value of an asset may not be recoverable
through future undiscounted cash flows expected to be generated by the asset. If
such assets are deemed to be impaired, the impairment is measured by determining
the amount by which the carrying value of the asset exceeds its estimated fair
value.

K.  Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred
tax assets and liabilities are recognized based on the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rate is recognized in income in the period that included the
enactment date.

L.  Net Income (Loss) Per Common Share

Basic net income (loss) per common share is based on the weighted number of
common shares outstanding. Diluted net income (loss) per common share is based
on the weighted average number of common shares and dilutive securities
outstanding. Dilutive securities consist of outstanding stock options, warrants
and obligations convertible into common stock.

In June 1999, the Company's Board of Directors approved a two-for-one stock
split in the form of a stock dividend paid on August 4, 1999 to stockholders of
record on July 20, 1999. Earnings per share, weighted average shares outstanding
and stock option information included in the accompanying consolidated financial
statements and related notes have been adjusted to reflect this stock split.

M.  Derivative Instruments

                                      F-11
<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

The Company uses interest rate swap, cap and collar contracts to manage its
exposure to fluctuations in interest rates. The interest rate differential on
interest rate contracts used to hedge underlying debt obligations is reflected
as an adjustment to interest expense over the life of the contract. Upon early
termination of an interest rate contract, the gains or losses on termination are
deferred and amortized as an adjustment to the interest expense on the related
debt instrument over the remaining period originally covered by the contract.

N.  Accounting for Stock-Based Compensation

The Company applies the intrinsic value method to account for stock-based
compensation to employees and directors.

O.  Comprehensive Income

On June 28, 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS), No. 130, Reporting Comprehensive Income. Adoption had no
impact on the Company's consolidated financial statements, as comprehensive
income (loss) and net income (loss) were the same for fiscal 1997, 1998 and
1999.

P.  Accounting Estimates

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Q.  Recently Enacted Accounting Pronouncements

Statement of Financial Accounting Standards - During 1998, the Financial
Accounting Standards Board issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activity. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities and
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The Company expects to adopt SFAS No. 133, as amended, during fiscal 2001, and
is currently evaluating the impact, if any, that SFAS No. 133 will have on its
consolidated financial statements.

Statement of Positions - During 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) No. 98-5, Reporting on the Costs
of Start-Up Activities. SOP No. 98-5 requires that costs incurred during a
start-up activity be expensed as incurred and that the initial application of
the SOP, as of the beginning of the fiscal year in which the SOP is adopted, be
reported as a cumulative effect of a change in accounting principle. The Company
expects to adopt SOP 98-5 in fiscal 2000. The cumulative effect of adoption is
not expected to be material.

                                      F-12
<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

R.  Reclassifications

Certain amounts in the fiscal 1997 and fiscal 1998 consolidated financial
statements have been reclassified to conform to the fiscal 1999 presentation.

NOTE 3 - ACQUISITION OF RYKOFF-SEXTON, INC.

On December 23, 1997, Rykoff-Sexton, the nation's third-largest broadline
foodservice distributor based on net sales, was merged into a wholly owned
subsidiary of JP Foodservice. In connection with the merger, JP Foodservice
issued 45,314,996 shares of common stock with an approximate value of $782.0
million. Each outstanding share of common stock of Rykoff-Sexton was exchanged
for 1.55 shares of JP Foodservice common stock (the "Exchange Ratio").  The
transaction was accounted for under the pooling of interests method of
accounting. Accordingly, the consolidated financial statements for fiscal 1997
have been restated to include consolidated financial information for
Rykoff-Sexton. See note 16 for information about restructuring and other charges
recorded in fiscal 1998 with respect to the acquisition.

Net sales of $1,691,913 and $3,477,493 and net income of $22,248 and $16,038
previously reported by JP Foodservice and Rykoff-Sexton, respectively, were
combined and are presented in the accompanying consolidated statements of
operations for fiscal 1997.

NOTE 4 - OTHER ACQUISITIONS

Acquisition Accounted For As Pooling of Interests

Haar Acquisition - Effective September 27, 1998, the Company completed the
acquisition of J.H. Haar & Sons, L.L.C. ("Haar"), a broadline foodservice
distributor serving the New York City metropolitan market. Under the terms of
the acquisition, the Company acquired all of the membership interests in Haar in
exchange for 1,101,086 shares of the Company's common stock. The transaction was
accounted for as a pooling of interests. Due to the fact that Haar's total
assets, net assets and the results of operations were not material to the
Company for any of the fiscal years presented, the transaction was recorded as
of September 27, 1998. Results of Haar for the period from September 27, 1998 to
July 3, 1999 are included in the Company's fiscal 1999 consolidated statement of
operations.

                                     F-13
<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

Acquisitions Accounted for as a Purchase

Sofco Acquisition - On July 1, 1999, the Company completed the acquisition of
Sofco, Inc. ("Sofco"), a paper product distributor located in Scotia, New York.
Under the terms of the acquisition, the Company acquired all of the outstanding
stock and assumed or discharged certain liabilities in exchange for 2,106,924
shares of the Company's common stock. The excess of the purchase price over the
fair value of the net tangible assets of approximately $33.4 million has been
allocated to goodwill and is being amortized using the straight-line method over
40 years. No results of Sofco were included in the Company's fiscal 1999
consolidated statement of operations.

Webb Acquisition - Effective November 1, 1998, the Company completed the
acquisition of Joseph Webb Foods, Inc. ("Webb"), a broadline foodservice
distributor located in Vista, California. Under the terms of the acquisition,
the Company acquired all of the outstanding stock of Webb in exchange for
1,792,114 shares of the Company's common stock and $8.0 million in cash,
including transaction costs. In addition, the agreement includes a provision for
additional stock issuance based on achievement of future sales performance
targets. The excess of the purchase price over net tangible assets acquired of
approximately $52.6 million has been allocated to goodwill and is being
amortized using the straight-line method over 40 years. Results of Webb for the
period November 1, 1998 to July 3, 1999 are included in the Company's fiscal
1999 consolidated statement of operations.

Westlund Acquisition - On March 20, 1998, the Company completed the acquisition
of Westlund Provisions, Inc. ("Westlund"), a foodservice distributor
specializing in meats located in Minneapolis, Minnesota. Under the terms of the
acquisition, the Company acquired all of the outstanding common stock and
assumed certain liabilities of Westlund in exchange for 458,140 shares of the
Company's common stock. The excess of the purchase price over the fair value of
the net tangible assets acquired of approximately $8.5 million has been
allocated to goodwill and is being amortized using the straight-line method over
40 years. Results of Westlund for the period March 21, 1998 to June 27, 1998 are
included in the Company's fiscal 1998 consolidated statement of operations.

Sorrento Acquisition - On January 23, 1998, the Company completed the
acquisition of Sorrento Food Service, Inc. ("Sorrento"), a broadline foodservice
distributor located in Buffalo, New York. Under the terms of the acquisition,
the Company acquired all the outstanding common stock and assumed or discharged
certain liabilities of Sorrento and paid cash consideration of approximately
$39.0 million. The excess of the purchase price over the fair value of the net
tangible assets acquired of approximately $18.2 million has been allocated to
goodwill and is being amortized using the straight-line method over 40 years.
Results of Sorrento for the period January 24, 1998 to June 27, 1998 are
included in the Company's fiscal 1998 consolidated statement of operations.

                                     F-14
<PAGE>

                      U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

Outwest Acquisition - On October 30, 1997, the Company completed the acquisition
of Outwest Meat Company ("Outwest"), a foodservice distributor specializing in
meats, located in Las Vegas, Nevada. Under the terms of the acquisition, the
Company acquired all of the common stock of Outwest in exchange for 745,834
shares of the Company's common stock. The excess of the purchase price over the
fair value of the net tangible assets acquired of approximately $7.1 million has
been allocated to goodwill and is being amortized using the straight-line method
over 40 years. Results of Outwest for the period November 1, 1997 to June 27,
1998 are included in the Company's fiscal 1998 consolidated statement of
operations.

Pro Forma Information - The tables below set forth unaudited pro forma
information for fiscal 1998 and 1999, giving effect to the acquisitions of Haar,
Sofco, Webb, Westlund, Sorrento and Outwest as if such acquisitions had been
consummated as of June 29, 1997 (in thousands):

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
                                                                          Fiscal 1998     Fiscal 1999
-----------------------------------------------------------------------------------------------------
<S>                                                                    <C>               <C>
Net sales                                                              $    6,025,161    $  6,447,152
Income (loss) before income taxes and extraordinary item               $      (31,313)   $     91,049
Net income (loss)                                                      $      (41,025)   $     86,001

Income (loss) per common share before extraordinary item:
   Basic                                                               $        (0.33)   $       0.93
   Diluted                                                             $        (0.33)   $       0.92

Net income (loss) per common share:
   Basic                                                               $        (0.43)   $       0.88
   Diluted                                                             $        (0.43)   $       0.87
-----------------------------------------------------------------------------------------------------
</TABLE>

Mazo-Lerch Acquisition - On June 19, 1997, the Company completed the acquisition
of Mazo-Lerch Company, Inc. ("Mazo-Lerch"), a broadline foodservice distributor
located in Alexandria, Virginia. Under the terms of the acquisition, the Company
acquired all of the outstanding common stock of Mazo-Lerch in exchange for
558,536 shares of common stock. The excess of the purchase price over the fair
value of net tangible assets acquired of approximately $1.3 million has been
allocated to goodwill and is being amortized using the straight-line method over
40 years. Results of Mazo-Lerch for the period June 20, 1997 to June 28, 1997
are included in the Company's fiscal 1997 consolidated statement of operations.

Arrow Acquisition - On August 31, 1996, the Company completed the acquisition of
Arrow Paper and Supply Co., Inc. (together with its affiliate, "Arrow"), a
broadline foodservice distributor located in Norwich, Connecticut. Under the
terms of the acquisition, the Company purchased certain assets, assumed or
discharged certain liabilities and paid consideration of $28.9 million.
Approximately $1.7 million of the consideration was paid with 147,954 shares of
common stock and the remainder was paid in cash. The excess of the purchase
price over the fair value of net tangible assets acquired of approximately $28.2
million has been allocated to goodwill and is being amortized using the
straight-line method over 40 years. Results of Arrow for the period September 1,
1996 to June 28, 1997 are included in the Company's fiscal 1997 consolidated
statement of operations.

                                     F-15
<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                   Notes to Consoidated Financial Statements

NOTE 5 - RECEIVABLES

Receivables are composed of the following (in thousands):

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                                                                                                June 27,          July 3,
                                                                                                  1998             1999
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>              <C>
Customer accounts and notes                                                                  $    121,491     $     96,702
Less allowance for doubtful accounts                                                              (15,818)         (15,162)
--------------------------------------------------------------------------------------------------------------------------

Net customer                                                                                      105,673           81,540
Income tax receivable                                                                                   -           11,479
Other receivables, principally from suppliers                                                     109,786          141,088
--------------------------------------------------------------------------------------------------------------------------

                                                                                             $    215,459     $    234,107
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company sells customer accounts receivable under its $353.0 million
securitization arrangements (see note 8).

NOTE 6 - PROPERTY AND EQUIPMENT

The components of property and equipment are as follows (in thousands):

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                                                                                                June 27,           July 3,
                                                                                                  1998              1999
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>               <C>
Land, buildings and improvements                                                             $    363,117     $    392,645
Machinery and equipment                                                                           269,846          258,043
Assets held under capital leases (note 9)                                                          62,396           62,250
--------------------------------------------------------------------------------------------------------------------------

                                                                                                  695,359          712,938
Accumulated depreciation                                                                         (258,094)        (258,905)
--------------------------------------------------------------------------------------------------------------------------

                                                                                             $    437,265     $    454,033
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

The Company capitalizes interest costs as part of major asset construction
projects. Capitalized interest was $1.1 million, $3.1 million and $1.1 million
in fiscal 1997, 1998 and 1999, respectively.

As of July 3, 1999, land and buildings for seven closed distribution facilities
with a carrying value of approximately $17.3 million are held for sale. Each of
the properties is currently listed for sale and the Company expects to dispose
of such properties over the next two years. The effect of suspending
depreciation on such properties was not material.

                                     F-16
<PAGE>

                      U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

NOTE 7 - LONG-TERM DEBT

Long-term debt is composed of the following (in thousands):

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                       June 27,         July 3,
                                                         1998            1999
--------------------------------------------------------------------------------
<S>                                               <C>             <C>
Revolving line of credit                          $      502,200  $      506,000
Industrial development revenue bonds                      25,900          25,900
8.875% Senior subordinated notes                         120,163               -
Other                                                      3,020           2,667
--------------------------------------------------------------------------------

Total long-term debt                                     651,283         534,567
Less current maturities of long-term debt                    604             698
--------------------------------------------------------------------------------

                                                  $      650,679  $      533,869
--------------------------------------------------------------------------------
</TABLE>

Revolving Line of Credit - The Company has a bank credit facility, which
provides for a $550.0 million five-year revolving credit facility and a $200.0
million term facility (the "credit facility"). Borrowings outstanding under the
credit facility bear interest at the Company's option at a rate equal to the sum
of (a) the London Interbank Offered Rate (LIBOR), a specified prime rate, or
the federal funds rate plus .5% and (b) an applicable margin. The applicable
margin will vary from .175% to .55%, based on a formula tied to the Company's
leverage from time to time. At July 3, 1999, interest rates on outstanding
borrowings averaged 5.54% based on LIBOR plus an applicable margin between .35%
and .375%. Annual facility fees are based on the same formula and will vary from
 .055% to .2%. The revolving credit facility includes a $75.0 million facility
for standby and commercial letters of credit and a $50.0 million swing-line
facility for same day borrowings. At July 3, 1999, borrowings of $506.0 million
and letters of credit of $36.9 were outstanding and the Company had available
borrowings of $207.1 million under the credit facility.

The credit facility includes a number of covenants which require the maintenance
of certain financial ratios and restrict the Company's ability to pay dividends
and to incur additional indebtedness.

Industrial Development Revenue Bonds -- These bonds are secured by a letter of
credit issued on behalf of Rykoff-Sexton and by a real estate lien against a
distribution facility. The bonds will mature on December 1, 2026, and from time
to time bear and pay interest under daily, weekly, commercial paper or long-term
interest rate indices at the election of the Company. The interest rate on the
bonds approximates LIBOR plus .8% (6% at July 3, 1999).

Extraordinary Items - During fiscal 1999, the Company recorded an extraordinary
charge of $5.0 million (net of a $3.2 million income tax benefit) related to the
redemption and retirement of the Rykoff-Sexton 8 7/8% senior subordinated notes
due 2003. The extraordinary charge consisted of a $6.1 million redemption
premium paid to note holders and the write-off of $2.1 million of unamortized
deferred financing costs.

During fiscal 1998, in connection with the consummation of the credit facility
described above, the Company recorded an extraordinary charge of $9.7 million
(net of $6.3 million income tax benefit). The

                                     F-17
<PAGE>

                      U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

charge related to the write-off of deferred financing costs with respect to the
extinguished debt and additional payments to holders of the Company's senior
notes due 2004, which were retired in full.

Derivative Financial Instruments -- The Company enters into interest rate swaps,
caps and collars to manage its exposure to interest rates on floating rate long-
term debt. As of July 3, 1999, the Company had effectively fixed its interest
rate exposure at 5.97% on approximately $70.0 million of its floating rate debt
through March 2000. In addition, as of the same date, the Company had
effectively fixed its interest rate exposure on an additional $129.0 million of
floating rate debt at 8.875% through November 1, 2003.

If the Company had terminated each of the contracts on July 3, 1999, it would
have had a loss of approximately $0.6 million.

Interest Expense -- Interest expense and other financing costs were $76.1
million, $73.9 million and $65.0 million in fiscal 1997, 1998 and 1999,
respectively. Interest expense included amortization of deferred financing costs
of $2.7 million, $1.9 million and $1.4 million, respectively. Other financing
costs of $16.0 million, $14.2 million and $15.9 million in fiscal 1997, 1998 and
1999, respectively, represent costs associated with the Company's trade accounts
receivable securitization arrangements (see note 8).

Debt Maturities -- The Company's aggregate annual principal payments applicable
to long-term debt are as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Fiscal Years
--------------------------------------------------------------------------------
<S>                                                               <C>
2000                                                              $          698
2001                                                                         414
2002                                                                         294
2003                                                                     506,243
2004                                                                         158
Thereafter                                                                26,760
--------------------------------------------------------------------------------

Total minimum lease payments                                      $      534,567
--------------------------------------------------------------------------------
</TABLE>

NOTE 8 - TRADE ACCOUNTS RECEIVABLE SECURITIZATION ARRANGEMENTS

At December 31, 1998, the Company increased the capacity of its existing $250.0
million revolving securitization arrangements for accounts receivable to $353.0
million. Under these arrangements, all customer receivables of participating
subsidiaries of the Company are sold to a master trust and the Company acquires
a participation interest in the master trust equal to the amount in excess of
the $353.0 million third-party interest. The Company effectively retains credit
risk and is responsible for collection and administration activities. The
Company's interest in the master trust has been included in the accompanying
consolidated balance sheets as residual interest in accounts receivable sold.
The Company accounts for the retained interest in accounts receivable at fair
value. The net realizable value of the receivable portfolio approximates fair
value due to the rapid collection of accounts sold.

                                     F-18
<PAGE>


                      U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

NOTE 9 - LEASES

The Company leases its corporate office facilities and certain distribution
facilities and equipment under operating leases. The Company leases the majority
of its delivery fleet under operating and capital leases. Charges to operations
for all operating leases were $50.7 million, $50.5 million and $51.4 million in
fiscal 1997, 1998 and 1999, respectively.

Set forth below are the future minimum lease payments under operating leases and
capital leases with noncancelable terms beyond one year.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                       Operating         Capital
Fiscal Years                                              leases          leases
--------------------------------------------------------------------------------
<S>                                                    <C>           <C>
2000                                                   $  40,939     $     7,147
2001                                                      33,905           6,545
2002                                                      30,994           3,598
2003                                                      25,179           4,132
2004                                                      18,765           1,914
Thereafter                                                38,934           9,558
--------------------------------------------------------------------------------

Total minimum lease payments                             188,716          32,894
Less interest portion                                                      2,017
--------------------------------------------------------------------------------

Obligations under capital leases                                          30,877
Less current obligations                                                   6,206
--------------------------------------------------------------------------------

                                                                     $    24,671
--------------------------------------------------------------------------------
</TABLE>

During fiscal 1997, 1998 and 1999, the Company's additions to property and
equipment of $6.0 million, $3.0 million and $0.2 million, respectively, were
financed through capital lease obligations.

                                     F-19
<PAGE>

                      U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

NOTE 10 - INCOME TAXES

The components of income taxes with respect to income (loss) before
extraordinary charge are as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                   Fiscal 1997     Fiscal 1998    Fiscal 1999
--------------------------------------------------------------------------------

Current tax expense (benefit):
<S>                               <C>             <C>            <C>
   Federal                        $     14,224    $     (1,857)  $     20,385
   State and local                       3,003          (1,047)         2,148
--------------------------------------------------------------------------------

Total current                           17,227          (2,904)        22,533
--------------------------------------------------------------------------------

Deferred tax expense (benefit):
   Federal                              10,354           7,216         32,987
   State and local                      (1,506)          2,163          3,390
--------------------------------------------------------------------------------

Total deferred                           8,848           9,379         36,377
--------------------------------------------------------------------------------

                                  $     26,075    $      6,475   $     58,910
--------------------------------------------------------------------------------
</TABLE>

In addition, in fiscal 1998 and 1999, the Company recognized current federal and
state income tax benefits of $5.2 million and $1.1 million, respectively, and
$2.9 million and $0.3 million, respectively, with respect to the losses on early
extinguishment of debt.

Temporary differences and the resulting deferred income tax assets and
liabilities are as follows (in thousands):

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                 June 27, 1998   July 3, 1999
--------------------------------------------------------------------------------
Deferred tax assets (liabilities):
<S>                                             <C>              <C>
   Loss carryforwards                           $     24,906     $     14,905
   Restructuring reserves and asset impairment        45,821           24,887
   Accounts receivable                                   674             (935)
   Capital leases                                      5,196            5,573
   Accrued expenses                                   13,751            9,671
   Property and equipment                            (34,075)         (30,124)
   Intangible assets                                  (5,823)          (4,315)
   Other, net                                        (16,572)         (13,570)
   Valuation allowance                                  (648)            (290)
--------------------------------------------------------------------------------
Net deferred tax asset                          $     33,230     $      5,802
--------------------------------------------------------------------------------
</TABLE>

Gross deferred tax assets (net of valuation allowances) were $91.2 million and
$60.3 million at June 27, 1998 and July 3, 1999, respectively. Gross deferred
tax liabilities were $58.0 million and $54.5 million at June 27, 1998 and July
3, 1999, respectively. Included in the Company's temporary differences is $8.9
million related

                                     F-20
<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

to an increase in the tax basis of certain assets resulting from the acquisition
of Haar. The establishment of the deferred tax asset has been recorded as a
credit to additional paid-in capital.

The Company believes it is more likely than not that the deferred tax assets,
net of valuation allowances, at July 3, 1999, including federal and state net
operating loss carryforwards, will be realizable through the combination of
future taxable income, alternative tax planning strategies and the reversal of
existing taxable temporary differences.

A reconciliation of the statutory Federal income tax rate to the income tax rate
on income (loss) before income taxes and extraordinary charge is as follows (in
thousands):

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                  Fiscal 1997                  Fiscal 1998                  Fiscal 1999
-----------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                  <C>     <C>                 <C>       <C>                <C>
Computed statutory expense
   (benefit)                              $     22,526         35.0%   $    (10,786)       (35.0)%   $    51,517        35.0%
State and local income tax,
   net of federal tax benefit                      973          1.5             725          2.4           1,407         1.0
Permanent differences                            4,853          7.5          17,448         56.6           5,490         3.7
Reversal of valuation allowance                 (2,800)        (4.4)           (750)        (2.4)           (358)       (0.2)
Other                                              523          0.8            (162)        (0.6)            854         0.5
-----------------------------------------------------------------------------------------------------------------------------

                                          $     26,075         40.4%   $      6,475         21.0%   $     58,910         40.0%
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Federal net operating loss carryforwards as of July 3, 1999 approximate $21.0
million and expire in various amounts through 2011. Included in such amounts are
net operating losses incurred prior to Rykoff-Sexton's acquisition of U.S.
Foodservice, Inc. The use of these net operating losses is subject to certain
limitations imposed by the Internal Revenue Code. The Company does not
anticipate these limitations will affect utilization of the carryforwards prior
to their expiration date. Tax years of the Company since fiscal 1994 are open
for examination. The Internal Revenue Service and certain state authorities have
examinations in progress.

NOTE 11 - STOCKHOLDERS' EQUITY

Issuances of Common Stock - In March 1999, the Company sold 2,342,748 shares of
common stock in a public offering for net proceeds of $43.2 million. The net
proceeds of the offering were used to redeem and retire a portion of the Rykoff-
Sexton 8 7/8% senior subordinated notes due 2003, as discussed in note 7.

Related Party Transactions - In December 1996, Sara Lee Corporation sold its
ownership interest of approximately 27% of the Company's outstanding common
stock in a public offering. As a result, the Company has reclassified $44.9
million of distributions in excess of net book value of continuing stockholder's
interest as a reduction to additional paid-in-capital.

                                     F-21
<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

Employee Stock Purchase Plan - The Company sponsors an employee stock purchase
plan, pursuant to which all full-time employees of the Company and its
subsidiaries who have been employed by the Company for 90 days or more are
eligible to purchase shares of common stock from the Company. Eligible employees
may purchase shares of common stock at a price equal to 85% of the market price
per share on each quarterly investment date. Purchases under this plan totaled
77,804 shares, 65,660 shares and 188,880 shares during fiscal 1997, 1998 and
1999, respectively. An aggregate of 2,543,616 shares of common stock remain
available to be issued and purchased under the plan.

Warrant - At July 3, 1999, the Company had a warrant outstanding to purchase
142,194 shares of common stock at $6.52 per share. The warrant expires on
September 30, 2005.

Shareholder Rights Plan - The Company has a shareholder rights plan under which
the issuance of rights, subject to specified exceptions, would be triggered by
the acquisition (or certain actions that would result in the acquisition) of 10%
or more of the Company's common stock by any person or group (or 15% or more by
any person eligible to report its ownership of the Company's common stock on
Schedule 13G under the Securities Exchange Act of 1934).

Pursuant to this plan, each share of common stock has attached one preferred
share purchase right (a "Right").  The Rights entitle the registered holders of
common stock to purchase from the Company, upon the occurrence of the specified
triggering events, one one-hundredth of a share of junior participating
preferred stock at a price of $95, subject to adjustment.  The Company may
redeem the Rights at a price of $.01 per Right prior to a triggering event.
The Rights expire on February 19, 2006.

NOTE 12 - STOCK OPTION PLANS

The Company sponsors two employee stock incentive plans and an outside director
stock option plan. The employee plans authorize the grant, at the discretion of
the Company's Board of Directors or an authorized committee thereof, of
incentive stock options, non-qualified stock options, restricted stock awards,
stock appreciation rights, or any combination thereof, at the fair market value
on the date of grant. Options granted under the employee plans generally have a
life of ten years and generally vest over a three-year period. The outside
director plan provides for an initial award of 5,000 options and an annual
award of 4,000 options, at fair market value, for a ten-year period with
one-fourth vesting upon grant and the balance vesting equally over three years.
Stockholders of the Company have authorized for issuance pursuant to the
employee plans and the outside director plan approximately 13,100,000 and
250,000 shares of common stock, respectively.

Rykoff-Sexton sponsored several stock option plans for employees and directors.
In connection with the Company's acquisition of Rykoff-Sexton, options to
purchase shares of Rykoff-Sexton were exchanged for options to purchase the
Company's common stock on the same terms and conditions after adjusting the
option amounts and exercise prices for the Exchange Ratio. Virtually all of the
options were immediately exercisable as the result of the change of control
provisions contained in each of the option agreements.

                                     F-22
<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

The aggregate number of shares reserved for the issuance of common stock under
these plans was approximately 3,700,000 at July 3, 1999. Upon a change of
control of the Company, as defined in the plans, all outstanding and previously
unvested options will become immediately exercisable. A summary of changes in
outstanding stock options follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                                                                                                                 Weighted
                                                                                                                   average
                                                                                                                  exercise
                                                                                                   Stock             price
                                                                                                  options        per share
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>           <C>
Balance June 29, 1996                                                                           4,811,878     $       8.31
Options granted                                                                                 1,363,090            10.90
Options cancelled                                                                                (147,390)            8.05
Options exercised                                                                                (499,696)            6.43
--------------------------------------------------------------------------------------------------------------------------

Balance June 28, 1997                                                                           5,527,882             9.10
Options granted                                                                                 1,387,428            16.23
Options cancelled                                                                                (462,502)           13.69
Options exercised                                                                              (2,662,658)            9.56
--------------------------------------------------------------------------------------------------------------------------

Balance June 27, 1998                                                                           3,790,150            11.25
Options granted                                                                                 2,200,900            19.47
Options cancelled                                                                                (385,780)           14.36
Options exercised                                                                              (1,228,332)            8.99
--------------------------------------------------------------------------------------------------------------------------

Balance July 3, 1999                                                                            4,376,938     $      15.74
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

The following table summarizes information about stock options outstanding at
July 3, 1999:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                                                    Weighted            Weighted                                 Weighted
                                Number               average            average         Number                   average
Range of                      outstanding           remaining           exercise      exercisable                exercise
exercise prices              July 3, 1999         contractual life       price        July 3, 1999                price
--------------------------------------------------------------------------------------------------------------------------
<S>                         <C>                <C>                 <C>             <C>                     <C>
$ 0.07-$ 0.07                       9,812              3.17        $     0.07                9,812         $          0.07
$ 5.25-$ 7.23                     349,820              5.00        $     6.34              349,820         $          6.34
$ 7.72-$11.88                     923,368              6.76        $    10.38              536,057         $          9.99
$13.78-$19.25                   2,621,568              8.63        $    17.70              340,699         $         16.28
$20.88-$25.38                     472,370              6.90        $    22.64               11,106         $         23.87
                            -------------      ------------        ----------      ---------------         ---------------

                                4,376,938              7.74        $    15.74            1,247,494         $         10.73
                            -------------                                          ---------------
</TABLE>

                                      F-23
<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

The Company applies the intrinsic value method when accounting for stock-based
employee compensation grants. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost been determined
under the fair value method of SFAS No. 123, the Company's net income (loss) and
net income (loss) per common share would have been reduced to the pro forma
amounts indicated below (in thousands, except per share amounts):

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
                                         Fiscal 1997     Fiscal 1998      Fiscal 1999
-------------------------------------------------------------------------------------
Net income (loss):
<S>                                     <C>             <C>              <C>
   As reported                          $     38,286    $    (47,004)    $     83,234
   Pro forma                            $     36,479    $    (51,609)    $     74,312
-------------------------------------------------------------------------------------

Basic earnings (loss) per share:
   As reported                          $       0.44    $      (0.52)    $       0.87
   Pro forma                            $       0.39    $      (0.62)    $       0.77
-------------------------------------------------------------------------------------

Diluted earnings (loss) per share:
   As reported                          $       0.44    $      (0.52)    $       0.86
   Pro forma                            $       0.39    $      (0.62)    $       0.76
-------------------------------------------------------------------------------------
</TABLE>

The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in fiscal 1997, 1998 and 1999: dividend yield of 0%;
expected volatility of 45.44%, 41.02% and 37.72% for fiscal 1997, 1998 and 1999,
respectively; risk-free interest rate of 6.36%, 6.10% and 5.19% for fiscal 1997,
1998 and 1999, respectively; and expected lives of five years, five years and
four years for fiscal 1997, 1998 and 1999, respectively. The weighted average
fair value of options granted during fiscal 1997, 1998 and 1999 was $5.61, $6.94
and $6.93, respectively.

Pro forma net income (loss) only reflects compensation costs for options granted
in fiscal years since July 2, 1995. Compensation cost is reflected over the
options' vesting period of three years.

NOTE 13 - EMPLOYEE RETIREMENT PLANS

Defined Contribution Plans - The Company and certain of its subsidiaries sponsor
several defined contribution profit sharing plans for which all full-time
non-union employees are generally eligible. Terms of the plans provide for
employee and Company contributions, which may be made in cash or common stock of
the Company. Charges to operations for employer contributions to the plans were
$3.9 million, $4.5 million and $2.4 million in fiscal 1997, 1998 and 1999,
respectively.

                                      F-24
<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

Multi-employer Plans - The majority of the Company's union employees are covered
by union-administered pension plans. Since these plans are part of
multi-employer pension arrangements, it is not practicable to determine the
amount of accumulated plan benefits or plan net assets applicable solely to the
Company's employees. With the passage of the Multi-Employer Pension Plan
Amendments Act of 1980, the Company may, under certain circumstances, become
subject to liabilities in excess of contributions made under collective
bargaining agreements. Generally, these liabilities are contingent upon the
termination, withdrawal or partial withdrawal from these plans. Charges to
operations for all employer defined benefit pension contributions required by
union agreements aggregated $8.5 million, $9.2 million and $8.0 million in
fiscal 1997, 1998 and 1999, respectively.

Defined Benefit Plans - The Company maintains five non-contributory pension
plans for its salaried, commissioned and certain of its hourly employees. Under
the plans, the Company is required to make annual contributions that are
determined by the plans' consulting actuary, using participant data that is
supplied by the Company. It is the Company's policy to fund pension costs
currently. Pension benefits are based on length of service and either a
percentage of final average annual compensation or a dollar amount for each year
of service. Benefits under two of the plans are frozen at July 3, 1999.
Projected benefit obligations of plans for which benefits were not frozen at
July 3, 1999 were $9.0 million. During fiscal 1998, the Company recognized a
curtailment gain of $7.4 million reflecting the freezing of benefits from one of
those defined benefit plans.







                                      F-25
<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

Summarized financial information about the pension plans is presented below (in
thousands):

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                                                          Fiscal 1998      Fiscal 1999
--------------------------------------------------------------------------------------
Change in benefit obligation:
<S>                                                       <C>             <C>
  Projected benefit obligation at beginning of year       $    80,534     $     87,374
     Service cost                                               3,061              400
     Interest cost                                              5,911            6,238
     Plan amendments                                               --            1,573
     Curtailments                                              (7,390)            (169)
     Benefits paid                                             (2,764)          (3,546)
     Actuarial loss (gain)                                      8,022             (776)
--------------------------------------------------------------------------------------

  Projected benefit obligation at end of year             $    87,374     $     91,094
--------------------------------------------------------------------------------------
  Accumulated benefit obligation at end of year           $    87,374     $     91,094
--------------------------------------------------------------------------------------

Change in plan assets:
  Fair value of plan assets at beginning of year          $    88,784     $     95,487
     Actual return on plan assets                               8,556           20,425
     Employer contributions                                       611               79
     Benefits paid                                             (2,764)          (3,546)
--------------------------------------------------------------------------------------

  Fair value of plan assets at end of year                $    95,187     $    112,445
--------------------------------------------------------------------------------------

Funded status:
  Funded status at end of year                            $     7,813     $     24,295
  Unrecognized actuarial loss (gain)                          (10,292)         (26,382)
  Unrecognized transition obligation (asset)                       95              101
  Unrecognized prior service cost                                 126            1,604
--------------------------------------------------------------------------------------

     Net amount recognized at end of year                 $    (2,258)    $       (382)
--------------------------------------------------------------------------------------

Amounts recognized in the balance sheet
consist of:
     Prepaid benefit cost                                 $     1,631     $      1,113
     Accrued benefit liability                                 (3,889)          (1,495)
--------------------------------------------------------------------------------------

     Net amount recognized at end of year                 $    (2,258)    $       (382)
--------------------------------------------------------------------------------------
</TABLE>

                                      F-26
<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
                                                    Fiscal 1998       Fiscal 1999
---------------------------------------------------------------------------------
Components of net periodic benefit cost
<S>                                                <C>               <C>
  Service cost                                     $      3,061      $        400
  Interest cost                                           5,911             6,238
  Expected return on plan assets                         (7,963)           (8,578)
  Amortization of prior year service cost                     3               105
  Amortization of transition amount                         182                 7
  Recognized actuarial gain                              (1,315)             (494)
  Other                                                  (7,390)                -
---------------------------------------------------------------------------------

     Net periodic benefit cost                     $     (7,511)     $     (2,322)
--------------------------------------------------------------------------------
</TABLE>

Weighted-average assumptions for fiscal 1998 and 1999 included discount rates of
6.75% and 7.50% respectively, and expected long-term rate of return on plan
assets of 9.00%.

Other Postretirement Benefit Plans - The Company has several nonpension
postretirement benefit plans, certain of which are contributory. The present
value of future benefits to be paid to current employees and eligible retirees
amounted to approximately $2.3 million and $2.1 million at June 27, 1998 and
July 3, 1999, respectively, and is included in other noncurrent liabilities in
the accompanying consolidated balance sheets.

Other Deferred Compensation Plans - During fiscal 1999, the Company adopted
three executive retirement plans and a non-employee director deferred
compensation plan. Generally, the executive retirement plans provide for
participants to earn a percentage of their annual earnings through cash
contributions to the plans and restricted unit grants. Each restricted unit
represents a conditional right to receive a share of common stock in the future
which are subject to certain restrictions and risk of forfeiture. The awards
vest over periods of five to ten years. Shares for these plans are issued from
shares authorized under one of the stock incentive plans discussed above. As of
July 3, 1999, 354,200 restricted units have been granted.

The non-employee director deferred compensation plan allows for the Company's
directors to defer all or a portion of their annual retainer and meeting fees.
The plan provides for Company matching credits of 25%. All deferrals and credits
are deemed to be invested in the Company's common stock. Distributions are in
the form of common stock and can either be made in a lump sum or in up to five
annual installments.

Total compensation expense recognized for these plans for fiscal 1999 was $1.1
million, which is included in other noncurrent liabilities at July 3, 1999 in
the accompanying consolidated balance sheet.

                                      F-27
<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

NOTE 14 - EARNINGS PER SHARE

The following table reconciles the Company's basic and diluted weighted average
share amounts used in computations of earnings per share ("EPS") (in thousands):

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                  Fiscal 1997      Fiscal 1998      Fiscal 1999
-------------------------------------------------------------------------------
<S>                                <C>               <C>              <C>
Basic EPS-Weighted average
   shares outstanding               86,902            90,640           95,922

Effect of Dilutive
  Securities:
  Warrants                              --                --              116
  Stock Options                      1,224                --            1,065
  Other stock-based
   compensation
   arrangemenets                        --                --               87

Diluted EPS-Weighted average
shares outstanding                  88,126            90,640           97,190
-------------------------------------------------------------------------------
</TABLE>

The effect of stock options outstanding during fiscal 1998 was not included in
the computation of diluted EPS because the effect would have been anti-dilutive.

NOTE 15 - OUTSOURCING OF THE MANUFACTURING DIVISION

On August 28, 1998, the Company sold the inventory and fixed assets of its
manufacturing division to a third party. In connection with the sale, the
Company entered into a six-year supply agreement. Under the terms of the sale
and supply agreements, the Company received $85.0 million in cash and a $16.0
million subordinated note from the buyer bearing interest at 13% and payable in
August 2006. Interest on the note is payable in additional notes through August
2005 and thereafter in cash. The assets transferred had a net book value of
approximately $20.0 million, including $10.8 million in inventories. Costs to
complete the transaction were approximately $1.5 million. The net gain on the
sale of assets and proceeds from entering into the supply agreement aggregated
approximately $78.0 million.

The supply agreement establishes minimum purchase obligations by the Company for
each of the next six years. First year minimum purchase obligations are based on
purchase levels prior to the sale, with the succeeding years' purchase
obligations increasing at a rate of 6% per year. Based on current product
prices, the supply agreement obligates the Company to purchase in excess of
$750.0 million of products over the six years following the sale. The Company
may incur substantial penalties if it does not purchase the minimum product
quantities specified in the agreement.

                                      F-28
<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

As a result of the Company's significant continuing involvement in the
manufacturing business, $63.5 million of the gain was deferred and is being
recognized over the life of the supply agreement as goods are purchased from the
manufacturing business and sold to the Company's foodservice customers. In
fiscal 1999, the Company recognized approximately $7.0 million of the gain in
their consolidated statement of operations. The balance of the gain, including
interest attributable to the subordinated note receivable, will not be
recognized until such time as the buyer has sufficient cash flows to demonstrate
its ability to make payment of the principal and interest.

NOTE 16 -  RESTRUCTURING AND RELATED COSTS

In connection with the acquisition described in note 3, management of the
combined companies developed and implemented a restructuring plan that included
the consolidation of duplicative distribution centers and the centralization of
certain general and administrative functions. The Company has closed or is
closing thirteen distribution centers located in California, Florida, Iowa,
Maryland, Massachusetts, Minnesota, Missouri, Nevada, Ohio, Pennsylvania and
Virginia. Operations from such facilities are being consolidated with facilities
in the same geographic region. In addition, virtually all of Rykoff-Sexton's
corporate overhead functions, most of which were managed in Wilkes-Barre,
Pennsylvania, were consolidated with such facilities in Columbia, Maryland.
Twelve of the facility consolidations were completed by July 3, 1999, with the
remaining location to be completed in fiscal 2000. To date, the Company has
experienced no significant changes in the restructuring plan.

As a result, the Company incurred restructuring costs, asset impairment charges,
other operating charges and nonrecurring expenses from the integration of the
two businesses during fiscal 1998.

Restructuring Costs - Restructuring costs of $56.7 million (of which $13.1
million were non-cash charges) consisted primarily of $26.8 million for change
in control payments made to former executives of Rykoff-Sexton, which were
generally triggered upon the acquisition, and the decision to close the
Wilkes-Barre, Pennsylvania headquarters; $12.2 million for severance and
benefits payable to approximately 800 sales, warehouse and clerical personnel
under a one-time termination plan instituted at the closed distribution centers
and 50 individuals in corporate positions; $10.8 million for lease payments
expected to be made after the date of closure for four leased distribution
facilities and the Wilkes-Barre office facility; and $6.9 for idle facility and
facility closure costs, including costs associated with cleaning closed
facilities and maintaining the closed facilities until they are sold or
subleased, including costs such as property taxes, utilities, security and
groundskeeping charges. Severance and benefits were based on severance and other
agreements with employees and included an estimate of health and other benefits.
Lease commitments were based on amounts due under terminated lease agreements or
facilities to be vacated for which the Company is obligated to pay. Idle
facility and facility closure costs relate primarily to closing of duplicate
facilities, including estimated expenses associated with cleaning and
maintaining closed facilities until they are sold or subleased.

Asset Impairment Charge - The non-cash asset impairment charge of $35.5 million
consisted of $7.6 million related to write-down to net realizable value of
buildings and improvements of nine owned facilities being closed; $3.1 million
related to write-down to net realizable value of buildings which were held for
sale at the date of the merger, $12.0 million related to costs deferred for a
new management

                                     F-29
<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

information system which is not being placed in service as a result of the
merger and $12.7 million related to other long-term assets at facilities being
closed.

Other Operating Charges - Other operating charges consisted of $8.6 million to
cost of goods sold and $19.4 million to operating expenses for write-downs of
inventory, receivables and other current assets resulting from operating unit
consolidation and realignment during fiscal 1998. The charges related
principally to receivable write-offs resulting from the rationalization of
customer and vendor relationships and inventory write-downs resulting from the
reductions in the number of products distributed by the combined company
following the merger, particularly at divisions being closed and consolidated.

Nonrecurring Charges - Nonrecurring charges of $17.8 million consisted of merger
costs and expenses (consisting primarily of legal and other professional fees)
required to complete the transaction.

Rykoff-Sexton Restructuring - In connection with, Rykoff-Sexton's acquisition of
US Foodservice, Inc. in May 1996, Rykoff-Sexton recorded a restructuring charge
of $57.6 million ($35.7 million after tax) in the nine-week fiscal transition
period ended June 29, 1996. The restructuring charge consisted of severance and
employee benefits of $10.7 million, lease related costs of $20.2 million and
other closure and integration costs of $26.7 million. In fiscal 1997, Rykoff-
Sexton reversed $4.0 million into income for severance costs accrued for
employees who voluntarily terminated their employment during fiscal 1997,
thereby forfeiting rights. In fiscal 1998, the Company reversed $3.0 million of
unutilized reserves against restructuring costs for which actual costs were
overestimated or for which contemplated restructuring plans ultimately changed.

The following table summarizes the status of the Company's restructuring
accruals (in thousands):

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                 Change in     Severence         Lease       Idle Facility
                                  Control     and benefits    Commitments        Costs          Totals
--------------------------------------------------------------------------------------------------------
<S>                            <C>            <C>             <C>             <C>            <C>
Balance July 28, 1997          $         -    $      2,200    $    17,500     $    5,800     $    25,500
   Fiscal 1998 accruals             26,800          12,200         10,800          6,900          56,700
   Fiscal 1998 utilization         (24,800)         (8,100)        (5,400)        (4,500)        (42,800)
                                   -------          ------         ------         ------         -------

Balance June 27, 1998                2,000           6,300         22,900          8,200          39,400
   Fiscal 1999 utilization          (2,000)         (4,100)        (3,900)        (4,700)        (14,700)
                                   -------          ------         ------         ------         -------

Balance July 3, 1999           $         -    $      2,200    $    19,000     $    3,500     $    24,700
--------------------------------------------------------------------------------------------------------
</TABLE>

Management anticipates that $6.3 million of the reserves will be paid in fiscal
2000. The balance relates primarily to remaining lease commitments that are
being paid in various amounts through fiscal 2008.

                                      F-30
<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

NOTE 17 - OTHER COMMITMENTS AND CONTINGENCIES

Legal Proceedings - The Company is involved, from time to time, in litigation
and proceedings arising out of the ordinary course of business. There are no
pending material legal proceedings or environmental investigations to which the
Company is a party or to which the property of the Company is subject.

Letters of Credit - The Company utilizes standby letters of credit to satisfy
medical worker's compensation self-insurance security deposit requirements.
These letters of credit are irrevocable and have one-year renewable terms.

NOTE 18 - INDUSTRY SEGMENT INFORMATION

During fiscal 1999, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 131, Disclosure about Segments of an Enterprise and Related
Information. SFAS No. 131 requires the presentation of descriptive financial
information about its reportable operating segments, which is consistent with
that made available to the management of the Company to assess performance.

The Company has two reportable segments: broadline foodservice distribution
("Broadline"), and other services ("Other Services"). Broadline, consisting of
approximately 40 operating locations, distributes over 43,000 food and non-food
related products to over 130,000 foodservice customers, including restaurants,
hotels, casinos, healthcare institutions and schools. Other Services represents
manufacturing operations and contract and design services (C&D). In August 1998,
the Company outsourced its manufacturing division by selling the assets of the
Rykoff-Sexton Manufacturing Division to a third party. (See note 15). C&D
designs restaurants and eating establishments for approximately 1,000
organizations annually.





                                     F-31
<PAGE>

                       U.S. FOODSERVICE AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

The accounting policies of the two business segments are the same as those
described in the summary of significant accounting policies in note 2.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
                                                                   Corporate
                                                        Other         and
                                         Broadline    Services    Eliminations     Consolidated
-----------------------------------------------------------------------------------------------
<S>                                     <C>           <C>         <C>              <C>
1997
Net sales                               $5,128,558    $231,294       ($190,446)      $5,169,406
Depreciation and amortization               53,759       3,424               -           57,183
Income (loss) from operations              179,802      12,694         (46,672)         145,824
Interest expense and other
   financing costs, net                     74,928       1,135               -           76,063
Income (loss) before income
   taxes and extraordinary charge          101,325       9,708         (46,672)          64,361
Total assets                             1,635,083      97,100               -        1,732,183
Capital expenditures                        85,917       2,519               -           88,436
-----------------------------------------------------------------------------------------------
1998
Net sales                               $5,410,840    $307,555       ($211,446)      $5,506,949
Depreciation and amortization               56,722       3,107               -           59,829
Income (loss) from operations               93,296      13,700         (46,097)          60,899
Interest expense and other
   financing costs, net                     73,892           2               -           73,894
Income (loss) before income
   taxes and extraordinary charge            5,529       9,751         (46,097)         (30,817)
Total assets                             1,727,715      90,076               -        1,817,791
Capital expenditures                        93,390       2,121               -           95,511
-----------------------------------------------------------------------------------------------
1999
Net sales                               $6,122,516    $265,903       ($190,011)      $6,198,408
Depreciation and amortization               55,939         803               -           56,742
Income (loss) from operations              249,322      10,038         (47,194)         212,166
Interest expense and other
   financing costs, net                     65,010         (36)              -           64,974
Income (loss) before income
   taxes and extraordinary charge          184,312      10,074         (47,194)         147,192
Total assets                             1,812,602     200,272               -        2,012,874
Capital expenditures                        68,093         320               -           68,413
-----------------------------------------------------------------------------------------------
</TABLE>

Corporate and eliminations consist of inter-segment sales and inter-company
accounts.

                                      F-32
<PAGE>

                                                                     SCHEDULE I
                                                                     Page 1 of 3

U.S. FOODSERVICE
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

The following are the condensed balance sheets, statements of operations and
cash flows for U.S. Foodservice and subsidiaries accounted for under the
equity method:

<TABLE>
<CAPTION>
                                         June 28,       July 3,
Condensed Balance Sheets                  1998           1999
----------------------------------------------------------------
                                             (IN THOUSANDS)
Assets
------
<S>                                   <C>            <C>
Cash and cash equivalents               $     125      $       -
Other current assets                            1              -
Intra-company receivables                 135,072        296,623
Investments in subsidiaries               449,522        532,756
                                        ---------      ---------
Total assets                            $ 584,720      $ 829,379
                                        =========      =========

Stockholders' Equity

Common stock                                  926          1,012
Additional paid-in-capital                579,074        740,413
Retained earnings                           4,720         87,954
                                        ---------      ---------
Total stockholders' equity              $ 584,720      $ 829,379
                                        =========      =========
</TABLE>



                                     F-33
<PAGE>

                                                                     SCHEDULE I
                                                                     Page 2 of 3

U.S. FOODSERVICE
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

<TABLE>
<CAPTION>
                                                      FISCAL YEARS ENDED
                                          -----------------------------------------
                                             JUNE 28,       JUNE 27,        JULY 3,
Condensed Statements of Operations             1997           1998           1999
-----------------------------------------------------------------------------------
                                                         (IN THOUSANDS)
<S>                                       <C>            <C>            <C>
Operating expenses                        $       (29)   $       (15)   $         -
Net income (loss) of unconsolidated
  subsidiaries                                 38,315        (46,989)        83,234
                                          -----------    -----------    -----------
Net income (loss)                         $    38,286    $   (47,004)   $    83,234
                                          ===========    ===========    ===========
</TABLE>

                                      F-34
<PAGE>

                                                                     SCHEDULE I
                                                                     Page 3 of 3

U. S. FOODSERVICE
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

<TABLE>
<CAPTION>
                                                                                  FISCAL YEARS ENDED
                                                                ----------------------------------------------------
                                                                      JUNE 28,         JUNE 27,          JULY 3,
Condensed Statements of the Cash Flows                                  1997             1998             1999
---------------------------------------------------------------------------------------------------------------------
                                                                                       (IN THOUSANDS)
<S>                                                             <C>                   <C>                <C>
Cash flows from operating activities:
  Net income (loss)                                              $    38,286          $  (47,004)        $   83,234
  Adjustments to reconcile net income (loss) to net
    cash used in operating activities
    Net (income) loss of unconsolidated subsidiaries                 (38,315)             46,989            (83,234)
    Non-cash restructuring charge                                          -              12,217                  0
    Increase (decrease) in other current assets                           (6)                124                  1
    Increase in other assets                                         (68,817)            (35,090)           (63,003)
  Other                                                                    -               1,961                  -
                                                                 ------------         ------------       ------------

  Net cash used in operating activities:                             (68,852)            (20,803)           (63,002)
                                                                 ------------         ------------       ------------

Cash flows from financing activities:
  Net proceeds from public offerings of common stock                  65,975                   -             43,183
  Purchases of treasury stock                                              -             (12,417)                 -
  Proceeds from other issuances of common stock                            -              33,219             19,694
  Proceeds from employee stock purchase                                2,869                   -                  -
                                                                 ------------         ------------       ------------

  Net cash provided by financing activities                           68,844              20,802             62,877
                                                                 ------------         ------------       ------------

Net decrease in cash and cash equivalents                                 (8)                 (1)              (125)
Cash and cash equivalents, at beginning of period                        134                 126                125
                                                                 ------------         ------------       ------------

Cash and cash equivalents, at end of period                      $       126          $      125         $        -
                                                                 ============         ============       ============
</TABLE>

                                      F-35
<PAGE>

U.S. FOODSERVICE                                                     SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                            ADDITIONS
                                                 --------------------------------
                                   BALANCE AT        CHARGES          CHARGED            AMOUNTS            BALANCE
                                    BEGINNING      TO COSTS AND       TO OTHER          CHARGED OFF        AT END OF
Description                         OF PERIOD        EXPENSES         ACCOUNTS         TO RECOVERIES       PERIOD (3)
--------------------------------------------------------------------------------------------------------------------
<S>                                <C>             <C>               <C>               <C>                 <C>
YEAR ENDED JUNE 28, 1997
Allowance for doubtful accounts     $   7,948        $   7,854       $  10,608 (2)       $  10,445         $  15,965

YEAR ENDED JUNE 27, 1998
Allowance for doubtful accounts     $  15,965        $  12,254       $     480 (1)       $  12,581         $  16,118

YEAR ENDED JULY 3, 1999
Allowance for doubtful accounts     $  16,118        $  10,709       $   2,236 (1)       $  13,601         $  15,462
</TABLE>

(1) Other charges consist of reserves acquired through purchase acquisitions.
(2) Other charges consist of $7,439 in reserves acquired through purchase
acquisitions during the year, net increase in reserves of $8,562 during the
transition period from pooled acquisitions less amounts written off by
Rykoff-Sexton, Inc. during the period April 27, 1996 to June 29, 1996 of $5,393.
(3) Includes $255, $300 and $300 with respect to supplier receivables at
June 28, 1997, June 27, 1998 and July 3, 1999, respectively.






                                     F-36

<PAGE>

                                  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.

                                    U.S. FOODSERVICE

Date:September 30, 1999             /s/ James L. Miller
                                    -----------------------------------
                                    James L. Miller
                                    President and Chief Executive Officer
                                    (Duly Authorized Officer)


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
          Signature                              Title                             Date
          ---------                              -----                             ----
<S>                              <C>                                       <C>
                                 Chairman of the Board, President and
/s/ James L. Miller
__________________________              Chief Executive Officer            September 30, 1999
      James L. Miller                (Principal Executive Officer)

/s/ George T. Megas                    Senior Vice President and
__________________________              Chief Financial Officer            September 30, 1999
      George T. Megas                (Principal Financial Officer)

/s/ Robert A. Soule                        Vice President and
__________________________              Chief Accounting Officer           September 30, 1999
      Robert A. Soule                (Principal Accounting Officer)

/s/ Lewis Hay, III
__________________________                      Director                   September 30, 1999
      Lewis Hay, III

/s/ David M. Abramson
__________________________                      Director                   September 30, 1999
      David M. Abramson

/s/ Mark P. Kaiser
__________________________                      Director                   September 30, 1999
      Mark P. Kaiser

/s/ Michael J. Drabb
__________________________                      Director                   September 30, 1999
      Michael J. Drabb
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
      Signature                        Title                    Date
      ---------                        -----                    ----
<S>                                   <C>                 <C>
/s/ Eric E. Glass                     Director            September 30, 1999
-------------------------
     Eric E. Glass

/s/ Paul I. Latta, Jr.                Director            September 30, 1999
-------------------------
     Paul I. Latta, Jr.

/s/ Dean R. Silverman                 Director            September 30, 1999
-------------------------
     Dean R. Silverman

/s/ Jeffrey D. Serkes                 Director            September 30, 1999
-------------------------
     Jeffrey D. Serkes

/s/ James P. Miscoll                  Director            September 30, 1999
-------------------------
     James P. Miscoll

/s/ Bernard Sweet                     Director            September 30, 1999
-------------------------
     Bernard Sweet
</TABLE>