<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 June 28, 1997.
 
[ ]   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

                              JP FOODSERVICE, INC.
                              --------------------
             (Exact name of registrant as specified in its charter)

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

   9830 Patuxent Woods Drive
      Columbia, Maryland                                    21046
-------------------------------                      -------------------
    (Address of principal                                 (Zip Code)
      executive offices)

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

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

     Title of each class:        Name of each exchange on which registered:

         Common Stock                      New York Stock Exchange

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.     X
                 --------

     The aggregate market value of the registrant's voting stock held by non-
affiliates of the registrant at September 15, 1997 was approximately $666
million.

     The number of shares of the registrant's Common Stock, $.01 par value,
outstanding on September 15, 1997 was 22,606,308.

                      DOCUMENTS INCORPORATED BY REFERENCE

Certain information in the Proxy Statement for the 1997 Annual Meeting of
Stockholders of the registrant is incorporated by reference into Part III
hereof.
<PAGE>
 
                               TABLE OF CONTENTS
                               -----------------


                                     PART I
<TABLE>
<S>      <C>                                                                 <C>
Item 1.  Business..........................................................   4
Item 2.  Properties........................................................  14
Item 3.  Legal Proceedings.................................................  15
Item 4.  Submission of Matters to a Vote of Security Holders...............  15

                                    PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder
           Matters.........................................................  15
Item 6.  Selected Financial Data...........................................  17
Item 7.  Management's Discussion and Analysis of Financial Condition and 
           Results of Operations...........................................  18
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.........  23
Item 8.  Financial Statements and Supplementary Data.......................  23
Item 9.  Changes in and Disagreements With Accountants on Accounting and
           Financial Disclosure............................................  24

                                    PART III

Item 10. Directors and Executive Officers of the Registrant................  24
Item 11. Executive Compensation............................................  24
Item 12. Security Ownership of Certain Beneficial Owners and Management....  24
Item 13. Certain Relationships and Related Transactions....................  24

                                    PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...  25
</TABLE> 

                                       2
<PAGE>
 
          This Report contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended.  Such
statements include management's expectations and objectives regarding the
Company's future financial position, operating results and business strategy.
These statements are subject to risks and uncertainties that could cause the
Company's actual operating results to differ materially.  Such risks and
uncertainties include the sensitivity of the Company's business to national and
regional economic conditions, difficulties in achieving cost savings and
synergies in integrating acquired businesses, and increased competitive
pressures in the Company's industry.  The Company's Current Report on Form 8-K
filed with the Securities and Exchange Commission on April 23, 1997 discusses
some of the important factors that could cause JP Foodservice, Inc.'s actual
results to differ materially from those in such forward-looking statements.

                                       3
<PAGE>
 
                                     PART I
Item 1. Business
----------------

General

          JP Foodservice, Inc. (the "Company" or "JP Foodservice") is a
broadline distributor of food and related products to restaurants and other
institutional foodservice establishments in the Mid-Atlantic, Midwestern,
Northeastern and Western regions of the United States.  The Company ranks as the
nation's fifth largest broadline foodservice distributor based on pro forma 1996
calendar year net sales, including the results of its acquisitions of
foodservice distribution businesses consummated in fiscal 1997.

          JP Foodservice markets and distributes from its 15 full-service
distribution centers over 30,000 national, private and signature brand items to
over 34,000 foodservice customers, including restaurants, hotels and casinos,
healthcare facilities, cafeterias and schools.  This diverse customer base
encompasses both independent (or "street") and multi-unit (or "chain")
businesses.  JP Foodservice's comprehensive product line provides its customers
with a single source to satisfy substantially all of their foodservice needs.

          JP Foodservice supplemented its internal expansion in fiscal 1997 with
an active program of strategic acquisitions to take advantage of growth
opportunities from ongoing consolidation in the fragmented foodservice
distribution industry.  In the first quarter, JP Foodservice extended the scope
of its distribution network into the Western region of the United States through
its acquisition of Valley Industries, Inc. ("Valley"), a broadline distributor
located in Las Vegas, Nevada.  Also in the first quarter, pursuant to JP
Foodservice's strategy to increase penetration of its existing service areas, JP
Foodservice acquired Arrow Paper and Supply Co., Inc. ("Arrow"), a broadline
distributor located in Connecticut serving the New England, New York, New Jersey
and Pennsylvania markets.  In the second quarter, JP Foodservice filled a gap in
its Midwestern distribution network by acquiring Squeri Food Service, Inc.,
a broadline distributor located in Ohio serving the Greater Cincinnati, Dayton,
Columbus, Indianapolis, Louisville and Lexington markets. In the fourth quarter,
JP Foodservice strengthened its presence in the Mid-Atlantic region through its
acquisition of Mazo-Lerch Company, Inc., a broadline distributor located in
Virginia serving the District of Columbia, Virginia, Maryland, southern New
Jersey and northern North Carolina markets.

Recent Developments

          On June 30, 1997, the Company announced that it had entered into an
agreement and plan of merger pursuant to which Rykoff-Sexton, Inc. ("Rykoff-
Sexton") will be merged with and into a wholly-owned subsidiary of JP
Foodservice and will become a wholly-owned subsidiary of JP Foodservice. In the
merger, each outstanding share of Rykoff-Sexton common stock will be converted
into the right to receive 0.84 of one share of JP Foodservice common
stock. Consummation of the merger is subject to, among other things, approval by
stockholders of each of the Company and Rykoff-Sexton and other customary
conditions. The information in this Report does not reflect the anticipated
effects of the merger on the Company's financial condition, operating results or
business. For additional information regarding the merger, see the Company's 
Current Reports on Form 8-K dated June 30, 1997 and September 3, 1997 filed with
the Securities and Exchange Commission and Note 17 to the Consolidated Financial
Statements included elsewhere in this Report.

                                       4
<PAGE>
 
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 generally are 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 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.

Products and Services

          Products
          --------

          The Company's product line encompasses a broad selection of canned and
dry food products, fresh meats, poultry, seafood, frozen foods, fresh produce,
dairy and other refrigerated products and related goods and supplies.  Many of
the Company's product offerings feature "center of the plate" or entree
selections.  The Company also distributes a wide variety of non-food products
and equipment, including paper products, disposable napkins, plates, cups and
cleaning supplies.  In most locations, the Company also offers coffee and
beverage equipment, supplies and service and, to a limited extent, tableware
(such as china and silverware), glassware and light restaurant equipment and
supplies.

          The following table sets forth the product categories of the items
sold by the Company and the percentage of the Company's net sales generated by
product category during each of the last three fiscal years.

<TABLE>
<CAPTION>
                                             Percentage of Net Sales
                                                Fiscal Year Ended
                                   --------------------------------------------
                                   July 1, 1995   June 29, 1996   June 28, 1997
                                   ------------   -------------   -------------
<S>                                <C>            <C>             <C> 
Canned and dry products....             27%             26%            28%
Meats......................             20              20             19
Other frozen foods.........             18              18             17
Poultry....................              9              10             10
Seafood....................              8               8              7
Dairy products.............              8               9              8
Perishable food products...              4               3              5
Paper products.............              4               4              4
Equipment and supplies.....              1               1              1
Janitorial supplies........              1               1              1
                                       ---             ---            ---
 Total net sales...........            100%            100%           100%
                                       ===             ===            ===
</TABLE>

                                       5
<PAGE>
 
          National Brands.  JP Foodservice supplies more than 27,000 national
brand items, which currently account for approximately 86% of the Company's net
sales.  National brand products represent a greater proportion of the Company's
product line than the product lines of the Company's principal competitors.
Management believes that national brands are attractive to chain accounts and
other customers seeking consistent product quality throughout their operations.
The Company's national brand strategy has promoted closer relationships with
many national suppliers, who provide important sales and marketing support to
the Company.

          Private Brands.  JP Foodservice offers its customers an expanding line
of products under its JP(TM), JP Power(R), and Harvest Value(R) private brands.
The Company currently offers over 1,400 private brand products, including frozen
and canned goods, fruits, vegetables and meats, through its JP Gold(TM) (highest
quality), JP Blue(TM), JP Red(TM), Chef's Variety(R) and Harvest Value(R)
private labels, and approximately 70 cleaning products under its JP Power(R)
brand. The Company has developed the multi-tier quality system to meet the
specific requirements of different market segments.

          Signature Brands.  The Company offers its customers an exclusive and
expanding line of signature products which are comparable in quality to national
brand items and priced competitively with such items.  The Company markets these
products under the names Roseli(R) (Italian-style products), Hilltop Hearth(R)
(bread and bakery products), JP Foodservice, Inc. Cattleman's Choice(TM) and JP
Foodservice, Inc. Cattleman's Selection(TM) (meats), Patuxent Farms(R)
(processed meats), el Pasado Authentic Mexican Cuisine with a Touch of the
Past(TM) (Mexican-style products), Rituals(R) (gourmet coffee), Beijing Chef(TM)
(Oriental-style products), Magnifry(TM) and Magnifries(TM) (oil and french
fries) and Harbor Banks(TM) (seafood products). The Company currently offers
more than 1,800 signature brand items.

          Private and signature brand items enable the Company to offer its
customers product alternatives to comparable national brands across a wide range
of prices.  The Company historically has sold a significantly lower proportion
of proprietary private and signature brand products than its primary
competitors, whose proprietary brand sales have accounted for 30% to over 60% of
their sales volume.  Sales of the Company's proprietary brands represented 14%
of net sales in fiscal 1997.  Although it intends to continue to emphasize sales
of national brand products, the Company plans to expand sales of its private and
signature brand product lines through national and local advertising,
representation at national food shows and at food shows sponsored by the Company
at its branches, and training of its sales force regarding the attributes of
these products.

          Services
          --------

          To strengthen its customer relationships and increase account
penetration, JP Foodservice offers the following types of value-added services:

          .  Management Support and Assistance. The Company's 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. The Company also provides in-service training of
             customer personnel.

                                       6
<PAGE>
 
          .  Specialized Market Services. The Company offers services and
             programs tailored to specialized markets. For example, through its
             integrated service program, called DirectCare Meals Menus and
             More(R), the Company provides healthcare service providers with
             special nutritional plans, customized software packages (JP
             directAdvantage(R)), a variety of marketing services and in-service
             training of institutional personnel. In order to be eligible to
             participate in this program, healthcare institutions must maintain
             a specified minimum volume of purchases from the Company.

          .  Customized Technology. The Company offers its customers a
             proprietary hand-held computer system, the JP Connection(R), which
             automates many restaurant management functions, including the
             management and re-ordering of product inventory. The system
             automatically re-orders products directly through the Company's
             mainframe computer. The Company also has recently introduced its
             proprietary software package, Tranzmit(TM), which has upgraded the
             electronic order entry system utilized by its sales personnel by
             equipping them with laptop computers which it believes enables the
             sales force to present product and menu ideas, take orders and
             prepare presentations more efficiently. Through this upgrade, the
             Company provides its customers with an enhanced personal computer-
             based order entry system.

          .  Publications. The Company promotes active customer use of its other
             products and services through the distribution of professionally
             printed publications, including its biweekly newsletter, JP
             foodNews(R). The Company's publications highlight selected
             products, including proprietary private and signature brand items,
             present menu suggestions, provide nutritional information and
             include recipes using the Company's products. Customers also may
             participate, at no cost, in the Company's recipe program, To Your
             Taste(R), in which the Company furnishes participants every two
             weeks with recipe cards that describe new menu concepts.

Customers

          The Company's customer base of over 34,000 accounts encompasses a wide
variety of foodservice establishments.  The Company's chain customers include
Old Country Buffet, Perkins Family Restaurants, Subway, Eurest Dining Services,
Ruby Tuesday and Pizzeria Uno. The Company also is a foodservice supplier to the
United States Congress, Fenway Park and other  prominent  institutions.  The
following  table sets forth the segments of the Company's customer base by type
of customer for fiscal 1997.

<TABLE>
<CAPTION>
                                                                   Percentage
Type of Customer                                                  of Net Sales
----------------                                                  ------------
<S>                                                               <C>
Restaurants......................................................      63%
Limited menu establishments......................................      12
Hotels and casinos...............................................       7
Healthcare institutions..........................................       4
Schools and colleges.............................................       3
Other............................................................      11
                                                                      ---
                                                                      100%
                                                                      ===
</TABLE>

                                       7
<PAGE>
 
          Street Customers.  The Company's street customers are independent
restaurants, hotels, schools and other foodservice businesses.  Street customers
are serviced directly by 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 57% of the Company's net
sales in fiscal 1997. The Company pursues 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 the Company'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.  The Company has developed strong working
relationships with its chain accounts, which have enabled these accounts, in
conjunction with the Company, 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 the
Company.

          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 43% of the Company's net
sales in fiscal 1997. The Company's business strategy emphasizes supporting the
growth of its existing chain accounts.  Many of the Company's current chain
customers, primarily restaurants, are experiencing more rapid sales growth than
other types of foodservice businesses.  The Company also targets new chain
customers which it believes represent attractive growth opportunities.  The
Company intends to continue to focus on those new accounts that are located
primarily within the Company's current distribution network and that can benefit
from the Company's existing product line and service capabilities.

          No single customer accounted for more than 7% of the Company's net
sales in fiscal 1997.  Consistent with industry practice, the Company has no
long-term contract with any customer that may not be canceled by either party at
its option.

Sales and Marketing

          JP Foodservice's principal marketing activities at June 28, 1997 were
conducted by approximately 760 street sales, 90 chain sales and 130 customer
service representatives.  The Company's 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, the Company's sales representatives advise customers
on menu selection, methods of preparing and serving food and other operating
issues.  The Company provides an in-house training program for its entry-level
sales and service representatives, which

                                       8
<PAGE>
 
includes seminars, on-the-job training and direct one-on-one supervision by
experienced sales personnel.

          The Company's commission program is designed to reward account
profitability and promote sales growth.  The Company systematically measures the
profitability of each account and product segment and modifies its incentive
program accordingly.

          The Company maintains sales offices at each of its 15 full-service
distribution centers and at four additional locations in Pennsylvania, Illinois,
South Dakota and Nevada.  The Company employs sales and marketing staff at both
the corporate and branch levels to solicit and manage relationships with multi-
unit chain accounts.

          The Company supplements its market presence with advertising campaigns
in national and regional trade publications, which typically focus on the
Company's services and its ability to service targeted industry segments. The
Company supports this effort with a variety of promotional services and
programs, including its biweekly newspaper, JP foodNews(R), and its recipe
program, To Your Taste(R).

Distribution

          The Company distributes its products out of its 15 full-service
distribution centers located in Massachusetts, Connecticut, Pennsylvania,
Maryland, Minnesota, Indiana, Illinois, Iowa, Nevada, Ohio, Virginia and
Delaware, and extends this geographic coverage through remote distribution
locations including, among others, facilities in Indiana, Ohio, Maryland,
Michigan, Vermont, Nevada and New Jersey.  The Company's customers generally are
located within 150 miles of one of the Company's distribution centers, although
the Company's distribution network and reciprocal arrangements with other
distributors enable the Company to serve customers outside of its principal
service areas.  Services to both street and chain customers are supported by the
same distribution facilities and equipment.

          The 15 full-service distribution centers have a total of approximately
2.1 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
administration personnel.

          Products are delivered to the Company's distribution centers by
manufacturers, common carriers and the Company's own fleet of trucks.  The
Company employs a management information system which, together with its
centralized purchasing operations, enables it to lower its inbound
transportation costs by making optimal use of its 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

                                       9
<PAGE>
 
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 to service representatives at each of the branches.
Certain large customers place orders through a direct connection to the
Company's mainframe computer by means of a computer terminal, personal computer
or touch tone telephone, or through the Company's proprietary restaurant
inventory and management system, the JP Connection(R).

          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.  The Company delivers its products through its fleet of
over 1,000 tractor-trailer and straight trucks, each of which is equipped with
separate temperature-controlled compartments. In dispatching trucks, the Company
employs a computerized routing system designed to optimize delivery efficiency
and minimize drive time, wait time and excess mileage.  The majority of the
Company's fleet utilizes on-board computer systems that monitor vehicle speeds,
fuel efficiency, idle time and other vital statistical information.  The Company
collects and analyzes such data in an effort to continually monitor and improve
transportation efficiency and reduce costs.

          In certain geographic markets, the Company utilizes its remote
redistribution facilities to achieve a higher level of customer service.
Products are transported in large tractor-trailers or double trailers to the
redistribution facility, where the loads are then transferred to smaller
equipment for delivery in the normal fashion.

Suppliers

          At June 28, 1997, JP Foodservice employed approximately 30 purchasing
agents with expertise in specific product lines to purchase products for the
Company from approximately 2,400 suppliers located throughout the United States
and overseas.  Substantially all types of products distributed by the Company
are available from a variety of suppliers, and the Company is not dependent on
any single source of supply.

          The management of all purchasing operations from the Company's
corporate headquarters in Columbia, Maryland results in lower costs through
increased purchasing leverage with suppliers and greater ordering efficiency.
To maximize the benefits of its centralized purchasing function, the Company
attempts to concentrate purchases with selected suppliers. Through this
strategy, the Company is able to buy high-quality products on advantageous
terms. The Company cooperates closely with these suppliers to promote new and
existing products. The suppliers assist in training the Company's sales force
and customers regarding new products, new trends in the industry and new menu
ideas, and collaborate with the Company in advertising and promoting these
products both through printed advertisements and through annual branch-sponsored
food shows and national trade shows.

                                       10
<PAGE>
 
          Through its centralized purchasing department, the Company is able to
monitor the quality of the products offered by various suppliers and ensure
consistency of product quality across its distribution network.  The
concentration of purchasing power at the corporate level often provides the
Company's buyers with early access to new product concepts which, if attractive,
can be quickly introduced to the Company's customers.

          The Company maintains a comprehensive quality control and assurance
program that at June 28, 1997 actively involved approximately 90 employees in
daily quality control activities. The program is managed by members of the
central purchasing department, including product group managers who each manage
specific segments of the product line and product line managers who purchase
products for the 15 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 the Company's corporate
offices and branch locations and through visits to growing fields, manufacturing
facilities and storage operations.

          The Company requires all of its suppliers and manufacturers to
maintain specified levels of product liability insurance and to name the Company
as an additional insured on the applicable insurance policies.

Proprietary Information Systems

          Except for the branches acquired in fiscal 1997, the ordering,
shipment, storage and delivery of the Company's products are managed through a
centralized information system that allows all of the Company's distribution
facilities and its corporate headquarters to obtain information on a "real-time"
basis regarding the Company's inventory, product availability, customers, sales,
financial reports, truck routing and other significant operating areas.  The
Company's facilities utilize common information systems that permit them to
access and consolidate invoices, inventory data, customer records and financial
information, thereby ensuring consistency of product, sales and financial
information.  In coordination with its integrated information systems, the
Company employs, at both the corporate and branch levels, a proprietary
strategic information system that allows it to analyze systematically the
profitability of customer accounts, sales territories and product groups.

          However, without additional upgrades, the Company's existing system
will be unable to perform its functions beyond the year 2000.  Therefore,
beginning in fiscal 1997, the Company began the development of an enhanced
distributed processing computer system to replace its existing, mainframe-based,
system.  The system will work on a real-time, on-line mode and is written in a
fourth generation programming language which will facilitate future
enhancements. The Company contemplates putting all of its operations on this new
system before the year 2000.

Competition

          The foodservice distribution industry is extremely fragmented, with
over 3,000 companies in operation in 1997.  In recent years, the foodservice
distribution industry has been characterized by significant consolidation and
the emergence of larger competitors.  The Company competes in each of its
markets with at least one other large national distribution

                                       11
<PAGE>
 
company, generally SYSCO Corp. or Alliant Foodservice, Inc., as well as with
numerous regional and local distributors.

          JP 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.  The Company
attributes its ability to compete effectively against smaller regional and local
distributors in part to its wider product selection, the cost advantages
resulting from its size and centralized purchasing operations and its ability to
offer broad and consistent market coverage.  The Company competes effectively
against other broadline distributors primarily by providing its customers with
accurate and timely fulfillment of orders and an array of value-added services.

          The Company typically competes against other foodservice distribution
companies for potential acquisitions.  The Company believes that its financial
resources and its ability to offer owners of acquisition targets an interest in
the combined business through ownership of the Company's common stock provides
the Company with an advantage over many of its competitors.

Regulation

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

          The Company'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.  The Company
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 the Company.  Certain of the Company's distribution facilities
have underground and above-ground 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 the Company.

          Certain hazardous substances have been released on the site of the
Company's Boston branch. The Massachusetts Department of Environmental
Protection has advised the Company that such agency has entered into an
administrative consent decree with three parties responsible under Massachusetts
law to clean up hazardous substances in areas contiguous to the site.  The
agency also advised the Company in 1990 that, as the current owner of the site,
the Company also may be deemed to be a responsible party under Massachusetts law
for hazardous substances on the site.  The Company has not been the subject of
any action or proceeding seeking to require

                                       12
<PAGE>
 
it to remove hazardous substances from the site or to make payment in respect of
the cleanup of the site or related costs.  In June 1996, the Massachusetts
Department of Environmental Protection advised the Company that, based on the
information currently available to it, the agency is not requiring the Company
to remove hazardous substances from the site.  The Company has been indemnified
against any losses it may incur in connection with hazardous substances on the
site, and does not believe resolution of this matter will have a material
adverse effect on its financial condition or operating results.

Intellectual Property

          The Company has proprietary rights to a number of trademarks used in
its business, including trademarks used in connection with the marketing of its
private and signature brand products, its proprietary restaurant inventory and
management system and a variety of customized service programs.  A number of
these trademarks are registered with the U.S. Patent and Trademark Office, each
for an initial period of ten or twenty years, which is renewable for additional
ten year periods for as long as the Company continues to use the trademarks.
The Company considers its trademarks to be of material importance to its
business plans.

Equipment and Machinery

          Equipment and machinery owned by the Company and used in its
operations consist principally of electronic data processing equipment and
product handling equipment.  The Company also operates a fleet of over 1,000
vehicles, consisting of tractors, trailers and straight trucks, which are used
for long hauls and local deliveries.  At June 28, 1997, the Company owned
approximately 40% of these vehicles and leased the remainder.  See Note 11 to
the Consolidated Financial Statements included elsewhere in this Report.

          The Company outsources its data center operations pursuant to a five-
year contract which expires on December 31, 1997 and which may be extended by
the Company.  As the Company's business needs warrant, it can either increase or
decrease the amount of computer capacity it purchases upon short notice to the
vendor.  Management believes that this arrangement provides the Company with
more reliable and flexible service at a lower cost than the Company could
achieve by operating its own data center.

          The Company regularly evaluates the capacity of its various facilities
and equipment and makes capital investments to expand capacity where necessary.
In fiscal 1997, the Company spent $33 million on capital expenditures, primarily
for new trucks and trailers, investment in laptop computers for the sales force
and expansion of its distribution centers in Allentown, Pennsylvania, Fort
Wayne, Indiana and Las Vegas, Nevada.  The Company will undertake expansion or
replacement of its facilities as and when needed to accommodate the Company's
growth.  Facility expansion costs are expected to total approximately $9 million
in fiscal 1998.

Executive Officers of the Company Who Are Not Directors

          George T. Megas, age 44, joined the Company in 1991 as Vice President-
Finance, with responsibility for the accounting, treasury and finance functions.
Mr. Megas, a Certified Public Accountant, previously served as the Corporate
Controller for Strategic Planning Associates, Inc., a management consulting
firm, from 1979 to 1990, when it was acquired by Mercer

                                       13
<PAGE>
 
Management Consulting, and served as a Controller for certain regions of Mercer
Management Consulting until 1991.

Employees

          At the end of fiscal 1997, the Company had approximately 3,700 full-
time employees, of whom approximately 150 were employed in corporate management
and administration and approximately 2,300 of whom were hourly employees.
Approximately 920 of the Company's employees were covered by collective
bargaining contracts with 11 different local unions which are associated with
the International Brotherhood of Teamsters.  Collective bargaining contracts,
covering approximately 350 employees, will expire during fiscal 1998.  Other
than a temporary action involving Squeri in the spring of 1993, the Company has
not experienced any labor disputes or work stoppages. The Company believes that
its relationships with its employees are satisfactory.

Item 2.  Properties
-------------------

          The Company occupies its corporate headquarters in Columbia, Maryland,
which consists of 30,800 square feet of office space, pursuant to a lease which
expires on December 31, 2003.

          The Company's 15 full-service distribution centers contain a total of
approximately 2.1 million square feet of warehouse space.  The centers contain
dry, refrigerated and frozen storage areas and office space for the sales and
administrative operations of the branch.  The following chart provides
information on the approximate size and ownership of each of the Company's
distribution centers.

<TABLE>
<CAPTION>
          
      Location                Area in Square Feet             Owned/Leased
      --------                -------------------             ------------ 
      <S>                     <C>                           <C>
      Las Vegas, Nevada.........    258,000                 Owned and Leased
      Norwich, Connecticut......    200,000                       Owned
      Baltimore, Maryland.......    187,000                       Owned
      Altoona, Pennsylvania.....    164,000                       Owned
      Minneapolis, Minnesota....    160,000                       Owned
      Allentown, Pennsylvania...    155,000                       Owned
      Boston, Massachusetts.....    149,000                       Owned
      Streator, Illinois........    146,000                       Owned
      Hartford Connecticut......    141,000                       Owned
      Des Moines, Iowa..........    131,000                       Owned
      Fort Wayne, Indiana.......    131,000                       Owned
      Alexandria, Virginia......    112,000                       Owned
      Cincinnati, Ohio..........     87,000                       Owned
      Sandston, Virginia........     59,000                      Leased
      Seaford, Delaware.........     45,000                      Leased
                                  ---------
              Total.............  2,125,000
                                  =========
</TABLE>

                                       14
<PAGE>
 
Item 3.  Legal Proceedings
--------------------------

          From time to time, the Company is involved in litigation and
proceedings arising out of the ordinary course of its business.  There are no
pending material legal proceedings to which the Company is a party or to which
the property of the Company is subject.

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

          There were no matters submitted to the Company's security holders in
the fourth quarter of fiscal 1997.

                                    PART II

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

          The common stock of JP Foodservice (the "Common Stock") has been
listed on the New York Stock Exchange ("NYSE") under the symbol "JPF" since
December 31, 1996.  Prior to December 31, 1996, the Common Stock was quoted on
the Nasdaq National Market under the symbol "JPFS."  The table below sets forth,
for the periods indicated, the reported high and low bid prices of the Common
Stock on the Nasdaq National Market prior to December 31, 1996 and, beginning on
December 31, 1996, the reported high and low sales prices on the NYSE Composite
Tape.

<TABLE>
<CAPTION>
 
Fiscal Year Ended June 29, 1996
  <S>                                                      <C>        <C>
  First Quarter..........................................  $18.00     $12.75
  Second Quarter.........................................   19.75      15.25
  Third Quarter..........................................   22.75      18.00
  Fourth Quarter.........................................   25.00      18.00

Fiscal Year Ended June 28, 1997
  First Quarter..........................................  $26.00     $20.50
  Second Quarter.........................................   28.75      20.38
  Third Quarter..........................................   29.25      25.75
  Fourth Quarter.........................................   30.19      26.00

Fiscal Year Ending June 27, 1998
  First Quarter (through September 15, 1997).............  $32.44     $28.25
</TABLE>

          As of September 15, 1997, there were 292 holders of record and
approximately 7,600 beneficial holders of the Common Stock.  On September 15,
1997, the reported closing sale price of the Common Stock on the NYSE Composite
Tape was $29.88 per share.

                                       15
<PAGE>
 
          The Company has never declared or paid cash dividends on its Common
Stock and does not anticipate doing so in the foreseeable future.  The current
policy of the Company's Board of Directors is to retain all earnings to support
operations and to finance the expansion of the Company's business.

          The terms of the Company's revolving credit facility (the "Bank
Facility") and the Company's outstanding senior notes restrict the Company's
ability to pay cash dividends on the Common Stock.  Pursuant to such terms, the
amount of dividends payable to JP Foodservice, Inc. by JP Foodservice
Distributors, Inc. ("JP"), the Company's principal operating subsidiary, and
certain of JP's subsidiaries, together with the aggregate amount of restricted
investments by such entities, may not exceed the sum of (i) 50% of the
cumulative consolidated net income of JP and such subsidiaries after November
22, 1994, plus (ii) the net cash proceeds to JP from the issuance or sale on or
after November 22, 1994 of capital stock of JP or from contributions to the
common equity capital of JP, plus (iii) any net return of capital from
investments in or advances to certain subsidiaries or restricted investments,
plus (iv) $1.0 million.

                                       16
<PAGE>
 
Item 6.  Selected Financial Data
--------------------------------



               (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
 
                                                                                       Fiscal Year Ended
                                                              ------------------------------------------------------------------
                                                                July 3,      July 2,      July 1,      June 29,     June 28,
Statement of Operations Data:                                  1993 /(1)/     1994         1995          1996         1997
                                                               ----           ----         ----          ----         ----
<S>                                                            <C>          <C>          <C>          <C>           <C> 
Net sales...................................................   $1,152,709   $1,178,826   $1,288,315   $1,449,303    $1,691,913
Cost of sales...............................................      953,701      979,108    1,069,494    1,198,797     1,396,223
                                                                ---------    ---------    ---------    ---------     ---------
Gross profit................................................      199,008      199,718      218,821      250,506       295,690
Operating expenses..........................................      166,976      163,917      177,490      202,953       232,435
Amortization of intangible assets...........................        2,266        2,265        2,263        2,338         2,918
Stock compensation charge...................................           --           --          709           --            --
                                                                ---------    ---------    ---------    ---------     ---------
Income from operations......................................       29,766       33,536       38,359       45,215        60,337
Interest expense and other financing charge costs, net/(2)/.       38,577       32,255       22,074       15,187        16,522
Nonrecurring charges........................................           --           --           --        1,517         5,400/(3)/
                                                                ---------    ---------    ---------    ---------     ---------
Income (loss) before income taxes and extraordinary charge..       (8,811)       1,281       16,285       28,511        38,415
Recovery of (provision for) income taxes....................        2,191       (1,579)      (7,358)     (11,598)      (16,167)
                                                                ---------    ---------    ---------    ---------     ---------
Income (loss) before extraordinary charge...................       (6,620)        (298)       8,927       16,913        22,248
Extraordinary charge........................................           --           --        4,590           --            --
                                                                ---------    ---------    ---------    ---------     ---------
Net income (loss)...........................................       (6,620)        (298)       4,337       16,913        22,248
Preference dividends........................................       (2,427)        (504)         (40)          --            --
                                                                ---------    ---------    ---------    ---------     ---------
Net income (loss) applicable to common stockholders.........    $  (9,047)   $    (802)   $   4,297    $  16,913     $  22,248
                                                                =========    =========    =========    =========     =========
                                                                                                                  
Per Share Data:                                                                                                   
Net income (loss) per common share:                                                                               
     Before extraordinary charge............................    $   (1.95)   $   (0.17)   $    0.68    $    0.90     $    1.02
     Extraordinary charge...................................           --           --         0.35           --            --
                                                                ---------    ---------    ---------    ---------     ---------
Net income (loss) per common share..........................    $   (1.95)   $   (0.17)   $    0.33    $    0.90     $    1.02
                                                                =========    =========    =========    =========     =========
Weighted average number of shares of common stock                                                                 
     outstanding............................................    4,633,371    4,633,371   13,103,798   18,808,738    21,862,254
                                                                                                                  
Balance Sheet Data:                                                                                               
Working capital.............................................     $109,537    $  94,038   $  109,326   $  120,866    $  153,424
Total assets................................................      376,768      386,726      415,212      448,279       524,148
Long-term debt, excluding current maturities................      326,205      279,152      160,166      168,647       168,515
Mandatorily redeemable stock................................           --           --        2,388           --            --
Stockholders' equity (deficit)..............................      (62,086)     (24,255)     110,105      128,149       228,946
</TABLE>

------------------
(1)  53-week fiscal year.

(2)  Includes discount on sales of trade accounts receivable and amortization of
     loan acquisition costs.

(3)  Reflects transaction-related fees required to complete the Company's
     acquisitions of Valley and Squeri, which were accounted for as poolings of
     interests.

                                      17
<PAGE>
 
Item 7.   Management's Discussion and Analysis of
-------------------------------------------------
          Financial Condition and Results of Operations
          ---------------------------------------------


General
          Overview.  In recent years, the Company's net sales have increased
predominantly as a result of internal expansion through continued growth in
street account and chain account sales. The Company has increased its street
account sales through growth of its street sales force, improved sales
productivity and the implementation of new street sales promotion programs. The
Company's chain account sales have increased as a result of the continued growth
in sales to existing accounts and the development of relationships with new
accounts.  The Company's gross profit margin has improved in part as a result of
an increase in sales of private and signature brand products as a percentage of
the Company's net sales.

          Acquisitions. JP Foodservice supplemented its internal expansion in
fiscal 1997 with an active program of strategic acquisitions to take advantage
of growth opportunities from ongoing consolidation in the fragmented foodservice
distribution industry. In the first quarter, JP Foodservice extended the scope
of its distribution network into the Western region of the United States through
its acquisition of Valley Industries, Inc. ("Valley"), a broadline distributor
located in Las Vegas, Nevada. Also in the first quarter, pursuant to JP
Foodservice's strategy to increase penetration of its existing service areas, JP
Foodservice acquired Arrow Paper and Supply Co., Inc. ("Arrow"), a broadline
distributor located in Connecticut serving the New England, New York, New Jersey
and Pennsylvania markets. In the second quarter, JP Foodservice filled a gap in
its Midwestern distribution network by acquiring Squeri Food Service, Inc.
("Squeri"), a broadline distributor located in Ohio serving the greater
Cincinnati, Dayton, Columbus, Indianapolis, Louisville and Lexington markets. In
the fourth quarter, JP Foodservice strengthened its presence in the Mid-Atlantic
region through its acquisition of Mazo-Lerch Company, Inc. ("Mazo-Lerch"), a
broadline distributor located in Virginia serving the District of Columbia,
Virginia, Maryland, southern New Jersey and northern North Carolina markets.

          The Valley and Squeri acquisitions were accounted for under the
pooling of interests method of accounting, and accordingly, the operating
results for all years presented have been restated to incorporate the results of
Valley and Squeri. The Arrow and Mazo-Lerch acquisitions were accounted for
under the purchase method of accounting, and accordingly, the operating results
of Arrow and Mazo-Lerch are included only from the date of acquisition. The
acquisition of Mazo-Lerch was completed in the fourth quarter of fiscal 1997
and, therefore, did not materially affect fiscal 1997 results.

          On June 30, 1997, the Company announced that it had entered into an
agreement and plan of merger pursuant to which Rykoff-Sexton, Inc. will be
merged with and into a wholly-owned subsidiary of JP Foodservice and will become
a wholly-owned subsidiary of JP Foodservice. See "Business--Recent
Developments." Rykoff-Sexton is the nation's third largest broadline foodservice
distributor based on 1996 calendar year net sales. Following completion of the
merger, which is expected to occur in the second quarter of fiscal 1998, JP
Foodservice will have a nationwide distribution network capable of serving an
area covering more than 85% of the country's population.


                                      18
<PAGE>
 
          Fiscal Year. The Company's fiscal year ends on the Saturday closest to
June 30. Consequently, the Company occasionally will have a 53-week fiscal year.
Fiscal 1997, 1996 and 1995 each consisted of 52 weeks.

Results of Operations
          The following table sets forth, for the last three fiscal years,
certain income and expense items expressed as a percentage of net sales.

<TABLE>
<CAPTION>

                                                  Fiscal Year Ended
                                            ----------------------------
                                            July 1,   June 29,   June 28,
                                             1995       1996       1997
                                            ------     ------     ------
<S>                                         <C>       <C>        <C>
Statement of Operations Data:
Net sales................................   100.00%    100.00%    100.00%
Cost of sales............................    83.01      82.72      82.52
                                            ------     ------     ------
Gross profit.............................    16.99      17.28      17.48
Operating expenses.......................    13.78      14.00      13.74
Amortization of intangible assets........     0.18       0.16       0.17
Stock compensation charge................     0.06         --         --
                                            ------     ------     ------
Income from operations...................     2.97       3.12       3.57
Interest expense and other
   financing costs, net..................     1.71       1.05       0.98
Nonrecurring charges.....................       --       0.10       0.32
                                            ------     ------     ------
Income before income taxes and
   extraordinary charge..................     1.26       1.97       2.27
Provision for income taxes...............     0.57       0.80       0.96
                                            ------     ------     ------
Income before extraordinary charge.......     0.69       1.17       1.31
Extraordinary charge on early
   extinguishment of debt................    (0.35)        --         --
                                            ------     ------     ------
Net income...............................     0.34%      1.17%      1.31%
                                            ======     ======     ======
</TABLE>

          The principal components of expenses include costs of sales, which
represents the amount paid to manufacturers and growers for products sold, and
operating expenses, which include selling (primarily labor-related) 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 the Company's net sales, such as those
resulting from adverse weather, can have a significant short-term impact on
operating income.

          The Company sells a significant proportion 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.  The Company's operating results were
positively affected by estimated food price inflation of less than 1.0%, 0.5%
and 0.5% in fiscal 1997, 1996 and 1995, respectively.

          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

                                      19
<PAGE>
 
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 are generally higher for private label products than for
national brand products of comparable quality. However, the Company incurs
additional advertising and other marketing costs in promoting its private label
products.

          Fiscal 1997 Compared to Fiscal 1996
          -----------------------------------

          Net Sales. Net sales increased 16.7% to $1.692 billion in fiscal 1997
from $1.449 billion in fiscal 1996. The Arrow acquisition accounted for net
sales growth of 5.8%. Higher chain account and street sales both contributed to
the Company's sales growth in fiscal 1997. An increase of 17.2% in chain account
sales reflected the continued growth in sales to the Company's larger customers.
As a percentage of net sales, chain account sales increased to 42.6% in fiscal
1997 from 42.4% in fiscal 1996. Street sales increased 16.4% over fiscal 1996
primarily as a result of the growth of the sales force and continued
improvements in sales force productivity. Fiscal 1996 net sales were adversely
affected by severe winter weather conditions in a majority of the Company's
markets.

          Gross Profit. Gross profit margin increased to 17.5% in fiscal 1997
from 17.3% in fiscal 1996. The increase was primarily attributable to increased
sales of the Company's private and signature brand products, which increased to
20.0% of street sales at the end of fiscal 1997 from 16.3% at the end of fiscal
1996. The Company also realized purchasing synergies through the consolidation
of purchasing programs with the acquired entities.

          Operating Expenses. Operating expenses increased 14.5% to $232.4
million in fiscal 1997 from $203.0 million in fiscal 1996 primarily as a result
of the increase in net sales. As a percentage of net sales, operating expenses
decreased to 13.7% in fiscal 1997 from 14.0% in fiscal 1996. The decrease in
operating expenses, as a percentage of net sales, resulted from distribution
cost savings related to higher percentage of sales to chain accounts, increased
penetration of street accounts, savings resulting from revised management
compensation agreements relating to certain of the acquired businesses, and the
absence of costs corresponding to those associated with the severe winter
weather conditions experienced in a majority of the Company's markets in fiscal
1996.

          Income from Operations. Income from operations increased 33.4% to
$60.3 million in fiscal 1997 from $45.2 million in fiscal 1996 primarily as a
result of the fiscal 1997 increase in net sales, the increase in gross profit
margin and the decrease in operating expenses as a percentage of sales.
Operating margin increased to 3.6% in fiscal 1997 from 3.1% in fiscal 1996.

          Interest Expense and Other Financing Costs. Interest expense and other
financing costs increased 8.8% to $16.5 million in fiscal 1997 from $15.2
million in fiscal 1996. The increase was primarily attributable to increased
borrowings incurred in connection with the acquisitions consummated in fiscal
1997.

                                      20
<PAGE>
 
          Nonrecurring Charge. In fiscal 1997, the Company recorded nonrecurring
charges of $5.4 million principally related to transaction fees required to
complete the Company's acquisitions of Valley and Squeri, which were accounted
for as poolings of interests.

          Income Taxes. The provision for income taxes for fiscal 1997 increased
$4.6 million over the provision for fiscal 1996. The increase in the provision
was attributable to the Company's greater pretax profit level in fiscal 1997.
The Company's effective tax rate of 42.1% for fiscal 1997 increased from the
effective rate of 40.7% for fiscal 1996 primarily because of the non-deductible
portion of the nonrecurring charges related to the acquisitions consummated in
fiscal 1997.

          Fiscal 1996 Compared to Fiscal 1995
          -----------------------------------

          Net Sales. Net sales increased 12.5% to $1.449 billion in fiscal 1996
from $1.288 billion in fiscal 1995. Higher chain account and street sales both
contributed to the Company's sales growth in fiscal 1996. Sales generated by
foodservice businesses acquired by the Company in the last quarter of fiscal
1995 and the second quarter of fiscal 1996 accounted for 2.0% of this increase.
An increase of 15.9% in chain account sales reflected the continued growth in
sales to the Company's larger customers and, to a lesser extent, the development
of new chain account relationships, including the new prime supplier
relationship announced with Pizzeria Uno, which commenced in January 1996. As a
percentage of net sales, chain account sales increased to 42.4% in fiscal 1996
from 41.3% in fiscal 1995. Street sales increased 10.1% over fiscal 1995
primarily as a result of improved sales force productivity and the
implementation of new street sales promotion programs. Fiscal 1996 net sales
were adversely affected by severe winter weather conditions in a majority of the
Company's markets.

          Gross Profit. Gross profit margin increased to 17.3% in fiscal 1996
from 17.0% in fiscal 1995. The increase was primarily attributable to increased
sales of the Company's private and signature brand products, which increased to
16.3% of street sales at the end of fiscal 1996 from 12.3% at the end of fiscal
1995. The increase in sales of private and signature brand products more than
offset the effects of the shift in customer mix to a higher percentage of sales
to chain accounts.

          Operating Expenses. Operating expenses increased 14.3% to $203.0
million in fiscal 1996 from $177.5 million in fiscal 1995 primarily as a result
of the increases in net sales. As a percentage of net sales, operating expenses
increased to 14.0% in fiscal 1996 from 13.8% in fiscal 1995. The increase in
operating expenses, as a percentage of net sales, resulted primarily from
increased costs incurred in connection with the promotion of private and
signature brand products and costs associated with the adverse winter weather
conditions in a majority of the Company's markets in the third quarter of fiscal
1996.

                                      21
<PAGE>
 
          Income from Operations. As a result of the increase in net sales and
gross profit margin and the absence of any charge corresponding to the one-time
stock compensation charge of $0.7 million recorded in fiscal 1995, income from
operations increased 17.9% to $45.2 million in fiscal 1996 from $38.4 million in
fiscal 1995. Operating margin increased to 3.1% in fiscal 1996 from 3.0% in
fiscal 1995.

          Interest Expense and Other Financing Costs. Interest expense and other
financing costs decreased 31.2% to $15.2 million in fiscal 1996 from $22.1
million in fiscal 1995. The decrease was primarily attributable to the repayment
or refinancing of substantially all of the Company's indebtedness in connection
with a recapitalization consummated in the second quarter of fiscal 1995 which
included the Company's initial public offering of Common Stock.

          Nonrecurring Charge. On February 19, 1996, the Company terminated
discussions with Sara Lee Corporation regarding a proposed combination of the
Company and Sara Lee Corporation's wholly-owned subsidiary, PYA Monarch, Inc. As
a result of the termination of these discussions, which began with a proposal
submitted by Sara Lee Corporation in November 1995, the Company wrote off the
costs incurred related to the proposed transaction (primarily special committee,
legal and advisory fees) of approximately $1.5 million.

          Income Taxes. The provision for income tax for fiscal 1996 increased
$4.2 million over the provision for fiscal 1995. The increase in the provision
was attributable to the Company's greater pretax profit level in fiscal 1996.
The Company's effective tax rate (before extraordinary charge) of 40.7% for
fiscal 1996 decreased from the effective rate of 45.2% for fiscal 1995 primarily
because of the effect on fiscal 1995 taxable income of the non-deductible stock
compensation charge of $0.7 million.

Liquidity and Capital Resources

          The Company historically has financed its operations and growth
primarily with cash flow from operations, equity offerings, borrowings under its
credit facilities, operating and capital leases and normal trade credit terms.
The Company finances its investment in inventory principally with trade accounts
payable.

          The Company's cash flow from operations was $25.8 million, $10.5
million and $13.5 million in fiscal 1997, fiscal 1996 and fiscal 1995,
respectively.

          The Company's working capital requirement generally averages between
9% and 10% of annual sales. The Company's working capital balance at June 28,
1997 was $153.4 million.

          In the fourth quarter of fiscal 1997, the Company amended its bank
revolving credit loan agreement to increase maximum permissible borrowings
thereunder from $110 million to $175 million.

          As of June 28, 1997, the Company's long-term indebtedness, including
current portion, was $177.9 million, with an overall weighted average interest
rate of 7.3% (excluding deferred financing costs and costs of interest rate
swaps and interest cap arrangements). As of the same

                                      22
<PAGE>
 
date, $63.7 million of borrowings and $11.7 million of letters of credit were
outstanding under the Company's bank revolving credit loan agreement and an
additional $99.6 million remained available to finance the Company's working
capital requirements.

          The Company made capital expenditures of $33 million in fiscal 1997
and $20 million in fiscal 1996, primarily for new trucks and trailers,
investment in laptop computers for the sales force and the expansion of the
Company's distribution centers in Streator, Illinois; Boston, Massachusetts;
Allentown, Pennsylvania; Fort Wayne, Indiana and Las Vegas, Nevada. The
expenditures for new trucks and trailers were primarily funded from capital
leases. The Company currently expects to make capital expenditures of
approximately $31 million in fiscal 1998, including approximately $9 million to
upgrade and expand its existing facilities.

          The Company believes that the combination of cash flow generated by
its operations, additional capital leasing activity and borrowings under the
bank revolving credit loan agreement will be sufficient to enable it to finance
its growth and meet its projected capital expenditures and other short-term and
long-term liquidity requirements. Management may determine that it is necessary
or desirable to obtain financing for acquisitions through additional bank
borrowings or the issuance of new debt or equity securities.

Quarterly Results and Seasonability

          Historically, the Company's operating results have reflected seasonal
variations. The Company experiences lower net sales and income from operations
during its third quarter, which includes the winter months. The following table
sets forth certain summary information with respect to the Company's operations
for the most recent eight fiscal quarters.

<TABLE>
<CAPTION>
                                                                     (Dollars in thousands)

                                      Fiscal Year Ended June 29, 1996                      Fiscal Year Ended June 28, 1997
                             ------------------------------------------------------------------------------------------------------
                                 1st          2nd          3rd          4th          1st          2nd          3rd          4th
                               Quarter      Quarter      Quarter      Quarter      Quarter      Quarter      Quarter      Quarter
                             ------------------------------------------------------------------------------------------------------
<S>                            <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>
Net sales                      $356,323     $353,525     $349,717     $389,738     $414,362     $422,602     $407,665     $447,284
Gross profit                     60,762       60,625       60,865       68,254       70,731       73,843       70,978       80,138
Income from operations           10,008       10,456        9,225       15,526       12,467       13,938       12,522       21,410
Operating margin                    2.8%         3.0%         2.6%         4.0%         3.0%         3.3%         3.1%         4.8%
Net income                        3,687        3,856        2,201        7,169        2,054        4,714        5,081       10,399
Net income per common
 share                         $   0.20     $   0.21     $   0.12     $   0.38     $   0.10     $   0.21     $   0.23     $   0.47
</TABLE>

Item 7A. Quantitative and Qualitative Disclosure About Market Risk
------------------------------------------------------------------ 

        Not required for fiscal 1997 because the Company's market capitalization
was less than $2.5 billion as of January 28, 1997.

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-1 through F-23.


                                      23
<PAGE>
 
Item 9.  Changes in and Disagreements With Accountants on Accounting and
------------------------------------------------------------------------
         Financial Disclosure
         --------------------
 
Not applicable.

                                   PART III

Item 10.  Directors and Executive Officers of the Registrant
------------------------------------------------------------

        Information responsive to this Item is incorporated herein by reference
to the Company's definitive Proxy Statement for the 1997 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission on or
before October 26, 1997.

Item 11.  Executive Compensation
--------------------------------

        Information responsive to this Item is incorporated herein by reference
to the Company's definitive Proxy Statement for the 1997 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission on or
before October 26, 1997.

Item 12.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

        Information responsive to this Item is incorporated herein by reference
to the Company's definitive Proxy Statement for the 1997 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission on or
before October 26, 1997.

Item 13.  Certain Relationships and Related Transactions
--------------------------------------------------------

        Information responsive to this Item is incorporated herein by reference
to the Company's definitive Proxy Statement for the 1997 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission on or
before October 26, 1997.


                                      24
<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-1
through F-23 of this Report and are incorporated by reference in Part II, Item
8:

     Report of Independent Accountants

     Consolidated Balance Sheets of the Company as of June 29, 1996 and June 28,
1997.

     Consolidated Statements of Operations of the Company for the fiscal years
ended July 1, 1995, June 29, 1996 and June 28, 1997.

     Consolidated Statements of Stockholders' Equity of the Company for the
fiscal years ended July 1, 1995, June 29, 1996 and June 28, 1997.

     Consolidated Statements of Cash Flows of the Company for the fiscal years
ended July 1, 1995, June 29, 1996 and June 28, 1997.

     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 Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.

     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.
       333-14039) and incorporated herein by reference.

  3.2  Amended and Restated By-Laws of the Company.  Filed herewith.

                                       25
<PAGE>
 
  10.1   Employment Agreement dated as of July 3, 1989, as amended, by and
         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   Employment Agreement dated as of August 9, 1991, by and between the
         Company and Lewis Hay, III. Filed as Exhibit 10.2 to the Company's
         Registration Statement on Form S-1 (No. 33-82724) and incorporated
         herein by reference.

  10.3   Second Amendment, dated as of June 27, 1995, to Employment Agreement,
         dated as of July 3, 1989, as amended, by and 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.

  10.4   First Amendment, dated as of June 27, 1995, to Employment Agreement,
         dated as of August 9, 1991, as amended, by and between the Company and
         Lewis Hay, III. 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.

  10.5   Severance Agreement, dated as of September 27, 1995, by and 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.

  10.6   Severance Agreement, dated as of September 27, 1995, by and between the
         Company and George T. Megas. Filed as Exhibit 10.4 to the Company's
         Quarterly Report on Form 10-Q for the quarterly period ended December
         30, 1995 and incorporated herein by reference.

  10.7   Employment Agreement, dated as of January 4, 1996, between the Company
         and James L. Miller. Filed as Exhibit 10.21 to the Company's Quarterly
         Report on Form 10-Q for the quarterly period ended March 30, 1996 and
         incorporated herein by reference.

  10.8   Employment Agreement, dated as of January 4, 1996, between the Company
         and Lewis Hay, III. Filed as Exhibit 10.2 to the Company's Quarterly
         Report on Form 10-Q for the quarterly period ended March 30, 1996 and
         incorporated herein by reference.

                                       26
<PAGE>
 
  10.9   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.

  10.10  Employment Agreement, dated as of January 4, 1996, between the
         Company and George T. Megas.  Filed as Exhibit 10.4 to the Company's
         Quarterly Report on Form 10-Q for the quarterly period ended March
         30, 1996 and incorporated herein by reference.

  10.11  Employment Agreement, dated as of June 10, 1996, between the Company
         and David M. Abramson.  Filed as Exhibit 10.29 to the Company's
         Registration Statement on Form S-3 (No. 333-07321) and incorporated
         herein by reference.

  10.12  JP Foodservice, Inc. 1994 Stock Incentive Plan.  Filed as Exhibit
         10.3 to the Company's Registration Statement on Form S-1 (No.
         33-82724) and incorporated herein by reference.

  10.13  JP Foodservice, Inc. Stock Option Plan for Outside Directors, as
         amended. Filed as Exhibit 10 to the Company's Quarterly Report on
         Form 10-Q for the fiscal quarter ended December 28, 1996 and
         incorporated herein by reference.

  10.14  JP Foodservice, Inc. 401(k) Retirement Plan, as amended.  Filed
         herewith.

  10.15  JP Foodservice, Inc. 1994 Employee Stock Purchase Plan.  Filed as
         Exhibit 10.6 to the Company's Registration Statement on Form S-1 (No.
         33-82724) and incorporated herein by reference.

  10.16  Form of Stock Option Agreement used generally in connection with the
         JP Foodservice, Inc. 1994 Stock Incentive Plan.  Filed as Exhibit
         10.13 to the Company's Annual Report on Form 10-K for the fiscal year
         ended July 1, 1995 and incorporated herein by reference.

  10.17  Form of Stock Option Agreement used generally in connection with the
         JP Foodservice, Inc. Stock Option Plan for Outside Directors.  Filed
         as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the
         fiscal year ended July 1, 1995 and incorporated herein by reference.

  10.18  Lease dated October 29, 1993 between JP Foodservice Distributors,
         Inc. and CMANE -- Patuxent Woods II Limited Partnership relating to
         the lease of the Company's corporate headquarters.  Filed as Exhibit
         10.7 to the Company's Registration Statement on Form S-1 (No.
         33-82724) and incorporated herein by reference.

                                       27
<PAGE>
 
  10.19  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.

  10.20  Note Purchase Agreement, dated as of November 10, 1994, relating to
         the 8.55% Senior Notes due 2004 of JP Foodservice Distributors, Inc.
         Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
         for the quarterly period ended October 1, 1994 and incorporated
         herein by reference.

  10.21  Amendment No. 2, dated as of May 29, 1996, to Note Purchase Agreement,
         dated as of November 10, 1994, relating to the 8.55% Senior Notes due
         2004 of JP Foodservice Distributors, Inc. Filed as Exhibit 10.20 to the
         Company's Registration Statement on Form S-3 (No. 333-07321) and
         incorporated herein by reference.

  10.22  Amended and Restated Credit Agreement, dated as of June 9, 1997, among
         JP Foodservice Distributors, Inc., the lenders party thereto,
         NationsBank of North Carolina, N.A., as Administrative Agent and Co-
         Arranger, and The Chase Manhattan Bank, N.A., as Syndication Agent and
         Co-Arranger. Filed herewith.

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

  10.24  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.

  10.25  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.

  10.26  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 for
         reportable event dated June 30, 1997 and incorporated herein by
         reference.

  10.27  Receivables Purchase Agreement, dated as of May 30, 1996, among JP
         Foodservice Distributors, Inc., Illinois Fruit & Produce Corp. and Sky
         Bros., Inc., JPFD Funding Company and the Company. Filed as Exhibit
         10.27 to the Company's Registration Statement on Form S-3 (No. 333-
         07321) and incorporated herein by reference.

                                       28
<PAGE>
 
  10.28  Transfer and Administration Agreement, dated May 30, 1996, among
         Enterprise Funding Corporation, JPFD Funding Company, JP Foodservice
         Distributors, Inc., NationsBank, N.A. and certain other financial
         institutions from time to time parties thereto. Filed as Exhibit 10.28
         to the Company's Registration Statement on Form S-3 (No. 333-07321) and
         incorporated herein by reference.

  10.29  Amendment No. 1, dated as of July 1, 1996, to the Transfer and
         Administration Agreement, dated as of May 30, 1996, by and among JPFD
         Funding Company, JP Foodservice Distributors, Inc., Enterprise Funding
         Corporation, NationsBank, N.A., and the financial institutions from
         time to time parties thereto. Filed as Exhibit 10.33 to the Company's
         Registration Statement on Form S-3 (No. 333-07321) and incorporated
         herein by reference.

  10.30  Amendment No. 2, dated as of May 19, 1997, to the Transfer and
         Administration Agreement, dated as of May 30, 1996, by and among JPFD
         Funding Company, JP Foodservice Distributors, Inc., Enterprise Funding
         Corporation, NationsBank, N.A., and the financial institutions from
         time to time parties thereto. Filed herewith.

  10.31  Amended and Restated Registration Rights Agreement, dated as of
         November 22, 1994, by and among the Company, PYA/Monarch, Inc., Chase
         Manhattan Investment Holdings, Inc., the Equitable Investors named
         therein and the management investors named therein. Filed as Exhibit
         10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly
         period ended October 1, 1994 and incorporated herein by reference.

  10.32  Amendment, dated July 16, 1996, to the Amended and Restated
         Registration Rights Agreement, dated November 22, 1994, by and among
         the Company, PYA/Monarch, Inc., Chase Manhattan Investment Holdings,
         Inc., the Equitable Investors named therein and the management
         investors named therein. Filed as Exhibit 10.30 to the Company's
         Registration Statement on Form S-3 (No. 333-07321) and incorporated
         herein by reference.

  10.33  Agreement and Plan of Merger, dated as of May 17, 1996, by and among
         the Company, JP Foodservice Distributors, Inc., Valley Industries,
         Inc., E & H Distributing Co., Inc., Lloyd K. Benson, Duane H. Zobrist,
         E. Mark Zobrist, Gerry R. Zobrist, R. Phillip Zobrist and Richard D.
         Zobrist. Filed as Exhibit A to the Information Statement/Prospectus
         filed as a part of the Company's Registration Statement on Form S-4
         (No. 333-6645) and incorporated herein by reference.

                                       29
<PAGE>
 
  10.34  Purchase and Sale Contract, dated as of May 17, 1996, between "Z"
         Leasing Co., a Nevada general partnership, and the Company. Filed as
         Exhibit B to the Information Statement/Prospectus filed as a part of
         the Company's Registration Statement on Form S-4 (No. 333-6645) and
         incorporated herein by reference.

  10.35  Agreement, dated as of July 17, 1996, for the Purchase and Sale of
         Assets among the Company, JP Foodservice Distributors, Inc.,
         Shareholders of Arrow Paper and Supply Co., Inc., SGD Associates
         Limited Liability Company and Members of SGD Associates Limited
         Liability Company. Filed as Exhibit 10.34 to the Company's Registration
         Statement on Form S-3 (No. 333-07321) and incorporated herein by
         reference.

  10.36  Agreement and Plan of Merger, dated as of June 30, 1997, among the
         Company, Hudson Acquisition Corp. ("Hudson") and Rykoff-Sexton, Inc.
         ("Rykoff-Sexton"). Filed as Exhibit 2.1 to the Company's Registration
         Statement on Form S-4 (No. 333-32711) and incorporated herein by
         reference.

  10.37  Amendment No. 1, dated as of September 3, 1997, to Agreement and Plan
         of Merger, dated as of June 30, 1997, among the Company, Hudson and
         Rykoff-Sexton. Filed as Exhibit 2.2 to the Company's Current Report on
         Form 8-K for reportable event dated September 3, 1997 and incorporated
         herein by reference.

  10.38  Stock Option Agreement, dated as of June 30, 1997, between the Company
         and Rykoff-Sexton. Filed as Exhibit 99.1 to the Company's Current
         Report on Form 8-K for reportable event dated June 30, 1997 and
         incorporated herein by reference.

  10.39  Stock Option Agreement, dated as of June 30, 1997, between Rykoff-
         Sexton and the Company. Filed as Exhibit 99.2 to the Company's Current
         Report on Form 8-K for reportable event dated June 30, 1997 and
         incorporated herein by reference.

  10.40  Amended and Restated Support Agreement, dated as of June 30, 1997, by
         and among the Company and certain stockholders of Rykoff-Sexton. Filed
         as Exhibit 99.1 to the Company's Current Report on Form 8-K for
         reportable event dated September 3, 1997 and incorporated herein by
         reference.

  21     Subsidiaries of the Company.  Filed herewith.

  23.1   Consent of Price Waterhouse LLP, independent accountants.  Filed
         herewith.

  23.2   Consent of KPMG Peat Marwick LLP, independent accountants.  Filed
         herewith.

                                       30
<PAGE>
 
  27     Financial Data Schedule.  Filed herewith.

  (b)    Reports on Form 8-K.

         Reports on Form 8-K were filed by the Company on the dates, pursuant to
         the Items and with respect to the subjects indicated:
<TABLE>
<CAPTION>
 
         Date                    Item             Subject                   
         ----                    ----             -------
         <S>                     <C>              <C>                       
                                                                            
         April 23, 1997          Item 5           Forward-looking statements
                                                                            
         April 24, 1997          Item 5           Earnings release          
                                                                            
         May 15, 1997            Item 5           Proposed acquisition       
</TABLE>

                                       31
<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.

 
                             JP Foodservice, Inc.
                                (Registrant)
                  
                  
                        By:  /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 below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>

<S>                                                      <C>  

/s/ JAMES L. MILLER
-------------------------------------------
James L. Miller, Chairman of the Board,                  September 23, 1997
President and Chief Executive Officer
(Principal Executive Officer)
 
 
/s/ LEWIS HAY, III
-------------------------------------------
Lewis Hay, III, Director, Senior Vice                    September 23, 1997
President and Chief Financial Officer
(Principal Financial Officer)
 
 
/s/ GEORGE T. MEGAS
-------------------------------------------
George T. Megas, Vice President-Finance                  September 23, 1997
(Principal Accounting Officer)
 
 
/s/ DAVID M. ABRAMSON
-------------------------------------------
David M. Abramson, Director                              September 23, 1997
 

/s/ MICHAEL J. DRABB
-------------------------------------------
Michael J. Drabb, Director                               September 23, 1997
</TABLE> 

                                       32
<PAGE>
 
<TABLE>

<S>                                                      <C>
 
/s/ ERIC E. GLASS
-------------------------------------------
Eric E. Glass, Director                                  September 23, 1997
 

/s/ MARK P. KAISER
-------------------------------------------
Mark P. Kaiser, Director                                 September 23, 1997
 

/s/ PAUL I. LATTA, JR.
-------------------------------------------
Paul I. Latta, Jr., Director                             September 23, 1997
 

/s/ JEFFREY D. SERKES
-------------------------------------------
Jeffrey D. Serkes, Director                              September 23, 1997
 

/s/ DEAN R. SILVERMAN
-------------------------------------------
Dean R. Silverman, Director                              September 23, 1997
 
</TABLE>

                                       33
<PAGE>
 
                       REPORT OF INDEPENDENT AUDITORS OF
                              JP FOODSERVICE, INC.



To the Board of Directors and Stockholders of
JP Foodservice, Inc. and Subsidiaries:

We have audited the consolidated financial statements of JP Foodservice, Inc.
and Subsidiaries as of June 28, 1997 and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended. In
connection with our audit of the consolidated financial statements, we also have
audited the financial statement schedules listed under Item 14(a)(2).  These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules 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 that our audit provides a reasonable basis for our opinion.     

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of JP Foodservice, Inc.
and Subsidiaries as of June 28, 1997 and the results of their operations and
their cash flows for the year ended June 28, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
    
During the year ended June 28, 1997, the Company adopted Statement of Financial
Accounting Standard No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities".     



/s/ KMPG Peat Marwick LLP

August 11, 1997
Baltimore, Maryland

                                      F-1
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and
Stockholders of JP Foodservice, Inc.

In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of operations, of stockholders' equity and of cash flows as of and for each of
the two fiscal years in the period ended June 29, 1996 (appearing on pages F-4
through F-7 of this Form 10-K Annual Report) present fairly, in all material
respects, the financial position, results of operations and cash flows of JP
Foodservice, Inc. and its subsidiaries as of and for each of the two fiscal
years ended June 29, 1996, in conformity with generally accepted accounting
principles. 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 audits. We did not audit the financial statements of
Valley Industries, Inc., which statements reflect total assets of $27,176,000 at
January 31, 1996, and total revenues of $105,406,000 and $121,504,000 for the
years ended January 1, 1995 and 1996, respectively. These statements were
audited by other auditors whose report thereon has been furnished to us, and our
opinion expressed herein, insofar as it relates to the amounts included for
Valley Industries, Inc. is based solely on the report of the other auditors. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for the
opinion expressed above. We have not audited the consolidated financial
statements of JP Foodservice, Inc. for any period subsequent to June 29, 1996.



/s/ Price Waterhouse LLP

Linthicum, Maryland
August 2, 1996, except as to Note 16,
which is as of September 10, 1996
and except as to the pooling of interests with
Valley Industries, Inc. and with Squeri Food Service, Inc.
which is as of November 14, 1996

                                      F-2
<PAGE>
 
                       REPORT OF INDEPENDENT AUDITORS OF
                  VALLEY INDUSTRIES, INC. AND SUBSIDIARIES AND
                       Z LEASING (A GENERAL PARTNERSHIP)



The Board of Directors, Stockholders and Partners
Valley Industries, Inc. and Subsidiaries and
   Z Leasing Company (A General Partnership):

We have audited the combined balance sheet of Valley Industries, Inc. and
Subsidiaries and Z Leasing Company (A General Partnership collectively, the
Company) as of January 31, 1996, and the related combined statements of
earnings, stockholders' and partners' equity, and cash flows for each of the
years in the two-year period ended January 31, 1996.  These combined financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these combined financial statements
based on our audits.

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 provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Company
as of January 31, 1996, and the combined results of their operations and their
cash flows for each of the years in the two-year period ended January 31, 1996,
in conformity with generally accepted accounting principles.



/s/ KPMG Peat Marwick LLP

June 17, 1996
Las Vegas, Nevada

                                      F-3
<PAGE>
 
                              JP FOODSERVICE, INC.
                              --------------------

                          CONSOLIDATED BALANCE SHEETS
                          ---------------------------
                                ($ in thousands)

                                     ASSETS

<TABLE>
<CAPTION>

                                        June 29, 1996  June 28, 1997
                                        -------------  -------------
<S>                                     <C>            <C>
 
Current assets
 Cash and cash equivalents                   $ 12,224       $ 11,139
 Receivables                                  154,405        138,754
 Inventories                                   84,138        110,030
 Deferred tax asset                               480          2,282
 Other current assets                           9,076          9,664
                                             --------       --------
  Total current assets                        260,323        271,869
Property and equipment                        104,258        141,724
Goodwill and other noncurrent assets           83,698        110,555
                                             --------       --------
  Total assets                               $448,279       $524,148
                                             ========       ========

<CAPTION> 

                      LIABILITIES AND STOCKHOLDERS' EQUITY
 
<S>                                          <C>            <C>
Current liabilities
 Current maturities of long-term debt        $  9,817       $  4,594
 Current obligations under capital leases       5,072          4,817
 Accounts payable                             110,230         89,923
 Accrued expenses                              14,338         19,111
                                             --------       --------
  Total current liabilities                   139,457        118,445
                                             --------       --------
 
Noncurrent liabilities
 Long-term debt                               150,998        149,055
 Obligations under capital leases              17,649         19,460
 Deferred income taxes                         12,026          8,242
                                             --------       --------
                                              180,673        176,757
                                             --------       --------
  Total liabilities                           320,130        295,202
                                             --------       --------
 
Stockholders' equity
 Preferred stock, $.01 par value, 5,000,000 
  shares authorized, none issued
 Common stock, $.01 par value, 75,000,000 
  shares authorized, 18,880,962 and 
  22,589,913 issued and outstanding               189            225
 Additional paid-in-capital                   190,636        226,709
 Retained earnings (accumulated deficit)      (17,733)         2,012
 Distribution in excess of net book value 
  of continuing stockholder's interest        (44,943)
                                             --------       --------
  Total stockholders' equity                  128,149        228,946
                                             --------       --------
Commitments and contingent liabilities 
 (Notes 10, 11 and 15)
  Total liabilities and stockholders' 
   equity                                    $448,279       $524,148
                                             ========       ========

</TABLE>

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

                                      F-4
<PAGE>
 
                              JP FOODSERVICE, INC.
                              --------------------

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     -------------------------------------
                   ($ in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                     Fiscal Year Ended
                                        --------------------------------------------
 
                                        July 1, 1995   June 29, 1996   June 28, 1997
                                        ------------   -------------   -------------
  <S>                                   <C>            <C>             <C> 
  Net sales                              $ 1,288,315     $ 1,449,303     $ 1,691,913
 
  Cost of sales                            1,069,494       1,198,797       1,396,223
                                         -----------     -----------     -----------
  Gross profit                               218,821         250,506         295,690
 
  Operating expenses                         177,490         202,953         232,435
  Amortization of intangible assets            2,263           2,338           2,918
  Stock compensation charge                      709
                                         -----------     -----------     -----------
  Income from operations                      38,359          45,215          60,337
                                         -----------     -----------     -----------
 
  Interest expense and other
   financing costs, net                       22,074          15,187          16,522
  Nonrecurring charges                                         1,517           5,400
                                         -----------     -----------     -----------
                                              22,074          16,704          21,922
                                         -----------     -----------     -----------
  Income before income taxes and
   extraordinary charge                       16,285          28,511          38,415
  Provision for income taxes                   7,358          11,598          16,167
                                         -----------     -----------     -----------
 
  Income before extraordinary charge           8,927          16,913          22,248
  Extraordinary charge on early
   extinguishment of debt (net of
   $3,059 of income taxes)                    (4,590)
                                         -----------     -----------     -----------
  Net income                             $     4,337     $    16,913     $    22,248
                                         ===========     ===========     ===========
 
  Net income per common share
   Before extraordinary charge           $      0.68     $      0.90     $      1.02
   Extraordinary charge                        (0.35)
                                         -----------     -----------     -----------
   Net income per common share           $      0.33     $      0.90     $      1.02
                                         ===========     ===========     ===========
 
 Weighted average common shares
  outstanding                             13,103,798      18,808,738      21,862,254

</TABLE>

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

                                      F-5
<PAGE>
 
                             JP FOODSERVICE, INC.
                             --------------------

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                -----------------------------------------------

                      JULY 2, 1994 THROUGH  JUNE 28, 1997
                      -----------------------------------
                                ($ in thousands)

<TABLE>
<CAPTION>
 
                                                                                       Retained       Distribution in   
                                                                      Additional       Earnings      Excess of Net Book  
                                Preferred            Common             Paid-in      (Accumulated   Value of Continuing 
                                  Stock               Stock             Capital        Deficit)    Stockholder's Interest    Total
                                  -----               -----             -------        --------    ----------------------    -----
<S>                          <C>               <C>                  <C>              <C>            <C>                   <C>
Balance July 2, 1994                                 $   61            $ 58,076       $ (37,449)         $ (44,943)       $ (24,255)

                                
Net income                                                                                4,337                               4,337

Dividends and distributions 
 to stockholders of acquired 
 companies                                                                                 (779)                               (779)

 
Preference dividends on 
 preferred stock                $     40                                                    (40)
 
Initial public offering              (40)                78              81,094                                              81,132
 
Debt conversion                                          47              47,221                                              47,268
 
Stock issued in connection 
 with business acquisition                                2               2,098                                               2,100
 
Employee stock purchases                                                    302                                                 302
                                --------             ------            --------       ---------          ---------        ---------
Balance July 1, 1995                                    188             188,791         (33,931)           (44,943)         110,105
 
Net income                                                                               16,913                              16,913
 
Dividends and distributions 
 to stockholders of acquired 
 companies                                                                                 (715)                               (715)

 
Stock options exercised                                                     247                                                 247
 
Contributions to 401(k) plan                              1               1,260                                               1,261
 
Employee stock purchases                                                    338                                                 338
                                --------             ------            --------       ---------          ---------        ---------
Balance June 29, 1996                                   189             190,636         (17,733)           (44,943)         128,149
 
Adjustments with respect to 
 acquisitions of Valley and
 Squeri                                                                   2,450          (2,503)                                (53)

 
Net income                                                                               22,248                              22,248
 
Stock issued in connection
 with business acquisitions                               4               9,754                                               9,758

Public stock offering                                    31              65,944                                              65,975
 
Reclassification in connection
 with Sara Lee Offering                                                 (44,943)                            44,943
 
Stock options exercised                                                     477                                                 477

Contributions to 401(k) plan                              1               1,554                                               1,555

Employee stock purchases                                                    837                                                 837
                                --------             ------            --------       ---------          ---------        ---------
Balance June 28, 1997           $                    $  225            $226,709       $   2,012          $                $ 228,946
                                ========             ======            ========       =========          =========        =========

</TABLE>

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

                                      F-6
<PAGE>
 
                              JP FOODSERVICE, INC.
                              --------------------

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------
                                ($ in thousands)

<TABLE> 
<CAPTION> 

                                                                                                  Fiscal Year Ended
                                                                                     --------------------------------------------

                                                                                     July 1, 1995   June 29, 1996   June 28, 1997
                                                                                     ------------   -------------   -------------
<S>                                                                                  <C>            <C>             <C>
Cash flows from operating activities
  Net income                                                                             $  4,337        $ 16,913        $ 22,248
  Adjustments to reconcile net income to net cash
    provided by operating activities
     Depreciation of property and equipment                                                 9,671          10,486          14,007
     Amortization of intangible assets                                                      2,902           2,599           3,253
     Gain on disposal of property and equipment                                              (558)           (185)            (64)
     Increase (decrease) in deferred income taxes                                           1,695            (292)         (2,257)
     Write-off of loan acquisition costs                                                    3,065
     Changes in operating assets and liabilities, net of effects
      from purchase acquisitions
       (Increase) decrease in receivables                                                 (23,921)        (14,570)         31,596
       (Increase) decrease in inventories                                                  (2,493)         (6,561)        (13,149)
       (Increase) decrease in other current assets                                         (1,613)           (347)            130
       Increase (decrease) in accounts payable                                             17,296           1,425         (30,946)
       Increase (decrease) in accrued expenses                                                957           1,042           3,116
     Other                                                                                  2,175                          (2,140)
                                                                                         --------        --------        --------
Net cash provided by operating activities                                                  13,513          10,510          25,794
                                                                                         --------        --------        --------
 
Cash flows from investing activities
  Additions to property and equipment                                                      (4,889)         (9,664)        (25,063)
  Costs of businesses acquired, net of cash acquired                                         (434)         (2,725)        (35,964)
  (Issuance) collection of note receivable                                                                 (5,500)          5,500
  Proceeds from sales of property and equipment                                               570             402             397
  Other                                                                                       (48)           (108)
                                                                                         --------        --------        --------
Net cash used in investing activities                                                      (4,801)        (17,595)        (55,130)
                                                                                         --------        --------        --------
Cash flows from financing activities
  Net proceeds from public offerings of common stock                                       79,927                          65,975
  Long-term debt (repayments) borrowings                                                  (75,533)          7,024         (33,955)
  Payments of obligations under capital lease                                              (4,989)         (4,536)         (5,957)
  Payment of financing costs                                                               (3,122)
  Proceeds from other issuances of common stock                                               302           1,846           2,869
  Redemption of preferred stock                                                              (643)
  Other                                                                                      (779)           (715)           (681)
                                                                                         --------        --------        --------
Net cash provided by (used in) financing activities                                        (4,837)          3,619          28,251
                                                                                         --------        --------        --------
Net increase (decrease) in cash and cash equivalents                                        3,875          (3,466)         (1,085)
Cash and cash equivalents 
  Beginning of period                                                                      11,815          15,690          12,224
                                                                                         --------        --------        --------
  End of period                                                                          $ 15,690        $ 12,224        $ 11,139
                                                                                         ========        ========        ========
 
Supplemental disclosure of cash paid during the year for:
  Interest                                                                               $ 18,014        $ 13,861        $ 13,654
  Income taxes                                                                           $  1,592        $ 10,198        $ 17,622

</TABLE>

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

                                      F-7
<PAGE>
 
                             JP FOODSERVICE, INC.
                             --------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                   (Dollars in thousands except where noted)


NOTE 1 - BUSINESS
-----------------

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, with distribution centers in the Mid-Atlantic, Midwest, Northeast
and Western United States.  The Company's principal customers are restaurants,
hotels, healthcare facilities, cafeterias and schools encompassing both
independent and multi-unit businesses.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------

A.      Principles of Consolidation
        ---------------------------

The consolidated financial statements include the accounts of JP Foodservice and
its subsidiaries all of which are wholly-owned.  Significant intercompany
transactions have been eliminated in consolidation.

B.      Cash Equivalents
        ----------------

For purposes of 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.

C.      Fair Value of Financial Instruments
        -----------------------------------

Information regarding fair value of long-term debt is set forth in Note 10 to
the financial statements.  Fair values of other instruments, such as receivables
and payables, approximate carrying values.

D.      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 as earned.

E.      Inventories
        -----------

Inventories, consisting principally of fresh, frozen and packaged foods, are
valued at the lower of cost or market, with cost (net of applicable purchase
rebates) being determined under the first-in, first-out (FIFO) method.

F.      Property and Equipment
        ----------------------

Property and equipment are stated at cost less accumulated depreciation. The
cost of property and equipment transferred during the original capitalization of
the Company was based on fair market value at the date of transfer. 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 statement of operations.

                                      F-8
<PAGE>
 
Depreciation is computed using the straight-line method over estimated useful
lives from date of acquisition as follows:

                Buildings and improvements         25-40 years
                Machinery and equipment             5-15 years
                Leasehold improvements            Life of lease
                Delivery vehicles                   7-10 years

G.  Goodwill and Other Noncurrent Assets
    ------------------------------------

Goodwill and other intangible assets are 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.

Legal and bank fees 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 or restructuring of the related debt
(see Note 10).

H.  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.

I.  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.

J.  Statement of Cash Flows - Noncash Activities
    --------------------------------------------

During fiscal years 1995, 1996 and 1997, the Company's additions to its
transportation fleet of $4,410, $10,179 and $7,513, respectively, were financed
through capital lease obligations.

K.  Net Income Per Common Share
    ---------------------------

Net income per common share is based on the weighted average number of shares
outstanding.  Common shares issuable upon exercise of stock options are excluded
from the computation because their effect is not material.  Net income per
common share, for the year ended July 1, 1995, has been adjusted for the
preference dividends of $40 for computational purposes.

L.  Derivative Instruments
    ----------------------

The Company uses interest rate swap and cap contracts to manage exposure to
fluctuations in interest rates. The interest rate differential on interest rate
swap contracts used to hedge underlying debt obligations is reflected as an
adjustment to interest expense over the life of the swap contract. Upon early
termination of an interest rate swap or cap 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.

                                      F-9
<PAGE>
 
M.  Accounting for Stock-Based Compensation
    ---------------------------------------

The Company has elected to continue to apply the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB No. 25), with pro forma disclosure of net income and
net income per common share as if the fair value based method prescribed by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), had been applied.

N.  Accounting Estimates
    --------------------

The preparation of 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 financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

O.  Reclassifications
    -----------------

Certain amounts in the prior years' consolidated financial statements have been
reclassified to conform to the current year's presentation.

NOTE 3 - ACQUISITIONS
---------------------

Acquisitions Accounted for as Poolings of Interests
---------------------------------------------------

Merger with Valley
------------------

On August 30, 1996, the Company completed a merger with Valley Industries, Inc.
(together with its affiliates "Valley"), a broadline distributor located in Las
Vegas, Nevada.  Under the terms of the merger, the Company exchanged 1,936,494
common shares with an approximate value of $40.7 million (net of indebtedness
assumed or discharged) for all of Valley's common shares and ownership
interests.

Merger with Squeri
------------------

On September 30, 1996, the Company completed a merger with Squeri Food Service,
Inc. (together with its affiliates "Squeri"), a broadline distributor located in
Cincinnati, Ohio.  Under the terms of the merger, the Company exchanged
1,079,875 common shares with an approximate value of $24.8 million (net of
indebtedness assumed or discharged) for all of Squeri's common shares and
ownership interests.

The mergers with Valley and Squeri, as discussed above, were accounted for as
poolings of interests.  The Company's consolidated financial statements for the
years ended July 1, 1995 and June 29, 1996 have been restated to include the
accounts and operations of Valley and Squeri for all periods prior to each of
the respective mergers.

Prior to the mergers, Valley used a fiscal year ending on January 31, and Squeri
used a fiscal year ending December 31.  The fiscal 1995 and 1996 restated
financial statements of the Company combine the July 1, 1995 and June 29, 1996
financial statements of the Company with the January 31, 1995 and 1996 financial
statements of Valley, respectively, and the December 31, 1994 and 1995 financial
statements of Squeri, respectively.  The fiscal years of Valley and Squeri have
been conformed with the Company's fiscal year as of June 30, 1996.  Accordingly,
retained earnings activity for the period February 1, 1996 to June 29, 1996, for
Valley and the period January 1, 1996 to June 29, 1996, for Squeri has been
reflected as adjustments to retained earnings as of June 30, 1996.  Combined net
sales, loss from operations and net loss for the periods February 1, 1996 to
June 29, 1996 for Valley and January 1, 1996 to June 29, 1996 for Squeri were
$99,660, $2,028 and $1,848, respectively.

                                     F-10
<PAGE>
 
Net sales and net income of Valley and Squeri (the "Combining Companies"), for
the periods prior to the acquisition, are summarized below:
<TABLE>
<CAPTION>
 
                                       Fiscal Year Ended
                                 ---------------------------
                                 July 1, 1995   June 29, 1996
                                 ------------   -------------
<S>                              <C>            <C>
 Net sales
  As previously reported           $1,108,253     $1,242,676
  Combining Companies                 180,062        206,627
                                   ----------     ----------
   Combined                        $1,288,315     $1,449,303
                                   ==========     ==========
 
Net income
  As previously reported           $    1,940     $   14,057
  Combining Companies                   2,397          2,856
                                   ----------     ----------
   Combined                        $    4,337     $   16,913
                                   ==========     ==========
</TABLE>

For all periods prior to the respective mergers, to the date of the
acquisitions, portions of Valley and Squeri were taxed as S-Corporations and,
therefore, Federal and state income taxes were assessed to the shareholders.
For purposes of the Company's consolidated financial statements, income taxes
have been provided on Valley's and Squeri's earnings, at rates which would have
been applicable, had such earnings been taxed at the Company's income tax rate.
Distributions to S-Corporation shareholders have been adjusted for the effects
of corporate, Federal and state income taxes payable on an annualized basis.

Acquisitions Accounted for as Purchases
---------------------------------------

Arrow Acquisition
-----------------

Effective 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, which is accounted for as a purchase, 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
73,977 common shares of the Company and the remainder was paid in cash. The
excess of the purchase price over the fair value of net tangible assets of Arrow
was approximately $28.2 million 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 have been included in the Company's 1997 consolidated statement of
operations.

Mazo-Lerch Acquisition
----------------------

Effective 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, which is accounted
for as a purchase, the Company acquired all of the outstanding common stock of
Mazo-Lerch in exchange for 279,268 common shares of the Company valued at
approximately $8 million.  The purchase price approximated the fair market value
of the net tangible assets of Mazo-Lerch.  Results of Mazo-Lerch for the period
June 20, 1997 to June 28, 1997 have been included in the Company's 1997
consolidated statement of operations.

                                     F-11
<PAGE>
 
Pro Forma Information
---------------------

Unaudited pro forma information for the years ended June 29, 1996 and June 28,
1997, as if the Arrow and Mazo-Lerch acquisitions had occurred on the first day
of the respective periods, is shown below.
<TABLE>
<CAPTION>
                                                                                 
                                                        Fiscal Year Ended        
                                              -----------------------------------
                                              June 29, 1996         June 28, 1997
                                              -------------         -------------
                                             (In thousands, except per share data)
    <S>                                       <C>                   <C>          
    Net sales                                 $   1,602,766          $  1,782,877
    Income from operations                           47,386                60,853
    Net income                                       17,601                22,214
    Net income per common share                 $      0.92          $       1.00 
</TABLE>

NOTE 4 - RELATED PARTY TRANSACTIONS
-----------------------------------

In December 1996, Sara Lee Corporation ("Sara Lee") sold its ownership interest
of approximately 27% of the Company's outstanding common shares in a public
offering.  As a result, the Company has reclassified $44,943 of distributions in
excess of net book value of continuing stockholder's interest as a reduction to
additional paid-in-capital.

Total product purchases from Sara Lee and its affiliates, for resale to
customers, aggregated $72,590, $64,774 and $35,128 in fiscal 1995, 1996 and 1997
(through the date of sale of Sara Lee's ownership interest), respectively.  The
Company believes that those purchases were at prices not more favorable than
those charged to unrelated distributors of Sara Lee products.

NOTE 5 - NONRECURRING CHARGES
-----------------------------

In connection with the mergers of Valley and Squeri, the Company recorded a
nonrecurring charge of approximately $5.4 million of merger costs and expenses
(consisting primarily of legal and other professional fees) required to complete
the transactions.  The after-tax impact of the nonrecurring transaction costs to
the Company's net income per common share for the year ended June 28, 1997 was
$0.21.  Excluding these nonrecurring transaction costs, the Company's net income
per common share for the year ended June 28, 1997 would have been $1.23.

On February 19, 1996, the Company terminated discussions with Sara Lee regarding
the proposed combination of Sara Lee's subsidiary, PYA/Monarch, Inc.
("PYA/Monarch"), with the Company.  As a result of the termination of these
discussions, the Company wrote off the costs incurred related to the transaction
(consisting primarily of legal and other professional fees) of approximately
$1.5 million.  The after-tax impact of this non-recurring charge, for the year
ended June 29, 1996, was $0.9 million ($.05 per share).  Excluding this charge,
net income would have been $17.8 million for the year, and net income per share
would have been $0.95 for the year.

NOTE 6 - RECEIVABLES
--------------------

Receivables are composed of the following:
<TABLE>
<CAPTION>
 
                                                 June 29, 1996   June 28, 1997
                                                 --------------  --------------
<S>                                              <C>             <C>
                         
     Customer accounts and  notes                   $  109,838      $   62,820
     Residual interest in customer accounts sold                        20,098
     Less allowance for doubtful accounts               (2,447)         (3,275)
                                                      --------        --------
     Net customer                                      107,391          79,643
                                                      --------        --------
 
     From suppliers                                     39,838          51,293
     From related parties                                1,566
     Less allowance for doubtful accounts                 (100)           (255)
                                                      --------        --------
     Net supplier                                       41,304          51,038
                                                      --------        --------
 
     Other                                               5,710           8,073
                                                      --------        --------
                                                    $  154,405      $  138,754
                                                      ========        ========
</TABLE>

                                     F-12
<PAGE>
 
During the year ended June 28, 1997, the Company changed its method of
accounting for trade receivables sold under its securitization arrangement to
comply with the new accounting standard described in Note 10.  Under the new
standard, sale of the undivided ownership interest in $50 million of trade
accounts receivables has been reflected as a reduction of receivables.  At June
29, 1996, the Company recorded amounts sold under its securitization arrangement
as a secured borrowing.

NOTE 7 - PROPERTY AND EQUIPMENT
-------------------------------

The components of property and equipment are as follows:
<TABLE>
<CAPTION>
 
                                                 June 29, 1996   June 28, 1997
                                                 -------------   ------------- 
<S>                                              <C>             <C> 
 Land                                            $      11,251   $      16,873
 Buildings                                              64,498          87,729
 Machinery and equipment                                39,800          66,207
 Leasehold improvements                                  6,321           7,016
 Vehicles held under capital leases (Note 11)           45,495          50,113
                                                      --------        --------
                                                       167,365         227,938
 Accumulated depreciation                              (63,107)        (86,214)
                                                      --------        --------
                                                 $     104,258   $     141,724
                                                      ========        ========
</TABLE> 

<TABLE>
<CAPTION> 
NOTE 8 - GOODWILL AND OTHER NONCURRENT ASSETS
-----------------------------------------------
 
Goodwill and other noncurrent assets are composed of the following:
 
                                                 June 29, 1996   June 28, 1997
                                                 -------------   -------------
<S>                                              <C>             <C> 
 Goodwill                                        $      85,916   $     121,385
 Accumulated amortization                              (14,456)        (17,227)
                                                 -------------   ------------- 
                                                        71,460         104,158
                                                 -------------   ------------- 
 
 Loan acquisition costs                                  1,703           1,729
 Accumulated amortization                                 (419)           (679)
                                                 -------------   ------------- 
                                                         1,284           1,050
                                                 -------------   -------------
 
 Other intangible assets                                 5,700           5,601
 Accumulated amortization                               (1,564)         (1,785)
                                                 -------------   ------------- 
                                                         4,136           3,816
                                                 -------------   ------------- 
 
 Other                                                     527             872
 Receivables from related parties                        6,291             659
                                                 -------------   ------------- 
                                                 $      83,698   $     110,555
                                                 =============   ============= 
</TABLE> 
<TABLE> 
<CAPTION> 
NOTE 9 - ACCRUED EXPENSES
-------------------------
 
The components of accrued expenses are as
 follows:
 
                                                 June 29, 1996   June 28, 1997
                                                 -------------   ------------- 
<S>                                              <C>             <C> 
  Compensation                                   $       4,362   $       6,333
  Benefits and payroll taxes                             2,781           4,669
  Interest                                               1,887           1,695
  Other                                                  5,308           6,414
                                                 -------------   ------------- 
                                                 $      14,338   $      19,111
                                                 =============   ============= 
</TABLE>

                                     F-13
<PAGE>
 
NOTE 10 - DEBT
--------------

Long-term debt is composed of the following:
<TABLE>
<CAPTION>
 
                                                                June 29, 1996   June 28, 1997   
                                                                -------------   -------------   
<S>                                                             <C>             <C>             
Revolving line of credit loans                                  $       1,000   $      63,700   
Trade accounts receivable securitization                               49,378                   
Senior notes                                                           85,000          85,000   
Promissory note payable to PYA/Monarch                                  4,067           4,331   
Notes payable to shareholders, officers and related parties             5,513             308   
Other                                                                  15,857             310   
                                                                -------------   -------------   
                                                                      160,815         153,649   
   Less current maturities                                             (9,817)         (4,594)  
                                                                -------------   -------------   
                                                                $     150,998   $     149,055   
                                                                =============   =============    
</TABLE>
Revolving Line of Credit
------------------------

Under its revolving credit loan arrangement, amended in June 1997, the Company
is entitled to borrow up to $175 million with interest payable quarterly at the
bank's prime rate or, at the option of the Company, the London Interbank Offered
Rate ("LIBOR"), plus .275% per annum.  The Company is also required to pay an
annual facility fee of .125%.  While the Company may repay all or a portion of
such borrowings at any time, any outstanding principal must be paid in full on
or before May 9, 2002.  Borrowings outstanding at June 28, 1997 bear interest at
5.9% to 6.1%.

Trade Accounts Receivable Securitization
----------------------------------------

In May 1996, the Company entered into a three-year agreement pursuant to which
the Company sells, on an ongoing basis and without recourse, an undivided
percentage ownership interest in a designated pool of trade accounts receivable
to an independent issuer of receivable-backed paper for proceeds of up to $50
million.  In order to maintain the designated balance in the pool of accounts
receivables sold, the Company is obligated to sell undivided percentage
interests in new receivables as existing receivables are collected.  The Company
has retained substantially the same credit risk as if the receivables had not
been sold.  The Company retains collection and administrative responsibilities
on the participating interest sold as agent for the purchaser.

Prior to January 1, 1997, the net proceeds from the sale of the undivided
ownership interest in the pool of receivables was accounted for as a secured
borrowing.  Effective January 1, 1997, the Company adopted, as required,
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities" (SFAS No.
125).  SFAS No. 125 is required to be applied to transfers of assets occurring
after December 31, 1996.  Under the new standard, the sale of the undivided
ownership interest has been reflected as a reduction of trade accounts
receivable, and the Company is no longer reporting the $50 million proceeds as a
secured borrowing.  In the 1997 consolidated statement of cash flows, the sale
has been reflected as a change in working capital and a decrease in long-term
debt.  The Company's residual interest, in the undivided ownership interest of
the designated pool of trade accounts receivable sold, is included in trade
accounts receivable on the balance sheet.  There was no material effect on net
income as a result of adopting the new standard.  Discounts on the sale of the
undivided ownership interest in the pool of receivables, since January 1, 1997,
amounted to $1,372 and are included in interest expense and other financing
costs on the consolidated statement of operations.

Notes Payable
-------------

The senior notes are payable in seven annual installments beginning in October
1998.  Interest is paid semiannually at an annual rate of 8.55%.

In 1989, the Company loaned to PYA/Monarch  $110 million in exchange for a
promissory note.  The note is due in installments through December 31, 1998 and
bears interest at rates between 10.35% and 10.8% per annum.  The Company assumed
a promissory note payable to PYA/Monarch of $112 million which is due in
installments through May 31, 1998 and bears interest at 11.0% per annum.  Under
a Note Offset Agreement 


                                     F-14
<PAGE>
 
between the parties, maturities of principal and interest payable under the two
notes are to be settled by offsetting amounts due, with the net difference being
carried until settlement as an obligation or receivable.

Interest Rate Swap Agreement
----------------------------

In May 1997, the Company entered into a three-year interest rate swap contract
whereby the Company pays, quarterly, the holder interest at a fixed rate of
5.97% on a notional principal amount of $70 million and receives LIBOR, as
defined, on the same notional amount provided LIBOR does not exceed 7% on the
quarterly reset dates.  If LIBOR is equal to or greater than 7%, no payment is
made by either party during the calculation period.  At June 28, 1997, the
Company estimated it would have paid $213 to terminate the swap contract.

Interest expense and other financing costs consist of the following:
<TABLE>
<CAPTION>
                                                                       Fiscal Year Ended               
                                                           ------------------------------------------  
                                                           July 1, 1995  June 29, 1996  June 28, 1997  
                                                           ------------  -------------  -------------  
<S>                                                        <C>           <C>            <C>            
Amounts attributable to third party debt                   $     20,833  $      14,625  $      13,138  
Amounts attributable to PYA/Monarch note                            602             68            264  
Amortization of loan acquisition costs                              639            259            260  
Amounts attributable to trade accounts                                                                                              
 receivable securitization                                                         235          2,860  
                                                           ------------  -------------  -------------  
                                                           $     22,074  $      15,187  $      16,522  
                                                           ============  =============  =============   
</TABLE>

The revolving line of credit and senior note loan covenants restrict the payment
of dividends and require the Company and certain subsidiaries to maintain
specified levels of working capital and net worth to meet various financial
ratios.  Bank and senior note borrowings are unsecured.

Aggregate annual principal payments applicable to long-term debt are as follows:
<TABLE>
<CAPTION>
         Fiscal Year Ended                            
         -----------------                            
              <S>                            <C>      
              1998                           $   4,594
              1999                              12,306
              2000                              12,202
              2001                              12,202
              2002                              75,904
              2003 and thereafter               36,441
                                             ---------
                                             $ 153,649
                                             ========= 
</TABLE>

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 is estimated to be $157,159.

At June 28, 1997, the Company has approximately $11.71 million of outstanding
letters of credit securing the Company's medical and workers' compensation
insurance policies.

Extraordinary Charge
--------------------

In connection with a recapitalization in fiscal 1995, the Company incurred a
$4.6 million extraordinary charge (net of tax benefits of $3.1 million) in the
second quarter of fiscal 1995 for the write-off of deferred financing
costs relating to existing indebtedness as well as other fees and expenses
related to the early extinguishment of debt.

                                     F-15
<PAGE>
 
NOTE 11 - 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 capital leases.  Charges to operations for
all operating leases were $6,374, $6,461 and $7,835 in fiscal 1995, 1996 and
1997, respectively.

Set forth below are the future minimum lease payments under capital leases and
operating leases with noncancelable terms beyond one year.

<TABLE>
<CAPTION>
 
                                          Operating           Capital
     Fiscal Year Ended                     Leases              Leases
     -----------------                     ------              ------
     <S>                                  <C>                 <C>    
            1998                           $ 5,117            $ 6,072     
            1999                             3,311              5,570     
            2000                             2,684              5,195     
            2001                             2,623              4,732     
            2002                             1,569              2,174     
            2003 and thereafter              1,555              4,451     
                                           -------            -------     
                                           $16,859             28,194
            Less interest portion          =======              3,917
                                                              -------
                                                               24,277
            Less current obligations                            4,817
                                                              -------
            Noncurrent obligations                            $19,460
                                                              ======= 
</TABLE> 

NOTE 12 - INCOME TAXES
----------------------
 
The components of income tax expense (before extraordinary charge) are as
follows:

<TABLE> 
<CAPTION> 
                                                Fiscal Year Ended
                                  --------------------------------------------
                                  July 1, 1995   June 29, 1996   June 28, 1997
                                  ------------   -------------   -------------  
<S>                               <C>            <C>             <C> 
Current tax expense                                  
   Federal                        $      3,957   $      10,242   $      16,414   
   State and local                       1,060           1,208           2,010
                                  ------------   -------------   -------------  
    Total current                        5,017          11,450          18,424
                                  ------------   -------------   -------------                                      
Deferred tax expense (benefit)                                           
   Federal                               2,271             156          (1,941)
   State and local                          70              (8)           (316)
                                  ------------   -------------   -------------  
    Total deferred                       2,341             148          (2,257)
                                  ------------   -------------   ------------- 

                                  $      7,358   $      11,598   $      16,167
                                  ============   =============   =============  
</TABLE> 

Temporary differences and the resulting deferred income tax assets and
liabilities are as follows:

<TABLE> 
<CAPTION> 
                                                            June 29, 1996   June 28, 1997               
                                                            -------------   -------------
<S>                                                         <C>             <C> 
   Current
     Inventory                                                    $  (847)        $   167
     Allowance for doubtful accounts                                1,011           1,366
     Accrued expenses and other                                       316             749
                                                            -------------   -------------
        Current deferred tax asset                                    480           2,282
                                                
   Noncurrent
     Property and equipment                                        (9,589)         (6,914)
     Intangible assets                                             (1,623)         (1,916)
     Other, net                                                      (814)            588
                                                            -------------   -------------  
        Noncurrent deferred tax liability                         (12,026)         (8,242)
                                                            -------------   -------------  
        Net deferred income taxes                           $     (11,546)  $      (5,960)
                                                            =============   =============  
</TABLE>

                                     F-16
<PAGE>
 
Deferred tax benefits of $879 related to the periods from February 1, 1996 to
June 29, 1996 and January 1, 1996 to June 29, 1996 for the Valley and Squeri
acquisitions, respectively, are not included above, but have been included in
retained earnings activity in the consolidated statement of stockholders' equity
as discussed in Note 3.

Included in the Company's temporary differences is $2,450 related to an increase
in the tax basis of certain assets resulting from the acquisition of Valley.
The establishment of the deferred tax asset has been recorded as a credit to
additional paid-in-capital.

A reconciliation of the statutory Federal income tax rate to the income tax rate
on consolidated income, before income taxes and extraordinary charge, for fiscal
1995, 1996 and 1997 is as follows:

<TABLE>
<CAPTION>
 
                                                                     Fiscal Year Ended                  
                                         ---------------------------------------------------------------------
                                             July 1, 1995              June 29, 1996           June 28, 1997
                                         -------------------       -------------------      ------------------
<S>                                      <C>           <C>         <C>           <C>        <C>          <C>   
Computed statutory expense               $5,700        35.00%      $ 9,979       35.00%     $13,445      35.00%
State and local income tax, net                                                                        
   of Federal tax benefit                   720         4.42           858        3.01        1,099       2.86
Permanent differences                     1,172         7.20           858        3.01        1,586       4.13
Gas tax credit and other                   (234)       (1.44)          (97)      (0.34)          37       0.10
                                         ------       ------       -------      -------     -------     ------
                                         $7,358        45.18%      $11,598       40.68%     $16,167      42.09%    
                                         ======       ======       =======      =======     =======     ======
</TABLE>

All 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 13 - STOCKHOLDERS' EQUITY
------------------------------

Issuance of Common Stock
------------------------

In August and September 1996, the Company sold 3,075,000 shares of common stock
in a public offering for $65.9 million, net.  The net proceeds of the offering
were used to fund the cash portion of the Arrow purchase price and to repay
indebtedness assumed or discharged by the Company in connection with its
acquisitions of Valley and Arrow, as discussed above.

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.  An aggregate of 1,500,000 shares of common stock may be
issued and purchased under the plan.  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 28,080 shares,
33,940 shares and 38,902 shares during fiscal 1995, 1996 and 1997, respectively.

The Company applies APB No. 25 and related interpretations in accounting for the
employee stock purchase plan. Accordingly, no compensation cost has been
recognized for this plan.  Had compensation cost been determined under SFAS No.
123, the Company would have recognized as compensation expense the 15% discount
from the market price or $127 and $157 for fiscal 1996 and 1997, respectively.

Stock Option Plans
------------------

The Company has employee and outside director stock option plans.  The employee
stock option plan authorizes the grants, at the discretion of the Company's
Board of Directors, 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 stock option plan generally have a life of ten years and vest over a
three-year period. The outside director stock option plan provides for an
initial award of 5,000 options and an annual award of 1,000 options, at fair
market value, for a ten-year period with one-fourth vesting upon grant and the
balance vesting equally over three years. During fiscal year 1997, the Board of
Directors agreed to increase the annual award to directors from 1,000 to 2,000
options subject to shareholder approval at the next annual meeting. 

The aggregate number of shares reserved for the issuance of common stock under 
stock option plans was 1,472,404 at June 28, 1997. Upon a change of control of 
the Company, as defined, all outstanding and previously unvested options will 
become immediately exercisable.

The Company applies APB No. 25 and related interpretations when accounting for 
stock-based employee compensation grants as permitted under SFAS No. 123. 
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 and net income per common share would have 
been reduced to the pro forma amounts indicated below (in thousands, except per 
share amounts):

<TABLE> 
<CAPTION> 
                                              Fiscal Year Ended
                                         -----------------------------
                                         June 29, 1996   June 28, 1997
                                         -------------   -------------
<S>                                      <C>             <C> 
Net income:
  As reported                            $      16,913   $      22,248
                                         -------------   -------------
  Pro forma                              $      16,655   $      20,879
                                         -------------   -------------
Earnings per share:
  As reported                            $        0.90   $        1.02
                                         -------------   -------------
  Pro forma                              $        0.89   $        0.96
                                         -------------   -------------
</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 1996 and 1997: dividend yield of 0%;
expected volatility of 41.45% and 45.44% for fiscal 1996 and 1997, respectively;
risk-free interest rate of 6.18% and 6.36% for fiscal 1996 and 1997, 
respectively; and expected lives of 5 years. The weighted average fair value of 
options granted during fiscal 1996 and 1997 was $6.48 and $11.21, respectively.

Pro forma net income reflects only options granted in fiscal 1996 and 1997. 
Therefore, the full impact of calculating compensation cost for stock options 
under SFAS No. 123 for fiscal 1996 and 1997 is not reflected in the pro forma 
net income amounts presented above, because compensation cost is reflected over
the options' vested period of three years and compensation cost for options
granted prior to July 2, 1995 is not considered.

A summary of changes in outstanding stock options follows:

<TABLE> 
<CAPTION> 
                                                          Weighted Average
                                           Incentive       Exercise Price
                                         Stock Options       per Share
                                         -------------       ---------
<S>                                      <C>              <C> 
Options granted in fiscal 1995              400,877          $  11.06
Options cancelled                           (32,245)         $  11.00
                                          ---------          -------- 
  Balance, July 1, 1995                     368,632          $  11.06
Options granted                             158,868          $  14.46
Options cancelled                           (57,142)         $  11.77
Options exercised                           (16,881)         $  11.44
                                          ---------          -------- 
  Balance, June 29, 1996                    453,477          $  12.13
Options granted                             666,510          $  21.81
Options cancelled                           (30,083)         $  13.17
Options exercised                           (25,826)         $  18.37
                                          ---------          -------- 
  Balance, June 28, 1997                  1,064,078          $  17.87
                                          =========          ========
</TABLE> 

The Compensation Committee has the authority to determine the terms and 
conditions of any restricted stock awards under the stock option plan. No such 
awards were made through June 28, 1997.

                                     F-17
<PAGE>
 
The following table summarizes information about stock options outstanding at
June 28, 1997:

<TABLE>
<CAPTION>
                                          Weighted
                          Number          Average          Weighted        Number         Weighted
      Range of          Outstanding      Remaining         Average       Exercisable      Average
   Exercise Prices     June 28, 1997  Contractual Life  Exercise Price  June 28, 1997  Exercise Price
   ---------------     -------------  ----------------  --------------  -------------  --------------
   <S>                 <C>            <C>               <C>             <C>            <C>
    $11.00 - $15.75          435,983              7.65          $12.07        245,001          $11.63
    $19.25 - $24.50          626,095              9.22          $21.88         51,133          $21.30
    $27.75 - $27.75            2,000              9.65          $27.75            500          $27.75
                           ---------                                          -------
                           1,064,078              8.58          $17.87        296,634          $13.33
                           =========                                          =======
</TABLE>

Shareholder Rights Plan
-----------------------

In 1996, the Board of Directors of the Company adopted a shareholder rights
plan. Issuance of rights under the rights plan, 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, the Board of Directors of the Company declared a dividend
of one preferred share purchase right (a "Right") for each outstanding share of
common stock of the Company.  Each share of common stock has attached one Right
which entitles the registered holder of common stock to purchase from the
Company, upon the occurrence of the specified triggering events, one-hundredth
of a share of a newly authorized issue 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 14 - EMPLOYEE RETIREMENT BENEFITS
--------------------------------------

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.
Charges to operations for all employer defined benefit pension contributions
required by union agreements aggregated $1,848, $2,329 and $2,565 in fiscal
1995, 1996 and 1997, respectively.

The Company and certain of its subsidiaries sponsor 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.
The Company's Savings and Retirement 401(k) plan allows Company contributions to
be made in common stock of the Company, and provides for vesting by employees in
Company contributions on the fifth anniversary of participation in the plan.
Charges to operations for employer contributions to the plans were $1,514,
$1,775 and $1,811 in fiscal 1995, 1996 and 1997, respectively.

The Company has no defined benefit pension plan for non-union employees.  The
Company does not grant any post-retirement benefits other than those described
above.

NOTE 15 - CONTINGENCIES
-----------------------

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.

                                      F-18
<PAGE>
 
NOTE 16 - ACCOUNTING PRONOUNCEMENTS
-----------------------------------

During 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128); No.
129, "Disclosure of Information About Capital Structure" (SFAS No. 129); No.
130, "Reporting Comprehensive Income" (SFAS No. 130); and No. 131, "Disclosures
About Segments of an Enterprise and Related Information" (SFAS No. 131).  These
pronouncements generally require additional disclosure and are not expected to
have any effect on the Company's financial position or results of operations.
The Company expects to adopt SFAS No. 128 and No. 129 during the third quarter
of fiscal 1998 and SFAS No. 130 and No. 131 during fiscal 1999.  The Company is
currently evaluating the impact, if any, that the new pronouncements will have
on the Company's financial statement disclosures.

NOTE 17 - SUBSEQUENT EVENTS
---------------------------

Merger with Rykoff-Sexton, Inc.
-------------------------------

On June 30, 1997, the Company announced it had entered into a definitive
agreement to merge with Rykoff-Sexton, Inc. ("Rykoff-Sexton"), a broadline
foodservice distributor with corporate headquarters in Wilkes-Barre,
Pennsylvania.  Under the terms of the merger, to be accounted for as a pooling
of interests, the Company will exchange .84 of one share of its common shares
for each share of Rykoff-Sexton's 28.6 million outstanding common shares.  The
transaction is expected to close in the second quarter of fiscal 1998.

Upon consummation of the merger, the financial position and results of
operations of the Company and Rykoff-Sexton will be restated to give effect to
the merger for all periods presented.  Presented below are unaudited pro forma
condensed combined financial statement information as of and for the year ended
June 28, 1997, as if the merger had been consummated at that date:

<TABLE>
<CAPTION>
 
Unaudited Pro Forma Condensed
Combined Balance Sheet Information

                                               Company        Rykoff-Sexton      Combined    
                                              ----------      -------------      --------
<S>                                           <C>             <C>               <C> 
Assets                                                                                        
 Current assets                               $  271,869       $  441,355       $  713,224    
 Property, plant and equipment, net              141,724          296,012          437,736    
 Other noncurrent assets                         110,555          481,655          592,210    
                                              ----------       ----------       ----------    
                                              $  524,148       $1,219,022       $1,743,170    
                                              ==========       ==========       ==========    
                                                                                              
Liabilities and stockholders' equity                                                          
 Current liabilities                          $  118,445       $  356,933       $  475,378    
 Long-term obligations                           168,515          486,731          655,246    
 Other noncurrent liabilities                      8,242           21,185           29,427    
                                              ----------       ----------       ----------    
                                                 295,202          864,849        1,160,051    
Stockholders' equity                             228,946          354,173          583,119    
                                              ----------       ----------       ----------    
                                              $  524,148       $1,219,022       $1,743,170    
                                              ==========       ==========       ==========    
                                                                                              
Unaudited Pro Forma Condensed Combined                                                        
Statement of Operations Information                                                           
(in thousands, except per share amounts)                                                      

<CAPTION> 
                                               Company        Rykoff-Sexton      Combined                       
                                              ----------      -------------     ----------
<S>                                           <C>             <C>               <C> 
Net sales                                     $1,691,913       $3,477,493       $5,169,406    
Income from operations                            60,337           85,487          145,824    
Net income                                        22,248           16,038           38,286    
Net income per common share                        $1.02            $0.56             $.83     
</TABLE>

                                      F-19
<PAGE>
 
JP FOODSERVICE, INC.                                           SCHEDULE I
--------------------                                           ----------
CONDENSED FINANCIAL INFORMATION OF REGISTRANT                  Page 1 of 3

(Dollars in thousands)

The following are the condensed balance sheets, statements of operations and
cash flows for JP Foodservice, Inc. with its subsidiaries at equity:

<TABLE> 
<CAPTION> 

---------------------------------------------------------------------------
                                                   June 29,       June 28,
                                                     1996           1997
---------------------------------------------------------------------------

Condensed Balance Sheets
------------------------
Assets
------
<S>                                                <C>            <C> 
Cash and cash equivalents                          $    134       $    126
 
Other current assets                                    131            125
 
Intra-company receivable                              3,850         82,384
 
Investments in subsidiaries                         124,034        146,311
                                                   -----------------------
 
                                                   $128,149       $228,946
                                                   =======================
 
Liabilities and Stockholders' Equity
------------------------------------
 
Stockholders' equity
 
 Common stock                                      $    189       $    225
 
 Paid-in capital                                    190,636        226,709
 
 Retained earnings (accumulated deficit)            (17,733)         2,012
 
 Distribution in excess of net book value of
  continuing stockholder's interest                 (44,943)
                                                   -----------------------
 
    Total stockholders' equity                      128,149        228,946
                                                   -----------------------
 
                                                   $128,149       $228,946
                                                   =======================
 
</TABLE>

                                     F-20
<PAGE>
 
JP FOODSERVICE, INC.                                   SCHEDULE I
--------------------                                   ----------
CONDENSED FINANCIAL INFORMATION OF REGISTRANT          Page 2 of 3

(Dollars in thousands)

<TABLE> 
<CAPTION> 

--------------------------------------------------------------------------------
                                         Year Ended    Year Ended   Year Ended
                                           July 1,       June 29,     June 28,
                                            1995           1996         1997
--------------------------------------------------------------------------------
 
Condensed Statements of Operations
----------------------------------
<S>                                       <C>            <C>          <C> 
Operating expenses                                       $    (6)     $   (29)
 
Interest expense                          $(2,926)
 
Income tax benefit                          1,024
                                          -----------------------------------
 
Loss before equity in undistributed 
  net income of subsidiary                 (1,902)            (6)         (29)
 
Equity in net income of unconsolidated
  subsidiary                                6,239         16,919       22,277
                                          -----------------------------------
 
Net loss applicable to common stock       $ 4,337        $16,913      $22,248
                                          ===================================
 
</TABLE>

                                     F-21
<PAGE>
 
JP FOODSERVICE, INC.                                            SCHEDULE I
--------------------                                            ----------

CONDENSED FINANCIAL INFORMATION OF REGISTRANT                   Page 3 of 3

--------------------------------------------------------------------------------
(Dollars in thousands)

<TABLE> 
<CAPTION> 

                                                                     Year Ended    Year Ended    Year Ended
                                                                       July 1,       June 29,      June 28,
                                                                        1995           1996          1997
--------------------------------------------------------------------------------------------------------------

Condensed Statements of Cash Flows
----------------------------------

Cash flows from operating activities:

<S>                                                                    <C>           <C>           <C>
     Net income                                                        $ 4,337       $ 16,913      $ 22,248
 
     Adjustments to reconcile net income to net cash 
      provided by (used in) operating activities:
 
         Equity in undistributed income of subsidiary                   (6,239)       (16,919)      (22,277)
 
         (Increase) decrease in other current assets                                      129            (6)
 
         Preferred stock liquidation                                       182
 
         PIK note interest payable in additional notes                     394
 
         Increase (decrease) in other assets                             1,981         (1,869)      (68,817)
 
         Increase (decrease) in other liabilities                       12,506
                                                                       ------------------------------------
 
Net cash provided by (used in) operating activities                     13,161         (1,746)      (68,852)
                                                                       ------------------------------------
Cash flows from investing activities:

     Payment of recapitalization costs                                  (1,432)

     Investment in unconsolidated subsidiary                           (64,257)
                                                                       ------------------------------------

Net cash used in investing activities                                  (65,689)
                                                                       ------------------------------------

Cash flows from financing activities:

     Redemption of preferred stock                                        (643)

     Long-term debt repayment                                          (27,026)

     Net proceeds from public offerings of common stock                 79,927                       65,975
 
     Proceeds from other issuances of common stock                         302          1,846         2,869
                                                                       ------------------------------------
 
Net cash provided by financing activities                               52,560          1,846        68,844
                                                                       ------------------------------------
 
Net increase (decrease) in cash and cash equivalents                        32            100            (8)
 
Cash and cash equivalents, at beginning of year                              2             34           134
                                                                       ------------------------------------
 
Cash and cash equivalents, at end of year                              $    34        $   134       $   126
                                                                       ====================================
 
</TABLE>

                                     F-22
<PAGE>
 
JP FOODSERVICE, INC.                                          SCHEDULE II
--------------------                                          -----------
VALUATION AND QUALIFYING ACCOUNTS

(Dollars in thousands)
 
YEAR ENDED JULY 1, 1995

<TABLE> 
<CAPTION> 

                                             Additions
                                        --------------------
                                                              Amounts
                             Balance at  Charged              charged   Balance 
                             beginning  to costs  Charged to    off        at
                                of        and       other       less     end of
     Description              period    expenses   accounts  recoveries  period
--------------------------------------------------------------------------------
<S>                          <C>        <C>       <C>        <C>        <C> 
Allowance for doubtful
 accounts                      $3,037    $1,940                $2,117    $2,860

</TABLE> 
 
 
 
YEAR ENDED JUNE 29, 1996
 
<TABLE> 
<CAPTION> 

                                             Additions
                                        --------------------
                                                              Amounts
                             Balance at  Charged              charged   Balance 
                             beginning  to costs  Charged to    off        at
                                of        and       other       less     end of
     Description              period    expenses   accounts  recoveries  period
--------------------------------------------------------------------------------
<S>                          <C>        <C>       <C>        <C>        <C> 
Allowance for doubtful
 accounts                     $2,860     $2,048                $2,361    $2,547

</TABLE> 
 
 
 
YEAR ENDED JUNE 28, 1997

<TABLE> 
<CAPTION> 

                                             Additions
                                        --------------------
                                                                  Amounts
                             Balance at  Charged                  charged    Balance 
                             beginning  to costs  Charged to        off        at
                                of        and       other           less      end of
     Description              period    expenses   accounts/(1)/  recoveries  period
------------------------------------------------------------------------------------
<S>                          <C>        <C>       <C>            <C>        <C> 
Allowance for doubtful
 accounts                     $2,547     $2,253     $1,611         $2,881    $3,530
 
</TABLE>

(1)  Other charges consist of $511 in reserves acquired through purchase
     acquisitions during the year and net increase in reserves of $1,100 during
     the "stub period" from pooled acquisitions.

                                     F-23