The accompanying condensed consolidated financial statements of Performance Food Group Company and subsidiaries (the "Company") as of June 28, 2003, and for the three months and six months ended June 28, 2003 and June 29, 2002, are unaudited. The unaudited December 28, 2002 condensed consolidated balance sheet was derived from the audited consolidated balance sheet included in the Company's latest Annual Report on Form 10-K. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and in accordance with Rule 10-01 of Regulation S-X.

In the opinion of management, the unaudited condensed consolidated financial statements contained in this report reflect all adjustments, consisting of only normal recurring accruals, which are necessary for a fair presentation of the financial position and the results of operations for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results for the full year. References in this Form 10-Q to the 2003 and 2002 quarters and periods refer to the fiscal three-month and the six-month periods ended June 28, 2003 and June 29, 2002, respectively.

These unaudited condensed consolidated financial statements, note disclosures and other information should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest Annual Report on Form 10-K.

Certain prior period amounts have been reclassified to conform to the current period's presentation.

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the Company's condensed consolidated financial statements and notes thereto. The most significant estimates used by management are related to the accounting for the allowance for doubtful accounts, business combinations, off balance sheet financing activities, incurred but not reported insurance claims, reserve for inventories, sales incentives, vendor rebates and other promotional incentives, bonus accruals, depreciation, amortization and tax liabilities. Actual results could differ from these estimates.

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses accounting for legal obligations associated with the retirement of certain long-lived assets that result from the acquisition, construction, development and the normal operation of long-lived assets. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and subsequently allocated to expense over the asset's useful life. The Company adopted the provisions of SFAS No. 143 at the beginning of 2003. The adoption of SFAS No. 143 did not have a material impact on the Company's consolidated financial position or results of operations.

In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 elaborates on the existing disclosure requirements for most guarantees. It also clarifies that at the time a company issues a guarantee, it must recognize an initial liability for the fair value of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The Company adopted the accounting provisions of FIN 45 on a prospective basis for guarantees issued or modified after December 15, 2002, as required. The Company adopted the disclosure requirements of FIN 45 in 2002, as required, which are included in Note 11. The adoption of FIN 45 did not have a material impact on the Company's consolidated financial position or results of operations.

In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective the first interim or annual period beginning after June 15, 2003, to variable interest entities existing or acquired before February 1, 2003. It also applies to all new variable interest entities created or acquired after January 31, 2003. In the third quarter of 2003, the Company will be required to adopt the provisions of FIN 46. In June 2003, the Company terminated its two master operating lease facilities, as discussed in Note 9. Therefore, the Company does not expect the adoption of FIN 46 to have a materi al impact on its consolidated financial position or results of operations.

In January 2003, the Emerging Issues Task Force ("EITF") of the FASB reached a final consensus on EITF No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor. EITF No. 02-16 clarifies certain aspects for accounting and recording by customers of consideration received from suppliers. Under EITF No. 02-16, consideration received related to growth rebates and agreements containing specified time period restrictions should be recorded as a reduction of cost of goods sold and recognized using a systematic and rational allocation if the amounts are probable and reasonably estimable. In addition, consideration received for certain promotional activities should be recorded as a reduction of those costs, with any excess being recorded as a reduction of cost of goods sold. The Company adopted EITF No. 02-16 at the beginning of 2003. The adoption of EITF No. 02-16 did not have a material impact on the Company's consolidated financial po sition or results of operations.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends and clarifies accounting for derivative instruments. SFAS No. 149 is effective for most contracts entered into or modified after June 30, 2003, except for certain contracts for which it is effective for existing contracts as well. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 clarifies the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. SFAS No. 150 requires that those instruments be classified as liabilities. The Company does not expect the adoption of SFAS No. 149 or SFAS No. 150 to have a material impact on its consolidated financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure. SFAS No. 148 amended existing accounting literature to provide alternative methods of transition for a voluntary change to the fair-value based method of accounting for stock-based employee compensation. The statement also required additional disclosures in both interim and annual financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. The accounting provisions (if elected) and the disclosure provisions (required) of SFAS No. 148 were effective for fiscal years ending after December 15, 2002. The Company has currently elected not to adopt the fair-value based method of accounting for stock-based employee compensation, but has adopted the disclosure provisions of SFAS No. 148.

In the 2003 quarter, the Company's shareholders approved the 2003 Equity Incentive Plan (the "2003 Plan"). The 2003 Plan provides for the award of up to 2,325,189 shares of common stock to officers, employees, directors and consultants of the Company, including a total of 125,189 shares carried over from the 1993 Plan and the Directors' Plan, defined below. Awards under the 2003 Plan may be in the form of stock options, stock appreciation rights, restricted stock or other stock-based awards. The 2003 Plan is described more fully in the Company's 2003 Proxy Statement, dated April 7, 2003.

Since May 7, 2003, no options have been granted under the 1993 Employee Stock Incentive Plan (the "1993 Plan") or the 1993 Outside Directors Stock Option Plan (the "Directors' Plan"). In addition, the last stock options outstanding under the 1989 Nonqualified Stock Option Plan (the "1989 Plan") were exercised in the first quarter of 2003. The Company also maintains the Performance Food Group Employee Stock Purchase Plan (the "Stock Purchase Plan"). The 1993 Plan, the Directors' Plan, the 1989 Plan and the Stock Purchase Plan are described more fully in the Company's 2002 Annual Report on Form 10-K. The Company accounts for these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, the Company does not recognize stock-based employee compensation cost in net earnings in the condensed consolidated statements of earnings for option grants under these plans. The Company also sponsors the Performance Food Group Employee Savings and Stock Ownership Plan, described more fully in the Company's 2002 Annual Report on Form 10-K.

The following table illustrates the effect on net earnings and net earnings per common share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to all applicable stock-based employee compensation plans. The fair value of each option was estimated at the grant date using the Black-Scholes option-pricing model.

The Company completed no acquisitions in the 2003 quarter or period. In the first quarter of 2003, the Company paid $10.0 million to the former shareholders of Fresh International Corp. and its subsidiaries (collectively "Fresh Express"). In the 2003 quarter, the Company paid an additional $1.0 million to the former shareholders of Fresh Express. These payments were related to certain contractual obligations in the purchase agreement for Fresh Express, which the Company acquired in 2001. Also in the 2003 period, the Company paid $1.9 million and issued approximately 19,000 shares of its common stock, valued at $625,000, related to contractual obligations in the purchase agreements for companies acquired in 2001 and 2000. The Company recorded these payments to Fresh Express and other companies as additional purchase price, with corresponding increases in goodwill.

In connection with the acquisition of Fresh Express, the Company adopted a plan for integration of the business. The Company initially established an accrual of $8.9 million to provide for certain costs of this plan. This accrual was recorded as a part of the initial allocation of the purchase price of Fresh Express. The plan was to combine the Franklin Park, Illinois, and Chicago, Illinois, processing plants into one facility, convert the Greencastle, Pennsylvania, and Chicago facilities into distribution centers, dispose of certain processing equipment at the Chicago and Greencastle plants and eliminate approximately 500 processing-related jobs at the affected facilities. In the first quarter of 2003, the Company converted the Greencastle facility into a distribution center and eliminated approximately 300 processing-related jobs at that facility. In the 2003 quarter, the Company decided not to convert the Chicago facility into a distribution center and will continue to use it for p rocessing operations. The following table summarizes the activity related to the accrual for business integration:

The above pro forma results are presented for information purposes only and may not be indicative of the operating results that would have occurred had these acquisitions been consummated as of the beginning of 2002. The allocations of the excess purchase price of All Kitchens, TPC and Middendorf Meat are preliminary and subject to final adjustment, primarily because the Company is finalizing the opening balance sheets for these acquisitions. The Company will complete the allocation of the excess purchase price of these acquisitions within one year of the acquisition dates.

Basic net earnings per common share ("EPS") is computed by dividing net income available to common shareholders (numerator) by the weighted-average number of common shares outstanding (denominator) during the period. Diluted EPS is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be repurchased upon the exercise of stock options.

In October 2001, the Company issued $201.3 million aggregate principal amount of 5½% convertible subordinated notes due in 2008 (the "Convertible Notes"). The calculation of diluted EPS is done on an "if-converted" basis and without conversion of the Convertible Notes. If the calculation of diluted EPS is more dilutive assuming conversion of the Convertible Notes, the after-tax interest on the Convertible Notes is added to net income in the numerator, and the shares into which the Convertible Notes are convertible are added to the dilutive shares in the denominator. In the 2003 and 2002 quarters and periods, the Convertible Notes were dilutive and were included in the computation of diluted EPS. A reconciliation of the numerators and denominators of the basic and diluted EPS computations is as follows:

The following table presents supplemental cash flow information:

The following table presents details of the Company's intangible assets as of June 28, 2003 and December 28, 2002:

The following table presents the changes in the net carrying amount of goodwill allocated to the Company's reportable segments, as defined in Note 12, during the 2003 period:

In the 2003 period, Broadline segment goodwill was reduced by $636,000, which represents the net effect of the purchase price adjustments and payments for Middendorf Meat and other companies. In the 2003 period, the Broadline segment adjusted goodwill by $4.5 million, net, for purchase price allocation adjustments. The Company increased the goodwill in its Fresh-cut segment by $11.0 million for payments in the 2003 period related to the acquisition of Fresh Express. Also in the 2003 period, the Fresh-cut segment increased goodwill by $3.5 million for the net effect of purchase price allocation adjustments. For further details on goodwill changes, see Note 3.

The following table provides details of inventories as of June 28, 2003 and December 28, 2002:

In June 2003, the Company terminated its two master operating lease facilities. In June 2003, the lessor sold two of the three distribution centers included in the first master operating lease facility (the "First Facility") to third parties unaffiliated with the Company. The Company concurrently entered into operating leases with those unaffiliated third parties for these distribution centers. The operating leases have an initial term of 22 years, plus five renewal options of five years each. Also in June 2003, the Company purchased the remaining distribution center in the First Facility from the lessor for $10.4 million. This distribution center is recorded on the Company's consolidated balance sheet at June 28, 2003, in its Customized segment.

Also in June 2003, the lessor sold one of the distribution centers and the office building included in the Company's other master operating lease facility (the "Second Facility") to third parties unaffiliated with the Company. The Company also sold land and a building under construction to one of those third parties unaffiliated with the Company. The Company concurrently entered into operating leases with those unaffiliated third parties for all of these properties. The operating leases have an initial term of 22 years, plus five renewal options of five years each. Also in June 2003, the Company purchased the remaining distribution center in the Second Facility from the lessor for $4.9 million. This distribution center is recorded on the Company's consolidated balance sheet at June 28, 2003, in its Broadline segment.

As a result of the termination of the two master operating lease facilities, the four new leases and the Company's purchase of two distribution centers previously included in these facilities, the Company's future net minimum lease payments will increase by $79.5 million: $415,000 in the remainder of 2003; $1.4 million in 2004; $2.9 million in 2005; $3.8 million in each of 2006, 2007 and 2008; and $63.4 million thereafter. The four leases discussed above do not contain residual value guarantees.

In October 2001, the Company entered into a $200.0 million revolving credit facility with several financial institutions. On April 28, 2003, the Company amended and restated its revolving credit facility (the "Credit Facility"), which, among other things, increased the facility to $350.0 million from $200.0 million. The Credit Facility expires in 2006, and bears interest at a floating rate equal to, at the Company's election, the agent bank's prime rate or a spread over LIBOR, which varies based upon our leverage ratio, as defined in the credit agreement. The Credit Facility has an annual commitment fee, ranging from 0.20% to 0.25% of the average daily unused portion of the total facility, based on the Company's leverage ratio, as defined in the credit agreement. The Credit Facility also requires the maintenance of certain financial ratios, as defined in the credit agreement, and contains customary events of default. Under the Credit Facility, the Company's subsidiaries are no longer required to guarantee borrowings, letters of credit or any other obligations, as had previously been required. The Credit Facility allows for the issuance of up to $90.0 million of standby letters of credit, which reduce borrowings available under the Credit Facility. At June 28, 2003, the Company had $78.2 million of borrowings outstanding, $27.5 million of letters of credit outstanding and $244.3 million available under the Credit Facility, subject to compliance with customary borrowing conditions. At June 28, 2003, the Company's borrowings under the Credit Facility bore interest at a rate of 1.98% per annum. Interest is payable monthly. Subsequent to the end of the 2003 quarter, the Company repaid some of its borrowings under the Credit Facility with proceeds from the sale of the undivided interest in receivables under the Receivables Facility, discussed in Notes 6 and 13.

At June 28, 2003, the Company's Fresh-cut segment had contracts to purchase produce totaling $107.1 million, of which $75.2 million expire in 2003 and $31.9 million expire in 2004. Amounts due under these contracts were not included on the Company's consolidated balance sheet at June 28, 2003, in accordance with generally accepted accounting principles.

From time to time, the Company is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such proceedings and litigation currently pending will not have a material adverse effect on the Company's consolidated financial condition or results of operations.

The Company has entered into various guarantee agreements. These agreements arose in transactions related to the acquisition of certain businesses and residual value guarantees on certain of its operating leases. The Company adopted the accounting provisions of FIN 45 on a prospective basis for guarantees issued or modified after December 15, 2002, as required. The Company adopted the disclosure requirements of FIN 45 in 2002, as required, which are included below. FIN 45 is discussed in more detail in Note 2.

In connection with certain acquisitions, the Company has entered into earnout agreements with certain of the former owners of the businesses that the Company has acquired. These agreements are based upon certain net earnings and synergy targets, as defined in each agreement, and discussed in more detail in Note 3. These earnout payments are for companies acquired from 2000 to 2002, and may include payments in cash and/or shares of the Company's common stock. As of June 28, 2003, the maximum potential earnout obligation, assuming all future earnout targets are met in their earliest possible years, totaled $39.1 million: $4.5 million in the remainder of 2003, $21.0 million in 2004, $12.0 million in 2005 and $1.6 million in 2006. These contingent payments are not recorded on the Company's consolidated balance sheet at June 28, 2003, in accordance with generally accepted accounting principles. If paid, these earnout payments would increase the goodwill of the companies acquired. If the f uture earnout targets are not met, these maximum amounts will be lower, or the Company may not be required to make any payments.

The Company has entered into numerous operating leases, including leases of buildings, equipment, tractors and trailers. In certain of these leases, the Company has provided residual value guarantees to the lessors. As of June 28, 2003, the undiscounted maximum amount of potential future payments under these guarantees is approximately $6.0 million, which would be mitigated by the fair value of the leased assets at lease expiration. These leases have expiration dates ranging from 2003 to 2010.

The Company has three operating segments: broadline foodservice distribution ("Broadline"); customized foodservice distribution ("Customized"); and fresh-cut produce processing ("Fresh-cut"). Broadline markets and distributes more than 58,000 national and proprietary brand food and non-food products to a total of approximately 46,000 street and chain customers. Broadline consists of 19 distribution facilities that design their own product mix, distribution routes and delivery schedules to accommodate the needs of a large number of customers whose individual purchases vary in size. In addition, Broadline operates three locations that provide merchandising services to independent foodservice distributors. Customized services family and casual-dining chain restaurants. These customers generally prefer a centralized point of contact that facilitates item and menu changes, tailored distribution routing and customer service. The Customized distribution network distributes nationwide and internationally from seven distribution facilities. Fresh-cut purchases, processes, packages and distributes a variety of packaged, ready-to-eat salads and other fresh-cut produce nationwide to food retailers. Fresh-cut also distributes various fresh produce offerings, primarily to third-party distributors for resale mainly to quick-service restaurants located throughout the United States. Fresh-cut operations are conducted at eight processing/distribution facilities.

The following table sets forth, for the periods indicated, the components of our condensed consolidated statements of earnings expressed as a percentage of net sales: