Item 1.	Business.
The Company and its Business Strategy
	Performance Food Group Company and subsidiaries (the "Company") markets and distributes a wide variety of food and food-related products to the foodservice, or "away-from-home eating," industry. The foodservice industry consists of two major customer types: "traditional" foodservice customers consisting of independent restaurants, hotels, cafeterias,schools, healthcare facilities and other institutional customers, and "multi-unit chain" customers consisting of regional and national quick- service restaurants and casual dining restaurants. Products and services provided to the Company's traditional and multi-unit chain customers are supported by identical physical facilities, vehicles, equipment and personnel. The Company's customers are located primarily in the Southern, Southwestern, Midwestern and Northeastern United States. The Company operates through a number of subsidiaries, each of which focuses on specific regional markets or sectors of the foodservice distribution industry.
	The Company's objective is to continue to grow its foodservice distribution business through internal growth and acquisitions. The Company's internal growth strategy is to increase sales to existing customers and identify new customers for whom the Company can act as the principal supplier. The Company also intends to consider, from time to time, strategic acquisitions of other foodservice distribution companies both to further penetrate existing markets and to expand into new markets. Finally, the Company strives to achieve higher productivity in its existing operations.
	The Company uses a 52/53 week fiscal year ending on the Saturday closest to December 31. The fiscal years ended December 27, 1997, December 28, 1996 and December 30, 1995 (all 52 week years) are referred to herein as 1997, 1996 and 1995, respectively.
Customers and Marketing
	The Company believes that foodservice customers select a distributor based on timely and accurate delivery of orders, consistent product quality, value added services and price. These services include assistance in managing inventories, menu planning and controlling costs through increased electronic computer communications and more efficient deliveries. An additional consideration for certain of the Company's larger, multi-unit chain customers is the operational efficiency gained by dealing with one, or a limited number of, foodservice distributors.
	The Company's traditional foodservice customers include independent restaurants, hotels, cafeterias, schools, healthcare facilities and other institutional customers. The Company has attempted to develop long-term relationships with these customers by focusing on improving efficiencies and increasing the average size of deliveries to these customers. The Company's traditional foodservice customers are supported in this effort by more than 425 sales and marketing representatives and product specialists. Sales representatives service customers in person or by telephone, accepting and processing orders, reviewing account balances, disseminating new product information and providing business assistance and advice where appropriate. The Company has an ongoing emphasis on educating sales representatives about the Company's products and giving them the tools necessary to deliver added value to the basic delivery of food and food-related items. Sales representatives are generally compensated through a combination of commission and salary based on a combination of factors relating to profitability and collections. These representatives use laptop computers to assist customers by entering orders, checking product availability and pricing and developing menu planning ideas on a real-time basis. No single traditional foodservice customer accounted for more than 2% of the Company's consolidated net sales in 1997. 	The Company's principal multi-unit customers are generally franchisees or corporate-owned units of family dining, casual theme and quick- service restaurants. These customers include two rapidly growing casual theme restaurant concepts, Cracker Barrel Old Country Stores, Inc. ("Cracker Barrel") and Outback Steakhouse, Inc. ("Outback"), as well as approximately 2,800 Wendy's, Subway, Kentucky Fried Chicken, Dairy Queen, Popeye's and Church's quick-service restaurants. The Company's primary customers for its fresh-cut produce products include approximately 6,750 McDonald's, Taco Bell, Burger King, Pizza Hut Kentucky Fried Chicken, Hardee's, and Popeye's and Church's restaurants. The Company's sales programs to multi-unit customers tend to be tailored to the individual customer and include a more tailored product offering than for the Company's traditional foodservice customers. Sales to these customers are typically higher-volume, lower gross margin sales which require fewer, larger deliveries than traditional foodservice customers. These programs offer operational and cost efficiencies for both the customer and the Company and therefore result in reduced operating expenses as a percent of sales which compensate for the lower gross margins. The Company's multi-unit customers are supported primarily by dedicated account representatives who are responsible for ensuring that customers' orders are properly entered and filled. In addition, higher levels of management assist in identifying new potential multi-unit customers and managing long-term account relationships. Two of the Company's multi-unit customers, Cracker Barrel and Outback, account for a significant portion of the Company's consolidated net sales. Net sales to Cracker Barrel accounted for 22%, 30% and 29% of consolidated net sales for 1997, 1996 and 1995, respectively. Net sales to Outback accounted for 16%, 19% and 15% of consolidated net sales for 1997, 1996 and 1995, respectively. No other multi-unit customer accounted for more than 10% of the Company's consolidated net sales in 1997.
Products and Services
	The Company distributes more than 25,000 national brand and private label food and food-related products to over 20,000 foodservice customers. These items include a broad selection of "center-of-the-plate" or entree items (such as meats, seafood and poultry), canned and dry groceries, frozen foods, fresh produce, fresh-cut vegetables, refrigerated and dairy products, paper products and cleaning supplies, restaurant equipment and other supplies. The Company's private label products include items marketed under the Pocahontas, Healthy USA, Premium Recipe, Colonial Tradition and Flora specialty lines, as well as fresh-cut produce products purchased and processed by the Company and marketed under the Fresh Advantage label.
	The Company provides customers with other value-added services in the form of assistance in managing inventories, menu planning and improving their efficiency and profitability. As described below, the Company also provides procurement and merchandising services to approximately 150 independent distributors, as well as the Company's own distribution network. These procurement and merchandising services include negotiating vendor supply agreements and quality assurance related to the Company's private label and national branded products.
	The following table sets forth the percentage of the Company's consolidated net sales by product and service category in 1997:
Percentage of Net Sales for 1997
Center-of-the-plate 30% Canned and dry groceries 24 Frozen foods 17 Refrigerated and dairy products	 10 Paper products and cleaning supplies 7 Fresh-cut produce 3 Other produce 3 Vending 3 Equipment and supplies 2 Procurement, merchandising and other services 1
Total 100%
Suppliers and Purchasing
	The Company procures its products from independent suppliers, food brokers and merchandisers, including its wholly-owned subsidiary, Pocahontas Foods, USA, Inc. ("Pocahontas"). The Company purchases both nationally branded items as well as private label specialty items under the Company's controlled labels. Independent suppliers include large national and regional food manufacturers and consumer products companies, meatpackers and produce shippers. The Company constantly seeks to maximize its purchasing power through volume purchasing. Although each operating subsidiary is responsible for placing its own orders and can select the products that appeal most to its customers, each subsidiary is encouraged to participate in Company-wide purchasing programs, which enable it to take advantage of the Company's consolidated purchasing power. Subsidiaries are also encouraged to consolidate their product offerings to take advantage of volume purchasing. The Company is not dependent on a single source for any significant item and no third-party supplier represents more than 2% of the Company's total product purchases. 	 	Pocahontas selects foodservice products for its "Pocahontas," "Healthy USA," "Premium Recipe" and "Colonial Tradition" labels and markets these private label products, as well as nationally branded foodservice products, to the Company's own distribution operations and approximately 150 independent foodservice distributors nationwide. For its services, the Company receives marketing fees paid by vendors. Approximately 17,000 of the products sold through Pocahontas are sold under the Company's labels. Approximately 400 vendors, located in all areas of the country, supply products through the Pocahontas distribution network. Because Pocahontas negotiates supply agreements on behalf of its independent distributors as a group,the distributors that utilize the Pocahontas procurement and merchandising group enhance their purchasing power.
Operations
	Each of the Company's subsidiaries has substantial autonomy in its operations, subject to overall corporate management controls and guidance. The Company's corporate management provides centralized direction in the areas of strategic planning, general and financial management, sales and merchandising. Individual marketing efforts are undertaken at the subsidiary level and most of the Company's name recognition in the foodservice business is based on the tradenames of its individual subsidiaries. Purchasing is also conducted by each subsidiary separately, in response to the individual needs of customers,although subsidiaries are encouraged to participate in Company-wide purchasing programs. Each subsidiary has primary responsibility for its own human resources, governmental compliance programs, principal accounting, billing and collection. Financial information reported by the Company's subsidiaries is consolidated and reviewed by the Company's corporate management.
	Distribution operations are conducted out of sixteen distribution centers located in Tennessee, New Jersey, Maryland, Georgia, Florida, Alabama, Louisiana and Texas. Customer orders are assembled in the Company's distribution facilities and then sorted, placed on pallets and loaded onto trucks and trailers in delivery sequence. Deliveries covering long distances are made in large tractor-trailers that are generally leased by the Company. Deliveries within shorter distances are made in trucks, which are either leased or owned by the Company. Certain of the Company's larger multi-unit chain customers are serviced using dedicated trucks due to the relatively large and consistent delivery size and geographic distribution of these rapidly growing customers. As a result, deliveries to these customers are generally more efficient and result in decreased operating expenses as a percentage of sales which compensate for the lower gross margins on this type of account. The trucks and delivery trailers used by the Company have separate temperature-controlled compartments. The Company utilizes a computer system to design the least costly route sequence for the delivery of its products.
The following table summarizes certain information with respect to the Company's principal operations:
Competition
	The foodservice distribution industry is highly competitive. The Company competes with numerous smaller distributors on a local level, as well as with a few national or regional foodservice distributors. Some of these distributors have substantially greater financial and other resources than the Company. Although large multi-unit chain customers usually remain with one or more distributors over a long period of time, bidding for long-term contracts or arrangements is highly competitive and distributors may market their services to a particular chain of restaurants over a long period of time before they are invited to bid. In the fresh-cut produce area of the business, competition comes mainly from smaller processors, although the Company encounters intense competition from larger national and regional processors when selling produce to chain restaurants and supermarkets. Management believes that most purchasing decisions in the foodservice business are based on the quality of the product, the distributor's ability to completely and accurately fill orders, provide timely deliveries and on price.
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 are generally inspected at least annually by state and/or federal authorities. In addition, the Company is subject to regulation by the Environmental Protection Agency with respect to the disposal of waste water and the handling of chemicals used in cleaning.
	The Company's relationship with its fresh food suppliers with respect to the grading and commercial acceptance of product 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 is also subject to regulation by state authorities for accuracy of its weighing and measuring devices.
	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.
	Management believes that the Company is in substantial compliance with all applicable government regulations.
Tradenames
	Except for the Pocahontas and Fresh Advantage tradenames, the Company does not own or have the right to use any patent, trademark, tradename, license, franchise or concession, the loss of which would have a material adverse effect on the operations or earnings of the Company.
Employees
	As of December 27, 1997, the Company had approximately 2,800 full-time employees, including approximately 800 in management, marketing and sales and the remainder in operations. Approximately 130 of the Company's employees are represented by a union or a collective bargaining unit. The Company considers its employee relations to be satisfactory. Risk Factors
	In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company is including the following cautionary statements identifying important factors that could cause the Company's actual results to differ materially from those projected in forward looking statements of the Company made by, or on behalf of, the Company.
	Low Margin Business; Economic Sensitivity. The foodservice distribution industry generally is characterized by relatively high volume with relatively low profit margins. A significant portion of the Company's sales are at prices that are based on product cost plus a percentage markup. As a result, the Company's profit levels may be negatively impacted during periods of food price deflation even though the Company's gross profit percentage may remain constant. The foodservice industry is also sensitive to national and regional economic conditions, and the demand for foodservice products supplied by the Company has been adversely affected from time to time by economic downturns. In addition, the Company's operating results are particularly sensitive to, and may be materially adversely impacted by, difficulties with the collectibility of accounts receivable, inventory control, competitive price pressures and unexpected increases in fuel or other transportation-related costs. There can be no assurance that one or more of such factors will not adversely affect future operating results. The Company has experienced losses due to the uncollectibility of accounts receivable in the past and could experience such losses in the future.
	Reliance on Major Customers. The Company derives a substantial portion of its net sales from customers within the restaurant industry, particularly certain rapidly growing multi-unit chain customers. Sales to units of Cracker Barrel accounted for 22% and 30% of the Company's consolidated net sales in 1997 and 1996, respectively. Sales to Outback accounted for 16% and 19% of the Company's consolidated net sales in 1997 and 1996, respectively. The Company has no written assurance from any of its customers as to the level of future sales. A material decrease in sales to any of the largest customers of the Company would have a material adverse impact on the Company's operating results. The Company has been the primary supplier of food and food-related products to Cracker Barrel since 1975. See "Business - Customers and Marketing."
	Acquisitions. A significant portion of the Company's historical growth has been achieved through acquisitions of other foodservice distributors, and the Company's growth strategy includes additional acquisitions. There can be no assurance that the Company will be able to make successful acquisitions in the future. Furthermore, there can be no assurance that future acquisitions will not have an adverse effect upon the Company's operating results, particularly in quarters immediately following the consummation of such transactions, while the operations of the acquired business are being integrated into the Company's operations. Following the acquisition of other businesses in the future, the Company may decide to consolidate the operations of any acquired business with existing operations, which may result in the establishment of provisions for consolidation. To the extent the Company's expansion is dependent upon its ability to obtain additional financing for acquisitions, there can be no assurance that the Company will be able to obtain financing on acceptable terms. See "Business - - Operations."
	Management of Growth. The Company has rapidly expanded its operations since inception. This growth has placed significant demands on its administrative, operational and financial resources. The planned continued growth of the Company's customer base and its services can be expected to continue to place a significant demand on its administrative, operational and financial resources. The Company's future performance and profitability will depend in part on its ability to successfully implement enhancements to its business management systems and to adapt to those systems as necessary to respond to changes in its business. Similarly, the Company's continued growth creates a need for expansion of its facilities from time to time. As the Company nears maximum utilization of a given facility, operations may be constrained and inefficiencies may be created which could adversely affect operating results until such time as either that facility is expanded or volume is shifted to another facility. Conversely, as the Company adds additional facilities or expands existing facilities, excess capacity may be created until the Company is able to expand its operations to utilize the additional capacity. Such excess capacity may also create certain inefficiencies and adversely affect operating results.
	Competition. The Company operates in highly competitive markets, and its future success will be largely dependent on its ability to provide quality products and services at competitive prices. The Company's competition comes primarily from other foodservice distributors and produce processors. Some of the Company's competitors have substantially greater financial and other resources than the Company and may be better established in their markets. Management believes that competition for sales is largely based on the quality and reliability of products and services and, to a lesser extent, price. See "Business - Competition."
	Dependence on Senior Management and Key Employees. The Company's success is largely dependent on the skills, experience and efforts of its senior management. The loss of services of one or more of the Company's senior management could have a material adverse effect upon the Company's business and development. In addition, the Company depends to a substantial degree on the services of certain key employees. The ability to attract and retain qualified employees in the future will be a key factor in the success of the Company.
	Volatility of Market Price for Common Stock. From time to time there may be significant volatility in the market price for the Company's common stock. Quarterly operating results of the Company or other distributors of food and related goods, changes in general conditions in the economy, the financial markets or the food distribution or food services industries, natural disasters or other developments affecting the Company or its competitors could cause the market price of the Common Stock to fluctuate substantially. In addition, in recent years the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to their operating performance.
Executive Officers
	The following table sets forth certain information concerning the executive officers of the Company as of December 27, 1997.
Name Age Position
Robert C. Sledd 45 Chairman, Chief Executive Officer and Director C. Michael Gray 48 President, Chief Operating Officer and Director Roger L. Boeve 59 Executive Vice President and Chief Financial Officer Thomas Hoffman 58 Senior Vice President David W. Sober 65 Vice President of Human Resources and Secretary 	
	Robert C. Sledd has served as Chairman of the Board of Directors since February 1995 and has served as Chief Executive Officer and a director of the Company since 1987. Mr. Sledd served as President of the Company from 1987 to February 1995. Mr. Sledd has served as a director of Taylor & Sledd Industries, Inc., a predecessor of the Company, since 1974, and served as President and Chief Executive Officer of that Company from 1984 to 1987. Mr. Sledd also serves as a director of SCP Pool Corporation.
	C. Michael Gray has served as President and Chief Operating Officer of the Company since February 1995 and has served as a director of the Company since 1992. Mr. Gray served as President of Pocahontas, from 1981 to 1995. Mr. Gray had been employed by Pocahontas since 1975, serving as Marketing Manager and Vice President of Marketing. Prior to joining Pocahontas, Mr. Gray was employed by the Kroger Company as a produce buyer.
	Roger L. Boeve has served as Executive Vice President and Chief Financial Officer of the Company since 1988. Prior to that date, Mr. Boeve served as Executive Vice President and Chief Financial Officer for The Murray Ohio Manufacturing Company and as Corporate Vice President and Treasurer for Bausch and Lomb. Mr. Boeve is a certified public accountant.
	Thomas Hoffman has served as Senior Vice President of the Company since February 1995. Mr. Hoffman has also served as President of Kenneth O. Lester Company, Inc., a wholly-owned subsidiary of the Company, since 1989. Prior to joining the Company in 1989, Mr. Hoffman had served in executive capacities at Booth Fisheries Corporation, a subsidiary of Sara Lee Corporation, as well as C.F.S. Continental, Miami and International Foodservice, Miami, two foodservice distributors.
	David W. Sober has served as Vice President for Human Resources since 1987 and as Secretary of the Company since March 1991. Mr. Sober served as Vice President for Purchasing of the Company from March 1991 to July 1994. Mr. Sober served as Corporate Vice President and Secretary for Taylor & Sledd Industries, Inc., a predecessor of the Company, during 1986 and 1987. Mr. Sober held various positions in other companies in the wholesale and retail food industries, including approximately 30 years with the A&P grocery store chain.
Item 2.
Item 2.	Properties.
	The following table presents information as to the primary real properties and facilities of the Company and its operating subsidiaries and division:
Approx. Owned/Leased Area (Expiration Date 	 Location in Sq. Ft Principal Uses if Leased)
Performance Food Group Company Richmond, Virginia 5,000 Corporate offices Leased (2000) Tampa, Florida (B&R 96,000 Administrative offices, Owned Foods Division) product inventory and distribution
Kenneth O. Lester Company, Inc. Lebanon, Tennessee 140,000 Administrative offices, Leased (1998) product inventory and distribution Lebanon, Tennessee 176,000 Product inventory and distribution Owned Gainesville, Florida 70,000 Product inventory and Owned distribution Dallas, Texas 75,000 Product inventory and distribution Owned Belcamp, Maryland 75,000 Product inventory and distribution Leased (2001)
Caro Foods, Inc. 162,000 Administrative offices, Owned Houma, Louisiana produce processing, product inventory and distribution Dallas, Texas 66,000 Product inventory and Leased (1999) distribution, produce processing
Hale Brothers/Summit, 74,000 Administrative offices, Owned Inc. product inventory and Morristown, Tennessee distribution
Pocahontas Foods, USA, 131,000 Administrative offices, Leased (2004) Inc. product inventory and Richmond, Virginia distribution
Milton's Foodservice, 166,000 Administrative offices, Owned Inc. product inventory and Atlanta, Georgia distribution
Performance Food Group 135,000 Administrative offices, Owned of Texas, LP (1) product inventory and Temple, Texas distribution
Victoria, Texas 250,000 Product inventory and Owned distribution
W. J. Powell Company, 63,000 Administrative offices, Owned Inc. (2) product inventory and Thomasville, GA distribution
Dothan, AL 49,000 Administrative offices, Owned product inventory and distribution
AFI Food Service 170,000 Administrative offices, Leased (2023) Distributors, Inc.(3) product inventory and Elizabeth, NJ distribution
(1) Performance Food Group of Texas, LP was acquired by the Company on December 30, 1996 (2) The W. J. Powell Company, Inc. was acquired by the Company on June 30, (3) AFI Food Service Distributors, Inc. was acquired by the Company on October 31, 1997
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Item 3.
Item 3.	Legal Proceedings.
	From time to time the Company is involved in routine litigation and proceedings in the ordinary course of business. The Company does not have pending any litigation or proceeding that management believes will have a material adverse effect upon the Company.
Item 4.
Item 4.	Submission of Matters to a Vote of Shareholders.
	No matters were submitted to a vote of the shareholders during the fourth quarter ended December 27, 1997.
	PART II
Item 5.
Item 5.	Market for the Registrant's Common Stock and Related Stockholder Matters. 	 	The prices in the table below represent the high and low sales price for the Company's common stock as reported by the Nasdaq National Market. The prices have been adjusted to reflect a 3-for-2 stock split, effected as a stock dividend, in July 1996. As of March 16, 1998, Performance Food Group had approximately 1,348 shareholders of record and approximately 4,900 beneficial owners. No cash dividends have been declared, and the present policy of the Board of Directors is to retain all earnings to support operations and to finance expansion.
High Low First Quarter $18.25 $14.50 Second Quarter $21.75 $16.00 Third Quarter $26.25 $19.75 Fourth Quarter $26.25 $17.50 For the Year $26.25 $14.50
High Low First Quarter $16.83 $14.17 Second Quarter $21.50 $15.71 Third Quarter $17.00 $13.50 Fourth Quarter $17.25 $11.25 For the Year $21.50 $11.25
Item 6.
Item 6.	Selected Consolidated Financial Data.
Item 7.
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations.
	GENERAL
	The Company was founded in 1987 as a result of the combination of the businesses of Pocahontas Foods, USA, Inc., a foodservice procurement and merchandising group in Richmond, Virginia, and Caro Produce & Institutional Foods, Inc., a distributor of fresh produce and other foodservice products and services in Louisiana and Texas, and has grown both internally through increased sales to existing and new customers and by acquisition of existing foodservice distributors. The Company's acquisitions include:
the November 1987 acquisition of Pocahontas Foodservice, Inc., a broadline distributor based in Gainesville, Florida; the July 1988 acquisition of the Kenneth O. Lester Company, Inc., a broadline and customized distributor based in Lebanon, Tennessee; the December 1989 acquisition of Hale Brothers, Inc., a broadline distributor based in Morristown, Tennessee ("Hale"); the December 1991 acquisition of B&R Foods, Inc., a broadline distributor based in Tampa, Florida; the December 1992 purchase of certain assets of Loubat-L.Frank, Inc., a broadline distributor based in New Orleans, Louisiana; the May 1993 acquisition by Hale of Summit Distributors, Inc., a broadline distributor based in Johnson City, Tennessee; the January 1995 acquisition of Milton's Foodservice, Inc., a broadline distributor based in Atlanta, Georgia ("Milton's"); the June 1995 acquisition by Milton's of Cannon Foodservice, Inc., a broadline distributor based in Asheville, North Carolina ("Cannon"); the December 1996 acquisition of certain assets of McLane Foodservice-Temple, Inc., which business is now conducted as Performance Food Group of Texas, LP ("PFG of Texas"), a broadline distributor based in Temple, Texas; the April 1997 acquisition of certain assets by Hale of Tenneva Foodservice, Inc. ("Tenneva"), a broadline distributor based in Bristol, Virginia; the May 1997 acquisition of certain assets of Central Florida Finer Foods, Inc. ("CFFF"), a broadline distributor based in Winter Haven, Florida; the June 1997 acquisition of W. J. Powell Company, Inc. ("Powell"), a broadline distributor based in Thomasville, Georgia; and the October 1997 acquisition of AFI Food Service Distributors, Inc. ("AFI"), a broadline distributor based in Elizabeth, New Jersey
	The Company derives its revenue primarily from the sale of food and food-related products to the foodservice, or "away-from-home eating," industry. The foodservice industry consists of two major customer types: "traditional" foodservice customers, consisting of independent restaurants, hotels, cafeterias, schools, healthcare facilities and other institutional customers; and "multi-unit chain" customers, consisting of regional and national quick-service restaurants and casual dining restaurants. Products and services provided to the Company's traditional and multi-unit chain customers are supported by identical physical facilities, vehicles, equipment and personnel. The principal components of the Company's expenses include cost of goods sold, which represents the amount paid to manufacturers and growers for products sold, and operating expenses, which include primarily labor-related expenses, delivery costs and occupancy expenses.
	The Company's fiscal year ends on the Saturday closest to December 31. Consequently, the Company will periodically have a 53- week fiscal year. The Company's fiscal years ended December 27, 1997, December 28, 1996 and December 30, 1995, herein referred to as 1997, 1996 and 1995, respectively, were all 52-week years.
RESULTS OF OPERATIONS
	The following table sets forth, for the periods indicated, the components of the consolidated statements of earnings expressed as a percentage of net sales.
1997 1996 1995 Net sales 100.0% 100.0% 100.0% Cost of goods sold 87.3 85.9 85.5 Gross profit 12.7 14.1 14.5 Operating expenses 10.8 11.7 12.1 Operating profit 1.9 2.4 2.4 Other expense, net 0.1 0.1 0.4 Earnings before income taxes 1.8 2.3 2.0 Income tax expense 0.7 0.9 0.8 Net earnings 1.1% 1.4% 1.2%
COMPARISON OF 1997 TO 1996
	Net sales increased 56.9% to $1.23 billion for 1997 from $784.2 million for 1996. Net sales in the Company's existing operations increased 23% over 1996 while acquisitions contributed an additional 34% to the Company's total sales growth. Inflation amounted to less than 1.0% for 1997.
	Gross profit increased 40.7% to $155.9 million in 1997 from $110.8 million in 1996. Gross profit margin decreased to 12.7% in 1997 compared to 14.1% in 1996. The decline in gross profit margin was due primarily to the following factors. Sales increased during 1997 to certain of the Company's multi-unit chain customers which generally are higher- volume, lower gross margin accounts but also allow for more efficient deliveries and use of capital, resulting in lower operating expenses. In addition, the Company's gross margin was impacted by the renegotiation of its distribution agreement with its largest multi-unit chain customer in early 1997. Gross profit margins also declined as a result of the acquisition of PFG of Texas, whose gross margins are currently lower than those in many of the Company's other subsidiaries, due in part to their customer mix which includes a greater concentration of multi-unit chain customers. The decline in gross profit margins was offset in part by improved capacity utilization in the Company's produce processing operations.
	Operating expenses increased 43.7% to $132.5 million in 1997 compared with $92.2 million in 1996. As a percentage of net sales, operating expenses declined to 10.8% in 1997 from 11.7% in 1996. The decrease in operating expenses as a percent of net sales primarily reflects better use of the Company's facilities at the increased level of sales and continued shift in mix of sales to certain of the Company's rapidly growing multi-unit chain customers discussed above. These improvements in utilization were offset in part by increased labor costs including recruiting and training additional personnel, primarily in the transportation and warehouse areas, which are an integral part of the Company's distribution service. The Company expects these increased labor costs to continue for the next several quarters. In 1997, the Company's operating expenses as a percentage of net sales was adversely impacted by PFG of Texas as the Company integrated those acquired operations, while at the same time expanding those operations. Additionally, 1996 was negatively impacted by increased costs related to the severe weather experienced in the East and Midwest during the first quarter of 1996. Additionally, the Company leased a 75,000 square foot distribution center in Belcamp, Maryland, to service the continued growth of certain of the Company's multi-unit chain customers, which became operational in February 1997, and completed construction of a 75,000 square foot distribution center in Dallas, Texas, which became operational in February 1996. The Company incurred certain start-up expenses for these facilities, the impacts of which are approximately comparable. The Company intends to expand certain of its distribution centers during 1998.
	Operating profit increased 26.1% to $23.4 million in 1997 from $18.6 million in 1996. Operating profit margin declined to 1.9% for 1997 from 2.4% for 1996.
	Other expense increased to $1.9 million in 1997 from $451,000 in 1996. Other expense includes interest expense, which increased to $2.0 million in 1997 from $627,000 in 1996. The increase in interest expense is due to higher debt levels in 1997 as a result of the Company's various acquisitions. Other expense during 1997 also includes a $1.3 million gain from insurance proceeds related to covered losses at one of the Company's processing and distribution facilities which offset a $1.3 million writedown of certain leasehold improvements associated with the termination of the lease on one of the Company's distribution facilities.
	Income tax expense increased to $8.3 million in 1997 from $7.1 million in 1996 as a result of higher pre-tax earnings. As a percentage of earnings before income taxes, the provision for income taxes was 38.5% and 39.4% for 1997 and 1996, respectively.
	Net earnings increased 20.5% to $13.2 million in 1997 compared to $11.0 million in 1996. As a percentage of net sales, net earnings decreased to 1.1% in 1997 versus 1.4% in 1996.
COMPARISON OF 1996 TO 1995
	Net sales increased 18.1% to $784.2 million for 1996 compared with $664.1 million for 1995. Substantially all of the increase in net sales was attributable to internal growth. Inflation during 1996 accounted for approximately 1% of the sales growth.
	Gross profit increased 15.4% to $110.8 million in 1996 compared with $96.0 million in 1995. Gross profit margin decreased to 14.1% in 1996 compared to 14.5% in 1995. The gross margin percentage declined primarily due to the continued rapid growth of certain of the Company's large multi-unit chain customers which generally are higher volume, lower gross margin accounts but also allow for more efficient deliveries and use of capital, resulting in lower operating expenses. Gross margins during 1995 were adversely impacted by the Company's produce processing operations. During the second quarter of 1995, California experienced adverse weather conditions which created significant fluctuations in the price and availability of lettuce. Although the Company was generally able to pass the increased costs on to its customers, the gross profit dollars per pound remained relatively comparable to normal conditions. Thus, although produce processing sales increased significantly during the period, gross margins did not increase proportionately. In addition, margins in the produce processing business continue to be impacted by the Company's excess production capacity. The Company was increasing its marketing efforts to further develop produce sales to utilize this excess capacity.
	Operating expenses increased 14.9% to $92.2 million in 1996 from $80.3 million in 1995. As a percentage of net sales, operating expenses declined to 11.7% in 1996 compared with 12.1% in 1995, reflecting improved utilization of the Company's facilities at the increased level of sales and the continued shift in mix of sales to certain of the Company's rapidly growing multi-unit chain customers discussed above. These improvements in utilization were offset in part by increased costs associated with the severe weather experienced in the East and Midwest during the first quarter of 1996. In addition, the Company incurred certain start-up expenses in the first quarter of 1996 for the Dallas distribution center which became operational in February 1996.
	Operating profit increased 18.2% to $18.6 million in 1996 from $15.7 million in 1995. Operating profit margins remained flat at 2.4% for 1996 and 1995.
	Other expense decreased to $451,000 in 1996 from $2.7 million in 1995. Other expense includes interest expense, which decreased to $627,000 in 1996 from $2.7 million in 1995. The decrease in interest expense was due primarily to reduced debt levels after the Company's stock offering completed in March 1996. The Company used the proceeds of this offering to repay approximately $33.3 million of debt.
	Income tax expense increased 40.4% to $7.1 million in 1996 from $5.1 million in 1995 as a result of higher pre-tax earnings. As a percentage of earnings before income taxes, income tax expense was 39.4% for 1996 versus 39.1% in 1995.
	Net earnings increased 38.7% to $11.0 million in 1996 from $7.9 million in 1995. As a percentage of net sales, net earnings increased to 1.4% in 1996 from 1.2% in 1995. LIQUIDITY AND CAPITAL RESOURCES
	The Company has financed its operations and growth primarily with cash flow from operations, borrowings under its revolving credit facility, operating leases, normal trade credit terms and from the sale of the Company's common stock. Despite the Company's large sales volume, working capital needs are minimized because the Company's investment in inventory is financed primarily with accounts payable.
	Cash provided by operating activities was $24.2 million and $9.9 million for 1997 and 1996, respectively. The increase in cash provided by operating activities resulted primarily from higher net earnings and by increased levels of trade payables, net of an increase of receivables and inventories, due to the continued growth of the Company's business.
	Cash used by investing activities was $59.2 million and $9.3 million for 1997 and 1996, respectively. Investing activities include additions to and disposal of property, plant and equipment and the acquisition of businesses. During 1997, the Company paid $54.6 million for the acquisition of businesses, net of cash on hand at the acquired companies. The Company's total capital expenditures for 1997 were $8.3 million, including approximately $1.2 million to complete the distribution center in Houma, Louisiana. Investing activities in 1997 also included $4.2 million from insurance proceeds related to covered losses associated with one of the Company's processing and distribution facilities.
	Cash provided by financing activities was $33.0 million and $695,000 in 1997 and 1996, respectively. Financing activities included net borrowings in 1997 of $27.2 million and net repayments in 1996 of $1.6 million on the Company's revolving credit facility. The borrowings in 1997 were used to fund the acquisition of businesses discussed above. Financing activities in 1996 also included net proceeds of $33.3 million from the Company's offering of common stock completed in March 1996. The proceeds were used to repay the $30.0 million term loan used to finance the acquisition of Milton's and the remainder to repay a portion of amounts outstanding under a revolving credit facility.
	In July 1996, the Company entered into a three-year $50.0 million revolving credit agreement (the "Credit Facility") with a commercial bank which expires in February 2001. Approximately $34.3 million was outstanding under the Credit Facility at December 27, 1997. The Credit Facility also supports up to $5.0 million of letters of credit. At December 27, 1997, the Company was contingently liable for outstanding letters of credit of $4.1 million, which reduce amounts available under the Credit Facility. At December 27, 1997, $11.6 million was available under the Credit Facility. The facility bears interest at LIBOR plus a spread over LIBOR (6.14% at December 27, 1997), which varies based on the ratio of funded debt to total capital. Additionally, the Credit Facility requires the maintenance of certain financial ratios, as defined, regarding debt to tangible net worth, cash flow coverage and current assets to current liabilities. Subsequent to year end, the Company amended the Credit Facility to increase amounts available under the facility to $60.0 million. In addition to the Credit Facility, the Company obtained an additional $7.3 million of letters of credit to secure amounts owed under promissory notes to the former AFI shareholders related to the purchase of AFI.
	On September 12, 1997, the Company completed a $42.0 million master operating lease agreement to construct new distribution centers planned to become operational in 1998. Under this agreement, the lessor owns the distribution centers, incurs the related debt to construct the facilities and thereafter leases each facility to the Company. The Company has entered into a commitment to lease each facility for a period beginning upon completion of each property and ending on September 12, 2002, including extensions. Upon the expiration of each lease, the Company has the option to renegotiate the lease, sell the facility to a third party or to purchase the facility at its original cost. If the Company does not exercise its purchase options, the Company has significant residual value guarantees of each property. The Company expects the fair value of the properties included in this agreement to eliminate or substantially reduce the Company's exposure under the residual value guarantee. At December 27, 1997, construction has commenced on one facility with expenditures to date of approximately $1.1 million, which costs have been borne by the lessor. Total expenditures for this facility are anticipated to be approximately $13 million.
	The Company believes that cash flow from operations and borrowings under the Credit Facility will be sufficient to finance its operations and anticipated growth for the foreseeable future.
BUSINESS COMBINATIONS
	On December 30, 1996, the Company acquired certain net assets of McLane Foodservice-Temple, Inc., which was a wholly-owned subsidiary of McLane Company, Inc., based in Temple, Texas. McLane Foodservice had 1996 net sales of approximately $180 million. The former business of McLane Foodservice now operates as PFG of Texas, an indirect wholly- owned subsidiary of the Company, through distribution centers in Temple and Victoria, Texas and provides food and food-related products to traditional foodservice customers as well as multi-unit chain restaurants and vending customers. The purchase price of approximately $30.5 million was financed with proceeds from an existing credit facility. Simultaneous with the closing, the Company also purchased the distribution center located in Victoria, Texas from an independent third party for approximately $1.5 million.
During 1997, the Company completed the acquisitions of a number of foodservice distributors, including the acquisition of Tenneva on April 11, 1997, CFFF on May 12, 1997, Powell on June 28, 1997 and AFI on October 31, 1997. The operations of Tenneva and CFFF have been combined with the operations of certain of the Company's existing subsidiaries. Collectively, these companies had 1996 net sales of approximately $130 million. The aggregate purchase price of the acquisitions was approximately $39 million, plus the assumption of approximately $12 million of debt. The aggregate purchase price for the acquisitions was financed by issuing 660,827 shares of the Company's common stock, $7 million of promissory notes due January 2, 1998 and the remainder with proceeds from the Credit Facility. The aggregate consideration payable to the former shareholders of Powell and AFI is subject to increase in certain circumstances.
	The consolidated statements of earnings and of cash flows reflect the results of these acquired companies from the dates of acquisition through December 27, 1997. These acquisitions have been accounted for using the purchase method and, accordingly, the acquired assets and liabilities have been recorded at their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of tangible net assets acquired was approximately $44.2 million and is being amortized on a straight-line basis over estimated lives ranging from 5 to 40 years.
YEAR 2000 ISSUE
	The Company is dependent upon computer-based systems to conduct its business with both customers and suppliers. In late 1997, the Company developed a plan to upgrade its computer systems and to deal with Year 2000 issue. The plan calls for conversion efforts to be completed by mid 1999. The Company estimates that costs to remediate the Year 2000 issue will be less than $500,000 which will be funded through operating cash flows. The company is expensing all costs associated with the Year 2000 issue as incurred.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
	During 1997, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income, and No. 131, Disclosures About Segments of an Enterprise and Related Information." These pronouncements may require additional disclosure, however the Company does not expect these pronouncements to have an affect on the Company's financial position or results of operations. 	 QUARTERLY RESULTS AND SEASONALITY
	Set forth below is certain summary information with respect to the Company's operations for the most recent eight fiscal quarters. Historically, the restaurant and foodservice business is seasonal with lower sales in the first quarter. Consequently, the Company may experience lower net sales during the first quarter, depending on the timing of any acquisitions. Management believes the Company's quarterly net sales will continue to be impacted by the seasonality of the restaurant business.
1st 2nd 3rd 4th (In thousands, except per share data) Quarter Quarter Quarter Quarter Net sales $268,537 $292,765 $336,349 $332,427 Gross profit 34,777 36,218 42,015 42,914 Operating profit 4,158 6,372 6,529 6,371 Earnings before income taxes 3,725 6,118 6,099 5,602 Net earnings 2,271 3,772 3,746 3,458 Basic net earnings per common share 0.19 0.32 0.31 0.28 Diluted net earnings per common share $ 0.19 $ 0.31 $ 0.30 $ 0.27
1st 2nd 3rd 4th (In thousands, except per share data) Quarter Quarter Quarter Quarter Net sales $173,059 $192,451 $202,401 $216,308 Gross profit 25,087 26,927 28,505 30,293 Operating profit 3,130 5,258 5,239 4,958 Earnings before income taxes 2,829 5,192 5,216 4,897 Net earnings 1,712 3,139 3,159 2,979 Basic net earnings per common share 0.17 0.27 0.27 0.26 Diluted net earnings per common share $ 0.16 $ 0.26 $ 0.26 $ 0.25
Item 8.
Item 8.	Financial Statements and Supplementary Data. 									 Page of Form 10-K 	Financial Statements:						 Report of Independent Auditors............. Consolidated Balance Sheets................ Consolidated Statements of Earnings........ 		Consolidated Statements of Shareholders' Equity.................................. Consolidated Statements of Cash Flows...... Notes to Consolidated Financial Statements. 					 	Financial Statement Schedules:	 		Independent Auditors' Report on Financial Statement 		 Schedule............................... S-1 		Schedule II - Valuation and Qualifying Accounts............................... S-2
Item 9.
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
	None
PART III
Item 10.
Item 10.	Directors and Executive Officers of the Registrant.
	The Proxy Statement issued in connection with the Shareholders' meeting to be held on April 29, 1998 contains under the caption "Proposal 1: Election of Directors" information required by Item 10 of Form 10-K and is incorporated herein by reference. Pursuant to General Instruction G(3), certain information concerning executive officers of the Company is included in Part I of this Form 10-K, under the caption "Executive Officers."
Item 11.
Item 11.	Executive Compensation.
	The Proxy Statement issued in connection with the Shareholders' meeting to be held on April 29, 1998 contains under the caption "Executive Compensation" information required by Item 11 of Form 10-K and is incorporated herein by reference.
Item 12.
Item 12.	Security Ownership of Certain Beneficial Owners and Management.
	The Proxy Statement issued in connection with the Shareholders' meeting to be held on April 29, 1998 contains under the captions "Security Ownership of Certain Beneficial Owners" and "Proposal 1: Election of Directors" information required by Item 12 of Form 10-K and is incorporated herein by reference.
Item 13.
Item 13.	Certain Relationships and Related Transactions.
	The Proxy Statement issued in connection with the Shareholders' meeting to be held on April 29, 1998 contains under the caption "Certain Transactions" information required by Item 13 of Form 10-K and is incorporated herein by reference.
	PART IV
Item 14.
Item 14.	Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a). 1. Financial Statements. See index to Consolidated Financial Statements on page 22 of this Form 10-K.
2. Financial Statement Schedules. See of page 22 this Form 10-K.
	3.	Exhibits:
A.	Incorporated by reference to the Company's Registration Statement on Form S-1 (No. 33-64930):
Exhibit Number Description
3.1	--	Restated Charter of Registrant.
3.2	--	Restated Bylaws of Registrant.
4.1	--	Specimen Common Stock certificate.
4.2	--	Article 5 of the Registrant's Restated Charter (included in Exhibit 3.1).
4.3	--	Article 6 of the Registrant's Restated Bylaws (included in Exhibit 3.2).
10.1	--	Loan Agreement dated May 17, 1984 by and between the Industrial Development Board of Wilson County, Tennessee and Kenneth O. Lester Company, Inc.
10.2	--	Promissory Note executed May 17, 1984 in favor of the Industrial Development Board of Wilson County, Tennessee.
10.3	--	Industrial Development Revenue Bond Series A due 1999.
10.4	--	Assignment from the Industrial Development Board of Wilson County to Wachovia Bank and Trust Company, N.A. dated May 17, 1984.
10.5	--	Guaranty Agreement dated May 17, 1984 from Kenneth O. Lester Company, Inc. to Wachovia Bank and Trust Company, N.A.
10.6	--	Loan Agreement dated July 7, 1988, as amended by various amendments thereto, by and between the Pocahontas Food Group, Inc. Employee Savings and Stock Ownership Trust, Sovran Bank/Central South, Trustee, Pocahontas Food Group, Inc., and Third National Bank, Nashville, Tennessee.
10.7	--	Guaranty Agreement dated July 7, 1988 by and between Pocahontas Food Group, Inc. and Third National Bank, Nashville, Tennessee.
10.8	--	Loan Agreement dated March 1, 1993, by and between Loubat-L.Frank, Inc. and Performance Food Group Company.
10.9	--	Promissory Note dated March 1, 1992 in favor of Performance Food Group Company.
10.10	--	Lease Agreement by and between the Kenneth O. Lester Company and K&F Development Company dated July 1, 1988, with an amendment thereto.
10.11	--	Commercial Lease Agreement between Alexander & Baldwin, Inc. and KMB Produce, Inc., a division of Caro Produce & Institutional Foods, Inc., dated November 20, 1991, as amended by Lease Amendment No. 1 thereto.
10.12	--	Lease Agreement by and between the Martin-Brower Company and KMB Produce, Inc. dated August 18, 1987.
10.13	--	1989 Non-Qualified Stock Option Plan.
10.14	--	1993 Employee Stock Incentive Plan.
10.15	--	1993 Outside Directors' Stock Option Plan.
10.16	--	Performance Food Group Employee Savings and Stock Ownership Plan.
10.17	--	Trust Agreement for Performance Food Group Employee Savings and Stock Ownership Plan.
10.18	--	Form of Pocahontas Food Group, Inc. Executive Deferred Compensation Plan.
10.19	--	Form of Indemnification Agreement.
10.20	--	Pledge Agreement dated March 31, 1993 by and between Hunter C. Sledd, Jr. and Pocahontas Foods, USA, Inc.
B.	Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1994:
Exhibit Number Description
10.21	--	First Amendment to the Trust Agreement for Pocahontas Food Group, Inc. Employee Savings and Stock Ownership Plan.
10.22	--	Performance Food Group Employee Stock Purchase Plan.
C.	Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended April 2, 1994:
Exhibit Number Description
10.23	--	Lease Agreement by and between C. O. Hurt and Hale Brothers/Summit, Inc. dated January 27, 1994.
10.24	--	Amendment to Loan Agreement dated March 4, 1994 by and among Performance Food Group Company Employee Savings and Stock Ownership Plan, First Tennessee Bank, N.A., Performance Food Group Company and Third National Bank, Nashville, Tennessee.
10.25	--	Corporate Guaranty dated March 16, 1994 by Performance Food Group Company in favor of Third National Bank, Nashville, Tennessee, for the account of Employers Self Insurers Fund.
D.	Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended October 1, 1994:
Exhibit Number Description
10.26	--	Amended and Restated Lease Agreement by and between Pocahontas Foods USA, Inc. and Taylor & Sledd, Inc. dated August 1, 1994.
10.27	--	Purchase Agreement by and between Performance Food Group Company and the Shareholder of Milton's Institutional Foods, Inc. dated November 3, 1994.
E. Incorporated by Reference to the Company's Report on Form 8-K dated January 3, 1995:
Exhibit Number Description
10.28	--	Second Amendment to Loan Agreement dated January 3, 1995 between Performance Food Group Company, Employee Savings and Stock Ownership Trust, First Tennessee Bank, N.A. as trustee, Performance Food Group Company and Third National Bank, Nashville, Tennessee.
F.	Incorporated by Reference to the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 1995:
Exhibit Number Description
10.29	--	Employment agreement dated May 17, 1995 by and between Performance Food Group Company and Jerry J. Caro.
G.	Incorporated by Reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 28, 1996:
Exhibit Number Description
10.30	--	Revolving Credit Agreement dated July 8, 1996 by and between Performance Food Group Company and First Union National Bank of Virginia. H. Incorporated by Reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996.
Exhibit Number Description
10.31	--	Performance Food Group Company Employee Savings and Stock Ownership Plan Savings Trust.
I. Incorporated by Reference to the Company's Report on Form 8-K dated January 13, 1997 (as amended by a Form 8-K/A dated March 13, 1997):
Exhibit Number Description
10.32 -- Asset Purchase Agreement, dated October 22, 1996 by and among Performance Food Group Company, 		McLane Foodservice - Temple, Inc. and McLane Company, Inc. and an amendment thereto.
J. Incorporated by Reference to the Company's Report on Form 8-K dated May 20, 1997:
Exhibit Number Description
10.33	--	Rights Agreement dated as of May 16, 1997 between Performance Food Group Company and First Union 	 National Bank of North Carolina, as Rights Agent.
K. Incorporated by Reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 27, 1997:
Exhibit Number Description
10.34	--	Amendment No. 1 to Revolving Credit Agreement dated as of August 28, 1997 by and among Performance 		Food Group Company and First Union National Bank.
10.35	--	Participation Agreement dated as of August 29, 1997 among Performance Food Group Company, First 		Security Bank, National Association and First Union National Bank (as agent for the Lenders and Holders).
10.36	--	Lease Agreement dated as of August 29, 1997 between First Security Bank, National Association and 		Performance Food Group Company.
L. Filed herewith:
Exhibit Number Description
10.37	--	Second Amendment to Revolving Credit Agreement dated December 15, 1997 by and among Performance 		Food Group Company and First Union National Bank.
Exhibit Number Description
10.38 -- Form of Change in Control Agreement dated October 29, 1997 with Blake P. Auchmoody, John Austin, Roger L. Boeve, John R. Crown, Charles M. Gray, Thomas Hoffman, Mark Johnson, Ken Peters, Robert C. Sledd and David W. Sober.
10.39 -- Form of Change in Control Agreement dated October 29, 1997 with certain key executives.
21 -- List of Subsidiaries.
23.1 -- Consent of Independent Auditors.
27 -- Financial Data Schedule (SEC purposes only).
(b) During the fourth quarter ended December 27, 1997, the Company filed no reports on Form 8-K.
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, in the City of Richmond, State of Virginia, on March 24, 1998.
PERFORMANCE FOOD GROUP COMPANY
By: /s/ Robert C. Sledd Robert C. Sledd, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date
/s/Robert C. Sledd Chairman, Chief Executive Officer March 24, 1998 Robert C. Sledd and Director [Principal Executive Officer
/s/ C. Michael Gray President, Chief Operating Officer March 24, 1998 C. Michael Gray and Director
/s/ Roger L. Boeve Executive Vice President and Chief March 24, 1998 Roger L. Boeve Financial Officer [Principal Financial Officer and Principal Accounting Officer]
/s/ David W. Sober Vice President and Secretary March 24, 1998 David W. Sober
/s/ Charles E. Adair Director March 24, 1998 Charles E. Adair
/s/ Jerry J. Caro Director March 24, 1998 Jerry J. Caro
/s/ Fred C. Goad, Jr. Director March 24, 1998 Fred C. Goad, Jr.
/s/ Timothy M. Graven Director March 24, 1998 Timothy M. Graven
Report of Independent Auditors
The Board of Directors Performance Food Group Company:
We have audited the accompanying consolidated balance sheets of Performance Food Group Company and subsidiaries as of December 27, 1997 and December 28, 1996, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the fiscal years in the three-year period ended December 27, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with 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 include assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Performance Food Group Company and subsidiaries as of December 27, 1997 and December 28, 1996, and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended December 27, 1997, in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Richmond, Virginia February 9, 1998
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF EARNINGS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ____________________________________________________________
December 27, 1997 and December 28, 1996
1.	Description of Business
Performance Food Group Company and subsidiaries (the "Company") is engaged in the marketing, processing and sale of food and food-related products to the foodservice, or "away-from- home eating," industry. The foodservice industry consists of two major customer types: "traditional" foodservice customers consisting of independent restaurants, hotels, cafeterias, schools, healthcare facilities and other institutions; and "multi-unit chain" customers consisting of regional and national quick-service restaurants and casual dining restaurants. Products and services provided to the Company's traditional and multi-unit chain customers are supported by identical physical facilities, vehicles, equipment, systems and personnel. Most of the Company's customers are located in the Southern, Southwestern, Midwestern and Northeastern United States.
The Company operates through the following subsidiaries and division: Pocahontas Foods, USA, Inc.; Caro Foods, Inc. and subsidiaries ("Caro"); Kenneth O. Lester Company, Inc. ("KOL"); Hale Brothers/Summit, Inc.; Milton's Foodservice, Inc. ("Milton's"); Performance Food Group of Texas, LP ("PFG of Texas"); W.J. Powell Company, Inc. ("Powell"); AFI Food Service Distributors, Inc. ("AFI"); and the B&R Foods division.
The Company uses a 52/53 week fiscal year ending on the Saturday closest to December 31. The fiscal years ended December 27, 1997, December 28, 1996 and December 30, 1995 (all 52 week years) are referred to herein as 1997, 1996 and 1995, respectively.
2.	Summary of Significant Accounting Policies
	(a)	Principles of Consolidation
The consolidated financial statements include the accounts of Performance Food Group Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
	(b)	Revenue Recognition and Receivables
Sales are recognized upon the shipment of goods to the customer. Trade accounts and notes receivable represent receivables from customers in the ordinary course of business. Such amounts are recorded net of the allowance for doubtful accounts in the accompanying consolidated balance sheets. The provision for doubtful accounts recorded by the Company was approximately $331,000, $1,150,000 and $1,762,000 in 1997, 1996 and 1995, respectively.
(c)	Inventories
The Company values inventory at the lower of cost or market using both the first-in, first-out (FIFO) and last-in, first-out (LIFO) methods. Approximately 8% of the Company's inventories are accounted for using the LIFO method. Inventories consist primarily of food and food-related products.
(d)	Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment is calculated primarily using the straight-line method over the estimated useful lives of the assets.
When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts. The difference between the net book value of the asset and proceeds from disposition is recognized as a gain or loss. Routine maintenance and repairs are charged to expense as incurred, while costs of betterments and renewals are capitalized.
(e)	Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes, which requires the use of the asset and liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts. Future tax benefits, including net operating loss carryforwards, are recognized to the extent that realization of such benefits is more likely than not.
(f)	Intangible Assets
Intangible assets consist primarily of the excess of the purchase price over the fair value of tangible net assets acquired (goodwill) related to purchase business combinations, costs allocated to customer lists, non-competition agreements and deferred loan costs. These intangible assets are being amortized on a straight-line basis over their estimated useful lives, which range from 5 to 40 years. Amortization expense on these assets is combined with depreciation expense in these consolidated financial statements.
(g)	Net Earnings Per Common Share
During 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings Per Share, which requires the presentation of both basic and diluted earnings per share. Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using the weighted average common shares and potential dilutive common shares, calculated using the treasury stock method, outstanding during the period. Potential dilutive common shares consist of options issued under various stock plans described in note 12, which represent dilutive shares in accordance with SFAS No. 128.
	(h)	Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation. This new accounting standard encourages, but does not require, companies to record compensation costs for stock-based compensation plans using a fair-value based method of accounting for employee stock options and similar equity instruments. The Company has elected to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock (see note 12).
	(i)	Accounting Estimates
The preparation of the consolidated financial statements, in conformity with generally accepted accounting principles, requires management to make estimates that affect the reported amounts of assets, liabilities, sales and expenses. Actual results could differ from those estimates. 		
(j)	Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires the disclosure of fair value information regarding financial instruments whether or not recognized on the balance sheet, for which it is practical to estimate that value. At December 27, 1997 and December 28, 1996, the carrying value of cash, trade accounts and notes receivable, outstanding checks in excess of deposits, trade accounts payable and accrued expenses approximate their fair value due to the relatively short maturity of those instruments. The carrying value of the Company's long-term debt approximates fair value due to the variable nature of the interest rate charged on such borrowings.
(k)	Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, in 1996. This accounting standard requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Adoption of SFAS No. 121 did not have a material impact on the Company's financial position, results of operations or liquidity.
	(l)	Reclassifications
Certain amounts in the 1996 and 1995 consolidated financial statements have been reclassified to conform with the 1997 presentation.
3.	Concentration of Sales and Credit Risk
Two of the Company's customers, Cracker Barrel Old Country Stores, Inc. ("Cracker Barrel") and Outback Steakhouse, Inc. ("Outback"), account for a significant portion of the Company's consolidated net sales. Net sales to Cracker Barrel accounted for 22%, 30% and 29% of consolidated net sales for 1997, 1996 and 1995, respectively. Net sales to Outback accounted for 16%, 19% and 15% of consolidated net sales for 1997, 1996 and 1995, respectively. At December 27, 1997, amounts receivable from these two customers represented 16% of total trade receivables.
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of trade accounts receivable. As discussed above, a significant portion of the Company's sales and related receivables are generated from two customers. The remainder of the Company's customer base includes a large number of individual restaurants, national and regional chain restaurants and franchises, and other institutional customers. The credit risk associated with trade receivables is minimized by the Company's large customer base and ongoing control procedures which monitor customers' credit worthiness.
4.	Business Combinations
On December 30, 1996, the Company acquired certain net assets of McLane Foodservice-Temple, Inc. ("McLane Foodservice"), which was a wholly-owned subsidiary of McLane Company, Inc., based in Temple, Texas. McLane Foodservice had 1996 net sales of approximately $180 million. The Company operates the former business of McLane Foodservice as PFG of Texas through distribution centers in Temple and Victoria, Texas that provide food and food-related products to traditional foodservice customers as well as multi-unit chain restaurants and vending customers. The purchase price of approximately $30.5 million was financed with proceeds from an existing credit
facility. Simultaneous with the closing, the Company also purchased the distribution center located in Victoria, Texas from an independent third party for approximately $1.5 million.
During 1997, the Company completed the acquisitions of a number of foodservice distributors, including the acquisition of Tenneva Foodservice, Inc. ("Tenneva") on April 11, 1997, Central Florida Finer Foods, Inc. ("CFFF") on May 12, 1997, Powell on June 28, 1997 and AFI on October 31, 1997. The operations of Tenneva and CFFF have been combined with the operations of certain of the Company's existing subsidiaries. Collectively, these companies had 1996 net sales of approximately $130 million. The aggregate purchase price of the acquisitions was approximately $39 million, plus the assumption of approximately $12 million of debt. The aggregate purchase price for the acquisitions was financed by issuing 660,827 shares of the Company's commons stock, $7 million of promissory notes due January 2, 1998 and the remainder with proceeds from the Credit Facility. The aggregate consideration payable to the former shareholders of Powell and AFI is subject to increase in certain circumstances.
These acquisitions have been accounted for using the purchase method and, accordingly, the acquired assets and liabilities have been recorded at their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of tangible net assets acquired was approximately $44.2 million and is being amortized on a straight-line basis over estimated lives ranging from 5 to 40 years.
The consolidated statements of earnings and cash flows reflect the results of these acquired companies from the date of acquisition through December 27, 1997. The unaudited consolidated results of operations on a pro forma basis as though these acquisitions had been consumated as of the beginning of 1996 are as follows (in thousands, except per share amounts):
1997 1996
Net sales $ 1,314,211 $ 1,074,914 Gross profit 171,176 155,339 Net earnings 13,172 11,721 Basic net earnings per common share 1.06 0.99 Diluted net earnings per common share $ 1.02 $ 0.95
The pro forma results are presented for information only and are not necessarily indicative of the operating results that would have occurred had the these acquisitions been consummated as of the above date.
5.	Property, Plant and Equipment
Property, plant and equipment as of December 27, 1997 and December 28, 1996 consist of the following (in thousands):
1997 1996 Land $ 3,638 $ 3,136 Buildings and building improvements 53,815 41,833 Transportation equipment 14,408 9,911 Warehouse and plant equipment 22,690 20,398 Office equipment, furniture and fixtures 10,957 8,000 Leasehold improvements 1,089 3,095 Construction-in-process 1,770 2,160 108,367 88,533 Less accumulated depreciation and amortization 36,557 32,836
Property, plant and equipment, net $ 71,810 $55,697
6.	Supplemental Cash Flow Information (in thousands)
1997 1996 1995 Cash paid during the year for: Interest $ 1,816 $ 816 $ 2,540 Income taxes $ 6,583 $ 5,853 $ 5,011 Effects of companies acquired: Fair value of assets acquired $101,536 $ - $ 32,544 Fair value of liabilities assumed (30,390) - (10,002) Stock issued for acquisitions (16,515) - - Net cash paid for acquisitions $ 54,631 $ - $ 22,542 Non-cash financing activities: Retirement of common stock in connection with exercise of employee stock options $ - $ - $ 331
7. Long-term Debt
Long-term debt as of December 27, 1997 and December 28, 1996 consists of the following (in thousands):
1997 1996
Revolving credit facility $ 34,284 $ 3,621 Promissory notes payable 7,278 - ESOP loan 3,367 3,835 Other notes payable 337 419 45,266 7,875 Less current maturities 689 650 Long-term debt, excluding current installments $ 44,577 $ 7,225
Revolving Credit Facility
The Company has a $50.0 million revolving credit facility (the "Credit Facility") with a commercial bank which expires in February 2001. The Credit Facility supports up to $5.0 million letters of credit. At December 27, 1997, the Company was contingently liable for outstanding letters of credit of $4.1 million, which reduced amounts available under the Credit Facility. The Credit Facility bears interest at LIBOR plus a spread over LIBOR, which varies based on the ratio of funded debt to total capital. At December 27, 1997, the interest rate on the Credit Facility was 6.14%. The weighted average interest rate for 1997 was 5.71%. The Credit Facility requires the maintenance of certain financial ratios, as defined, regarding debt to tangible net worth, cash flow coverage and current assets to current liabilities. Subsequent to year end, the Company amended the Credit Facility to increase amounts available under the facility to $60.0 million.
Promissory Notes Payable
On October 31, 1997, the Company issued promissory notes to former shareholders of AFI in connection with that purchase business combination (see note 4), which are payable on January 2, 1998. The notes bear interest at the same rate as the Company's Credit Facility. The promissory notes are secured by $7.3 million of letters of credit obtained from a commercial bank. Subsequent to year end, the promissory notes were paid with proceeds from the Credit Facility and, accordingly, are classified as non-current.
ESOP Loan
The Company sponsors a leveraged employee stock ownership plan that was financed with proceeds of a note payable to a commercial bank (the "ESOP loan"). The ESOP loan is secured by the common stock of the Company acquired by the employee stock ownership plan and is guaranteed by the Company. The loan is payable in quarterly installments of $170,000 which includes interest based on LIBOR plus a spread over LIBOR (5.74% at December 27, 1997). The loan matures in 2003.
Maturities of long-term debt are as follows (in thousands):
1998 $ 689 1999 7,894 2000 578 2001 34,898 2002 637 Thereafter 570 Total maturities of long-term debt $ 45,266
8. Shareholders' Equity
In March 1996, the Company completed an offering of 2,916,824 shares of common stock, of which the Company sold 2,255,455 shares with the remaining shares sold by selling shareholders. Net proceeds of the offering were approximately $33.3 million, which were used to repay a $30.0 million long term loan and approximately $3.3 million outstanding under a revolving credit facility.
In June 1996, the Company's Board of Directors declared a three-for- two stock split effected in the form of a 50% stock dividend paid on July 15, 1996 to shareholders of record on July 1, 1996. The split resulted in the issuance of 3,874,807 shares of common stock. All references in these consolidated financial statements to shares, share prices, net earnings per share and stock plans have been restated to reflect the split.
In May 1997, the Company's Board of Directors declared a dividend of one Stock Purchase Right (a "Right") per share of the Company's common stock outstanding on May 30, 1997. A Right will also accompany each share of common stock issued subsequent to that date. Each Right, when it first becomes exercisable, entitles the holder to purchase from the Company one-hundredth of one share of Preferred Stock, at an initial exercise price of $100 per one-hundredth of one share.
9. Leases
The Company leases various warehouse and office facilities and certain equipment under long-term operating lease agreements that expire at various dates. At December 27, 1997, the Company is obligated under operating lease agreements to make future minimum lease payments as follows (in thousands):
1998 $ 8,102 1999 7,796 2000 6,775 2001 5,275 2002 4,479 Thereafter 25,821 Total minimum lease payments $ 58,248
Total rental expenses for operating leases in 1997, 1996 and 1995 was approximately $9,075,000, $7,900,000 and $6,177,000, respectively.								 	 On September 12, 1997, the Company completed a $42.0 million master operating lease agreement to construct new distribution centers planned to become operational in 1998. Under this agreement, the lessor owns the distribution centers, incurs the related debt to construct the facilities and thereafter leases each facility to the Company. The Company has entered into a commitment to lease each facility for a period beginning upon completion of each property and ending on September 12, 2002, including extensions. Upon the expiration of each lease, the Company has the option to renegotiate the lease, sell the facility to a third party or purchase the facility at its original cost. If the Company does not exercise its purchase options, the Company has significant residual value guarantees of each property. The Company expects the fair value of the properties included in this agreement to eliminate or substantially reduce the Company's exposure under the residual value guarantee. At December 27, 1997, construction has commenced on one facility with expenditures to date of approximately $1.1 million, which costs have been borne by the lessor. Total expenditures for this facility are anticipated to be approximately $13 million.
10.	Income Taxes								 									 	Income tax expense (benefit) consists of the following (in thousands):								
1997 1996 1995
Current: Federal $ 6,800 $ 6,530 $ 4,874 State 256 562 490 7,056 7,092 5,364
Deferred: Federal 1,174 41 (235) State 67 12 (41) 1,241 53 (276) Total income tax expense $ 8,297 $ 7,145 $ 5,088
The effective income tax rates for 1997, 1996 and 1995 were 38.5%, 39.4% and 39.1%, respectively. Actual income tax expense differs from the amount computed by applying the applicable U.S. Federal corporate income tax rate to earnings before income taxes as follows (in thousands):										
1997 1996 1995
Federal income taxes computed at statutory rate $ 7,441 $ 6,247 $ 4,454 Increase in income taxes resulting from: State income taxes, net of Federal income tax benefit 210 372 292 Non-deductible expenses 135 107 88 Amortization of goodwill 164 139 194 Other, net 347 280 60 Total income tax expense $ 8,297 $ 7,145 $ 5,088
Deferred taxes are recorded based upon the tax effects of differences between the financial statement and tax basis of assets and liabilities and available tax loss carryforwards. Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities at December 27, 1997 and December 28, 1996 are as follows (in thousands):	 						 1997 1996
Deferred tax assets: Allowance for doubtful accounts $ 945 $ 906 Inventories, principally due to costs capitalized for tax purposes in excess of those capitalized for financial statement purposes 814 588 Reserves for incurred but not reported self-insurance claims 1,114 1,343 State operating loss carryforwards 551 924 Other 372 120 Total gross deferred tax assets 3,796 3,881 Less valuation allowance (258) (627) Net deferred tax assets 3,538 3,254
Deferred tax liabilities: Property, plant and equipment (3,513) (4,337) Inventories, due to basis differences resulting from acquisitions (1,111) - Deferred gain (1,599) - Other (450) (223) Total gross deferred tax liabilities (6,673) (4,560) Net deferred tax liability $ (3,135) $ (1,306)
The net deferred tax liability is presented in the December 27, 1997 and December 28, 1996 consolidated balance sheets as follows (in thousands):			
1997 1996 Current deferred tax asset $ 388 $ 2,771 Noncurrent deferred tax Liability (3,523) (4,077) Net deferred tax liability $ (3,135) $ (1,306)
The net change in the valuation allowance was a decrease of $369,000 and $131,000 in 1997 and 1996, respectively, and an increase of $84,000 in 1995. The valuation allowance primarily relates to state net operating loss carryforwards of certain of the Company's subsidiaries. The Company believes the deferred tax assets, net of the valuation allowance, will more likely than not be realized.
11. Employee Benefits
	(a)	Employee Savings and Stock Ownership Plan
The Company sponsors the Performance Food Group Company Employee Savings and Stock Ownership Plan (the "ESOP"). The ESOP consists of two components: a leveraged employee stock ownership plan and a defined contribution plan covering substantially all full-time employees.
In 1988, the ESOP acquired 1,821,398 shares of the Company's common stock from existing shareholders, which were financed with assets transferred from predecessor plans and the proceeds of the ESOP loan. The Company is required to make contributions to the ESOP equal to the principal and interest amounts due on the ESOP loan. Accordingly, the outstanding balance of the ESOP loan is included in the Company's consolidated balance sheets as a liability with an offsetting amount included as a reduction of shareholders' equity.
The ESOP expense recognized by the Company is equal to the principal portion of the required payments. Interest on the ESOP loan is recorded as interest expense. The Company contributed approximately $680,000 in each of 1997, 1996 and 1995 to the ESOP. These amounts include interest expense on the ESOP loan of approximately $212,000, $260,000 and $318,000 in 1997, 1996 and 1995, respectively. At December 31, 1997, 902,249 shares had been allocated to participant accounts and 541,284 shares were held as collateral for the ESOP loan.
Employees participating in the defined contribution component of the ESOP may elect to contribute from 1% to 10% of their qualified salary under the provisions of Internal Revenue Code Section 401(k). Beginning in 1997, the Company matched one half of the first 3% of employee deferrals under the plan. Total matching contributions in 1997 were $549,000. The Company, at the discretion of its board of directors, may make additional contributions to the ESOP. The Company made no discretionary contributions under the defined contribution portion of the ESOP in 1997, 1996 or 1995.
The Company has also adopted a deferred compensation plan covering certain employee-shareholders who are not eligible to participate in the ESOP. The cost of this plan was approximately $28,000, $37,000 and $38,000 in 1997, 1996 and 1995, respectively.
(b)	Employee Health Benefit Plans
The Performance Food Group Company Health Care Plan is a self- insured, comprehensive health benefit plan designed to provide insurance coverage to all full-time employees and their dependents. The Company provides an accrual for its estimated liability for these self-insured benefits, including an estimate for incurred but not reported claims. This accrual is included in accrued expenses in the consolidated balance sheets. The Company provides no post- retirement benefits to former employees.
12.	Stock Plans
The Company sponsors a number of stock-based compensation plans which are described below. As discussed in note 2 to the consolidated financial statements, the Company applies APB Opinion No. 25 in accounting for these plans. Accordingly, no compensation cost has been recognized for its stock option plans and its stock purchase plan. The per share weighted-average fair value of stock options granted in 1997, 1996 and 1995 was $ 10.58, $11.38 and $9.79, respectively, on the date of grant using the Black- Scholes option pricing model with the following assumptions: 1997 - - expected dividend yield of 0%, risk free interest rate of 6.14%, volatility 46.5% and an expected life of 7.6 years; 1996 - expected dividend yield of 0%, risk free interest rate of 5.46%, volatility of 47.5% and an expected life of 6.1 years; 1995 - expected dividend yield of 0%, risk free interest rate of 7.45%,
volatility of 58.4% and an expected life of 6.6 years. Had the Company recognized compensation cost in accordance with the provisions of SFAS No. 123, the Company's pro forma net earnings and net earnings per share for 1997, 1996 and 1995 would have been as follows (in thousands, except per share amounts):
1997 1996 1995 Net earnings as reported $ 13,247 $ 10,989 $ 7,923 Net earnings pro forma 12,377 10,383 7,759
Basic net earnings per common share as reported $ 1.11 $ 0.98 $ 0.86 Basic net earnings per common share pro forma 1.03 0.93 0.84
Diluted net earnings per common share as reported $ 1.06 $ 0.94 $ 0.82 Diluted net earnings per common share pro forma 0.99 0.89 0.81
Pro forma net earnings only reflects options granted in 1997, 1996 and 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the amounts above since compensation cost is recognized over the options' vesting period. Compensation costs for options granted prior to 1995 have not been considered in accordance with SFAS No. 123.
	(a)	Stock Option and Incentive Plans
The Company sponsors the 1989 Nonqualified Stock Option Plan (the "1989 Plan"). The options vest ratably per year over a four year period from date of grant. At December 27, 1997, 480,641 options were outstanding, all of which were exercisable. No grants have been made under the 1989 Plan after July 21, 1993.
The Company sponsors the 1993 Outside Directors Stock Option Plan (the "Directors Plan"). A total of 105,000 shares have been authorized in the Directors Plan. The Directors Plan provides for an initial option grant to each director of the Company who is not also an employee of the Company to purchase 5,250 shares and an annual option grant to purchase 2,500 shares at the then current market price. Options granted under the Directors Plan totaled 7,500 in 1997 and 4,500 in 1996 and 1995. These options vest one year from the date of grant. At December 27, 1997, 36,750 options were outstanding, of which 29,250 were exercisable.
The Company also sponsors the 1993 Employee Stock Incentive Plan (the "1993 Plan") that provides for the award of up to 1,125,000 shares of common stock to officers, key employees and consultants of the Company. Awards under the 1993 Plan may be in the form of stock options, stock appreciation rights, restricted stock, deferred stock, stock purchase rights or other stock-based awards. The terms of grants under the 1993 Plan are established at the date of grant. No grants of common stock or related rights were made in 1997, 1996 or 1995. Stock options granted under the 1993 Plan totaled 122,100, 295,771 and 141,000 for 1997, 1996 and 1995, respectively. Options granted in 1997 and 1996 vest four years from the date of the grant. Options granted in 1995 vest ratably over a four year period from the date of the grant. At December 27, 1997, 533,248 options were outstanding, of which 59,557 were exercisable.
The following table summarizes the transactions pursuant to the Company's stock option plans for the three-year period ended December 27, 1997:
Number of Option Price Shares Per Share Outstanding at December 31, 1994 818,187 $ 3.67 to $14.17 Granted 145,500 10.00 to 16.00 Exercised (137,764) 3.67 to 13.17 Canceled (21,719) 3.67 to 13.17 Outstanding at December 30, 1995 804,204 $ 3.67 to $16.00 Granted 300,271 14.50 to 18.33 Exercised (66,579) 3.67 to 10.00 Canceled (21,734) 6.05 to 14.50 Outstanding at December 28, 1996 1,016,162 $ 3.67 to $18.33 Granted 129,600 15.56 to 21.00 Exercised (86,972) 3.67 to 14.50 Canceled (8,151) 6.05 to 16.50 Outstanding at December 27, 1997 1,050,639 $ 3.67 to $21.00
The following table summarizes information about stock option outstanding at December 27, 1997:
Weighted Options Average Weighted Options Weighted Outstanding Remaining Average Exercisable Average Range of at Dec. 27, Contractual Exercise at Dec. 27, Exercise Exercise Price 1997 Life Price 1997 Price
$ 3.67 - $ 6.05 480,641 2.87 $ 4.83 480,641 $ 4.83 $ 7.83 - $14.50 428,698 7.75 12.99 82,807 10.21 $15.56 - $21.00 141,300 9.50 17.86 6,000 17.75
1,050,639 569,448
(b)	 Employee Stock Purchase Plan
The Company maintains the Performance Food Group Employee Stock Purchase Plan (the "Stock Purchase Plan"), which permits eligible employees to invest by means of periodic payroll deductions in the Company's common stock at 85% of the lesser of the market price or the average market price as defined in the plan document. A total of 262,500 shares have been authorized for the Stock Purchase Plan. At December 27, 1997, subscriptions were outstanding for approximately 26,000 shares at $18.94 per share under the Stock Purchase Plan.
13.	Related Party Transactions
The Company leases land and buildings from certain shareholders and members of their families. The Company made lease payments of approximately $604,000, $933,000 and $819,000 in 1997, 1996 and 1995, respectively. The Company believes the terms of these leases are no less favorable than those which would have been obtained from unaffiliated parties.
In addition, the Company paid approximately $294,000, $1,261,000 and $1,322,000 in 1997, 1996 and 1995, respectively, to a company which is owned by a shareholder of the Company and a member of his family, for transportation services.
14.	Contingencies
	The Company is engaged in various legal proceedings which have arisen in the normal course of business, but have not been fully adjudicated. In the opinion of management, the outcome of these proceedings will not have a material adverse effect on the Company's consolidated financial condition or results of operations.
Independent Auditors' Report on Financial Statement Schedule
The Board of Directors Performance Food Group Company:
Under date of February 9, 1998, we reported on the consolidated balance sheets of Performance Food Group Company and subsidiaries as of December 27, 1997 and December 28, 1996, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the fiscal years in the three-year period ended December 27, 1997, as contained in the 1997 annual report to shareholders. These consolidated financial statements and our report thereon are included in the 1997 annual report on Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basiC consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ KPMG PEAT MARWICK LLP
Richmond, Virginia February 9, 1998
S-1
	SCHEDULE II
	PERFORMANCE FOOD GROUP COMPANY AND SUBSIDIARIES
	VALUATION AND QUALIFYING ACCOUNTS 	(in thousands)
Beginning Ending Balance Additions Deductions Balance _______________________________________________________ Charged to Charged to Expense Other Accounts
Allowance for Doubtful Accounts December 30, 1995 $887 $1,762 $349 $1,229 $1,769
December 28, 1996 $1,769 $1,150 - $619 $2,300
December 27, 1997 $2,300 $331 $648 $599 $2,680
S-2
Exhibit Index
Exhibit Number				Description
10.37	- - 	Second Amendment to Revolving Credit Agreement dated December 15, 1997 by and among Performance Food Group Company and First Union National Bank.
10.38 -- Form of Change in Control Agreement dated October 29, 1997 with Blake P. Auchmoody, John Austin, Roger L. Boeve, John R. Crown, Charles M. Gray, Thomas Hoffman, Mark Johnson, Ken Peters, Robert C. Sledd and David W. Sober.
10.39 -- Form of Change in Control Agreement dated October 29, 1997 with certain key executives.
21 - - List of Subsidiaries
23.1 - - 	Consent of Independent Auditors.
27 	- -	Financial Data Schedule (SEC use only)