As filed with the Securities and Exchange Commission on June 11, 1998
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Form S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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FRED MEYER, INC.
(Exact name of registrant as specified in charter)
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Delaware 91-1826443
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
3800 SE 22nd Avenue
Portland, Oregon 97202
(503) 232-8844
(Address and Telephone Number of Registrant's Principal Executive Offices)
---------------
Roger A. Cooke
Senior Vice President, General Counsel and Secretary
Fred Meyer, Inc.
3800 SE 22nd Avenue
Portland, OR 97202
(503) 232-8844
(Name, address and telephone number of agent for service)
Copy to:
Margaret Hill Noto Thomas C. Sadler
John R. Thomas Cynthia A. Rotell
Stoel Rives LLP Latham & Watkins
900 SW Fifth Avenue 633 West Fifth Street, Suite 4000
Portland, Oregon 97204-1268 Los Angeles, California 90071-2007
Approximate date of commencement of proposed sale to the public:
From time to time after the date this Registration Statement becomes effective.
If the only securities being registered on this Form are to be offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ___________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ___________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed
Proposed Maximum
Title of Securities Amount To Be Maximum Offering Aggregate Offering Amount of
To Be Registered Registered Price Per Share (1) Price (1) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value 17,360,478 shares $44.3125 $769,286,182 $226,940
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933. The calculation of
the registration fee is based on $44.3125, which was the average of the
high and low prices of the Common Stock on the New York Stock Exchange
Composite Tape on June 10, 1998.
</TABLE>
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said section 8(a), may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 11, 1998
PROSPECTUS SUPPLEMENT
, 1998 [Fred Meyer Logo]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such state.
12,820,419 Shares
FRED MEYER, INC.
Common Stock
All of the shares of common stock, $.01 par value (the "Common Stock"), of
Fred Meyer, Inc. (the "Company" or "Fred Meyer") offered hereby (the "Offering")
are being sold by certain stockholders of the Company (the "Selling
Stockholders"). The Company will not receive any of the proceeds from the
Offering. See "Principal and Selling Stockholders."
The Common Stock is listed on the New York Stock Exchange under the symbol
"FMY." On June 10, 1998, the last reported sale price of the Common Stock on the
New York Stock Exchange Composite Tape was $44 per share.
See "Risk Factors" beginning on page S-10 for information that should be
considered by prospective investors.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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Underwriting Discounts and Proceeds to the Selling
Price to Public Commissions(1) Stockholders (2)
<S> <C> <C> <C>
Per Share $ $ $
Total(3) $ $ $
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Includes $ to be paid to the Company representing the exercise price of
options to purchase Common Stock being sold in the Offering at
approximately $ per share. See "Principal and Selling Stockholders."
Certain expenses associated with the Offering, estimated at $825,000, are
payable by the Company. (3) The Selling Stockholders have granted to the
Underwriters a 30-day option to purchase up to 1,282,043 additional shares
of Common Stock solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to the Selling Stockholders will be $ , $ , and
$ , respectively. See "Underwriting."
</TABLE>
The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by the Underwriters, subject to
various prior conditions, including their right to reject any order in whole or
in part. It is expected that delivery of share certificates will be made in New
York, New York, on or about , 1998, against payment therefor in immediately
available funds.
Donaldson, Lufkin & Jenrette
Securities Corporation
Goldman, Sachs & Co.
Morgan Stanley Dean Witter
Salomon Smith Barney
<PAGE>
[ARTWORK OMITTED]
[COMPANY LOGO, FIVE STORE BANNERS, AND
GEOGRAPHIC DEPICTION OF STORE LOCATION]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING TRANSACTIONS, SYNDICATE COVERING TRANSACTIONS, AND THE
IMPOSITION OF PENALTY BIDS. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN
CONNECTION WITH THE OFFERING AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON
STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
S-2
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain information set forth or incorporated by reference in this
Prospectus Supplement and the accompanying Prospectus contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). These forward-looking statements
include information regarding the Company's plans for future operations,
expectations relating to cost savings and the Company's integration strategy
with respect to its recent mergers, store expansion and remodeling, capital
expenditures, inventory reductions and expense reductions. The following
factors, as well as those discussed under "Risk Factors," are among the
principal factors that could cause actual results to differ materially from the
forward-looking statements: business and economic conditions generally and in
the regions in which the Company's stores are located, including the rate of
inflation, population, employment and job growth in the Company's markets;
demands placed on management by the recent substantial increase in the Company's
size; loss or retirement of senior management of the Company or of its principal
operating subsidiaries; changes in the availability of debt or equity capital
and increases in borrowing costs or interest rates, especially since a
substantial portion of the Company's borrowings bear interest at floating rates;
competitive factors, such as increased penetration in the Company's markets by
large national food and nonfood chains, large category-dominant stores and large
national and regional discount retailers (whether existing competitors or new
entrants) and competitive pressures generally, which could include price-cutting
strategies, store openings and remodels; results of the Company's programs to
decrease costs as a percent of sales; increases in labor costs and deterioration
in relations with the union bargaining units representing the Company's
employees; unusual unanticipated costs or unanticipated consequences relating to
the recent mergers and integration strategy and any delays in the realization
thereof; operational inefficiencies in distribution or other Company systems,
including any that may result from the recent mergers; issues arising from
addressing year 2000 information technology issues; legislative or regulatory
changes adversely affecting the business in which the Company is engaged; and
other opportunities or acquisitions which may be pursued by the Company.
Forward-looking statements contained herein speak only as of the date hereof.
The Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
S-3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Certain documents filed, or filed after the date hereof, by the Company,
Quality Food Centers, Inc. and Food 4 Less Holdings, Inc. with the SEC pursuant
to the Exchange Act are incorporated by reference in the accompanying
Prospectus. See "Incorporation of Certain Documents by Reference" on page 2 of
the accompanying Prospectus.
MARKET AND INDUSTRY DATA
Unless otherwise expressly stated or the context otherwise requires, (i)
references to the "Pacific Northwest" region are references to the States of
Oregon, Washington and Alaska; (ii) references to "Southern California" are
references to the Counties of Los Angeles, Orange, Riverside, San Bernardino,
Santa Barbara, Kern, Ventura and San Diego in the State of California; (iii)
references to the "Seattle/Puget Sound Region" are references to King,
Snohomish, Pierce and Kitsap Counties in the State of Washington; (iv)
references to the "Intermountain" region are references to the States of Idaho,
Montana, Utah and Wyoming; and (v) references to the "Southwest" region are
references to the States of Arizona, Nevada, New Mexico, and Texas.
The information contained herein includes certain demographic and economic
information for the Pacific Northwest, Intermountain and Southwest regions of
the United States, for Southern California and for the Seattle/Puget Sound
Region, and also includes certain data regarding the U.S. food retailing
industry and certain food retailers. Although the Company has obtained such
information from sources management believes are reliable, it has not
independently verified any such information and there can be no assurance as to
its accuracy. In addition, historical increases in population or jobs or
decreases in unemployment in any area do not purport to be indicative of whether
population, jobs or unemployment will increase or decrease in the future.
Further, because the Company's competitors generally do not make available
information regarding their sales in these specific regions, market share
information is subject to a number of estimates and assumptions and, while
management believes such information to be reliable, there can be no assurance
as to its accuracy.
S-4
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following is a summary of certain information contained elsewhere
herein or in the accompanying Prospectus or in the documents incorporated by
reference herein or therein. This summary is qualified in its entirety by
reference to such information. Except as otherwise noted, all information in
this Prospectus Supplement assumes no exercise of the Underwriters'
over-allotment option described under the caption "Underwriting." Unless
otherwise expressly stated or if the context otherwise requires: (i) the terms
the "Company" and "Fred Meyer" refer (a) before September 9, 1997, to Fred Meyer
Stores (as defined below) and its consolidated subsidiaries, (b) on and after
September 9, 1997, to Fred Meyer, Inc. and its consolidated subsidiaries
(including Fred Meyer Stores and Smith's (as defined below) and their respective
subsidiaries) and (c) on and after March 10, 1998, to Fred Meyer, Inc. and its
consolidated subsidiaries (including Fred Meyer Stores, Smith's, QFC (as defined
below) and Ralphs/Food 4 Less (as defined below) and their respective
subsidiaries); (ii) the term "Fred Meyer Stores" refers to Fred Meyer Stores,
Inc. and its consolidated subsidiaries; (iii) the term "QFC" refers to Quality
Food Centers, Inc. and its consolidated subsidiaries; (iv) the term "Ralphs/Food
4 Less" refers to Food 4 Less Holdings, Inc. and its consolidated subsidiaries;
and (v) the term "Smith's" refers to Smith's Food & Drug Centers, Inc. and its
consolidated subsidiaries.
The Company
Fred Meyer is one of the largest domestic food retailers, operating more
than 800 supermarkets and multi-department stores, many of which are located in
the fastest growing markets in the United States. The Company has the largest
market share in the Los Angeles, Orange County, Seattle, Salt Lake City, Las
Vegas and Albuquerque markets and the second largest market share in the Phoenix
and Portland markets as well as a number one or two market share in 11
additional markets. The Company operates multiple formats that appeal to
customers across a wide range of income brackets primarily under the Fred Meyer,
Smith's Food & Drug Centers, Smitty's, QFC, Hughes Family Markets, Ralphs and
Food 4 Less banners. On a pro forma basis, after giving effect to the
acquisitions of QFC and Ralphs/Food 4 Less, the Company's net sales and EBITDA
(as defined) for the 52 weeks ended January 31, 1998 would have been
approximately $14.9 billion and $1.1 billion, respectively.
Fred Meyer Stores. Founded in 1922, Fred Meyer Stores is the leading
operator of multi-department stores throughout the Pacific Northwest and
Intermountain regions. Fred Meyer Stores operates 118 multi-department stores
under the Fred Meyer banner, which average 145,700 square feet and provide
convenient one-stop shopping for a broad selection of products including food,
apparel, home electronics, products for the home, general merchandise and fine
jewelry. Fred Meyer stores are generally positioned as the lowest priced
full-service food retailer in each of its major markets. Management believes
that Fred Meyer's everyday low price food strategy increases the shopping
frequency of customers, builds customer loyalty and increases customer traffic,
thereby generating higher levels of
S-5
<PAGE>
sales in nonfood departments. Fred Meyer stores distinguish themselves from
other stores through their breadth of product selection, national and
private-label brands and emphasis on products for everyday use.
Smith's. Under the Smith's Food & Drug Centers and Smitty's banners,
Smith's operates 156 food and drug combination and multi-department stores,
averaging 67,200 square feet, in the Intermountain and Southwest regions of the
United States. Substantially all of these stores offer shopping convenience and
specialty departments including delicatessens, hot prepared food sections,
in-store bakeries, video rental shops, floral shops, one-hour photo processing
labs, full-service banking and frozen yogurt shops. Smith's Food & Drug Centers
has a frequent shopper card that has increased shopping frequency and average
transaction size. As a result of their well positioned store locations and
reputation for superior quality and customer service, management believes that
Smith's Food & Drug Centers and Smitty's have developed strong name recognition
and customer loyalty.
QFC. QFC is a leading operator of premium supermarkets in the Seattle/Puget
Sound Region of Washington state and has recently opened stores in Portland,
Oregon. QFC operates 82 premium supermarkets, averaging 35,400 square feet,
principally under the QFC banner. Management believes that QFC's supermarkets
offer superior value by emphasizing an extensive selection of high-quality
perishable items, excellent customer service, convenient store locations, a
variety of specialty departments and competitive prices. QFC stores are open 7
days a week, 24 hours a day, and feature full-service delicatessens and
specialty departments including fresh seafood, floral and baking with
coffee/espresso bars. Many stores also offer natural food sections, video
rentals, fresh juice bars and pharmacies. QFC has significantly expanded its
selection of "home meal replacement" items which management believes appeal to
the increasing convenience orientation of customers.
Ralphs/Food 4 Less. Founded in 1872, Ralphs/Food 4 Less is the largest
supermarket operator in Southern California, which is one of the largest food
retailing markets in the United States with a population of approximately 19
million. Ralphs/Food 4 Less operates 315 conventional supermarkets in Southern
California, averaging 36,600 square feet, under the Ralphs and Hughes Family
Markets banners and 80 price-impact supermarkets in a warehouse format,
averaging 52,600 square feet, under the Food 4 Less banner. Operating two
complementary formats allows Ralphs/Food 4 Less to serve a broader customer base
than its competitors. Ralphs and Hughes Family Markets conventional supermarkets
emphasize a broad selection of merchandise and exceptional product mix,
including fresh produce, high-quality meat, fresh seafood and bakery and
delicatessen departments. Ralphs also maintains a successful private-label
program with private-label sales representing approximately 20% of net sales in
the most recent fiscal year. Hughes Family Markets supermarkets were acquired by
QFC in March 1997 and are being converted to the Ralphs banner. Food 4 Less
price-impact warehouse supermarkets offer customers the lowest overall prices
while providing product selections comparable to that of a conventional
supermarket. These stores target the price-conscious segment of the market.
Ralphs/Food 4 Less also operates 65 stores in Northern California and the
Midwest.
S-6
<PAGE>
Competitive Strengths
Management believes that the Company benefits from the following
competitive strengths: (i) an outstanding franchise value; (ii) leading market
shares in fast-growing markets; (iii) a well-positioned and modern store base;
(iv) a modern infrastructure; and (v) an experienced management team.
Outstanding Franchise Value. As a result of the long operating histories of
the Company's banners and their reputation for delivering superior customer
value, the Company has developed strong brand name recognition and customer
loyalty for each of its operating formats. Management believes that the Company
has benefitted and should continue to benefit from this strong franchise value.
Leading Market Shares in Fast-Growing Markets. By offering superior
customer service and competitive pricing, the Company's banners have developed
leading market shares in each of their principal markets. The Company has the
number one market share in the Los Angeles, Orange County, Seattle, Las Vegas,
Salt Lake City and Albuquerque markets and the number two market share in the
Phoenix and Portland markets which are among the largest and fastest growing
population centers in the United States.
Well-Positioned and Modern Store Base. Management believes that the
Company's store locations include many sites in developed urban and suburban
locations which would be difficult to replicate. The Company has invested
significant capital in its store base over the last seven years through the
addition of new stores and the remodeling of existing stores in order to improve
the overall quality of its customers' shopping experience. As a result,
approximately 77% of the Company's stores have been opened or remodeled within
the past seven years.
Modern Infrastructure. The Company believes it has state-of-the-industry
warehousing and distribution systems which are conveniently located within the
areas served by the Company. As a result of the recent mergers and the
significant investment in its infrastructure over the last several years,
management believes the Company will be able to lower its distribution costs as
a percentage of net sales and maintain lower levels of inventory.
Experienced Management Team. The Company benefits from a strong senior
management team that has extensive experience operating and acquiring and
successfully integrating food retailing operations. This senior management team
is supported by senior operating managers at each of the Company's operating
subsidiaries. These senior operating managers average over 24 years experience
at the respective subsidiary and have each spent much of their careers in their
respective local markets. The Company considers its senior operating managers to
be industry leaders in operating its principal store formats.
S-7
<PAGE>
The Company was incorporated in Delaware in 1997 and commenced operations
on September 9, 1997 as the successor to Fred Meyer Stores (formerly known as
Fred Meyer, Inc.) and Smith's. The Company's principal executive offices are
located at 3800 SE 22nd Avenue, Portland, Oregon 97202, and its telephone number
is (503) 232-8844. The Company operates its business through four principal
subsidiaries: Fred Meyer Stores, Smith's, QFC and Ralphs/Food 4 Less.
Recent Mergers
In March 1998 the Company acquired QFC and Ralphs/Food 4 Less in two
separate mergers. Although the Company expects to realize significant cost
savings from the elimination of duplicative overhead and advertising, the
rationalization of transportation and distribution and improved purchasing
power, both QFC and Ralphs/Food 4 Less will continue to be operated by the
respective company's existing management team under the QFC and Ralphs/Food 4
Less banners, which the Company believes will facilitate their integration into
the Company's operations. See "Business -- Recent Mergers." In connection with
the QFC and Ralphs/Food 4 Less mergers, the Company refinanced substantially all
of the outstanding bank and public indebtedness of Fred Meyer, QFC and
Ralphs/Food 4 Less with the proceeds from note offerings and borrowings under
new senior credit facilities and refinanced a portion of the Company's operating
lease arrangements under a new lease facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Risk Factors
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective purchasers of the Common Stock.
The Offering
Common Stock to be sold by the Selling
Stockholders...................................... 12,820,419 shares
Common Stock to be outstanding after
the Offering (1).................................. 149,829,389 shares
New York Stock Exchange
symbol ........................................... "FMY"
- --------------
(1) Based on shares outstanding on June 1, 1998. Excludes 16,789,837 shares
subject to outstanding options and warrants at June 1, 1998.
S-8
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Summary Unaudited Pro Forma Condensed Combined Financial Data
The following table sets forth summary unaudited pro forma condensed
combined financial data of Fred Meyer giving effect to the mergers with QFC and
Ralphs/Food 4 Less and refinancing of certain debt of Fred Meyer, QFC and
Ralphs/Food 4 Less in connection with the mergers. The table gives effect to
each of the mergers with QFC and Ralphs/Food 4 Less and the related
refinancings. Such pro forma information is derived from historical and pro
forma financial data for each of Fred Meyer, QFC and Ralphs/Food 4 Less. The
summary unaudited pro forma condensed combined financial data set forth below is
not necessarily indicative of either future results of operations or results
that might have been achieved if the mergers and the refinancings had been
consummated as of the indicated dates. Pursuant to the Settlement Agreement (as
defined in "Business -- Ralphs/Food 4 Less"), the Company has agreed to divest
19 stores in Southern California, but such divestitures have not been considered
and are not reflected in the following summary unaudited pro forma condensed
combined financial data. Management does not believe that such divestitures will
materially adversely affect the Company's business strategy, financial condition
or results of operations. The summary unaudited pro forma condensed combined
financial data does not reflect approximately $100 million in projected annual
cost savings that management of Fred Meyer believes are achievable by the end of
2001. See "Unaudited Pro Forma Condensed Combined Financial Statements" and the
historical consolidated financial statements and the selected historical
financial and other data of Fred Meyer, QFC and Ralphs/Food 4 Less, together
with the related notes thereto, which are included or incorporated by reference
herein, and "Business -- Recent Mergers."
S-9
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<TABLE>
<CAPTION>
Pro Forma
Combined
--------------
Fiscal Year
1997(1)
--------------
<S> <C>
OPERATING DATA:
Net sales..................................................$ 14,949,516
Gross margin............................................... 3,725,127
Operating and administrative expenses...................... 2,599,592
Depreciation and amortization expense...................... 480,595
Income from operations..................................... 644,940
Interest expense........................................... 386,242
Income before income taxes and extraordinary charge........ 246,963
Income before extraordinary charge(2)...................... 115,649
OTHER DATA:
EBITDA (as defined)(3).....................................$ 1,126,061
EBITDA margin(3)........................................... 7.5%
BALANCE SHEET DATA: January 31, 1998
----------------
Property and equipment, net................................$ 3,294,347
Total assets............................................... 9,822,243
Total debt(4).............................................. 5,220,862
Stockholders' equity....................................... 2,128,111
(1) The pro forma operating data of Fred Meyer for the 52 weeks ended January
31, 1998 include adjustments for Fred Meyer's September 9, 1997 acquisition
of Smith's as if such transaction occurred as of February 2, 1997. The pro
forma operating data of QFC for the 52 weeks ended December 27, 1997
include adjustments for QFC's March 19, 1997 acquisition of Hughes Markets,
Inc. ("Hughes") and February 15, 1997 acquisition of Keith Uddenberg, Inc.
("KUI"), as if such transactions occurred as of December 29, 1996.
(2) The summary unaudited pro forma condensed combined financial data does not
reflect an estimated extraordinary charge of approximately $221 million
(net of income taxes) on extinguishment of debt as a result of the
refinancings that will be recorded in the Company's fiscal year 1998
financial statements. Additionally, the summary unaudited pro forma
condensed combined financial data do not reflect certain non-recurring
severance and other expenses associated with the mergers.
(3) EBITDA represents income from operations before interest expense, income
taxes, depreciation and amortization and LIFO provision of $0.5 million for
the fiscal year ended January 31, 1998. EBITDA is not intended to represent
cash flows from operations as defined by GAAP and should not be considered
as an alternative to cash flow as a measure of liquidity or as an
alternative to net earnings as an indicator of operating performance.
EBITDA is included herein because management believes that certain
investors find it to be a useful tool for measuring a company's ability to
service its debt. EBITDA as calculated by the Company may not be comparable
to calculations as presented by other companies, even in the same industry.
EBITDA margin represents EBITDA as a percentage of net sales.
(4) Total debt consists of long-term debt, including borrowings under the 1998
Senior Credit Facilities (as defined), capitalized leases, and the $250
million aggregate principal amount of 7.150% Notes due March 1, 2003, the
$750 million aggregate principal amount of 7.375% Notes due March 1, 2005
and the $750 million aggregate principal amount of 7.450% Notes due March
1, 2008 (collectively, the "Notes"). Total debt does not reflect certain
commitments and contingencies of the Company, including operating leases
under its new lease facility and other operating lease obligations.
</TABLE>
S-10
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following risk factors
in addition to the information set forth above under "Forward-Looking
Statements" and the other information contained or incorporated by reference
herein before purchasing the Common Stock offered hereby.
Competition
The retail merchandising business in general, and the supermarket industry
in particular, is highly competitive and generally characterized by narrow
profit margins. The Company's competitors in each of its operating divisions
include national and regional supermarket chains, discount stores, independent
and specialty grocers, drug and convenience stores, large category-dominant
stores and the newer "alternative format" food stores, including warehouse club
stores, deep discount drug stores, "supercenters" and conventional department
stores. Competitors of the Company include, among others, Safeway, Albertson's,
Lucky, Costco, Wal-Mart and Target. Retail businesses generally compete on the
basis of location, quality of products and service, price, product variety and
store condition. The Company's ability to compete depends in part on its ability
to successfully maintain and remodel existing stores and develop new stores in
advantageous locations. See "Business--Competition."
Leverage; Ability to Service Debt
The Company is highly leveraged. As of May 23, 1998, the Company had total
indebtedness (including current maturities and capital lease obligations) of
$5.1 billion. Total indebtedness consists of long-term debt, including
borrowings under the 1998 Senior Credit Facilities (as defined in "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources"), notes and capitalized leases. Total
indebtedness does not reflect certain commitments and contingencies of the
Company, including operating leases under its new lease facility and other
operating lease obligations. The Company has significant interest and principal
repayment obligations and significant rental payment obligations, and the
ability of the Company to satisfy such obligations is subject to prevailing
economic, financial and business conditions and to other factors, many of which
are beyond the Company's control. A significant amount of the Company's
borrowings and rental obligations bears interest at floating rates (including
borrowings under the 1998 Senior Credit Facilities and obligations under its
lease facility), which expose the Company to the risk of increased interest and
rental rates. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
Based upon the current level of operations and anticipated cost savings,
the Company believes that cash flow from operations, together with borrowings
under the 1998 Senior Credit Facilities (as defined) and other sources of
liquidity, will be adequate to meet its anticipated requirements for working
capital, capital expenditures, interest payments and
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<PAGE>
scheduled principal payments over the next several years. There is no assurance,
however, that the Company's business will continue to generate cash flow at or
above current levels or that anticipated cost savings can be fully achieved. If
the Company is unable to generate sufficient cash flow from operations in the
future to service its debt and make necessary capital expenditures, or if its
future earnings growth is insufficient to amortize all required principal
payments out of internally generated funds, the Company will be required to
refinance all or a portion of its existing debt, sell assets or obtain
additional financing. There is no assurance that any such refinancing or asset
sales could be secured on favorable terms or otherwise.
Merger Integration
The significant increase in size of the Company's operations resulting from
the recent mergers has substantially increased the demands placed upon the
Company's management, including demands resulting from the need to integrate the
accounting systems, management information systems, distribution systems,
manufacturing facilities and other operations of Fred Meyer Stores, Smith's, QFC
and Ralphs/Food 4 Less. In addition, the Company could experience unexpected
costs from such integration and/or a loss of customers or sales as a result of
the recent mergers, including as a result of the conversion of Hughes Family
Markets to the Ralphs banner. There is also no assurance that the Company will
be able to maintain the levels of operating efficiency which Fred Meyer Stores,
Smith's, QFC and Ralphs/Food 4 Less had achieved separately prior to the
mergers. The failure to successfully integrate the operations of the combined
companies, the loss of key management personnel and the loss of customers or
sales each could have a material adverse effect on the Company's results of
operations or financial position.
Ability to Achieve Intended Benefits of the Recent Mergers
Management believes that significant business opportunities and cost
savings are achievable as a result of the Smith's, QFC and Ralphs/Food 4 Less
mergers. Management's estimates of cost savings are based upon many assumptions,
including future sales levels and other operating results, the availability of
funds for capital expenditures, the timing of certain events, as well as general
industry and business conditions and other matters, many of which are beyond the
control of the Company. Estimates are also based on a management consensus as to
what levels of purchasing and similar efficiencies should be achievable by an
entity the size of the Company. Estimates of potential cost savings are
forward-looking statements that are inherently uncertain. Actual cost savings,
if any, could differ from those projected and such differences could be
material; therefore, undue reliance should not be placed upon such estimates.
There is no assurance that unforeseen costs and expenses or other factors
(whether arising in connection with the integration of the Company's operations
or otherwise) will not offset the estimated cost savings or other components of
the Company's plan or result in delays in the realization of certain projected
cost savings.
S-12
<PAGE>
Labor Relations
The Company is party to more than 166 collective bargaining agreements with
local unions covering approximately 58,000 employees representing approximately
70% of the Company's total employees. Among the contracts that have expired or
will expire in 1998 are those covering 15,500 employees. Typical agreements are
three years in duration, and as such agreements expire, the Company expects to
negotiate with the unions and to enter into new collective bargaining
agreements. There is no assurance, however, that such agreements will be reached
without work stoppages. A prolonged work stoppage affecting a substantial number
of stores could have a material adverse effect on the Company's results of
operations or financial position.
Shares Eligible for Future Sale
All of the outstanding shares of Common Stock of the Company will be freely
tradeable without registration under the Securities Act following the offering,
except that shares held by "affiliates" of the Company or former "affiliates" of
Smith's, QFC or Ralphs/Food 4 Less (as that term is defined under Rule 144 under
the Securities Act ("Rule 144")) will continue to be subject to the resale
limitations of Rule 144. The stockholders listed in the table under "Principal
and Selling Stockholders" have agreed with the Underwriters, subject to certain
exceptions, not to directly or indirectly, offer, pledge, sell, contract to
sell, grant any option to purchase or otherwise transfer or dispose of, without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation, any Common Stock, or any securities convertible into or
exchangeable or exercisable for Common Stock or enter into any swap or other
arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Common Stock, for a period of 90 days after
the date of this Prospectus Supplement. Upon the expiration of such 90-day
period such shares of Common Stock may be sold by such stockholders under Rule
144, pursuant to registration rights granted by the Company or without
registration, as the case may be. No prediction can be made as to the effect, if
any, that market sales of shares of Common Stock or the availability of shares
of Common Stock for sale will have on the market price of the Common Stock from
time to time. Sales of substantial amounts of such shares in the public market
or the perception that such sales could occur could adversely affect the market
price of the shares of Common Stock. See "Underwriting."
S-13
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is listed on the New York Stock Exchange under the symbol
"FMY." The following table sets forth the high and low sales prices of the
Common Stock as reported on the New York Stock Exchange Composite Tape for the
periods indicated. All share prices give effect to the two-for-one stock split
distributed September 30, 1997.
<TABLE>
<CAPTION>
1995 High Low
-------- ---------
<S> <C> <C>
First Quarter................................................. $ 16 11/16 $ 11 3/4
Second Quarter................................................ 14 1/2 11 3/4
Third Quarter................................................. 13 7/16 9 5/16
Fourth Quarter ............................................. 11 13/16 8 11/16
1996
First Quarter................................................. $ 14 15/16 $ 11 1/8
Second Quarter................................................ 16 13 1/16
Third Quarter................................................. 18 13/16 14 3/8
Fourth Quarter................................................ 18 3/8 14 15/16
1997
First Quarter................................................. $ 23 1/2 $ 16 13/16
Second Quarter................................................ 28 15/16 22
Third Quarter................................................. 33 1/2 25
Fourth Quarter................................................ 37 3/4 29 1/16
1998
First Quarter................................................. $ 51 $ 35
Second Quarter (through June 10, 1998)......................... 46 3/16 39 15/16
</TABLE>
On June 10, 1998, the last reported sale price of the Common Stock on the
New York Stock Exchange was $44.00. At June 1, 1998, the Company had
approximately 5,900 stockholders of record.
The Company has not paid cash dividends since the incorporation of Fred
Meyer Stores in 1981, and it is the current policy of the Board of Directors
that all available cash flow be used for reinvestment in the business of the
Company and for the reduction of debt.
S-14
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated short-term debt and
consolidated capitalization of Fred Meyer as of January 31, 1998, and on a pro
forma basis to give effect to the mergers with QFC and Ralphs/Food 4 Less and
the related refinancings which were completed on March 11, 1998. The table
should be read in conjunction with the consolidated financial statements and the
selected historical financial and other data of Fred Meyer, QFC and Ralphs/Food
4 Less and the "Unaudited Pro Forma Condensed Combined Financial Statements" and
the related notes thereto included or incorporated by reference herein.
<TABLE>
<CAPTION>
January 31, 1998
------------------------------------------
Actual Pro Forma(1)
----------------- -------------------
(In thousands)
<S> <C> <C>
Current portion of long-term debt and capital leases.....................$ 4,282 $ 58,115
Long-term debt, less current portion:
1998 Senior Credit Facilities......................................... 0 2,787,000
Notes ................................................................ 0 1,750,000
Other................................................................. 1,835,168 422,636
Capital lease obligations............................................. 52,385 203,111
----------------- -------------------
Total long-term debt .............................................. 1,887,553 5,162,747
Total stockholders' equity(2)...................................... 1,350,575 2,128,111
----------------- -------------------
Total capitalization............................................$ 3,242,410 $ 7,348,973
================= ===================
- ------------
(1) The 1998 Senior Credit Facilities consist of a $1.625 billion Term Loan
Facility and a $1.875 billion Revolving Credit Facility. Up to $200 million
of the Revolving Credit Facility may be used to support standby letters of
credit, of which approximately $73 million was issued under the Revolving
Credit Facility on May 23, 1998. As of May 23, 1998 approximately $528
million was available, after giving effect to amounts borrowed to
consummate the refinancings, for future borrowing under the Revolving
Credit Facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) In connection with the Offering, the Underwriters will acquire shares
of Common Stock upon the exercise of stock options by a Selling
Stockholder, resulting in proceeds to the Company of $ (assuming no
exercise of the Underwriters' over-allotment option).
</TABLE>
S-15
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
The following unaudited pro forma condensed combined financial statements
of Fred Meyer give effect to the merger with QFC as if such transaction occurred
as of January 29, 1995 with respect to the unaudited pro forma condensed
combined statements of operations for the fiscal years ended February 3, 1996,
February 1, 1997 and January 31, 1998, and as of January 31, 1998 with respect
to the unaudited pro forma condensed combined balance sheet. In addition, such
unaudited pro forma condensed combined financial statements give effect to the
merger with Ralphs/Food 4 Less as if such transaction occurred as of February 2,
1997 with respect to the unaudited pro forma condensed combined statements of
operations, and as of January 31, 1998 with respect to the unaudited pro forma
condensed combined balance sheet. Finally, the unaudited pro forma condensed
combined financial statements give effect to refinancing certain Fred Meyer, QFC
and Ralphs/Food 4 Less debt, as if such refinancing occurred as of February 2,
1997 with respect to the unaudited pro forma condensed combined statements of
operations for the fiscal year ended January 31, 1998 and as of January 31, 1998
with respect to the unaudited pro forma condensed combined balance sheet. Such
pro forma information includes: (i) the historical balance sheet of Fred Meyer
as of January 31, 1998; (ii) the pro forma results of operations of Fred Meyer
for the fiscal year ended January 31, 1998; (iii) the historical balance sheet
of QFC as of December 27, 1997; (iv) the pro forma results of operations of QFC
for the fiscal year ended December 27, 1997; (v) the historical results of
operations of Ralphs/Food 4 Less for the fiscal year ended February 1, 1998 and
the historical balance sheet of Ralphs/Food 4 Less as of February 1, 1998. The
unaudited pro forma condensed combined financial statements are not necessarily
indicative of either future results of operations or results that might have
been achieved if the mergers had been consummated as of the indicated dates. The
following unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical financial statements and the selected
historical and other financial data of Fred Meyer, QFC and Ralphs/Food 4 Less
included or incorporated by reference herein.
The pro forma results of operations of Fred Meyer for the fiscal year ended
January 31, 1998 include adjustments for Fred Meyer's September 9, 1997
acquisition of Smith's, as if such transaction occurred as of February 2, 1997.
The pro forma results of operations of QFC for the fiscal year ended December
27, 1997 include adjustments for QFC's March 19, 1997 acquisition of Hughes and
February 15, 1997 acquisition of KUI, as if such transactions occurred as of
December 29, 1996.
The merger with QFC is being accounted for as a pooling-of-interests. Under
the pooling-of-interests method of accounting, the recorded assets and
liabilities of Fred Meyer and QFC are being carried forward to Fred Meyer's
consolidated financial statements at their historical amounts and the
consolidated earnings of Fred Meyer are being included in the earnings of Fred
Meyer and QFC for the entire fiscal year in which the merger with QFC occurs and
for all prior years presented, and the reported retained earnings of Fred Meyer
S-16
<PAGE>
and QFC for prior periods are being combined and restated as consolidated
retained earnings of Fred Meyer.
The merger with Ralphs/Food 4 Less is being accounted for as a purchase.
Under purchase accounting, the purchase price is allocated to assets acquired
and liabilities assumed based on their estimated fair values. The adjustments
included in the unaudited pro forma condensed combined financial statements
represent a preliminary determination of these adjustments based upon available
information. The purchase price is expected to exceed the fair value of the net
assets acquired. This difference has been allocated to goodwill, which will be
amortized over 40 years. Such allocations are subject to final determination
based on real estate, leasehold and equipment valuation studies and a review of
the books, records and accounting policies of Ralphs/Food 4 Less. These studies
are expected to be completed before the end of the 1998 fiscal year.
Accordingly, the final allocations will be different from the amounts reflected
herein.
The unaudited pro forma condensed combined statements of operations
included herein do not reflect an estimated extraordinary charge of
approximately $221 million (net of income taxes) relating to the refinancings
and, with respect to the unaudited pro forma condensed combined financial
statements, assume that all notes subject to the refinancings were redeemed
pursuant to tender offers made by QFC and Ralphs/Food 4 Less. Additionally, the
unaudited pro forma condensed combined financial statements do not reflect
certain non-recurring severance and other expenses associated with the mergers.
Pursuant to the Settlement Agreement, the Company has agreed to divest 19 stores
in Southern California, but such divestitures have not been considered and are
not reflected in the following unaudited pro forma condensed combined financial
statements. Management does not believe that such divestitures will materially
adversely affect the Company's business strategy, financial condition or results
of operations. The unaudited pro forma condensed combined statements of
operations also do not reflect approximately $100 million in annualized
operating cost savings that management of the Company believes are achievable by
the end of 2001. See "Business -- Recent Mergers."
S-17
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
January 31, 1998
(In thousands)
ASSETS
Ralphs/Food 4
Fred Meyer QFC Less
January 31, 1998 December 27, 1997 February 1, 1998 Pro Forma Pro Forma
Historical Historical Historical Adjustments Combined
---------------- ----------------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......$ 72,609 $ 44,702 $ 75,601 $ -- (1) $ 192,912
Trade and other receivables..... 83,194 25,302 37,629 146,125
Inventories..................... 1,117,989 122,877 514,387 28,500 (2) 1,783,753
Prepaid expenses and other...... 39,070 13,087 24,522 76,679
Deferred income taxes........... 90,804 147,334 (3) 238,138
---------------- ----------------- --------------- ------------ -------------
TOTAL CURRENT ASSETS........ 1,403,666 205,968 652,139 175,834 2,437,607
PROPERTY AND
EQUIPMENT, NET.................. 1,951,750 373,814 1,069,005 (100,222)(2) 3,294,347
OTHER ASSETS:
Goodwill, net................... 1,005,476 273,654 1,275,718 1,034,695 (2) 3,589,543
Deferred financing costs, net... 10,964 7,415 49,863 (61,778)(3)
68,000 (1) 74,464
Deferred income taxes and other. 58,950 131,279 29,348 206,705 (2) 426,282
---------------- ----------------- --------------- ------------ -------------
TOTAL ASSETS..................$ 4,430,806 $ 992,130 $ 3,076,073 $ 1,323,234 $ 9,822,243
================ ================= =============== ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and
outstanding checks............$ 679,612 $ 85,662 $ 349,585 $ 1,114,859
Current portion of long-term
debt and capital leases....... 4,282 15,368 41,965 $ (3,500)(1) 58,115
Income taxes payable............ -- 1,361 1,361
Accrued compensation............ 148,141 41,680 105,728 295,549
Other accrued expenses.......... 167,904 50,846 302,425 95,000(2) 616,175
---------------- ----------------- --------------- ------------ -------------
TOTAL CURRENT
LIABILITIES................. 999,939 193,556 801,064 91,500 2,086,059
LONG-TERM DEBT, less
current maturities.............. 1,835,168 349,626 2,321,342 453,500(1) 4,959,636
CAPITAL LEASE OBLIGATIONS,
less current portion............ 52,385 30,397 120,329 203,111
DEFERRED INCOME TAXES.............. 41,250 41,933 21,074 (104,257)(2) --
OTHER LONG-TERM
LIABILITIES..................... 151,489 24,833 253,772 15,232(2) 445,326
STOCKHOLDERS' EQUITY
(DEFICIT)....................... 1,350,575 351,785 (441,508) 867,259(3) 2,128,111
---------------- ----------------- --------------- ------------ -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY..........$ 4,430,806 $ 992,130 $ 3,076,073 $ 1,323,234 $ 9,822,243
================ ================= =============== ============ =============
See Notes to Unaudited Pro Forma Condensed Combined Balance Sheet.
</TABLE>
S-18
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
(1) The net effect on cash and cash equivalents of the mergers and the
concurrent debt refinancing reflects the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Total sources:
1998 Senior Credit Facilities.............................$ 2,787,000
Notes..................................................... 1,750,000
--------------
$ 4,537,000
==============
Total uses:
Repay Fred Meyer credit facility..........................$ 1,430,000
Repay QFC credit facility................................. 175,000
Repay Ralphs/Food 4 Less credit facility.................. 681,000
Repay QFC notes........................................... 175,000
Repay Ralphs/Food 4 Less notes............................ 1,626,000
Estimated debt repayment premiums......................... 300,000
Estimated fees and expenses............................... 150,000
--------------
$ 4,537,000
==============
</TABLE>
(2) The purchase cost and preliminary allocation of the excess of cost over the
net book value of the assets acquired in the merger with Ralphs/Food 4 Less is
as follows. The market value of Common Stock issued reflects 21.7 million shares
multiplied by the average market price of Common Stock for the three trading
days preceding and following the day Fred Meyer and Ralphs/Food 4 Less reached
agreement on the purchase price and the proposed merger with Ralphs/Food 4 Less
was announced.
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Market value of Common Stock issued...........................................$ 656,195
Transaction fees and expenses................................................. 66,000
------------------
Total purchase cost........................................................... 722,195
Book value of net assets acquired............................................. (441,508)
------------------
Excess of purchase cost over net book value of assets acquired................$ 1,163,703
==================
Allocated to:
Increase in value of inventory................................................$ 28,500
Decrease in value of property and equipment................................... (100,222)
Ralphs/Food 4 Less historical net goodwill.................................... (1,275,718)
Increase in value of deferred income taxes.................................... 240,000
Increase in accrued liabilities............................................... (95,000)
Adjust accrued pension and postretirement benefit obligation.................. (15,232)
Adjust deferred taxes for temporary differences (39% effective rate).......... 70,962
Residual excess purchase cost................................................. 2,310,413
------------------
Total allocation..............................................................$ 1,163,703
==================
</TABLE>
S-19
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET (Continued)
(3) Represents the net change in stockholders' equity as a result of the mergers
and the refinancings (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Issuance of Common Stock in merger with Ralphs/Food 4 Less........................$ 656,195
Elimination of Ralphs/Food 4 Less historical stockholders' deficit................ 441,508
Write-off historical deferred financing costs, net of tax of $24,094.............. (37,684)
Estimated premiums related to repayment of Ralphs/Food 4 Less and QFC
notes, net of tax of $117,000................................................ (183,000)
Fees and expenses of merger with QFC, net of tax of $6,240........................ (9,760)
-----------
Pro forma adjustment to stockholders' equity......................................$ 867,259
===========
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
For the 52 Weeks Ended January 31, 1998
(In thousands, except per share and percentage data)
Fred Meyer QFC Ralphs/Food 4
Fiscal Year Ended Fiscal Year Ended Less Fiscal Year
January 31, 1998 December 27, 1997 Ended
Pro Forma Pro Forma February 1, 1998 Pro Forma Pro Forma
Combined(1) Combined(2) Historical Adjustments Combined
------------------ ------------------- ------------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales........................... $ 7,341,192 $ 2,120,855 $ 5,487,469 $ 14,949,516
Cost of goods sold.................. 5,279,520 1,597,320 4,347,549 11,224,389
------------------ ------------------- ------------------ -------------- --------------
Gross margin................... 2,061,672 523,535 1,139,920 3,725,127
Operating and administrative
expenses....................... 1,472,090 374,893 756,609 $(4,000)(3) 2,599,592
Depreciation and amortization
expense........................ 235,955 48,971 178,710 16,959 (4) 480,595
------------------ ------------------- ------------------ -------------- --------------
Income from operations......... 353,627 99,671 204,601 (12,959) 644,940
Interest expense.................... 113,052 31,468 271,939 (30,217)(5) 386,242
Amortization of deferred
financing costs................ 1,229 703 5,714 4,089 (6) 11,735
------------------ ------------------- ------------------ -------------- --------------
Income (loss) before income taxes
and extraordinary charge..... 239,346 67,500 (73,052) 13,169 246,963
Provision for income taxes.......... 97,137 27,507 -- 6,670 (7) 131,314
------------------ ------------------- ------------------ -------------- --------------
Income (loss) before extraordinary
charge......................... $ 142,209 $ 39,993 $ (73,052) $ 6,499 $ 115,649
================== =================== ================== ============== ==============
Basic income before extraordinary
charge per share of common stock $ 1.62 $ 1.91 $ 0.78
================== =================== ==============
Diluted income before extraordinary
charge per share of common stock $ 1.56 $ 1.84 $ 0.75
================== =================== ==============
Basic weighted average common
shares outstanding (8)......... 87,537 20,916 40,494 148,947
================== =================== ============== ==============
Diluted weighted average common
shares outstanding (8)......... 90,978 21,774 41,267 154,019
================== =================== ============== ==============
Other Pro Forma Data:
EBITDA (as defined) (9)................................................................................... $ 1,126,061
EBITDA margin (9)......................................................................................... 7.5%
See Notes to Unaudited Pro Forma Condensed Combined Statements of Operations.
</TABLE>
S-21
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
For the 52 Weeks Ended February 1, 1997
(In thousands, except per share and percentage data)
Fred Meyer QFC
Fiscal Year Ended Fiscal Year Ended
February 1, 1997 December 28, 1996 Pro Forma Pro Forma
Historical Historical Adjustments Combined
--------------------- ---------------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales................................... $ 3,724,839 $ 805,281 $ 4,530,120
Cost of goods sold.......................... 2,613,746 603,947 3,217,693
--------------------- ---------------------- -------------- -------------
Gross margin........................... 1,111,093 201,334 1,312,427
Operating and administrative expenses....... 860,379 132,860 993,239
Depreciation and amortization expense....... 116,854 19,477 136,331
--------------------- ---------------------- -------------- -------------
Income from operations................. 133,860 48,997 182,857
Interest expense............................ 39,432 9,238 48,670
Amortization of deferred financing costs.... -- 185 185
--------------------- ---------------------- -------------- -------------
Income before income taxes and
extraordinary charge................. 94,428 39,574 134,002
Provision for income taxes.................. 35,883 14,156 50,039
--------------------- ---------------------- -------------- -------------
Income before extraordinary charge.......... $ 58,545 $ 25,418 $ 83,963
===================== ====================== ============== =============
Basic income before extraordinary charge
per share of common stock.............. $ 1.12 $ 1.75 $ 1.05
===================== ====================== =============
Diluted income before extraordinary
charge per share of common stock....... $ 1.05 $ 1.71 $ 1.00
===================== ====================== =============
Basic weighted average common shares
outstanding (8)........................ 52,155 14,547 13,092 79,794
===================== ====================== ============== =============
Diluted weighted average common shares
outstanding (8)........................ 55,781 14,888 13,399 84,068
===================== ====================== ============== =============
Other Pro Forma Data:
EBITDA (as defined) (9)................................................................................. $ 318,722
EBITDA margin (9)....................................................................................... 7.0%
See Notes to Unaudited Pro Forma Condensed Combined Statements of Operations.
</TABLE>
S-22
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
For the 53 Weeks Ended February 3, 1996
(In thousands, except per share and percentage data)
Fred Meyer QFC
Fiscal Year Ended Fiscal Year Ended
February 3, 1996 December 30, 1995 Pro Forma Pro Forma
Historical Historical Adjustments Combined
--------------------- ---------------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales.................................... $ 3,422,718 $ 729,856 $ 4,152,574
Cost of goods sold........................... 2,443,531 550,434 2,993,965
--------------------- ---------------------- -------------- -------------
Gross margin............................ 979,187 179,422 1,158,609
Operating and administrative expenses........ 783,375 120,475 903,850
Depreciation and amortization expense........ 107,385 16,170 123,555
--------------------- ---------------------- -------------- -------------
Income from operations.................. 88,427 42,777 131,204
Interest expense............................. 39,578 8,995 48,573
Amortization of deferred financing costs..... -- 143 143
Other........................................ 1,400 1,400
--------------------- ---------------------- -------------- -------------
Income before income taxes and
extraordinary charge.................. 48,849 32,239 81,088
Provision for income taxes................... 18,563 12,023 30,586
--------------------- ---------------------- -------------- -------------
Income before extraordinary charge...... $ 30,286 $ 20,216 $ 50,502
===================== ====================== ============== =============
Basic income before extraordinary charge
per share of common stock............... $ 0.57 $ 1.29 $ 0.61
===================== ====================== =============
Diluted income before extraordinary charge
per share of common stock............... $ 0.53 $ 1.28 $ 0.58
===================== ====================== =============
Basic weighted average common shares
outstanding (8)......................... 53,365 15,706 14,135 83,206
===================== ====================== ============== =============
Diluted weighted average common shares
outstanding (8)......................... 56,656 15,830 14,247 86,733
===================== ====================== ============== =============
Other Pro Forma Data:
EBITDA (as defined) (9).................................................................................... $ 254,423
EBITDA margin (9).......................................................................................... 6.1%
See Notes to Unaudited Pro Forma Condensed Combined Statements of Operations.
</TABLE>
S-23
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS
(1) The following Fred Meyer summary unaudited pro forma condensed combined
statement of operations for the fiscal year ended January 31, 1998 is based on
historical financial statements of Fred Meyer and Smith's and has been prepared
to illustrate the effects of Fred Meyer's acquisition of Smith's (the "Smith's
Acquisition") and other related transactions described below and the assumed
financing therefor. Such summary unaudited pro forma condensed statement of
operations gives effect to the Smith's Acquisition as if such transaction had
been completed as of February 2, 1997. Such pro forma information includes the
historical results of operations of Fred Meyer for the fiscal year ended January
31, 1998 and the historical results of operations for Smith's from February 2,
1997 to September 8, 1997.
The Smith's Acquisition was accounted for as a purchase by Fred Meyer.
Under purchase accounting, the purchase price is allocated to assets acquired
and liabilities assumed based on their estimated fair values. The pro forma
adjustments included in the summary unaudited pro forma condensed combined
statement of operations represent a preliminary determination of these
adjustments based upon available information.
The following summary unaudited pro forma condensed combined statement of
operations for the Smith's Acquisition included in the table below does not
reflect an extraordinary charge of approximately $91 million (net of income
taxes) relating to refinancing certain debt. Such summary unaudited pro forma
condensed combined statement of operations gives effect to the following
significant pro forma adjustments: (i) the adjustment for additional
depreciation and amortization expense resulting from the allocation of the
purchase price for Smith's to the assets acquired, including an increase in
property, plant, and equipment, leasehold interest, and identifiable intangible
assets to their estimated fair market values and the recording of goodwill
associated with the acquisition; (ii) the adjustment to interest expense
associated with the transaction financing and the corresponding adjustments to
the amortization of related financing fees; and (iii) the adjustment to the
provision for income taxes based upon a tax rate of 39% applied to the pro forma
operating income before income taxes adjusted for amortization of goodwill.
S-24
<PAGE>
<TABLE>
<CAPTION>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS (Continued)
Fred Meyer Smith's
Fiscal Year Period from
Ended February 2, 1997
January 31, to September 8, Fred Meyer
1998 1997 Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------------- ------------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
Net sales......................................$ 5,481,087 $ 1,860,105 $ 7,341,192
Cost of goods sold............................. 3,845,536 1,433,984 5,279,520
---------------- ------------------ ------------ ------------
Gross margin.............................. 1,635,551 426,121 2,061,672
Operating and administrative expenses.......... 1,217,649 254,728 $ (287) 1,472,090
Depreciation and amortization expense.......... 168,294 57,472 10,189 235,955
---------------- ------------------ ------------ ------------
Income from operations.................... 249,608 113,921 (9,902) 353,627
Interest expense............................... 75,504 71,938 (34,390) 113,052
Amortization of deferred financing costs....... 335 2,953 (2,059) 1,229
---------------- ------------------ ------------ ------------
Income before income taxes and
extraordinary charge.................... 173,769 39,030 26,547 239,346
Provision for income taxes..................... 70,465 16,490 10,182 97,137
---------------- ------------------ ------------ ------------
Income before extraordinary charge.............$ 103,304 $ 22,540 $ 16,365 $ 142,209
================ ================== ============ ============
</TABLE>
(2) The following QFC summary unaudited pro forma condensed combined statement
of operations for the fiscal year ended December 27, 1997 is based on historical
financial statements of QFC, Hughes and KUI, and has been prepared to illustrate
the effects of the QFC's acquisition of Hughes and KUI (the "Hughes/KUI
Acquisitions") and other related transactions described below and the assumed
financing therefor.
Such summary unaudited pro forma condensed combined statement of operations
gives effect to each of the following transactions as if such transactions had
been completed as of December 29, 1996: (i) the Hughes acquisition and certain
related transactions; (ii) KUI's spin off of certain assets and liabilities,
primarily related to nongrocery operations, prior to the KUI acquisition; (iii)
the KUI acquisition and certain related transactions; (iv) the application of
the net proceeds from the sale of 5,175,000 shares of QFC common stock in a
public offering (the "QFC Common Stock Offering") and the sale of $150 million
aggregate principal amount of 8.70% Senior Subordinated Notes due 2007 (together
with the QFC Common Stock Offering, the "QFC Offerings") and borrowings under
QFC's credit facility; and (v) QFC's proposed divestiture of five recently
acquired KUI stores.
The Hughes/KUI Acquisitions were accounted for as purchases by QFC. Under
purchase accounting, the purchase price is allocated to assets acquired and
liabilities assumed based on their estimated fair values. The pro forma
adjustments included in the summary unaudited pro forma condensed combined
statement of operations represent a preliminary determination of these
adjustments based upon available information.
S-25
<PAGE>
<TABLE>
<CAPTION>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS (Continued)
Hughes KUI Pro Forma
Period from Period from djustments
QFC December 29, December 29, for
Fiscal Year 1996 1996 Hughes/KUI
Ended Through Through Acquisitions
December 27, March 18, February 14, KUI and QFC QFC
1997 1997 1997 Pro Forma Offerings Pro Forma
Historical Historical Historical Adjustments A Combined Combined
------------- -------------- -------------- ------------ ------------ -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales.............................. $ 1,878,115 $ 211,425 $ 46,793 $ (1,492) $ (13,986) $ 2,120,855
Cost of goods sold..................... 1,417,038 158,392 33,817 (950) (10,977) 1,597,320
------------- -------------- -------------- ------------ ------------ -------------
Gross margin...................... 461,077 53,033 12,976 (542) (3,009) 523,535
Operating and administrative
expenses.......................... 324,721 43,495 9,964 (605) (2,682) 374,893
Depreciation and amortization
expense........................... 43,076 3,847 337 (43) 1,754 48,971
------------- -------------- -------------- ------------ ------------ -------------
Income from operations............ 93,280 5,691 2,675 106 (2,081) 99,671
Interest expense....................... 26,590 538 204 4,136 31,468
Amortization of deferred
financing costs................... 703 703
------------- -------------- -------------- ------------ ------------ -------------
Income before income
taxes and extraordinary
charge.......................... 65,987 5,153 2,471 106 (6,217) 67,500
Provision for income taxes............. 25,980 2,437 860 36 (1,806) 27,507
------------- -------------- -------------- ------------ ------------ -------------
Income before extraordinary charge.....$ 40,007 $ 2,716 $ 1,611 $ 70 $ (4,411) $ 39,993
============= ============== ============== ============ ============ =============
</TABLE>
The summary unaudited pro forma condensed combined statement of operations
gives effect to the following significant pro forma adjustments: (i) the
elimination of sales and certain expenses attributable to certain assets and
liabilities of KUI, primarily related to non-grocery operations which were spun
off by KUI prior to its acquisition by QFC; (ii) the adjustment for additional
depreciation and amortization expense resulting from the allocations of the
purchase prices for KUI and Hughes to the assets acquired, including an increase
in property, plant, and equipment, leasehold interest and identifiable
intangible assets to their estimated fair market values and the recording of
goodwill associated with the acquisitions; (iii) the adjustment to interest
expense associated with the transaction financing and the corresponding
adjustments to the amortization of related financing fees; and (iv) the
adjustment to the provision for income taxes based upon a tax rate of 38%
applied to the pro forma operating income before income taxes adjusted for
amortization of goodwill.
(3) To eliminate management fees paid by Ralphs/Food 4 Less which will no longer
be paid subsequent to the mergers.
(4) To decrease depreciation and amortization expense for revaluation of
property and equipment in the amount of $8.9 million and increase amortization
of goodwill in the amount of $25.9 million as a result of the merger with
Ralphs/Food 4 Less for the fiscal year ended January 31, 1998. The adjustment to
depreciation and amortization expense assumes an average useful life of acquired
property and equipment of 11 years and the adjustment to goodwill amortization
assumes an amortization period for acquired goodwill of 40 years.
S-26
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS (Continued)
(5) In connection with the mergers, Fred Meyer refinanced and consolidated
approximately $4.1 billion of existing indebtedness of Fred Meyer, QFC and
Ralphs/Food 4 Less in the refinancings. The following table reflects the pro
forma adjustments to interest expense related to the refinancing of certain debt
for the fiscal year ended January 31, 1998 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Historical interest expense:
Fred Meyer-- historical pro forma................. $ 113,052
QFC-- historical pro forma........................ 31,468
Ralphs/Food 4 Less-- historical................... 271,939
----------
416,459
Less: amount in historical pro forma statements
of operations for refinanced debt................. (353,449)
Add: amounts for 1998 Senior Credit Facilities
and Notes......................................... 323,232
----------
Pro forma interest expense................................. $ 386,242
==========
</TABLE>
The pro forma adjustment to interest expense is based on a weighted average
interest rate of 7.0% per annum under the 1998 Senior Credit Facilities and the
Notes.
(6) To adjust for the change in amortization of deferred financing costs as a
result of the refinancings.
(7) The pro forma adjustment to the provision for income taxes is based upon a
tax rate of 39% applied to pro forma income before income taxes and
extraordinary charge adjusted for amortization of goodwill.
(8) All share and per share data has been adjusted to reflect a two-for-one
stock split of Common Stock effected as a 100% stock dividend which was
distributed September 30, 1997. An (i) exchange ratio of 1.9 shares of Common
Stock for each share of QFC common stock issued and outstanding immediately
prior to the effective time of the merger with QFC in connection with the merger
with QFC and (ii) issuance of 21.7 million shares of Common Stock in connection
with the merger with Ralphs/Food 4 Less were used in preparing the pro forma
combined share and per share data.
S-27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS (Continued)
The following table presents a reconciliation of the pro forma weighted
average number of basic and diluted shares outstanding used in calculating pro
forma income per share of Common Stock for the fiscal year ended January 31,
1998 (share numbers in thousands):
<TABLE>
<CAPTION>
Basic Diluted
-------------- -------------
<S> <C> <C>
Pro forma weighted average number of shares of QFC common
stock outstanding as of December 27, 1997.......................... 20,916 21,774
Exchange ratio........................................................ 1.9 1.9
-------------- -------------
Number of shares of Common Stock issued in the merger with
QFC................................................................ 39,740 41,371
Number of shares of Common Stock issued in the merger with
Ralphs/Food 4 Less................................................. 21,670 21,670
-------------- -------------
Number of shares of Common Stock issued in the mergers................ 61,410 63,041
Pro forma weighted average number of shares of Common Stock
outstanding as of January 31, 1998................................. 87,537 90,978
-------------- -------------
Pro forma number of shares of Common Stock outstanding after
completion of the mergers.......................................... 148,947 154,019
============== =============
</TABLE>
(9) EBITDA represents income before interest expense, income taxes, depreciation
and amortization and LIFO provision of $0.5 million, $(0.5) million and $1.1
million for the fiscal years ended January 31, 1998, February 1, 1997 and
February 3, 1996, respectively. EBITDA is not intended to represent cash flow
from operations as defined by GAAP and should not be considered as an
alternative to cash flow as a measure of liquidity or as an alternative to net
earnings as an indicator of operating performance. EBITDA is included herein
because management believes that certain investors find it to be a useful tool
for measuring a company's ability to service its debt. EBITDA as calculated by
the Company may not be comparable to calculations as presented by other
companies, even in the same industry. EBITDA margin represents EBITDA as a
percentage of net sales.
S-28
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
Fred Meyer
The following selected historical financial data of Fred Meyer for each of
the five fiscal years in the period ended January 31, 1998 have been derived
from Fred Meyer's historical consolidated financial statements, which have been
audited by Deloitte & Touche LLP, independent auditors. The data should be read
in conjunction with Fred Meyer's historical consolidated financial statements,
including the respective notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," included or
incorporated by reference herein. Fred Meyer acquired Smith's on September 9,
1997 in a business combination accounted for as a purchase. Additionally,
Smith's acquired Smitty's on May 23, 1996 in a business combination accounted
for as a purchase. Fred Meyer acquired QFC on March 9, 1998 in a transaction
accounted for as a pooling-of-interests and Ralphs/Food 4 Less on March 10, 1998
in a transaction accounted for as a purchase. Accordingly, the following Fred
Meyer selected historical financial and other data do not include the results of
operations of Smith's or Smitty's, QFC or Ralphs/Food 4 Less prior to their
acquisitions. See "Unaudited Pro Forma Condensed Combined Financial Statements"
and related notes.
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended Ended
January 29, January 28, February 3, February 1, January 31,
1994 1995 1996 1997 1998(1)
------------ ------------ -------------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating Data
Net sales (2)...................... $2,973,825 $3,122,635 $ 3,422,718 $3,724,839 $ 5,481,087
Cost of goods sold ................ 2,088,568 2,261,315 2,449,204 2,619,312 3,845,536
------------ ------------ -------------- ------------ -------------
Gross margin (3)................... 885,257 861,320 973,514 1,105,527 1,635,551
Operating, selling and administrati
expenses (2)..................ve 747,151 807,924 885,087 971,667 1,386,278
Writedown of California assets..... 15,978
------------ ------------ -------------- ------------ -------------
Operating income (3)............... 138,106 37,418 88,427 133,860 249,273
Interest Expense................... 17,604 25,857 39,578 39,432 75,504
Provision for income taxes (4)..... 49,598 4,393 18,563 35,883 70,465
------------ ------------ -------------- ------------ -------------
Income before accounting change
and extraordinary charge (3,4) 70,904 7,168 30,286 58,545 103,304
Accounting change (5) (2,588)
Extraordinary charge (6)........... (91,210)
------------ ------------ -------------- ------------ -------------
Net income (3,4,5)................. $ 68,316 $ 7,168 $ 30,286 $ 58,545 $ 12,094
============ ============ ============== ============ =============
Balance Sheet Data
(end of period)
Working capital.................... $ 192,737 $ 249,514 $ 283,082 $ 233,202 $ 414,691
Total assets....................... 1,326,076 1,562,672 1,671,592 1,692,020 4,430,806
Stockholders' equity............... 527,686 538,620 571,234 565,904 1,350,575
Other Data
EBITDA (as defined) (7)............ $ 205,673 $ 148,979 $ 194,876 $ 249,548 413,645
EBITDA margin (7).................. 6.92% 4.77% 5.69% 6.70% 7.55%
Capital expenditures............... $ 253,920 $ 284,193 $ 236,052 $ 146,917 269,176
S-29
<PAGE>
52 Weeks 52 Weeks 53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended Ended
January 29, January 28, February 3, February 1, January 31,
1994 1995 1996 1997 1998(1)
------------ ------------ -------------- ------------ -------------
Retail store square footage (in
thousands)...................... 26,802
Number of stores at end of period.. 431
- ---------------
(1) Includes balance sheet data of Smith's as of January 31, 1998 and results
of operations of Smith's from September 9, 1997 to January 31, 1998. The
balance sheet data and results of operations of Smith's as of and for such
dates include the balance sheet data and results of operations of Smitty's
as of and for such dates. Does not include any balance sheet data or
results of operations for QFC or Ralphs/Food 4 Less.
(2) For fiscal years 1993 through 1996, the amounts shown reflect the
reclassification of employee discounts to make the reporting consistent
with the reporting for fiscal year 1997.
(3) For the 52 weeks ended January 29, 1994, includes a nonrecurring LIFO
credit of $6,178.
(4) For the 52 weeks ended January 29, 1994, includes $3,588 from the
resolution of an Internal Revenue Service audit, ($2,286) related to the
LIFO credit and a 38% tax rate.
(5) For the 52 weeks ended January 29, 1994, effect of adopting Statement of
Financial Accounting Standards No. 109 relating to income taxes.
(6) Represents a charge for early extinguishment of debt covering premiums paid
and write-off of financing costs related to debt refinanced in the Smith's
acquisition.
(7) EBITDA, as presented by Fred Meyer, represents income (loss) before
interest expense, income taxes, depreciation and amortization expense and
LIFO provision/(credit) of ($4,257), ($1,166), ($936), $3,201, $2,890, and
$4,167 for the fiscal years ended January 31, 1998, February 1, 1997,
February 3, 1996, January 28, 1995, and January 29, 1994, respectively.
EBITDA is not intended to represent cash flow from operations as defined by
GAAP and should not be considered as an alternative to cash flow as a
measure of liquidity or as an alternative to net earnings as an indicator
of operating performance. EBITDA is included herein because management
believes that certain investors find it to be a useful tool for measuring a
company's ability to service its debt. EBITDA as calculated by Fred Meyer
may not be comparable to calculations as presented by other companies, even
in the same industry. EBITDA margin represents EBITDA as a percentage of
net sales.
</TABLE>
S-30
<PAGE>
QFC
The following selected historical financial data of QFC for each of the
five fiscal years in the period ended December 27, 1997 have been derived from
QFC's historical consolidated financial statements, which have been audited by
Deloitte & Touche LLP, independent auditors. The data should be read in
conjunction with QFC's historical consolidated financial statements, including
the respective notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included or incorporated by
reference herein. QFC acquired Hughes on March 19, 1997 and KUI on February 15,
1997 in business combinations accounted for as purchases. Accordingly, the
following QFC selected historical financial and other data do not include the
results of operations of Hughes or KUI prior to such acquisitions. See
"Unaudited Pro Forma Condensed Combined Financial Statements," and related notes
included and incorporated by reference herein.
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended Ended
December 25, December 31, December 30, December 28, December 27,
1993 1994 1995 (1) 1996 1997(2)
------------- ------------- ------------ ------------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating Data
Net sales............................. $ 518,260 $ 575,879 $ 729,856 $ 805,281 $ 1,878,115
Cost of goods sold (3)................. 386,895 430,711 550,434 603,947 1,417,038
------------- ------------- ------------ ------------- ------------
Gross margin .......................... 131,365 145,168 179,422 201,334 461,077
Operating, selling and administrative
expenses...................... 92,468 105,956 136,645 152,337 368,500
Operating income (3)................... 38,897 39,212 42,777 48,997 92,577
Interest Expense (880) (933) 9,138 9,423 26,590
Other charge........................... 1,400(1)
Provision for income taxes............. 13,783 13,768 12,023 14,156 25,980
------------- ------------- ------------ ------------- ------------
Net income............................. $ 25,994 $ 26,377 $ 20,216 $ 25,418 $ 40,007
============= ============= ============ ============= ============
Balance Sheet Data (end of period)
Working capital........................ $ 14,329 $ 23,776 $ 5,303 $ 3,457 $ 19,827
Total assets........................... 181,912 208,611 284,000 304,017 992,130
Stockholders' equity................... 133,620 158,178 45,368 76,798 351,785
Other Data
EBITDA (as defined) (4)................ $ 48,205 $ 50,817 $ 59,567 $ 69,150 $ 136,253
EBITDA margin (4)...................... 9.3% 8.8% 8.2% 8.6% 7.2%
Capital expenditures................... $ 43,000 $ 28,200 $ 29,000 $ 32,600 $ 60,500
Retail store square footage
(in thousands)................ 6,239
Number of stores at end of period...... 145
- ---------------
(1) Fiscal year ended December 30, 1995 data include a one-time charge of $1.4
million, or $.09 per share, resulting from a recapitalization completed in
March 1995.
(2) Includes balance sheet of KUI as of December 27, 1997 and results of
operations of KUI from February 15, 1997 to December 27, 1997. Includes
balance sheet data of Hughes as of December 27, 1997 and results of
operations of Hughes for the period from March 19, 1997 to December 27,
1997.
S-31
<PAGE>
(3) Cost of goods sold includes related occupancy expenses.
(4) EBITDA, as presented by QFC, is defined as net earnings before interest,
income taxes, depreciation, amortization, LIFO inventory charges/(credit)
of $600, $676, $620, $0, $25 and ($161) for the 52 week periods ended
December 27, 1997, December 28, 1996, December 30, 1995, December 31, 1994,
December 25, 1993, and December 26, 1992, respectively, and nonrecurring
extraordinary items (charge of $1,400 for the 52 weeks ended December 30,
1995) and, if applicable, equity earnings (losses) from subsidiaries of
which there are none for the periods presented. EBITDA is not intended to
represent cash flow from operations as defined by GAAP and should not be
considered as an alternative to cash flow as a measure of liquidity or as
an alternative to net earnings as an indicator of operating performance.
EBITDA is included herein because management believes that certain
investors find it to be a useful tool for measuring a company's ability to
service its debt. EBITDA as calculated by QFC may not be comparable to
calculations as presented by other companies, even in the same industry.
EBITDA margin represents EBITDA as a percentage of net sales.
</TABLE>
S-32
<PAGE>
Ralphs/Food 4 Less
The following selected historical financial data of Ralphs/Food 4 Less and
its predecessor Food 4 Less Supermarkets, Inc. ("Food 4 Less Supermarkets") for
each of the five fiscal years and the transition period in the period ended
February 1, 1998 have been derived from Ralphs/Food 4 Less' and Food 4 Less
Supermarkets' historical consolidated financial statements, which have been
audited by Arthur Andersen LLP, independent public accountants. Certain prior
period amounts in the financial data presented below have been reclassified to
conform to the fiscal 1997 presentation. The data should be read in conjunction
with Ralphs/Food 4 Less' historical consolidated financial statements, including
the respective notes thereto, and "Management's Discussion and Analysis of
Financial Conditions and Results of Operations," included or incorporated by
reference herein.
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 31 Weeks 52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended Ended Ended Ended
June 26, June 25, January 29, January 28, February 2, February 1,
1993 1994 (1) 1995 (2) 1996 (3) 1997 1998
----------- ----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Operating Data
Sales ............................... $ 2,742,027 $ 2,585,160 $ 1,556,522 $ 4,335,109 $ 5,516,259 $ 5,487,469
Cost of goods sold (4)............... 2,273,167 2,126,302 1,296,810 3,527,120 4,380,241 4,347,549
----------- ----------- ----------- ----------- ----------- -----------
Gross margin (4)..................... 468,860 458,858 259,721 807,989 1,136,018 1,139,920
Operating, selling and administrative
expenses.................... 425,064 386,104 223,856 765,749 981,381 935,319
Restructuring charge................. 5,134(10) 123,083(11)
----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss) (4).......... 43,796 72,754 30,722 (80,843) 154,637 204,601
Interest Expense (5)................. 73,614 77,017 48,361 202,651 284,217 277,653
Provision for earth-quake losses..... 4,504(9)
Provision for income taxes........... 1,427 2,700 500
----------- ----------- ----------- ----------- ----------- -----------
Loss before extra-ordinary charges (31,245) (11,467) (17,639) (283,994) (129,580) (73,052)
Extraordinary charge................. (38,424)(12) (47,983)(13)
Cumulative effect of change in
accounting principle........ -- -- -- -- -- (3,325)
----------- ----------- ----------- ----------- ----------- -----------
Net loss (6)......................... $ (31,245) $ (11,467) $ (17,639) $ (322,418) $ (129,580) $ (124,360)
=========== =========== =========== =========== =========== ===========
Balance Sheet Data
(end of period) (7)
Working capital deficit.............. $ (19,222) $ (54,882) $ (74,776) $ (150,475) $ (182,641) $ (148,925)
Total assets......................... 957,840 980,080 1,000,695 3,188,129 3,131,993 3,076,073
Stockholders' equity................. 22,633 10,024 (7,333) (188,798) (319,268) (441,508)
Other Data
EBITDA (as defined) (8).............. 103,794 130,573 76,853 245,146 354,646 380,317
EBITDA margin (8).................... 3.8% 5.1% 4.9% 5.7% 6.4% 6.9%
Capital expenditures................. $ 53,467 $ 57,471 $ 49,023 $ 122,355 $ 123,622 $ 143,542
Retail store square footage (in
thousands).................. 15,991
Number of stores at end of period.... 409
- --------------
(1) Operating data for the 52 weeks ended June 25, 1994 include the results of
10 Food Barn stores, which were not material, from March 29, 1994, the date
of the Food Barn acquisition.
S-33
<PAGE>
(2) Ralphs/Food 4 Less Supermarkets changed its fiscal year end from the 52 or
53-week period which ends on the last Saturday in June to the 52 or 53-week
period which ends on the Sunday closest to January 31, resulting in a
31-week transition period.
(3) Operating data for the 52 weeks ended January 28, 1996 reflects the
acquisition of Ralphs Supermarkets, Inc. on June 14, 1995.
(4) Cost of goods sold has been principally determined using the last-in,
first-out ("LIFO") method of valuing inventory. If cost of sales had been
determined using the first-in, first-out ("FIFO") method, gross profit and
operating income would have been greater by $4.4 million, $0.7 million,
$2.7 million, $2.2 million, $5.6 million and $4.2 million for the 52 weeks
ended June 26, 1993, and June 25, 1994, the 31 weeks ended January 29,
1995, the 52 weeks ended January 28, 1996, the 53 weeks ended February 2,
1997 and the 52 weeks ended February 1, 1998, respectively.
(5) Interest expense includes non-cash charges related to the amortization of
deferred financing costs.
(6) Net loss includes a pre-tax provision for self-insurance, which is
classified in cost of sales, selling, general and administrative expenses,
and interest expense of $43.9 million, $25.7 million, $9.8 million, $32.6
million, $29.2 million and $39.0 million for the 52 weeks ended June 26,
1993, and June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks
ended January 28, 1996, the 53 weeks ended February 2, 1997 and the 52
weeks ended February 1, 1998, respectively. Included in the 52 weeks ended
June 25, 1994, the 31 weeks ended January 29, 1995 and the 52 weeks ended
January 28, 1996 are reduced employer contributions of $8.1 million, $14.3
million and $26.1 million, respectively, related to union pension and
health and welfare benefit plans. Included in the 53 weeks ended February
2, 1997 and the 52 weeks ended February 1, 1998 are reduced employer
contributions of $17.8 million and $21.5 million, respectively, related to
union pension and health and welfare benefit plans. The multi-employer
union health and welfare plans to which Ralphs/Food 4 Less contributes are
overfunded, and those employers who contributed to the plans received a pro
rata share of excess reserves in the plans through reduction of current
contributions.
(7) Balance sheet data as of June 25, 1994 relate to Ralphs/Food 4 Less and
reflect the acquisition of 10 Food Barn stores. Balance sheet data as of
January 28, 1996 relate to Ralphs/Food 4 Less and reflect the acquisition
of Ralphs Supermarkets, Inc. and the financings associated therewith.
(8) EBITDA, as presented by Ralphs/Food 4 Less, represents income before
interest expense, depreciation and amortization expense, the LIFO
provision, provision for income taxes, provision for earthquake losses,
provision for restructuring, a one-time charge in the 1995 transition
period for Teamsters Union sick pay benefits, $75.0 million of one-time
costs incurred in connection with the acquisition of Ralphs Supermarkets,
Inc. in fiscal year 1995 and $13.5 million of one-time costs incurred in
connection with the acquisition of a distribution center located in
Riverside, California and nine former Smith's stores in fiscal year 1996.
EBITDA is not intended to represent cash flow from operations as defined by
GAAP and should not be considered as an alternative to cash flow as a
measure of liquidity or as an alternative to net earnings as an indicator
of operating performance. EBITDA is included herein because management
believes that certain investors find it to be a useful tool for measuring a
company's ability to service its debt. EBITDA as calculated by Ralphs/Food
4 Less may not be comparable to calculations as presented by other
companies, even in the same industry. EBITDA margin represents EBITDA as a
percentage of net sales.
S-34
<PAGE>
(9) On January 17, 1994, Southern California was struck by a major earthquake
which resulted in the temporary closing of 31 of Ralphs/Food 4 Less stores.
The closures were caused primarily by loss of electricity, water, inventory
or damage to the affected stores. All but one of the closed stores reopened
within a week of the earthquake. The final closed store reopened on March
24, 1994. Ralphs/Food 4 Less is insured, subject to deductibles, against
earthquake losses (including business interruption). The pre-tax charge to
earnings, net of insurance recoveries, was approximately $4.5 million.
(10) Ralphs/Food 4 Less converted 11 of its conventional supermarkets to
warehouse stores. During the 31 weeks ended January 29, 1995, Ralphs/Food 4
Less recorded a non-cash restructuring charge for the write-off of property
and equipment at the 11 stores of $5.1 million.
(11) Ralphs/Food 4 Less recorded a $75.2 million restructuring charge associated
with the closing of 58 stores and one warehouse facility in the 52 weeks
ended January 28, 1996. Pursuant to the settlement agreement with the state
of California, 27 Ralphs/Food 4 Less stores were required to be divested
and an additional 34 under-performing stores were closed. Ralphs/Food 4
Less also recorded a $47.9 million restructuring charge associated with the
closing of 9 stores and one warehouse facility in the 52 weeks ended
January 28, 1996, in conjunction with an agreement with Smith's to lease a
distribution center located in Riverside, California and nine former
Smith's stores.
(12) Represents an extraordinary charge of $38.4 million relating to the
refinancing of Ralphs/Food 4 Less' old credit facility, 10.45% Senior Notes
due 2000, 13.75% Senior Subordinated Notes due 2001 and 15.25% Senior
Discount Notes due 2004 in connection with the acquisition of Ralphs
Supermarkets, Inc. and the write-off of their related debt issuance costs.
(13) Represents an extraordinary charge of $48.0 million relating to the write
off of debt issuance costs associated with the refinancing of the
Ralphs/Food 4 Less' credit facility and the write off of debt issuance
costs and premium paid relating to the redemption of certain of the
Ralphs/Food 4 Less' outstanding public debt.
S-35
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
On September 9, 1997, Fred Meyer succeeded to the businesses of Fred Meyer
Stores and Smith's as a result of mergers pursuant to an Agreement and Plan of
Reorganization and Merger, dated as of May 11, 1997 (the "Smith's Acquisition").
At the closing, Fred Meyer Stores and Smith's became wholly owned subsidiaries
of the Company.
The Smith's Acquisition was accounted for under the purchase method of
accounting. Accordingly, the results for 1997 reflect only 21 weeks of
operations from the Smith's stores. As a result of the purchase, the assets and
liabilities of Smith's have been recorded at their fair value as of September 9,
1997. The purchase price in excess of the fair value of Smith's assets and
liabilities is recorded as goodwill and is being amortized over a 40-year
period.
On August 17, 1997, the Company acquired substantially all of the assets
and liabilities of Fox Jewelry Company ("Fox"), a regional jewelry store chain
operating 44 stores, in exchange for common stock with a fair value of $9.2
million. The Fox acquisition was accounted for under the purchase method of
accounting. Accordingly, the results for 1997 reflect only 24 weeks of
operations from the Fox stores.
In March 1998, the Company acquired QFC and Ralphs/Food 4 Less in separate
mergers, and QFC and Ralphs/Food 4 Less became wholly owned subsidiaries of the
Company. These mergers occurred after the end of the Company's fiscal year ended
January 31, 1998 and are not reflected in the financial statements of the
Company included herein and discussed below. In connection with these mergers,
the Company refinanced substantially all of the outstanding bank and public
indebtedness of Fred Meyer Stores, Smith's, QFC and Ralphs/Food 4 Less.
Fred Meyer Results of Operations -- 1997 Compared with 1996
Net sales for 1997 (52 weeks) increased $1.76 billion, or 47.2%, over 1996
(52 weeks). Sales from the Smith's stores accounted for $1.3 billion of the
increase, including four new stores added during the period since the Smith's
Acquisition. The increase also reflects the opening of five full-size
multi-department Fred Meyer stores. Comparable store sales (excluding Smith's)
increased 7.4% for 1997. Comparable food sales (excluding Smith's) increased
6.6%, and comparable nonfood sales (excluding Smith's) increased 8.6%. Food
sales as a percent of net sales were 67.4% and 59.0%, respectively, for 1997 and
1996.
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Gross margin as a percent of net sales was 29.8% in 1997 compared with
29.7% in 1996. Gross margin increased primarily due to the increase in sales of
higher margin non-food merchandise.
Operating and administrative expenses increased 42.7% to $1,386.3 million
in 1997 from $971.7 million in 1996, and as a percent of net sales were 25.3% in
1997 and 26.1% in 1996. Operating and administrative expenses decreased as a
percent of sales primarily due to the lower operating and administrative costs
as a percent of sales at Smith's. Amortization of goodwill increased to $10.5
million in 1997 from $308,000 in 1996 as a result of goodwill recorded in the
Smith's Acquisition.
Net interest expense increased to $75.5 million in 1997 from $39.4 million
in 1996. The increase primarily reflects the increased amount of indebtedness
incurred in conjunction with the Smith's Acquisition.
The effective tax rate was 40.6% for 1997 and 38.0% for 1996. The increase
in the effective tax rate results from the increase in amortization of goodwill,
which is not deductible for tax purposes.
Income before extraordinary charge was $103.3 million for 1997 and $58.5
million for 1996. This increase is primarily the result of the above-mentioned
factors.
The extraordinary charge of $91.2 million recorded in the third quarter of
1997 consists of fees incurred in the prepayment of certain indebtedness and
write-off of debt issuance costs.
Net income was $12.1 million for 1997 and $58.5 million for 1996. This
decrease is primarily the result of the increase in income before extraordinary
charge offset by the extraordinary charge.
QFC Results of Operations -- 1997 Compared with 1996
Sales for the year ended December 27, 1997 increased approximately $1.1
billion, or 133.2% compared with the same period in 1996. The increase in total
sales reflects the inclusion of the 23 KUI stores for 45 weeks and 56 Hughes
stores for 41 weeks, sales from the 45,000 square-foot Harvard Market store
which opened April 30, 1997, sales from two Food Giant stores acquired in
October 1996, sales from the Port Hadlock store acquired in June 1997, and an
increase in same store sales (which exclude sales in stores opened or acquired
during the previous 12 months) of approximately 2% for the year. The increase in
same store sales is due to improved merchandising and strong sales in remodeled
and replacement stores, despite a decrease of slightly more than 0.5% in retail
food prices.
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Cost of sales and related occupancy expenses increased to 75.5% of sales
for the year ended December 27, 1997, from 75.0% in 1996 due to lower margins in
the stores acquired in the first quarter of 1997 offset, in part, by improved
buying and merchandising, a greater mix of sales in higher margin service
departments in the QFC stores and lower occupancy expenses as a percentage of
sales.
Marketing, general and administrative expenses increased to 19.6% of sales
for the year ended December 27, 1997, from 18.9% of sales in 1996. The increase
was attributable to additional expenses associated with the initial integration
and a higher operating expense ratio of the acquired stores, including an
increase in acquisition related amortization of $9.6 million for the year ended
December 27, 1997, contractual rate increases from union contracts effective in
May 1997 and August 1997 and a 10% increase in the union benefit contributions
rate effective in July 1996, and $1.0 million of expenses related to the merger
with Fred Meyer incurred in 1997.
As a result of the above factors, operating margins declined to 4.9% of
sales for the year ended December 27, 1997, compared to 6.1% of sales for 1996.
Interest income increased to $2.6 million for the year ended December 27,
1997, compared to $0.5 million in 1996, reflecting the increase in QFC's cash
balances and higher interest rates.
Interest expense increased to $29.2 million for the year ended December 27,
1997, as compared to $9.9 million in 1996, reflecting interest on the additional
debt incurred in connection with the acquisitions, offset by lower debt balances
than in the comparable year prior to such borrowings. Interest expense is net of
approximately $0.8 million of interest capitalized in connection with store
construction and remodeling costs incurred during the year ended December 27,
1997, and $1.3 million of interest capitalized during the year ended December
28, 1996.
QFC's effective federal income tax rate increased to 39.4% for the year
ended December 27, 1997, compared to 35.8% for 1996, due to an increase in
non-deductible goodwill resulting from the KUI and Hughes acquisitions and the
addition of state of California income taxes as a result of the Hughes
acquisition. The difference between QFC's effective income tax rate and the
federal and state statutory rates is primarily due to non-deductible
amortization of goodwill resulting from the various acquisitions by QFC in 1997,
principally the KUI and Hughes acquisitions, which resulted in $1.1 million and
$3.6 million of goodwill expense, respectively.
The 88.9% increase in operating income for the year ended December 27,
1997, offset by the $17.2 million increase in the net interest expense and the
increase in the effective tax rate, resulted in an increase in net earnings to
$40.0 million compared with $25.4 million for the year ended December 28, 1996.
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Ralphs/Food 4 Less Results of Operations -- 1997 Compared with 1996
Sales per week increased $1.4 million, or 1.3%, from $104.1 million in the
53 weeks ended February 2, 1997 to $105.5 million in the 52 weeks ended February
1, 1998. Comparable store sales increased 1.1% for fiscal 1997. Ralphs/Food 4
Less' management believes the increase in comparable store sales was primarily
attributable to additional consumers' favorable response to Ralphs/Food 4 Less'
"First in Southern California" marketing program and the "Ralphs Club Card"
program.
Gross profit increased as a percentage of sales from 20.6% in the 53 weeks
ended February 2, 1997 to 20.8% in the 52 weeks ended February 1, 1998. The
increase in gross profit margin reflects a reduction in warehousing and
distribution costs as a result of the consolidation of the Ralphs/Food 4 Less'
distribution operations, as well as a reduction in the cost of goods sold as the
benefits of product procurement programs instituted by Ralphs/Food 4 Less are
realized, partially offset by start-up costs associated with the launch of the
"Ralphs Club Card" program.
Selling, general, administrative and other expenses ("SG&A") were $933.4
million and $900.0 million for the 53 weeks ended February 2, 1997 and the 52
weeks ended February 1, 1998, respectively. SG&A decreased as a percentage of
sales from 16.9% to 16.4% for those periods. The reduction in SG&A as a
percentage of sales reflects the results of tighter expense and labor controls
at the store level and continued administrative costs reductions, partially
offset by the start-up costs associated with the launch of the "Ralphs Club
Card" program. Ralphs/Food 4 Less participates in multi-employer health and
welfare plans for its store employees who are members of the United Food and
Commercial Workers Union ("UFCW"). As part of the renewal of the Southern
California UFCW contract in October 1995, employers contributing to UFCW health
and welfare plans received a pro rata share of the excess reserves in the plans
through a reduction of current employer contributions. Ralphs/Food 4 Less' share
of the excess reserves recognized in fiscal 1996 was $17.8 million. In fiscal
1997, the Company recognized pension suspension credits of $21.5 million.
Offsetting the reduction was a $4.3 million union bonus in fiscal year 1997.
During fiscal 1997, Ralphs/Food 4 Less utilized $2.4 million and $5.5
million of the remaining restructuring reserve related to the fiscal 1995 $75.2
million and $47.9 million restructuring charges, respectively. The amounts
utilized primarily include write-downs of property and equipment ($1.8 million)
and payments for lease obligations ($6.1 million). At February 1, 1998,
approximately $20.0 million of the restructuring accrual related to the $75.2
million charge and $11.4 million of the restructuring accrual related to the
$47.9 million charge remained accrued on Ralphs/Food 4 Less' balance sheet
consisting primarily of provisions for lease obligations. Ralphs/Food 4 Less has
completed a majority of the restructuring actions, although certain obligations
will continue through 2010.
Primarily as a result of the factors discussed above, Ralphs/Food 4 Less'
operating income increased from $154.6 million in fiscal 1996 to $204.6 million
in fiscal 1997.
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Interest expense (including amortization of deferred financing costs) was
$284.2 million for the 53 weeks ended February 2, 1997 and $277.7 million for
the 52 weeks ended February 1, 1998.
Primarily as a result of the factors discussed above, Ralphs/Food 4 Less'
loss before extraordinary charge and cumulative effect of change in accounting
principle decreased from $129.6 million in fiscal year 1996 to $73.1 million in
fiscal year 1997.
Extraordinary charges of $48.0 million were recorded in fiscal 1997. These
charges relate to the call premium on the 13.75% Senior Subordinated Notes and
the write-off of deferred financing costs associated with Ralphs/Food 4 Less'
old credit facility and the 13.75% Senior Subordinated Notes.
Liquidity and Capital Resources
The Company funded its working capital and capital expenditure needs in
1997 through internally generated cash flow and the issuance of unrated
commercial paper, supplemented by borrowings under committed and uncommitted
bank lines of credit and lease facilities.
On March 11, 1998 and in conjunction with the acquisition of Ralphs/Food 4
Less and QFC, the Company entered into new financing arrangements (the "1998
Senior Credit Facilities") that included the Notes and bank credit facilities,
which include a $1.875 billion five-year revolving credit agreement and a $1.625
billion five-year term loan. The term loan amortization is scheduled over five
years with $18.75 million due in fiscal year 1998, $118.75 million in fiscal
year 1999, $225.0 million in fiscal year 2000, $362.5 million in fiscal year
2001, $475.0 million in fiscal year 2002, and $425.0 million in fiscal year
2003. In addition to the 1998 Senior Credit Facilities, the Company entered into
a $500 million five-year operating lease facility, which refinanced $303 million
in existing lease financing facilities. The balance of this lease facility will
be used for land and construction costs for new stores. The Notes, which were
part of a $2.5 billion shelf registration, were issued on March 11, 1998 with
$250 million principal amount of five-year 7.150% Notes, $750 million principal
amount of seven-year 7.375% Notes and $750 million principal amount of ten-year
7.450% Notes. The 1998 Senior Credit Facilities contain certain restrictions on
payments by the Company of cash dividends, repurchase of common stock and the
handling of proceeds from the sale or disposition of assets other than in the
normal course of business, and require, among other things, that the Company
maintain a maximum leverage ratio and a minimum fixed charge ratio. The leverage
ratio compares debt to earnings before interest, taxes, depreciation and
amortization ("EBITDA"). The fixed charge ratio compares EBITDA to interest
expense. The obligations of the Company under the Notes are guaranteed by
certain subsidiaries. The obligations of the Company under the 1998 Senior
Credit Facilities are guaranteed by certain subsidiaries and are also
collateralized by the stock of certain subsidiaries.
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The Company had $16.5 million of outstanding letters of credit as of
January 31, 1998. The letters of credit are used to support the importation of
goods and to support the performance, payment, deposit or surety obligations of
the Company. The Company pays annual commitment fees ranging from .04% to 1.00%
on the outstanding portion of these letters of credit.
The Company has entered into interest rate swap, cap and collar agreements
to reduce the impact of changes in interest rates on its floating rate long-term
debt and rent expense on its lease lines of credit. At January 31, 1998, the
Company had outstanding four interest rate contracts for a total notional amount
of $180.0 million, and seven rent rate contracts for a total notional amount of
$80.0 million. The interest rate contracts effectively fix the Company's
interest rates between 5.0% and 9.0% on the notional amount and expire through
1999. The rent rate contracts effectively fix the Company's rental rates between
6.28% and 7.25% on the notional amount and expire through 2000. The Company is
exposed to credit loss in the event of nonperformance by the counterparties to
the interest rate and rent rate agreements. All contracts are with "A" rated or
better commercial banks and the Company does not anticipate nonperformance by
the counter parties.
The Company believes that the combination of cash flows from operations and
borrowings under its credit facilities will permit it to finance its capital
expenditure requirements for 1998, currently budgeted to be approximately $600
million, net of estimated real estate sales and stores financed on leases. If
the Company determines that it is preferable, it may fund its capital
expenditure requirements by mortgaging facilities, entering into sale/leaseback
transactions or by issuing additional debt or equity. The Company owns real
estate with a net book value of approximately $1.4 billion.
Year 2000
The Company has performed an analysis of, and is modifying its computer
software to address, the year 2000 issues. The Company is also contacting major
suppliers to determine the extent to which the Company may be vulnerable to
third party year 2000 issues. Based on current information, management believes
that all software modifications necessary to operate and effectively manage the
Company will be performed by the year 2000 and that related costs will not have
a material impact on the Company.
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BUSINESS
Fred Meyer is one of the largest domestic food retailers, operating more
than 800 supermarkets and multi-department stores, many of which are located in
the fastest growing markets in the United States. The Company has the largest
market share in the Los Angeles, Orange County, Seattle, Salt Lake City, Las
Vegas and Albuquerque markets and the second largest market share in the Phoenix
and Portland markets as well as a number one or two market share in 11
additional markets. The Company is a geographically diversified food retailer
that operates multiple formats that appeal to customers across a wide range of
income brackets. In the Pacific Northwest, Southwest and Intermountain states,
the Company operates multi-department stores principally under the Fred Meyer
and Smitty's banners and food and drug combination stores principally under the
Smith's Food & Drug Centers banner; in Southern California, the Company operates
conventional supermarkets under the Ralphs and Hughes Family Markets banners and
price-impact warehouse supermarkets under the Food 4 Less banner; and in the
Seattle/Puget Sound Region, the Company also operates premium supermarkets
principally under the QFC banner.
Fred Meyer Stores
Fred Meyer Stores has been in retail operations in the Pacific Northwest
since 1922. Fred Meyer Stores operates 118 multi-department stores in the
Pacific Northwest and Intermountain regions under the Fred Meyer banner,
including 45 stores in Oregon, 46 stores in Washington, 10 stores in Utah, seven
stores in Alaska, nine stores in Idaho, and one store in Montana. The average
Fred Meyer multi-department store is 145,700 square feet with a flexible store
format offering a full-service food department and a variety of nonfood
departments. In addition, Fred Meyer Stores operates 163 specialty stores
consisting primarily of 158 mall jewelry stores operating under the names Fred
Meyer Jewelers, Merksamer Jewelers, and Fox's Jewelers.
With its multi-department stores Fred Meyer emphasizes customer
satisfaction, large selections of highly popular products and competitive
pricing. In these stores, Fred Meyer typically sells over 225,000 items, with an
emphasis on necessities and items of everyday use. These stores are organized
into departments and sections within departments that specialize in the sale of
particular products such as food, apparel, home electronics, products for the
home, general merchandise and fine jewelry. Most of Fred Meyer's departments and
sections are self-service, except in areas where special sales assistance is
required, such as service delicatessens, service meat and/or fish, home
electronics, fine jewelry and pharmacy. Most of the multi-department store
locations have complementary third-party tenants (such as banks, optical
centers, gourmet coffee bars, restaurants and video rental stores). Fred Meyer
stores are generally positioned as the lowest priced full-service food retailer
in each of Fred Meyer's major markets. Management believes that Fred Meyer's
everyday low price food strategy increases the shopping frequency of customers,
builds customer loyalty and increases customer traffic, thereby generating
higher levels of sales in nonfood departments. The nonfood departments carry a
broad selection of national and private label brands and employ
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a promotional pricing strategy. The nonfood departments have recently focused on
developing selected specialty boutique departments which management believes
have increased overall same store sales and resulted in higher gross margins.
Together with a wide variety of well-known national brands, food
departments in Fred Meyer multi-department stores carry private-label brands of
grocery items under the names First Choice, Fred Meyer and FMV (Fred Meyer
Value). Since 1992, Fred Meyer Stores has focused on increasing sales of
private-label grocery items. As a result of this focus, the sale of
private-label grocery items has increased from approximately 12% to
approximately 20% of total food sales in 1997. Private-label items generally
generate higher margins for Fred Meyer Stores at lower prices for the consumer
than national brand products. The strategy employed in nonfood departments is to
use private-label products for both entry-level price points and better
offerings at value prices. In 1995 and 1996, Fred Meyer Stores introduced
additional private-label items in the home and apparel departments to bring
additional value to its customers and to improve gross margins in these areas.
Private-label sales in the home and apparel departments represented
approximately 16% of these departments' sales in fiscal 1997, with a long-term
goal of 20%.
Smith's
Smith's operates a total of 156 stores, averaging 67,200 square feet,
including 129 food and drug combination stores under the Smith's Food & Drug
Centers banner, 18 multi- department stores under the Smitty's banner and 9
price-impact warehouse format stores under the PriceRite Grocery Warehouse
banner, in Arizona (57), Utah (41), Nevada (25), New Mexico (19), Idaho (5),
Wyoming (5) and Texas (4). Smith's Food & Drug Centers' operating format offers
customers the ability to fulfill a significant portion of their daily and weekly
shopping needs at one convenient location and establishes and promotes a
reputation as a low price operator in the trade area of each of its stores.
Substantially all of the Smith's Food & Drug Centers offer shopping
convenience through a food and drug combination format which features a
full-line supermarket with drug and pharmacy departments as well as some or all
of the following specialty departments: delicatessens, hot prepared food
sections, in-store bakeries, video rental shops, floral shops, one-hour photo
processing labs, full-service banking and frozen yogurt shops. In addition,
combination stores carry a wide variety of general merchandise, including
pharmaceutical products, toys, hardware, giftware, greeting cards and small
appliances. Within each category of merchandise, the stores offer multiple
selections of nationally advertised brand name items. In addition, the stores
carry an extensive selection of private-label merchandise, which provides
comparable quality products priced lower than national brands. Approximately 20%
of Smith's Food & Drug Centers' grocery sales are derived from private-label
items. Smith's Food & Drug Centers also carry a variety of bulk merchandise and
generic brand products which enhance its low price image. The 18 Smitty's multi-
department stores offer an expanded selection of non-grocery merchandise in a
format similar to Fred Meyer multi-department stores. The nine PriceRite Grocery
Warehouse stores are
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targeted to price-conscious consumers rather than conventional supermarket
consumers. The PriceRite Grocery Warehouse stores offer lower prices, fewer
stock keeping units ("SKUs") and fewer service departments than conventional
supermarket stores.
The "Fresh Values Frequent Shopper Card," which was introduced in 1997, is
at the core of Smith's Food & Drug Centers' marketing strategy. Management
believes that this strategy has provided Smith's Food & Drug Centers with
significant brand identity and operating leverage. The card provides
differentiation in most markets as the majority of Smith's Food & Drug Centers
competitors do not offer a similar discount. Management believes that the "Fresh
Values Frequent Shopper Card" (i) increases shopping frequency, (ii) increases
average transaction size, (iii) cultivates loyalty in the most profitable
customers, (iv) reduces customer defections and (v) builds customer data for
targeted marketing programs.
QFC
QFC operates 80 QFC stores in the Seattle/Puget Sound Region and two QFC
stores in Portland, Oregon. The QFC stores range in size from 14,000 to 68,000
square feet and average 35,400 square feet. QFC's merchandising strategy
emphasizes (i) superior customer service, (ii) a wide variety of quality meat,
seafood, produce and other perishables, (iii) high-quality convenience-oriented
specialty departments and services and (iv) a broad assortment of higher-margin
proprietary brands. Management believes that QFC's strengths in merchandising
have earned QFC stores a reputation for providing superior value to their
customers. QFC has significantly expanded its selection of prepared foods and
"home meal replacements," which management believes appeals to the increasing
convenience orientation of its customers. Many QFC stores also offer natural
food sections, video rentals, fresh juice bars and pharmacies. In addition, QFC
has leased space within its stores to branded specialty food operators,
including Starbucks Coffee, Cinnabon World Famous Cinnamon Rolls and Noah's New
York Bagels, as well as to full-service banks such as Seafirst National Bank.
Management believes that QFC has historically achieved strong margins,
which it attributes primarily to QFC's merchandising and operating practices,
combined with favorable customer demographics in its markets. Offering a wide
variety of high-quality meat, seafood, produce, deli and bakery items to its
customers is a fundamental tenet of QFC's merchandising strategy. Management
believes that its reputation for providing among the freshest and widest
varieties of these major groups of perishables, displayed in a clean and
visually appealing presentation, is a major attraction for its customers. QFC
recently developed a three-tier proprietary brands program, which includes
"signature," "endorsed" and "price fighter" brands. QFC's proprietary brands
sales for its fiscal year ending December 27, 1997 accounted for approximately
9% of grocery sales.
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Ralphs/Food 4 Less
Founded in 1872, Ralphs/Food 4 Less is the largest supermarket operator in
Southern California, which is one of the largest food retailing markets in the
United States with a population of 19 million. Ralphs/Food 4 Less' Southern
California operations include 260 conventional supermarkets, averaging 37,000
square feet, under the Ralphs banner, 55 conventional supermarkets, averaging
34,800 square feet, under the Hughes Family Markets banner, and 80 price-impact
supermarkets in a warehouse format, averaging 52,600 square feet, under the Food
4 Less banner. Operating two complementary formats allows Ralphs/Food 4 Less to
serve a broader customer base than its competitors. Hughes Family Markets
supermarkets were acquired by QFC in March 1997 and are being converted to the
Ralphs banner. Management believes that the consolidation of Hughes into
Ralphs/Food 4 Less will result in significant operating and merchandising
efficiencies.
Ralphs stocks between 35,000 and 45,000 merchandise items in its stores,
including approximately 2,800 private-label products. Ralphs stores offer
name-brand grocery products, quality and freshness in its produce, meat,
seafood, delicatessen and bakery products and broad selection in all
departments. Most Ralphs stores offer service delicatessen departments,
on-premises bakery facilities and seafood departments. Ralphs emphasizes store
ambiance and cleanliness, fast and friendly service, the convenience of debit
and credit card payment (including many in-store branch banks) and 24-hour
operations in most stores.
Ralphs utilizes innovative and aggressive marketing programs in an effort
to increase sales, market share and profitability, which emphasize Ralphs' lower
regular retail prices in conjunction with its premier quality, wide selection
and enhanced customer service. The marketing programs are designed to increase
store traffic and sales by a coordinated use of media advertisement, double
coupon offerings and targeted marketing efforts with the "Ralphs Club Card"
program. The "Ralphs Club Card" program is a frequent shopper program intended
to increase customer shopping frequency and transaction size and to provide
valuable information about consumer shopping habits. Ralphs continues to
emphasize its successful merchandising programs and exceptional product mix,
including its home meal replacement program and strong private-label program.
Ralphs' private label program provides quality comparable to that of national
brands at lower prices, while its gross margins on private label products are
generally higher than on national brands. The Ralphs home meal replacement
program offers a wide range of high-quality, prepackaged fresh, refrigerated and
frozen food items.
Food 4 Less is a warehouse-style, price-impact store which is positioned to
offer the lowest overall prices in its marketing areas by passing on to the
consumer savings achieved through labor efficiencies and lower overhead and
advertising costs associated with the warehouse format, while providing the
product selection and variety associated with a conventional format. In-store
operations are designed to allow customers to perform certain labor-intensive
services usually offered in conventional supermarkets. For example,
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merchandise is presented on warehouse style racks in full cartons, reducing
labor intensive unpacking, and customers bag their own groceries. Management
believes that there is a significant segment of the market, encompassing a wide
range of demographic groups, which prefers to shop in a warehouse format
supermarket because of its lowest overall pricing.
Ralphs/Food 4 Less also operates stores in Northern California and the
Midwest. The Northern California division of Ralphs/Food 4 Less operates 21
conventional supermarkets in the greater San Francisco Bay area under the Cala
and Bell Markets banners and six warehouse format stores under the FoodsCo
banner. The Midwestern division of Ralphs/Food 4 Less operates 38 stores, 33 of
which operate under the Food 4 Less banner and five of which are conventional
supermarkets operating under the Falley's banner. Of these 38 stores, 34 are
located in Kansas and four are located in Missouri.
On February 10, 1998, the Company, Ralphs/Food 4 Less and QFC entered into
a settlement agreement (the "Settlement Agreement") with the State of California
to settle potential antitrust and unfair competition claims that the State of
California asserted against the Company, Ralphs/Food 4 Less and QFC relating to
the effects of the mergers on supermarket competition in Southern California
(the "State Claims"). Without admitting any liability in connection with the
State Claims, the Company, Ralphs/Food 4 Less and QFC agreed in the Settlement
Agreement to divest 19 specific stores in Southern California. Under the
Settlement Agreement, the Company must divest 13 stores by September 10, 1998
and the balance of six stores by December 10, 1998. The Company also agreed not
to acquire new stores from third parties in the Southern California areas
specified in the Settlement Agreement (covering substantially all of the Los
Angeles metropolitan area) for five years following the date of the Settlement
Agreement without providing prior notice to the State of California. If the
Company fails to divest the required stores by the two dates set forth in the
Settlement Agreement, the Company has agreed not to object to the appointment of
a trustee to effect the required sales.
Competitive Strengths
Management believes that the Company benefits from the following
competitive strengths: (i) an outstanding franchise value; (ii) leading market
shares in fast-growing markets; (iii) a well-positioned and modern store base;
(iv) a modern infrastructure; and (v) an experienced management team.
Outstanding Franchise Value. As a result of the long operating histories of
the Company's banners and their reputation for delivering superior customer
value, the Company has developed strong brand name recognition and customer
loyalty for each of its operating formats. Management believes that the Company
has benefitted and should continue to benefit from this strong franchise value.
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Leading Market Shares in Fast-Growing Markets. By offering superior
customer service and competitive pricing, the Company's banners have developed
leading market shares in each of their principal markets. The Company has the
number one market share in the Los Angeles, Orange County, Seattle, Las Vegas,
Salt Lake City and Albuquerque markets and the number two market share in the
Phoenix and Portland markets which are among the largest and fastest growing
population centers in the United States.
Well-Positioned and Modern Store Base. Management believes that the
Company's store locations include many sites in developed urban and suburban
locations which would be difficult to replicate. The Company has invested
significant capital in its store base over the last seven years through the
addition of new stores and the remodeling of existing stores in order to improve
the overall quality of its customers' shopping experience. As a result,
approximately 77% of the Company's stores have been opened or remodeled within
the past seven years.
Modern Infrastructure. The Company believes it has state-of-the-industry
warehousing and distribution systems which are conveniently located within the
areas served by the Company. As a result of the recent mergers and the
significant investment in its infrastructure over the last several years,
management believes the Company will be able to lower its distribution costs as
a percentage of net sales and maintain lower levels of inventory.
Experienced Management Team. The Company benefits from a strong senior
management team that has extensive experience operating and acquiring and
successfully integrating food retailing operations. This senior management team
is supported by senior operating managers at each of the Company's operating
subsidiaries. These senior operating managers average over 24 years experience
at the respective subsidiary and have each spent much of their careers in their
respective local markets. The Company considers its senior operating managers to
be industry leaders in operating its principal store formats.
Recent Mergers
In March 1998 the Company acquired QFC and Ralphs/Food 4 Less in two
separate mergers. Although the Company expects to realize significant cost
savings from the elimination of duplicative overhead and advertising, the
rationalization of transportation and distribution and improved purchasing
power, both QFC and Ralphs/Food 4 Less will continue to be operated by the
respective company's existing management team under the QFC and Ralphs/Food 4
Less banners, which the Company believes will facilitate their integration into
the Company's operation. In connection with the QFC and Ralphs/Food 4 Less
mergers, the Company refinanced substantially all of the outstanding bank and
public indebtedness of Fred Meyer, QFC and Ralphs/Food 4 Less with the proceeds
from note offerings and borrowings under new senior credit facilities and
refinanced a portion of the Company's operating lease arrangements under a new
lease facility. See "Management's
S-47
<PAGE>
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company believes that, following the recent mergers, Fred Meyer is
capable of increasing its profitability through significant cost savings,
operating efficiencies, economies of scale, stronger market position and other
synergies stemming from the strategic geographical fit of the Company's
operating units. The Company further believes that, excluding the effect of
one-time merger-related expenses, it can achieve annual savings and improvements
attributable to such operating factors of approximately $100 million from the
mergers with QFC and Ralphs/Food 4 Less. These savings are expected to be
realized over time and are expected to be achievable in full by the end of 2001.
Competition
The retail merchandising business in general, and the supermarket industry
in particular, is highly competitive and generally characterized by narrow
profit margins. The Company's competitors in each of its operating divisions
include national and regional supermarket chains, discount stores, independent
and specialty grocers, drug and convenience stores, large category-dominant
stores and the newer "alternative format" food stores, including warehouse club
stores, deep discount drug stores, "supercenters" and conventional department
stores. Competitors of the Company include, among others, Safeway, Albertson's,
Lucky, Costco, Wal-Mart and Target. Retail businesses generally compete on the
basis of location, quality of products and service, price, product variety and
store condition. The Company's ability to compete depends in part on its ability
to successfully maintain and remodel existing stores and develop new stores in
advantageous locations. The Company regularly monitors its competitors' prices
and adjusts its prices and marketing strategy as management deems appropriate in
light of existing conditions. The Company emphasizes customer satisfaction,
large selections of high-quality popular products and competitive pricing. In
addition, the Company believes that the convenience, attractiveness and
cleanliness of its stores, together with a sales staff knowledgeable in
specialty areas, enhances its retail sales effort and competitive position.
S-48
<PAGE>
Properties
The following table sets forth certain information regarding the
Company's store base:
<TABLE>
<CAPTION>
Number Avg Sq
Principal Banners of Stores Owned Leased Formats Footage Geographic Region
- --------------------------- --------- ------ ------- ----------------------------- ----------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Fred Meyer (1) 118 24 94 Multidepartment 145,700 Pacific Northwest and
Intermountain
Smith's Food & Drug 156 113 43 Food and drug combination; 67,200 Southwest and Intermountain
Centers (2) multidepartment; and
price-impact warehouse
QFC 82 9 73 Premium 35,400 Pacific Northwest
Ralphs (3) 315 56 259 Conventional 36,600 Southern California
Food 4 Less 80 5 75 Price-impact warehouse 52,600 Southern California
Other (4) 65 2 63 Conventional and price-impact 31,900 Midwest and Northern
-------- ----- ------- warehouse California
Total (5) 816 209 607
(1) Does not include 5 specialty stores and 157 jewelry stores.
(2) Includes 18 Smitty's multi-department stores and nine PriceRite
Grocery Warehouse price-impact warehouse stores.
(3) Includes Hughes Family Markets which are currently being converted to
Ralphs. Thirteen of the owned stores are located on real property
subject to ground leases and one of the owned stores is partially
owned and partially leased.
(4) Includes conventional and warehouse format stores operated by
Ralphs/Food 4 Less under the names Cala, Bell Markets, Falley's and
FoodsCo. One of the stores is partially owned and partially leased.
(5) Does not reflect the divestiture of 19 stores in Southern California
pursuant to a settlement agreement entered into with the state of
California in connection with the QFC and Ralphs/Food 4 Less mergers.
</TABLE>
The Company owns additional facilities, including its corporate and Fred
Meyer Stores headquarters in Portland, Oregon, its Ralphs/Food 4 Less
headquarters in Compton, California, distribution and warehouse facilities in
Chehalis and Puyallup, Washington, Compton and Glendale, California, Layton,
Utah and Tolleson, Arizona, and Smith's distribution and administration
facilities in Salt Lake City, Utah, and leases other facilities, including its
distribution facility in Clackamas, Oregon, QFC's headquarters in Seattle,
Washington and the Riverside, California distribution facility.
Distribution and Processing
The Company has over 225,000 SKUs supplied by over 10,000 suppliers, none
of which represents more than 5% of the Company's total purchases. Due to its
many sources of supply, the Company believes that it has many alternative
sources of supply for the products it purchases. The Company also believes its
purchase terms are generally in line with industry practices.
S-49
<PAGE>
Fred Meyer Stores operates a 1.5 million square foot food and nonfood
distribution center in Clackamas, Oregon, near Portland, a 310,000 square foot
flow-through distribution facility in Chehalis, Washington and a 600,000 square
foot food distribution center in Puyallup, Washington near Seattle. Fred Meyer
Stores' flow-through retail service center in Chehalis serves as the centralized
distribution facility for certain apparel, music, seasonal and other nonfood
items. This facility minimizes the required handling and processing of goods
received from vendors and distributed to Fred Meyer stores. It has improved
inventory management and reduced distribution costs for the goods shipped
through this facility. The Puyallup facility serves stores in the Puget Sound
Region and Alaska. The facilities reduce the cost of transporting goods into the
Puget Sound and Alaska markets and afford Fred Meyer Stores increased
forward-buying opportunities. In addition, Fred Meyer Stores operates a large
fleet of trucks and trailers for distribution of goods to its retail stores. QFC
operates a commissary in Seattle, Washington that produces selected delicatessen
items. QFC will convert the purchasing and distribution of the majority of the
items that it historically purchased from wholesale suppliers to utilize Fred
Meyer Stores' warehousing and distribution infrastructure.
Smith's operates a 1.1 million square foot distribution center in Tolleson,
Arizona, a 573,000 square foot grocery warehouse in Layton, Utah, and a 634,000
square foot nonfood distribution center in Salt Lake City, Utah. Smith's also
operates two smaller produce warehouses in Ontario, California and Albuquerque,
New Mexico which will be consolidated into the Tolleson facility in 1998. In
addition, Smith's operates a large fleet of trucks and trailers for distribution
of goods to its retail stores.
Ralphs/Food 4 Less operates a warehousing and manufacturing space
consisting of a 675,000 square foot dry grocery service center, a 270,000 square
foot refrigerated and frozen food facility and a 115,000 square foot creamery
facility in Riverside, California. It also operates a 17 million cubic foot
high-rise automated storage and retrieval system warehouse for non-perishable
items near Glendale, California and a 5.4 million cubic foot facility in
Compton, California designed to process and store all perishable products. Due
to its use of the Riverside facility, Ralphs/Food 4 Less has been able to
consolidate its distribution operations, allowing it to reduce transportation
costs, management overhead and outside storage costs and to improve inventory
management. The Glendale facility can hold substantially more inventory and
requires fewer employees to operate than a conventional warehouse of equal size.
The Compton facility has provided Ralphs/Food 4 Less with the ability to deliver
perishable products to its stores on a daily basis, thereby improving the
freshness and quality of these products. In addition, Ralphs/Food 4 Less
operates a large fleet of trucks and trailers for distribution of goods to its
retail stores.
Hughes owns a 600,000 square foot distribution facility in Irwindale,
California. Going forward, Hughes will utilize Ralphs/Food 4 Less'
administrative, distribution and manufacturing infrastructure, and the Irwindale
facility will be closed, sold or otherwise disposed of.
S-50
<PAGE>
The Company owns and operates several processing facilities to better
support its stores and realize additional profit opportunities. Products
processed by the Company are sold primarily through its own retail stores.
Dairies located in Portland, Oregon, Layton, Utah and Tolleson, Arizona process
a variety of milk, milk products and fruit beverages under the Company's private
labels. A bakery located in Portland, Oregon and a frozen dough plant located in
Layton, Utah process bakery products for in-store bakeries. A cultured dairy
products plant in Layton, Utah produces yogurt, cottage cheese, sour cream and
chip dip products. The ice cream processing plant in Layton, Utah supplies
stores with a wide variety of private label ice cream and novelty items.
Ralphs/Food 4 Less also owns and operates several processing facilities in
Southern California. Dairies located in Compton and Riverside process a variety
of milk, milk products and fruit beverages under Ralphs/Food 4 Less' private
labels. A bakery located in La Habra, California processes commercial bakery
items and processed products for sale in Ralphs/Food 4 Less' stores. A
commissary located in Vernon, California produces selected delicatessen and home
meal replacement items.
Hughes owns a 50% interest in Santee Dairies, Inc. ("Santee"), which
operates one of the largest dairy plants in California. Santee processes,
packages and distributes milk, as well as orange juice, fruit drinks and certain
cultured products under the Knudsen, Foremost and certain stores' brand names.
In 1997 Santee completed construction of a new dairy plant in the City of
Industry, California. The Company's management believes that the new facility
will increase Santee's capacity to process milk from approximately 250,000
gallons per day to approximately 350,000 gallons per day, with the ability to
expand capacity to approximately 500,000 gallons per day.
The Company expects to achieve improved operating efficiencies as a result
of the integration of the distribution and manufacturing infrastructures of
Ralphs/Food 4 Less, Hughes, Fred Meyer Stores and QFC. The Company believes that
its current distribution and manufacturing facilities have the capacity to
handle the Company's current stores and stores expected to be opened during
1998. The Company's facilities are capable of expansion to handle stores
expected to be added over the next several years. The Company is expanding the
Chehalis and Puyallup, Washington and the Tolleson, Arizona facilities in 1998.
The Company has made significant capital investments in its distribution
centers which, together with management information systems improvements, are
designed to improve operations, permit better inventory management and reduce
distribution costs. The Company has established electronic data interchange and
automated replenishment programs with many vendors. These quick response
capabilities improve inventory management and reduce handling of inventory in
the distribution process, which results in lower markdowns and lower
distribution costs as a percentage of sales.
S-51
<PAGE>
The Company believes that its distribution and related information systems
provide several additional advantages. First, they permit stores to maintain
proper inventory levels for items supplied through its central distribution
facilities. Second, centralized purchasing and distribution reduce the Company's
cost of merchandise and related transportation costs. Third, because
distribution can be made to stores more frequently, the Company is able to
reduce in-store stockroom space and maximize the square footage available for
retail selling.
S-52
<PAGE>
MANAGEMENT
Certain information concerning the executive officers of the Company is
set forth below.
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Position
- ---- --- --------
Robert G. Miller 54 President and Chief Executive Officer
Mary F. Sammons 51 President and Chief Executive Officer of Fred Meyer Stores
George G. Golleher 50 President and Chief Executive Officer of Ralphs/Food 4 Less
Dan P. Kourkoumelis 47 President and Chief Executive Officer of QFC
Abel T. Porter 40 President and Chief Executive Officer of Smith's
Kenneth Thrasher 48 Executive Vice President and Chief Administrative Officer
Kenneth A. Martindale 38 Executive Vice President, Purchasing
George A. Schnug 53 Executive Vice President, Distribution and Manufacturing
David R. Jessick 44 Senior Vice President, Finance and Chief Financial Officer
Roger A. Cooke 50 Senior Vice President, General Counsel and Secretary
</TABLE>
The executive officers of the Company are elected annually for one year and
hold office until their successors are elected and qualified.
Mr. Miller became President in April 1997 and has been Chief Executive
Officer of the Company since 1991. He was Chairman of the Board from August 1991
to July 1997. Prior to that time he was employed by Albertson's, where his most
recent positions were Executive Vice President of Retail Operations from 1989 to
1991 and Senior Vice President and Regional Manager from 1985 to 1989.
Ms. Sammons became President and Chief Executive Officer of Fred Meyer
Stores in January 1998. Prior to that time she was Executive Vice President -
Nonfood Group of Fred Meyer. Ms. Sammons joined the Company in 1973 and became a
buyer in 1975. She was promoted to Vice President and Merchandiser in 1980,
Senior Vice President of the Softgoods Division in 1989 and Senior Vice
President of Apparel and Home Electronics in 1995.
Mr. Golleher became President of Ralphs/Food 4 Less in March 1998 and has
been Chief Executive Officer of Ralphs/Food 4 Less since January 1996. He was
Vice Chairman from June 1995 to January 1996. He was a Director of Food 4 Less
Supermarkets from its inception in 1989 and was the President and Chief
Operating Officer of Food 4 Less Supermarkets from January 1990 until June 1995.
From 1986 through 1989, Mr. Golleher served as Senior Vice President - Finance
and Administration of The Boys Markets, Inc.
S-53
<PAGE>
Mr. Kourkoumelis was appointed President and Chief Executive Officer of QFC
in March 1998, after serving as President and Chief Executive Officer of Hughes
since May 1997. Prior to that time, he was Chief Executive Officer and President
of QFC, positions which he held since 1996 and 1989, respectively. He was
Executive Vice President of QFC from 1983 to 1987 and Chief Operating Officer
from 1987 to 1989.
Mr. Porter has been President and Chief Executive Officer of Smith's since
January 1998. He was Regional Manager for Smith's from 1990 to 1993, and Senior
Vice President and Regional Manager for Smith's from 1993 to January 1998. In
the years prior to this appointment, Mr. Porter worked in both the Intermountain
and Southwest regions in several positions.
Mr. Thrasher became Executive Vice President and Chief Administrative
Officer in January 1997. Prior to that time, he was Senior Vice President,
Finance and Chief Financial Officer from March 1989 until January 1997, Vice
President, Finance, Chief Financial Officer and Secretary from 1987 until 1989
and Vice President, Corporate Treasurer from 1982 until 1987.
Mr. Martindale has been Executive Vice President of Purchasing and
Procurement since January 1998. He was Senior Vice President of Sales and
Procurement for Smith's from November 1996 to January 1998 and Senior Vice
President of Marketing for Smith's from August 1995 to November 1996. He served
as Vice President of Merchandising in Smith's Southern California region from
1991 to 1995. From 1984 to 1991, he served as a district manager for Smith's
Intermountain region.
Mr. Schnug has been Executive Vice President, Distribution and
Manufacturing since March 1998. Prior to that time, Mr. Schnug was Group Senior
Vice President, Support Operations of Ralphs Grocery Company since January 1996.
He served as Senior Vice President, Manufacturing and Construction from June
1995 to January 1996. From 1992 to June 1995, he served as Senior Vice
President, Corporate Operations of Food 4 Less Supermarkets.
Mr. Jessick became Senior Vice President, Finance and Chief Financial
Officer in January 1997. Prior to that time, he was employed by Thrifty PayLess
Holdings Inc., where his most recent positions were Executive Vice President and
Chief Financial Officer from 1994 to 1996 and Senior Vice President, Finance and
Chief Financial Officer from 1990 until 1994.
Mr. Cooke became Senior Vice President, General Counsel and Secretary in
April 1993. Prior to that time he was Vice President, General Counsel and
Secretary of the Company from August 1992 until April 1993. From 1982 to 1992,
he was an officer of Pan American World Airways, Inc., serving as Senior Vice
President and General Counsel from 1990 to 1992. From 1973 to 1980, he was
associated with the law firm Simpson Thacher and Bartlett.
S-54
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information relating to the
beneficial ownership of the Company's Common Stock as of June 1, 1998 by (i)
each of the Selling Stockholders and (ii) the only person who is known by the
Company to own beneficially 5% or more of the outstanding shares of Common
Stock, and as adjusted to reflect the sale by the Selling Stockholders of the
shares of Common Stock offered hereby. Except as indicated in the footnotes to
the table, the persons named in the table have sole voting and investment power
with respect to shares of Common Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
Beneficial Ownership Shares Being Beneficial Ownership
Prior to Offering Offered(1) After Offering
---------------------- ------------ ----------------------
Shares Percent Shares Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Zell/Chilmark Fund, L.P. 7,552,500(2) 5.0% 6,117,690(3) 1,434,810(3) *
2 North Riverside Plaza, 6th Floor
Chicago, Illinois 60606
Stuart M. Sloan 3,434,975(4) 2.3% 909,091 2,525,884 1.7%
1301 Fifth Ave., Suite 3000
Seattle, Washington 98101
Jeffrey P. Smith 1,372,994(5) * 998,542 374,453 *
Trust for the Children of Jeffrey P. Smith 1,176,740(5) * 855,808 320,932 *
The Sean Smith Trust 100,964 * 73,428 27,536 *
The Jaci Smith Trust 128,630(5) * 93,549 35,081 *
The Joshua Smith Trust 128,630(5) * 93,549 35,081 *
32 Burningtree Court
Las Vegas, Nevada 89113
Fred Lorenzo Smith 530,686(5) * 385,953 144,733 *
Trust for the Children of Fred Lorenzo Smith 1,176,740(5) * 855,809 320,931 *
The Fred Lloyd Smith Trust 86,840(5) * 63,156 23,684 *
The Staci Elaine Smith Trust 60,206(5) * 43,785 16,421 *
The Zachary Dee Smith Trust 60,206(5) * 43,785 16,421 *
Elaine Smith 35,852(5) * 26,075 9,777 *
2000 Strada Mia
Las Vegas, Nevada 89117
The Dee Glen Smith Marital Trust 411,002(6) * 298,910 112,092 *
c/o Ida Smith
1066 E. Capital Blvd.
Salt Lake City, Utah 84103
S-55
<PAGE>
Beneficial Ownership Shares Being Beneficial Ownership
Prior to Offering Offered After Offering
---------------------- ------------ ----------------------
Shares Percent Shares Percent
------ ------- ------ -------
BT Corporation 157,725 * 143,386 14,339 *
BT Investment Partners, Inc. 1,124,694 * 1,022,449 102,245 *
130 Liberty St.
New York, NY 10006
CSFB IGP 28,908 * 28,908 2,628 *
c/o Credit Suisse First Boston
11 Madison Ave.
New York, NY 10010
Merchant GP, Inc. 371,092 * 334,728 36,364 *
Bahnhofstrasse #17
CH-6301 Zug, Switzerland
Dan Kourkoumelis 554,203(6) * 431,818 122,385 *
1012 NE 10th Street, Suite 201
Bellevue, Washington 98004
Ronald W. Burkle 14,528,864(7) 9.5 - 0 - 14,528,864 9.5%
- --------------
* Less than 1%
(1) If the over allotment option is exercised in full, the Selling Stockholders
would sell the following additional shares:
Zell/Chilmark Fund, L.P. - 611,769 shares
Stuart Sloan - 90,909 shares
Jeffrey P. Smith - 99,853 shares
Trust for the Children of Jeffrey P. Smith - 85,581 shares
The Sean Smith Trust - 7,343 shares
The Jaci Smith Trust - 9,355 shares
The Joshua Smith Trust - 9,355 shares
Fred Lorenzo Smith - 38,595 shares
Trust for the Children of Fred Lorenzo Smith - 85,581 shares
The Fred Lloyd Smith Trust - 6,316 shares
The Staci Elaine Smith Trust - 4,379 shares
The Zachary Dee Smith Trust - 4,379 shares
Elaine Smith - 2,607 shares
The Dee Glen Smith Marital Trust - 29,891 shares
BT Corporation - 14,339 shares
BT Investment Partners, Inc. - 102,245 shares
CSFB IGP - 0 shares
Merchant GP, Inc. - 36,364 shares
Dan Kourkoumelis - 116,584
(2) Samuel Zell, a director of the Company, may be deemed to own beneficially
these shares by virtue of his positions with the entities that indirectly
control the general partner of Zell/Chilmark Fund, L.P. Mr. Zell disclaims
beneficial ownership of these shares. Zell/Chilmark Fund L.P. acquired
these
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<PAGE>
shares in connection with the merger of QFC and the Company. See
"Management" and "Business - Recent Mergers."
(3) Based on the closing sale price of the Common Stock on June 10, 1998. The
actual number of shares being offered and which will be beneficially owned
after the Offering will be adjusted in connection with the determination of
the Price to the Public. Zell/Chilmark Fund, L.P., intends to distribute
shares it beneficially owns after the Offering (less 611,769 shares
assuming exercise of the over allotment option) to certain of its direct
and indirect partners shortly after the sale of the shares offered hereby
and these distributed shares are being registered pursuant to the
registration statement to which this Prospectus Supplement relates. The
direct and indirect partners that will receive shares in the distribution
(and the estimated number of such shares) include: Grumman Corp. Pension
Trust (50,554); BFW Realty Co. (10,075); South Ferry #2, L.P. (15,133); COP
General Partnership (747,279); Bradbury Dyer (51,715); David A. Gardner
(25,858); Blaine Trust (12,929); LJ Trusts (5,171); Bertram R. Cohen
(12,929); COP Seniors General Partnership (638,677); S. Cody Engle
(14,955); William Hall (30,994); Donald J. Liebentritt (5,000); Sheli Z.
Rosenberg (63,020); Sanford Shkolnik (6,199); Gerald A. Spector (21,564);
Tim Callahan (12,914); and Sam Investment Trust (484,032). Each of Mr. Zell
and Ms. Rosenberg has served as a director of QFC. It is anticipated that
the direct and indirect partners of Zell/Chilmark Fund, L.P. who will
receive such shares will agree not to sell these shares for a period of 90
days after the Offering.
(4) Includes 586,910 shares which are subject to immediately exercisable
options. Mr. Sloan, a director of the Company, acquired these shares in the
merger of QFC and the Company. See "Management" and "Business - Recent
Mergers."
(5) Mr. Jeffrey P. Smith is a director of the Company, Mr. Fred Lorenzo Smith
was a director of the Company from September 1997 until April 1998, and
Messrs. Smith were directors of Smith's prior to the merger with the
Company. The shares were acquired by the Smith trusts and family members in
connection with the merger of Smith's and the Company. Shares held by the
Trust for the Children of Jeffrey P. Smith, The Jaci Smith Trust, The
Joshua Smith Trust and The Dee Glen Smith Marital Trust may be deemed to be
beneficially owned by Jeffrey P. Smith under regulations of the SEC but Mr.
Smith disclaims beneficial ownership with respect to such shares. Shares
held by the Fred Lloyd Smith Trust, The Staci Elaine Smith Trust, The
Zachary Dee Smith Trust and Elaine Smith may be deemed to be beneficially
owned by Jeffrey P. Smith under regulations of the SEC but Mr. Smith
disclaims beneficial ownership with respect to such shares.
(6) Includes 1,155 shares held by Mr. Kourkoumelis as custodian for his daughter
and 532,366 subject to options that are currently exercisable. Mr.
Kourkoumeli, President and Chief Executive Officer of QFC, intends to
exercise options to purchase shares prior to the sale of such shares in the
Offering. See "Management."
(7) Includes 13,701,543 shares owned by affiliates of Mr. Burkle as follows:
(a) The Yucaipa Companies -- 4,856,211 (including a warrant to purchase
3,869,366 shares); (b) Yucaipa Arizona Partners, L.P. -- 574,522; (c)
Yucaipa Smitty's Partners, L.P. -- 631,400; (d) Yucaipa Smitty's Partners
II, L.P. -- 287,264; (e) Yucaipa SSV Partners, L.P. -- 2,744,595; (f) F4L
Equity Partners, L.P. -- 3,798,526; (g) FFL Partners -- 365,429; (h) Fred
Meyer/Smith's Foundation -- 28,165; (i) Yucaipa Capital Fund -- 335,712;
and (j) Yucaipa/F4L Partners -- 79,719. Mr. Burkle disclaims beneficial
ownership as to these shares (except to the extent of his pecuniary
interest therein). The Yucaipa Companies is the record holder of a
currently exercisable warrant entitling it to purchase up to 3,869,366
shares of Common Stock. These shares and options were acquired in
connection with the Smith's and Ralph's/Food 4 Less mergers with the
Company. Mr. Burkle is Chairman of the Board of the Company. See "Business
- Recent Mergers."
</TABLE>
S-57
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement dated ,
1998 (the "Underwriting Agreement"), the Underwriters named below, who are
represented by Donaldson, Lufkin & Jenrette Securities Corporation, Goldman,
Sachs & Co., Morgan Stanley Dean Witter and Salomon Smith Barney (the
"Representatives"), have severally agreed to purchase from the Selling
Stockholders an aggregate of 12,820,419 shares of Common Stock. The respective
number of shares of Common Stock that each Underwriter has agreed to purchase is
set forth opposite its name below.
Underwriter Number of Shares
- ----------- ----------------
Donaldson, Lufkin & Jenrette Securities Corporation
Goldman, Sachs & Co.
Morgan Stanley Dean Witter
Salomon Smith Barney
----------------
Total 12,820,419
================
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the public offering price set forth on the cover
page of this Prospectus Supplement and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $ per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Representatives at any time without notice.
The Selling Stockholders have granted to the Underwriters an option,
exercisable within 30 days after the date of this Prospectus Supplement, to
purchase from time to time in whole or in part, up to an aggregate of 1,282,043
additional shares of Common Stock at the offering price less underwriting
discounts and commissions. The Underwriters may exercise
S-58
<PAGE>
such option solely to cover over-allotments, if any, made in connection with the
Offering. To the extent that the Underwriters exercise such option, each
Underwriter will become obligated, subject to certain conditions, to purchase
its pro rata portion of such additional shares based on such Underwriter's
percentage underwriting commitment as indicated in the preceding table.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Each of the Company, the Selling Stockholders and the other persons named
under "Principal and Selling Stockholders" and the Company's executive officers
has agreed, subject to certain exceptions, not to (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or directly, any shares of Common Stock (other
than the distribution by Zell/Chilmark Fund, L.P. to its direct and indirect
partners) or any securities convertible into or exercisable or exchangeable for
Common Stock or (ii) enter into any swap or other arrangement that transfers all
or a portion of the economic consequences associated with the ownership of any
Common Stock (regardless of whether any of the transactions described in clause
(i) or (ii) is to be settled by the delivery of Common Stock, or such other
securities, in cash or otherwise) for a period of 90 days after the date of this
Prospectus Supplement without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation. In addition, during such period, the Company
has also agreed not to file any registration statement with respect to any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation. In addition, each of the Selling
Stockholders and the other persons named under "Principal and Selling
Stockholders" and the Company's executive officers has agreed, during such
period, not to make any demand for, or exercise any right with respect to, the
registration of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock without the prior written consent
of Donaldson, Lufkin & Jenrette Securities Corporation.
Other than in the United States, no action has been taken by the Company,
the Selling Stockholders or the Underwriters that would permit a public offering
of the shares of Common Stock offered hereby in any jurisdiction where action
for that purpose is required. The shares of Common Stock offered hereby may not
be offered or sold, directly or indirectly, nor may this Prospectus Supplement
and the accompanying Prospectus or any other offering material or advertisements
in connection with the offer and sale of any such shares of Common Stock be
distributed or published in any jurisdiction, except under circumstances that
will result in compliance with the applicable rules and regulations of such
jurisdiction. Persons into whose possession this
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<PAGE>
Prospectus Supplement and the accompanying Prospectus comes are advised to
inform themselves about and to observe any restrictions relating to the Offering
of the Common Stock and the distribution of this Prospectus Supplement and the
accompanying Prospectus. This Prospectus Supplement and the accompanying
Prospectus do not constitute an offer to sell or a solicitation of an offer to
buy any shares of Common Stock offered hereby in any jurisdiction in which such
an offer or a solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short
positions. In addition, the Underwriters may bid for and purchase shares of
Common Stock in the open market to stabilize the price of the Common Stock.
These activities may stabilize or maintain the market price of the Common Stock
above independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
S-60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company, which is
complete in all material respects, is subject, in all respects, and is qualified
by reference to applicable Delaware law and to the provisions of Fred Meyer's
Restated Certificate of Incorporation (the Certificate").
Authorized Capital Stock
The authorized capital stock of the Company consists of 400,000,000 shares
of Common Stock, and 100,000,000 shares of preferred stock, $.01 par value per
share (the "Preferred Stock"). As of June 1, 1998, 149,829,389 shares of Common
Stock and no shares of Preferred Stock were issued and outstanding.
Common Stock
The holders of Common Stock are entitled to one vote per share for each
share held of record on all matters submitted to a vote of the stockholders.
Under the Certificate, the Board of Directors is classified into three classes
each consisting of, as nearly as may be possible, one-third of the total number
of directors constituting the entire Board of Directors. The holders of Common
Stock are not entitled to cumulate votes for the election of directors.
The holders of Common Stock are entitled to receive ratably such dividends
as are declared by the Board of Directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of Fred
Meyer, holders of Common Stock have the right to a ratable portion of the assets
remaining after payment of liabilities and liquidation preferences of any
outstanding shares of Preferred Stock. The holders of Common Stock have no
preemptive rights or rights to convert their Common Stock into other securities.
All outstanding shares of Common Stock are fully paid and nonassessable. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of Preferred Stock, if any.
The Common Stock is listed on the New York Stock Exchange.
Preferred Stock
The Board of Directors may, without further action of the stockholders,
issue Preferred Stock in one or more series and fix or alter the rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, redemption terms and prices,
liquidation terms and preferences, and the number of shares constituting any
series or the designations of such series. No Preferred Stock is outstanding,
and the Company has no present plans to issue any shares of Preferred Stock.
S-61
<PAGE>
Certain Anti-Takeover Provisions
The Certificate and the Fred Meyer bylaws contain provisions that may have
the effect of discouraging persons from acquiring large blocks of voting stock
of the Company or delaying or preventing a change in control of the Company. The
material provisions that may have such an effect are: (i) classification of the
Board of Directors into three classes with the terms of only one class expiring
each year; (ii) a provision that directors may be removed only for cause and
only with the affirmative vote of holders of at least 75% of the outstanding
shares of the Company; (iii) authorization for the Board of Directors to issue
Preferred Stock in series and to fix rights and preferences of the series
(including, among other things, whether, and to what extent, the shares of any
series will have voting rights and the extent of the preferences of the shares
of any series with respect to dividends and other matters); (iv) a provision
that stockholders may take action only at an annual or special meeting and not
by written consent in lieu of a meeting; (v) advance notice procedures with
respect to nominations of directors or proposals other than those adopted or
recommended by the Board of Directors; and (vi) provisions permitting amendment
of certain of these and related provisions only by an affirmative vote of the
holders of at least 75% of the outstanding shares of Common Stock entitled to
vote.
LEGAL MATTERS
Certain legal matters in connection with the shares offered hereby will be
passed upon for the Company by Stoel Rives LLP, Portland, Oregon, and for the
Underwriters by Latham & Watkins, Los Angeles, California.
S-62
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED JUNE 11, 1998
PROSPECTUS
FRED MEYER, INC.
17,360,478 Shares of Common Stock
The common stock, $.01 par value (the "Common Stock"), of Fred Meyer, Inc.
(the "Company" or "Fred Meyer") offered hereby (the "Shares") may be sold from
time to time by certain stockholders of the Company (the "Selling
Stockholders"). The Company will not receive any of the proceeds from the
offering. See "Selling Stockholders" and "Plan of Distribution" for information
about the Selling Stockholders and the manner of offering of the Shares.
The Common Stock of the Company is listed on the New York Stock Exchange.
On June 10, 1998, the last reported sale price of the Common Stock was $44 per
share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration becomes effective.
This prospectus supplement shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
--------------------
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus. This Prospectus does not constitute an offering in any
jurisdiction in which such offering may not lawfully be made.
--------------------
Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the respective dates as to which
information has been given herein.
--------------------
The date of this Prospectus is , 1998.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports and other information with the Securities and
Exchange Commission (the "SEC"). Such reports, proxy statements, and other
information concerning the Company may be inspected and copies may be obtained
at prescribed rates at the offices of the SEC, Judiciary Plaza, 450 Fifth
Street, NW, Washington, D.C. 20549, as well as at the following regional
offices: 7 World Trade Center, Suite 1300, New York, New York 10048; and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. The Company has filed
with the SEC a Registration Statement on Form S-3 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities offered
pursuant to this Prospectus. For further information, reference is made to the
Registration Statement and the exhibits thereto, which are available for
inspection at no fee at the public reference section of the SEC at its principal
office at Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549. All of
the above-referenced documents can also be obtained from commercial document
retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov." In addition, the Common Stock is listed on the New York
Stock Exchange, and reports, proxy and information statements and other
information concerning the Company can be inspected at the offices of the New
York Stock Exchange.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus is delivered, upon written or oral request to
Roger A. Cooke, Secretary, Fred Meyer, Inc., 3800 SE 22nd Avenue, Portland,
Oregon 97202, telephone (503) 232-8844, copies of any and all of the information
that has been incorporated by reference into this Prospectus, other than
exhibits to such information unless such exhibits are specifically incorporated
by reference therein. The information relating to the Company, Quality Food
Centers, Inc. and Food 4 Less Holdings, Inc. contained in this Prospectus does
not purport to be comprehensive and should be read together with the information
contained in the documents or portions of documents incorporated by reference
into this Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC are incorporated herein by
reference:
1. The Annual Report on Form 10-K of Fred Meyer for the fiscal year ended
January 31, 1998 filed pursuant to Section 13(a) of the Exchange Act;
2. The Annual Report on Form 10-K of Quality Food Centers, Inc. for the
fiscal year ended December 27, 1997 filed pursuant to Section 13(a) of
the Exchange Act;
3. The Annual Report on Form 10-K of Food 4 Less Holdings, Inc. for the
fiscal year ended February 1, 1998 filed pursuant to Section 13(a) of
the Exchange Act;
2
<PAGE>
4. Fred Meyer's (i) Current Report on Form 8-K dated March 9, 1998 and
the amendment thereto on Form 8-K/A and (ii) Current Reports on Forms
8-K dated February 13, 1998; February 20, 1998; February 27, 1998;
March 4, 1998; and March 12, 1998.
All reports and other documents filed by the Company pursuant to sections
13(a), 13(c), 14, and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of the
filing of such reports and documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus and any Prospectus
Supplement to the extent that a statement contained herein or in any Prospectus
Supplement or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus or
any prospectus supplement.
FORWARD-LOOKING STATEMENTS
Certain information set forth or incorporated by reference in this
Prospectus contains "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. These
forward-looking statements include information regarding the Company's plans for
future operations, expectations relating to cost savings and the Company's
integration strategy with respect to its recent mergers, store expansion and
remodeling, capital expenditures, inventory reductions and expense reductions.
The following factors are among the principal factors that could cause actual
results to differ materially from the forward-looking statements: business and
economic conditions generally and in the regions in which the Company's stores
are located, including the rate of inflation, population, employment and job
growth in the Company's markets; demands placed on management by the recent
substantial increase in the Company's size; loss or retirement of senior
management of the Company or of its principal operating subsidiaries; changes in
the availability of debt or equity capital and increases in borrowing costs or
interest rates, especially since a substantial portion of the Company's
borrowings bear interest at floating rates; competitive factors, such as
increased penetration in the Company's markets by large national food and
nonfood chains, large category-dominant stores and large national and regional
discount retailers (whether existing competitors or new entrants) and
competitive pressures generally, which could include price-cutting strategies,
store openings and remodels; results of the Company's programs to decrease costs
as a percent of sales; increases in labor costs and deterioration in relations
with the union bargaining units representing the Company's employees; unusual
unanticipated costs or unanticipated consequences relating to the recent mergers
and integration strategy and any delays in the realization thereof; operational
inefficiencies in distribution or other Company systems, including any that may
result from the recent mergers; issues arising from addressing year 2000
information technology issues; legislative or regulatory changes adversely
affecting the business in which the Company is engaged; and other opportunities
or acquisitions which
3
<PAGE>
may be pursued by the Company. Forward-looking statements contained herein speak
only as of the date hereof. The Company undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements which
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
THE COMPANY
Fred Meyer is one of the largest domestic food retailers, operating more
than 800 supermarkets and multi-department stores, many of which are located in
the fastest growing markets in the United States. The Company has the largest
market share in the Los Angeles, Seattle, Salt Lake City, Las Vegas and
Albuquerque markets and the second largest market share in the Phoenix and
Portland markets as well as a number one or two market share in twelve
additional markets. The Company operates multiple formats that appeal to
customers across a wide range of income brackets under the Fred Meyer, Smith's
Food & Drug Centers, QFC, Hughes Family Markets, Ralphs and Food 4 Less banners.
The Company was incorporated in Delaware in 1997 and commenced operations
on September 9, 1997 as the successor to Fred Meyer Stores, Inc. (formerly known
as Fred Meyer, Inc.) ("Fred Meyer Stores") and Smith's Food & Drug Centers, Inc.
("Smith's"). The Company's principal executive offices are located at 3800 SE
22nd Avenue, Portland, Oregon 97202, and its telephone number is (503) 232-8844.
The Company operates its business through four principal subsidiaries: Fred
Meyer Stores, Smith's, QFC and Ralphs/Food 4 Less.
4
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information relating to the
beneficial ownership of the Company's Common Stock as of June 1, 1998 by each of
the Selling Stockholders and as adjusted to reflect the sale by the Selling
Stockholders of the Shares. Except as indicated in the footnotes to the table,
the persons named in the table have sole voting and investment power with
respect to shares of Common Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
Shares
Shares Offered by
Beneficially Owned this
Prior to Offering Prospectus
----------------------- ----------
<S> <C> <C>
Zell/Chilmark Fund, L.P. 7,552,500(1) 7,552,500(1)
2 North Riverside Plaza, 6th Floor
Chicago, Illinois 60606
Stuart M. Sloan 3,434,975(2) 3,434,975
1301 Fifth Avenue, Suite 3000
Seattle, Washington 98101
Jeffrey P. Smith 1,372,994(3) 1,098,395
Trust for the Children of Jeffrey P. Smith 1,176,740(3) 941,389
The Sean Smith Trust 100,964 80,771
The Jaci Smith Trust 128,630(3) 102,904
The Joshua Smith Trust 128,630(3) 102,904
32 Burningtree Court
Las Vegas, Nevada 89113
Fred Lorenzo Smith 530,686(3) 424,548
Trust for the Children of Fred Lorenzo Smith 1,176,740(3) 941,390
The Fred Lloyd Smith Trust 86,840(3) 69,472
The Staci Elaine Smith Trust 60,206(3) 48,164
The Zachary Dee Smith Trust 60,206(3) 48,164
Elaine Smith 35,852(3) 28,682
200 Strada Mia
Las Vegas, Nevada 89117
The Dee Glen Smith Marital Trust 411,002 328,801
c/o Ida Smith
1066 E Capital Blvd.
Salt Lake City, Utah 84103
BT Corporation 157,725 157,725
BT Investment Partners, Inc. 1,124,694 1,124,694
130 Liberty St.
New York, New York 10006
CSFB IGP 28,908 28,908
c/o Credit Suiss First Boston
11 Madison Ave.
New York, New York 10010
Merchant GP, Inc. 371,092 371,092
Bahnhofstrass #17
CH - 6301 Zug, Switzerland
Dan Kourkoumelis 554,203(4) 475,000
1012 NE 10th Street, Suite 201
Bellevue, Washington 98004
5
<PAGE>
- --------------
(1) Samuel Zell, a director of the Company, may be deemed to own beneficially
these shares by virtue of his positions with the entities that indirectly
control the general partner of Zell/Chilmark Fund, L.P. Mr. Zell disclaims
beneficial ownership of these shares. Zell/Chilmark Fund, L.P., has advised
the Company that shortly following the sale of 6,729,459 of these shares
pursuant to a Prospectus Supplement dated as of the date hereof relating to
the shares (which number of shares assumes the exercise of the over
allotment option by the underwriter which number of shares may be adjusted
based on the Price to the Public as set forth in the Prospectus
Supplement), Zell/Chilmark Fund, L.P. intends to distribute the remaining
823,041 shares (which number of shares may be adjusted based on the Price
to the Public as set forth in the Prospectus Supplement) to certain of its
direct and indirect partners and such direct and indirect partners and
their pledgees, donees, transferees and successors in interest may sell
these shares in accordance with the Plan of Distribution. The direct and
indirect partners that will receive shares in the distribution (and the
estimated number of shares) include: Grumman Corp. Pension Trust (50,554);
BFW Realty Co. (10,075); South Ferry #2, L.P. (15,133); COP General
Partnership (747,279); Bradbury Dyer (51,715); David A. Gardner (25,858);
Blaine Trust (12,929); LJ Trusts (5,171); Bertram R. Cohen (12,929); COP
Seniors General Partnership (638,677); S. Cody Engle (14,955); William
Hall (30,994); Donald J. Liebentritt (5,000); Sheli Z. Rosenberg (63,020);
Sanford Shkolnik (6,199); Gerald A. Spector (21,564); Tim Callahan
(12,914); Sam Investment Trust (484,032). Each of Mr. Zell and Ms.
Rosenberg has served as a director of QFC.
(2) Includes 586,910 shares which are subject to immediately exercisable
options. Mr. Sloan, a director of the Company, acquired these shares in the
merger of QFC and the Company.
(3) Mr. Jeffrey P. Smith is a director of the Company, Mr. Fred Lorenzo Smith
was a director of the Company from September 1997 until April 1998, and
Messrs. Smith were directors of Smith's prior to the merger with the
Company. The shares were acquired by the Smith trusts and family members in
connection with the merger of Smith's and the Company. Shares held by the
Trust for the Children of Jeffrey P. Smith, the Jaci Smith Trust, The
Joshua Smith Trust and The Dee Glen Smith Marital Trust may be deemed to be
beneficially owned by Jeffrey P. Smith under regulations of the SEC but Mr.
Smith disclaims beneficial ownership of such shares. Shares held by the
Fred Lloyd Smith Trust, The Staci Elaine Smith Trust, The Zachary Dee Smith
Trust and Elaine Smith may be deemed to be beneficially owned by Jeffrey P.
Smith under regulations of the SEC but Mr. Smith disclaims beneficial
ownership of such shares.
(4) Includes 1,155 shares held by Mr. Kourkoumelis as custodian for his
daugther and 532,366 subject to options that are currently exercisable. The
shares covered by this registration statement include shares subject to
options.
</TABLE>
PLAN OF DISTRIBUTION
Sales of the Shares may be made from time to time by the Selling
Stockholders in one or more transactions on the New York Stock Exchange or any
other national securities exchange on which the Common Stock is traded (which,
subject to applicable law, may involve transactions solely between a
broker-dealer and its customers which are not traded across an open market and
block trades), in the over-the-counter market, in privately negotiated
transactions or otherwise or in any combination of such transactions at market
prices then prevailing, at prices related to the then current market price, at
negotiated prices or at fixed prices. In addition, any Shares covered by this
Prospectus which qualify for sale pursuant to Section 4(1) of the Securities Act
or Rule 144 promulgated thereunder may be sold under such provisions rather than
pursuant to this Prospectus. The Shares may be offered in any manner permitted
by law, including through underwriters, brokers, dealers or agents, and directly
to one or more purchasers. Without limiting the generality of the foregoing, the
Shares may be sold in one or more of the following types of transactions: (a)
sales to underwriters who will acquire the Shares for their own account and
resell them in one or more transactions at fixed prices or at varying prices
determined at the time of sale; (b) a block trade in which the broker-dealer so
engaged will attempt to sell the shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction; (c) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
accounts; (d) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; (e) an exchange distribution in accordance with the
rules of such exchange; and (f) transactions between sellers and purchasers
without a broker-dealer. In effecting sales,
brokers or dealers engaged by the
6
<PAGE>
Selling Stockholders may arrange for other brokers or dealers to participate in
the resales.
Brokers, dealers, or agents may receive compensation in the form of
commissions, underwriting discounts or concessions from the Selling Stockholders
in amounts to be negotiated in connection with the sale. Such brokers or dealers
and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales and any such commission, discount or concession may be deemed to be
underwriting discounts or commissions under the Securities Act.
In the event any Selling Stockholder engages an underwriter in connection
with the sale of the Shares, to the extent required, a Prospectus Supplement
will be distributed, which will set forth the number of shares being offered and
the terms of the offering, including the names of the underwriters, any
discounts, commissions and other items constituting compensation to
underwriters, dealers or agents, the public offering price and any discounts,
commissions or concessions allowed or reallowed or paid by underwriters to
dealers.
LEGAL MATTERS
The validity of the Shares will be passed upon for the Company by Stoel
Rives LLP, Portland, Oregon.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference from the Company's Annual Report on Form 10-K for the year ended
January 31, 1998 and the supplemental pooled financial statements of Fred Meyer,
Inc. reflecting the acquisition of QFC on a pooling basis included in the
Company's Form 8-K/A dated March 9, 1998 have been audited by Deloitte & Touche
LLP (Portland, Oregon), independent auditors, as stated in their report, which
is incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report of said firm given
upon its authority as experts in accounting and auditing.
The consolidated financial statements of QFC as of December 28, 1996 and
December 27, 1997 and for each of the three years in the period ended December
27, 1997 included in the QFC Form 10-K for the year ended December 27, 1997 have
been audited by Deloitte & Touche LLP (Seattle, Washington), independent
auditors, as stated in their report included therein and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of QFC as of December 30, 1995 and
December 28, 1996 and for each of the three years in the period ended December
28, 1996 included in the QFC Form 10-K/A for the year ended December 28, 1996
have been audited by Deloitte & Touche LLP (Seattle, Washington), independent
auditors, as stated in their report included therein and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated balance sheets of Ralphs/Food 4 Less as of February 1,
1998, February 2, 1997, January 28, 1996 and January 29, 1995 and the related
consolidated statements of operations, cash flows and stockholders' equity for
the 52 weeks ended February 1, 1998, the 53 weeks ended February 2, 1997, the 52
weeks ended January 28, 1996, the 31 weeks ended January 29, 1995 and the 52
weeks ended June 25, 1994, and the related financial
7
<PAGE>
statement schedules incorporated by reference herein, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated herein by reference in
reliance upon the authority of said firm as experts in giving said reports.
8
<PAGE>
[ARTWORK]
[EXTERNAL PHOTOGRAPHS OF STORE FORMATS
FOR FRED MEYER, SMITH'S, QFC, RALPHS
AND FOOD 4 LESS]
<PAGE>
- --------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus Supplement and in the accompanying Prospectus, and if given or made,
such information or representation must not be relied upon as having been
authorized by the Company or the Underwriters. This Prospectus Supplement and
the accompanying Prospectus do not constitute an offer to sell or a solicitation
of any offer to buy, the Common Stock in any jurisdiction where, or to any
person to whom, it is unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus Supplement and the accompanying Prospectus nor any
sale made hereunder and thereunder shall, under any circumstances, create any
implication that there has not been any change in the facts set forth in this
Prospectus Supplement and in the accompanying Prospectus or in the affairs of
the Company since the date hereof and thereof.
---------------------
TABLE OF CONTENTS
Prospectus Supplement
Page
Forward-Looking Statements................................................. S-3
Incorporation of Certain Documents by Reference............................ S-4
Market and Industry Data................................................... S-4
Prospectus Supplement Summary.............................................. S-5
Risk Factors............................................................... S-11
Price Range of Common Stock
and Dividend Policy.................................................. S-14
Capitalization............................................................. S-15
Unaudited Pro Forma Condensed
Combined Financial Statements........................................ S-16
Selected Historical Financial and
Other Data........................................................... S-29
Management's Discussion and Analysis
Of Financial Condition and Results
Of Operations........................................................ S-36
Business................................................................... S-42
Management................................................................. S-53
Principal and Selling Stockholders......................................... S-55
Underwriting............................................................... S-58
Description of Capital Stock............................................... S-61
Legal Matters.............................................................. S-62
Prospectus
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
Forward-Looking Statements................................................. 3
The Company................................................................ 4
Selling Stockholders....................................................... 5
Plan of Distribution ...................................................... 8
Legal Matters.............................................................. 9
Experts ................................................................... 10
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12,820,420 Shares
Fred Meyer, Inc.
[FRED MEYER LOGO]
Common Stock
---------------------
P R O S P E C T U S
S U P P L E M E N T
---------------------
Donaldson, Lufkin & Jenrette
Securities Corporation
Goldman, Sachs & Co.
Morgan Stanley Dean Witter
Salomon Smith Barney
, 1998
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
All expenses in connection with the issuance and distribution of the
securities being registered will be paid by the Company. The following is an
itemized statement of these expenses:
<TABLE>
<CAPTION>
<S> <C>
Registration fee.........................................$ 226,940
NASD fee................................................. 30,500
Legal fees and expenses.................................. 175,000*
Accounting fees and expenses............................. 95,000*
Printing and engraving................................... 250,000*
Miscellaneous............................................ 47,560*
-------------------
Total...........................................$ 825,000*
===================
--------------------
*Estimated
</TABLE>
Item 15. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware GCL") grants each corporation the power to indemnify officers and
directors under certain circumstances. Article VII.A of Fred Meyer's Certificate
of Incorporation (the "Certificate") and Article V of Fred Meyer's Bylaws (the
"Bylaws") provide for indemnification to the fullest extent permitted by Section
145. Reference is made to the Certificate and the Bylaws of Fred Meyer, which
are filed by incorporation by reference as Exhibits 3.1 and 3.2 hereto,
respectively.
As authorized by Section 102 of the Delaware GCL, Fred Meyer has included
in the Certificate a provision eliminating the liability of a director to Fred
Meyer or its stockholders for monetary damages for breaches of a director's
fiduciary duty to Fred Meyer. Liability may not be and has not been limited for
breaches of the duty of loyalty, intentional misconduct, distributions made in
contravention of Section 174 of the Delaware GCL or for any transaction in which
a director derives an improper personal benefit. Reference is made to the
Certificate incorporated by reference as Exhibit 3.1 hereto.
Fred Meyer has a directors and officers liability insurance policy that,
under certain circumstances, insures its directors and officers against the
costs of defense, settlement or payment of a judgment.
II-1
<PAGE>
The rights of indemnification described above are not exclusive of any
other rights of indemnification to which the persons indemnified may be entitled
under any agreement, vote of stockholders or directors or otherwise.
Item 16. Exhibits.
1. Underwriting Agreement.*
3.1 Restated Certificate of Incorporation of the Company.
Incorporated by reference to Exhibit 3.1 of the Company's Form
10-Q for the quarter ended November 8, 1997, SEC File No.
1-13339.
3.2 Bylaws of the Company. Incorporated by reference to Exhibit 3.2
of the Company's Form 10-Q for the quarter ended November 8,
1997, SEC File No. 1-13339.
4. Article IV and Article VIII of Exhibit 3.1 and Article I of
Exhibit 3.2.
5. Opinion of Counsel.
23.1 Consent of Deloitte & Touche LLP (Portland, Oregon).
23.2 Consents of Deloitte & Touche LLP (Seattle, Washington).
23.3 Consents of Arthur Andersen LLP.
23.4 Consent of Counsel (included in Exhibit 5).
24. Powers of Attorney.
- ---------------
* To be filed on a Form 8-K.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in the registration
statement;
II-2
<PAGE>
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each new post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the
II-3
<PAGE>
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(e) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus supplement filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus supplement filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
supplement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Portland, State of Oregon, on June 11, 1998.
FRED MEYER, INC.
By ROGER A. COOKE
--------------------------------------
Roger A. Cooke
Senior Vice President, General Counsel
and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on this 11th day of June, 1998.
Signature Title
--------- -----
*ROBERT G. MILLER
------------------------------- President and Chief
Robert G. Miller Executive Officer
and Director (Principal
Executive Officer)
*DAVID R. JESSICK
------------------------------ Senior Vice President
David R. Jessick and Chief Financial
Officer (Principal
Accounting and
Financial Officer)
*RONALD W. BURKLE
------------------------------- Director
Ronald W. Burkle
*ROBERT D. BEYER
------------------------------- Director
Robert D. Beyer
*VIVIAN A. BULL
------------------------------- Director
Vivian A. Bull
II-5
<PAGE>
*JAMES J. CURRAN
------------------------------- Director
James J. Curran
------------------------------- Director
A.M. Gleason
*CARLTON J. JENKINS
------------------------------- Director
Carlton J. Jenkins
*BRUCE KARATZ
------------------------------- Director
Bruce Karatz
*JOHN G. KING
------------------------------- Director
John G. King
*ROGER S. MEIER
------------------------------- Director
Roger S. Meier
*MARC H. RAPAPORT
------------------------------- Director
Marc H. Rapaport
*STEVEN R. ROGEL
------------------------------- Director
Steven R. Rogel
*STUART M. SLOAN
------------------------------- Director
Stuart M. Sloan
------------------------------- Director
Jeffrey P. Smith
*SAMUEL ZELL
------------------------------- Director
Samuel Zell
II-6
<PAGE>
*BERTRAM R. ZWEIG
------------------------------- Director
Bertram R. Zweig
*By ROGER A. COOKE
---------------------------
Roger A. Cooke
Attorney-in-Fact
II-7
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit Page
Number Document Description Number
- --------------------------------------------------------------------------------
1. Underwriting Agreement.*
3.1 Restated Certificate of Incorporation of the
Company. Incorporated by reference to Exhibit 3.1
of the Company's Form 10-Q for the quarter ended
November 8, 1997, SEC No. 1-13339.
3.2 Bylaws of the Company. Incorporated by reference
to Exhibit 3.2 of the Company's Form 10-Q for the
quarter ended November 8, 1997, SEC File No.
1-13339.
4 Article IV and Article VIII of Exhibit 3.1 and
Article I of Exhibit 3.2.
5 Opinion of Counsel.
23.1 Consent of Deloitte & Touche LLP (Portland,
Oregon).
23.2 Consents of Deloitte & Touche LLP (Seattle,
Washington).
23.3 Consents of Arthur Andersen LLP.
24 Powers of Attorney.
_______________
* To be filed on a Form 8-K.
EXHIBIT 5
June 11, 1998
Board of Directors
Fred Meyer, Inc.
3800 SE 22nd Avenue
Portland, OR 97202
We have acted as counsel for Fred Meyer, Inc. (the "Company") in
connection with the filing of a Registration Statement on Form S-3 (the
0"Registration Statement") under the Securities Act of 1933, as amended,
covering the resale of up to 17,360,478 shares of Common Stock, $.01 par value
(the "Shares"), of the Company by the holders thereof (the "Selling
Stockholders"). We have reviewed the corporate actions of the Company in
connection with this matter and have examined those documents, corporate
records, and other instruments we deemed necessary for the purposes of this
opinion.
Based on the foregoing, it is our opinion that:
1. The Company is a corporation duly organized and validly existing under
the laws of the State of Delaware; and
2. The currently outstanding Shares have been legally issued and are
fully paid and nonassessable.
3. Shares subject to options that may be exercised and sold under the
Registration Statement have been duly authorized, and when issued pursuant to
the applicable stock option plan and in accordance with the resolutions adopted
by the Board of Directors will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
STOEL RIVES LLP
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Fred Meyer, Inc. on Form S-3 of our report dated March 11, 1998, appearing in
the Annual Report on Form 10-K of Fred Meyer, Inc. for the fiscal year ended
January 31, 1998 and our report dated March 23, 1998 on the supplemental pooled
financial statements of Fred Meyer, Inc. reflecting the acquisition of QFC on a
pooling-of-interests basis included in Form 8-K/A of Fred Meyer, Inc. dated
March 9, 1998, and to the reference to us under the headings "Selected
Historical Financial and Other Data - Fred Meyer" in the Prospectus Supplement
and "Experts" in the Prospectus, which are part of this Registration Statement.
DELOITTE & TOUCHE LLP
Portland, Oregon
June 5, 1998
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Fred Meyer, Inc. on Form S-3 of our report dated March 23, 1998, appearing in
the Annual Report on Form 10-K of Quality Food Centers, Inc. for the year ended
December 27, 1997, and to the reference to us under the headings "Selected
Historical Financial and Other Data - QFC" in the Prospectus Supplement and
"Experts" in the Prospectus, which are part of this Registration Statement.
DELOITTE & TOUCHE LLP
Seattle, Washington
June 5, 1998
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Fred Meyer, Inc. on Form S-3 of our report dated March 21, 1997, appearing in
the Annual Report on Form 10-K/A dated July 23, 1997 of Quality Food Centers,
Inc. for the year ended December 28, 1996, and to the reference to us under the
headings "Selected Historical Financial and Other Data - QFC" in the Prospectus
Supplement and "Experts" in the Prospectus, which are part of this Registration
Statement.
DELOITTE & TOUCHE LLP
Seattle, Washington
June 5, 1998
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report for Food 4 Less Holdings,
Inc. dated March 9, 1998, included in the Food 4 Less Holdings, Inc. Form 10-K
for the year ended February 1, 1998, and to all references to our Firm included
in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Los Angeles, California
June 9, 1998
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report for Food 4 Less Holdings,
Inc. dated March 21, 1997 (except with respect to the matter discussed in Note
14, as to which the date is April 17, 1997), included in the Food 4 Less
Holdings, Inc. Form 10-K for the year ended February 2, 1997, and to all
references to our Firm included in or made a part of this registration
statement.
ARTHUR ANDERSEN LLP
Los Angeles, California
June 9, 1998
EXHIBIT 24
POWER OF ATTORNEY
(S-3)
The undersigned constitutes and appoints Robert G. Miller, Kenneth
Thrasher, Roger A. Cooke and David R. Jessick, and each of them, the
undersigned's true and lawful attorneys and agents, with full power of
substitution and resubstitution for the undersigned and in the undersigned's
name, place and stead, in any and all capacities, to sign one or more Form S-3
Registration Statements under the Securities Act of 1933, prepared in connection
with the resale of shares of Common Stock of Fred Meyer, Inc., and any and all
amendments (including post-effective amendments) thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission; granting unto said attorneys and agents, and
each of them, full power and authority to do any and all acts and things
necessary or advisable to be done, as fully and to all intents and purposes as
he or she might or could do in person, hereby ratifying and confirming all that
said attorneys and agents or any of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: June 9, 1998.
RONALD W. BURKLE
---------------------------------------
Ronald W. Burkle
<PAGE>
POWER OF ATTORNEY
(S-3)
The undersigned constitutes and appoints Robert G. Miller, Kenneth
Thrasher, Roger A. Cooke and David R. Jessick, and each of them, the
undersigned's true and lawful attorneys and agents, with full power of
substitution and resubstitution for the undersigned and in the undersigned's
name, place and stead, in any and all capacities, to sign one or more Form S-3
Registration Statements under the Securities Act of 1933, prepared in connection
with the resale of shares of Common Stock of Fred Meyer, Inc., and any and all
amendments (including post-effective amendments) thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission; granting unto said attorneys and agents, and
each of them, full power and authority to do any and all acts and things
necessary or advisable to be done, as fully and to all intents and purposes as
he or she might or could do in person, hereby ratifying and confirming all that
said attorneys and agents or any of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: June 9, 1998.
ROBERT G. MILLER
---------------------------------------
Robert G. Miller
<PAGE>
POWER OF ATTORNEY
(S-3)
The undersigned constitutes and appoints Robert G. Miller, Kenneth
Thrasher, Roger A. Cooke and David R. Jessick, and each of them, the
undersigned's true and lawful attorneys and agents, with full power of
substitution and resubstitution for the undersigned and in the undersigned's
name, place and stead, in any and all capacities, to sign one or more Form S-3
Registration Statements under the Securities Act of 1933, prepared in connection
with the resale of shares of Common Stock of Fred Meyer, Inc., and any and all
amendments (including post-effective amendments) thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission; granting unto said attorneys and agents, and
each of them, full power and authority to do any and all acts and things
necessary or advisable to be done, as fully and to all intents and purposes as
he or she might or could do in person, hereby ratifying and confirming all that
said attorneys and agents or any of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: June 4 1998.
BRUCE KARATZ
---------------------------------------
Bruce Karatz
<PAGE>
POWER OF ATTORNEY
(S-3)
The undersigned constitutes and appoints Robert G. Miller, Kenneth
Thrasher, Roger A. Cooke and David R. Jessick, and each of them, the
undersigned's true and lawful attorneys and agents, with full power of
substitution and resubstitution for the undersigned and in the undersigned's
name, place and stead, in any and all capacities, to sign one or more Form S-3
Registration Statements under the Securities Act of 1933, prepared in connection
with the resale of shares of Common Stock of Fred Meyer, Inc., and any and all
amendments (including post-effective amendments) thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission; granting unto said attorneys and agents, and
each of them, full power and authority to do any and all acts and things
necessary or advisable to be done, as fully and to all intents and purposes as
he or she might or could do in person, hereby ratifying and confirming all that
said attorneys and agents or any of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: June 3, 1998.
JAMES J. CURRAN
---------------------------------------
James J. Curran
<PAGE>
POWER OF ATTORNEY
(S-3)
The undersigned constitutes and appoints Robert G. Miller, Kenneth
Thrasher, Roger A. Cooke and David R. Jessick, and each of them, the
undersigned's true and lawful attorneys and agents, with full power of
substitution and resubstitution for the undersigned and in the undersigned's
name, place and stead, in any and all capacities, to sign one or more Form S-3
Registration Statements under the Securities Act of 1933, prepared in connection
with the resale of shares of Common Stock of Fred Meyer, Inc., and any and all
amendments (including post-effective amendments) thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission; granting unto said attorneys and agents, and
each of them, full power and authority to do any and all acts and things
necessary or advisable to be done, as fully and to all intents and purposes as
he or she might or could do in person, hereby ratifying and confirming all that
said attorneys and agents or any of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: June 4, 1998.
JOHN G. KING
---------------------------------------
John G. King
<PAGE>
POWER OF ATTORNEY
(S-3)
The undersigned constitutes and appoints Robert G. Miller, Kenneth
Thrasher, Roger A. Cooke and David R. Jessick, and each of them, the
undersigned's true and lawful attorneys and agents, with full power of
substitution and resubstitution for the undersigned and in the undersigned's
name, place and stead, in any and all capacities, to sign one or more Form S-3
Registration Statements under the Securities Act of 1933, prepared in connection
with the resale of shares of Common Stock of Fred Meyer, Inc., and any and all
amendments (including post-effective amendments) thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission; granting unto said attorneys and agents, and
each of them, full power and authority to do any and all acts and things
necessary or advisable to be done, as fully and to all intents and purposes as
he or she might or could do in person, hereby ratifying and confirming all that
said attorneys and agents or any of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: June 3, 1998.
ROGER S. MEIER
---------------------------------------
Roger S. Meier
<PAGE>
POWER OF ATTORNEY
(S-3)
The undersigned constitutes and appoints Robert G. Miller, Kenneth
Thrasher, Roger A. Cooke and David R. Jessick, and each of them, the
undersigned's true and lawful attorneys and agents, with full power of
substitution and resubstitution for the undersigned and in the undersigned's
name, place and stead, in any and all capacities, to sign one or more Form S-3
Registration Statements under the Securities Act of 1933, prepared in connection
with the resale of shares of Common Stock of Fred Meyer, Inc., and any and all
amendments (including post-effective amendments) thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission; granting unto said attorneys and agents, and
each of them, full power and authority to do any and all acts and things
necessary or advisable to be done, as fully and to all intents and purposes as
he or she might or could do in person, hereby ratifying and confirming all that
said attorneys and agents or any of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: June 3, 1998.
VIVIAN A. BULL
---------------------------------------
Vivian A. Bull
<PAGE>
POWER OF ATTORNEY
(S-3)
The undersigned constitutes and appoints Robert G. Miller, Kenneth
Thrasher, Roger A. Cooke and David R. Jessick, and each of them, the
undersigned's true and lawful attorneys and agents, with full power of
substitution and resubstitution for the undersigned and in the undersigned's
name, place and stead, in any and all capacities, to sign one or more Form S-3
Registration Statements under the Securities Act of 1933, prepared in connection
with the resale of shares of Common Stock of Fred Meyer, Inc., and any and all
amendments (including post-effective amendments) thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission; granting unto said attorneys and agents, and
each of them, full power and authority to do any and all acts and things
necessary or advisable to be done, as fully and to all intents and purposes as
he or she might or could do in person, hereby ratifying and confirming all that
said attorneys and agents or any of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: June 9, 1998.
STEVEN R. ROGEL
---------------------------------------
Steven R. Rogel
<PAGE>
POWER OF ATTORNEY
(S-3)
The undersigned constitutes and appoints Robert G. Miller, Kenneth Thrasher
and Roger A. Cooke, and each of them, the undersigned's true and lawful
attorneys and agents, with full power of substitution and resubstitution for the
undersigned and in the undersigned's name, place and stead, in any and all
capacities, to sign one or more Form S-3 Registration Statements under the
Securities Act of 1933, prepared in connection with the resale of shares of
Common Stock of Fred Meyer, Inc., and any and all amendments (including
post-effective amendments) thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; granting unto said attorneys and agents, and each of them,
full power and authority to do any and all acts and things necessary or
advisable to be done, as fully and to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys and agents or any of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: June 3, 1998.
DAVID R. JESSICK
---------------------------------------
David R. Jessick
<PAGE>
POWER OF ATTORNEY
(S-3)
The undersigned constitutes and appoints Robert G. Miller, Kenneth Thrasher
and Roger A. Cooke, and each of them, the undersigned's true and lawful
attorneys and agents, with full power of substitution and resubstitution for the
undersigned and in the undersigned's name, place and stead, in any and all
capacities, to sign one or more Form S-3 Registration Statements under the
Securities Act of 1933, prepared in connection with the resale of shares of
Common Stock of Fred Meyer, Inc., and any and all amendments (including
post-effective amendments) thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; granting unto said attorneys and agents, and each of them,
full power and authority to do any and all acts and things necessary or
advisable to be done, as fully and to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys and agents or any of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: June 3, 1998.
ROBERT D. BEYER
---------------------------------------
Robert D. Beyer
<PAGE>
POWER OF ATTORNEY
(S-3)
The undersigned constitutes and appoints Robert G. Miller, Kenneth Thrasher
and Roger A. Cooke, and each of them, the undersigned's true and lawful
attorneys and agents, with full power of substitution and resubstitution for the
undersigned and in the undersigned's name, place and stead, in any and all
capacities, to sign one or more Form S-3 Registration Statements under the
Securities Act of 1933, prepared in connection with the resale of shares of
Common Stock of Fred Meyer, Inc., and any and all amendments (including
post-effective amendments) thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; granting unto said attorneys and agents, and each of them,
full power and authority to do any and all acts and things necessary or
advisable to be done, as fully and to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys and agents or any of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: June 3, 1998.
CARLTON J. JENKINS
---------------------------------------
Carlton J. Jenkins
<PAGE>
POWER OF ATTORNEY
(S-3)
The undersigned constitutes and appoints Robert G. Miller, Kenneth Thrasher
and Roger A. Cooke, and each of them, the undersigned's true and lawful
attorneys and agents, with full power of substitution and resubstitution for the
undersigned and in the undersigned's name, place and stead, in any and all
capacities, to sign one or more Form S-3 Registration Statements under the
Securities Act of 1933, prepared in connection with the resale of shares of
Common Stock of Fred Meyer, Inc., and any and all amendments (including
post-effective amendments) thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; granting unto said attorneys and agents, and each of them,
full power and authority to do any and all acts and things necessary or
advisable to be done, as fully and to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys and agents or any of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: June 2, 1998.
STUART M. SLOAN
---------------------------------------
Stuart M. Sloan
<PAGE>
POWER OF ATTORNEY
(S-3)
The undersigned constitutes and appoints Robert G. Miller, Kenneth Thrasher
and Roger A. Cooke, and each of them, the undersigned's true and lawful
attorneys and agents, with full power of substitution and resubstitution for the
undersigned and in the undersigned's name, place and stead, in any and all
capacities, to sign one or more Form S-3 Registration Statements under the
Securities Act of 1933, prepared in connection with the resale of shares of
Common Stock of Fred Meyer, Inc., and any and all amendments (including
post-effective amendments) thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; granting unto said attorneys and agents, and each of them,
full power and authority to do any and all acts and things necessary or
advisable to be done, as fully and to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys and agents or any of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: June 9, 1998.
SAMUEL ZELL
---------------------------------------
Samuel Zell
<PAGE>
POWER OF ATTORNEY
(S-3)
The undersigned constitutes and appoints Robert G. Miller, Kenneth Thrasher
and Roger A. Cooke, and each of them, the undersigned's true and lawful
attorneys and agents, with full power of substitution and resubstitution for the
undersigned and in the undersigned's name, place and stead, in any and all
capacities, to sign one or more Form S-3 Registration Statements under the
Securities Act of 1933, prepared in connection with the resale of shares of
Common Stock of Fred Meyer, Inc., and any and all amendments (including
post-effective amendments) thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; granting unto said attorneys and agents, and each of them,
full power and authority to do any and all acts and things necessary or
advisable to be done, as fully and to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys and agents or any of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: June 3, 1998.
BERTRAM R. ZWEIG
---------------------------------------
Bertram R. Zweig
<PAGE>
POWER OF ATTORNEY
(S-3)
The undersigned constitutes and appoints Robert G. Miller, Kenneth Thrasher
and Roger A. Cooke, and each of them, the undersigned's true and lawful
attorneys and agents, with full power of substitution and resubstitution for the
undersigned and in the undersigned's name, place and stead, in any and all
capacities, to sign one or more Form S-3 Registration Statements under the
Securities Act of 1933, prepared in connection with the resale of shares of
Common Stock of Fred Meyer, Inc., and any and all amendments (including
post-effective amendments) thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; granting unto said attorneys and agents, and each of them,
full power and authority to do any and all acts and things necessary or
advisable to be done, as fully and to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys and agents or any of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated: June 4, 1998.
MARC H. RAPAPORT
---------------------------------------
Marc H. Rapaport
