Rule: 424(b)(3)
Reg No. 333-56637
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 30, 1998)
FRED MEYER, INC.
4,215,584 Shares of Common Stock
($.01 par value)
This Prospectus Supplement and the accompanying Prospectus relate to
4,215,584 shares of Common Stock (the "Shares"), par value $.01 per share, of
Fred Meyer, Inc. (the "Company" or "Fred Meyer"), offered hereby (the
"Offering") by Jeffrey P. Smith, Trust for the Children of Jeffrey P. Smith, The
Sean Smith Trust, The Jaci Smith Trust, The Joshua Smith Trust, Fred Lorenzo
Smith, Trust for the Children of Fred Lorenzo Smith, The Fred Lloyd Smith Trust,
The Staci Elaine Smith Trust, The Zachary Dee Smith Trust, Elaine Smith and The
Dee Glen Smith Marital Trust (collectively, the "Smith Selling Stockholders").
The Common Stock of the Company is listed on the New York Stock Exchange
(the "NYSE") under the symbol "FMY." On July 7, 1998, the closing price for the
Common Stock as reported on the NYSE was $45-1/2.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
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.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") has agreed to
purchase the Shares from the Smith Selling Stockholders at a price of $44 per
share (resulting in $185,485,696 aggregate net proceeds (before expenses) to the
Smith Selling Stockholders). The Company will not receive any of the proceeds
from the Offering.
The Shares may be offered by DLJ from time to time in one or more
transactions (which may involve block transactions) on the NYSE, or on other
national securities exchanges on which the Common Stock is traded, in the
over-the-counter market, in negotiated transactions, in a combination of such
methods or otherwise at market prices prevailing at the time of the sale, at
prices related to such prevailing market prices or at negotiated prices, subject
to prior sale, when, as and if delivered to and accepted by DLJ. See "The
Underwriter."
The Company and the Smith Selling Stockholders have agreed to indemnify DLJ
against certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act").
The Shares are offered, subject to prior sale, when, as and if accepted by
DLJ. It is expected that delivery of the Shares will be made on or about July
13, 1998 at the office of DLJ, New York, New York, against payment therefor in
immediately available funds.
--------------------------
Donaldson, Lufkin & Jenrette
Securities Corporation
The date of this Prospectus Supplement is July 8, 1998.
<PAGE>
Unless otherwise expressly stated or if the context otherwise requires: (i)
the terms "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.
RISK FACTORS
Purchasers of the Shares should carefully consider the following risk
factors in addition to the information set forth under "Forward-Looking
Statements" in the accompanying Prospectus and the other information contained
or incorporated by reference herein or in the accompanying Prospectus.
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 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.
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 its bank credit facilities (the "1998 Senior Credit
Facilities"), which includes a $1.875 billion five-year revolving credit
agreement and a $1.625 billion five-year term loan, its 7.150% Notes due March
1, 2003, its 7.375% Notes due March 1, 2005 and its 7.450% Notes due March 1,
2008 (collectively, the "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.
S - 2
<PAGE>
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 and other sources of liquidity, will be
adequate to meet it anticipated requirements for working capital, capital
expenditures, interest payments and 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 with Smith's, QFC and Ralphs/Food 4 Less 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 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.
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.
S - 3
<PAGE>
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 Sales
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" (as that term is defined under Rule 144
under the Securities Act, as amended, ("Rule 144")) of the Company or former
"affiliates" of Smith's, QFC or Ralphs/Food 4 Less will continue to be subject
to the resale limitations of Rule 144. The Smith Selling Stockholders, certain
other stockholders and certain executive officers of the Company have agreed,
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 DLJ, 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, in the case of
the Smith Selling Stockholders, and, in the case of the executive officers and
other stockholders, until September 28, 1998. Upon the expiration of such
periods, 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 Common Stock. See "The Underwriter."
S - 4
<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, 1988; (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
(vi) 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
Markets, Inc. ("Hughes") and February 15, 1997 acquisition of Keith Uddenberg,
Inc. ("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 QFC are being included in the earnings of Fred Meyer
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 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 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 required. 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
S - 5
<PAGE>
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 a settlement agreement entered into with the State of California in
connection with the QFC and Ralphs/Food 4 Less mergers, 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.
S - 6
<PAGE>
<TABLE>
Unaudited Pro Forma Condensed Combined Balance Sheet
January 31, 1998
(In thousands)
ASSETS
<CAPTION>
Ralphs/
Fred Meyer QFC Food 4 Less
January 31, December 27, February 1,
1998 1997 1998 Pro Forma Pro Forma
Historical Historical Historical Adjustments Combined
------------ ------------ ----------- ----------- -----------
<S> <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
Shareholders' 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 - 7
<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
Increase 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 - 8
<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 - 9
<PAGE>
<TABLE>
Unaudited Pro Forma Condensed Combined
Statement of Operations
For the 52 Weeks Ended January 31, 1998
(In thousands, except per share and percentage data)
<CAPTION>
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 1,596,983 4,347,549 11,224,052
------------------ ------------------- ------------------ -------------- --------------
Gross margin................. 2,061,672 523,872 1,139,920 3,725,464
Operating and administrative
expenses..................... 1,472,090 375,933 756,609 $ (4,000)(3) 2,600,632
Depreciation and amortization
expense...................... 235,955 48,971 178,710 16,959 (4) 480,595
------------------ ------------------- ------------------ -------------- --------------
Income from operations....... 353,627 98,968 204,601 (12,959) 644,237
Interest expense.................... 113,052 30,765 271,939 (30,217)(5) 385,539
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)................................................................................. $ 1,125,358
EBITDA margin (9)....................................................................................... 7.5%
See Notes to Unaudited Pro Forma Condensed Combined Statement of Operations.
</TABLE>
S - 10
<PAGE>
<TABLE>
Unaudited Pro Forma Condensed Combined
Statement of Operations
For the 52 Weeks Ended February 1, 1997
(In thousands, except per share and percentage data)
<CAPTION>
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 1.12 1.75 1.05
per share of common stock............. $ $ $
==================== ===================== =============
Diluted income before extraordinary 1.05 1.71 1.00
charge per share of common stock...... $ $ $
==================== ===================== =============
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 Statement of Operations.
</TABLE>
S - 11
<PAGE>
<TABLE>
Unaudited Pro Forma Condensed Combined
Statement of Operations
For the 53 Weeks Ended February 3, 1996
(In thousands, except per share and percentage data)
<CAPTION>
QFC
Fred Meyer Fiscal Year Ended
Fiscal Year Ended December 30,
February 3, 1996 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 Statement of Operations.
</TABLE>
S - 12
<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 $91 million (net of
income taxes) relating to refinancing certain debt. Such summary unaudited
pro forma condensed combined statement of operations gives effect to the
following significant pro forma adjustments: (i) the adjustment for
additional depreciation and amortization expense resulting from the
allocation of the purchase price for Smith's to the assets acquired,
including an increase in property, plant, and equipment, leasehold
interest, and identifiable intangible assets to their estimated fair
market values and the recording of goodwill associated with the
acquisition; (ii) the adjustment to interest expense associated with the
transaction financing and the corresponding adjustments to the
amortization of related financing fees; and (iii) the adjustment to the
provision for income taxes based upon a tax rate of 39% applied to the pro
forma operating income before income taxes adjusted for amortization of
goodwill.
<TABLE>
<CAPTION>
Fred Meyer Smith's
Fiscal Year Period from
Ended February 2, 1997
January 31, to September 8, Fred Meyer
1998 1997 Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------------- ------------------ ------------ ------------
(In thousands)
------------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales......................................$ 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>
S - 13
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined
Statements of Operations (Continued)
(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.
<TABLE>
<CAPTION>
Hughes KUI Pro Forma
Period from Period from Adjustments
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 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 33,480 (950) (10,977) 1,596,983
------------- ------------- -------------- ------------ ------------ -------------
Gross margin........... 461,077 53,033 13,313 (542) (3,009) 523,872
Operating and administrative
expenses............... 325,424 43,495 10,301 (605) (2,682) 375,933
Depreciation and amortization
expense................ 43,076 3,847 337 (43) 1,754 48,971
------------- ------------- -------------- ------------ ------------ -------------
Income from operations. 92,577 5,691 2,675 106 (2,081) 98,968
Interest expense.............. 25,887 538 204 4,136 30,765
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>
S - 14
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined
Statements of Operations (Continued)
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.
(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................................................. 30,765
Ralphs/Food 4 Less-- historical............................................ 271,939
-------------
415,756
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................................................... $ 385,539
=============
</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 the pro forma income before income taxes
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 - 15
<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 148,947 154,019
completion of the mergers....................................................
========= =========
</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 - 16
<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 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 under the symbol
"FMY."
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.
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
S - 17
<PAGE>
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.
THE UNDERWRITER
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), DLJ has agreed
to purchase, and the Smith Selling Stockholders have agreed to sell to DLJ, the
Shares at the price set forth on the cover page of this Prospectus Supplement.
The Underwriting Agreement provides that the obligation of DLJ to pay for
and accept delivery of the Shares is subject to the approval of certain legal
matters by its counsel and to certain other conditions. DLJ is obligated to take
and pay for all the Shares if any are taken.
The Shares may be sold by DLJ from time to time to purchasers in one or
more transactions (which may involve block transactions) on the NYSE or on other
national securities exchanges on which the Common Stock is traded, in the
over-the-counter market, in negotiated transactions, in a combination of such
methods or otherwise, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. If the price
received by DLJ upon the sale of the Shares exceeds the price at which it buys
the Shares (set forth on the cover page of this Prospectus Supplement), such
difference shall represent DLJ's commission. DLJ may effect such transactions by
selling Shares to or through dealers, and such dealers may receive compensation
in the form of discounts, concessions or commissions from DLJ and/or the
purchasers of such Shares for whom they may act as agents or to whom they may
sell as principal.
The Company and the Smith Selling Stockholders have agreed to indemnify DLJ
against certain liabilities, including liabilities under the Securities Act, or
contribute to payments which DLJ may be required to make in respect thereof.
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 DLJ by
Latham & Watkins, Los Angeles, California.
S - 18
<PAGE>
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
under the symbol "FMY." On June 30, 1998, the last reported sale price of the
Common Stock was $42 1/2 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------
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 June 30, 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;
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; March 12, 1998; and June 18, 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.
2
<PAGE>
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 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, 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 under the Fred Meyer, Smith's
Food & Drug Centers, Smitty's, 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, Quality Food Centers, Inc. and Food 4 Less Holdings, Inc.
3
<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
Beneficially Owned Shares Offered by 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 Ave.
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
Bankers Trust Corporation................................ 157,724 157,724
BT Investment Partners, Inc.............................. 1,124,694 1,124,694
130 Liberty St.
New York, NY 10006
CSFB IGP................................................. 28,908 28,908
Bahnhofstrass #17
CH-6301 Zug, Switzerland
Merchant GP, Inc......................................... 593,673 371,092
c/o Credit Suisse First Boston
11 Madison Ave.
New York, New York 10010
Dan Kourkoumelis......................................... 565,603(4) 475,000
10112 NE 10th Street, Suite 201
Bellevue, Washington 98004
- --------------
(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 up to 6,740,157 of these
shares pursuant to a Prospectus Supplement dated as of the date hereof
relating to the shares (which number of shares assumes the
</TABLE>
4
<PAGE>
exercise of the over-allotment option by the underwriters 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 812,343 shares 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:
Northrop Grumman Corporation Master Trust -- 50,572; Bradbury Dyer --
51,675; David A. Gardner -- 25,837; Blaine Trust -- 12,919; LJ Trusts --
5,167; Bertram R. Cohan -- 12,919; S. Cody Engle -- 14,943; William Hall --
30,969; Donald J. Liebentritt -- 5,079; Sheli Z. Rosenberg -- 62,971;
Sanford Shkolnik -- 6,194; Spector Family Limited Partnership -- 21,059;
Timothy H. Callahan -- 12,904; Leah's Trust -- 15,484; and Sam Investment
Trust -- 483,651. Each of Mr. Zell and Ms. Rosenberg has served as a
director of Quality Food Centers, Inc.
(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 Quality Food Centers, Inc. and the Company.
(3) Mr. Jeffrey P. Smith is a director of the Company, and Mr. Fred Lorenzo
Smith was a director of the Company from September 1997 until April 1998.
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 Fred
Lorenzo 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
daughter and 543,766 subject to options that are currently exercisable or
become exercisable within the next 60 days. The Shares covered by this
registration statement include shares subject to such options.
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
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
5
<PAGE>
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 Quality Food Centers, Inc. 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 Quality Food Centers, Inc. as of
December 28, 1996 and December 27, 1997 and for each of the three years in the
period ended December 28, 1996 included in the Quality Food Centers, Inc. 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 Quality Food Centers, Inc. as of
December 28, 1996 and for each of the three years in the period ended December
28, 1996 included in the Quality Food Centers, Inc. 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 Food 4 Less Holdings, Inc. 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 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.
6
<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized in
connection with any offering made hereby to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus Supplement or the accompanying Prospectus, and if given or made, such
information or representations must not be relied upon as having been authorized
by the Company, the Smith Selling Stockholders or DLJ. This Prospectus
Supplement and the accompanying Prospectus do not constitute an offer to sell or
a solicitation of an offer to buy any security other than the Shares offered
hereby, nor do they constitute an offer to sell or a solicitation of an offer to
buy any of the Shares offered hereby by anyone in any jurisdiction in which such
offer or solicitation is not authorized, or in which the person making such
offer or solicitation is not qualified to do so or to any person to whom it is
unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus Supplement or the accompanying 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 and therein.
---------------------
TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Unaudited Pro Forma Condensed Combined Financial
Statements. . . . . . . . . . . . S-5
Description of Capital Stock . . . . . . . . . . . . . . . . . S-17
The Underwriter. . . . . . . . . . . . . . . . . . . . . . . . S-18
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . S-18
PROSPECTUS
Available Information. . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by
Reference . . . . . . . . . . . . . . . . . . . . . . . . . 2
Forward Looking Statements . . . . . . . . . . . . . . . . . . 3
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Selling Stockholder. . . . . . . . . . . . . . . . . . . . . . 4
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . 5
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . 6
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
4,215,584 Shares
Fred Meyer, Inc.
Common Stock
---------------------
PROSPECTUS SUPPLEMENT
---------------------
Donaldson, Lufkin & Jenrette
Securities Corporation
July 8, 1998
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
