<PAGE>
As filed with the Securities and Exchange Commission on September 19, 1996
Registration No. 333-11403
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
___________________
FRED MEYER, INC.
(Exact name of registrant as specified in its charter)
___________________
Delaware 93-0798201
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3800 SE 22nd Avenue
Portland, Oregon 97202
(503) 232-8844
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
___________________
ROGER A. COOKE
Senior Vice President, General Counsel and Secretary
Fred Meyer, Inc.
3800 SE 22nd Avenue
Portland, Oregon 97202
(503) 232-8844
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
It is respectfully requested that the Commission send copies of all
notices, orders and communications to:
HENRY H. HEWITT ANTHONY J. RICHMOND
Stoel Rives LLP Latham & Watkins
900 SW Fifth Avenue, Suite 2300 633 West Fifth Street, Suite 4000
Portland, Oregon 97204 Los Angeles, California 90071
(503) 224-3380 (213) 485-1234
___________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
promptly as practicable after this registration statement becomes effective.
If the only securities being registered on this Form are being 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. / /
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 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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
| | PROPOSED | PROPOSED |
| | MAXIMUM | MAXIMUM |
TITLE OF EACH CLASS OF | AMOUNT TO BE | OFFERING PRICE | AGGREGATE | AMOUNT OF
SECURITIES TO BE REGISTERED | REGISTERED(1) | PER SHARE(2) | OFFERING PRICE(2) | REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value | 4,200,000 | $ 32.625 | $ 137,025,000 | $ 47,250
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares which may be sold upon the exercise of the
Underwriters' option to purchase shares solely to cover over-allotments,
if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based
upon the average high and low prices as reported on the New York Stock
Exchange on September 16, 1996. $40,949 was previously paid upon filing of
this Registration Statement.___________________
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH A DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 1996
3,780,000 SHARES
[LOGO]
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------
All of the shares of Common Stock offered hereby are being sold by the
Selling Stockholder. The Company will not receive any of the proceeds from the
sale of the shares offered hereby.
Concurrently with the consummation of the offering, the Company will
repurchase an estimated 2,200,000 outstanding shares of Common Stock from the
Selling Stockholder. The actual number of shares to be repurchased will be based
on the initial public offering price of the Common Stock and the number of
shares offered hereby is subject to adjustment depending upon the number of
shares to be repurchased. Following completion of the offering and the stock
repurchase, it is expected that the Selling Stockholder, an affiliate of
Kohlberg Kravis Roberts & Co., L.P., will beneficially own approximately 18.1%
of the Common Stock of the Company (assuming no exercise of the Underwriters'
over-allotment option). See "The Selling Stockholder."
The last reported sale price of the Common Stock, which is listed under the
symbol "FMY," on the New York Stock Exchange on September 17, 1996 was $32 7/8
per share. See "Price Range of Common Stock."
------------------
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.
------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) STOCKHOLDER(2)
-------------- ------------- -------------------
<S> <C> <C> <C>
Per Share.................................................... $ $ $
Total(3)..................................................... $ $ $
</TABLE>
- ------------
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Expenses of the offering, estimated at $270,000, will be paid by the
Company.
(3) The Selling Stockholder has granted the Underwriters an option for 30 days
to purchase up to an additional 420,000 shares at the initial public
offering price per share, less the underwriting discount, solely to cover
over-allotments. If the option is exercised in full, the total initial
public offering price, underwriting discount and proceeds to the Selling
Stockholder will be $ , $ and $ , respectively. See
"Underwriting."
------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York, on or about
, 1996 against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
SALOMON BROTHERS INC
WILLIAM BLAIR & COMPANY
------------------
The date of this Prospectus is , 1996.
<PAGE>
[ART WORK]
[FRONT INSIDE COVER]
[Photograph of front of Fred
Meyer store]
[Floor plan of standard store
highlighting locations of Apparel and
Home Electronics Group, Food Group,
Jewelry Group and Home Group]
[Photograph of "FM Elements" Section] [Photograph of Service Fish Market]
<PAGE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
Fred Meyer, Inc. ("Fred Meyer" or 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, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports and other information may be inspected and
copies may be obtained at the Commission's Public Reference Section, Judiciary
Plaza, 450 Fifth Street, NW, Washington, D.C. 20549, as well as the following
regional offices: 7 World Trade Center, New York, New York 10048 and 500 West
Madison Street, Chicago, Illinois 60661. The Commission maintains a Website that
contains reports, proxy and information statements and other information
regarding reporting companies under the Exchange Act, including the Company, at
http://www.sec.gov. The Company has filed with the Commission a Registration
Statement 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
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street NW,
Washington, D.C. 20549. Copies of the foregoing material can also be obtained at
prescribed rates from the Public Reference Section of the Commission. The Common
Stock is listed on the New York Stock Exchange, and such reports and other
information may also be inspected at the offices of the New York Stock Exchange,
20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated in this Prospectus by reference:
(1) the Company's Annual Report on Form 10-K for the year ended February 3,
1996; (2) the Company's Quarterly Reports on Form 10-Q for the quarters ended
May 25, 1996 and August 17, 1996; (3) the Company's definitive proxy statement
dated May 3, 1996; and (4) the description of the Company's Common Stock
contained in the Company's registration under Section 12 of the Exchange Act,
dated September 25, 1986, including any amendment or report updating such
description. In addition, all documents filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering (the "Offering") shall
be deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents (such documents, and the
documents enumerated above, being hereinafter referred to as "Incorporated
Documents"). Any statement contained in an Incorporated Document shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed Incorporated
Document modifies or supersedes such statement. Any such statement shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, including any beneficial
owner, on the written or oral request of any such person, a copy of any or all
of the Incorporated Documents, other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference therein. Requests
should be directed to Fred Meyer, Inc., 3800 SE 22nd Avenue, Portland, Oregon
97202, Attention: Roger A. Cooke, Senior Vice President, General Counsel and
Secretary (Telephone Number (503) 232-8844).
3
<PAGE>
This Prospectus constitutes a part of the Registration Statement on Form S-3
filed by the Company with the Commission under the Securities Act. This
Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement and to the
exhibits relating thereto for further information with respect to the Company
and the Common Stock. Any statements contained herein concerning the provisions
of any documents are not necessarily complete, and reference is made to the copy
of such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference. The information relating to the Company contained in this
Prospectus should be read together with the information contained in the
Incorporated Documents.
4
<PAGE>
THE COMPANY
Fred Meyer is a leading regional retailer of a wide range of food, apparel,
fine jewelry and products for the home. At August 17, 1996, the Company operated
108 multidepartment stores in Oregon, Washington, Utah, Alaska, Idaho and
Montana under the name "Fred Meyer" and 105 specialty stores in 16 states. The
Company's multidepartment stores are unique in the Pacific Northwest in
combining food with a wide range of nonfood merchandise under one roof. These
stores average approximately 144,000 square feet of retail space, contain up to
seven departments, which include food, home, apparel, home electronics, fine
jewelry, health and beauty aids and pharmacy, and emphasize one-stop-shopping
for necessities and items of everyday use. The multidepartment stores accounted
for approximately 98.7% and 97.2% of the Company's total sales and operating
income, respectively, for the 1995 fiscal year ended February 3, 1996. For the
1995 fiscal year, food and nonfood sales were 41.0% and 59.0% of total sales,
respectively. Substantially all of the Company's specialty stores are mall
jewelry stores operating under the names "Fred Meyer Jewelers" or "Merksamer
Jewelers."
The Company's principal business strategy is to operate one-stop-shopping
stores that provide convenient shopping for a broad selection of products in one
location. Stores are organized into distinct departments that specialize in the
sale of particular products. Multidepartment stores that include food are the
Company's primary focus. The Company believes that its food departments increase
the shopping frequency of area residents, build customer loyalty and enable its
nonfood departments to generate higher levels of sales through increased
customer traffic. The Company promotes cross-shopping by providing convenient
access between departments, by making each department a strong competitor in the
market for its products and by facilitating easy customer checkout through a
common checkout cash register system that allows customers to purchase
merchandise from any department at any checkout location. The strength of the
individual departments, with their breadth and depth of product selection,
national and private label brands and emphasis on products of everyday use,
distinguishes the Company's stores from other retailers and enables the Company
to compete with supermarkets, drug stores, discount stores, mass merchandisers,
department stores and specialty stores, including category-dominant retailers.
During the second half of fiscal 1994, the Company experienced significant
labor disputes and related work stoppages in Portland, Oregon and Vancouver,
Washington. These work stoppages had a material adverse effect on the Company's
results of operations during the third and fourth quarters of fiscal 1994, and
the Company believes that the strikes had a continuing adverse effect during
most of fiscal 1995. In recent years, the Company has also experienced
substantial increased competition from large national category-dominant
retailers and national and regional discount retailers.
In response to the labor disputes and increased competition, the Company
implemented operating initiatives to reestablish its positive community image,
regain customer loyalty in affected markets, achieve operating efficiencies and
improve profitability. The Company also began to reposition some of its
departments to improve its competitive position with respect to discount
retailers and category-dominant competitors (particularly in the home
improvement and home electronics categories). These repositioning efforts
included (1) reducing the space allocated to building materials in those stores
affected by category-dominant home improvement centers and utilizing this space
for other product categories (such as expanded garden centers); (2) eliminating
most computer hardware in a majority of its stores and increasing the selection
of certain products, such as computer software, compact discs, video games and
cellular telephones, in an effort to focus on higher margin items in home
electronics; (3) refining its apparel selection to emphasize basics and casual
sportswear; (4) adding additional private label products to its apparel
selection and personal care products; (5) adding new product categories (such as
pet centers) to certain of its stores; and (6) increasing the amount of space
leased to complementary third-party tenants (such as banks, optical centers,
gourmet coffee bars, restaurants and video rental stores) that attract high
customer traffic. At the same time, the Company remained committed to its growth
strategy of opening new multidepartment stores, remodeling existing stores and
5
<PAGE>
opening smaller multidepartment stores and stores that emphasize food within its
existing market areas. The Company believes that its results for the first half
of fiscal 1996 reflect these efforts. For the first half of fiscal 1996, total
store sales increased 10.8% and comparable store sales increased 4.1% over the
first half of fiscal 1995.
The Company opened five new multidepartment stores in 1994 and six in each
of 1995 and the first half of 1996, and currently plans to open one additional
store in 1996 and five in each of 1997 and 1998. The Company remodeled seven
multidepartment stores in 1994, eight in 1995 and two in the first half of 1996,
and currently plans to remodel two in the second half of 1996 and five in each
of 1997 and 1998. The Company's major remodeling programs during the last three
years included (1) adding food departments to stores that previously sold only
nonfood merchandise; (2) removing walls between departments to facilitate
cross-shopping and common checkout for its customers; and (3) adding food
service departments, such as deli and bakery, to its stores. As these major
remodeling programs near completion, store remodeling costs are expected to
decrease over the next several years.
During the last three years, the Company made capital expenditures of
approximately $166,000,000 to (1) modernize its management information systems
("MIS") to better support its business and (2) expand and improve its
distribution operations by updating its existing distribution center and
constructing two new distribution facilities. All major aspects of the currently
planned MIS improvement program are presently scheduled to be completed in
fiscal 1997. The Company believes that its existing distribution centers enable
it to meet its expected nonfood and food distribution center needs until at
least the year 2000. Capital expenditures (before land sales and excluding real
estate financed on leases), which amounted to approximately $236,000,000 in
fiscal 1995, are therefore expected to decline to approximately $160,000,000 in
1996 and increase moderately over the next two years. Following completion of
the repurchase of shares from the Selling Stockholder, the Company presently
intends to use all available cash flow to reinvest in the business of the
Company and to reduce debt.
The Company was incorporated in Delaware in 1981, as a successor to the
business of a company which opened its first store in downtown Portland in 1922
and was incorporated in Oregon in 1923. The Company's principal executive
offices are located at 3800 SE 22nd Avenue, Portland, Oregon 97202, and its
telephone number is (503) 232-8844. References in this Prospectus to the Company
mean Fred Meyer, Inc., including its subsidiaries, unless the context requires
otherwise.
THE SELLING STOCKHOLDER AND THE REPURCHASE
Prior to the Offering, approximately 37.8% of the Company's Common Stock was
beneficially owned by FMI Associates Limited Partnership ("FMI Associates" or
the "Selling Stockholder"), an affiliate of Kohlberg Kravis Roberts & Co., L.P.
("KKR"). Concurrently with the consummation of the Offering, the Company will
repurchase (the "Repurchase") a number of outstanding shares of Common Stock
from the Selling Stockholder determined by dividing $70,000,000 (the "Repurchase
Price") by an amount equal to the initial public offering price in the Offering
less the underwriting discount (the "Net Offering Price"). The Company plans to
finance the Repurchase Price with borrowings under its credit agreement and the
issuance of commercial paper. The Company's recently consummated sale and
leaseback transaction, the proceeds of which were used to repay debt, increased
available borrowing capacity under the credit agreement. Following completion of
the Offering and the Repurchase, it is expected that the Selling Stockholder
will beneficially own approximately 18% of the Common Stock (assuming no
exercise of the Underwriters' over-allotment option). The FMI Associates limited
partnership agreement is, by its terms, to dissolve on December 31, 1996 unless
amended by all of the limited partners to extend the term beyond such date. See
"The Selling Stockholder."
6
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the New York Stock Exchange (the
"NYSE") under the symbol "FMY." The following table sets forth the high and low
sales prices for the Company's Common Stock for the calendar periods indicated
on the NYSE. For a recent stock price, see the cover page of this Prospectus.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1994
First Quarter............................................................. $42 1/2 $35 5/8
Second Quarter............................................................ 38 3/4 35
Third Quarter............................................................. 37 3/8 31 1/4
Fourth Quarter............................................................ 35 3/4 29 1/4
1995
First Quarter............................................................. $33 3/8 $23 1/2
Second Quarter............................................................ 29 23 1/2
Third Quarter............................................................. 26 7/8 18 5/8
Fourth Quarter............................................................ 23 5/8 17 3/8
1996
First Quarter............................................................. $29 7/8 $22 1/4
Second Quarter............................................................ 32 26 1/8
Third Quarter (through September 17, 1996)................................ 32 7/8 28 3/4
</TABLE>
DIVIDEND POLICY
The Company has not paid dividends since its incorporation in 1981, and,
subject to completion of the Repurchase, 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. It is the intention of
the Board of Directors to review this policy periodically in light of the
Company's financial condition, capital requirements and expansion opportunities.
The Company may also determine to use available cash to repurchase shares of its
stock in addition to the Repurchase. However, the Company's credit agreement and
other debt agreements prohibit the payment of dividends or the repurchase of
Company stock in an amount in excess of 40% of its consolidated net income for
the prior fiscal year, except that the Company may, during the two-year period
ending June 14, 1997, repurchase up to $70,000,000 of its stock. Accordingly,
after the Repurchase the Company will be unable to effect any additional
repurchases of its stock until after June 14, 1997 unless this restriction is
amended or waived. See "Capitalization" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
7
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
August 17, 1996 and on a pro forma basis to reflect the acquisition of shares
from the Selling Stockholder in the Repurchase and certain other transactions.
The information presented below is unaudited and should be read in conjunction
with the Company's consolidated financial statements and the notes thereto that
are incorporated by reference herein and "Selected Pro Forma Financial Data,"
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "The Selling Stockholder" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF AUGUST 17, 1996
------------------------------
ACTUAL PRO FORMA (1)
------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current portion of long-term debt and lease obligations........................ $ 1,468 $ 1,468
------------- ---------------
------------- ---------------
Long-term obligations:
Commercial paper and money market lines (2)(3)................................. 363,494 325,494
Mortgage and other debt obligations............................................ 272,975 272,975
Capital lease, lease obligations related to restructuring charge and other
long-term obligations......................................................... 20,469 20,469
------------- ---------------
Total........................................................................ 656,938 618,938
------------- ---------------
Deferred lease transactions...................................................... 39,392 52,571
------------- ---------------
Stockholders' equity (4)......................................................... 596,173 525,903
------------- ---------------
Total capitalization......................................................... $ 1,292,503 $ 1,197,412
------------- ---------------
------------- ---------------
</TABLE>
- ----------------
(1) Adjusted to give pro forma effect to the following transactions (as if all
such transactions had occurred as of August 17, 1996): (a) the consummation
of a sale and leaseback transaction (the "September 1996 Sale and
Leaseback") in September 1996 in which the Company sold 10 of its stores and
received net proceeds therefrom of approximately $108,000,000, which
proceeds were applied to repay debt; and (b) the Repurchase of $70,000,000
of Common Stock from the Selling Stockholder (estimated to be approximately
2,200,000 shares of Common Stock at current market prices).
(2) The Company's commercial paper and money market lines are supported by bank
borrowings on a long-term basis pursuant to its credit agreement and are
classified as long-term debt. At August 17, 1996, the Company had a total of
$136,506,000 available for borrowing under its committed credit facilities
($174,506,000 on a pro forma basis after giving effect to the September 1996
Sale and Leaseback and the Repurchase). See "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
(3) The Company realized net proceeds of approximately $108,000,000 from the
September 1996 Sale and Leaseback, which was structured as an operating
lease for financial reporting purposes. The Company has previously engaged
in similar transactions to finance store development and provide funds for
general corporate purposes. See Note 8 to the Company's consolidated
financial statements incorporated herein by reference.
(4) At August 17, 1996, 100,000,000 shares of Common Stock, $.01 par value, were
authorized, of which 26,730,071 shares were outstanding (estimated to be
24,530,071 shares after giving effect to the Repurchase of an estimated
2,200,000 shares). The actual number of shares to be repurchased will be
determined by dividing $70,000,000 by an amount equal to the initial public
offering price in the Offering less the underwriting discount. Shares
outstanding do not include 4,476,258 shares subject to outstanding stock
options. Of the total options, 2,909,817 shares (of which 1,115,361 shares
are presently exercisable) are subject to employee and other stock options
at a weighted average exercise price of $23.711 per share and 1,566,441
shares are subject to a presently exercisable option held by the Selling
Stockholder at an exercise price of approximately $3.24 per share (the
"Selling Stockholder's Option"). See "The Selling Stockholder."
8
<PAGE>
SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company for each
of the five fiscal years in the period ended February 3, 1996 have been derived
from the Company's consolidated financial statements, which have been audited by
Deloitte & Touche LLP, independent auditors. The selected financial data for the
28 weeks ended August 12, 1995 and August 17, 1996 have been derived from the
unaudited financial statements of the Company and include all adjustments
necessary for a fair presentation of the results of such periods. The results
for interim periods are not indicative of results for the entire fiscal year due
to the seasonality of the Company's business. For fiscal years 1991 through
1995, the amounts shown reflect the reclassification of employee discounts to
make the reporting consistent with the reporting for the 1995 and 1996 interim
periods presented. The data should be read in conjunction with the Company's
consolidated financial statements, related notes and other financial information
incorporated by reference herein. See "Available Information."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 28 WEEKS ENDED
--------------------------------------------------------------------------- ----------------------
FEBRUARY 1, JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 3, AUGUST 12, AUGUST 17,
1992 1993 1994 1995 1996 1995 1996
-------------- ----------- -------------- ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(53 WEEKS)
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales (1)............ $2,700,550 $2,849,521 $2,973,825 $3,122,635 $3,422,717 $1,710,053 $1,893,942
Cost of goods sold....... 1,892,821 1,996,700 2,088,568(6) 2,261,315 2,449,204 1,224,558 1,336,484
-------------- ----------- -------------- ------------- ----------- ---------- ----------
Gross margin............. 807,729 852,821 885,257 861,320 973,513 485,495 557,458
Operating and
administrative expenses
(1)..................... 724,446(4) 738,581 747,151 807,924 885,086 444,137 495,471
Restructuring charge
reversal; writedown of
California assets....... (8,289)(5) -- -- 15,978(9) -- -- --
-------------- ----------- -------------- ------------- ----------- ---------- ----------
Income from operations... 91,572 114,240 138,106 37,418(9) 88,427 41,358 61,987
Interest expense, net of
interest income (2)..... 20,577 18,070 17,604 25,857 39,578 19,171 22,282
Provision for income
taxes................... 25,768 35,583 49,598(7) 4,393(9) 18,563 8,431 15,088
-------------- ----------- -------------- ------------- ----------- ---------- ----------
Net income before
cumulative effect of
accounting change....... 45,227 60,587 70,904 7,168 30,286 13,756 24,617
-------------- ----------- -------------- ------------- ----------- ---------- ----------
Cumulative effect of
accounting change.... -- -- (2,588)(8) -- -- -- --
-------------- ----------- -------------- ------------- ----------- ---------- ----------
Net income............... $ 45,227 $ 60,587 $ 68,316 $ 7,168(9) $ 30,286 $ 13,756 $ 24,617
Earnings per common
share:
Net income before
effect of accounting
change............... $ 1.80 $ 2.21 $ 2.50 $ .25(9) $ 1.07 $ .48 $ .86
Cumulative effect of
accounting change.... -- -- (.09)(8) -- -- -- --
-------------- ----------- -------------- ------------- ----------- ---------- ----------
Net income............. $ 1.80 $ 2.21 $ 2.41 $ .25(9) $ 1.07 $ .48 $ .86
-------------- ----------- -------------- ------------- ----------- ---------- ----------
-------------- ----------- -------------- ------------- ----------- ---------- ----------
Weighted average number
of common shares
outstanding (3)......... 25,182 27,446 28,375 28,625 28,333 28,424 28,609
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
AUGUST 17, 1996
JANUARY 29, JANUARY 28, FEBRUARY 3, ---------------------------
1994 1995 1996 ACTUAL PRO FORMA (10)
------------ ------------ ----------- ---------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital........................... $ 192,737 $ 249,514 $ 283,082 $ 239,589 $ 239,589
Inventories............................... 477,568 514,473 520,555 560,790 560,790
Total assets.............................. 1,326,076 1,562,672 1,671,592 1,777,327 1,682,506
Long-term obligations..................... 341,353 564,058 677,542 656,938 618,938
Deferred lease transactions............... 48,254 45,655 42,271 39,392 52,571
Stockholders' equity...................... 527,686 538,620 571,234 596,173 525,903
</TABLE>
- ------------------
(1) Commencing in fiscal 1996, the Company changed its method of accounting for
employee discounts to a reduction of sales. Previously, such discounts were
accounted for as operating and administrative expense. Sales and operating
and administrative expenses for the years 1991 through 1995 have been
reduced in the amounts of $2,171, $4,441, $5,257, $5,797 and $5,947,
respectively, to reflect the present method of accounting for such
discounts.
(2) Interest income was $517, $544, $707, $885, $1,060, $567 and $576,
respectively.
(3) Based upon shares outstanding during each period and the application of the
treasury stock method of computing the effect of outstanding stock options.
See "The Selling Stockholder."
(4) In 1991, the Company took a charge against expenses for previously
capitalized software development costs of $8,748.
(5) In 1991, the Company reversed $8,289, a portion of a charge taken in 1989,
based on a decision not to close as many stores as previously provided for.
(6) Includes a nonrecurring LIFO credit of $6,178.
(7) Includes $3,588 from the resolution of an IRS audit, ($2,286) related to
the LIFO credit and a 38% tax rate.
(8) Effect of adopting Statement of Financial Accounting Standards No. 109
relating to income taxes.
(9) In 1994, the Company recorded a pretax charge of $15,978 to write down to
their estimated net realizable value one multidepartment store and three
land parcels in California. Excluding this writedown, income from
operations, provisions for income taxes, net income and earnings per common
share would be $53,396, $10,465, $17,074 and $0.60, respectively.
(10) Adjusted to give pro forma effect to the following transactions (as if all
such transactions had occurred as of August 17, 1996): (a) the consummation
of the September 1996 Sale and Leaseback in which the Company sold 10 of its
stores and received net proceeds therefrom of approximately $108,000,000,
which proceeds were applied to repay debt; and (b) the Repurchase of
$70,000,000 of Common Stock from the Selling Stockholder (estimated to be
approximately 2,200,000 shares of Common Stock at current market prices).
See "Capitalization" and "Selected Pro Forma Financial Data."
10
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
The following unaudited pro forma income statement data for the year ended
February 3, 1996 and the 28-week periods ended August 12, 1995 and August 17,
1996 have been prepared by the Company's management, are presented for
informational purposes only and may not be indicative of the results of
operations of the Company in the future. Amounts reflect pro forma adjustments
to historical operating results to reflect the following transactions as if they
had occurred on January 29, 1995: (a) the consummation of the September 1996
Sale and Leaseback in which the Company sold 10 of its stores and received net
proceeds therefrom of approximately $108,000,000, which proceeds were applied to
repay debt; and (b) the Repurchase of $70,000,000 of Common Stock from the
Selling Stockholder (estimated to be approximately 2,200,000 shares of Common
Stock at current market prices). The following pro forma income statement data
should be read in conjunction with the Company's consolidated financial
statements and notes thereto that are incorporated by reference herein and
"Capitalization," "Selected Financial Data" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition," which are included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
28 WEEKS ENDED
YEAR ENDED ----------------------------------
FEBRUARY 3, 1996 AUGUST 12, 1995 AUGUST 17, 1996
----------------- ---------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
PRO FORMA INCOME STATEMENT DATA:
Net Sales................................................. $ 3,422,717 $ 1,710,053 $ 1,893,942
Cost of goods sold........................................ 2,449,204 1,224,558 1,336,484
----------------- ---------------- ----------------
Gross margin.............................................. 973,513 485,495 557,458
Operating and administrative expenses (1)................. 890,205 446,807 498,141
----------------- ---------------- ----------------
Income from operations.................................... 83,308 38,688 59,317
Interest expense, net of interest income (1)(2)........... 37,193 17,889 21,134
Provision for income taxes (3)............................ 17,524 7,904 14,510
----------------- ---------------- ----------------
Net income................................................ $ 28,591 $ 12,895 $ 23,673
----------------- ---------------- ----------------
----------------- ---------------- ----------------
Earnings per common share: $ 1.09 $ .49 $ .90
----------------- ---------------- ----------------
----------------- ---------------- ----------------
Weighted average number of common shares outstanding
(2)...................................................... 26,133 26,224 26,409
</TABLE>
- --------------
(1) The adjustment to reflect the September 1996 Sale and Leaseback increases
operating and administrative expenses by $5,119,000, $2,670,000 and
$2,670,000 and decreases interest expense by $6,789,000, $3,650,000 and
$3,268,000 for the fiscal year ended February 3, 1996 and the 28-week
periods ended August 12, 1995 and August 17, 1996, respectively.
(2) The adjustment to reflect the Repurchase of $70,000,000 of Common Stock from
the Selling Stockholder increases interest expense by $4,404,000, $2,368,000
and $2,120,000 and decreases weighted average number of Common Shares
outstanding by an estimated 2,200,000, 2,200,000 and 2,200,000 for the
fiscal year ended February 3, 1996 and the 28-week periods ended August 12,
1995 and August 17, 1996, respectively.
(3) The effective tax rate for all periods was not affected by the above
adjustments and remained at 38%.
11
<PAGE>
OTHER FINANCIAL AND STATISTICAL DATA (1)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 28 WEEKS ENDED
--------------------------------------------------------------------- ------------------------
FEBRUARY 1, JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 3, AUGUST 12, AUGUST 17,
1992 1993 1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(53 WEEKS)
(SQUARE FEET AND DOLLARS IN THOUSANDS, EXCEPT FOR SALES PER SQUARE FOOT)
Percent of net sales:
Nonfood sales.......... 63.7% 63.3% 62.5% 61.7% 59.0% 58.1% 57.3%
Food sales............. 36.3% 36.7% 37.5% 38.3% 41.0% 41.9% 42.7%
Sales per square foot of
selling space (weighted
average)............... $283 $304 $312 $304 $316(2) $162 $171
Total stores sales
growth............... 9.2% 5.6% 4.4% 5.0% 7.7%(2) 2.6% 10.8%
Comparable stores sales
growth (3)(4):
Total Company.......... 4.0% 3.0% 2.4% (2.0)% 2.1%(5) (3.3)% 4.1%
Food................... 4.5% 2.8% 3.4% (3.0)% 6.6%(5) (0.5)% 5.9%
Nonfood................ 3.8% 3.2% 1.9% (1.4)% (0.9)%(5) (5.2)% 2.9%
Number of stores:
Multidepartment stores:
At beginning of
period............. 94 94 94 97 100 100 102
Opened............... 3 2 5 5 6 1 6
Closed............... 3 2 2 2 4 -- --
At end of period..... 94 94 97 100 102 101 108
At end of period:
Multidepartment stores:
With food............ 68 70 77 86 94 87 100
Without food......... 26 24 20 14 8 14 8
Specialty stores....... 28 29 30 31 34 33 105(7)
Total stores........... 122 123 127 131 136 134 213
Number of stores
remodeled............ 3 5 7 7 8 5 2
Total retail square feet:
At beginning of
period............... 12,213 12,679 12,646 13,423 14,194 14,194 14,857
Added by new stores
opened............... 584 295 811 795 948 152 846(7)
Added by remodeling of
existing stores...... 63 39 80 174 96 88 47
Less closed stores..... 181 367(6) 114 198 381 -- --
At end of period....... 12,679 12,646 13,423 14,194 14,857 14,434 15,750
Total selling square feet
at end of period....... 9,657 9,471 9,999 10,490 10,817 10,632 11,544
Depreciation and
amortization........... $ 48,139 $ 66,958 $ 70,547 $ 89,474 $107,077 $ 55,607 $ 62,560
Capital expenditures..... $105,881 $144,628 $253,920 $273,357 $236,052 $136,617 $ 93,910
</TABLE>
FOOTNOTES APPEAR ON FOLLOWING PAGE
12
<PAGE>
FOOTNOTES TO TABLE FROM PREVIOUS PAGE
- ------------------
(1) Amounts are for all stores unless otherwise indicated. The statistical data
in the table (other than the number of specialty stores) would not change
significantly if data relating to specialty stores were eliminated.
(2) Excludes 53rd week in the fiscal year ended February 3, 1996.
(3) Includes only sales of stores operating throughout each of the periods
compared.
(4) If sales of the 27 multidepartment stores in the Portland, Oregon and
Vancouver, Washington metropolitan area directly affected by the labor
strikes during 1994 were excluded, comparable store sales growth during the
periods when the strike occurred would have been:
<TABLE>
<CAPTION>
JANUARY 28, 1995 FEBRUARY 3, 1996
--------------------- ---------------------
<S> <C> <C>
Total Company....................................... 1.5% (.6)%
Food................................................ 1.7% 3.1%
Nonfood............................................. 1.3% (3.0)%
</TABLE>
(5) The calculation for comparable store sales for the year ended February 3,
1996, a 53-week year, is computed by adding a 53rd week to 1994's sales
base.
(6) Includes approximately 73,000 feet of space for 30 restaurants converted to
tenant space.
(7) Includes 71 mall jewelry stores acquired by the Company during the 28 weeks
ended August 17, 1996.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following table sets forth the percentage relationship to net sales of
certain Income Statement Data of the Company:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 28 WEEKS ENDED
--------------------------------------- -----------------------
JANUARY 29, JANUARY 28, FEBRUARY 3, AUGUST 12, AUGUST 17,
1994 1995 1996 1995 1996
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(53 WEEKS)
Net sales............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...................... 70.2 72.4 71.5 71.6 70.6
----- ----- ----- ----- -----
Gross margin............................ 29.8 27.6 28.5 28.4 29.4
Operating and administrative expenses...
Recurring expenses.................... 25.1 25.9 25.9 26.0 26.1
Restructuring charge reversal......... -- 0.5 -- -- --
----- ----- ----- ----- -----
Income from operations.................. 4.7 1.2 2.6 2.4 3.3
Interest expense (net).................. 0.6 0.8 1.2 1.1 1.2
Provision for income taxes.............. 1.7 0.2 0.5 0.5 0.8
----- ----- ----- ----- -----
Net income before effect of accounting
change................................. 2.4% 0.2% 0.9% 0.8% 1.3%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
The following discussion summarizes the Company's operating results for the
28 weeks ended August 17, 1996 compared to the 28 weeks ended August 12, 1995;
for the fiscal year ended February 3, 1996, a 53-week year ("1995"), compared to
the fiscal year ended January 28, 1995 ("1994"); and for 1994 compared to the
fiscal year ended January 29, 1994 ("1993"). Also included are discussions of
the Company's liquidity and capital resources, effects of LIFO, inflation and
seasonality, recent accounting changes and forward-looking statements. This
discussion and analysis should be read in conjunction with the Company's
consolidated financial statements, which are incorporated by reference herein.
RESULTS OF OPERATIONS -- 28 WEEKS ENDED AUGUST 17, 1996 COMPARED TO 28 WEEKS
ENDED AUGUST 12, 1995
Net sales for the first 28 weeks of 1996 increased $183,889,000 or 10.8%
over the corresponding period in 1995. This increase reflects openings of six
new stores, strong food sales and the acquisition of 71 mall jewelry stores.
Comparable store sales increased 4.1% for this 28-week period due in part to
particularly strong comparable sales in the Portland area markets. Food
comparable store sales increased 5.9%, and nonfood comparable store sales
increased 2.9%. The Company's food operations accounted for 42.7% of the overall
sales for the first 28 weeks of 1996 compared with 41.9% in the first 28 weeks
of 1995.
Gross margin as a percent of net sales was 29.4% for the first 28 weeks of
1996, compared with 28.4% for the first 28 weeks of 1995. Gross margins
increased due primarily to lower markdowns, improved food margins, lower
distribution center and delivery costs as a percent of net sales and the impact
on margins of two multistore jewelry acquisitions.
Operating and administrative expenses as a percent of net sales were 26.2%
for the first 28 weeks of 1996, compared with 26.0% for the first 28 weeks of
1995. Expenses as a percent of net sales increased in 1996's first 28 weeks due
to opening costs associated with six new stores in the first 28 weeks of 1996
compared with one in 1995, the impact on expenses of two multistore jewelry
acquisitions and higher maintenance costs. Preopening expenses for new stores
are expensed in the quarter during which the stores are opened.
14
<PAGE>
Net interest expense in the first 28 weeks of 1996 was $22,282,000, an
increase of 16.2% from the $19,171,000 reported for 1995. The increase primarily
reflects higher interest rates and higher borrowings related to new store
construction and remodels and last year's completion of distribution center
projects.
The effective tax rate for the first 28 weeks of 1996 and 1995 was 38.0%.
Net income increased 79.0% to $24,617,000 in the first 28 weeks of 1996 from
$13,756,000 in the first 28 weeks of 1995.
Earnings per share were $.86 for the first 28 weeks of 1996 based on
28,609,000 shares outstanding, compared with $.48 for the prior year's period
based on 28,424,000 shares outstanding.
In the first 28 weeks of 1996, the Company acquired 22 mall jewelry stores,
located primarily in California, which operated under various names and are now
operating under the names "Fred Meyer Jewelers" or "Merksamer Jewelers," as well
as 49 mall Merksamer Jewelers stores operating in 11 states, which will continue
to operate under that name.
RESULTS OF OPERATIONS -- 1995 COMPARED TO 1994
Net sales for 1995 (53 weeks) increased $300,082,000 or 9.6% over 1994 (52
weeks). This increase reflects openings of six full-size multidepartment stores,
three mall jewelry stores and the addition of food to three previously nonfood
stores, offset in part by the closure of four multidepartment stores. Comparable
store sales increased 2.1% for 1995. Comparable food sales increased 6.6%, and
comparable nonfood sales decreased 0.9%. These sales comparisons were aided by
the negative impact of labor strikes on 1994 sales. Excluding store sales during
the three-month period in 1994 affected by the strikes, total comparable store
sales decreased 0.6% in 1995, with comparable food sales increasing 3.1% and
comparable nonfood sales decreasing 3.0%. Comparable sales are measured on a 53
week corresponding period for both years. Food sales as a percent of net sales
were 41.0% and 38.3%, respectively, for 1995 and 1994. The increase in food
sales as a percent of net sales was primarily due to an increase in the number
of the Company's stores that sell food.
Gross margin as a percent of net sales was 28.5% in 1995 compared with 27.6%
in 1994. Gross margins increased as a percent of sales in 1995 primarily due to
the comparison to the reduced 1994 margins, which were affected by factors
associated with the labor strikes and increased promotional activities. Gross
margins for 1995, however, were negatively affected by slow nonfood sales, a
high level of nonfood promotions and a greater portion of sales being in food
where margins are typically lower, partially offset by a lower LIFO charge and
the impact of increased utilization of new flow-through distribution facilities.
Operating and administrative expenses increased 9.6% to $885,086,000 in 1995
from $807,924,000 in 1994, and as a percent of net sales were 25.9% for both
years. This comparison does not reflect the Company's 1994 writedown of
California assets of $15,978,000, covering one multidepartment store and three
land parcels.
Net interest expense was $39,578,000 for 1995 and $25,857,000 for 1994, an
increase of 53.1%. This increase primarily reflects interest on debt associated
with increased capital spending and, to a lesser extent, interest on debt
incurred as a result of 1994's labor disputes.
The effective tax rate was 38.0% for both 1995 and 1994.
Net income was $30,286,000 for 1995 and $7,168,000 for 1994. This increase
is primarily the result of the above-mentioned factors. Excluding the writedown
of California assets, 1994 net income was $17,074,000.
15
<PAGE>
Earnings per share were $1.07 for 1995 based on 28,333,000 shares
outstanding, compared with $.25 for 1994 based on 28,625,000 shares outstanding
(or $.60 after excluding the effect of the writedown of California assets in
1994).
RESULTS OF OPERATIONS -- 1994 COMPARED TO 1993
Net sales for 1994 increased $148,810,000 or 5.0% over 1993. This increase
reflects openings of five full-size multidepartment stores, three mall jewelry
stores and the addition of food to four previously nonfood stores, offset by the
closure of two multidepartment stores and two specialty stores. Comparable store
sales decreased 2.0% for 1994, with food comparable stores sales down 3.0% and
nonfood comparable store sales decreasing 1.4%. This decrease reflects the
effect of an 88-day food industry strike in the greater Portland, Oregon and
Vancouver, Washington areas, in which the Company's stores were the only stores
picketed, plus strikes at the Company's Portland area distribution center,
trucking operations, dairy and corporate office. These labor disputes were all
settled early in the fourth quarter of 1994. Excluding the stores affected by
the strikes, total comparable store sales increased 1.5%, with food comparable
store sales up 1.7% and nonfood comparable store sales up 1.3%. Food sales as a
percent of net sales were 38.3% and 37.5%, respectively, for 1994 and 1993. The
increase in food sales as a percent of net sales was primarily due to an
increase in the number of the Company's stores that sell food.
Gross margin as a percent of net sales was 27.6% in 1994, compared with
29.8% in 1993. This decrease is primarily due to the impact of the strikes and
high markdowns that were taken during the promotional Christmas period. The
Company's 1993 gross margin was favorably affected by a one-time LIFO credit of
$6,178,000.
Operating and administrative expenses increased 8.1% to $807,924,000 in 1994
from $747,151,000 in 1993 and as a percent of net sales were 25.9% in 1994
compared with 25.1% in 1993. Expenses as a percent of sales increased in the
areas of labor and fixed costs due to lower sales volumes in the stores affected
by the strikes.
The Company recognized a $15,978,000 charge to its 1994 operating results,
reflecting its decision to exit the California market except for its jewelry
locations. The charge represents a writedown of assets to their estimated
realizable value for one multidepartment store and three land parcels.
Net interest expense was $25,857,000 for 1994 and $17,604,000 for 1993, an
increase of 46.9%. This increase reflects higher interest rates and increased
debt due to capital spending for accelerated growth and the strikes.
The effective tax rate was 38.0% for 1994 and 41.2% for 1993. The effective
tax rate for 1993 was 38.0% when excluding the impact of a tax settlement.
Net income was $7,168,000 for 1994 and $68,316,000 for 1993. This decrease
is primarily the result of the above-mentioned strikes. Excluding the effect of
the writedown of California assets, 1994 net income was $17,074,000.
Earnings per share for 1994 were $.25 based on 28,625,000 shares
outstanding, compared with $2.41 for 1993 based on 28,375,000 shares
outstanding. Earnings per share for 1994 would have been $.60 after excluding
the effect of 1994's writedown of California assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company funded its working capital and capital expenditure needs in 1996
and 1995 primarily through internally generated cash flow and available lease
facilities, supplemented by borrowings under committed and uncommitted bank
lines of credit, the issuance of unrated commercial paper and the sale of fixed
rate five- and seven-year term notes.
16
<PAGE>
Cash provided by operating activities was approximately $83,000,000 higher
in 1995 than 1994. This improvement was mainly due to an increase in net income,
a decrease in income taxes paid and an increase in depreciation. Cash provided
by operating activities was $68,000,000 lower in 1994 than 1993 primarily as a
result of lower net income due to the 1994 labor disputes.
In September 1996 the Company consummated the September 1996 Sale and
Leaseback, in which it sold 10 of its stores and generated approximately
$108,000,000 in net proceeds. The proceeds were used to pay down its bank lines,
which increased the available capacity under those lines. The leases are for an
initial term of 21 years, subject to renewal at the option of the Company, and
the average annual rent, including amortization of fees and deferred gain, will
be approximately $7,700,000. The Company has previously engaged in similar
transactions to finance store development and provide funds for general
corporate purposes.
The Company entered into a new credit facility in 1995 with several domestic
and foreign banks for a committed line of credit that provides for borrowings of
up to $500,000,000. This agreement continues through June 30, 2000, at which
time the agreement terminates and any outstanding amounts must be paid in full.
As of August 17, 1996, in addition to this committed credit facility, the
Company had $105,000,000 of uncommitted money market lines with several foreign
banks and $145,000,000 of uncommitted money market lines with banks that are
also in the committed credit facility. The bank lines and unrated commercial
paper are used primarily for seasonal inventory requirements, new store
construction and financing, existing store remodeling, acquisition of land and
major projects such as MIS development. At August 17, 1996 the Company had
unrated commercial paper outstanding in the amount of approximately
$342,494,000, borrowings under money market lines with committed line banks of
$21,000,000 and a total of approximately $136,506,000 available for borrowings
that would be supported by its committed credit facilities, prior to giving
effect to the Repurchase or the September 1996 Sale and Leaseback. See
"Capitalization."
Changes in cash flows from investing and financing activities are primarily
the result of the timing of borrowing and capital expenditures. During 1995,
capital expenditures totaled approximately $236,000,000, before land sales and
excluding real estate financed on leases. The Company opened six new
multidepartment stores and closed four multidepartment stores. Eight stores
underwent major remodels, three of which included the addition of food
departments to previously nonfood stores. The Company also completed
construction of a new food distribution facility near Seattle, Washington. Other
capital projects in 1995 included improvements to the Clackamas, Oregon
distribution center, central bakery and dairy plants and further improvement of
the Company's MIS. During 1995, the Company also began construction of five
multidepartment stores scheduled to open in 1996, four of which have opened and
one of which is scheduled to open in the third quarter of 1996. During the first
half of 1996, the Company completed the acquisition of 71 mall jewelry stores in
11 states. Acquisition costs, not including remodeling, for these 71 stores
totaled approximately $13,200,000. At least four major multidepartment store
remodels are planned for completion in 1996 (two of which have been completed),
in addition to the opening of two new marketplace stores that emphasize food.
The Company believes that a combination of cash flow from operations, proceeds
from sale and leasebacks and borrowings under its credit facilities will permit
it to finance its capital expenditure requirements for 1996, budgeted at
$160,000,000. During the first 28 weeks of 1996, the Company had capital
expenditures of approximately $94,000,000 and opened six new stores, including
the two marketplace stores acquired in 1996.
In 1995, the Company entered into operating lease agreements covering
existing leased stores and the construction of new stores, with costs
aggregating $160,000,000. Lease payments are based on a spread over LIBOR on the
utilized portion of the facility. As of August 17, 1996, $83,144,000 was
utilized under the agreements. After the initial five-year noncancelable lease
term, the leases may be extended by agreement of the parties or the Company may
purchase the properties.
17
<PAGE>
EFFECT OF LIFO
Each year the Company estimates the LIFO adjustment for the year based on
estimates of three factors: (1) inflation rates (calculated by reference to the
Department Stores Inventory Price Index published by the Bureau of Labor
Statistics for soft goods and jewelry and to internally generated indices based
on Company purchases during the year for all other departments), (2) expected
inventory levels and (3) expected markup levels (after reflecting permanent
markdowns and cash discounts). The Company reviewed these year-to-date indices
at the end of the second quarter and adjusted its LIFO reserve on a year-to-date
basis to reflect the Company's overall product mix, anticipated year-end
inventory levels and the Company's expectations of the indices for the remainder
of the year. At year-end the Company makes the final adjustment reflecting the
difference between its prior quarterly estimates and actual LIFO amount for the
year.
EFFECT OF INFLATION
While management believes that some portion of the increase in sales is due
to inflation, it is difficult to segregate and to measure the effects of
inflation because of changes in the types of merchandise sold year-to-year and
other pricing and competitive influences. By attempting to control costs and
efficiently utilize resources, the Company strives to minimize the effects of
inflation on its operations.
EFFECT OF SEASONALITY
The Company's operations are subject to significant seasonal fluctuations in
the shopping patterns of its customers. As with most retailers of nonfood goods,
the holiday shopping period (which occurs during the Company's fourth fiscal
quarter) is of critical importance to the results of operations for the full
year. Accordingly, results for interim periods are not indicative of results for
the entire fiscal year.
RECENT ACCOUNTING CHANGES
The Financial Accounting Standards Board has issued Statement of Financial
Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, and No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION. Adoption of these standards will not have a
significant effect on the Company's financial position or results of operations.
FORWARD-LOOKING STATEMENTS
Information set forth in this Prospectus regarding the Company's plans for
future operations, including store expansion and remodeling, capital spending
and expense reduction efforts, constitutes "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. The following factors are among the factors that could cause actual results
to differ materially from the forward-looking statements: business and economic
conditions generally in the regions in which the Company's stores are located,
including the rate of inflation; population and job growth in the Company's
markets; competitive factors, such as increased penetration in the Company's
markets of large national food and nonfood chains, large category-dominant and
large national and regional discount retailers and competitive pricing pressures
generally; results of the Company's programs to decrease costs as a percent of
sales; relations with the union bargaining units representing the Company's
employees; factors that might affect the Company's cost and availability of
capital; and unusual weather conditions. Any forward-looking statements should
be considered in light of these factors. For additional information regarding
competition see "Business -- Competition," and for additional information
regarding labor relations see "Business -- Employees."
18
<PAGE>
BUSINESS
The Company is a leading regional retailer of a wide range of food, apparel,
fine jewelry and products for the home. At August 17, 1996, the Company operated
108 multidepartment stores in Oregon, Washington, Utah, Alaska, Idaho and
Montana under the name "Fred Meyer" and 105 specialty stores in 16 states. The
Company's multidepartment stores are unique in the Pacific Northwest in
combining food with a wide range of nonfood merchandise under one roof. These
stores average approximately 144,000 square feet of retail space, contain up to
seven departments, which include food, home, apparel, home electronics, fine
jewelry, health and beauty aids and pharmacy, and emphasize one-stop-shopping
for necessities and items of everyday use. The multidepartment stores accounted
for approximately 98.7% and 97.2% of the Company's total sales and operating
income, respectively, for the Company's 1995 fiscal year ended February 3, 1996.
For the 1995 fiscal year, food and nonfood sales were 41.0% and 59.0% of total
sales, respectively. One hundred of the Company's specialty stores are mall
jewelry stores, operating under the names "Fred Meyer Jewelers" or "Merksamer
Jewelers," 71 of which were acquired during the first half of the Company's
current fiscal year.
The following table indicates the location of the Company's 108
multidepartment stores that were open and operating at August 17, 1996.
[Map of Washington (including Seattle = 14 stores), Oregon (including Portland
- -- 23 stores), Montana, Idaho (including Boise -- 5 stores), Utah (including
Salt Lake City -- 7 stores) and Alaska (including Anchorage -- 3 stores)
depicting by "bullet" and "star" multidepartment stores and distribution
centers, respectively)
[Table to right above map.]
Multidepartment
State Stores
Oregon 44
Washington 38
Utah 10
Idaho 8
Alaska 7
Montana 1
---
Total 108
Corporate Headquarters
Portland, Oregon
Bakery & Dairy Plants
Portland, Oregon
19
<PAGE>
OPERATING INITIATIVES
During the last three years the Company has made significant capital
investments to (1) expand its operations by opening new multidepartment stores
in its existing markets and remodeling existing stores; (2) improve its MIS; and
(3) expand and improve its distribution infrastructure. More recently, the
Company also initiated a remerchandising program to reposition some of its
departments to address increasing competition and changing customer preferences
and developed smaller store formats for use in certain locations.
STORE EXPANSION AND REMODELING. During the last three years the Company has
aggressively increased store development in its existing markets and the level
of remodeling of existing stores. The Company opened five new multidepartment
stores in 1994, six in each of 1995 and the first half of 1996, and currently
plans to open one additional store in 1996 and five in each of 1997 and 1998.
The Company remodeled seven multidepartment stores in 1994, eight in 1995, two
in the first half of 1996 and currently plans to remodel two in the second half
of 1996 and five in each of 1997 and 1998. The Company's major remodeling
programs during the last three years included (1) adding food departments to
stores that previously sold only nonfood merchandise; (2) removing walls between
departments to facilitate cross-shopping and common checkout for customers; and
(3) adding food service departments, such as deli and bakery, to its stores. As
a result of these efforts, total square footage for multidepartment stores
increased from 12,486,000 square feet at the end of fiscal 1992 to 15,545,000
square feet as of August 17, 1996. As of August 17, 1996, 54% of the Company's
multidepartment stores had been built or remodeled within the last five years.
The portion of the remodeling program involving the addition of food departments
to multidepartment stores has been substantially completed.
MANAGEMENT INFORMATION SYSTEMS. The Company has undertaken a major
modernization of its MIS to better support its business. Improvements affect
virtually all aspects of the Company's operations, including merchandising,
sales promotion and advertising, logistics, in-store systems, human resources
and finance. The Company has spent approximately $81,000,000 during the last
three years on these MIS improvements. Significant MIS improvements include (1)
installation of a computer network that allows every store to be linked with the
Company's main office and distribution centers; (2) initiation of Quick Response
Inventory Management through the introduction of automatic replenishment for
certain goods, electronic data interchange ("EDI") and a new distribution
system; (3) expansion of the Company's EDI system to support data exchange with
vendors, including the transmission of sales information to vendors and the
receipt of invoices electronically, in paper form or directly into an accounts
payable imaging system; (4) improvements to the Company's supply chain
capabilities with new systems to support its flow-through general merchandise
distribution system and other distribution capacities; and (5) upgrading of
in-store communications, check cashing, credit authorization and point-of-sales
system. All major aspects of the MIS improvement program have been completed
other than the new inventory and merchandise management system for food and
nonfood departments and integration of the systems into the financial reporting
system, which are presently scheduled to be completed in fiscal 1997. Beginning
in 1997 the Company expects that capital expenditures on MIS will decline as the
current upgrade of its MIS is completed. The Company believes that the
improvements made to its MIS system enable it to manage its business more
effectively by allowing it to track each inventory item, to know which items are
selling when and at which locations and to improve in-stock positions. These
capabilities are designed to improve inventory management, reduce overall
inventory levels, increase inventory turnover and improve profitability.
DISTRIBUTION CENTERS. The Company has made significant capital investments
in its distribution centers which, together with the MIS improvements, are
designed to improve operations, permit better inventory management and reduce
distribution costs. The Company has spent approximately $85,000,000 during the
last three years to build and upgrade its distribution centers. The Company
opened its flow-through distribution center in Chehalis, Washington in April
1994 to serve as the
20
<PAGE>
centralized processing facility for certain apparel, music, seasonal and other
nonfood items, opened a new food distribution facility in Puyallup, Washington
near Seattle in 1995 to better serve the stores in the Puget Sound region and
Alaska and made significant improvements to its existing distribution center in
Clackamas, Oregon near Portland. The Company believes that its existing
distribution centers enable it to meet its expected nonfood and food
distribution center needs until at least the year 2000. As the Company opens
additional stores, the Company expects to utilize the excess capacity currently
available at its existing distribution centers and achieve improved operating
efficiencies as distribution center costs are spread over more sales.
REMERCHANDISING. The Company continuously reviews its competitive position
on a location-by-location basis and analyzes the contributions that each
department makes to overall profitability. In 1995, in response to increasing
competition from discount retailers and, more recently, from category-dominant
competitors (particularly in the home improvement and home electronics
categories), the Company began a remerchandising program to reposition some of
its departments to improve the overall profitability of the Company's
operations. These repositioning efforts have included (1) reducing the space
allocated to building materials in those stores affected by category-dominant
home improvement centers and utilizing this space for other product categories
(such as expanded garden centers); (2) eliminating most computer hardware in a
majority of its stores and increasing the selection of certain products, such as
computer software, compact discs, video games and cellular telephones, in an
effort to focus on higher margin items in home electronics; (3) refining its
apparel selection to emphasize basics and casual sportswear; (4) adding
additional private label products to its apparel selection and personal care
products; (5) adding new product categories (such as pet centers) to certain of
its stores; and (6) increasing the amount of space leased to complementary
third-party tenants (such as banks, optical centers, gourmet coffee bars,
restaurants and video rental stores) that attract high customer traffic.
DEVELOPMENT OF SMALLER STORE FORMATS. The Company intends to seek
opportunities to open smaller stores with different store formats within its
market areas. One such store format consists of multidepartment stores on a
reduced scale designed for smaller communities and other appropriate areas. In
1996 the Company opened a 127,000-square-foot store in Tillamook, Oregon using
this store format. The Company has also developed the marketplace store format,
which primarily emphasizes the food portion of the Company's business and
includes some supporting nonfood departments. The Company recently acquired and
now operates two stores of approximately 70,000 square feet previously operated
by food retailers using the marketplace store format.
STORE OPERATIONS
The Company's principal business strategy is to operate one-stop-shopping
stores that provide convenient shopping for a broad selection of products in one
location. Stores are organized into distinct departments and sections within
departments that specialize in the sale of particular products. The Company
promotes cross-shopping through convenient access between departments, by making
each department and section a strong competitor in the market for the products
it sells and by facilitating easy customer checkout through its common checkout
system that allows customers to purchase merchandise from any department at any
checkout location.
MULTIDEPARTMENT STORES. The Company's large stores are organized into
departments and sections within departments that specialize in the sale of
particular products. The Company endeavors to create individual, recognizable
identities for each department and section through specialized design, fixtures
and decor. Most of the Company's departments and sections are self-service,
except in areas where special sales assistance is required, such as service
delicatessens, home electronics, fine jewelry and pharmacy. Stores consist of up
to seven departments and specialty sections that include full-service food,
pharmacy, nutrition, housewares, domestics, paint and home decor items, plumbing
and electrical items, hardware and tools, building materials, garden, floral,
sporting goods, automotive, home office
21
<PAGE>
supplies and stationery, cards and books, toys, basic and fashion apparel for
all ages, shoes, home electronics and fine jewelry.
Multidepartment stores that include food departments are the Company's
primary focus. The Company believes that its food departments increase the
shopping frequency of area residents, build customer loyalty and enable its
nonfood departments to generate higher levels of sales through increased
customer traffic. In more recent years the Company has been adding food to
previously nonfood multidepartment stores and replacing some of its older
nonfood stores with new full-service stores including food departments. At
August 17, 1996, 100 of the Company's 108 multidepartment stores included food
departments. The Company expects to add food departments to two additional
stores and replace two existing nonfood stores with new multidepartment stores
that include food.
BREADTH AND DEPTH OF SELECTION. In most of its stores, the Company sells
over 225,000 items, including a wide selection of food, apparel and products for
the home, with an emphasis on necessities and items of everyday use. The Company
takes advantage of the high and diverse customer traffic in its stores to sell
many categories of goods that are purchased on a discretionary basis, such as
fine jewelry, home electronics and fashion apparel. Within many categories of
apparel, products for the home, jewelry and home electronics, the Company offers
customers the breadth of selection normally afforded by department or specialty
stores. Its selection of food and groceries is comparable to that of large
supermarkets. The Company emphasizes the sale of popular national brands and its
own private label brands.
LOCATION AND STORE DESIGN. New store sites are determined based on a review
of information on demographics and the competitive environment for the market
area in which a proposed site is located. The Company's expansion focus is in
existing areas of operation, primarily in or near well-populated residential
areas. The Company determines store size and designs stores with a view toward
making each store a very convenient, one-stop-shopping store in the area it
serves. The Company is flexible in its store design where land sites require
specialized store designs.
PROMOTION AND ADVERTISING. The Company aggressively promotes sales for all
departments through weekly advertising, primarily in local and area newspapers,
radio and television. Advertising often features many high-demand products at
competitive prices. The Company emphasizes everyday low prices in its food
departments and generally offers promotional sale pricing in its nonfood
departments. By opening new stores in its existing market areas and by
remodeling and expanding existing stores, the Company leverages its advertising
budget. The Company believes that it is known for competitive pricing and its
customer-friendly return policy. In 1995, the Company added a monthly coupon
book with both food and nonfood offerings. The introduction of the Company's
home page on the Internet enables exploration of new marketing opportunities.
STORE AND REGIONAL MANAGEMENT. Each of the Company's stores is managed by a
sales director who is responsible for store sales, operations and profitability
and departmental cross-merchandising. Departments within multidepartment stores
are managed by merchandising managers, who report to sales directors. Each sales
director and department manager is supported by a regional supervisor and other
senior managers who specialize in the market for products sold in the stores.
The Company has regional management teams that work closely with the stores in
their region to enhance sales and profit opportunities. As a result of this
management structure, the Company believes that each of its stores and
departments within each store better serves its customers and is able to respond
quickly to market changes.
22
<PAGE>
RETAIL OPERATIONS
The Company's multidepartment stores contain up to seven main departments.
Within certain departments are a variety of merchandise sections operated like
specialty businesses. The following table sets forth the number of departments
(and lists certain of the sections within the Home and Apparel departments) in
the Company's 108 multidepartment stores at August 17, 1996:
<TABLE>
<S> <C>
Food.......................................................... 100
Nonfood
The Home.................................................... 108
Automotive
Cards and Books
Domestics
Garden
Home Decor
Home Improvement
Housewares
Sporting Goods
Toys
Variety and Seasonal
Home Electronics............................................ 108
Apparel..................................................... 108
Apparel
Cosmetics
Shoes
Health and Beauty Aids...................................... 108
Pharmacy.................................................... 107
Fine Jewelry................................................ 98
</TABLE>
The Food Department is typically the same size as free-standing super food
stores of competitors and carries a wide variety of national brands, together
with the Company's private label brands of grocery items which are Fred Meyer,
President's Choice and FMV (Fred Meyer Value). The average size of the Company's
food departments is approximately 37,000 square feet. This square footage does
not include space devoted to pharmacies, health and beauty aids, nutrition and
all other general merchandise. Beginning in 1992, the Company implemented a
program to increase sales of its private label grocery items. As a result, sales
of private label grocery items as a percentage of total grocery sales have
increased to a current level of over 20% for the first half of fiscal 1996 from
12% in fiscal 1991. Private label items generally are sold at lower prices to
the customer and generate higher margins for the Company than national brand
products. The Company also carries fresh produce, meat, dairy products,
nutritional products, bakery products, candy and tobacco all sold on a
self-selection basis. Most food departments contain a nutrition section that
includes name brand and generic natural foods, dairy products, juices, vitamins,
supplements, sugar-free and fat-free products and meat substitutes. Certain
items, such as grains, nuts, fruits and natural snacks, are also displayed in
bulk to enable customers to buy any amount and package their own purchases. In
many multidepartment stores, the Company operates in-store bakeries and service
departments that offer fresh seafood, delicatessen items and
23
<PAGE>
meat products. The Company's newer stores include sit-down eating areas near the
service delicatessens and take-out departments. The following table sets forth
the number of nutrition, in-store bakery and service departments at August 17,
1996:
<TABLE>
<S> <C>
Nutrition..................................... 103
Service Delicatessen.......................... 100
Bakery........................................ 99
Service Fish Market........................... 79
Service Meat Market........................... 52
</TABLE>
The Home Department offers a wide selection of home decor, housewares, small
appliances, domestics, furniture, sporting goods, greeting cards, books, floral
products, power lawn mowers, garden tools, fertilizers and chemicals, toys,
seasonal and holiday merchandise, hardware, tools, paint, building materials,
plumbing and electrical fixtures, automotive supplies and related accessories.
Some of the national brands featured are Braun, Kitchen-Aid, Coleman, Glidden
and Weber. Home improvement, garden and automotive sections feature many items
for the do-it-yourself customer. High-quality private label products under the
Fred Meyer, Northwest Home, Everyday Living and Kraft King labels complement the
Company's national brand offerings.
The Apparel Department offers moderately priced national brand and private
label apparel, sportswear, cosmetics, accessories and family and active shoes.
Major national brands carried by the apparel departments include Levi's, Jockey,
Maidenform, Vanity Fair, Carter's, Danskin, Nike, Reebok, Adidas, Gotcha,
Eastland, Union Bay, Columbia Sportswear, Capezio, Lee, Bali and Keds.
High-quality private label products such as Fred Bear, CurFew, Katherine Bishop
and KB & Co. complement the Company's national brand offerings.
The Company's private label sales in the Home and Apparel departments
represented 12% to 13% of these departments' sales in fiscal 1995, with a
long-term goal of approximately 15% to 20%. 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, the Company 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.
The Home Electronics Department offers a large selection of compact discs,
for-sale videos and video games and also offers the latest name-brand
merchandise, such as televisions, audio components, cellular phones, computer
software and telephones. Some of the national brands featured are SONY, JVC,
Pioneer and Magnavox. One-hour photo-finishing has also been added to numerous
locations.
The Pharmacy Department sells a full line of name-brand and generic
prescription drugs dispensed by full-time licensed pharmacists and participates
with all major third-party HMO and PPO plans.
The Health and Beauty Aids Department offers a wide selection of national
and private label brands of health and beauty aid products. It also offers candy
and confections and dietary food products. A new line of private label toiletry
and personal-care products called Personal Choice was introduced in 1995.
The Company entered the fine jewelry business in 1973 with its acquisition
of a discount retailer which had existing jewelry operations. Since that time,
the Company has expanded its jewelry operations through the establishment of
Fine Jewelry Departments within its multidepartment stores and the lease of
individual locations, averaging approximately 1,200 square feet, in major
regional shopping malls. The Company's Fine Jewelry Departments and mall jewelry
stores offer an extensive selection of bridal jewelry and fashion jewelry,
including precious and semi-precious stones. In addition, these departments and
mall stores offer name-brand watches and an assortment of 14-carat gold chains
and earrings. During the first half of the current fiscal year the Company
acquired 71 leased jewelry locations in major shopping malls in 11 states. With
these acquisitions, as of August 17, 1996, the Company
24
<PAGE>
operated 100 mall jewelry stores under the names "Fred Meyer Jewelers" or
"Merksamer Jewelers" and had 98 Fine Jewelry Departments in its multidepartment
stores. The recent expansion of the Company's jewelry business is expected to
improve the Company's ability to purchase inventory on favorable terms and
reduce overhead costs on a per unit basis.
Most of the Company's multidepartment stores open from 7:00 a.m. to 9:00
a.m. and close between 10:00 p.m. and 11:00 p.m., seven days a week, including
all holidays except Christmas. Most of the Company's multidepartment store
locations have complementary third-party tenants (such as banks, optical
centers, gourmet coffee bars, restaurants and video rental stores) that attract
high customer traffic. The Company's specialty store hours vary depending on
location.
The Company honors most nationally recognized credit cards for sales in all
its departments. In addition, the Company has its own credit card program, which
is serviced by a national credit card processor. The Company also accepts debit
cards that are associated with nationally recognized credit card processors. In
1996, the Company's stores in Utah began accepting debit cards that use personal
identification number ("PIN") pads and can process electronic benefits online.
It is anticipated that stores in other states will begin to offer this service
later in 1996 and in 1997.
STORE EXPANSION AND DEVELOPMENT
The Company enlarges, remodels, closes or sells stores in light of their
past performance or the Company's assessment of their potential. The Company
continually evaluates its position in its various market areas to determine
whether it should expand or consolidate its operations in those areas.
During the last three years, the Company increased new store development in
its existing markets and the level of remodeling of existing stores. The numbers
of multidepartment stores opened, closed and remodeled during fiscal 1993, 1994
and 1995 and the first half of fiscal 1996 are as follows:
<TABLE>
<CAPTION>
YEAR OPENED CLOSED REMODELED
- ------------------------------------------------------------ --------------- ------------- -----------------
(INCLUDING REPLACEMENTS)
<S> <C> <C> <C>
1993........................................................ 5 2 7
1994........................................................ 5 2 7
1995........................................................ 6 4 8
1996 (through August 17, 1996).............................. 6 0 2
</TABLE>
Total retail space, net of closures, increased 663,000 square feet during
1995, representing an increase of approximately 4.7%, and increased 893,000
square feet during the first half of fiscal 1996, representing an increase of
approximately 6.0%. New multidepartment store openings during fiscal 1995 and
the first half of fiscal 1996 were as follows:
<TABLE>
<CAPTION>
TOTAL RETAIL
LOCATION SQUARE FOOTAGE OPENED
- ------------------------------------------------------- ---------------- ------------------
<S> <C> <C>
1995
Monroe, Washington..................................... 149,000 First Quarter
Lake City (Seattle), Washington........................ 124,000 Third Quarter
Renton (Seattle), Washington........................... 167,000 Third Quarter
West Jordon (Salt Lake City), Utah..................... 167,000 Third Quarter
Salt Lake City, Utah................................... 169,000 Third Quarter
Kennewick, Washington.................................. 167,000 Third Quarter
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETAIL
LOCATION SQUARE FOOTAGE OPENED
- ------------------------------------------------------- ---------------- ------------------
<S> <C> <C>
1996
Tillamook, Oregon...................................... 127,000 First Quarter
Hillsboro, Oregon...................................... 163,000 Second Quarter
Meridian, Idaho........................................ 168,000 Second Quarter
Twin Falls, Idaho...................................... 168,000 Second Quarter
Silverdale, Washington (1)............................. 70,000 Second Quarter
Seattle, Washington (1)................................ 62,000 Second Quarter
</TABLE>
- --------------
(1) Marketplace stores emphasizing food.
New multidepartment stores planned or scheduled to be opened during the
second half of fiscal 1996 and during fiscal 1997 are as follows:
<TABLE>
<CAPTION>
TOTAL RETAIL
LOCATION SQUARE FOOTAGE SCHEDULED TO OPEN
- ------------------------------------------------------- ---------------- ------------------
<S> <C> <C>
1996
Scappoose, Oregon...................................... 150,000 Third Quarter
1997
Idaho Falls, Idaho..................................... 150,000 First Quarter
Covington, Washington.................................. 157,000 First Quarter
South Hill (Puyallup), Washington...................... 163,000 First Quarter
Orem, Utah............................................. 150,000 First Quarter
Coeur d'Alene, Idaho................................... 149,000 First Quarter
</TABLE>
The Company has remodeled two multidepartment stores in the first half of
fiscal 1996 and plans to remodel two multidepartment stores in the second half
of fiscal 1996 and five in fiscal 1997. The Company's present plan is to open
five new multidepartment stores and remodel five existing stores in fiscal 1998.
As a result of the Company's new store openings and remodeling efforts,
total square footage for multidepartment stores increased from 12,486,000 square
feet at the end of fiscal 1992 to 14,741,000 square feet at the end of fiscal
1995 and to 15,545,000 square feet as of August 17, 1996. As of August 17, 1996,
54% of the Company's multidepartment stores had been built or remodeled within
the last five years. Among the objectives of the remodeling program was to add
food departments to multidepartment stores that previously sold only nonfood
merchandise where feasible based on store size, location and other factors. This
part of the remodeling program has been substantially completed.
MANAGEMENT INFORMATION SYSTEMS
In 1991, the Company began a major modernization of its MIS to better
support its business. A new computer network was installed, allowing every store
to be linked with the Company's main office and distribution centers. In 1992,
Quick Response Inventory Management was initiated through the introduction of
automatic replenishment for certain goods, EDI and a new distribution system.
The Company expanded its EDI system to support data exchange with freight
carriers, transmission of sales forecasts to vendors and receipt of invoices
directly into an accounts payable imaging system. A new pharmacy system was
added in the Company's multidepartment stores. In 1994, the Company's Continuous
Replenishment Program was strengthened by the implementation of new jewelry,
music and video and item performance systems. In 1995, the Company improved its
supply chain capabilities with a flow-through general merchandise distribution
system and purchasing and distribution systems for meat, produce and seafood. In
addition, in-store communications, check cashing, credit authorization and
point-of-sale systems were upgraded. All major aspects of the MIS improvement
program have been completed other than the new inventory and merchandise
management system for food and nonfood
26
<PAGE>
departments and integration of the systems into the financial reporting system,
which are presently scheduled to be completed in fiscal 1997.
DISTRIBUTION AND PROCESSING
The Company operates a 1,528,000-square-foot centralized distribution
facility in a complex at Clackamas, Oregon near Portland, a 310,000-square-foot
flow-through distribution center in Chehalis, Washington and a
600,000-square-foot food distribution center in Puyallup, Washington near
Seattle. Approximately two-thirds of the merchandise the Company sells is
currently shipped from these facilities, with the balance shipped directly by
vendors to the Company's stores or, in the case of food products for its Utah
stores, purchased from a major wholesale supplier.
As a result of its recent investment in information systems and distribution
facility improvements, the Company has been able to establish EDI and automated
replenishment programs with many vendors. These quick response capabilities are
designed to improve inventory management and reduce handling of inventory in the
distribution process, which the Company believes will result in lower markdowns
and lower distribution costs as a percentage of sales.
The Company believes that its distribution and related information systems
provide several advantages. First, they permit stores to maintain proper
inventory levels for more than 190,000 items supplied through its central
distribution centers. Second, centralized purchasing and distribution reduces
the Company's cost of merchandise and related transportation costs. Third,
because distribution can be made to stores frequently, the Company is able to
reduce the in-store stockroom space and maximize the square footage available
for retail selling.
The Company opened its flow-through distribution center in April 1994 in
Chehalis, Washington to serve as the centralized processing facility for certain
apparel, music, seasonal and other nonfood items. This facility eliminated
approximately 370,000 square feet of leased warehouse space, including the
Company's 122,000-square-foot Salt Lake City, Utah facility. The Company's
Chehalis facility minimizes the required handling and processing of goods
received from vendors and distributed to the Company's stores. The Company
believes that this flow-through system will enable it to improve inventory
management and to further reduce the distribution costs for the goods shipped
through this facility. In 1995 the Company opened the 600,000-square-foot
centralized food distribution facility in Puyallup, Washington near Seattle to
serve stores in the Puget Sound region and Alaska. This facility reduces the
cost of transporting goods into the Puget Sound and Alaska markets and affords
the Company increased forward-buying opportunities for its food operations. The
Company believes that its existing distribution centers enable it to meet its
expected nonfood and food distribution center needs until at least the year
2000. As the Company opens additional stores, the Company expects to utilize the
excess capacity currently available at its existing distribution centers.
The Company operates a large fleet of trucks for distribution of goods to
its retail stores and operates a central bakery and dairy.
COMPETITION
The retail merchandising business is highly competitive. Because of the
broad range of merchandise sold by the Company, it competes with many types of
retail companies, including national, regional and local supermarkets, discount
stores, drug stores, conventional department stores and specialty stores,
including category-dominant stores. The Company's competitive position in the
retail business varies by type of goods and the communities in which its stores
are located. From 1990 to 1995, approximately 475 new competitor stores opened
in the Company's markets according to a survey conducted by the Company. These
competitors include Wal-Mart, Walgreens, Home Depot, HomeBase, Eagle, Sam's
Club, Incredible Universe, Circuit City, Good Guys, Future Shops, Price/Costco,
Mervyn's, PayLess, J.C. Penney, Kmart, Target, ShopKo, Toys-R-Us, Food 4 Less,
Cub Foods, Safeway, Albertson's, Smith's Foods, Carr's and Quality Food Centers.
Many of these companies have substantially
27
<PAGE>
greater financial and other resources than the Company. The Company's recent
competitors include category-dominant stores, particularly in the home
improvement and home electronics categories. The Company has responded to the
influx of category-dominant stores and other competitors by reducing some
product offerings, including computers and building materials, and expanding
other product offerings to improve overall profitability. No assurance can be
given that the Company's strategy will be effective and that the Company will be
able to effectively compete against the category-dominant stores or other
competitors. In addition, while the Company is the only multidepartment store
with significant food departments in most of its markets, some retail companies
operate stores under this general format in other regions and could enter the
Company's existing markets.
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 efforts and competitive position.
EMPLOYEES
The Company employs approximately 28,000 full- and part-time employees.
Approximately 50% of the Company's employees are represented by 24 different
labor unions or locals. These employees are covered by 111 different collective
bargaining agreements, none of which covers more than 2,500 employees. The last
work stoppages the Company experienced involved the multiemployer bargaining
unit for food clerks, checkers, and meatcutters in Portland, Oregon and
Vancouver, Washington in 1994 and lasted 88 days. At the same time, Company
union employees at its Clackamas distribution facility, trucking operation,
dairy and a small portion of its office employees went on strike. These work
stoppages had a material adverse effect on the Company's results of operations
during the third and fourth quarters of 1994, and the Company believes that the
strikes had a continuing adverse effect during most of 1995. Coos Bay, Oregon
nonfood employees went on strike in late 1994 and returned to work on January
14, 1995. There were no work stoppages in fiscal years 1991, 1992, 1993 or 1995
or during the first half of 1996. The Company believes that it has satisfactory
relations with the many unions representing its employees.
In 1995, the Company reached agreement on its contracts covering nonfood and
food workers in the Seattle/Tacoma area, among other agreements reached. In 1996
the Company reached agreement on its contracts covering nonfood workers in
Portland, Oregon, among other agreements reached. Approximately 10% of the
agreements, covering approximately 2% of the labor force, have expired or will
expire during the balance of fiscal 1996. Approximately 23% of the agreements,
covering approximately 11% of the labor force, will expire during fiscal 1997,
including agreements with the food workers in the Portland, Oregon metropolitan
area and employees in other large metropolitan and smaller nonmetropolitan areas
where the Company operates. While the Company is optimistic about reaching
agreements with the employees covered by contracts that have expired or will
expire in the immediate future, no assurance can be given that the parties will
be able to reach a final conclusion without the occurrence of a work stoppage
and the related disruption of the Company's business or that any agreements
reached will be on terms that are favorable to the Company.
28
<PAGE>
THE SELLING STOCKHOLDER
The table below sets forth certain information regarding the beneficial
ownership of the Company's Common Stock by the Selling Stockholder, both before
and after giving effect to the Offering and the Repurchase.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED AFTER OFFERING
BEFORE OFFERING AND REPURCHASE
-------------------------- ------------------------
NUMBER OF SHARES TO BE NUMBER OF
NAME SHARES PERCENT SOLD IN OFFERING SHARES (2) PERCENT (2)
- ------------------------------------------- ------------- ----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
KKR Associates (1) ........................ 10,700,038 37.8% 3,780,000 4,720,038 18.1%
9 West 57th Street
42nd Floor
New York, NY 10019
</TABLE>
- --------------
(1) Shares shown as beneficially owned by KKR Associates, an affiliate of KKR,
are owned of record by FMI Associates, of which KKR Associates is the sole
general partner and as to which it possesses shared voting and investment
power. Shares shown as beneficially owned before and after the Offering and
the Repurchase by KKR Associates include 1,566,441 shares subject to the
Selling Stockholder's Option. The FMI Associates limited partnership
agreement is, by its terms, to dissolve on December 31, 1996 unless amended
by all of the limited partners to extend the term beyond such date. There
can be no assurance that KKR Associates will seek such amendment, or, if
sought, that it will be approved by the limited partners. In the event of
the winding up and dissolution of FMI Associates, KKR Associates will have
sole discretion regarding the disposition of such Common Stock, including
public or private sales of such Common Stock, the distribution of such
Common Stock to the limited partners of FMI Associates or a combination of
the foregoing. If shares of Common Stock are distributed to the limited
partners of FMI Associates, each limited partner will thereafter have sole
discretion with respect to its Common Stock. KKR Associates is a limited
partnership of which Michael W. Michelson, Saul A. Fox and Paul E. Raether
(directors of the Company) are three of the 12 general partners. The other
general partners of KKR Associates are Henry R. Kravis, George R. Roberts,
Robert I. MacDonnell, James H. Greene, Jr., Michael T. Tokarz, Edward A.
Gilhuly, Perry Golkin, Clifton S. Robbins and Scott M. Stuart. Jerome
Kohlberg, Jr., a director of the Company, is a limited partner of KKR
Associates. Mr. Kohlberg has advised the Company that he intends to resign
as a director of the Company upon completion of the Offering and the
Repurchase. The foregoing persons disclaim beneficial ownership of the
shares owned by FMI Associates. Not included in the number of shares listed
are an additional 11,000, 4,000 and 6,000 shares beneficially owned by
Messrs. Raether, Michelson and Fox, respectively.
(2) Assumes the Repurchase from the Selling Stockholder of an estimated
2,200,000 outstanding shares of Common Stock and assumes that the
Underwriters' over-allotment option is not exercised. Upon completion of the
Offering and the Repurchase, and based on the same assumptions regarding the
number of shares repurchased, if the Underwriters' over-allotment option is
exercised in full the Selling Stockholder will beneficially own 4,300,038
shares, or approximately 16.5%, of the Company's Common Stock.
THE REPURCHASE
The Company and the Selling Stockholder have entered into an agreement
pursuant to which the Company has agreed, concurrently with consummation of the
Offering, to repurchase a number of outstanding shares of Common Stock
determined by dividing the Repurchase Price of $70,000,000 by an amount equal to
the Net Offering Price. The Company plans to finance the Repurchase Price with
29
<PAGE>
borrowings under its credit agreement and the issuance of commercial paper. The
recently consummated September 1996 Sale and Leaseback transaction, the proceeds
of which were used to repay debt, increased the Company's available borrowing
capacity under its credit agreement.
On June 27, 1996, the Company's Board of Directors ratified the formation of
an independent committee (the "Independent Committee") consisting of three
independent directors, A.M. Gleason, Roger S. Meier and James J. Curran. The
Independent Committee was formed to consider the desirability of the Company's
acquiring all or a portion of the shares held by the Selling Stockholder and to
negotiate with the Selling Stockholder regarding the terms of the Repurchase.
The Independent Committee approved the Repurchase at a meeting held on August
22, 1996. The members of the Independent Committee received no compensation in
addition to their normal directors' fees, which include $500 per board or
committee meeting attended.
CERTAIN TRANSACTIONS
During 1996 the Company and an unaffiliated financial institution agreed
with companies affiliated with the Selling Stockholder to terminate leases on
seven retail store locations and one closed location in the Portland
metropolitan area and to purchase the fee interests in such locations. The
purchase price to terminate the leases and purchase the fee interests for the
properties aggregates $48.8 million and was determined to be the fair market
value of the properties on the basis of discounted rental obligations for the
remaining terms of the leases. Three properties were acquired by the Company
during the first half of fiscal 1996 for a purchase price of approximately $17.8
million. Prior to December 31, 1996, four properties will be acquired by the
unaffiliated financial institution for a purchase price of approximately $30.3
million and leased to the Company. The lease on the closed location will be
terminated upon payment by the Company of approximately $700,000, for which the
lease obligation was reserved for in a prior year.
30
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement"), the Selling Stockholder has agreed to sell to each of
the underwriters named below (the "Underwriters"), and each of such Underwriters
has severally agreed to purchase from the Selling Stockholder, the respective
number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- --------------------------------------------------------------------------------------- ---------------
<S> <C>
Goldman, Sachs & Co....................................................................
Lehman Brothers Inc....................................................................
Salomon Brothers Inc...................................................................
William Blair & Company, L.L.C.........................................................
---------------
Total.......................................................................... 3,780,000
---------------
---------------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all the shares offered hereby, if
any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the Underwriters.
The Selling Stockholder has granted the Underwriters an option exercisable
for 30 days after the date of this Prospectus to purchase up to an aggregate of
420,000 additional shares of Common Stock to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 3,780,000 shares of Common
Stock offered.
The Company, the Selling Stockholder and certain of the Company's executive
officers have agreed not to offer, sell, contract to sell or otherwise dispose
of any shares of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock for a period of 90 days after the date of this
Prospectus without the prior written consent of Goldman, Sachs & Co., except for
the sales of Common Stock offered in connection with the Offering and certain
issuances of Common Stock by the Company pursuant to the exercise of outstanding
options.
The Company and the Selling Stockholder have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act.
Certain of the Underwriters have provided from time to time, and expect to
provide in the future, investment banking services to the Company and its
affiliates (including the Selling Stockholder) for which such Underwriters have
received and will receive customary fees and commissions.
31
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of Common
Stock offered hereby will be passed upon for the Company and the Selling
Stockholder by Stoel Rives LLP, 900 SW Fifth Avenue, Portland, Oregon 97204 and
for the Underwriters by Latham & Watkins, 633 West Fifth Street, Los Angeles,
California 90071. A partner of Latham & Watkins has an indirect interest through
FMI Associates, in less than 1% of the Common Stock of the Company; however,
such partner does not have the power to vote or dispose of such shares. Latham &
Watkins renders legal services to KKR and to the Company and related entities on
a regular basis, including certain services related to the sale of shares to the
Company by the Selling Stockholder in the Repurchase.
EXPERTS
The financial statements incorporated in this Prospectus by reference from
the Company's Annual Report on Form 10-K for the year ended February 3, 1996
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is incorporated herein by reference, and have been so
incorporated in reliance upon such report given upon the authority of that firm
as experts in accounting and auditing.
32
<PAGE>
[ART WORK]
[BACK INSIDE COVER]
[Photograph of Produce Section and Check Out Area]
[Photograph of entry to the Home [Photograph of garden section of the
Electronics Department] Home Department]
[Photograph of the Fine Jewelry [Photograph of Home Decor section of
Department] the Home Department]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
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 DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 3
Incorporation of Certain Documents by Reference........................... 3
The Company............................................................... 5
Price Range of Common Stock............................................... 7
Dividend Policy........................................................... 7
Capitalization............................................................ 8
Selected Financial Data................................................... 9
Selected Pro Forma Financial Data......................................... 11
Other Financial and Statistical Data...................................... 12
Management's Discussion and Analysis of Results of Operations and
Financial Condition...................................................... 14
Business.................................................................. 19
The Selling Stockholder................................................... 29
Underwriting.............................................................. 31
Legal Matters............................................................. 32
Experts................................................................... 32
</TABLE>
3,780,000 SHARES
[LOGO]
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-------------
PROSPECTUS
-----------
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
SALOMON BROTHERS INC
WILLIAM BLAIR & COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
All expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and commissions,
will be paid by the Company. Such expenses are estimated as follows:
Registration fee $ 47,250
NASD fees $ 14,203
Blue Sky fees and expenses $ 7,500
Legal fees and expenses $ 85,000
Accounting fees and expenses $ 35,000
Printing and engraving $ 55,000
Miscellaneous $ 26,047
--------
Total $270,000
________
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
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 V of the Company's Amended and
Restated Bylaws (the "Bylaws") provides for indemnification to the fullest
extent permitted by Section 145. Reference is made to the Bylaws of the
Company, which are incorporated by reference as Exhibit 4B hereto.
As authorized by Section 102 of the Delaware GCL, the Company has included
in its Certificate of Incorporation a provision eliminating the liability of a
director to the Company or its stockholders for monetary damages for breaches of
a director's fiduciary duty to the Company. 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 Restated Certificate of Incorporation of the Company
incorporated by reference as Exhibit 4A hereto.
The Company has a directors and officers liability insurance policy, under
certain circumstances, insures its directors and officers against the costs of
defense, settlement or payment of a judgment.
<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
*1A. Form of Underwriting Agreement.
4A. Restated Certificate of Incorporation of the Company.
Incorporated by reference to Exhibit 3A to the Company's Registration
Statement on Form S-1, Reg. No. 33-08574.
4B. Amended and Restated Bylaws of the Company. Incorporated by
reference to Exhibit 4B to the Company's Registration Statement on
Form S-8, Reg. No. 33-49638.
4C. Specimen Stock Certificate. Incorporated by reference to
Exhibit 4C to the Company's Registration Statement on Form S-3, Reg.
No. 33-67670.
4D. Credit Agreement dated as of June 30, 1994 among the
Company, various banks named therein and Bank of America as Agent.
Incorporated by reference to Exhibit 4B to the Company's Annual
Report on Form 10-K for the year ended January 28, 1995.
4E. Term Promissory Notes in an original aggregate principal
amount of $70,000,000, including the Intercreditor Agreement dated
June 29, 1993 among the Company and various banks and financial
institutions named therein. Incorporated by reference to Exhibit 4E
to the Company's Registration Statement on Form S-3, Reg. No. 33-
67670.
4F. Note agreement dated as of June 1, 1994 in an original
aggregate principal amount of $57,500,000, among the Company and
various life insurance companies. Incorporated by reference to
Exhibit 4D to the Company's Annual Report on Form 10-K for the year
ended January 28, 1995.
4G. Credit Agreement dated as of March 6, 1995 among the
Company, various financial institutions named therein, and The Bank
of Nova Scotia as Agent. Incorporated by reference to Exhibit 4E to
the Company's Annual Report on Form 10-K for the year ended
January 28, 1995.
4H. Amended and Restated Credit Agreement dated as of
October 30, 1995 among the Company, various financial institutions,
Bank of America National Trust & Savings Association as Agent and the
Bank of Nova Scotia as co-Agent; arranged by BA Securities, Inc.
Incorporated by reference to Exhibit 4F to the Company's Quarterly
Report on Form 10-Q for the quarter ended November 4, 1995 (File No.
0-15023).
4I. Note Agreement dated April 25, 1995 in an original aggregate
principal amount of $50,000,000 among the Company, The Prudential
Insurance Company of America and Pruco Life Insurance Company.
Incorporated by reference to Exhibit 4G to the Company's Quarterly
Report on Form 10-Q for the quarter ended August 12, 1995
(File No. 0-15023).
**5. Opinion of Counsel.
<PAGE>
*23A. Consent of Deloitte & Touche LLP.
*23B. Consent of Counsel (included in Exhibit 5).
*24. Powers of Attorney.
*99. Stock Repurchase Agreement dated as of September 4, 1996,
between the Company and FMI Associates Limited Partnership.
_____________
* Filed on September 5, 1996
** Submitted herewith
ITEM 17. UNDERTAKINGS
(a) 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, as amended (the "Exchange Act") 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.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act") 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 Securities 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 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.
(c) The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus 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 the registration statement as of the time it was declared
effective.
(2) For the purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus 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.
<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 Amendment to
Registration Statement No. 333-11403 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Portland, State of
Oregon, on September 17, 1996.
FRED MEYER, INC.
By KENNETH THRASHER
-----------------------------------------------
Kenneth Thrasher
Senior Vice President--Finance
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below by the following persons on
September 17, 1996 in the capacities indicated.
Signature Title
--------- -----
*ROBERT G. MILLER Chief Executive Officer and
- -------------------------------------------- Chairman of the Board
Robert G. Miller (Principal Executive Officer)
KENNETH THRASHER Senior Vice President--Finance
- -------------------------------------------- and Chief Financial Officer
Kenneth Thrasher (Principal Financial Officer)
*THOMAS R. HUGHES Vice President and Corporate
- -------------------------------------------- Controller (Principal
Thomas R. Hughes Accounting Officer)
*JAMES J. CURRAN Director
- --------------------------------------------
James J. Curran
*SAUL A. FOX Director
- --------------------------------------------
Saul A. Fox
*A.M. GLEASON Director
- --------------------------------------------
A.M. Gleason
*ROGER S. MEIER Director
- --------------------------------------------
Roger S. Meier
*MICHAEL W. MICHELSON Director
- --------------------------------------------
Michael W. Michelson
<PAGE>
*PAUL E. RAETHER Director
- --------------------------------------------
Paul E. Raether
*By KENNETH THRASHER
- --------------------------------------------
Kenneth Thrasher
As Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. Description No.
- ------- ----------- ----
*1A. Form of Underwriting Agreement.
4A. Restated Certificate of Incorporation of the Company.
Incorporated by reference to Exhibit 3A to the Company's
Registration Statement on Form S-1, Reg. No. 33-08574.
4B. Amended and Restated Bylaws of the Company. Incorporated by
reference to Exhibit 4B to the Company's Registration
Statement on Form S-8, Reg. No. 33-49638.
4C. Specimen Stock Certificate. Incorporated by reference to
Exhibit 4C to the Company's Registration Statement on
Form S-3, Reg. No. 33-67670.
4D. Credit Agreement dated as of June 30, 1994 among the
Company, various banks named therein and Bank of America as
Agent. Incorporated by reference to Exhibit 4B to the
Company's Annual Report on Form 10-K for the year ended
January 28, 1995.
4E. Term Promissory Notes in an original aggregate principal
amount of $70,000,000, including the Intercreditor Agreement
dated June 29, 1993 among the Company and various banks and
financial institutions named therein. Incorporated by
reference to Exhibit 4E to the Company's Registration
Statement on Form S-3, Reg. No. 33-67670.
4F. Note agreement dated as of June 1, 1994 in an original
aggregate principal amount of $57,500,000, among the Company
and various life insurance companies. Incorporated by
reference to Exhibit 4D to the Company's Annual Report on
Form 10-K for the year ended January 28, 1995.
4G. Credit Agreement dated as of March 6, 1995 among the
Company, various financial institutions named therein, and
The Bank of Nova Scotia as Agent. Incorporated by reference
to Exhibit 4E to the Company's Annual Report on Form 10-K for
the year ended January 28, 1995.
4H. Amended and Restated Credit Agreement dated as of
October 30, 1995 among the Company, various financial
institutions, Bank of
<PAGE>
America National Trust & Savings Association as Agent and the
Bank of Nova Scotia as co-Agent; arranged by BA Securities,
Inc. Incorporated by reference to Exhibit 4F to the Company's
Quarterly Report on Form 10-Q for the quarter ended
November 4, 1995 (File No.0-15023).
4I. Note Agreement dated April 25, 1995 in an original aggregate
principal amount of $50,000,000 among the Company, The Prudential
Insurance Company of America and Pruco Life Insurance Company.
Incorporated by reference to Exhibit 4G to the Company's Quarterly
Report on Form 10-Q for the quarter ended August 12, 1995
(File No. 0-15023).
**5. Opinion of Counsel.
*23A. Consent of Deloitte & Touche LLP.
*23B. Consent of Counsel (included in Exhibit 5).
*24. Powers of Attorney.
*99. Stock Repurchase Agreement dated as of September 4, 1996,
between the Company and FMI Associates Limited Partnership.
_____________
* Filed on September 5, 1996
** Submitted herewith
<PAGE>
EXHIBIT (5)(23B)
September 17, 1996
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
"Registration Statement"), under the Securities Act of 1933, as amended,
covering 4,200,000 shares of Common Stock, $.01 par value, of the Company
(the "Shares") to be offered for the account of a selling stockholder of the
Company (the "Selling Stockholder"). Of the 4,200,000 shares being offered,
420,000 shares will be subject to an option to be granted to the underwriters
named in the Registration Statement (the "Underwriters") to cover over-
allotments. We have reviewed the corporate action of the Company in
connection with this matter and have examined the documents, corporate
records and other instruments we deemed necessary for the purpose of this
opinion.
Based upon the foregoing, it is our opinion that:
(i) The Company is a corporation duly organized and validly existing
under the laws of the State of Delaware.
(ii) The Shares are duly authorized shares of Common Stock of
the Company.
(iii) The 3,780,000 shares to be offered for the account of the Selling
Stockholder and the 420,000 shares subject to the over-allotment option to be
granted to the Underwriters by the Selling Stockholder are legally issued,
fully paid and nonassessable.
We hereby consent to the use of our name in the Registration Statement and
in the Prospectus filed as part thereof and to the filing of this opinion as
an exhibit to the Registration Statement.
Very truly yours,
STOEL RIVES LLP
