-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ETgSsKkSo16H432Rlomr1bvOVOQHefok/AJUafoj4tfGCCDb0i9yV/rX0POeVX6z WXQImQ3k7o6fC5TKm9yPRw== 0000893877-98-000498.txt : 19980710 0000893877-98-000498.hdr.sgml : 19980710 ACCESSION NUMBER: 0000893877-98-000498 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19980709 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRED MEYER INC CENTRAL INDEX KEY: 0001043273 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 911826443 STATE OF INCORPORATION: DE FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 424B3 SEC ACT: SEC FILE NUMBER: 333-56637 FILM NUMBER: 98662555 BUSINESS ADDRESS: STREET 1: 3800 SE 22ND AVE CITY: PORTLAND STATE: OR ZIP: 97202 BUSINESS PHONE: 5032328844 MAIL ADDRESS: STREET 1: 3800 SE 22ND AVENUE CITY: PORTLAND STATE: OR ZIP: 97202 FORMER COMPANY: FORMER CONFORMED NAME: MEYER SMITH HOLDCO INC DATE OF NAME CHANGE: 19970730 424B3 1 PROSPECTUS SUPPLEMENT Rule: 424(b)(3) Reg No. 333-56637 PROSPECTUS SUPPLEMENT (To Prospectus dated June 30, 1998) FRED MEYER, INC. 4,215,584 Shares of Common Stock ($.01 par value) This Prospectus Supplement and the accompanying Prospectus relate to 4,215,584 shares of Common Stock (the "Shares"), par value $.01 per share, of Fred Meyer, Inc. (the "Company" or "Fred Meyer"), offered hereby (the "Offering") by Jeffrey P. Smith, Trust for the Children of Jeffrey P. Smith, The Sean Smith Trust, The Jaci Smith Trust, The Joshua Smith Trust, Fred Lorenzo Smith, Trust for the Children of Fred Lorenzo Smith, The Fred Lloyd Smith Trust, The Staci Elaine Smith Trust, The Zachary Dee Smith Trust, Elaine Smith and The Dee Glen Smith Marital Trust (collectively, the "Smith Selling Stockholders"). The Common Stock of the Company is listed on the New York Stock Exchange (the "NYSE") under the symbol "FMY." On July 7, 1998, the closing price for the Common Stock as reported on the NYSE was $45-1/2. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") has agreed to purchase the Shares from the Smith Selling Stockholders at a price of $44 per share (resulting in $185,485,696 aggregate net proceeds (before expenses) to the Smith Selling Stockholders). The Company will not receive any of the proceeds from the Offering. The Shares may be offered by DLJ from time to time in one or more transactions (which may involve block transactions) on the NYSE, or on other national securities exchanges on which the Common Stock is traded, in the over-the-counter market, in negotiated transactions, in a combination of such methods or otherwise at market prices prevailing at the time of the sale, at prices related to such prevailing market prices or at negotiated prices, subject to prior sale, when, as and if delivered to and accepted by DLJ. See "The Underwriter." The Company and the Smith Selling Stockholders have agreed to indemnify DLJ against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). The Shares are offered, subject to prior sale, when, as and if accepted by DLJ. It is expected that delivery of the Shares will be made on or about July 13, 1998 at the office of DLJ, New York, New York, against payment therefor in immediately available funds. -------------------------- Donaldson, Lufkin & Jenrette Securities Corporation The date of this Prospectus Supplement is July 8, 1998. Unless otherwise expressly stated or if the context otherwise requires: (i) the terms "Company" and "Fred Meyer" refer (a) before September 9, 1997, to Fred Meyer Stores (as defined below) and its consolidated subsidiaries, (b) on and after September 9, 1997, to Fred Meyer, Inc. and its consolidated subsidiaries (including Fred Meyer Stores and Smith's (as defined below) and their respective subsidiaries) and (c) on and after March 10, 1998, to Fred Meyer, Inc. and its consolidated subsidiaries (including Fred Meyer Stores, Smith's, QFC (as defined below) and Ralphs/Food 4 Less (as defined below) and their respective subsidiaries); (ii) the term "Fred Meyer Stores" refers to Fred Meyer Stores, Inc. and its consolidated subsidiaries; (iii) the term "QFC" refers to Quality Food Centers, Inc. and its consolidated subsidiaries; (iv) the term "Ralphs/Food 4 Less" refers to Food 4 Less Holdings, Inc. and its consolidated subsidiaries; and (v) the term "Smith's" refers to Smith's Food & Drug Centers, Inc. and its consolidated subsidiaries. RISK FACTORS Purchasers of the Shares should carefully consider the following risk factors in addition to the information set forth under "Forward-Looking Statements" in the accompanying Prospectus and the other information contained or incorporated by reference herein or in the accompanying Prospectus. Competition The retail merchandising business in general, and the supermarket industry in particular, is highly competitive and generally characterized by narrow profit margins. The Company's competitors include national and regional supermarket chains, discount stores, independent and specialty grocers, drug and convenience stores, large category-dominant stores and the newer "alternative format" food stores, including warehouse club stores, deep discount drug stores, "supercenters" and conventional department stores. Competitors of the Company include, among others, Safeway, Albertson's, Lucky, Costco, Wal-Mart and Target. Retail businesses generally compete on the basis of location, quality of products and service, price, product variety and store condition. The Company's ability to compete depends in part on its ability to successfully maintain and remodel existing stores and develop new stores in advantageous locations. Leverage; Ability to Service Debt The Company is highly leveraged. As of May 23, 1998, the Company had total indebtedness (including current maturities and capital lease obligations) of $5.1 billion. Total indebtedness consists of long-term debt, including borrowings under its bank credit facilities (the "1998 Senior Credit Facilities"), which includes a $1.875 billion five-year revolving credit agreement and a $1.625 billion five-year term loan, its 7.150% Notes due March 1, 2003, its 7.375% Notes due March 1, 2005 and its 7.450% Notes due March 1, 2008 (collectively, the "Notes") and capitalized leases. Total indebtedness does not reflect certain commitments and contingencies of the Company, including operating leases under its new lease facility and other operating lease obligations. The Company has significant interest and principal repayment obligations and significant rental payment obligations, and the ability of the Company to satisfy such obligations is subject to prevailing economic, financial and business conditions and to other factors, many of which are beyond the Company's control. A significant amount of the Company's borrowings and rental obligations bears interest at floating rates (including borrowings under the 1998 Senior Credit Facilities and obligations under its lease facility), which expose the Company to the risk of increased interest and rental rates. S - 2 Based upon the current level of operations and anticipated cost savings, the Company believes that cash flow from operations, together with borrowings under the 1998 Senior Credit Facilities and other sources of liquidity, will be adequate to meet it anticipated requirements for working capital, capital expenditures, interest payments and scheduled principal payments over the next several years. There is no assurance, however, that the Company's business will continue to generate cash flow at or above current levels or that anticipated cost savings can be fully achieved. If the Company is unable to generate sufficient cash flow from operations in the future to service its debt and make necessary capital expenditures, or if its future earnings growth is insufficient to amortize all required principal payments out of internally generated funds, the Company will be required to refinance all or a portion of its existing debt, sell assets or obtain additional financing. There is no assurance that any such refinancing or asset sales could be secured on favorable terms or otherwise. Merger Integration The significant increase in size of the Company's operations resulting from the recent mergers with Smith's, QFC and Ralphs/Food 4 Less has substantially increased the demands placed upon the Company's management, including demands resulting from the need to integrate the accounting systems, management information systems, distribution systems, manufacturing facilities and other operations of Fred Meyer Stores, Smith's, QFC and Ralphs/Food 4 Less. In addition, the Company could experience unexpected costs from such integration and/or loss of customers or sales as a result of the recent mergers, including as a result of the conversion of Hughes Family Markets to the Ralphs banner. There is also no assurance that the Company will be able to maintain the levels of operating efficiency which Fred Meyer Stores, Smith's, QFC and Ralphs/Food 4 Less had achieved separately prior to the mergers. The failure to successfully integrate the operations of the combined companies, the loss of key management personnel and the loss of customers or sales each could have a material adverse effect on the Company's results of operations or financial position. Ability to Achieve Intended Benefits of the Recent Mergers Management believes that significant business opportunities and cost savings are achievable as a result of the Smith's, QFC and Ralphs/Food 4 Less mergers. Management's estimates of cost savings are based upon many assumptions, including future sales levels and other operating results, the availability of funds for capital expenditures, the timing of certain events, as well as general industry and business conditions and other matters, many of which are beyond the control of the Company. Estimates are also based on a management consensus as to what levels of purchasing and similar efficiencies should be achievable by an entity the size of the Company. Estimates of potential cost savings are forward-looking statements that are inherently uncertain. Actual cost savings, if any, could differ from those projected and such differences could be material; therefore, undue reliance should not be placed upon such estimates. There is no assurance that unforeseen costs and expenses or other factors (whether arising in connection with the integration of the Company's operations or otherwise) will not offset the estimated cost savings or other components of the Company's plan or result in delays in the realization of certain projected cost savings. Labor Relations The Company is party to more than 166 collective bargaining agreements with local unions covering approximately 58,000 employees representing approximately 70% of the Company's total employees. Among the contracts that have expired or will expire in 1998 are those covering 15,500 employees. Typical agreements are three years in duration, and as such agreements expire, the Company expects to negotiate with the unions and to enter into new collective bargaining agreements. S - 3 There is no assurance, however, that such agreements will be reached without work stoppages. A prolonged work stoppage affecting a substantial number of stores could have a material adverse effect on the Company's results of operations or financial position. Shares Eligible for Future Sales All of the outstanding shares of Common Stock of the Company will be freely tradeable without registration under the Securities Act following the offering, except that shares held by "affiliates" (as that term is defined under Rule 144 under the Securities Act, as amended, ("Rule 144")) of the Company or former "affiliates" of Smith's, QFC or Ralphs/Food 4 Less will continue to be subject to the resale limitations of Rule 144. The Smith Selling Stockholders, certain other stockholders and certain executive officers of the Company have agreed, subject to certain exceptions, not to directly or indirectly offer, pledge, sell, contract to sell, grant any option to purchase or otherwise transfer or dispose of, without the prior written consent of DLJ, any Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock or enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any Common Stock, for a period of 90 days after the date of this Prospectus Supplement, in the case of the Smith Selling Stockholders, and, in the case of the executive officers and other stockholders, until September 28, 1998. Upon the expiration of such periods, such shares of Common Stock may be sold by such stockholders under Rule 144, pursuant to registration rights granted by the Company or without registration, as the case may be. No prediction can be made as to the effect, if any, that market sales of shares of Common Stock or the availability of shares of Common Stock for sale will have on the market price of the Common Stock from time to time. Sales of substantial amounts of such shares in the public market or the perception that such sales could occur could adversely affect the market price of the Common Stock. See "The Underwriter." S - 4 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The following unaudited pro forma condensed combined financial statements of Fred Meyer give effect to the merger with QFC as if such transaction occurred as of January 29, 1995 with respect to the unaudited pro forma condensed combined statements of operations for the fiscal years ended February 3, 1996, February 1, 1997 and January 31, 1998, and as of January 31, 1998 with respect to the unaudited pro forma condensed combined balance sheet. In addition, such unaudited pro forma condensed combined financial statements give effect to the merger with Ralphs/Food 4 Less as if such transaction occurred as of February 2, 1997 with respect to the unaudited pro forma condensed combined statements of operations, and as of January 31, 1998 with respect to the unaudited pro forma condensed combined balance sheet. Finally, the unaudited pro forma condensed combined financial statements give effect to refinancing certain Fred Meyer, QFC and Ralphs/Food 4 Less debt, as if such refinancing occurred as of February 2, 1997 with respect to the unaudited pro forma condensed combined statements of operations for the fiscal year ended January 31, 1998 and as of January 31, 1998 with respect to the unaudited pro forma condensed combined balance sheet. Such pro forma information includes: (i) the historical balance sheet of Fred Meyer as of January 31, 1988; (ii) the pro forma results of operations of Fred Meyer for the fiscal year ended January 31, 1998; (iii) the historical balance sheet of QFC as of December 27, 1997; (iv) the pro forma results of operations of QFC for the fiscal year ended December 27, 1997; (v) the historical results of operations of Ralphs/Food 4 Less for the fiscal year ended February 1, 1998; and (vi) the historical balance sheet of Ralphs/Food 4 Less as of February 1, 1998. The unaudited pro forma condensed combined financial statements are not necessarily indicative of either future results of operations or results that might have been achieved if the mergers had been consummated as of the indicated dates. The following unaudited pro forma condensed combined financial statements should be read in conjunction with the historical financial statements and the selected historical and other financial data of Fred Meyer, QFC and Ralphs/Food 4 Less included or incorporated by reference herein. The pro forma results of operations of Fred Meyer for the fiscal year ended January 31, 1998 include adjustments for Fred Meyer's September 9, 1997 acquisition of Smith's, as if such transaction occurred as of February 2, 1997. The pro forma results of operations of QFC for the fiscal year ended December 27, 1997 include adjustments for QFC's March 19, 1997 acquisition of Hughes Markets, Inc. ("Hughes") and February 15, 1997 acquisition of Keith Uddenberg, Inc. ("KUI"), as if such transactions occurred as of December 29, 1996. The merger with QFC is being accounted for as a pooling-of-interests. Under the pooling-of-interests method of accounting, the recorded assets and liabilities of Fred Meyer and QFC are being carried forward to Fred Meyer's consolidated financial statements at their historical amounts and the consolidated earnings of QFC are being included in the earnings of Fred Meyer for the entire fiscal year in which the merger with QFC occurs and for all prior years presented, and the reported retained earnings of Fred Meyer and QFC for prior periods are being combined and restated as consolidated retained earnings of Fred Meyer. The merger with Ralphs/Food 4 Less is being accounted for as purchase. Under purchase accounting, the purchase price is allocated to assets acquired and liabilities assumed based on their estimated fair values. The adjustments included in the unaudited pro forma condensed combined financial statements represent a preliminary determination of these adjustments based upon available information. The purchase price is expected to exceed the fair value of the net assets required. This difference has been allocated to goodwill, which will be amortized over 40 years. Such allocations are subject to final determination based on real estate, leasehold and equipment valuation studies and a review of the books, records and accounting policies of Ralphs/Food 4 Less. These studies are expected S - 5 to be completed before the end of the 1998 fiscal year. Accordingly, the final allocations will be different from the amounts reflected herein. The unaudited pro forma condensed combined statements of operations included herein do not reflect an estimated extraordinary charge of approximately $221 million (net of income taxes) relating to the refinancings and, with respect to the unaudited pro forma condensed combined financial statements, assume that all notes subject to the refinancings were redeemed pursuant to tender offers made by QFC and Ralphs/Food 4 Less. Additionally, the unaudited pro forma condensed combined financial statements do not reflect certain non-recurring severance and other expenses associated with the mergers. Pursuant to a settlement agreement entered into with the State of California in connection with the QFC and Ralphs/Food 4 Less mergers, the Company has agreed to divest 19 stores in Southern California, but such divestitures have not been considered and are not reflected in the following unaudited pro forma condensed combined financial statements. Management does not believe that such divestitures will materially adversely affect the Company's business strategy, financial condition or results of operations. The unaudited pro forma condensed combined statements of operations also do not reflect approximately $100 million in annualized operating cost savings that management of the Company believes are achievable by the end of 2001. S - 6 Unaudited Pro Forma Condensed Combined Balance Sheet January 31, 1998 (In thousands) ASSETS
Ralphs/ Fred Meyer QFC Food 4 Less January 31, December 27, February 1, 1998 1997 1998 Pro Forma Pro Forma Historical Historical Historical Adjustments Combined ------------ ------------ ----------- ----------- ----------- Current Assets: Cash and cash equivalents............. $ 72,609 $ 44,702 $ 75,601 $ -- (1) $ 192,912 Trade and other receivables........... 83,194 25,302 37,629 146,125 Inventories........................... 1,117,989 122,877 514,387 28,500 (2) 1,783,753 Prepaid expenses and other............ 39,070 13,087 24,522 76,679 Deferred income taxes................. 90,804 147,334 (3) 238,138 ------------ ------------ ----------- ----------- ----------- Total Current Assets............. 1,403,666 205,968 652,139 175,834 2,437,607 Property and Equipment, net............. 1,951,750 373,814 1,069,005 (100,222)(2) 3,294,347 Other Assets: Goodwill, net......................... 1,005,476 273,654 1,275,718 1,034,695 (2) 3,589,543 Deferred financing costs, net......... 10,964 7,415 49,863 (61,778)(3) 68,000 (1) 74,464 Deferred income taxes and other....... 58,950 131,279 29,348 206,705 (2) 426,282 ------------ ------------ ----------- ----------- ----------- Total Assets........................ $ 4,430,806 $ 992,130 $ 3,076,073 $ 1,323,234 9,822,243 ============ ============ =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable and outstanding checks $ 679,612 $ 85,662 $ 349,585 $ 1,114,859 Current portion of long-term debt and capital leases...................... 4,282 15,368 41,965 $ (3,500)(1) 58,115 Income taxes payable.................. -- 1,361 1,361 Accrued compensation.................. 148,141 41,680 105,728 295,549 Other accrued expenses................ 167,904 50,846 302,425 95,000(2) 616,175 ------------ ------------ ----------- ----------- ----------- Total Current Liabilities........ 999,939 193,556 801,064 91,500 2,086,059 Long-Term Debt, less current maturities. 1,835,168 349,626 2,321,342 453,500(1) 4,959,636 Capital Lease Obligations, less current portion............................... 52,385 30,397 120,329 203,111 Deferred Income Taxes................... 41,250 41,933 21,074 (104,257(2) -- Other Long-Term Liabilities............. 151,489 24,833 253,772 15,232(2) 445,326 Shareholders' Equity (Deficit).......... 1,350,575 351,785 (441,508) 867,259(3) 2,128,111 ------------ ------------ ----------- ----------- ----------- Total Liabilities and Stockholders' Equity........................... $ 4,430,806 $ 992,130 $ 3,076,073 $ 1,323,234 $ 9,822,243 ============ ============ =========== =========== =========== See Notes to Unaudited Pro Forma Condensed Combined Balance Sheet
S - 7 Notes to Unaudited Pro Forma Condensed Combined Balance Sheet (1) The net effect on cash and cash equivalents of the mergers and the concurrent debt refinancing reflects the following (in thousands):
Total sources: 1998 Senior Credit Facilities..............................$ 2,787,000 Notes...................................................... 1,750,000 ------------ $ 4,537,000 ============ Total uses: Repay Fred Meyer credit facility...........................$ 1,430,000 Repay QFC credit facility.................................. 175,000 Repay Ralphs/Food 4 Less credit facility................... 681,000 Repay QFC notes............................................ 175,000 Repay Ralphs/Food 4 Less notes............................. 1,626,000 Estimated debt repayment premiums.......................... 300,000 Estimated fees and expenses................................ 150,000 ------------ $ 4,537,000 ============
(2) The purchase cost and preliminary allocation of the excess of cost over the net book value of the assets acquired in the merger with Ralphs/Food 4 Less is as follows. The market value of Common Stock issued reflects 21.7 million shares multiplied by the average market price of Common Stock for the three trading days preceding and following the day Fred Meyer and Ralphs/Food 4 Less reached agreement on the purchase price and the proposed merger with Ralphs/Food 4 Less was announced.
(In thousands) Market value of Common Stock issued........................................ $ 656,195 Transaction fees and expenses.............................................. 66,000 ------------ Total purchase cost................................................... 722,195 Book value of net assets acquired.......................................... (441,508) ------------ Excess of purchase cost over net book value of assets acquired........... $ 1,163,703 ============ Allocated to: Increase in value of inventory........................................... $ 28,500 Increase in value of property and equipment.............................. (100,222) Ralphs/Food 4 Less historical net goodwill............................... (1,275,718) Increase in value of deferred income taxes............................... 240,000 Increase in accrued liabilities.......................................... (95,000) Adjust accrued pension and postretirement benefit obligation............. (15,232) Adjust deferred taxes for temporary differences (39% effective rate)..... 70,962 Residual excess purchase cost............................................ 2,310,413 ------------ Total allocation........................................................... $ 1,163,703 ============
S - 8 Notes to Unaudited Pro Forma Condensed Combined Balance Sheet (Continued) (3) Represents the net change in stockholders' equity as a result of the mergers and the refinancings (in thousands):
Issuance of Common Stock in merger with Ralphs/Food 4 Less........................$ 656,195 Elimination of Ralphs/Food 4 Less historical stockholders' deficit................ 441,508 Write-off historical deferred financing costs, net of tax of $24,094.............. (37,684) Estimated premiums related to repayment of Ralphs/Food 4 Less and QFC notes, net of tax of $117,000................................................ (183,000) Fees and expenses of merger with QFC, net of tax of $6,240........................ (9,760) ----------- Pro forma adjustment to stockholders' equity......................................$ 867,259 ===========
S - 9 Unaudited Pro Forma Condensed Combined Statement of Operations For the 52 Weeks Ended January 31, 1998 (In thousands, except per share and percentage data)
Fred Meyer QFC Ralphs/Food 4 Fiscal Year Ended Fiscal Year Ended Less Fiscal Year January 31, 1998 December 27, 1997 Ended Pro Forma Pro Forma February 1, 1998 Pro Forma Pro Forma Combined(1) Combined(2) Historical Adjustments Combined ------------------ ------------------- ------------------ -------------- -------------- Net sales...........................$ 7,341,192 $ 2,120,855 $ 5,487,469 $ 14,949,516 Cost of goods sold.................. 5,279,520 1,596,983 4,347,549 11,224,052 ------------------ ------------------- ------------------ -------------- -------------- Gross margin................. 2,061,672 523,872 1,139,920 3,725,464 Operating and administrative expenses..................... 1,472,090 375,933 756,609 $ (4,000)(3) 2,600,632 Depreciation and amortization expense...................... 235,955 48,971 178,710 16,959 (4) 480,595 ------------------ ------------------- ------------------ -------------- -------------- Income from operations....... 353,627 98,968 204,601 (12,959) 644,237 Interest expense.................... 113,052 30,765 271,939 (30,217)(5) 385,539 Amortization of deferred financing costs........................ 1,229 703 5,714 4,089 (6) 11,735 ------------------ ------------------- ------------------ -------------- -------------- Income (loss) before income taxes and extraordinary charge..................... 239,346 67,500 (73,052) 13,169 246,963 Provision for income taxes.......... 97,137 27,507 -- 6,670 (7) 131,314 ------------------ ------------------- ------------------ -------------- -------------- Income (loss) before extraordinary charge.......................$ 142,209 $ 39,993 $ (73,052) $ 6,499 $ 115,649 ================== =================== ================== ============== ============== Basic income before extraordinary charge per share of common stock........................ $ 1.62 $ 1.91 $ 0.78 ================== =================== ============== Diluted income before extraordinary charge per share of common stock.............. $ 1.56 $ 1.84 $ 0.75 ================== =================== ============== Basic weighted average common shares outstanding (8)....... 87,537 20,916 40,494 148,947 ================== =================== ============== ============== Diluted weighted average common shares outstanding (8)....... 90,978 21,774 41,267 154,019 ================== =================== ============== ============== Other Pro Forma Data: EBITDA (as defined) (9)................................................................................. $ 1,125,358 EBITDA margin (9)....................................................................................... 7.5% See Notes to Unaudited Pro Forma Condensed Combined Statement of Operations.
S - 10 Unaudited Pro Forma Condensed Combined Statement of Operations For the 52 Weeks Ended February 1, 1997 (In thousands, except per share and percentage data)
Fred Meyer QFC Fiscal Year Ended Fiscal Year Ended February 1, 1997 December 28, 1996 Pro Forma Pro Forma Historical Historical Adjustments Combined -------------------- --------------------- -------------- ------------- Net sales.................................... $ 3,724,839 $ 805,281 $ 4,530,120 Cost of goods sold........................... 2,613,746 603,947 3,217,693 -------------------- --------------------- -------------- ------------- Gross margin.......................... 1,111,093 201,334 1,312,427 Operating and administrative expenses........ 860,379 132,860 993,239 Depreciation and amortization expense........ 116,854 19,477 136,331 -------------------- --------------------- -------------- ------------- Income from operations................ 133,860 48,997 182,857 Interest expense............................. 39,432 9,238 48,670 Amortization of deferred financing costs..... -- 185 185 -------------------- --------------------- -------------- ------------- Income before income taxes and extraordinary charge................ 94,428 39,574 134,002 Provision for income taxes................... 35,883 14,156 50,039 -------------------- --------------------- -------------- ------------- Income before extraordinary charge.......... $ 58,545 $ 25,418 $ 83,963 ==================== ===================== ============== ============= Basic income before extraordinary charge 1.12 1.75 1.05 per share of common stock............. $ $ $ ==================== ===================== ============= Diluted income before extraordinary 1.05 1.71 1.00 charge per share of common stock...... $ $ $ ==================== ===================== ============= Basic weighted average common shares outstanding (8)....................... 52,155 14,547 13,092 79,794 ==================== ===================== ============== ============= Diluted weighted average common shares outstanding (8)....................... 55,781 14,888 13,399 84,068 ==================== ===================== ============== ============= Other Pro Forma Data: EBITDA (as defined) (9)............................................................................... $ 318,722 EBITDA margin (9)..................................................................................... 7.0% See Notes to Unaudited Pro Forma Condensed Combined Statement of Operations.
S - 11 Unaudited Pro Forma Condensed Combined Statement of Operations For the 53 Weeks Ended February 3, 1996 (In thousands, except per share and percentage data)
QFC Fred Meyer Fiscal Year Ended Fiscal Year Ended December 30, February 3, 1996 1995 Pro Forma Pro Forma Historical Historical Adjustments Combined -------------------- --------------------- -------------- ------------- Net sales............................... $ 3,422,718 $ 729,856 $ 4,152,574 Cost of goods sold...................... 2,443,531 550,434 2,993,965 -------------------- --------------------- -------------- ------------- Gross margin..................... 979,187 179,422 1,158,609 Operating and administrative expenses... 783,375 120,475 903,850 Depreciation and amortization expense... 107,385 16,170 123,555 -------------------- --------------------- -------------- ------------- Income from operations........... 88,427 42,777 131,204 Interest expense........................ 39,578 8,995 48,573 Amortization of deferred financing costs -- 143 143 Other................................... 1,400 1,400 -------------------- --------------------- -------------- ------------- Income before income taxes and extraordinary charge........... 48,849 32,239 81,088 Provision for income taxes.............. 18,563 12,023 30,586 -------------------- --------------------- -------------- ------------- Income before extraordinary charge $ 30,286 $ 20,216 $ 50,502 ==================== ===================== ============== ============= Basic income before extraordinary charge per share of common stock........ $ 0.57 $ 1.29 $ 0.61 ==================== ===================== ============= Diluted income before extraordinary charge per share of common stock........ $ 0.53 $ 1.28 $ 0.58 ==================== ===================== ============= Basic weighted average common shares outstanding (8).................. 53,365 15,706 14,135 83,206 ==================== ===================== ============== ============= Diluted weighted average common shares outstanding (8).................. 56,656 15,830 14,247 86,733 ==================== ===================== ============== ============= Other Pro Forma Data: EBITDA (as defined) (9)................................................................................. $ 254,423 EBITDA margin (9)....................................................................................... 6.1% See Notes to Unaudited Pro Forma Condensed Combined Statement of Operations.
S - 12 Notes to Unaudited Pro Forma Condensed Combined Statements of Operations (1) The following Fred Meyer summary unaudited pro forma condensed combined statement of operations for the fiscal year ended January 31, 1998 is based on historical financial statements of Fred Meyer and Smith's and has been prepared to illustrate the effects of Fred Meyer's acquisition of Smith's (the "Smith's Acquisition") and other related transactions described below and the assumed financing therefor. Such summary unaudited pro forma condensed statement of operations gives effect to the Smith's Acquisition as if such transaction had been completed as of February 2, 1997. Such pro forma information includes the historical results of operations of Fred Meyer for the fiscal year ended January 31, 1998 and the historical results of operations for Smith's from February 2, 1997 to September 8, 1997. The Smith's Acquisition was accounted for as a purchase by Fred Meyer. Under purchase accounting, the purchase price is allocated to assets acquired and liabilities assumed based on their estimated fair values. The pro forma adjustments included in the summary unaudited pro forma condensed combined statement of operations represent a preliminary determination of these adjustments based upon available information. The following summary unaudited pro forma condensed combined statement of operations for the Smith's Acquisition included in the table below does not reflect an extraordinary charge of approximately $91 million (net of income taxes) relating to refinancing certain debt. Such summary unaudited pro forma condensed combined statement of operations gives effect to the following significant pro forma adjustments: (i) the adjustment for additional depreciation and amortization expense resulting from the allocation of the purchase price for Smith's to the assets acquired, including an increase in property, plant, and equipment, leasehold interest, and identifiable intangible assets to their estimated fair market values and the recording of goodwill associated with the acquisition; (ii) the adjustment to interest expense associated with the transaction financing and the corresponding adjustments to the amortization of related financing fees; and (iii) the adjustment to the provision for income taxes based upon a tax rate of 39% applied to the pro forma operating income before income taxes adjusted for amortization of goodwill.
Fred Meyer Smith's Fiscal Year Period from Ended February 2, 1997 January 31, to September 8, Fred Meyer 1998 1997 Pro Forma Pro Forma Historical Historical Adjustments Combined ---------------- ------------------ ------------ ------------ (In thousands) ------------------ ------------ ------------ Net sales......................................$ 5,481,087 $ 1,860,105 $ 7,341,192 Cost of goods sold............................. 3,845,536 1,433,984 5,279,520 ---------------- ------------------ ------------ ------------ Gross margin................................. 1,635,551 426,121 2,061,672 Operating and administrative expenses.......... 1,217,649 254,728 $ (287) 1,472,090 Depreciation and amortization expense.......... 168,294 57,472 10,189 235,955 ---------------- ------------------ ------------ ------------ Income from operations....................... 249,608 113,921 (9,902) 353,627 Interest expense............................... 75,504 71,938 (34,390) 113,052 Amortization of deferred financing costs....... 335 2,953 (2,059) 1,229 ---------------- ------------------ ------------ ------------ Income before income taxes and extraordinary charge.................... 173,769 39,030 26,547 239,346 Provision for income taxes..................... 70,465 16,490 10,182 97,137 ---------------- ------------------ ------------ ------------ Income before extraordinary charge.............$ 103,304 $ 22,540 $ 16,365 $ 142,209 ================ ================== ============ ============
S - 13 Notes to Unaudited Pro Forma Condensed Combined Statements of Operations (Continued) (2) The following QFC summary unaudited pro forma condensed combined statement of operations for the fiscal year ended December 27, 1997 is based on historical financial statements of QFC, Hughes and KUI, and has been prepared to illustrate the effects of the QFC's acquisition of Hughes and KUI (the "Hughes/KUI Acquisitions") and other related transactions described below and the assumed financing therefor. Such summary unaudited pro forma condensed combined statement of operations gives effect to each of the following transactions as if such transactions had been completed as of December 29, 1996: (i) the Hughes acquisition and certain related transactions; (ii) KUI's spin off of certain assets and liabilities, primarily related to nongrocery operations, prior to the KUI acquisition; (iii) the KUI acquisition and certain related transactions; (iv) the application of the net proceeds from the sale of 5,175,000 shares of QFC common stock in a public offering (the "QFC Common Stock Offering") and the sale of $150 million aggregate principal amount of 8.70% Senior Subordinated Notes due 2007 (together with the QFC Common Stock Offering, the "QFC Offerings") and borrowings under QFC's credit facility; and (v) QFC's proposed divestiture of five recently acquired KUI stores. The Hughes/KUI Acquisitions were accounted for as purchases by QFC. Under purchase accounting, the purchase price is allocated to assets acquired and liabilities assumed based on their estimated fair values. The pro forma adjustments included in the summary unaudited pro forma condensed combined statement of operations represent a preliminary determination of these adjustments based upon available information.
Hughes KUI Pro Forma Period from Period from Adjustments QFC December 29, December 29, for Fiscal Year 1996 1996 Hughes/KUI Ended Through Through Acquisitions December 27, March 18, February 14, KUI and QFC QFC 1997 1997 1997 Pro Forma Offerings Pro Forma Historical Historical Historical Adjustments Combined Combined ------------- ------------- -------------- ------------ ------------ ------------- (In thousands) ------------- -------------- ------------ ------------ ------------- Net sales..................... $ 1,878,115 $ 211,425 $ 46,793 $ (1,492) $ (13,986) $ 2,120,855 Cost of goods sold............ 1,417,038 158,392 33,480 (950) (10,977) 1,596,983 ------------- ------------- -------------- ------------ ------------ ------------- Gross margin........... 461,077 53,033 13,313 (542) (3,009) 523,872 Operating and administrative expenses............... 325,424 43,495 10,301 (605) (2,682) 375,933 Depreciation and amortization expense................ 43,076 3,847 337 (43) 1,754 48,971 ------------- ------------- -------------- ------------ ------------ ------------- Income from operations. 92,577 5,691 2,675 106 (2,081) 98,968 Interest expense.............. 25,887 538 204 4,136 30,765 Amortization of deferred financing costs........ 703 703 ------------- ------------- -------------- ------------ ------------ ------------- Income before income taxes and extraordinary charge............... 65,987 5,153 2,471 106 (6,217) 67,500 Provision for income taxes.... 25,980 2,437 860 36 (1,806) 27,507 ------------- ------------- -------------- ------------ ------------ ------------- Income before extraordinary charge.................$ 40,007 $ 2,716 $ 1,611 $ 70 $ (4,411) $ 39,993 ============= ============= ============== ============ ============ =============
S - 14 Notes to Unaudited Pro Forma Condensed Combined Statements of Operations (Continued) The summary unaudited pro forma condensed combined statement of operations gives effect to the following significant pro forma adjustments: (i) the elimination of sales and certain expenses attributable to certain assets and liabilities of KUI, primarily related to non-grocery operations which were spun off by KUI prior to its acquisition by QFC; (ii) the adjustment for additional depreciation and amortization expense resulting from the allocations of the purchase prices for KUI and Hughes to the assets acquired, including an increase in property, plant, and equipment, leasehold interest and identifiable intangible assets to their estimated fair market values and the recording of goodwill associated with the acquisitions; (iii) the adjustment to interest expense associated with the transaction financing and the corresponding adjustments to the amortization of related financing fees; and (iv) the adjustment to the provision for income taxes based upon a tax rate of 38% applied to the pro forma operating income before income taxes adjusted for amortization of goodwill. (3) To eliminate management fees paid by Ralphs/Food 4 Less which will no longer be paid subsequent to the mergers. (4) To decrease depreciation and amortization expense for revaluation of property and equipment in the amount of $8.9 million and increase amortization of goodwill in the amount of $25.9 million as a result of the merger with Ralphs/Food 4 Less for the fiscal year ended January 31, 1998. The adjustment to depreciation and amortization expense assumes an average useful life of acquired property and equipment of 11 years and the adjustment to goodwill amortization assumes an amortization period for acquired goodwill of 40 years. (5) In connection with the mergers, Fred Meyer refinanced and consolidated approximately $4.1 billion of existing indebtedness of Fred Meyer, QFC and Ralphs/Food 4 Less in the refinancings. The following table reflects the pro forma adjustments to interest expense related to the refinancing of certain debt for the fiscal year ended January 31, 1998 (in thousands):
Historical interest expense: Fred Meyer-- historical pro forma.......................................... $ 113,052 QFC-- historical pro forma................................................. 30,765 Ralphs/Food 4 Less-- historical............................................ 271,939 ------------- 415,756 Less: amount in historical pro forma statements of operations for refinanced debt........................................................... (353,449) Add: amounts for 1998 Senior Credit Facilities and Notes..................... 323,232 ------------- Pro forma interest expense................................................... $ 385,539 =============
The pro forma adjustment to interest expense is based on a weighted average interest rate of 7.0% per annum under the 1998 Senior Credit Facilities and the Notes. (6) To adjust for the change in amortization of deferred financing costs as a result of the refinancings. (7) The pro forma adjustment to the provision for income taxes is based upon a tax rate of 39% applied to the pro forma income before income taxes adjusted for amortization of goodwill. (8) All share and per share data has been adjusted to reflect a two-for-one stock split of Common Stock effected as a 100% stock dividend which was distributed September 30, 1997. An (i) exchange ratio of 1.9 shares of Common Stock for each share of QFC common stock issued and outstanding immediately prior to the effective time of the merger with QFC in connection with the merger with QFC and (ii) issuance of 21.7 million shares of Common Stock in connection with the merger with Ralphs/Food 4 Less were used in preparing the pro forma combined share and per share data. S - 15 Notes to Unaudited Pro Forma Condensed Combined Statements of Operations (Continued) The following table presents a reconciliation of the pro forma weighted average number of basic and diluted shares outstanding used in calculating pro forma income per share of Common Stock for the fiscal year ended January 31, 1998 (share numbers in thousands):
Basic Diluted --------- --------- Pro forma weighted average number of shares of QFC common stock outstanding as of December 27, 1997.......................................... 20,916 21,774 Exchange ratio.................................................................. 1.9 1.9 --------- --------- Number of shares of Common Stock issued in the merger with QFC.................. 39,740 41,371 Number of shares of Common Stock issued in the merger with Ralphs/ Food 4 Less.................................................................. 21,670 21,670 --------- --------- Number of shares of Common Stock issued in the mergers.......................... 61,410 63,041 Pro forma weighted average number of shares of Common Stock outstanding as of January 31, 1998........................................... 87,537 90,978 --------- --------- Pro forma number of shares of Common Stock outstanding after 148,947 154,019 completion of the mergers.................................................... ========= =========
(9) EBITDA represents income before interest expense, income taxes, depreciation and amortization and LIFO provision of $0.5 million, $(0.5) million and $1.1 million for the fiscal years ended January 31, 1998, February 1, 1997 and February 3, 1996, respectively. EBITDA is not intended to represent cash flow from operations as defined by GAAP and should not be considered as an alternative to cash flow as a measure of liquidity or as an alternative to net earnings as an indicator of operating performance. EBITDA is included herein because management believes that certain investors find it to be a useful tool for measuring a company's ability to service its debt. EBITDA as calculated by the Company may not be comparable to calculations as presented by other companies, even in the same industry. EBITDA margin represents EBITDA as a percentage of net sales. S - 16 DESCRIPTION OF CAPITAL STOCK The following description of the capital stock of the Company, which is complete in all material respects, is subject, in all respects, and is qualified by reference to applicable Delaware law and to the provisions of Fred Meyer's Restated Certificate of Incorporation (the "Certificate"). Authorized Capital Stock The authorized capital stock of the Company consists of 400,000,000 shares of Common Stock, and 100,000,000 shares of preferred stock, $.01 par value per share (the "Preferred Stock"). As of June 1, 1998, 149,829,389 shares of Common Stock and no shares of Preferred Stock were issued and outstanding. Common Stock The holders of Common Stock are entitled to one vote per share held of record on all matters submitted to a vote of the stockholders. Under the Certificate, the Board of Directors is classified into three classes each consisting of, as nearly as may be possible, one-third of the total number of directors constituting the entire Board of Directors. The holders of Common Stock are not entitled to cumulate votes for the election of directors. The holders of Common Stock are entitled to receive ratably such dividends as are declared by the Board of Directors out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of Fred Meyer, holders of Common Stock have the right to a ratable portion of the assets remaining after payment of liabilities and liquidation preferences of any outstanding shares of Preferred Stock. The holders of Common Stock have no preemptive rights or rights to convert their Common Stock into other securities. All outstanding shares of Common Stock are fully paid and nonassessable. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of Preferred Stock, if any. The Common Stock is listed on the New York Stock Exchange under the symbol "FMY." Preferred Stock The Board of Directors may, without further action of the stockholders, issue Preferred Stock in one or more series and fix or alter the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, redemption terms and prices, liquidation terms and preferences, and the number of shares constituting any series or the designations of such series. No Preferred Stock is outstanding, and the Company has no present plans to issue any shares of Preferred Stock. Certain Anti-Takeover Provisions The Certificate and the Fred Meyer bylaws contain provisions that may have the effect of discouraging persons from acquiring large blocks of voting stock of the Company or delaying or preventing a change in control of the Company. The material provisions that may have such an effect are: (i) classification of the Board of Directors into three classes with the terms of only one class expiring each year; (ii) a provision that directors may be removed only for cause and only with the affirmative vote of holders of at least 75% of the outstanding shares of the Company; (iii) authorization for the Board of Directors to issue Preferred Stock in series and to fix rights and preferences of the S - 17 series (including, among other things, whether, and to what extent, the shares of any series will have voting rights and the extent of the preferences of the shares of any series with respect to dividends and other matters); (iv) a provision that stockholders may take action only at an annual or special meeting and not by written consent in lieu of a meeting; (v) advance notice procedures with respect to nominations of directors or proposals other than those adopted or recommended by the Board of Directors; and (vi) provisions permitting amendment of certain of these and related provisions only by an affirmative vote of the holders of at least 75% of the outstanding shares of Common Stock entitled to vote. THE UNDERWRITER Under the terms and subject to the conditions contained in an Underwriting Agreement dated the date hereof (the "Underwriting Agreement"), DLJ has agreed to purchase, and the Smith Selling Stockholders have agreed to sell to DLJ, the Shares at the price set forth on the cover page of this Prospectus Supplement. The Underwriting Agreement provides that the obligation of DLJ to pay for and accept delivery of the Shares is subject to the approval of certain legal matters by its counsel and to certain other conditions. DLJ is obligated to take and pay for all the Shares if any are taken. The Shares may be sold by DLJ from time to time to purchasers in one or more transactions (which may involve block transactions) on the NYSE or on other national securities exchanges on which the Common Stock is traded, in the over-the-counter market, in negotiated transactions, in a combination of such methods or otherwise, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. If the price received by DLJ upon the sale of the Shares exceeds the price at which it buys the Shares (set forth on the cover page of this Prospectus Supplement), such difference shall represent DLJ's commission. DLJ may effect such transactions by selling Shares to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from DLJ and/or the purchasers of such Shares for whom they may act as agents or to whom they may sell as principal. The Company and the Smith Selling Stockholders have agreed to indemnify DLJ against certain liabilities, including liabilities under the Securities Act, or contribute to payments which DLJ may be required to make in respect thereof. LEGAL MATTERS Certain legal matters in connection with the Shares offered hereby will be passed upon for the Company by Stoel Rives LLP, Portland, Oregon and for DLJ by Latham & Watkins, Los Angeles, California. S - 18 PROSPECTUS FRED MEYER, INC. 17,360,478 Shares of Common Stock The common stock, $.01 par value (the "Common Stock"), of Fred Meyer, Inc. (the "Company" or "Fred Meyer") offered hereby (the "Shares") may be sold from time to time by certain stockholders of the Company (the "Selling Stockholders"). The Company will not receive any of the proceeds from the offering. See "Selling Stockholders" and "Plan of Distribution" for information about the Selling Stockholders and the manner of offering of the Shares. The Common Stock of the Company is listed on the New York Stock Exchange under the symbol "FMY." On June 30, 1998, the last reported sale price of the Common Stock was $42 1/2 per share. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------- No person has been authorized to give any information or to make any representations in connection with this offering other than those contained in this Prospectus. This Prospectus does not constitute an offering in any jurisdiction in which such offering may not lawfully be made. --------------- Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the respective dates as to which information has been given herein. --------------- The date of this Prospectus is June 30, 1998. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files periodic reports and other information with the Securities and Exchange Commission (the "SEC"). Such reports, proxy statements, and other information concerning the Company may be inspected and copies may be obtained at prescribed rates at the offices of the SEC, Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549, as well as at the following regional offices: 7 World Trade Center, Suite 1300, New York, New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Company has filed with the SEC a Registration Statement on Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the securities offered pursuant to this Prospectus. For further information, reference is made to the Registration Statement and the exhibits thereto, which are available for inspection at no fee at the public reference section of the SEC at its principal office at Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549. All of the above-referenced documents can also be obtained from commercial document retrieval services and at the web site maintained by the SEC at "http://www.sec.gov." In addition, the Common Stock is listed on the New York Stock Exchange, and reports, proxy and information statements and other information concerning the Company can be inspected at the offices of the New York Stock Exchange. The Company hereby undertakes to provide without charge to each person to whom a copy of this Prospectus is delivered, upon written or oral request to Roger A. Cooke, Secretary, Fred Meyer, Inc., 3800 SE 22nd Avenue, Portland, Oregon 97202, telephone (503) 232-8844, copies of any and all of the information that has been incorporated by reference into this Prospectus, other than exhibits to such information unless such exhibits are specifically incorporated by reference therein. The information relating to the Company, Quality Food Centers, Inc. and Food 4 Less Holdings, Inc. contained in this Prospectus does not purport to be comprehensive and should be read together with the information contained in the documents or portions of documents incorporated by reference into this Prospectus. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed with the SEC are incorporated herein by reference: 1. The Annual Report on Form 10-K of Fred Meyer for the fiscal year ended January 31, 1998 filed pursuant to Section 13(a) of the Exchange Act; 2. The Annual Report on Form 10-K of Quality Food Centers, Inc. for the fiscal year ended December 27, 1997 filed pursuant to Section 13(a) of the Exchange Act; 3. The Annual Report on Form 10-K of Food 4 Less Holdings, Inc. for the fiscal year ended February 1, 1998 filed pursuant to Section 13(a) of the Exchange Act; 4. Fred Meyer's (i) Current Report on Form 8-K dated March 9, 1998 and the amendment thereto on Form 8-K/A and (ii) Current Reports on Forms 8-K dated February 13, 1998; February 20, 1998; February 27, 1998; March 4, 1998; March 12, 1998; and June 18, 1998. All reports and other documents filed by the Company pursuant to sections 13(a), 13(c), 14, and 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering shall be deemed to be incorporated by reference herein and to be a part hereof from the date of the filing of such reports and documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus and any Prospectus Supplement to the extent that a statement contained herein or in any Prospectus Supplement or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus or any Prospectus Supplement. 2 FORWARD-LOOKING STATEMENTS Certain information set forth or incorporated by reference in this Prospectus contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements include information regarding the Company's plans for future operations, expectations relating to cost savings and the Company's integration strategy with respect to its recent mergers, store expansion and remodeling, capital expenditures, inventory reductions and expense reductions. The following factors are among the principal factors that could cause actual results to differ materially from the forward-looking statements: business and economic conditions generally and in the regions in which the Company's stores are located, including the rate of inflation, population, employment and job growth in the Company's markets; demands placed on management by the recent substantial increase in the Company's size; loss or retirement of senior management of the Company or of its principal operating subsidiaries; changes in the availability of debt or equity capital and increases in borrowing costs or interest rates, especially since a substantial portion of the Company's borrowings bear interest at floating rates; competitive factors, such as increased penetration in the Company's markets by large national food and nonfood chains, large category-dominant stores and large national and regional discount retailers (whether existing competitors or new entrants) and competitive pressures generally, which could include price-cutting strategies, store openings and remodels; results of the Company's programs to decrease costs as a percent of sales; increases in labor costs and deterioration in relations with the union bargaining units representing the Company's employees; unusual unanticipated costs or unanticipated consequences relating to the recent mergers and integration strategy and any delays in the realization thereof; operational inefficiencies in distribution or other Company systems, including any that may result from the recent mergers; issues arising from addressing year 2000 information technology issues; legislative or regulatory changes adversely affecting the business in which the Company is engaged; and other opportunities or acquisitions which may be pursued by the Company. Forward-looking statements contained herein speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. THE COMPANY Fred Meyer is one of the largest domestic food retailers, operating more than 800 supermarkets and multi-department stores, many of which are located in the fastest growing markets in the United States. The Company has the largest market share in the Los Angeles, Orange County, Seattle, Salt Lake City, Las Vegas and Albuquerque markets and the second largest market share in the Phoenix and Portland markets as well as a number one or two market share in 11 additional markets. The Company operates multiple formats that appeal to customers across a wide range of income brackets under the Fred Meyer, Smith's Food & Drug Centers, Smitty's, QFC, Hughes Family Markets, Ralphs and Food 4 Less banners. The Company was incorporated in Delaware in 1997 and commenced operations on September 9, 1997 as the successor to Fred Meyer Stores, Inc. (formerly known as Fred Meyer, Inc.) ("Fred Meyer Stores") and Smith's Food & Drug Centers, Inc. ("Smith's"). The Company's principal executive offices are located at 3800 SE 22nd Avenue, Portland, Oregon 97202, and its telephone number is (503) 232-8844. The Company operates its business through four principal subsidiaries: Fred Meyer Stores, Smith's, Quality Food Centers, Inc. and Food 4 Less Holdings, Inc. 3 SELLING STOCKHOLDERS The following table sets forth certain information relating to the beneficial ownership of the Company's Common Stock as of June 1, 1998 by each of the Selling Stockholders and as adjusted to reflect the sale by the Selling Stockholders of the Shares. Except as indicated in the footnotes to the table, the persons named in the table have sole voting and investment power with respect to shares of Common Stock shown as beneficially owned by them.
Shares Beneficially Owned Shares Offered by this Prior to Offering Prospectus ------------------ ---------------------- Zell/Chilmark Fund, L.P.................................. 7,552,500(1) 7,552,500(1) 2 North Riverside Plaza, 6th Floor Chicago, Illinois 60606 Stuart M. Sloan.......................................... 3,434,975(2) 3,434,975 1301 Fifth Ave. Suite 3000 Seattle, Washington 98101 Jeffrey P. Smith......................................... 1,372,994(3) 1,098,395 Trust for the Children of Jeffrey P. Smith............... 1,176,740(3) 941,389 The Sean Smith Trust..................................... 100,964 80,771 The Jaci Smith Trust..................................... 128,630(3) 102,904 The Joshua Smith Trust................................... 128,630(3) 102,904 32 Burningtree Court Las Vegas, Nevada 89113 Fred Lorenzo Smith....................................... 530,686(3) 424,548 Trust for the Children of Fred Lorenzo Smith............. 1,176,740(3) 941,390 The Fred Lloyd Smith Trust............................... 86,840(3) 69,472 The Staci Elaine Smith Trust............................. 60,206(3) 48,164 The Zachary Dee Smith Trust.............................. 60,206(3) 48,164 Elaine Smith............................................. 35,852(3) 28,682 200 Strada Mia Las Vegas, Nevada 89117 The Dee Glen Smith Marital Trust......................... 411,002 328,801 c/o Ida Smith 1066 E. Capital Blvd. Salt Lake City, Utah 84103 Bankers Trust Corporation................................ 157,724 157,724 BT Investment Partners, Inc.............................. 1,124,694 1,124,694 130 Liberty St. New York, NY 10006 CSFB IGP................................................. 28,908 28,908 Bahnhofstrass #17 CH-6301 Zug, Switzerland Merchant GP, Inc......................................... 593,673 371,092 c/o Credit Suisse First Boston 11 Madison Ave. New York, New York 10010 Dan Kourkoumelis......................................... 565,603(4) 475,000 10112 NE 10th Street, Suite 201 Bellevue, Washington 98004 - -------------- (1) Samuel Zell, a director of the Company, may be deemed to own beneficially these shares by virtue of his positions with the entities that indirectly control the general partner of Zell/Chilmark Fund, L.P. Mr. Zell disclaims beneficial ownership of these shares. Zell/Chilmark Fund, L.P., has advised the Company that shortly following the sale of up to 6,740,157 of these shares pursuant to a Prospectus Supplement dated as of the date hereof relating to the shares (which number of shares assumes the
4 exercise of the over-allotment option by the underwriters which number of shares may be adjusted based on the Price to the Public as set forth in the Prospectus Supplement), Zell/Chilmark Fund, L.P. intends to distribute the remaining 812,343 shares to certain of its direct and indirect partners and such direct and indirect partners and their pledgees, donees, transferees and successors in interest may sell these shares in accordance with the Plan of Distribution. The direct and indirect partners that will receive shares in the distribution (and the estimated number of shares) include: Northrop Grumman Corporation Master Trust -- 50,572; Bradbury Dyer -- 51,675; David A. Gardner -- 25,837; Blaine Trust -- 12,919; LJ Trusts -- 5,167; Bertram R. Cohan -- 12,919; S. Cody Engle -- 14,943; William Hall -- 30,969; Donald J. Liebentritt -- 5,079; Sheli Z. Rosenberg -- 62,971; Sanford Shkolnik -- 6,194; Spector Family Limited Partnership -- 21,059; Timothy H. Callahan -- 12,904; Leah's Trust -- 15,484; and Sam Investment Trust -- 483,651. Each of Mr. Zell and Ms. Rosenberg has served as a director of Quality Food Centers, Inc. (2) Includes 586,910 shares which are subject to immediately exercisable options. Mr. Sloan, a director of the Company, acquired these shares in the merger of Quality Food Centers, Inc. and the Company. (3) Mr. Jeffrey P. Smith is a director of the Company, and Mr. Fred Lorenzo Smith was a director of the Company from September 1997 until April 1998. The shares were acquired by the Smith trusts and family members in connection with the merger of Smith's and the Company. Shares held by the Trust for the Children of Jeffrey P. Smith, The Jaci Smith Trust, The Joshua Smith Trust and The Dee Glen Smith Marital Trust may be deemed to be beneficially owned by Jeffrey P. Smith under regulations of the SEC but Mr. Smith disclaims beneficial ownership of such shares. Shares held by the Fred Lloyd Smith Trust, The Staci Elaine Smith Trust, The Zachary Dee Smith Trust and Elaine Smith may be deemed to be beneficially owned by Fred Lorenzo Smith under regulations of the SEC but Mr. Smith disclaims beneficial ownership of such shares. (4) Includes 1,155 shares held by Mr. Kourkoumelis as custodian for his daughter and 543,766 subject to options that are currently exercisable or become exercisable within the next 60 days. The Shares covered by this registration statement include shares subject to such options. PLAN OF DISTRIBUTION Sales of the Shares may be made from time to time by the Selling Stockholders in one or more transactions on the New York Stock Exchange or any other national securities exchange on which the Common Stock is traded (which, subject to applicable law, may involve transactions solely between a broker-dealer and its customers which are not traded across an open market and block trades), in the over-the-counter market, in privately negotiated transactions or otherwise or in any combination of such transactions at market prices then prevailing, at prices related to the then current market price, at negotiated prices or at fixed prices. In addition, any Shares covered by this Prospectus which qualify for sale pursuant to Section 4(1) of the Securities Act or Rule 144 promulgated thereunder may be sold under such provisions rather than pursuant to this Prospectus. The Shares may be offered in any manner permitted by law, including through underwriters, brokers, dealers or agents, and directly to one or more purchasers. Without limiting the generality of the foregoing, the Shares may be sold in one or more of the following types of transactions: (a) sales to underwriters who will acquire the Shares for their own account and resell them in one or more transactions at fixed prices or at varying prices determined at the time of sale; (b) a block trade in which the broker-dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; (c) purchases by a broker or dealer as principal and resale by such broker or dealer for its accounts; (d) ordinary brokerage transactions and transactions in which the broker solicits purchasers; (e) an exchange distribution in accordance with the rules of such exchange; and (f) transactions between sellers and purchasers without a broker-dealer. In effecting sales, brokers or dealers engaged by the Selling Stockholders may arrange for other brokers or dealers to participate in the resales. Brokers, dealers, or agents may receive compensation in the form of commissions, underwriting discounts or concessions from the Selling Stockholders in amounts to be negotiated in connection with the sale. Such brokers or dealers and any other participating brokers or dealers may be deemed to be "underwriters" within 5 the meaning of the Securities Act in connection with such sales and any such commission, discount or concession may be deemed to be underwriting discounts or commissions under the Securities Act. In the event any Selling Stockholder engages an underwriter in connection with the sale of the Shares, to the extent required, a Prospectus Supplement will be distributed, which will set forth the number of shares being offered and the terms of the offering, including the names of the underwriters, any discounts, commissions and other items constituting compensation to underwriters, dealers or agents, the public offering price and any discounts, commissions or concessions allowed or reallowed or paid by underwriters to dealers. LEGAL MATTERS The validity of the Shares will be passed upon for the Company by Stoel Rives LLP, Portland, Oregon. EXPERTS The consolidated financial statements incorporated in this Prospectus by reference from the Company's Annual Report on Form 10-K for the year ended January 31, 1998 and the supplemental pooled financial statements of Fred Meyer, Inc. reflecting the acquisition of Quality Food Centers, Inc. on a pooling basis included in the Company's Form 8-K/A dated March 9, 1998 have been audited by Deloitte & Touche LLP (Portland, Oregon), independent auditors, as stated in their report, which is incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report of said firm given upon its authority as experts in accounting and auditing. The consolidated financial statements of Quality Food Centers, Inc. as of December 28, 1996 and December 27, 1997 and for each of the three years in the period ended December 28, 1996 included in the Quality Food Centers, Inc. Form 10-K for the year ended December 27, 1997 have been audited by Deloitte & Touche LLP (Seattle, Washington), independent auditors, as stated in their report included therein and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The consolidated financial statements of Quality Food Centers, Inc. as of December 28, 1996 and for each of the three years in the period ended December 28, 1996 included in the Quality Food Centers, Inc. Form 10-K/A for the year ended December 28, 1996 have been audited by Deloitte & Touche LLP (Seattle, Washington), independent auditors, as stated in their report included therein and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The consolidated balance sheets of Food 4 Less Holdings, Inc. as of February 1, 1998, February 2, 1997, January 28, 1996 and January 29, 1995 and the related consolidated statements of operations, cash flows and stockholders' equity for the 52 weeks ended February 1, 1998, the 53 weeks ended February 2, 1997, the 52 weeks ended January 28, 1996, the 31 weeks ended January 29, 1995 and the 52 weeks ended June 25, 1994 and the related financial statement schedules incorporated by reference herein, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are incorporated herein by reference in reliance upon the authority of said firm as experts in giving said reports. 6 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ No dealer, salesperson or any other person has been authorized in connection with any offering made hereby to give any information or to make any representations other than those contained or incorporated by reference in this Prospectus Supplement or the accompanying Prospectus, and if given or made, such information or representations must not be relied upon as having been authorized by the Company, the Smith Selling Stockholders or DLJ. This Prospectus Supplement and the accompanying Prospectus do not constitute an offer to sell or a solicitation of an offer to buy any security other than the Shares offered hereby, nor do they constitute an offer to sell or a solicitation of an offer to buy any of the Shares offered hereby by anyone in any jurisdiction in which such offer or solicitation is not authorized, or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus Supplement or the accompanying Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the respective dates as to which information has been given herein and therein. --------------------- TABLE OF CONTENTS Page PROSPECTUS SUPPLEMENT Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . S-2 Unaudited Pro Forma Condensed Combined Financial Statements. . . . . . . . . . . . S-5 Description of Capital Stock . . . . . . . . . . . . . . . . . S-17 The Underwriter. . . . . . . . . . . . . . . . . . . . . . . . S-18 Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . S-18 PROSPECTUS Available Information. . . . . . . . . . . . . . . . . . . . . 2 Incorporation of Certain Documents by Reference . . . . . . . . . . . . . . . . . . . . . . . . . 2 Forward Looking Statements . . . . . . . . . . . . . . . . . . 3 The Company. . . . . . . . . . . . . . . . . . . . . . . . . . 3 Selling Stockholder. . . . . . . . . . . . . . . . . . . . . . 4 Plan of Distribution . . . . . . . . . . . . . . . . . . . . . 5 Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . 6 Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- 4,215,584 Shares Fred Meyer, Inc. Common Stock --------------------- PROSPECTUS SUPPLEMENT --------------------- Donaldson, Lufkin & Jenrette Securities Corporation July 8, 1998 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ -----END PRIVACY-ENHANCED MESSAGE-----