-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, dRcFjOKnkfMPa71un9D5yfPdhStZtLIxHHuA8rHrB/Lkv3dg29TxSwX8nAEy3azv lA0VxLZsY9x9VZ+V6WFigQ== 0000908159-94-000013.txt : 19940519 0000908159-94-000013.hdr.sgml : 19940519 ACCESSION NUMBER: 0000908159-94-000013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19940129 FILED AS OF DATE: 19940427 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEYER FRED INC CENTRAL INDEX KEY: 0000701169 STANDARD INDUSTRIAL CLASSIFICATION: 5331 IRS NUMBER: 930798201 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15023 FILM NUMBER: 94524559 BUSINESS ADDRESS: STREET 1: 3800 SE 22ND AVE CITY: PORTLAND STATE: OR ZIP: 97202 BUSINESS PHONE: 5032328844 MAIL ADDRESS: STREET 1: P.O. BOX 42121 CITY: PORTLAND STATE: OR ZIP: 97242 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 29, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-15023 FRED MEYER, INC. (Exact name of registrant as specified in its charter) Delaware 93-0798201 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3800 SE 22nd Avenue Portland, Oregon 97202 (Address of principal executive offices) (Zip Code) (503) 232-8844 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S- K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of Common Stock held by nonaffiliates of the Registrant at March 1, 1994: $647,460,408 Number of shares of Common Stock outstanding at March 1, 1994: 26,430,565 Documents Incorporated by Reference ----------------------------------- Part of Form 10-K into Document which incorporated - - -------- ---------------------- Portions of 1993 Annual Parts II and IV Report to Shareholders Portions of Proxy Statement Part III for 1994 Annual Meeting of Shareholders
TABLE OF CONTENTS ----------------- Item of Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Page - - ----------------- ---- PART I Item 1 - Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 2 - Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Item 3 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Item 4 - Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . 10 Item 4(a) - Executive Officers of the Registrant. . . . . . . . . . . . . . . . . . . . . . . 10 PART II Item 5 - Market for the Registrant's Common Stock and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . 12 Item 6 - Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Item 8 - Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . 13 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . 13 PART III Item 10 - Directors and Executive Officers of the Registrant. . . . . . . . . . . . . . . . 13 Item 11 - Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Item 12 - Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Item 13 - Certain Relationships and Related Transactions. . . . . . . . . . . . . . . . . . 13 PART IV Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 /TABLE PART I Item 1. Business. - - ------ -------- GENERAL Fred Meyer, Inc. (the "Company") is a leading regional retailer of a wide range of food, apparel, fine jewelry and products for the home. At January 29, 1994, the Company operated 127 stores in Oregon, Washington, Utah, Alaska, Idaho, Northern California and Montana under the name "Fred Meyer." Of these stores, 97 are free-standing, multidepartment stores, averaging approximately 137,000 square feet of retail space, that emphasize one-stop-shopping for necessities and items of everyday use. Of the 97 multidepartment stores, 77 contain food and nonfood departments, and 20 contain nonfood departments only. The Company's multidepartment stores accounted for approximately 98 percent of both the Company's total sales and operating income for the Company's 1993 fiscal year ended January 29, 1994. Of the 30 specialty stores, 23 are jewelry stores located in regional malls. The Company's multidepartment stores contain up to seven departments which include food, the home, apparel, home electronics, fine jewelry, health and beauty aids and a pharmacy. The Company's multidepartment stores are unique in the Pacific Northwest in combining food with a wide range of nonfood merchandise under one roof. For the 1993 fiscal year, food and nonfood sales were 37.5 percent and 62.5 percent of total sales, respectively. 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. The Company believes that its business strategy has generated high per-store sales volume and frequent shopping by area residents and that its departments achieve greater sales volume because they are located within one-stop shopping stores. 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 it to compete successfully with supermarkets, drugstores, discount stores, mass merchandisers, department and specialty stores. The Company promotes cross-shopping by providing convenient access between departments, making each department a strong competitor in the market for its products and by facilitating easy customer checkout through a cash register system that allows customers to purchase merchandise from any department at any checkout location ("common checkout"). During the past several years, the Company has committed substantial capital and management resources to improve its one-stop-shopping strategy, allowing it to better serve its customers and respond to the many new competitors entering its markets. New competitors in the past six years include Wal-Mart, Food 4 Less, Cub Foods, Home Depot, HomeBase, Eagle, Sam's Club and Incredible Universe. During the same period, the Company also faced increased competition from existing major national and regional retailers, including Safeway, Albertson's, Costco, Lamonts, Mervyn's, PayLess, Penneys, Carrs, QFC, Kmart, Target, ShopKo and Toys-R-Us. Notwithstanding the competitive environment and a slowdown in economic conditions in some of the Company's markets, the Company has been able to achieve total and comparable store sales growth averaging 7.8 percent and 3.5 percent, respectively, over the past five years (based on 52-week years). Total and comparable store sales growth were 4.4 percent and 2.4 percent, respectively, for the Company's 1993 fiscal year. During the past five-year period, the Company implemented common checkout for the majority of its multidepartment stores to complement its storewide merchandising efforts. The Company also remodeled 32 multidepartment stores and redesigned and remodeled many food departments to include in-store bakeries, delicatessens and service fish markets to respond to customer shopping preferences. Beginning in 1987, the Company implemented 2 an everyday low pricing strategy in its food operations. In 1989, the Company reorganized its operating management structure and for each store designated a store director responsible for store operations and profitability and departmental cross- merchandising. In 1992 the Company augmented its store management structure by establishing a regional management structure of six regional management teams closely aligned with the stores in the regions. Beginning in 1991, management focused increased attention on the Company's expenses. This focus decreased expenses as a percent of sales by 2.36 percent since 1990 for advertising, store labor, store occupancy and corporate support department expenses, offset in part by increases in information services ("IS") expenses of .70 percent, resulting in a net decrease of 1.66 percent. The Company is continuing to pursue expense reductions as part of its efforts to improve its financial performance. The Company's capital expenditure budget for its 1994 fiscal year is $265,000,000, compared to capital expenditures of approximately $254,000,000 in 1993. Beginning in 1993, the Company implemented a plan to increase new store development in its existing markets and to increase the level of remodeling of existing stores. As a result, the Company plans to open at least five new multidepartment stores and remodel at least seven existing stores in each of the five fiscal years beginning in 1993. All of the new stores scheduled for 1993 opened in the second half of the 1993 fiscal year. Total retail space will increase by approximately 6.0 percent in 1993 and 1994. The Company is also constructing a new retail service center in Chehalis, Washington and developing plans for a food distribution facility near Seattle, Washington. In addition, the Company is continuing its program to replace and upgrade its old IS system with new architecture and application programs. The Company's new distribution facilities and new IS system are designed to improve operations, permit better inventory management and reduce distribution costs. The Company was incorporated in Delaware in 1981, as a successor to the business of a company which 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 Form 10-K to the Company mean Fred Meyer, Inc., including its subsidiaries, unless the context requires otherwise. 3 The following table sets forth certain statistical information with respect to the Company's operations for the periods indicated:
Fiscal Year Ended ------------------------------------------------------------------------------------ January 29, January 30, February 1, February 2, February 3, 1994 1993 1992 1991 1990 ---------- ---------- ---------- ---------- ----------- (53 weeks) Percent of net sales: Nonfood sales 62.5% 63.3% 63.7% 64.3% 66.8% Food sales 37.5% 36.7% 36.3% 35.7% 33.2% Sales per square foot of selling space (weighted average) $312 $304 $283 $269 $261/1 Total stores sales growth 4.4% 5.6% 9.2% 11.6%/1 8.4%/1 Comparable store sales percentage increase: /2 Total Company 2.4% 3.0% 4.0% 3.6%/1 4.5%/1 Food 3.4% 2.8% 4.5% 8.3%/1 9.0%/1 Nonfood 1.9% 3.2% 3.8% 1.1%/1 2.3%/1 Number of multidepartment stores: Operated at end of period 97 94 94 94 95 Opened 5 2 3 5 4 Closed 2 2 3 6 2 Remodeled 7 5 3 7 10 Number of specialty stores: Operated at end of period 30 29 28 28 30 Opened 2 4 -- -- 11 Closed 1 3 -- 2 -- Remodeled -- -- -- -- -- Total Number of stores: Operated at end of period 127 123 122 122 125 Opened 7 6 3 5 15 Closed 3 5 3 8 2 Remodeled 7 5 3 7 10 Total retail square feet: At beginning of period 12,646,000 12,679,000 12,213,000 11,743,000 10,925,000 Added by new stores opened 811,000 295,000 584,000 940,000 785,000 Added by remodeling of existing stores 80,000 39,000 63,000 24,000 155,000 Less closed stores 114,000 367,000/3 181,000 494,000 122,000 At end of period 13,423,000 12,646,000 12,679,000 12,213,000 11,743,000 __________________ /1 Excludes 53rd week in the year ended February 3, 1990 for comparison purposes. /2 Includes only sales of stores operating throughout each of the periods compared. /3 Includes square footage for 30 restaurants that were converted to tenant space.
BUSINESS STRATEGY 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 a strong competitor in the market for the products it sells and by providing easy customer checkout through its common checkout system that allows customers to purchase merchandise from any department at any checkout location. 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. In addition, the Company takes advantage of the stores' high 4 and diverse customer traffic to sell many other categories of goods which are purchased on a discretionary basis, such as fine jewelry, home electronics and fashion apparel. Within many categories of apparel, products for the home, fine 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 brands and its own private-label brands. 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 through specialized design, fixtures, and decor. In most stores, common checkout areas allow the checkout of items from the Company's many departments at any cash register and facilitate convenient shopping. Most of the Company's departments are self-service, except service delicatessens, home electronics, fine jewelry and other areas where special sales assistance is required. Stores consist of up to seven departments which are comprised of a variety of specialty sections. Departments and specialty sections within the large Fred Meyer stores 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 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. Store and Regional Management. - - ----------------------------- In 1989, the Company reorganized its operating management structure and for each store designated a store director responsible for store operations and profitability and departmental cross-merchandising. Departments within multidepartment stores are managed by merchandising managers, who report to store directors. Each store director and department manager is supported by a regional manager and other senior managers who specialize in the market for products sold in the stores. In 1992, the Company augmented its store management structure by establishing regional management teams that work closely with the stores in their region to enhance sales and profit opportunities. As a result of its specialized management structure, the Company believes that each store and each department within the store better serves its customers and is able to respond quickly to market changes. 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 the proposed site is located. Most of the Company's stores are situated in or near well-populated residential areas. The Company selects store sites, 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. In 1992, the Company standardized its store design with two basic store plans, approximating 145,000 square feet and 165,000 square feet. The Company anticipates using a given prototype depending on the market to be served and the size of the site being developed. The Company is flexible in its store design plans where land sites require a specialized store design. 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. Sale items are usually items regularly sold in the departments. The Company emphasizes everyday low prices in its food departments and for certain nonfood items, and generally offers promotional sale pricing in its nonfood departments. The Company believes that it is known for competitive pricing and its liberal return policy. Information Services. - - -------------------- In the fall of 1991, the Company began a five-year program to modernize its systems to better support its business. The new systems will permit greater utilization of information collected from the point-of- sale bar scanning equipment installed in the Company's stores. 5 In 1991, a mainframe computer was installed allowing every store to be linked with the main office and distribution centers. In 1992, electronic data interchange ("EDI") was established, and a new pharmacy system was added in the multidepartment stores. EDI permits on-line computer communication between the Company and its vendors and facilitates order entry and inventory replenishment on a current basis. Currently, over 500 vendors are on the EDI system, and the Company has 6,000 items on the new computer-assisted automatic replenishment system. In 1993, the Company implemented a new distribution system and is in the process of implementing new systems for merchandising information and inventory management. The new systems are designed to provide the company with better inventory turnover and control, reduced markdowns, improved expense controls, reduced distribution costs and better customer service. RETAIL OPERATIONS The Company's stores contain up to seven departments. Within each department is 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 97 multidepartment stores at January 29, 1994: Food . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Nonfood. . . . . . . . . . . . . . . . . . . . . . . . . . . 97 The Home. . . . . . . . . . . . . . . . . . . . . . . 97 Housewares, Domestics, and Home Decor Sporting Goods Garden Home Improvement and Automotive Cards and Books Variety and Seasonal Home Electronics. . . . . . . . . . . . . . . . . . . 97 Apparel . . . . . . . . . . . . . . . . . . . . . . . 97 Apparel Cosmetics Shoes Toys Pharmacy. . . . . . . . . . . . . . . . . . . . . . . 96 Health and Beauty Aids. . . . . . . . . . . . . . . . 97 Fine Jewelry. . . . . . . . . . . . . . . . . . . . . 83
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). 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 approximately 20 percent from 12 percent in 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 and meat products. The Company's newer stores include sit-down eating areas near in-store delicatessens and international take- out 6 departments. The following table sets forth the number of nutrition, in-store bakery and service departments at January 29, 1994: Nutrition. . . . . . . . . . . . . . . . . . . . . . . . . . 81 Bakery . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Service Delicatessen . . . . . . . . . . . . . . . . . . . . 73 Service Fish Market. . . . . . . . . . . . . . . . . . . . . 51 Service Meat Market. . . . . . . . . . . . . . . . . . . . . 22
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, 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, Rowenta, De Longhi, Glidden and Weber. Home improvement, garden and automotive sections feature many items for the do-it-yourself customer. High quality private label products under our Northwest Home, Turf King and Kraft King labels complement our national branded offering. The Home Electronics Department offers the latest name- brand high-technology merchandise, such as televisions, audio components, camcorders, cellular phones, computers, computer software and a large selection of video games. Some of the national brands featured are SONY, JBL, Pioneer, IBM and Magnavox. It also offers a large selection of compact discs, tapes, and for-sale video and includes a photo-finishing section. One-hour photo-finishing has also been added to selected locations. The Apparel Department offers moderately priced national brand and private-label apparel, sportswear, cosmetics, accessories, toys and family and active shoes. Major national brands carried by the apparel departments include Levi's, Jockey, Maidenform, Vanity Fair, Nike, Reebok, Adidas, Gotcha, Villager, Eastland, Union Bay, Columbia Sportswear, Capezio, Lee, Bali and Keds. High quality private label products under our Fred Bear, Katherine Bishop and KB & Co. labels complement our national branded offering. 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. The Fine Jewelry Department offers an extensive selection of bridal jewelry and diamond fashion jewelry, including precious and semi-precious stones. It also offers name brand watches and an assortment of 14-carat gold chains and earrings. Most of the Company's multidepartment stores are open from 8:00 a.m. until 10:00 p.m., seven days a week, including all holidays except Christmas. Multidepartment stores in markets where the Company does not sell food are open from 9:00 a.m. until 10:00 p.m. Most of the Company's multidepartment store locations have unaffiliated tenants which offer goods and services complementing those offered by the Company, such as banks, optical centers, restaurants, self-service laundries, insurance agencies and beauty and barber shops. 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 programs which are serviced by national credit card processors and are generally on a nonrecourse basis. Beginning in 1992, the Company began accepting debit cards that do not require customer-activated personal identification number ("PIN") pads. 7 EXPANSION AND STORE DEVELOPMENT The Company constructs, enlarges, remodels, closes or sells stores in light of their past performance and 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. In 1989 and 1990, the Company opened a total of nine new multidepartment stores and remodeled seventeen existing stores. In 1991 and 1992, new store openings, development and remodeling activity declined to a total of five new multidepartment stores and eight remodels while the Company focused on reducing expenses and improving profitability. Beginning in 1993, the Company implemented a plan to increase new store development in its existing markets and to increase the level of remodeling of existing stores. During 1993, the Company opened five new multidepartment stores, one of which replaced an older store; closed two multidepartment stores (including the one store that was replaced); and remodeled seven stores. Generally, the Company plans to open at least five new multidepartment stores and remodel at least seven existing stores in each of the five years beginning in 1994. It plans to close one multidepartment store in 1994. In 1993, capital expenditures for new store development and remodels were approximately $156,000,000, compared with expenditures in 1992 of approximately $57,000,000. A portion of this increase reflects spending for stores to open in 1994. Total retail space increased 777,000 square feet during 1993, representing an increase of approximately 6.1 percent. New multidepartment store openings during the year 1993 were as follows:
Total Retail Space Location Square Footage Opened -------- -------------- ------ Orchards, Washington. . . . . . . . . . . . . . . . . . 165,000 October, 1993 Anchorage, Alaska . . . . . . . . . . . . . . . . . . . 169,000 November, 1993 Spokane, Washington . . . . . . . . . . . . . . . . . . 165,000 November, 1993 Burlington, Washington. . . . . . . . . . . . . . . . . 165,000 November, 1993 Medford, Oregon . . . . . . . . . . . . . . . . . . . . 144,000 January, 1994
Planned new multidepartment store openings during the year 1994 are as follows:
Total Retail Space Location Square Footage Planned Opening -------- -------------- --------------- Soldotna, Alaska. . . . . . . . . . . . . . . . . . . . 157,000 April, 1994 Brookings, Oregon . . . . . . . . . . . . . . . . . . . 143,000 April, 1994 East Vancouver, Washington. . . . . . . . . . . . . . . 166,000 July, 1994 Boise, Idaho. . . . . . . . . . . . . . . . . . . . . . 164,000 August, 1994 Bonney Lake (Seattle), Washington . . . . . . . . . . . 166,000 September, 1994
In 1994, the Company is planning capital expenditures estimated to be $265,000,000. Total capital expenditures for 1993 were approximately $254,000,000. In addition to the new store and remodel program, the Company is initiating or continuing many capital projects aimed at improving operating efficiencies, including improvements to its distribution centers, central bakery, and dairy plant, continued IS enhancements and the just completed construction of a new wing to its main office complex. The new office wing enabled the Company to consolidate its corporate offices into one facility from the three locations it previously occupied in the Portland area. 8 DISTRIBUTION AND PROCESSING The Company operates a centralized distribution facility in a complex at Clackamas, Oregon, near Portland, containing 1,528,000 square feet and also maintains a distribution facility in Salt Lake City, Utah, containing 122,000 square feet. Approximately two-thirds of the merchandise the Company sells is currently shipped from its Clackamas and Salt Lake City distribution centers, with approximately one- third shipped directly by vendors to the Company's stores. As a result of its recent investment in IS 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. The Company believes that its distribution and related IS systems provide it with several advantages. First, they permit its 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. Fourth, the Company is able to lower its total level of inventory investment and related financing costs. The Company opened a retail service center in April, 1994 in Chehalis, Washington containing approximately 310,000 square feet to serve as the centralized processing facility for certain apparel and other nonfood items. This facility will replace approximately 350,000 square feet of outside store space currently leased from third parties, including the Salt Lake City facility. It will also allow the Company to meet its nonfood distribution center needs past the year 2000. The Company's new Chehalis facility is designed to minimize 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 the Chehalis facility. The Company is also developing plans for a new 600,000 square-foot centralized food distribution facility in Puyallup, Washington near Seattle to serve stores in the Puget Sound Region and Alaska. 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 and it is projected to become more competitive in the years to come. 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. The Company's competitive position in the retail business varies by type of goods and the communities in which its stores are located. In the last few years, many new competitors have entered the markets in which the Company operates. New competitors in the past six years include Wal-Mart, Food 4 Less, Cub Foods, Home Depot, HomeBase, Eagle, Sam's Club and Incredible Universe. During the same period, the Company also faced increased competition from existing major national and regional retailers, including Safeway, Albertson's, Costco, Lamonts, Mervyn's, PayLess, Penneys, Carrs, QFC, Kmart, Target, ShopKo and Toys-R-Us. Notwithstanding the competitive environment and a slowdown in economic conditions in some of the Company's markets, the Company has been able to achieve total and comparable store sales 9 growth averaging 7.8 percent and 3.5 percent, respectively, over the past five years (based on 52-week years). 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. EMPLOYEES Currently, the Company employs approximately 25,000 full- and part-time employees. Approximately 56 percent of the Company's employees are represented by 30 different labor unions (or locals). These employees are covered by 107 different collective bargaining agreements, none of which covers more than 2,400 employees. Approximately 35 percent of the agreements will expire during 1994, including agreements covering employees in both large metropolitan and smaller nonmetropolitan areas where the Company operates and at its distribution facilities in Clackamas, Oregon. The last work stoppage the Company experienced involved the multiemployer bargaining unit for food clerks and meatcutters in Portland, Oregon in 1990. There were no work stoppages in 1991, 1992 or 1993. The Company believes that it has good relations with the many unions representing its employees. On April 3, 1994 agreements covering approximately 1,000 employees at the Company's Clackamas Distribution Center were scheduled to expire. The agreements have been extended on a day-to-day basis, subject to termination on seventy-two hour advance written notice. The Company and the leadership of the unions involved are in negotiation for a new agreement. No assurance can be given that the parties will be able to reach new agreements without the occurrence of a work stoppage. Item 2. Properties. - - ------ ---------- As a part of the leveraged buyout transaction in which the Company was incorporated in 1981, Fred Meyer Real Estate Properties, Ltd., whose name was changed in 1991 to Real Estate Properties Limited Partnership ("Properties"), acquired the real estate assets of the corporation that was the predecessor to the Company. In 1986, the Company amended and restated 76 leases relating to 71 stores, its distribution center, and four other facilities. The leases provide, among other things: (1) fixed rent expense in the aggregate for accounting purposes over the initial term of the leases at levels below rent expense under the prior leases for the fiscal year ended January 30, 1988; (2) initial lease terms generally averaging 20 years; (3) future rent from certain unrelated subtenants to be paid to the Company; and (4) seven five-year renewal options under leases for the 36 leased properties owned by Metropolitan Life Insurance Company (the "Institutional Investor") at rents for the first five option periods below the average rents during the initial term, and an option for the Company to purchase any of the leased properties at the end of the initial term and at the end of each option period. Properties sold to the Institutional Investor its interest in 36 of the 76 properties which were leased to the Company. The Institutional Investor is also an investor in Properties and FMI Associates. At March 1, 1994, FMI Associates beneficially owned 38.2 percent of the Company's common stock. Twenty locations are owned by the Company and its subsidiaries. The balance of the Company's locations are leased from the Institutional Investor, Properties or third parties. All of the Company's stores and its distribution and processing facilities are in good condition. Additionally, the Company owns fifteen parcels of land. Ten are being held for development of future stores, and three in California and two in Washington are being held for sale. 10 The following table as of January 29, 1994, summarizes the remaining lease years, assuming the exercise of all options, for store locations and the Company's distribution facilities, warehouses, and plants.
Distribution Facilities Store Locations Warehouses & Plants --------------------------- -------------------------- Remaining Number Square Ft. of % of Total Square Ft. of % of Total of Lease Years Retail Space Square Ft. Facility Space Square Ft. - - ---------------- ------------- ---------- -------------- ---------- Less than 5 years 320,405 2.4 265,400 11.1 5 through 15 years 378,871 2.8 0 0.0 16 through 25 years 2,878,206 21.4 122,000 5.1 Over 25 years 7,287,224 54.3 1,527,875 63.8 ---------- ----- --------- ----- Total Leased 10,864,706 80.9 1,915,275 80.0 ---------- ----- --------- ----- Owned Properties 2,558,435 19.1 479,414 20.0 ---------- ----- --------- ----- 13,423,141 100.0 2,394,689 100.0 Total ========== ===== ========= ===== Item 3. Legal Proceedings. - - ------ ----------------- The Company and its subsidiaries are parties to various legal claims, actions, and complaints which have arisen in the ordinary course of business. Although the Company is unable to predict with certainty whether it will ultimately be successful in these legal proceedings or, if not, what the impact might be, management presently believes that disposition of these matters will not have a material adverse effect on the Company's consolidated financial position or consolidated results of operations. Item 4. Submission of Matters to a - - ------ Vote of Security Holders. ------------------------ Not applicable. Item 4(a). Executive Officers of the Registrant. - - --------- ------------------------------------ As of March 1, 1994, the executive officers of the Company were as set forth below.
Original Date of Name Age Position Employment - - ---- --- -------- ---------- Robert G. Miller 49 Chairman of the Board and 1991 Chief Executive Officer Cyril K. Green 62 President and Chief Operating Officer 1947 R. Eric Baltzell 53 Senior Vice President, Stores 1962 Roger J. Bladholm 54 Senior Vice President, Distribution 1973 Centers and Transportation Roger A. Cooke 45 Senior Vice President, General Counsel 1992 and Secretary Edward A. Dayoob 54 Senior Vice President, Jewelry Group 1973 Curt A. Lerew, III 46 Senior Vice President, Food Group 1991 11 Keith W. Lovett 50 Senior Vice President, 1992 Human Resources Ronald J. McEvoy 46 Senior Vice President, 1991 Chief Information Officer Norman O. Myhr 46 Senior Vice President, 1978 Sales Promotion and Marketing Cheryl D. Perrin 55 Senior Vice President, Public Affairs 1976 Mary F. Sammons 47 Senior Vice President, General Group 1973 Kenneth Thrasher 44 Senior Vice President - Finance and 1982 Chief Financial Officer Scott L. Wippel 40 Senior Vice President, 1992 Corporate Facilities
The executive officers of the Company are elected annually for one year and hold office until their successors are elected and qualified. There are no family relationships among the executive officers of the Company. Mr. Miller became Chairman of the Board and Chief Executive Officer of the Company in August of 1991. Prior to that time he was employed by Albertson's, where his most recent positions were Executive Vice President of Retail Operations from 1989 to 1991, and Senior Vice President and Regional Manager from 1985 to 1989. Mr. Miller has 30 years of experience in the retail food industry. Mr. Green became President and Chief Operating Officer in 1972, and has been with the Company since 1947. He has held many positions with the Company prior to his election to President. Mr. Baltzell served as Vice President, Food Operations of the Company from 1982 until his election as Senior Vice President, Store Operations Division in June 1989. Mr. Bladholm served as Vice President, Distribution Centers and Plants from 1984 until his election as Vice President, Distribution Centers, Plants, and Transportation in 1990. He was elected Senior Vice President, Distribution Centers, Plants, and Transportation on April 14, 1992. Mr. Cooke became Vice President, General Counsel and Secretary of the Company in August 1992. He was elected Senior Vice President in April 1993. From 1982 to 1992, he was an officer of Pan American World Airways, Inc., serving as Senior Vice President and General Counsel from 1990 to 1992. From 1973 to 1980, he was associated with the law firm Simpson Thacher and Bartlett. Mr. Dayoob served as Vice President, Jewelry Division of the Company from 1979 until his election as Senior Vice President, Photo Electronics and Jewelry Division in June 1989. This Division was renamed the Home Electronics and Jewelry Group in 1990. The Home Electronics Division was merged into the General Group in 1993. Mr. Lerew became Senior Vice President, Food Group in October 1991. Prior to that time he was employed by Albertson's, where his most recent positions were Senior Vice President and Regional Manager in 1991, Senior Vice President of Corporate Merchandising from 1990 to 1991, and Vice 12 President, Western Washington Division, from 1987 to 1990. Mr. Lerew has more than 25 years of experience in the retail food industry. Mr. Lovett became Senior Vice President, Human Resources of the Company in February of 1992. Prior to that time he was employed by Eagle Food Centers, where he was Senior Vice President of Human Resources and Vice President of Industrial Relations. Mr. Lovett has 22 years of experience in labor negotiations and human resource management. Mr. McEvoy became Senior Vice President, Chief Information Officer in charge of the Company's Information Services in July 1991. For the year prior to that, he worked for IBM United States as a business advisor in the retail industry. From 1987 to 1990, he was Senior Vice President for Management Information Systems (MIS) for J.B. Ivey. He held the same position from 1983 to 1987 with John Wanamaker. He also held various MIS and financial positions with Hecht's from 1969 to 1983. Mr. McEvoy has 23 years of experience in the retail industry. Mr. Myhr served as Vice President, Sales Promotion of the Company from 1982 until his election as Senior Vice President, Strategic Marketing in June 1989. He now serves as Senior Vice President, Sales Promotion and Marketing. Ms. Perrin served as Vice President, Government Affairs from 1985 until her election as Vice President, Public Affairs in 1988. She was elected Senior Vice President, Public Affairs in April 1992. Ms. Sammons served as Vice President within the Soft Goods Division of the Company from 1980 until her election as Senior Vice President, Soft Goods Division in January 1986. In June 1989, she was elected Senior Vice President, General Merchandise Division. This Division was renamed the General Group in 1990. Mr. Thrasher served as Vice President, Corporate Treasurer of the Company from 1982 until his election as Vice President - Finance, Chief Financial Officer, and Secretary in June 1987. He was elected Senior Vice President - Finance effective March 1989. Mr. Wippel became Vice President, Corporate Facilities in June 1992. He was elected Senior Vice President in April 1993. Prior to that, he was employed by Albertson's, where his most recent positions were Vice President of Real Estate from 1990 to 1992 and Director of Real Estate from 1988 to 1990. PART II Item 5. Market for the Registrant's Common - - ------ Stock and Related Stockholder Matters. ------------------------------------- The information required by this item is included under "Common Stock Information" on page 20 of the Company's 1993 Annual Report to Shareholders and is incorporated herein by reference. Item 6. Selected Financial Data. - - ------ ----------------------- The information required by this item is included under "Selected Financial Data" on pages 16 and 17 of the Company's 1993 Annual Report to Shareholders and is incorporated herein by reference. 13 Item 7. Management's Discussion and - - ------ Analysis of Financial Condition and Results of Operations. ------------------------- The information required by this item is included under "Management's Discussion and Analysis" on pages 18 through 20 of the Company's 1993 Annual Report to Shareholders and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. - - ------ ------------------------------------------- The information required by this item is incorporated by reference from the Company's 1993 Annual Report to Shareholders as listed in Item 14 of Part IV of this Report. Item 9. Changes in and Disagreements with Accountants - - ------ on Accounting and Financial Disclosure. -------------------------------------- Not applicable. PART III Item 10. Directors and Executive - - ------- Officers of the Registrant. -------------------------- Information with respect to directors of the Company is included under "Election of Directors" in the Company's Proxy Statement for its 1994 Annual Meeting of Shareholders and is incorporated herein by reference. Information with respect to executive officers of the Company is included under Item 4(a) of Part I of this Report. Item 11. Executive Compensation. - - ------- ---------------------- Information with respect to executive compensation is included under "Executive Compensation" in the Company's Proxy Statement for its 1994 Annual Meeting of Shareholders and is incorporated herein by reference, except for items appearing under the subheadings "Compensation Committee Report on Executive Compensation" and "Comparison of Five Year Cumulative Total Return" which are not incorporated herein. Item 12. Security Ownership of Certain - - ------- Beneficial Owners and Management. -------------------------------- Information with respect to security ownership of certain beneficial owners and management is included under "Voting Securities and Principal Shareholders" and "Election of Directors" in the Company's Proxy Statement for its 1994 Annual Meeting of Shareholders and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. - - ------- -------------------- Information required by this item is included under "Certain Transactions" in the Company's Proxy Statement for its 1994 Annual Meeting of Shareholders and is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement - - ------- Schedules, and Reports on Form 8-K. ---------------------------------- (a)(1) Financial Statements. The following documents are included in the Company's 1993 Annual 14 Report to Shareholders at the pages indicated and are incorporated herein by reference:
Page in 1993 Annual Report to Shareholders ---------------------- Fred Meyer, Inc. and Subsidiaries: Consolidated Balance Sheets - January 29, 1994 and January 30, 1993 22-23 Statements of Consolidated Operations - Years Ended January 29, 1994, January 30, 1993 and February 1, 1992 21 Statements of Consolidated Cash Flows - Years Ended January 29, 1994, January 30, 1993 and February 1, 1992 24 Statements of Changes in Consolidated Stockholders' Equity - Years Ended February 1, 1992, January 30, 1993 and January 29, 1994 25 Notes to Consolidated Financial Statements 26-31 Independent Auditors' Report 32
(a)(2) Financial Statement Schedules. ----------------------------- The following schedules and related independent auditors' report are filed herewith: Independent Auditors' Report Schedule II - Notes Receivable from Related Parties Schedule V - Property, Plant, and Equipment Schedule VI - Accumulated Depreciation and Amortization of Property, Plant, and Equipment Schedule X - Supplementary Income Statement Information All other schedules are omitted as the required information is inapplicable or is presented in the financial statements or related notes thereto.
(a)(3) Exhibits. -------- 3A Restated Certificate of Incorporation of Fred Meyer, Inc. Incorporated by reference to Exhibit 3A to the Company's Registration Statement on Form S-1, Registration No. 33-8574. 3B Amended and Restated Bylaws of Fred Meyer, Inc. Incorporated by reference to Exhibit 4B to the Company's Registration Statement on Form S-8, Registration No. 33-49638. 4A Specimen Stock Certificate. Incorporated by reference to Exhibit 4C to the Company's Registration Statement on Form S-3, Registration No. 33-67670. 4B Credit Agreement dated as of June 15, 1990, as amended June 25, 1990, among Fred Meyer, Inc., various banks named therein, and Continental Bank, N.A., as Agent ("Credit Agreement"). Incorporated by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 18, 1990 (File No.0-15023). Second Amendment and Extension of Credit Agreement dated as of June 28, 1991. Incorporated by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 17, 1991 (File No. 0-15023). Third Amendment to Credit Agreement dated as of January 29, 1992. 15 Incorporated by reference to Exhibit 4 to the Company's Annual Report on Form 10-K for the year ended February 1, 1992. Fourth Amendment and Extension to Credit Agreement dated as of July 31, 1992. Incorporated by reference to Exhibit 4D to the Company's Registration Statement on Form S-3, Registration No. 33-67670. Fifth Amendment and Extension to Credit Agreement dated as of July 31, 1993. Incorporated by reference to Exhibit 4D to the Company's Registration Statement on Form S-3, Registration No. 33-67670. 4C 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, Registration No. 33-67670. 10A-1 Fred Meyer, Inc. 1983 Stock Option Plan, as amended. Incorporated by reference to Exhibit 10D to the Company's Annual Report on Form 10-K for the year ended January 28, 1989 (File No. 0-15023). 10A-2 Fred Meyer, Inc. 1990 Stock Incentive Plan, as amended. Incorporated by reference to Exhibit 28 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 18, 1990 (File No. 0-15023). 10B Fred Meyer, Inc. Bonus Plan Description, as amended. 10C Assumption Agreement and Unconditional Guaranty of Certain Obligations, dated December 11, 1981, among Fred Meyer, Inc., The Predecessor Company, DTC Acquisition Corporation, and Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.). Incorporated by reference to Exhibit 10FF to the Company's Registration Statement on Form S-1, Registration No. 2- 87139. 10D Fred Meyer, Inc. Management Cash Incentive Program. Incorporated by reference to Exhibit 10G to the Company's Registration Statement on Form S-1, Registration No. 33-8574. 10E Fred Meyer, Inc. Excess Deferral Plan. Incorporated by reference to Exhibit 10G to the Company's Annual Report on Form 10-K for the year ended January 30, 1988 (File No. 0-15023). Amendment No. 1 to Fred Meyer, Inc. Excess Deferral Plan. Incorporated by reference to Exhibit 10G to the Company's Annual Report on Form 10-K for the year ended January 28, 1989 (File No. 0-15023). 10F Non-Employee Directors Stock Compensation Plan, adopted November 17, 1992. Incorporated by reference to Exhibit 10F to the Company's Annual Report on Form 10-K for the year ended January 30, 1993. 10G Form of contract for Senior Executive Long-Term Disability Program. Incorporated by reference to Exhibit 10G to the Company's Annual Report on Form 10-K for the year ended January 30, 1993. 16 10H Fred Meyer Supplemental Income Plan dated January 1, 1994. 10I Employment Agreement between Fred Meyer, Inc. and Robert G. Miller. Incorporated by reference to Exhibit 28 to the Company's Current Report on Form 8-K dated March 6, 1992 (File No. 0-15023). 10J Indemnity Agreement. Incorporated by reference to Exhibit 10I to the Company's Registration Statement on Form S-1, Registration No. 33-8574. 10K Form of Lease Agreement for substantially identical leases covering 36 stores and other locations leased by Fred Meyer, Inc. (or a wholly owned subsidiary) from Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.) including form of Assignment of Master Lease wherein Fred Meyer Real Estate Properties, Ltd. (now Real Estate Properties Limited Partnership) assigned its interest to Metropolitan Life Insurance Company and a First Amendment to Lease Agreement, dated November 25, 1986, with appendices containing certain nonstandard provisions of the Lease Agreement and the First Amendment; Collateral Matters Agreement and Indemnification Agreement, each dated November 25, 1986, between Fred Meyer, Inc. and Metropolitan Life Insurance Company. Incorporated by reference to Exhibit 10I to the Company's Annual Report on Form 10-K for the year ended January 31, 1987 (File No. 0-15023). Memorandum of First Amendment to Lease Agreement, dated March 6, 1987, between Metropolitan Life Insurance Company ("Metropolitan"), Landlord and Fred Meyer, Inc., Tenant; and Assignment of Master Lease, dated March 6, 1987, between Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.) (Assignor) and Metropolitan (Assignee) for Nampa, Idaho. Incorporated by reference to Exhibit 10I to the Company's Annual Report on Form 10-K for the year ended January 30, 1988 (File No. 0-15023). 10L Form of Lease Agreement for substantially identical leases covering 27 stores and other locations subleased by Fred Meyer, Inc. (or a wholly owned subsidiary) from Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.) with appendices containing certain nonstandard provisions contained in the Lease Agreement. Incorporated by reference to Exhibit 10J to the Company's Annual Report on Form 10-K for the year ended January 31, 1987 (File No. 0-15023). Appendices containing certain additional nonstandard provisions. Incorporated by reference to Exhibit 10J to the Company's Annual Reports on Form 10-K for the years ended January 28, 1989, February 3, 1990, and February 2, 1991 (File No. 0-15023). Certain lease modifications for Burien, Washington facility. Incorporated by reference to Exhibit 10K to the Company's Annual Report on Form 10-K for the year ended January 30, 1993. 10M Form of Sublease, dated May 1, 1984, Fred Meyer Real Estate Properties, Ltd. (now Real Estate Properties Limited Partnership), Lessor to Fred Meyer, Inc., Lessee for the Stadium Parking Lot. Incorporated by reference to Exhibit 10J(6) to the Company's Registration Statement on Form S-1, Registration No. 33-8574. 17 10N Form of Sublease, dated May 1, 1984, Fred Meyer Real Estate Properties, Ltd. (now Real Estate Properties Limited Partnership), Lessor to Roundup Co., Lessee for Photo Plant Parking Lot. Incorporated by reference to Exhibit 10J(7) to the Company's Registration Statement on Form S-1, Registration No. 33-8574. 10O Lease Agreement, dated October 22, 1986, including Amendment, dated April 30, 1987, between Fred Meyer Real Estate Properties, Ltd. (now Real Estate Properties Limited Partnership), and Roundup Co. for Midway store. Incorporated by reference to Exhibit 10N to the Company's Annual Report on Form 10-K for the year ended January 31, 1987 (File No. 0-15023). 10P Lease Agreement, dated February 1, 1990, relating to additional property adjacent to Oak Grove store location between Vanoak Corporation, Lessor, and Fred Meyer, Inc., Lessee. Incorporated by reference to Exhibit 10P to the Company's Annual Report on Form 10-K for the year ended February 2, 1991 (File No. 0-15023). 10Q Lease Agreement, dated February 19, 1987, including Addendum, dated September 16, 1987, between Fred Meyer, Inc., as Lessee, and Duane Company, as Lessor, for the Gateway store. Incorporated by reference to Exhibit 10Q to the Company's Annual Report on Form 10-K for the year ended January 30, 1988 (File No. 0-15023). Addendum No. 2 to Lease Agreement. Incorporated by reference to Exhibit 10Q to the Company's Annual Report on Form 10-K for the year ended February 2, 1991 (File No. 0-15023). 10R Assignment of Lease, dated August 13, 1987, between Fred Meyer, Inc. and Fred Meyer Real Estate Properties, Ltd. (now Real Estate Properties Limited Partnership) for Newport store. Incorporated by reference to Exhibit 10R to the Company's Annual Report on Form 10-K for the year ended January 30, 1988 (File No. 0-15023). 10S Lease Agreement, dated December 12, 1988, between Fred Meyer, Inc., as Lessee, and Fifth Avenue Corporation, as Lessor, for the Burlingame store. Incorporated by reference to Exhibit 10S to the Company's Annual Report on Form 10-K for the year ended January 28, 1989 (File No. 0-15023). 10T Assignment of Lease and Termination of Subleases, dated as of February 7, 1992 between Fred Meyer, Inc. and Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.) for Sixth and Alder location. Incorporated by reference to Exhibit 10S to the Company's Annual Report on Form 10-K for the year ended January 30, 1993. 10U Purchase and Sale and Lease Termination Agreement, dated May 22, 1992 between Fred Meyer, Inc. and Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.) for the Swan Island Dairy facility. Incorporated by reference to Exhibit 10T to the Company's Annual Report on Form 10-K for the year ended January 30, 1993. 10V Purchase and Sale and Lease Termination Agreement, dated October 27, 1992 between Fred Meyer, Inc. and Union Central Company, controlled by Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate 18 Properties, Ltd.) for the Main Office facility. Incorporated by reference to Exhibit 10U to the Company's Annual Report on Form 10-K for the year ended January 30, 1993. 10W Assignment of Lease dated April 12, 1993 between Fred Meyer, Inc. and Real Estate Properties Limited Partnership ("REPL") for Southeast store, including the Lease Modification Agreement, dated April 12, 1993 between Southeast Company and REPL. 11 Computation of Earnings per Common Share. 13 Portions of the Annual Report to Shareholders of the Company for the year ended January 29, 1994 are incorporated by reference herein. 21 List of Subsidiaries. 23 Consent of Deloitte & Touche. 24 Powers of Attorney. (b) Reports on Form 8-K. ------------------- No reports on Form 8-K were filed by the Company during the last quarter of the year ended January 29, 1994. /TABLE 19 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FRED MEYER, INC. Date: April 26, 1994 By KENNETH THRASHER ---------------- Kenneth Thrasher, Chief Financial Officer, Senior Vice President- Finance Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on April 26, 1994. Signature Title --------- ----- (1) Principal Executive Officer ROBERT G. MILLER Chairman of the - - ------------------------------ Board and Chief Robert G. Miller Executive Officer (2) Principal Financial Officer KENNETH THRASHER Chief Financial - - ------------------------------ Officer, Senior Vice Kenneth Thrasher President - Finance (3) Principal Accounting Officer THOMAS R. HUGHES Vice President - - ------------------------------ and Controller Thomas R. Hughes (4) Directors * JEROME KOHLBERG, JR. Director - - ------------------------------ Jerome Kohlberg, Jr. 20 * PAUL E. RAETHER Director - - ------------------------------ Paul E. Raether * SAUL A. FOX Director - - ------------------------------ Saul A. Fox * MICHAEL W. MICHELSON Director - - ------------------------------ Michael W. Michelson * ROGER S. MEIER Director - - ------------------------------ Roger S. Meier * A.M. GLEASON Director - - ------------------------------ A.M. Gleason * By KENNETH THRASHER ------------------------- Kenneth Thrasher As Attorney in Fact 21 INDEPENDENT AUDITORS' REPORT Fred Meyer, Inc.: We have audited the consolidated financial statements of Fred Meyer, Inc. and subsidiaries as of January 29, 1994 and January 30, 1993, and for each of the three fiscal years in the period ended January 29, 1994, and have issued our report thereon dated March 7, 1994 (which expresses an unqualified opinion and includes an explanatory paragraph relating to a change in method of accounting for incomes taxes in the fiscal year ended January 29, 1994 and other postretirement benefits in the fiscal year ended January 30, 1993); such financial statements and report are included in your 1993 Annual Report to shareholders and are incorporated herein by reference. Our audits also included the financial statement schedules of Fred Meyer, Inc., listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE March 7, 1994 22
FRED MEYER, INC. AND SUBSIDIARIES SCHEDULE II-NOTES RECEIVABLE FROM RELATED PARTIES (in thousands) Balance Balance Beginning End of of Period Additions Deductions Period --------- --------- ---------- ------- YEAR ENDED JANUARY 29, 1994: R.J. McEvoy . . . . . . . . . . . . . . . . . . . . $ 18 $ 0 $ 18 $ 0 ====== ====== ====== ====== YEAR ENDED JANUARY 30, 1993: R.G. Miller . . . . . . . . . . . . . . . . . . . . $ 975 $ 0 $ 975 $ 0 R.J. McEvoy . . . . . . . . . . . . . . . . . . . . 120 0 102 18 ------ ------ ------ ------ TOTAL. . . . . . . . . . . . . . . . . $1,095 $ 0 $1,077 $ 18 ====== ====== ====== ====== YEAR ENDED FEBRUARY 1, 1992: R.G. Miller . . . . . . . . . . . . . . . . . . . . $ 0 $ 975 $ 0 $ 975 R.J. McEvoy . . . . . . . . . . . . . . . . . . . . 0 120 0 120 ------ ------ ------ ------ TOTAL. . . . . . . . . . . . . . . . . $ 0 $1,095 $ 0 $1,095 ====== ====== ====== ====== /TABLE 23
FRED MEYER, INC. AND SUBSIDIARIES SCHEDULE V-PROPERTY, PLANT, AND EQUIPMENT (in thousands) Balance Balance Beginning End of of Period Additions Retirements Period --------- --------- ----------- ------- YEAR ENDED JANUARY 29, 1994: Buildings, fixtures, and equipment. . . . . . . . . . . $752,336 $214,600 $(10,576) $ 956,360 Property held under capital leases. . . . . . . . . . . 23,855 --- (4,037) 19,818 Land . . . . . . . . . . . . . . . . . . . . . . . 82,840 34,960 (2,295) 115,505 -------- -------- -------- ---------- TOTAL. . . . . . . . . . . . . . . . . . $859,031 $249,560 $(16,908) $1,091,683 ======== ======== ======== ========== YEAR ENDED JANUARY 30, 1993: Buildings, fixtures, and equipment. . . . . . . . . . . $647,017 $120,559 $(15,240) $752,336 Property held under capital leases. . . . . . . . . . . 24,991 --- (1,136) 23,855 Land . . . . . . . . . . . . . . . . . . . . . . . . 58,771 24,069 --- 82,840 -------- -------- -------- -------- TOTAL. . . . . . . . . . . . . . . . . . $730,779 $144,628 $(16,376) $859,031 ======== ======== ======== ======== YEAR ENDED FEBRUARY 1, 1992: Buildings, fixtures, and equipment. . . . . . . . . . . $563,499 $103,572 $(20,054) $647,017 Property held under capital leases. . . . . . . . . . . 24,991 --- --- 24,991 Land . . . . . . . . . . . . . . . . . . . . . . . . 57,470 2,310 (1,009) 58,771 -------- -------- -------- -------- TOTAL. . . . . . . . . . . . . . . . . . $645,960 $105,882 $(21,063) $730,779 ======== ======== ======== ======== /TABLE 24
FRED MEYER, INC. AND SUBSIDIARIES SCHEDULE VI-ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT, AND EQUIPMENT (in thousands) Balance Balance Beginning End of of Period Additions Retirements Period --------- --------- ----------- ------- YEAR ENDED JANUARY 29, 1994: Buildings, fixtures, and equipment. . . . . . . . . . . . $309,113 $69,600 $(12,440) $366,273 Property held under capital leases. . . . . . . . . . . . 7,708 761 (2,397) 6,072 -------- ------- -------- -------- TOTAL. . . . . . . . . . . . . . . . . . . $316,821 $70,361 $(14,837) $372,345 ======== ======= ======== ======== YEAR ENDED JANUARY 30, 1993: Buildings, fixtures, and equipment. . . . . . . . . . . . $244,598 $66,102 $ (1,587) $309,113 Property held under capital leases. . . . . . . . . . . . 7,156 856 (304) 7,708 -------- ------- -------- -------- TOTAL. . . . . . . . . . . . . . . . . . . $251,754 $66,958 $ (1,891) $316,821 ======== ======= ======== ======== YEAR ENDED FEBRUARY 1, 1992: Buildings, fixtures, and equipment. . . . . . . . . . . . $206,294 $56,388 $(18,084) $244,598 Property held under capital leases. . . . . . . . . . . . 6,668 488 --- 7,156 -------- ------- -------- -------- TOTAL. . . . . . . . . . . . . . . . . . . $212,962 $56,876 $(18,084) $251,754 ======== ======= ======== ========
25
FRED MEYER, INC. AND SUBSIDIARIES SCHEDULE X-SUPPLEMENTARY INCOME STATEMENT INFORMATION (in thousands) Fiscal Year Ended ------------------------------------------------------- January 29, January 30, February 1, 1994 1993 1992 ---------- ---------- ---------- Advertising Costs . . . . . . . . . . . . . . . . . . . . . . . $33,602 $34,299 $39,763 ======= ======= ======= /TABLE
EXHIBIT INDEX Sequential Exhibit Page Number Number - - ------- ---------- 3A Restated Certificate of Incorporation of Fred Meyer, Inc. Incorporated by reference to Exhibit 3A to the Company's Registration Statement on Form S-1, Registration No. 33-8574. 3B Amended and Restated Bylaws of Fred Meyer, Inc. Incorporated by reference to Exhibit 4B to the Company's Registration Statement on Form S-8, Registration No. 33-49638. 4A Specimen Stock Certificate. Incorporated by reference to Exhibit 4C to the Company's Registration Statement on Form S-3, Registration No. 33-67670. 4B Credit Agreement dated as of June 15, 1990, as amended June 25, 1990, among Fred Meyer, Inc., various banks named therein, and Continental Bank, N.A., as Agent ("Credit Agreement"). Incorporated by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 18, 1990 (File No.0-15023). Second Amendment and Extension of Credit Agreement dated as of June 28, 1991. Incorporated by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 17, 1991 (File No. 0-15023). Third Amendment to Credit Agreement dated as of January 29, 1992. Incorporated by reference to Exhibit 4 to the Company's Annual Report on Form 10-K for the year ended February 1, 1992. Fourth Amendment and Extension to Credit Agreement dated as of July 31, 1992. Incorporated by reference to Exhibit 4D to the Company's Registration Statement on Form S-3, Registration No. 33-67670. Fifth Amendment and Extension to Credit Agreement dated as of July 31, 1993. Incorporated by reference to Exhibit 4D to the Company's Registration Statement on Form S-3, Registration No. 33-67670. 4C 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, Registration No. 33-67670. 10A-1 Fred Meyer, Inc. 1983 Stock Option Plan, as amended. Incorporated by reference to Exhibit 10D to the Company's Annual Report on Form 10-K for the year ended January 28, 1989 (File No. 0-15023). 10A-2 Fred Meyer, Inc. 1990 Stock Incentive Plan, as amended. Incorporated by reference to Exhibit 28 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 18, 1990 (File No. 0-15023). 10B Fred Meyer, Inc. Bonus Plan Description, as amended. 10C Assumption Agreement and Unconditional Guaranty of Certain Obligations, dated December 11, 1981, among Fred Meyer, Inc., The Predecessor Company, DTC Acquisition Corporation, and Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.). Incorporated by reference to Exhibit 10FF to the Company's Registration Statement on Form S-1, Registration No. 2-87139. 10D Fred Meyer, Inc. Management Cash Incentive Program. Incorporated by reference to Exhibit 10G to the Company's Registration Statement on Form S-1, Registration No. 33-8574. 10E Fred Meyer, Inc. Excess Deferral Plan. Incorporated by reference to Exhibit 10G to the Company's Annual Report on Form 10-K for the year ended January 30, 1988 (File No. 0-15023). Amendment No. 1 to Fred Meyer, Inc. Excess Deferral Plan. Incorporated by reference to Exhibit 10G to the Company's Annual Report on Form 10-K for the year ended January 28, 1989 (File No. 0-15023). 10F Non-Employee Directors Stock Compensation Plan, adopted November 17, 1992. Incorporated by reference to Exhibit 10F to the Company's Annual Report on Form 10-K for the year ended January 30, 1993. 10G Form of contract for Senior Executive Long-Term Disability Program. Incorporated by reference to Exhibit 10G to the Company's Annual Report on Form 10-K for the year ended January 30, 1993. 10H Fred Meyer Supplemental Income Plan dated January 1, 1994. 10I Employment Agreement between Fred Meyer, Inc. and Robert G. Miller. Incorporated by reference to Exhibit 28 to the Company's Current Report on Form 8-K dated March 6, 1992 (File No. 0-15023). 10J Indemnity Agreement. Incorporated by reference to Exhibit 10I to the Company's Registration Statement on Form S-1, Registration No. 33-8574. 10K Form of Lease Agreement for substantially identical leases covering 36 stores and other locations leased by Fred Meyer, Inc. (or a wholly owned subsidiary) from Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.) including form of Assignment of Master Lease wherein Fred Meyer Real Estate Properties, Ltd. (now Real Estate Properties Limited Partnership) assigned its interest to Metropolitan Life Insurance Company and a First Amendment to Lease Agreement, dated November 25, 1986, with appendices containing certain nonstandard provisions of the Lease Agreement and the First Amendment; Collateral Matters Agreement and Indemnification Agreement, each dated November 25, 1986, between Fred Meyer, Inc. and Metropolitan Life Insurance Company. Incorporated by reference to Exhibit 10I to the Company's Annual Report on Form 10-K for the year ended January 31, 1987 (File No. 0-15023). Memorandum of First Amendment to Lease Agreement, dated March 6, 1987, between Metropolitan Life Insurance Company ("Metropolitan"), Landlord and Fred Meyer, Inc., Tenant; and Assignment of Master Lease, dated March 6, 1987, between Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.) (Assignor) and Metropolitan (Assignee) for Nampa, Idaho. Incorporated by reference to Exhibit 10I to the Company's Annual Report on Form 10-K for the year ended January 30, 1988 (File No. 0-15023). 10L Form of Lease Agreement for substantially identical leases covering 27 stores and other locations subleased by Fred Meyer, Inc. (or a wholly owned subsidiary) from Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.) with appendices containing certain nonstandard provisions contained in the Lease Agreement. Incorporated by reference to Exhibit 10J to the Company's Annual Report on Form 10-K for the year ended January 31, 1987 (File No. 0-15023). Appendices containing certain additional nonstandard provisions. Incorporated by reference to Exhibit 10J to the Company's Annual Reports on Form 10-K for the years ended January 28, 1989, February 3, 1990, and February 2, 1991 (File No. 0-15023). Certain lease modifications for Burien, Washington facility. Incorporated by reference to Exhibit 10K to the Company's Annual Report on Form 10-K for the year ended January 30, 1993. 10M Form of Sublease, dated May 1, 1984, Fred Meyer Real Estate Properties, Ltd. (now Real Estate Properties Limited Partnership), Lessor to Fred Meyer, Inc., Lessee for the Stadium Parking Lot. Incorporated by reference to Exhibit 10J(6) to the Company's Registration Statement on Form S-1, Registration No. 33-8574. 10N Form of Sublease, dated May 1, 1984, Fred Meyer Real Estate Properties, Ltd. (now Real Estate Properties Limited Partnership), Lessor to Roundup Co., Lessee for Photo Plant Parking Lot. Incorporated by reference to Exhibit 10J(7) to the Company's Registration Statement on Form S-1, Registration No. 33-8574. 10O Lease Agreement, dated October 22, 1986, including Amendment, dated April 30, 1987, between Fred Meyer Real Estate Properties, Ltd. (now Real Estate Properties Limited Partnership), and Roundup Co. for Midway store. Incorporated by reference to Exhibit 10N to the Company's Annual Report on Form 10-K for the year ended January 31, 1987 (File No. 0-15023). 10P Lease Agreement, dated February 1, 1990, relating to additional property adjacent to Oak Grove store location between Vanoak Corporation, Lessor, and Fred Meyer, Inc., Lessee. Incorporated by reference to Exhibit 10P to the Company's Annual Report on Form 10- K for the year ended February 2, 1991 (File No. 0-15023). 10Q Lease Agreement, dated February 19, 1987, including Addendum, dated September 16, 1987, between Fred Meyer, Inc., as Lessee, and Duane Company, as Lessor, for the Gateway store. Incorporated by reference to Exhibit 10Q to the Company's Annual Report on Form 10-K for the year ended January 30, 1988 (File No. 0-15023). Addendum No. 2 to Lease Agreement. Incorporated by reference to Exhibit 10Q to the Company's Annual Report on Form 10-K for the year ended February 2, 1991 (File No. 0-15023). 10R Assignment of Lease, dated August 13, 1987, between Fred Meyer, Inc. and Fred Meyer Real Estate Properties, Ltd. (now Real Estate Properties Limited Partnership) for Newport store. Incorporated by reference to Exhibit 10R to the Company's Annual Report on Form 10-K for the year ended January 30, 1988 (File No. 0-15023). 10S Lease Agreement, dated December 12, 1988, between Fred Meyer, Inc., as Lessee, and Fifth Avenue Corporation, as Lessor, for the Burlingame store. Incorporated by reference to Exhibit 10S to the Company's Annual Report on Form 10-K for the year ended January 28, 1989 (File No. 0-15023). 10T Assignment of Lease and Termination of Subleases, dated as of February 7, 1992 between Fred Meyer, Inc. and Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.) for Sixth and Alder location. Incorporated by reference to Exhibit 10S to the Company's Annual Report on Form 10-K for the year ended January 30, 1993. 10U Purchase and Sale and Lease Termination Agreement, dated May 22, 1992 between Fred Meyer, Inc. and Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.) for the Swan Island Dairy facility. Incorporated by reference to Exhibit 10T to the Company's Annual Report on Form 10-K for the year ended January 30, 1993. 10V Purchase and Sale and Lease Termination Agreement, dated October 27, 1992 between Fred Meyer, Inc. and Union Central Company, controlled by Real Estate Properties Limited Partnership (formerly Fred Meyer Real Estate Properties, Ltd.) for the Main Office facility. Incorporated by reference to Exhibit 10U to the Company's Annual Report on Form 10-K for the year ended January 30, 1993. 10W Assignment of Lease dated April 12, 1993 between Fred Meyer, Inc. and Real Estate Properties Limited Partnership ("REPL") for Southeast store, including the Lease Modification Agreement, dated April 12, 1993 between Southeast Company and REPL. 11 Computation of Earnings per Common Share. 13 Portions of the Annual Report to Shareholders of the Company for the year ended January 29, 1994 are incorporated by reference herein. 21 List of Subsidiaries. 23 Consent of Deloitte & Touche. 24 Powers of Attorney.
EX-10.B 2 EXHIBIT 10(B) EXHIBIT 10B FRED MEYER, INC. BONUS PLAN DESCRIPTION AS AMENDED TO JANUARY 29, 1994 INTRODUCTION: The Fred Meyer, Inc. Bonus Plan compensates selected employees based on goals and objectives determined periodically by the Company. Under the Bonus Plan, bonuses are allocated based on programs prescribed for each of two categories of participants: (1) Regional and Store bonusable participants, and (2) all other bonusable participants. REGIONAL AND STORE BONUSABLE PARTICIPANTS PROGRAM: Awards for regional and store bonusable participants are based upon predetermined and preapproved objectives for store operational income and corporate pretax income. Each quarter and year the Company sets objectives for sales and operational income based upon the Company's projections, each region/store manager's projections, and historical results. These objectives are reviewed and approved by the Company's Compensation Committee. The actual bonus awarded each quarter and for the year is based on a predefined percentage of the participant's regular salary for the year, as adjusted for actual versus budgeted results. Budgeted results give rise to a target bonus, while greater than budgeted results give rise to a larger bonus (up to 237.5 percent of target bonus), and lower than budgeted results will result in a smaller bonus (as low as 0 percent of target bonus). A portion of each participant's bonus is generally calculated on how well the participant's area of responsibility does, and a portion is based on how well the Company does. The Company portion is capped at 200 percent, and the store/region portion is capped at 250 percent. ALL OTHER BONUSABLE PARTICIPANTS PROGRAM: The program applicable to all other management/supervisory and other bonusable participants not included in the regional and store program is based on the following formula: The bonus paid is based on the Company's objectives for sales, pretax income, and various departmental budgets as prepared by the department's management, and approved by the Compensation Committee. The bonus amount paid is determined as a percentage of each participant's salary (target bonus), adjusted upward or downward based on performance. Participants can achieve a maximum of 200 percent of their target bonus for exceeding their performance goals or a minimum of 0 percent of target bonus for lower than expected results. A portion of a participant's bonus is generally based on his/her department's results, with the balance based on the Company's pretax income results. Both the department and Company portion is capped at 200 percent. Twenty percent of the target bonus of the Chairman, the President and all Senior Vice Presidents is deferred into the Company's Capital Bonus Plan. The Capital Bonus Plan measures the return on assets invested in new stores and major remodels to determine the actual payment of the deferred portion of the participant's bonus. Payments are made after the second and third full years' results under that plan. YEAR-END REVIEW AND PAYMENT: Bonuses are generally paid in April following the year in which performance goals are measured. The Compensation Committee approves the final amount of total bonuses to be paid and the amount paid to executive officers prior to such payment. EX-10.H 3 EXHIBIT 10(H) EXHIBIT 10(H) CONFORMED COPY FRED MEYER SUPPLEMENTAL INCOME PLAN January 1, 1994 Fred Meyer, Inc. a Delaware corporation PO Box 42121 Portland, Oregon 97202 Company TABLE OF CONTENTS Page Index of Terms iii 1. Administration 1 1.1 Compensation Committee 1 1.2 Administrator 1 2. Application to the Company and Affiliates 1 2.1 Adoption 1 2.2 Definition of Affiliate 2 2.3 Loss of Affiliate Status 2 2.4 Merger or Consolidation of Affiliate 2 2.5 Transfers of Employment 2 2.6 Benefit Obligation of Company 2 3. Eligibility and Participation 2 3.1 Eligibility 2 3.2 Continuation of participation 2 4. Retirement Benefits 3 4.1 Entitlement 3 4.2 Amount of Retirement Benefit 3 4.3 Time of Payment 3 5. Severance Benefits 3 5.1 Entitlement 3 5.2 Amount of Severance Benefit 4 5.3 Time of Payment 4 5.4 Definition of Cause 4 6. Death Benefit 5 6.1 Death during Employment 5 6.2 Death After Termination 5 6.3 Death Beneficiary 5 6.4 Suicide 6 7. Company Investments; Calculation of Benefits 6 7.1 Company Investments 6 7.2 Calculation of Benefits 6 7.3 Present Value; Adjustment 8 7.4 Absence of Funding 8 8. Amendment and Termination 8 8.1 Amendment 8 8.2 Termination 8 8.3 Termination Benefit 9 9. Claims Procedure 9 9.1 Claim or Request 9 9.2 Denial 10 9.3 Response Time 10 9.4 Request for Review 10 9.5 Decision on Review 10 10. Participation Statement 10 10.1 Requirement 10 10.2 Contents of Statement 11 11. General Provisions 11 11.1 Succession 11 11.2 Not Contract of Employment 11 11.3 Applicable Law 11 11.4 Notices 11 11.5 Attorney Fees 12 11.6 Indemnity 12 11.7 Facility of Payment 12 11.8 Entire Arrangement 12 12. Effective Date 13 INDEX OF TERMS Term Section Page Adjusted Present Value 7.3(d) 8 Administrator 1.2 1 Affiliate 2.2 2 Beneficiary 6.3 5 Cause 5.4 4 Committee 1.1 1 Company Heading 1 Death Benefit 6 5 Early Payment Reduction 5.2(b) 4 Effective Date 12 13 Eligible Employees 3.1 2 Employer 2.2 2 Normal Retirement Age 4.1 3 Normal Retirement Benefit 4.3 3 Normal Retirement Date 4.3 3 Notice 11.4 11 Participants 3.1 2 Participation Statement 7.2 6 Percent Value 7.3 8 Preretirement Death Benefit 6 5 Present Value 7.3 8 Retirement Benefit Preamble 1 Severance Benefit Preamble 1 Termination Benefit 11.4 11 Termination Date 11.3 11 FRED MEYER SUPPLEMENTAL INCOME PLAN January 1, 1994 Fred Meyer, Inc. a Delaware corporation PO Box 42121 Portland, Oregon 97202 Company The Company wishes to supplement benefits otherwise provided for key executives by providing certain retirement and death benefits. This Plan is intended to be and shall be administered and maintained as an unfunded plan primarily for the purpose of providing deferred compensation for a select group of manage- ment or highly compensated employees within the meaning of sections 201(2), 301(a)(3), and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended. 1. Administration 1.1 Compensation Committee This Plan shall be administered by a Compensation Committee appointed by the Board of Directors of the Company (the Committee). The Committee shall interpret and administer the Plan and for that purpose may make, amend or revoke rules and regulations at any time. The Committee shall also make determinations about benefits. Any decision of the Committee within its authority shall be final and binding on all parties. 1.2 Administrator Day-to-day functions of the Committee shall be carried out by or at the direction of the Senior Vice President for Human Resources (the Administrator). 2. Application to the Company and Affiliates 2.1 Adoption The Company has adopted this Plan and any affiliate approved by the Company may adopt this Plan with respect to its employees by a statement in writing that is signed by the affiliate and the Company. 2.2 Definition of Affiliate "Affiliate" means a corporation, person or other entity that is a member, with the Company, of a controlled group of corporations or a group of trades or businesses under common control under sections 414(b) or (c) of the Internal Revenue Code. "Employer" means the Company, any adopting affiliate and any nonadopting affiliate treated as an Employer under 2.5. 2.3 Loss of Affiliate Status If an Employer ceases to be an affiliate of the Company, the Plan shall be terminated as to the participants employed by that Employer and 8.2 shall apply. 2.4 Merger or consolidation of Affiliate If an Employer merges, consolidates, or otherwise reorganizes or if its business or assets are acquired by another entity and it remains an affiliate of the Company, this Plan shall continue with respect to those eligible individuals who continue as employees of the successor company. The transition of Employers shall not be considered a termination of employment for purposes of this Plan. 2.5 Transfers of Employment Transfer of employment between affiliates shall not cause a termination of participation in this Plan. A transferee affiliate that has not adopted this Plan shall be treated as an Employer with respect to that participant. 2.6 Benefit Obligation of Company Benefits payable under this Plan shall be an obligation of the Company, which may charge the cost back to the Employer of the participant. 3. Eligibility and Participation 3.1 Eligibility Any key executive of Employer who holds the position of Senior Vice President or higher (or its functional equivalent) shall be eligible to participate in this Plan. The Committee shall select the participants from those eligible employees recommended by the Company's Chief Executive Officer. 3.2 Continuation of participation Subject to 8.2, participation shall continue until death, retirement or other termination of employment. 4. Retirement Benefits 4.1 Entitlement A participant who terminates employment after Normal Retirement Age of 62 shall be retired and shall be entitled to a Retirement Benefit. 4.2 Amount of Retirement Benefit A participant's Normal Retirement Benefit shall be as follows: (a) The amount shall be that specified in the Participation Statement under 10 below, subject to calculation and adjustment under 7.2 below. (b) The amount in (a) shall be paid in equal monthly installments for 15 years, subject to (c), below. (c) The Company may elect at any time to convert the unpaid balance to an adjusted present value under 7.3(d) and pay it as a lump sum. 4.3 Time of Payment (a) Normal Retirement Benefits shall start as of the first day of the month after Normal Retirement (Normal Retirement Date) and continue until fully paid. (b) Any payment not made when due shall bear interest at the rate of 12 percent per annum, compounded each January 1, until fully paid. 5. Severance Benefits 5.1 Entitlement A participant shall be entitled to a Severance Benefit on termination of employment other than by death, Normal Retirement under 4.1, or termination by the Company for cause under 5.4. 5.2 Amount of Severance Benefit A participant's Severance Benefit on termination of employment under 5.1 shall be as follows: (a) To the extent the benefit is covered by insurance owned by Employer under 7.1(a), the severance amount shall be determined based on the Employer contributions and policy experience to the date of termination of employment. No further contributions shall be made after that date. (b) If (a) does not apply, the Normal Retirement Benefit under 4.2(a) shall be reduced by multiplying by the number of whole months of participation and dividing by the number of whole months between the participant's first date of participation in the plan and the end of the last month before participant's Normal Retirement Age. (c) The amount determined under (a) or (b) shall be paid in the manner provided under 4.2(b) and (c) for a Normal Retirement Benefit. 5.3 Time of Payment Severance Benefits shall be paid or commence as of the participant's Normal Retirement Date and continue until fully paid. 5.4 Definition of Cause "Termination for Cause," which results in loss of all benefits under this Agreement, means termination after commission by the participant of one or more of following acts that the Committee reasonably determines have resulted or will result in demonstrable adverse consequences to the Company: (a) Fraud, embezzlement or theft against the Company, an affiliate, or a supplier or customer of the Company or an affiliate. (b) A crime involving moral turpitude for which the participant is convicted. 6. Death Benefit 6.1 Death during Employment Subject to 6.4, a Preretirement Death Benefit shall be paid as follows to the beneficiary under 6.3 if a participant dies while employed by an Employer: (a) The amount shall be that specified in the Participation Statement as the Preretirement Death Benefit, subject to calculation and adjustment under 7.2, below. (b) The amount under (a) shall be paid as provided under 4.2(b) and (c) for a Normal Retirement Benefit unless the recipient is an estate. Payment to an estate shall be by a lump sum present value in all cases. (c) Payment shall be made or started as of the first day of the third month after the month of death. 6.2 Death After Termination Subject to 6.4, a benefit shall be paid as follows to the beneficiary under 6.3 if a participant dies after termination of employment before full Retirement or Severance Benefits have been paid: (a) The amount shall be the Normal Retirement Benefit or Severance Benefit that the participant was receiving or was entitled to receive. (b) The amount in (a) shall be paid for the balance of the 15 year term under 4.2(b) unless converted to a lump sum present value under 4.2(c). Payment to an estate shall be by a lump sum present value in all cases. (c) Payments shall start or continue in accordance with 4.3 or 5.3. 6.3 Death Beneficiary (a) A participant's death beneficiary shall be determined in the following order of priority: (1) The surviving beneficiaries designated by the participant in writing to the Committee. (2) The participant's surviving spouse. (3) The participant's estate. (b) If a beneficiary under (a) becomes eligible for a benefit and dies before receiving the entire benefit, the balance shall be paid by a lump sum present value to the beneficiary's estate. (c) If a beneficiary under (a) disclaims a benefit, the benefit shall be paid as though the beneficiary had predeceased the participant. (d) A participant may designate partial or alternate beneficiaries or change designated beneficiaries at any time. A single, final determination of the beneficiary or beneficiaries entitled to benefits shall be made as of the date of death by the Administrator. 6.4 Suicide If death is by suicide during the first 12 months of participation, no death benefit shall be paid. 7. Company Investments; Calculation of Benefits 7.1 Company Investments (a) The Company has invested in certain corporate-owned life insurance covering participants and may continue to do so. The Company may wholly or partly discontinue acquiring, holding, or contributing to such insurance at any time and may or may not substitute any other investments. (b) Any investment under (a) shall be owned exclusively by the Company who shall have absolute discretion over its use, retention or disposition. The Company shall have no obligation to maintain any investment or identify any assets as related to the obligations under this Plan. 7.2 Calculation of Benefits (a) The Benefits shown in the initial Participation Statements dated January 1, 1994 are based on the insurance described in 7.1(a). The stated Benefit on Normal Retirement or Preretirement Death are estimates of the amounts that would be funded by the policies based on the following assumptions: (1) Employer contributes to the policies in accordance with a predetermined schedule except as otherwise provided in this Plan. (2) Benefits are funded by the policy values remaining after recovery of all Employer contributions. (b) The actual Benefit for a participant or beneficiary shall be an amount more or less than the estimated amount described in (a) based on actual experience under the policies. The actual benefit shall not be less than 60 percent of the estimated amount in (a), subject to adjustments under 5.2(a) or (b) and the rights of the Committee under 8 below. (c) If the Company exercises its option not to continue to invest in insurance to cover the benefit for a participant, the amount of Benefit shall be converted to a fixed sum using the procedure in (b). Policy value shall be extrapolated to normal retirement date based on the assumptions in (a)(1) and (2) and on policy experience to the date policy contributions are discontinued. The resulting amount shall be inserted in the Participation Statement and (a) and (b) shall no longer apply. (d) If the Company does not initially invest in insurance to cover a participant's benefit, the benefit amounts stated in the Participation Statement shall be commitments, and (a) and (b) above shall not apply. (e) If a participant retires after age 62, the amount of Normal Retirement Benefit shall be increased for each month up to the date of retirement as follows: (1) If the benefit is covered by insurance and the amount is determined under (b) above, Employer shall continue scheduled contributions until age 65 and the increase shall be based on the increase in value of the insurance policies. (2) If (1) does not apply, the benefit shall be increased by 5/9 of one percent per month. 7.3 Present Value; Adjustment (a) If a Benefit is determined under 7.2(b), the present value shall be based on the accumulated experience under the insurance. (b) If a benefit is determined under 7.2(c) or (d) the present value shall be determined under the laws and regulations then in effect for determining the present value of an annuity benefit under a tax qualified pension plan. (c) A benefit shall not be treated as determined under 7.2(b) if the benefit was not covered by an insurance investment for at least 90 percent of the period during which the employee was a participant. (d) "Adjusted present value" means the amount under (a) or (b) plus a tax adjustment as follows: (1) Subject to (2) below, the adjustment shall compensate, after tax, for the tax increase, if any, because of bunching income in one year. The adjustment shall be determined by the Administrator, whose decision shall be final. (2) The adjustment shall be zero if the recipient is an estate or a tax exempt entity. 7.4 Absence of Funding This Plan and any benefits payable under it shall be unfunded and shall be payable only from the general assets of the Company. Participants and beneficiaries shall have no interest in any assets of the Company and shall have no rights greater than the rights of any unsecured general creditor of the Company. 8. Amendment and Termination 8.1 Amendment The Committee may amend this Plan at any time so long as existing participant's rights that would be preserved under 8.2 on termination are not reduced. 8.2 Termination The Committee may terminate this Plan or terminate the participation of one or more participants at any time as follows: (a) Unless (b) applies, the termination date shall not be effective earlier than the first day of the third calendar year after the calendar year in which notice is given to the affected participants. (b) For a participant who ceases to hold a position of Senior Vice President or above (or its functional equivalent) or whose responsibilities are significantly diminished, the termination date shall be the later of the date of demotion or the first January 1 after notice is given to the participant. (c) After the effective date of the termination no further benefits shall accrue for the affected participants, who shall be entitled only to termination benefits under 8.3. 8.3 Termination Benefit (a) A participant's termination benefit shall equal the participant's Severance Benefit calculated under 5.2(a) or (b) as though the participant had terminated employment as of the Plan termination date. The resulting amount shall be the participant's Normal Retirement Benefit for all purposes under this Plan. (b) The participant's termination benefit shall be paid as follows: (1) The benefit shall be paid at the time provided in 4.3 or 5.3. (2) The benefit shall be paid under the terms of this Plan in effect at the termination date. (3) A preretirement death benefit shall be paid if death is after the termination date and 6 above would apply. 9. Claims Procedure 9.1 Claim or Request Any person claiming a payment or requesting information, an interpretation or a ruling under this Plan shall present the request in writing to the Administrator, who shall respond in writing as soon as practicable. 9.2 Denial If the claim or request is denied, the written notice of denial shall state the following: (a) The reasons for denial, with specific reference to the Plan provisions on which the denial is based. (b) A description of any additional material or information required and an explanation of why it is necessary. (c) An explanation of the Plan's claim review procedure. 9.3 Response Time The initial notice of denial shall normally be given within 90 days after receipt of the claim. If special circumstances require an extension of time, the claimant shall be so notified and the time limit shall be 180 days. 9.4 Request for Review Any person whose claim or request is denied or who has not received a response within 30 days may request review by notice in writing to the Administrator. The initial claim decision shall be reviewed by the Committee who may, but shall not be required to, grant the claimant a hearing. On review, whether or not there is a hearing, the claimant may have representation, examine pertinent documents and submit issues and comments in writing. 9.5 Decision on Review The decision on review shall normally be made within 60 days. If an extension is required for a hearing or other special circumstances, the claimant shall be so notified and the time limit shall be 120 days. The decision shall be in writing and shall state the reasons and relevant Plan provisions. All decisions on review shall be final and bind all parties concerned. 10. Participation Statement 10.1 Requirement The Administrator shall give each participant a Participation Statement signed by the Company as soon as practicable after selection of the participant under 3.1 above. 10.2 Contents of Statement The Participation Statement shall include without limitation the following data, which shall be conclusive: (a) The participant's name, address, social security number and date of birth. (b) The projected Retirement Benefit and Preretirement Death Benefit for the participant. (c) A statement of whether or not the projected benefit is a firm figure or an estimate based on related corporate-owned life insurance. (d) The effective date of participation. 11. General Provisions 11.1 Succession Except as provided in 6 above, no interest of any participant or beneficiary under this Plan may be directly or indirectly assigned, transferred, seized by legal process or subjected to the claims of creditors in any way. Subject to this limitation, this plan shall be binding on and enure to the benefit of the parties, their successors and assigns. 11.2 Not Contract of Employment Nothing in this Plan shall give any employee the right to continue employment. This Plan shall not prevent discharge of any employee at any time for any reason. 11.3 Applicable Law This Plan shall be construed according to the laws of Oregon. 11.4 Notices Notice under this Plan shall be in writing or by electronic means, and shall be effective when actually delivered or, if mailed, when deposited postpaid as first-class mail. Mail shall be directed to the address shown in this Plan, a Participation Statement, or the Company records, or to such other address as a party may specify by notice in writing to the other parties. Notices to the Administrator shall be sent to the Company's address. 11.5 Attorney Fees If suit or action is instituted to enforce any rights under this Plan, the prevailing party may recover from the other party reasonable attorneys' fees at trial and on any appeal. 11.6 Indemnity The Company shall indemnify and defend the Administrator, any member of the Committee or any officer, director or employee of an Employer from any claim or liability that arises from any action or inaction in connection with the Plan subject to the following rules: (a) Coverage shall be limited to actions taken in good faith that the individual reasonably believed were not opposed to the best interest of the Plan. (b) Negligence by the individual shall be covered to the fullest extent permitted by law. (c) Coverage shall be reduced to the extent of any insurance coverage. 11.7 Facility of Payment The Committee may decide that because of the mental or physical condition of a person entitled to payments, or because of other relevant factors, it is in the person's best interest to make payments to others for the benefit of the person entitled to payment. In that event, the Committee may in its discretion direct that payments be made to one or more of the following: (a) To a parent or spouse or a child of legal age. (b) To a legal guardian. (c) To one furnishing maintenance, support, or hospitalization. 11.8 Entire Arrangement This Plan and the related Participation Statement shall constitute the entire arrangement between the Company and any participant, superseding all discussions, representations and other written or oral arrangements. The arrangement can be modified only by written amendment to the Plan pursuant to 8.1 or by written amendment of the Participation Statement signed by the Company and the participant. 12. Effective Date This Plan shall be effective on January 1, 1994. Adopted: December 29, 1993. FRED MEYER, INC. By ROBERT G. MILLER ------------------------------------- Executed: December 29, 1993 FRED MEYER SUPPLEMENTAL INCOME PLAN PARTICIPATION STATEMENT January 1, 1994 To: [Name] [Address] [Social Security No.] [Date of Birth] I. Participation You have been selected as a participant in the Fred Meyer Supplemental Income Plan. Your participation starts January 1, 1994. II. Projected Benefit Bases Your projected benefit bases are as follows: Retirement Benefit Base $____________ Preretirement Death Benefit Base $____________ These base amounts are used in accordance with the plan to calculate your benefits. The timing and other circumstances surrounding your benefits will determine how much is actually paid. These amounts are estimates derived from the expected performance of certain corporate-owned life insurance the Company has purchased in connection with this Plan. Subject to various rights of the Company and the Compensation Committee under the Plan, the actual benefit bases will be more or less than those shown, depending on actual insurance policy performance. The actual base amount will not be less than 60 percent of the projected base amount except as otherwise provided in the Plan. ANY LIFE INSURANCE OR OTHER ASSET HELD BY THE COMPANY IN CONNECTION WITH THIS PLAN IS THE UNCONDITIONAL PROPERTY OF THE COMPANY. NO ASSETS ARE HELD IN TRUST AND PARTICIPANTS HAVE NO SPECIAL INTEREST IN ANY COMPANY ASSET. THIS IS AN UNFUNDED PLAN. III. Payment and Withholding If you or your beneficiary qualify for a benefit, payments will be made by the Company from its general assets. All payments are subject to applicable state and federal tax withholding. IV. Plan Document A copy of the Plan accompanies this Statement. The Plan is the controlling document and you should examine it carefully. If you have any questions, direct them to the Administrator of the Plan, the Senior Vice President for Human Resources. ________________________, 199 . FRED MEYER, INC. By ROBERT G. MILLER ------------------------- Robert G. Miller Chairman, Chief Executive Officer Acknowledged , 199 . _____________________________ Participant EX-10.W 4 EXHIBIT 10(W) EXHIBIT 10(W) ASSIGNMENT OF LEASE AND CANCELLATION OF SUBLEASE THIS ASSIGNMENT OF LEASE (the "Agreement") is made as of this 12th day of April, 1993, between REAL ESTATE PROPERTIES LIMITED PARTNERSHIP, an Oregon limited partnership ("Assignor"), and FRED MEYER, INC., a Delaware corporation ("Assignee"). R E C I T A L S A. As of October 20, 1966, Southeast Company, an Oregon corporation ("Southeast"), as lessor, and Fred Meyer, Inc., as original lessee, entered into a lease (the "Lease") for the real property located at 5253 SE 82nd Avenue, Portland, Oregon, and more particularly described in Exhibit A attached hereto and incorporated by reference (the "Premises"). Assignor is the successor to Fred Meyer, Inc., as lessee under the Lease. B. By a certain sublease dated October 22, 1986 (the "Sublease"), Assignee subleased the Premises to Assignor. C. Southeast and Assignor have entered into a Lease Modification Agreement (the "Amendment") of even date herewith. The Amendment will be effective only upon the assignment of the Lease to Assignee as provided for herein. D. The parties have agreed to the assignment of the Lease and termination of the Sublease upon the terms and conditions set forth below. NOW, THEREFORE, in consideration of the premises and the mutual covenants, conditions and agreements contained herein, the parties agree as follows: 1. Assignment. ---------- Assignor hereby transfers, sets over and assigns to Assignee, effective as of February 1, 1993 (the "Effective Date"), all right, title and interest of Assignor as lessee under the Lease, TO HAVE AND TO HOLD the same to Assignee, its successors and assigns forever; SUBJECT, HOWEVER, to each and every provision of the Lease. 2. Acceptance of Assignment. ------------------------ As of the Effective Date, Assignee accepts the within assignment and assumes and agrees to perform and discharge all of the covenants, terms, conditions and provisions to be kept, observed and performed by Assignor as lessee under the Lease from and after the Effective Date. 3. Assignor's Indemnity of Assignee. -------------------------------- Assignor hereby agrees to defend and indemnify Assignee, its partners, directors, officers, employees, agents, representatives, successors and assigns, and each of them, from and against any and all claims, suits, demands, causes of action, actions, liabilities, losses, damages, costs and expenses (including attorneys' fees) arising out of or resulting from Assignor's failure to perform any of lessee's obligations under the Lease that were not assumed by or passed through to Assignee as sublessee under the Sublease and which occurred prior to the Effective Date. 4. Assignee's Indemnity of Assignor. -------------------------------- Assignee hereby agrees to defend and indemnify Assignor and its respective directors, officers, employees, agents, representatives, successors and assigns, and each of them, from and against any and all claims, suits, demands, causes of action, actions, liabilities, losses, damages, costs and expenses (including attorneys' fees) arising out of or resulting from (i) the failure by Assignee, its successors and assigns, to fully perform all of the lessee's obligations under the Lease after the Effective Date; or (ii) the failure by Assignee to fully perform all of sublessee's obligations as sublessee under the Sublease which accrued prior to the Effective Date. 5. Termination of Sublease. ----------------------- The Sublease shall terminate and shall be of no further force or effect whatsoever as of the Effective Date. From and after the Effective Date, and except as expressly provided herein, the parties shall have no further rights or obligations under the Sublease. 6. Attorneys' Fees. --------------- If either party hereto brings an action at law or in equity to enforce, interpret or seek redress for the breach of this Agreement, then the prevailing party in such action shall be entitled to recover all court costs and witness fees and reasonable attorneys' fees, (at trial or on appeal) in addition to all other appropriate relief. 7. Successors and Assigns. ---------------------- This Agreement and every provision hereof shall bind and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. 8. Counterparts. ------------ This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the respective dates set opposite their signatures below, but this Agreement on behalf of such parties shall be deemed to have been dated as of the date first above written. ASSIGNOR: REAL ESTATE PROPERTIES LIMITED PARTNERSHIP, an Oregon limited partnership By FMGP Associates, an Oregon limited partnership, its General Partner By FMGP Incorporated, a Delaware corporation, its General Partner By DAVID W. RAMUS --------------------------------- Name David W. Ramus ------------------------------- Title Vice President ------------------------------ ASSIGNEE: FRED MEYER, INC., a Delaware corporation By SCOTT L. WIPPEL -------------------------------------- Name Scott L. Wippel ------------------------------------ Title Senior Vice President ----------------------------------- CONSENT TO ASSIGNMENT AND RELEASE OF ASSIGNOR Southeast Company, an Oregon Corporation, as lessor under the Lease, hereby consents to the assignment of the Lease to Assignee and the assumption of the Lease by Assignee and further agrees that upon the assumption of the lease by Assignee, Assignor shall be fully and unconditionally released and discharged from all liability accruing under the Lease arising from conditions occurring after the Effective Date. SOUTHEAST COMPANY an Oregon corporation By EARLE M. CHILES ----------------------------- Name Earle M. Chiles --------------------------- Title President -------------------------- STATE OF OREGON ) ) ss. County of Washington ) On April 12, 1993, before me, the undersigned, a Notary Public in and for said State, personally appeared David W. Ramus, personally known to me to be the person whose name is subscribed to the within instrument as Vice President of FMGP INCORPORATED, a Delaware corporation, the corporation that executed the within instrument as the general partner of FMGP ASSOCIATES, an Oregon limited partnership, itself the limited partnership that executed the within instrument as a general partner of REAL ESTATE LIMITED PROPERTIES LIMITED PARTNERSHIP, an Oregon limited partnership, and acknowledged to me that he subscribed his name thereto as such officer of said corporation and that said corporation executed the same, pursuant to its bylaws or a resolution of its board of directors, as the general partner of said limited partnership, and that said limited partnership executed the same as a general partner of said partnership, and that said partnership executed the same. WITNESS my hand and official seal. MANON B. RUDDICK ------------------------------- [SEAL] Notary Public in and for said County and State My commission expires: 2/27/96 ------- STATE OF OREGON ) ) ss. County of Multnomah ) On April 14, 1993, before me, the undersigned, a Notary Public in and for said State, personally appeared SCOTT L. WIPPEL, personally known to me to be the person whose name is subscribed to the within instrument as Vice President of FRED MEYER, INC., a Delaware corporation, the corporation that executed the within instrument and acknowledged to me that he subscribed his name thereto as such officer of said corporation and that said corporation executed the same pursuant to its bylaws or a resolution of its board of directors. WITNESS my hand and official seal. CARLA J. BANGERT ------------------------------ Notary Public in and for said County and State My commission expires: 11-13-93 -------- STATE OF OREGON ) ) ss. County of ) On April 12, 1993, before me, the undersigned, a Notary Public in and for said State, personally appeared Earle M. Chiles, personally known to me to be the person whose name is subscribed to the within instrument as President of SOUTHEAST COMPANY, an Oregon corporation, the corporation that executed the within instrument and acknowledged to me that he subscribed his name thereto as such officer of said corporation and that said corporation executed the same pursuant to its bylaws or a resolution of its board of directors. WITNESS my hand and official seal. LINDA H. BARNWELL ------------------------------- [SEAL] Notary Public in and for said County and State My commission expires: 10/21/94 -------- EXHIBIT A A tract of land in Section 17, Township 1 South, Range 2 East of the Willamette Meridian, in the City of Portland, Multnomah County, Oregon; being portions of Lot 24, Marysville; Blocks 1, 2 and 3, Avondale; Block 1 Cahills Subdivision; Block 1, extended plat of Wedgewood Park and S. E. Steele Street, S. E. Steele Court, S. E. 81st Avenue, as vacated by City of Portland Ordinance No. 121530, described as follows: PARCEL I: All that portion of Lot 24, Marysville described as follows: Beginning at the southeasterly corner of Block 4, Cahills Subdivision; thence Easterly along the Easterly extension of the southerly line of said Block 4, 285.00 feet to a point in a line 45 feet Westerly from and parallel to the center line of S. E. 82nd Avenue; thence North along said parallel line, 100.00 feet; thence Westerly, 285.65 feet to the northeast corner of Lot 1, said Block 4, Cahills Subdivision; thence South along the east line of said lot, 100.00 feet to the point of beginning, EXCEPTING THEREFROM the Southeast corner thereof, being a triangular portion measuring 5 feet along S. E. 82nd Avenue and 5 feet along S. E. Mitchell Street; PARCEL II: Beginning at a point on the West line of S. E. 82nd Avenue (as now established, 45.00 feet from the center line) that is North 0 degrees 37' East, 193.48 feet from the Northerly boundary line of S. E. Foster Road extended Southeasterly; said point being the Northeast corner of the parcel conveyed to Gulf Oil Corporation by deed recorded September 27, 1966 in Deed Book 528 page 224; thence West along the North line of said Gulf Oil parcel, 115.69 feet; thence South 29 degrees 09' 30" West along the Northwesterly line of said Gulf Oil parcel, 115.69 feet to the Northerly line of S. E. Foster Road; thence North 61 degrees 27' 30" West along said Northerly line of said road, 346.01 feet to the intersection with the Easterly line of S. E. 80th Avenue (60 feet wide); thence North 28 degrees 29' East along the Easterly line of S. E. 80th Avenue, 127.63 feet, to the intersection of a line drawn 10.00 feet Easterly of the parallel to the Westerly line of Block 1, Cahills Subdivision extended Southerly; thence North 0 degrees 37' East along said line, 406.74 feet to a point in a line 60.00 feet Southerly from the South line of Block 4, Cahills Subdivision, said point being 60.00 feet Easterly from the East line of Block 2, Cahills Subdivision; thence North 89 degrees 51' East 417.20 feet, more or less, to the point in the Westerly line of S. E. 82nd Avenue as now established, that is 60.00 feet South of the Easterly extension of the Southerly line of Block 4, Cahills Subdivision; thence South 0 degrees 37' West along a line drawn 45.00 feet West of and parallel to the center line of S. E. 82nd Avenue, 584.29 feet, to the point of beginning. EXCEPTING THEREFROM the Northeast corner and the Northwest corner thereof, being triangular portions, measuring respectively 5 feet along S. E. 82nd Avenue and 5 feet along S. E. Mitchell Street and 5 feet along S.E. 80th Avenue and 5 feet along S. E. Mitchell Street; PARCEL III: A parcel of land in Lot 24, MARYSVILLE, within the corporate limits of the City of Portland, County of Multnomah and State of Oregon, described as: Beginning at a point in the East line of Section 17, Township 1 South, Range 2 East of the Willamette Meridian, 915.0 feet, North from the one-quarter section corner in East line of said Section 17; thence North along said East line 98.0 feet; thence West 330.0 feet to West line of Lot 24, MARYSVILLE; thence South along said West line 98.0 feet; thence East 330.0 feet to beginning, EXCEPT THAT PART OF PREMISES INCLUDED IN S. E. 82nd Avenue as now widened and established. EXCEPT that part conveyed to the City of Portland by deed recorded December 19, 1968 in Book 655, page 1476, Film Records. LEASE MODIFICATION AGREEMENT THIS LEASE MODIFICATION AGREEMENT (the "Agreement") is made and entered into this 12th day of April, 1993, by and between SOUTHEAST COMPANY, an Oregon corporation ("Landlord"), and REAL ESTATE PROPERTIES LIMITED PARTNERSHIP, an Oregon limited partnership ("Tenant"). R E C I T A L S This Agreement is made with reference to the following facts and objectives: A. On or about October 20, 1966, Landlord and Fred Meyer, Inc., an Oregon corporation, as original tenant entered into a lease for those certain premises (the "leased premises") located at 5253 SE 82nd Avenue, Portland, Oregon, and more particularly described on Exhibit A attached hereto and incorporated by reference. The lease was modified by an Agreement Amending Lease dated November 12, 1966, an Addendum to Lease dated August 9, 1969, and a Release of Real Property From Lease dated April 21, 1992. The lease, as modified, is hereinafter referred to as the "Lease." B. Tenant is the current lessee under the Lease. The current term of the Lease, as extended, expires on October 31, 1996. C. Landlord and Tenant have agreed to certain modifications of the Lease as set forth below. NOW, THEREFORE, in consideration of the foregoing facts and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Landlord and Tenant hereby amend and modify the Lease as follows: 1. Term. ---- Paragraph 2 of the Lease shall be amended to extend the term of the Lease an additional twenty (20) years so that it will end on October 31, 2016. 2. Base Rent; Percentage Rent. -------------------------- Paragraph 3 of the Lease is amended by changing the rental for the leased premises as follows: "3.1 Base Rent. --------- The monthly minimum base rent for the leased premises, commencing as of February 1, 1993, shall be as follows: PERIOD MONTHLY RENT ------ ------------ 02/01/1993 - 10/31/1996 $25,000.00 11/01/1996 - 10/31/2001 $40,000.00 11/01/2001 - 10/31/2006 $45,000.00 11/01/2006 - 10/31/2011 $50,000.00 11/01/2011 - 10/31/2016 $55,000.00 "3.2 Percentage Rent. --------------- In addition to base rent, Tenant shall pay percentage rent in the amount, if any, by which one and 37.5/100th percent (1.375%) of Gross Sales in each of Tenant's fiscal years (or partial fiscal year) during the lease term commencing after October 31, 1996, exceeds the monthly minimum base rent specified in Paragraph 3.1 above paid by Tenant to Landlord for such fiscal year (or partial fiscal year). "3.3 Definition of Gross Sales. ------------------------- As used in this Lease, "Gross Sales" will mean the total amount actually received for all sales of merchandise and services from the leased premises by Tenant or any successor permitted occupant, subtenant or concessionaire, whether for cash or credit, including all gift and merchandise certificates, all credit charges and all other receipts from business conducted in or from the leased premises, but deducting and excluding therefrom (i) sales of tobacco products, (ii) any sales taxes or other taxes collected by the seller of goods for payment to the taxing authority, (iii) sales of goods to employees at discounts, and (iv) merchandise exchanges, returns, rebates and/or refunds to customers, lottery tickets, sales of Tenant's furniture, fixtures, equipment and other property which is not stock in trade, any sales which are "bulk transfer" sales of inventory as established by Oregon law, or any sale or transfer of all or a substantial portion of Tenant's inventory to a single buyer or successor of Tenant's business. With respect to the income received form leased vending machines or amusement machines or income received from temporary mall events (such as flower stalls and independent vendors), only the amount of location rentals or other payments received by Tenant (or subtenants) from the machine owner, mall event operator or vendor shall be included in Gross Sales. With respect to sales of tickets, fishing licenses or like transactions where Tenant or subtenants act as sales agent and are paid a fee or commission for assisting with the sale, only the amount of such fee or commission rentals shall be included in Gross Sales. If any portion of the leased premises is subleased to third-party tenants on a basis which does not permit the calculation of an amount to be included in Gross Sales as described above (e.g., a sublease of space for a branch savings and loan association office or an in- store sublease of space for insurance sales), an appropriate adjustment or increase in the Gross Sales amount will be made, to include in Gross Sales for the space so leased an amount equal to the average Gross Sales per square foot from the retail operation of the store (based on the total Gross Sales from the retail operation divided by the gross building area). "3.4 Calculation and Time of Payment. ------------------------------- The minimum base rent will be paid in advance on the first day of each month. Percentage rent will be calculated at the end of each fiscal year of Tenant, which will be the reporting year for purposes of calculating and paying percentage rent, and will be paid by Tenant within sixty (60) days thereafter. "3.5 Records. ------- Tenant shall keep reasonably complete and accurate records showing Gross Sales from the leased premises. Such records shall be preserved for a period of three (3) years and shall be available for inspection by Landlord following reasonable advance notice. "3.6 Reporting. --------- Tenant shall submit to Landlord an annual statement of Gross Sales for each reporting year and any partial year during the lease term, within sixty (60) days after the end of each reporting year. The statement will be certified by an officer of Tenant and will show Gross Sales during the prior reporting year or partial year. Landlord agrees to hold in confidence all information obtained from the records of Tenant, except that Landlord may furnish copies on a confidential basis to any party providing financing to Landlord or purchasing the leased premises. "3.7 Landlord's Right to Audit. ------------------------- Landlord may cause the percentage rent computation and the record of Gross Sales of Tenant to be examined at any time by an accountant selected by Landlord. If such examination discloses that the percentage rent was understated, Tenant shall immediately pay the percentage rent to Landlord, together with interest on the deficiency in percentage rent at a rate equal to two percent (2%) per annum above the publicly announced prime rate of the United States National Bank of Oregon in effect on the date of the billing from the date payment is due pursuant to paragraph 3.4 above until payment in full. If percentage rent was understated by more than two percent (2%), Tenant shall pay the cost of the audit. If the accountant's examination reveals that percentage rent was not so understated, Landlord will pay the cost of the audit. If there is a misstatement of rent by ten percent (10%) or more, Landlord may impose an additional late charge equal to five percent (5%) of the amount that percentage rent was understated, in addition to the interest on such understated rent as provided above. "3.8 Additional Rent. --------------- All payments required to be paid by Tenant under this Lease, other than base rent and percentage rent, will constitute additional rent. "3.9 No Representations as to Sales. ------------------------------ Landlord is not relying on any projections or representations by Tenant as to sales anticipated to be made from the leased premises, and there is, and shall be, no express or implied covenant regarding the sales by Tenant." 3. Related Provisions. ------------------ In connection with the foregoing changes to Paragraph 3 of the Lease, the following clarifications are added to Paragraph 7 of the Lease: "There is, and shall be, no express or implied covenant to operate business on the leased premises; provided, that in the event operation of business from sixty percent (60%) or more of the gross building area of the improvements on the leased premises is to be discontinued for a continuous period of at least one (1) year for any reason other than (a) strikes, lockouts or other labor difficulties, acts of God, the requirements of any local, state or federal law, rule or regulation, fire or other casualty, condemnation, war, riot, insurrection or any other reason beyond Tenant's reasonable control, or (b) temporary closure due to the restoration, reconstruction, expansion, alteration, modification or remodeling of any improvements located on the leased premises, then Tenant shall, at least thirty (30) days prior to discontinuing such operations, but not more than six (6) months prior to discontinuing such operations, provide written notice to Landlord that Tenant intends to discontinue operation of business from sixty percent (60%) or more of the gross building area of the improvements on the leased premises (the "Notice of Election"). The Notice of Election will include the anticipated date on which Tenant intends to discontinue operation of business. Landlord shall have the right to terminate this Lease by written notice to Tenant, such notice to be delivered to Tenant within one hundred eighty (180) days after Landlord's receipt of the Notice of Election ("Landlord's Termination Notice"). Landlord's Termination Notice will not be effective until Tenant actually discontinues operation of business from sixty percent (60%) or more of the gross building area of the improvements on the leased premises and the expiration of at least thirty (30) days from and after the delivery of Landlord's Termination Notice to Tenant. Upon the effective date of such termination, neither party will have any further obligation to the other under the Lease (other than obligations accrued through the effective date of termination of the Lease). If Landlord does not give a Landlord's Termination Notice within such one hundred eighty (180)-day period, then the procedures for Landlord to have a termination right under the foregoing "go dark" proviso and the restrictions on assignment and subletting and procedures for Landlord to have a termination right under Paragraph 7(a), as revised in Section 5 (Assignment) below, are waived and terminated and will have no further force or effect. Notwithstanding the foregoing, during the period starting on the date hereof and ending on October 31, 1996, if Tenant gives a Notice of Election and if Landlord does not give a Landlord's Termination Notice as provided above, then the procedures for Landlord to have a termination right under the foregoing "go dark" proviso and the restrictions on assignment and subletting and procedures for Landlord to have a termination right under Paragraph 7(a), as revised below, will be deemed waived and terminated only if Tenant, within one (1) year of its Notice of Election, causes operation of business from sixty percent (60%) or more of the gross building area of the improvements on the leased premises to be discontinued and such discontinuance continues for at least one (1) year or if Tenant, within one (1) year of its Notice of Election, assigns this Lease or sublets more than twenty-five percent (25%) of the gross building area. Paragraph 7(d) of the Lease is applicable only after and during the continuance of a default by Tenant and is subject to Landlord's compliance with the provisions of the Lease and applicable law concerning Landlord's re-entry and regaining possession of the leased premises. 4. Casualty. -------- Paragraph 7(g)(4) of the Lease shall be deleted in its entirety and the following language is substituted therefor: "In the event of a casualty to any building located on the leased premises, and Tenant restores such building or constructs a new building on the leased premises, the insurance proceeds under the policies of insurance maintained by Tenant shall be paid to Tenant to the extent necessary to so restore or reconstruct, and any unused balance shall be paid to Landlord or its Lender. In the event of a casualty after which Tenant chooses not to restore or reconstruct, or in the event of a casualty to the leased premises that would allow Tenant to elect to terminate the Lease and Tenant so elects to terminate the Lease then the insurance proceeds, together with any self- insured retention or deductible amount (which shall be paid by Tenant) shall be paid to Landlord or its Lender." 5. Assignment. ---------- Paragraph 7(a) of the Lease, as previously amended, shall be deleted in its entirety and the following language is substituted therefor: "Tenant shall not, without the prior written consent of Landlord, or compliance with the procedures set forth in the following paragraph, assign this lease or sublease all or any part of the leased premises, except as otherwise set forth below. Any consent to any such transfer shall apply only to the specific act authorized and shall not be construed as a waiver of the restriction on transfer contained in this Lease. However, notwithstanding any other provision of this Lease, Tenant may: (i) assign or transfer its interest as lessee under the Lease without Landlord's consent or compliance with the procedures set forth below in connection with the consolidation, merger, acquisition, or sale of Tenant, or substantially all of the assets of Tenant, or to a wholly owned subsidiary of Tenant, or in connection with a sale-leaseback transaction; and/or (ii) sublease twenty-five percent (25%) or less of the gross building area of the improvements on the leased premises from time to time. "In the event Tenant desires to assign this Lease or sublet more than twenty-five percent (25%) of the gross building area of the improvements on the leased premises, and if Landlord's consent is required under the terms of the foregoing paragraph, the parties will follow the following procedures: " (a) Tenant will notify Landlord in writing that Tenant intends to assign this Lease or sublet more than twenty-five percent (25%) of the gross building area of the improvements on the leased premises ("Tenant's Notice"). " (b) Landlord will have the right, within one hundred eighty (180) days after receipt of Tenant's Notice, to cancel this Lease by written notice of cancellation to Tenant, in which event the Lease will terminate eighty (80) days after receipt of such notice unless Tenant, within such eighty (80)-day period discontinues its plan to assign the Lease or sublet more than twenty- five percent (25%) of the gross building area of the improvements on the leased premises. " (c) If Landlord does not notify Tenant of its election to cancel the Lease within such one hundred eighty (180) day period, as referenced in subparagraph (b) above, then the restrictions on assignment and subletting and procedures to have a termination right under the foregoing paragraphs and the procedures for Landlord to have a termination right under the "go dark" proviso in Section 3 (Related Provisions) above are waived and terminated and will have no further force or effect. Notwithstanding the foregoing, during the period starting on the date hereof and ending on October 31, 1996, if Tenant gives a Tenant's Notice and if Landlord does not notify Tenant of its election to cancel the Lease within the one hundred eighty (180)-day period provided above, the restrictions on assignment and subletting and procedures to have a termination right under the foregoing paragraphs and the procedures for Landlord to have a termination right under the "go dark" proviso in Section 3 (Related Provisions) above will be deemed waived and terminated only if Tenant assigns this Lease or sublets more than twenty-five percent (25%) of the gross building area within one (1) year of the Tenant's Notice. " (d) In the case of an assignment, the transferee will assume the obligations under this Lease accruing from and after the date of transfer, and Tenant will not be released by Landlord from its liability under the Lease (except as otherwise specifically approved in writing by Landlord)." 6. Subordination to Mortgages. -------------------------- The following new Paragraph 10 is added to the Lease: "10. Subordination to Mortgages. -------------------------- This Lease, at Landlord's option, shall be subordinate to the lien of any trust deed or mortgage subsequently placed upon the leased premises, and to any and all advances made on the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof; provided, however, that this provision shall apply only if the lender who receives the benefit of the subordination enters into an written non- disturbance agreement stating that Tenant's right to quiet possession of the leased premises shall not be disturbed and that condemnation and insurance proceeds shall be used for the purposes set forth in the Lease, so long as Tenant pays the rent and observes and performs all of the provisions of this Lease." Landlord shall endeavor to obtain a similar non-disturbance agreement with any lender whose trust deed or mortgage encumbers the leased premises as of the date of this Agreement. 7. Insurance. --------- The following new Paragraph 11 is added to the Lease: "11. Self-Insurance. -------------- Tenant may satisfy the insurance requirements of this Lease by self-insurance to an extent which is reasonable in relation to its financial worth. Landlord has approved Tenant's current coverages, deductibles and self-insurance arrangements as set forth in documents previously delivered to Landlord." 8. Cooperation by Landlord. ----------------------- The following new Paragraph 12 is added to the Lease: "12. Landlord hereby approves (and agrees not to remonstrate against) any actions or applications by Tenant, at Tenant's cost, to obtain a vacation of the portion of the public street which is situated between the home improvement center parcel and the main building parcel on the leased premises. Any vacated street area that accrues to such parcels upon vacation will be deemed automatically added to and incorporated into the Lease (without change to the rent to be paid). Upon reasonable request from time to time, Landlord shall join with Tenant in any application, consent, grant of easement or license or other instrument as shall be reasonably necessary or convenient to allow development or use of the leased premises by Tenant, so long as the use or value of the leased premises is not thereby adversely affected." 9. Condition Precedent. ------------------- Effectiveness of this Agreement shall be conditioned upon completion of the assignment of the Lease from Tenant to Fred Meyer, Inc., a Delaware corporation. 10. Ratification. ------------ Except as herein modified the Lease is hereby ratified and confirmed and shall remain in full force and effect. 11. Successors and Assigns. ---------------------- Each and all of the covenants, terms, agreements and obligations of this Agreement shall extend to and bind and inure to the benefit of the successors and/or assigns of said parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. LANDLORD: SOUTHEAST COMPANY an Oregon corporation Dated: April 12, 1993 By EARLE M. CHILES ---------------------------- Earle M. Chiles ------------------------------- (typed or printed name) Its President --------------------------- TENANT: REAL ESTATE PROPERTIES LIMITED PARTNERSHIP, an Oregon limited partnership By FMGP Associates, an Oregon limited partnership, its General Partner By FMGP Incorporated, a Delaware corporation, its General Partner Dated: April 12, 1993 By DAVID W. RAMUS ------------------------------- David W. Ramus ---------------------------------- (typed or printed name) Its Vice President ------------------------------ EXHIBIT A A tract of land in Section 17, Township 1 South, Range 2 East of the Willamette Meridian, in the City of Portland, Multnomah County, Oregon; being portions of Lot 24, Marysville; Blocks 1, 2 and 3, Avondale; Block 1 Cahills Subdivision; Block 1, extended plat of Wedgewood Park and S. E. Steele Street, S. E. Steele Court, S. E. 81st Avenue, as vacated by City of Portland Ordinance No. 121530, described as follows: PARCEL I: All that portion of Lot 24, Marysville described as follows: Beginning at the southeasterly corner of Block 4, Cahills Subdivision; thence Easterly along the Easterly extension of the southerly line of said Block 4, 285.00 feet to a point in a line 45 feet Westerly from and parallel to the center line of S. E. 82nd Avenue; thence North along said parallel line, 100.00 feet; thence Westerly, 285.65 feet to the northeast corner of Lot 1, said Block 4, Cahills Subdivision; thence South along the east line of said lot, 100.00 feet to the point of beginning, EXCEPTING THEREFROM the Southeast corner thereof, being a triangular portion measuring 5 feet along S. E. 82nd Avenue and 5 feet along S. E. Mitchell Street; PARCEL II: Beginning at a point on the West line of S. E. 82nd Avenue (as now established, 45.00 feet from the center line) that is North 0 degrees 37' East, 193.48 feet from the Northerly boundary line of S. E. Foster Road extended Southeasterly; said point being the Northeast corner of the parcel conveyed to Gulf Oil Corporation by deed recorded September 27, 1966 in Deed Book 528 page 224; thence West along the North line of said Gulf Oil parcel, 115.69 feet; thence South 29 degrees 09' 30" West along the Northwesterly line of said Gulf Oil parcel, 115.69 feet to the Northerly line of S. E. Foster Road; thence North 61 degrees 27' 30" West along said Northerly line of said road, 346.01 feet to the intersection with the Easterly line of S. E. 80th Avenue (60 feet wide); thence North 28 degrees 29' East along the Easterly line of S. E. 80th Avenue, 127.63 feet, to the intersection of a line drawn 10.00 feet Easterly of the parallel to the Westerly line of Block 1, Cahills Subdivision extended Southerly; thence North 0 degrees 37' East along said line, 406.74 feet to a point in a line 60.00 feet Southerly from the South line of Block 4, Cahills Subdivision, said point being 60.00 feet Easterly from the East line of Block 2, Cahills Subdivision; thence North 89 degrees 51' East 417.20 feet, more or less, to the point in the Westerly line of S. E. 82nd Avenue as now established, that is 60.00 feet South of the Easterly extension of the Southerly line of Block 4, Cahills Subdivision; thence South 0 degrees 37' West along a line drawn 45.00 feet West of and parallel to the center line of S. E. 82nd Avenue, 584.29 feet, to the point of beginning. EXCEPTING THEREFROM the Northeast corner and the Northwest corner thereof, being triangular portions, measuring respectively 5 feet along S. E. 82nd Avenue and 5 feet along S. E. Mitchell Street and 5 feet along S.E. 80th Avenue and 5 feet along S. E. Mitchell Street; PARCEL III: A parcel of land in Lot 24, MARYSVILLE, within the corporate limits of the City of Portland, County of Multnomah and State of Oregon, described as: Beginning at a point in the East line of Section 17, Township 1 South, Range 2 East of the Willamette Meridian, 915.0 feet, North from the one-quarter section corner in East line of said Section 17; thence North along said East line 98.0 feet; thence West 330.0 feet to West line of Lot 24, MARYSVILLE; thence South along said West line 98.0 feet; thence East 330.0 feet to beginning, EXCEPT THAT PART OF PREMISES INCLUDED IN S. E. 82nd Avenue as now widened and established. EXCEPT that part conveyed to the City of Portland by deed recorded December 19, 1968 in Book 655, page 1476, Film Records. EX-11 5 EXHIBIT 11
EXHIBIT 11 FRED MEYER, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE (in thousands, except per share amounts) (unaudited) 52 Weeks Ended ---------------------------------- Jan. 29, Jan. 30, Feb. 1, 1994 1993 1992 ------- ------- ------- Weighted average number of shares outstanding 25,878 24,874 22,694 Weighted average number 4,032 4,108 3,985 of shares under option Shares assumed to have been purchased under the treasury stock method (1,535) (1,536) (1,497) ------ ------ ------ Weighted average number of common and common equivalent shares outstanding 28,375 27,446 25,182 ====== ====== ====== Net income before the effect of an accounting change $70,904 $60,587 $45,227 Effect of an accounting change (2,588) --- --- ------- ------- ------- Net income (loss) $68,316 $60,587 $45,227 ======= ======= ======= Earnings per common share on: Net income before the effect of an accounting change $2.50 $2.21 $1.80 Effect of an accounting change (0.09) --- --- ----- ----- ----- Net Income $2.41 $2.21 $1.80 ===== ===== ===== /TABLE EX-13 6 EXHIBIT 13 16 EXHIBIT 13 SELECTED FINANCIAL DATA
Fiscal Year Ended ------------------------------------------------------------------ (In thousands, except per-share January 29, January 30, February 1, February 2, data and statistical information) 1994 1993 1992 1991 - - ------------------------------------------------------------------------------------------------------------ INCOME STATEMENT DATA Net sales. . . . . . . . . . . . . . . . . $2,979,082 $2,853,962 $2,702,721 $2,476,055 Gross margin . . . . . . . . . . . . . . . 890,375/1 857,086 809,900 741,720 Operating and administrative expenses. . . 761,627 752,004 731,892 674,212 Restructuring charge (reversal). . . . . . -- -- (8,289) -- Income from operations . . . . . . . . . . 128,748/1 105,082 86,297/6 67,508 Interest expense, net of interest income/2 8,246 8,912 15,302 15,974 Income (loss) before income taxes. . . . . 120,502 96,170 70,995 51,534 Income tax expense (benefit) . . . . . . . 49,598/3 35,583 25,768 17,951 Net income (loss) before accounting change or extraordinary item . . . . . . 70,904/3 60,587 45,227/6 33,583 Effect of an accounting change . . . . . . (2,588)/4 -- -- -- Extraordinary item . . . . . . . . . . . . -- -- -- -- --------- ---------- ---------- ---------- Net income (loss). . . . . . . . . . . . . $ 68,316 $ 60,587 $ 45,227/6 $ 33,583 ========= ========== ========== ========== Earnings (loss) per common share: Net income (loss) before accounting change or extraordinary item. . . . . $2.50 $2.21 $1.80/6 $1.37 Effect of accounting change. . . . . . . (.09)/4 -- -- -- Extraordinary item . . . . . . . . . . . -- -- -- -- ----- ----- ----- ----- Net income (loss). . . . . . . . . . . . $2.41 $2.21 $1.80/6 $1.37 ===== ===== ===== ===== BALANCE SHEET DATA Total assets . . . . . . . . . . . . . . . $1,318,782 $1,079,103 $ 972,794 $ 905,756 ---------- ---------- ---------- ---------- Capitalization: Long-term debt . . . . . . . . . . . . . $ 321,398 $ 195,837 $ 240,968 $ 232,881 Lease obligations. . . . . . . . . . . . 65,955 70,313 67,387 67,664 Stockholders' equity . . . . . . . . . . 527,686 450,128 335,154 285,299 ---------- ---------- ---------- ---------- Total. . . . . . . . . . . . . . . . . . $ 915,039 $ 716,278 $ 643,509 $ 585,844 ========== ========== ========== ========== STATISTICAL INFORMATION Percent of net sales: Nonfood sales. . . . . . . . . . . . . . 62.5% 63.3% 63.7% 64.3% Food sales . . . . . . . . . . . . . . . 37.5% 36.7% 36.3% 35.7% Total stores sales growth. . . . . . . . . 4.4% 5.6% 9.2% 11.6%/8 Comparable stores sales percentage increase/5. . . . . . . . . . . . . . . . 2.4% 3.0% 4.0% 3.6%/8 Long-term debt as a percent of total capitalization . . . . . . . . . . . . . 42.3% 37.2% 47.9% 51.3% Net income (loss) as a percent of net sales. . . . . . . . . . . . . . . . 2.3% 2.1% 1.7% 1.4% Number of stores opened during year. . . . 7 6 3 5 Number of stores closed during year. . . . 3 5 3 8 Number of stores operated at end of year . 127 123 122 122 Total retail square feet at end of year. . 13,423,000 12,646,000 12,679,000 12,213,000 Selling square feet at end of year . . . . 9,999,000 9,471,000 9,657,000 9,361,000 Sales per selling square foot (weighted average) . . . . . . . . . . . $312 $304 $283 $269 Common shares outstanding (weighted average) . . . . . . . . . . . . . . . . 28,375,000 27,446,000 25,182,000 24,500,000 - - ------------------------------------------------------------------------------------------------------------ /TABLE 17 SELECTED FINANCIAL DATA (continued)
Fiscal Year Ended ----------------------------------------------------------------- (In thousands, except per-share February 3, January 28, January 30, January 31, data and statistical information) 1990 1989 1988 1987 - - ----------------------------------------------------------------------------------------------------------- INCOME STATEMENT DATA Net sales. . . . . . . . . . . . . . . . . $2,284,535 $2,073,544 $1,847,843 $1,688,208 Gross margin . . . . . . . . . . . . . . . 671,044 610,415 547,157 487,829 Operating and administrative expenses. . . 620,953 544,225 485,822 430,469 Restructuring charge (reversal). . . . . . 49,277 -- -- -- Income from operations . . . . . . . . . . 814/7 66,190 61,335 57,360 Interest expense, net of interest income/2 13,947 9,291 7,449 11,945 Income (loss) before income taxes. . . . . (13,133) 56,899 53,886 45,415 Income tax expense (benefit) . . . . . . . (6,285) 20,238 21,850 21,350 Net income (loss) before accounting change or extraordinary item . . . . . . (6,848)/7 36,661 32,036 24,065 Effect of an accounting change . . . . . . -- -- -- -- Extraordinary item . . . . . . . . . . . . -- -- -- (1,530)/9 --------- --------- ---------- ---------- Net income (loss). . . . . . . . . . . . . $ (6,848)/7 $ 36,661 $ 32,036 $ 22,535 ========= ========= ========== ========== Earnings (loss) per common share to: Net income (loss) before accounting change or extraordinary item. . . . . $(.28)/7 $1.50 $1.31 $1.15 Effect of accounting change. . . . . . . -- -- -- -- Extraordinary item . . . . . . . . . . . -- -- -- (.07)/9 ----- ----- ----- ----- Net income (loss). . . . . . . . . . . . $(.28)/7 $1.50 $1.31 $1.08 ===== ===== ===== ===== BALANCE SHEET DATA Total assets . . . . . . . . . . . . . . . $ 796,894 $ 686,806 $ 626,522 $ 533,986 --------- ---------- ---------- ---------- Capitalization: Long-term debt . . . . . . . . . . . . . $ 188,441 $ 92,180 $ 87,730 $ 76,874 Lease obligations. . . . . . . . . . . . 66,393 50,774 46,904 36,093 Stockholders' equity . . . . . . . . . . 251,546 258,188 221,056 186,692 --------- ---------- ---------- ---------- Total. . . . . . . . . . . . . . . . . . $ 506,380 $ 401,142 $ 355,690 $ 299,659 ========== ========== ========== ========== STATISTICAL INFORMATION Percent of net sales: Nonfood sales. . . . . . . . . . . . . . 66.8% 68.2% 67.6% 66.1% Food sales . . . . . . . . . . . . . . . 33.2% 31.8% 32.4% 33.9% Total stores sales growth. . . . . . . . . 8.4%/8 12.2% 9.5% 6.6% Comparable stores sales percentage increase/5. . . . . . . . . . . . . . . . 4.5%/8 7.9% 6.6% 4.3% Long-term debt as a percent of total capitalization . . . . . . . . . . . . . 50.3% 35.6% 37.9% 37.7% Net income (loss) as a percent of net sales. . . . . . . . . . . . . . . . (.3)%/7 1.8% 1.7% 1.3% Number of stores opened during year. . . . 15 14 8 1 Number of stores closed during year. . . . 2 1 2 1 Number of stores operated at end of year . 125 112 99 93 Total retail square feet at end of year. . 11,743,000 10,925,000 10,494,000 9,738,000 Selling square feet at end of year . . . . 9,056,000 8,388,000 8,064,000 7,497,000 Sales per selling square foot (weighted average) . . . . . . . . . . . $261/8 $253 $239 $228 Common shares outstanding (weighted average) . . . . . . . . . . . . . . . . 24,801,000 24,470,000 24,403,000 20,870,000 - - ----------------------------------------------------------------------------------------------------------- 17
SELECTED FINANCIAL DATA (continued)
Fiscal Year Ended ----------------------------------------------- (In thousands, except per-share February 1, February 2, January 28, data and statistical information) 1986 1985 1984 - - ----------------------------------------------------------------------------------------- INCOME STATEMENT DATA Net sales. . . . . . . . . . . . . . . . . $1,583,796 $1,449,108 $1,213,992 Gross margin . . . . . . . . . . . . . . . 447,960 395,419 336,677 Operating and administrative expenses. . . 397,841 354,914 293,864 Restructuring charge (reversal). . . . . . -- -- -- Income from operations . . . . . . . . . . 50,119 40,505 42,813 Interest expense, net of interest income/2 17,652 19,565 18,020 Income (loss) before income taxes. . . . . 32,467 20,940 24,793 Income tax expense (benefit) . . . . . . . 13,000 8,000 10,000 Net income (loss) before accounting change or extraordinary item . . . . . . 19,467 12,940 14,793 Effect of an accounting change . . . . . . -- -- -- Extraordinary item . . . . . . . . . . . . -- 2,649/10 -- --------- --------- ---------- Net income (loss). . . . . . . . . . . . . $ 19,467 $ 15,589 $ 14,793 ========= ========= ========== Earnings (loss) per common share to: Net income (loss) before accounting change or extraordinary item. . . . . $1.06 $.73 $.86 Effect of accounting change. . . . . . . -- -- -- Extraordinary item . . . . . . . . . . . -- .15/10 -- ----- ----- ----- Net income (loss). . . . . . . . . . . . $1.06 $.88 $.86 ===== ===== ===== BALANCE SHEET DATA Total assets . . . . . . . . . . . . . . . $ 568,531 $ 538,847 $ 420,379 ---------- ---------- ---------- Capitalization: Long-term debt . . . . . . . . . . . . . $ 130,940 $ 175,375 $ 124,964 Lease obligations. . . . . . . . . . . . 89,236 89,297 70,340 Stockholders' equity . . . . . . . . . . 98,395 78,584 62,965 ---------- --------- ---------- Total. . . . . . . . . . . . . . . . . . $ 318,571 $ 343,256 $ 258,269 ========== ========== ========== STATISTICAL INFORMATION Percent of net sales: Nonfood sales. . . . . . . . . . . . . . 65.6% 63.5% 59.3% Food sales . . . . . . . . . . . . . . . 34.4% 36.5% 40.7% Total stores sales growth. . . . . . . . . 11.2%/11 17.3%/11 10.0% Comparable stores sales percentage increase/5. . . . . . . . . . . . . . . . 4.1%/11 4.4%/11 5.9% Long-term debt as a percent of total capitalization . . . . . . . . . . . . . 69.1% 77.1% 75.6% Net income (loss) as a percent of net sales. . . . . . . . . . . . . . . . 1.2% 1.1% 1.2% Number of stores opened during year. . . . 4 23/12 1 Number of stores closed during year. . . . 1 1 0 Number of stores operated at end of year . 93 90 68 Total retail square feet at end of year. . 9,536,000 8,919,000 6,902,000 Selling square feet at end of year . . . . 7,309,000 6,772,000 5,174,000 Sales per selling square foot (weighted average) . . . . . . . . . . . $228 $226/11 $238 Common shares outstanding (weighted average) . . . . . . . . . . . . . . . . 18,355,000 17,790,000 17,139,000 - - ----------------------------------------------------------------------------------------- /1 Includes a nonrecurring LIFO credit of $6,178. /2 Interest income was $707, $544, $517, $467, $482, $336, $350, $1,679, $2,983, $3,090, and $3,772. Excludes interest expense related to occupancy. /3 Includes $3,588 from the resolution of an IRS audit, ($2,286) related to the LIFO credit, and a 38% tax rate. /4 Effect of adopting Statement of Financial Accounting Standards No. 109 relating to income taxes. /5 Includes only sales of stores operating throughout each of the periods compared. /6 Excluding the benefit from the restructuring charge reversal of $8,289 and a charge against expenses for previously capitalized software development costs of $8,748, income from operations, net income, and earnings per common share would be $86,756; $45,516; and $1.81, respectively. /7 Excluding the restructuring charge of $49,277, income from operations, net income, earnings per common share, and net income as a percent of net sales would be $50,091; $24,197; $.98; and 1.1%, respectively. /8 Excludes 53rd week in the fiscal year ended February 3, 1990. /9 Prepayment costs of $1,530 ($.07 per share) from early extinguishment of 17% Senior and Subordinated Notes, net of taxes. /10 Extraordinary gain of $2,649 ($.15 per share) arising from the disposition of a limited partnership interest in Properties. /11 Excludes 53rd week in the fiscal year ended February 2, 1985. /12 Includes 21 nonfood stores acquired from Grand Central, Inc.
18 MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion summarizes Fred Meyer, Inc.'s (the "Company") operating results for the fiscal year ended January 29, 1994 ("1993") compared with the fiscal year ended January 30, 1993 ("1992") and for 1992 compared with the fiscal year ended February 1, 1992 ("1991"). Also included are discussions of the Company's liquidity, capital resources, effect of LIFO, effect of inflation, recent accounting changes, stock data, and dividend policy. This discussion and analysis should be read in conjunction with the Company's consolidated financial statements. RESULTS OF OPERATIONS--1993 COMPARED WITH 1992 Net sales for 1993 increased $125,120,000 or 4.4% over 1992. This increase reflects sales growth at existing stores, inflation, openings of five full-size multidepartment stores and two specialty stores in malls, and adding food to two nonfood stores. This increase was offset by the closure of two multidepartment stores without food departments and one specialty store. Comparable store sales increased 2.4% for 1993. Food sales as a percent of net sales were 37.5% and 36.7%, respectively, for 1993 and 1992. 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. Food comparable store sales increased 3.4% and nonfood comparable store sales increased 1.9%. Gross margin as a percent of net sales was 29.9% in 1993 compared with 30.0% in 1992. The LIFO charge decreased from $4,167,000 in 1992 to $2,890,000 in 1993, primarily as a result of lower inflation rates. Additionally, 1993's gross margin was favorably affected by a one-time LIFO credit of $6,178,000. Excluding the effect of this one-time LIFO credit, 1993 gross margin as a percent of net sales was 29.7%. Gross margins decreased primarily due to lower nonfood pricing as a result of the Company's expense control efforts, start-up costs associated with expansion of its hardlines distribution capabilities, and soft apparel sales. Operating and administrative expenses as a percent of net sales decreased to 25.6% in 1993 compared with 26.3% in 1992. This expense ratio decrease was primarily related to lower store occupancy costs, corporate overhead expenses, and advertising costs as a percent of net sales. Total operating and administrative expenses increased 1.3% to $761,627,000 in 1993 from $752,004,000 in 1992. Net interest expense was $8,246,000 for 1993 and $8,912,000 for 1992, a 7.5% decrease. The decrease primarily reflects lower interest rates. The effective tax rate was 41.2% for 1993 and 37.0% for 1992. This increase is the result of an accrual of $3,588,000 for amounts related to paid and anticipated taxes which may be required as a result of the resolution of an IRS audit, taxes on the one-time LIFO credit, and the higher federal statutory tax rates applied retroactively from January 30, 1993. Excluding the impact of the tax audit settlement, the effective tax rate for 1993 was 38.0%. Before reflecting three nonrecurring accounting adjustments (which had a net impact of $23,000 on reported net income) and an accounting change in 1993, net income increased 17.0% to $70.9 million; and earnings per share were $2.50 for 1993, assuming a 38% tax rate for 1993 versus 19 37% in 1992. On a reported basis, net income for 1993 increased 12.8% to $68.3 million from $60.6 million in 1992, after reflecting the accounting change and three accounting adjustments that resulted in a reduction in net income of $2.6 million and $.09 in earnings per share in 1993. Reported earnings per share were $2.41 for 1993 based on 28,375,000 shares outstanding, compared with $2.21 for the prior year's period based on 27,446,000 shares outstanding. RESULTS OF OPERATIONS--1992 COMPARED WITH 1991 Net sales for 1992 increased $151,241,000 or 5.6% over 1991. This increase reflects sales growth at existing stores, inflation, and new store openings of two full-size multidepartment stores and four small specialty stores in malls. This increase was offset in part by the closure of two multidepartment stores without food departments and three specialty stores. Comparable store sales increased 3.0% for 1992. Food comparable store sales increased 2.8% and nonfood comparable store sales increased 3.2%. Food sales as a percent of net sales were 36.7% and 36.3%, respectively, for 1992 and 1991. 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 30.0% for both 1992 and 1991. The LIFO charge decreased from $6,172,000 in 1991 to $4,167,000 in 1992, primarily as a result of lower inflation rates. Excluding the impact of the lower LIFO charge, gross margin was essentially flat with the prior year. Operating and administrative expenses as a percent of net sales decreased to 26.3% in 1992 compared with 27.1% in 1991. This expense ratio decrease was primarily related to lower advertising, store labor, administrative and support department, and occupancy expenses, continuing changes begun in 1991. These percentage reductions were partially offset by higher costs related to implementation of the Company's new management information systems ("MIS"), and by the expensing of costs related to the Company's election in the first quarter of 1992 to adopt the Statement of Financial Accounting Standards ("SFAS") No. 106, entitled Employers Accounting for Postretirement Benefits Other Than Pensions. Operating and administrative expenses for the year 1991 included an $8,748,000 fourth- quarter charge for the write-off of previously capitalized software development costs associated with the MIS conversion. These MIS development costs were expensed due to the change in the Company's IBM system architecture from a distributed system to a centralized computer system. Excluding the impact of the 1991 fourth-quarter write-off, operating and administrative expenses as a percent of net sales was 26.8% in 1991. Total operating and administrative expenses increased 2.7% to $752,004,000 in 1992 from $731,892,000 in 1991. Net interest expense was $8,912,000 for 1992 and $15,302,000 for 1991, a 41.8% decrease. The decrease primarily reflects lower interest rates and, to a lesser extent, lower borrowings resulting from the receipt of the proceeds from the Company's April 1992 public stock offering. The effective tax rate was 37.0% for 1992 and 36.3% for 1991. Net income for 1992 increased 34.0% from $45,227,000 in 1991 to $60,587,000 in 1992. Earnings per common share increased 22.8% from $1.80 per share reported in 1991 to $2.21 per share in 1992 after reflecting an increase in shares outstanding due to the April 1992 offering of 2,000,000 additional shares of common stock. LIQUIDITY AND CAPITAL RESOURCES The Company funded its working capital and capital expenditure needs in 1993 through internally generated cash flow, supplemented by borrowings under committed and uncommitted bank lines of credit and unrated commercial paper. During 1992, the Company sold 2,000,000 shares of Common Stock in a public offering, resulting in net proceeds to the Company of $46,558,000. On June 29, 1993 and August 2, 1993, the Company issued an aggregate of $70 million of five-year floating rate notes to a group of five banks. At the Company's option, the notes will bear interest at a spread above LIBOR or certificate of deposit rates. Proceeds from the public offering and floating rate notes were used to reduce commercial paper borrowings. The Company maintains a credit facility with several domestic and foreign banks for committed lines of credit which provide for borrowings of up to $300,000,000. This agreement was extended in July 1993 for an additional year and continues through July 31, 1996, at which time the outstanding amounts convert to a term loan payable quarterly through July 31, 2000. The bank lines of credit 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 January 29, 1994 the Company had unrated commercial paper outstanding in the amount of approximately $161,000,000, and a total of approximately $139,000,000 available for borrowing under its committed credit facilities. The average interest rate for commercial paper outstanding at January 29, 1994 was 3.39%. The Company has entered into interest rate swap agreements to reduce the impact of changes in interest rates on its commercial paper and other floating rate debt. At January 29, 1994, the Company had outstanding four interest rate contracts with commercial banks which effectively fix the Company's interest rate exposure on an aggregate $75,000,000 principal amount of commercial paper and bank line borrowings at rates of between 4.63% and 7.60% and mature between June 1994 and November 1998. The Company also purchased two interest rate derivative products ("CAPs") which limit the maximum interest rate the Company can pay at 5.00% on a notional amount of $25,000,000 of its short-term floating rate debt, and which expire in November of 1996 and 1998. In the event of nonperformance by the other parties to the interest rate swap agreements (which is not anticipated), the Company would be exposed to credit loss. During 1993, the Company opened five new multidepartment stores and completed seven major store remodels, two of which included the addition of new food departments to previously nonfood stores. It began construction of five additional multidepartment stores scheduled to open in 1994 and has completed construction of a new wing to the corporate main offices. The Company is planning on the completion of at least seven major remodels in 1994, three of which will include the addition of food departments. The Company closed two multidepartment stores in 1993 and plans to close one multidepartment store in 1994. Other capital projects in 1993 included 20 improvements to the main distribution center, central bakery and dairy plant, a new retail service center in Chehalis, Washington which opened in April 1994, and continuation of the Company's MIS improvement program. In April of 1994, the Company received commitments from major insurance companies to fund $57,500,000 for privately placed notes with maturities of between five and 13 years. Funding is scheduled for July of 1994. Interest will be paid at fixed rates of between 7.25% and 7.98% payable on a semi-annual basis. The Company believes that a combination of cash flow from operations, the above-mentioned note issuance, and borrowings under its expanded credit facilities will permit it to finance its capital expenditure requirements for 1994, budgeted to be $265,000,000. Due primarily to the current favorable interest rates in relation to market rents, the Company believes that it is presently desirable for it to own its newly constructed facilities. If the Company determines that it is preferable, it may also fund its capital expenditure requirements by mortgaging facilities, entering into sale and leaseback transactions, or by issuing additional debt or equity. EFFECT OF LIFO During each year, the Company estimates annual LIFO expense for the year based on estimates of three factors: 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), expected inventory levels, and expected markup levels (after reflecting permanent markdowns and cash discounts). At year-end, the Company makes the final adjustment reflecting the difference between the Company's prior quarterly estimates and actual LIFO expense 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. RECENT ACCOUNTING CHANGES The Financial Accounting Standards Board issued SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. This Statement requires accrual of postretirement benefits (such as health-care benefits) during the years an employee provides services to the Company. The Company adopted this Statement for its fiscal year beginning February 2, 1992. This resulted in an increase of $1,533,000 being charged to operations in 1992. In February 1992, the Financial Accounting Standards Board issued SFAS No. 109, Accounting for Income Taxes. This Statement requires companies to adjust deferred tax liabilities and assets for changes in tax rates and other tax law provisions in the period the new tax law is enacted and to recognize certain deferred tax liabilities. The Company adopted this accounting standard for its fiscal year beginning January 31, 1993. As a result of the adoption of this accounting standard, the Company recorded a charge to earnings of $2,588,000 to provide for book and tax basis differences of certain capital assets, inventory and depreciation arising in connection with the acquisition of the Company in 1981 and Grand Central, Inc. in 1984. COMMON STOCK INFORMATION The Company's common stock began trading on the New York Stock Exchange (NYSE) under the symbol "FMY" on September 9, 1992. Prior to that it was quoted in the NASDAQ National Market System under the symbol "MEYR." At January 29, 1994, the Company had 1,300 shareholders of record. After becoming privately held in 1981, the Company began trading publicly after its initial public offering on October 23, 1986. On April 14, 1992 the Company increased the number of shares outstanding with the sale of an additional 2,000,000 shares of its common stock in a public offering, in addition to 2,000,000 shares sold by a major stockholder. In 1993 a major stockholder sold 3,450,000 shares in a public offering, including approximately 505,000 shares resulting from the exercise of a stock option that was made simultaneously by an institutional investor. The Company has not paid dividends since its incorporation in 1981, and it is the current policy of the Board of Directors that all available cash flow be used for reinvestment in the business of the Company and for the reduction of debt.
Price Ranges ---------------------------------------------------- 1993 1992 1991 ---------------- ---------------- ---------------- Fiscal Quarter High Low High Low High Low - - -------------------------------------------------------------------------- First. . . . . . . . $33 7/8 $27 7/8 $29 1/4 $23 1/2 $19 1/4 $13 3/4 Second . . . . . . . 35 5/8 29 1/4 27 1/2 22 3/4 22 1/4 16 Third. . . . . . . . 37 31 29 1/2 24 3/4 24 3/4 19 3/4 Fourth . . . . . . . 38 1/2 34 1/2 33 7/8 29 28 3/4 20 1/2 - - -------------------------------------------------------------------------- /TABLE 21 STATEMENTS OF CONSOLIDATED OPERATIONS
Fiscal Year Ended ----------------------------------------- January 29, January 30, February 1, (In thousands, except per-share data) 1994 1993 1992 - - --------------------------------------------------------------------------------------------------- Net Sales . . . . . . . . . . . . . . . . . . . . . . . $2,979,082 $2,853,962 $2,702,721 ---------------------------------------- Cost of Goods Sold (Notes 3 and 7): General . . . . . . . . . . . . . . . . . . . . . . . 2,083,141 1,991,310 1,887,255 Related party lease . . . . . . . . . . . . . . . . . 5,566 5,566 5,566 ---------------------------------------- Total cost of goods sold. . . . . . . . . . . . . . 2,088,707 1,996,876 1,892,821 ---------------------------------------- Gross Margin. . . . . . . . . . . . . . . . . . . . . . 890,375 857,086 809,900 Operating and Administrative Expenses (Notes 3, 6, and 7): General . . . . . . . . . . . . . . . . . . . . . . . 692,354 680,991 660,980 Related party leases. . . . . . . . . . . . . . . . . 57,942 59,876 63,108 Interest related to occupancy . . . . . . . . . . . . 11,331 11,137 7,804 ---------------------------------------- Total operating and administrative expenses . . . . 761,627 752,004 731,892 ---------------------------------------- Reversal of Restructuring Charge (Note 4) . . . . . . . -- -- (8,289) ---------------------------------------- Income From Operations. . . . . . . . . . . . . . . . . 128,748 105,082 86,297 Interest Expense--Net of interest income of $707, $544, and $517. . . . . . . . . . . . . . . . . . . . 8,246 8,912 15,302 ---------------------------------------- Income Before Income Taxes. . . . . . . . . . . . . . . 120,502 96,170 70,995 Provision For Income Taxes (Note 5) . . . . . . . . . . 49,598 35,583 25,768 ---------------------------------------- Net Income Before Cumulative Effect of Accounting Change . . . . . . . . . . . . . . . . . . 70,904 60,587 45,227 Cumulative Effect of Accounting Change (Notes 2 and 5). (2,588) -- -- ---------------------------------------- Net Income. . . . . . . . . . . . . . . . . . . . . . . $ 68,316 $ 60,587 $ 45,227 ==========-----==========-----========== Earnings Per Common Share: Net income before cumulative effect of accounting change . . . . . . . . . . . . . . . . . $2.50 $2.21 $1.80 Cumulative effect of accounting change. . . . . . . . (.09) -- -- ----------------------------------- Net Income. . . . . . . . . . . . . . . . . . . . . . . $2.41 $2.21 $1.80 =====----------=====----------===== Weighted Average Number of Common Shares Outstanding. . 28,375 27,446 25,182 - - --------------------------------------------------------------======---------======---------====== See Notes to Consolidated Financial Statements. /TABLE 22 CONSOLIDATED BALANCE SHEETS
ASSETS January 29, January 30, (In thousands) 1994 1993 - - ---------------------------------------------------------------------------------------------------- Current Assets: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,054 $ 31,884 Receivables (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . 18,306 14,715 Inventories (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . 477,568 426,078 Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . 54,098 57,496 Current portion of deferred taxes. . . . . . . . . . . . . . . . . . 7,828 -- ----------------------------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 591,854 530,173 ----------------------------- Property And Equipment: Buildings, fixtures and equipment. . . . . . . . . . . . . . . . . . 956,360 752,336 Property held under capital leases (Note 7). . . . . . . . . . . . . 19,818 23,855 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,505 82,840 ----------------------------- Total property and equipment . . . . . . . . . . . . . . . . . . . . 1,091,683 859,031 Less accumulated depreciation and amortization . . . . . . . . . . . 372,345 316,821 ----------------------------- Property and equipment--net. . . . . . . . . . . . . . . . . . . . . 719,338 542,210 ----------------------------- Other Assets: Goodwill--net (Note 2) . . . . . . . . . . . . . . . . . . . . . . . 5,523 5,831 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,067 889 ----------------------------- Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . 7,590 6,720 ----------------------------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,318,782 $1,079,103 - - -----------------------------------------------------------------------==========---------========== See Notes to Consolidated Financial Statements.
23 CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY January 29, January 30, (In thousands) 1994 1993 - - ---------------------------------------------------------------------------------------------------- Current Liabilities: Outstanding checks (Note 2). . . . . . . . . . . . . . . . . . . . . . . $ 72,373 $ 70,411 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217,277 188,819 Current portion of long-term debt and lease obligations. . . . . . . . . 1,749 1,974 Income taxes payable (Note 5). . . . . . . . . . . . . . . . . . . . . . 18,660 15,418 Accrued expenses: Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,100 39,511 Insurance and other. . . . . . . . . . . . . . . . . . . . . . . . . . 31,834 28,783 -------------------------- Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 382,993 344,916 -------------------------- Long-term Debt (Note 6). . . . . . . . . . . . . . . . . . . . . . . . . 321,398 195,837 -------------------------- Capital Lease Obligations (Note 7) . . . . . . . . . . . . . . . . . . . 14,895 16,621 -------------------------- Deferred Lease Transactions (Note 7) . . . . . . . . . . . . . . . . . . 48,254 44,785 -------------------------- Deferred Income Taxes (Note 5) . . . . . . . . . . . . . . . . . . . . . 18,496 16,376 -------------------------- Other Long-term Liabilities (Notes 4 and 10) . . . . . . . . . . . . . . 5,060 10,440 -------------------------- Commitments and Contingencies (Notes 2, 7 and 12). . . . . . . . . . . . -------------------------- Stockholders' Equity (Notes 3 and 8): Preferred stock, $.01 par value (authorized, 5,000 shares; outstanding, none) . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- Common stock, $.01 par value (authorized, 100,000 shares; issued, 1993--26,705 shares, and 1992--25,862 shares; outstanding, 1993--26,415 shares, and 1992--25,572 shares) . . . . . . 267 259 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 193,719 185,080 Unearned compensation. . . . . . . . . . . . . . . . . . . . . . . . . . (527) (1,122) Treasury stock (1993--290 shares, and 1992--290 shares). . . . . . . . . (3,896) (3,896) Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 338,123 269,807 -------------------------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 527,686 450,128 -------------------------- Total liabilities and stockholders' equity $1,318,782 $1,079,103 - - --------------------------------------------------------------------------==========------========== See Notes to Consolidated Financial Statements.
24 STATEMENTS OF CONSOLIDATED CASH FLOWS
Fiscal Year Ended ----------------------------------------- January 29, January 30, February 1, (In thousands) 1994 1993 1992 - - -------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 68,316 $ 60,587 $ 45,227 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment. . . . . . . . . . . . . . . . . . . . . 70,547 66,958 48,139 Write-off of capitalized software development costs. . . -- -- 8,748 Reversal of restructuring charge . . . . . . . . . . . . -- -- (8,289) Deferred lease transactions. . . . . . . . . . . . . . . 3,469 4,768 3,958 Deferred income taxes. . . . . . . . . . . . . . . . . . (5,708) (189) 1,984 Other liabilities. . . . . . . . . . . . . . . . . . . . 721 1,533 -- Inventories. . . . . . . . . . . . . . . . . . . . . . . (51,490) (22,803) (25,015) Other current assets . . . . . . . . . . . . . . . . . . (1) (19,759) 5,710 Accounts payable and accrued expenses. . . . . . . . . . 32,354 32,316 5,672 Income taxes . . . . . . . . . . . . . . . . . . . . . . 3,242 13,687 (4,013) Other. . . . . . . . . . . . . . . . . . . . . . . . . . (5,067) 356 3,393 ---------------------------------------- Net cash provided by operating activities. . . . . . . . . 116,383 137,454 85,514 Cash Flows from Financing Activities: Proceeds from stock offering . . . . . . . . . . . . . . . -- 45,608 -- Issuance of other common stock--net. . . . . . . . . . . . 8,647 8,779 4,628 Collection of notes receivable . . . . . . . . . . . . . . 264 1,092 139 Increase in notes receivable . . . . . . . . . . . . . . . (1,402) (114) (1,167) Increase (decrease) in outstanding checks. . . . . . . . . 1,962 (11,960) 9,701 Long-term financing: Borrowings . . . . . . . . . . . . . . . . . . . . . . . 126,310 2,941 13,728 Repayments . . . . . . . . . . . . . . . . . . . . . . . (1,015) (51,761) (5,652) ---------------------------------------- Net cash provided by (used in) financing activities. . . . 134,766 (5,415) 21,377 Cash Flows from Investing Activities: Property and equipment . . . . . . . . . . . . . . . . . . (253,920) (144,628) (105,881) Net proceeds from sale/leaseback of property and retirement of other assets . . . . . . . . . . . . . . . 4,941 14,485 -- ---------------------------------------- Net cash used for investing activities . . . . . . . . . . (248,979) (130,143) (105,881) ---------------------------------------- Cash Increase for the Year . . . . . . . . . . . . . . . . 2,170 1,896 1,010 Cash, Beginning of Year. . . . . . . . . . . . . . . . . . 31,884 29,988 28,978 ---------------------------------------- Cash, End of Year. . . . . . . . . . . . . . . . . . . . . $ 34,054 $ 31,884 $ 29,988 =========------=========-------========= Supplemental Disclosure of Cash Flow Information Cash paid during the year for: Interest (including interest capitalized of $1,689, $406, and $1,321). . . . . . . . . . . . . . . $ 17,984 $ 18,193 $ 18,066 Income taxes . . . . . . . . . . . . . . . . . . . . . . 53,197 21,514 27,106 - - -------------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements.
25 STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
Common Stock ------------------ Additional Number of Paid-in Unearned Treasury Retained (In thousands) Shares Amount Capital Compensation Stock Earnings Total - - ---------------------------------------------------------------------------------------------------------------------------------- Balance, February 2, 1991. . . . . . . . . . . . 22,564 $229 $124,848 $ 0 $(3,771) $163,993 $285,299 Issuance/purchase of common stock: Stock options exercised. . . . . . . . . . . . 233 2 2,750 -- -- -- 2,752 Stock awards . . . . . . . . . . . . . . . . . 1 -- 11 -- -- -- 11 Stock bonuses/sale . . . . . . . . . . . . . . 120 1 2,612 (1,637) -- -- 976 Tax benefit from stock options . . . . . . . . -- -- 691 -- -- -- 691 Amortization of unearned compensation. . . . . -- -- -- 198 -- -- 198 Net income . . . . . . . . . . . . . . . . . . . -- -- -- -- -- 45,227 45,227 ----------------------------------------------------------------------------- Balance, February 1, 1992. . . . . . . . . . . . 22,918 232 130,912 (1,439) (3,771) 209,220 335,154 Issuance/purchase of common stock: Stock issuance . . . . . . . . . . . . . . . . 2,000 20 45,588 -- -- -- 45,608 Stock options exercised. . . . . . . . . . . . 649 6 6,773 -- -- -- 6,779 Stock awards . . . . . . . . . . . . . . . . . -- -- 2 -- -- -- 2 Stock bonuses/sale . . . . . . . . . . . . . . 9 1 247 (248) -- -- -- Treasury stock . . . . . . . . . . . . . . . . (4) -- -- -- (125) -- (125) Tax benefit from stock options . . . . . . . . -- -- 1,558 -- -- -- 1,558 Amortization of unearned compensation. . . . . -- -- -- 565 -- -- 565 Net income . . . . . . . . . . . . . . . . . . . -- -- -- -- -- 60,587 60,587 ----------------------------------------------------------------------------- Balance, January 30, 1993. . . . . . . . . . . . 25,572 259 185,080 (1,122) (3,896) 269,807 450,128 Issuance/purchase of common stock: Stock options exercised. . . . . . . . . . . . 843 8 7,185 -- -- -- 7,193 Tax benefits from stock options. . . . . . . . -- -- 1,454 -- -- -- 1,454 Amortization of unearned compensation. . . . . -- -- -- 595 -- -- 595 Net income . . . . . . . . . . . . . . . . . . . -- -- -- -- -- 68,316 68,316 ----------------------------------------------------------------------------- Balance, January 29, 1994. . . . . . . . . . . . 26,415 $267 $193,719 $(527) $(3,896) $338,123 $527,686 - - -----------------------------------------------------======-----====-----========----------======---========---========---======== See Notes to Consolidated Financial Statements.
26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY Fred Meyer, Inc., a Delaware corporation, and its subsidiaries (the "Company") operate a chain of 127 retail stores offering a wide range of food, products for the home, apparel, fine jewelry, and home improvement items, with emphasis on necessities and items of everyday use. The stores are located in Oregon, Washington, Utah, Alaska, Idaho, Northern California and Montana and include 97 free-standing, multidepartment stores and 30 specialty stores. On December 11, 1981, the Company and a related newly formed Oregon limited partnership, Fred Meyer Real Estate Properties, Ltd. whose name was changed in 1991 to Real Estate Properties Limited Partnership ("Properties") purchased substantially all of the assets and the business of Fred Meyer, Inc., an Oregon corporation, and its wholly owned subsidiaries (the "Predecessor Company"). The Company acquired the operating business and certain assets and assumed certain liabilities of the Predecessor Company, and Properties acquired all of the Predecessor Company's interests in real property and assumed the indebtedness thereon. The Predecessor Company ceased operations immediately after the sale and the Company began operations on December 12, 1981. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation--The accompanying financial statements include the consolidated accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated. Fiscal Year--The Company's fiscal year is generally 52 weeks, but periodically consists of 53 weeks, because the fiscal year ends on the Saturday closest to January 31. Fiscal years 1993, 1992, and 1991 ended on January 29, 1994, January 30, 1993, and February 1, 1992, respectively. Unless otherwise stated, references to years in this report relate to fiscal years rather than to calendar years. Segment Reporting--The Company's operations consist of one segment, retail sales. Inventories--The Company's inventories consist principally of items held for sale in its retail operations and substantially all inventories are stated at the lower of last-in, first-out (LIFO) cost or market. If the first-in, first-out method, which approximates replacement cost, had been used in determining inventory values, they would have been $56,685,000, $53,155,000, and $48,988,000 higher at January 29, 1994, January 30, 1993, and February 1, 1992, respectively. Property and Equipment--Property and equipment is stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets. Amortization of property under capital leases is provided using the straight-line method over the related lease terms. Goodwill--Goodwill is being amortized on a straight-line basis over 30 years. Accumulated amortization was $3,736,000 at January 29, 1994 and $3,428,000 at January 30, 1993. Management periodically evaluates the recoverability of goodwill based upon current and anticipated net income and undiscounted future cash flows. Outstanding Checks--Checks issued against bank accounts with a zero bank balance are included in current liabilities. Pre-opening Costs--All noncapital expenditures incurred in connection with the opening of new or acquired stores and other facilities or remodeling of existing stores are expensed as incurred. Income Taxes--Deferred income taxes are provided for those items included in the determination of income or loss in different periods for financial reporting and income tax purposes. Targeted jobs and other tax credits are recognized in the year realized. Effective January 31, 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. Accordingly, the Company has changed its method of accounting for income taxes from the deferred method used in prior years to the method prescribed by SFAS No. 109. Under SFAS No. 109, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. Prior years' financial statements have not been restated for the accounting change (see Note 5). Earnings Per Common Share--Fully diluted earnings per common share are computed by dividing net income by the weighted average number of common and common equivalent shares outstanding. Weighted average shares reflect the dilutive effect of the outstanding stock options (ranging in exercise price from $3.24 to $36.75 per share), which was determined using the treasury stock method. Reclassifications--Certain prior year amounts have been reclassified to conform to current year presentation. The reclassifications have no effect on net income. 3. RELATED-PARTY TRANSACTIONS At January 29, 1994, the Company leased or subleased, under operating or capital leases, 24 store locations, and other miscellaneous property from Properties and its wholly owned subsidiaries, which have certain common ownership with the Company. Payments under these leases and those terminated during the year were $21,290,000 in 1993, $23,368,000 in 1992, and $27,041,000 in 1991. The Company also leases 35 store locations and a distribution center from an institutional investor, who is a major beneficial shareholder of the Company's stock. Rents paid to this shareholder on these properties were $39,573,000 in 1993 and $38,476,000 in both 1992 and 1991. Total rents included in operating and administrative expenses for locations leased or subleased from related parties were $57,942,000 in 1993, $59,876,000 in 1992, and $63,108,000 in 1991, based on the average rental paid during the primary term of the leases. This does not include the Company's main distribution center, which is included in cost of goods sold in the amount of $5,566,000 in each of the years 1993, 1992 and 1991. 27 During 1991, the Company charged Properties and its wholly owned subsidiaries for accounting and general and administrative services rendered. As of September 3, 1991, the Company discontinued providing such services to Properties. Charges for these services were $206,000 in 1991. At January 30, 1993, $18,000 was outstanding on a note receivable due from an officer of the Company related to common stock purchased. The balance was paid to the Company during 1993. On October 30, 1992, the Company purchased property totaling $3,000,000 from Properties and its wholly owned subsidiaries which have certain common ownership with the Company. Rents paid on this property in 1992 and 1991 totaled $393,000 and $472,000, respectively. 4. RESTRUCTURING CHARGE During 1989, the Company incurred a restructuring charge of $49,277,000 ($31,045,000 after a deferred tax benefit of $18,232,000) related to the write-down of certain assets and other noncash charges in connection with remodeling, replacing, and closing stores and to the conversion of the Company's MIS hardware from Honeywell to IBM. During 1991, as a result of a reassessment by current management, based in part on the better-than-expected operating results, six stores previously scheduled for closure were not closed. Accordingly, the Company recognized a fourth quarter increase to pre-tax earnings of $8,289,000 relating to the reversal of a portion of the restructuring charge taken in 1989. This reversal was offset in part by increased obligations for leases on stores previously closed as part of the restructuring in 1989. At January 29, 1994, included in other long-term liabilities, were charges for net rentals under noncancelable leases for future fiscal years for stores which will be replaced or closed and for Honeywell hardware in the amounts of (in thousands):
Less Estimated Estimated Subleases/ Net Fiscal Year Leases Discounts Rentals - - ----------------------------------------------------------------- 1994. . . . . . . . . . . . . . .$ 1,701 $ 800 $ 901 1995. . . . . . . . . . . . . . . 1,368 823 545 1996. . . . . . . . . . . . . . . 1,271 824 447 1997. . . . . . . . . . . . . . . 1,122 830 292 1998. . . . . . . . . . . . . . . 1,122 830 292 1999 and thereafter . . . . . . . 7,949 6,720 1,229 -------------------------------- Total . . . . . . . . . . . . . .$14,533 $10,827 $3,706 - - ---------------------------------=======------=======------======
5. INCOME TAXES The provision for income taxes includes the following (in thousands):
1993 1992 1991 - - ----------------------------------------------------------------- Current . . . . . . . . . . . . .$57,894 $35,772 $23,784 Deferred. . . . . . . . . . . . . (8,296) (189) 1,984 -------------------------------- Total . . . . . . . . . . . . .$49,598 $35,583 $25,768 - - ---------------------------------=======-----=======------=======
A reconciliation between the statutory federal income tax rate to the provision for income taxes is as follows (in thousands):
1993 1992 1991 - - ----------------------------------------------------------------- Federal income taxes at the statutory rate. . . . . . . . .$42,176 $32,698 $24,138 Settlement of certain IRS audits. . . . . . . . . . . 3,588 -- -- Deferred income taxes increase in statutory rate . . . . . . . 219 -- -- State income taxes. . . . . . . . 3,615 2,885 2,130 Targeted jobs and other tax credits . . . . . . . . . . (926) (1,180) (1,771) Other, net. . . . . . . . . . . . 926 1,180 1,271 -------------------------------- Provision for income taxes. . . .$49,598 $35,583 $25,768 - - ---------------------------------========----========----========
As a result of the adoption of SFAS 109, 1993 consolidated net income was decreased by $2,588,000 (see Note 2). The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at January 29, 1994 are as follows (in thousands):
- - -------------------------------------------------------------- Deferred tax assets: Capitalized inventory costs . . . . . . . . . . . . $ 6,332 Accrued expenses. . . . . . . . . . . . . . . . . . 17,710 Restructuring related charges . . . . . . . . . . . 4,154 Deferred lease transactions . . . . . . . . . . . . 18,337 Other . . . . . . . . . . . . . . . . . . . . . . . 6,860 ------- Total deferred tax assets . . . . . . . . . . . . 53,393 ------- Deferred tax liabilities: Accumulated depreciation. . . . . . . . . . . . . . 41,712 Prepaid expenses. . . . . . . . . . . . . . . . . . 12,785 LIFO inventory. . . . . . . . . . . . . . . . . . . 9,564 ------- Total deferred tax liabilities. . . . . . . . . . 64,061 ------- Net deferred income taxes . . . . . . . . . . . . $10,668 ======= Current deferred income taxes--asset. . . . . . . . . $(7,828) Noncurrent deferred income taxes--liability . . . . . 18,496 ------- Net deferred income taxes . . . . . . . . . . . . . . $10,668 - - -------------------------------------------------------=======
Under the prior method of accounting, the deferred income tax provision included the following (in thousands):
1992 1991 - - ----------------------------------------------------------------- Depreciation . . . . . . . . . . . . . . . . $ 3,122 $ 1,757 Restructuring charge . . . . . . . . . . . . 4,073 6,381 Prepaids . . . . . . . . . . . . . . . . . . 10 973 Rental expense . . . . . . . . . . . . . . . (1,827) (1,827) Capitalized inventory costs. . . . . . . . . (366) (189) Purchase discounts received in advance . . . (1,177) (812) Pension and profit sharing payment . . . . . 665 36 Computer system development costs capitalized. . . . . . . . . . . . . (6,516) (963) Vacation pay . . . . . . . . . . . . . . . . (798) (984) Other. . . . . . . . . . . . . . . . . . . . 2,625 (2,388) ------------------- Total deferred income tax (benefit) provision. . . . . . . . . . . . $ (189) $ 1,984 - - ---------------------------------------------========----========
28 6. LONG-TERM DEBT Long-term debt consisted of the following (in thousands):
1993 1992 - - ------------------------------------------------------------------------------------------------ Commercial paper, payable 1994 at current interest rates of 2.95% to 3.65%, classified as long-term. . . . . . . . . . . $160,911 $ 99,818 Uncommitted bank borrowings, effective interest rate 3.44%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 8,000 Long-term notes secured by trust deeds, due 2010 through 2012, fixed interest rates from 9.0% to 9.52% . . . . . . . . . . . . 43,943 44,531 Long-term notes, unsecured: Due 1998, interest rate is periodically reset, 4.07% at January 29,1994. . . . . . . . . . . . . . . . . . . . . . . . . 70,000 -- Due 1996, interest rate 7.74% . . . . . . . . . . . . . . . . . . . . 10,000 10,000 Zero coupon notes, due in 1994, fixed interest rate of 9.3%, classified as long-term. . . . . . . . . . . . . . . . . . . 37,024 33,806 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 323 --------------------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322,147 196,478 Less current portion. . . . . . . . . . . . . . . . . . . . . . . . . . (749) (641) --------------------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $321,398 $195,837 - - ---------------------------------------------------------------------------========-----========
The Company has the ability to support commercial paper, uncommitted bank borrowings, and other debt on a long-term basis through its Credit Agreement and therefore, based upon management's intent, has classified $197,935,000 of these borrowings as long-term debt. On July 31, 1993, the Company amended its Credit Agreement, which now provides for, among other things: (1) a revolving credit commitment of $300,000,000 and, at the option of the Company, conversion of the unpaid balance at July 31, 1996 into term notes payable over four years; (2) interest at a spread over LIBOR on such borrowings or various other pricing options; and (3) a facility fee of .20% of the amount of the commitment. The Agreement, among other things, requires the maintenance of specified ratios and restricts the amounts of fixed asset acquisitions, debt incurred, and cash dividends paid. At January 29, 1994, $17,079,000 of retained earnings was available for dividends, which are limited to 25% of current-year earnings payable in the following year. The Company has established uncommitted lines of credit with international banks for $35,000,000 and has uncommitted bid lines of credit with certain banks within its committed bank group for $105,000,000. These lines, which generally have terms of one year, allow the Company to borrow from the banks at the banks' discretion at mutually agreed upon rates, usually below the rates offered under the Credit Agreement. The Company has unrated commercial paper programs with maturities ranging from one to 270 days in amounts up to a maximum of $300,000,000. The Company also has available a letter of credit line for $25,000,000, against which letters of credit for $11,109,000 had been issued at January 29, 1994. In 1991, the Company financed the land and building portion of one new store with an insurance company. The note requires regular payments based on a 25-year amortization and can be called by the insurance company or repaid by the Company, without premium, after 10 years. Other notes secured by trust deeds entered into in 1990 require similar payment terms. During 1993, the Company placed $70,000,000 of unsecured, five year notes with five domestic and international banks. The floating rate notes bear interest at a spread over LIBOR or other pricing indices at the Company's option for durations of 30 to 180 days. Interest on the notes is paid not later than quarterly. The Company has entered into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate debt. At January 29, 1994, the Company had outstanding six interest rate contracts with commercial banks, having a total notional principal amount of $100,000,000. Four of these agreements effectively fix the Company's interest rate on unrated commercial paper, floating rate facilities, and uncommitted lines of credit at rates between 4.625% and 7.595% on a notional principal amount of $75,000,000. These contracts expire at various dates through 1998. The remaining two agreements are interest rate derivative products ("CAPs") which effectively limit the maximum interest rate the Company will pay at 5.0% on a notional principal amount of $25,000,000. These two agreements mature in 1996 and 1998. The Company is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreements. However, the Company does not anticipate nonperformance by the other parties. Beginning in 1992, the Company changed its primary method of financing land and buildings from leasing to ownership. In order to consistently reflect the financial cost of the investment in real estate under different financial arrangements, the Company reclassifies interest associated with owned stores into the operating and administrative expenses in its financial statements. Interest expense reclassified was $11,331,000, $11,137,000 and $7,804,000 for the fiscal years ending January 29, 1994, January 30, 1993, and February 1, 1992, respectively. Annual estimated long-term debt maturities for the five fiscal years subsequent to January 29, 1994 are: 1994, $749,000; 1995, $753,000; 1996, $35,764,000; 1997, $50,143,000; 1998, $50,412,000; and thereafter, $184,326,000. The Company expects to renegotiate and extend maturities on portions of its credit facilities in 1994. 7. LEASES The Company leases or subleases a substantial portion of the real property used in its operations. At October 22, 1986, the leases and subleases for a distribution center, 71 store locations, and certain other properties were amended and restated to provide, among other things, an initial lease term of 20 years for 36 locations (with cash rents of $38,476,000 for the first seven years and $46,070,000 for the remaining 13 years). The average rent over the primary lease term is charged to rent expense. As a result of the above transaction: (1) five previously capitalized leases qualified as operating leases, resulting in a decrease in property held under capital leases and capital lease obligations of $53,678,000 and $72,160,000 respectively, with the resulting $18,482,000 gain deferred and amortized over the 20-year lease period; and (2) the difference between the amount of the cash rent paid and the expense charged to operations on the 36 locations described above is included in deferred lease transactions. In 1992, the Company amended leases for nine store locations, with cash rent escalating over the term of the leases. The difference between cash rent paid and the expense charged to operations is included in deferred lease transactions. The average rent over the primary lease term is charged to rent expense. 29 At January 29, 1994, deferred lease transactions consisted of $11,780,000 unamortized gain on capital leases, $35,591,000 of excess of rent expense over cash rents for the aforementioned leases, and unamortized deferred gain on a sale-leaseback transaction of $883,000. The lease terms of certain operating leases require the payment of executory costs such as property taxes, utilities, insurance, and maintenance. Certain leases provide for percentage rents. Portions of the properties are subleased to others for periods of from one to 20 years. At January 29, 1994, minimum rentals under noncancelable leases for future fiscal years were (in thousands):
Operating Capitalized Less Net Fiscal Year Leases Leases Subleases Rentals - - --------------------------------------------------------------------------- 1994. . . . . . . . . . . $ 89,331 $ 1,947 $ 7,625 $ 83,653 1995. . . . . . . . . . . 84,616 1,947 6,624 79,939 1996. . . . . . . . . . . 79,782 1,947 4,396 77,333 1997. . . . . . . . . . . 77,078 1,988 3,816 75,250 1998. . . . . . . . . . . 74,913 2,109 2,673 74,349 1999 and thereafter . . . 688,594 35,342 18,072 705,864 - - ------------------------------------ ------- ------- ---------- Total . . . . . . . . . . $1,094,314 45,280 $43,206 $1,096,388 ========== ======= ========== Less imputed interest . . (30,286) -------- Present value of minimum rental payments . . . . . 14,994 Less current portion. . . (99) -------- Capitalized lease obligations . . . . . . $14,895 - - -------------------------------------------=======-------------------------
As of January 29, 1994, the leases for 10 store locations and one distribution center were accounted for as capital leases. The amounts representing interest expense on these capital lease obligations were included in operating and administrative expenses and were $2,111,000 in 1993, $2,261,000 in 1992, and $2,529,000 in 1991. Accumulated amortization of property under capital leases was $6,072,000 at January 29, 1994, $7,708,000 at January 30, 1993, and $7,156,000 at February 1, 1992. Rent expense under operating leases included in operating and administrative expenses, executory costs, and payments under capital leases were as follows (in thousands):
1993 1992 1991 - - -------------------------------------------------------------------------- Gross rent expense. . . . . . . . . . . . . $104,892 $113,894 $125,111 Rent income from subleases. . . . . . . . . (11,582) (10,332) (9,450) ------------------------------ Net rent expense. . . . . . . . . . . . . . 93,310 103,562 115,661 Payments under capital leases . . . . . . . 2,178 2,370 2,370 ------------------------------ Total . . . . . . . . . . . . . . . . . . . $ 95,488 $105,932 $118,031 - - --------------------------------------------========---========---========
Included in gross rent expense for 1993, 1992, and 1991 were contingent rents of $1,650,000, $1,845,000, and $1,832,000, respectively. 8. STOCKHOLDERS' EQUITY Stock Incentive Plans--At January 29, 1994, 2,525,406 shares of common stock were reserved for issuance to employees, including officers and directors, and non-employee agents, consultants and advisors, under stock incentive plans. These plans provide for the granting of incentive stock options, nonqualified stock options, stock bonuses, stock appreciation rights, cash bonus rights and performance units. Under the terms of the plans, the option price is determined by the Board of Directors at the time the option is granted. The option price for incentive stock options cannot be less than the fair value of the Company's stock on the day prior to the date of grant. Nonqualified stock options may not be granted at less than 50% of the fair value on the day prior to the date of grant. Stock Options--Activity under the plans was as follows (in thousands, except per share data):
Option Price (Market Price at Date of Grant) ---------------------------------------- Shares Per Share Total - - -------------------------------------------------------------------------- Shares under option: Balance, February 1, 1992. . . . . 1,880 $12.125-23.000 $32,116 Options granted. . . . . . . . . . 344 24.750-30.875 8,687 Options exercised. . . . . . . . . (356) 12.125-21.750 (5,829) Options cancelled. . . . . . . . . (43) 12.125-24.750 (643) ----- ------- Balance, January 30, 1993. . . . . 1,825 12.125-30.875 34,331 Options granted. . . . . . . . . . 706 30.625-36.750 23,265 Options exercised. . . . . . . . . (339) 12.125-27.250 (5,856) Options cancelled. . . . . . . . . (39) 12.125-32.750 (1,089) ----- ------- Balance, January 29, 1994. . . . . 2,153 12.125-36.750 $50,651 ===== ======= Shares exercisable, January 29, 1994 . . . . . . . . 719 12.125-30.875 Shares available for option: January 30, 1993 . . . . . . . . 1,039 January 29, 1994 . . . . . . . . . 372 - - --------------------------------------------------------------------------
Other Option--The Company's principal stockholder, FMI Associates, holds an option, which expires in 1996, that initially allowed for a purchase of up to 2,364,300 shares of the Company's common stock at $3.24 per share for an aggregate of $7,668,000. In 1992, 292,792 shares were exercised, resulting in a balance of 2,071,508 shares for an aggregate of $6,718,000. In 1993, 505,067 shares were exercised, resulting in a balance of 1,566,441 shares for an aggregate of $5,080,000. Stock Awards--During 1993, 1992, and 1991, 142 shares, 78 shares, and 615 shares with a market value of $5,000, $2,000, and $11,000, respectively, were awarded to non-executive employees of the Company. Management Bonus--In 1992, the Company awarded stock bonuses to a corporate officer for 5,000 shares totaling $124,000. Shares issued vest annually over five years. In 1991, the Company awarded cash and stock bonuses to two corporate officers totaling $2,212,000. Shares issued of 74,700, with a market value at the times of the issuance of $1,637,000, vest monthly over three years. Non-employee Directors Stock Compensation Plan--In 1992, the Company purchased 4,016 shares of its common stock at market prices for the benefit of two of its non-employee directors in lieu of a portion of current and future board of director fee payments. The shares total $125,000 and vest annually over five years. 30 9. EMPLOYEE BENEFIT PLANS Employees' Profit-sharing Plan--Profit-sharing contributions under this Plan, which covers the Company's nonunion employees, are made to a trust fund held by a third-party trustee. Contributions are based on the Company's pre-tax income, as defined, at rates determined by the Board of Directors and are not to exceed amounts deductible under applicable provisions of the Internal Revenue Code. The Company expensed $3,944,000 in 1993, $3,248,000 in 1992, and $3,056,000 in 1991 for these contributions. Multi-employer Pension Plan--The Company contributes to multi- employer pension plan trusts at specified rates in accordance with collective bargaining agreements. Contributions to the trusts were $9,667,000 in 1993, $9,157,000 in 1992, and $9,424,000 in 1991. The Company's relative positions in these plans with respect to the actuarial present value of the accumulated benefit obligation and the projected benefit obligation, net assets available for benefits, and the assumed rates of return used by the plans are not determinable. Cash Incentive Plan--Under the Company's cash incentive plan for selected management personnel, a maximum of 600,000 units may be awarded. Recipients of an award are paid an amount per unit equivalent to the increase in book value, adjusted to exclude certain items, of a share of common stock for the period the unit is outstanding. At January 30, 1993, 517,925 units had been awarded, of which zero units were outstanding. The Company accrues expenses incurred under the plan, which were $5,000 in 1992 and $18,000 in 1991. No executive officers or directors of the Company participate in this plan, unless they were awarded units prior to their promotion to such positions. Employee Stock Purchase Plan--In April 1992, the Company implemented a non-contributory employee stock purchase plan. The plan allows employees to purchase stock in the Company via payroll deductions. The Company pays all brokerage fees associated with the purchase of the stock. The plan is available to all employees over age 18 who have completed six months of continuous employment with the Company. Supplemental Retirement Benefit Plan--In January 1994, the Company implemented a supplemental retirement program for senior management, selected vice presidents and selected key individuals. Program provisions are as follows: Senior Management--The plan is funded with life insurance contracts on the lives of the participants. The Company is the owner of the contracts and makes annual contributions of $25,000 per participant. Total contributions were $325,000 in 1993. Retirement age under the plan is normally 62 with an alternative age of 65, at which point the Company will make 15 annual benefit payments to the executive. Selected Vice Presidents and Selected Key Individuals--The Company will contribute annually a percentage of each participant's gross salary. The plan is funded with life insurance contracts on participants 54 and younger and variable annuity contracts for participants 55 and older. Each participant is the owner of his/her respective contract. 10. OTHER POSTRETIREMENT BENEFITS For employees who retired prior to January 1, 1994, the Company sponsors a retiree health plan, with eligibility requirements for postretirement health care coverage varying by region of the Company, as follows: Eastern Region Retirement after attaining age 60 with 25 years of continuous service as a salaried employee. Southern & Northern Regions: Salaried employees (A) Age 60 or more with 25 years of continuous service (B) Age 62 or more with 20 years of continuous service (C) Age 65 or more with 15 years of continuous service Salaried and hourly employees (D) Ages 62 to 65 with 15 years of continuous service: self- pay, with coverage to terminate upon Medicare eligibility. The Company contributes 100% of the premium for eligible retirees, up to a monthly cap of $250 per person, except there is no Company contribution for eligibility requirement (D), for which the retiree pays the entire premium. As of January 1, 1994, the Company changed the eligibility requirements for all salaried and non-union hourly employees for all regions to: Age 60 or more with 10 years of continuous service. Under the plan, the retiree pays the premium at current employee rates. In 1992, the Company changed its method of accounting for these postretirement benefits to conform with SFAS No. 106, Employers' Accounting for Postretirement Benefits Other than Pensions. This statement requires accrual of postretirement benefits during the years an employee provides services. Prior to 1992, the costs of these benefits were expensed on a pay-as-you-go basis. Adoption of this statement resulted in an increase of $747,000 and $1,484,000 being charged to operations for these postretirement benefits in 1993 and 1992, respectively. The following table sets forth the plan's funded status, reconciled with the amount shown in the Company's balance sheet at January 29, 1994 and January 30, 1993:
January 29, 1994 January 30, 1993 - - -------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Current retirees. . . . . . . . . . . . $ 1,415,454 $ 1,584,153 Fully eligible plan participants. . . . 715,869 751,256 Other active plan participants. . . . . 2,902,136 7,606,918 ----------------------------- Total . . . . . . . . . . . . . . . . . . $ 5,033,459 $ 9,942,327 ===========-------=========== Accumulated postretirement benefit obligation in excess of plan assets . . $(5,033,459) $(9,942,327) Unrecognized transition obligation, transition date 1/31/93 and 2/2/92. . . 1,503,635 7,081,836 Unrecognized prior service cost . . . . . 407,792 -- Unrecognized net loss . . . . . . . . . . 841,184 1,376,535 ----------------------------- Accrued postretirement benefit cost . . . $(2,280,848) $(1,483,956) ============------=========== Net periodic postretirement benefit cost for 1993 and 1992 included the following components: Service cost--benefits attributed to service during the period . . . . . . $ 297,804 $ 494,282 Interest cost on accumulated postretirement benefit obligation . . 462,477 666,398 Actual return on plan assets. . . . . . -- -- Amortization of transition obligation over 20 years . . . . . . . . . . . . 125,783 372,729 Amortization of unrecognized net loss. . . . . . . . . . . . . . . 25,551 -- ----------------------------- Net periodic postretirement benefit cost. $ 911,615 $ 1,533,409 - - --------------------------------------------------------------------------
The assumed health care cost trend rates used in measuring the accumulated postretirement benefit obligation were as follows: Under Medicare Retirement Age: All Regions 9% for two years, then grading down to 5% over the next five years Medicare Retirement Age and Over: All Regions 8% for one year, then grading down to 5% over the next six years 31 The health care cost trend rate assumption has a significant effect on the amounts reported. To illustrate, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of January 29, 1994 and the aggregate of the service and interest cost components of the net periodic postretirement benefit cost for the 1994-95 fiscal year as follows:
- - --------------------------------------------------------------------------- Increase in accumulated postretirement benefit obligation. . . . . $909,569 Increase in service and interest costs . . . . . . . . . . . . . . 154,060 - - ---------------------------------------------------------------------------
The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.5%. 11. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of financial instruments has been determined by the Company using available market information and valuation methodologies as shown below. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could actually realize. The estimated fair value of the Company's financial instruments is as follows (in thousands):
January 29, 1994 ------------------------ Carrying Estimated Amount Fair Value - - ---------------------------------------------------------------------- Financial assets: Cash. . . . . . . . . . . . . . . . . . . $ 34,054 $ 34,054 Receivables . . . . . . . . . . . . . . . 18,306 18,306 Prepaid expenses and other. . . . . . . . 54,098 54,388 Other long-term assets. . . . . . . . . . 2,067 2,067 Financial liabilities: Outstanding checks. . . . . . . . . . . . 72,373 72,373 Accounts payable. . . . . . . . . . . . . 217,277 217,277 Long-term debt. . . . . . . . . . . . . . 322,147 330,677 - - ----------------------------------------------------------------------
Cash, Accounts and Notes Receivable--Current and Other Long- term Assets--The carrying amounts of these items are a reasonable estimate of their fair value. Prepaid Expenses and Other--For stocks, bonds and other investments (generally municipal securities), the fair value is estimated using quoted market prices. Outstanding Checks and Accounts Payable--The carrying amounts of these items are a reasonable estimate of their fair value. Long-term Debt--The fair value of notes, mortgages, and real estate assessments payable is estimated by discounting expected future cash flows. The discount rate used is the rate currently available to the Company for issuance of debt with similar terms and remaining maturities. For commercial paper and bid lines of credit under the revolving credit agreement (see Note 6), the carrying amounts are a reasonable estimate of their fair value. Interest Rate Agreements--The fair value of interest rate swap agreements and CAPs are based on estimated amounts at which they could be settled. At January 29, 1994, the Company could settle these agreements at a cost of $2,580,000. Management is not aware of any factors that would significantly change the Estimated Fair Value amounts shown here. A comprehensive revaluation for purposes of these financial statements has not been performed since January 29, 1994, and current estimates of fair value may differ from the amounts presented herein. There are no financial instruments that potentially subject the Company to concentrations of credit risk. 12. COMMITMENTS AND CONTINGENCIES The Company and its subsidiaries are parties to various legal claims, actions, and complaints, certain of which involve material amounts. Although the Company is unable to predict with certainty whether or not it will ultimately be successful in these legal proceedings or, if not, what the impact might be, management presently believes that disposition of these matters will not have a material adverse effect on the Company's consolidated financial position or consolidated results of operations. 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
1993 Fiscal Quarters 1992 Fiscal Quarters ----------------------------------------- --------------------------------------- (In thousands, except per-share data) Fourth Third Second First Fourth Third Second First - - --------------------------------------------------------------------------------------------------------------------------------- Net sales. . . . . . . . . . . . . . . . $807,777 $644,527 $674,719 $852,059 $758,013 $629,374 $641,748 $824,827 Gross margin . . . . . . . . . . . . . . 247,492/1 189,897 206,863/2 246,123 233,880/5 187,084 193,528 242,594 Income from operations . . . . . . . . . 50,775/1 17,900 35,567/2 24,506 42,719/5 14,947 25,689 21,727 Net income before cumulative effect of an accounting change. . . . . . . . . 30,034/1 9,897 16,962/2,3 14,011 25,830/5 8,320 14,886 11,551 Cumulative effect of an accounting change. . . . . . . . . . . . . . . . -- -- -- (2,588)/4 -- -- -- -- Net income. . . . . . . . . . . . . . . 30,034/1 9,897 16,962/2,3 11,423/4 25,830/5 8,320 14,886 11,551 Earnings per common share: Net income before cumulative effect of an accounting change. . . . . . . . $1.05/1 $.35 $.60/2,3 $.50 $.92/5 $.30 $.54 $.44 Cumulative effect of an accounting change . . . . . . . . . . -- -- -- (.09)/4 -- -- -- -- Net income. . . . . . . . . . . . . . $1.05/1 $.35 $.60/2,3 $.41)/4 $.92/5 $.30 $.54 $.44 Weighted average number of shares outstanding . . . . . . . . . . . . . 28,571 28,495 28,338 28,165 28,163 27,908 27,711 26,363 - - --------------------------------------------------------------------------------------------------------------------------------- /1 The LIFO adjustment in the fourth quarter of 1993 increased gross margin and income from operations by $4,493; net income by $2,786; and earnings per common share by $.10. /2 In the second quarter of 1993, a change in the LIFO computation increased gross margin by $6,178; net income by $3,892; and earnings per common share by $.14. /3 In the second quarter of 1993, resolution of certain IRS audits and a charge for recently enacted federal statutory tax rates, applied retroactively to January 31, 1993, decreased net income by $4,368 and earnings per common share by $.15. /4 In the first quarter of 1993, the Company adopted SFAS No. 109 which decreased net income by $2,588 and earnings per common share by $.09. /5 The LIFO adjustment in the fourth quarter of 1992 increased gross margin and income from operations by $3,216; net income by $2,026; and earnings per common share by $.07. /TABLE 32 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of Fred Meyer, Inc.: We have audited the accompanying consolidated balance sheets of Fred Meyer, Inc. and subsidiaries as of January 29, 1994 and January 30, 1993, and the related statements of consolidated operations, changes in consolidated stockholders' equity, and consolidated cash flows for each of the three fiscal years in the period ended January 29, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Fred Meyer, Inc. and subsidiaries at January 29, 1994 and January 30, 1993, and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 29, 1994, in conformity with generally accepted accounting principles. As discussed in Notes 5 and 10 to the consolidated financial statements, the Company changed its method of accounting for income taxes in the fiscal year ended January 29, 1994 and postretirement benefits in the fiscal year ended January 30, 1993. DELOITTE & TOUCHE March 7, 1994 Appendix A - Fred Meyer 1993 Annual Report Graphic Material - - ----------------------------------------------------------- 1. The following is a description of graphic material omitted from the current filing: Graph Title: Net Earnings Per Common Share Graph Page Number: 18 Type of Graph: Bar Graph X-Axis Information: Years from left to right 1990, 1991, 1992 and 1993 Y-Axis Information: Dollars from bottom to top 0.0, 0.5, 1.0, 1.5, 2.0, 2.5 Specific Data Points: 1990 1991 1992 1993 ---- ---- ---- ---- 1.37 1.80 2.21 2.50* *Before nonrecurring items and accounting change 2. The following is a description of graphic material omitted from the current filing: Graph Title: Net Income as a Percent of Net Sales Graph Page Number: 18 Type of Graph: Bar Graph X-Axis Information: Years from left to right 1990, 1991, 1992 and 1993 Y-Axis Information: Percent from bottom to top 0.0, 0.5, 1.0, 1.5, 2.0, 2.5 Specific Data Points: 1990 1991 1992 1993 ---- ---- ---- ---- 1.4 1.7 2.1 2.4* *Before nonrecurring items and accounting change 3. The following is a description of graphic material omitted from the current filing: Graph Title: Stockholders' Equity Graph Page Number: 18 Type of Graph: Bar Graph X-Axis Information: Years from left to right 1990, 1991, 1992 and 1993 Y-Axis Information: Dollars in millions from bottom to top 0, 100, 200, 300, 400, 500, 600 Specific Data Points: 1990 1991 1992 1993 ---- ---- ---- ---- 285.3 335.2 450.1 527.7 EX-21 7 EXHIBIT 21
EXHIBIT 21 LIST OF ACTIVE SUBSIDIARIES OF FRED MEYER, INC. Jurisdiction of Incorporation Name of Subsidiary or Organization - - ------------------ --------------- Roundup Co. (doing business in the State of Oregon as Roundup Distribution Co.) Washington B & B Stores, Inc. Montana B & B Pharmacy, Inc. Montana Fred Meyer of Alaska, Inc. Alaska Fred Meyer of California, Inc. California Distribution Trucking Company Oregon CB&S Advertising Agency, Inc. Oregon FM Holding Corporation Delaware Grand Central, Inc. Utah FM Retail Services, Inc. Washington
EX-23 8 EXHIBIT 23 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-13912, 33-22572, 33-31798, 33-36163, and 33-49638 all on Form S-8 and Registration Statement No. 33-51177 on Form S-3, of our reports dated March 7, 1994 (our report on the financial statements expresses an unqualified opinion and includes an explanatory paragraph relating to a change in method of accounting for income taxes in the fiscal year ended January 29, 1994 and other postretirement benefits in the fiscal year ended January 30, 1993), appearing in and incorporated by reference in the Annual Report on Form 10-K of Fred Meyer, Inc. for the year ended January 29, 1994. DELOITTE & TOUCHE April 26, 1994 EX-24 9 EXHIBIT 24 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned, an officer and/or director of Fred Meyer, Inc., a Delaware corporation (the "Company"), does hereby constitute and appoint Robert G. Miller, Kenneth Thrasher and Roger A. Cooke, and each of them, his true and lawful attorney and agent, to do any and all acts and things and execute in his name as an officer or director of the Company the Annual Report on Form 10-K for the year ended January 29, 1994 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and the undersigned does hereby ratify and confirm all that said attorneys and agents and each of them shall do or cause to be done by virtue hereof. Any one of said attorneys or agents shall have, and may exercise, all powers conferred. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 12th day of April, 1994. SAUL A. FOX ---------------------------------- Saul A. Fox POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned, an officer and/or director of Fred Meyer, Inc., a Delaware corporation (the "Company"), does hereby constitute and appoint Robert G. Miller, Kenneth Thrasher and Roger A. Cooke, and each of them, his true and lawful attorney and agent, to do any and all acts and things and execute in his name as an officer or director of the Company the Annual Report on Form 10-K for the year ended January 29, 1994 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and the undersigned does hereby ratify and confirm all that said attorneys and agents and each of them shall do or cause to be done by virtue hereof. Any one of said attorneys or agents shall have, and may exercise, all powers conferred. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 12th day of April, 1994. A. M. GLEASON ---------------------------------- A. M. Gleason POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned, an officer and/or director of Fred Meyer, Inc., a Delaware corporation (the "Company"), does hereby constitute and appoint Robert G. Miller, Kenneth Thrasher and Roger A. Cooke, and each of them, his true and lawful attorney and agent, to do any and all acts and things and execute in his name as an officer or director of the Company the Annual Report on Form 10-K for the year ended January 29, 1994 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and the undersigned does hereby ratify and confirm all that said attorneys and agents and each of them shall do or cause to be done by virtue hereof. Any one of said attorneys or agents shall have, and may exercise, all powers conferred. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 12th day of April, 1994. JEROME KOHLBERG,JR. ---------------------------------- Jerome Kohlberg, Jr. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned, an officer and/or director of Fred Meyer, Inc., a Delaware corporation (the "Company"), does hereby constitute and appoint Robert G. Miller, Kenneth Thrasher and Roger A. Cooke, and each of them, his true and lawful attorney and agent, to do any and all acts and things and execute in his name as an officer or director of the Company the Annual Report on Form 10-K for the year ended January 29, 1994 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and the undersigned does hereby ratify and confirm all that said attorneys and agents and each of them shall do or cause to be done by virtue hereof. Any one of said attorneys or agents shall have, and may exercise, all powers conferred. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 12th day of April, 1994. ROGER S. MEIER ---------------------------------- Roger S. Meier POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned, an officer and/or director of Fred Meyer, Inc., a Delaware corporation (the "Company"), does hereby constitute and appoint Robert G. Miller, Kenneth Thrasher and Roger A. Cooke, and each of them, his true and lawful attorney and agent, to do any and all acts and things and execute in his name as an officer or director of the Company the Annual Report on Form 10-K for the year ended January 29, 1994 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and the undersigned does hereby ratify and confirm all that said attorneys and agents and each of them shall do or cause to be done by virtue hereof. Any one of said attorneys or agents shall have, and may exercise, all powers conferred. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 12th day of April, 1994. MICHAEL W. MICHELSON ---------------------------------- Michael W. Michelson POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned, an officer and/or director of Fred Meyer, Inc., a Delaware corporation (the "Company"), does hereby constitute and appoint Robert G. Miller, Kenneth Thrasher and Roger A. Cooke, and each of them, his true and lawful attorney and agent, to do any and all acts and things and execute in his name as an officer or director of the Company the Annual Report on Form 10-K for the year ended January 29, 1994 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and the undersigned does hereby ratify and confirm all that said attorneys and agents and each of them shall do or cause to be done by virtue hereof. Any one of said attorneys or agents shall have, and may exercise, all powers conferred. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 12th day of April, 1994. PAUL E. RAETHER ---------------------------------- Paul E. Raether -----END PRIVACY-ENHANCED MESSAGE-----