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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PLAN YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NO: 1-9223
SERVICE MERCHANDISE COMPANY, INC.
SAVINGS AND INVESTMENT PLAN
SERVICE MERCHANDISE COMPANY, INC.
P.O. BOX 24600, NASHVILLE, TENNESSEE 37202-4600
(MAILING ADDRESS)
7100 SERVICE MERCHANDISE DRIVE, BRENTWOOD, TENNESSEE 37027
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
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SERVICE MERCHANDISE COMPANY, INC.
SAVINGS AND INVESTMENT PLAN
TABLE OF CONTENTS
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PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998:
Statements of Net Assets Available for Benefits 4
Statements of Changes in Net Assets Available for Benefits 5
Notes to Financial Statements 6 - 9
SUPPLEMENTAL SCHEDULES AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1999:
Schedule of Assets Held for Investment Purposes 10
EXHIBIT INDEX 11
SIGNATURES 12
CONSENT:
NOTE: Other schedules not included have been omitted as they are not applicable.
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INDEPENDENT AUDITORS' REPORT
To the Trustee and Participants of
Service Merchandise Company, Inc.
Savings and Investment Plan
Nashville, Tennessee
We have audited the accompanying statements of net assets available for benefits
of the Service Merchandise Company, Inc. Savings and Investment Plan as of
December 31, 1999 and 1998, and the related statements of changes in net assets
available for benefits for the years then ended. These financial statements are
the responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan as of December 31,
1999 and 1998, and the changes in net assets available for benefits for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
for investment purposes is presented for the purpose of additional analysis and
is not a required part of the basic financial statements but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplemental schedule is the responsibility of the Plan's management.
Such supplemental schedule has been subjected to the auditing procedures applied
in our audit of the basic 1999 financial statements and, in our opinion, is
fairly stated in all material respects when considered in relation to the basic
financial statements taken as a whole.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
June 23, 2000
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SERVICE MERCHANDISE COMPANY, INC.
SAVINGS AND INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1999 AND 1998
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1999 1998
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ASSETS:
Investments, at fair value:
Shares of mutual funds $63,308,148 $72,453,920
Shares of Service Merchandise Company, Inc. common
stock 230,757 906,950
Participant notes receivable 3,363,415 5,030,526
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Total investments 66,902,320 78,391,396
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Receivables:
Participants' contributions 86,591 137,815
Interest 4,469 7,916
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Total receivables 91,060 145,731
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Total assets 66,993,380 78,537,127
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LIABILITIES:
Payable to participants -- 56,338
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Total liabilities -- 56,338
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NET ASSETS AVAILABLE FOR BENEFITS $66,993,380 $78,480,789
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The accompanying notes are an integral part of these financial statements.
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SERVICE MERCHANDISE COMPANY, INC.
SAVINGS AND INVESTMENT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 1999 AND 1998
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1999 1998
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Additions to net assets attributed to:
Investment income:
Net depreciation in fair value of investments $ (1,042,819) $ (4,868,365)
Dividends and interest 5,497,042 5,878,775
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4,454,223 1,010,410
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Contributions:
Participants' 6,272,255 8,002,653
Employer's -- 584,135
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6,272,255 8,586,788
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Total additions 10,726,478 9,597,198
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Deductions from net assets attributed to:
Benefits paid to participants 22,092,872 11,503,467
Administrative expenses 121,015 165,930
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Total deductions 22,213,887 11,669,397
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Net decrease (11,487,409) (2,072,199)
Net assets available for benefits:
Beginning of year 78,480,789 80,552,988
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End of year $ 66,993,380 $ 78,480,789
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The accompanying notes are an integral part of these financial statements.
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SERVICE MERCHANDISE COMPANY, INC.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
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1. DESCRIPTION OF PLAN
The Service Merchandise Company, Inc. Savings and Investment Plan (the
"Plan") is a qualified defined contribution plan under section 401(a) and
401(k) of the Internal Revenue Code covering eligible associates of
Service Merchandise Company, Inc. (the "Company"). The Plan is subject to
the provisions of the Employee Retirement Income Security Act of 1974
("ERISA"), as amended.
On March 27, 1999, the Company filed a voluntary petition for
reorganization under Chapter 11 of title 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court seeking court
supervision of the Company's restructuring efforts. The Company announced
in February 2000 that the plan or plans of reorganization currently being
considered involve a debt conversion of the Company's claims into new
common equity of the reorganized company. Under such circumstances, the
Company's existing common stock is highly speculative and is possibly
worthless if the current plan of reorganization under consideration is
consummated.
The following brief description of the Plan is intended to give a general
summary of its principal provisions. Participants should refer to the Plan
agreement for a more complete description of the Plan's provisions.
ELIGIBILITY - All associates are eligible upon completing one year of
qualified service, as defined in the Plan agreement, and reaching a
minimum age of 21.
CONTRIBUTIONS - Associates may contribute through salary deferral from 1%
to 15% of their annual pretax salary up to the maximum amount allowed by
law. The Plan provides for a matching contribution to be made by the
Company based on the ratio of "net profit," as defined, to net sales of
the Company for the fiscal year corresponding with the previous Plan year.
"Net profit" is defined as the Company's net profit 1) excluding any
additional interest and expenses attributable to the Company's 1989
recapitalization, 2) excluding the provision for income taxes and any
extraordinary items, and 3) excluding the pretax charge for restructuring
costs taken in the first quarter of 1997 pursuant to a business
restructuring plan adopted on March 25, 1997.
NET PROFIT AS A PERCENTAGE OF COMPANY
SALES FOR FISCAL YEAR CORRESPONDING EMPLOYER MATCH
WITH PREVIOUS PLAN YEAR PERCENTAGE
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0% 0%
Greater than 0% but less than 1% 10%
1% or more but less than 2% 20%
2% or more but less than 3% 30%
3% or more but less than 4% 40%
4% or more 50%
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The Company's maximum matching contribution is limited to the first 6% of
a participant's compensation, as defined in the Plan. In accordance with
the aforementioned calculation, the Company's matching contribution was 0%
and 10% for the 1999 and 1998 Plan years, respectively.
VESTING - Participants are immediately 100% vested in all associate and
Company contributions.
PARTICIPANT ACCOUNTS - Each participant's account is credited with the
participant's contribution and the Company's matching contribution. Plan
earnings are allocated based on the participant's pro-rata share of each
investment fund.
INVESTMENT OPTIONS - Under the Plan, participants have a variety of
investment options available. The mutual fund options are proprietary
products of T. Rowe Price, the investment manager and Plan trustee.
Participants may invest their account in minimum whole increments of 1%.
On March 18, 1999, the Plan was amended to remove the Company's common
stock as an investment option for future contributions or changes in
participant investment elections. Currently, participants may invest their
account in any of the following investment options:
New Income Fund consisting, according to the fund's prospectus,
primarily of income-producing investment-grade debt securities.
U.S. Treasury Fund consisting, according to the fund's prospectus,
exclusively of short-term U.S. government-backed securities,
primarily U.S. Treasuries.
Equity Income Fund consisting, according to the fund's prospectus,
primarily of dividend-paying common stocks, with emphasis on
established companies, with prospects for both increasing dividends
and capital appreciation.
Capital Appreciation Fund consisting, according to the fund's
prospectus, of investments in common stocks believed by T. Rowe
Price to be undervalued in relation to various measures, such as
assets or earnings, and also investments in fixed income and other
securities.
Spectrum Growth Fund consisting, according to the fund's prospectus,
of investments in primarily T. Rowe Price domestic stock funds and
also in a T. Rowe Price foreign stock fund.
Balanced Fund consisting, according to the fund's prospectus, of
approximately 60% in common stocks and the balance in fixed income
securities and cash reserves.
New Horizons Fund consists, according to the fund's prospectus,
primarily of common stocks of small, rapidly growing companies.
International Stock Fund consists, according to the fund's
prospectus, of common stocks of established, non-U.S. companies.
Earnings from the funds, consisting primarily of interest and dividends,
are automatically reinvested in their respective fund.
At December 31, 1999, there were a total of 3,921 participants in the
Plan.
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LOANS TO PARTICIPANTS - Participants may borrow from their accounts a
minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of
their account balances. Loan transactions are treated as a transfer to
(from) the investment fund and (from) to the Participant Loan Account. The
loans are secured by the participant's account and bear interest at a rate
on the date of loan origination which is comparable to the interest rate
charged by lending institutions for loans made under similar circumstances
as determined by the Plan trustee. Interest rates on outstanding
participant loans range from 7.0% and 12.5% at December 31, 1999 and 1998.
Principal and interest are paid ratably through weekly payroll deductions.
Loan repayment periods generally range from one to five years. At December
31, 1999, 698 participants had loans outstanding from the Plan.
PAYMENT OF BENEFITS - Upon termination of employment prior to retirement,
all participant balances less than $5,000 are distributed in a lump-sum
amount. Balances $5,000 and above may, at the participant's option, be
distributed in a lump-sum or held until retirement. Upon becoming
permanently and totally disabled or upon normal retirement, the
participant has the option of receiving his or her balance as a lump-sum,
in installments, or as a combination. Distributions upon the death of a
participant are paid in a lump-sum amount.
As of December 31, 1999 and 1998, net assets available for benefits
included $2,551,080 and $1,518,266, respectively, due to participants who
have withdrawn from participation in the Plan.
2. SUMMARY OF ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The Plan's financial statements are prepared under
the accrual method of accounting.
INVESTMENTS are stated at fair value. Shares of registered investment
companies are valued at quoted market prices which represent the net asset
value of shares held by the Plan at year-end. The Company's common stock
is valued at its quoted market price at year-end. Participant notes
receivable are valued at cost which approximates fair value.
PAYMENTS OF BENEFITS - Benefits are recorded when paid.
NET DEPRECIATION IN FAIR VALUE OF INVESTMENTS includes both realized and
unrealized (depreciation) appreciation.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, such as investments, and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
3. RELATED PARTY TRANSACTIONS
The Plan is administered by the Employee Benefit Plan Committee appointed
by the Company's Board of Directors. T. Rowe Price serves as trustee and
investment manager. Fees paid to the trustee by Plan participants amounted
to $121,015 and $165,930 for the years ended December 31, 1999 and 1998,
respectively.
4. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA.
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In the event of Plan termination, Plan assets will be distributed, if
permissible, or transferred for the benefit of participants in relation to
their vested account balances.
5. TAX STATUS
The Plan has received a determination letter indicating it is qualified
under Section 401(a) and meets the additional requirements of section
401(k) of the Internal Revenue Code and that the related trust is exempt
from federal income tax under Section 501(a) of the Internal Revenue Code.
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SERVICE MERCHANDISE COMPANY, INC. SAVINGS AND INVESTMENT PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1999
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(A) (B) (C) (D)+ (E)
DESCRIPTION OF INVESTMENT
IDENTITY OF ISSUE, BORROWER, INCLUDING MATURITY DATE, RATE OF INTEREST, CURRENT
LESSOR, OR SIMILAR PARTY COLLATERAL, PAR OR MATURITY VALUE COST VALUE
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* Service Merchandise Company, Inc. Common stock - $.50 par value $ 230,757
* T. Rowe Price New Income Fund 6,899,577
* T. Rowe Price U.S. Treasury Fund 11,890,363
* T. Rowe Price Equity Income Fund 21,931,765
* T. Rowe Price Capital Appreciation Fund 4,630,914
* T. Rowe Price Spectrum Growth Fund 10,328,476
* T. Rowe Price Balanced Fund 5,739,446
* T. Rowe Price New Horizons Fund 1,321,738
* T. Rowe Price International Stock Fund 565,869
Participant notes receivable Interest rates ranging from 7.0% to 12.5% 3,363,415
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Total investments $66,902,320
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* Represents party-in-interest.
+ Cost information is omitted as all investments are participant directed.
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EXHIBIT INDEX
Exhibit No. Description Submission Media
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Ex 23 Consent of Deloitte & Touche LLP, Electronic
Independent Public Accountants,
dated June 28, 2000
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Committee has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SERVICE MERCHANDISE COMPANY, INC.
Date: June 28, 2000 /s/ C. Steven Moore
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C. Steven Moore
Committee Member
Date: June 28, 2000 /s/ Thomas L. Garrett, Jr.
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Thomas L. Garrett, Jr.
Committee Member
Date: June 28, 2000 /s/ Eric A. Kovats
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Eric A. Kovats
Committee Member
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