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EXHIBIT 99.1
Contact: Sitrick and Company
Ann Julsen
Brenda Adrian
(310) 788-2850
Service Merchandise Company
Allison McAfee
(615) 660-7211
SERVICE MERCHANDISE REPORTS 2000 FINANCIAL RESULTS
EXCEED BUSINESS PLAN AND PRIOR FORECAST
WILL SEEK CONSENSUAL "DEBT TO EQUITY" REORGANIZATION PLAN WITH CREDITORS
AND PLANS "TIMELY" EMERGENCE FROM CHAPTER 11 FOLLOWING CHRISTMAS 2001
WILL REQUEST BANKRUPTCY COURT APPROVAL
FOR EXTENSION OF EXCLUSIVE PERIOD TO FILE REORGANIZATION PLAN
AND TO ASSUME CERTAIN REAL ESTATE LEASES, THREE YEAR $35 MILLION COMMITTED
VENDOR CREDIT LINE FROM CIT COMMERCIAL SERVICES AND 2001 EMPLOYEE RETENTION PLAN
Nashville, Tennessee - February 1, 2001 - Service Merchandise Company,
Inc. (OTCBB:SVCDQ) today announced unaudited financial results for its fiscal
year ended December 31, 2000. The Company reported continuing EBITDAR (earnings
before interest, taxes, depreciation, amortization and restructuring charges) of
$44.9 million for the fiscal year ended December 31, 2000, compared to $25.2
million for the prior year and ahead of its earlier preliminary guidance which
was subject to completion of physical inventory and normal year-end adjustments.
"We are pleased that our 2000 financial EBITDAR performance exceeded
our Business Plan and the preliminary forecast we previously reported," said
Chairman, President and Chief Executive Officer Sam Cusano, noting that the
improvement was primarily due to better than forecasted expense controls, lower
than expected insurance claims and favorable physical inventory results. "Our
improved inventory results directly reflect positive contributions of
management's emphasis on inventory controls during the fourth quarter. While our
sales performance did not meet our expectations during a very challenging fourth
quarter for all retailers, we are pleased that improved gross margins, the
expense reduction and the impact of other strategic initiatives we implemented
during the fourth quarter, coupled with our inventory controls, offset the
potential financial impact of the sales shortfall."
2000 Fiscal Year Results
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For the year ended December 31, 2000, the Company announced a net loss
of $179.6 million, or $1.80 per common share, for the fiscal year, an
improvement of $64.1 million over the prior year, on net sales of $1.55 billion.
For the prior year, the Company reported a net loss of $243.7 million, or $2.45
per common share, on net sales of $2.23 billion. Operating income (gross margin
less selling, general and administrative expenses, excluding exiting categories
and closed facilities) for the fiscal year was $26.9 million compared to a loss
of $85.5 million for the comparable period of the prior year. Net sales from
continuing operations (excluding exiting categories and closed facilities) were
$1.29 billion compared to $1.38 billion reported for the same period last year.
Commenting on the year's financial results, Mr. Cusano said that "the
results show the benefits of the Company's 2000 Business Plan initiatives to
improve gross margins and reduce costs. Our gross margins from continuing
operations, as a percent of sales, improved 285 basis points in 2000 over the
prior year. This increase was led by improvements in our home merchandise
categories. Continuing selling, general and administrative expenses, as a
percent of sales, improved 543 basis points over the prior year. The Company's
liquidity position remains strong with availability in excess of $200 million at
year end and minimum excess availability of more than $146 million during 2000."
Mr. Cusano said that the Company expects to complete and present its 2001
Business Plan to the Bankruptcy Court during the first quarter. "As we move
forward in the 2001 fiscal year, we expect to continue to improve upon the
foundation established in 2000 and work toward increasing EBITDAR, while
completing our restructuring initiatives and timely emerging from Chapter 11
following the 2001 Christmas season." The Company said that the anticipated
range of availability for 2001 will be from $90 million to $230 million, which
supports the Company's more targeted merchandise assortment following its
planned exit last year from toys, electronics and sporting goods.
Strategic Reorganization Timeline and Reorganization Plan
The Company stated that the 2001 Business Plan was the final step in
the strategic reorganization timeline established by the Company and announced
to creditors, shareholders and other interested parties at the outset of the
Company's Chapter 11 reorganization cases. The Company said that, after
successfully completing the Company's stabilization plan during 1999 and the
transition plan in 2000, the 2001 Business Plan will provide the framework for a
plan of reorganization to be proposed later this year that should allow the
Company to timely emerge after Christmas 2001.
Mr. Cusano said, "While we are encouraged by the success demonstrated
by our 1999 and 2000 financial performance against the respective plans, the
Company recently implemented a series of strategic initiatives in light of the
challenging retail industry environment and weak capital markets. In order to
maximize vendor and creditor support of our Company following the successful
conclusion of our Chapter 11 cases, we believe that the long term profitability
and value of the Company will be maximized if we
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consolidate on our strengths during the balance of this year and timely emerge
from Chapter 11 following Christmas 2001." As previously announced, the Company
is implementing 2001 strategic business initiatives that include significant
reductions in expenses, realignment of capital expenditures, alignment of the
Company's remodel program with its subleasing program, and consolidation of
space at its headquarters. In addition, the Company has substantially completed
a previously announced workforce reduction of approximately 1,750 full time
employees. These expense reductions should generate an additional $35 million in
savings for 2001 over and above the $18 million of expense savings announced for
2001 as part of the Company's 2000 Business Plan.
As previously announced, the plan or plans of reorganization to be
proposed by the Company involve a debt conversion of the Company's prepetition
unsecured claims into new common equity of the reorganized company. Under such
circumstances, the existing common stock of the Company would be cancelled and
existing shareholders would not receive any distribution in connection with the
reorganization. The Company said that the value of its existing common stock was
highly speculative since it is highly probable that it will be cancelled, and
therefore, worthless if the expected plan of reorganization is consummated.
The Company is filing with the Bankruptcy Court in Nashville for
approval at the February 2001 omnibus hearing motions seeking an extension of
the Company's exclusive period to file a plan until January 31, 2002; an
extension of time to assume or reject certain real estate leases until plan
confirmation, consistent with the extension already approved as to the majority
of the Company's leases; an employee retention program similar to that approved
for 1999 and 2000; the assumption of nine real estate leases; and a $35 million
committed vendor credit line from CIT.
Mr. Cusano said, "We have worked very hard to develop and implement a
business strategy that we believe will help us complete our restructuring. With
the continued hard work of our associates and the support of our vendor
partners, creditors and lenders, we expect to emerge from Chapter 11 following
Christmas 2001."
Service Merchandise and its subsidiaries filed voluntary petitions for
reorganization under Chapter 11 in the U.S. Bankruptcy Court for the Middle
District of Tennessee in Nashville on March 27, 1999. Service Merchandise is a
specialty retailer focusing on fine jewelry, gifts and home decor products. The
Company currently operates 218 stores in 31 states.
* * * * * * * * * * * *
This release includes certain forward-looking statements (any statement other
than those made solely with respect to historical fact) based upon management's
beliefs, as well as assumptions made by and data currently available to
management. This information has been, or in the future may be, included in
reliance on the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are based on a variety of
assumptions that may not be realized and are subject to significant business,
economic, judicial and competitive uncertainties and potential contingencies,
including those set forth below, many of which are beyond the Company's control.
Actual results may differ materially from those anticipated in any such
forward-looking statements. The Company undertakes no obligation to update or
revise any such forward-looking statements. The forward-looking
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statements and the Company's liquidity, capital resources and results of
operations are subject to a number of risks and uncertainties including, but not
limited to, the following: year end audit and other procedures which may affect
the Company's 2000 financial results, including its anticipated continuing
EBITDAR; the ability of the Company to continue as a going concern; the ability
of the Company to operate pursuant to the terms of the DIP to Exit Facility;
Court approval of the vendor line of credit; the ability of the Company to
develop, prosecute, confirm and consummate one or more plans of reorganization
with respect to the Chapter 11 Cases; risks associated with third parties
seeking and obtaining court approval to terminate or shorten the exclusivity
period for the Company to propose and confirm one or more plans of
reorganization, for the appointment of a Chapter 11 trustee or to convert the
Company's cases to Chapter 7 cases; the ability of the Company to reduce its
workforce and related expenses and to achieve anticipated cost savings; the
ability of the Company to obtain trade credit, and shipments and terms with
vendors and service providers for current orders; the ability of the Company to
sublease successfully additional portions of its real estate; the ability of the
Company to negotiate non-disturbance agreements with its landlords relating to
subleases; the ability of the Company to complete its store refurbishment
program within cost, time and size expectations; the successful consolidation of
its distribution centers; potential adverse developments with respect to the
Company's liquidity or results of operations; competitive pressures form other
retailers, including specialty retails and discount stores, which may affect the
nature and viability of the Company's business strategy; trends in the economy
as a whole which may affect consumer confidence and consumer demand for the
types of goods sold by the Company; the seasonal nature of the Company's
business and the ability of the Company to predict consumer demand as a whole,
as well as demand for specific goods; the ability to fund and execute its
business plan; the ability of the Company to enter into satisfactory
arrangements with third parties with respect to real estate and Internet related
strategies; the ability of the Company to attract, retain and compensate key
executives and associates; the ability of the Company to attract and retain
customers; potential adverse publicity; and real estate occupancy and
development costs, including the substantial fixed investment costs associated
with opening, maintaining or closing a Company store.
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SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED
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DECEMBER 31,
2000 JANUARY 2,
(UNAUDITED) 2000
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(in thousands, except per
share data)
Net sales
Operations excluding exiting categories and closed facilities $ 1,290,797 $ 1,378,578
Exiting categories and closed facilities 259,201 851,922
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1,549,998 2,230,500
Cost and expenses:
Operations excluding exiting categories and closed facilities 901,043 1,001,728
Exiting categories and closed facilities 266,410 734,220
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1,167,453 1,735,948
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Gross margin (loss) after cost of merchandise sold and buying and
occupancy expenses:
Operations excluding exiting categories and closed facilities 389,754 376,850
Exiting categories and closed facilities (7,209) 117,702
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382,545 494,552
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Selling, general and administrative expenses:
Operations excluding exiting categories and closed facilities 362,865 462,392
Exiting categories and closed facilities 80,658 118,372
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443,523 580,764
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Other income, net (15,211) (38,402)
Restructuring charge (income) (2,506) 76,743
Impairment of assets -- --
Depreciation and amortization:
Operations excluding exiting categories and closed facilities 38,724 37,958
Exiting categories and closed facilities 628 4,606
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39,352 42,564
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Reorganization items (income) 55,553 (1,823)
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Loss before interest, income tax, extraordinary item, and
cumulative effect of a change in accounting principle (138,166) (165,294)
Interest expense 41,796 64,835
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Loss before income tax, extraordinary item, and cumulative
effect of a change in accounting principle (179,962) (230,129)
Income tax benefit (406) (874)
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Loss before extraordinary item and cumulative effect of a
change in accounting principle (179,556) (229,255)
Extraordinary loss from early extinguishments of debt -- (7,851)
Cumulative effect of a change in recording layaway sales -- (6,566)
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Net loss $ (179,556) $ (243,672)
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Weighted average common shares - basic and diluted 99,723 99,721
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Loss Per Common Share - basic and diluted:
Loss before extraordinary item and cumulative effect of a
change in accounting principle $ (1.80) $ (2.30)
Extraordinary loss from early extinguishments of debt -- (0.08)
Cumulative effect of a change in recording layaway sales -- (0.07)
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Net loss $ (1.80) $ (2.45)
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SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
2000 JANUARY 2,
(UNAUDITED) 2000
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(in thousands, except
per share data)
ASSETS
Current Assets:
Cash and cash equivalents $ 31,838 $ 61,591
Accounts receivable, net of allowance 7,061 13,171
Inventories 440,324 642,997
Prepaid expenses and other assets 11,025 29,135
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TOTAL CURRENT ASSETS 490,248 746,894
Net property and equipment - owned 364,898 353,078
Net property and equipment - leased 12,330 14,636
Other assets and deferred charges 58,376 56,638
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TOTAL ASSETS $ 925,852 $ 1,171,246
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LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Liabilities Not Subject To Compromise
Current Liabilities:
Notes payable $ 89,143 $ 42,977
Accounts payable 48,570 67,318
Accrued expenses 158,843 191,162
State and local sales taxes 16,300 28,737
Accrued restructuring costs -- 38
Borrowings classified as current -- 1,000
Current maturities of capitalized lease obligations 93 86
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TOTAL CURRENT LIABILITIES 312,949 331,318
Long Term Liabilities:
Long-term debt 60,000 98,500
Capitalized lease obligations 2,396 2,514
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TOTAL LONG-TERM LIABILITIES 62,396 101,014
Liabilities Subject To Compromise 747,251 755,975
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TOTAL LIABILITIES 1,122,596 1,188,307
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Commitments and contingencies
SHAREHOLDERS' (DEFICIT) EQUITY
Preferred stock, $1 par value, authorized, 4,600 shares,
undesignated as to rate and other rights, none issued -- --
Series A Junior Preferred Stock, $1 par value, authorized
1,100 shares, none issued -- --
Common stock, $.50 par value, authorized 500,000 shares,
issued and outstanding 99,871 and 100,012 shares,
respectively 49,935 50,006
Additional paid-in capital 5,881 6,424
Deferred compensation (221) (708)
Retained (deficit) earnings (252,339) (72,783)
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TOTAL SHAREHOLDERS' (DEFICIT) EQUITY (196,744) (17,061)
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TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY $ 925,852 $ 1,171,246
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