SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 12B-25
COMMISSION FILE NUMBER: 1-9223
NOTIFICATION OF LATE FILING
(Check One): [ ] Form 10-K [ ] Form 11-K
[X] Form 10-Q [ ] Form N-SAR
For Period Ended: September 30, 2001
[ ] Transition Report on Form 10-K
[ ] Transition Report on Form 20-F
[ ] Transition Report on Form 11-K
For the Transition Period Ended:
Read attached instruction sheet before preparing form. Please print or
type.
Nothing in this form shall be construed to imply that the Commission
has verified any information contained herein.
If the notification relates to a portion of the filing checked above,
identify the Item(s) to which the notification relates: Not applicable.
PART I
REGISTRANT INFORMATION
Full Name of Registrant: Service Merchandise Company, Inc.
Former Name if Applicable:
7100 Service Merchandise Drive
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Address of principal executive office (Street and number)
Brentwood, Tennessee 37027
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City, State and Zip Code
PART II
RULES 12B-25(B) AND (C)
If the subject report could not be filed without unreasonable effort or expense
and the registrant seeks relief pursuant to Rule 12b-25(b), the following should
be completed. (Check box if appropriate)
(a) The reasons described in reasonable detail in Part
III of this form could not be eliminated without unreasonable effort or
expense;
[X]
(b) The subject annual report, semi-annual report,
transition report on Form 10-K, Form 20-F, 11-K or Form N-SAR, or
portion thereof will be filed on or before the fifteenth calendar day
following the prescribed due date; or the subject quarterly report or
transition report on Form 10-Q, or portion thereof will be filed on or
before the fifth calendar day following the prescribed due date; and
(c) The accountant's statement or other exhibit required
by Rule 12b-25(c) has been attached if applicable.
PART III
NARRATIVE
State below in reasonable detail the reasons why Form 10-K, 11-K, 20-F, 10-Q,
N-SAR or the transition report or portion thereof could not be filed within the
prescribed period. (Attach extra sheets if needed.)
Service Merchandise Company, Inc. (the "Registrant") was unable to file
timely its quarterly report on Form 10-Q for the quarter ended September 30,
2001 (the "10-Q") because it believes that there are circumstances and events
which may affect materially the information contained in the 10-Q and
which cannot be described in a complete and accurate manner at this time without
unreasonable effort or expense. The 10-Q will be filed on or before the fifth
calendar day following the prescribed due date.
PART IV
OTHER INFORMATION
(1) Name and telephone number of person to contact in regard to
this notification
Kenneth A. Conway (615) 660-6000
- ----------------------------------- ------------------ -------------------------
(Name) (Area Code) (Telephone Number)
(2) Have all other periodic reports required under Section 13 or
15(d) of the Securities Exchange Act of 1934 or Section 30 of the Investment
Company Act of 1940 during the preceding 12 months or for such shorter period
that the registrant was required to file such report(s) been filed? If the
answer is no, identify report(s).
[X] Yes [ ] No
(3) Is it anticipated that any significant change in results of
operations from the corresponding period for the last fiscal year will be
reflected by the earnings statements to be included in the subject report or
portion thereof?
[X] Yes [ ] No
If so: attach an explanation of the anticipated change, both
narratively and quantitatively, and, if appropriate, state the reasons why a
reasonable estimate of the results cannot be made.
OVERVIEW
On March 15, 1999, five of the Company's vendors filed an involuntary
petition for reorganization under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the Middle District of Tennessee seeking
court supervision of the Company's restructuring efforts. On March 27, 1999, the
Debtors filed voluntary petitions with the Bankruptcy Court for reorganization
under Chapter 11 and orders for relief were entered by the Bankruptcy Court. The
Chapter 11 Cases have been consolidated for the purpose of joint administration
under Case No. 399-02649. The Debtors are currently operating their businesses
as debtors-in-possession pursuant to the Bankruptcy Code.
RESULTS OF OPERATIONS
THREE PERIODS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE PERIODS ENDED OCTOBER
1, 2000
The line item "Exiting categories and closed facilities" represents
activity specifically identifiable to closed facilities and inventory
liquidations conducted in conjunction with the Company's 2000 and 2001 business
plans. Prior year amounts reflect operating results for these same facilities
and merchandise classifications. Selling, general and administrative expenses
for closed facilities do not include any allocation of corporate overhead.
The Company's business is highly seasonal with a significant portion of
its sales occurring in the fourth quarter. Fourth quarter net sales accounted
for 33.2% and 37.5% of total net sales in fiscal 2000 and 1999, respectively.
Net Sales
Net sales for the Company were $178.9 million for the three periods
ended September 30, 2001 compared to $274.3 million for the three periods ended
October 1, 2000. The Company believes the decline in net sales was primarily due
to the increased restructuring and remerchandising activities in fiscal 2000,
cross shop loss from exiting certain home product categories and a weak economic
environment.
Net sales from operations excluding exiting categories and closed
facilities were $178.9 million for the three periods ended September 30, 2001
compared to $225.4 million for the three periods ended October 1, 2000.
Comparable store sales for jewelry were down 16.3% and home products comparable
store sales were down 28.0% compared to the three periods ended October 1, 2000.
The jewelry comparable stores sales decrease was led by declines in special
events, watches/accessories and diamonds/stones. The home products comparable
store sales performance was driven by declines in personal care, photo, and
housewares. The Company believes that the decline in net sales was primarily due
to cross shop loss from exiting of certain home good categories and a weak
economic environment.
There were no net sales from exiting categories and closed facilities
for the three periods ended September 30, 2001 compared to $48.9 million for the
three periods ended October 1, 2000. Sales from exiting categories and closed
facilities decreased due to the fact that the three periods ended October 1,
2000 reflects the sales of discontinued product lines that were substantially
completed by December 31, 2000.
Gross Margin
Gross margin was $36.3 million for the three periods ended September
30, 2001 as compared to $46.0 million for the three periods ended October 1,
2000. The decrease in gross margin was primarily due to a decrease in sales.
Gross margin after costs and expenses and excluding exiting categories
and closed facilities was $36.3 million or 20.3% of net sales for the three
periods ended September 30, 2001, compared to $58.0 million or 25.7% of net
sales for the three periods ended October 1, 2000. The margin decrease was
primarily due to a decrease in sales with approximately the same occupancy costs
as the prior year.
There was no gross loss after costs and expenses for exiting categories
and closed facilities for the three periods ended September 30, 2001 compared to
$(12.1) million for the three periods ended October 1, 2000. The margin increase
was primarily due to the fact that the three periods ended October 1, 2000
reflects the sales of discontinued product lines that were substantially
completed by December 31, 2000.
Selling, General and Administrative Expenses (Income)
Selling, general and administrative expenses declined $58.2 million in
the three periods ended September 30, 2001 to $36.3 million from $94.5 million
in the three periods ended October 1, 2000. The decline was primarily due to
store closures, corporate downsizing and overhead reduction efforts, and the
settlement of disputes related to the credit card agreement with World Financial
Network National Bank (WFNNB).
Selling, general and administrative expenses were $55.2 million or
30.8% of net sales from operations excluding exiting categories and closed
facilities for the three periods ended September 30, 2001 compared to $73.5
million or 32.6% of net sales from operations excluding exiting categories and
closed facilities for the three periods ended October 1, 2000. The decrease in
expenses was attributable to a decrease in employment costs and other selling,
general and administrative expenses primarily due to the corporate downsizing
and overhead reduction efforts.
Selling, general and administrative expenses (income) for exiting
categories and closed facilities were $(18.9) million for the three periods
ended September 30, 2001 compared to $21.0 million for the three periods ended
October 1, 2000. The decrease in expenses was attributable to decreases in
employment costs and other selling, general and administrative expenses
primarily due to store closures and the settlement of disputes related to the
credit card agreement with World Financial Network National Bank (WFNNB).
Other Expense (Income), net
The net (gain) loss on dispositions of property and leases recorded for
the three periods ended September 30, 2001 was four thousand dollars, as
compared to $(1.5) million for the three periods ended October 1, 2000. The gain
for the three periods ended October 1, 2000 included amounts realized from the
completion of one leased auction property.
Depreciation and Amortization
Depreciation and amortization on owned and leased property and
equipment was $10.1 million for the three periods ended September 30, 2001 as
compared to $9.6 million for the three periods ended October 1, 2000. The
increase was primarily attributable to fixture additions for the remodeled
stores.
Interest Expense
Interest expense for the three periods ended September 30, 2001 was
$10.2 million as compared to $9.1 million for the three periods ended October 1,
2000. The increase in interest expense primarily relates to higher average
borrowings and the unfavorable interest rate spread between the fixed and
floating rate.
Income Taxes
The Company did not recognize an income tax benefit due to the
recording of a deferred tax asset valuation allowance. Deferred taxes are
recognized to reflect the estimated future utilization of temporary book/tax
differences. The Company has recorded a full valuation allowance on net deferred
tax assets as realization of such assets in future years is uncertain.
Management does not believe it is more likely than not that the Company will
realize the deferred tax asset.
NINE PERIODS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE PERIODS ENDED OCTOBER 1,
2000
Net Sales
Net sales for the Company were $636.6 million for the first nine
periods of 2001 compared to $1,034.9 million for the first nine periods of 2000.
The Company believes the decline in net sales was primarily due to the increased
restructuring and remerchandising activities in fiscal 2000, cross shop loss
from exiting of certain home product categories and a weak economic environment.
Net sales from operations excluding exiting categories and closed
facilities were $636.6 million for the first nine periods of 2001 compared to
$842.9 million for the first nine periods of 2000. Comparable store sales for
jewelry were down 15.9% and comparable store sales for home products was down
24.1% as compared to the first nine periods of 2000. The jewelry comparable
store sales decrease was driven by declines in special events,
watches/accessories and diamond/stones. The home products comparable sales
decrease was driven by declines in personal care, photo and housewares. The
Company believes that the decline in net sales was primarily due to cross shop
loss from exiting of certain home product categories and a weak economic
environment.
Net sales from exiting categories and closed facilities were $0.05
million for the first nine periods of 2001 compared to $192.0 million for the
first nine periods of 2000. Sales from exiting categories and closed facilities
decreased primarily due to the fact that the first nine periods of 2000 reflects
the sales of discontinued product lines that were primarily completed by
December 31, 2000 and were not reflected in the first nine periods of 2001.
Gross Margin
Gross margin was $166.5 million for the first nine periods of 2001
compared to $214.4 million in the first nine periods of 2000. The decrease was
primarily due to a $398.3 million decline in sales, partially offset by a $350.3
million decrease in cost of goods sold.
Gross margin after costs and expenses and excluding exiting categories
and closed facilities was $167.0 million or 26.2% of net sales for the first
nine periods of 2001, compared to $234.0 million or 27.8% of net sales for the
first nine periods of 2000. The margin decrease was primarily due to decreased
sales.
Gross (loss) after costs and expenses for exiting categories and closed
facilities was $(0.4) million, compared to $(19.6) million for the first nine
periods of 2000. The margin increase was primarily a result of decreased
inventory clearance sales for the first nine periods of 2001.
Selling General and Administrative
Selling, general and administrative expenses decreased $135.9 million
in the first nine periods of 2001, to $187.4 million from $323.3 million in the
first nine periods of 2000. The decline was primarily due to store closures,
corporate downsizing and overhead reduction efforts and the settlement of
disputes related to the credit card agreement with World Financial Network
National Bank (WFNNB).
Selling, general and administrative expenses were $200.7 million or
31.5% of net sales from operations excluding exiting categories and closed
facilities for the first nine periods of 2001, compared to $244.0 million or
29.0% of net sales from operations excluding exiting categories and closed
facilities for the first nine periods of 2000. The decrease in expenses was
attributable to a decrease in employment costs and other selling, general and
administrative expenses primarily due to corporate downsizing and overhead
reduction efforts.
Selling, general and administrative expenses for exiting categories and
closed facilities were $(13.3) million for the first nine periods of 2001,
compared to $79.2 million for the first nine periods of 2000. The decrease in
expenses was attributable to decreases in employment costs and other selling,
general and administrative expenses primarily due to store closures and the
settlement of disputes related to the credit card agreement with World Financial
Network National Bank (WFNNB).
Other (Income) Expense, net
The net (gain) loss on dispositions of property and leases recorded for
the first nine periods of 2001 was $1.4 million, as compared to $(14.8) million
in 2000. The loss for the first nine periods of 2001 is primarily related to the
disposition of corporate fixtures, compared to a gain in the first nine periods
of 2000 for amounts realized from the completion of the auction property sale of
10 owned and 13 leased properties and the sale of the New York distribution
center.
Depreciation and Amortization
Depreciation and amortization on owned and leased property and
equipment was $31.1 million for the first nine periods of 2001 as compared to
$29.4 million for the first nine periods of 2000. The increase was primarily
attributable to new fixtures for remodeled stores.
Interest Expense
Interest expense for the first nine periods of 2001 was $31.1 million
as compared to $29.6 million for the first nine periods of 2000. Interest
expense increased due to higher average borrowings and the unfavorable interest
rate spread between the fixed and floating rate.
Income Taxes
The Company did not recognize an income tax benefit due to the
recording of a deferred tax asset valuation allowance. Deferred taxes are
recognized to reflect the estimated future utilization of temporary book/tax
differences. The Company has recorded a full valuation allowance on net deferred
tax assets as realization of such assets in future years is uncertain.
Management does not believe it is more likely than not that the Company will
realize the deferred tax asset.
CONSOLIDATED STATEMENTS OF OPERATIONS (WITHOUT NOTES)
The Company's Consolidated Statements of Operations included below have
been prepared without notes and are unaudited. They have been prepared on a
going concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities and commitments in the normal course of
business. The Company's recent losses and the Chapter 11 Cases raise substantial
doubt about the Company's ability to continue as a going concern. The
Consolidated Statements of Operations do not include any adjustments relating to
recoverability and classification of recorded asset amounts or the amount and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The ability of the Company to continue as
a going concern and the appropriateness of using the going concern basis are
dependent upon, among other things, (i) the Company's ability to comply with,
and obtain sufficient liquidity from, the DIP to Exit Facility and the vendor
credit facility, (ii) the ability of the Company to convert the DIP to Exit
Facility to an exit facility or to obtain an alternative facility to provide
financing upon its anticipated emergence from Chapter 11, (iii) confirmation of
a plan of reorganization under the Bankruptcy Code, (iv) the Company's ability
to achieve profitable operations after such confirmation, and (v) the Company's
ability to generate sufficient cash from operations to meet its obligations. As
a result of the filing of the Chapter 11 Cases and related circumstances,
realization of assets and liquidation of liabilities is subject to significant
uncertainty. While under the protection of Chapter 11, the Debtors may sell or
otherwise dispose of assets, and liquidate or settle liabilities, for amounts
other than those reflected in the Consolidated Statements of Operations.
Further, a plan or plans of reorganization could materially change the amounts
reported in the accompanying Consolidated Statements of Operations. The
Consolidated Statements of Operations do not include any adjustments relating to
recoverability of the value of recorded asset amounts or the amounts and
classification of liabilities that might be necessary as a consequence of a plan
of reorganization.
SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE PERIODS ENDED NINE PERIODS ENDED
--------------------------- ----------------------------
SEPTEMBER 30, OCTOBER 1, SEPTEMBER 30, OCTOBER 1,
2001 2000 2001 2000
------------- ---------- ------------- -----------
Net sales:
Operations excluding exiting categories and closed facilities $ 178,948 $ 225,406 $ 636,593 $ 842,931
Existing categories and closed facilities -- 48,932 54 191,984
--------- --------- ----------- -----------
178,948 274,338 636,647 1,034,915
--------- --------- ----------- -----------
Costs of merchandise sold and buying and occupancy expenses:
Operations excluding exiting categories and closed facilities 142,609 167,373 469,631 608,929
Exiting categories and closed facilities -- 60,994 525 211,538
--------- --------- ----------- -----------
142,609 228,367 470,156 820,467
--------- --------- ----------- -----------
Gross margin (loss) after cost of merchandise sold and buying and
occupancy expenses:
Operations excluding exiting categories and closed facilities 36,339 58,033 166,962 234,002
Exiting categories and closed facilities -- (12,062) (471) (19,554)
--------- --------- ----------- -----------
36,339 45,971 166,491 214,448
--------- --------- ----------- -----------
Selling, general and administrative expenses:
Operations excluding exiting categories and closed facilities 55,182 73,549 200,716 244,041
Exiting categories and closed facilities (18,878) 20,951 (13,340) 79,213
--------- --------- ----------- -----------
36,304 94,500 187,376 323,254
--------- --------- ----------- -----------
Other (income) expense, net 4 (1,524) 1,383 (14,791)
Restructuring charge (income) -- (777) -- (2,524)
Depreciation and amortization:
Operations excluding exiting categories and closed facilities 10,114 9,460 31,018 28,702
Exiting categories and closed facilities 7 135 56 649
--------- --------- ----------- -----------
10,121 9,595 31,074 29,351
--------- --------- ----------- -----------
Reorganization items 4,770 6,277 21,898 37,188
--------- --------- ----------- -----------
Loss before interest and income tax (14,860) (62,100) (75,240) (158,030)
Interest expense (contractual interest $17,236, $52,188, $16,127 and
$50,731 for the three and nine periods ended September 30, 2001 and
October 1, 2000, respectively) 10,197 9,088 31,069 29,614
--------- --------- ----------- -----------
Loss before income tax (25,057) (71,188) (106,309) (187,644)
Income Tax -- -- -- --
--------- --------- ----------- -----------
Net loss $ (25,057) $ (71,188) $ (106,309) $ (187,644)
========= ========= =========== ===========
Weighted average common shares - basic and diluted 99,723 99,723 99,723 99,723
========= ========= =========== ===========
Net loss per common share - basic and diluted $ (0.25) $ (0.71) $ (1.07) $ (1.88)
========= ========= =========== ===========
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This report 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 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: the ability of the
Company to continue as a going concern; the ability of the Company to operate
pursuant to the terms of and access liquidity from the DIP to Exit Facility and
the vendor credit facility; the ability of the Company to convert the DIP to
Exit Facility to an exit facility or to obtain an alternative facility to
provide financing upon its anticipated emergence from Chapter 11; the ability of
the Company to develop, prosecute, confirm and consummate on a timely basis one
or more plans of reorganization with respect to the Chapter 11 Cases and to exit
Chapter 11; trends in the economy as a whole and the events of September 11th
which are negatively affecting consumer demand for the types of goods sold by
the Company; the ability of the Company to successfully implement the 2001
Business Plan initiatives; 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 and to consummate the sale/leaseback of its
headquarters; the successful consolidation of its distribution centers; adverse
developments with respect to the Company's liquidity or results of operations;
the impact of additional store closings and related inventory sales, cost
cutting measures, and additional inventory, logistics and staffing
rationalizations; competitive pressures from other retailers, including
specialty retailers and discount stores, which may affect the nature and
viability of the Company's business strategy; 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 attract, retain and compensate
key executives and associates; the ability of the Company to attract and retain
customers; potential adverse publicity; and uncertainties regarding real estate
occupancy and development costs, including the substantial fixed investment
costs associated with opening, maintaining or closing a Company store.
Service Merchandise Company, Inc. has caused this notification to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: November 15, 2001 By: /s/ Kenneth A. Conway
---------------------------------
Kenneth A. Conway
Vice President, Controller and
Chief Accounting Officer
ATTENTION
Intentional misstatements or omissions of fact constitute Federal
criminal violations (See 18 U.S.C. 1001).