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, 2001
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)
SERVICE MERCHANDISE COMPANY, INC.
SAVINGS AND INVESTMENT PLAN
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 2001 AND 2000:
Statements of Net Assets Available for Benefits 2
Statements of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4 - 8
SUPPLEMENTAL SCHEDULE AS OF DECEMBER 31, 2001:
Schedule of Assets (Held at End of Year) 9
NOTE: Other schedules not included have been omitted as they are not applicable.
INDEPENDENT AUDITORS' REPORT
To the Trustee and Participants of
Service Merchandise Company, Inc.
Savings and Investment Plan
Brentwood, 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, 2001 and 2000, 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,
2001 and 2000, 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
at end of year) as of December 31, 2001, 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 2001
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.
/s/ DELOITTE & TOUCHE LLP
Nashville, Tennessee
May 24, 2002
SERVICE MERCHANDISE COMPANY, INC.
SAVINGS AND INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2001 AND 2000
- --------------------------------------------------------------------------------
2001 2000
ASSETS:
Cash $ 298,054 $ --
Investments, at fair value:
Shares of mutual funds 54,908,262 59,266,151
Shares of Service Merchandise Company, Inc. common
stock 15,583 72,400
Participant notes receivable 1,427,803 2,307,450
----------- -----------
Total investments 56,351,648 61,646,001
----------- -----------
Receivables:
Participants' contributions 91,831 178,437
Interest 2,502 6,869
Due from brokers 170,921 --
----------- -----------
Total receivables 265,254 185,306
----------- -----------
Total assets 56,914,956 61,831,307
----------- -----------
LIABILITIES:
Payable to participants 45,416 81,189
Due to brokers 226,898 --
----------- -----------
Total liabilities 272,314 81,189
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $56,642,642 $61,750,118
=========== ===========
The accompanying notes are an integral part of these financial statements.
-2-
SERVICE MERCHANDISE COMPANY, INC.
SAVINGS AND INVESTMENT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 2001 AND 2000
- --------------------------------------------------------------------------------
2001 2000
Additions to net assets attributed to:
Investment income (loss):
Net depreciation in fair value of investments $ (2,614,711) $ (1,763,833)
Dividends and interest 2,273,375 5,695,688
------------ ------------
(341,336) 3,931,855
------------ ------------
Participants' contributions 2,984,614 4,919,275
Rollover from Restated Retirement Plan 5,150,132 --
------------ ------------
Total additions 7,793,410 8,851,130
------------ ------------
Deductions from net assets attributed to:
Benefits paid to participants 12,878,729 14,003,332
Administrative expenses 22,157 91,060
------------ ------------
Total deductions 12,900,886 14,094,392
------------ ------------
Net decrease (5,107,476) (5,243,262)
Net assets available for benefits:
Beginning of year 61,750,118 66,993,380
------------ ------------
End of year $ 56,642,642 $ 61,750,118
============ ============
The accompanying notes are an integral part of these financial statements.
-3-
SERVICE MERCHANDISE COMPANY, INC.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
- --------------------------------------------------------------------------------
1. DESCRIPTION OF PLAN
The Service Merchandise Company, Inc. Savings and Investment Plan (the
"Plan") is a qualified defined contribution plan under sections 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. On January 4, 2002,
the Company announced plans for full liquidation and wind-down of the
Company. Although the Company has not announced termination of the Plan,
upon termination, plan assets will be distributed in accordance with
Bankruptcy Court rulings. Under the proposed plan, the Company's existing
common stock is highly speculative and believed to be worthless.
The following brief description of the Plan is intended to give a general
summary of its principal provisions. Participants should refer to the Plan
document 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 document, 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
------------------------------------- --------------
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%
-4-
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%
for the 2001 and 2000 Plan years.
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. At December 31, 2001, the mutual fund
options are products of various fund families.
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:
EuroPacific Growth Fund consisting, according to the fund's prospectus,
of investments primarily in stocks of issuers located in Europe and the
Pacific Basin.
The Growth Fund of America consisting, according to the fund's
prospectus, of investments primarily in common stocks of companies that
appear to offer superior opportunities for growth of capital.
The New Economy Fund consisting, according to the fund's prospectus, of
investments primarily in stocks of companies in the services and
information area of the global economy.
The New Perspective Fund consisting, according to the fund's
prospectus, of investments primarily in common stocks, including
growth-oriented stocks, on a global basis to take advantage of
investment opportunities generated by changes in international trade
patterns and economic and political relationships.
AIM Aggressive Growth Fund A consisting, according to the fund's
prospectus, of investments primarily in common stocks of small and
medium-sized companies whose earnings are expected to grow more than
15% per year.
Invesco S&P 500 Index Fund seeking, according to the fund's prospectus,
price performance and income comparable to the Standard & Poor's 500
Composite Stock Price Index by investing in stocks that make up the
index, in approximately the same proportions.
Liberty Acorn Fund A consisting, according to the fund's prospectus, of
investments primarily in stocks of small and medium-sized companies
with market capitalizations of less than $2 billion.
Fundamental Investors Fund consisting, according to the fund's
prospectus, of investments primarily in common stocks of large,
established companies that offer growth potential at reasonable prices.
Van Kampen Comstock Fund A consisting, according to the fund's
prospectus, of investments primarily in equity securities, including
common stocks, preferred stocks, and securities convertible into common
and preferred stocks.
-5-
American Balanced Fund consisting, according to the fund's prospectus,
of investments primarily in a broad range of securities, including
stocks and bonds.
American High-Income Trust consisting, according to the fund's
prospectus, of investments primarily in a broad range of lower quality,
higher yielding debt securities that also provide an opportunity to
increase in value.
The Bond Fund of America consisting, according to the fund's
prospectus, primarily of bonds rated A or better.
The Cash Management Trust of America consisting, according to the
fund's prospectus, of investments primarily in high quality money
market instruments such as commercial paper and commercial bank
obligations.
Earnings from the funds, consisting primarily of interest and dividends,
are automatically reinvested in their respective fund.
At December 31, 2001, there was a total of 2,370 participants in the Plan.
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 ranged from 7.0% to 12.5% at December 31, 2001 and from
7.0% to 12.0% at December 31, 2000. Principal and interest are paid
ratably through weekly payroll deductions. Loan repayment periods
generally range from one to five years. At December 31, 2001, 373
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, 2001 and 2000, net assets available for benefits
included $1,640,738 and $1,865,931, 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 mutual funds 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.
-6-
NET DEPRECIATION IN FAIR VALUE OF INVESTMENTS includes both realized and
unrealized (depreciation) appreciation.
ROLLOVER FROM RESTATED RETIREMENT PLAN - During 2001, the Company
terminated its defined benefit plan, the Service Merchandise Restated
Retirement Plan. Participants of the defined benefit plan could elect to
transfer their distributions from the terminating plan to the Plan. As a
result, the Plan received $5,150,132 in rollover contributions from the
defined benefit plan in 2001.
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of net assets available for benefits and changes
therein. Actual results could differ from those estimates. The Plan
utilizes various investment instruments. Investment securities, in general
are exposed to various risks, such as interest rate, credit, and overall
market volatility. Due to the level of risk associated with certain
investment securities, it is reasonably possible that changes in the
values of investment securities will occur in the near term and that such
changes could materially affect the amounts reported in the statements of
net assets available for plan benefits.
ACCOUNTING PRONOUNCEMENT - The Plan adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, on January 1, 2001. SFAS No. 133, as
amended by SFAS No. 138, requires the recognition of all derivatives on
the balance sheet as either assets or liabilities measured at fair
value. Derivatives that do not qualify for hedge accounting must be
adjusted to fair value through income. The adoption of SFAS No. 133 did
not have a material impact on the financial statements of the Plan.
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 served as the trustee
and investment manager through November 23, 2001. As of that date, the
Plan was transitioned to Reliance Trust Company, who serves as trustee,
and DailyAccess.com, who serves as investment manager as of December 31,
2001. Fees paid to the trustee and investment managers by Plan
participants amounted to $22,157 and $91,060 for the years ended December
31, 2001 and 2000, 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. 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. See Note 1.
5. TAX STATUS
The Plan has received a determination letter dated September 5, 1996
indicating it is qualified under Section 401(a) and meets the additional
requirements of section 401(k) of the Internal Revenue Code ("IRC") and
that the related trust is exempt from federal income tax under Section
501(a) of the Internal Revenue Code. Although the Plan has been amended
since the determination letter, the Plan administrator and the Plan's tax
counsel believe that the Plan is designed and is currently being operated
in compliance with the applicable requirements of the IRC.
-7-
6. INVESTMENTS
The following presents investments that represent 5 percent or more of the
Plan's net assets as of December 31, 2001 and 2000:
2001 2000
T. Rowe Price Equity Income Fund $ $17,628,806
T. Rowe Price U.S. Treasury Fund 10,874,647
T. Rowe Price Spectrum Growth Fund 9,894,498
T. Rowe Price New Income Fund 6,479,224
T. Rowe Price Balanced Fund 5,027,076
T. Rowe Price Capital Appreciation Fund 4,792,461
T. Rowe Price New Horizons Fund 3,693,622
American Funds American Balanced Fund 4,766,902
American Funds Bond Fund of America 6,773,406
American Funds Cash Management Trust of America 10,727,911
American Funds Fundamental Investors Fund 7,702,169
American Funds Growth Fund of America 5,274,172
Liberty Acorn Fund A 3,332,148
Van Kampen Comstock Fund A 15,616,314
******
-8-
SERVICE MERCHANDISE COMPANY, INC. SAVINGS AND INVESTMENT PLAN
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2001
- --------------------------------------------------------------------------------
(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
---------------------------- ------------------------------------------ ---- -----
AIM Advisors AIM Aggressive Growth Fund A $ 36,639
American Funds American Balanced Fund 4,766,902
American Funds American High-Income Trust Fund 5,081
American Funds Bond Fund of America 6,773,406
American Funds Cash Management Trust of America 10,727,911
American Funds EuroPacific Growth Fund 646,018
American Funds Fundamental Investors Fund 7,702,169
American Funds Growth Fund of America 5,274,172
Invesco Funds Group Invesco S&P 500 Index Fund 1,151
Liberty Wanger Asset Management Liberty Acorn Fund A 3,332,148
American Funds New Perspective Fund 3,120
American Funds The New Economy Fund 23,231
Van Kampen Asset Management Van Kampen Comstock Fund A 15,616,314
* Service Merchandise Company, Inc. Common stock - $.50 par value 15,583
Participant notes receivable Interest rates ranging from 7.0% to 12.5% 1,427,803
-----------
Total investments $56,351,648
===========
*Represents party-in-interest.
+Cost information is omitted as all investments are participant directed.
-9-
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, 2002 /s/ C. Steven Moore
----------------------------------
C. Steven Moore
Committee Member
Date: June 28, 2002 /s/ Michael E. Hogrefe
----------------------------------
Michael E. Hogrefe
Committee Member
Date: June 28, 2002 /s/ Doris Meador
----------------------------------
Doris Meador
Authorized Agent for the Committee
-10-
EXHIBIT INDEX
<Table>
<Caption>
Exhibit No. Description Submission Media
- ----------- -------------------------------- ----------------
Ex 23 Consent of Deloitte & Touche LLP, Electronic
Independent Public Accountants,
dated June 28, 2002
</Table>