1
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 (Fee Required) for the fiscal year ended January
1, 1995 or
- --- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) for the transition period from
to .
------------- ------------
Commission File No. 1-9223
SERVICE MERCHANDISE COMPANY, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-0816060
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
P.O. Box 24600, Nashville, TN (mailing address) 37202-4600
7100 Service Merchandise Drive, Brentwood, TN 37027
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (615) 660-6000
Securities registered pursuant to Section 12(b) of the Act:
Name of Exchange on
Title of Class Which Registered
- -------------- -----------------
Common Stock ($.50 Par Value) New York Stock Exchange
Series A Junior Preferred Stock Purchase Rights New York Stock Exchange
9% Senior Subordinated Debentures New York Stock Exchange
8 3/8% Senior Notes New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
---
State the aggregate market value (based on the closing price as reported on the
New York Stock Exchange) of the voting stock held by non-affiliates of the
registrant as of March 1, 1995: $448,321,400. This calculation assumes that
all shares of Common Stock beneficially held by officers and members of the
Board of Directors of the Registrant are owned by "affiliates," a status which
each of the officers and directors individually disclaims.
Class Outstanding at March 1, 1995
----- ----------------------------
Common Stock ($.50 Par Value) 99,646,443
Parts in Form 10-K Where Documents
Documents Incorporated by Reference Are Incorporated by Reference
- ----------------------------------- -----------------------------
Portions of Registrant's Proxy Statement dated March 16, 1995 Part III
Portions of Registrant's Annual Report to Shareholders for the
fiscal year ended January 1, 1995 Parts II and IV
2
TABLE OF CONTENTS AND CROSS-REFERENCE SHEET
Page
No.
----
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-5
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-7
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Security-Holders. . . . . . . . . . . . . . . 8
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . 8-9
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
- -------
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 9-10
Item 6. Selected Financial Data Page 10 of the Registrant's 1994 Annual
Report to Shareholders for the year
ended January 1, 1995 which is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Pages 11 through 14 of the Registrant's
Financial Condition and Results of 1994 Annual Report to Shareholders for
Operations the year ended January 1, 1995 which
are incorporated herein by reference.
Item 8. Financial Statements and Supplementary Pages 15 through 31 of the Registrant's
Data 1994 Annual Report to Shareholders for
the year ended January 1, 1995 which
are incorporated herein by reference.
Item 9. Changes in and Disagreements With
Independent Auditors on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
- --------
Item 10. Directors and Executive Officers of the Pages 2 through 5 of the Registrant's Proxy
Registrant Statement dated March 16, 1995 which are
incorporated herein by reference.
Item 11. Executive Compensation Pages 8 through 18 of the Registrant's Proxy
Statement dated March 16, 1995 which are
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Pages 6 and 7 of the Registrant's Proxy
Owners and Management Statement dated March 16, 1995 which are
incorporated herein by reference.
Item 13. Certain Relationships and Related Page 19 of the Registrant's Proxy Statement
Transactions dated March 16, 1995 which is incorporated
herein by reference.
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
- -------
Item 14. Exhibits, Financial Statement Schedule, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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INTRODUCTORY
Except where the context indicates otherwise, the "Company" is a term used to
refer to the overall operations of Service Merchandise Company, Inc. and its
past and present subsidiaries and the "Registrant" means Service Merchandise
Company, Inc. as a separate corporate entity and does not refer to
subsidiaries. The information included in this Form 10-K is, unless indicated
to be given as of a specified date or for a specified period, given as of the
date of this report, which is January 1, 1995.
PART I
Item 1. Business
Service Merchandise, with 406 catalog stores in 37 states, is one of the
nation's largest retailers of jewelry, and offers a wide selection of
brand-name hardgoods in its other product lines. The major categories of goods
offered by the Company are fine jewelry (including diamonds), housewares, small
appliances, giftware, silverware, cameras, luggage, radios, televisions and
other home electronics, patio, lawn and garden accessories, sporting goods and
toys.
Catalog and Store Operations
The Company's franchise is built around selling nationally advertised
brand-name hardgoods and quality jewelry at low prices. The Company's customer
typically pre-selects merchandise from the Company's annual catalog which is
distributed in early fall each year. The catalog, which had 560 pages in 1994,
is supplemented by a spring catalog of 176 pages, a Christmas catalog of 160
pages and a combination of direct mail flyers and newspaper inserts distributed
approximately every other week of the year. The catalogs, flyers and newspaper
inserts describe the majority of merchandise offered for sale by the Company
and list the Company's selling price and a reference price. The reference
price is either the selling price suggested by the manufacturer, or is
determined by comparison shopping and/or the application of a standard markup
to the cost of an item. The Company's fall, spring and Christmas catalogs are
printed only once a year, with selling prices adjusted periodically through
flyers and newspaper inserts to reflect changes in merchandise costs or to
provide clearance pricing. Although the typical customer pre-selects
merchandise from a catalog, flyer or newspaper insert, the actual purchase
usually takes place in a Company store, where the customer has physical access
to the merchandise. Customers may also purchase goods through mail or
telephone order, although this represents a small portion of the Company's
total sales. According to a 1994 customer opinion survey, the Company's
typical customer is well-educated, married and lives in a two-earner household
and looks for well-made, durable products they can purchase quickly.
The typical Service Merchandise store consists of approximately 50,000 square
feet of total space and is situated on a stand-alone lot or as an anchor in a
suburban mall or strip center. The Company's stores are divided into several
departments, including jewelry, sight and sound, self-service and general
showroom. In the jewelry and sight and sound departments, merchandise is
displayed in showcases, and sales associates deliver it to the customer and
accept payment. In the self-service department, customers select merchandise
from a shelf and take it to a check-out counter to finalize the purchase. In
the remainder of the store, only a sample of the merchandise is displayed and
order forms are available at various locations. After the customer orders the
merchandise by filling out a form, a store cashier is paid and the merchandise
is delivered to a pick-up station. Management believes that this format
reduces selling space requirements, handling and payroll costs, and provides
greater control over customer-related inventory shrinkage. The general
showroom format also permits presentation of a broad assortment of merchandise
with limited inventory investment, since only one item is actually on display.
Most of the Company's stores display and maintain an inventory (in warehouse
space contiguous to the sales area) of substantially all of the catalog items
and a limited amount of merchandise not described in the published catalogs.
Each store is equipped with a computer which coordinates the inventory tracking
and point of sale functions.
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Item 1. Business (continued)
Virtually every action in the store that involves payment, customer information
or inventory is recorded and transmitted, on a daily basis, via satellite to
the central database at the Company's home office. In addition, by use of the
computer, customers are provided with alternate suggestion items, back-order
information, on-line mail orders, a gift registry, special orders and layaway
information. Most of the Company's stores are equipped with "Service Express,"
a user-friendly computer which allows customers to verify item availability,
place their order and tender payment via credit card.
The Company's computerized daily inventory system tracks the status (on hand,
on order, in transit), location and history of inventory in the retail network.
This raw data feeds the Company's merchandise replenishment system which tracks
inventory positions, sales data and sales forecasts and generates either
suggested transfers from the distribution centers or suggested purchase order
quantities. The inventory system also records all sales information to produce
daily margin reports, complete with a historical comparison for each item. In
fiscal 1994, store inventory levels were increased to achieve a consistently
high in-stock position, particularly on promotional merchandise.
The Company's information systems enhance the effectiveness of its catalog
mailings and advertising campaigns by tracking customers' purchases and
tailoring the Company's mailing lists to meet specific objectives. The Company
maintains a database of customer household information with each purchase.
This database allows management to target customers based on specific criteria,
including seasonal purchasing behavior and promotional preferences.
Seasonality and Competition
The Company's business is highly seasonal, with the Christmas season being the
largest volume selling period of the year. In preparation for the Christmas
season, the Company significantly increases its merchandise inventories, which
are financed by internally generated funds and short-term borrowings.
The Company is engaged in a highly competitive business and competes with most
nationally known jewelry and hardline retail merchandisers, including
department stores, general merchandise, specialty and discount stores. Many of
these competitors are larger and have greater financial resources than the
Company. The Company believes its pricing policies on the brand-name hardgoods
merchandise it offers are a significant factor in the operation of its
business. The Company operates on high volume, low profit margin principles.
Its profitability is dependent upon the large sales volume generated during the
fourth quarter of its fiscal year.
Suppliers
The Company purchases merchandise from approximately 2,150 suppliers, most of
which are manufacturers. In fiscal 1994, purchases from the largest vendor
approximated 4.0% of total purchases; however, the Company believes it would
experience no difficulty in obtaining comparable quality merchandise from
alternate sources. Most merchandise is initially shipped to the Company's
central distribution facilities which are used to store merchandise in advance
of selling seasons to take advantage of favorable terms offered to the Company.
Merchandise is transported to the stores from these central facilities by
commercial contract carriers.
The Company's direct import program is responsible for sourcing and repackaging
many promotional and seasonal items from abroad. Direct imports, which totaled
approximately $326 million in fiscal 1994, allow the Company to reduce many
traditional cost factors, thereby lowering the cost of merchandise sold in
several product lines. In addition to its direct import program, the Company
imports diamonds, gemstones and gold which are used by suppliers in the
manufacture of jewelry items.
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Item 1. Business (continued)
Employees
The number of persons employed by the Company fluctuates seasonally. During
the fiscal year ended January 1, 1995, the number of employees varied from
approximately 26,100 to approximately 51,700, including both permanent and
temporary employees. As of January 1, 1995, the Company had 28,836 permanent
employees, of whom 83% were hourly-paid personnel engaged in non-supervisory
activities; the balance was administrative, executive, distribution center and
store management personnel. The number of permanent employees increased in
fiscal 1994 due to an increased emphasis on customer service and the opening of
a net 15 stores. None of the Company's employees are covered by a collective
bargaining agreement. The Company has never experienced a work stoppage due to
a labor disagreement and regards its employee relations as satisfactory.
Item 2. Properties
The Company leases and owns retail store facilities, warehouses and office
space. The Company has financed a number of its owned facilities out of
internally generated funds. Some owned facilities have ground leases on a
long-term basis, some are financed through industrial development financing
under which the Company either has ownership or a right to obtain ownership and
others are financed by real estate mortgages. The Company occupies office
space in two locations in greater Nashville, Tennessee, both of which are owned
by the Company.
The Company operated five major distribution centers as of January 1, 1995.
These distribution centers are located in Florida, New York, Tennessee, Texas
and Nevada and contain an aggregate of approximately 3,492,000 square feet as
set forth below:
Center Location Sq. Feet Owned/Leased Lease Term
--------------- -------- ------------ ----------
Orlando, FL 460,000 Leased Renewal options through 6/30/98
Montgomery, NY 800,000 Owned Not applicable
Nashville, TN
(1) Owned 588,000 Owned Not applicable
(2) Owned satellite 268,000 Owned Not applicable
(3) Leased satellite 391,000 Leased Renewal options through 1/31/05
Dallas, TX 594,000 Leased Renewal options through 1/31/96
Henderson, NV 391,000 Leased Renewal options through 12/31/95
Subsequent to year-end, the Company had completed an extension of the renewal
option for the Henderson, NV distribution center and is currently negotiating
the extension of the renewal option of the Dallas, TX location. The Company
anticipates that it would be able to obtain suitable replacement facilities
should it not be able to renew the above leases.
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Item 2. Properties (continued)
As of January 1, 1995, the Company operated 406 retail catalog stores
(typically consisting of approximately 50,000 square feet) as follows:
Number of Stores
----------------
Owned land and building 102
Long-term ground lease with an owned building 43
Owned land with industrial development financing under which the Company had ownership or
a right to obtain ownership of the building 3
Leased 276
Stores which have been subleased (18)
---
Total 406
===
Most of the leases contain renewal or purchase options. See the Notes to
Consolidated Financial Statements, which are incorporated herein by reference
to the Registrant's 1994 Annual Report to Shareholders, for information
concerning the Company's lease commitments.
For a listing of store locations, see page 7. The numbers in parentheses show
the number of stores per state and where there is more than one store in any
city, the number of stores in such city.
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Item 2. Properties (continued)
SERVICE MERCHANDISE CO., INC.
STORE LOCATIONS
ALABAMA (8) GEORGIA (16) MARYLAND (5) NEW YORK (23) SOUTH CAROLINA (7)
BIRMINGHAM (2) ATLANTA (12) COLUMBIA ALBANY CHARLESTON (2)
HUNTSVILLE (2) AUGUSTA FORESTVILLE BINGHAMTON COLUMBIA (2)
MOBILE COLUMBUS FREDERICK BUFFALO (2) GREENVILLE
MONTGOMERY (2) MACON SALISBURY EAST MEADOW GREENWOOD
TUSCALOOSA SAVANNAH WALDORF FISHKILL SUMTER
ARIZONA (4) ILLINOIS (24) MASSACHUSETTS (11) HARTSDALE TENNESSEE (18)
GLENDALE CHAMPAIGN AUBURN HUNTINGTON CHATTANOOGA (2)
MESA (2) CHICAGO (23) BOSTON (7) LAKE GROVE JACKSON
SCOTTSDALE INDIANA (16) HOLYOKE LAWRENCE KINGSPORT
ARKANSAS (3) BLOOMINGTON LANESBORO/PITTSFIELD MASSAPEQUA KNOXVILLE (2)
FORT SMITH CLARKSVILLE SWANSEA MIDDLETOWN MEMPHIS (5)
LITTLE ROCK (2) EVANSVILLE MICHIGAN (14) NANUET NASHVILLE (7)
CALIFORNIA (22) FORT WAYNE (2) ANN ARBOR PATCHOQUE TEXAS (48)
LOS ANGELES (11) GRIFFITH DETROIT (9) PLATTSBURGH ABILENE
MONTEBELLO INDIANAPOLIS (5) FLINT POUGHKEEPSIE AMARILLO
MURRIETA KOKOMO LANSING (2) QUEENS ARLINGTON (2)
SALINAS LAFAYETTE WATERFORD ROCHESTER (2) AUSTIN (2)
SAN FRANCISCO/OAKLAND (6) MERRILLVILLE MINNESOTA (1) SARATOGA SPRINGS BEAUMONT
SAN JOSE (2) SOUTH BEND MINNEAPOLIS SYRACUSE (2) COLLEGE STATION
COLORADO (7) TERRE HAUTE MISSISSIPPI (6) YORKTOWN HEIGHTS CORPUS CHRISTI
COLORADO SPRINGS IOWA (1) GAUTIER NORTH CAROLINA (9) DALLAS (8)
DENVER (5) DES MOINES GULFPORT CHARLOTTE (3) DENTON
PUEBLO KANSAS (4) HATTIESBURG DURHAM EL PASO (2)
CONNECTICUT (8) HUTCHINSON JACKSON (2) FAYETTEVILLE FT. WORTH (3)
DANBURY OVERLAND PARK MERIDIAN GASTONIA HARLINGEN
DERBY WICHITA (2) MISSOURI (7) GREENSBORO HOUSTON (10)
ENFIELD KENTUCKY (7) INDEPENDENCE RALEIGH (2) LAKE JACKSON
HARTFORD (3) FLORENCE SPRINGFIELD OHIO (16) LAREDO
ORANGE LEXINGTON ST. LOUIS (5) AKRON LONGVIEW
WATERBURY LOUISVILLE (3) NEBRASKA (3) CINCINNATI (4) LUBBOCK
DELAWARE (3) OWENSBORO LINCOLN COLUMBUS (4) MCALLEN (2)
DOVER PADUCAH OMAHA (2) LIMA MIDLAND
WILMINGTON (2) LOUISIANA (14) NEVADA (3) MANSFIELD SAN ANGELO
FLORIDA (48) ALEXANDRIA LAS VEGAS (2) SANDUSKY SAN ANTONIO (3)
BOCA RATON BATON ROUGE (2) RENO SPRINGFIELD TEMPLE
BOYNTON BEACH HOUMA NEW HAMPSHIRE (5) TOLEDO (2) TYLER
CORAL SPRINGS LAFAYETTE (2) DOVER YOUNGSTOWN WACO
DAVIE LAKE CHARLES MANCHESTER OKLAHOMA (8) VERMONT (1)
DAYTONA BEACH MONROE NASHUA ENID BURLINGTON
FT. MYERS NEW ORLEANS (3) PLAISTOW NORMAN VIRGINIA (11)
FT. PIERCE SHREVEPORT (2) SALEM OKLAHOMA CITY (3) ALEXANDRIA (2)
GAINESVILLE SLIDELL NEW JERSEY (6) TULSA (3) CHANTILLY
JACKSONVILLE (3) MAINE (5) HAZLET PENNSYLVANIA (12) CHESAPEAKE
LAKELAND AUBURN PARAMUS ALLENTOWN DALE CITY
LEESBURG AUGUSTA TURNERSVILLE HARRISBURG FREDERICKSBURG
MELBOURNE BANGOR VOORHEES LANCASTER HAMPTON
MIAMI/FT. LAUDERDALE (12) BRUNSWICK WAYNE PHILADELPHIA MANASSAS
NAPLES PORTLAND WOODBRIDGE PITTSBURGH (6) NORFOLK
OCALA NEW MEXICO (2) READING RICHMOND (2)
ORLANDO (5) ALBUQUERQUE SCRANTON
PENSACOLA LAS CRUCES
PORT CHARLOTTE
SARASOTA
STUART
TALLAHASSEE (2)
TAMPA/CLEARWATER/
ST. PETERSBURG (8)
W. PALM BEACH
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Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security-Holders
There were no reportable items during the Company's fourth quarter.
Executive Officers of the Registrant (1)
The following is a list of executive officers, their ages, positions and
business experience during the past five years as of the date hereof:
Name, Age and Position
- ----------------------
Raymond Zimmerman, 62 Chairman of the Board and Chief Executive Officer since October 1981;
Chairman of the Board and Chief Executive President from July 1984 to November 1994 and from 1981 to October
Officer 1983. Board member of The Limited Stores, Columbus, Ohio.
Gary M. Witkin, 46 President and Chief Operating Officer since November 1994; Vice
President, Chief Operating Officer and Chairman and Board member, Saks Fifth Avenue from October 1992 to
Director November 1994; Executive Vice-President of Dayton Hudson Corp. from
June 1991 to October 1992; President of the Marshall Fields & Co.,
division of Dayton Hudson Corp. from June 1990 to June 1991;
Executive Vice President of Stores for Marshall Fields & Co., from
October 1983 to June 1990.
Glen A. Bodzy, 42 Secretary since July 1987; Vice President and General Counsel since
Vice President, General Counsel and Secretary May 1985.
S. Cusano, 41 Vice President and Chief Financial Officer since July 1993; Group
Vice President and Chief Financial Officer Vice President - Finance from December 1991. Vice President and
Corporate Controller of Revco D.S. Inc., a drugstore chain based in
Cleveland, Ohio, from January 1990 to November 1991 and Controller,
Finance from January 1989 to January 1990.
Michael E. Hogrefe, 34 Treasurer since July 1993; Assistant Treasurer from March 1990.
Treasurer Assistant Treasurer/Director of Financial Management for Equitable
HCA Corporation of New York, New York, a financial services
corporation, from March 1988 to March 1990.
Robert C. Eimers, 47 Senior Vice President, Human Resources since February 1995. Vice
Senior Vice President, Human Resources President, Human Resources of Sonoco Products Company from June 1988
to January 1995.
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Charles Septer, 43 Divisional Senior Vice President, Jewelry Merchandising since April
Divisional Senior Vice President, Jewelry 1988; Group Vice President, Jewelry Merchandising from January 1985.
Merchandising
Steven F. McCann, 42 Operational Vice President of Finance and Corporate Controller since
Operational Vice President of Finance, June 1994. Vice President, Controller of Robinsons-May division of
Corporate Controller the May Department Store Company from February 1993 to June 1994.
Vice President, Controller of the May Company division of the May
Department Store Company from April 1992 to February 1993.
Divisional Vice President, Divisional Controller of the May Company
division of the May Department Store Company from May 1989 to April
1992.
______________________
(1) All Executive Officers serve at the pleasure of the Board of Directors.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The Company's Common Stock trades on the New York Stock Exchange (NYSE) under
the symbol SME. The number of record holders of common shares at March 1, 1995
was 6,442 and at February 28, 1994 was 5,800.
High and low closing sales prices as reported by the NYSE for fiscal 1994 and
1993 were as follows:
1994 High Low
- ---- ---- ---
First Quarter 10 7 5/8
Second Quarter 8 6
Third Quarter 6 7/8 5
Fourth Quarter 6 1/2 4 1/4
1993 High Low
- ---- ---- ----
First Quarter 15 1/4 10 1/2
Second Quarter 11 3/4 10
Third Quarter 12 5/8 10 1/4
Fourth Quarter 11 3/8 9 3/4
The Company's new Reducing Revolving Credit Facility contains various financial
and other covenants, including a restricted payments basket (as defined in the
Agreement) to allow for dividends. The Company has not declared any cash
dividends to shareholders for fiscal 1994 and 1993, respectively.
Effective February 15, 1995, the Board of Directors approved an amendment to
its Shareholders Rights Plan. The amendment effects a reduction of the Rights
Plan's "flip-in" trigger from 30% to 15%. As amended, the Rights Plan provides
that if any person becomes the beneficial owner of 15% or more of the Company's
Common Stock, each Right not owned by such 15% holder
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will enable its holder to purchase, at the Right's then current exercise
price, units of the Company's Series A Junior Preferred Stock or the Company's
Common Stock having a value of twice the Right's exercise price. The Board of
Directors may, upon the triggering of the Rights Plan, redeem the rights and
prevent their exercise by shareholders. In addition, the Rights Plan was
amended to provide that the "Distribution Date" for the Rights shall occur upon
the earlier of (i) the tenth day after any person becomes the beneficial owner
of 15% or more of the Company's Common Stock or (ii) the tenth day after a
tender or exchange offer is commenced for 15% or more of the outstanding shares
of Company Common Stock.
Item 6. Selected Financial Data
Page 10 under the caption "Selected Financial Information" of the Registrant's
1994 Annual Report to Shareholders for the year ended January 1, 1995 is herein
incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Pages 11 through 14 of the Registrant's 1994 Annual Report to Shareholders for
the year ended January 1, 1995 under the caption "Management's Discussion and
Analysis" are herein incorporated by reference.
Item 8. Financial Statements and Supplementary Data
As set forth in the Registrant's 1994 Annual Report to Shareholders for the
year ended January 1, 1995, the following are incorporated herein by reference:
Description Page
- ----------- ----
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . 15
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . 16
Consolidated Statements of Changes in Shareholders' Equity . . . . . . . . 17
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . . . 18
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 19-30
Quarterly Financial Information (Unaudited). . . . . . . . . . . . . . . . 29-30
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . 31
Item 9. Changes in and Disagreements With Independent Auditors on Accounting
and Financial Disclosure
No reportable items.
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PART III
Item 10. Directors and Executive Officers of the Registrant
Pages 2 through 5 under the caption "Election of Directors" of the Registrant's
definitive proxy statement dated March 16, 1995 filed with the Commission
pursuant to Rule 14a-6(b) are incorporated herein by reference.
Pursuant to General Instruction G(3), information concerning Executive Officers
of the Registrant is included in Part I, Item 4, under the caption "Executive
Officers of the Registrant" of this Form 10-K.
Item 11. Executive Compensation
Reference is made to the information on pages 8 through 18 of the Registrant's
definitive proxy statement dated March 16, 1995 filed with the Commission
pursuant to Rule 14a-6(b), concerning executive compensation, which is herein
incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Reference is made to the information on pages 6 and 7 of the Registrant's
definitive proxy statement dated March 16, 1995 filed with the Commission
pursuant to Rule 14a-6(b), concerning the beneficial ownership of Registrant's
common stock, which is herein incorporated by reference.
Item 13. Certain Relationships and Related Transactions
Reference is made to the information on page 19 of the Registrant's definitive
proxy statement dated March 16, 1995 filed with the Commission pursuant to Rule
14a-6(b), concerning certain relationships and related transactions, which is
herein incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements:
Reference is made to Part II, Item 8, captioned "Financial
Statements and Supplementary Data" (and accompanying index)
which have been incorporated by reference from the
Registrant's 1994 Annual Report to Shareholders for the year
ended January 1, 1995.
(a) 2. Financial Statement Schedule:
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . 17
Schedule
II. Valuation and Qualifying Accounts and Reserves. . . . . . . . 18
All other schedules are not applicable and have been
omitted.
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(a) 3. Exhibits and Index to Exhibits
Exhibits filed with this Form 10-K:
Exhibit No. Under
Item 601 of
Regulation S-K Brief Description
-------------- -----------------
4 Amendment No. 2 to Rights Agreement effective as of
February 15, 1995.
* 10.1 Employment agreement dated November 2, 1994 regarding
Gary M. Witkin, President and Chief Operating Officer.
* 10.2 Amended and Restated 1989 Employee Stock Incentive Plan.
11 Statement re Computation of Earnings Per Common Share
for fiscal years ended January 1, 1995,
January 1, 1994 and January 2, 1993.
13 Portions of Service Merchandise Company, Inc. 1994
Annual Report to Shareholders for the fiscal year ended
January 1, 1995.
21 Subsidiaries of the Registrant.
23 Independent Auditors' consent relative to report on
consolidated financial statements of Service Merchandise
Company, Inc. for the fiscal year ended January 1, 1995.
27 Financial Data Schedule for the fiscal year ended
January 1, 1995 (for SEC use only).
* Executive Compensation Plans and Arrangements
Exhibits incorporated herein by reference:
Exhibit No. Under Exhibit No. in
Item 601 of Document Where
Regulation S-K Brief Description Originally Filed
-------------- ----------------- ----------------
3.1 Registrant's Charter - State of Tennessee, as restated 3.1
May 1, 1989, as further amended on November 7, 1990 and
April 15, 1992 which is incorporated herein by reference
from the Registrant's Form S-8 filed on September 8, 1993
(Registration No. 33-50185).
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13
(a) 3. Exhibits and Index to Exhibits (continued):
Exhibits incorporated herein by reference (continued):
Exhibit No. Under Exhibit No. in
Item 601 of Document Where
Regulation S-K Brief Description Originally Filed
-------------- ----------------- ----------------
3.2 Registrant's By-Laws, as amended and restated as of April 3.2
19, 1989, which are incorporated herein by reference from
Registrant's Form 10-Q filed for the first quarter ended
March 31, 1989.
4.1 Shareholders' Rights Agreement which is incorporated 4(c)
herein by reference from Registrant's Form 8-K dated
February 8, 1988.
4.2 Amendment No. 1 to Shareholders' Rights Agreement which is 4(c)
incorporated herein by reference from Registrant's Current
Report on Form 8-K dated May 5, 1989.
4.3 Note Purchase Agreement dated as of June 28, 1990 4.2a
concerning the refinancing of $90 million of the Real
Estate Bridge Loan under the Credit Agreement dated as of
July 24, 1989 among the Registrant, Various Banks and
Chemical Bank as Agent, which is incorporated herein by
reference from the Registrant's Form 10-Q filed for the
second quarter ended June 30, 1990.
4.4 Trust Indenture dated as of June 28, 1990 concerning the 4.2b
refinancing of $90 million of the Real Estate Bridge Loan
under the Credit Agreement dated as of July 24, 1989
among the Registrant, Various Banks and Chemical Bank as
Agent, which is incorporated herein by reference from the
Registrant's Form 10-Q filed for the second quarter ended
June 30, 1990.
4.5 Indenture, dated as of February 15, 1993, between the 4.1
Registrant and First American National Bank, as Trustee,
regarding the Registrant's $300,000,000 of 9% Senior
Subordinated Debentures due 2004, which is incorporated
herein by reference from Form 8-K dated February 17,
1993.
4.6 First Supplemental Indenture, dated as of February 15, 4.2
1993, between the Registrant and First American National
Bank, as trustee, regarding the Registrant's $300,000,000
of 9% Senior Subordinated Debentures due 2004, which is
incorporated herein by reference from Form 8-K dated
February 17, 1993.
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14
(a) 3. Exhibits and Index to Exhibits (continued):
Exhibits incorporated herein by reference (continued):
Exhibit No. Under Exhibit No. in
Item 601 of Document Where
Regulation S-K Brief Description Originally Filed
-------------- ----------------- ----------------
4.7 Form of Debenture, regarding the Registrant's $300,000,000 of 9% 4.3
Senior Subordinated Debentures due 2004, which is incorporated
herein by reference from Form 8-K dated February 17, 1993.
4.8 Indenture, dated as of October 15, 1993, between the Registrant 4.1
and The First National Bank of Boston, as trustee, regarding the
Registrant's $100,000,000 in principal amount of 8 3/8% Senior
Notes due 2001, which is incorporated herein by reference from
the Registrant's Form 8-K dated October 26, 1993.
4.9 First Supplemental Indenture, dated as of October 15, 1993, 4.2
between the Registrant and The First National Bank of Boston, as
trustee, regarding the Registrant's $100,000,000 in principal
amount of 8 3/8% Senior Notes due 2001, which is incorporated
herein by reference from the Registrant's Form 8-K dated October
26, 1993.
4.10 Form of Notes, regarding the Registrant's $100,000,000 of 8 3/8% 4.3
Senior Notes due 2001, which is incorporated herein by references
from the Registrant's Form 8-K dated October 26, 1993.
4.11 Credit Agreement dated as of June 8, 1994 among the Service 4.1
Merchandise Company, Inc. various Banks and Chemical Bank as
Administrative Agent which is incorporated herein by reference
from the Registrant's Form 10-Q filed for the second quarter
ended July 3, 1994.
10.1 Stock Option Pledge Agreement between Service Merchandise 10.2
Company, Inc. and the Service Merchandise Foundation dated
October 15, 1990, which is incorporated herein by reference from
the Registrant's Form 10-K for the fiscal year ended December 29,
1990.
Executive Compensation Plans and Arrangements:
10.2 Form of Indemnification Agreement between the Registrant and Exhibit A
each of Messrs. Zimmerman, Witkin, Crane, Poole, Holt, Moore,
Roitenberg, Bodzy, Cusano and Hogrefe which is incorporated
herein by reference from the Registrant's Proxy Statement
dated April 19, 1989.
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15
(a) 3. Exhibits and Index to Exhibits (continued):
Executive Compensation Plans and Arrangements (continued):
Exhibit No. Under Exhibit No. in
Item 601 of Document Where
Regulation S-K Brief Description Originally Filed
-------------- ----------------- ----------------
10.3 Directors' Deferred Compensation Plan, which is incorporated 10.1
herein by reference from the Registrant's Form 10-K for the
fiscal year ended December 29, 1990.
10.4 Directors' Equity Plan which is incorporated herein by reference Exhibit B
from the Registrant's Proxy Statement dated March 16, 1992.
10.5 Key Executive Severance Plan Agreement for execution by certain 10
key executives in replacement of employment contracts which is
incorporated herein by reference from the Registrant's Form 10-Q
filed for the third quarter ended October 2, 1994.
(b) Reports on Form 8-K
There were no reports on Form 8-K during the fiscal year ended
January 1, 1995.
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16
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.
SERVICE MERCHANDISE COMPANY, INC.
By: /s/ S. Cusano
--------------------
S. Cusano
Vice President and
Chief Financial Officer
March 16, 1995
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 and on the dates indicated.
/s/ Raymond Zimmerman /s/ Gary M. Witkin
- ----------------------- --------------------
Raymond Zimmerman Gary M. Witkin
Chairman of the Board, President, Chief Operating
Chief Executive Officer, Officer and Director
and Director (Principal Operating Officer)
(Principal Executive Officer) March 16, 1995
March 16, 1995
/s/ Richard P. Crane, Jr. /s/ Charles V. Moore /s/ James E. Poole /s/ R. Maynard Holt
- ------------------------ -------------------- ------------------ -------------------
Richard P. Crane, Jr. Charles V. Moore James E. Poole R. Maynard Holt
Director Director Director Director
March 16, 1995 March 16, 1995 March 16, 1995 March 16, 1995
/s/ Harold Roitenberg /s/ S. Cusano
- --------------------- -----------------------------------------------------
Harold Roitenberg S. Cusano, Vice President and Chief Financial Officer
Director (Principal Financial Officer)
March 16, 1995 (Principal Accounting Officer)
March 16, 1995
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17
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Service Merchandise Company, Inc.
Nashville, Tennessee
We have audited the consolidated financial statements of Service Merchandise
Company, Inc. and subsidiaries as of January 1, 1995 and 1994, and for each of
the three years in the period ended January 1, 1995, and have issued our report
thereon dated January 26, 1995; such financial statements and report are
included in your 1994 Annual Report to Shareholders and are incorporated herein
by reference. Our audits also included the consolidated financial statement
schedule of Service Merchandise Company, Inc., listed in Item 14. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Nashville, Tennessee
January 26, 1995
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18
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------------------------------------------
ADDITIONS
----------------------------
(1) (2)
Balance Charged to Charged to Balance
at Beginning Costs and Other Accounts Deductions at End of
DESCRIPTION of Period Expenses (Describe) (Describe)(B) Period
- ---------------------------------------------------------------------------------------------------------------
Year ended January 1, 1995 (A) $2,894 $1,017 - ($694) $3,217
Year ended January 1, 1994 (A) $3,079 $ 577 - ($762) $2,894
Year ended January 2, 1993 (A) $2,673 $ 424 - ($18) $3,079
(A) The amounts represent transactions for Accounts Receivable Allowance for
Doubtful Accounts.
(B) The Allowance for Doubtful Accounts was reduced for accounts written-off
against the reserve.
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