<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
37202-4600
(Mailing Address)
7100 Service Merchandise Drive, Brentwood, TN
(Address of principal executive offices)
37027
(Zip code)
(615) 660-6000
(Registrant's telephone number including Area Code)
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 the number of shares outstanding of each of the Registrant's
classes of common stock as of the latest practicable date.
As of April 30, 1995, there were 99,652,142 shares of
Service Merchandise Company, Inc. common stock outstanding.
<PAGE> 2
SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
PART I - FINANCIAL INFORMATION
Consolidated Statements of Operations (Unaudited)
- First Quarter Ended April 2, 1995 and April 3,
1994 . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets - April 2, 1995
(Unaudited), April 3, 1994 (Unaudited) and
January 1, 1995 . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows (Unaudited)
- First Quarter Ended April 2, 1995 and April 3,
1994 . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements
(Unaudited) . . . . . . . . . . . . . . . . . . . 6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited). . 8-10
PART II - OTHER INFORMATION
Other Information . . . . . . . . . . . . . . . . 11
Exhibits . . . . . . . . . . . . . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . 13
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<TABLE>
SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
<CAPTION>
First Quarter Ended
---------------------
April 2, April 3,
--------- ---------
1995 1994
--------- ---------
<S> <C> <C>
Net sales $737,129 $724,209
Costs and expenses:
Cost of merchandise sold and buying and occupancy expense 567,845 557,611
--------- ---------
Gross margin after cost of merchandise sold and buying and
occupancy expense 169,284 166,598
Selling, general and administrative expenses 174,170 155,213
Depreciation and amortization 15,872 15,862
--------- ---------
Loss before interest and income taxes (20,758) (4,477)
Interest expense-debt 14,540 14,247
Interest expense-capitalized leases 2,422 2,644
--------- ---------
Loss before income tax benefit (37,720) (21,368)
Income tax benefit (14,711) (8,547)
--------- ---------
Loss before extraordinary item (23,009) (12,821)
Extraordinary loss from early extinguishment of debt, net
of tax benefit of $0 and $843, respectively - (1,265)
--------- ---------
Net loss ($23,009) ($14,086)
========= =========
Weighted average common shares and common
share equivalents outstanding 101,111 101,688
========= =========
Per common share:
Loss before extraordinary item ($0.23) ($0.13)
Extraordinary loss from early extinguishment of debt, net
of tax benefit - (0.01)
--------- ---------
Net loss per common share ($0.23) ($0.14)
========= =========
See Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share data)
<CAPTION>
(Unaudited)
----------------------
April 2, April 3, January 1,
1995 1994 1995 (1)
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $24,958 $23,988 $173,264
Accounts receivable, net of allowance of
$3,377, $3,180 and $3,217, respectively 42,041 41,986 55,134
Refundable income taxes 4,044 - -
Inventories 1,179,813 1,095,461 1,004,282
Prepaid expenses 32,259 36,764 27,778
---------- ---------- ----------
TOTAL CURRENT ASSETS 1,283,115 1,198,199 1,260,458
Property and equipment:
Owned assets, net of accumulated depreciation of
$469,561, $420,345 and $456,589, respectively 586,461 572,957 594,772
Capitalized leases, net of accumulated amortization of
$76,777, $70,332 and $76,033, respectively 50,035 58,076 51,932
Other assets and deferred charges 21,149 27,033 19,740
---------- ---------- ----------
TOTAL ASSETS $1,940,760 $1,856,265 $1,926,902
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $229,000 $75,000 -
Accounts payable 564,430 563,197 $639,766
Accrued expenses 168,441 143,734 205,709
State and local sales taxes 28,555 28,605 61,668
Income taxes - 3,414 39,364
Current maturities of long-term debt 9,367 75,433 13,098
Current maturities of capitalized lease obligations 7,923 8,065 7,871
---------- ---------- ----------
TOTAL CURRENT LIABILITIES 1,007,716 897,448 967,476
Long-term debt 543,908 612,132 544,808
Capitalized lease obligations 71,843 79,941 73,615
Deferred income taxes 4,627 968 4,627
---------- ---------- ----------
TOTAL LIABILITIES 1,628,094 1,590,489 1,590,526
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' 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
400 shares, none issued
Common stock, $.50 par value, authorized 500,000 shares, issued
and outstanding 99,650, 99,388 and 99,818 shares, respectively 49,825 49,694 49,909
Additional paid-in capital 5,421 4,058 6,115
Deferred compensation (2,712) (876) (2,789)
Retained earnings 260,132 212,900 283,141
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY 312,666 265,776 336,376
---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,940,760 $1,856,265 $1,926,902
========== ========== ==========
(1) Derived from fiscal year ended January 1, 1995 audited financial
statements.
See Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
<CAPTION>
First Quarter Ended
-------------------
April 2, April 3,
-------------------
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($23,009) ($14,086)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 16,594 17,822
Loss on disposal of property and equipment 4 157
Write-off debt issuance cost - 90
Changes in assets and liabilities (net of disposition):
Accounts receivable, net 13,093 11,028
Inventories (175,531) (156,202)
Prepaid expenses (4,481) (6,866)
Accounts payable (75,336) (67,526)
Accrued expenses and state and local sales taxes (70,373) (74,663)
Income taxes (43,408) (51,500)
--------- ---------
NET CASH USED BY OPERATING ACTIVITIES (362,447) (341,746)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment - owned (5,740) (11,322)
Proceeds from the disposal of property and equipment 100 62
Other, net (1,861) (444)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (7,501) (11,704)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 229,000 75,000
Repayment of long-term debt (4,643) (20,951)
Repayment of capitalized lease obligations (1,756) (1,872)
Exercise of stock options and forfeiture of restricted stock, net (959) 169
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 221,642 52,346
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (148,306) (301,104)
CASH AND CASH EQUIVALENTS-BEGINNING OF PERIOD 173,264 325,092
--------- ---------
CASH AND CASH EQUIVALENTS-END OF PERIOD $24,958 $23,988
========= =========
See Notes to Consolidated Financial Statements.
</TABLE>
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<PAGE> 6
SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. The consolidated financial statements, except for the consolidated
balance sheet as of January 1, 1995, have been prepared by the
Company without audit.
In management's opinion, the information and amounts furnished in
this report reflect all adjustments (consisting of normal
recurring adjustments) considered necessary for the fair
presentation of the financial position and results of operations
for the interim periods presented. Certain prior period amounts
have been reclassified to conform to the current year's
presentation. These financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the
fiscal year ended January 1, 1995.
The Company has historically incurred a net loss for the first
quarter of the year due to the seasonality of its business. The
results of operations for the first quarter ended April 2, 1995
and April 3, 1994 are not necessarily indicative of the operating
results for the entire fiscal year.
B. The first quarters ended April 2, 1995 and April 3, 1994 each
contained 91 selling days.
C. The net loss per common share is computed by dividing the net loss
by the weighted average number of common shares and common share
equivalents outstanding.
D. Cash payments for interest for the first quarter ended April 2,
1995 and April 3, 1994 were $10.9 million and $11.4 million,
respectively. Cash payments for income taxes for the first
quarter ended April 2, 1995 and April 3, 1994 were $28.7 million
and $42.1 million, respectively. The Company considers all highly
liquid investments purchased as part of its daily cash management
activities to be cash equivalents. Such investments are generally
made for periods covering 1 to 30 days.
E. On June 8, 1994, the Company completed a $600 million Reducing
Revolving Credit Facility which replaced its existing $475
million Revolving Credit Facility and $122 million outstanding
under the existing Secured Term Loan. The maximum commitment
level for the new facility reduces $25 million annually until
reaching $475 million at December 31, 1998. The maximum commitment
level for the year ending December 30, 1995 is $575 million. The
$600 million Reducing Revolving Credit Facility extends the
maturity of the Company's working capital facility from December
31, 1995 to June 8, 1999, reduces the effective interest rate on
those borrowings to LIBOR + 1.0% from LIBOR + 1.5% (both rates
include a 3/8% facility fee on the committed amount), releases the
security interests held in connection with the prior facility and
provides for generally less restrictive covenants. The Reducing
Revolving Credit Facility includes a $400 million competitive bid
facility which allows the Company to solicit bids from its lenders
to borrow at interest rates below the contractual rate. Short-
term borrowings related to the Credit Facility were $229 million
as of April 2, 1995.
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<PAGE> 7
SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(continued)
On April 13, 1995, the Company amended the existing Reducing
Revolving Credit Facility to allow for increased operating
flexibility within certain financial covenants and the potential
for an increase in the applicable interest rate to LIBOR + 1.25%
from LIBOR + 1.00% should the Company's senior unsecured debt
rating decrease to BB- and Ba3 as rated by Standard & Poor's and
Moody's, respectively.
F. During the first quarter of fiscal 1994, the Company incurred an
extraordinary loss of $1.3 million, or $0.01 per share, related to
the early extinguishment of $17 million of high-coupon mortgages
with interest rates ranging between 10% and 12.5%.
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<page 8>
SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (UNAUDITED)
For comparative purposes, interim balance sheets are more meaningful
when compared to the balance sheets at the same point in time of the
prior year. Comparisons to balance sheets of the most recent fiscal
year end may not be meaningful due to the seasonal nature of the
Company's business.
RESULTS OF OPERATIONS
The nature of the Company's business is highly seasonal.
Historically, sales in the fourth quarter have been substantially
higher than sales achieved in each of the first three quarters of the
fiscal year. Thus expenses and, to a greater extent, operating income
vary greatly by quarter. Caution, therefore, is advised when
appraising results for a period shorter than a full year, or when
comparing any period other than to the same period of the previous
year.
FIRST QUARTER ENDED APRIL 2, 1995 VS. FIRST QUARTER ENDED
APRIL 3, 1994
NET SALES
Net sales for the first quarter of 1995 were $737.1 million compared
to $724.2 million last year, representing an increase of $12.9
million, or 1.8%. Comparable store sales decreased 3.3% for the first
quarter as compared to last year. The decrease was attributable to the
generally weak retail environment experienced throughout the first quarter,
a shift in the Company's promotional calendar, and to a lesser extent, Easter
falling later than in the prior year. The sales mix between jewelry and
hardlines in the quarter was essentially unchanged from the same
quarter in the prior year. At the end of the first quarter, Service
Merchandise was operating a total of 408 catalog stores, a net
increase of 18 stores from a year ago.
GROSS MARGIN
The gross margin for the first quarter of fiscal 1995, including
buying and occupancy expense, was $169.3 million, or 23.0% of net
sales, as compared with $166.6 million, or 23.0% of net sales, a year
ago. Merchandise margin rates, before buying and occupancy expense,
for both jewelry and hardlines increased as compared to last year.
Hardlines margins strengthened to a greater degree than jewelry. This
improvement in the overall merchandise margin rate was offset by the
increased occupancy costs associated with the 18 net stores opened
over the past year and an increase in transportation costs.
-8-
<PAGE> 9
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Unaudited) (continued)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $174.2 million, or
23.6% of net sales, for the first quarter of 1995 versus $155.2
million, or 21.4% of net sales, in the year-earlier quarter.
Developments contributing to the higher expense percentage included
planned increases in store payroll, costs associated with operating
new stores opened since the first quarter of 1994 and the decline in
comparable store sales. The Company also experienced, to a lesser
extent, higher advertising costs from a year ago due to increases in
postal rates and paper costs.
INTEREST EXPENSE
Interest expense for the first quarter of 1995 was $17.0 million as
compared to the first quarter of 1994 of $16.9 million. Interest
expense for the quarter remained flat in part because an increase in
short-term rates, in general, affecting the Company's variable rate
debt was offset by the negotiation of interest rate reductions on the
Reducing Revolving Credit Facility and lower capital lease interest
payments.
TAXES ON INCOME
The Company recognized an income tax benefit of $14.7 million and $8.5
million for the first quarter ended April 2, 1995 and April 3, 1994,
respectively. The effective tax rates for the quarter ended April 2,
1995 and April 3, 1994 were 39% and 40%, respectively. For the fiscal
year ended January 1, 1995 the effective income tax rate was 39%.
EXTRAORDINARY ITEMS
In the first quarter of fiscal 1994, the Company incurred an
extraordinary loss of $1.3 million, or $0.01 per share, related to the
early extinguishment of $17 million of high coupon mortgages with
interest rates ranging between 10% and 12.5%.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $275.4 million at the end of the first quarter
of 1995, a decrease of 8.4% from working capital at April 3, 1994 of
$300.8 million which primarily resulted from an increase in short-term
borrowings resulting from the refinancing of the Secured Term Loan offset
by increased inventory levels. The current ratio at both April 2, 1995
and April 3, 1994 was 1.3:1.
-9-
<PAGE> 10
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Unaudited) (continued)
Working capital requirements fluctuate significantly during the year
due to the seasonal nature of the retail catalog store business.
These requirements are financed through a combination of internally
generated cash flow from operating activities and short-term seasonal
borrowings. At April 2, 1995, short-term borrowings totaled $229.0
million ($328.4 million available for borrowing) compared to $75.0
million ($359.1 million available for borrowing) at April 3, 1994, an
increase of $154.0 million. The increase is primarily attributable to
the refinancing of the Secured Term Loan referred to below as well as
increased inventory levels.
On June 8, 1994, the Company completed a $600 million Reducing
Revolving Credit Facility which replaced its existing $475 million
Revolving Credit Facility and $122 million outstanding under the
existing Secured Term Loan. The maximum commitment level for the new
facility reduces $25 million annually until reaching $475 million at
December 31, 1998. The maximum commitment level for the year ending
December 30, 1995 is $575 million. The $600 million Reducing Revolving
Credit Facility extends the maturity of the Company's working capital
facility from December 31, 1995 to June 8, 1999, reduces the effective
interest rate on those borrowings to LIBOR + 1.0% from LIBOR + 1.5%
(both rates include a 3/8% facility fee on the committed amount),
releases the security interests held in connection with the prior
facility and provides for generally less restrictive covenants. The
Reducing Revolving Credit Facility includes a $400 million competitive
bid facility which allows the Company to solicit bids from its lenders
to borrow at interest rates below the contractual rate. Short-term
borrowings related to the Credit Facility were $229 million as of
April 2, 1995.
On April 13, 1995, the Company amended the existing Reducing Revolving
Credit Facility to allow for increased operating flexibility within
certain financial covenants and the potential for an increase in the
applicable interest rate to LIBOR + 1.25% from LIBOR + 1.00% should
the Company's senior unsecured debt rating decrease to BB- and Ba3 as
rated by Standard & Poor's and Moody's, respectively.
Total long-term debt, including current maturities and capitalized
leases, decreased to $633.0 million at April 2, 1995 from $775.6
million at April 3, 1994. The decrease in total long-term debt was
primarily the result of the prepayment of the $122 million Term Loan,
the early extinguishment of a $10.1 million mortgage and $13.7
million of scheduled payments for mortgages, Industrial Revenue
Bond's and capitalized lease obligations.
Additions to owned property and equipment were $5.7 million for the
first quarter ended April 2, 1995 compared to $11.3 million for the
same quarter last year. The Company opened a net of 2 catalog
stores during the first quarter ended April 2, 1995, and the Company
plans for the new store growth rate to be approximately 3% for fiscal
1995. In fiscal 1994, the Company opened a net of 15 catalog stores.
The Company expects to incur capital expenditures of approximately $60
million during fiscal 1995 and plans to fund these expenditures
through a combination of cash flow from operations and borrowings
under the Reducing Revolving Credit Facility.
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<PAGE> 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in the Rights of the Company's Security Holders
On April 13, 1995, the Company amended the existing
Reducing Revolving Credit Facility to allow for increased
operating flexibility within certain financial covenants
and the potential for an increase in the applicable
interest rate to LIBOR + 1.25% from LIBOR + 1.00% should
the Company's senior unsecured debt rating decrease to BB-
and Ba3 as rated by Standard & Poor's and Moody's,
respectively.
Item 3. Defaults by the Company on Its Senior Securities
Not applicable.
Item 4. Results of Votes of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
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<PAGE> 12
PART II - OTHER INFORMATION (continued)
Item 6. Exhibits and Reports on Form 8-K
6(a) Exhibits filed with this Form 10-Q
Exhibit No. Under Item
601 of Regulation S-K Brief Description
---------------------- -----------------
4.1 Amendment No. 1 to Credit
Agreement effective April 13, 1995
among Service Merchandise Company,
Inc., various Banks and Chemical
Bank as Administrative Agent.
11 Statement re:
Computation of Net Loss
Per Common Share for
the First Quarter Ended
April 2, 1995 and
April 3, 1994.
27 Financial Data Schedule
for the First Quarter ended
April 2, 1995.
6(b) Reports on Form 8-K
There were no reports on Form 8-K during the first quarter
ended April 2, 1995.
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<PAGE> 13
SIGNATURES
Pursuant to the requirements 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.
Date: May 12, 1995 /s/ Raymond Zimmerman
----------------------
Raymond Zimmerman
Chairman of the Board
(Chief Executive Officer)
Date: May 12, 1995 /s/ Gary M. Witkin
----------------------
Gary M. Witkin
President
(Chief Operating Officer)
Date: May 12, 1995 /s/ S. Cusano
----------------------
S. Cusano
Vice President and Chief
Financial Officer (Chief
Financial Officer)
(Chief Accounting Officer)
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<PAGE> 14
EXHIBIT 4.1
FIRST AMENDMENT
---------------
FIRST AMENDMENT (this "Amendment"), dated as of
April 13, 1995, among SERVICE MERCHANDISE COMPANY, INC.
(the "Borrower"), the various lending institutions party to
the Credit Agreement referred to below (the "Banks"), and
CHEMICAL BANK, as Administrative Agent (in such capacity,
the "Agent"). All capitalized terms used herein and not
otherwise defined shall have the respective meanings
provided such terms in the Credit Agreement referred to
below.
W I T N E S S E T H :
---------------------
WHEREAS, the Borrower, the Banks and the Agent
are parties to a Credit Agreement, dated as of June 8, 1994
(as amended, modified or supplemented through the date
hereof, the "Credit Agreement"); and
WHEREAS, the parties hereto wish to amend the
Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed that as of the First
Amendment Effective Date (as defined below):
1. The figure $120,000,000 in clause (i) of
Section 2.01(b) of the Credit Agreement is hereby changed
to $150,000,000.
2. The reference to Category 3 in Section
3.01(a)(ii) of the Credit Agreement as the highest Category
is hereby changed to refer to Category 4 as the highest
Category. The table setting out the Facility Fee
percentages for Categories 1-3 in Section 3.01(a) of the
Credit Agreement is hereby deleted and the following table
is inserted in lieu thereof:
Category Facility Fee
-------- ------------
Category 4 1/5 of 1%
Category 3 1/4 of 1%
Category 2 3/8 of 1%
Category 1 3/8 of 1%
<PAGE> 15
3. The third and last entry under the heading
"Fiscal Quarter Ended" and its corresponding Minimum
Consolidated Net Worth of $360,000,000 under the heading
"Amount" in Section 9.05 of the Credit Agreement is hereby
deleted and the following two entries are inserted in lieu
thereof:
Fiscal Quarter
Ended Amount
-------------- ------
Fiscal quarters ending
closest to December 31, 1995,
March 31, 1996,
June 30, 1996 and
September 30, 1996 $340,000,000
Fiscal quarters ending
closest to December 31, 1996,
and thereafter $360,000,000
4. The two entries under the heading "Fiscal
Quarter Ended" and their corresponding ratios under the
heading "Ratio" in Section 9.06 of the Credit Agreement are
hereby deleted and the following five entries are inserted
in lieu thereof:
Fiscal Quarter
Ended Ratio
-------------- -----
Fiscal quarters ending
closest to June 30, 1994,
September 30, 1994,
December 31, 1994, and
March 31, 1995 2.00:1
Fiscal quarters ending
closest to June 30, 1995 and
September 30, 1995 1.5:1
<PAGE> 16
Fiscal quarters ending
closest to December 31, 1995,
March 31, 1996, June 30, 1996
and September 30, 1996 1.75:1
Fiscal quarters ending
closest to December 31, 1996,
March 31, 1997, June 30, 1997
and September 30, 1997 2.00:1
Fiscal quarters ending
closest to December 31, 1997,
and thereafter 2.25:1
5. The first sentence of Section 9.08 of the
Credit Agreement is hereby deleted and the following
sentence is inserted in lieu thereof:
9.08 Consolidated Debt to Total Capitalization
Ratio. The Borrower will not permit the ratio of (i)
Consolidated Debt to (ii) Total Capitalization at any time
during any period beginning on the last day of any fiscal
quarter set forth below and ending on the day before the
last day of the next fiscal quarter set forth below to be
greater than the ratio set forth opposite such date below:
6. The first sentence of Section 9.09 of the
Credit Agreement is hereby deleted and the following
sentence is inserted in lieu thereof:
9.09 Consolidated Senior Debt to Total
Capitalization Ratio. The Borrower will not permit the
Ratio of (i) Consolidated Senior Debt to (ii) Total
Capitalization at any time during any period beginning on
the last day of any fiscal quarter set forth below and
ending on the day before the last day in the next fiscal
quarter set forth below to be greater than the ratio set
forth opposite such date below:
7. The figure $120,000,000 in Section 9.16 of
the Credit Agreement is hereby changed to $150,000,000.
8. The definitions "Category 2" and "Category
3" in Section 11.01 of the Credit Agreement shall become
"Category 3" and "Category 4", respectively. The
definition "Category 1" in Section 11.01 of the Credit
Agreement is hereby deleted and the following two
definitions are inserted in lieu thereof:
<PAGE> 17
"Category 1" shall mean the Category which is
applicable when the Borrower then has received with respect
to its senior unsecured indebtedness either (i) a rating of
BB- or lower by S&P or (ii) a rating of Ba3 or lower by
Moody's. Promptly following such time that the Borrower
has received a Category 1 rating, the chief financial
officer of the Borrower shall deliver an officer's
certificate to the Administrative Agent certifying the
existence of such rating.
"Category 2" shall mean the Category which is
applicable when the Borrower then has received with respect
to its senior unsecured indebtedness either (i) a rating of
BB+ or BB by S&P or (ii) a rating of Ba1 or Ba2 by Moody's.
Promptly following such time that the Borrower has received
a Category 2 rating, the chief financial officer of the
Borrower shall deliver an officer's certificate to the
Administrative Agent certifying the existence of such
rating.
9. The definition "Category" in Section 11.01
of the Credit Agreement is hereby deleted and the following
definition is inserted in lieu thereof:
"Category" shall mean and include each of
Category 1, Category 2, Category 3 and Category 4.
10. The reference to the rate 5/8 of 1% per
annum in clause (i) of the definition "Applicable
Eurodollar Margin" in Section 11.01 is hereby changed to
refer to the rate 7/8 of 1% per annum. The reference to
Category 3 in the definition "Applicable Eurodollar Margin"
in clause (ii) of Section 11.01 as the highest Category is
hereby changed to refer to Category 4 as the highest
Category.
The table setting out the Applicable Eurodollar
Margin for Categories 1-3 in the definition "Applicable
Eurodollar Margin" in Section 11.01 of the Credit Agreement
is hereby deleted and the following table is inserted in
lieu thereof:
Applicable
Category Eurodollar Margin
---------- -----------------
Category 4 3/10 of 1%
Category 3 1/2 of 1%
Category 2 5/8 of 1%
Category 1 7/8 of 1%
11. In order to induce the undersigned Banks to
enter into this Amendment, the Borrower hereby represents
<PAGE> 18
and warrants that (x) no Default or Event of Default exists
on the First Amendment Effective Date (as defined below)
both before and after giving effect to this Amendment and
(y) all of the representations and warranties contained in
the Credit Agreement shall be true and correct in all
material respects as of the First Amendment Effective Date
both before and after giving effect to this Amendment, with
the same effect as though such representations and
warranties had been made on and as of the First Amendment
Effective Date (it being understood that any representation
or warranty made as of a specified date shall be required
to be true and correct in all material respects only as of
such specific date).
12. This Amendment is limited as specified and
shall not constitute a modification, acceptance or waiver
of any other provision of the Credit Agreement or any other
Credit Document.
13. This Amendment may be executed in any number
of counterparts and by the different parties hereto on
separate counterparts, each of which counterparts when
executed and delivered shall be an original, but all of
which shall together constitute one and the same
instrument. A complete set of counterparts shall be lodged
with the Borrower and the Agent.
14. This Amendment and the rights and obligations
of the parties hereunder shall be construed in accordance
with and governed by the law of the State of New York.
15. This Amendment shall become effective on the
date (the "First Amendment Effective Date") when the
Borrower and the Required Banks (i) shall have signed a
counterpart hereof (whether the same or different
counterparts) and (ii) shall have delivered (including by
way of telecopier) the same to the Agent at the Notice
Office.
16. From and after the First Amendment Effective
Date all references in the Credit Agreement and the other
Credit Documents to the Credit Agreement shall be deemed to
be references to the Credit Agreement as modified hereby.
<PAGE> 19
IN WITNESS WHEREOF, each of the parties hereto
has caused a counterpart of this Amendment to be duly
executed and delivered as of the date first above written.
Address:
- -------
7100 Service Merchandise Drive SERVICE MERCHANDISE COMPANY,
Brentwood, TN 37027 INC.
Attn: Michael E. Hogrefe
Telephone: (615) 660-6000 By /s/ Michael E. Hogrefe
Telecopy: (615) 660-3667 -------------------------
Title:
270 Park Avenue CHEMICAL BANK
10th Floor Individually, and as
New York, New York 10017 Administrative Agent
Attn: Christopher C. Wardell
Telephone: (212) 270-2053 By /s/ Lisa D. Benitez
Telecopy: (212) 270-3860 ------------------------
Title: LISA D. BENITEZ
VICE PRESIDENT
With a copy to:
Chemical Securities Inc.
10 South LaSalle Street
Suite 2300
Chicago, Illinois 60603
Attn: Jennifer H. McGowan
Telephone: (312) 807-4035
Telecopy: (312) 443-1964
<PAGE> 20
One Ravinia Drive ABN AMRO BANK N.V.,
Suite 1200 ATLANTA AGENCY
Atlanta, GA 30346-2103
Attn: Mr. Adam Greene
Telephone: (404) 399-7378 By_____________________
Telecopy: (404) 395-9188 Title:
By_____________________
Title:
245 Park Avenue ARAB BANKING CORPORATION
New York, NY 10167
Attn: Ms. Louise Bilbro
Telephone: (212) 850-0665 By____________________
Telecopy: (212) 599-8385 Title:
400 Perimeter Center Terrace THE FIRST NATIONAL BANK OF
Suite 745 BOSTON
Atlanta, GA 30346
Attn: Mr. William Purinton
Telephone: (404) 393-4676 By /s/ William C. Purinton
Telecopy: (404) 393-4166 -------------------------
Title: Vice President
430 Park Avenue THE BANK OF MONTREAL
New York, NY 10022
Attn: Ms. Lisa Megeaski
Telephone: (212) 605-1441 By /s/ Lisa Megeaski
Telecopy: (212) 605-1455 ---------------------
Title: Director
One Wall Street THE BANK OF NEW YORK
22nd Floor
New York, NY 10286
Attn: Mr. Greg Batson By /s/ Gregory L. Batson
-----------------------
Title: GREGORY L. BATSON
VICE PRESIDENT
Telephone: (212) 635-6898
Telecopy: (212) 635-6434
<PAGE> 21
National Banking Department THE BANK OF TOKYO
1251 6th Avenue, 12th Floor TRUST COMPANY
New York, NY 10116
Attn: Amanda S. Ryan
By /s/ Amanda S. Ryan
----------------------
Title: AMANDA S. RYAN
Vice President
Telephone: (212) 782-4318
Telecopy: (212) 782-6440
787 7th Avenue BANQUE PARIBAS
New York, NY 10019
Attn: Ms. Ann Pifer
Telephone: (212) 841-2383 By_______________________
Telecopy: (212) 841-2333 Title:
By_______________________
Title:
Two Paces West CANADIAN IMPERIAL BANK
2727 Paces Ferry Road OF COMMERCE
Atlanta, GA 30339
Attn: Ms. Kathryn W. Sax
Telephone: (404) 319-4903 By /s/ Kathryn W. Sax
Telecopy: (404) 319-4954 ---------------------------
Title: Authorized Signatory
New York Branch THE DAIWA BANK, LIMITED
75 Rockefeller Plaza
New York, NY 10019
Attn: Mr. Prescott Vann
Telephone: (212) 554-7043 By /s/ Prescott Vann
Telecopy: (212) 554-7210 ------------------------
Title: Vice President
75 Wall Street DRESDNER BANK AG,
New York, NY 10005 NEW YORK BRANCH
Attn: Mr. Andrew P. Nesi
Telephone: (212) 574-0100 By /s/ Andrew P. Nesi
Telecopy: (212) 574-0129 ------------------------
Title: Vice President
By /s/ John Padilla
------------------------
Title: Assistant Treasurer
<PAGE> 22
Marquis One Tower THE FUJI BANK, LTD.
Suite 2100
245 Peachtree Center Ave., NE
Atlanta, GA 30303-1208
Attn: Mr. Brett Johnson
Telephone: (404) 653-2100 By_______________________
Telecopy: (404) 653-2119 Title:
Two World Trade Center THE HOKKAIDO TAKUSHOKU
99th Floor BANK, LTD.
New York, NY 10048
Attn: Mr. Scott D. Winston
Telephone: (212) 912-6914 By /s/ Kathleen M. Sweeney
Telecopy: (212) 466-6079 ------------------------
Title: Sr. Vice President and
Manager
245 Park Avenue THE INDUSTRIAL BANK OF JAPAN,
New York, NY 10167 LIMITED - NEW YORK BRANCH
Attn: Mr. Jim Welch
Telephone: (212) 309-6577 By /s/ Junri Oda
Telecopy: (212) 682-2870 ------------------------
Title: SVP & Senior Manager
245 Peachtree Center Ave, NE LTCB TRUST COMPANY
Suite 2801
Atlanta, GA 30303
Attn: Ms. Becky Sedler
Telephone: (404) 659-7210 By /s/ John J. Sullivan
Telecopy: (404) 658-9751 ------------------------
Title: Executive Vice President
140 Broadway MIDLAND BANK PLC
New York, NY 10005
Attn: Ms. Gina Sidorsky
Telephone: (212) 658-2750 By________________________
Telecopy: (212) 658-2586 Title:
<PAGE> 23
499 Thornall Street MIDLANTIC NATIONAL BANK
9th Floor
Edison, NJ 08818
Attn: Ms. Lynn Conover
Telephone: (908) 321-2140 By_______________________
Telecopy: (908) 321-2144 Title:
225 Liberty Street THE MITSUBISHI BANK,
39th Floor LIMITED - NEW YORK BRANCH
Two World Financial Center
New York, NY 10281
Attn: Mr. William Brennan
Telephone: (212) 667-2905 By /s/ Hiroaki Fuchida
Telecopy: (212) 667-3562 -----------------------
Title: Hiroaki Fuchida
Vice President,
Manager
520 Madison Avenue THE MITSUBISHI TRUST AND
25th Floor BANKING CORPORATION
New York, NY 10022
Attn: Ms. Pat Loret de Mola
Telephone: (212) 891-8454 By________________________
Telecopy: (212) 755-2349 Title:
(212) 486-0970
One NationsBank Plaza M-5 NATIONSBANK OF NORTH
311 Union Street CAROLINA, N.A.
Nashville, TN 37239-1697
Attn: Ms. Kimberly Dupuy
Telephone: (615) 749-3174 By /s/ Kimberly R. Dupuy
Telecopy: (615) 749-4640 -----------------------
Title: Assistant Vice President
245 Park Avenue THE NIPPON CREDIT BANK, LTD.
30th Floor
New York, NY 10167
Attn: Mr. Yasuhide Yahiro
Telephone: (212) 984-1217 By /s/ Yasuhide Yahiro
Telecopy: (212) 490-3895 -----------------------
Title: Assistant Vice President
<PAGE> 24
Marquis One Tower THE SAKURA BANK, LIMITED
Suite 2703
245 Peachtree Center Ave., N.E.
Atlanta, GA 30303
Attn: Mr. Chad Zimmerman
Telephone: (404) 521-3111 By /s/ Hiroyasu Imanishi
Telecopy: (404) 521-1133 ------------------------
Title: Vice President &
Sr. Manager
Georgia Pacific Center THE SUMITOMO BANK, LIMITED
Suite 3210 ATLANTA AGENCY
133 Peachtree Street, N.E.
Atlanta, GA 30303
Attn: Mr. Gary Franke
Telephone: (404) 526-8511 By /s/ M. Shinbo
Telecopy: (404) 521-1187 ------------------------
Title: M. Shinbo, General
Manager
55 East 52nd Street THE TOKAI BANK, LTD.
New York, NY 10055 NEW YORK BRANCH
Attn: Ms. Haruyo Niki
Telephone: (212) 339-1123 By /s/ Akira Tsunekawa
Telecopy: (212) 754-2170 ------------------------
Title: Akira Tsunekawa
Joint General
Manager
One Detroit Center COMERICA BANK
500 Woodward Avenue, MC 3281
9th Floor
Detroit, MI 48226
Attn: Mr. Bradley A. Terryn
Telephone: (313) 222-6231 By /s/ Bradley A. Terryn
Telecopy: (313) 222-3330 -----------------------
Title: Vice President
<PAGE> 25
640 5th Avenue BANK OF IRELAND, CAYMAN BRANCH
New York, NY 10019
Attn: Mr. Roger Burns
Telephone: (212) 397-1712 By /s/ Roger Burns
Telecopy: (212) 586-7752 -----------------------
Title: V.P.
1211 Avenue of the Americas WESTDEUTSCHE LANDESBANK
New York, NY 10036 GIROZENTRALE, NEW YORK
Attn: Mr. Alan Bookspan AND CAYMAN ISLAND BRANCHES
Telephone: (212) 852-6023 By_______________________
Telecopy: (212) 852-6307 Title:
By_______________________
Title:
<PAGE> 26
<TABLE>
EXHIBIT 11
SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
Computation of Net Loss Per Common Share (Unaudited)
(In thousands, except per share data)
<CAPTION>
First Quarter Ended
------------------------
April 2 April 3
1995 1994
--------- ---------
<S> <C> <C>
Primary
- -------
Loss before extraordinary item ($23,009) ($12,821)
Extraordinary loss from early extinguishment of debt,
net of tax benefit of $0 and $843, respectively - (1,265)
--------- ---------
Net loss ($23,009) ($14,086)
========= =========
Shares:
Weighted average common shares outstanding 98,874 98,482
Weighted average shares of restricted
stock outstanding 856 892
Additional shares assuming exercise of stock options 1,381 2,314
Weighted average common shares and common --------- ---------
share equivalents outstanding - primary 101,111 101,688
========= =========
Loss before extraordinary item ($0.23) ($0.13)
Extraordinary loss from early extinguishment of debt,
net of tax benefit - (0.01)
--------- ---------
Primary net loss per common share ($0.23) ($0.14)
========= =========
Assuming Full Dilution
- ----------------------
Loss before extraordinary item ($23,009) ($12,821)
Extraordinary loss from early extinguishment of debt,
net of tax benefit of $0 and $843, respectively - (1,265)
--------- ---------
Net loss ($23,009) ($14,086)
========= =========
Shares:
Weighted average common shares outstanding 98,874 98,482
Weighted average shares of restricted
stock outstanding 856 892
Additional shares assuming exercise of stock options 1,407 2,322
Weighted average common shares and common --------- ---------
share equivalents outstanding - fully diluted 101,137 101,696
========= =========
Loss before extraordinary item ($0.23) ($0.13)
Extraordinary loss from early extinguishment of debt,
net of tax benefit - (0.01)
--------- ---------
Fully diluted net loss per common share ($0.23) ($0.14)
========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Service
Merchandise Co., Inc. Form 10-Q for the quarterly period ended April 2, 1995 and
is qualified in its entirety by reference to such financial statements and
accompanying notes to the financial statements detailed in Part I of the Form
10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-2-1995
<PERIOD-END> APR-2-1995
<CASH> 24,958
<SECURITIES> 0
<RECEIVABLES> 45,418
<ALLOWANCES> 3,377
<INVENTORY> 1,179,813
<CURRENT-ASSETS> 1,283,115
<PP&E> 1,182,834
<DEPRECIATION> 546,338
<TOTAL-ASSETS> 1,940,760
<CURRENT-LIABILITIES> 1,007,716
<BONDS> 615,751
<COMMON> 99,650<F1>
0
0
<OTHER-SE> 262,841
<TOTAL-LIABILITY-AND-EQUITY> 1,940,760
<SALES> 737,129
<TOTAL-REVENUES> 737,129
<CGS> 567,845
<TOTAL-COSTS> 567,845
<OTHER-EXPENSES> 190,042<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,962
<INCOME-PRETAX> (37,720)
<INCOME-TAX> (14,711)
<INCOME-CONTINUING> (23,009)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,009)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
<FN>
<F1>Amount represents the number of shares of $.50 par value common stock issued
and outstanding.
<F2>Amount includes I) depreciation and amortization and II) selling, general and
administrative expenses.
</FN>
</TABLE>
