<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 July 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 July 30, 1995, there were 99,661,243 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)
- Three and Six Periods Ended July 2, 1995 and
July 3, 1994 . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets - July 2, 1995
(Unaudited), July 3, 1994 (Unaudited) and January
1, 1995 . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows (Unaudited)
- Six Periods Ended July 2, 1995 and July 3, 1994 5
Notes to Consolidated Financial Statements
(Unaudited) . . . . . . . . . . . . . . . . . . . 6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited) . 8-12
PART II - OTHER INFORMATION
Other Information . . . . . . . . . . . . . . . . 13-14
Exhibits . . . . . . . . . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . 16
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<PAGE> 3
<TABLE>
SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
<CAPTION>
Three Periods Ended Six Periods Ended
---------------------- ------------------------
July 2, July 3, July 2, July 3,
--------- --------- ----------- -----------
1995 1994 1995 1994
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $864,875 $845,934 $1,602,004 $1,570,143
Costs and expenses:
Cost of merchandise sold and buying and occupancy expenses 650,571 645,702 1,218,416 1,203,313
--------- --------- ----------- -----------
Gross margin after cost of merchandise sold and buying and
occupancy expenses 214,304 200,232 383,588 366,830
Selling, general and administrative expenses 177,287 168,538 351,457 323,751
Depreciation and amortization 16,011 15,900 31,883 31,762
--------- --------- ----------- -----------
Earnings before interest and income taxes 21,006 15,794 248 11,317
Interest expense-debt 17,242 15,336 31,782 29,583
Interest expense-capitalized leases 2,372 2,582 4,794 5,226
--------- --------- ----------- -----------
Earnings (loss) before income taxes (benefit) 1,392 (2,124) (36,328) (23,492)
Income taxes (benefit) 543 (850) (14,168) (9,397)
--------- --------- ----------- -----------
Earnings (loss) before extraordinary item 849 (1,274) (22,160) (14,095)
Extraordinary loss from early extinguishment of debt, net
of tax benefit of $0, $2,708, $0 and $3,551, respectively - (4,061) - (5,326)
--------- --------- ----------- -----------
Net earnings (loss) $849 ($5,335) ($22,160) ($19,421)
========= ========= =========== ===========
Weighted average common shares and common
share equivalents outstanding 101,032 101,377 101,074 101,534
========= ========= =========== ===========
Per common share:
Earnings (loss) before extraordinary item $0.01 ($0.01) ($0.22) ($0.14)
Extraordinary loss from early extinguishment of debt, net
of tax benefit - (0.04) - (0.05)
--------- --------- ----------- -----------
Net earnings (loss) per common share $0.01 ($0.05) ($0.22) ($0.19)
========= ========= =========== ===========
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)
----------------------
July 2, July 3, January 1,
1995 1994 1995 (1)
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $23,565 $19,497 $173,264
Accounts receivable, net of allowance of
$3,213, $3,002 and $3,217, respectively 45,361 41,350 55,134
Refundable income taxes 4,688 2,083 -
Inventories 1,125,064 1,081,806 1,004,282
Prepaid expenses 36,342 29,657 27,778
----------- ----------- -----------
TOTAL CURRENT ASSETS 1,235,020 1,174,393 1,260,458
Property and Equipment:
Owned assets, net of accumulated depreciation of
$481,310, $432,138 and $456,589, respectively 579,374 568,891 594,772
Capitalized leases, net of accumulated amortization of
$77,720, $72,109 and $76,033, respectively 48,095 55,855 51,932
Other assets and deferred charges 23,811 20,991 19,740
----------- ----------- -----------
TOTAL ASSETS $1,886,300 $1,820,130 $1,926,902
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $315,300 $281,600 -
Accounts payable 421,243 462,519 $639,766
Accrued expenses 170,674 138,399 205,709
State and local sales taxes 30,138 32,334 61,668
Income taxes - - 39,364
Current maturities of long-term debt 1,714 13,097 13,098
Current maturities of capitalized lease obligations 7,395 7,863 7,871
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 946,464 935,812 967,476
Long-term debt 551,340 545,307 544,808
Capitalized lease obligations 70,124 77,593 73,615
Deferred income taxes 4,627 968 4,627
----------- ----------- -----------
TOTAL LIABILITIES 1,572,555 1,559,680 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 99,654, 99,352 and 99,818 shares, respectively 49,827 49,676 49,909
Additional paid-in capital 5,432 3,781 6,115
Deferred compensation (2,495) (572) (2,789)
Retained earnings 260,981 207,565 283,141
----------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY 313,745 260,450 336,376
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,886,300 $1,820,130 $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>
Six Periods Ended
-----------------------
July 2, July 3,
-----------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($22,160) ($19,421)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 33,291 34,909
Loss on disposal of property and equipment 72 1,772
Write-off debt issuance cost - 6,830
Changes in assets and liabilities (net of disposition):
Accounts receivable, net 9,773 11,664
Inventories (120,782) (142,547)
Prepaid expenses (8,564) 241
Accounts payable (218,523) (168,204)
Accrued expenses and state and local sales taxes (66,559) (76,187)
Income taxes (44,052) (56,997)
--------- ---------
NET CASH USED BY OPERATING ACTIVITIES (437,504) (407,940)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment - owned (12,874) (22,965)
Proceeds from the disposal of property and equipment 148 135
Other assets, net (4,869) (654)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (17,595) (23,484)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in debt issuance costs (105) (1,763)
Proceeds from short-term borrowings 315,300 281,600
Repayment of long-term debt (4,877) (150,125)
Repayment of capitalized lease obligations (3,967) (4,163)
Exercise of stock options and forfeiture of restricted stock, net (951) 280
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 305,400 125,829
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (149,699) (305,595)
CASH AND CASH EQUIVALENTS-BEGINNING OF PERIOD 173,264 325,092
--------- ---------
CASH AND CASH EQUIVALENTS-END OF PERIOD $23,565 $19,497
========= =========
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
half of the year due to the seasonality of its business. The
results of operations for the second quarter ended July 2, 1995
and July 3, 1994 are not necessarily indicative of the operating
results for the entire fiscal year.
B. The second quarter of fiscal 1995 ended July 2, 1995 and contained
90 selling days versus the second quarter of fiscal 1994 which
ended July 3, 1994 and contained 91 selling days. Year to date
ended July 2, 1995 contained 181 selling days versus year to date
ended July 3, 1994 which contained 182 selling days.
C. The net earnings (loss) per common share is computed by dividing
the net earnings (loss) by the weighted average number of common
shares and common share equivalents outstanding.
D. Cash payments for interest for the six periods ended July 2, 1995
and July 3, 1994 were $35.4 million and $33.0 million,
respectively. Cash payments for income taxes for the six periods
ended July 2, 1995 and July 3, 1994 were $29.9 million and $44.0
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. Currently, the
maximum commitment level is $575 million. The $600 million
Reducing Revolving Credit Facility extended the maturity of the
Company's working capital facility from December 31, 1995 to June
8, 1999, reduced 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), released the security
interests held in connection with the prior facility and provided
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 $315.3 million and
$281.6 million as of July 2, 1995 and July 3, 1994, respectively.
-6-
<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. During the first half of 1995, the
effective interest rate was LIBOR + 1.00%. A copy of the
amendment was filed as an Exhibit to the Company's Form 10-Q for
the quarter ended April 2, 1995.
F. During the first half of fiscal 1994, the Company incurred an
extraordinary loss of $5.3 million, or $0.05 per share. This
extraordinary loss included a $1.3 million charge in the first
quarter of 1994 resulting from the early extinguishment of $17
million of high-coupon mortgages with interest rates ranging
between 10% and 12.5% and a non-cash extraordinary loss of $4.0
million, or $0.04 per share, related to a write-off of deferred
finance charges, in the second quarter of 1994, associated with
the refinancing of the Company's $475 million Revolving Credit
Facility and $122 million Term Loan (See Note E).
-7-
<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.
SECOND QUARTER ENDED JULY 2, 1995 VS. SECOND QUARTER ENDED
JULY 3, 1994
NET SALES
Net sales for the second quarter of 1995 were $864.9 million compared
to $845.9 million for the comparable quarter of 1994, representing an
increase of $19.0 million or 2.2%. Comparable store sales decreased
0.3% in the quarter as compared to the same quarter a year ago. Sales
were weak early in the quarter, however the pace of sales improved as
the quarter progressed. Jewelry sales increased at a rate greater
than that experienced in hardlines. At the end of the second quarter,
Service Merchandise was operating 405 stores, a net increase of 14
stores from a year ago.
GROSS MARGIN
Gross margin, after buying and occupancy expenses, for the second
quarter of 1995 was $214.3 million, or 24.8% of net sales, compared to
$200.2 million, or 23.7% of net sales, a year ago. The improved gross
margin rate is attributable to improved pricing and promotion of
higher margin categories of merchandise. The shift in sales mix
towards jewelry also contributed to the increase in the gross margin
rate.
-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 for the second quarter
were $177.3 million, or 20.5% of net sales, versus $168.5 million, or
19.9% of net sales, in the comparable quarter a year ago. Factors
contributing to the higher expense percentage were increased
advertising costs relating to a net of four additional publications in
the quarter as well as generally higher paper and postage costs.
Additionally, store payroll increased due to the Company's customer
service initiatives begun late in the second quarter of 1994 and
expenses associated with operating the 14 net stores opened since the
second quarter of 1994 contributed to the increase in expense for the
quarter.
INTEREST EXPENSE
Interest expense increased to $19.6 million in the quarter as compared
to $17.9 million in the second quarter of 1994. The increase in
interest expense is primarily attributable to higher variable interest
rates in general and higher borrowings under the Company's credit
facilities.
TAXES ON INCOME
The Company recognized an income tax expense of $0.5 million and an
income tax benefit of $0.9 million for the second quarter ended July
2, 1995 and July 3, 1994, respectively. The effective tax rates for
the quarter ended July 2, 1995 and July 3, 1994 were 39% and 40%,
respectively. For the fiscal year ended January 1, 1995 the effective
income tax rate was 39%.
SIX PERIODS ENDED JULY 2, 1995 VS. SIX PERIODS ENDED JULY 3, 1994
NET SALES
Net sales for the first half of 1995 were $1,602.0 million, an
increase of 2.0% from the first half of 1994. Comparable store sales
decreased 1.7% in the first half of 1995 as compared to the first half
of 1994. The decrease in comparable store sales was attributable to a
generally weak retail environment. The comparable store sales trend
improved somewhat in the second quarter in both jewelry and hardlines.
-9-
<PAGE> 10
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Unaudited) (continued)
GROSS MARGIN
Gross margin, after taking into account buying and occupancy expenses,
for the six periods ended July 2, 1995 was $383.6 million, or 23.9% of
net sales, as compared to $366.8 million, or 23.4% of net sales, for
the same period a year ago. Merchandise margin rates for both jewelry
and hardlines increased at similar rates over last year due to improved
pricing and promotion of higher margin categories and merchandise. This
improvement in the overall merchandise margin rate was partially offset
by the increased occupancy costs associated with the 14 net stores opened
over the past year and an increase in transportation costs. The shift in
sales mix towards jewelry during the second quarter also contributed to
the higher gross margin rate.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $351.5
million, or 21.9% of net sales, for the six periods ended July 2, 1995
as compared to $323.8 million, or 20.6% of net sales, for the same
sales period a year ago. Developments contributing to the higher
expense percentage included planned increases in store payroll
relating to the Company's customer service initiatives combined with
expenses associated with operating the 14 net stores opened since the
second quarter of 1994 and the decline in comparable store sales. To
a lesser extent, higher advertising costs were incurred due to a net
of six additional publications in the first half of the year and
increases in postal rates and paper costs.
INTEREST EXPENSE
Interest expense for the first half of 1995 was $36.6 million as
compared to $34.8 million for the same period a year ago. Higher
variable interest rates in general and, to a lesser extent, higher
borrowings under the Company's credit facilities precipitated the
additional expense.
TAXES ON INCOME
The Company recognized an income tax benefit of $14.2 million for the
six periods ended July 2, 1995 compared to an income tax benefit of $9.4
million for the same period a year ago. The estimated annual effective
tax rates for the six periods ended July 2, 1995 and July 3, 1994 were
39% and 40%, respectively. For the fiscal year ended January 1, 1995
the effective income tax rate was 39%.
EXTRAORDINARY ITEMS
During the first half of fiscal 1994, the Company incurred an
extraordinary loss of $5.3 million, or $0.05 per share. This
extraordinary loss included a $1.3 million charge in the first quarter
of 1994 resulting from the early extinguishment of $17 million of
high-coupon mortgages with interest rates ranging between 10% and 12.5%
and a non-cash extraordinary loss of $4.0 million, or $0.04 per share,
related to a write-off of deferred finance charges, in the second quarter
of 1994, associated with the refinancing of the Company's $475 million
Revolving Credit Facility and $122 million Term Loan.
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<PAGE> 11
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Unaudited) (continued)
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $288.6 million at July 2, 1995, an increase
of 21.0% from working capital at July 3, 1994 of $238.6 million which
primarily resulted from increased inventory levels and the refinancing
of a $7.8 million mortgage effecting a reclassification from short-term
to long-term debt. The current ratio at both July 2, 1995 and
July 3, 1994 was 1.3:1.
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 July 2, 1995, short-term borrowings totaled $315.3
million ($244.1 million available for borrowing) compared to $281.6
million ($276.6 million available for borrowing) at July 3, 1994, an
increase of $33.7 million. The increase is primarily attributable to
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. Currently, the maximum commitment level is $575
million. The $600 million Reducing Revolving Credit Facility extended
the maturity of the Company's working capital facility from December
31, 1995 to June 8, 1999, reduced 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), released the security
interests held in connection with the prior facility and provided 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 $315.3 million and $281.6 million as of July
2, 1995 and July 3, 1994, respectively.
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. During the
first half of 1995, the effective interest rate was LIBOR + 1.00%. A
copy of the amendment was filed as an Exhibit to the Company's Form 10-
Q for the quarter ended April 2, 1995.
Total debt, including current maturities and capitalized leases,
decreased to $630.6 million at July 2, 1995 from $643.9 million at
July 3, 1994. The decrease in total long-term debt was the result of
scheduled payments for capitalized lease obligations, mortgages and
Industrial Revenue Bonds.
-11-
<PAGE> 12
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Unaudited) (continued)
Additions to owned property and equipment were $12.9 million for the
six periods ended July 2, 1995 compared to $23.0 million for the same
period last year. The Company operated 405 catalog stores as of July
2, 1995, a net increase of 14 stores from a year ago. Company plans
call for a new store growth rate of approximately 3% for 1995, some of
which will replace existing stores which will be closed. The Company
has closed three stores since the beginning of the fiscal year. The
increased pace of store closures in the second quarter as compared to
last year is due to the Company's allowance of lease expirations on
several stores where the return on investment was not deemed adequate.
The Company has reviewed underperforming and marginally performing
stores and as a result, has adopted a slightly more aggressive store
closure policy in an effort to increase returns on store investment.
The Company expects to incur capital expenditures of approximately $50
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.
-12-
<PAGE> 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in the Rights of the Company's Security Holders
Not applicable.
Item 3. Defaults by the Company on Its Senior Securities
Not applicable.
Item 4. Results of Votes of Security Holders
At the Company's Annual Meeting of Shareholders which was held on
April 19, 1995, the following four proposals were approved:
1) The election of three Class III directors to serve concurrent
terms of three years until their successors are duly elected
and qualified. The persons nominated for election to the Board
of Directors received the number of votes shown opposite their
respective names:
For Against Withheld Non-Vote
---------- --------- -------- --------
Raymond Zimmerman 83,436,973 1,346,097 612,072 -
Harold Roitenberg 83,712,255 932,267 750,620 -
Gary M. Witkin 82,715,095 1,955,010 725,037 -
2) The proposal to amend the Company's Amended and Restated 1989
Employee Stock Incentive Plan (the "Stock Incentive Plan") to
increase the number of shares issuable thereunder, to extend the
term during which awards may be made under the Stock Incentive
Plan and to limit the amount of stock-based awards that may be
granted to any single officer or key employee under that plan.
The proposal received the following votes:
For Against Withheld Non-Vote
---------- --------- -------- ----------
69,403,270 1,990,509 835,617 21,165,746
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<PAGE> 14
PART II - OTHER INFORMATION (continued)
3) The proposal to approve for purposes of federal tax laws the
Company's Executive Management Incentive Program. The proposal
received the following votes:
For Against Withheld Non-Vote
---------- ---------- -------- --------
69,699,203 14,941,948 699,370 54,621
4) Selection of Deloitte & Touche LLP as the Company's independent
public accountants for fiscal year 1995. The proposal received
the following votes:
For Against Withheld Non-Vote
---------- --------- -------- --------
84,534,665 433,840 426,637 -
Current Directors whose terms have not expired and who were
therefore not up for re-election:
Year Term to Expire In
----------------------
Richard P. Crane, Jr. 1996
Charles V. Moore 1996
R. Maynard Holt 1997
James E. Poole 1997
Item 5. Other Information
Not applicable.
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<PAGE> 15
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 Items
601 of Regulation S-K Brief Description
----------------------- -----------------
11 Statement re
Computation of Earnings (Loss)
Per Common Share for
the Three Periods Ended
and Six Periods Ended
July 2, 1995 and July 3, 1994
27 Financial Data Schedule
for the Six Periods Ended
July 2, 1995
6(b) Reports on Form 8-K
There were no reports on Form 8-K during the three periods
ended July 2, 1995.
-15-
<PAGE> 16
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: August 10, 1995 /s/ Raymond Zimmerman
------------------------
Raymond Zimmerman
Chairman of the Board
(Chief Executive Officer)
Date: August 10, 1995 /s/ Gary M. Witkin
------------------------
Gary M. Witkin
President
(Chief Operating Officer)
Date: August 10, 1995 /s/ S. Cusano
------------------------
S. Cusano
Vice President and Chief Financial
Officer (Chief Financial Officer)
(Chief Accounting Officer)
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<PAGE> 17
<TABLE>
EXHIBIT 11
SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
Computation of Net Earnings (Loss) Per Common Share (Unaudited)
(In thousands, except per share data)
<CAPTION>
Three Six
------------------ ---------------------
Periods Ended Periods Ended
------------------ ---------------------
July 2 July 3 July 2 July 3
1995 1994 1995 1994
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Primary
-------
Earnings (loss) before extraordinary item $849 ($1,274) ($22,160) ($14,095)
Extraordinary loss from early extinguishment of debt,
net of tax benefit of $0, $2,708, $0 and $3,551, respectively - (4,061) - (5,326)
------- -------- --------- ---------
Net earnings (loss) $849 ($5,335) ($22,160) ($19,421)
======= ======== ========= =========
Shares:
Weighted average common shares outstanding 99,125 98,540 98,982 98,511
Weighted average shares of restricted
stock outstanding 528 829 715 858
Additional shares assuming exercise of stock options 1,379 2,008 1,377 2,165
Weighted average common shares and common -------- -------- --------- ---------
share equivalents outstanding - primary 101,032 101,377 101,074 101,534
======== ======== ========= =========
Earnings (loss) before extraordinary item $0.01 ($0.01) ($0.22) ($0.14)
Extraordinary loss from early extinguishment of debt,
net of tax benefit - (0.04) - (0.05)
-------- -------- --------- ---------
Primary net earnings (loss) per common share $0.01 ($0.05) ($0.22) ($0.19)
======== ======== ========= =========
Assuming Full Dilution
----------------------
Earnings (loss) before extraordinary item $849 ($1,274) ($22,160) ($14,095)
Extraordinary loss from early extinguishment of debt,
net of tax benefit of $0, $2,708, $0 and $3,551, respectively - (4,061) - (5,326)
-------- -------- --------- ---------
Net earnings (loss) $849 ($5,335) ($22,160) ($19,421)
======== ======== ========= =========
Shares:
Weighted average common shares outstanding 99,125 98,540 98,982 98,511
Weighted average shares of restricted
stock outstanding 528 829 715 858
Additional shares assuming exercise of stock options 1,414 2,015 1,405 2,169
Weighted average common shares and common -------- -------- --------- ---------
share equivalents outstanding - fully diluted 101,067 101,384 101,102 101,538
======== ======== ========= =========
Earnings (loss) before extraordinary item $0.01 ($0.01) ($0.22) ($0.14)
Extraordinary loss from early extinguishment of debt,
net of tax benefit - (0.04) - (0.05)
-------- -------- --------- ---------
Fully diluted net earnings (loss) per common share $0.01 ($0.05) ($0.22) ($0.19)
======== ======== ========= =========
</TABLE>
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Service
Merchandise Company, Inc. Form 10-Q for the Six Periods Ended
July 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-2-1995
<PERIOD-END> JUL-2-1995
<CASH> 23,565
<SECURITIES> 0
<RECEIVABLES> 48,574
<ALLOWANCES> 3,213
<INVENTORY> 1,125,064
<CURRENT-ASSETS> 1,235,020
<PP&E> 1,186,499
<DEPRECIATION> 559,030
<TOTAL-ASSETS> 1,886,300
<CURRENT-LIABILITIES> 946,464
<BONDS> 621,464
<COMMON> 99,654<F1>
0
0
<OTHER-SE> 263,918
<TOTAL-LIABILITY-AND-EQUITY> 1,886,300
<SALES> 1,602,004
<TOTAL-REVENUES> 1,602,004
<CGS> 1,218,416
<TOTAL-COSTS> 1,218,416
<OTHER-EXPENSES> 383,340<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,576
<INCOME-PRETAX> (36,328)
<INCOME-TAX> (14,168)
<INCOME-CONTINUING> (22,160)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,160)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
<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>
