SERVICE MERCHANDISE CO INC
8-K, 1998-12-15
MISC GENERAL MERCHANDISE STORES
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549



                                    FORM 8-K

                                 CURRENT REPORT
                       Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

                Date of Report (Date of earliest event reported):
                     December 15, 1998 (December 15, 1998)



                        SERVICE MERCHANDISE COMPANY, INC.
- --------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)



<TABLE>
<S>                                                    <C>                            <C>
                 Tennessee                                      1-9223                     62-0816060
- ----------------------------------------------         ----------------------         -------------------
(State or other jurisdiction of incorporation)        (Commission File Number)         (I.R.S. Employer
                                                                                      Identification No.)
</TABLE>


  7100 Service Merchandise Boulevard, Brentwood, TN                37027
- -----------------------------------------------------         ----------------
     (Address of principal executive offices)                    (Zip Code)



       Registrant's telephone number, including area code: (615) 660-6000



                                 Not Applicable
- --------------------------------------------------------------------------------
          (Former name or former address, if changed since last report)




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Item 5.           Other Events
- --------------------------------------------------------------------------------


         See attached press release.










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                                   SIGNATURES


         Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.


                                       SERVICE MERCHANDISE COMPANY, INC.


Date: December 15, 1998                By: /s/ C. Steven Moore      
                                           -----------------------------
                                              C. Steven Moore
                                              Vice President























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                                  EXHIBIT INDEX



   No.                                      Exhibit
- ---------          -------------------------------------------------------------
   99              Press Release







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                                   EXHIBIT 99

                                  PRESS RELEASE


The following is the text of a press release issued by Service Merchandise 
Company, Inc. on December 15, 1998.


                           SERVICE MERCHANDISE ISSUES
                      SECOND OF THREE HOLIDAY SALES UPDATES

             COMPANY REPORTS DECREASED SALES AND EXERCISES INTEREST
                   GRACE PERIOD ON 9% SUBORDINATED DEBENTURES

NASHVILLE, TENNESSEE (December 15, 1998) - Service Merchandise Company, Inc.
(NYSE: SME) today issued its second of three holiday sales updates one day
earlier than scheduled. The third update is planned to be issued on December
30th. The update presented in this release covers the period from September 28,
1998 to December 13, 1998.

For this period, which represents the Company's fourth-quarter-to-date reporting
period, comp store sales were down on a percentage basis in the mid-teens.
Jewelry comps were up in the mid-single-digit range while hardline comps were
down in the low twenty-percent range. This year there is one additional shopping
day between Thanksgiving and Christmas compared to last year.

Gross margin dollars were down on an absolute basis in the high-single-digit
percentage range due to lower overall sales, even though the gross margin rate
was up as margin rates increased in hardlines and as the sales mix included a
higher percentage of jewelry.

Additionally, Service Merchandise announced today that it has not made the
approximately $13.5 million interest payment due December 15, 1998, on its 9%
Subordinated Debentures. The related Indenture provides for a thirty-day grace
period to pay the interest, and during that period the Company will evaluate
available alternatives.

The Company has obtained a waiver to its credit agreement from its bank group
waiving any cross default under the credit agreement with respect to the failure
to make the December 15, 1998 interest payment. The waiver expires in 30 days.
The Company expects internally generated cash flow to be its primary source of
liquidity to fund its operations through the end of the year and is exploring
alternatives to fund its operations in 1999.

Service Merchandise fine jewelry, gift and home stores offer selections of name
brand products and value pricing. The Brentwood, Tenn.-based company employs
approximately 25,000 associates and operates 359 stores in 34 states.



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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The Company's liquidity, capital resources and results of operations may be
affected from time to time by a number of factors and risks, including, but not
limited to, continuing availability of trade credit; terms with vendors and
floor planning arrangements; the Company's use of substantial financial leverage
and the potential impact of such leverage on the Company's ability to execute
its operating strategies; to withstand significant economic downturns and to
repay its indebtedness; the Company's ability to fund, and its success in
implementing plans regarding the Company's alternative store formats; the
ability to fund and execute a strategic repositioning of the Company;
competitive pressures from other retailers, including specialized retailers and
discount stores which may affect the nature and viability of the Company's
business strategy; trends in the economy as a whole, which may affect consumer
confidence and consumer demand for the types of goods sold by the Company;
availability, costs and terms of financing, including the risk of rising
interest rates; the ability to maintain gross profit margins; the seasonal
nature of the Company's business and the ability of the Company to predict
consumer demand as a whole, as well as demand for specific goods; the ability of
the Company to attract and retain customers by executing the Company's
remerchandising strategy and improving customer service; costs associated with
the shipping, handling and control of inventory and the Company's ability to
optimize its supply chain; potential adverse publicity; availability and cost of
management and labor employed; real estate occupancy and development costs,
including the substantial fixed investment costs associated with opening,
maintaining or closing a Company store and the ability to effect conversions to
new technological systems, including becoming year 2000 compliant.

This report includes, and other reports and statements issued on behalf of the
Company, may include certain forward-looking statements in reliance on the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995. Any
such forward-looking statements are subject to a number of risks and
uncertainties, including but not limited to the factors identified above. Actual
results may differ materially from those anticipated in any such forward-looking
statements. The Company undertakes no obligation to update or revise any such
forward-looking statements.





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