<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Plan Year Ended December 31, 1997
Commission File No: 1-9223
SERVICE MERCHANDISE COMPANY, INC.
SAVINGS AND INVESTMENT PLAN
SERVICE MERCHANDISE COMPANY, INC.
P.O. Box 24600, Nashville, Tennessee 37202-4600
(mailing address)
7100 Service Merchandise Drive, Brentwood, Tennessee 37027
(address of principal executive office)
<PAGE>
SERVICE MERCHANDISE COMPANY, INC.
SAVINGS AND INVESTMENT PLAN
<TABLE>
TABLE OF CONTENTS
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996:
Statements of Net Assets Available for Benefits 4
Statements of Changes in Net Assets Available for Benefits 5
Notes to Financial Statements 6 - 13
Signatures 14
SUPPLEMENTAL SCHEDULES AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1997:
Schedule I - Line 27a - Schedule of Assets Held for Investment Purposes 15
Schedule II - Line 27d - Schedule of Reportable Transactions 16
CONSENT:
Indepentent Auditor's Consent (Exhibit 23) 17
NOTE: Other schedules not included have been omitted as they are not applicable.
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Employee Benefits Committee
Service Merchandise Company, Inc.
Savings and Investment Plan
Nashville, Tennessee
We have audited the accompanying statements of net assets available for benefits
of the Service Merchandise Company, Inc. Savings and Investment Plan as of
December 31, 1997 and 1996, and the related statements of changes in net assets
available for benefits for the years then ended. These financial statements are
the responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan as of December 31,
1997 and 1996, and the changes in net assets available for benefits for the
years then ended in conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of (1) assets
held for investment purposes and (2) reportable transactions are presented for
the purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The supplemental schedules
are the responsibility of the Plan's management. Such supplemental schedules
have been subjected to the auditing procedures applied in our audit of the basic
1997 financial statements and, in our opinion, are fairly stated in all material
respects when considered in relation to the basic financial statements taken as
a whole.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Nashville, Tennessee
May 29, 1998
<PAGE>
SERVICE MERCHANDISE COMPANY, INC.
SAVINGS AND INVESTMENT PLAN
<TABLE>
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1997 AND 1996
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS:
Investments, at fair value:
Shares of registered investment companies $ 70,327,287 $ 64,198,400
Shares of Service Merchandise Company, Inc. common
stock 5,584,762 10,652,422
Participant notes receivable 4,593,367 4,652,118
------------ ------------
Total investments 80,505,416 79,502,940
------------ ------------
Receivables:
Participants' contributions 156,353 180,750
Employer's contributions 23,934 41,119
Interest 7,246 7,072
------------ ------------
Total receivables 187,533 228,941
------------ ------------
Total assets 80,692,949 79,731,881
------------ ------------
LIABILITIES:
Payable to participants 139,961 296,728
------------ ------------
Total liabilities 139,961 296,728
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $ 80,552,988 $ 79,435,153
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
-4-
<PAGE>
SERVICE MERCHANDISE COMPANY, INC.
SAVINGS AND INVESTMENT PLAN
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 1997 AND 1996
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996
<S> <C> <C>
Additions to net assets attributed to:
Investment income:
Net (depreciation) appreciation in fair value of investments $ (464,883) $ 959,439
Dividends and interest 6,206,632 4,283,561
------------- ------------
5,741,749 5,243,000
------------- ------------
Contributions:
Participants' 8,410,519 9,199,404
Employer's 1,216,103 2,085,164
------------- ------------
9,626,622 11,284,568
------------- ------------
Total additions 15,368,371 16,527,568
------------- ------------
Deductions from net assets attributed to:
Benefits paid to participants 14,079,225 11,544,952
Administrative expenses 171,311 -
------------- ------------
Total deductions 14,250,536 11,544,952
------------- ------------
Net increase 1,117,835 4,982,616
Net assets available for benefits:
Beginning of year 79,435,153 74,452,537
------------- ------------
End of year $ 80,552,988 $ 79,435,153
============= ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
-5-
<PAGE>
SERVICE MERCHANDISE COMPANY, INC.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
1. DESCRIPTION OF PLAN
The Service Merchandise Company, Inc. Savings and Investment Plan (the
"Plan") is a qualified defined contribution plan under section 401(a) and
401(k) of the Internal Revenue Code covering eligible associates of
Service Merchandise Company, Inc. (the "Company"). The Plan is subject to
the provisions of the Employee Retirement Income Security Act of 1974
("ERISA"), as amended.
The following brief description of the Plan is intended to give a general
summary of its principal provisions. Participants should refer to the Plan
agreement for a more complete description of the Plan's provisions.
Eligibility - All associates are eligible upon completing one year of
qualified service, as defined in the Plan agreement, and reaching a
minimum age of 21.
Contributions - Associates may contribute through salary deferral from 1%
to 15% of their annual pretax salary up to the maximum amount allowed by
law. The Plan provides for a matching contribution to be made by the
Company based on the ratio of "net profit," as defined, to net sales of
the Company for the fiscal year corresponding with the previous Plan year.
"Net profit" is defined as the Company's net profit 1) excluding any
additional interest and expenses attributable to the Company's 1989
recapitalization and 2) excluding the provision for income taxes and any
extraordinary items.
Net Profit as a Percentage of Company
Sales for Fiscal Year Corresponding Employer Match
with Previous Plan Year Percentage
------------------------------------- --------------
0% 0%
Greater than 0% but less than 1% 10%
1% or more but less than 2% 20%
2% or more but less than 3% 30%
3% or more but less than 4% 40%
4% or more 50%
The Company's maximum matching contribution is limited to the first 6% of
a participant's compensation, as defined in the Plan. In accordance with
the aforementioned calculation, the Company's matching contribution was
20% and 30% for the 1997 and 1996 Plan years, respectively.
Vesting - Participants are immediately 100% vested in all associate and
Company contributions.
Participant accounts - Each participant's account is credited with the
participant's contribution and the Company's matching contribution. Plan
earnings are allocated based on the participant's pro-rata share of each
investment fund.
-6-
<PAGE>
Investment options - Under the Plan, participants have a variety of
investment options available. The mutual fund options are proprietary
products of T. Rowe Price, the investment manager and Plan trustee.
Participants may invest their account in minimum whole increments of 1% in
any of the following investment options:
Service Merchandise Company, Inc. Common Stock consisting exclusively
of the Company's registered common stock.
New Income Fund consisting primarily of income-producing
investment-grade debt securities.
U.S. Treasury Fund consisting exclusively of short-term U.S.
government-backed securities, primarily U.S. Treasuries.
Equity Income Fund consisting primarily of dividend-paying common
stocks, with emphasis on established companies, with prospects for both
increasing dividends and capital appreciation.
Capital Appreciation Fund consisting of investments in common stocks
believed by T. Rowe Price to be undervalued in relation to various
measures, such as assets or earnings, and also investments in fixed
income and other securities.
Spectrum Growth Fund consisting of investments in primarily T. Rowe
Price domestic stock funds and also in a T. Rowe Price foreign stock
fund.
Balanced Fund consisting of approximately 60% in common stocks and the
balance in fixed income securities and cash reserves.
Earnings from the funds, consisting primarily of interest and dividends,
are automatically reinvested in their respective fund.
At December 31, 1997, there were a total of 5,563 participants in the
Plan. Employee participation, by fund, at December 31, 1997 was as
follows:
Service Merchandise Company, Inc.
Common Stock 2,460
New Income Fund 1,834
U.S. Treasury Fund 2,374
Equity Income Fund 2,927
Capital Appreciation Fund 1,492
Spectrum Growth Fund 1,978
Balanced Fund 1,220
Loans to participants - Participants may borrow from their accounts a
minimum of $1,000 up to a maximum equal to the lessor of $50,000 or 50% of
their account balances. Loan transactions are treated as a transfer to
(from) the investment fund and (from) to the Participant Loan Account. The
loans are secured by the participant's account and bear interest at a rate
on the date of loan origination which is comparable to the interest rate
charged by lending institutions for loans made under similar circumstances
as determined by the Plan trustee. Interest rates on outstanding
participant loans range from 7.0% to 12.5% at December 31, 1997 and 1996.
Principal and interest are paid ratably through weekly payroll deductions.
Loan repayment periods generally range from one to five years. At December
31, 1997, 1,850 participants had loans outstanding from the Plan.
-7-
<PAGE>
Payment of benefits - Upon termination of employment prior to retirement,
all participant balances less than $3,500 are distributed in a lump-sum
amount. Balances $3,500 and above may, at the participant's option, be
distributed in a lump-sum or held until retirement. Upon becoming
permanently and totally disabled or upon normal retirement, the
participant has the option of receiving his or her balance as a lump-sum,
in installments, or as a combination. Distributions upon the death of a
participant are paid in a lump-sum amount.
As of December 31, 1997 and 1996, net assets available for benefits
included $1,579,553 and $1,162,262, respectively, due to participants who
have withdrawn from participation in the Plan.
2. SUMMARY OF ACCOUNTING POLICIES
Basis of accounting - The Plan's financial statements are prepared under
the accrual method of accounting.
Investments are stated at fair value. Shares of registered investment
companies are valued at quoted market prices which represent the net asset
value of shares held by the Plan at year-end. The Company's common stock
is valued at its quoted market price. Participant notes receivable are
valued at cost which approximates fair value.
Payments of benefits - Benefits are recorded when paid.
Net (depreciation) appreciation in fair value of investments includes both
realized and unrealized (depreciation) appreciation.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
-8-
<PAGE>
<TABLE>
3. FUND INFORMATION
The net assets available for benefits as of December 31, 1997 and 1996 and changes in net assets available for
benefits for the years ended December 31, 1997 and 1996 by investment option/fund are as follows:
NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Service
Merchandise
Company, Inc. New U.S. Equity Capital Spectrum
Common Income Treasury Income Appreciation Growth Balanced Participant
Stock* Fund* Fund* Fund* Fund* Fund* Fund* Loans* Total
---------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at
fair value:
Shares of registered
investment companies $ - $10,022,754 $14,764,122 $26,117,730 $5,610,575 $8,975,453 $4,836,653 $ - $70,327,287
Shares of the Service
Merchandise Company,
Inc. common stock 5,584,762 - - - - - - - 5,584,762
Participant notes
receivable - - - - - - - 4,593,367 4,593,367
---------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- -----------
Total investments 5,584,762 10,022,754 14,764,122 26,117,730 5,610,575 8,975,453 4,836,653 4,593,367 80,505,416
Receivables:
Participants'
contributions 20,248 16,072 25,049 43,345 15,246 24,898 11,495 - 156,353
Employer's
contributions 3,077 2,623 4,180 6,438 2,204 3,685 1,727 - 23,934
Interest 1,024 835 1,717 1,997 458 902 313 - 7,246
---------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- -----------
Total receivables 24,349 19,530 30,946 51,780 17,908 29,485 13,535 - 187,533
---------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- -----------
Total assets 5,609,111 10,042,284 14,795,068 26,169,510 5,628,483 9,004,938 4,850,188 4,593,367 80,692,949
---------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- -----------
LIABILITIES:
Payable to participants 13,493 9,843 9,998 56,461 13,463 13,447 23,256 - 139,961
---------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- -----------
Total liabilities 13,493 9,843 9,998 56,461 13,463 13,447 23,256 - 139,961
---------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- -----------
NET ASSETS AVAILABLE FOR
BENEFITS $5,595,618 $10,032,441 $14,785,070 $26,113,049 $5,615,020 $8,991,491 $4,826,932 $4,593,367 $80,552,988
========== =========== =========== =========== ========== ========== ========== ========== ===========
* Investments representing five percent or more of net assets available for benefits.
</TABLE>
-9-
<PAGE>
<TABLE>
NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Service
Merchandise
Company, Inc. New U.S. Equity Capital Spectrum
Common Income Treasury Income Appreciation Growth Balanced Participant
Stock* Fund* Fund* Fund* Fund* Fund* Fund* Loans* Total
----------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at
fair value:
Shares of registered
investment companies $ - $10,645,427 $16,459,504 $20,498,115 $5,064,041 $7,408,299 $4,123,014 $ - $64,198,400
Shares of Service
Merchandise Company,
Inc. common stock 10,652,422 - - - - - - - 10,652,422
Participant notes
receivable - - - - - - - 4,652,118 4,652,118
----------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- -----------
Total investments 10,652,422 10,645,427 16,459,504 20,498,115 5,064,041 7,408,299 4,123,014 4,652,118 79,502,940
Receivables:
Participants'
contributions 29,931 20,766 32,661 42,028 16,940 26,059 12,365 - 180,750
Employer's
contributions 6,952 5,056 7,986 9,249 3,649 5,424 2,803 - 41,119
Interest 1,163 982 1,886 1,630 398 761 252 - 7,072
----------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- -----------
Total receivables 38,046 26,804 42,533 52,907 20,987 32,244 15,420 - 228,941
----------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- -----------
Total assets 10,690,468 10,672,231 16,502,037 20,551,022 5,085,028 7,440,543 4,138,434 4,652,118 79,731,881
----------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- -----------
LIABILITIES:
Payable to participants 18,214 23,004 26,308 135,926 23,018 47,198 23,060 - 296,728
----------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- -----------
Total liabilities 18,214 23,004 26,308 135,926 23,018 47,198 23,060 - 296,728
----------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- -----------
NET ASSETS AVAILABLE
FOR BENEFITS $10,672,254 $10,649,227 $16,475,729 $20,415,096 $5,062,010 $7,393,345 $4,115,374 $4,652,118 $79,435,153
=========== =========== =========== =========== ========== ========== ========== ========== ===========
*Investments representing five percent or more of net assets available for benefits.
</TABLE>
-10-
<PAGE>
<TABLE>
CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Service
Merchandise
Company, Inc. New U.S. Equity Capital Spectrum
Common Income Treasury Income Appreciation Growth Balanced Participant
Stock Fund Fund Fund Fund Fund Fund Loans Total
------------- ----------- ------------ ----------- ------------ ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets
attributed to:
Investment income:
Net (depreciation)
appreciation in
fair value of
investments $(5,101,424)$ 188,146 $ - $ 3,315,199 $ 125,516 $ 412,555 $ 595,125 $ - $ (464,883)
Dividends and
interest 59,055 744,756 854,227 2,684,733 712,905 946,129 204,827 - 6,206,632
------------ ----------- ----------- ------------ ----------- ----------- ----------- ---------- -----------
(5,042,369) 932,902 854,227 5,999,932 838,421 1,358,684 799,952 - 5,741,749
Contributions:
Participants' 1,146,759 899,213 1,420,841 2,194,460 825,522 1,319,504 604,220 - 8,410,519
Employer's 172,161 135,332 217,847 307,546 113,916 182,211 87,090 - 1,216,103
------------ ----------- ----------- ------------ ----------- ----------- ----------- ---------- -----------
1,318,920 1,034,545 1,638,688 2,502,006 939,438 1,501,715 691,310 - 9,626,622
------------ ----------- ----------- ------------ ----------- ----------- ----------- ---------- -----------
Total additions (3,723,449) 1,967,447 2,492,915 8,501,938 1,777,859 2,860,399 1,491,262 - 15,368,371
------------ ----------- ----------- ------------ ----------- ----------- ----------- ---------- -----------
Deductions from net
assets attributed to:
Benefits paid to
participants 1,067,767 1,835,741 2,936,024 3,860,137 1,181,907 1,549,403 826,613 821,633 14,079,225
Administrative
expenses 23,942 22,810 42,797 38,522 13,033 19,500 10,707 - 171,311
------------ ----------- ------------ ------------ ----------- ----------- ----------- ---------- -----------
Total deductions 1,091,709 1,858,551 2,978,821 3,898,659 1,194,940 1,568,903 837,320 821,633 14,250,536
------------ ----------- ------------ ------------ ----------- ----------- ----------- ---------- -----------
Net increase (decrease)
prior to interfund
transfers (4,815,158) 108,896 (485,906) 4,603,279 582,919 1,291,496 653,942 (821,633) 1,117,835
Interfund transfers (261,478) (725,682) (1,204,753) 1,094,674 (29,909) 306,650 57,616 762,882 -
------------ ----------- ------------ ------------ ----------- ----------- ----------- ---------- -----------
Net increase (decrease) (5,076,636) (616,786) (1,690,659) 5,697,953 553,010 1,598,146 711,558 (58,751) 1,117,835
------------ ----------- ------------ ------------ ----------- ----------- ----------- ---------- -----------
Net assets available
for benefits:
Beginning of year 10,672,254 10,649,227 16,475,729 20,415,096 5,062,010 7,393,345 4,115,374 4,652,118 79,435,153
----------- ------------ ------------ ------------ ----------- ----------- ----------- ---------- -----------
End of year $ 5,595,618 $10,032,441 $14,785,070 $26,113,049 $5,615,020 $8,991,491 $4,826,932 $4,593,367 $80,552,988
=========== ============ ============ ============ =========== =========== ========== ========== ============
</TABLE>
-11-
<PAGE>
<TABLE>
CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Service
Merchandise
Company, Inc. New U.S. Equity Capital Spectrum
Common Income Treasury Income Appreciation Growth Balanced Participant
Stock Fund Fund Fund Fund Fund Fund Loans Total
------------ ------------ ------------ ----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets
attributed to:
Investment income:
Net (depreciation)
appreciation in
fair value of
investments $(1,857,713) $ (495,459) $ - $ 2,112,458 $ 222,001 $ 643,728 $ 334,424 $ - $ 959,439
Dividends and interest 67,997 767,536 884,473 1,355,088 488,497 539,917 180,053 - 4,283,561
------------ ------------ ------------ ----------- ---------- ---------- ---------- ---------- -----------
(1,789,716) 272,077 884,473 3,467,546 710,498 1,183,645 514,477 - 5,243,000
------------ ------------ ------------ ----------- ---------- ---------- ---------- ---------- -----------
Contributions:
Participants' 1,678,170 1,112,283 1,754,562 2,002,591 851,086 1,165,768 634,944 - 9,199,404
Employer's 389,071 261,368 414,128 446,818 180,879 252,374 140,526 - 2,085,164
------------ ------------ ------------ ----------- ---------- ---------- ---------- ---------- -----------
2,067,241 1,373,651 2,168,690 2,449,409 1,031,965 1,418,142 775,470 - 11,284,568
------------ ------------ ------------ ----------- ---------- ---------- ---------- ---------- -----------
Total additions 277,525 1,645,728 3,053,163 5,916,955 1,742,463 2,601,787 1,289,947 - 16,527,568
------------ ------------ ------------ ----------- ---------- ---------- ---------- ---------- -----------
Deductions from net
assets attributed to:
Benefits paid to
participants 1,839,846 1,625,131 2,590,727 2,345,021 765,105 1,215,832 558,071 605,219 11,544,952
------------ ------------ ------------ ----------- ---------- ---------- ---------- ---------- -----------
Total deductions 1,839,846 1,625,131 2,590,727 2,345,021 765,105 1,215,832 558,071 605,219 11,544,952
------------ ------------ ------------ ----------- ---------- ---------- ---------- ---------- -----------
Net increase (decrease)
prior to interfund
transfers (1,562,321) 20,597 462,436 3,571,934 977,358 1,385,955 731,876 (605,219) 4,982,616
Interfund transfers (1,119,124) (1,040,851) (1,012,895) 1,045,351 119,816 1,118,714 199,177 689,812 -
------------ ------------ ------------ ----------- ---------- ---------- ---------- ---------- -----------
Net increase (decrease) (2,681,445) (1,020,254) (550,459) 4,617,285 1,097,174 2,504,669 931,053 84,593 4,982,616
------------ ------------ ------------ ----------- ---------- ---------- ---------- ---------- -----------
Net assets available for
benefits:
Beginning of year 13,353,699 11,669,481 17,026,188 15,797,811 3,964,836 4,888,676 3,184,321 4,567,525 74,452,537
------------ ------------ ------------ ----------- ---------- ---------- ---------- ---------- -----------
End of year $10,672,254 $10,649,227 $16,475,729 $20,415,096 $5,062,010 $7,393,345 $4,115,374 $4,652,118 $79,435,153
============ ============ ============ =========== ========== ========== ========== ========== ===========
</TABLE>
-12-
<PAGE>
4. RELATED PARTY TRANSACTIONS
The Plan is administered by the Employee Benefit Plan Committee appointed
by the Company's Board of Directors. T. Rowe Price of Baltimore, Maryland
serves as trustee and investment manager. For the year ended December 31,
1996, trustee fees were paid directly by the Company. For the year ended
December 31, 1997, the Employee Benefits Committee approved trustee fees
to be paid directly by Plan participants and, therefore, these fees
qualify as party-in-interest. Trustee fees paid by Plan participants
amounted to $171,311 for the year ended December 31, 1997.
5. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of
Plan termination, Plan assets will be distributed, if permissible, or
transferred for the benefit of participants in relation to their vested
account balances.
6. TAX STATUS
The Plan has received a determination letter indicating it is qualified
under Section 401(a) and meets the additional requirements of section
401(k) of the Internal Revenue Code. The Plan is exempt from federal
income tax under Section 501(a) of the Internal Revenue Code.
******
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Committee has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SERVICE MERCHANDISE
COMPANY, INC.
Date: June 24, 1998 /s/ C. Steven Moore
--------------------------------
C. Steven Moore
Committee Member
Date: June 24, 1998 /s/ S. Cusano
--------------------------------
S. Cusano
Committee Member
Date: June 24, 1998 /s/ Gary M. Witkin
--------------------------------
Gary M. Witkin
Committee Member
Date: June 24, 1998 /s/ Harold Mulet
--------------------------------
Harold Mulet
Committee Member
-14-
<PAGE>
<TABLE>
SERVICE MERCHANDISE COMPANY, INC. SAVINGS AND INVESTMENT PLAN
SCHEDULE I - LINE 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(a) (b) (c) (d) (e)
Description of investment
Identity of issue, borrower, including maturity date, rate of interest, Current
lessor, or similar party collateral, par or maturity value Cost value
--- ----------------------------------- ---------------------------------------------- -------------- -------------
<S> <C> <C> <C> <C>
* Service Merchandise Company, Inc. Common stock - $.50 par value $ 14,903,446 $ 5,577,632
* Service Merchandise Company, Inc. Cash - common stock purchase not yet settled 7,130 7,130
* T. Rowe Price New Income Fund 9,839,303 10,022,754
* T. Rowe Price U.S. Treasury Fund 14,764,122 14,764,122
* T. Rowe Price Equity Income Fund 19,835,065 26,117,730
* T. Rowe Price Capital Appreciation Fund 5,328,042 5,610,575
* T. Rowe Price Spectrum Growth Fund 8,104,807 8,975,453
* T. Rowe Price Balanced Fund 3,860,673 4,836,653
Participant notes receivable Interest rates ranging from 7.0% to 12.5% 4,593,367 4,593,367
------------ ------------
Total investments $ 81,235,955 $ 80,505,416
============ ============
*Represents party-in-interest.
</TABLE>
-15-
<PAGE>
<TABLE>
SERVICE MERCHANDISE COMPANY, INC. SAVINGS AND INVESTMENT PLAN
SCHEDULE II - LINE 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
YEAR ENDED DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Description of
asset (include Current
interest rate Expense value of
and maturity incurred asset on
Identity of party in case Purchase Selling Lease with Cost of transaction Net gain
involved of a loan) price price rental transaction asset date or (loss)
- ---------------------- --------------------- ------------ ----------- ----------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Single transactions
None
Series of transactions
T. Rowe Price New Income Fund $1,690,781 $ - $ - $ - $1,690,781 $1,690,781 $ -
T. Rowe Price New Income Fund - 2,501,600 - - 2,513,654 2,501,600 (12,054)
T. Rowe Price U.S. Treasury Fund 2,486,513 - - - 2,486,513 2,486,513 -
T. Rowe Price U.S. Treasury Fund - 4,181,895 - - 4,181,895 4,181,895 -
T. Rowe Price Equity Income Fund 6,051,796 - - - 6,051,796 6,051,796 -
T. Rowe Price Equity Income Fund - 3,747,380 - - 2,850,600 3,747,380 896,780
T. Rowe Price Spectrum Growth Fund 3,026,238 - - - 3,026,238 3,026,238 -
T. Rowe Price Spectrum Growth Fund - 1,871,638 - - 1,569,574 1,871,638 302,064
</TABLE>
-16-
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-50185 of Service Merchandise Company, Inc. on Form S-8 of our report dated
May 29, 1998, appearing in the Annual Report on Form 11-K of the Service
Merchandise Company, Inc. Savings and Investment Plan for the year ended
December 31, 1997.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Nashville, Tennessee
June 24, 1998
