<PAGE> 1
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, 1998
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> 2
SERVICE MERCHANDISE COMPANY, INC.
SAVINGS AND INVESTMENT PLAN
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997:
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, 1998:
Schedule I - Line 27a - Schedule of Assets Held for Investment Purposes 15
Schedule II - Line 27d - Schedule of Reportable Transactions 16
CONSENT:
</TABLE>
NOTE: Other schedules not included have been omitted as they are not
applicable.
<PAGE> 3
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, 1998 and 1997, 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,
1998 and 1997, 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
1998 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.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
June 8, 1999
<PAGE> 4
SERVICE MERCHANDISE COMPANY, INC.
SAVINGS AND INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1998 AND 1997
- -----------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS:
Investments, at fair value:
Shares of registered investment companies $72,453,920 $70,327,287
Shares of Service Merchandise Company, Inc. common
stock 906,950 5,584,762
Participant notes receivable 5,030,526 4,593,367
----------- -----------
Total investments 78,391,396 80,505,416
----------- -----------
Receivables:
Participants' contributions 137,815 156,353
Employer's contributions -- 23,934
Interest 7,916 7,246
----------- -----------
Total receivables 145,731 187,533
----------- -----------
Total assets 78,537,127 80,692,949
----------- -----------
LIABILITIES:
Payable to participants 56,338 139,961
----------- -----------
Total liabilities 56,338 139,961
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $78,480,789 $80,552,988
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
SERVICE MERCHANDISE COMPANY, INC.
SAVINGS AND INVESTMENT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Additions to net assets attributed to:
Investment income:
Net depreciation in fair value of investments $(4,868,365) $ (464,883)
Dividends and interest 5,878,775 6,206,632
----------- ------------
1,010,410 5,741,749
----------- ------------
Contributions:
Participants' 8,002,653 8,410,519
Employer's 584,135 1,216,103
----------- ------------
8,586,788 9,626,622
----------- ------------
Total additions 9,597,198 15,368,371
------------ -----------
Deductions from net assets attributed to:
Benefits paid to participants 11,503,467 14,079,225
Administrative expenses 165,930 171,311
----------- -----------
Total deductions 11,669,397 14,250,536
----------- -----------
Net (decrease) increase (2,072,199) 1,117,835
Net assets available for benefits:
Beginning of year 80,552,988 79,435,153
----------- -----------
End of year $78,480,789 $80,552,988
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
SERVICE MERCHANDISE COMPANY, INC.
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
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
2) excluding the provision for income taxes and any extraordinary items and
3) excluding the pretax charge for restructuring costs taken in the first
quarter of 1997 pursuant to a business restructuring plan adopted on March
25, 1997.
<TABLE>
<CAPTION>
NET PROFIT AS A PERCENTAGE OF COMPANY
SALES FOR FISCAL YEAR CORRESPONDING EMPLOYER MATCH
WITH PREVIOUS PLAN YEAR PERCENTAGE
------------------------------------- --------------
<S> <C>
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%
</TABLE>
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 10% and
20% for the 1998 and 1997 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> 7
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.
New Horizons Fund consists primarily of common stocks of small, rapidly
growing companies.
International Stock Fund consists of common stocks of established,
non-U.S. companies.
On March 18, 1999, the Plan was amended to remove the Company's common stock
as an investment option for future contributions or changes in participant
investment elections.
Earnings from the funds, consisting primarily of interest and dividends, are
automatically reinvested in their respective fund.
At December 31, 1998, there were a total of 5,058 participants in the Plan.
Employee participation, by fund, at December 31, 1998 was as follows:
<TABLE>
<S> <C>
Service Merchandise Company, Inc.
Common Stock 2,088
New Income Fund 1,688
U.S. Treasury Fund 2,109
Equity Income Fund 2,806
Capital Appreciation Fund 1,362
Spectrum Growth Fund 1,922
Balanced Fund 1,259
New Horizons Fund 257
International Stock Fund 150
</TABLE>
7
<PAGE> 8
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, 1998 and 1997.
Principal and interest are paid ratably through weekly payroll deductions.
Loan repayment periods generally range from one to five years. At December
31, 1998, 1,975 participants had loans outstanding from the Plan.
PAYMENT OF BENEFITS - Upon termination of employment prior to retirement,
all participant balances less than $5,000 are distributed in a lump-sum
amount. Balances $5,000 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, 1998 and 1997, net assets available for benefits
included $1,518,266 and $1,579,553, 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 at year-end. Participant notes
receivable are valued at cost which approximates fair value.
PAYMENTS OF BENEFITS - Benefits are recorded when paid.
NET DEPRECIATION 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, such as investments, 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> 9
3. FUND INFORMATION
The net assets available for benefits as of December 31, 1998 and 1997 and
changes in net assets available for benefits for the years ended December
31, 1998 and 1997 by investment option/fund are as follows:
NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Service
Merchandise
Company, Inc. New U.S. Equity Capital Spectrum
Common Income Treasury Income Appreciation Growth Balanced
Stock Fund* Fund* Fund* Fund* Fund* Fund*
------------- ---------- ----------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Shares of registered investment
companies $ -- $9,602,304 $14,565,945 $26,181,531 $5,525,628 $10,219,860 $5,551,362
Shares of the Service Merchandise
Company, Inc. common stock 906,950 -- -- -- -- -- --
Participant notes receivable -- -- -- -- -- -- --
-------- ---------- ----------- ----------- ---------- ----------- ----------
Total investments 906,950 9,602,304 14,565,945 26,181,531 5,525,628 10,219,860 5,551,362
-------- ---------- ----------- ----------- ---------- ----------- ----------
Receivables:
Participants' contributions 11,864 14,394 20,842 39,274 12,232 22,804 11,867
Employer's contributions -- -- -- -- -- -- --
Interest 802 849 1,877 2,182 558 1,077 464
-------- ---------- ----------- ----------- ---------- ----------- ----------
Total receivables 12,666 15,243 22,719 41,456 12,790 23,881 12,331
-------- ---------- ----------- ----------- ---------- ----------- ----------
Total assets 919,616 9,617,547 14,588,664 26,222,987 5,538,418 10,243,741 5,563,693
-------- ---------- ----------- ----------- ---------- ----------- ----------
LIABILITIES:
Payable to participants 1,361 3,450 3,911 22,035 5,150 11,048 8,386
-------- ---------- ----------- ----------- ---------- ----------- ----------
Total liabilities 1,361 3,450 3,911 22,035 5,150 11,048 8,386
-------- ---------- ----------- ----------- ---------- ----------- ----------
NET ASSETS AVAILABLE FOR
BENEFITS $918,255 $9,614,097 $14,584,753 $26,200,952 $5,533,268 $10,232,693 $5,555,307
======== ========== =========== =========== ========== =========== ==========
<CAPTION>
New International
Horizons Stock Participant
Fund Fund Loans* Total
-------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Shares of registered investment
companies $559,770 $247,520 $ -- $72,453,920
Shares of the Service Merchandise
Company, Inc. common stock -- -- -- 906,950
Participant notes receivable -- -- 5,030,526 5,030,526
-------- -------- ---------- -----------
Total investments 559,770 247,520 5,030,526 78,391,396
-------- -------- ---------- -----------
Receivables:
Participants' contributions 3,229 1,309 -- 137,815
Employer's contributions -- -- -- --
Interest 64 43 -- 7,916
-------- -------- ---------- -----------
Total receivables 3,293 1,352 -- 145,731
-------- -------- ---------- -----------
Total assets 563,063 248,872 5,030,526 78,537,127
-------- -------- ---------- -----------
LIABILITIES:
Payable to participants 586 411 -- 56,338
-------- -------- ---------- -----------
Total liabilities 586 411 -- 56,338
-------- -------- ---------- -----------
NET ASSETS AVAILABLE FOR
BENEFITS $562,477 $248,461 $5,030,526 $78,480,789
======== ======== ========== ===========
</TABLE>
* Investments representing five percent or more of net assets available for
benefits.
9
<PAGE> 10
NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Service
Merchandise
Company, Inc. New U.S. Equity Capital
Common Income Treasury Income Appreciation
Stock* Fund* Fund* Fund* Fund*
--------------------------------------------------------------------------
<S> <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
Shares of the Service Merchandise
Company, Inc. common stock 5,584,762 - - - -
Participant notes receivable - - - - -
---------- ----------- ----------- ------------ ----------
Total investments 5,584,762 10,022,754 14,764,122 26,117,730 5,610,575
---------- ----------- ----------- ------------ ----------
Receivables:
Participants' contributions 20,248 16,072 25,049 43,345 15,246
Employer's contributions 3,077 2,623 4,180 6,438 2,204
Interest 1,024 835 1,717 1,997 458
---------- ----------- ----------- ----------- ----------
Total receivables 24,349 19,530 30,946 51,780 17,908
---------- ----------- ----------- ----------- ----------
Total assets 5,609,111 10,042,284 14,795,068 26,169,510 5,628,483
---------- ----------- ----------- ------------ ----------
LIABILITIES:
Payable to participants 13,493 9,843 9,998 56,461 13,463
---------- ----------- ----------- ----------- ----------
Total liabilities 13,493 9,843 9,998 56,461 13,463
---------- ----------- ----------- ----------- ----------
NET ASSETS AVAILABLE FOR
BENEFITS $5,595,618 $10,032,441 $14,785,070 $26,113,049 $5,615,020
========== =========== =========== =========== ==========
<CAPTION>
Spectrum
Growth Balanced Participant
Fund* Fund* Loans* Total
------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Shares of registered investment
companies $8,975,453 $ 4,836,653 $ - $70,327,287
Shares of the Service Merchandise
Company, Inc. common stock - - - 5,584,762
Participant notes receivable - - 4,593,367 4,593,367
---------- ----------- ----------- -----------
Total investments 8,975,453 4,836,653 4,593,367 80,505,416
---------- ----------- ----------- -----------
Receivables:
Participants' contributions 24,898 11,495 - 156,353
Employer's contributions 3,685 1,727 - 23,934
Interest 902 313 - 7,246
---------- ----------- ----------- -----------
Total receivables 29,485 13,535 - 187,533
---------- ----------- ----------- -----------
Total assets 9,004,938 4,850,188 4,593,367 80,692,949
---------- ----------- ----------- -----------
LIABILITIES:
Payable to participants 13,447 23,256 - 139,961
---------- ----------- ----------- -----------
Total liabilities 13,447 23,256 - 139,961
---------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR
BENEFITS $8,991,491 $ 4,826,932 $ 4,593,367 $80,552,988
========== =========== =========== ===========
</TABLE>
* Investments representing five percent or more of net assets available for
benefits.
10
<PAGE> 11
CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Service
Merchandise
Company, Inc. New U.S. Equity Capital
Common Income Treasury Income Appreciation
Stock Fund Fund Fund Fund
------------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Net (depreciation) appreciation in
fair value of investments $(5,288,061) $ (277,437) $ -- $ 306,584 $ (505,775)
Dividends and interest 48,692 802,416 787,744 2,234,774 854,067
----------- ---------- ----------- ----------- -----------
(5,239,369) 524,979 787,744 2,541,358 348,292
----------- ---------- ----------- ----------- -----------
Contributions:
Participants' 836,387 801,387 1,183,674 2,301,324 764,150
Employer's 62,693 61,661 90,432 165,857 53,381
----------- ---------- ----------- ----------- -----------
899,080 863,048 1,274,106 2,467,181 817,531
----------- ---------- ----------- ----------- -----------
Total additions (4,340,289) 1,388,027 2,061,850 5,008,539 1,165,823
----------- ---------- ----------- ----------- -----------
Deductions from net assets attributed to:
Benefits paid to participants 618,049 1,368,954 1,890,403 4,236,620 789,488
Administrative expenses 15,793 21,634 39,598 41,951 13,165
----------- ---------- ----------- ----------- -----------
Total deductions 633,842 1,390,588 1,930,001 4,278,571 802,653
----------- ---------- ----------- ----------- -----------
Net increase (decrease) prior to
interfund transfers (4,974,131) (2,561) 131,849 729,968 363,170
Interfund transfers 296,768 (415,783) (332,166) (642,065) (444,922)
----------- ---------- ----------- ----------- -----------
Net increase (decrease) (4,677,363) (418,344) (200,317) 87,903 (81,752)
Net assets available for benefits:
Beginning of year 5,595,618 10,032,441 14,785,070 26,113,049 5,615,020
----------- ---------- ----------- ----------- -----------
End of year $ 918,255 $9,614,097 $14,584,753 $26,200,952 $ 5,533,268
=========== ========== =========== =========== ===========
<CAPTION>
Spectrum New International
Growth Balanced Horizons Stock Participant
Fund Fund Fund Fund Loans Total
----------- ----------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Net (depreciation) appreciation in
fair value of investments $ 337,821 $ 603,067 $ (42,004) $ (2,560) $ -- $(4,868,365)
Dividends and interest 925,146 185,985 29,812 10,139 -- 5,878,775
----------- ---------- ------------ ----------- ---------- -----------
1,262,967 789,052 (12,192) 7,579 -- 1,010,410
----------- ---------- ------------ ----------- ---------- -----------
Contributions:
Participants' 1,318,176 639,392 109,479 48,684 -- 8,002,653
Employer's 92,348 46,384 7,474 3,905 -- 584,135
----------- ---------- ------------ ----------- ---------- -----------
1,410,524 685,776 116,953 52,589 -- 8,586,788
----------- ---------- ------------ ----------- ---------- -----------
Total additions 2,673,491 1,474,828 104,761 60,168 -- 9,597,198
----------- ---------- ------------ ----------- ---------- -----------
Deductions from net assets attributed to:
Benefits paid to participants 1,227,782 740,743 14,337 9,607 607,484 11,503,467
Administrative expenses 21,112 11,243 956 478 -- 165,930
----------- ---------- ------------ ----------- ---------- -----------
Total deductions 1,248,894 751,986 15,293 10,085 607,484 11,669,397
----------- ---------- ------------ ----------- ---------- -----------
Net increase (decrease) prior to
interfund transfers 1,424,597 722,842 89,468 50,083 (607,484) (2,072,199)
Interfund transfers (183,395) 5,533 473,009 198,378 1,044,643 --
----------- ---------- ------------ ----------- ---------- -----------
Net increase (decrease) 1,241,202 728,375 562,477 248,461 437,159 (2,072,199)
Net assets available for benefits:
Beginning of year 8,991,491 4,826,932 -- -- 4,593,367 80,552,988
----------- ---------- ------------ ----------- ---------- -----------
End of year $10,232,693 $5,555,307 $ 562,477 $ 248,461 $5,030,526 $78,480,789
=========== ========== ============ =========== ========== ===========
</TABLE>
11
<PAGE> 12
CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Service
Merchandise
Company, Inc. New U.S. Equity
Common Income Treasury Income
Stock Fund Fund Fund
------------- ------ -------- ------
<S> <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
Dividends and interest 59,055 744,756 854,227 2,684,733
----------- ----------- ----------- -----------
(5,042,369) 932,902 854,227 5,999,932
----------- ----------- ----------- -----------
Contributions:
Participants' 1,146,759 899,213 1,420,841 2,194,460
Employer's 172,161 135,332 217,847 307,546
----------- ----------- ----------- -----------
1,318,920 1,034,545 1,638,688 2,502,006
----------- ----------- ----------- -----------
Total additions (3,723,449) 1,967,447 2,492,915 8,501,938
----------- ----------- ----------- -----------
Deductions from net assets attributed to:
Benefits paid to participants 1,067,767 1,835,741 2,936,024 3,860,137
Administrative expenses 23,942 22,810 42,797 38,522
----------- ----------- ----------- -----------
Total deductions 1,091,709 1,858,551 2,978,821 3,898,659
----------- ----------- ----------- -----------
Net increase (decrease) prior to
interfund transfers (4,815,158) 108,896 (485,906) 4,603,279
Interfund transfers (261,478) (725,682) (1,204,753) 1,094,674
----------- ----------- ----------- -----------
Net increase (decrease) (5,076,636) (616,786) (1,690,659) 5,697,953
Net assets available for benefits:
Beginning of year 10,672,254 10,649,227 16,475,729 20,415,096
----------- ----------- ----------- -----------
End of year $ 5,595,618 $10,032,441 $14,785,070 $26,113,049
=========== =========== =========== ===========
<CAPTION>
Capital Spectrum
Appreciation Growth Balanced Participant
Fund Fund Fund Loans Total
------------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Net (depreciation) appreciation in
fair value of investments $ 125,516 $ 412,555 $ 595,125 $ - $ (464,883)
Dividends and interest 712,905 946,129 204,827 - 6,206,632
---------- ---------- ---------- ---------- -----------
838,421 1,358,684 799,952 - 5,741,749
---------- ---------- ---------- ---------- -----------
Contributions:
Participants' 825,522 1,319,504 604,220 - 8,410,519
Employer's 113,916 182,211 87,090 - 1,216,103
---------- ---------- ---------- ---------- -----------
939,438 1,501,715 691,310 - 9,626,622
---------- ---------- ---------- ---------- -----------
Total additions 1,777,859 2,860,399 1,491,262 - 15,368,371
---------- ---------- ---------- ---------- -----------
Deductions from net assets attributed to:
Benefits paid to participants 1,181,907 1,549,403 826,613 821,633 14,079,225
Administrative expenses 13,033 19,500 10,707 - 171,311
---------- ---------- ---------- ---------- -----------
Total deductions 1,194,940 1,568,903 837,320 821,633 14,250,536
---------- ---------- ---------- ---------- -----------
Net increase (decrease) prior to
interfund transfers 582,919 1,291,496 653,942 (821,633) 1,117,835
Interfund transfers (29,909) 306,650 57,616 762,882 -
---------- ---------- ---------- ---------- -----------
Net increase (decrease) 553,010 1,598,146 711,558 (58,751) 1,117,835
Net assets available for benefits:
Beginning of year 5,062,010 7,393,345 4,115,374 4,652,118 79,435,153
---------- ---------- ---------- ---------- -----------
End of year $5,615,020 $8,991,491 $4,826,932 $4,593,367 $80,552,988
========== ========== ========== ========== ===========
</TABLE>
12
<PAGE> 13
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. Fees paid to the trustee by Plan
participants amounted to $165,930 and $171,311 for the years ended December
31, 1998 and 1997, respectively.
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.
7. SUBSEQUENT EVENTS
On March 27, 1999, the Company filed a voluntary petition for
reorganization under Chapter 11 of title 11 of the United States Bankruptcy
Code in the United States Bankruptcy Court seeking supervision of the
Company's restructuring efforts. At this time, it is not possible to
predict the outcome of the Chapter 11 Cases or their effect on the
investment in the Company's common stock.
Additionally, on March 18, 1999, the Plan was amended to remove the
Company's common stock as an investment option for future contributions or
changes in participant investment elections.
******
13
<PAGE> 14
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.
<TABLE>
<S> <C>
Date: June 29, 1999 /s/ C. Steven Moore
--------------------------
C. Steven Moore
Committee Member
Date: June 29, 1999 /s/ S. Cusano
--------------------------
S. Cusano
Committee Member
Date: June 29, 1999 /s/ Charles Septer
--------------------------
Charles Septer
Committee Member
Date: June 29, 1999 /s/ Thomas L. Garret, Jr.
--------------------------
Thomas L. Garrett, Jr.
Committee Member
Date: June 29, 1999 /s/ Eric A. Kovats
--------------------------
Eric A. Kovats
Committee Member
</TABLE>
14
<PAGE> 15
SERVICE MERCHANDISE COMPANY, INC. SAVINGS AND INVESTMENT PLAN
SCHEDULE I - LINE 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1998
- ----------------------------------------------------------------------------
<TABLE>
<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 - S.50 par value $ 13,196,984 $ 904,010
* Service Merchandise Company, Inc. Cash - common stock purchase not yet settled 2,940 2,940
* T. Rowe Price New Income Fund 9,728,736 9,602,304
* T. Rowe Price U.S. Treasury Fund 14,565,945 14,565,945
* T. Rowe Price Equity Income Fund 21,155,341 26,181,531
* T. Rowe Price Capital Appreciation Fund 5,865,200 5,525,628
* T. Rowe Price Spectrum Growth Fund 9,272,678 10,219,860
* T. Rowe Price Balanced Fund 4,260,285 5,551,362
* T. Rowe Price New Horizons Fund 582,941 559,770
* T. Rowe Price International Stock Fund 248,507 247,520
Participant notes receivable Interest rates ranging from 7.0% to 12.5% 5,030,526 5,030,526
------------ ------------
Total investments $ 83,910,083 $ 78,391,396
============ ============
</TABLE>
*Represents party-in-interest.
15
<PAGE> 16
SERVICE MERCHANDISE COMPANY, INC. SAVINGS AND INVESTMENT PLAN
SCHEDULE II - LINE 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<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 U.S. Treasury Fund $2,908,465 $ - $ - $ - $2,908,465 $2,908,465 $ -
T. Rowe Price U.S. Treasury Fund - 3,106,522 - - 3,106,522 3,106,522 -
T. Rowe Price Equity Income Fund 4,746,180 - - - 4,746,180 4,746,180 -
T. Rowe Price Equity Income Fund - 4,988,963 - - 3,797,600 4,988,963 1,191,363
T. Rowe Price Spectrum Growth Fund 2,475,106 - - - 2,475,106 2,475,106 -
T. Rowe Price Spectrum Growth Fund - 1,568,520 - - 1,377,687 1,568,520 190,833
</TABLE>
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Submission Media
- ----------- -------------------------------- ----------------
<S> <C> <C>
Ex 23 Consent of Deloitte & Touche LLP, Electronic
Independent Public Accountants,
dated June 29, 1999
</TABLE>
<PAGE> 1
EXHIBIT 23
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
June 8, 1999, 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, 1998.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
June 29, 1999
