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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: April 29, 1999
SERVICE MERCHANDISE COMPANY, INC.
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(Exact name of registrant as specified in its charter)
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Tennessee 1-9223 62-0816060
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(State or other jurisdiction of incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
7100 Service Merchandise Boulevard, Brentwood, TN 37027
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (615) 660-6000
Not Applicable
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(Former name or former address, if changed since last report)
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Item 5. Other Events
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On April 28, 1999, Service Merchandise Company, Inc. (the "Company")
announced that it received final approval from the Bankruptcy Court of the $750
million debtor-in-possession financing agreement ("DIP facility"). The Company
also released three-month borrowing base and borrowing availability projections
under the DIP facility.
The projections with respect to the Company's three-month borrowing
base and borrowing availability projections under the DIP facility, while
presented with numerical specificity, are forward-looking statements which are
based on a variety of assumptions regarding the Company's operating performance
that may not be realized and are subject to significant business, economic,
political and competitive uncertainties and potential contingencies, including
those set forth below, many of which are beyond the Company's control.
Consequently, such forward-looking information should not be regarded as a
representation or warranty by the Company that such projections will be
realized. 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.
The Company's liquidity, capital resources, results of operations, and ability
to continue as a going concern may be affected from time to time by a number of
factors and risks, including, but not limited to, the ability of the Company to
operate in accordance with the terms of the DIP facility; the ability of the
Company to operate successfully under a Chapter 11 proceeding; approval of plans
and activities by the Bankruptcy Court; risks associated with operating a
business in Chapter 11; adverse developments with respect to the Company's
liquidity or results of operations; the ability of the Company to obtain
shipments and negotiate trade credit and terms with vendors and service
providers for current orders; the ability of the Company to negotiate terms with
landlords with respect to stores to be closed and current and future lease
obligations; the ability to conduct going out of business inventory sales to
result in improved liquidity; the ability to develop, fund and execute a new
operating plan for the Company; the ability of the Company to attract and retain
key executives and associates; competitive pressures from other retailers,
including speciality retailers and discount stores, which may affect the nature
and viability of the Company's business strategy; trends in the economy as a
whole; 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; 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; the ability to liquidate unwanted inventory at existing or closed stores;
and the ability to effect conversions to new technological systems, including
becoming Year 2000 compliant.
2
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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See attached press release.
3
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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: April 29, 1999 By: /s/ C. Steven Moore
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C. Steven Moore
Senior Vice President, General Counsel
and Chief Administrative Officer
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EXHIBIT INDEX
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No. Exhibit
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99.1 Press release dated April 28, 1999.
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EXHIBIT 99.1
PRESS RELEASE
The following is the text of a press release issued by Service Merchandise
Company, Inc. on April 28, 1999.
SERVICE MERCHANDISE RECEIVES FINAL COURT APPROVAL
OF $750 MILLION DIP FINANCING AGREEMENT
NASHVILLE, Tenn.--April 28, 1999-- Service Merchandise Company, Inc.
(NYSE:SME) announced today that it has received final approval from the
Bankruptcy Court of its $750 million debtor-in-possession (DIP) financing
agreement to fund the Company's operations during its restructuring process.
The DIP agreement calls for the Company's current senior lenders led by
Citicorp USA, Inc., as administrative agent, BankBoston, N.A., as documentation
agent and collateral monitoring agent, and Salomon Smith Barney Inc., as sole
arranger and book manager to provide $750 million in post-petition financing to
Service Merchandise to purchase goods and services and provide liquidity for the
Company's ongoing operating needs during its voluntary restructuring under
Chapter 11, which commenced on March 27, 1999. The Company said during
yesterday's Court proceedings that it intends to exit Chapter 11 prior to the
maturity of the loan in June 2001.
The Company will file a Form 8-K with the Securities and Exchange
Commission which sets forth its three-month borrowing base and borrowing
availability projections under the DIP facility prepared in connection with the
Court's approval of the final DIP order. The forecast projects a borrowing base
which ranges from $514 million to $544 million over the period from May 2, 1999
to July 18, 1999, and unused borrowing availability which ranges from $165
million to $195 million. The projected amounts available are subject to a
reserve of $50 million until the Company has presented its 1999 Chapter 11
Operating Plan and the plan has been approved by its lenders. The forecast does
not assume a return to normalized trade credit and vendor terms, which would
provide additional liquidity and which the Company expects to receive from
vendors over the next few months. The Company has received credit terms from
many of its vendors on orders placed since March 27, 1999.
"We are encouraged by the level of support we have received
from our vendors, many of whom have resumed extending trade credit with respect
to goods and services purchased by our company in the short weeks since
commencing our restructuring under Chapter 11," said Chief Executive Officer Sam
Cusano. "With our final DIP financing in place, and the support of the vendor
community and our employees, Service Merchandise is well-positioned to fund its
operations and to provide its customers with a full selection of merchandise for
the spring season and beyond."
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The Court also scheduled for May 5, 1999 consideration of the Company's
employee retention program, developed by Service Merchandise to provide an added
measure of job and financial security to key employees during its restructuring,
and as it seeks to attract quality candidates to fill vacant positions. At
yesterday's hearing, the Company's post-petition lenders advised the Court they
had no objections to the program, and the Creditors' Committee reported to the
Court the efforts made by the Committee to facilitate the program and its hope
that the program will be in place next week. No objections have been filed to
date, and the objection deadline has expired as to all parties with the
exception of the Creditors' Committee and the office of the U.S. Trustee.
"The employee retention program was developed to minimize turnover in
management and other key employee positions, retain talent in a tight labor
market, and motivate employees throughout the restructuring process, thereby
ensuring that they continue to provide essential services during this critical
period," Mr. Cusano said. He noted that the Company's ability to maintain its
business operations and preserve and maximize the value for its stakeholders is
dependent on the continued employment, active participation and dedication of
key employees who possess the knowledge, experience and skills necessary to
support Service Merchandise's business operations.
"We believe that by alleviating the apprehension and uncertainty
typically experienced during a Chapter 11 restructuring, we will be able to
focus on the business at hand - completing Service Merchandise's restructuring
in an efficient, timely manner and ensuring the continued viability of the
Company," he said.
In other actions, the Court approved the Company's motion to establish
vendor reclamation procedures; its motion to retain the Keen Venture, a joint
venture of Keen Realty Consultants, Inc., Trammell Crow Retail Services and Dean
& Associates, to market its surplus real estate properties; and its motion to
reject certain real property leases. The Company has also rejected the leases of
two former corporate aircraft. The Court also finalized retention of the law
firms and financial advisors for the Company and the Creditors' Committee.
Service Merchandise and its subsidiaries filed voluntary petitions for
reorganization under Chapter 11 in the U.S. Bankruptcy Court for the Middle
District of Tennessee in Nashville on March 27, 1999.
Service Merchandise is a speciality retailer focusing on fine jewelry,
gifts and home decor products.
This press release includes 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
below. 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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The foregoing projections with respect to the Company's 3-month
borrowing base and borrowing availability projections under the DIP facility,
while presented with numerical specificity, are forward-looking statements which
are based on a variety of assumptions regarding the Company's operating
performance that may not be realized and are subject to significant business,
economic, political and competitive uncertainties and potential contingencies,
including those set forth below, many of which are beyond the Company's control.
Consequently, such forward-looking information should not be regarded as a
representation or warranty by the Company that such projections will be
realized.
The Company's liquidity, capital resources, results of operations, and
ability to continue as a going concern may be affected from time to time by a
number of factors and risks, including, but not limited to, the ability of the
Company to operate in accordance with the terms of the DIP financing facility;
the ability of the Company to operate successfully under a Chapter 11
proceeding; approval of plans and activities by the Bankruptcy Court; risks
associated with operating a business in Chapter 11; adverse developments with
respect to the Company's liquidity or results of operations; the ability of the
Company to obtain shipments and negotiate trade credit and terms with vendors
and service providers for current orders; the ability of the Company to
negotiate terms with landlords with respect to stores to be closed and current
and future lease obligations; the ability to conduct going out of business
inventory sales to result in improved liquidity; the ability to develop, fund
and execute a new operating plan for the Company; the ability of the Company to
attract and retain key executives and associates; competitive pressures from
other retailers, including speciality retailers and discount stores, which may
affect the nature and viability of the Company's business strategy; trends in
the economy as a whole; 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; 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; the ability to liquidate unwanted
inventory at existing or closed stores; and the ability to effect conversions to
new technological systems, including becoming Year 2000 compliant.
(Financial Table to Follow)
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SERVICE MERCHANDISE COMPANY INC.
Cash Flow Forecast
(Dollars in Thousands)
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FORECAST FORECAST FORECAST FORECAST
5/2/99 5/30/99 6/27/99 7/18/99
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Ending Total Revolver Balance $ 180.4 $ 155.6 $ 154.0 $ 159.1
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Term Loan 100.0 100.0 100.0 99.8
Standby Letters of Credit 43.3 36.8 36.8 36.8
Trade Letters of Credit 25.0 45.9 45.9 55.0
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Total Extension of Credit $ 348.7 $ 338.3 $ 336.7 $ 350.7
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BORROWING BASE* $ 543.8 $ 527.0 $ 514.4 $ 516.4
AVAILABILITY* $ 195.2 $ 188.7 $ 177.7 $ 165.7
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The decrease in borrowing base and availability over the period is related to
the inventory liquidation sales at closing stores and an increase in trade
letters of credit related to the seasonal ordering patterns of imported goods.
* Borrowing Base and Availability calculated before deduction of Interim
Reserve Amount ($50 million until Business Plan is accepted).
