8-K

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: July 1, 2002

SERVICE MERCHANDISE COMPANY, INC.

(Debtor-in-Possession as of March 27, 1999)

(Exact name of registrant as specified in its charter)

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

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)

TABLE OF CONTENTS

Partial Monthly Operating Report

Item 5. Other Events

     The Company has filed its monthly operating report for the period commencing July 1, 2002 and ended July 28, 2002 (the “Operating Report”) with the Bankruptcy Court in connection with its voluntary petitions for reorganization under Chapter 11 of title 11 of the United States Bankruptcy Code in Case No. 399-02649, a copy of which is attached hereto as Exhibit 99.

     The Company cautions readers not to place undue reliance upon the information contained in the Operating Report. The Operating Report contains unaudited information, and is in a format prescribed by the applicable bankruptcy laws. The financial statements and schedules related to the Company included in the Operating Report have not been prepared on a liquidation basis in accordance with generally accepted accounting principles (“GAAP”). Preparation of the financial statements and schedules on a liquidation basis of accounting would result in material adjustments to the financial statements and schedules. Consequently, no representation is made regarding the sufficiency of the financial statements and schedules. The Company cautions readers not to place undue reliance on the financial statements and schedules contained herein.

     There can be no assurance that the Operating Report is complete in all material respects. The Operating Report also contains information for periods which may be shorter or otherwise different from those contained in standard reports filed pursuant to the Exchange Act. Moreover, the Operating Report and other communications from the Company may include forward-looking statements subject to various assumptions regarding the Company’s anticipated liquidation or anticipated distributions that may not be realized and are subject to significant business, judicial, economic and competitive uncertainties and potential contingencies, including those described in this report, many of which are beyond the Company’s control. Consequently, such matters should not be regarded as a representation or warranty by the Company that such matters will be realized. Actual results may differ materially from that contemplated in any forward-looking statement and the Company undertakes no obligation to update or revise any such statement or Operating Report.

     The results of the Company’s planned liquidation and related distributions and the Company’s liquidity and capital resources are subject to a number of risks and uncertainties including, but not limited to, the following: matters affecting the timing and amounts of anticipated distributions to creditors; the ability of the Company to maximize asset value and control expenses; potential adverse developments with respect to the Company’s activities; competitive pressures from other retailers, including specialty retailers and discount stores, which may affect the effectiveness of the planned liquidation; the ability of the Company to retain and compensate key executives and associates; potential adverse publicity; and real estate costs, including the substantial fixed investment costs associated with disposing of Company stores.

     On January 4, 2002, the Company announced that it would cease continuing business operations. In its Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on April 4, 2002, the Company announced that it would adopt modified reporting to the SEC in light of its intention to liquidate, its limited resources, its

inability to continue filing such reports without unreasonable effort and expense, its belief that modified reports will provide adequate information to interested parties and other factors. The Sarbanes-Oxley Act of 2002 requires that the principal executive officer and financial officer of a reporting company make certain certifications in their company’s periodic reports. The Company believes that its officers will not make any such certifications because the Company does not intend to file any reports on Forms 10-K or 10-Q in the future. Moreover, the Company has adopted modified reporting as described above and does not prepare its financial statements in accordance with GAAP.

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits

(c)	Exhibits
99	Monthly Operating Report for period ended July 28, 2002.

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: September 3, 2002	By:	/s/ C. Steven Moore C. Steven Moore Senior Vice President, Chief Administrative Officer, Secretary and General Counsel

EXHIBIT INDEX

No.	Exhibit
99	Partial Monthly Operating Report for the period ended July 28, 2002.

EX-99 3 g78173exv99.txt PARTIAL MONTHLY OPERATING REPORT EXHIBIT 99 UNITED STATES BANKRUPTCY COURT MIDDLE DISTRICT OF TENNESSEE In re: Case No.: 399-02649 THROUGH 399-02680 --------------------------- SERVICE MERCHANDISE COMPANY, INC. Judge: PAINE --------------------------------- --------------------------- Chapter 11 Debtor(s) MONTHLY OPERATING REPORT FOR PERIOD ENDING July 28, 2002 ---------------------------- COMES NOW, SERVICE MERCHANDISE COMPANY, INC. ------------------------------------------------------------ Debtor-In-Possession, and hereby submits its Preliminary Monthly Operating Report for the period commencing July 1, 2002 and ending July 28, 2002 as shown by the report and exhibits consisting of 15 pages and containing the following as indicated: X Monthly Reporting Questionnaire (Attachment 1) ------ X Comparative Balance Sheets (Forms OPR-1 & OPR-2) ------ N/A Summary of Accounts Receivable (Form OPR-3) ------ X Schedule of Postpetition Liabilities (Form OPR-4) ------ X Statement of Income (Loss) (Form OPR-5) ------ I declare under penalty of perjury that this report and all the attachments are true and correct to the best of my knowledge and belief. On January 18, 2002, the United States Bankruptcy Court for the Middle District of Tennessee, Nashville Division (the "Bankruptcy Court") approved the request of Service Merchandise Company, Inc. and its Subsidiaries (the "Company") to immediately begin liquidating the inventory at all of its stores and to conduct store closing sales on a final basis and to discontinue operations at the stores. The financial statements and schedules related to the Company included herein have not been prepared on a liquidation basis in accordance with generally accepted accounting principles ("GAAP"). The information needed to prepare the financial statements and schedules on a liquidation basis is not currently available to management. Attempting to obtain such information necessary to prepare the financial statements and schedules on a liquidation basis would cause undue hardship and expense to the Company. Preparation of the financial statements and schedules on a liquidation basis of accounting would result in material adjustments to the financial statements and schedules. Consequently, no representation is made regarding the sufficiency of the financial statements and schedules. The Company cautions readers not to place undue reliance on the financial statements and schedules contained herein. This report includes those reports agreed upon as appropriate at this time between the Debtor and the U.S. Trustee. I also hereby certify that the original Monthly Operating Report was filed with the Bankruptcy Court Clerk and a copy delivered to the U.S. Trustee. Date: August 20, 2002 DEBTOR-IN-POSSESSION --------------- By: /s/ Michael E. Hogrege, Sr. ------------------------------ Name and Title: MICHAEL E. HOGREFE, SR. VP AND CHIEF FINANCIAL OFFICER ------------------------------ Address: 7100 SERVICE MERCHANDISE DRIVE ------------------------------ BRENTWOOD, TENNESSEE 37027 ------------------------------ Telephone No: (615) 660-3340 ------------------------------ Note: Report subject to further verification and account reconciliation procedures Page 1 CHAPTER 11 MONTHLY OPERATING REPORT MONTHLY REPORTING QUESTIONNAIRE CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. al. CASE NUMBER: 399-02649 THROUGH 399-02680 PERIOD: JULY 1, 2002 THROUGH JULY 28, 2002 1. PAYROLL

WAGES TAXES OFFICERS TITLE GROSS NET DUE PAID - ------------------------------------------------------------------------------------------------------------------------------------ C. STEVEN MOORE SENIOR VICE PRESIDENT, CHIEF ADMINISTRATIVE OFFICER, $ 30,071.90 $ 20,160.83 $2,295.44 $ 6,498.86 GENERAL COUNSEL AND SECRETARY MICHAEL E. HOGREFE SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER $ 26,215.82 $ 17,537.01 $1,931.80 $ 5,387.59 JOE M. ELLIOTT VICE PRESIDENT, PROPERTY ADMINISTRATION $281,541.80 $199,854.80 $ -- $81,687.00 The associate listed below received terminated vacation pay and severance included in the amounts above. JOE M. ELLIOTT $ 16,156.76 Vacation $265,385.04 Severance

Note: The disclosure on page 1 is an integral part of these consolidated financial statements and schedules. Page 2 CHAPTER 11 MONTHLY OPERATING REPORT MONTHLY REPORTING QUESTIONNAIRE CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. al. CASE NUMBER: 399-02649 THROUGH 399-02680 PERIOD: JULY 1, 2002 THROUGH JULY 28, 2002 2. INSURANCE

COVERAGE POLICY EXPIRATION PREMIUM DATE COVERAGE TYPE NAME OF CARRIER AMOUNT NUMBER DATE AMOUNT PAID THROUGH - ------------------------------------------------------------------------------------------------------------------------------------ Property Fireman's Fund Insurance Co $5 Million 01MXI9761300 12/31/02 $478,750 12/31/02 Royal Indemnity Co. 11.5 Million R2HD325112 12/31/02 $50,000 12/31/02 Boiler & Machinery Hartford Steam Boiler $10 Million FBP4914359 12/31/02 $20,248 12/31/02 Transit Fireman's Fund Insurance Co $1 Million OIMXI97600751 12/31/02 $10,000 12/31/02 General Liability Ace American Ins Co $5 Million XSLG2057804A 12/31/02 $250,000 12/31/02 Tenants Liability - AOS Pacific Employers Ins. Co. $5 Million HDOG20578129 12/31/02 Incl. In GL 12/31/02 Tenants Liability-First Union Pacific Employers Ins. Co. $5 Million HODG20578087 12/31/02 Incl. In GL 12/31/02 TN-Work Comp Assigned Rsk Continental Casualty Co Statutory 6S59UB878X943102 06/01/03 $3,989 06/01/03 Auto Pacific Employers Ins Co $1 Million ISAH07969661 12/31/02 $43,572 12/31/02 Umbrella Westchester Fire $25 Million CUA151233 06/30/03 $280,400 06/30/03 International Ace American Ins Co $1 Million PHF051491 12/31/02 $2,500 12/31/02 Directors & Officers Continental Insurance Co $10 Million 300714943 12/31/02 $514,286 12/31/02 Federal Insurance Co $10 Million 81278902-A 12/31/02 $470,250 12/31/02 Royal Insurance Co $10 Million PSF000009 12/31/02 $470,250 12/31/02 Fiduciary National Union Fire Ins Co $5 Million 8726812 12/31/02 $29,839 12/31/02

Note: The disclosure on page 1 is an integral part of these consolidated financial statements and schedules. Page 3 CHAPTER 11 MONTHLY OPERATING REPORT MONTHLY REPORTING QUESTIONNAIRE CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. al. CASE NUMBER: 399-02649 THROUGH 399-02680 PERIOD: JULY 1 THOUGH JULY 28, 2002 3. BANK ACCOUNTS TOTAL CASH AND CASH EQUIVALENTS CASH IN STORES AND HOME OFFICE -- CORPORATE ACCOUNTS 1,714,652 CREDIT CARD CASH ACCOUNTS (SALES PROCESSED BY CREDIT CARD COMPANY) (20,999) OTHER DEPOSITORY ACCOUNTS OTHER CASH ACCOUNTS 81,747 INVESTMENTS SHORT TERM INVESTMENTS 98,268,553 TOTAL CASH PER GENERAL LEDGER $ 100,043,952 ============= Note: The disclosure on page 1 is an integral part of these consolidated financial statements and schedules. Page 4 CHAPTER 11 MONTHLY OPERATING REPORT MONTHLY REPORTING QUESTIONNAIRE CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. al. CASE NUMBER: 399-02649 THROUGH 399-02680 PERIOD: JULY 1 THOUGH JULY 28, 2002 RECEIPTS AND DISBURSEMENTS (DOLLARS IN THOUSANDS)

ACTUAL ACTUAL ACTUAL ACTUAL TOTAL Monday 07/01/02 07/08/02 07/15/02 07/22/02 07/01/02 Sunday 07/07/02 07/14/02 07/21/02 07/28/02 07/28/02 -------- -------- -------- -------- -------- Receipts: Sales receipts/Profit Sharing $ -- $ -- $ -- $ -- $ -- Miscellaneous receipts 3,956 809 1,135 10,571 16,471 Real Estate Proceeds/Settlement 10 1,489 -- -- 1,499 Expense reiumbursements -- -- -- 20 20 ------ ------- ------- ------- -------- Total available collections 3,966 2,298 1,135 10,591 17,990 Disbursements: All disbursements 3,717 2,692 9,739 2,288 18,436 ------ ------- ------- ------- -------- Total disbursements 3,717 2,692 9,739 2,288 18,436 ------ ------- ------- ------- -------- Net receipts/(disbursements) $ 249 $ (394) $(8,604) $ 8,303 $ (446) ====== ======= ======= ======= ========

Note: The disclosure on page 1 is an integral part of these consolidated financial statements and schedules. Page 5 CHAPTER 11 MONTHLY OPERATING REPORT MONTHLY REPORTING QUESTIONNAIRE CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. al. CASE NUMBER: 399-02649 THROUGH 399-02680 PERIOD: JULY 1 THOUGH JULY 28, 2002 ROLLING REVISED CASH FLOW FORECAST (DOLLARS IN THOUSANDS)

ACTUAL 07/28/02 -------- Ending total revolver balance $ -- Term loan -- Standby letters of credit 8,038 Trade letters of credit -- -------- Total extensions of credit 8,038 Borrowing base -- -------- Availability $ -- ========

(1) As of 4/16/02, The Standby Letters of Credit were fully cash collateralized Note: The disclosure on page 1 is an integral part of these consolidated financial statements and schedules. Page 6 CHAPTER 11 MONTHLY OPERATING REPORT MONTHLY REPORTING QUESTIONNAIRE CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. al. CASE NUMBER: 399-02649 THROUGH 399-02680 PERIOD: July 01, 2002 THROUGH July 28, 2002 4. PAYMENTS TO PROFESSIONALS JULY 01, 2002 THROUGH JULY 28, 2002

VENDOR # VENDOR NAME CHECK AMT. CHECK DATE CHECK # - ---------------------------------------------------------------------------------------------------------------------------- 67017 Barkley and Thompson $640.40 07/01/02 50071024 86237 Brusniak, Clement, Harrison and McCool, PC $575.00 07/02/02 50071042 99329 Aegis Property Tax Specialists $3,621.44 07/02/02 50071043 95384 Deloitte and Touche, LLP $21,714.61 07/08/02 50071239 44013 McCarter and English $15,179.53 07/08/02 50071248 95384 Deloitte and Touche, LLP $13,470.97 07/09/02 50071298 44013 McCarter and English $6,059.55 07/10/02 50071314 100906 Peter J. Solomon Company, Ltd. $140,000.00 07/11/02 B0027355 101993 Rothschild, Inc. $15,000.00 07/11/02 B0027356 103439 Ernst and Young Corporate Finance $52,468.80 07/11/02 B0027359 71217 Bass, Berry and Sims $92,333.02 07/11/02 B0027361 98378 Skadden, Arps, Slate, Meagher and Flom, Illinois $351,673.00 07/11/02 B0027362 99104 Jay Alix and Associates $7,551.22 07/11/02 B0027363 99391 Otterbourg, Steindler, Houston, Rosen, PC $61,563.52 07/11/02 B0027364 99454 Harwell, Howard, Hyne, Gabbert and Manner, PC, Inc. $7,795.20 07/11/02 B0027365 101730 CBIZ Property Tax Solutions, Inc. $4,663.17 07/12/02 50071369 101730 CBIZ Property Tax Solutions, Inc. $142.30 07/12/02 50071370 101730 CBIZ Property Tax Solutions, Inc. $564.42 07/12/02 50071371 101730 CBIZ Property Tax Solutions, Inc. $6,456.28 07/12/02 50071372 99329 Aegis Property Tax Specialists $2,100.00 07/12/02 50071378 101730 CBIZ Property Tax Solutions, Inc. $342.71 07/15/02 50071397 101730 CBIZ Property Tax Solutions, Inc. $6,624.70 07/15/02 50071398 71217 Bass, Berry and Sims $120,671.31 07/15/02 B0027354 99459 Robert L. Berger and Associates $15,030.09 07/17/02 B0027375 57117 Deloitte and Touche $20,000.00 07/19/02 50071492 57117 Deloitte and Touche $20,000.00 07/19/02 50071493 71403 Seyfarth, Shaw, Fairweather and Geraldson $1,475.21 07/23/02 50071571 44013 McCarter and English $65.62 07/23/02 50071585 48779 Loss, Pavone and Orel $150.00 07/23/02 50071586 67017 Barkley and Thompson $796.50 07/23/02 50071587 103967 Hedrick, Eatman, Garner and Kinocheloe, LLP $547.50 07/24/02 50071602 103439 Ernst and Young Corporate Finance $21,744.00 07/25/02 B0027369 99391 Otterbourg, Steindler, Houston, Rosen, PC $39,024.28 07/25/02 B0027370 99454 Harwell, Howard, Hyne, Gabbert and Manner, PC, Inc. $6,207.58 07/25/02 B0027371 96221 Holt and Babbington, PC $604.12 07/26/02 50071765

Note: The disclosure on page 1 is an integral part of these consolidated financial statements and schedules. Page 7 FORM OPR-1 AND 2 SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) (Debtor-in-Possession) (In thousands)

July 28, 2002 --------- ASSETS Current Assets: Cash and cash equivalents $ 100,044 Accounts receivable 12,120 Prepaid Expenses 331 --------- TOTAL CURRENT ASSETS 112,495 --------- PROPERTY AND EQUIPMENT Owned assets, net of accumulated depreciation 36,913 Other assets and deferred charges 19,182 --------- TOTAL ASSETS $ 168,590 ========= LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY Liabilities Not Subject To Compromise Current Liabilities: Accounts payable $ 18,385 Accrued expenses 42,167 State & Local tax 461 --------- TOTAL CURRENT LIABILITIES 61,013 ---------

Note: The disclosure on page 1 is an integral part of these consolidated financial statements and schedules. Page 8 FORM OPR-1 AND 2 SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) (Debtor-in-Possession) (In thousands) Long-Term Liabilities: Liabilities Subject To Compromise: Accrued restructuring costs 42,066 Long-term debt 314,562 Accounts payable 214,061 Accrued expenses 102,273 --------- Total Liabilities Subject To Compromise 672,962 TOTAL LIABILITIES 733,975 --------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' (DEFICIT) EQUITY Common stock 49,935 Additional paid-in-capital 5,881 Retained (deficit) earnings (621,202) --------- TOTAL SHAREHOLDERS' (DEFICIT) EQUITY (565,385) TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY $ 168,590 ========= Note: The disclosure on page 1 is an integral part of these consolidated financial statements and schedules. Page 9 CHAPTER 11 MONTHLY OPERATING REPORT CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. al. CASE NUMBER: 399-02649 THROUGH 399-02680 PERIOD: JULY 1, 2002 THROUGH JULY 28, 2002 SUMMARY OF ACCOUNTS RECEIVABLE MONTH ENDED: JULY 28, 2002 FORM OPR-3 NOT APPLICABLE Note: The disclosure on page 1 is an integral part of these consolidated financial statements and schedules. Page 10 CHAPTER 11 MONTHLY OPERATING REPORT MONTHLY REPORTING QUESTIONNAIRE CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. Al. CASE NUMBER: 399-02649 THROUGH 399-02680 PERIOD: July 1, 2002 THROUGH July 28, 2002 SCHEDULE OF POST PETITION LIABILITIES-ACCOUNTS PAYABLE Month Ended: 07/28/2002 FORM OPR-4

Total -------- Trade Accounts Payable (Merchandise) $ 18,385

Total -------- Expense & other payables * $ 42,167

Note: The disclosure on page 1 is an integral part of these consolidated financial statements and schedules. Page 11 CHAPTER 11 MONTHLY OPERATING REPORT MONTHLY REPORTING QUESTIONNAIRE CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. al. CASE NUMBER: 399-02649 THROUGH 399-02680 PERIOD: JULY 1, 2002 THROUGH JULY 28, 2002 SCHEDULE OF POST PETITION LIABILITIES FORM OPR-4 (DOLLARS IN THOUSANDS)

DATE DATE TOTAL TAXES PAYABLE INCURRED DUE DUE Federal income tax ** Various Various $ (1,684) State income tax Various Various $ (99) -------- SUBTOTAL $ (1,783) -------- Sales/use tax SUBTOTAL * Various Various $ 558 -------- Personal property tax * Various Various $ 911 Real estate taxes * Various Various $ 6,712 Inventory taxes * Various Various $ -- Gross receipts/bus licenses * Various Various $ (117) Franchise taxes * Various Various $ 735 -------- SUBTOTAL $ 8,241 -------- -------- TOTAL TAXES PAYABLE $ 7,016 ========

* liability included in accrued expenses on OPR-2 ** tax reserve Note: The disclosure on page 1 is an integral part of these consolidated financial statements and schedules. Page 12 CHAPTER 11 MONTHLY OPERATING REPORT MONTHLY REPORTING QUESTIONNAIRE CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. al. CASE NUMBER: 399-02649 THROUGH 399-02680 PERIOD: JULY 1 THOUGH JULY 28, 2002 SCHEDULE OF POST PETITION LIABILITIES FORM OPR-4 (DOLLARS IN THOUSANDS)

DATE TOTAL DUE INCURRED DATE DUE (7/28/02 BALANCE) --------------------------------------------- POST PETITION SECURED DEBT Revolver borrowings 04/14/00 NA $ -- Facility standby letters of credit 04/14/00 NA 8,038 Facility trade letters of credit 04/14/00 NA -- Term loans 04/14/00 NA -- ------ TOTAL EXTENSIONS OF CREDIT $8,038 ====== ACCRUED INTEREST PAYABLE $ -- ====== As of 4/16/02, The Standby Letters of Credit were fully cash collateralized

Note: The disclosure on page 1 is an integral part of these consolidated financial statements and schedules. Page 13 FORM OPR-5 SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) (Debtor-in-Possession) (In thousands)

ACTIVITY JULY 1, 2002 THROUGH JULY 28, 2002 ------------- Net Sales $ 18 Costs of merchandise sold and buying and occupancy expense 1,110 ------- Gross margin after cost of merchandise sold and buying and occupancy expenses (1,092) Selling, General and Administrative Expenses: Net Employment Expense (872) Net Advertising 54 Banking and Other Fees (112) Real Estate and Other Taxes 374 Supplies 4 Communication and Equipment 74 Travel 1 UCC and Other Services (5) Legal and Professional (167) Sales and Shipping (47) Insurance 256 Miscellaneous 1,768 Credit Card Services -- ------- Total Selling, General and Administrative Expenses 1,328 Other expense/(income), net (9)

Note: The disclosure on page 1 is an integral part of these consolidated financial statements and schedules. Page 14 FORM OPR-5 SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) (Debtor-in-Possession) (In thousands) Restructuring charge (credit) -- Depreciation and amortization -- ------- Earnings (loss) before interest, reorganization items, and income tax (2,411) Interest expense - debt -- Interest expense - capitalized leases -- ------- Earnings (loss) before reorganization items, and income tax (2,411) Reorganization Items: Legal and Professional 1,107 Miscellaneous (4,594) Loss (Gain) on Disposal of Assets (7,210) Close Store Charges 1,397 ------- Total Reorganization Items (9,300) Earnings (loss) before income tax 6,889 Income tax benefit -- Cumulative Effect of Change in Accounting Principles -- ------- Net earnings (loss) $ 6,889 ======= Note: The disclosure on page 1 is an integral part of these consolidated financial statements and schedules. Page 15 -----END PRIVACY-ENHANCED MESSAGE-----

EX-99

                                                                      EXHIBIT 99

                         UNITED STATES BANKRUPTCY COURT
                          MIDDLE DISTRICT OF TENNESSEE


In re:                                     Case No.: 399-02649 THROUGH 399-02680
                                                     ---------------------------
      SERVICE MERCHANDISE COMPANY, INC.    Judge:    PAINE
      ---------------------------------              ---------------------------
                                           Chapter 11

Debtor(s)

         MONTHLY OPERATING REPORT FOR PERIOD ENDING          July 28, 2002
                                                    ----------------------------
         COMES NOW,               SERVICE MERCHANDISE COMPANY, INC.
                    ------------------------------------------------------------

Debtor-In-Possession, and hereby submits its Preliminary Monthly Operating
Report for the period commencing July 1, 2002 and ending July 28, 2002 as shown
by the report and exhibits consisting of 15 pages and containing the following
as indicated:

           X     Monthly Reporting Questionnaire (Attachment 1)
         ------
           X     Comparative Balance Sheets (Forms OPR-1 & OPR-2)
         ------
          N/A    Summary of Accounts Receivable (Form OPR-3)
         ------
           X     Schedule of Postpetition Liabilities (Form OPR-4)
         ------
           X     Statement of Income (Loss) (Form OPR-5)
         ------

I declare under penalty of perjury that this report and all the attachments are
true and correct to the best of my knowledge and belief.

On January 18, 2002, the United States Bankruptcy Court for the Middle District
of Tennessee, Nashville Division (the "Bankruptcy Court") approved the request
of Service Merchandise Company, Inc. and its Subsidiaries (the "Company") to
immediately begin liquidating the inventory at all of its stores and to conduct
store closing sales on a final basis and to discontinue operations at the
stores.

The financial statements and schedules related to the Company included herein
have not been prepared on a liquidation basis in accordance with generally
accepted accounting principles ("GAAP"). The information needed to prepare the
financial statements and schedules on a liquidation basis is not currently
available to management. Attempting to obtain such information necessary to
prepare the financial statements and schedules on a liquidation basis would
cause undue hardship and expense to the Company. Preparation of the financial
statements and schedules on a liquidation basis of accounting would result in
material adjustments to the financial statements and schedules. Consequently, no
representation is made regarding the sufficiency of the financial statements and
schedules. The Company cautions readers not to place undue reliance on the
financial statements and schedules contained herein.

This report includes those reports agreed upon as appropriate at this time
between the Debtor and the U.S. Trustee. I also hereby certify that the original
Monthly Operating Report was filed with the Bankruptcy Court Clerk and a copy
delivered to the U.S. Trustee.


Date:  August 20, 2002          DEBTOR-IN-POSSESSION
       ---------------

                                By:               /s/ Michael E. Hogrege, Sr.
                                                  ------------------------------
                                Name and Title:   MICHAEL E. HOGREFE, SR. VP AND
                                                    CHIEF FINANCIAL OFFICER
                                                  ------------------------------
                                Address:          7100 SERVICE MERCHANDISE DRIVE
                                                  ------------------------------
                                                  BRENTWOOD, TENNESSEE 37027
                                                  ------------------------------
                                Telephone No:     (615) 660-3340
                                                  ------------------------------

Note: Report subject to further verification and account reconciliation
      procedures


                                                                          Page 1

CHAPTER 11
MONTHLY OPERATING REPORT
MONTHLY REPORTING QUESTIONNAIRE

CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. al.
CASE NUMBER: 399-02649 THROUGH 399-02680
PERIOD: JULY 1, 2002 THROUGH JULY 28, 2002

1. PAYROLL



                                                                                          WAGES                       TAXES
    OFFICERS                                    TITLE                              GROSS          NET            DUE         PAID
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           
C. STEVEN MOORE        SENIOR VICE PRESIDENT, CHIEF ADMINISTRATIVE OFFICER,     $ 30,071.90   $ 20,160.83     $2,295.44   $ 6,498.86
                         GENERAL COUNSEL AND SECRETARY
MICHAEL E. HOGREFE     SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER        $ 26,215.82   $ 17,537.01     $1,931.80   $ 5,387.59
JOE M. ELLIOTT         VICE PRESIDENT, PROPERTY ADMINISTRATION                  $281,541.80   $199,854.80     $      --   $81,687.00


The associate listed below received terminated vacation pay and severance
included in the amounts above.
JOE M. ELLIOTT
                                                                                $ 16,156.76   Vacation
                                                                                $265,385.04   Severance






Note: The disclosure on page 1 is an integral part of these consolidated
      financial statements and schedules.


                                                                          Page 2

CHAPTER 11
MONTHLY OPERATING REPORT
MONTHLY REPORTING QUESTIONNAIRE

CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. al.
CASE NUMBER: 399-02649 THROUGH 399-02680
PERIOD: JULY 1, 2002 THROUGH JULY 28, 2002


2.  INSURANCE



                                                                COVERAGE        POLICY       EXPIRATION    PREMIUM     DATE COVERAGE
TYPE                            NAME OF CARRIER                  AMOUNT         NUMBER          DATE       AMOUNT      PAID THROUGH
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     
Property                        Fireman's Fund Insurance Co    $5 Million     01MXI9761300    12/31/02      $478,750     12/31/02
                                Royal Indemnity Co.            11.5 Million    R2HD325112     12/31/02       $50,000     12/31/02
Boiler & Machinery              Hartford Steam Boiler          $10 Million     FBP4914359     12/31/02       $20,248     12/31/02
Transit                         Fireman's Fund Insurance Co    $1 Million    OIMXI97600751    12/31/02       $10,000     12/31/02
General Liability               Ace American Ins Co            $5 Million     XSLG2057804A    12/31/02      $250,000     12/31/02
Tenants Liability - AOS         Pacific Employers Ins. Co.     $5 Million     HDOG20578129    12/31/02  Incl. In GL      12/31/02
Tenants Liability-First Union   Pacific Employers Ins. Co.     $5 Million     HODG20578087    12/31/02  Incl. In GL      12/31/02
TN-Work Comp Assigned Rsk       Continental Casualty Co        Statutory    6S59UB878X943102  06/01/03        $3,989     06/01/03
Auto                            Pacific Employers Ins Co       $1 Million     ISAH07969661    12/31/02       $43,572     12/31/02
Umbrella                        Westchester Fire               $25 Million     CUA151233      06/30/03      $280,400     06/30/03
International                   Ace American Ins Co            $1 Million      PHF051491      12/31/02        $2,500     12/31/02
Directors & Officers            Continental Insurance Co       $10 Million     300714943      12/31/02      $514,286     12/31/02
                                Federal Insurance Co           $10 Million     81278902-A     12/31/02      $470,250     12/31/02
                                Royal Insurance Co             $10 Million     PSF000009      12/31/02      $470,250     12/31/02
Fiduciary                       National Union Fire Ins Co     $5 Million       8726812       12/31/02       $29,839     12/31/02




Note: The disclosure on page 1 is an integral part of these consolidated
      financial statements and schedules.


                                                                          Page 3



CHAPTER 11
MONTHLY OPERATING REPORT
MONTHLY REPORTING QUESTIONNAIRE

CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. al.
CASE NUMBER: 399-02649 THROUGH 399-02680
PERIOD: JULY 1 THOUGH JULY 28, 2002


3. BANK ACCOUNTS

                                                                     
TOTAL CASH AND CASH EQUIVALENTS

CASH IN STORES AND HOME OFFICE                                                     --

CORPORATE ACCOUNTS                                                          1,714,652


CREDIT CARD CASH ACCOUNTS (SALES PROCESSED BY CREDIT CARD COMPANY)            (20,999)


OTHER DEPOSITORY ACCOUNTS
OTHER CASH ACCOUNTS                                                            81,747


INVESTMENTS
SHORT TERM INVESTMENTS                                                     98,268,553

TOTAL CASH PER GENERAL LEDGER                                           $ 100,043,952
                                                                        =============





Note: The disclosure on page 1 is an integral part of these consolidated
      financial statements and schedules.


                                                                          Page 4



CHAPTER 11
MONTHLY OPERATING REPORT
MONTHLY REPORTING QUESTIONNAIRE

CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. al.
CASE NUMBER: 399-02649 THROUGH 399-02680
PERIOD: JULY 1 THOUGH JULY 28, 2002

RECEIPTS AND DISBURSEMENTS
(DOLLARS IN THOUSANDS)



                                            ACTUAL       ACTUAL       ACTUAL         ACTUAL       TOTAL

                                  Monday   07/01/02     07/08/02     07/15/02       07/22/02     07/01/02
                                  Sunday   07/07/02     07/14/02     07/21/02       07/28/02     07/28/02
                                           --------     --------     --------       --------     --------
                                                                                  
Receipts:
   Sales receipts/Profit Sharing            $   --      $    --       $    --       $    --      $     --
   Miscellaneous receipts                    3,956          809         1,135        10,571        16,471
   Real Estate Proceeds/Settlement              10        1,489            --            --         1,499
   Expense reiumbursements                      --           --            --            20            20
                                            ------      -------       -------       -------      --------
Total available collections                  3,966        2,298         1,135        10,591        17,990


Disbursements:
   All disbursements                         3,717        2,692         9,739         2,288        18,436
                                            ------      -------       -------       -------      --------
Total disbursements                          3,717        2,692         9,739         2,288        18,436
                                            ------      -------       -------       -------      --------

Net receipts/(disbursements)                $  249      $  (394)      $(8,604)      $ 8,303      $   (446)
                                            ======      =======       =======       =======      ========






Note: The disclosure on page 1 is an integral part of these consolidated
      financial statements and schedules.


                                                                          Page 5

CHAPTER 11
MONTHLY OPERATING REPORT
MONTHLY REPORTING QUESTIONNAIRE

CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. al.
CASE NUMBER: 399-02649 THROUGH 399-02680
PERIOD: JULY 1 THOUGH JULY 28, 2002

ROLLING REVISED CASH FLOW FORECAST
(DOLLARS IN THOUSANDS)



                                                              ACTUAL
                                                             07/28/02
                                                             --------
                                                          
Ending total revolver balance                                $     --
Term loan                                                          --
Standby letters of credit                                       8,038
Trade letters of credit                                            --
                                                             --------
Total extensions of credit                                      8,038

Borrowing base                                                     --
                                                             --------
Availability                                                 $     --
                                                             ========





(1) As of 4/16/02, The Standby Letters of Credit were fully cash collateralized




Note: The disclosure on page 1 is an integral part of these consolidated
      financial statements and schedules.


                                                                          Page 6

CHAPTER 11
MONTHLY OPERATING REPORT
MONTHLY REPORTING QUESTIONNAIRE

CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. al.
CASE NUMBER: 399-02649 THROUGH 399-02680
PERIOD: July 01, 2002 THROUGH July 28, 2002

4. PAYMENTS TO PROFESSIONALS JULY 01, 2002 THROUGH JULY 28, 2002



    VENDOR #                       VENDOR NAME                                     CHECK AMT.       CHECK DATE     CHECK #
- ----------------------------------------------------------------------------------------------------------------------------
                                                                                                       
      67017       Barkley and Thompson                                                $640.40        07/01/02      50071024
      86237       Brusniak, Clement, Harrison and McCool, PC                          $575.00        07/02/02      50071042
      99329       Aegis Property Tax Specialists                                    $3,621.44        07/02/02      50071043
      95384       Deloitte and Touche, LLP                                         $21,714.61        07/08/02      50071239
      44013       McCarter and English                                             $15,179.53        07/08/02      50071248
      95384       Deloitte and Touche, LLP                                         $13,470.97        07/09/02      50071298
      44013       McCarter and English                                              $6,059.55        07/10/02      50071314
     100906       Peter J. Solomon Company, Ltd.                                  $140,000.00        07/11/02      B0027355
     101993       Rothschild, Inc.                                                 $15,000.00        07/11/02      B0027356
     103439       Ernst and Young Corporate Finance                                $52,468.80        07/11/02      B0027359
      71217       Bass, Berry and Sims                                             $92,333.02        07/11/02      B0027361
      98378       Skadden, Arps, Slate, Meagher and Flom, Illinois                $351,673.00        07/11/02      B0027362
      99104       Jay Alix and Associates                                           $7,551.22        07/11/02      B0027363
      99391       Otterbourg, Steindler, Houston, Rosen, PC                        $61,563.52        07/11/02      B0027364
      99454       Harwell, Howard, Hyne, Gabbert and Manner, PC, Inc.               $7,795.20        07/11/02      B0027365
     101730       CBIZ Property Tax Solutions, Inc.                                 $4,663.17        07/12/02      50071369
     101730       CBIZ Property Tax Solutions, Inc.                                   $142.30        07/12/02      50071370
     101730       CBIZ Property Tax Solutions, Inc.                                   $564.42        07/12/02      50071371
     101730       CBIZ Property Tax Solutions, Inc.                                 $6,456.28        07/12/02      50071372
      99329       Aegis Property Tax Specialists                                    $2,100.00        07/12/02      50071378
     101730       CBIZ Property Tax Solutions, Inc.                                   $342.71        07/15/02      50071397
     101730       CBIZ Property Tax Solutions, Inc.                                 $6,624.70        07/15/02      50071398
      71217       Bass, Berry and Sims                                            $120,671.31        07/15/02      B0027354
      99459       Robert L. Berger and Associates                                  $15,030.09        07/17/02      B0027375
      57117       Deloitte and Touche                                              $20,000.00        07/19/02      50071492
      57117       Deloitte and Touche                                              $20,000.00        07/19/02      50071493
      71403       Seyfarth, Shaw, Fairweather and Geraldson                         $1,475.21        07/23/02      50071571
      44013       McCarter and English                                                 $65.62        07/23/02      50071585
      48779       Loss, Pavone and Orel                                               $150.00        07/23/02      50071586
      67017       Barkley and Thompson                                                $796.50        07/23/02      50071587
     103967       Hedrick, Eatman, Garner and Kinocheloe, LLP                         $547.50        07/24/02      50071602
     103439       Ernst and Young Corporate Finance                                $21,744.00        07/25/02      B0027369
      99391       Otterbourg, Steindler, Houston, Rosen, PC                        $39,024.28        07/25/02      B0027370
      99454       Harwell, Howard, Hyne, Gabbert and Manner, PC, Inc.               $6,207.58        07/25/02      B0027371
      96221       Holt and Babbington, PC                                             $604.12        07/26/02      50071765





Note: The disclosure on page 1 is an integral part of these consolidated
      financial statements and schedules.


                                                                          Page 7


FORM OPR-1 AND 2

               SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
                    Consolidated Balance Sheets (Unaudited)
                             (Debtor-in-Possession)
                                 (In thousands)



                                                                     July 28,
                                                                       2002
                                                                    ---------
                                                                 
ASSETS
Current Assets:
      Cash and cash equivalents                                     $ 100,044
      Accounts receivable                                              12,120
      Prepaid Expenses                                                    331
                                                                    ---------
      TOTAL CURRENT ASSETS                                            112,495
                                                                    ---------

PROPERTY AND EQUIPMENT
      Owned assets, net of accumulated depreciation                    36,913


      Other assets and deferred charges                                19,182
                                                                    ---------
      TOTAL ASSETS                                                  $ 168,590
                                                                    =========

LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Liabilities Not Subject To
Compromise
Current Liabilities:
      Accounts payable                                              $  18,385
      Accrued expenses                                                 42,167
      State & Local tax                                                   461
                                                                    ---------


      TOTAL CURRENT LIABILITIES                                        61,013
                                                                    ---------




Note: The disclosure on page 1 is an integral part of these consolidated
      financial statements and schedules.


                                                                          Page 8


FORM OPR-1 AND 2

               SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
                    Consolidated Balance Sheets (Unaudited)
                             (Debtor-in-Possession)
                                 (In thousands)



                                                                 
Long-Term Liabilities:
Liabilities Subject To Compromise:
      Accrued restructuring costs                                      42,066
      Long-term debt                                                  314,562
      Accounts payable                                                214,061
      Accrued expenses                                                102,273
                                                                    ---------
      Total Liabilities Subject To Compromise                         672,962

      TOTAL LIABILITIES                                               733,975
                                                                    ---------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' (DEFICIT) EQUITY
      Common stock                                                     49,935
      Additional paid-in-capital                                        5,881
      Retained (deficit) earnings                                    (621,202)
                                                                    ---------
           TOTAL SHAREHOLDERS' (DEFICIT) EQUITY                      (565,385)

      TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY          $ 168,590
                                                                    =========




Note: The disclosure on page 1 is an integral part of these consolidated
      financial statements and schedules.


                                                                          Page 9

CHAPTER 11
MONTHLY OPERATING REPORT

CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. al.
CASE NUMBER: 399-02649 THROUGH 399-02680
PERIOD: JULY 1, 2002 THROUGH JULY 28, 2002

SUMMARY OF ACCOUNTS RECEIVABLE
MONTH ENDED: JULY 28, 2002
FORM OPR-3 NOT APPLICABLE















Note: The disclosure on page 1 is an integral part of these consolidated
      financial statements and schedules.


                                                                         Page 10

CHAPTER 11
MONTHLY OPERATING REPORT
MONTHLY REPORTING QUESTIONNAIRE

CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. Al.
CASE NUMBER: 399-02649 THROUGH 399-02680
PERIOD: July 1, 2002 THROUGH July 28, 2002

SCHEDULE OF POST PETITION LIABILITIES-ACCOUNTS PAYABLE
Month Ended: 07/28/2002
FORM OPR-4



                                                                   Total
                                                                 --------
                                                              
Trade Accounts Payable (Merchandise)                             $ 18,385






                                                                   Total
                                                                 --------
                                                              
Expense & other payables                                      *  $ 42,167






Note: The disclosure on page 1 is an integral part of these consolidated
      financial statements and schedules.


                                                                         Page 11

CHAPTER 11
MONTHLY OPERATING REPORT
MONTHLY REPORTING QUESTIONNAIRE

CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. al.
CASE NUMBER: 399-02649 THROUGH 399-02680
PERIOD: JULY 1, 2002 THROUGH JULY 28, 2002

SCHEDULE OF POST PETITION LIABILITIES
FORM OPR-4
(DOLLARS IN THOUSANDS)




                                                           DATE          DATE        TOTAL
          TAXES PAYABLE                                  INCURRED         DUE         DUE
                                                                          
Federal income tax                               **      Various        Various    $ (1,684)

State income tax                                         Various        Various    $    (99)
                                                                                   --------

                                    SUBTOTAL                                       $ (1,783)
                                                                                   --------


Sales/use tax                       SUBTOTAL      *      Various        Various    $    558
                                                                                   --------


Personal property tax                             *      Various        Various    $    911

Real estate taxes                                 *      Various        Various    $  6,712

Inventory taxes                                   *      Various        Various    $     --

Gross receipts/bus licenses                       *      Various        Various    $   (117)

Franchise taxes                                   *      Various        Various    $    735
                                                                                   --------

                                    SUBTOTAL                                       $  8,241
                                                                                   --------


                                                                                   --------
TOTAL TAXES PAYABLE                                                                $  7,016
                                                                                   ========


*   liability included in accrued expenses on OPR-2
**  tax reserve








Note: The disclosure on page 1 is an integral part of these consolidated
      financial statements and schedules.


                                                                         Page 12

CHAPTER 11
MONTHLY OPERATING REPORT
MONTHLY REPORTING QUESTIONNAIRE

CASE NAME: SERVICE MERCHANDISE COMPANY, INC. et. al.
CASE NUMBER: 399-02649 THROUGH 399-02680
PERIOD: JULY 1 THOUGH JULY 28, 2002

SCHEDULE OF POST PETITION LIABILITIES
FORM OPR-4



(DOLLARS IN THOUSANDS)



                                                         DATE                          TOTAL DUE
                                                       INCURRED       DATE DUE     (7/28/02 BALANCE)
                                                       ---------------------------------------------
                                                                          
POST PETITION SECURED DEBT
           Revolver borrowings                         04/14/00          NA             $   --
           Facility standby letters of credit          04/14/00          NA              8,038
           Facility trade letters of credit            04/14/00          NA                 --
           Term loans                                  04/14/00          NA                 --
                                                                                        ------
TOTAL EXTENSIONS OF CREDIT                                                              $8,038
                                                                                        ======


ACCRUED INTEREST PAYABLE                                                                $   --
                                                                                        ======

           As of 4/16/02, The Standby Letters of Credit were fully cash collateralized







Note: The disclosure on page 1 is an integral part of these consolidated
      financial statements and schedules.



                                                                         Page 13

FORM OPR-5

               SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
               Consolidated Statements of Operations (Unaudited)
                             (Debtor-in-Possession)
                                 (In thousands)



                                                                                      ACTIVITY
                                                                                    JULY 1, 2002
                                                                                       THROUGH
                                                                                    JULY 28, 2002
                                                                                    -------------
                                                                                 
Net Sales                                                                              $    18

Costs of merchandise sold and buying and occupancy expense                               1,110
                                                                                       -------

Gross margin after cost of merchandise sold and buying and occupancy expenses           (1,092)

Selling, General and Administrative Expenses:
     Net Employment Expense                                                               (872)
     Net Advertising                                                                        54
     Banking and Other Fees                                                               (112)
     Real Estate and Other Taxes                                                           374
     Supplies                                                                                4
     Communication and Equipment                                                            74
     Travel                                                                                  1
     UCC and Other Services                                                                 (5)
     Legal and Professional                                                               (167)
     Sales and Shipping                                                                    (47)
     Insurance                                                                             256
     Miscellaneous                                                                       1,768
     Credit Card Services                                                                   --
                                                                                       -------
Total Selling, General and Administrative Expenses                                       1,328



Other expense/(income), net                                                                 (9)



Note: The disclosure on page 1 is an integral part of these consolidated
      financial statements and schedules.


                                                                         Page 14






FORM OPR-5

               SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
               Consolidated Statements of Operations (Unaudited)
                             (Debtor-in-Possession)
                                 (In thousands)

                                                                                 

Restructuring charge (credit)                                                               --

Depreciation and amortization                                                               --
                                                                                       -------

Earnings (loss) before interest, reorganization items, and income tax                   (2,411)

Interest expense - debt                                                                     --
Interest expense - capitalized leases                                                       --
                                                                                       -------

Earnings (loss) before reorganization items, and income tax                             (2,411)

Reorganization Items:

     Legal and Professional                                                              1,107
     Miscellaneous                                                                      (4,594)
     Loss (Gain) on Disposal of Assets                                                  (7,210)
     Close Store Charges                                                                 1,397
                                                                                       -------
     Total Reorganization Items                                                         (9,300)

Earnings (loss) before income tax                                                        6,889
     Income tax benefit                                                                     --
     Cumulative Effect of Change in Accounting Principles                                   --
                                                                                       -------

Net earnings (loss)                                                                    $ 6,889
                                                                                       =======




Note: The disclosure on page 1 is an integral part of these consolidated
      financial statements and schedules.

                                                                         Page 15