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: September 30, 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 September 30, 2002 and ended October 27, 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 October 27, 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: November 25, 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 October 27, 2002.

EX-99 3 g79516exv99.txt PARTIAL MONTHLY OPERATING REPORT 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 October 27, 2002 ---------------------- COMES NOW, SERVICE MERCHANDISE COMPANY, INC. ----------------------------------------------------- Debtor-In-Possession, and hereby submits its Preliminary Monthly Operating Report for the period commencing September 30, 2002 and ending October 27, 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: 11/18/02 DEBTOR-IN-POSSESSION -------- By: /s/ Michael E. Hogrefe ------------------------------------------------------------------- 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: SEPTEMBER 30, 2002 THROUGH OCTOBER 27, 2002 1. Payroll

WAGES TAXES OFFICERS TITLE GROSS NET DUE PAID - ----------------------------------------------------------------------------------------------------------------------------------- C. STEVEN MOORE SENIOR VICE PRESIDENT, CHIEF ADMINISTRATIVE OFFICER, $27,693.91 $19,022.92 $2,049.91 $6,369.72 GENERAL COUNSEL AND SECRETARY MICHAEL E. HOGREFE SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER $23,847.83 $16,586.26 $1,697.58 $5,312.63

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: SEPTEMBER 30, 2002 THROUGH OCTOBER 27, 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: SEPTEMBER 30, 2002 THOUGH OCTOBER 27, 2002 3. BANK ACCOUNTS TOTAL CASH AND CASH EQUIVALENTS CORPORATE ACCOUNTS 1,194,986 CREDIT CARD CASH ACCOUNTS (SALES PROCESSED BY CREDIT CARD COMPANY) 7,625 OTHER DEPOSITORY ACCOUNTS OTHER CASH ACCOUNTS 3,413 INVESTMENTS SHORT TERM INVESTMENTS 94,700,765 TOTAL CASH PER GENERAL LEDGER $ 95,906,789 ============ 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: SEPTEMBER 30 THOUGH OCTOBER 27, 2002 RECEIPTS AND DISBURSEMENTS (DOLLARS IN THOUSANDS)

ACTUAL ACTUAL ACTUAL ACTUAL TOTAL Monday 09/30/02 10/07/02 10/14/02 10/21/02 09/30/02 Sunday 10/06/02 10/13/02 10/20/02 10/27/02 10/27/02 -------- -------- -------- -------- -------- Receipts: Sales receipts/Profit Sharing $ -- $ -- $ -- $-- $ -- Miscellaneous receipts 4,061 1,016 101 34 5,212 Real Estate Proceeds/Settlement 74 57 96 46 273 Expense reiumbursements -- -- -- -- -- ------ ------ ------- ----- ------- Total available collections 4,135 1,073 197 80 $ 5,485 Disbursements: All disbursements 3,849 789 3,947 346 8,931 ------ ------ ------- ----- ------- Total disbursements 3,849 789 3,947 346 8,931 ------ ------ ------- ----- ------- Net receipts/(disbursements) $ 286 $ 284 $(3,750) $(266) $(3,446) ====== ====== ======= ===== =======

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: SEPTEMBER 30 THOUGH OCTOBER 27, 2002 ROLLING REVISED CASH FLOW FORECAST (DOLLARS IN THOUSANDS)

Actual 10/27/02 -------- Ending total revolver balance $ -- Term loan -- Standby letters of credit 4,805 Trade letters of credit -- ------ Total extensions of credit 4,805 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: SEPTEMBER 30, 2002 THROUGH OCTOBER 27, 2002 4. Payments to Professionals September 30, 2002 through October 27, 2002

Vendor # Vendor Name Check Amt. Check Date Check # - -------------------------------------------------------------------------------------------------------------------- 95913 Locke, Reynolds, Boyd and Weisell $ 453.21 10/02/02 70001736 44013 McCarter and English $ 312.66 10/07/02 70001744 99329 Aegis Property Tax Specialists $ 2,036.92 10/08/02 70001818 57117 Deloitte and Touche $ 20,000.00 10/08/02 70001822 99444 Sitrick and Company, Inc. $ 383.00 10/15/02 B0027442 103439 E & Y Restructuring, LLC $ 25,285.00 10/15/02 B0027444 71217 Bass, Berry and Sims $ 94,860.12 10/15/02 B0027445 98378 Skadden, Arps, Slate, Meagher and Flom $391,927.00 10/15/02 B0027447 99459 Robert L. Berger and Associates $ 13,164.26 10/17/02 B0027457 48779 Loss, Pavone and Orel $ 56.50 10/23/02 70001907 48779 Loss, Pavone and Orel $ 1,559.50 10/24/02 70001909 99454 Harwell, Howard, Hyne, Gabbert and Manner, PC $ 1,677.02 10/25/02 B0027443 98378 Skadden, Arps, Slate, Meagher and Flom $248,052.00 10/25/02 B0027448 99391 Otter, Steindler, Houston and Rosen, PC $ 46,405.08 10/25/02 B0027449

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)

October 27, 2002 ----------- ASSETS Current Assets: Cash and cash equivalents $ 95,907 Accounts receivable 6,244 Inventories 0 Prepaid Expenses 426 -------- TOTAL CURRENT ASSETS 102,577 -------- PROPERTY AND EQUIPMENT Owned assets, net of accumulated depreciation 36,924 Capitalized leases, net of accumulated amortization -- -------- TOTAL PROPERTY AND EQUIPMENT 36,924 -------- Other assets and deferred charges 16,119 -------- TOTAL ASSETS $155,620 ======== LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY Liabilities Not Subject To Compromise Current Liabilities: Notes payable to banks $ -- Accounts payable 11,840 Accrued expenses 31,520 State & Local tax 365 Current maturities capitalized leases -- -------- TOTAL CURRENT LIABILITIES 43,725 --------

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: Long-term debt -- Capitalized lease obligations -- Liabilities Subject To Compromise: Accrued restructuring costs 42,067 Capitalized lease obligations -- Long-term debt 314,562 Accounts payable 219,575 Accrued expenses 107,486 --------- Total Liabilities Subject To Compromise 683,690 TOTAL LIABILITIES 727,415 --------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' (DEFICIT) EQUITY Common stock 49,936 Additional paid-in-capital 5,881 Deferred compensation -- Accumulated other comprehensive loss -- Retained (deficit) earnings (627,612) --------- TOTAL SHAREHOLDERS' (DEFICIT) EQUITY (571,795) TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY $ 155,620 ========= 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: SEPTEMBER 30, 2002 THROUGH OCTOBER 27, 2002 SUMMARY OF ACCOUNTS RECEIVABLE MONTH ENDED: OCTOBER 27, 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: SEPTEMBER 29,2002 THROUGH OCTOBER 27, 2002 SCHEDULE OF POST PETITION LIABILITIES-ACCOUNTS PAYABLE Month Ended: 10/27/2002 FORM OPR-4

Total -------- Trade Accounts Payable (Merchandise) $ 11,840

Total -------- Expense & other payables $ 31,520

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: AUGUST 26, 2002 THROUGH SEPTEMBER 29, 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 -- State income tax Various Various $ (188) ------------- SUBTOTAL $ (188) ------------- Sales/use tax SUBTOTAL * Various Various $ 565 ------------- Personal property tax * Various Various $ 439 Real estate taxes * Various Various $ 5,234 Inventory taxes * Various Various -- Gross receipts/bus licenses * Various Various $ 4 Franchise taxes * Various Various $ 611 ------------- SUBTOTAL $ 6,288 ------------- ------------- TOTAL TAXES PAYABLE $ 6,665 =============

* 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: SEPTEMBER 30 THOUGH OCTOBER 27, 2002 SCHEDULE OF POST PETITION LIABILITIES FORM OPR-4 (DOLLARS IN THOUSANDS)

DATE TOTAL DUE INCURRED DATE DUE (10/27/02 BALANCE) ----------------------------------------------------------- POST PETITION SECURED DEBT Revolver borrowings 04/14/00 NA $ -- Facility standby letters of credit 04/14/00 NA 4,805 Facility trade letters of credit 04/14/00 NA -- Term loans 04/14/00 NA -- ------ TOTAL EXTENSIONS OF CREDIT $4,805 ====== 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 DECEMBER 31, 2001 THROUGH AUGUST 25, 2002 ----------------- Net Sales $ 11 Costs of merchandise sold and buying and occupancy expense 106 ----- Gross margin after cost of merchandise sold and buying and occupancy expenses (95) Selling, General and Administrative Expenses: Net Employment Expense 282 Net Advertising -- Banking and Other Fees (132) Real Estate and Other Taxes 0 Supplies 1 Communication and Equipment 6 Travel 1 UCC and Other Services 0 Legal and Professional 13 Sales and Shipping -- Insurance -- Miscellaneous (245) Credit Card Services -- ----- Total Selling, General and Administrative Expenses (74) Other expense/(income), net --

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 (21) Interest expense - debt -- Interest expense - capitalized leases -- ----- Earnings (loss) before reorganization items, and income tax (21) Reorganization Items: Legal and Professional 61 (Gain) on Disposal of Assets -- Miscellaneous 111 Close Store Charges 617 ----- Total Reorganization Items 789 Earnings (loss) before income tax (810) Income tax benefit -- Cumulative Effect of Change in Accounting Principles -- ----- Net earnings (loss) $(810) ===== 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

                         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     October 27, 2002
                                                          ----------------------
              COMES NOW,              SERVICE MERCHANDISE COMPANY, INC.
                           -----------------------------------------------------

        Debtor-In-Possession, and hereby submits its Preliminary Monthly
        Operating Report for the period commencing September 30, 2002
        and ending October 27, 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: 11/18/02     DEBTOR-IN-POSSESSION
              --------

                           By: /s/ Michael E. Hogrefe
                               -------------------------------------------------------------------
                           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: SEPTEMBER 30, 2002 THROUGH OCTOBER 27, 2002

1. Payroll



                                                                                        WAGES                         TAXES
    OFFICERS                                 TITLE                               GROSS          NET             DUE          PAID
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                              
C. STEVEN MOORE       SENIOR VICE PRESIDENT, CHIEF ADMINISTRATIVE OFFICER,     $27,693.91    $19,022.92      $2,049.91    $6,369.72
                      GENERAL COUNSEL AND SECRETARY

MICHAEL E. HOGREFE    SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER        $23,847.83    $16,586.26      $1,697.58    $5,312.63







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: SEPTEMBER 30, 2002 THROUGH OCTOBER 27, 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: SEPTEMBER 30, 2002 THOUGH OCTOBER 27, 2002

3. BANK ACCOUNTS


                                                                              
TOTAL CASH AND CASH EQUIVALENTS

CORPORATE ACCOUNTS                                                                  1,194,986


CREDIT CARD CASH ACCOUNTS (SALES PROCESSED BY CREDIT CARD COMPANY)                      7,625


OTHER DEPOSITORY ACCOUNTS
OTHER CASH ACCOUNTS                                                                     3,413


INVESTMENTS
SHORT TERM INVESTMENTS                                                             94,700,765

TOTAL CASH PER GENERAL LEDGER                                                    $ 95,906,789
                                                                                 ============






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: SEPTEMBER 30 THOUGH OCTOBER 27, 2002

RECEIPTS AND DISBURSEMENTS
(DOLLARS IN THOUSANDS)



                                                ACTUAL          ACTUAL          ACTUAL            ACTUAL         TOTAL

                                      Monday   09/30/02        10/07/02        10/14/02          10/21/02       09/30/02
                                      Sunday   10/06/02        10/13/02        10/20/02          10/27/02       10/27/02
                                               --------        --------        --------          --------       --------
                                                                                                 
Receipts:
   Sales receipts/Profit Sharing                $ --            $ --            $  --             $--           $  --
   Miscellaneous receipts                        4,061           1,016              101              34           5,212
   Real Estate Proceeds/Settlement                  74              57               96              46             273
   Expense reiumbursements                        --              --               --              --              --
                                                ------          ------          -------           -----         -------
Total available collections                      4,135           1,073              197              80         $ 5,485


Disbursements:
   All disbursements                             3,849             789            3,947             346           8,931
                                                ------          ------          -------           -----         -------
Total disbursements                              3,849             789            3,947             346           8,931
                                                ------          ------          -------           -----         -------

Net receipts/(disbursements)                    $  286          $  284          $(3,750)          $(266)        $(3,446)
                                                ======          ======          =======           =====         =======











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: SEPTEMBER 30 THOUGH OCTOBER 27, 2002

ROLLING REVISED CASH FLOW FORECAST
(DOLLARS IN THOUSANDS)



                                                   Actual
                                                  10/27/02
                                                  --------
                                               
Ending total revolver balance                      $  --
Term loan                                             --
Standby letters of credit                           4,805
Trade letters of credit                               --
                                                   ------
Total extensions of credit                          4,805

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: SEPTEMBER 30, 2002 THROUGH OCTOBER 27, 2002


4.  Payments to Professionals September 30, 2002 through October 27, 2002




      Vendor #                     Vendor Name                            Check Amt.       Check Date       Check #
- --------------------------------------------------------------------------------------------------------------------
                                                                   
        95913         Locke, Reynolds, Boyd and Weisell                  $    453.21        10/02/02        70001736
        44013         McCarter and English                               $    312.66        10/07/02        70001744
        99329         Aegis Property Tax  Specialists                    $  2,036.92        10/08/02        70001818
        57117         Deloitte and Touche                                $ 20,000.00        10/08/02        70001822
        99444         Sitrick and Company, Inc.                          $    383.00        10/15/02        B0027442
       103439         E & Y Restructuring, LLC                           $ 25,285.00        10/15/02        B0027444
        71217         Bass, Berry and Sims                               $ 94,860.12        10/15/02        B0027445
        98378         Skadden, Arps, Slate, Meagher and Flom             $391,927.00        10/15/02        B0027447
        99459         Robert L. Berger and Associates                    $ 13,164.26        10/17/02        B0027457
        48779         Loss, Pavone and Orel                              $     56.50        10/23/02        70001907
        48779         Loss, Pavone and Orel                              $  1,559.50        10/24/02        70001909
        99454         Harwell, Howard, Hyne, Gabbert and Manner, PC      $  1,677.02        10/25/02        B0027443
        98378         Skadden, Arps, Slate, Meagher and Flom             $248,052.00        10/25/02        B0027448
        99391         Otter, Steindler, Houston and Rosen, PC            $ 46,405.08        10/25/02        B0027449






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)



                                                                October 27,
                                                                   2002
                                                                -----------
                                                             
ASSETS
Current Assets:
     Cash and cash equivalents                                    $ 95,907
     Accounts receivable                                             6,244
     Inventories                                                         0
     Prepaid Expenses                                                  426
                                                                  --------
     TOTAL CURRENT ASSETS                                          102,577
                                                                  --------

PROPERTY AND EQUIPMENT
     Owned assets, net of accumulated depreciation                  36,924
     Capitalized leases, net of accumulated amortization              --
                                                                  --------
                       TOTAL PROPERTY AND EQUIPMENT                 36,924
                                                                  --------


     Other assets and deferred charges                              16,119
                                                                  --------

     TOTAL ASSETS                                                 $155,620
                                                                  ========

LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Liabilities Not Subject To Compromise
Current Liabilities:

     Notes payable to banks                                       $   --
     Accounts payable                                               11,840
     Accrued expenses                                               31,520
     State & Local tax                                                 365
     Current maturities capitalized leases                            --
                                                                  --------

     TOTAL CURRENT LIABILITIES                                      43,725
                                                                  --------






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:
     Long-term debt                                                     --
     Capitalized lease obligations                                      --
Liabilities Subject To Compromise:
     Accrued restructuring costs                                      42,067
     Capitalized lease obligations                                      --
     Long-term debt                                                  314,562
     Accounts payable                                                219,575
     Accrued expenses                                                107,486
                                                                   ---------
     Total Liabilities Subject To Compromise                         683,690

     TOTAL LIABILITIES                                               727,415
                                                                   ---------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' (DEFICIT) EQUITY

     Common stock                                                     49,936
     Additional paid-in-capital                                        5,881
     Deferred compensation                                              --
     Accumulated other comprehensive loss                               --
     Retained (deficit) earnings                                    (627,612)
                                                                   ---------
                   TOTAL SHAREHOLDERS' (DEFICIT) EQUITY             (571,795)

     TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY          $ 155,620
                                                                   =========







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: SEPTEMBER 30, 2002 THROUGH OCTOBER 27, 2002

SUMMARY OF ACCOUNTS RECEIVABLE
MONTH ENDED: OCTOBER 27, 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: SEPTEMBER 29,2002 THROUGH OCTOBER 27, 2002

SCHEDULE OF POST PETITION LIABILITIES-ACCOUNTS PAYABLE
Month Ended: 10/27/2002
FORM OPR-4



                                                       Total
                                                     --------
                                                  
Trade Accounts Payable (Merchandise)                 $ 11,840







                                                       Total
                                                     --------
                                                  
Expense & other payables                             $ 31,520










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: AUGUST 26, 2002 THROUGH SEPTEMBER 29, 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                --

State income tax                                            Various        Various     $        (188)
                                                                                       -------------

                                          SUBTOTAL                                     $        (188)
                                                                                       -------------


Sales/use tax                             SUBTOTAL   *      Various        Various     $         565
                                                                                       -------------


Personal property tax                                *      Various        Various     $         439

Real estate taxes                                    *      Various        Various     $       5,234

Inventory taxes                                      *      Various        Various                --

Gross receipts/bus licenses                          *      Various        Various     $           4

Franchise taxes                                      *      Various        Various     $         611
                                                                                       -------------

                                           SUBTOTAL                                    $       6,288
                                                                                       -------------


                                                                                       -------------
TOTAL TAXES PAYABLE                                                                    $       6,665
                                                                                       =============


*   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: SEPTEMBER 30 THOUGH OCTOBER 27, 2002

SCHEDULE OF POST PETITION LIABILITIES
FORM OPR-4

(DOLLARS IN THOUSANDS)



                                                           DATE                                  TOTAL DUE
                                                         INCURRED           DATE DUE        (10/27/02 BALANCE)
                                                     -----------------------------------------------------------
                                                                                   
POST PETITION SECURED DEBT
          Revolver borrowings                            04/14/00              NA                 $ --
          Facility standby letters of credit             04/14/00              NA                  4,805
          Facility trade letters of credit               04/14/00              NA                   --
          Term loans                                     04/14/00              NA                   --
                                                                                                  ------
TOTAL EXTENSIONS OF CREDIT                                                                        $4,805
                                                                                                  ======


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
                                                                                 DECEMBER 31, 2001
                                                                                      THROUGH
                                                                                  AUGUST 25, 2002
                                                                                 -----------------
                                                                              
Net Sales                                                                              $  11


Costs of merchandise sold and buying and occupancy expense                               106
                                                                                       -----

Gross margin after cost of merchandise sold and buying and occupancy expenses            (95)

Selling, General and Administrative Expenses:
     Net Employment Expense                                                              282
     Net Advertising                                                                     --
     Banking and Other Fees                                                             (132)
     Real Estate and Other Taxes                                                           0
     Supplies                                                                              1
     Communication and Equipment                                                           6
     Travel                                                                                1
     UCC and Other Services                                                                0
     Legal and Professional                                                               13
     Sales and Shipping                                                                  --
     Insurance                                                                           --
     Miscellaneous                                                                      (245)
     Credit Card Services                                                                --
                                                                                       -----
Total Selling, General and Administrative Expenses                                       (74)



Other expense/(income), net                                                              --





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                    (21)

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

Earnings (loss) before reorganization items, and income tax                              (21)

Reorganization Items:

     Legal and Professional                                                               61
     (Gain) on Disposal of Assets                                                        --
     Miscellaneous                                                                       111
     Close Store Charges                                                                 617
                                                                                       -----
     Total Reorganization Items                                                          789

Earnings (loss) before income tax                                                       (810)
     Income tax benefit                                                                  --
     Cumulative Effect of Change in Accounting Principles                                --
                                                                                       -----

Net earnings (loss)                                                                    $(810)
                                                                                       =====






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




                                                                         Page 15