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: February 24, 2003

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

EX-99 MONTHLY OPERATING REPORT

Item 5. Other Events

     The Company has filed its monthly operating report for the period commencing February 24, 2003 and ended March 30, 2003 (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 March 30, 2003.

SIGNATURES

     Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	SERVICE MERCHANDISE COMPANY, INC.
Date: April 29, 2003	By:	/s/ C. Steven Moore C. Steven Moore Senior Vice President, Chief Administrative Officer, Secretary and General Counsel

EXHIBIT INDEX

No.	Exhibit
99	Monthly Operating Report for the period ended March 30, 2003.

EX-99 3 g82233exv99.txt EX-99 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 March 30, 2003 -------------------------------------- COMES NOW, SERVICE MERCHANDISE COMPANY, INC. ---------------------------------------------------------------- Debtor-In-Possession, and hereby submits its Preliminary Monthly Operating Report for the period commencing February 24, 2003 and ending March 30, 2003 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: April 21, 2003 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) 660-3477 ------------------------------------------------------ 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: FEBRUARY 24, 2003 THROUGH MARCH 30, 2003 1. PAYROLL

WAGES TAXES OFFICERS TITLE GROSS NET DUE PAID - ------------------------------------------------------------------------------------------------------------------------------------ C. STEVEN MOORE SENIOR VICE PRESIDENT, CHIEF ADMINISTRATIVE OFFICER, GENERAL COUNSEL AND SECRETARY $34,424.68 $20,423.94 $2,174.17 $9,446.87 MICHAEL E. HOGREFE SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER $29,617.08 $17,648.20 $1,924.49 $7,953.15

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: FEBRUARY 24, 2003 THROUGH MARCH 30, 2003 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 06/30/03 $20,625 06/30/03 Royal Indemnity Co. $5.5 Million R2HD325112 06/30/03 $60,000 06/30/03 Boiler & Machinery Hartford Steam Boiler $16.5 Million FBP4914359 12/31/03 $20,248 12/31/03 General Liability Ace American Ins Co $5 Million XSLG2057804A 12/31/03 $8,500 12/31/03 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 12/31/03 $2,500 12/31/03 Umbrella Westchester Fire $25 Million CUA151233 06/30/03 $280,400 06/30/03 Directors & Officers Continental Insurance Co $10 Million 300714943 12/31/03 $514,286 12/31/03 Federal Insurance Co $10 Million 81278902-A 12/31/03 $470,250 12/31/03 Royal Insurance Co $10 Million PSF000009 12/31/03 $470,250 12/31/03 Fiduciary National Union Fire Ins Co $3 Million 2678130 12/31/03 $60,000 12/31/03

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: FEBRUARY 24, 2003 THROUGH MARCH 30, 2003 3. BANK ACCOUNTS TOTAL CASH AND CASH EQUIVALENTS CORPORATE ACCOUNTS $ 818,481 CREDIT CARD CASH ACCOUNTS (SALES PROCESSED BY CREDIT CARD COMPANY) -- OTHER DEPOSITORY ACCOUNTS OTHER CASH ACCOUNTS 2,306 INVESTMENTS SHORT TERM INVESTMENTS 91,992,783 ------------ TOTAL CASH PER GENERAL LEDGER $ 92,813,570 ============ 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: FEBRUARY 24, 2003 THROUGH MARCH 30, 2003 RECEIPTS AND DISBURSEMENTS (DOLLARS IN THOUSANDS)

ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL TOTAL Monday 02/24/03 03/03/03 03/10/03 03/17/03 03/24/03 02/24/03 Sunday 03/02/03 03/09/03 03/16/03 03/23/03 03/30/03 03/30/03 -------- -------- -------- -------- -------- -------- Receipts: Sales receipts/Profit Sharing $ -- $ -- $ -- $ -- $ -- $ -- Miscellaneous receipts 14 36 160 361 132 703 Real Estate Proceeds/Settlement -- -- -- -- -- -- Expense reimbursements -- -- -- -- -- -- ----- ----- ----- ----- ----- ------- Total available collections 14 36 160 361 132 $ 703 Disbursements: All disbursements 352 377 466 393 416 $ 2,004 ----- ----- ----- ----- ----- ------- Total disbursements 352 377 466 393 416 2,004 ----- ----- ----- ----- ----- ------- Net receipts/(disbursements) $(338) $(341) $(306) $ (32) $(284) $(1,301) ===== ===== ===== ===== ===== =======

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: FEBRUARY 24, 2003 THROUGH MARCH 30, 2003 ROLLING REVISED CASH FLOW FORECAST (DOLLARS IN THOUSANDS)

ACTUAL 03/30/03 -------- Ending total revolver balance $ -- Term loan -- Standby letters of credit 4,039 Trade letters of credit -- ------ Total extensions of credit 4,039 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: February 24, 2003 THROUGH March 30, 2003 4. PAYMENTS TO PROFESSIONALS FEBRUARY 24, 2003 THROUGH MARCH 30, 2003

Vendor # Vendor Name Check Amt. Check Date Check # - ---------------------------------------------------------------------------------------------------------------------------- 57117 Deloitte and Touche 13,500.00 02/24/03 70002556 48779 Loss, Pavone and Orel 517.50 02/25/03 70002561 99454 Harwell, Howard, Hyne Gabbert and Manner, PC 5,910.53 02/25/03 B0027517 99391 Otterbourg, Steindler, Houston and Rosen, PC 34,610.90 02/25/03 B0027518 57117 Deloitte and Touche 22,750.00 02/26/03 70002563 95913 Locke, Reynolds, Boyd and Weisell 1,179.64 03/04/03 70002593 103439 E & Y Corporate Finance, LLC 6,581.00 03/05/03 B0027519 95384 Deloitte and Touche, LLP 284.19 03/06/03 70002603 99454 Harwell, Howard, Hyne Gabbert and Manner, PC 4,854.23 03/07/03 B0027522 99391 Otterbourg, Steindler, Houston and Rosen, PC 32,388.89 03/07/03 B0027523 103439 E & Y Corporate Finance, LLC 13,311.00 03/07/03 B0027525 71217 Bass, Berry and Sims 68,070.44 03/07/03 B0027526 86237 Brusniak, Clement, Harrison and Rosen, PC $550.00 03/10/03 70002611 48779 Loss, Pavone and Orel $343.50 03/13/03 70002648 98378 Skadden, Arps, Slate, Meagher and Flom $149,266.00 03/13/03 B0027530 103439 E & Y Corporate Finance, LLC $17,573.00 03/14/03 B0027531 99444 Sitrick and Company $315.00 03/14/03 B0027532 71217 Bass, Berry and Sims $122,984.18 03/14/03 B0027533 98378 Skadden, Arps, Slate, Meagher and Flom $198,843.00 03/20/03 B0027534 99459 Robert L. Berger and Associates 11,062.81 03/21/03 B0027538 99454 Harwell, Howard, Hyne Gabbert and Manner, PC $14,530.77 03/24/03 B0027535 99391 Otterbourg, Steindler, Houston and Rosen, PC $79,044.34 03/24/03 B0027536 84740 Taft, Stettinius and Hollister $22,902.79 03/25/03 70002686 95913 Locke, Reynolds, Boyd and Weisell $1,102.70 03/25/03 70002687 57117 Deloitte and Touche $42,012.00 03/26/03 70002694 57117 Deloitte and Touche $24,000.00 03/27/03 70002698 99329 Aegis Group $469.00 03/28/03 70002702

Page 7 FORM OPR- 1 AND 2 SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DEBTOR-IN-POSSESSION) (IN THOUSANDS)

March 30, 2003 --------- ASSETS Current Assets: Cash and cash equivalents $ 92,814 Accounts receivable 201 Prepaid Expenses 100 --------- TOTAL CURRENT ASSETS 93,115 --------- PROPERTY AND EQUIPMENT Owned assets, net of accumulated depreciation 9,410 Capitalized leases, net of accumulated amortization -- --------- TOTAL PROPERTY AND EQUIPMENT 9,410 --------- Other assets and deferred charges 14,959 --------- TOTAL ASSETS $ 117,484 ========= LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY Liabilities Not Subject To Compromise Current Liabilities: Notes payable to banks $ -- Accounts payable 5,314 Accrued expenses 9,933 State & Local tax 419 Current maturities capitalized leases -- --------- TOTAL CURRENT LIABILITIES 15,666 ---------

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 25,028 Capitalized lease obligations -- Long-term debt 314,562 Accounts payable 220,345 Accrued expenses 102,037 --------- Total Liabilities Subject To Compromise 661,972 TOTAL LIABILITIES 677,638 --------- 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 (615,971) --------- TOTAL SHAREHOLDERS' (DEFICIT) EQUITY (560,154) TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY $ 117,484 ========= 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: FEBRUARY 24, 2003 THROUGH MARCH 30, 2003 SUMMARY OF ACCOUNTS RECEIVABLE MONTH ENDED: MARCH 30, 2003 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: FEBRUARY 24, 2003 THROUGH MARCH 30, 2003 SCHEDULE OF POST PETITION LIABILITIES-ACCOUNTS PAYABLE MONTH ENDED: 3/30/2003 FORM OPR-4

Total ------- Trade Accounts Payable (Merchandise) $ 5,314

Total ------- Expense & other payables $ 9,933

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: FEBRUARY 24, 2003 THROUGH MARCH 30, 2003 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 $ (135) --------------- SUBTOTAL $ (135) --------------- Sales/use tax SUBTOTAL * Various Various $ 567 --------------- Personal property tax * Various Various $ 103 Real estate taxes * Various Various $ 1,301 Inventory taxes * Various Various $ (249) Gross receipts/bus licenses * Various Various $ 10 Franchise taxes * Various Various $ 671 --------------- SUBTOTAL $ 1,836 --------------- --------------- TOTAL TAXES PAYABLE $ 2,268 ===============

* 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: FEBRUARY 24, 2003 THROUGH MARCH 30, 2003 SCHEDULE OF POST PETITION LIABILITIES FORM OPR-4 (DOLLARS IN THOUSANDS)

DATE TOTAL DUE INCURRED DATE DUE 03/30/03 -------------------------------------- POST PETITION SECURED DEBT Revolver borrowings 04/14/00 NA -- Facility standby letters of credit 04/14/00 NA $4,039 Facility trade letters of credit 04/14/00 NA -- Term loans 04/14/00 NA -- ------ TOTAL EXTENSIONS OF CREDIT $4,039 ====== 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 FEBRUARY 24, 2003 THROUGH MARCH 30, 2003 ----------------- Net Sales $ -- Costs of merchandise sold and buying and occupancy expense (1,775) -------- Gross margin after cost of merchandise sold and buying and occupancy expenses 1,775 Selling, General and Administrative Expenses: Net Employment Expense 146 Net Advertising -- Banking and Other Fees (83) Real Estate and Other Taxes 0 Supplies 0 Communication and Equipment 17 Travel 0 UCC and Other Services -- Legal and Professional 46 Sales and Shipping -- Insurance -- Miscellaneous (1,855) Credit Card Services -- -------- Total Selling, General and Administrative Expenses (1,729) Other expense/(income), net 0

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 3,504 Interest expense - debt -- Interest expense - capitalized leases -- -------- Earnings (loss) before reorganization items, and income tax 3,504 Reorganization Items: Legal and Professional 183 (Gain) on Disposal of Assets 10,361 Miscellaneous -- Close Store Charges (23,016) -------- Total Reorganization Items (12,472) Earnings (loss) before income tax 15,976 Income tax benefit -- Cumulative Effect of Change in Accounting Principles -- -------- Net earnings (loss) $ 15,976 ======== 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                 March 30, 2003
                                                                               --------------------------------------
                            COMES NOW,               SERVICE MERCHANDISE COMPANY, INC.
                                                     ----------------------------------------------------------------

         Debtor-In-Possession, and hereby submits its Preliminary Monthly Operating Report for the period commencing

           February 24, 2003    and ending    March 30, 2003  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:        April 21, 2003                    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) 660-3477
                                                                             ------------------------------------------------------

           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: FEBRUARY 24, 2003 THROUGH MARCH 30, 2003


1. PAYROLL



                                                                                            WAGES                      TAXES
   OFFICERS                                     TITLE                                GROSS         NET            DUE        PAID
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                            
C. STEVEN MOORE          SENIOR VICE PRESIDENT, CHIEF ADMINISTRATIVE OFFICER,
                         GENERAL COUNSEL AND SECRETARY                            $34,424.68   $20,423.94      $2,174.17   $9,446.87
MICHAEL E. HOGREFE       SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER        $29,617.08   $17,648.20      $1,924.49   $7,953.15

















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: FEBRUARY 24, 2003 THROUGH MARCH 30, 2003


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      06/30/03      $20,625      06/30/03
                            Royal Indemnity Co.            $5.5 Million       R2HD325112       06/30/03      $60,000      06/30/03
Boiler & Machinery          Hartford Steam Boiler          $16.5 Million      FBP4914359       12/31/03      $20,248      12/31/03
General Liability           Ace American Ins Co            $5 Million        XSLG2057804A      12/31/03       $8,500      12/31/03
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      12/31/03       $2,500      12/31/03
Umbrella                    Westchester Fire               $25 Million         CUA151233       06/30/03     $280,400      06/30/03
Directors & Officers        Continental Insurance Co       $10 Million         300714943       12/31/03     $514,286      12/31/03
                            Federal Insurance Co           $10 Million        81278902-A       12/31/03     $470,250      12/31/03
                            Royal Insurance Co             $10 Million         PSF000009       12/31/03     $470,250      12/31/03
Fiduciary                   National Union Fire Ins Co     $3 Million           2678130        12/31/03      $60,000      12/31/03












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: FEBRUARY 24, 2003 THROUGH MARCH 30, 2003

3. BANK ACCOUNTS

                                                                               
TOTAL CASH AND CASH EQUIVALENTS

CORPORATE ACCOUNTS                                                                $    818,481


CREDIT CARD CASH ACCOUNTS (SALES PROCESSED BY CREDIT CARD COMPANY)                          --


OTHER DEPOSITORY ACCOUNTS
OTHER CASH ACCOUNTS                                                                      2,306


INVESTMENTS
SHORT TERM INVESTMENTS                                                              91,992,783
                                                                                  ------------

TOTAL CASH PER GENERAL LEDGER                                                     $ 92,813,570
                                                                                  ============











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: FEBRUARY 24, 2003 THROUGH MARCH 30, 2003

RECEIPTS AND DISBURSEMENTS
(DOLLARS IN THOUSANDS)




                                                  ACTUAL       ACTUAL        ACTUAL        ACTUAL        ACTUAL         TOTAL

                                      Monday     02/24/03     03/03/03      03/10/03      03/17/03      03/24/03       02/24/03
                                      Sunday     03/02/03     03/09/03      03/16/03      03/23/03      03/30/03       03/30/03
                                                 --------     --------      --------      --------      --------       --------
                                                                                                  
Receipts:
   Sales receipts/Profit Sharing                  $  --         $  --         $  --         $  --         $  --         $    --
   Miscellaneous receipts                            14            36           160           361           132             703
Real Estate Proceeds/Settlement                      --            --            --            --            --              --
   Expense reimbursements                            --            --            --            --            --              --
                                                  -----         -----         -----         -----         -----         -------
Total available collections                          14            36           160           361           132         $   703


Disbursements:
   All disbursements                                352           377           466           393           416         $ 2,004
                                                  -----         -----         -----         -----         -----         -------
Total disbursements                                 352           377           466           393           416           2,004
                                                  -----         -----         -----         -----         -----         -------

Net receipts/(disbursements)                      $(338)        $(341)        $(306)        $ (32)        $(284)        $(1,301)
                                                  =====         =====         =====         =====         =====         =======









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: FEBRUARY 24, 2003 THROUGH MARCH 30, 2003

ROLLING REVISED CASH FLOW FORECAST
(DOLLARS IN THOUSANDS)




                                                         ACTUAL
                                                        03/30/03
                                                        --------
                                                     
Ending total revolver balance                            $   --
Term loan                                                    --
Standby letters of credit                                 4,039
Trade letters of credit                                      --
                                                         ------
Total extensions of credit                                4,039

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: February 24, 2003 THROUGH March 30, 2003

4. PAYMENTS TO PROFESSIONALS FEBRUARY 24, 2003 THROUGH MARCH 30, 2003



   Vendor #                               Vendor Name                              Check Amt.       Check Date     Check #
- ----------------------------------------------------------------------------------------------------------------------------
                                                                                                       
        57117                                           Deloitte and Touche         13,500.00        02/24/03      70002556
        48779                                         Loss, Pavone and Orel            517.50        02/25/03      70002561
        99454                  Harwell, Howard, Hyne Gabbert and Manner, PC          5,910.53        02/25/03      B0027517
        99391                  Otterbourg, Steindler, Houston and Rosen, PC         34,610.90        02/25/03      B0027518
        57117                                           Deloitte and Touche         22,750.00        02/26/03      70002563
        95913                             Locke, Reynolds, Boyd and Weisell          1,179.64        03/04/03      70002593
       103439                                 E & Y  Corporate Finance, LLC          6,581.00        03/05/03      B0027519
        95384                                      Deloitte and Touche, LLP            284.19        03/06/03      70002603
        99454                  Harwell, Howard, Hyne Gabbert and Manner, PC          4,854.23        03/07/03      B0027522
        99391                  Otterbourg, Steindler, Houston and Rosen, PC         32,388.89        03/07/03      B0027523
       103439                                 E & Y  Corporate Finance, LLC         13,311.00        03/07/03      B0027525
        71217                                          Bass, Berry and Sims         68,070.44        03/07/03      B0027526
        86237                     Brusniak, Clement, Harrison and Rosen, PC           $550.00        03/10/03      70002611
        48779                                         Loss, Pavone and Orel           $343.50        03/13/03      70002648
        98378                        Skadden, Arps, Slate, Meagher and Flom       $149,266.00        03/13/03      B0027530
       103439                                 E & Y  Corporate Finance, LLC        $17,573.00        03/14/03      B0027531
        99444                                           Sitrick and Company           $315.00        03/14/03      B0027532
        71217                                          Bass, Berry and Sims       $122,984.18        03/14/03      B0027533
        98378                        Skadden, Arps, Slate, Meagher and Flom       $198,843.00        03/20/03      B0027534
        99459                               Robert L. Berger and Associates         11,062.81        03/21/03      B0027538
        99454                  Harwell, Howard, Hyne Gabbert and Manner, PC        $14,530.77        03/24/03      B0027535
        99391                  Otterbourg, Steindler, Houston and Rosen, PC        $79,044.34        03/24/03      B0027536
        84740                                Taft, Stettinius and Hollister        $22,902.79        03/25/03      70002686
        95913                             Locke, Reynolds, Boyd and Weisell         $1,102.70        03/25/03      70002687
        57117                                           Deloitte and Touche        $42,012.00        03/26/03      70002694
        57117                                           Deloitte and Touche        $24,000.00        03/27/03      70002698
        99329                                                   Aegis Group           $469.00        03/28/03      70002702















                                                                          Page 7


FORM OPR- 1 AND 2

               SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
                    CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                             (DEBTOR-IN-POSSESSION)
                                 (IN THOUSANDS)





                                                                       March 30,
                                                                          2003
                                                                       ---------
                                                                    
ASSETS
Current Assets:
     Cash and cash equivalents                                         $  92,814
     Accounts receivable                                                     201
     Prepaid Expenses                                                        100
                                                                       ---------
     TOTAL CURRENT ASSETS                                                 93,115
                                                                       ---------

PROPERTY AND EQUIPMENT
     Owned assets, net of accumulated depreciation                         9,410
     Capitalized leases, net of accumulated amortization                      --
                                                                       ---------
                             TOTAL PROPERTY AND EQUIPMENT                  9,410
                                                                       ---------

     Other assets and deferred charges                                    14,959
                                                                       ---------
     TOTAL ASSETS                                                      $ 117,484
                                                                       =========

LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Liabilities Not Subject To Compromise
Current Liabilities:
     Notes payable to banks                                            $      --
     Accounts payable                                                      5,314
     Accrued expenses                                                      9,933
     State & Local tax                                                       419
     Current maturities capitalized leases                                    --
                                                                       ---------

     TOTAL CURRENT LIABILITIES                                            15,666
                                                                       ---------



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                                          25,028
     Capitalized lease obligations                                            --
     Long-term debt                                                      314,562
     Accounts payable                                                    220,345
     Accrued expenses                                                    102,037
                                                                       ---------
     Total Liabilities Subject To Compromise                             661,972

     TOTAL LIABILITIES                                                   677,638
                                                                       ---------

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                                        (615,971)
                                                                       ---------
                         TOTAL SHAREHOLDERS' (DEFICIT) EQUITY           (560,154)

     TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY              $ 117,484
                                                                       =========







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: FEBRUARY 24, 2003 THROUGH MARCH 30, 2003

SUMMARY OF ACCOUNTS RECEIVABLE
MONTH ENDED: MARCH 30, 2003
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: FEBRUARY 24, 2003 THROUGH MARCH 30, 2003

SCHEDULE OF POST PETITION LIABILITIES-ACCOUNTS PAYABLE
MONTH ENDED: 3/30/2003
FORM OPR-4




                                                                  Total
                                                                 -------
                                                              
Trade Accounts Payable (Merchandise)                             $ 5,314







                                                                  Total
                                                                 -------
                                                              
Expense & other payables                                         $ 9,933













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: FEBRUARY 24, 2003 THROUGH MARCH 30, 2003

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      $          (135)
                                                                                         ---------------

                                     SUBTOTAL                                            $          (135)
                                                                                         ---------------


Sales/use tax                        SUBTOTAL     *        Various          Various      $           567
                                                                                         ---------------


Personal property tax                             *        Various          Various      $           103

Real estate taxes                                 *        Various          Various      $         1,301

Inventory taxes                                   *        Various          Various      $          (249)

Gross receipts/bus licenses                       *        Various          Various      $            10

Franchise taxes                                   *        Various          Various      $           671
                                                                                         ---------------

                                     SUBTOTAL                                            $         1,836
                                                                                         ---------------


                                                                                         ---------------
TOTAL TAXES PAYABLE                                                                      $         2,268
                                                                                         ===============


*   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: FEBRUARY 24, 2003 THROUGH MARCH 30, 2003

SCHEDULE OF POST PETITION LIABILITIES
FORM OPR-4



(DOLLARS IN THOUSANDS)



                                                         DATE                       TOTAL DUE
                                                       INCURRED       DATE DUE      03/30/03
                                                       --------------------------------------
                                                                           
POST PETITION SECURED DEBT
           Revolver borrowings                         04/14/00          NA              --
           Facility standby letters of credit          04/14/00          NA          $4,039
           Facility trade letters of credit            04/14/00          NA              --
           Term loans                                  04/14/00          NA              --
                                                                                     ------
TOTAL EXTENSIONS OF CREDIT                                                           $4,039
                                                                                     ======

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
                                                                      FEBRUARY 24, 2003
                                                                           THROUGH
                                                                       MARCH 30, 2003
                                                                      -----------------
                                                                   
Net Sales                                                                 $     --


Costs of merchandise sold and buying and occupancy expense                  (1,775)
                                                                          --------

Gross margin after cost of merchandise sold and buying and
     occupancy expenses                                                      1,775

Selling, General and Administrative Expenses:
     Net Employment Expense                                                    146
     Net Advertising                                                            --
     Banking and Other Fees                                                    (83)
     Real Estate and Other Taxes                                                 0
     Supplies                                                                    0
     Communication and Equipment                                                17
     Travel                                                                      0
     UCC and Other Services                                                     --
     Legal and Professional                                                     46
     Sales and Shipping                                                         --
     Insurance                                                                  --
     Miscellaneous                                                          (1,855)
     Credit Card Services                                                       --
                                                                          --------
Total Selling, General and Administrative Expenses                          (1,729)



Other expense/(income), net                                                      0






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             3,504

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

Earnings (loss) before reorganization items, and income tax                       3,504

Reorganization Items:

     Legal and Professional                                                         183
     (Gain) on Disposal of Assets                                                10,361
     Miscellaneous                                                                   --
     Close Store Charges                                                        (23,016)
                                                                               --------
     Total Reorganization Items                                                 (12,472)

Earnings (loss) before income tax                                                15,976
     Income tax benefit                                                              --
     Cumulative Effect of Change in Accounting Principles                            --
                                                                               --------
Net earnings (loss)                                                            $ 15,976
                                                                               ========







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

                                                                         Page 15