FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-19657
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TRM COPY CENTERS CORPORATION
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(Exact name of registrant as specified in its charter)
Oregon 93-0809419
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5208 N.E. 122nd Avenue
Portland, Oregon 97230
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(Address of principal executive offices) (Zip Code)
(503) 257-8766
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
CLASS OUTSTANDING AT DECEMBER 31, 1997
------------ --------------------------------
Common Stock 6,984,141
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
TRM COPY CENTERS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
1997 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,528 $ 1,974
Accounts receivable, net 7,704 7,560
Inventories 4,611 4,995
Prepaid expenses and other 1,399 1,801
-------- --------
Total current assets 16,242 16,330
Equipment and vehicles, less accumulated depreciation 33,872 36,315
Other assets 46 46
-------- --------
$ 50,160 $ 52,691
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Checks in transit $ 1,409 $ 1,257
Accounts payable 1,568 2,280
Accrued expenses 3,697 3,251
-------- --------
Total current liabilities 6,674 6,788
Long-term debt 400 0
Deferred income taxes 4,258 4,770
-------- --------
Total liabilities 11,332 11,558
-------- --------
Stockholders' equity:
Preferred stock, no par value. Authorized
5,000 shares; no shares issued
and outstanding -- --
Common stock, no par value. Authorized
10,000 shares; issued and
outstanding 6,931 and 6,984 shares 16,601 16,894
Retained earnings 22,279 24,203
Cumulative translation adjustment (52) 36
-------- --------
Total stockholders' equity 38,828 41,133
-------- --------
$ 50,160 $ 52,691
======== ========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TRM COPY CENTERS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------- ---------------------------
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 17,347 $ 16,709 $ 33,924 $ 32,946
Less discounts 2,920 2,715 5,656 5,285
-------- -------- -------- --------
Net sales 14,427 13,994 28,268 27,661
Cost of sales 7,630 7,636 15,035 14,988
-------- -------- -------- --------
Gross profit 6,797 6,358 13,233 12,673
Selling, general and administrative
Expense 4,656 4,721 9,143 9,228
-------- -------- -------- --------
Operating income 2,141 1,637 4,090 3,445
Other expense:
Interest 119 10 266 22
Other, net 100 177 188 266
-------- -------- -------- --------
Income before income taxes 1,922 1,450 3,636 3,157
Provision for income taxes 759 559 1,436 1,233
-------- -------- -------- --------
Net income $ 1,163 $ 891 $ 2,200 $ 1,924
======== ======== ======== ========
Basic net income per share
Shares outstanding 6,528 6,980 6,511 6,967
======== ======== ======== ========
Net income per share $ 0.18 $ 0.13 $ 0.34 $ 0.28
======== ======== ======== ========
Diluted net income per share
Shares outstanding 7,328 7,349 7,332 7,356
======== ======== ======== ========
Net income per share $ 0.16 $ 0.12 $ 0.30 $ 0.26
======== ======== ======== ========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TRM COPY CENTERS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Common Stock Cumulative
--------------------- Retained Translation
Shares Amount Earnings Adjustment Total
------ ------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997 6,931 $16,601 $22,279 $ (52) $38,828
Exercise of stock options 53 293 -- -- 293
Net income for the
six months ended
December 31, 1997 -- -- 1,924 -- 1,924
Foreign currency translation
adjustment -- -- -- 88 88
------ ------- ------- -------- -------
Balance at December 31, 1997 6,984 $16,894 $24,203 $ 36 $41,133
====== ======= ======= ======== =======
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TRM COPY CENTERS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
December 31,
---------------------------------
1996 1997
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 2,200 $ 1,924
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 2,858 2,795
Loss on disposal of equipment
and vehicles 50 79
Changes in items affecting operations:
Accounts receivable (355) 144
Inventories (5) (384)
Prepaid expenses and other (467) (402)
Accounts payable 120 712
Accrued expenses 42 (446)
Deferred income tax 522 512
-------- --------
Total operating activities 4,965 4,934
-------- --------
Investing activities:
Proceeds from sale of equipment 180 270
Capital expenditures (1,824) (5,678)
Other (56) 0
-------- -------
Total investing activities (1,700) (5,408)
-------- --------
Financing activities:
Change in checks in transit, net 517 (152)
Principal payments on long-term debt (3,128) (400)
Proceeds from long-term debt 0 0
Net proceeds from issuance of common stock 193 293
-------- --------
Total financing activities (2,418) (259)
-------- --------
Effect of exchange rate changes 269 179
-------- --------
Net increase (decrease) in cash and
cash equivalents 1,116 (554)
Cash and cash equivalents at beginning
of period 873 2,528
-------- --------
Cash and cash equivalents at end of period $ 1,989 $ 1,974
======== ========
</TABLE>
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<PAGE>
TRM COPY CENTERS CORPORATION
Notes to Condensed Consolidated Financial Statements
1. Interim Financial Data:
The condensed financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and reflect all adjustments, consisting
only of normal recurring adjustments, which, in the opinion of management,
are necessary for a fair statement of the results of the interim periods.
These condensed interim financial data should be read in conjunction with
the Company's latest annual report to shareholders.
2. Net Income Per Share:
Basic and diluted net income per share are based on the weighted average
number of common shares outstanding during each year, with diluted
including the effect of potentially dilutive common shares. For the three
months ended December 31, 1996 and 1997, and six months ended December 31,
1996 and 1997, the weighted average number of common shares for basic net
income per share computations were 6,528,000; 6,980,000; 6,511,000; and
6,967,000; respectively. For diluted net income per share, 800,000;
369,000; 821,000; and 389,000 shares were added to weighted average shares
outstanding for the three months ended December 31, 1996 and 1997 and for
the six months ended December 31, 1996 and 1997, respectively, representing
potential dilution for stock options outstanding, calculated using the
treasury stock method.
3. Inventories (in thousands):
June 30, December 31,
1997 1997
------- -------
Paper $ 1,231 $ 1,298
Toner and developer 692 842
Parts 2,688 2,855
------- -------
$ 4,611 $ 4,995
======= =======
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company has continued to expand its business by opening TRM Centers in
new and existing market areas. The number of market areas served increased from
66 to 72 from June 30, 1996 to June 30, 1997. The number of TRM Centers grew
from 31,719 to 34,796 over the same period. This expansion has continued into
the first six months of fiscal 1998 with the opening of three new market areas
and 834 TRM Centers. As of December 31, 1997, the Company had 75 market areas
with 35,630 TRM Centers.
Results of Operations
Sales for the second quarter were $16.7 million, down 3.7% from second
quarter sales of the previous year of $17.3 million. Sales for the six months
year-to-date were $32.9 million, down 2.9% from prior year-to-date sales of
$33.9 million. Sales in Europe continue to increase, although at a slowing rate
as the European market matures. Sales in North America, where the market is more
fully developed, continue to decline, offsetting the growth in Europe.
Sales discounts are the portion of revenue retained by customers. Sales
discounts as a percentage of sales continue to decline, from 16.8% to 16.2% in
the comparable quarters. This reflects changes made in business agreements with
new customers. The discount rate generally varies among individual retail
businesses based on volume.
Cost of sales remained flat compared to the same quarter in prior year and
decreased 0.3% compared to the prior six months. Cost of sales increased as a
percent of sales from 44.0% to 45.7% in the comparable prior-year quarter due to
certain costs being fixed while sales have decreased.
Selling, general and administrative costs grew by 1.4% to $4.7 million in
the second quarter and 0.9% to $9.2 million for the first six months. Increased
health care costs and vehicle fleet costs caused this change.
Interest costs are incurred because the Company uses bank borrowings to
help fund its expansion. The decrease in interest expense is due to reduced bank
borrowings compared to the prior-year quarter and year-to-date.
Liquidity and Capital Resources
During the six months ended December 31, 1997, the Company funded capital
expenditures of $5.7 million and repaid $0.4 million in bank borrowings with no
additional draws on its line of credit. Capital expenditures increased by $3.9
million over the same period of the prior year due to increased purchases and
installations of NextGenTM copiers ($2.3 million) and increased expenditures for
other copiers ($1.2 million). Additional capital expenditures of $400,000 were
for normal operating purposes.
The Company currently anticipates capital expenditures of approximately $13
million during fiscal 1998. The Company intends to finance these capital
expenditures with cash generated from operations and with bank borrowings under
its existing line of credit. The Company expects that these sources will provide
adequate cash to fund its expansion through at least June 30, 1998.
Year 2000 Disclosure
The Company is aware of, and currently evaluating its exposure related to
potential year 2000 information systems problems. Generally, internal accounting
and operating systems are either year 2000 compliant or will become compliant as
part of a general information technology upgrade initiative (the "Initiative"),
which is presently underway at the Company. The core components of the
Initiative are anticipated to be completed by December 31, 1998. Total cost of
the Initiative is
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<PAGE>
expected to be approximately $1.2 million, of which $300,000 has been expended
through December 31, 1997. The Company has also determined that a portion of its
telephone system will also require upgraded capability, at a cost of
approximately $50,000.
The Company is presently assessing the risk that major customers or
suppliers may have year 2000 problems, which could impact the Company. The
extent that such risk exists, if any, has not yet been determined.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." This Statement establishes a different method of computing net income
per share than was previously required under the provisions of Accounting
Principles Board Opinion No. 15. Under SFAS No. 128, the Company is required to
present both basic net income per share and diluted net income per share. The
Company adopted SFAS No. 128 in the second fiscal quarter of 1998 and all
historical net income per share data has been restated to conform to the
provisions of this Statement.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which established requirements for disclosure of comprehensive income.
The objective of SFAS No. 130 is to report all changes in equity that result
from transactions and economic events other than transactions with owners.
Comprehensive income is the total of net income and all other non-owner changes
in equity. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of earlier financial statements for comparative
purposes is required. The Company is in the process of quantifying the effect of
adoption of SFAS No.130.
Forward Looking Statement
Information in this Management's Discussions and Analysis about the
Company's goals, plans and expectations regarding expansion and capital
expenditures constitutes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The following factors are among the factors that could
cause actual results to differ materially from the forward-looking statements:
competitive factors, consumer demand for the Company's services, the Company's
ability to execute its plans successfully, the impact of year 2000 issues, the
risk that the NextGenTM copiers performance may vary significantly from expected
results and from customer acceptance. Any forward-looking statements should be
considered in light of these factors as well as risk factors and business
conditions discussed in the Company's SEC Form 10-K for the year ended June 30,
1997.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the three months
ended December 31, 1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TRM COPY CENTERS CORPORATION
Date: February 17, 1998 By: /s/ PAUL M. BROWN
----------------- -------------------------------------
Paul M. Brown
Secretary, Vice President, Finance
and Chief Financial Officer
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<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 1974
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<RECEIVABLES> 7726
<ALLOWANCES> (166)
<INVENTORY> 4995
<CURRENT-ASSETS> 16330
<PP&E> 58307
<DEPRECIATION> (21992)
<TOTAL-ASSETS> 52691
<CURRENT-LIABILITIES> 6788
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16894
0
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<TOTAL-LIABILITY-AND-EQUITY> 52691
<SALES> 27661
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<CGS> 14988
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<OTHER-EXPENSES> 266
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<EPS-PRIMARY> .28
<EPS-DILUTED> .26
</TABLE>
