FORM 10-Q
UNITED STATES
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 September 30, 1999
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
TRM CORPORATION
(Exact name of registrant as specified in its charter)
Oregon 93-0809419
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
5208 N.E. 122nd Avenue
Portland, Oregon 97230
(Address of principal executive offices) (Zip Code)
(503) 257-8766
(Registrant's telephone number, including area code)
_____________________________________
(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 SEPTEMBER 30, 1999
----- ---------------------------------
Common Stock 7,110,442
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
TRM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,285 $ 8,066
Accounts receivable, net 7,436 6,510
Income tax receivable 412 862
Inventories 3,486 3,700
Prepaid expenses and other 1,640 1,769
Deferred tax asset 542 542
------------ -------------
Total current assets 27,801 21,449
Equipment and vehicles, less accumulated depreciation 51,211 60,800
Other assets 140 1,163
------------ -------------
$ 79,152 $ 83,412
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,992 $ 4,971
Accrued expenses 3,587 5,258
------------ -------------
Total current liabilities 13,579 10,229
Notes Payable -- 6,900
Deferred income taxes 4,248 4,238
------------ -------------
Total liabilities 17,827 21,367
------------ -------------
Shareholders' equity:
Preferred stock, no par value. Authorized
5,000 shares; 1,778 shares issued
and outstanding 19,798 19,798
Common stock, no par value. Authorized
50,000 shares; issued and
outstanding 7,091 and 7,110 shares, respectively 19,143 19,256
Accumulated other comprehensive income 161 16
Retained earnings 22,223 22,975
------------ -------------
Total shareholders' equity 61,325 62,045
------------ -------------
$ 79,152 $ 83,412
============ =============
The accompanying notes are an integral part of this financial statement.
</TABLE>
2
<PAGE>
TRM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ---------------------------
1998 1999 1998 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales $15,848 $16,257 $51,254 $50,474
Less discounts 2,679 2,787 8,725 8,974
------- ------- ------- -------
Net sales 13,169 13,470 42,529 41,500
Cost of sales 6,995 7,555 21,255 21,952
------- ------- ------- -------
Gross profit 6,174 5,915 21,274 19,548
Selling, general and administrative expense 5,615 5,544 17,008 16,570
Non-cash Compensation -- -- 1,146 --
Special Charge -- -- 6,380 --
------- ------- ------- -------
Operating income (loss) 559 371 (3,260) 2,978
Other (income) expense:
Interest 27 143 73 237
Other, net (234) (110) 13 (334)
------- ------- ------- -------
Income (loss) before income taxes 766 338 (3,346) 3,075
Provision for income taxes 281 132 (1,325) 1,201
------- ------- ------- -------
Net income (loss) $ 485 $ 206 $(2,021) $ 1,874
======= ======= ======= =======
Earnings per share computation:
Net income (loss) $ 485 $ 206 $ 2,021 $ 1,874
Preferred stock dividends (404) (374) (404) (1,122)
------- ------- ------- -------
Net income (loss) available to common
shareholders $ 81 $ (168) $(2,425) $ 752
======= ======= ======= =======
Basic net income (loss) per share:
Shares outstanding 7,065 7,110 7,032 7,103
------- ------- ------- -------
Net income (loss) per share $ .01 $ (.02) $ (.034) $ .11
======= ======= ======= =======
Diluted net income (loss) per share
Shares outstanding 7,592 7,110 7,032 7,289
------- ------- ------- -------
Net income (loss per share) $ .01 $ (.02) $ (.34) $ .10
======= ======= ======= =======
The accompanying notes are an integral part of this financial statement.
</TABLE>
3
<PAGE>
TRM CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Preferred Stock Common Stock Comprehen- Retained
Income Shares Amounts Shares Amounts sive Income Earnings Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1998 1,778 $ 19,798 7,091 $ 19,143 $ 161 $ 22,223 $ 61,325
Comprehensive income
Net income $ 1,874 -- -- -- -- -- 1,874 1,874
Other Comprehensive
income (loss), net of tax:
Foreign currency
translation adjustment (145) -- -- -- -- (145) -- (145)
--------
Comprehensive income $ 1,729
========
Issuance of stock to employees -- -- 25 149 -- -- 149
Repurchase of Common Stock -- -- (6) (36) -- -- (36)
Preferred Stock dividends -- -- -- -- -- (1,122) (1,122)
-------- -------- -------- -------- -------- -------- --------
Balances, September 30, 1999 1,778 $ 19,798 7,110 $ 19,256 $ 16 $ 22,975 $ 62,045
======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of this financial statement.
</TABLE>
4
<PAGE>
TRM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1998 1999
-------- --------
<S> <C> <C>
Operating activities:
Net income (loss) $ (2,021) $ 1,874
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 4,947 6,510
(Gain) loss on disposal of equipment
and vehicles 117 (34)
Special charges 6,380 --
Non-cash compensation 1,146 --
Changes in items affecting operations:
Accounts receivable 79 926
Inventories 13 (214)
Income tax receivable (31) (450)
Prepaid expenses and other (30) (129)
Accounts payable 1,502 (5,021)
Accrued expenses 306 1,671
Deferred income tax (1,377) (10)
--------
Total operating activities 11,031 5,123
--------
Investing activities:
Proceeds from sale of equipment 1,954 499
Capital expenditures (17,325) (16,485)
Other (92) (1,058)
--------
Total investing activities (15,463) (17,044)
--------
Financing activities:
Net borrowings on notes payable 577 6,900
Net proceeds from issuance of common stock 64 149
Repurchase of common stock -- (36)
Net Proceeds from issuance of preferred stock 19,853 --
Issuance costs of preferred stock (50) --
Dividends on preferred stock (404) (1,122)
-------- --------
Total financing activities 20,040 5,891
-------- --------
Effect of exchange rate changes (295) (189)
-------- --------
Net increase (decrease) in cash and
cash equivalents 15,313 (6,219)
Cash and cash equivalents at beginning
of period 1,974 14,285
--------
Cash and cash equivalents at end of period $ 17,287 $ 8,066
======== ========
</TABLE>
5
<PAGE>
TRM CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited)
----------------------------------------------------------------
1. Basis of Presentation of Interim Period Statements:
The accompanying financial statements are unaudited and have been
prepared by TRM Corporation (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures typically included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the financial statements
include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the
interim periods reported. The financial statements should be read in
conjunction with the audited financial statements and notes thereto
included in the 1998 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The results of operations for an
interim period are not necessarily indicative of the results of
operations for a full year.
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 net
income including the effect of potentially dilutive securities. For the
three months and nine months ended September, 1998 and 1999, the
weighted average number of common shares for basic net income per share
computations were 7,065,000 and 7,032,000, and 7,110,000 and 7,103,000,
respectively. For diluted net income per share, 527,000 shares were
added to weighted average shares outstanding for the three months ended
September 30, 1998 and 186,000 shares were added for the nine-month
period ended September 30, 1999, representing potential dilution for
stock options outstanding, calculated using the treasury stock method.
In calculating basic net income per share, dividends for preferred stock
are deducted to arrive at income available for common stockholders. For
diluted net income per share, the calculation assumes the conversion of
common stock equivalents including the conversion of preferred stock to
common unless such conversion is anti-dilutive. No shares were added to
the weighted average shares outstanding for the three-month period ended
September 30, 1999 or the nine-month period ended September 30, 1998
because the addition of shares would be anti-dilutive.
3. Inventories (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------ ------
<S> <C> <C>
Paper $ 795 $ 667
Toner and developer 678 565
Parts 2,013 2,468
------ -----
$3,486 $3,700
====== ======
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
General
- -------
The Company successfully increased its gross revenue for the third
quarter of 1999 to $16.3 million from $15.8 million in the prior year. Earnings
before interest, taxes and depreciation increased 17% to $2.8 million from $2.3
million for the same period last year. Net income, before the preferred
dividend, was $206,000 as compared with $484,000 for the same period last year
resulting in fully-diluted earnings per share, after the dividend, of -$0.02 as
compared with $0.01 for the same period last year.
The Company successfully increased the expansion rate of its ATM
operations during the third quarter, ending the period with 292 units deployed
on September 30, 1999, a 107% increase in units over the previous quarter. In
addition, TRM established itself as the first non-bank deployer of ATMs to
significantly operate in both the United States and Europe having deployed units
in the United Kingdom during the period. In expanding in Europe, the Company
plans to leverage its existing copy center operations where it currently has
placements in over 8,000 retail locations. ATM operations revenue significantly
increased 166% to $502,000 as compared with $189,000 in the previous quarter.
Although the ATM business generated a net loss of $258,000 during the quarter,
the loss was as planned and primarily related to investment in the expansion of
the business and the acceleration of machine roll-outs. TRM ended the quarter
with an order backlog for new ATM sites in excess of 600 locations primarily in
the United States.
The TRM CopyCenter business continues its healthy, strong cashflow as
the NextGen(TM) unit replacement and optimization program has been completed
resulting in labor cost savings and creating operating efficiencies. The
CopyCenter operations generated $90,000 of net income or $0.01 fully-diluted
earnings per share after the preferred dividend for the quarter ended September
30, 1999, as compared with $81,000 and $0.01 for the same period last year
despite: 1) a $535,000 increase in depreciation expense, 2) a 4% increase in
retail sales discounts necessary to incent retailers to sign longer-term
contracts (i.e. 3-5 year photocopy service agreements) and 3) non-recurring
interest income of $235,000 generated from the investment of the proceeds from
the preferred stock offering realized in the same period last year but
unavailable this period. As of September 30, 1999, 32,638 TRM CopyCenter
locations were installed in North America and Europe.
Results of Operations
- ---------------------
The following table sets forth, for the periods indicated, selected
statement of operations data, expressed as a percentage of sales, and the
percentage change in dollar amounts of each item on the Consolidated Statements
of Operations (see page 3 of this Form 10-Q).
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Percentage Change Nine Months Ended Sept. 30, Percentage Change
1998 1999 Increase (Decrease) 1998 1999 Increase (Decrease)
----- ----- ------------------- ----- ----- -------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 2.6% 100.0% 100.0% (1.5)%
Sales discounts 16.9 17.1 4.0 17.0 17.8 2.9
Cost of sales 44.1 46.5 8.0 41.5 43.5 3.3
Selling, general and
Administrative 35.4 34.1 (1.3) 33.2 32.8 (2.6)
Special charges -- -- -- 14.7 -- N/A
Operating income (loss) 3.6 2.3 (33.6) (6.4) 5.9 191.3
Interest expense, net .2 .9 N/A .1 .5 N/A
Other expense (income)
net (1.5) (.7) (53.0) -- (.7) N/A
Income (loss) before
income taxes 4.9 2.1 (55.9) (6.5) 6.1 191.9
Provision (benefit) for
income taxes 1.8 .8 (53.0) (2.6) 2.4 N/A
----- ----- ----- ----- ----- -----
Net income (loss) 3.1% 1.3% (57.5)% (3.9)% 3.7% 192.7%
===== ====== ===== ===== ===== =====
</TABLE>
7
<PAGE>
For the three-month period ended September 30, 1999, consolidated sales
increased by $409,000 (2.6%) to $16.3 million from $15.8 million for the same
period ended September 30, 1998. The Company's new ATM business contributed
$502,000 to sales in the current period with no sales last year. Photocopy sales
alone were down by $31,000 (0.2%), but average billed revenue per unit for the
quarter increased 2.2% from $493,000 to $504,000. For the nine-month period
ended September 30, 1999, consolidated sales decreased by $780,000 (1.5%) to
$50.5 million from $51.3 million for the same period ended September 30, 1998.
Photocopy sales alone were down by $1.3 million (2.6%), but average billed
revenue per unit for the nine-month period increased 5.8% from $1,519,000 to
$1,607,000. For both the three- and nine-month periods, the increase in billed
revenue per unit was the result of the higher production achieved through the
installation of thousands of new NextGen(TM) photocopiers in existing sites and
new multi-site retail locations. At the same time, many low-volume producing
sites were eliminated, thus decreasing the total billed units in the field.
Sales discounts are the portion of revenue retained by retail
customers. They generally vary at individual retail businesses depending on
volume - the higher the volume, the greater the discount. The upward trend in
sales discounts as a percentage of sales in 1999 compared to 1998 reflects
changes made in business agreements with new customers over the periods. In
1999, the Company had entered many more long-term contracts with multi-site
retail customers which resulted in 3-5 year service agreements. Additional
discounts were granted in an effort to secure the long-term contracts.
Costs of sales on a consolidated basis increased $560,000 (8.0%) for
the three-month period ended September 30, 1999 from the same period in 1998.
$311,000 of the increase is due to the new ATM Business. Costs of paper, toner,
parts, field labor and other costs decreased by $306,000. These decreases were
the result of increased efficiencies gained by the installation of the new
NextGen(TM) photocopiers. The cost savings were offset by increased costs
primarily due to increased copier machine depreciation of $555,000. The
increased copier depreciation relates to the increase in installed NextGen(TM)
photocopiers. Cost of sales on a consolidated basis increased $697,000 (3.3%)
for the nine-month period ended September 30, 1999 from the same period in 1998.
$436,000 of the increase is due to the new ATM Business. Given the same reasons
explained above for the three-month period, during the nine-month period, cost
savings in paper, toner, parts, field labor and other costs of approximately
$1.3 million were offset by higher depreciation expense of $1.6 million.
Selling, general and administrative expenses decreased $71,000 (1.3%)
during the three-month period ended September 30, 1999 from the same period in
1998. These costs were 34.1 percent and 35.4 percent of sales for 1999 and 1998,
respectively. Selling, general and administrative expenses decreased $438,000
(2.6%) during the nine-month period ended September 30, 1999 from the same
period in 1998. These costs were 32.8 percent and 33.2 percent of sales for 1999
and 1998, respectively. The decrease in the nine-month period ended September
30, 1999 is primarily the result of cost saving efforts initiated by the Company
and vendor-related marketing allowances.
During the nine months ended September 30, 1998, the Company recorded a
pre-tax special charge of $1.1 million related to the recognition of
compensation expense related to the extension of stock options held by members
of the Company's Board of Directors. During the nine months ended September 30,
1998, the Company recorded a pre-tax special charge of $6.4 million ($3.9
million after tax) related to the write-down of certain under-performing assets
of its photocopy business. The major components of the 1998 special charge
included the disposal of under-performing machines ($4.3 million), the disposal
of replacement parts and inventory relating to under-performing machines ($1.5
million) and other charges related to the disposal of equipment ($600,000).
During the three-month period ended September 30, 1999, interest
expense increased to $143,000 from $27,000 in 1998. The increase was due to an
increase in borrowings on the Company's revolving line of credit during 1999
primarily as the result of increased borrowings to finance the carrying of cash
balances in ATM machines operated by the Company in its newly formed ATM
business. For the nine-month period ended September 30, 1999, interest expense
increased to $237,000 from $73,000 in 1998. The increase in this time period is
also explained by the increase in borrowings on the Company's line of credit.
8
<PAGE>
Other expense (income) decreased to ($110,000) from $(234,000) during
the three-month period ended September 30, 1999 compared to 1998. The decrease
was primarily due to interest income of $235,000 generated in 1998 related to
interest earned on short-term investments as a result of the investment of
proceeds from the preferred stock offering in September of 1998 as documented by
the Company's report on Form 10-K for the year ended December 31, 1998, which
was unavailable during the third quarter of 1999. This was primarily offset by
increases in financing discounts of $52,000 in 1999. For the nine-month period
ended September 30, 1999, other expense (income) increased to $(334,000) from
$13,000 during the same period in 1998. The increase was primarily the result of
increases of financing discounts of $102,000 in 1999. Also in the prior year,
expense of $64,000 was recorded as a penalty by a tax jurisdiction.
Additionally, in the prior year, a loss on sale of assets was recorded in the
amount of $117,000 while this year a loss of only $42,000 has been recorded.
Changes in other individually insignificant items explain the rest of the change
in other income (expense) from 1998 to 1999.
The Company's effective tax rate for the three-month period ended
September 30, 1999 was 39.0 percent, resulting in an income tax provision of
$132,000, compared to an effective rate of 36.7 percent and an income tax
provision of $281,000 in 1998. For the nine-month period ended September 30,
1999, the Company's effective tax rate was 39.1 percent, resulting in an income
tax provision of $1.2 million, compared to an effective rate of 39.6 percent and
an income tax benefit of $1.3 million in 1998.
Liquidity and Capital Resources
- -------------------------------
During the nine months ended September 30, 1999, the Company provided
$5.1 million in cashflows for operations. During the same period net working
capital decreased from $14.2 million at December 31, 1998 to $11.2 million at
September 30, 1999. The Company also has a $30 million bank line of credit, with
$6.9 million outstanding at September 30, 1999. The Company was in compliance
with all loan covenants at September 30, 1999. This credit facility expires on
April 1, 2000. The Company expects that these sources will provide adequate cash
to fund its expansion through at least March 31, 2000.
During the nine months ended September 30, 1999, the Company funded
capital expenditures of $16.5 million. Approximately $2.2 million of the
expenditures relate to the acquisition of new software systems currently under
implementation. Approximately $3.5 million was expended on ATM machines, and
$7.8 million was expended on photocopiers. Smaller expenditures made up the rest
of the balance in capital expenditures. The Company also expended approximately
$700,000 to secure a seven-year contract related to its ATM business. As of
September 30, 1999, the Company had $5.8 million deployed in cash to populate
its ATM network.
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:
business conditions in the market areas in which the Company operates,
competitive factors, customer demand for the Company's services, the Company's
ability to execute its plans successfully and the volatility of paper costs. 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 December 31, 1998.
Impact of Year 2000
- -------------------
The Year 2000 ("Y2K") Issue is the result of computer programs being
written using two digits rather than four to define the applicable year. Any
such software programs may recognize a date using "00" as the year 1900 rather
than the year 2000.
The Company relies on computer systems and software to operate its
business, including applications used in account maintenance, purchasing,
inventory management, finance and various administrative functions. Based on a
recent assessment, the Company determined that it will be required to modify or
replace significant portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter.
9
<PAGE>
The Company has formed a cross functional Y2K "Business Improvement
Team" that reports to the Company's Chief Information Officer ("CIO"). The CIO
has full authority to establish methodologies, approve expenditures, and marshal
additional resources as necessary. Two full-time project managers who answer
directly to the CIO manage the initiative and oversee the project team. The CIO
is responsible for researching, planning, executing, implementing and completing
the initiative for the Company.
The three primary functional categories evaluated in the initiative
include:
- - Information Technology ("IT") which consists of all internal hardware and
software used to support the Company's financial and administrative
operations.
- - Communications Network, which processes voice and data information relating
to the Company's global communications systems, including voice and data
equipment and related software.
- - Facilities consisting of all systems necessary to run an office including
security system, fire suppression, generators, HVAC, and associated
systems.
For each of the three functional categories the company is in the
process of or has completed the following three-phase approach to identify and
address the potential impact of Y2K compliance issues.
Phase I - Inventory and Assessment
Inventory and assessment involves each Y2K team member identifying all
relevant systems, providers and information sources within their functional
areas. An assessment is then made on each discovery to determine which items are
mission critical.
Phase I was completed on February 24, 1999 for all primary functional
categories.
Phase II - Remediation
Remediation is the process of making changes to hardware, software or
services in order to become Y2K compliant. During the inventory and assessment
phase each system is evaluated for remediation. Each system requiring
remediation under the Company's direct control will be replaced or upgraded as
needed.
Phase II was completed during the third quarter of 1999 for all
categories except voice communication systems which were completed on February
1, 1999.
Phase III - Testing and Contingency Planning
All mission-critical systems, including both internal and external,
identified during the inventory stage will be tested by the Company sufficient
to confirm whether the system will continue to operate properly in Y2K and
beyond. Proper contingency planning for all mission-critical items will allow
the Company to mitigate the risk associated with potential Y2K failures. The
Company will consider itself Y2K compliant when all phases of the project have
been successfully completed and approved by the CIO.
Phase III was completed during the third quarter of 1999 for all
categories. In addition to the replacement of mission critical accounting and
operations systems with ERP (Enterprise Resource Planning) systems to
accommodate for Y2K readiness and overall business improvement, the Company has
also engaged in a converging contingency method for its existing accounting and
operations legacy systems to assure Y2K compliance in the event any part of the
new systems implementation falls behind.
10
<PAGE>
The Costs to Address the Company's Y2K Issues
Independent of the Y2K project, the Company has initiated significant
systems upgrades to enhance performance and reliability of many of its
computer-based information systems. These upgrades will, as an additional
benefit, rectify certain identified Y2K issues. The total IT and Communications
Network budget for all systems activities is $2.5 million for calendar 1999.
Expenditures directly related to Y2K issues are estimated to be approximately
$860,000. These costs are related to a new enterprise-wide software system that
will enhance the Company's current information system and will be capitalized.
Expenditures for other planned systems upgrades, totaling $1.64 million, will
address certain Y2K issues as a corollary benefit to the Company, but have been
initiated primarily to enhance system reliability. The Company will utilize both
internal and external resources to reprogram, or replace, and test the software
for the Y2K modifications. The Company continues to manage total IT expenses by
re-prioritizing or curtailing less critical investments, incorporating Y2K
readiness into previously planned system enhancements and using existing staff
to implement its Y2K modifications.
The cost of Facilities (non-IT) related Y2K compliance issues is not
expected to be material.
The Risks of the Company's Issues
The Company has initiated communications with all of its significant
service providers, lenders, and large customers to determine the extent to which
the Company's interface systems are vulnerable in the event any of those third
parties fail to remedy their own Y2K Issues. However, there can be no guarantee
that the systems of other companies on which the Company's systems rely will be
timely converted and will not have an adverse effect on the Company's systems.
Contingencies for systems scheduled for replacement include upgrades
and service packs from manufacturers of third-party software as well as
dedicated programming time from internal Information Systems' staff to produce
"Hot Fix" repairs to modify date integer fields and input masks to reflect long
integer format. The Company presently believes that with modifications to
existing software and conversions to new software, the Y2K Issue will not pose
significant operations problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the Y2K
Issue could have a material adverse impact on the operations of the Company.
This could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send customer invoices, or engage in similar normal business
activities.
11
<PAGE>
Disclosure Regarding Euro Conversion
- ------------------------------------
On January 1, 1999, eleven member countries of the European Community
began a process to convert their existing sovereign currencies to a single
common denomination, the Euro. The process of conversion is gradual over the
next three years, culminating in the eventual removal from circulation of all
existing domestic currency for the participating countries. The Company
presently operates in the United Kingdom and France and transacts business in
the local currency of those countries. France will be subject to the Euro
Conversion, and the United Kingdom may become subject to the conversion. The
Company believes that it will be able to accommodate the conversion to the Euro
without a material impact on its financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company is exposed to minimal market risks. Sensitivity of results
of operations to these risks is managed by maintaining a conservative investment
portfolio, which is comprised solely of money market funds, and entering into
long-term debt obligations with appropriate price and term characteristics. The
Company does not hold or issue derivative, derivative commodity instruments or
other financial instruments for trading purposes. Financial instruments held for
other than trading purposes do not impose a material market risk.
The Company is exposed to interest rate risk, as additional financing
will be needed due to the capital expenditures associated with expanding the
Company's business operations. The interest rate that the Company will be able
to obtain on debt financing will depend on market conditions at that time, and
may differ from the rates the Company has secured on its current debt.
Additionally, the Company is exposed to interest rate risk related to its credit
facility as of September 30, 1999. Advances against the credit facility
periodically renew, at which point the borrowings are subject to the then
current market interest rates, which may differ from the rates the Company is
currently paying on its borrowings.
The Company is exposed to foreign currency exchange rate risk, as it
has operations in Canada, France and the United Kingdom.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 4.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed one Current Report on Form 8-K during the three
months ended September 30, 1999. The Form 8-K was filed on
September 2, 1999 and reported the Company's change in Certifying
Accountants.
13
<PAGE>
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 CORPORATION
Date: November 15, 1999 By: SHAMI PATEL
-----------------------------------
Shami Patel
Vice President, Finance and
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,066
<SECURITIES> 0
<RECEIVABLES> 6,696
<ALLOWANCES> (186)
<INVENTORY> 3,700
<CURRENT-ASSETS> 21,449
<PP&E> 85,376
<DEPRECIATION> (24,576)
<TOTAL-ASSETS> 83,412
<CURRENT-LIABILITIES> 10,229
<BONDS> 0
0
19,798
<COMMON> 19,256
<OTHER-SE> 22,991
<TOTAL-LIABILITY-AND-EQUITY> 83,412
<SALES> 50,474
<TOTAL-REVENUES> 50,474
<CGS> 21,952
<TOTAL-COSTS> 21,952
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237
<INCOME-PRETAX> 3,075
<INCOME-TAX> 1,201
<INCOME-CONTINUING> 1,874
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,874
<EPS-BASIC> .11
<EPS-DILUTED> .10
</TABLE>
