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 June 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
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TRM CORPORATION
(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 JUNE 30, 1999
------------ ----------------------------
Common Stock 7,095,339
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
TRM CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands)
December 31, June 30,
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,285 $ 8,986
Accounts receivable, net 7,436 6,555
Income tax receivable 412 23
Inventories 3,486 3,470
Prepaid expenses and other 1,640 1,612
Deferred tax asset 542 542
----------- -----------
Total current assets 27,801 21,188
Equipment and vehicles, less accumulated depreciation 51,211 56,613
Other assets 140 1,030
----------- -----------
$ 79,152 $ 78,831
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Checks in transit $ 1,117 $ 523
Accounts payable 8,875 2,350
Accrued expenses 3,587 3,753
----------- -----------
Total current liabilities 13,579 6,626
Notes Payable --- 6,783
Deferred income taxes 4,248 4,158
----------- -----------
Total liabilities 17,827 17,567
----------- -----------
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 7,095 shares, respectively 19,143 19,172
Accumulated other comprehensive income 161 (854)
Retained earnings 22,223 23,148
----------- -----------
Total shareholders' equity 61,325 61,264
----------- -----------
$ 79,152 $ 78,831
=========== ===========
</TABLE>
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<TABLE>
<CAPTION>
TRM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 17,758 $ 17,268 $ 35,406 $ 34,216
Less discounts 3,100 3,098 6,046 6,187
--------- --------- --------- ---------
Net sales 14,658 14,170 29,360 28,029
Cost of sales 6,806 7,287 14,260 14,396
--------- --------- --------- ---------
Gross profit 7,852 6,883 15,100 13,633
Selling, general and administrative expense 5,556 5,604 11,393 11,029
Non-cash Compensation 1,146 -- 1,146 --
Special Charge -- -- 6,380 --
--------- --------- --------- ---------
Operating income (loss) 1,150 1,279 (3,819) 2,604
Other (income) expense:
Interest 3 64 46 94
Other, net 67 (78) 247 (228)
--------- --------- --------- ---------
Income (loss) before income taxes 1,080 1,293 (4,112) 2,738
Provision for income taxes 413 505 (1,606) 1,069
--------- --------- --------- ---------
Net income (loss) $ 667 $ 788 $ (2,506) $ 1,669
========= ========= ========= =========
Earnings per share computation:
Net income (loss) $ 667 $ 788 $ (2,506) $ 1,669
Preferred stock dividends -- (374) -- (744)
--------- --------- --------- ---------
Net income (loss) available to common
shareholders $ 667 $ 414 $ (2,506) $ 925
========= ========= ========= =========
Basic net income (loss) per share:
Shares outstanding 7,042 7,096 7,016 7,099
--------- --------- --------- ---------
Net income (loss) per share $ .09 $ .06 $ (.36) $ .13
========= ========= ========= =========
Diluted net income (loss) per share
Shares outstanding 7,742 7,276 7,016 7,314
--------- --------- --------- ---------
Net income (loss per share) $ .09 $ .06 $ (.36) $ .13
========= ========= ========= =========
</TABLE>
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<TABLE>
<CAPTION>
TRM CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(unaudited)
(In thousands)
Accumulated
Other
Comprehensive Preferred Stock Common Stock Comprehensive Retained
Income Shares Amounts Shares Amounts 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 $ 1,669 -- -- -- -- -- 1,669 1,669
Other Comprehensive
income (loss), net of tax -- -- -- -- -- -- --
Foreign currency
translation adjustment (1,015) -- -- -- -- (1,015) -- (1,015)
---------
Comprehensive income $ 654
=========
Exercise of stock options -- -- -- -- -- -- --
Tax benefit of stock
options -- -- -- -- -- -- --
Issuance of stock to
employees -- -- 10 65 -- -- 65
Repurchase of Common Stock -- -- (6) (36) -- -- (36)
Preferred Stock dividends -- -- -- -- -- (744) (744)
--------- --------- --------- --------- --------- --------- ---------
Balances, June 30, 1999 1,778 $ 19,798 7,095 $ 19,172 $ (854) $ 23,148 $ 61,264
========= ========= ========= ========= ========= ========= =========
</TABLE>
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<TABLE>
<CAPTION>
TRM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
Six Months Ended
June 30,
---------------------------
1998 1999
---------- ----------
<S> <C> <C>
Operating activities:
Net income (loss) $ (2,506) $ 1,669
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 3,158 4,136
Loss on disposal of equipment
and vehicles 96 52
Special Charges 6,380 --
Non-cash Compensation 1,146 --
Changes in items affecting operations:
Accounts receivable 137 881
Inventories (308) 16
Income tax receivable (645) 389
Prepaid expenses and other 407 28
Accounts payable 4,725 (6,525)
Accrued expenses 675 166
Deferred income tax (1,529) (90)
---------- ----------
Total operating activities 11,736 722
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Investing activities:
Proceeds from sale of equipment 1,510 435
Capital expenditures (14,477) (10,533)
Other 2 (890)
---------- ----------
Total investing activities (12,965) (10,988)
---------- ----------
Financing activities:
Change in checks in transit, net (704) (594)
Net borrowings on notes payable -- 6,783
Net proceeds from issuance of common stock 577 65
Repurchase of Common Stock -- (36)
Net Proceeds from Issuance of Preferred Stock 19,853 --
Dividends on preferred stock -- (744)
---------- ----------
Total financing activities 19,726 5,474
---------- ----------
Effect of exchange rate changes (294) (507)
---------- ----------
Net increase (decrease) in cash and
cash equivalents 18,203 (5,299)
Cash and cash equivalents at beginning
of period 1,974 14,285
---------- ----------
Cash and cash equivalents at end of period $ 20,177 $ 8,986
========== ==========
</TABLE>
5
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TRM CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited)
----------------------------------------------------------------
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 securities. For the three
months and six months ended June, 1998 and 1999, the weighted average
number of common shares for basic net income per share computations were
7,042,000 and 7,016,000, and 7,096,000 and 7,099,000, respectively. For
diluted net income per share, 700,000 and 180,000 shares were added to
weighted average shares outstanding for the three months ended June 30,
1998 and June 30, 1999, respectively; 215,000 shares were added for the six
month period ended June 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. For the six months ended June 30,
1998, no shares were added to the weighted average shares outstanding
because the addition of shares would be anti-dilutive.
3. Inventories (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
----------- -----------
<S> <C> <C>
Paper $ 795 $ 846
Toner and developer 678 574
Parts 2,013 2,050
-------- --------
$ 3,486 $ 3,470
======== ========
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
General
- -------
As of June 30, 1999, the Company had 31,461 TRM Centers compared to 33,349
at June 30, 1998, a decrease of 1,888 centers (6.0%). The Company commenced
operations of its new ATM business in the second quarter of 1999. The ATM
business generated $189,000 in sales in the second quarter, and had a pre-tax
loss of $225,000 which included the start-up costs associated with the creation
of the new business unit. The ATM business had total assets deployed, including
cash populating the ATM machines, of $8.5 million as of June 30, 1999 and there
were 141 active ATM machines at June 30, 1999.
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 June 30, Percentage Change Six Months Ended June 30, Percentage Change
1998 1999 Increase (Decrease) 1998 1999 Increase (Decrease)
------ ------ ------------------- ------ ------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% (2.8)% 100.0% 100.0% (3.4)%
Sales discounts 17.5 17.9 (0.1) 17.1 18.1 2.3
Cost of sales 38.3 42.2 7.1 40.3 42.1 1.0
Selling, general and
Administrative 31.3 32.5 0.9 32.2 32.2 (3.2)
Special charges 6.4 -- N/A 21.2 -- N/A
------ ------ ------ ------ ------ ------
Operating income (loss) 6.5 7.4 11.2 (10.8) 7.6 168.2
Interest expense, net -- 0.4 N/A 0.1 0.3 104.4
Other expense (income)
net 0.4 (0.5) (216.4) 0.7 (0.7) (192.3)
------ ------ ------ ------ ------ ------
Income (loss) before
income taxes 6.1 7.5 19.7 (11.6) 8.0 166.6
Provision for income taxes 2.3 2.9 22.8 (4.5) 3.1 166.6
------ ------ ------ ------ ------ ------
Net income (loss) 3.8% 4.6% 18.1% (7.1)% 4.9% 166.6%
====== ====== ====== ====== ====== ======
</TABLE>
For the three-month period ended June 30, 1999, consolidated sales
decreased by $490,000 (2.8%) to $17.3 million from $17.8 million for the same
period ended June 30, 1998. The Company's new ATM business contributed $189,000
to sales in the current period with no sales last year. Photocopy sales alone
were down by $679,000 (3.8%), but average billed revenue per unit for the
quarter increased 12.4% from $507 to $570. For the six-month period ended June
30, 1999, consolidated sales decreased by $1.2 million (3.4%) to $34.2 million
from $35.4 million for the same period ended June 30, 1998. Photocopy sales
alone were down by $1.4 million (3.9%), but average billed revenue per unit for
the six-month period increased 10.1% from $1,008 to $1,110. For both the three-
and six-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-state retail customers.
Additional discounts were granted in an effort to secure the long-term
contracts.
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Costs of sales on a consolidated basis increased $481,000 (7.1%) for the
three-month period ended June 30, 1999 from the same period in 1998. Costs of
paper, toner, parts, field labor and other costs decreased by $176,000. 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. The increased
copier depreciation relates to the increase in installed NextGen(TM)
photocopiers. Cost of sales on a consolidated basis increased $136,000 (2.3%)
for the six-month period ended June 30, 1999 from the same period in 1998. Given
the same reasons explained above for the three-month period, during the
six-month period, cost savings in paper, toner, parts, field labor and other
costs of approximately $1.0 million were offset by higher depreciation expense
of $1.0 million.
Selling, general and administrative expenses increased $48,000 (.9%) during
the three-month period ended June 30, 1999 from the same period in 1998. These
costs were 32.5 percent and 31.3 percent of sales for 1999 and 1998,
respectively. Selling, general and administrative costs increased primarily due
to the addition of the new ATM business. Selling, general and administrative
expenses decreased $364,000 (3.2%) during the six-month period ended June 30,
1999 from the same period in 1998. These costs were 32.2 percent of sales during
both time periods. The decrease in dollars is primarily the result of reduced
marketing advertising expense associated with a marketing allowance of $482,000
provided by a vendor of the Company.
During the three months ended June 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 six months ended June 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 June 30, 1999, interest expense
increased to $64,000 from $3,000 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
six-month period ended June 30, 1999, interest expense increased to $94,000 from
$46,000 in 1998. The increase in this time period is also explained by the
increase in borrowings on the Company's line of credit.
Other expense (income) increased to ($78,000) from $67,000 during the
three-month period ended June 30, 1999 compared to 1998. The increase was
primarily due to interest income generated of $30,000 related to interest earned
on short-term investments as a result of proceeds from the preferred stock
offering in June of 1998 as documented by the Company's report on Form 10-K for
the year ended December 31, 1998, and purchase discounts earned of $50,000.
Decreases in other individually insignificant items explain the rest of the
increase in other income (expense) from 1998 to 1999. For the six-month period
ended June 30, 1999, other expense (income) increased to ($228,000) from
$247,000 during the same period in 1998. The increase was primarily the result
of interest income generated of $145,000 from the proceeds of the preferred
stock offering. 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 $86,000 while this year a loss of only
$21,000 was recorded. Decreases in other individually insignificant items
explain the rest of the increase in other income (expense) from 1998 to 1999.
The Company's effective tax rate for the three-month period ended June 30,
1999 was 39.0 percent, resulting in an income tax provision of $505,000,
compared to an effective rate of 38.2 percent and an income tax provision of
$413,000 in 1998. For the six-month period ended June 30, 1999, the Company's
effective tax rate was 39.0 percent, resulting in an income tax
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provision of $1.1 million, compared to an effective rate of 39.0 percent and an
income tax benefit of $1.6 million in 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.
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 is underway and should be completed during the third quarter of
1999 for all categories except voice communication systems which were completed
on February 1, 1999.
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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 is underway and should be completed by the end of 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.
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
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operations, including, among other things, a temporary inability to process
transactions, send customer invoices, or engage in similar normal business
activities.
New Accounting Standards
- ------------------------
In March 1998, the American Institute of Certified Public Accountants
Accounting Standards Executive Committee issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1.") SOP 98-1 is applicable to all nongovernmental
entities and provides guidance on accounting for the costs of computer software
developed or obtained for internal use. SOP 98-1 is effective for fiscal years
beginning after December 15, 1998. The Company has adopted SOP 98-1 in the
accompanying financial statements.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in fair values of the derivative
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings, or recognized through
comprehensive income until the hedged item is recognized in earnings. The
Company believes that SFAS 133 will not have a material impact on its financial
statements because it is not currently involved in any hedge positions at this
time, nor are there any plans to adopt such positions in the near future. SFAS
133 is effective for fiscal quarters beginning after June 15, 2000.
Liquidity and Capital Resources
- -------------------------------
During the six months ended June 30, 1999, the Company provided $401,000 in
cashflows for operations. During the same period net working capital increased
from $14.2 million at December 31, 1998 to $14.5 million at June 30, 1999. The
Company also has a $30.0 million bank line of credit, with $6.8 million
outstanding at June 30, 1999. The Company was in compliance with all loan
covenants at June 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 December 31, 1999.
During the six months ended June 30, 1999, the Company funded capital
expenditures of $10.5 million. Approximately $1.3 million of the expenditures
relate to the acquisition of new software systems currently under
implementation. Approximately $1.5 million was expended on ATM machines, and
$7.6 million was expended on photocopiers. Smaller expenditures made up the rest
of the balance in capital expenditures. The Company also expended $700,000 to
secure a seven-year contract related to its ATM business. As of June 30, 1999,
the Company has deployed $5.8 million 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.
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
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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 June 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.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
On May 18, 1999 at the Company's Annual Meeting of shareholders, the
holders of the Company's outstanding Common Stock and Series A Preferred Stock
took the actions described below. As of the record date for the Annual Meeting,
7,101,339 shares of Common Stock and 1,777,778 shares of Series A Preferred
Stock were issued and outstanding. Each share of Preferred Stock is entitled to
one vote per share and votes together with the Common Stock as one class.
1. The shareholders elected each of Daniel G. Cohen, Joel R. Mesznik and
Kenneth L. Tepper by the votes indicated below, to serve on the Company's Board
of Directors for the ensuing year:
Daniel G. Cohen
---------------
6,371,182 shares in favor
1,881,910 shares against or withheld
Joel R. Mesznick
----------------
6,525,811 shares in favor
1,727,281 shares against or withheld
Kenneth L. Tepper
-----------------
6,530,761 shares in favor
1,722,331 shares against or withheld
Edward E. Cohen, Frederick O. Paulsell, Joseph G. Denton, Kent B. Godfrey,
Debbi Hurd Baptist and Frederic P. Stockton will continue their terms of office
as directors.
2. The shareholders voted to amend the Company's 1996 Stock Option Plan to
increase the total number of shares of Common Stock of the Company reserved for
issuance under the Plan from 1,200,000 to 1,700,000 by the votes indicated
below:
3,911,584 shares in favor
2,693,872 shares against or withheld
1,647,636 abstain and broker nonvotes
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the period.
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: August 16, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,986
<SECURITIES> 0
<RECEIVABLES> 6,723
<ALLOWANCES> 168
<INVENTORY> 3,470
<CURRENT-ASSETS> 21,188
<PP&E> 78,921
<DEPRECIATION> (22,308)
<TOTAL-ASSETS> 78,831
<CURRENT-LIABILITIES> 6,626
<BONDS> 0
0
19,798
<COMMON> 19,172
<OTHER-SE> 22,294
<TOTAL-LIABILITY-AND-EQUITY> 78,831
<SALES> 34,216
<TOTAL-REVENUES> 34,216
<CGS> 14,396
<TOTAL-COSTS> 14,396
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94
<INCOME-PRETAX> 2,738
<INCOME-TAX> 1,069
<INCOME-CONTINUING> 1,609
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,669
<EPS-BASIC> .13
<EPS-DILUTED> .13
</TABLE>
