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 March 31, 1998
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 COPY CENTERS 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
---------------------------------------------------
(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 MARCH 31, 1998
------------ ------------------------------
Common Stock 6,990,361
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRM COPY CENTERS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, March 31,
1997 1998
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,528 $ 2,265
Accounts receivable, net 7,704 7,860
Income taxes receivable 0 1,436
Inventories 4,611 3,543
Prepaid expenses and other 1,399 1,683
------------ ------------
Total current assets 16,242 16,787
Equipment and vehicles, less accumulated depreciation 33,872 35,076
Other assets 46 45
------------ ------------
$ 50,160 $ 51,908
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Checks in transit $ 1,409 $ 1,049
Accounts payable 1,568 4,175
Accrued expenses 3,697 4,268
------------ ------------
Total current liabilities 6,674 9,492
Long-term debt 400 500
Deferred income taxes 4,258 4,067
------------ ------------
Total liabilities 11,332 14,059
Commitments -- --
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 6,990 shares 16,601 16,904
Retained earnings 22,279 21,030
Cumulative translation adjustment (52) (85)
------------ ------------
Total stockholders' equity 38,828 37,849
------------ ------------
$ 50,160 $ 51,908
============ ============
-2-
TRM COPY CENTERS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- ---------------------
1997 1998 1997 1998
-------- -------- -------- --------
Sales $ 18,023 $ 17,648 $ 51,947 $ 50,594
Less discounts 3,042 2,946 8,698 8,231
-------- -------- -------- --------
Net sales 14,981 14,702 43,249 42,363
Cost of sales 7,574 7,904 22,609 22,892
-------- -------- -------- --------
Gross profit 7,407 6,798 20,640 19,471
Selling, general and administrative
expense 4,870 5,318 14,013 14,546
Special charges 0 6,380 0 6,380
-------- -------- -------- --------
Operating income (loss) 2,537 (4,900) 6,627 (1,455)
Other expense:
Interest 78 43 344 65
Other, net 202 249 390 515
-------- -------- -------- --------
Income (loss) before income taxes 2,257 (5,192) 5,893 (2,035)
Provision (benefit) for income taxes 892 (2,019) 2,328 (786)
-------- -------- -------- --------
Net income (loss) $ 1,365 (3,173) $ 3,565 $ (1,249)
======== ======== ======== ========
Basic net income (loss) per share
Shares outstanding 6,717 6,990 6,579 6,975
======== ======== ======== ========
Net income (loss) per share $ 0.20 $ (0.45) $ 0.54 $ (0.18)
======== ======== ======== ========
Diluted net income (loss) per share
Shares outstanding 7,122 6,990 7,260 6,975
======== ======== ======== ========
Net income (loss) per share -
Assuming Dilution $ 0.19 $ (0.45) $ 0.49 $ (0.18)
======== ======== ======== ========
-3-
TRM COPY CENTERS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Common Stock Cumulative
------------------------ Retained Translation
Shares Amount Earnings Adjustment Total
--------- --------- --------- ----------- ---------
Balance at June 30, 1997 6,931 $ 16,601 $ 22,279 $ (52) $ 38,828
Exercise of stock options 47 204 -- -- 204
Issuance to employees 12 99 -- -- 99
Net loss for the
nine months ended
March 31, 1998 -- -- (1,249) -- (1,249)
Foreign currency translation
adjustment -- -- -- (33) (33)
--------- --------- --------- ----------- ---------
Balances at March 31, 1998 6,990 $ 16,904 $ 21,030 $ (85) $ 37,849
========= ========= ========= =========== =========
-4-
TRM COPY CENTERS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
March 31,
---------------------------
1997 1998
--------- ---------
Operating activities:
Net income (loss) $ 3,565 $ (1,249)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 4,367 4,286
Loss on disposal of equipment
and vehicles 81 170
Special charges -- 6,380
Changes in items affecting operations:
Accounts receivable (901) (156)
Inventories 213 (426)
Prepaid expenses and other (310) (1,873)
Accounts payable (280) 2,607
Accrued expenses 721 394
Deferred income tax 823 (191)
--------- ---------
Total operating activities 8,279 9,942
--------- ---------
Investing activities:
Proceeds from sale of equipment 266 503
Capital expenditures (3,452) (10,511)
Other (44) 1
--------- ---------
Total investing activities (3,230) (10,007)
--------- ---------
Financing activities:
Change in checks in transit, net 292 (360)
Principal payments on long-term debt (4,628) (400)
Proceeds from long-term debt -- 500
Net proceeds from issuance of common stock 255 303
--------- ---------
Total financing activities (4,081) 43
--------- ---------
Effect of exchange rate changes 43 (241)
--------- ---------
Net increase (decrease) in cash and
cash equivalents 1,011 (263)
Cash and cash equivalents at beginning
of period 873 2,528
--------- ---------
Cash and cash equivalents at end of period $ 1,884 $ 2,265
========= =========
-5-
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 statements 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 March 31, 1997 and 1998, and nine months ended March 31, 1997
and 1998, the weighted average number of common shares for basic net income
per share computations were 6,717,000; 6,990,000; 6,579,000; and 6,975,000;
respectively. For diluted net income per share, 405,000 and 681,000 shares
were added to weighted average shares outstanding for the three months
ended March 31, 1997 and for the nine months ended March 31, 1997,
respectively, representing potential dilution for stock options
outstanding, calculated using the treasury stock method. For the three
months ended March 31, 1998 and for the nine months ended March 31, 1998,
no shares were added to the weighted average shares outstanding because the
addition of shares would be anti-dilutive.
3. Inventories (in thousands):
June 30, March 31,
1997 1998
------- --------
Paper $ 1,231 $ 915
Toner and developer 692 586
Parts 2,688 2,042
------- --------
$ 4,611 $ 3,543
======= ========
-6-
4. Special Charges:
During the quarter ended March 31, 1998, the Company recorded special
charges of $6.4 million related to the write-down of certain
under-performing assets of its Photocopy Division. Following is a summary
of major elements of the special charges (in thousands):
Disposal of under-performing machines $ 4,324
Disposal of replacement parts and inventory relating to
under-performing machines 1,494
Other 562
-------
Total special charges $ 6,380
=======
The Company recognized the cost of disposing of certain under-performing
assets of its Photocopy Division totaling $4.3 million. The Company also
recognized $1.5 million of cost associated with the disposal of replacement
parts and other inventory related to the under-performing assets being
disposed of.
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. During the first nine months of
fiscal 1998 the Company opened three new market areas and decreased the number
of TRM Centers by 1,041. As of March 31, 1998, the Company had 75 market areas
with 33,755 TRM Centers.
On March 29, 1998 the Company entered into an agreement pursuant to which
ReadyCash Investment Partners, L.P. will invest $20 million in TRM. The Company
intends to use the proceeds of this investment to finance the formation of a new
Automated Teller Machine (ATM) Division. The financing transaction is subject to
a number of conditions set forth in the definitive agreement including
shareholders' approval of the transaction. The Company is currently scheduled to
hold a special shareholders' meeting on or before June 26, 1998, to consider,
among other things, approval of the transaction.
Results of Operations
- ---------------------
Sales for the third quarter were $17.6 million, down 2.1% from third
quarter sales of the previous year of $18.0 million. Sales for the nine months
year-to-date were $50.6 million, down 2.6% from prior year-to-date sales of
$51.9 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, have declined, 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 16.9% to 16.7% 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.
-7-
Cost of sales increased 4.4% compared to the prior quarter and 1.3%
compared to the prior nine months. Cost of sales increased as a percent of sales
from 42.0% to 44.8% in the comparable prior-year quarter due to decreased sales.
Selling, general and administrative costs grew by 9.2% to $5.3 million in
the third quarter. This is due to increased telecommunication costs, vehicles
expenses, bad debt and other general cost increases.
During the quarter ended March 31, 1998, the Company recorded special
charges of $6.4 million including a one-time, non-cash write-down of certain
under-performing assets of its Photocopy Division. With the growth in the
NextGen(TM) photocopier programs, the Company has decided to retire over half of
its older model Savin photocopiers at low volume locations. The write-down of
non-performing assets is related to these strategic activities.
Interest costs are incurred because the Company uses bank borrowings to
help fund its business activities. The decrease in interest costs is due to
lower debt levels, which decreased from $3.5 million as of March 31, 1997, to
$500,000 as of March 31, 1998.
Liquidity and Capital Resources
- -------------------------------
During the nine months ended March 31, 1998, TRM generated $9.9 million in
cashflows from operations, while its working capital decreased from $9.6 million
at June 30, 1997 to $7.3 million at March 31, 1998 (including cash and cash
equivalents of $2.3 million). The Company also has a $30.0 million bank line of
credit, with $29.5 million available at March 31, 1998. The Company was in
compliance with all loan covenants at March 31, 1998. This credit facility
expires on April 1, 2000.
During the nine months ended March 31, 1998, the Company funded capital
expenditures of $10.5 million primarily from cash generated from operations and
a net increase of $100,000 in bank borrowings. Capital expenditures increased by
$7.1 million over the same period of the prior year due to increased purchases
and installations of NextGen(TM) copiers ($6.8 million) and increased
expenditures for other copiers ($2.7 million). Additional capital expenditures
of $600,000 and $400,000 were for vehicles and other normal operating purposes,
respectively.
The Company currently anticipates capital expenditures of approximately
$13.0 million for the fiscal year ended June 30, 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 operations 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 expected to be approximately $1.2 million, of which $300,000
has been expended through March 31, 1998. 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.
-8-
Forward Looking Statement
- -------------------------
Information in this Management's Discussions and Analysis about the
Company's goals, plans and expectations regarding expansion, business
opportunities, and capital expenditures and the Company's plans to enter the ATM
market 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 those described in the forward-looking
statements: the outcome of the shareholder vote regarding the ReadyCash
transaction, TRM's ability to manage and achieve growth in a new line of
business, TRM's ability to expand its current relationships with retailers and
broaden its distribution network, changes in consumer practices and preferences
with respect to the use of TRM's new photocopy machines, the performance and
profitability of NextGen(TM) photocopy machines, competitive factors, and the
Company's ability to execute its plans successfully, as well as business
conditions in the market areas in which TRM operates. Any forward-looking
statements should be considered in light of these factors.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 10 - Preferred Stock and Warrants Purchase Agreement dated
March 29, 1998 between the Company and ReadyCash Investment
Partners, L.P.
(b) Exhibit 27 - Financial Data Schedule
(c) Reports on Form 8-K.
There were no reports filed on Form 8-K during the three months
ended March 31, 1998.
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: March 15, 1998 By: /s/ PAUL M. BROWN
----------------------- -------------------------------------
Paul M. Brown
Secretary, Vice President, Finance
and Chief Financial Officer
-9-