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 March 31, 2000
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
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(Exact name of registrant as specified in its charter)
OREGON 93-0809419
- --------------------------------- ----------------------------
(State or other jurisdiction (I.R.S.
of incorporation or organization) Employer 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 MARCH 31, 2000
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Common Stock 7,079,440
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, March 31,
1999 2000
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 16,775 $ 472
Accounts receivable, net 7,362 7,938
Income tax receivable 378 688
Inventories 3,771 4,298
Prepaid expenses and other 2,188 4,148
Deferred income taxes 1,243 1,243
------------ ------------
Total current assets 31,717 18,787
Equipment and vehicles, less accumulated depreciation 62,648 66,813
Other assets 1,541 2,299
------------ ------------
$ 95,906 $ 87,899
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 2,880 7,693
Accrued expenses 3,539 4,275
------------ ------------
Total current liabilities 6,419 11,968
Long-term debt 23,192 11,152
Deferred income taxes 5,016 5,003
------------ ------------
Total liabilities 34,627 28,123
------------ ------------
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. 50,000 authorized
7,071 and 7,079 shares issued and
outstanding, respectively 19,095 19,130
Accumulated other comprehensive income (427) (780)
Retained earnings 22,813 21,628
------------ ------------
Total shareholders' equity 61,279 59,776
------------ ------------
$ 95,906 $ 87,899
============ ============
See accompanying notes to consolidated financial statements.
2
TRM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
--------------------
1999 2000
-------- --------
Sales $ 16,948 $ 18,081
Less discounts 3,089 3,169
-------- --------
Net sales 13,859 14,912
Cost of sales 7,109 8,933
-------- --------
Gross profit 6,750 5,979
Selling, general and administrative expense 5,425 6,838
-------- --------
Operating income (loss) 1,325 (859)
Other (income) expense:
Interest 30 474
Other, net (150) 21
-------- --------
Income (loss) before income taxes 1,445 (1,354)
Provision (benefit) for income taxes 564 (543)
-------- --------
Net income (loss) $ 881 $ (811)
======== ========
Earnings per share computation:
Net income (loss) $ 881 $ (811)
Preferred stock dividends (370) (374)
-------- --------
Net income (loss) available to common
shareholders $ 511 $ (1,185)
======== ========
Basic net income (loss) per share:
Shares outstanding 7,101 7,076
-------- --------
Net income (loss) per share $ .07 $ (.17)
======== ========
Diluted net income (loss) per share:
Shares outstanding 7,351 7,076
======== ========
Net income (loss) per share $ .07 $ (.17)
======== ========
See accompanying notes to consolidated financial statements.
3
TRM CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(unaudited)
(In thousands)
Accumulated
Other
Comprehensive Preferred Stock Common Stock Comprehen- Retained
Income Shares Amounts Shares Amounts sive Income Earnings Total
------------- --------- ----------- ---------- ------------ ------------- ------------ -----------
BALANCES, DECEMBER 31, 1999 1,778 $ 19,798 7,071 $ 19,095 $ (427) $ 22,813 $ 61,279
Comprehensive income
Net loss $ (811) -- -- -- -- -- (811) (811)
Other Comprehensive
income (loss), net of tax
Foreign currency
translation adjustment (353) -- -- -- -- (353) -- (353)
-------------
Comprehensive income $(1,164)
=============
Issuance of stock to employees -- -- 8 35 -- -- 35
Preferred stock dividends -- -- -- -- -- (374) (374)
--------- ----------- ---------- ------------ ------------- ------------ -----------
BALANCES, MARCH 31, 2000 1,778 $ 19,798 7,079 $ 19,130 $ (780) $ 21,628 $ 59,776
========= =========== ========== ============ ============= ============ ===========
See accompanying notes to consolidated financial statements.
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TRM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
Three Months Ended
March 31,
--------------------
1999 2000
-------- --------
Operating activities:
Net income (loss) $ 881 $ (811)
Adjustments to reconcile net
income (loss) to net cash provided
(used in) by operating activities:
Depreciation and amortization 1,806 2,660
Gain on disposal of equipment
and vehicles (4) (24)
Changes in items affecting operations:
Accounts receivable 214 (576)
Inventories 574 (527)
Income tax receivable 146 (310)
Prepaid expenses and other (399) (1,960)
Accounts payable (5,306) 4,813
Accrued expenses 388 736
Deferred income tax (59) (13)
-------- --------
Cash provided by (used in)
operating activities (1,759) 3,988
-------- --------
Cash flows from investing activities:
Proceeds from sale of equipment 96 93
Capital expenditures (2,816) (6,671)
Other (700) (806)
-------- --------
Cash used in investing
activities (3,420) (7,384)
-------- --------
Cash flows from financing activities:
Net borrowings on notes payable -- (12,040)
Net proceeds from issuance of common stock 65 35
Dividends on preferred stock (370) (374)
-------- --------
Cash used in financing
activities (305) (12,379)
-------- --------
Effect of exchange rate changes 122 (528)
-------- --------
Net increase (decrease) in cash and
cash equivalents (5,362) (16,303)
Cash and cash equivalents at beginning
of period 14,285 16,775
-------- --------
Cash and cash equivalents at end of period $ 8,923 $ 472
======== ========
See accompanying notes to consolidated financial statements.
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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 ended March 31, 1999 and 2000, the weighted average number of common
shares for basic net income per share computations were 7,101,000 and
7,076,000, respectively. For diluted net income per share, 250,000 shares
were added to weighted average shares outstanding for the three months
ended March 31, 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 three months ended March 31,
2000, no shares were added to the weighted average shares outstanding
because the addition of shares would be anti-dilutive.
3. Inventories (in thousands):
December 31, March 31,
1999 2000
------ ------
Paper $ 696 $ 714
Toner and developer 550 671
Parts 2,525 2,913
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$3,771 $4,298
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4. Segment Reporting (in thousands):
In fiscal 1998, the Company adopted SFAS No. 131 - "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). This
statement establishes new standards for the manner in which companies
report operating segment information, as well as disclosures about products
and services and major customers. Prior to 1999, the Company had only one
business segment.
The Company has two reportable segments: CopyCenters and ATM.
CopyCenters owns and maintains self-service photocopiers in retail
establishments. ATM owns and operates ATM machines in retail
establishments.
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The Company evaluates each segment's performance based on income or loss
before interest and income taxes, excluding non-recurring charges.
Information regarding the operations in these reportable segments is as
follows:
Three months ended:
---------------------
March 31, March 31,
1999 2000
-------- --------
Sales:
CopyCenters $ 16,948 $ 16,956
ATM -- 1,125
-------- --------
$ 16,948 $ 18,081
======== ========
Depreciation and amortization:
CopyCenters $ 1,806 $ 2,515
ATM -- 145
-------- --------
$ 1,806 $ 2,660
======== ========
Income (Loss) Before interest and taxes:
CopyCenters $ 1,475 $ 129
ATM -- (1,009)
-------- --------
$ 1,475 $ (880)
======== ========
Capital Expenditures:
CopyCenters $ 2,816 $ 2,437
ATM -- $ 4,234
-------- --------
$ 2,816 $ 6,671
======== ========
---------------------
March 31, March 31,
1999 2000
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Assets:
CopyCenters $ 71,311 $ 74,891
ATM 2,733 13,008
-------- --------
$ 74,044 $ 87,899
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
During the quarter ending March 31, 2000, the Company aggressively
expanded its new ATM services business while its core CopyCenters services
business generated sound cash flow. The Company's financial position remains
sound, offering it flexibility to meet its aggressive growth strategy.
As of March 31, 2000 the Company had a total of 689 ATM operating units
installed, with 561 and 128 deployed in the United States and United Kingdom
respectively, as compared to 18 at March 31, 1999, an increase of 671 units.
The ATM business contributed $1.1 million to quarterly gross revenues. The
Company believes that revenues generated from services delivered through its
ATM network will become an increasingly higher percentage of its overall
revenue in the future as it expands the product offerings through its ATM
network, and pursues new geographic opportunities.
In the CopyCenters business, the service areas the Company operates in
include 47 in the United States, 5 in Canada, 15 in the United Kingdom and 3 in
France. As of March 31, 2000, the Company had 36,042 TRM Copy Centers compared
to 31,354 at March 31, 1999, an increase of 4,688 centers (15.0%). In the first
quarter of 2000, the CopyCenters business generated $2.6 million in earnings
before interest, taxes and depreciation, compared to $3.2 million in the
prior year.
Also, in the first quarter of 2000 the Company formed a subsidiary to
deliver a unique distribution channel to access the Internet using its
existing ATMs initially and eventually rolling out the software capability
worldwide to other ATMs. The new subsidiary, iATMglobal.net, is headquartered
in San Francisco, CA. iATMglobal.net will continue TRM's previous work on the
development of a Remote Access Application Protocol (RAAP) which will provide
the infrastructure for e-tailers to use the ATM as an additional way to sell
goods and services. The new software is intended to transform existing ATMs
into Internet ATMs (iATMs), which would allow controlled access to the
Internet and related functions for the end user. In conjunction with
strategic e-commerce partners, iATMs are expected to be able to deliver a
wide range of services, including event and travel ticketing, Internet
banking services, affinity vouchers, and other goods and services. It is
expected that anything the Internet delivers to consumers can be available
using the iATM network.
The Company's balance sheet maintains a low debt to equity ratio. This
financial position offers TRM Corporation the flexibility to finance its
strategic expansion plans related to its ATM business. In the first quarter
of 2000, the Company replaced its existing bank line of credit. The Company
signed a new Loan Agreement with Bank of America N.A. to provide a line of
credit commitment equal to $30 million through June 30, 2001, reducing to $25
million through June 30, 2002. Also in the first quarter of 2000, the Company
(through a special purpose finance entity) established a $30.0 million Loan
Facility with a commercial paper conduit to provide vault cash for its ATM
network. The financing was completed off the Company's balance sheet on a
non-recourse basis. The Company initially funded $23.6 million under the
facility to supply its ATMs with cash. See "Liquidity and Capital Resources."
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).
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Percentage Change As a Percentage of Sales
Increase (Decrease) 1999 2000
----- -----
Sales 6.7% 100.0% 100.0%
Sales discounts 2.6 18.2 17.5
Cost of sales 25.7 42.0 49.4
Selling, general and administrative 26.1 32.0 37.8
------- ----- -----
Operating income (loss) (164.7) 7.8 (4.7)
Interest expense, net 1,480.0 0.2 2.6
Other expense (income) net (114.5) (0.9) 0.2
------- ----- -----
Income (loss) before income taxes (193.7) 8.5 (7.5)
Provision (benefit) for income taxes (196.3) 3.3 (3.0)
------- --- ------
Net income (loss) (192.1)% 5.2% (4.5)%
======= ===== ======
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
For the quarter ended March 31, 2000, consolidated sales increased by $1.1
million (6.7%) to $18.1 million from $16.9 million for 1999. The $1.1 million
increase in gross revenue is primarily attributed to the Company's ATM
business, while the CopyCenters business revenues were flat in the first
quarter of 2000 as compared to the first quarter of 1999.
Although CopyCenters sales were flat for the quarter ended March 31,
2000 as compared to the same period in 1999, there was an increase in billed
units of 10.4%, most of which were added to the installed base in the fourth
quarter of 1999 and the first quarter of 2000. Revenues per billed unit were
down 10.7% in the first quarter 2000 compared to the 1999, resulting in no
change in revenue on the higher installed base.
Revenues from the Company's new ATM business were $1.1 million during the
first quarter of 2000 with no revenues in 1999. The Company is expecting a
significant increase in ATM revenues in 2000 over 1999's revenue because of the
aggressive growth plans it has for the newly established ATM services business.
Sales discounts are the portion of revenue retained by retail customers.
Sales discounts generally vary at individual retail businesses depending on
volume - the higher the volume, the greater the discount. The increase in
sales discounts for the quarter ended March 31, 2000 compared to the prior
year was $80,000 (2.6%), which is attributed to the Company's ATM business.
Costs of sales on a consolidated basis increased $1.8 million (27.7%)
for the quarter ended March 31, 2000 compared to 1999. $838,000 of the
increase is due to the new ATM Business. Costs of paper, toner, parts, field
labor and other costs increased by $478,000, which can be explained by a
contract price increase in the price of paper and an increase in the
installed base. The remaining increase of $522,000 is due to copier machine
depreciation, which relates to the additional NextGen(TM) photocopiers in the
Company's installed base.
Selling, general and administrative expenses increased $1.4 million (26.1%)
during the quarter ended March 31, 2000 compared to 1999. $1.2 million of the
increase is due to the addition of the Company's ATM business.
During the quarter ended March 31, 2000, interest expense increased to
$474,000 from $30,000 in 1999. The increase was due to an increase in borrowings
on the Company's revolving line of credit during 2000 primarily as the result of
increased borrowings to finance the carrying of
9
cash balances in ATM machines operated by the Company in its newly formed ATM
business. Borrowings to finance the cash needs of the ATM network are not
expected to be necessary for the remainder of the year as a result of the
establishment of a commercial paper facility. See the section on "Liquidity
and Capital Resources" in this Form 10-Q.
Other income decreased $171,000 during the quarter ended March 31, 2000
compared to 1999. The decrease was primarily due to interest income generated
from short-term investments in the first quarter of 1999, which were not
outstanding in 2000.
The Company's effective tax rate for the quarter ended March 31, 2000 was
40.0 percent, resulting in an income tax benefit of $543,000, compared to an
effective rate of 39.0 percent and an income tax provision of $564,000 in 1999.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 2000, TRM generated $4.0 million in cashflows
from operations and decreased its net working capital from $25.3 million at
December 31, 1999 to $6.8 million at March 31, 2000 (including cash and cash
equivalents of $472,000). The Company also has a $30.0 million bank line of
credit, with $11.2 million in borrowings outstanding at March 31, 2000.
During the first quarter of 2000, the Company funded capital expenditures
of $6.7 million primarily from bank borrowings on its line of credit. Capital
expenditures were primarily for NCR ATM machines, and computer systems
implementation costs.
The Company also obtained a new source for vault cash inventory in its ATM
network during the first quarter of 2000. As of December 31, 1999, the Company
had a cash balance related to the ATM vault cash inventory of $16.1 million. The
Company used its line of credit to finance this increase in cash. In March of
2000, the Company established a $30.0 million financing facility to access a
commercial paper conduit to provide vault cash for its ATM network. This
facility can be increased to $75 million, and the agreement resulted in the
removal of the cash and underlying bank borrowings from the Company's balance
sheet. The financing was completed off the Company's balance sheet on a
non-recourse basis. As such, the ATM vault cash inventory and related debt
financing was removed from the balance sheet as of March 31, 2000.
The Company currently anticipates capital expenditures of approximately
$35 million during calendar 2000. Approximately $30 million will be used to
acquire ATM machines and the remainder will be used to acquire computer
related systems and other capital items. The Company expects to finance these
capital expenditures with cash generated from operations and bank borrowings.
The Company entered into a new bank line of credit arrangement which will
allow it greater flexibility in its use of proceeds. The line of credit also
will not encumber the Company's ATM assets, allowing it to refinance its
existing ATM assets and finance future ATM asset purchases, subject to limits
based on the Company's ratio of funded debt to EBITDA. The Company expects
that these sources will provide adequate cash to fund its expansion through
at least December 31, 2000.
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
10
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.
FORWARD-LOOKING STATEMENTS
Information in "Management's Discussion and Analysis," in this Form 10-Q
about the Company's goals, plans and expectations regarding expansion, capital
expenditures, effectively using a third-party network of service providers,
expanding the ATM business, offering and providing e-commerce goods and services
through SmartATMs, 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 that could cause the 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, 1999.
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 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 March 31, 2000. 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. The relative amount of
business transacted in these countries is outlined in footnote 11 to the
Consolidated Financial Statements of the Company's 1999 Form 10-K.
11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
10.8(i) Employment Agreement dated April 9, 1999 between
the Company and Shami Patel.
10.11 Loan and Servicing Agreement dated March 17, 2000
by and among TRM Inventory Funding Trust, TRM ATM
Corporation, Autobahn Funding Company LLC, Bank
Deutsche Genossenschaftsbank AG, and Keybank
National Association.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the period.
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: May 14, 2000 By: /s/ Daniel L. Spalding
----------------------------- -------------------------------------
Daniel L. Spalding
Vice President, Finance and
Chief Financial Officer
12