## ** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

## ** **

| **ý****  QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                               |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                              |
| **For the quarterly period ended March 31, 2004**                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                              |
| **o****  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**                                                                                                                                                                                                                                        |

 

**TRMCORPORATION**

(Exact name of registrant asspecified in its charter)

 
| **Oregon**                                                      |   | **93-0809419**                       |
|-----------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer 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)      |

 

Indicate by check mark whether the registrant: (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

 

YES   ý   NO   o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).

 

YES   o   NO   ý

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date:

 
| **CLASS**    |   | **OUTSTANDING AT MARCH 31, 2004** |
|--------------|--------|----------------------------------------|
| Common Stock |   | 7,481,216                              |

 

 

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**PARTI - FINANCIAL INFORMATION**

 

**ITEM 1.****                             FINANCIALSTATEMENTS**

 

**TRMCorporation**

**ConsolidatedBalance Sheets**

**(unaudited)**

**(Inthousands)**

 
|                                                                                                                                                         |   | **December 31,  2003** |       | **March 31,  2004** |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|------------|--------------------------|------------|
| **Assets**                                                                                                                                                   |   |                        |       |                     |       |
| Current assets:                                                                                                                                              |   |                        |       |                     |       |
| Cash and cash equivalents                                                                                                                                    |   | $                           | 5,724      |                     | $          | 8,941 |   |
| Accounts receivable, net                                                                                                                                     |   | 6,134                       |       | 7,120                    |       |
| Inventories                                                                                                                                                  |   | 1,567                       |       | 1,874                    |       |
| Prepaid expenses and other                                                                                                                                   |   | 1,405                       |       | 1,566                    |       |
| Deferred tax asset                                                                                                                                           |   | 423                         |       | 424                      |       |
| Total current assets                                                                                                                                         |   | 15,253                      |       | 19,925                   |       |
| Equipment, less accumulated depreciation  and amortization                                                                                                   |   | 63,991                      |       | 64,594                   |       |
| Restricted cash — TRM Inventory Funding  Trust                                                                                                          |   | 28,939                      |       | 31,372                   |       |
| Deferred tax asset                                                                                                                                           |   | 2,767                       |       | 2,509                    |       |
| Intangible assets                                                                                                                                            |   | 72                          |       | 6,751                    |       |
| Other assets                                                                                                                                                 |   | 1,253                       |       | 1,208                    |       |
| Total assets                                                                                                                                                 |   | $                           | 112,275    |                     | $          | 126,359 |   |
|                                                                                                                                                         |   |                        |       |                     |       |
| **Liabilities and  Shareholders’ Equity**                                                                                                               |   |                        | ** ** |                     | ** ** |
| Current liabilities:                                                                                                                                         |   |                        |       |                     |       |
| Revolving line of credit (note 5)                                                                                                                            |   | $                           | —     |                     | $          | 3,915 |   |
| Accounts payable                                                                                                                                             |   | 1,367                       |       | 2,903                    |       |
| Accrued expenses                                                                                                                                             |   | 6,429                       |       | 6,085                    |       |
| Accrued expenses of TRM Inventory Funding  Trust                                                                                                             |   | 57                          |       | 60                       |       |
| Current portion of long-term debt                                                                                                                            |   | 3,024                       |       | 3,308                    |       |
| Current portion of obligations under  capital leases                                                                                                         |   | 2,113                       |       | 2,359                    |       |
| Total current liabilities                                                                                                                                    |   | 12,990                      |       | 18,630                   |       |
|                                                                                                                                                         |   |                        |       |                     |       |
| TRM Inventory Funding Trust note payable                                                                                                                     |   | 27,455                      |       | 29,941                   |       |
| Long-term debt                                                                                                                                               |   | 7,040                       |       | 6,285                    |       |
| Obligations under capital leases                                                                                                                             |   | 2,784                       |       | 2,386                    |       |
| Deferred tax liability                                                                                                                                       |   | 7,049                       |       | 6,832                    |       |
| Other long-term liabilities                                                                                                                                  |   | 79                          |       | 66                       |       |
| Preferred dividends payable                                                                                                                                  |   | 4,502                       |       | 4,502                    |       |
| Total liabilities                                                                                                                                            |   | 61,899                      |       | 68,642                   |       |
| Minority interest                                                                                                                                            |   | 1,500                       |       | 1,500                    |       |
| Shareholders’ equity:                                                                                                                                   |   |                        |       |                     |       |
| Preferred stock, no par value - 5,000  shares authorized; 1,778 shares issued and outstanding (liquidation  preference $20,000)                              |   | 19,798                      |       | 19,798                   |       |
| Common stock, no par value - 50,000 shares  authorized; 7,481 shares issued and outstanding (7,060 shares issued and  outstanding at December 31, 2003) |   | 19,026                      |       | 23,573                   |       |
| Additional paid-in capital                                                                                                                                   |   | 63                          |       | 63                       |       |
| Accumulated other comprehensive income                                                                                                                       |   | 2,088                       |       | 2,744                    |       |
| Retained earnings                                                                                                                                            |   | 7,901                       |       | 10,039                   |       |
| Total shareholders’ equity                                                                                                                              |   | 48,876                      |       | 56,217                   |       |
| Total liabilities and shareholders’ equity                                                                                                              |   | $                           | 112,275    |                     | $          | 126,359 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

2

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**TRMCorporation**

**ConsolidatedStatements of Operations**

**(unaudited)**

**(Inthousands, except per share data)**

 
|                                                           |   | **Three  months ended  March 31,** |   |
|----------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                           |   | **2003**                                |   | **2004** |   |
| Sales                                                          |   | $                                       | 22,414 |   | $ | 25,929 |   |
| Less discounts                                                 |   | 3,726                                   |   | 4,899 |   |
| Net sales                                                      |   | 18,688                                  |   | 21,030 |   |
| Cost of sales                                                  |   | 11,086                                  |   | 10,676 |   |
| Gross profit                                                   |   | 7,602                                   |   | 10,354 |   |
| Selling, general and administrative expense                    |   | 5,799                                   |   | 6,211 |   |
| Asset retirements                                              |   | 63                                      |   | — |   |
| Operating income                                               |   | 1,740                                   |   | 4,143 |   |
| Interest expense                                               |   | 330                                     |   | 246 |   |
| Other expense, net                                             |   | 150                                     |   | 135 |   |
| Income before income taxes                                     |   | 1,260                                   |   | 3,762 |   |
| Provision for income taxes                                     |   | 507                                     |   | 1,249 |   |
| Net income                                                     |   | $                                       | 753    |   | $ | 2,513 |   |
|                                                           |   |                                    |   |   |   |
| Basic and diluted per share information:                       |   |                                    |   |   |   |
| Net income                                                     |   | $                                       | 753    |   | $ | 2,513 |   |
| Preferred stock dividends                                      |   | (375                                    | )      | (375 | ) |
| Net income available to common shareholders                    |   | $                                       | 378    |   | $ | 2,138 |   |
|                                                           |   |                                    |   |   |   |
| Weighted average common shares outstanding                     |   | 7,060                                   |   | 7,153 |   |
| Dilutive effect of stock options                               |   | —                                  |   | 1,043 |   |
| Weighted average common shares outstanding,  assuming dilution |   | 7,060                                   |   | 8,196 |   |
|                                                           |   |                                    |   |   |   |
| Net income per share:                                          |   |                                    |   |   |   |
| Basic                                                          |   | $                                       | .05    |   | $ | .30 |   |
| Diluted                                                        |   | $                                       | .05    |   | $ | .26 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

3

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**TRMCorporation**

**ConsolidatedStatement of Shareholders’ Equity**

**(unaudited)**

**(Inthousands)**

 
|                                           |   | **Comprehensive** |   | **Preferred** |   | **Common**  |   | **Additional  paid-in** |   | **Accumulated  other  comprehensive** |   | **Retained** |   |       |   |
|------------------------------------------------|--------|-------------------|--------|---------------|--------|-------------|--------|-------------------------|--------|---------------------------------------|--------|--------------|--------|------------|--------|
|                                           |   | **income**        |   | **Shares**    |   | **Amounts** |   | **Shares**              |   | **Amounts**                           |   | **capital**  |   | **income** |   | **earnings** |   | **Total** |   |
|                                           |   |              |   |          |   |        |   |                    |   |                                  |   |         |   |       |   |   |   |   |   |
| **Balances, December 31, 2003**           |   |              |   | 1,778         |   | $           | 19,798 |                    | 7,060  |                                  | $      | 19,026       |   | $          | 63     |   | $ | 2,088 |   | $ | 7,901 |   | $ | 48,876 |   |
| Comprehensive income                           |   |              |   |          |   |        |   |                    |   |                                  |   |         |   |       |   |   |   |   |   |
| Net income                                     |   | $                 | 2,513  |          | — |        | — |                    | — |                                  | — |         | — |       | — |   | 2,513 |   | 2,513 |   |
| Other comprehensive  income, net of tax   |   |              |   |          |   |        |   |                    |   |                                  |   |         |   |       |   |   |   |   |   |
| Foreign currency   translation adjustment |   | 656               |   | —        |   | —      |   | —                  |   | —                                |   | —       |   | 656        |   | — |   | 656 |   |
| Comprehensive income                           |   | $                 | 3,169  |          | — |        | — |                    | — |                                  | — |         | — |       | — |   | — |   | — |   |
| Exercise of stock options                      |   |              |   | —        |   | —      |   | 421                     |   | 3,467                                 |   | —       |   | —     |   | — |   | 3,467 |   |
| Tax benefit of stock  options exercised   |   |              |   | —        |   | —      |   | —                  |   | 1,080                                 |   | —       |   | —     |   | — |   | 1,080 |   |
| Preferred stock dividends                      |   |              |   | —        |   | —      |   | —                  |   | —                                |   | —       |   | —     |   | (375 | ) | (375 | ) |
| **Balances, March 31, 2004**              |   |              |   | 1,778         |   | $           | 19,798 |                    | 7,481  |                                  | $      | 23,573       |   | $          | 63     |   | $ | 2,744 |   | $ | 10,039 |   | $ | 56,217 |   |

 

See accompanying notes to consolidated financial statements.

 

4

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**TRMCorporation**

**ConsolidatedStatements of Cash Flows**

**(unaudited)**

**(Inthousands)**

 
|                                                                                                                      |   | **Three  months ended  March 31,** |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                                                                                      |   | **2003**                                |   | **2004** |   |
| **Operating  activities:**                                                                                                |   |                                    |   |   |   |
| Net income                                                                                                                |   | $                                       | 753    |   | $ | 2,513 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities, net of effect of business acquisition: |   |                                    |   |   |   |
| Depreciation and amortization                                                                                             |   | 2,495                                   |   | 2,221 |   |
| Loss on disposal of equipment                                                                                             |   | 240                                     |   | 61 |   |
| Changes in items affecting operations:                                                                                    |   |                                    |   |   |   |
| Accounts receivable                                                                                                       |   | (42                                     | )      | (750 | ) |
| Inventories                                                                                                               |   | 57                                      |   | (34 | ) |
| Prepaid expenses and other                                                                                                |   | (91                                     | )      | (124 | ) |
| Accounts payable                                                                                                          |   | 639                                     |   | 841 |   |
| Accrued expenses                                                                                                          |   | (2,034                                  | )      | (812 | ) |
| Deferred income taxes                                                                                                     |   | 594                                     |   | 1,247 |   |
| Total operating activities                                                                                                |   | 2,611                                   |   | 5,163 |   |
| **Investing  activities:**                                                                                                |   |                                    |   |   |   |
| Proceeds from sale of equipment                                                                                           |   | 379                                     |   | 25 |   |
| Capital expenditures                                                                                                      |   | (348                                    | )      | (1,329 | ) |
| Acquisition of a business                                                                                                 |   | —                                  |   | (5,823 | ) |
| Acquisition of intangible and other assets                                                                                |   | —                                  |   | (580 | ) |
| Total investing activities                                                                                                |   | 31                                      |   | (7,707 | ) |
| **Financing  activities:**                                                                                                |   |                                    |   |   |   |
| Borrowings on notes payable                                                                                               |   | 4,756                                   |   | 3,915 |   |
| Repayment of notes payable                                                                                                |   | (6,513                                  | )      | (754 | ) |
| Principal payments on capital lease obligations                                                                           |   | (402                                    | )      | (521 | ) |
| Increase in restricted cash                                                                                               |   | (70                                     | )      | (2,433 | ) |
| Proceeds from issuance of TRM Inventory  Funding Trust note, net of repayments                                            |   | (38                                     | )      | 2,486 |   |
| Proceeds from exercise of stock options                                                                                   |   | —                                  |   | 3,468 |   |
| Preferred stock dividends                                                                                                 |   | —                                  |   | (375 | ) |
| Total financing activities                                                                                                |   | (2,267                                  | )      | 5,786 |   |
| Effect of exchange rate changes                                                                                           |   | (66                                     | )      | (25) |   |
| Net increase in cash and cash equivalents                                                                                 |   | 309                                     |   | 3,217 |   |
| Beginning cash and cash equivalents                                                                                       |   | 2,127                                   |   | 5,724 |   |
| Ending cash and cash equivalents                                                                                          |   | $                                       | 2,436  |   | $ | 8,941 |   |
|                                                                                                                      |   |                                    |   |   |   |
| Supplemental disclosure of non-cash  transactions:                                                                        |   |                                    |   |   |   |
| Assets acquired under capital lease  obligations                                                                          |   | $                                       | 2,278  |   | $ | — |   |

 

See accompanying notes to consolidatedfinancial statements.

 

5

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**TRMCorporation**

 

**Notesto Condensed Consolidated Financial Statements (unaudited)**

 

1.                                       InterimFinancial Data:

 

Theconsolidated financial statements of TRM Corporation and its subsidiaries(collectively, “TRM” or the “Company”) included herein have been prepared bythe Company, without audit, pursuant to the rules and regulations of theSecurities and Exchange Commission and reflect all adjustments, consisting onlyof normal recurring adjustments, which, in the opinion of management, arenecessary for a fair statement of the results of the interim periods.  These consolidated financial statementsshould be read in conjunction with the Company’s latest annual report on Form10-K.  Certain information and footnotedisclosures normally included in financial statements prepared in accordancewith generally accepted accounting principles have been condensed or omittedpursuant to such rules and regulations. The results of operations for the periods presented are not necessarilyindicative of the results to be expected for any subsequent interim period orfor the year ended December 31, 2004.

 

2.                                       FinancialStatements Reclassification

 

Certain financial statement reclassifications have been made to prioryear amounts to conform to the current year presentation.  These changes had no impact on shareholders’equity or previously reported net income.

 

3.                                       NetIncome Per Share

 

Basicand diluted net income per share are based on the weighted average number ofshares outstanding during each period, with diluted including the effect ofpotentially dilutive securities.  Incalculating basic net income per share, dividends for preferred stock arededucted to arrive at income available for common shareholders.  For diluted net income per share, thecalculation assumes the conversion of common stock equivalents including theconversion of preferred stock unless such conversion is antidilutive.  Weighted average common shares outstanding,assuming dilution, include the incremental shares that would be issued upon theassumed exercise of stock options.  Forthe three months ended March 31, 2004, approximately 1,534,000 of theCompany’s stock options were excluded from the calculation of diluted earningsper share because the exercise prices of the stock options were equal to orgreater than the average share price of the common shares, and therefore theirinclusion would have been antidilutive. For the three months ended March 31, 2003, all of the Company’sstock options were excluded from the calculation as exercise prices weregreater than the average share price of the common shares.  In addition, preferred stock convertibleinto approximately 1,333,000 common shares and warrants exercisable for 300,000common shares were excluded from the calculation because their inclusion wouldalso have been antidilutive.  Theseoptions, preferred shares and warrants could be dilutive in the future.

 

The Company’s Board of Directors approved payment of a dividend for thefirst quarter of 2004 in the amount of $375,000 related to its Series APreferred Shares, which equates to $.05

 

6

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per fully diluted common share. This payment was made in April 2004 pursuant to a waiver from Bankof America, N.A.

 

4.                                       Inventories(in thousands):

 
|                       |   | **December 31,****2003** |   | **March 31,****2004** |   |
|----------------------------|--------|-------------------------------|--------|----------------------------|--------|
| Parts                      |   | $                             | 1,052  |                       | $      | 1,047 |   |
| ATMs held for resale       |   | 483                           |   | 812                        |   |
| Paper, toner and developer |   | 32                            |   | 15                         |   |
| Total                      |   | $                             | 1,567  |                       | $      | 1,874 |   |

 

5.                                       Bank LoanAgreement

 

In March 2004 the Company and its primary lender, Bank of America,N.A., executed an amendment to the Company’s loan agreement.  The amendment increased the amount of therevolving line of credit from $4.0 million to $8.0 million and decreased theinterest rate on borrowings pursuant to the line of credit from the bank’sprime rate to the bank’s prime rate minus one-half percent (3.5% atMarch 31, 2004).  As ofMarch 31, 2004 the Company had a balance of $3,915,000 outstanding underthe revolving line of credit.  Thisbalance was repaid in April 2004.

 

6.                                       Employee StockOptions

 

TheCompany accounts for stock-based compensation utilizing the intrinsic valuemethod in accordance with the provisions of Accounting Principles Board OpinionNo. 25, “Accounting for Stock Issued To Employees.”  Accordingly, no compensation expense is recognized for theCompany’s option plans because the exercise prices of employee stock optionsequal or exceed the market prices of the underlying stock on the measurementdates.  The following table illustratesthe effect on net income and net income per share if the Company had appliedthe fair value recognition provisions of Statement of Financial AccountingStandards No. 123, “Accounting for Stock-Based Compensation,” tostock-based employee compensation (in thousands, except per share data).

 
|                                                                                                                                         |   | **Three  months ended  March 31,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                                                                                                         |   | **2003**                                |   | **2004** |   |
| Net income, as reported                                                                                                                      |   | $                                       | 753    |   | $ | 2,513 |   |
| Deduct total stock-based employee compensation  expense determined under fair value based method for all awards, net of  related tax effects |   | (14                                     | )      | (86 | ) |
| Pro forma net income                                                                                                                         |   | $                                       | 739    |   | $ | 2,427 |   |
| Net income per share - basic:                                                                                                                |   |                                    |   |   |   |
| As reported                                                                                                                                  |   | $                                       | .05    |   | $ | .30 |   |
| Pro forma                                                                                                                                    |   | $                                       | .05    |   | $ | .29 |   |
| Net income per share - diluted:                                                                                                              |   |                                    |   |   |   |
| As reported                                                                                                                                  |   | $                                       | .05    |   | $ | .26 |   |
| Pro forma                                                                                                                                    |   | $                                       | .05    |   | $ | .25 |   |

 

7

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7.                                       BusinessAcquisition

 

                                                Ina cash transaction effective March 31, 2004, the Company acquired all of theoutstanding shares of Inkas Financial Corp. Ltd. (“Inkas”), an independent ATMcompany, for $5,923,000.  As a result ofthe acquisition, the Company has added 450 ATM contracts and 85 ATM machines toits United Kingdom operations.  Theacquisition was accounted for as a purchase; the purchase price and the relatedallocation are subject to further refinement and change during 2004.  The results of operations of Inkas will beincluded in the Company’s consolidated results of operations starting in thesecond quarter of 2004.

 

                The purchase price was allocated as follows(in thousands):

 
| Cash                                    |   | $      | 100    |   |
|-----------------------------------------|--------|--------|--------|--------|
| Accounts receivable                     |   | 211    |   |
| Inventories                             |   | 239    |   |
| Prepaid expenses                        |   | 18     |   |
| Equipment                               |   | 322    |   |
| Intangible asset — contract rights |   | 6,055  |   |
| Other assets                            |   | 104    |   |
| Current liabilities                     |   | (1,126 | )      |
| Total                                   |   | $      | 5,923  |   |

 

**               **Contractrights acquired are being amortized over their estimated useful life of tenyears.

 

                Simultaneous to the purchase of Inkas, theCompany entered into an earn out agreement with the sellers and an Inkasemployee.  The earn out agreementprovides that the Company will make payments to the sellers and Inkas employeefor up to 150 net new ATM contracts entered into by Inkas during the first ninemonths following the acquisition of Inkas and which reach certain transactionlevels. The maximum payment to be made pursuant to the earn out agreement is£850,000 (approximately $1.6 million). Any payments to be made pursuant to the earn out agreement will beaccounted for as additional contract rights as they are earned.

 

 

8.                                       Segment Reporting(in thousands)

 

TheCompany has three reportable segments: Automated Teller Machines (ATM), Photocopy and SoftwareDevelopment.  ATM owns and operates ATMmachines in retail establishments, sells ATM machines, and began servicingequipment for others in the fourth quarter of 2003.  Photocopy owns and maintains self-service photocopiers in retailestablishments.  The SoftwareDevelopment business develops software to deliver products and services throughATMs.

 

Theaccounting policies of the segments are substantially the same as thosedescribed in Note 1 to the financial statements in the Company’s annualreport on Form 10-K for the year ended December 31, 2003.  The Company evaluates each segment’sperformance based on operating income or loss. In the Company’s financial statements for 2003 the Company reportedsegment performance based on income or loss before interest, taxes, minorityinterest, and cumulative effect of accounting changes.  The 2003 information below has been restatedto conform to the current presentation. Information regarding the operations of these reportable segments is asfollows:

 
|                     |   | **Three months ended  March 31,** |   |
|--------------------------|--------|----------------------------------------|--------|
|                     |   | **2003**                               |   | **2004** |   |
| **Net sales:**           |   |                                   |   |   |   |
| ATM                      |   | $                                      | 7,390  |   | $ | 9,605 |   |
| Photocopy                |   | 10,696                                 |   | 11,411 |   |
| Software Development     |   | 602                                    |   | 14 |   |
|                     |   | $                                      | 18,688 |   | $ | 21,030 |   |
|                     |   |                                   |   |   |   |
| Operating income (loss): |   |                                   |   |   |   |
| ATM                      |   | $                                      | 469    |   | $ | 1,435 |   |
| Photocopy                |   | 1,281                                  |   | 2,843 |   |
| Software Development     |   | (10                                    | )      | (135 | ) |
|                     |   | $                                      | 1,740  |   | $ | 4,143 |   |

 

8

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9.                                       NewAccounting Standards

 

In March 2004, the Financial Accounting Standards Board approvedEmerging Issues Task Force (“EITF”) Issue 03-6 “Participating Securities andthe Two-Class Method under FAS 128.” EITF Issue 03-6 supersedes the guidance in Topic No. D-95, “Effect ofParticipating Convertible Securities on the Computation of Basic Earnings perShare,” and requires the use of the two-class method for the computation ofbasic earnings per share for companies that have participating securities.  The two-class method is an earningsallocation formula that determines earnings per share for each class of commonstock and participating security according to dividends declared (oraccumulated) and participation rights in undistributed earnings.  In addition, EITF Issue 03-6 addresses otherforms of participating securities, including options, warrants, forwards andother contracts to issue an entity’s common stock, with the exception ofstock-based compensation (unvested options and restricted stock) subject to theprovisions of Opinion 25 and SFAS 123. EITF Issue 03-6 is effective for reporting periods beginning afterMarch 31, 2004 and is to be applied by restating previously reportedearnings per share.  The Company expectsthat the adoption of EITF Issue 03-6 will reduce its reported earnings pershare in future periods.

 

**ITEM 2.****                             MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Forward-LookingStatements**

 

Information in “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and elsewhere in this Quarterly Report onForm 10-Q with respect to the Company’s beliefs, plans, objectives, goals,expectations, anticipations, intentions, financial condition, results ofoperations, future performance and business, including, without limitation,increasing ATM revenues, decreases in photocopy volume and generating adequatecash from operations to meet its needs for working capital and capitalexpenditures and to service its debt obligations; constitutes forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933and Section 21E of the Securities Exchange Act of 1934.  The Company has based these forward-lookingstatements on management’s current expectations about future events.  These statements can be identified by thefact that they do not relate strictly to historical or current facts, and bywords such as “may,” “could,” “should,” “would,” “believe,” “expect,”“anticipate,” “estimate,” “intend,” “plan” or other similar words or expressions.

 

Anyor all of the forward-looking statements in this report and in any other publicstatements made by the Company may turn out to be wrong. This can occur as aresult of inaccurate assumptions or as a consequence of known or unknown risksand uncertainties.  Many factorsdiscussed in this report will be important in determining the Company’s futureperformance.  Consequently, actualresults may differ materially from those that might be anticipated from theCompany’s forward-looking statements.   Otherfactors beyond those discussed above could also adversely affect theCompany.  Therefore, you are cautionednot to place undue reliance on the Company’s forward-looking statements.  The Company undertakes no obligation topublicly update any forward-looking statements, whether as a result of new

 

9

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information,future events or otherwise. However, any further disclosures made on relatedsubjects in TRM’s subsequent reports on Forms 10-K, 10-Q and 8-K should beconsulted.  This discussion is providedas permitted by the Private Securities Litigation Reform Act of 1995.

 

**Overview**

 

TRM Corporation and its subsidiaries (collectively, “TRM” or the“Company”) currently provide financial services and photocopy resources toconsumers through an in-store retail network of approximately 29,000locations.  Financial services consistof surcharge based cash delivery and bank account balance inquiries throughboth owned and leased ATM machines.

 

In March 2004, (prior to the Inkasacquisition) the Company’s ATM network had a total of 3,522 revenue-generatingmachines deployed throughout the United Kingdom and United States, representingan increase of 422 ATM machines (or 13.6%) when compared to the same month in2003.  The increase in ATMs includes theacquisition, in the first quarter of 2004, of contracts to operate 20 ATMsprimarily in shopping centers on the west coast of the United States.  The ATM operations produced net sales of$9.6 million during the first three months of 2004, an increase of $2.2 million(or 30.0%) as compared to the same period in the prior year.  The acquisition of Inkas Financial Corp.Ltd. on March 31, 2004 added another 450 ATM contracts.  Revenues from the operation of Inkas’ ATMswill be included in the Company’s consolidated revenues starting in the secondquarter of 2004.  The Company believesthat revenues generated from services delivered through its ATM network willrepresent a greater percentage of overall net sales in the future.

 

**At March 31, 2004, the Company had a total of 25,877installed photocopiers in the United States, Canada and the United Kingdom, adecrease of 2,156 copiers (or 7.7%) when compared to March 31, 2003.  Photocopy net sales were $11.4 million forthe three months ended March 31, 2004, up from $10.7 million during thesame period in 2003.  The decrease inthe number of photocopiers was caused primarily by the elimination of lowvolume sites.  However, price increasesmore than offset the decline in photocopy volume, resulting in an increase innet photocopy revenue in the first quarter of 2004 compared to the firstquarter of 2003.**

** **

**The Company’s Board of Directors approved payment of adividend for the first quarter of 2004 in the amount of $375,000 related to itsSeries A Preferred Shares, which equates to $.05 per fully diluted commonshare.  This payment was made inApril 2004 pursuant to a waiver from Bank of America, N.A.**

** **

**Resultsof Operations**

 

The following table setsforth, for the three months ended March 31, 2003 and 2004, selectedstatement of operations data, expressed as a percentage of sales of each itemon the Consolidated Statements of Operations (see page 3 of this QuarterlyReport on Form 10-Q).

 

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|                                |   | **Three  months ended  March 31,** |   |
|-------------------------------------|--------|-----------------------------------------|--------|
|                                |   | **2003**                                |   | **2004** |   |
| Sales                               |   | 100.0                                   | %      | 100.0 | % |
| Sales discounts                     |   | 16.6                                    |   | 18.9 |   |
| Net sales                           |   | 83.4                                    |   | 81.1 |   |
| Cost of sales                       |   | 49.4                                    |   | 41.2 |   |
| Selling, general and administrative |   | 25.9                                    |   | 23.9 |   |
| Asset retirements                   |   | .3                                      |   | — |   |
| Operating income                    |   | 7.8                                     |   | 16.0 |   |
| Interest expense, net               |   | 1.5                                     |   | 1.0 |   |
| Other expense, net                  |   | 0.7                                     |   | 0.5 |   |
| Income before income taxes          |   | 5.6                                     |   | 14.5 |   |
| Provision for income taxes          |   | 2.2                                     |   | 4.8 |   |
| Net income                          |   | 3.4                                     | %      | 9.7 | % |

 

The Company’s revenues and expenses are affected by changes in thevalue of the British pound and, to a lesser extent, the Canadian dollar ascompared to the U.S. dollar.  The impactof changes in exchange rates in the first quarter of 2004 as compared to ratesduring the first quarter of 2003 was to increase the Company's net income by$184,000.  Net sales reported in thefirst quarter of 2004 were $1,101,000 higher, expenses were $862,000 higher andthe provision for income taxes was $55,000 higher than they would have been hadthe exchange rates remained constant at the average for the first quarter of2003.  Approximately 37% of theCompany’s consolidated sales during the first quarter of 2004 were produced inthe United Kingdom by the Company’s United Kingdom subsidiaries.  The average exchange rate during the firstquarter of 2004 was $1.8282 to £1.00, compared to $1.6054 to £1.00 during thefirst quarter of 2003.  As a result ofthis increase in the value of the British pound, the Company reported $1.2million more in sales during the first quarter of 2004 than it would havereported had the exchange rate remained constant at the average for the firstquarter of 2003.  Approximately 5% ofthe Company’s consolidated sales during the first quarter of 2004 were producedin Canada by the Company’s Canadian subsidiary.  The average exchange rate during the first quarter of 2004 wasU.S. $.7583 to Canadian $1.00, compared to U.S. $.6549 to Canadian $1.00 duringthe first quarter of 2003.  As a resultof this increase in the value of the Canadian dollar, the Company reported$185,000 more in sales during the first quarter of 2004 than it would havereported had the exchange rate remained constant at the average for the firstquarter of 2003.  The Company’s foreignsubsidiaries’ purchases are mostly denominated in local currencies as well,resulting in a similar increase in the Company’s expenses due to the increasein the value of the British pound and Canadian dollar, substantially offsettingany gain in sales.  As a result of theincreases in the value of the British pound and Canadian dollar, the Companyreported $239,000 more in sales discounts, $612,000 more in cost of sales,$231,000 more in selling, general and administrative expenses and $55,000 morein provision for income taxes than it would have reported had the exchangerates remained constant at the average for the first quarter of 2003.

 

For the quarter ended March 31, 2004, consolidated sales increasedby $3.5 million (15.7%), to $25.9 million from $22.4 million for the firstquarter of 2003.  ATM sales increased by$3.2 million and photocopy sales increased by $900,000, while softwaredevelopment sales decreased by $588,000.

 

The Company’s ATM business derives revenues from operating ATM machinesand from sales of ATM machines.  In late2003 the Company began servicing equipment, including ATMs, for others.  Servicing revenue is included in ATMrevenues.  ATM gross revenues were $12.0million for the first quarter of 2004 compared to $8.8 million for the firstquarter of 2003.  The $3.2 millionincrease in ATM revenues is a combination of a $2.8 million increase inrevenues from ATM operations and a $567,000 increase in servicing revenues inthe first quarter

 

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of 2004, offset by a $220,000 decrease in sales of ATM machines.  The $2.8 million increase in revenues fromATM operations is a result of an expansion of the Company’s ATM network, higherpricing and the increased value of the British pound.  In the month of March 2004 the Company had 3,522 transactingATMs, compared to 3,100 in March 2003, an increase of 422 ATMs.  Withdrawal transactions per unit increasedby 5.0%, to 1,164 from 1,109 in the first quarter of 2003.  The average gross revenue generated perwithdrawal transaction increased by 12.9% to $2.80 from $2.48 in the firstquarter of 2003.  As a result of priceincreases average gross revenue per withdrawal transaction increased to $2.52in the first quarter of 2004 from $2.47 in the first quarter of 2003 in theUnited States, and to £1.58 from £1.50 in the United Kingdom.  Gross revenue per transaction for the UnitedKingdom transactions also increased due to the 14% increase in the value of theBritish pound.

 

Photocopy sales in the first quarter of 2004 were $13.9 millioncompared to $13.0 million in the first quarter of 2003.  The $900,000 increase was the result ofincreased prices and the increased value of the British pound and Canadiandollar, offset by a decline in photocopy volume.  The average gross sales price per copy increased to $.086 in thefirst quarter of 2004 from $.058 in the first quarter of 2003 as a result ofthe Company's work with its retailers to implement price increases throughoutmost of its photocopy locations.  TheCompany has selected target prices for its photocopier locations in eachcountry where it has photocopiers.  Asof March 31, 2004, 80% of the Company's photocopy locations were at or abovethe target prices, compared to 64% that were at or above these same target pricesat the end of 2003.  Gross sales per averageinstalled copier increased to $536.70 in the first quarter of 2004, from$461.72 in the first quarter of 2003. Continuing the trend of recent years, copy volume declined by 64 millioncopies, to 162 million copies in the first quarter of 2004 from 226 millioncopies in the first quarter of 2003. The decrease in copy volume results from a combination of a decline ininstalled copiers to an average of 25,960 in the first quarter of 2004 from28,204 in the first quarter of 2003, and a reduction of average copies made perunit to 6,234 in the first quarter of 2004 from 8,030 in the first quarter of2003.  The Company believes that thetrend of decreasing copies per unit is attributable primarily to a decline in demandcaused by advances in electronic media and increasing availability of printersand copiers in the home.  The Companyhas responded to this decrease by eliminating certain lower-volume,unprofitable photocopy locations, and increasing prices.  Price increases have further contributed tovolume declines; however, the Company believes that the decline in volumerelating to price increases will be fully realized by the end of the secondquarter of 2004.  The Company’sphotocopy segment reported approximately $435,000 more in gross revenues in thefirst quarter of 2004 than it would have reported had the exchange rates forthe British pound and Canadian dollar remained at the average for the firstquarter of 2003.

 

Software development revenues decreased to $14,000 for the firstquarter of 2004 from $602,000 for the first quarter of 2003.  The decrease resulted from substantialcompletion of a development contract with NCR Corporation during the firstquarter of 2003.

 

Sales discounts are the portion of revenue retained by the owners ofsites where the Company’s ATM machines and copiers are located.  The discounts are based on revenuesgenerated or transaction volumes.  Salesdiscounts on a consolidated basis as a percentage of sales (excluding sales ofATM machines, software development revenues and service revenues) were 19.4% inthe first quarter of 2004 compared to 17.4% in the first quarter of 2003.  Sales discounts in the ATM businessincreased to 21.1% of sales in the first quarter of 2004 (excluding sales ofATM machines and service revenues) from 16.6% in the first quarter of2003.  This

 

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increase in discounts was caused by an increase in the percentage ofretail partners who provide their own cash in their ATMs (eliminating theCompany’s need to provide cash for those ATMs), and who therefore receive ahigher share of the revenues and by competitive pressures on ATM discountsgenerally. Sales discounts in the photocopy business increased slightly in thefirst quarter of 2004 to 18.1% of sales from 17.9% in the first quarter of2003.

 

Cost of sales on a consolidated basis decreased to 41.2% of grossrevenue in the first quarter of 2004, from 49.4% in the first quarter of 2003.Costs of sales as a percent of gross revenue declined in both the ATM andphotocopy segments.

 

Costs of sales in the ATM business increased by $700,000 to $5.0million in the first quarter of 2004 from $4.3 million in the first quarter of2003, as a result of increased units deployed and transaction volume and theincreased value of the British pound. The Company’s ATM segment reported approximately $409,000 more in costof sales in the first quarter of 2004 than it would have reported had theexchange rate for the British pound remained at the average for the first quarterof 2003.  Cost of sales from theCompany’s ATM operations (excluding the sales and cost of sales of ATMmachines) declined to 40.9% of sales from 51.0% in the first quarter of 2003.  This percentage decrease resulted fromincreases in revenue per transaction in addition to a decrease in pertransaction costs.  Excluding the costof ATM machines sold and related commissions, cost of sales in the ATM businessdecreased to $1.20 per transaction in the first quarter of 2004, compared to$1.27 per transaction in the first quarter of 2003.  This decrease in cost per transaction is due to a $.08 pertransaction decrease in the cost of armored car service, caused primarily by anincrease in the percentage of ATM machines for which the retailer loads cash.

 

Cost of sales in the photocopy business decreased by $800,000, to $5.7million in the first quarter of 2004 from $6.5 million in the first quarter of2003, due to the decrease in copy volume. Directly related to the reduction in copy volume, the cost of paper andother supplies decreased by $383,000, depreciation decreased by $306,000 andthird party service and installation fees decreased by $121,000.  On a per copy basis, photocopy cost of salesincreased to $.035 in the first quarter of 2004 from $.029 in the first quarterof 2003 because certain costs could not be reduced in direct relationship tothe reduction in transaction volume. The Company’s photocopy segment reported approximately $203,000 more incost of sales in the first quarter of 2004 than it would have reported had theexchange rate for the British pound and Canadian dollar remained at the averagefor the first quarter of 2003.

 

Selling, general and administrative expense increased by $400,000(approximately 7.1%), to $6.2 million in the first quarter of 2004 from $5.8million in the first quarter of 2003. $231,000 of the $400,000 increase is due to the increase in the value ofthe British pound and Canadian dollar. The remainder is due primarily to increases in professional fees of$169,000 and travel expenses of $134,000, partially offset by a $196,000decrease in labor expense.

 

Interest expense decreased by $84,000, to $246,000 in the first quarterof 2004 from $330,000 in the first quarter of 2003.  This decrease is primarily due to the decrease in the Company’soutstanding bank borrowings, as well as a reduction in interest rates.

 

The Company’s effective tax rate for the first quarter of 2004 was33.2%, resulting in a tax provision of $1,249,000.  For the first quarter of 2003, the Company’s effective tax ratewas

 

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40.2%, and the tax provision was $507,000.** **The effective tax rate in the first quarter of 2003 washigher because the Company did not recognize any benefit from operating lossesof its Canadian subsidiary in that quarter and the mix of taxable income amongthe countries where the Company operates changed.

 

The Company’s net income for the first quarter of 2004 was $2.5million, compared to $753,000 for the first quarter of 2003.  Increased volumes and higher prices for theCompany’s services resulted in a $2.8 million increase in the Company’s grossprofit.  Increases in selling, generaland administrative expenses and the provision for income taxes partially offsetthe increased gross profit.

 

**Liquidity and CapitalResources**

 

The Company’s principal ongoing funding requirements are to financeworking capital and the continued growth of its business, including capitalexpenditures, and to service its bank debt and lease obligations.  During the first quarter of 2004, theCompany generated $5.2 million in cash flows from its operating activities ascompared to $2.6 million in the first quarter of 2003.  The Company’s operating activities,short-term bank borrowings and exercise of stock options, during the firstquarter of 2004 have provided the Company sufficient cash to acquire Inkas andmake expenditures of $1.3 million for equipment and $580,000 for othernoncurrent assets.  The Company had cashand cash equivalents of $8.9 million at March 31, 2004, compared to $5.7million at December 31, 2003, and net working capital of $1.3 million atMarch 31, 2004, compared to $2.3 million at December 31, 2003.  The Company’s net working capital wasdecreased significantly near the end of the first quarter of 2004 when theCompany borrowed $3.9 million in short-term debt under its line of credit, andused the proceeds for the Inkas acquisition, which added primarily non-currentassets to the Company’s consolidated balance sheet. The $3.9 million inshort-term borrowing was repaid in April 2004.

 

In March 2004 the Company and its primary lender, Bank of America,N.A., executed an amendment to the Company’s loan agreement.  The amendment increased the amount of therevolving line of credit from $4.0 million to $8.0 million and decreased theinterest rate on borrowings pursuant to the line of credit from the bank’sprime rate to the bank’s prime rate minus one-half percent.  As of March 31, 2004 the Company had abalance of $3,915,000 outstanding under the revolving line of credit.  The Company also had standby letters ofcredit totaling $1,625,000 as of March 31, 2004, reducing the balanceavailable under the line of credit to $2,460,000.

 

TRM Inventory Funding Trust (the “Trust”) provides cash to be placed inthe Company’s United States ATM machines (“vault cash”) by accessing commercialpaper markets.  Because the Company isthe primary beneficiary of the Trust, the Trust’s accounts are included in theCompany’s consolidated financial statements. Pursuant to the trust agreement, up to $50 million of cash is availablefor use in the Company’s United States ATM network, of which $31 million wasbeing used at March 31, 2004.

 

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The Company’s United Kingdom ATM business obtains vault cash under anagreement with a local bank.  The vaultcash obtained under the program remains the property of the bank, however theCompany is insured against risk of loss while the cash is in or beingdistributed to its ATM network.

 

The Company’s Board of Directors approved payment of a dividend for thefirst quarter of 2004 in the amount of $375,000 related to its Series APreferred shares.  This payment was madein April 2004 pursuant to a waiver from Bank of America, N.A.

 

The Company expects that operations will continue for the next twelvemonths, with the realization of assets, and discharge of liabilities in theordinary course of business.  TheCompany believes that its prospective needs for working capital, capitalexpenditures and debt service will be met from cash flows generated byoperations.  If operations are notconsistent with management’s plan, however, there is no assurance that theamounts from these sources will be sufficient for such purposes.  In that event, or for other reasons, theCompany may be required to seek replacement financing and the Company may notbe able to obtain such financing on commercially reasonable terms or atall.  There is no assurance that anyreplacement financing will be available, or if available, will be on termssatisfactory to the Company.

 

A summary of theCompany’s contractual commitments and obligations as of March 31, 2004, isas follows (in thousands):

 
|                                      |   | **Payments  Due by Period** |   |
|-------------------------------------------|--------|-----------------------------|--------|
| **Contractual  obligations**              |   | **Total**                   |   | **2004** |   | **2005-2006** |   | **2007-2008** |   | **After 5  years** |   |
|                                      |   |                        |   |   |   |   |   |   |   |   |   |
| TRM Corporation and  subsidiaries         |   |                        |   |   |   |   |   |   |   |   |   |
| Long-term bank debt                       |   | $                           | 9,593  |   | $ | 2,552 |   | $ | 7,041 |   | $ | — |   | $ | — |   |
| Short-term bank borrowings                |   | 3,915                       |   | 3,915 |   | — |   | — |   | — |   |
| Capital lease obligations                 |   | 4,745                       |   | 1,858 |   | 2,340 |   | 547 |   | — |   |
| Operating leases                          |   | 9,387                       |   | 2,236 |   | 4,454 |   | 1,423 |   | 1,274 |   |
| Total TRM Corporation and  subsidiaries   |   | 27,640                      |   | 10,561 |   | 13,835 |   | 1,970 |   | 1,274 |   |
| TRM Inventory Funding Trust  note payable |   | 29,941                      |   | — |   | — |   | 29,941 |   | — |   |
| Total contractual cash  obligations       |   | $                           | 57,581 |   | $ | 10,561 |   | $ | 13,835 |   | $ | 31,911 |   | $ | 1,274 |   |

 

The Company has $4,502,000 accrued for SeriesA Preferred Stock dividends as of March 31, 2004.  TRM ceased paying these dividends late inthe year 2000, but did pay them for the third and fourth quarters of 2003 andthe first quarter of 2004.  TheCompany’s loan agreement with Bank of America prohibits the cash payment ofpreferred dividends, but the Company has obtained a waiver from the bankallowing it to pay the dividends for the third and fourth quarters of 2003 andthe first quarter of 2004.

 

**CriticalAccounting Policies**

 

The Company’s critical accounting policies as of March 31, 2004are consistent with those discussed in the Company’s Form 10-K for the yearended December 31, 2003.

 

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**New AccountingStandards**

 

In March 2004, the Financial Accounting Standards Board approvedEmerging Issues Task Force (“EITF”) Issue 03-6 “Participating Securities andthe Two-Class Method under FAS 128.” EITF Issue 03-6 supersedes the guidance in Topic No. D-95, “Effect ofParticipating Convertible Securities on the Computation of Basic Earnings perShare,” and requires the use of the two-class method for the computation ofbasic earnings per share for companies that have participating securities.  The two-class method is an earningsallocation formula that determines earnings per share for each class of commonstock and participating security according to dividends declared (or accumulated)and participation rights in undistributed earnings.  In addition, EITF Issue 03-6 addresses other forms ofparticipating securities, including options, warrants, forwards and othercontracts to issue an entity’s common stock, with the exception of stock-basedcompensation (unvested options and restricted stock) subject to the provisionsof Opinion 25 and SFAS 123.  EITF Issue03-6 is effective for reporting periods beginning after March 31, 2004 andis to be applied by restating previously reported EPS.  The Company expects that the adoption ofEITF Issue 03-6 will reduce its reported earnings per share in future periods.

 

**ITEM 3.          QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

The Company is exposed to market risk fromchanges in interest rates and foreign currency exchange rates, which couldimpact its results of operations and financial condition.  The Company does not hold or issuederivative commodity instruments or other financial instruments for tradingpurposes.

 

###### **InterestRate Risk**

 

The Company maintains an investment portfoliothat is comprised solely of money market funds.  The income earned from these money market funds is subject tochanges in interest rates.  For thequarters ended March 31, 2003 and 2004, interest income amounted to$23,000 and $27,000, respectively.  Animmediate 10% change in interest rates earned would not have a material effecton the Company’s net income.

 

Additionally, the Company is exposed tointerest rate risk related to its bank loans. Interest on the Company’s term loan from Bank of America is at thebank’s prime rate plus 0.0% to 0.5% depending on the Company’s leverage ratioas defined in the loan agreement.  TheCompany also has the option of electing an alternative interest rate based onthe bank’s LIBOR or IBOR rates.  As ofMarch 31, 2004, the weighted average interest rate on the term loan was3.9%.  Interest on short-term borrowingsunder the Company’s revolving line of credit is at the bank’s prime rate minusone-half percent.  As of March 31,2004, this rate was 3.5%.  Borrowingsfrom Bank of America totaled $14.9 million at March 31, 2003 and $13.2million at March 31, 2004. Interest expense relating to these borrowings was $254,000 and $98,000for the quarters ended March 31, 2003 and 2004, respectively.  If the interest rate for the Company’s

 

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$13.2 million borrowings from Bank of America at March 31, 2004increased by 1%, the Company’s interest expense would increase by $132,000 peryear.

 

TRM Inventory Funding Trust borrows moneypursuant to a note funded by the sale of commercial paper.  The Trust owed $29.1 million atMarch 31, 2003 and $29.9 million at March 31, 2004 under thisarrangement.  The weighted averageinterest rate on these borrowings at March 31, 2004 was 2.9%.  Interest and fees relating to the Trust’sborrowings, which are included in cost of sales in the Company’s consolidatedfinancial statements, totaled $212,000 and $233,000 for the quarters endedMarch 31, 2003 and 2004, respectively. If the interest rate for the Trust’s borrowings at March 31, 2004increased by 1%, to a weighted average of 3.9%, the Company’s cost of saleswould increase by $299,000 per year.

 

The Company’s United Kingdom ATM businessobtains vault cash under an agreement with a local bank.  Vault cash obtained under the programremains the property of the bank, and the cash is not included in the Company’sconsolidated balance sheet.  During thefirst quarter of 2003 the Company accessed amounts ranging from £23.3 million($43.3 million) to £28.0 million ($52.0 million) and paid a total of £209,000($388,000) for use of the cash.  Duringthe first quarter of 2004 the Company accessed amounts ranging from £25.0million ($46.5 million) to £31.2 million ($58.0 million) and paid a total of£347,000 ($644,000) for use of the cash. Fees paid by the Company for use of the cash are related to the bank’sinterest rates. Based on the £28.8 million balance being used at March 31,2004, if the cost of the cash increased by 1%, the Company’s cost of saleswould increase by £288,000 ($535,000) per year.

 

**ForeignCurrency Risk**

 

The Company has international subsidiariessubject to foreign currency rate exposure. The Company pays the expenses of its international operations in localcurrencies, namely, the British pound and Canadian dollar.  The international operations are subject torisks typical of an international business, including, but not limited to:differing economic conditions, changes in political climate, differing taxstructures, other regulations and restrictions, and foreign exchange ratevolatility.  Accordingly, future resultscould be materially and adversely affected by changes in these or otherfactors.

 

The Company is also exposed to foreign exchangerate fluctuations as they relate to revenues and operating expenses as thefinancial results of foreign subsidiaries are translated into U.S. dollars inconsolidation.  Because exchange ratesvary, these results, when translated, may vary from expectations and adverselyimpact overall expected profitability. Foreign exchange rate transaction losses, net of gains for the quartersended March 31, 2003 and 2004 were $12,000 and $15,000, respectively.  If foreign currency rates were to fluctuatefrom rates at March 31, 2004, the Company’s financial position might bematerially affected.  Assuming a 10%appreciation or depreciation in foreign currency exchange rates from the quotedforeign currency exchange rates at March 31, 2004, the potential change inthe fair value of foreign currency-denominated assets and liabilities in eachentity would aggregate approximately $2.7 million.  No assurance can be given that changes in foreign currency rateswill not have a material impact on the Company’s results of operations in thefuture.

 

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**ITEM 4.  CONTROLS AND PROCEDURES**

 

Based on their evaluation as of the end ofthe period covered by this Quarterly Report on Form 10-Q, the Company’s ChiefExecutive Officer, Senior Vice President, Financial Services, and PrincipalAccounting Officer have concluded that the Company’s “disclosure controls andprocedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934 (the “Exchange Act”)) are effective to ensure thatinformation required to be disclosed by the Company in the reports that itfiles or submits under the Exchange Act is recorded, processed, summarized, andreported within the time periods specified in the Securities and Exchange Commission’srules and forms.

 

During the Company’s fiscal quarter endedMarch 31, 2004, no change occurred in the Company’s internal control overfinancial reporting that has materially affected, or is reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

 

## **PART II - OTHER INFORMATION**

## ** **

**ITEM 6.****     EXHIBITSAND REPORTS ON FORM 8-K**

 

**(a)****          Exhibits**

 
| 10.1   |   | First Amendment to Business Loan Agreement dated March 25, 2004,  between TRM Corporation and Bank of America, N.A.                                                     |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                         |
| 31.1   |   | Certification of Chief  Executive Officer of TRM Corporation pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                |
|   |   |                                                                                                                                                                         |
| 31.2   |   | Certification of Senior Vice  President, Financial Services of TRM Corporation pursuant to Section 302  of the Sarbanes-Oxley Act of 2002.                              |
|   |   |                                                                                                                                                                         |
| 31.3   |   | Certification of Principal  Accounting Officer of TRM Corporation pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                           |
|   |   |                                                                                                                                                                         |
| 32.1   |   | Certification of Chief  Executive Officer of TRM Corporation pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002, 18 U.S.C. Section 1350.                   |
|   |   |                                                                                                                                                                         |
| 32.2   |   | Certification of Senior Vice  President, Financial Services of TRM Corporation pursuant to Section 906  of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. |
|   |   |                                                                                                                                                                         |
| 32.3   |   | Certification of Principal  Accounting Officer of TRM Corporation pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.              |

 

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**(b)****                                  Reportson Form 8-K.**

 

Current Report on Form8-K dated March 9, 2004, reporting the Company’s results of operations forthe quarter and year ended December 31, 2003.

 

Current Report on Form8-K dated March 15, 2004, reporting that the Company announced the firstquarter 2004 Series A Preferred Stock dividend.

 

Current Report on Form 8-K dated April 2, 2004, reporting that theCompany announced completion of certain acquisitions in the United States andUnited Kingdom.

 

##### **SIGNATURE**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|                                 |   | **TRM CORPORATION** |
|--------------------------------------|--------|---------------------|
|                                 |   |                |   |
| Date:   May  12, 2004 |   | By:                 | /s/ Rebecca J.  Demy |
|                                 |   |                | Rebecca J. Demy |
|                                 |   |                | Principal Accounting Officer |

 

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