##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2006
 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
 TRM CORPORATION
  Oregon
    
    93-0809419(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 
 
   
   þ o
  o þ o
  o þ




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II  OTHER INFORMATIONITEM 5. OTHER INFORMATIONITEM 6. EXHIBITSSIGNATUREEMPLOYMENT AGREEMENT DATED MAY 3,2006RETAINER AGREEMENT DATED MAY 3,2006SECTION 302 CERTIFICATION OF CEO OF TRM CORP.SECTION 302 CERTIFICATION OF CFO FOR TRM CORPORATIONSECTION 302 CERTIFICATION PRINCIPAL ACCOUNTING OFFICERSECTION 906 CERTIFICATION OF CEO OF TRM CORP.SECTION 906 CERTIFICATION OF CFO OF TRM CORP.SECTION 906 CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER    Table of Contents  
 PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 TRM Corporation
Consolidated Balance Sheets
(unaudited)
(in thousands)
 December 31,
    
    
    March 31,2005
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    9,708
    
    
    $
    3,170Accounts receivable, net
    
    
    13,231
    
    
    
    14,136Income tax receivable
    
    
    211
    
    
    
    298Inventories
    
    
    1,930
    
    
    
    2,052Prepaid expenses and other
    
    
    3,610
    
    
    
    4,194Deferred tax asset
    
    
    1,036
    
    
    
    991Restricted cash  TRM Inventory Funding Trust
    
    
    74,962
    
    
    
    78,450Total current assets
    
    
    104,688
    
    
    
    103,291Equipment, less accumulated depreciation and amortization
    
    
    71,709
    
    
    
    68,506Deferred tax asset
    
    
    1,631
    
    
    
    1,794Goodwill
    
    
    118,875
    
    
    
    118,692Other intangible assets, less accumulated amortization
    
    
    43,044
    
    
    
    40,325Other assets
    
    
    1,835
    
    
    
    1,861Total assets
    
    $
    341,782
    
    
    $
    334,469Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    13,218
    
    
    $
    12,799Accrued expenses
    
    
    14,788
    
    
    
    8,108Accrued expenses of TRM Inventory Funding Trust
    
    
    152
    
    
    
    154Current portion of long-term debt
    
    
    91,605
    
    
    
    90,070TRM Inventory Funding Trust note payable
    
    
    73,269
    
    
    
    76,799Current portion of obligations under capital leases
    
    
    828
    
    
    
    765Total current liabilities
    
    
    193,860
    
    
    
    188,695Obligations under capital leases
    
    
    686
    
    
    
    505Deferred tax liability
    
    
    5,430
    
    
    
    5,120Other long-term liabilities
    
    
    380
    
    
    
    367Total liabilities
    
    
    200,356
    
    
    
    194,687Minority interest
    
    
    1,500
    
    
    
    1,500Shareholders equity:Common
stock, no par value 
50,000 shares authorized; 16,872 shares issued and
outstanding (16,871 at December 31, 2005)
    
    
    131,545
    
    
    
    131,630Additional paid-in capital
    
    
    63
    
    
    
    63Accumulated other comprehensive income:Accumulated foreign currency translation adjustments
    
    
    2,958
    
    
    
    2,650Other
    
    
    (74
    )
    
    
    4Retained earnings
    
    
    5,434
    
    
    
    3,935Total shareholders equity
    
    
    139,926
    
    
    
    138,282Total liabilities and shareholders equity
    
    $
    341,782
    
    
    $
    334,469
  1




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##### Table of Contents



TRM Corporation
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
 Three months endedMarch 31,2005
    
    
    2006Sales
    
    $
    58,812
    
    
    $
    52,953Less discounts
    
    
    25,407
    
    
    
    24,037Net sales
    
    
    33,405
    
    
    
    28,916Cost of sales:Cost of vault cash
    
    
    2,045
    
    
    
    2,211Other
    
    
    15,454
    
    
    
    14,959Gross profit
    
    
    15,906
    
    
    
    11,746Selling,
general and administrative expense (including non-cash stock
compensation of $83 in 2006)
    
    
    11,088
    
    
    
    11,526Asset write-offs
    
    
    152
    
    
    
    187Operating income
    
    
    4,666
    
    
    
    33Interest expense
    
    
    2,404
    
    
    
    2,278Other expense (income), net
    
    
    (246
    )
    
    
    (297
    )Income (loss) before income taxes
    
    
    2,508
    
    
    
    (1,948
    )Provision (benefit) for income taxes
    
    
    857
    
    
    
    (449
    )Net income (loss)
    
    $
    1,651
    
    
    $
    (1,499
    )Basic and diluted per share information:Net income (loss)
    
    $
    1,651
    
    
    $
    (1,499
    )Preferred stock dividends
    
    
    (147
    )
    
    
    Income allocated to Series A preferred shareholders
    
    
    (57
    )
    
    
    Net income (loss) available to common shareholders
    
    $
    1,447
    
    
    $
    (1,499
    )Weighted average common shares outstanding
    
    
    13,408
    
    
    
    16,871Dilutive effect of stock options
    
    
    892
    
    
    
    Dilutive effect of warrants
    
    
    84
    
    
    
    Weighted average common shares outstanding, assuming dilution
    
    
    14,384
    
    
    
    16,871Net income (loss) per share:Basic
    
    $
    .11
    
    
    $
    (.09
    )Diluted
    
    $
    .10
    
    
    $
    (.09
    )
  2




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TRM Corporation
Consolidated Statement of Shareholders Equity
(unaudited)
(in thousands)
 AccumulatedAdditional
    
    
    otherComprehensive
    
    
    Common
    
    
    paid-in
    
    
    comprehensive
    
    
    Retainedincome
    
    
    Shares
    
    
    Amounts
    
    
    capital
    
    
    income
    
    
    earnings
    
    
    TotalBalances, December 31, 2005
    
    
    
    
    
    
    16,871
    
    
    $
    131,545
    
    
    $
    63
    
    
    $
    2,884
    
    
    $
    5,434
    
    
    $
    139,926Comprehensive loss:Net loss
    
    $
    (1,499
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,499
    )
    
    
    (1,499
    )Other comprehensive income
(loss):Foreign currency
translation adjustment
    
    
    (308
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (308
    )
    
    
    
    
    
    
    (308
    )Other
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78
    
    
    
    
    
    
    
    78Comprehensive loss
    
    $
    (1,729
    )Exercise of stock options
    
    
    
    
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Amortization of restricted stock
grants
    
    
    
    
    
    
    
    
    
    
    47
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47Stock option expense
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36Balances, March 31, 2006
    
    
    
    
    
    
    16,872
    
    
    $
    131,630
    
    
    $
    63
    
    
    $
    2,654
    
    
    $
    3,935
    
    
    $
    138,282
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TRM Corporation
Consolidated Statements of Cash Flows
(unaudited)
(In thousands)
 Three months endedMarch 31,2005
    
    
    2006Operating activities:Net income (loss)
    
    $
    1,651
    
    
    $
    (1,499
    )Adjustments to reconcile net income (loss) to net cash
used in operating activities:Depreciation and amortization
    
    
    4,928
    
    
    
    5,337Non-cash stock compensation
    
    
    
    
    
    
    83Loss on disposal of equipment
    
    
    151
    
    
    
    230Provision for doubtful accounts
    
    
    27
    
    
    
    50Changes in items affecting operations:Accounts receivable
    
    
    (2,838
    )
    
    
    (467
    )Inventories
    
    
    (126
    )
    
    
    688Income tax receivable
    
    
    25
    
    
    
    (87
    )Prepaid expenses and other
    
    
    (285
    )
    
    
    (585
    )Accounts payable
    
    
    (3,987
    )
    
    
    (407
    )Accrued expenses
    
    
    (1,050
    )
    
    
    (6,679
    )Deferred income taxes
    
    
    706
    
    
    
    (431
    )Total operating activities
    
    
    (798
    )
    
    
    (3,767
    )Investing activities:Proceeds from sale of equipment
    
    
    35
    
    
    
    21Capital expenditures
    
    
    (4,794
    )
    
    
    (963
    )Acquisition of intangible and other assets
    
    
    (465
    )
    
    
    (164
    )Total investing activities
    
    
    (5,224
    )
    
    
    (1,106
    )Financing activities:Borrowings on notes payable
    
    
    5,697
    
    
    
    6,254Repayment of notes payable
    
    
    (2,501
    )
    
    
    (7,745
    )Principal payments on capital lease obligations
    
    
    (614
    )
    
    
    (275
    )Increase in restricted cash
    
    
    (1,153
    )
    
    
    (3,488
    )Proceeds from issuance of TRM Inventory Funding Trust
note, net of repayments
    
    
    1,248
    
    
    
    3,530Proceeds from exercise of stock options
    
    
    72
    
    
    
    2Preferred stock dividends
    
    
    (220
    )
    
    
    Other
    
    
    (13
    )
    
    
    (13
    )Total financing activities
    
    
    2,516
    
    
    
    (1,735
    )Effect of exchange rate changes
    
    
    2
    
    
    
    70Net decrease in cash and cash equivalents
    
    
    (3,504
    )
    
    
    (6,538
    )Beginning cash and cash equivalents
    
    
    5,576
    
    
    
    9,708Ending cash and cash equivalents
    
    $
    2,072
    
    
    $
    3,170Supplemental cash flow information:Non-cash transactions -Conversion of preferred shares to common shares
    
    $
    11,620
    
    
    $
    Payments:Cash paid for interest
    
    $
    2,799
    
    
    $
    1,959Cash paid for income taxes
    
    $
    101
    
    
    $
    133
  4




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TRM Corporation
 Notes to Condensed Consolidated Financial Statements (unaudited)
 1. Interim Financial Data
   5




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2. Financial Statement Reclassifications
  3. Net Income Per Share
  4. Inventories (in thousands):
 December 31,
    
    
    March 31,2005
    
    
    2006Parts
    
    $
    1,239
    
    
    $
    1,611ATMs held for resale
    
    
    654
    
    
    
    380Paper, toner and developer
    
    
    37
    
    
    
    61Total
    
    $
    1,930
    
    
    $
    2,052
 5. Long-Term Debt (in thousands):
 December 31,
    
    
    March 31,2005
    
    
    2006Syndicated loan facility:Term loan
    
    $
    82,182
    
    
    $
    80,315Lines of credit
    
    
    9,394
    
    
    
    9,755Other long term debt
    
    
    29
    
    
    
    91,605
    
    
    
    90,070Less current portion of long term debt
    
    
    (91,605
    )
    
    
    (90,070
    )$
    
    
    
    $
    
 6




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
    
    the base rate plus the applicable rate, or
    
    the London Interbank Offered Rate (LIBOR) plus the applicable rate plus
mandatory costs.
 1 2
 7




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##### Table of Contents




    
    Where our consolidated leverage ratio, that is, the ratio of our debt to EBITDA
is less than 2.5, the applicable rate is 4.5% for LIBOR loans and 3.0% for base
rate loans; and
    
    Where our consolidated leverage ratio is greater than or equal to 2.5, the
applicable rate is 5.0% for LIBOR loans and 3.5% for base rate loans.
  
    
    Where our consolidated leverage ratio is less than 2.25, the applicable rate is
3.25% for LIBOR loans and 1.75% for base rate loans.
    
    Where our consolidated leverage ratio is greater than or equal to 2.25 but less
than 2.75, the applicable rate is 3.5% for LIBOR loans and 2.0% for base rate
loans.
    
    Where our consolidated leverage ratio is greater than or equal to 2.75 but less
than 3.25, the applicable rate is 3.75% for LIBOR loans and 2.25% for base rate
loans.
    
    Where our consolidated leverage ratio is greater than or equal to 3.25, the
applicable rate is 4.0% for LIBOR loans and 2.5% for base rate loans.
    8




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6. Shareholders Equity
 Three months endedMarch 31, 2005Net income, as reported
    
    $
    1,651Deduct total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects
    
    
    (373
    )Pro forma net income
    
    $
    1,278Basic net income per share:As reported
    
    $
    .11Pro forma
    
    $
    .08Diluted net income per share:As reported
    
    $
    .10Pro forma
    
    $
    .08
  9




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Option grants
    
    $
    36Restricted shares
    
    
    47$
    83
   Shares
    
    
    Weightedunder
    
    
    averageoption
    
    
    exercise priceBalance January 1, 2006
    
    
    1,457,015
    
    
    $
    5.94Options exercised
    
    
    (1,250
    )
    
    
    1.80Options forfeited
    
    
    (28,750
    )
    
    
    9.06Balance March 31, 2006
    
    
    1,427,015
    
    
    
    5.88
   10




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Number of shares under option
    
    
    1,427,015Weighted average exercise price
    
    $
    5.88Aggregate intrinsic value
    
    $
    1,393,000Weighted average remaining contractual term
    
    2.7 years
   7. Provision for Income Taxes
  8. Segment Reporting
   11




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Three months endedMarch 31,2005
    
    
    2006Net sales:ATM
    
    $
    24,527
    
    
    $
    21,302Photocopy
    
    
    8,878
    
    
    
    7,614$
    33,405
    
    
    $
    28,916Operating income (loss) excluding unallocated costs:ATM
    
    $
    5,753
    
    
    $
    2,192Photocopy
    
    
    477
    
    
    
    (602
    )$
    6,230
    
    
    $
    1,590Reconciliation of segment data to income (loss)
before income taxes:Operating income excluding unallocated costs
    
    $
    6,230
    
    
    $
    1,590Unallocated costs
    
    
    (1,564
    )
    
    
    (1,557
    )Interest expense
    
    
    (2,404
    )
    
    
    (2,278
    )Other income, net
    
    
    246
    
    
    
    297Income (loss) before income taxes
    
    $
    2,508
    
    
    $
    (1,948
    )
   ATM (including goodwill of $118.7 million)
    
    $
    290,662Photocopy
    
    
    43,807$
    334,469
 12




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements
   Overview
   13




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Consolidated Results of Operations
  Three months ended March 312005
    
    2006Sales
    
    
    100.0
    %
    
    
    100.0
    %Less discounts
    
    
    43.2
    
    
    
    45.4Net sales
    
    
    56.8
    
    
    
    54.6Cost of vault cash
    
    
    3.5
    
    
    
    4.2Other cost of sales
    
    
    26.3
    
    
    
    28.2Gross profit
    
    
    27.0
    
    
    
    22.2Selling, general and administrative expense
    
    
    18.8
    
    
    
    21.8Asset write-offs
    
    
    .3
    
    
    
    .3Operating income
    
    
    7.9
    
    
    
    .1Interest expense
    
    
    4.1
    
    
    
    4.3Other (income) expense, net
    
    
    (.5
    )
    
    
    (.6
    )Income (loss) before income taxes
    
    
    4.3
    
    
    
    (3.6
    )Provision (benefit) for income taxes
    
    
    1.5
    
    
    
    (.8
    )Net income (loss)
    
    
    2.8
    %
    
    
    (2.8
    )%
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Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005
  Three months ended March 31,% of
    
    
    
    
    
    
    % of2005
    
    
    sales
    
    
    2006
    
    
    sales(in thousands, except operating and percentage data)Transaction-based sales
    
    $
    43,651
    
    
    
    90.7
    %
    
    $
    39,516
    
    
    
    90.2
    %Service and other sales
    
    
    2,896
    
    
    
    6.0
    
    
    
    2,744
    
    
    
    6.3Sales of ATM equipment
    
    
    1,565
    
    
    
    3.3
    
    
    
    1,533
    
    
    
    3.5Total sales
    
    
    48,112
    
    
    
    100.0
    
    
    
    43,793
    
    
    
    100.0Less discounts
    
    
    23,585
    
    
    
    49.0
    
    
    
    22,491
    
    
    
    51.4Net sales
    
    
    24,527
    
    
    
    51.0
    
    
    
    21,302
    
    
    
    48.6Cost of salesCost of vault cash
    
    
    2,045
    
    
    
    4.3
    
    
    
    2,211
    
    
    
    5.0Other
    
    
    9,667
    
    
    
    20.1
    
    
    
    9,361
    
    
    
    21.4Gross profit
    
    $
    12,815
    
    
    
    26.6
    %
    
    $
    9,730
    
    
    
    22.2
    %Operating Data:Average number of transacting ATMs
    
    
    20,265
    
    
    
    
    
    
    
    18,321Withdrawal transactions
    
    
    18,588,309
    
    
    
    
    
    
    
    17,288,166Average withdrawals per ATM per month
    
    
    306
    
    
    
    
    
    
    
    315Average transaction-based sales per
withdrawal transaction
    
    $
    2.35
    
    
    
    
    
    
    $
    2.29Average discount per withdrawal transaction
    
    $
    1.27
    
    
    
    
    
    
    $
    1.30Net transaction-based sales per
withdrawal transaction
    
    $
    1.08
    
    
    
    
    
    
    $
    .98
  Three months ended March 31,% of
    
    
    
    
    
    
    % of2005
    
    
    sales
    
    
    2006
    
    
    sales(in thousands, except operating and percentage data)Sales
    
    $
    10,700
    
    
    
    100.0
    %
    
    $
    9,160
    
    
    
    100.0
    %Less discounts
    
    
    1,822
    
    
    
    17.0
    
    
    
    1,546
    
    
    
    16.9Net sales
    
    
    8,878
    
    
    
    83.0
    
    
    
    7,614
    
    
    
    83.1Cost of sales
    
    
    5,787
    
    
    
    54.1
    
    
    
    5,598
    
    
    
    61.1
    %Gross profit
    
    $
    3,091
    
    
    
    28.9
    %
    
    $
    2,016
    
    
    
    22.0
    %Operating Data:Average number of photocopiers
    
    
    24,670
    
    
    
    
    
    
    
    23,420Average photocopies per machine per month
    
    
    1,749
    
    
    
    
    
    
    
    1,367Average sales per photocopier per month
    
    $
    144.57
    
    
    
    
    
    
    $
    130.37Average sales per photocopy
    
    $
    .083
    
    
    
    
    
    
    $
    .095Average discount per photocopy
    
    $
    .014
    
    
    
    
    
    
    $
    .016Average net sales per photocopy
    
    $
    .069
    
    
    
    
    
    
    $
    .079Average gross profit per photocopy
    
    $
    .024
    
    
    
    
    
    
    $
    .021
 15




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Sales
   ATM sales.
  
    
    A 9.6% decrease in the average number of transacting ATMs in our networks,
primarily as a result of attrition of the contracts acquired from eFunds Corporation in
November 2004. We expect that the number of ATMs in our networks
will continue to decrease during the remainder of 2006. However, we
expect the decrease to be at a lower rate than that experienced
during the last twelve months.
    
    A 2.6% decrease in average transaction-based sales per withdrawal
transaction, to $2.29 from $2.35 in the first quarter of the prior year.
  
    
    A 2.9% increase in average withdrawals per ATM per month, to 315 from 306
in the first quarter of the prior year.
  16




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Photocopier sales.
 
    
    Declining photocopy volume   Continuing a trend, photocopy volume
declined by 26% for the first quarter of 2006 compared to the same period in the prior
year, to 96 million copies from 129 million copies, due to a combination of:
 
    
    A decline in installed photocopiers to an average of 23,420 in the
first quarter of 2006 from an average of 24,670 for the same period in the prior
year, as we continued a program of eliminating lower volume sites that were either
unprofitable or marginally profitable; and
    
    A decline in the average number of photocopies made per unit per month
to 1,367 for the first quarter of 2006 from 1,749 for the same period in the prior
year due to price increases that became effective in early 2006, as well as
competition from alternative media and copying services.
  Sales Discounts
  17




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Cost of Sales
  ATM cost of sales.
 
    
    A $305,000 decrease in the cost of ATM machines sold.
    
    A decrease in our ATM networks to an average of 18,321 transacting ATMs in
the first quarter of 2006 compared to an average of 20,265 transacting ATMs in the same
period of the prior year. This decrease in transacting units resulted in:
 
    
    a $240,000 decrease in the cost of parts, and
    
    a $157,000 decrease in telecommunication and processing fees.
 
    
    A $162,000 decrease in rental expense caused by the termination of an
operating lease for ATM equipment.
    
    Exchange rate effects  The ATM segment reported $311,000 less in cost of
sales in the first quarter of 2006 than it would have reported had the exchange rate
for the British pound remained at the average for the first quarter of the prior year.
  
    
    A $346,000 increase in the cost of armored car carriers, partially as a
result of a program to reduce cash balances in our ATM machines resulting in more frequent cash deliveries.
    
    A $320,000 increase in depreciation due primarily to depreciation on the
cost of upgrading ATM equipment in the United Kingdom to meet EMV standards during
2005.
    
    A $166,000 increase in the cost of vault cash caused by increasing
interest rates.
  Photocopier cost of sales.
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Selling, General and Administrative Expense
  
    
    The cost of compliance with Sarbanes-Oxley increased by $573,000 due to
implementation costs relating to compliance with Section 404 of the Sarbanes-Oxley Act
of 2002.
    
    Legal expense increased by $259,000, due primarily to increased compliance
costs and other corporate matters.
    
    Consulting fees increased by $171,000 due primarily to the cost of
improving our information systems technology.
    
    Business use, sales and value added tax increased by $145,000 due
primarily an increase in purchases subject to VAT and a decrease in the percentage of
VAT recoverable.
  
    
    Labor expense decreased by $599,000. The decrease in labor cost was due
in part to a $280,000 reduction in incentive compensation expense. In late 2004 and
early 2005 retention bonuses were paid to our executives that were charged to expense
during 2005. No such bonuses were paid at the end of 2005 or in early 2006.
    
    Amortization expense decreased by $168,000, primarily due to the declining
amortization of intangible assets relating to ATM contracts.
    
    The changes in the value of the British pound and Canadian dollar caused a
decrease of $137,000 in selling, general and administrative expense.
 
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Asset Write-offs
  Interest Expense
  Tax Rate
  20




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Net Income (Loss)
  Liquidity and Capital Resources
 General
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Bank of America Credit Facility
 General.
 
    
    a revolving (domestic) commitment of up to $15 million,
    
    an alternative (foreign) currency commitment of up to $15 million, and
    
    a term loan commitment of up to $120 million.
     Maturity date and interest rate.
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
    
    the base rate plus the applicable rate, or
    
    the London Interbank Offered Rate (LIBOR) plus the applicable rate plus
mandatory costs.
 1 2
  
    
    Where our consolidated leverage ratio, that is, the ratio of our debt to our
earnings before interest, taxes, depreciation and amortization, or EBITDA, is less
than 2.25, the applicable rate is 3.25% for LIBOR loans and letters of credit and
1.75% for base rate loans;
    
    Where our consolidated leverage ratio is greater than or equal to 2.25 but less
than 2.75, the applicable rate is 3.5% for LIBOR loans and letters of credit and
2.0% for base rate loans;
    
    Where our consolidated leverage ratio is greater than or equal to 2.75 but less
than 3.25, the applicable rate is 3.75% for LIBOR loans and letters of credit and
2.25% for base rate loans; and
    
    Where our consolidated leverage ratio is greater than or equal to 3.25, the
applicable rate is 4.0% for LIBOR loans and letters of credit and 2.5% for base
rate loans.
  
    
    Where our consolidated leverage ratio is less than 2.5, the applicable rate is
4.5% for LIBOR loans and 3.0% for base rate loans; and
    
    Where our consolidated leverage ratio is greater than or equal to 2.5, the
applicable rate is 5.0% for LIBOR loans and 3.5% for base rate loans.
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Collateral.
 Prepayment.
 
    
    100% of the net cash proceeds received by us as a result of certain dispositions
must be applied toward the credit facility, to the extent that such net cash
proceeds are not reinvested within 120 days of the date of disposition in assets
useful in the same or similar lines of business to that in which we were engaged as
of the closing date.
    
    75% of the consolidated excess cash flow received by us for any fiscal year must
be applied toward the credit facility reduced to 50% if our consolidated leverage
ratio as of the last day of such fiscal year is less than 2.5.
    
    100% of the net cash proceeds received by us as a result of any debt issuance
must be applied toward the credit facility.
    
    75% of the net cash proceeds received by us as a result of any equity issuance
must be applied toward the credit facility.
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
    
    from January 1, 2005 through September 30, 2005: 3.50;
    
    from October 1, 2005 through September 30, 2006: 3.00; and
    
    from October 2006 through the maturity date: 2.50.
  
    
    for 2005: 1.00;
    
    the first three quarters of 2006: 1.10;
    
    for the fourth quarter of 2006 and the first three quarters of 2007: 1.15, and
    
    thereafter: 1.20
  United States Vault Cash Facility
 General.
  Structure of the facility.
 
    
    TRM Inventory Funding Trust, or the Trust. The Trust is a Delaware business
trust that was created pursuant to a deposit trust agreement between GSS Holdings,
Inc. as depositor, Wilmington Trust Company as owner trustee, and
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TRM ATM Corporation as servicer. The majority equity holder in the Trust is
Autobahn Funding Company, LLC, and the minority equity holder is GSS Holdings, Inc.
Neither we, TRM ATM Corporation nor any of our other affiliates have any ownership
interest in the Trust.
    
    TRM ATM Corporation, or TRM ATM. TRM ATM is one of our subsidiaries and acts as
the servicer under the facility.
    
    Autobahn Funding Company, LLC, or Autobahn. Autobahn is an affiliate of DZ Bank
AG, Deutsche Zentral-Genossenschaftsbank Frankfurt am Main, which is the lender
under the facility. Autobahn is independent of us, TRM ATM and our other
affiliates.
 Operation of the facility.
    Collateral and credit enhancement.
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Cost of the facility.
 
    
    Interest on the loaned funds. The loans bear interest at an interest rate equal
to 1.75% plus the interest rate borne by the commercial paper that was issued to
raise the funds for the loans. Interest paid during the quarter ended March 31,
2006 was $868,000.
    
    Return for equity investors. Autobahn and GSS Holdings, Inc., as equity
investors in the Trust, receive a return on the value of their investments, which
were $1,485,000 and $15,000, respectively, as of March 31, 2006. Autobahns annual
return is equal to 1.75% plus the interest rate borne by the commercial paper that
is outstanding. GSS Holdings annual return is equal to 25.0%.
    
    Fees. Autobahn receives a commitment fee and TRM ATM, as servicer, and the
collateral agent each receive administrative fees in connection with the facility.
Fees paid during the quarter ended March 31, 2006 were $392,000.
 Risk of loss and insurance.
  U.K. Vault Cash Facility
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##### Table of Contents



Canadian Vault Cash Facility
  Contractual Commitments and Obligations
  Payments Due by PeriodApril 1 December 31,Contractual obligations
    
    Total
    
    
    2006
    
    
    2007-2008
    
    
    2009-2010
    
    
    After 2010TRM Corporation and subsidiariesLong-term debt
    
    $
    122,407
    
    
    $
    12,033
    
    
    $
    30,155
    
    
    $
    80,219
    
    
    $
    Capital lease obligations
    
    
    1,323
    
    
    
    613
    
    
    
    710
    
    
    
    
    
    
    
    Operating leases
    
    
    6,845
    
    
    
    1,692
    
    
    
    2,714
    
    
    
    1,222
    
    
    
    1,217Purchase obligations
    
    
    18,125
    
    
    
    3,750
    
    
    
    10,000
    
    
    
    4,375
    
    
    
    Total TRM Corporation and subsidiaries
    
    
    148,700
    
    
    
    18,088
    
    
    
    43,579
    
    
    
    85,816
    
    
    
    1,217TRM Inventory Funding Trust note payable
    
    
    82,282
    
    
    
    3,796
    
    
    
    78,486
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    230,982
    
    
    $
    21,884
    
    
    $
    122,065
    
    
    $
    85,816
    
    
    $
    1,217
  Critical Accounting Policies and Estimates
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New Accounting Standards and Effects on Earnings Per Share
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Risk
   29




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Foreign Currency Risk
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ITEM 4. CONTROLS AND PROCEDURES
    
    
    We have hired a controller, director of accounting and a
senior tax accountant to augment our accounting, financial reporting
and financial control function in our accounting department.
    
    At the end of the first quarter of 2006, our management has
performed a review of our accounts receivable agings in connection
with our analysis of the allowance for doubtful accounts, and we
believe that our accounts receivable are fairly stated at the end of
the quarter.
    
    We have modified our reporting structure so that the Director
of Finance for our United Kingdom subsidiaries now reports to our
Chief Financial Officer rather than to local management in the United
Kingdom. We have not had any major capital projects in the United
Kingdom during the first quarter of 2006 that would warrant review by
our Chief Financial Officer, Principal Accounting Officer or
Corporate Controller.
    
    Also at the end of the first quarter of 2006, our Director of Finance in the United Kingdom has reviewed all significant accrued
liability accounts of our United Kingdom subsidiaries to ensure that
such accounts are fairly stated at the end of the quarter.
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PART II  OTHER INFORMATION
 
 ITEM 5. OTHER INFORMATION
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ITEM 6. EXHIBITS
 (a) Exhibits
 2.1
    (a)
    
    Purchase Agreement by and among eFunds Corporation, eFunds (Canada) Corporation,
TRM ATM Corporation and TRM (Canada) Corporation dated as of September 30, 2004
(incorporated herein by reference to Exhibit 10.3 of Form 10-Q filed for the
quarter ended September 30, 2004)2.1
    (b)
    
    Amendment No. 1 to the Purchase Agreement by and among eFunds Corporation, eFunds
(Canada) Corporation, TRM ATM Corporation and TRM (Canada) Corporation dated
November 19, 2004 (incorporated herein by reference to Exhibit 2.2 of Form 8-K dated
November 19, 2004)3.1
    (a)
    
    Amendments to the Restated Articles of Incorporation (incorporated herein by
reference to Exhibit 3.1(a) of Form 10-K for the fiscal year ended June 30, 1998)3.1
    (b)
    
    Restated Articles of Incorporation (incorporated herein by reference to Exhibit
3.1(b) of Form 10-K for the fiscal year ended June 30, 1998)3.2
    
    
    Restated Bylaws (incorporated herein by reference to Exhibit 3.2 of
Form 10-K for the fiscal year ended June 30, 1998)4.1
    
    
    Specimen Stock Certificate (incorporated herein by reference to
Exhibit 4.1 of Form S-3/A filed on August 25, 2004 [No. 333-116748])4.2
    
    
    Investors Rights Agreement (incorporated herein by reference to
Exhibit 4.1 of Form 8-K dated July 9, 1998)4.3
    
    
    Articles V, VI and VII of the Restated Articles of Incorporation,
as amended (See Exhibit 3.1)4.4
    
    
    Articles I, II, V, VII and X of the Restated Bylaws (See Exhibit
3.2)10.7
    (i)
    
    Employment Agreement dated May 3, 2006 by and between TRM Corporation and Jeffrey
F. Brotman10.7
    (j)
    
    Retainer Agreement dated May 3, 2006 by and between TRM Corporation and Amy B.
Krallman10.8
    (c)
    
    Forbearance Agreement and Amendment, dated as of March 16, 2006 among TRM
Corporation, TRM (ATM) Limited, the Guarantors identified therein, the Lenders
identified therein and Bank of America, N.A.
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(incorporated herein by reference to Exhibit 10.1 of Form 8-K filed March
20, 2006)10.9
    (f)
    
    Forbearance Agreement dated March 28, 2006, among TRM Inventory Funding Trust, TRM
ATM Corporation, Autobahn Funding Company LLC, DZ Bank AG, Deutsche
Zentral-Genossenschaftsbank Frankfurt am Main and U.S. Bank National Association
(incorporated herein by reference to Exhibit 10.1 to Form 8-K filed March 29, 2006)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 Chief Financial Officer 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 Chief Financial Officer 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.
 
 SIGNATURE
  TRM CORPORATIONDate: May 5, 2006
    
    By:
    
    Jon S. Pitcher

Jon S. PitcherPrincipal Accounting Officer
 34