**UNITED STATES****SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**ý****        QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended September 30, 2001**

 

**OR**

 

**o****        TRANSITIONREPORT 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**

(Exact name of registrantas specified 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, Oregon97230**               |
| (Address  of principal executive offices)(Zip Code)             |

 

**(503) 257-8766**

(Registrant’stelephone number, including area code)

 

 

(Formername, former address and former fiscal year, if changed since last report)

 

                Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

YES ý    NO o

 

                Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date:

 

| **CLASS**     |   | **OUTSTANDING AT SEPTEMBER 30, 2001** |
|---------------|--------|---------------------------------------|
| Common  Stock |   | 7,059,790                             |

 

 

**PART I -FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIALSTATEMENTS**

 

**TRMCORPORATION**

**CONSOLIDATED BALANCE SHEETS**

**(In thousands)**

 
|                                                                                                                     |   | **December 31,2000** |    | **September 30,2001** |   |
|--------------------------------------------------------------------------------------------------------------------------|--------|----------------------|---------|-----------------------|--------|
|                                                                                                                     |   |                 |    | **(unaudited)**       |   |
| **ASSETS**                                                                                                               |   |                 |    |                  |   |
|                                                                                                                     |   |                 |    |                  |   |
| Current assets:                                                                                                          |   |                 |    |                  |   |
| Cash and cash equivalents                                                                                                |   | $                    | 6,012   |                  | $      | 1,135 |   |
| Accounts receivable, net                                                                                                 |   | 10,703               |    | 7,130                 |   |
| Income tax receivable                                                                                                    |   | 101                  |    | 101                   |   |
| Inventories                                                                                                              |   | 3,616                |    | 3,271                 |   |
| Prepaid expenses and other                                                                                               |   | 1,843                |    | 1,539                 |   |
| Deferred tax asset                                                                                                       |   | 1,328                |    | 1,432                 |   |
| Total current assets                                                                                                     |   | 23,603               |    | 14,608                |   |
| Equipment and vehicles, less accumulated depreciation                                                                    |   | 80,478               |    | 75,261                |   |
| Restricted Cash                                                                                                          |   | 1,780                |    | 1,780                 |   |
| Other Assets                                                                                                             |   | 5,059                |    | 5,044                 |   |
|                                                                                                                     |   |                 |    |                  |   |
|                                                                                                                     |   | $                    | 110,920 |                  | $      | 96,693 |   |
|                                                                                                                     |   |                 |    |                  |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                            |   |                 |    |                  |   |
|                                                                                                                     |   |                 |    |                  |   |
| Current liabilities:                                                                                                     |   |                 |    |                  |   |
| Accounts payable                                                                                                         |   | $                    | 11,406  |                  | $      | 5,917 |   |
| Accrued expenses                                                                                                         |   | 7,286                |    | 9,339                 |   |
| Current portion of long-term debt                                                                                        |   | 8,360                |    | 23,433                |   |
| Total current liabilities                                                                                                |   | 27,052               |    | 38,689                |   |
| Long term debt                                                                                                           |   | 21,285               |    | 960                   |   |
| Deferred income taxes                                                                                                    |   | 3,053                |    | 2,708                 |   |
| Other long-term liabilities                                                                                              |   | 228                  |    | 197                   |   |
| Total liabilities                                                                                                        |   | 51,618               |    | 42,554                |   |
| Minority interest                                                                                                        |   | 4,755                |    | 3,874                 |   |
| Shareholders’ equity:                                                                                               |   |                 |    |                  |   |
| Preferred stock, no par value.   Authorized5,000 shares;  1,778 shares issuedand  outstanding                       |   | 19,798               |    | 19,798                |   |
| Common stock, no par value.   Authorized50,000 shares;  7,063 and 7,060 shares issued andoutstanding,  respectively |   | 19,032               |    | 19,026                |   |
| Accumulated other comprehensive income                                                                                   |   | (1,697               | )       | (2,594                | )      |
| Retained earnings                                                                                                        |   | 17,414               |    | 14,035                |   |
| Total shareholders’ equity                                                                                          |   | 54,547               |    | 50,265                |   |
|                                                                                                                     |   |                 |    |                  |   |
|                                                                                                                     |   | $                    | 110,920 |                  | $      | 96,693 |   |

 

See accompanying notes to consolidated financialstatements.

 

 

**TRM CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(unaudited)(In thousands, except per share data)**

 
|                                                                                                                       |   | **Three Months  EndedSeptember 30,** |   | **Nine Months  EndedSeptember 30,** |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|-------------------------------------|--------|
|                                                                                                                       |   | **2000**                             |   | **2001**                            |   | **2000** |   | **2001** |   |
|                                                                                                                       |   |                                 |   |                                |   |   |   |   |   |
| Sales                                                                                                                      |   | $                                    | 19,159 |                                | $      | 19,778 |   | $ | 56,577 |   | $ | 59,063 |   |
| Less discounts                                                                                                             |   | 2,846                                |   | 3,219                               |   | 9,228 |   | 9,587 |   |
| Net sales                                                                                                                  |   | 16,313                               |   | 16,559                              |   | 47,349 |   | 49,476 |   |
| Cost of sales                                                                                                              |   | 10,831                               |   | 9,932                               |   | 28,752 |   | 29,612 |   |
| Gross profit                                                                                                               |   | 5,482                                |   | 6,627                               |   | 18,597 |   | 19,864 |   |
| Selling, general and administrative expense                                                                                |   | 7,091                                |   | 7,270                               |   | 21,353 |   | 22,191 |   |
| Operating income (loss)                                                                                                    |   | (1,609                               | )      | (643                                | )      | (2,756 | ) | (2,327 | ) |
| Other (income) expense:                                                                                                    |   |                                 |   |                                |   |   |   |   |   |
| Interest                                                                                                                   |   | 539                                  |   | 499                                 |   | 1,557 |   | 1,790 |   |
| Other, net                                                                                                                 |   | (287                                 | )      | 474                                 |   | (200 | ) | (1,047 | ) |
|                                                                                                                       |   |                                 |   |                                |   |   |   |   |   |
| Income (loss) before minority interest                                                                                     |   | (1,861                               | )      | (1,616                              | )      | (4,113 | ) | (3,070 | ) |
| Minority interest in earnings of consolidated subsidiary                                                                   |   | 47                                   |   | 251                                 |   | 76 |   | 881 |   |
| Income (loss) before income taxes and cumulative effect of accounting  change                                              |   | (1,814                               | )      | (1,365                              | )      | (4,037 | ) | (2,189 | ) |
| Provision (benefit) for income taxes                                                                                       |   | (747                                 | )      | (275                                | )      | (1,572 | ) | 67 |   |
| Income (loss) before cumulative effect of accounting change                                                                |   | (1,067                               | )      | (1,090                              | )      | (2,465 | ) | (2,256 | ) |
| Cumulative effect of change in accounting principle                                                                        |   | 0                                    |   | 0                                   |   | 856 |   | 0 |   |
| Net income (loss)                                                                                                          |   | $                                    | (1,067 | )                                   | $      | (1,090 | ) | $ | (1,609 | ) | $ | (2,256 | ) |
|                                                                                                                       |   |                                 |   |                                |   |   |   |   |   |
| Earnings per share computation:                                                                                            |   |                                 |   |                                |   |   |   |   |   |
| Net income (loss)                                                                                                          |   | $                                    | (1,067 | )                                   | $      | (1,090 | ) | $ | (1,609 | ) | $ | (2,256 | ) |
| Preferred stock dividends                                                                                                  |   | (377                                 | )      | (378                                | )      | (1,123 | ) | (1,123 | ) |
| Net income (loss) available to commonShareholders                                                                          |   | $                                    | (1,444 | )                                   | $      | (1,468 | ) | $ | (2,732 | ) | $ | (3,379 | ) |
| Basic net income (loss) per share:                                                                                         |   |                                 |   |                                |   |   |   |   |   |
| Shares outstanding                                                                                                         |   | 7,069                                |   | 7,063                               |   | 7,069 |   | 7,063 |   |
| Net income (loss) per share                                                                                                |   | $                                    | (0.20  | )                                   | $      | (0.21 | ) | $ | (0.39 | ) | $ | (0.48 | ) |
| Diluted net income (loss) available to common shareholders per  share before cumulative effect of  accounting change: |   |                                 |   |                                |   |   |   |   |   |
| Shares outstanding                                                                                                         |   | 7,069                                |   | 7,063                               |   | 7,069 |   | 7,063 |   |
| Net income (loss) per share                                                                                                |   | $                                    | (0.20  | )                                   | $      | (0.21 | ) | $ | (0.39 | ) | $ | (0.48 | ) |
| Cumulative effect of accounting change per share                                                                           |   | 0.00                                 |   | 0.00                                |   | 0.12 |   | 0.00 |   |
| Net income per share before cumulative effect of accounting change                                                         |   | $                                    | (0.20  | )                                   | $      | (0.21 | ) | $ | (0.51 | ) | $ | (0.48 | ) |

 

See accompanying notes to consolidated financial statements.

 

 

**TRMCORPORATION**

**CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY(unaudited)(In thousands)**

 

 
|                                    |   | **Comprehensive Income** |       | **Preferred Stock** |        | **Common Stock** |   | **Accumulated Other Comprehensive Income** |   | **Retained Earnings** |   | **Total** |   |
|-----------------------------------------|--------|--------------------------|------------|---------------------|-------------|------------------|--------|--------------------------------------------|--------|-----------------------|--------|-----------|--------|
| **Shares**                              |   | **Amounts**              | **Shares** |                | **Amounts** |
|                                    |   |                     |       |                |        |             |   |                                       |   |                  |   |      |   |   |   |   |   |
| **Balances, December 31, 2000**         |   |                     |       | 1,778               |        | $                | 19,798 |                                       | 7,063  |                  | $      | 19,032    |   | $ | (1,697 | ) | $ | 17,414 |   | $ | 54,547 |   |
| Comprehensive income (loss)             |   |                     |       |                |        |             |   |                                       |   |                  |   |      |   |   |   |   |   |
| Net loss                                |   | $                        | (2,256     | )                   |        |             |   |                                       |   |                  |   |      |   |   | (2,256 | ) | (2,256 | ) |
| Foreign currency translation adjustment |   | (897                     | )          |                |        |             |   |                                       |   |                  |   | (897      | )      |   |   | (897 | ) |
| Comprehensive income (loss)             |   | $                        | (3,153     | )                   |        |             |   |                                       |   |                  |   |      |   |   |   |   |   |   |
|                                    |   |                     |       |                |        |             |   |                                       |   |                  |   |      |   |   |   |   |   |
| Repurchase of common stock              |   |                     |       |                |        |             |   | (3                                         | )      | (6                    | )      |      |   |   |   | (6 | ) |
| Preferred stock dividends               |   |                     |       |                |        |             |   |                                       |   |                  |   |      |   | (1,123 | ) | (1,123 | ) |
| **Balances, September 30, 2001**        |   |                     |       | 1,778               |        | $                | 19,798 |                                       | 7,060  |                  | $      | 19,026    |   | $ | (2,594 | ) | $ | 14,035 |   | $ | 50,265 |   |
|                                         |        |                          |            |                     |             |                  |        |                                            |        |                       |        |           |        |  |  |  |  |  |  |  |  |  |  |  |  |

 

See accompanying notes to consolidated financialstatements.

 

 

**TRM CORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited)(In thousands)**

 
|                                                                                      |   | **Nine Months  EndedSeptember 30,** |   |
|-------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|
|                                                                                      |   | **2000**                            |   | **2001** |   |
| Cash flows from operating activities:                                                     |   |                                |   |   |   |
| Net income (loss)                                                                         |   | $                                   | (1,609 | ) | $ | (2,256 | ) |
| Cumulative effect of accounting change, net of tax                                        |   | (856                                | )      | 0 |   |
| Adjustments to reconcile net income (loss) to net cash provided by  operating activities: |   |                                |   |   |   |
| Depreciation and amortization                                                             |   | 6,625                               |   | 7,059 |   |
| Other                                                                                     |   | (107                                | )      | (905 | ) |
| (Gain) loss on disposal of equipmentand vehicles                                          |   | 110                                 |   | 262 |   |
| Changes in items affecting operations:                                                    |   |                                |   |   |   |
| Restricted cash                                                                           |   | (1,780                              | )      | 0 |   |
| Accounts receivable                                                                       |   | (2,249                              | )      | 3,573 |   |
| Inventories                                                                               |   | (930                                | )      | 351 |   |
| Income tax receivable                                                                     |   | 365                                 |   | 0 |   |
| Prepaid expenses and other                                                                |   | (489                                | )      | 301 |   |
| Accounts payable                                                                          |   | 6,035                               |   | (5,577 | ) |
| Accrued expenses                                                                          |   | 3,152                               |   | 853 |   |
| Deferred income tax                                                                       |   | (2,216                              | )      | (366 | ) |
| Cash provided by operating activities                                                     |   | 6,051                               |   | 3,295 |   |
| Cash flows from investing activities:                                                     |   |                                |   |   |   |
| Proceeds from sale of equipment                                                           |   | 2,108                               |   | 358 |   |
| Capital expenditures                                                                      |   | (24,344                             | )      | (2,463 | ) |
| Other                                                                                     |   | (1,337                              | )      | (638 | ) |
| Proceeds from sale of subsidiary shares                                                   |   | 5,000                               |   | 0 |   |
| Acquisition of a business, net of cash acquired                                           |   | (799                                | )      | 0 |   |
| Cash used in investing activities                                                         |   | (19,372                             | )      | (2,743 | ) |
| Cash flows from financing activities:                                                     |   |                                |   |   |   |
| Net borrowings on notes payable                                                           |   | 4,904                               |   | (5,249 | ) |
| Net proceeds from issuance of common stock                                                |   | 35                                  |   | 0 |   |
| Repurchase of common stock                                                                |   | (98                                 | )      | (6 | ) |
| Dividends on preferred stock                                                              |   | (1,123                              | )      | 0 |   |
| Cash provided (used) by financing activities                                              |   | 3,718                               |   | (5,255 | ) |
| Effect of exchange rate changes                                                           |   | (682                                | )      | (174 | ) |
| Net increase (decrease) in cash and cash equivalents                                      |   | (10,285                             | )      | (4,877 | ) |
| Cash and cash equivalents at beginning of period                                          |   | 16,775                              |   | 6,012 |   |
| Cash and cash equivalents at end of period                                                |   | $                                   | 6,490  |   | $ | 1,135 |   |

 

See accompanying notes to consolidated financialstatements.

 

 

**TRM CORPORATION**

**Notes to Condensed Consolidated Financial Statements(unaudited)**

 

 

**1.             Interim Financial Data:**

 

                The condensedfinancial statements included herein have been prepared by the Company, withoutaudit, pursuant to the rules and regulations of the Securities and ExchangeCommission and reflect all adjustments, consisting only of normal recurringadjustments, which, in the opinion of management, are necessary for a fairstatement of the results of the interim periods.  These condensed interim financial data should be read inconjunction with the Company’s latest annual report to shareholders.

 

**2.             Net Loss Per Share:**

 

                Basic and dilutednet income per share are based on the weighted average number of common sharesoutstanding during each year, with diluted net income including the effect ofpotentially dilutive securities.  Forthe three months and nine months ended September 30, 2000 and September 30,2001, the weighted average number of common shares for basic net loss per sharecomputations were 7,069,000 and 7,069,000, and 7,063,000 and 7,063,000,respectively. In calculating basic net loss per share, dividends for preferredstock are deducted to arrive at income available for common stockholders.  For diluted net income per share, thecalculation assumes the conversion of common stock equivalents including theconversion of preferred stock to common unless such conversion isanti-dilutive.  For the three and ninemonths ended September 30, 2000 and 2001 no shares were added to the weightedaverage shares outstanding because the addition of shares would beanti-dilutive. On September 30, 2001, 3,400 shares were repurchased andsubtracted from the weighted average shares outstanding. The reduction of theseshares had no effect on the weighted average shares outstanding nor the dilutedincome per share because they were repurchased on the last day of the thirdfiscal quarter of 2001.

 

**3.             Inventories (in thousands):**

 
|                |   | **December 31,2000** |   | **September 30,2001** |   |
|---------------------|--------|----------------------|--------|-----------------------|--------|
|                |   |                 |   |                  |   |
| Paper               |   | $                    | 661    |                  | $      | 292 |   |
| Toner and developer |   | 482                  |   | 189                   |   |
| Parts               |   | 2,473                |   | 2,790                 |   |
|                |   |                 |   |                  |   |
|                |   | $                    | 3,616  |                  | $      | 3,271 |   |

 

 

**4.             Segment Reporting (in thousands):**

 

                TheCompany has three reportable segments: CopyCenters, ATM and e-Commerce.  CopyCenters owns and maintains self-servicephotocopiers in retail establishments. ATM owns and operates ATM machines in retail establishments. Thee-commerce business develops software to deliver products and services to ATMs.

 

                In the fourthquarter of fiscal year 2000, the Company changed its method of allocating TeamHeadquarters overhead expenses across the Photocopy and ATM segments.  This change in allocation method is intendedto reflect the changing business model experienced as the ATM segment becomesan increasingly larger portion of the overall business. Also in the samequarter, the Company adopted a new accounting policy to depreciate certainphotocopy equipment under the units-of-production method. The restated segmentdata resulting from these changes are shown below.

 

                TheCompany evaluates each segment’s performance based on income or loss beforeinterest and income taxes, excluding non-recurring charges.  Information regarding the operations inthese reportable segments is as follows:

 
|                                                              |   | **(Dollar Amounts in Thousands)** |   |
|-------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                              |   | **Three months ended**            |   | **Nine months ended** |   |
|                                                              |   | **September 30, 2000**            |   | **September 30, 2001** |   | **September 30, 2000** |   | **September 30, 2001** |   |
|                                                              |   |                              |   |   |   |   |   |   |   |
| Sales:                                                            |   |                              |   |   |   |   |   |   |   |
| CopyCenters                                                       |   | $                                 | 15,343 |   | $ | 14,270 |   | $ | 49,351 |   | $ | 44,795 |   |
| ATM                                                               |   | 3,314                             |   | 5,308 |   | 6,664 |   | 13,521 |   |
| e-Commerce                                                        |   | 502                               |   | 200 |   | 562 |   | 747 |   |
|                                                              |   | $                                 | 19,159 |   | $ | 19,778 |   | $ | 56,577 |   | $ | 59,063 |   |
|                                                              |   |                              |   |   |   |   |   |   |   |
| RESTATED                                                          |   |                              |   |   |   |   |   |   |   |
|                                                              |   |                              |   |   |   |   |   |   |   |
| Depreciation and  amortization:                                   |   |                              |   |   |   |   |   |   |   |
| CopyCenters                                                       |   | $                                 | 1,787  |   | $ | 1,753 |   | $ | 5,652 |   | $ | 5,186 |   |
| ATM                                                               |   | 441                               |   | 653 |   | 861 |   | 1,577 |   |
| e-Commerce                                                        |   | 80                                |   | 100 |   | 112 |   | 296 |   |
|                                                              |   | $                                 | 2,308  |   | $ | 2,506 |   | $ | 6,625 |   | $ | 7,059 |   |
|                                                              |   |                              |   |   |   |   |   |   |   |
| Income (loss)  before interest and taxes & minority interest: |   |                              |   |   |   |   |   |   |   |
| CopyCenters                                                       |   | $                                 | 1,374  |   | $ | 1,110 |   | $ | 5,046 |   | $ | 4,783 |   |
| ATM                                                               |   | (2,322                            | )      | (1,409 | ) | (6,665 | ) | (3,170 | ) |
| e-Commerce                                                        |   | (374                              | )      | (818 | ) | (937 | ) | (2,893 | ) |
|                                                              |   | $                                 | (1,322 | ) | $ | (1,117 | ) | $ | (2,556 | ) | $ | (1,280 | ) |
|                                                              |   |                              |   |   |   |   |   |   |   |
| AS REPORTED IN  FORM 10-Q                                         |   |                              |   |   |   |   |   |   |   |
|                                                              |   |                              |   |   |   |   |   |   |   |
| Depreciation and  amortization:                                   |   |                              |   |   |   |   |   |   |   |
| CopyCenters                                                       |   | $                                 | 2,449  |   | $ | 1,753 |   | $ | 7,410 |   | $ | 5,186 |   |
| ATM                                                               |   | 441                               |   | 653 |   | 861 |   | 1,577 |   |
| e-Commerce                                                        |   | 80                                |   | 100 |   | 112 |   | 296 |   |
|                                                              |   | $                                 | 2,970  |   | $ | 2,506 |   | $ | 8,383 |   | $ | 7,059 |   |
|                                                              |   |                              |   |   |   |   |   |   |   |
| Income (loss)  before interest and taxes & minority interest: |   |                              |   |   |   |   |   |   |   |
| CopyCenters                                                       |   | $                                 | 1,475  |   | $ | 1,110 |   | $ | 2,551 |   | $ | 4,783 |   |
| ATM                                                               |   | (3,085                            | )      | (1,409 | ) | (5,928 | ) | (3,170 | ) |
| e-Commerce                                                        |   | (374                              | )      | (818 | ) | (937 | ) | (2,893 | ) |
|                                                              |   | $                                 | (1,984 | ) | $ | (1,117 | ) | $ | (4,314 | ) | $ | (1,280 | ) |

 

 

**5.             Subsequent Events:**

 

                OnOctober 1, 2001, the Company completed an agreement to restructure its Frenchoperations.  Substantially all of theassets of TRM’s subsidiary, FPC France, including 1,472 installed photocopiers,were sold to a new company formed by the local French management.  Consideration for the sale was a combinationof cash, a future royalty on sales and a 19% ownership in the new entity.  In connection with the sale, the Companyreceived proceeds of approximately $75,000 and will record a non-cash book lossof approximately $1.5 million in the fourth quarter of 2001.  FPC France had net sales of $1.4 million anda net loss of $556,000 for the first nine months of 2001.  

 

                Inconjunction with the filing of amended tax returns, the Company will utilize$1.1 million in deferred tax assets, primarily net operating losses, and recorda $1.1 million charge to the provision for income taxes in the fourth quarterof 2001.

 

**ITEM 2.                  MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL**

**                                CONDITIONAND RESULTS OF OPERATIONS**

 

General

 

                As of September30, 2001, the Company had a total of 1,939 ATM operating units installed, with738 and 1,201 deployed in the United States and United Kingdom respectively, ascompared to 1,947 total units installed at September 30, 2000, an overalldecrease of 8 units primarily in the United States. During the last twelvemonths, the Company has very actively managed its United States ATM accountbase, removing ATMs which were not generating adequate transaction volumes tobe profitable. The ATM business contributed $5.3 million to quarterly grossrevenues and $13.5 million year to date compared to $3.3 million for thequarter and $6.7 million year to date ended September 30, 2000, anincrease of 60.2% and 102.9% respectively. The Company believes that revenues generated from services deliveredthrough its ATM network will become an increasingly higher percentage of itsoverall revenue in the future as it expands its current ATM network, andpursues new geographic opportunities.

 

                In the firstquarter of 2001, the CopyCenters business conducted a consolidation of itsUnited States service areas in order to achieve greater operationalefficiencies.  This consolidationresulted in a decrease to 31 service centers from 47 at December 31, 2000 inthe United States.  The service areasthe Company operates in include 31 in the United States, 5 in Canada, 15 in theUnited Kingdom and 3 in France.  Inaddition, third party service supports the Company’s customers in over 100additional locations. As of September 30, 2001, the Company had 31,566 TRMCopyCenters compared to  31,579 atSeptember 30, 2000, a slight decrease of total CopyCenters.

 

                The Company’s e-commercebusiness generated gross revenues of $200,000 for the quarter and $747,000 yearto date as of September 30, 2001 compared to $502,000 for the quarter and$562,000 year to date ended September 30, 2000.

 

 

Results of Operations

 

                The following tablesets forth, for the periods indicated, selected statement of operations data,expressed as a percentage of sales, and the percentage change in dollar amountsof each item on the Consolidated Statements of Operations (see page 3 of thisForm 10-Q).

 

 
|                                    |   | **Three Months Ended September 30,** |   | **Percentage Change Increase  (Decrease)** |   | **Nine Months Ended September 30,** |   | **Percentage Change Increase  (Decrease)** |   |
|-----------------------------------------|--------|--------------------------------------|--------|--------------------------------------------|--------|-------------------------------------|--------|--------------------------------------------|--------|
|                                    |   | **2000**                             |   | **2001**                                   |   |                                |   | **2000**                                   |   | **2001** |   |   |   |
|                                    |   |                                 |   |                                       |   |                                |   |                                       |   |   |   |   |   |
| Sales                                   |   | 100.0                                | %      | 100.0                                      | %      | 3.2                                 | %      | 100.0                                      | %      | 100.0 | % | 4.4 | % |
| Sales discounts                         |   | 14.9                                 |   | 16.3                                       |   | 13.1                                |   | 16.3                                       |   | 16.2 |   | 3.9 |   |
| Cost of sales                           |   | 56.5                                 |   | 50.2                                       |   | (8.3                                | )      | 50.8                                       |   | 50.1 |   | 3.0 |   |
| Selling, general  and Administrative    |   | 37.0                                 |   | 36.8                                       |   | 2.5                                 |   | 37.7                                       |   | 37.6 |   | 3.9 |   |
| Operating income  (loss)                |   | (8.4                                 | )      | (3.3                                       | )      | (60.0                               | )      | (4.9                                       | )      | (3.9 | ) | (15.6 | ) |
| Interest  expense, net                  |   | 2.8                                  |   | 2.5                                        |   | (7.4                                | )      | 2.8                                        |   | 3.0 |   | 15.0 |   |
| Other (income)  expense Net             |   | (1.5                                 | )      | 2.4                                        |   | (265.2                              | )      | (0.4                                       | )      | (1.7 | ) | 423.5 |   |
| Income (loss)  before Minority interest |   | (9.7                                 | )      | (8.2                                       | )      | (13.2                               | )      | (7.3                                       | )      | (5.2 | ) | (25.4 | ) |
| Minority  interest                      |   | 0.2                                  |   | 1.3                                        |   | 434.0                               |   | 0.1                                        |   | 1.5 |   | 1059.2 |   |
| Income (loss)  before Income taxes      |   | (9.5                                 | )      | (6.9                                       | )      | (24.8                               | )      | (7.1                                       | )      | (3.7 | ) | (45.8 | ) |
| Provision  (benefit) for income taxes   |   | (3.9                                 | )      | (1.4                                       | )      | (63.2                               | )      | (2.8                                       | )      | .1 |   | (104.3 | ) |
| Net income  (loss)                      |   | (5.6                                 | )%     | (5.5                                       | )%     | 2.2                                 | %      | (2.8                                       | )%     | (3.8 | )% | 40.2 | % |
|                                         |        |                                      |        |                                            |        |                                     |        |                                            |        |  |  |  |  |  |  |  |  |

 

 

Three and Nine Months ended September 30, 2001Compared to Three and Nine Months ended September 30, 2000

 

                For the three andnine month period ended September 30, 2001, consolidated sales increased by$619,000 (3.2%) and $2.5 million (4.4%), respectively as compared to the sameperiod in 2000.  Revenues from theCompany’s ATM business drove the increase and contributed $5.3 million of thetotal for the quarter and $13.5 million year to date, up $2.0 million and $6.9million respectively from the same periods last year.

 

                CopyCenters saleswere down 7.0% and 9.2% for the quarter and nine months ended September 30,2001, respectively, as compared to the same periods in 2000. The decrease isprimarily due to decreasing overall copy volumes and decreasing average billedunits as compared to the same periods in 2000. Copy volumes decreased 4.1% forthe quarter and 7.8% year to date. Billed units decreased 9.4% and 12.6%respectively. Although overall copy volumes and average billed units decreasedas compared to the same periods in 2000, copies per billed unit increased 9.8%for the quarter and 1.8% for the nine months ended September 30, 2001  as compared to the same periods in 2000. Theoverall number of copiers installed was 31,566 and 31,579 at September 30, 2001and 2000 respectively.

 

                Revenues from theCompany’s ATM business were $5.3 million for the quarter and $13.5 million forthe nine months ended September 30, 2001, an increase of 60.2% and 102.9%respectively. This increase is attributable to the higher average number oftransacting ATMs, 1,928 for the quarter and 1,848 for the nine months endingSeptember 30, 2001 as compared to 1,837 and 1,200 for the quarter and ninemonths ended September 30, 2000. Escalating ATM transaction volumes alsocontributed to the increase. Withdrawal transactions generated by the ATMbusiness for the three and nine month periods ending September 30, 2001 were2.1 million and 6.6 million respectively as compared to 1.6 million and 2.9million for the same periods last year. During the last nine months, theCompany has actively managed its United States ATM account base, removing ATMswhich were not generating adequate transaction volumes to be profitable. Thenumber of ATM units installed in the United Kingdom increased from 916 atSeptember 30, 2000 to 1,201 as of 2001, while ATM units installed in the U.S.declined from 1,031 at September 30, 2000 to 738 at September 30, 2001.

                iATMglobal.net andStrategic Software Solutions, the Company’s e-commerce business, generated $200,000and $747,000 in gross revenues from contracted software engineering servicesfor the quarter and nine months ended September 30, 2001 compared with $502,000and $562,000 generated for the same periods last year respectively.

 

                Sales discountsare the portion of revenue retained by retail customers.  Sales discounts generally vary at individualretail businesses depending on volume – the higher the volume, the greater thediscount, and are typically smaller in the ATM business as compared to thephotocopy business.  The increase insales discounts for the quarter ended September 30, 2001 compared to theprior year is $373,000  (13.1%). Year todate discounts increased $359,000 (3.8%) over the same period last yearprimarily due to increasing ATM transaction volumes.

 

                Cost of sales on aconsolidated basis decreased $899,000 (8.3%) for the quarter and increased$860,000 (3.0%) for the nine months ended September 30, 2001 compared tothe same periods in 2000. The ATM business cost of sales increased $46,000 forthe quarter and increased $3.0 million for the nine months ended September 30,2001.   As a percentage of sales, ATMcost of sales decreased from 103.1% to 65.3% for the quarter ended September30, 2001 as compared to the same period last year, and from 95.2% to 69.3% forthe nine months ended September 30, 2001. This reduction as a percentage ofsales in the ATM business is primarily attributable to reduced expenses relatedto third party maintenance and service of the ATM units over last year.  The Company’s e-commerce business cost ofsales decreased $79,000 for the quarter and increased $99,000 for the ninemonths ending September 30, 2001. Photocopy business cost of sales alsodecreased as compared to the prior year by $847,000 for the quarter and $2.3million for the nine months ended September 30, 2001 as a result ofefficiencies gained from the consolidation of service center locations andreduced copy volumes.

 

                Selling, generaland administrative costs increased $179,000 to $7.3 million for the quarterended September 30, 2001 on a consolidated basis.  The e-commerce business contributed $84,000 of the increase and$897,000 of the total selling, general and administrative costs for thequarter.  For nine months endedSeptember 30, 2001 selling, general and administrative costs increased $838,000to $22.2 million on a consolidated basis. The Company’s e-commerce business contributed $2.2 million of the yearto date increase and $3.6 million of the total selling, general andadministrative costs for the nine months ended September 30, 2001.  Increases in the e-commerce business werepartially offset by a decrease of $1.2 million in the photocopy and ATMbusinesses selling, general and administrative costs over the same period lastyear.  Overall year to date selling,general and administrative costs on a consolidated basis remained at 2000levels as a percentage of sales.

 

                Interest expensedecreased 7.4% for the third quarter in 2001 which is attributable to a loweraverage outstanding balance on the Company’s revolving line of credit comparedto the same quarter in 2000. Year to date interest expense increased 15.0% in2001. This increase was related to higher interest recorded in the firstquarter of 2001 as compared to 2000 due to a higher level of borrowings underthe Company’s revolving line of credit and higher interest rates on thoseborrowings than existed during the same period in 2000.

 

                Other incomedecreased $761,000 during the quarter ended September 30, 2001, primarilydue to a gain of $151,000 on equipment disposals recorded in the third quarterof 2000 as compared to a loss on damaged and disposal of equipment of $616,000recorded in the third quarter of 2001. These losses were partially offset by $186,000 received in conjunctionwith the Woolwich settlement described below. Other income increased $847,000 year to date, compared to the sameperiod in 2000, which is primarily due to income recorded as a result of asettlement reached with the State of Massachusetts related to sales tax issuesdating back to 1997. Additionally, in the first quarter of 2001 the Companyrecorded income of $801,000 related to a contract termination settlement withthe Woolwich, PLC. Woolwich provided cash inventory and cash managementservices for all of the Company’s ATMs located in England, Scotland, and Walesduring 2000.  In addition, Woolwichprovided sponsorship into the LINK cash delivery network in the UnitedKingdom.  In mid-2000, a change inregulation allowed TRM to be a direct member of LINK.  As a result of this change, and Woolwich’s desire to exit thesurcharging market in the United Kingdom, TRM and Woolwich terminated theirrelationship effective at the end of March 2001.

 

The Company’s effective tax rate for operations (excluding e-commerce)for the quarter ended September 30, 2001 was 40.3 percent, resulting in anincome tax benefit of $317,000. The Company’s e-Commerce business recordedpre-tax losses in the third quarter of 2001 of $579,000 but recorded an income tax expense of $42,000 relatedto profits earned by Strategic Software Solutions, a subsidiary ofiATMglobal.net.  Comparatively, theCompany’s e-commerce business recorded a pre-tax loss of $348,000 and an incometax benefit of $143,000 for the quarter ended September 30, 2000. The Company’seffective tax rate for operations excluding e-commerce is 40.8 percent for thenine months ended September 30, 2001 resulting in an income tax benefit of$54,000 compared to 39.1 percent and an income tax benefit of $1,232,000 forSeptember 30, 2000.  The Company’se-Commerce business recorded pre-tax losses of $2,056,000 for the nine monthsended September 30, 2001, but recorded income tax expense of $122,000 relatedto profits earned by Strategic Software Solutions during the same period, ascompared to a pre-tax loss of $889,000 and an income tax benefit of $340,000for the nine months ending September 30, 2000.

Liquidity and Capital Resources

 

                AtDecember 31, 2000, the Company was not in compliance with all of its loancovenants.  In February 2001 the Companyexecuted an amendment to its loan agreement waiving past non-compliance andestablishing new covenants.  The Companyis in compliance with the revised covenants as of September 30, 2001.  The Company’s existing line of creditmatures on January 4, 2002, and consequently, the $23.4 millionoutstanding at September 30, 2001, has all been classified as a currentliability. The Company is currently in discussions with its bank for thepurpose of renewing its line of credit.

 

                During the ninemonths ended September 30, 2001, TRM generated $3.3 million in cashflowsfrom operations and funded $2.5 million in capital expenditures primarily fromcash generated from operations. Capital expenditures were primarily for ATMmachines, photocopy equipment and computer related expenditures in thee-commerce business.

 

                The Companycurrently anticipates approximately $3 million of capital expenditures forcalendar 2001, the majority of which will be used to acquire ATM machines forthe expanding United Kingdom ATM business. The Company expects to finance these capital expenditures with cashgenerated by operations and equipment based financing.

 

Disclosure Regarding Euro Conversion

 

                On January 1,1999, eleven member countries of the European Community began a process toconvert their existing sovereign currencies to a single common denomination,the Euro.  The process of conversion isgradual over the next three years, culminating in the eventual removal fromcirculation of all existing domestic currency for the participatingcountries.  With the restructuring ofits French operation, the Company is no longer directly exposed to theconversion to the Euro occurring in that country.  The Company continues to operate in the United Kingdom which maybecome subject to the Euro conversion at a later date.

Recent Accounting Pronouncements

 

On July 20, 2001, the FASB issued two statements, Statement 141,"Business Combinations",  andStatement 142, "Goodwill and Other Intangible Assets",  that amended  APB  Opinion  No. 16, "Business Combinations,"and supersede APB  Opinion No. 17,"Intangible Assets." The two statements modify the method ofaccounting for business combinations entered into after June 30, 2001 andaddress the accounting for intangible assets. Beginning January 1, 2002, the Company will no longer amortize itsremaining goodwill and certain intangible assets, but will, however, evaluatethem for impairment annually. The Company is currently reviewing the statementto determine the overall effect on the Company.

 

On August 15, 2001, the FASB issued statement 143, “Accounting forAsset Retirement Obligations”.  ThisStatement addresses financial accounting and reporting for obligationsassociated with the retirement of tangible long-lived assets and the associatedasset retirement costs. The Company is currently reviewing the statement todetermine the overall effect on the Company.

 

On October 4, 2001, the FASB issued statement 144, “Accounting for theImpairment or Disposal of Long-Lived Assets”. This Statement addresses financial accounting and reporting for theimpairment or disposal of long-lived assets. This Statement supersedes FASB Statement No. 121, “Accounting for theImpairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”,and APB Opinion No. 30, “Reporting the Results of Operations -- Reporting theEffects of Disposal of a Segment of a Business, and Extraordinary, Unusual andInfrequently Occurring Events and Transactions, for the disposal of a segmentof a business”.  The Company iscurrently reviewing the statement to determine the overall effect on theCompany.

Forward-Looking Statements

 

                Information in“Management’s Discussion and Analysis,” in this Form 10-Q about the Company’sgoals, plans and expectations regarding revenues from the ATM business becominga higher percentage of overall revenue, expanding the Company’s ATM network,pursuing new geographic opportunities for the ATM network, replacing itsexisting line of credit, capital expenditures and financing of capitalexpenditures, constitute forward-looking statements within the meaning ofSection 27A of the Securities Act of 1933 and Section 21E of the SecuritiesExchange Act of 1934.  The followingfactors that could cause the actual results to differ materially from theforward-looking statements are: business conditions in the market areas in which the Company operates,competitive factors, the Company’s ability to expand its current relationshipswith retailers and broaden its distribution network, successfully developingpartnering arrangements with e-commerce providers, business conditions in thegeographic areas the Company targets for expansion, the ability of the Companyto enter into additional financing arrangements, customer demand for the Company’sservices, the Company’s ability to execute its plans in each of its businesssegments successfully, the volatility of paper costs, and the factors discussedin the Company’s Form 10-K for the year ended December 31, 2000 as filed withthe Securities and Exchange Commission. Any forward-looking statements should be considered in light of thesefactors .

 

 

**ITEM3.                  QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

                The Company isexposed to minimal market risks. Sensitivity of results of operations to these risks is managed bymaintaining a conservative investment portfolio, which is comprised solely ofmoney market funds, and entering into long-term debt obligations withappropriate price and term characteristics. The Company does not hold or issue derivative commodity instruments orother financial instruments for trading purposes.  Financial instruments held for other than trading purposes do notimpose a material market risk.

 

                The Company isexposed to interest rate risk, as additional financing will be needed due tothe capital expenditures associated with expanding the Company’s businessoperations.  The interest rate that theCompany will be able to obtain on debt financing will depend on market conditionsat that time, and may differ from the rates the Company has secured on itscurrent debt.  Additionally, the Companyis exposed to interest rate risk related to its credit facility as of September30, 2001.  Advances against the creditfacility periodically renew, at which point the borrowings are subject to thethen current market interest rates, which may differ from the rates the Companyis currently paying on its borrowings.

 

                The Company isexposed to foreign currency exchange rate risk, as it has operations in Canada,and the United Kingdom.  The relativeamount of business transacted in these countries is outlined in footnote 12 tothe Consolidated Financial Statements of the Company’s 2000 Form 10-K.

 

 

**PART II- OTHER INFORMATION**

 

**ITEM 6.  EXHIBITS ANDREPORTS ON FORM 8-K.**

 
| **(a)   Exhibits**                              |   |   |
|-----------------------------------------------------------|--------|--------|
|                                                      |   |   |
| None                                                      |   |   |
|                                                      |   |   |
| **(b)   Reports on  Form 8-K.**                 |   |   |
|                                                      |   |   |
| No reports on Form 8–K were filed during the period. |   |   |

 

**SIGNATURE**

 

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 

 
|   |              |   | **TRM CORPORATION** |
|--------|-------------------|--------|---------------------|
| Date:  | November 14, 2001 |   | By:                 | /s/ Daniel L. Spalding |
|   |              |   | Daniel L. Spalding  |
|   |              |   | President           |
|        |                   |        |                     |  |