##### 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 June 30, 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.)
 (Address of principal executive offices) (Zip Code)
  (Registrants telephone number, including area code)
  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 1. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSITEM 6. EXHIBITSSIGNATUREShare Purchase AgreementSenior Executive AgreementCredit Agreement dated June 6, 2006Second Lien Loan Agreement dated June 6, 2006Facility AgreementCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Principal Accounting OfficerCertification of Chief Executive Officer, pursuant to Section 906Certification of Chief Financial Officer, pursuant to Section 906Certification of Principal Accounting Officer, pursuant to Section 906    Table of Contents  
 PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 TRM Corporation
Consolidated Balance Sheets
(unaudited)
(In thousands)
 December 31,
    
    
    June 30,2005
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    9,708
    
    
    $
    10,459Restricted cash
    
    
    
    
    
    
    4,500Accounts receivable, net
    
    
    13,231
    
    
    
    12,418Income tax receivable
    
    
    211
    
    
    
    335Inventories
    
    
    1,930
    
    
    
    2,671Prepaid expenses and other
    
    
    3,610
    
    
    
    3,844Deferred tax asset
    
    
    1,036
    
    
    
    1,054Restricted cash  TRM Inventory Funding Trust
    
    
    74,962
    
    
    
    Total current assets
    
    
    104,688
    
    
    
    35,281Equipment, less accumulated depreciation and amortization
    
    
    71,709
    
    
    
    66,466Restricted cash  TRM Inventory Funding Trust
    
    
    
    
    
    
    85,459Deferred tax asset
    
    
    1,631
    
    
    
    Goodwill
    
    
    118,875
    
    
    
    119,694Other intangible assets, less accumulated amortization
    
    
    43,044
    
    
    
    40,169Other assets
    
    
    1,835
    
    
    
    1,148Total assets
    
    $
    341,782
    
    
    $
    348,217Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    13,218
    
    
    $
    12,807Accrued expenses
    
    
    14,940
    
    
    
    8,780Current portion of long-term debt
    
    
    91,605
    
    
    
    5,539TRM Inventory Funding Trust note payable
    
    
    73,269
    
    
    
    Current portion of obligations under capital leases
    
    
    828
    
    
    
    313Total current liabilities
    
    
    193,860
    
    
    
    27,439TRM Inventory Funding Trust note payable
    
    
    
    
    
    
    83,798Long term debt
    
    
    
    
    
    
    94,882Obligations under capital leases
    
    
    686
    
    
    
    56Deferred tax liability
    
    
    5,430
    
    
    
    3,606Other long-term liabilities
    
    
    380
    
    
    
    307Total liabilities
    
    
    200,356
    
    
    
    210,088Minority interest
    
    
    1,500
    
    
    
    1,500Shareholders equity:Common stock, no par value -50,000 shares authorized; 17,090 shares issued and
outstanding (16,871 at December 31, 2005)
    
    
    131,545
    
    
    
    132,431Additional paid-in capital
    
    
    63
    
    
    
    63Accumulated other comprehensive income:Accumulated foreign currency translation adjustments
    
    
    2,958
    
    
    
    4,697Other
    
    
    (74
    )
    
    
    Retained earnings (deficit)
    
    
    5,434
    
    
    
    (562
    )Total shareholders equity
    
    
    139,926
    
    
    
    136,629Total liabilities and shareholders equity
    
    $
    341,782
    
    
    $
    348,217
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TRM Corporation
Consolidated Statements of Operations
(unaudited)
(In thousands, except per share data)
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2005
    
    
    2006
    
    
    2005
    
    
    2006Sales
    
    $
    60,137
    
    
    $
    52,833
    
    
    $
    117,579
    
    
    $
    104,763Less discounts
    
    
    28,065
    
    
    
    25,296
    
    
    
    53,275
    
    
    
    49,145Net sales
    
    
    32,072
    
    
    
    27,537
    
    
    
    64,304
    
    
    
    55,618Cost of sales:Cost of vault cash
    
    
    2,469
    
    
    
    2,681
    
    
    
    4,514
    
    
    
    4,892Other
    
    
    13,674
    
    
    
    15,332
    
    
    
    28,530
    
    
    
    29,738Gross profit
    
    
    15,929
    
    
    
    9,524
    
    
    
    31,260
    
    
    
    20,988Selling, general and administrative expense (including
non-cash compensation of $711 and $795 in the three and
six months ended June 30, 2006)
    
    
    10,824
    
    
    
    11,622
    
    
    
    21,157
    
    
    
    22,717Equipment write-offs
    
    
    
    
    
    
    83
    
    
    
    141
    
    
    
    226Operating income (loss)
    
    
    5,105
    
    
    
    (2,181
    )
    
    
    9,962
    
    
    
    (1,955
    )Interest expense:Interest expense and amortization of debt issuance costs
    
    
    2,659
    
    
    
    3,596
    
    
    
    5,019
    
    
    
    5,858Loss on
early extinguishment of debt
    
    
    
    
    
    
    3,477
    
    
    
    
    
    
    
    3,477Other expense (income), net
    
    
    (857
    )
    
    
    (1,252
    )
    
    
    (1,210
    )
    
    
    (1,541
    )Income (loss) from continuing operations before income
taxes
    
    
    3,303
    
    
    
    (8,002
    )
    
    
    6,153
    
    
    
    (9,749
    )Provision (benefit) for income taxes
    
    
    1,229
    
    
    
    (2,465
    )
    
    
    2,225
    
    
    
    (2,799
    )Income (loss) from continuing operations
    
    
    2,074
    
    
    
    (5,537
    )
    
    
    3,928
    
    
    
    (6,950
    )Discontinued operations:Gain (loss) from operations of discontinued UK
photocopier
company (including gain on disposal of $2,186 in the three
and six months ended June 30, 2006)
    
    
    100
    
    
    
    1,834
    
    
    
    (243
    )
    
    
    1,632Provision (benefit) for income tax
    
    
    (688
    )
    
    
    794
    
    
    
    (827
    )
    
    
    678Gain from discontinued operations
    
    
    788
    
    
    
    1,040
    
    
    
    584
    
    
    
    954Net income (loss)
    
    $
    2,862
    
    
    $
    (4,497
    )
    
    $
    4,512
    
    
    $
    (5,996
    )Basic and diluted per share information:Income (loss) from continuing operations
    
    $
    2,074
    
    
    $
    (5,537
    )
    
    $
    3,928
    
    
    $
    (6,950
    )Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    (147
    )
    
    
    Income allocated to Series A preferred shareholders
    
    
    
    
    
    
    
    
    
    
    (57
    )
    
    
    Net income (loss) from continuing operations available to
common shareholders
    
    $
    2,074
    
    
    $
    (5,537
    )
    
    $
    3,724
    
    
    $
    (6,950
    )Weighted average common shares outstanding
    
    
    13,972
    
    
    
    17,046
    
    
    
    13,692
    
    
    
    16,959Dilutive effect of stock options
    
    
    788
    
    
    
    
    
    
    
    840Dilutive effect of warrants
    
    
    15
    
    
    
    
    
    
    
    48
    
    
    
    Weighted average common shares outstanding, assuming
dilution
    
    
    14,775
    
    
    
    17,046
    
    
    
    14,580
    
    
    
    16,959Basic income (loss) per share:From continuing operations
    
    $
    .15
    
    
    $
    (.32
    )
    
    $
    .27
    
    
    $
    (.41
    )Discontinued operations
    
    
    .05
    
    
    
    .06
    
    
    
    .04
    
    
    
    .06Net income
(loss)
    
    $
    .20
    
    
    $
    (.26
    )
    
    $
    .31
    
    
    $
    (.35
    )Diluted income (loss) per share:From continuing operations
    
    $
    .14
    
    
    $
    (.32
    )
    
    $
    .26
    
    
    $
    (.41
    )Discontinued operations
    
    
    .05
    
    
    
    .06
    
    
    
    .04
    
    
    
    .06Net income
(loss)
    
    $
    .19
    
    
    $
    (.26
    )
    
    $
    .30
    
    
    $
    (.35
    )
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TRM Corporation
Consolidated Statement of Shareholders Equity
(unaudited)
(In thousands)
 AccumulatedAdditional
    
    
    other
    
    
    RetainedComprehensive
    
    
    Common
    
    
    paid-in
    
    
    comprehensive
    
    
    earningsincome
    
    
    Shares
    
    
    Amounts
    
    
    capital
    
    
    income
    
    
    (deficit)
    
    
    TotalBalances, December 31, 2005
    
    
    
    
    
    
    16,871
    
    
    $
    131,545
    
    
    $
    63
    
    
    $
    2,884
    
    
    $
    5,434
    
    
    $
    139,926Comprehensive loss:Net loss
    
    $
    (5,996
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,996
    )
    
    
    (5,996
    )Other comprehensive income
(loss):Foreign currency
translation adjustment:Recognized in income
    
    
    (1,538
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,538
    )
    
    
    
    
    
    
    (1,538
    )Other
    
    
    3,277
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,277
    
    
    
    
    
    
    
    3,277Other
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74
    
    
    
    
    
    
    
    74Comprehensive loss
    
    $
    (4,183
    )Exercise of stock options
    
    
    
    
    
    
    219
    
    
    
    91
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91Restricted stock expense
    
    
    
    
    
    
    
    
    
    
    119
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    119Stock option expense
    
    
    
    
    
    
    
    
    
    
    676
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    676Balances, June 30, 2006
    
    
    
    
    
    
    17,090
    
    
    $
    132,431
    
    
    $
    63
    
    
    $
    4,697
    
    
    $
    (562
    )
    
    $
    136,629
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TRM Corporation
Consolidated Statements of Cash Flows
(unaudited)
(In thousands)
 Six months ended June 30,2005
    
    
    2006Operating activities:Net income (loss)
    
    $
    4,512
    
    
    $
    (5,996
    )Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    10,028
    
    
    
    10,412Non-cash stock compensation
    
    
    
    
    
    
    795Loss on disposal of equipment
    
    
    158
    
    
    
    359Provision for doubtful accounts
    
    
    59
    
    
    
    200Loss on debt redemption
    
    
    
    
    
    
    2,560Debt
financing costs
    
    
    
    
    
    
    (2,917
    )Gain on sale of discontinued operations
    
    
    
    
    
    
    (648
    )Cumulative translation adjustment recognized in current period net income
    
    
    
    
    
    
    (1,538
    )Changes in items affecting operations:Accounts receivable
    
    
    (7,405
    )
    
    
    1,386Income tax receivable
    
    
    (229
    )
    
    
    (124
    )Inventories
    
    
    (99
    )
    
    
    235Prepaid expenses and other
    
    
    578
    
    
    
    (140
    )Accounts payable
    
    
    (5,423
    )
    
    
    (624
    )Accrued expenses
    
    
    (1,213
    )
    
    
    (6,279
    )Deferred income taxes
    
    
    1,126
    
    
    
    (2,297
    )Total operating activities
    
    
    2,092
    
    
    
    (4,616
    )Investing activities:Proceeds from sale of equipment
    
    
    36
    
    
    
    24Capital expenditures
    
    
    (7,478
    )
    
    
    (2,256
    )Proceeds from discontinued operations sold
    
    
    
    
    
    
    4,280Acquisition of intangible and other assets
    
    
    (1,028
    )
    
    
    (155
    )Total investing activities
    
    
    (8,470
    )
    
    
    1,893Financing activities:Borrowings on notes payable
    
    
    9,254
    
    
    
    113,461Repayment of notes payable
    
    
    (5,003
    )
    
    
    (105,293
    )Principal payments on capital lease obligations
    
    
    (1,194
    )
    
    
    (472
    )Change in restricted cash
    
    
    (8,914
    )
    
    
    (14,997
    )Proceeds from issuance of TRM Inventory Funding Trust note, net of repayments
    
    
    9,107
    
    
    
    10,529Proceeds from exercise of stock options
    
    
    115
    
    
    
    91Preferred stock dividends
    
    
    (367
    )
    
    
    Other
    
    
    (13
    )
    
    
    (19
    )Total financing activities
    
    
    2,985
    
    
    
    3,300Effect of exchange rate changes
    
    
    (143
    )
    
    
    174Net increase (decrease) in cash and cash equivalents
    
    
    (3,536
    )
    
    
    751Beginning cash and cash equivalents
    
    
    5,576
    
    
    
    9,708Ending cash and cash equivalents
    
    $
    2,040
    
    
    $
    10,459Supplemental cash flow information:Non-cash transactions -Conversion of preferred shares to common shares
    
    $
    11,620
    
    
    $
    Payments:Cash paid for interest
    
    $
    5,201
    
    
    $
    3,848Cash paid for income taxes
    
    $
    395
    
    
    $
    225
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TRM Corporation
 Notes to Condensed Consolidated Financial Statements (unaudited)
        December 31,
    
    
    June 30,2005
    
    
    2006Parts
    
    $
    1,239
    
    
    $
    1,889ATMs held for resale
    
    
    654
    
    
    
    732Paper, toner and developer
    
    
    37
    
    
    
    50Total
    
    $
    1,930
    
    
    $
    2,671
 6




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December 31,
    
    
    June 30,2005
    
    
    2006Syndicated loan:Term loans
    
    $
    82,182
    
    
    $
    90,301Line of credit
    
    
    9,394
    
    
    
    10,089Other long term debt
    
    
    29
    
    
    
    3191,605
    
    
    
    100,421Less current portion
    
    
    (91,605
    )
    
    
    (5,539
    )$
    
    
    
    $
    94,882
         7




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8




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Three months ended
    
    
    Six months endedJune 30, 2005
    
    
    June 30, 2005Net income, as reported
    
    $
    2,862
    
    
    $
    4,512Deduct total stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of related
tax effects
    
    
    (374
    )
    
    
    (747
    )Pro forma net income
    
    $
    2,488
    
    
    $
    3,765Basic net income per share:As reported
    
    $
    .20
    
    
    $
    .31Pro forma
    
    $
    .18
    
    
    $
    .26Diluted net income per share:As reported
    
    $
    .19
    
    
    $
    .30Pro forma
    
    $
    .17
    
    
    $
    .24
   9




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Non-cash compensation expense (in thousands):Modification of options previously granted
    
    $
    618Amortizaton of:Option grants
    
    
    58Restricted shares
    
    
    119$
    795
   Shares
    
    Weightedunder
    
    averageoption
    
    exercise priceBalance January 1, 2006
    
    
    1,457,015
    
    
    $
    5.94Options exercised
    
    
    (278,140
    )
    
    
    1.88Options forfeited
    
    
    (97,750
    )
    
    
    11.04Balance June 30, 2006
    
    
    1,081,125
    
    
    
    6.52
  10




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Number of shares under option
    
    
    1,081,125Weighted average exercise price
    
    $
    6.52Aggregate intrinsic value
    
    $
    2.2
    millionWeighted average remaining contractual term
    
    
    2.8
    years
         11




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Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2005
    
    
    2006
    
    
    2005
    
    
    2006Net sales:ATM
    
    $
    23,966
    
    
    $
    20,404
    
    
    $
    48,492
    
    
    $
    41,707Photocopy
    
    
    8,106
    
    
    
    7,133
    
    
    
    15,812
    
    
    
    13,911$
    32,072
    
    
    $
    27,537
    
    
    $
    64,304
    
    
    $
    55,618Operating income (loss) excluding unallocated costs:ATM
    
    $
    5,005
    
    
    $
    138
    
    
    $
    10,776
    
    
    $
    2,330Photocopy
    
    
    1,839
    
    
    
    220
    
    
    
    2,507
    
    
    
    (189
    )$
    6,844
    
    
    $
    358
    
    
    $
    13,283
    
    
    $
    2,141Reconciliation of segment data to income (loss) from
continuing operations before income taxes:Operating income (loss) excluding unallocated
costs
    
    $
    6,844
    
    
    $
    358
    
    
    $
    13,283
    
    
    $
    2,141Unallocated costs
    
    
    1,739
    
    
    
    2,539
    
    
    
    3,321
    
    
    
    4,096Interest expense
    
    
    2,659
    
    
    
    3,596
    
    
    
    5,019
    
    
    
    5,858Loss on
early extinguishment of debt
    
    
    
    
    
    
    3,477
    
    
    
    
    
    
    
    3,477Other (income) expense, net
    
    
    (857
    )
    
    
    (1,252
    )
    
    
    (1,210
    )
    
    
    (1,541
    )Income (loss) from continuing operations
before income taxes
    
    $
    3,303
    
    
    $
    (8,002
    )
    
    $
    6,153
    
    
    $
    (9,749
    )
  Total assets as of June 30, 2006 (in thousands):ATM (including goodwill of $119.7 million)
    
    $
    312,247Photocopy
    
    
    35,970$
    348,217
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13




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements
   Overview
     14




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Consolidated Results of Operations
  Three months ended
    
    Six months endedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2005
    
    2006
    
    2005
    
    2006Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Less discounts
    
    
    46.7
    
    
    
    47.9
    
    
    
    45.3
    
    
    
    46.9Net sales
    
    
    53.3
    
    
    
    52.1
    
    
    
    54.7
    
    
    
    53.1Cost of vault cash
    
    
    4.1
    
    
    
    5.1
    
    
    
    3.8
    
    
    
    4.7Other cost of sales
    
    
    22.7
    
    
    
    29.0
    
    
    
    24.3
    
    
    
    28.4Gross profit
    
    
    26.5
    
    
    
    18.0
    
    
    
    26.6
    
    
    
    20.0Selling, general and administrative expense
    
    
    18.0
    
    
    
    21.9
    
    
    
    18.0
    
    
    
    21.7Equipment write-offs
    
    
    
    
    
    
    .2
    
    
    
    .1
    
    
    
    .2Operating income (loss)
    
    
    8.5
    
    
    
    (4.1
    )
    
    
    8.5
    
    
    
    (1.9
    )Interest expense
    
    
    4.4
    
    
    
    6.8
    
    
    
    4.3
    
    
    
    5.6Loss on early extinguishment of debt
    
    
    
    
    
    
    6.6
    
    
    
    
    
    
    
    3.3Other (income) expense, net
    
    
    (1.4
    )
    
    
    (2.4
    )
    
    
    (1.0
    )
    
    
    (1.5
    )Income (loss) from continuing operations
before income taxes
    
    
    5.5
    
    
    
    (15.1
    )
    
    
    5.2
    
    
    
    (9.3
    )Provision (benefit) for income taxes
    
    
    2.0
    
    
    
    (4.6
    )
    
    
    1.9
    
    
    
    (2.7
    )Income (loss) from continuing operations
    
    
    3.5
    
    
    
    (10.5
    )
    
    
    3.3
    
    
    
    (6.6
    )Gain from discontinued operations
    
    
    1.3
    
    
    
    2.0
    
    
    
    .5
    
    
    
    .9Net income (loss)
    
    
    4.8
    %
    
    
    (8.5
    )%
    
    
    3.8
    %
    
    
    (5.7
    )%
 15




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##### Table of Contents



Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
  Three months ended June 30,% of
    
    
    
    
    
    
    % of2005
    
    
    sales
    
    
    2006
    
    
    sales(in thousands, except operating and percentage data)Transaction-based sales
    
    $
    46,739
    
    
    
    93.0
    %
    
    $
    41,385
    
    
    
    93.6
    %Service and other sales
    
    
    2,651
    
    
    
    5.2
    
    
    
    2,064
    
    
    
    4.7Sales of ATM equipment
    
    
    889
    
    
    
    1.8
    
    
    
    776
    
    
    
    1.7Total sales
    
    
    50,279
    
    
    
    100.0
    
    
    
    44,225
    
    
    
    100.0Less discounts
    
    
    26,313
    
    
    
    52.3
    
    
    
    23,821
    
    
    
    53.9Net sales
    
    
    23,966
    
    
    
    47.7
    
    
    
    20,404
    
    
    
    46.1Cost of sales:Cost of vault cash
    
    
    2,469
    
    
    
    4.9
    
    
    
    2,681
    
    
    
    6.1Other
    
    
    9,001
    
    
    
    17.9
    
    
    
    10,458
    
    
    
    23.6Gross profit
    
    $
    12,496
    
    
    
    24.9
    %
    
    $
    7,265
    
    
    
    16.4
    %Operating Data:Average number of transacting ATMs
    
    
    20,212
    
    
    
    
    
    
    
    17,960Withdrawal transactions
    
    
    20,174,298
    
    
    
    
    
    
    
    18,021,481Average withdrawals per ATM per month
    
    
    333
    
    
    
    
    
    
    
    334Average transaction-based sales per
withdrawal transaction
    
    $
    2.32
    
    
    
    
    
    
    $
    2.30Average discount per withdrawal transaction
    
    $
    1.31
    
    
    
    
    
    
    $
    1.32Net transaction-based sales per
withdrawal transaction
    
    $
    1.01
    
    
    
    
    
    
    $
    0.98
  Three months ended June 30,% of
    
    
    
    
    
    
    % of2005
    
    
    sales
    
    
    2006
    
    
    sales(in thousands, except operating and percentage data)Sales
    
    $
    9,858
    
    
    
    100.0
    %
    
    $
    8,607
    
    
    
    100.0
    %Less discounts
    
    
    1,752
    
    
    
    17.8
    
    
    
    1,474
    
    
    
    17.1Net sales
    
    
    8,106
    
    
    
    82.2
    
    
    
    7,133
    
    
    
    82.9Cost of sales
    
    
    4,674
    
    
    
    47.4
    
    
    
    4,874
    
    
    
    56.7Gross profit
    
    $
    3,432
    
    
    
    34.8
    %
    
    $
    2,259
    
    
    
    26.2
    %Operating Data:Average number of photocopiers
    
    
    21,551
    
    
    
    
    
    
    
    20,493Average photocopies per machine per month
    
    
    1,855
    
    
    
    
    
    
    
    1,442Average sales per photocopier per month
    
    $
    152.48
    
    
    
    
    
    
    $
    140.00Average sales per photocopy
    
    $
    .082
    
    
    
    
    
    
    $
    .097Average discount per photocopy
    
    $
    .015
    
    
    
    
    
    
    $
    .017Average net sales per photocopy
    
    $
    .067
    
    
    
    
    
    
    $
    .080Average gross profit per photocopy
    
    $
    .030
    
    
    
    
    
    
    $
    .025
 16




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##### Table of Contents



Sales
   ATM sales.
   Photocopier sales.
 
    
    Declining photocopy volume  Continuing a trend, photocopy volume declined
by 26% for the second quarter of 2006 compared to the same period in 2005, to 89
million copies from 120 million copies, due to a combination of:
 17




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##### Table of Contents




    
    A decline in installed photocopiers to an average of 20,493 in the second
quarter of 2006 from an average of 21,551 for the same period in 2005, as we
continued a program of eliminating lower volume sites that were either unprofitable
or marginally profitable.
    
    A decline in the average number of photocopies made per unit per month
to 1,442 for the second quarter of 2006 from 1,855 for the same period in 2005 due
in part to price increases as well as competition from alternative media and
copying services.
  
    
    Exchange rate benefit  The change in value of the Canadian dollar
relative to the U.S. dollar for the second quarter of 2006 compared to the
same period in 2005 resulted in a $146,000 increase in photocopier sales. This
increase was substantially offset by exchange rate-related increases in costs.
 Sales Discounts
  Cost of Sales
  ATM cost of sales.
 
    
    ATM processing and telecommunications costs increased $799,000, partially
due to credits received from our United Kingdom and Canadian processors in the second
quarter of 2005.
    
    Depreciation increased $317,000, primarily because we began depreciating
the cost of upgrading ATM equipment in the United Kingdom to meet EMV standards in the
second half of 2005.
 18




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##### Table of Contents




    
    The cost of parts increased $213,000 in part because we serviced more of
our ATMs with our own technicians in 2006 as opposed to using contract services.
    
    Cost of vault cash increased $212,000 due to increased interest rates.
    
    Exchange rate effects  The ATM segment reported approximately $78,000
more in cost of sales in the second quarter of 2006 than it would have reported had the
exchange rate for the British pound and Canadian dollar remained at the average for the
second quarter of 2005.
 Photocopier cost of sales.
  Selling, General and Administrative Expense
   Interest Expense
   19




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Other Expense (Income), Net
  Tax Rate
  Discontinued Operations
    Net Income (Loss)
  20




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##### Table of Contents



Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
  Six months ended June 30,% of
    
    
    
    
    
    
    % of2005
    
    
    sales
    
    
    2006
    
    
    sales(in thousands, except operating and percentage data)Transaction-based sales
    
    $
    90,389
    
    
    
    91.8
    %
    
    $
    80,901
    
    
    
    91.9
    %Service and other sales
    
    
    5,548
    
    
    
    5.7
    
    
    
    4,808
    
    
    
    5.5Sales of ATM equipment
    
    
    2,454
    
    
    
    2.5
    
    
    
    2,309
    
    
    
    2.6Total sales
    
    
    98,391
    
    
    
    100.0
    
    
    
    88,018
    
    
    
    100.0Less discounts
    
    
    49,899
    
    
    
    50.7
    
    
    
    46,311
    
    
    
    52.6Net sales
    
    
    48,492
    
    
    
    49.3
    
    
    
    41,707
    
    
    
    47.4Cost of sales:Cost of vault cash
    
    
    4,514
    
    
    
    4.6
    
    
    
    4,892
    
    
    
    5.6Other
    
    
    18,668
    
    
    
    19.0
    
    
    
    19,820
    
    
    
    22.5Gross profit
    
    $
    25,310
    
    
    
    25.7
    %
    
    $
    16,995
    
    
    
    19.3
    %Operating Data:Average number of transacting ATMs
    
    
    20,341
    
    
    
    
    
    
    
    18,141Withdrawal transactions
    
    
    39,065,906
    
    
    
    
    
    
    
    35,309,647Average withdrawals per ATM per month
    
    
    320
    
    
    
    
    
    
    
    324Average transaction-based sales per
withdrawal transaction
    
    $
    2.31
    
    
    
    
    
    
    $
    2.29Average discount per withdrawal transaction
    
    $
    1.27
    
    
    
    
    
    
    $
    1.31Net transaction-based sales per
withdrawal transaction
    
    $
    1.04
    
    
    
    
    
    
    $
    0.98
  Six months ended June 30,% of
    
    
    
    
    
    
    % of2005
    
    
    sales
    
    
    2006
    
    
    sales(in thousands, except operating and percentage data)Sales
    
    $
    19,188
    
    
    
    100.0
    %
    
    $
    16,744
    
    
    
    100.0
    %Less discounts
    
    
    3,376
    
    
    
    17.6
    
    
    
    2,833
    
    
    
    16.9Net sales
    
    
    15,812
    
    
    
    82.4
    
    
    
    13,911
    
    
    
    83.1Cost of sales
    
    
    9,863
    
    
    
    51.4
    
    
    
    9,918
    
    
    
    59.2Gross profit
    
    $
    5,949
    
    
    
    31.0
    %
    
    $
    3,993
    
    
    
    23.9
    %Operating Data:Average number of photocopiers
    
    
    21,518
    
    
    
    
    
    
    
    20,696Average photocopies per machine per month
    
    
    1,838
    
    
    
    
    
    
    
    1,408Average sales per photocopier per month
    
    $
    148.62
    
    
    
    
    
    
    $
    134.84Average sales per photocopy
    
    $
    .081
    
    
    
    
    
    
    $
    .096Average discount per photocopy
    
    $
    .014
    
    
    
    
    
    
    $
    .016Average net sales per photocopy
    
    $
    .067
    
    
    
    
    
    
    $
    .080Average gross profit per photocopy
    
    $
    .025
    
    
    
    
    
    
    $
    .023
 21




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##### Table of Contents



Sales
   ATM sales.
   Photocopier sales.
 22




---



##### Table of Contents




    
    Declining photocopy volume  Continuing a trend, photocopy volume declined
by 26.3% for the first six months of 2006 compared to the same period in 2005, to 174.8
million copies from 237.3 million copies, due to a combination of:
 
    
    A decline in billed photocopiers to an average of 20,696 in the first
six months of 2006 from an average of 21,518 for the same period in 2005, as we
continued a program of eliminating lower volume sites that were either unprofitable
or marginally profitable.
    
    A decline in the average number of photocopies made per unit per month
to 1,408 for the first six months of 2006 from 1,838 for the same period in 2005
due in part to price increases as well as competition from alternative media and
copying services.
  
    
    Exchange rate benefit  The change in the value of the Canadian dollar
relative to the U.S. dollar for the first six months of 2006 compared to the
same period in 2005 resulted in a $213,000 increase in photocopier sales. This
increase was substantially offset by exchange rate-related increases in costs.
 Sales Discounts
  Cost of Sales
  ATM cost of sales.
 
    
    ATM processing and telecommunications costs increased $643,000, partially
due to credits received from our United Kingdom and Canadian processors in the second
quarter of 2005.
 23




---



##### Table of Contents




    
    Depreciation increased $637,000, primarily because we began depreciating
the cost of upgrading ATM equipment in the United Kingdom to meet EMV standards in the
second half of 2005.
    
    Cost of vault cash increased $378,000 due to increased interest rates.
    
    Exchange rate effects  The ATM segment reported approximately $291,000
less in cost of sales in the first six months of 2006 than it would have reported had
the exchange rate for the British pound and Canadian dollar remained at the average for
the first six months of 2005.
 Photocopier cost of sales.
  Selling, General and Administrative Expense
   Interest Expense
  24




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##### Table of Contents



Other Expense (Income), Net
  Tax Rate
  Discontinued Operations
    Net Income (loss)
  25




---



##### Table of Contents



Liquidity and Capital Resources
 General
     Syndicated Credit Facility
  
    
    a $45.5 million credit agreement (the First Lien Credit Agreement) with GSO
Origination Funding Partners LP (the GSO Fund), the other lenders set forth therein
and Wells Fargo Foothill, Inc., serving as administrative agent, revolving lender,
swing line lender and L/C issuer (WFF);
    
    a $40 million second lien loan agreement with the GSO Fund, the other lenders set
forth therein and WFF (the Second Loan Agreement and, together with the First Lien
Credit Agreement, the Credit Agreements); and
    
    a £12.9 million facility agreement between our wholly-owned subsidiary, TRM (ATM)
Limited (TRM Ltd.) and GSO Luxembourg Onshore Funding SarL (GSO Lux) as the
original lender, facility agent and security agent (the UK Facility Agreement).
 26




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27




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##### Table of Contents



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 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.
   28




---



##### Table of Contents



Collateral and credit enhancement.
  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 six months ended June 30,
2006 was $1.9 million.
    
    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 June 30, 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 six months ended June 30, 2006 were $905,000.
 Risk of loss and insurance.
  29




---



##### Table of Contents



United Kingdom Vault Cash Facility
  Canadian Vault Cash Facility
  Contractual Commitments and Obligations
  Payments Due by PeriodJuly 1 December 31,Contractual obligations
    
    Total
    
    
    2006
    
    
    2007-2008
    
    
    2009-2010
    
    
    After 2010TRM Corporation and subsidiariesLong-term debt
    
    $
    156,715
    
    
    $
    6,029
    
    
    $
    21,915
    
    
    $
    21,730
    
    
    $
    107,041Capital lease obligations
    
    
    381
    
    
    
    161
    
    
    
    220
    
    
    
    
    
    
    
    Operating leases
    
    
    6,859
    
    
    
    1,264
    
    
    
    3,020
    
    
    
    1,291
    
    
    
    1,284Purchase obligations
    
    
    16,875
    
    
    
    2,500
    
    
    
    10,000
    
    
    
    4,375
    
    
    
    Total TRM Corporation and subsidiaries
    
    
    180,830
    
    
    
    9,954
    
    
    
    35,155
    
    
    
    27,396
    
    
    
    108,325TRM Inventory Funding Trust note payable
    
    
    86,843
    
    
    
    2,983
    
    
    
    83,860
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    267,673
    
    
    $
    12,937
    
    
    $
    119,015
    
    
    $
    27,396
    
    
    $
    108,325
  30




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##### Table of Contents



Critical Accounting Policies and Estimates
  New Accounting Standards and Effects on Earnings Per Share
    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  31




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##### Table of Contents



Interest Rate Risk
      32




---



##### Table of Contents



Foreign Currency Risk
   
 ITEM 4. CONTROLS AND PROCEDURES
  33




---



##### Table of Contents



34




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   For
    
    
    WithheldJeffrey F. Brotman
    
    
    13,265,491
    
    
    
    1,165,664Edward E. Cohen
    
    
    13,164,895
    
    
    
    1,266,260Alan D. Schreiber
    
    
    14,091,062
    
    
    
    340,093
   
 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)
 35




---



##### Table of Contents



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)2.2
    
    Share Purchase Agreement by and among TRM Copy Centers (USA)
Corporation and Digital 4 Convenience PLC dated May 18, 20063.1(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)10.3
    
    TRM Omnibus Stock Incentive Plan (incorporated herein by reference to
Appendix B to Notice of
Annual Meeting of Shareholders and Proxy Statement dated May 17, 2005)10.4
    

a)     Form of Incentive Stock Option Agreement under TRM Omnibus Stock Incentive Plan (incorporated herein by reference to
Exhibit 10.2(a) of Form 10-Q for the period ended June 30,
2005)b)         Form of Non Qualified Stock Option agreement under TRM Omnibus Stock Incentive
Plan (incorporated herein by reference to Exhibit 10.2(b)
of Form 10-Q for the period ended June 30, 2005)c)         Form of Award Agreement under TRM Omnibus Stock Incentive
Plan (incorporated herein by reference to
Exhibit 10.2(c) of Form 10-Q for the period ended June 30, 2005)10.5
    
    Employee Stock Purchase Plan (incorporated herein by reference to
Exhibit 28.1 of Form S-8 dated December 7, 1992
[No. 33-55370])10.6
    

Form of Stock Option Agreements:a)      For option grants before fiscal 1994 (incorporated herein by reference to

Exhibit 10.9 of Form S-1 dated November 8, 1991
[No. 33-43829])b)         For option grants during fiscal 1994 (incorporated herein by reference to Exhibit 10.10 of
Form 10-K for the fiscal year ended June 30, 1994)c)         For option grants during fiscal 1995 (incorporated herein by
reference to Exhibit 10.8 of Form 10-K for the fiscal year ended June
30, 1995)10.7(i)
    
    Employment Agreement dated May 3, 2006 by and between TRM Corporation and Jeffrey
F. Brotman (incorporated herein by reference to Exhibit 10.7(i) of Form 10-Q filed
for the quarter ended March 1, 2006)10.7(j)
    
    Retainer Agreement dated May 3, 2006 by and between TRM Corporation and Amy B.
Krallman (incorporated herein by reference to Exhibit 10.7(j) of Form 10-Q filed for
the quarter ended March 1, 2006)10.7(k)
    
    Senior Executive Agreement dated May 30, 2006, by and between TRM (ATM) Limited
and Kevin Waterhouse10.8
    
    Credit Agreement dated June 6, 2006, among TRM Corporation, TRM ATM
Corporation and TRM Copy Centers (USA) Corporation, as Borrowers, the Subsidiaries
of the Borrowers identified therein, Wells Fargo Foothill, Inc., as Administrative
Agent, Revolving Lender, Swing Line Lender and L/C Issuer, and GSO Origination
Funding Partners LP, the other lenders identified therein
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##### Table of Contents



10.9
    
    Second Lien Loan Agreement dated June 6, 2006, among TRM Corporation,
TRM ATM Corporation and TRM Copy Centers (USA) Corporation, as Borrowers, the
Subsidiaries of the Borrowers identified therein, Wells Fargo Foothill, Inc., as
Administrative Agent, Revolving Lender, Swing Line Lender and L/C Issuer, and GSO
Origination Funding Partners LP, the other lenders identified therein10.10
    
    Facility Agreement by and among TRM (ATM) Limited and GSO Luxembourg
Onshore Funding SarL dated June 6, 200631.1
    
    Certification of Chief Executive Officer of TRM Corporation pursuant
to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer of TRM Corporation pursuant
to Section 302 of the Sarbanes-Oxley Act of 200231.3
    
    Certification of Principal Accounting Officer of TRM Corporation
pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer of TRM Corporation pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 135032.2
    
    Certification of Chief Financial Officer of TRM Corporation pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 135032.3
    
    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
 37




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##### Table of Contents



SIGNATURE
  TRM CORPORATIONDate: August 9, 2006
    
    By:
    
    /s/ Jon S. PitcherJon S. Pitcher
 38