##### 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 September 30, 2004 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to Commission File Number 0-19657 TRM CORPORATION 
 Oregon
    
    93-0809419(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 5208 N.E. 122nd Avenue
Portland, Oregon 97230 
 (503) 257-8766 
 Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES þ NO o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES o NO þ Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date: CLASS
    
    OUTSTANDING AT SEPTEMBER 30, 2004Common Stock
    
    13,069,211




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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 6. EXHIBITSSIGNATUREFIFTH AMENDMENT TO BUSINESS LOAN AGREEMENTSIXTH AMENDMENT TO BUSINESS LOAN AGREEMENTPurchase Agreement, made as of September 20, 2004...CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906CERTIFICATION OF CHIEF FINANCIAL 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,
    
    September 30,2003
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    5,724
    
    
    $
    44,293Accounts receivable, net
    
    
    6,134
    
    
    
    5,242Inventories
    
    
    1,567
    
    
    
    2,961Prepaid expenses and other
    
    
    1,405
    
    
    
    2,681Deferred tax asset
    
    
    423
    
    
    
    438Total current assets
    
    
    15,253
    
    
    
    55,615Equipment, less accumulated depreciation and amortization
    
    
    63,991
    
    
    
    63,364Restricted cash  TRM Inventory Funding Trust
    
    
    28,939
    
    
    
    36,451Deferred tax asset
    
    
    2,767
    
    
    
    230Intangible
assets, net
    
    
    72
    
    
    
    14,808Other assets
    
    
    1,253
    
    
    
    728Total assets
    
    $
    112,275
    
    
    $
    171,196Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    1,367
    
    
    $
    5,204Income taxes payable
    
    
    
    
    
    
    784Accrued expenses
    
    
    6,429
    
    
    
    4,813Accrued expenses of TRM Inventory Funding Trust
    
    
    57
    
    
    
    66Current portion of long-term debt
    
    
    3,024
    
    
    
    24Current portion of obligations under capital leases
    
    
    2,113
    
    
    
    2,003Total current liabilities
    
    
    12,990
    
    
    
    12,894TRM Inventory Funding Trust note payable
    
    
    27,455
    
    
    
    34,976Long-term debt
    
    
    7,040
    
    
    
    22Obligations under capital leases
    
    
    2,784
    
    
    
    1,311Deferred tax liability
    
    
    7,049
    
    
    
    7,293Other long-term liabilities
    
    
    79
    
    
    
    252Preferred dividends payable
    
    
    4,502
    
    
    
    3,436Total liabilities
    
    
    61,899
    
    
    
    60,184Minority interest
    
    
    1,500
    
    
    
    1,500Shareholders equity:Preferred stock, no par value - 5,000 shares authorized;
1,061 shares issued and outstanding (liquidation preference $11,936)
(1,778 shares issued and outstanding at December 31, 2003)
    
    
    19,798
    
    
    
    11,810Common stock, no par value - 50,000 shares authorized;
13,069 shares issued and outstanding (7,060 shares issued and
outstanding
at December 31, 2003)
    
    
    19,026
    
    
    
    81,381Additional paid-in capital
    
    
    63
    
    
    
    63Accumulated other comprehensive income
    
    
    2,088
    
    
    
    2,116Retained earnings
    
    
    7,901
    
    
    
    14,142Total shareholders equity
    
    
    48,876
    
    
    
    109,512Total liabilities and shareholders equity
    
    $
    112,275
    
    
    $
    171,196
 See accompanying notes to consolidated financial statements. 2




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##### Table of Contents



TRM Corporation
Consolidated Statements of Operations
(unaudited)
(In thousands, except per share data) Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2003
    
    2004
    
    2003
    
    2004Sales
    
    $
    24,097
    
    
    $
    28,981
    
    
    $
    70,877
    
    
    $
    83,750Less discounts
    
    
    4,271
    
    
    
    6,495
    
    
    
    12,148
    
    
    
    17,722Net sales
    
    
    19,826
    
    
    
    22,486
    
    
    
    58,729
    
    
    
    66,028Cost of sales
    
    
    10,996
    
    
    
    12,423
    
    
    
    34,032
    
    
    
    35,205Gross profit
    
    
    8,830
    
    
    
    10,063
    
    
    
    24,697
    
    
    
    30,823Selling, general and administrative expense
    
    
    6,061
    
    
    
    6,738
    
    
    
    18,124
    
    
    
    19,320Asset retirements
    
    
    280
    
    
    
    69
    
    
    
    496
    
    
    
    69Operating income
    
    
    2,489
    
    
    
    3,256
    
    
    
    6,077
    
    
    
    11,434Interest expense
    
    
    232
    
    
    
    142
    
    
    
    800
    
    
    
    639Other (income) expense, net
    
    
    (114
    )
    
    
    (271
    )
    
    
    (68
    )
    
    
    (62
    )Income before income taxes
    
    
    2,371
    
    
    
    3,385
    
    
    
    5,345
    
    
    
    10,857Provision for income taxes
    
    
    851
    
    
    
    1,219
    
    
    
    1,924
    
    
    
    3,470Net income
    
    $
    1,520
    
    
    $
    2,166
    
    
    $
    3,421
    
    
    $
    7,387Basic and diluted per share information
(2003 amounts are restated  see note 3):Net income
    
    $
    1,520
    
    
    $
    2,166
    
    
    $
    3,421
    
    
    $
    7,387Preferred stock dividend
    
    
    (375
    )
    
    
    (355
    )
    
    
    (1,125
    )
    
    
    (1,100
    )Excess of cash paid over carrying value
of preferred stock redeemed
    
    
    
    
    
    
    (46
    )
    
    
    
    
    
    
    (46
    )Income allocated to Series A preferred
shareholders
    
    
    (182
    )
    
    
    (216
    )
    
    
    (365
    )
    
    
    (902
    )Income available to common shareholders
    
    $
    963
    
    
    $
    1,549
    
    
    $
    1,931
    
    
    $
    5,339Net income per common share:Basic
    
    $
    .14
    
    
    $
    .17
    
    
    $
    .27
    
    
    $
    .67Diluted
    
    $
    .13
    
    
    $
    .16
    
    
    $
    .27
    
    
    $
    .60
 See accompanying notes to consolidated financial statements. 3




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TRM Corporation
Consolidated Statement of Shareholders Equity
(unaudited)
(In thousands) Comprehensive
    
    Preferred
    
    Common
    
    Additionalpaid-in
    
    Accumulatedothercomprehensive
    
    Retainedincome
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    capital
    
    income
    
    earnings
    
    TotalBalances, December 31, 2003
    
    
    
    
    
    
    1,778
    
    
    $
    19,798
    
    
    
    7,060
    
    
    $
    19,026
    
    
    $
    63
    
    
    $
    2,088
    
    
    $
    7,901
    
    
    $
    48,876Comprehensive incomeNet income
    
    $
    7,387
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,387
    
    
    
    7,387Other comprehensive
income, net of tax -
foreign currency
translation adjustment
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    28Comprehensive income
    
    $
    7,415
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock,
net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,175
    
    
    
    52,821
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,821Conversion of Series A
preferred stock
    
    
    
    
    
    
    (318
    )
    
    
    (3,545
    )
    
    
    238
    
    
    
    3,545
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    596
    
    
    
    4,202
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,202Tax benefit of stock
options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,787
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,787Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,100
    )
    
    
    (1,100
    )Redemption of Series A
preferred stock
    
    
    
    
    
    
    (399
    )
    
    
    (4,443
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (46
    )
    
    
    (4,489
    )Balances, September 30, 2004
    
    
    
    
    
    
    1,061
    
    
    $
    11,810
    
    
    
    13,069
    
    
    $
    81,381
    
    
    $
    63
    
    
    $
    2,116
    
    
    $
    14,142
    
    
    $
    109,512
 See accompanying notes to consolidated financial statements. 4




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TRM Corporation
Consolidated Statements of Cash Flows
(unaudited)
(In thousands) Nine months endedSeptember 30,2003
    
    2004Operating activities:Net income
    
    $
    3,421
    
    
    $
    7,387Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    7,359
    
    
    
    7,107Other
    
    
    (12
    )
    
    
    Loss on disposal of equipment
    
    
    687
    
    
    
    439Changes in items affecting operations, net of effect of business acquisitions:Accounts receivable
    
    
    421
    
    
    
    1,166Inventories
    
    
    (367
    )
    
    
    (1,170
    )Prepaid expenses and other
    
    
    (593
    )
    
    
    (1,317
    )Accounts payable
    
    
    (888
    )
    
    
    3,645Accrued expenses
    
    
    (952
    )
    
    
    (2,045
    )Income taxes payable
    
    
    
    
    
    
    784Deferred taxes
    
    
    1,901
    
    
    
    2,525Litigation settlement
    
    
    (1,738
    )
    
    
    Total operating activities
    
    
    9,239
    
    
    
    18,521Investing activities:Proceeds from sale of equipment
    
    
    477
    
    
    
    50Capital expenditures
    
    
    (1,074
    )
    
    
    (5,618
    )Acquisition of intangible and other assets
    
    
    
    
    
    
    (5,617
    )Acquisition of businesses, net of cash acquired
    
    
    
    
    
    
    (7,153
    )Other
    
    
    (41
    )
    
    
    Total investing activities
    
    
    (638
    )
    
    
    (18,338
    )Financing activities:Borrowings on notes payable
    
    
    22,356
    
    
    
    5,501Repayment of notes payable
    
    
    (24,772
    )
    
    
    (15,716
    )Principal payments on capital lease obligations
    
    
    (1,328
    )
    
    
    (1,823
    )Increase in restricted cash
    
    
    (2,932
    )
    
    
    (7,512
    )Proceeds from issuance of TRM Inventory Funding Trust note, net of repayments
    
    
    2,343
    
    
    
    7,521Proceeds from issuance of equity in TRM Inventory Funding Trust
    
    
    600
    
    
    
    Net proceeds from sale of common stock
    
    
    
    
    
    
    52,821Proceeds from exercise of stock options
    
    
    
    
    
    
    4,202Redemption of Series A preferred stock
    
    
    
    
    
    
    (4,489
    )Preferred stock dividends
    
    
    
    
    
    
    (2,166
    )Total financing activities
    
    
    (3,733
    )
    
    
    38,339Effect of exchange rate changes
    
    
    (78
    )
    
    
    47Net increase in cash and cash equivalents
    
    
    4,790
    
    
    
    38,569Beginning cash and cash equivalents
    
    
    2,127
    
    
    
    5,724Ending cash and cash equivalents
    
    $
    6,917
    
    
    $
    44,293Supplemental disclosure of non-cash transactions:Assets acquired under capital lease obligations
    
    $
    1,915
    
    
    $
    Conversion of preferred shares to common
    
    
    
    
    
    
    3,545
 See accompanying notes to consolidated financial statements. 5




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TRM Corporation Notes to Consolidated Financial Statements (unaudited)  1.
    
    Interim Financial Data The consolidated financial statements of TRM Corporation and its
subsidiaries included herein have been
prepared by us, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and reflect all adjustments, consisting only
of normal recurring adjustments, which, in the opinion of management, are
necessary for a fair statement of the results of the interim periods. These
consolidated financial statements should be read in conjunction with our latest
annual report on Form 10-K. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The results of operations for the periods presented are
not necessarily indicative of the results to be expected for any subsequent
interim period or for the year ending December 31, 2004.  2.
    
    Financial Statement Reclassifications Certain financial statement reclassifications have been made to prior
period amounts to conform to the current period presentation. These changes
had no impact on shareholders equity or previously reported net income.  3.
    
    Net Income Per Share In March 2004, the Financial Accounting Standards Board approved Emerging
Issues Task Force (EITF) Issue No. 03-6 Participating Securities and the
Two-Class Method under FASB Statement No. 128, Earnings Per Share, or EITF
03-6. EITF 03-6 supersedes the guidance in Topic No. D-95, Effect of
Participating Convertible Securities on the Computation of Basic Earnings per
Share, and requires the use of the two-class method for the computation of
basic earnings per share for companies that have participating securities. The
two-class method is an earnings allocation formula that determines earnings per
share for each class of common stock and participating security according to
dividends declared (or accumulated) and participation rights in undistributed
earnings. In addition, EITF 03-6 addresses other forms of participating
securities, including options, warrants, forwards and other contracts to issue
an entitys common stock, with the exception of stock-based compensation
(unvested options and restricted stock) subject to the provisions of Accounting
Principles Board (APB) Opinion No. 25 and Statement of Financial Accounting
Standards (SFAS) No. 123. EITF 03-6 became effective for reporting periods
beginning after March 31, 2004 and must be applied by restating previously
reported earnings per share information. Our Series A preferred stock
qualifies as a participating security under EITF 03-6. Accordingly, we adopted
the use of the two-class method for the computation of earnings per share
beginning in the second quarter of 2004. The application of EITF 03-6 as of
September 30, 2004 has resulted in a reduction in our per share earnings, both
basic and diluted, for the three and nine-month periods ended September 30,
2003. EITF 03-6 provides a new method for 6




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calculating per share earnings and does not otherwise affect our financial
statements or have any economic or operating impact on us. Previously reported earnings per share amounts for 2003 have been
restated, as follows:. Three months ended
    
    Nine months endedSeptember 30, 2003
    
    September 30, 2003As
    
    
    
    
    
    Aspreviously
    
    
    
    
    
    previouslyreported
    
    Restated
    
    reported
    
    RestatedIncome available to common shareholders (in thousands)
    
    $
    1,145
    
    
    $
    963
    
    
    $
    2,296
    
    
    $
    1,931Net income per common share:Basic
    
    $
    .16
    
    
    $
    .14
    
    
    $
    .33
    
    
    $
    .27Diluted
    
    $
    .15
    
    
    $
    .13
    
    
    $
    .32
    
    
    $
    .27
 Net income per share using the two-class method has been computed as
follows (in thousands except per share data): Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2003
    
    2004
    
    2003
    
    2004Basic:Net income
    
    $
    1,520
    
    
    $
    2,166
    
    
    $
    3,421
    
    
    $
    7,387Preferred stock dividend
    
    
    (375
    )
    
    
    (355
    )
    
    
    (1,125
    )
    
    
    (1,100
    )Excess of
cash paid over carrying value of
preferred stock redeemed
    
    
    
    
    
    
    (46
    )
    
    
    
    
    
    
    (46
    )Income allocated to Series A preferred shareholders
    
    
    (182
    )
    
    
    (216
    )
    
    
    (365
    )
    
    
    (902
    )Income available to common shareholders
    
    $
    963
    
    
    $
    1,549
    
    
    $
    1,931
    
    
    $
    5,339Weighted average common shares outstanding
    
    
    7,060
    
    
    
    9,070
    
    
    
    7,060
    
    
    
    7,915Basic net income per common share
    
    $
    .14
    
    
    $
    .17
    
    
    $
    .27
    
    
    $
    .67Diluted:Net income
    
    $
    1,520
    
    
    $
    2,166
    
    
    $
    3,421
    
    
    $
    7,387Preferred stock dividend
    
    
    (375
    )
    
    
    (355
    )
    
    
    (1,125
    )
    
    
    (1,100
    )Excess of cash paid over carrying value of
preferred stock redeemed
    
    
    
    
    
    
    (46
    )
    
    
    
    
    
    
    (46
    )Income allocated to Series A preferred shareholders
    
    
    (182
    )
    
    
    (216
    )
    
    
    (365
    )
    
    
    (902
    )Income available to common shareholders
    
    $
    963
    
    
    $
    1,549
    
    
    $
    1,931
    
    
    $
    5,339Weighted average common shares outstanding
    
    
    7,060
    
    
    
    9,070
    
    
    
    7,060
    
    
    
    7,915Assumed exercise of stock options
    
    
    419
    
    
    
    867
    
    
    
    153
    
    
    
    1,012Assumed exercise of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Adjusted weighted average shares
    
    
    7,479
    
    
    
    9,937
    
    
    
    7,213
    
    
    
    8,935Diluted net income per common share
    
    $
    .13
    
    
    $
    .16
    
    
    $
    .27
    
    
    $
    .60
 Basic and diluted net income per share are based on the weighted average
number of shares outstanding during each period, with diluted net income per
share including the effect of potentially dilutive securities. For diluted net
income per share, the calculation assumes the conversion of common stock
equivalents including the conversion of preferred stock unless such conversion
is antidilutive. Weighted average common shares outstanding, assuming
dilution, include the incremental shares that would be issued upon the assumed
exercise of stock options. For the three months ended September 30, 2004,
options to purchase 15,000 shares of our common stock, preferred stock
convertible into approximately 796,000 common shares and warrants exercisable
for 7




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300,000 common shares were excluded from the calculation of diluted
earnings per share because their inclusion would have been antidilutive. For
the three months ended September 30, 2003, options to purchase approximately
1,173,000 shares of our common stock were excluded from the calculation as
exercise prices were greater than the average share price of the common shares.
In addition, preferred stock convertible into approximately 1,333,000 common
shares and warrants exercisable for 300,000 common shares were excluded from
the calculation for the three months ended September 30, 2003 because their
inclusion would also have been antidilutive. For the nine months
ended September 30, 2004, options to purchase an average of
10,000 shares of our common stock, warrants to purchase an average of
200,000 shares of our common stock and all of the Series A
preferred shares were excluded from the calculation because their
inclusion would have been antidilutive. For the nine months ended
September 30, 2003, options to purchase an average of 1,322,000
shares of our common stock, and all of the outstanding warrants and
Series A preferred stock were excluded from the calculation
because their inclusion would have been antidilutive. These options, preferred shares
and warrants could be dilutive in the future. Our Board of Directors approved payment
of a dividend for the third quarter of 2004, in the amount of $224,000 related to our Series A preferred
stock, which equates to $.02 per fully diluted common share. We
expect to make this payment in November 2004 pursuant to a waiver from Bank of America, N.A.  4.
    
    Inventories (in thousands): December 31,
    
    September 30,2003
    
    2004Parts
    
    $
    1,052
    
    
    $
    1,333ATMs held for resale
    
    
    483
    
    
    
    1,600Paper, toner and developer
    
    
    32
    
    
    
    28Total
    
    $
    1,567
    
    
    $
    2,961
 5.
    
    Intangible Assets Intangible
assets consist primarily of acquired contracts and
goodwill. As of September 30, 2004, intangible assets subject to
amortization were as follows (in thousands): Grosscarrying
    
    Accumulatedamount
    
    amortization
    
    NetSubject to
amortization:Acquired contracts
    
    $
    12,186
    
    
    $
    (897
    )
    
    $
    11,289Other
    
    
    1,409
    
    
    
    
    
    
    
    1,40913,595
    
    
    
    (897
    )
    
    
    12,698Not subject to amortization:Goodwill
    
    
    2,001
    
    
    
    
    
    
    
    2,001Other
    
    
    109
    
    
    
    
    
    
    
    1092,110
    
    
    
    
    
    
    
    2,110$
    15,705
    
    
    $
    (897
    )
    
    $
    14,808
 Other
intangibles subject to amortization consist of prepaid loan
fees and other costs associated with pending acquisitions. Amortization
of intangible assets, which is included in selling,
general and administrative expense, was $307,000 for the three months ended
September 30, 2004 and $538,000 for the nine months ended September 30,
2004. Estimated amortization expense for the next five years for
intangible assets held at September 30, 2004 is: 2005 - $1,344,000;
2006 - $1,342,000; 2007
- $1,342,000;
2008 -
$1,334,000; and 2009 - $1,326,000.  6.
    
    Bank Loan Agreement In March 2004 we and our primary lender, Bank of America, N.A., executed
an amendment to our loan agreement. The amendment increased the amount of the
revolving line of credit from $4.0 million to $8.0 million and decreased the
interest rate on borrowings pursuant to the line of credit from the banks
prime rate to the banks prime rate minus one-half percent (4.0% at September
30, 2004). The agreement has been further amended to extend the availability
period for the line of credit to January 31, 2005. In September 2004 we paid
off the outstanding balances due to Bank of America under the revolving line of
credit and term loan. As of September 30, 2004, we were in compliance with all
covenants of our loan agreement. In September 2004 we accepted a commitment letter from Bank of America
increasing our credit facility to $150 million. The commitment consists of a
$120 million term loan, which we expect to use as part of the eFunds purchase
described in Note 8, a $15 million line of credit in the United States and a
$15 million line of credit in the United Kingdom, both for working capital
purposes. The term loan is a variable rate loan, which can be tied to either
the Banks prime lending rate plus a margin or a LIBOR rate plus a margin,
which will be at our discretion. Both lines of credit will also be at a
variable rate plus a margin.  7.
    
    Employee Stock Options We account for stock-based compensation utilizing the intrinsic value
method in accordance with the provisions of APB Opinion No. 25, Accounting for
Stock Issued to Employees. Accordingly, no compensation expense is recognized
for our stock option plans 8




---



##### Table of Contents



because the exercise prices of employee stock options equal or exceed the
market prices of the underlying stock on the measurement dates. The following
table illustrates the effect on net income and net income per common share if
we had applied the fair value recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation
(in thousands, except per share data): Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2003
    
    2004
    
    2003
    
    2004Net income, as reported
    
    $
    1,520
    
    
    $
    2,166
    
    
    $
    3,421
    
    
    $
    7,387Deduct total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
    
    
    (131
    )
    
    
    (533
    )
    
    
    (170
    )
    
    
    (875
    )Pro forma net income
    
    
    1,389
    
    
    
    1,633
    
    
    
    3,251
    
    
    
    6,512Preferred stock dividend
    
    
    (375
    )
    
    
    (355
    )
    
    
    (1,125
    )
    
    
    (1,100
    )Excess of cash paid over carrying value of preferred stock
redeemed
    
    
    
    
    
    
    (46
    )
    
    
    
    
    
    
    (46
    )Income allocated to Series A preferred shareholders
    
    
    (161
    )
    
    
    (151
    )
    
    
    (338
    )
    
    
    (761
    )Pro forma net income available to common shareholders
    
    $
    853
    
    
    $
    1,081
    
    
    $
    1,788
    
    
    $
    4,605Net income per common share:Basic:As reported
    
    $
    .14
    
    
    $
    .17
    
    
    $
    .27
    
    
    $
    .67Pro forma
    
    $
    .12
    
    
    $
    .12
    
    
    $
    .25
    
    
    $
    .58Diluted:As reported
    
    $
    .13
    
    
    $
    .16
    
    
    $
    .27
    
    
    $
    .60Pro forma
    
    $
    .11
    
    
    $
    .11
    
    
    $
    .25
    
    
    $
    .52
  8.
    
    Business Acquisitions In September 2004 we entered into a purchase agreement with eFunds
Corporation and a wholly-owned Canadian subsidiary of eFunds Corporation.
Pursuant to the purchase agreement, at closing, we are to acquire substantially
all of eFunds business of operating ATMs in the United States and Canada. The
purchase price, to be paid in cash and subject to certain adjustments, is $150
million. We intend to fund the purchase price primarily through syndicated
loan financing which we are currently negotiating. The closing is subject to
certain conditions, including receipt of the proceeds of debt financing and
regulatory approvals. In connection with the purchase agreement we also
entered into a five-year agreement pursuant to which eFunds will provide ongoing
services to us. In anticipation of this acquisition, in November 2004 we
are negotiating an increase in cash available to TRM Inventory Funding Trust to fund
our vault cash in the United States, from $50 million to $150 million. In a cash transaction effective March 31, 2004, we acquired all of the
outstanding shares of Inkas Financial Corp. Ltd. (Inkas), an independent ATM
company, for £3,783,000 (approximately $6.8 million based upon currency
exchange rates as of September 30, 2004). As a result of the acquisition, we
added 447 ATM processing and management contracts and 85 ATM machines to our
United Kingdom operations. The acquisition was accounted for as a purchase;
the purchase price and the related allocation are subject to further refinement
and change during 2004. The results of operations of Inkas are included in our
consolidated results of operations starting in the second quarter of 2004. 9




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##### Table of Contents



The purchase price was preliminarily allocated as follows (in thousands): Cash
    
    $
    100Accounts receivable
    
    
    211Inventories
    
    
    239Prepaid expenses
    
    
    18Equipment
    
    
    322Intangible asset  contract rights
    
    
    6,943Goodwill
    
    
    2,001Other assets
    
    
    104Current liabilities
    
    
    (1,126
    )Deferred tax liability
    
    
    (2,001
    )Total
    
    $
    6,811
 Contract rights acquired are being amortized over their estimated useful
lives of ten years. Simultaneous to the purchase of Inkas, we entered into an earn-out
agreement with the sellers and an Inkas employee. The earn-out agreement
provides that we will make payments to the sellers and the Inkas employee for
up to 150 net new ATM contracts entered into by Inkas during the
first six
months following the acquisition of Inkas and which reach certain transaction
levels. The maximum payment to be made pursuant to the earn-out agreement is
£850,000 (approximately $1.5 million based upon currency exchange rates at
September 30, 2004) of which £442,000 (approximately $794,000 based upon currency
exchange rates at September 30, 2004) was paid in the third quarter of 2004 and
is included in the total purchase price above. Payments made pursuant to the
earn-out agreement are being accounted for as additional contract rights as
they are earned. In June 2004 we acquired all of the outstanding shares of Mighty Cash
Financial Services, Inc., a Canadian corporation with a network of 72 ATM
locations comprised primarily of ATMs owned by merchants who signed contracts
with Mighty Cash to provide processing and management services. The purchase
price of approximately $604,000 was paid in cash and deferred payments and
allocated primarily to contract rights. The following table reflects the unaudited combined results of TRM, Inkas
and Mighty Cash as if the acquisitions of Inkas and Mighty Cash had taken place
at the beginning of each period presented. The pro forma information includes
adjustments for the amortization of the contract rights, decreased interest
income and the tax effect of these adjustments. The pro forma information does
not necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of future results of operations of the combined
companies. Nine months endedThree months endedSeptember 30,
    
    September 30,2003
    
    2003
    
    2004Net sales (in thousands)
    
    $
    21,102
    
    
    $
    61,975
    
    
    $
    66,845Net income (in thousands)
    
    $
    1,459
    
    
    $
    3,144
    
    
    $
    7,353Basic net income per share
    
    $
    .13
    
    
    $
    .24
    
    
    $
    .67Diluted net income per share
    
    $
    .12
    
    
    $
    .24
    
    
    $
    .60
 10




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##### Table of Contents



On July 8, 2004, we acquired a portfolio of approximately 350 ATM
contracts in the United Kingdom. These contracts are for merchant-filled ATMs.
The purchase price of £1.9 million (approximately
$3.5 million based upon currency exchange rates at
September 30, 2004) was
paid in cash.  9.
    
    Common and Preferred Stock Transactions During the quarter ended September 30, 2004, we completed an underwritten
public offering of 5,175,000 shares of common stock at approximately $11.00 per share less offering costs and underwriting discounts, providing net
proceeds of $52.8 million. During the
second and third quarters of 2004, 318,000 shares of
Series A preferred stock were converted into 238,000 shares of common
stock. During the third quarter of 2004 we redeemed 399,000 shares of
Series A preferred stock for $4,489,000 ($11.25 per Series A preferred
share). We paid the accrued dividends relating to these Series A
preferred shares when the shares were converted or redeemed.  10.
    
    Provision for Income Taxes Our
effective tax rate for the first nine months of 2004 was 32.0%,
resulting in a tax provision of $3.5 million. For the first nine
months of 2003, our effective tax rate was 36.0%, and the tax
provision was $1.9 million. The effective tax rate in the first nine
months of 2004 was lower because we released a valuation allowance in
2004.  11.
    
    Segment Reporting We have three reportable segments: Automated Teller Machines (ATM),
Photocopy and Software Development. ATM owns and operates ATM machines in
retail establishments, sells ATM machines, and began servicing equipment for
others in the fourth quarter of 2003. Photocopy owns and maintains
self-service photocopiers in retail establishments. The Software Development
business develops software to deliver products and services through ATMs. The accounting policies of the segments are substantially the same as
those described in Note 1 to the financial statements in our annual report on
Form 10-K for the year ended December 31, 2003. We evaluate each segments
performance based on operating income or loss excluding costs of raising
capital and pursuing potential acquisitions. In our financial statements for
2003 we reported segment performance based on income or loss before interest,
taxes, minority interest, and cumulative effect of accounting changes. In our
financial statements for the first two quarters of 2004 we reported segment
performance based on operating income or loss. The 2003 information below has
been restated to conform to the current presentation. Information regarding
the operations of these reportable segments is as follows (in thousands): 11




---



##### Table of Contents



Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2003
    
    2004
    
    2003
    
    2004Net sales:ATM
    
    $
    9,266
    
    
    $
    12,566
    
    
    $
    25,414
    
    
    $
    33,660Photocopy
    
    
    10,514
    
    
    
    9,920
    
    
    
    32,315
    
    
    
    32,354Software Development
    
    
    46
    
    
    
    
    
    
    
    1,000
    
    
    
    14$
    19,826
    
    
    $
    22,486
    
    
    $
    58,729
    
    
    $
    66,028Operating
income (loss) excluding unallocated costs:ATM
    
    $
    1,902
    
    
    $
    2,451
    
    
    $
    3,233
    
    
    $
    6,522Photocopy
    
    
    957
    
    
    
    1,912
    
    
    
    3,411
    
    
    
    7,731Software Development
    
    
    (370
    )
    
    
    (115
    )
    
    
    (567
    )
    
    
    (339
    )$
    2,489
    
    
    $
    4,248
    
    
    $
    6,077
    
    
    $
    13,914Reconciliation of segment data to income before income
taxes:Operating
income (loss) excluding unallocated costs
    
    $
    2,489
    
    
    $
    4,248
    
    
    $
    6,077
    
    
    $
    13,914Unallocated
costs
    
    
    
    
    
    
    992
    
    
    
    
    
    
    
    2,480Interest expense
    
    
    232
    
    
    
    142
    
    
    
    800
    
    
    
    639Other (income) expense, net
    
    
    (114
    )
    
    
    (271
    )
    
    
    (68
    )
    
    
    (62
    )Income before income taxes
    
    $
    2,371
    
    
    $
    3,385
    
    
    $
    5,345
    
    
    $
    10,857
 Unallocated
costs are our estimates of expenses in 2004 that relate to raising
capital and pursuing acquisitions. Total assets as of September 30, 2003:ATM
(including goodwill of $2.0 million)
    
    $
    121,496Photocopy
    
    
    49,603Software development
    
    
    97$
    171,196
 
  ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements Information in Managements Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this Quarterly Report on
Form 10-Q with respect to our beliefs, plans, objectives, goals, expectations,
anticipations, intentions, financial condition, results of operations, future
performance and business, including, without limitation, increasing ATM
revenues, decreases in photocopy volume and growth of our business (including
acquisitions) constitutes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. We have based these forward-looking statements on
managements current expectations about future events. These statements can be
identified by the fact that they do not relate strictly to historical or
current facts, and by words such as may, could, should, would,
believe, expect, anticipate, estimate, intend, plan or other
similar words or expressions. 12




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##### Table of Contents



Any or all of the forward-looking statements in this report and in any
other public statements we make may turn out to be wrong. This can occur as a
result of inaccurate assumptions or as a consequence of known or unknown risks
and uncertainties. Many factors discussed in this report will be important in
determining our future performance. Consequently, actual results may differ
materially from those that might be anticipated from our forward-looking
statements. Other factors beyond those discussed above could also adversely
affect us. Therefore, you are cautioned not to place undue reliance on our
forward-looking statements. We undertake no obligation to publicly update any
forward-looking statements, whether as a result of new information, future
events or otherwise. This discussion is provided as permitted by the Private
Securities Litigation Reform Act of 1995. Overview We are a large-scale, multinational owner and operator of ATMs and
photocopiers in the United States, the United Kingdom and Canada. We have the
tenth largest ATM network in the United States and the second largest ATM
network in the United Kingdom. After the acquisition of eFunds ATM business,
which we expect to close in the fourth quarter of 2004, we believe that we will
have the worlds largest international ATM network. In addition, we believe we
have the largest self-service photocopier network in the world. Our machines
are located within high traffic national retailers and regional and
locally-owned retail convenience stores. In
September 2004, our ATM network had a total of 4,868 revenue-generating
machines deployed throughout the United Kingdom, United States and Canada
representing an increase of 1,516 ATM machines (or 45%) when compared to the
same month in 2003. The ATM operations produced net sales of $33.7 million
during the first nine months of 2004, an increase of $8.2 million (or 32%) as
compared to the same period in the prior year. We believe that revenues
generated from services delivered through our ATM network will represent a
greater percentage of overall net sales in the future. In addition to expanding our ATM operations through placements generated
by our internal sales staff, we have been actively pursuing acquisitions of ATM
networks since the second half of 2003. In February 2004, we acquired a 20-ATM
network in the United States. On March 31, 2004, we added 447 ATM contracts
and 85 ATM machines to our network through the acquisition of Inkas Financial
Corp., Ltd. in the United Kingdom. In June 2004, we entered the Canadian ATM
market through the acquisition of Mighty Cash Financial Services, Inc., which
operated 72 ATMs in Canada. In July 2004 we acquired another 350 ATM contracts
in the United Kingdom. At September 30, 2004, we had a total of 24,774 installed photocopiers in
the United States, Canada and the United Kingdom, a decrease of 1,926 copiers
(or 7.2%) when compared to September 30, 2003. Photocopy net sales were $32.4
million for the nine months ended September 30, 2004, up slightly from $32.3
million during the same period in 2003. The decrease in the number of
photocopiers was caused primarily by the elimination of low volume sites.
However, price increases offset the decline in photocopy volume, resulting in
almost no change in net photocopy revenue in the first nine months of 2004
compared to the first nine months of 2003. 13




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##### Table of Contents



Our Board of Directors approved payment of a dividend for the third
quarter of 2004 in the amount of $224,000 related to our Series A preferred
stock, which equates to $.02 per fully diluted common share. We
expect to make this payment in November 2004 pursuant to a waiver from Bank of America, N.A. Consolidated Results of Operations The following table sets forth, for the periods indicated, statement of
operations data, expressed as a percentage of sales of each item on the
Consolidated Statements of Operations (see page 3 of this Quarterly Report on
Form 10-Q). Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2003
    
    2004
    
    2003
    
    2004Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Less discounts
    
    
    17.7
    
    
    
    22.4
    
    
    
    17.2
    
    
    
    21.2Net sales
    
    
    82.3
    
    
    
    77.6
    
    
    
    82.8
    
    
    
    78.8Cost of sales
    
    
    45.6
    
    
    
    42.9
    
    
    
    48.0
    
    
    
    42.0Gross profit
    
    
    36.7
    
    
    
    34.7
    
    
    
    34.8
    
    
    
    36.8Selling, general and
administrative
expense
    
    
    25.2
    
    
    
    23.3
    
    
    
    25.6
    
    
    
    23.0Asset retirements
    
    
    1.2
    
    
    
    0.2
    
    
    
    0.7
    
    
    
    0.1Operating income
    
    
    10.3
    
    
    
    11.2
    
    
    
    8.5
    
    
    
    13.7Interest expense
    
    
    1.0
    
    
    
    0.5
    
    
    
    1.1
    
    
    
    0.8Other (income) expense, net
    
    
    (0.5
    )
    
    
    (1.0
    )
    
    
    (0.1
    )
    
    
    (0.1
    )Income before income taxes
    
    
    9.8
    
    
    
    11.7
    
    
    
    7.5
    
    
    
    13.0Provision for income taxes
    
    
    3.5
    
    
    
    4.2
    
    
    
    2.7
    
    
    
    4.2Net income
    
    
    6.3
    %
    
    
    7.5
    %
    
    
    4.8
    %
    
    
    8.8
    %
 14




---



##### Table of Contents



Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003 ATM Results of Operations Three months ended September 30,% of
    
    
    
    
    
    % of2003
    
    sales
    
    2004
    
    sales(in thousands, except operating and percentage data)Transaction-based sales
    
    $
    10,389
    
    
    
    92.1
    %
    
    $
    16,227
    
    
    
    95.2
    %Service sales
    
    
    22
    
    
    
    0.2
    
    
    
    457
    
    
    
    2.7Sales of ATM equipment
    
    
    865
    
    
    
    7.7
    
    
    
    357
    
    
    
    2.1Total sales
    
    
    11,276
    
    
    
    100.0
    
    
    
    17,041
    
    
    
    100.0Less discounts
    
    
    2,010
    
    
    
    17.8
    
    
    
    4,475
    
    
    
    26.3Net sales
    
    
    9,266
    
    
    
    82.2
    
    
    
    12,566
    
    
    
    73.7Cost of sales
    
    
    4,645
    
    
    
    41.2
    
    
    
    6,959
    
    
    
    40.8Gross profit
    
    $
    4,621
    
    
    
    41.0
    %
    
    $
    5,607
    
    
    
    32.9
    %Operating Data:Average number of ATMs
    
    
    3,307
    
    
    
    
    
    
    
    4,747Withdrawal transactions
    
    
    4,084,436
    
    
    
    
    
    
    
    5,722,042Average withdrawals per ATM per month
    
    
    412
    
    
    
    
    
    
    
    402Average transaction-based sales per
withdrawal transaction
    
    $
    2.54
    
    
    
    
    
    
    $
    2.83Average discount per withdrawal transaction
    
    $
    .49
    
    
    
    
    
    
    $
    .78Net transaction-based sales per
withdrawal transaction
    
    $
    2.05
    
    
    
    
    
    
    $
    2.05
 Photocopy Results of Operations Three months ended September 30,% of
    
    
    
    
    
    % of2003
    
    sales
    
    2004
    
    sales(in thousands, except operating and percentage data)Sales
    
    $
    12,775
    
    
    
    100.0
    %
    
    $
    11,940
    
    
    
    100.0
    %Less discounts
    
    
    2,261
    
    
    
    17.7
    
    
    
    2,020
    
    
    
    16.9Net sales
    
    
    10,514
    
    
    
    82.3
    
    
    
    9,920
    
    
    
    83.1Cost of sales
    
    
    6,220
    
    
    
    48.7
    
    
    
    5,447
    
    
    
    45.6Gross profit
    
    $
    4,294
    
    
    
    33.6
    %
    
    $
    4,473
    
    
    
    37.5
    %Operating Data:Average number of photocopiers
    
    
    27,061
    
    
    
    
    
    
    
    24,966Average photocopies per machine per month
    
    
    2,505
    
    
    
    
    
    
    
    1,913Average sales per photocopier per month
    
    $
    157.36
    
    
    
    
    
    
    $
    159.42Average sales per photocopy
    
    $
    .063
    
    
    
    
    
    
    $
    .083Average discount per photocopy
    
    $
    .011
    
    
    
    
    
    
    $
    .014Average net sales per photocopy
    
    $
    .052
    
    
    
    
    
    
    $
    .069Average gross profit per photocopy
    
    $
    .021
    
    
    
    
    
    
    $
    .031
 Sales For the third quarter of 2004, consolidated sales increased by $4.9
million, or 20%, to $29.0 million from $24.1 million for the third quarter of
2003. ATM sales increased by 15




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##### Table of Contents



$5.8 million and photocopier sales decreased by $835,000, while software
development sales decreased by $46,000. A significant portion of our
United States ATM estate is in the southeastern United States. We
believe that adverse weather conditions in that part of the United
States had an adverse impact on our ATM and photocopy sales during
the third quarter of 2004. During the third quarter of 2004, sales and expenses were affected by the
decline in value of the U.S. dollar as compared to the British pound and, to a
lesser extent, the Canadian dollar. Approximately 47% of consolidated sales
for the quarter were produced in the United Kingdom by our U.K. subsidiaries.
The average exchange rate during the third quarter of 2004 was $1.813 to £1.00,
compared to $1.611 to £1.00 during the third quarter of 2003. As a result of
this increase in the value of the British pound, we reported $1.5 million more
in sales during the third quarter of 2004 than we would have reported had the
exchange rate remained constant at the average for the third quarter of 2003.
This gain was substantially offset by a corresponding exchange
rate-related increase in expenses. ATM sales.ATM sales were $17.0 million for the third quarter of 2004
compared to $11.3 million for the third quarter of 2003. The $5.8 million
increase in ATM sales was a combination of a $5.8 million increase in
transaction-based sales and a $435,000 increase in service sales, which were
partially offset by a $508,000 decrease in sales of ATM equipment. The $5.8 million increase in transaction-based sales resulted from:  
    
    Expansion of our ATM network  The average number of
transacting ATMs in our network during the third quarter of 2004
increased by 43.5% compared to the same period in 2003. The
increase of 1,440 average ATMs has resulted from the acquisition
between February and July 2004 of 974 existing ATM contracts in
addition to sales of new contracts by our sales force.
    
    Price increases  As a result of price
increases and the increase in the value of the British pound, the
average transaction-based sales generated per withdrawal transaction
increased 11.4% to $2.83 for the third quarter of 2004 compared to
$2.54 for the same period in 2003.
    
    The increases in the number of ATMs and per-transaction
prices were offset slightly by a 2.4% decrease in average
withdrawals per ATM per month, to 402 for the third quarter of 2004
from 412 for the third quarter of 2003. The value of the British pound relative to the U.S. dollar increased for
the third quarter of 2004 compared to same period in 2003, resulting in a
$962,000 increase in ATM net sales. This increase was substantially offset by
the exchange rate-related increase in costs. Photocopier sales.Photocopier sales in the third quarter of 2004 were
$11.9 million compared to $12.8 million in the third quarter of 2003. The
$835,000 decrease resulted primarily from: 16




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##### Table of Contents




    
    Declining photocopy volume   Continuing a trend, photocopy
volume declined by 29.6% for the third quarter of 2004 compared to
the same period in 2003, to 143 million copies from 203 million
copies, due to a combination of:  
    
    a decline in installed photocopiers to an average of
24,966 in the third quarter of 2004 from an average of 27,061 for
the same period in 2003, as we continued a program of eliminating
lower volume sites that were either unprofitable or marginally
profitable; and
    
    a decline in the average number of photocopies made per
unit per month to 1,913 for the third quarter of 2004 from 2,505
for the same period in 2003 due primarily to price increases, as
discussed in the next paragraph, as well as competition from
alternative media and copying services. The declining volume was partially offset by:  
    
    Price increases   During 2003 we began to work with
merchants to systematically increase the price per photocopy across
our network of photocopiers. The average sales price per photocopy
increased to $.083 in the third quarter of 2004 from $.063 for the
same period in 2003.
    
    Exchange rate benefit   The value of the British pound and
Canadian dollar relative to the U.S. dollar increased for the third
quarter of 2004 compared to the same period in 2003, resulting in a
$236,000 increase in photocopier sales. This increase was
substantially offset by the exchange rate-related increase in costs. Software development sales.Software development sales have been
insignificant since the substantial completion of a development contract with
NCR Corporation during the second quarter of 2003. We do not expect software
development to provide significant additional sales in the future. Sales Discounts Sales discounts on a consolidated basis as a percentage of sales were
22.4% in the third quarter of 2004 and 17.7% in the third quarter of 2003.
Sales discounts in the ATM business increased to 27.6% of transaction-based
sales in the third quarter of 2004 from 19.3% in the third quarter of 2003.
The increased discounts were caused by an increase in the percentage of
merchants who provide their own cash in their ATMs (self-fill contracts) and
merchants for whom we provide only processing services (processing only
contracts). Most of the existing ATM contracts we acquired during 2004
are either self-fill or processing only contracts. Sales discounts in the
photocopier business decreased in the third quarter of 2004 to 16.9% of sales
from 17.7% in the third quarter of 2003, as a result of declining volumes and
merchant contracts that provide percentage discounts that decrease as copy
volume decreases. 17




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##### Table of Contents



Cost of Sales Cost of sales on a consolidated basis decreased to 42.9% of sales in the
third quarter of 2004, from 45.6% in the third quarter of 2003. Cost of sales
as a percentage of sales declined in the photocopier segment, but increased
slightly in the ATM segment. ATM cost of sales.Cost of sales in the ATM business increased by $2.3
million to $7.0 million in the third quarter of 2004 from $4.6 million for the
same time period in 2003, as a result of:  
    
    Expansion of our ATM network to an average of 4,747 ATMs in
the third quarter of 2004 compared to an average of 3,307 in the
third quarter of 2003; and
    
    Exchange rate effects  The ATM segment reported
approximately $539,000 more in cost of sales in the third quarter of
2004 than it would have reported had the exchange rate for the
British pound remained at the average for the third quarter of 2003. Cost of sales from the ATM operations (excluding sales of ATM equipment
and the related cost of sales) decreased to 39.8% of sales from 41.8% in the
third quarter of 2003. This percentage decrease resulted from increases in the
amount of sales per transaction. Photocopier cost of sales.Cost of sales in our photocopier business
decreased by $773,000 to $5.4 million in the third quarter of 2004 compared to
$6.2 million for the same time period in 2003, due primarily to a decrease in
photocopy volume. The reduction in photocopy volume resulted in a decline in
the cost of paper and other supplies by $270,000, a reduction in depreciation
by $363,000, and a reduction in third party servicers and installation fees by
$84,000. The cost of labor in photocopy cost of sales was reduced by $227,000
due to the decrease in volume and the corresponding decrease in maintenance
requirements. These savings were partially offset by exchange rate effects, as we
reported approximately $131,000 more in cost of sales in the second quarter of
2004 than we would have reported had the exchange rates for the British pound
and Canadian dollar remained at the average for same time period in 2003. Selling, General and Administrative Expense Selling, general and administrative expense increased by $677,000 to $6.7
million in the third quarter of 2004 from $6.1 million in the third quarter of
2003. Specific increases included:  
    
    Labor expense in our United Kingdom ATM company increased by
$343,000 due to an increase in the number of employees necessary to
accommodate the expanding business;
    
    Amortization expense increased by $248,000, primarily due to
the amortization of intangible assets relating to ATM contracts
acquired in 2004; and 18




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
    
    Travel expense increased by $203,000 due to increased travel
in the third quarter of 2004 relating to raising capital and
pursuing business acquisitions. The increase in the value of the British pound and Canadian dollar caused
an increase of $257,000 in selling, general and administrative expense. Interest Expense Interest expense decreased by $90,000 to $142,000 in the third quarter of
2004 from $232,000 in the third quarter of 2003. In September 2004 we paid off
the outstanding balance of our term loan and line of credit owed to Bank of
America. Tax Rate Our effective tax rate for the third quarter of 2004 was 36.0%, resulting
in a tax provision of $1.2 million. For the third quarter of 2003, the
effective tax rate was 35.9%, and the tax provision was $851,000. Net Income Net income for the third quarter of 2004 was $2.2 million, an increase of
$646,000 over the $1.5 million in net income for the same period in
2003. After giving effect to Series A preferred stock dividends and a portion
of undistributed income allocated to the preferred shareholders, net income
available to common shareholders was $1.5 million in the third quarter of 2004
and $963,000 in the third quarter of 2003. Increased ATM transactions and
higher transaction fees for our ATMs primarily contributed to the $1.2 million
increase in gross profit to $10.1 million in the third quarter of 2004.
Increases in selling, general and administrative expense of $677,000 and the
increase in the provision for income taxes of $368,000 offset the increased
gross profit. 19




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##### Table of Contents



Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003 ATM Results of Operations Nine months ended September 30,% of
    
    
    
    
    
    % of2003
    
    sales
    
    2004
    
    sales(in thousands, except operating and percentage data)Transaction-based sales
    
    $
    28,554
    
    
    
    93.5
    %
    
    $
    42,166
    
    
    
    94.9
    %Service sales
    
    
    66
    
    
    
    0.2
    
    
    
    1,520
    
    
    
    3.4Sales of ATM equipment
    
    
    1,903
    
    
    
    6.3
    
    
    
    757
    
    
    
    1.7Total sales
    
    
    30,523
    
    
    
    100.0
    
    
    
    44,443
    
    
    
    100.0Less discounts
    
    
    5,109
    
    
    
    16.7
    
    
    
    10,783
    
    
    
    24.3Net sales
    
    
    25,414
    
    
    
    83.3
    
    
    
    33,660
    
    
    
    75.7Cost of sales
    
    
    13,979
    
    
    
    45.8
    
    
    
    18,541
    
    
    
    41.7Gross profit
    
    $
    11,435
    
    
    
    37.5
    %
    
    $
    15,119
    
    
    
    34.0
    %Operating Data:Average number of ATMs
    
    
    3,194
    
    
    
    
    
    
    
    4,155Withdrawal transactions
    
    
    11,359,239
    
    
    
    
    
    
    
    14,961,945Average withdrawals per ATM per month
    
    
    395
    
    
    
    
    
    
    
    400Average transaction-based sales per
withdrawal transaction
    
    $
    2.51
    
    
    
    
    
    
    $
    2.82Average discount per withdrawal transaction
    
    $
    .45
    
    
    
    
    
    
    $
    .72Net transaction-based sales per
withdrawal transaction
    
    $
    2.06
    
    
    
    
    
    
    $
    2.10
 Photocopy Results of Operations Nine months ended September 30,% of
    
    
    
    
    
    % of2003
    
    sales
    
    2004
    
    sales(in thousands, except operating and percentage data)Sales
    
    $
    39,354
    
    
    
    100.0
    %
    
    $
    39,293
    
    
    
    100.0
    %Less discounts
    
    
    7,039
    
    
    
    17.9
    
    
    
    6,939
    
    
    
    17.7Net sales
    
    
    32,315
    
    
    
    82.1
    
    
    
    32,354
    
    
    
    82.3Cost of sales
    
    
    19,279
    
    
    
    49.0
    
    
    
    16,575
    
    
    
    42.2Gross profit
    
    $
    13,036
    
    
    
    33.1
    %
    
    $
    15,779
    
    
    
    40.1
    %Operating Data:Average number of photocopiers
    
    
    27,686
    
    
    
    
    
    
    
    25,468Average photocopies per machine per month
    
    
    2,654
    
    
    
    
    
    
    
    2,041Average sales per photocopier per month
    
    $
    157.93
    
    
    
    
    
    
    $
    171.43Average sales per photocopy
    
    $
    .060
    
    
    
    
    
    
    $
    .084Average discount per photocopy
    
    $
    .011
    
    
    
    
    
    
    $
    .015Average net sales per photocopy
    
    $
    .049
    
    
    
    
    
    
    $
    .069Average gross profit per photocopy
    
    $
    .020
    
    
    
    
    
    
    $
    .034
 Sales For the first nine months of 2004, consolidated sales increased by $12.9
million, or 18.2%, to $83.7 million from $70.9 million for the first nine
months of 2003. ATM sales 20




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##### Table of Contents



increased by $13.9 million, photocopier sales decreased by $61,000, and
software development sales decreased by $986,000. During the first nine months of 2004, sales and expenses were affected by
the decline in value of the U.S. dollar as compared to the British pound and,
to a lesser extent, the Canadian dollar. Approximately 42% of our consolidated
sales for the nine months were produced in the United Kingdom by our U.K.
subsidiaries. The average exchange rate during the first nine months of 2004
was $1.821 to £1.00, compared to $1.607 to £1.00 during the first nine months
of 2003. As a result of this increase in the value of the British pound, we
reported $4.1 million more in sales during the first nine months of 2004 than
we would have reported had the exchange rate remained constant at the average
for the first nine months of 2003. This gain was substantially offset by a
corresponding increase in exchange rate-related expenses. ATM sales.ATM sales were $44.4 million for the first nine months of 2004
compared to $30.5 million for the first nine months of 2003. The $13.9 million
increase in ATM sales was a combination of a $13.6 million increase in
transaction-based sales and a $1.5 million increase in service sales, which
were partially offset by a $1.1 million decrease in sales of ATM equipment. The $13.6 million increase in transaction-based sales resulted from:  
    
    Expansion of our ATM network  The average number of
transacting ATMs in our network during the first nine months of 2004
increased by 30.1% compared to the same period in 2003. The
increase of 961 average ATMs reflects the acquisition of 974
existing ATM contracts between February and July 2004 in addition to
sales of new contracts by our sales force.
    
    Increased withdrawals per ATM  The average number of
withdrawals per unit per month increased by 1.3% to 400 for the
first nine months of 2004 compared to 395 for the first nine months
of 2003.
    
    Price increases  As a result of price
increases and the increase in the value of the British pound, the
average transaction-based sales generated per withdrawal transaction
increased 12.4% to $2.82 for the first nine months of 2004 compared
to $2.51 for the same period in 2003. The value of the British pound relative to the U.S. dollar increased for
the first nine months of 2004 compared to same period in 2003, resulting in a
$2.7 million increase in ATM net sales. This increase was substantially offset
by the exchange rate-related increase in costs. Photocopier sales.Photocopier sales in the first nine months of 2004
were $39.3 million, down $61,000 compared to the first nine months of 2003.
The $61,000 decrease resulted primarily from: 21




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##### Table of Contents




    
    Price increases  The average sales price per photocopy
increased to $.084 in the first nine months of 2004 from $.060 for
the same period in 2003 as a result of our working with merchants to
implement price increases in most of our photocopier locations. The
average sales per installed unit per month increased by 8.5% to
$171.43 for the first nine months of 2004 compared to $157.93 for
the same period in 2003.
    
    Exchange rate benefit   The value of the British pound and
Canadian dollar relative to the U.S. dollar increased for the first
nine months of 2004 compared to the same period in 2003, resulting
in a $956,000 increase in photocopier sales. This increase was
substantially offset by the exchange rate-related increase in costs. The price increase and exchange rate benefit were partially offset by:  
    
    Declining photocopy volume   Continuing a trend, photocopy
volume declined by 29.2% for the first nine months of 2004 compared
to the same period in 2003, to 468 million copies from 661 million
copies, due to a combination of:  
    
    a decline in installed photocopiers to an average of
25,468 in the first nine months of 2004 from an average of 27,686
for the same period in 2003, as we continued a program of
eliminating lower volume sites that were unprofitable; and
    
    a decline in the average number of photocopies made per
unit per month to 2,041 for the first nine months of 2004 from
2,654 for the same period in 2003 due primarily to the price
increases, as well as competition from alternative media and
copying services. Software development sales.Software development sales decreased to
$14,000 for the first nine months of 2004 from $1.0 million for the first nine
months of 2003. Software development sales have been insignificant since the
substantial completion of a development contract with NCR Corporation during
the first quarter of 2003. We do not expect software development to provide
significant additional sales in the future. Sales Discounts Sales discounts on a consolidated basis as a percentage of sales were
21.2% in the first nine months of 2004 and 17.2% in the first nine months of
2003. Sales discounts in the ATM business increased to 25.6% of
transaction-based sales in the first nine months of 2004 from 17.9% in the
first nine months of 2003. The increased discounts were caused by an increase
in the percentage of merchants who provide their own cash in their ATMs and
merchants for whom we provide only processing services. Most of the existing
ATM contracts we have acquired during 2004 are either self-fill or processing
only contracts. Sales discounts in the photocopier business stayed
nearly flat, at 17.7% of sales compared to 17.9% of sales in the first nine months of
2003. 22




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Cost of Sales Cost of sales on a consolidated basis decreased to 42.0% of sales in the
first nine months of 2004, from 48.0% in the first nine months of 2003. Cost
of sales as a percentage of sales declined in both the ATM and photocopier
segments. ATM cost of sales.Cost of sales in the ATM business increased by $4.6
million to $18.5 million in the first nine months of 2004 from $14.0 million
for the same time period in 2003, as a result of:  
    
    Expansion of our ATM network to an average of 4,155 ATMs in
the first nine months of 2004 compared to an average of 3,194 in the
same period in 2003;
    
    Increase in the number of withdrawals per ATM; and
    
    Exchange rate effects  The ATM segment reported
approximately $1.5 million more in cost of sales in the first nine
months of 2004 than it would have reported had the exchange rate for
the British pound remained at the average for the first nine months
of 2003. Cost of sales from ATM operations (excluding sales of ATM equipment and
the related cost of sales) declined to 41.3% of sales from 45.8% in the first
nine months of 2003. This percentage decrease resulted from increases in the
amount of sales per transaction. Photocopier cost of sales.Cost of sales in our photocopier business
decreased by $2.7 million, to $16.6 million in the first nine months of 2004
from $19.3 million for the same time period in 2003, due primarily to a
decrease in photocopy volume. The reduction in photocopy volume resulted in a
decline in the cost of paper and other supplies by $1.1 million, a reduction in
depreciation by $957,000, and a reduction in third party servicers and
installation fees by $322,000. The cost of labor in photocopy cost of sales
was reduced by $435,000 due to the decrease in volume and the corresponding
decrease in maintenance requirements. These savings were partially offset by exchange rate effects, as we
reported approximately $468,000 more in cost of sales in the first nine months
of 2004 than we would have reported had the exchange rates for the British
pound and Canadian dollar remained at the average for same time period in 2003. Selling, General and Administrative Expense Selling, general and administrative expense increased by $1.2 million to
$19.3 million in the first nine months of 2004 from $18.1 million in the first
nine months of 2003. Specific increases included:  
    
    A $392,00 increase in travel expense due to ATM business
acquisition and capital raising activities; 23




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
    
    A $352,000 increase in amortization expense due to the
inclusion in 2004 of amortization of intangible assets relating to
ATM contracts acquired in 2004.
    
    Exchange rate effects  Of the increase, $720,000 was due to
the increase in the value of the British pound and Canadian dollar. Interest Expense Interest expense decreased by $161,000 to $639,000 in the first nine
months of 2004 from $800,000 in the first nine months of 2003. The decrease
was primarily due to decreases in our outstanding bank borrowings and capital
leases as well as a reduction in interest rates on the bank borrowings. In
early September 2004 we paid off the outstanding balances of our term loan and
line of credit owed to Bank of America. Tax Rate Our effective tax rate for the first nine months of 2004 was 32.0%,
resulting in a tax provision of $3.5 million. For the first nine months of
2003, our effective tax rate was 36.0%, and the tax provision was $1.9 million.
The effective tax rate in the first nine months of 2004 was lower because we
released a valuation allowance in 2004. Net Income Net income for the first nine months of 2004 was $7.4 million, an increase
of $4.0 million over the $3.4 million in net income for the same period in
2003. After giving effect to Series A preferred stock dividends and a portion
of undistributed income allocated to the preferred shareholders, net income
available to common shareholders was $5.3 million in the first nine months of
2004 and $1.9 million in the first nine months of 2003. Increased ATM
transactions and higher transaction fees for our ATMs primarily contributed to
the $6.1 million increase in our gross profit to $30.8 million in the first
nine months of 2004. Increases in selling, general and administrative expense
of $1.2 million and the increase in the provision for income taxes of $1.5
million partially offset the increased gross profit. Liquidity and Capital Resources General Our principal ongoing funding requirements are for working capital to finance
the continued growth of our business (including acquisitions), service bank
debt and service lease obligations. In September 2004 we entered into a
purchase agreement with eFunds Corporation and a wholly-owned Canadian
subsidiary of eFunds Corporation. Pursuant to the purchase agreement, at
closing, we are to acquire substantially all of eFunds business of operating
ATMs in the United States and Canada. The purchase price, to be paid in cash
and subject to certain adjustments, is $150 million. We intend to fund the
purchase price primarily through syndicated loan financing 24




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which we are currently negotiating. The closing is subject to certain
conditions, including receipt of the proceeds of debt financing and regulatory
approvals. During the first nine months of 2004, we received $52.8 million in net
proceeds from a public offering of our common stock and $4.2 million from the
exercise of stock options. We also generated $18.5 million in cash flows from
operating activities as compared to $9.2 million in the same period in 2003.
The increase in cash flows from operating activities was due in part to
increased profitability and utilization of tax loss carryforwards, minimizing
cash payments for income taxes. These cash flows in 2004 have been used for
the following purposes:  
    
    to expand our ATM network by acquiring a 20-ATM portfolio in
the U.S., Inkas Financial Corp., Ltd., Mighty Cash Financial
Services, Inc., and a 350-ATM portfolio in the U.K.;
    
    to reduce long-term debt by $10.5 million;
    
    to make $5.6 million in equipment purchases, primarily ATM equipment;
    
    to redeem Series A preferred stock for $4.5 million;
    
    to pay preferred stock dividends of $2.2 million; and
    
    to make payments of $1.6 million on capital lease obligations. We had cash and cash equivalents of $44.3 million at September 30, 2004,
compared to $5.7 million at December 31, 2003, and net working capital of $42.7
million at September 30, 2004 compared to net working capital of $2.3 million
at December 31, 2003. We believe that the cost of upgrading our ATMs to comply with new industry
standards known as triple DES and EMV will be approximately $2.0 million in the
United States and approximately $4.5 million in the United Kingdom, based upon
exchange rates as of September 30, 2004. These costs will be capitalized and
depreciated over the remaining life of each asset. As of September 30, 2004,
approximately 10% of our ATMs were compliant with either triple DES or EMV. We expect to use the remaining proceeds from the sale of our common stock
for the acquisition of ATMs, including payment of part of the $150 million
purchase of eFunds ATM business. Other uses of the proceeds may include the
acquisition of ATM systems owned by third parties or the acquisition of other
companies owning ATMs and for working capital and general corporate
purposes. In October and November 2004, we have spent
$4.0 million to acquire a minority interest in a publicly traded
United Kingdom ATM company. U.S. Credit Facility In September 2004 we accepted a commitment letter from Bank of America
increasing our credit facility to $150 million. The commitment consists of a
$120 million term loan, which will be used as part of the eFunds purchase, a
$15 million line of credit in the United States and a 25




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$15 million line of credit in the United Kingdom, both for working capital
purposes. The term loan is a variable rate loan, which can be tied to either
the Banks prime lending rate plus a margin or a LIBOR rate plus a margin,
which will be at our discretion. Both lines of credit will also be at a
variable rate plus a margin. U.S. Vault Cash Facility TRM Inventory Funding Trust (the Trust) provides cash to be placed in
our United States ATM machines (vault cash) by accessing commercial paper
markets. Because we are the primary beneficiary of the Trust, the Trusts
accounts are included in our consolidated financial statements. Pursuant to
the trust agreement, up to $50 million of cash has been available during 2004
for use in our United States ATM network, of which $36.5 million was being used
at September 30, 2004. In anticipation of the acquisition of eFunds ATM
business, in November 2004 we are negotiating an increase in the amount of cash
available pursuant to the Trust agreement, to a total of $150 million. U.K. Vault Cash Facility Our U.K. ATM business obtains vault cash under an agreement with a local
bank. Vault cash obtained under the program remains the property of the bank,
and is not included on our balance sheet. We are insured against risk of loss
while the cash is in or being distributed to our ATM network. During the first
nine months of 2004, we accessed amounts ranging from £25.0 million ($45.0
million based on exchange rates as of September 30, 2004) to
£36.3 million ($65.2 million based on exchange rates as of
September 30, 2004) under this arrangement and paid a total of $2.4 million for
use of the cash. Contractual Commitments and Obligations Contractual commitments and obligations as of September 30, 2004 (in
thousands): Payments Due by PeriodSeptember 1 December 31,Contractual obligations
TRM
Corporation and subsidiaries
    
    Total
    
    2004
    
    2005-2006
    
    2007-2008
    
    After 2008TRM
Corporation and subsidiariesLong-term debt
    
    $
    46
    
    
    $
    6
    
    
    $
    24
    
    
    $
    16
    
    
    $
    Capital lease obligations
    
    
    3,314
    
    
    
    522
    
    
    
    2,263
    
    
    
    529
    
    
    
    Operating leases
    
    
    8,583
    
    
    
    1,233
    
    
    
    4,583
    
    
    
    1,500
    
    
    
    1,267Total TRM Corporation and subsidiaries
    
    
    11,943
    
    
    
    1,761
    
    
    
    6,870
    
    
    
    2,045
    
    
    
    1,267TRM Inventory Funding Trust note payable
    
    
    34,976
    
    
    
    
    
    
    
    
    
    
    
    34,976
    
    
    
    Total contractual cash obligations
    
    $
    46,919
    
    
    $
    1,761
    
    
    $
    6,870
    
    
    $
    37,021
    
    
    $
    1,267
 As of September 30, 2004, $3.4 million was accrued for unpaid Series A
preferred stock dividends. We ceased paying dividends on our Series A
preferred stock after 2000 as a result of the prohibitions contained in our
credit facility with Bank of America and cash flow concerns. We have made the
regularly scheduled payments of the dividends during 2004 and paid the 26




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accrued dividends to those preferred shareholders whose Series A preferred
shares have been redeemed or converted to common stock, all pursuant to waivers
granted by Bank of America. Critical Accounting Policies and Estimates Intangible
assets include primarily portfolios of merchant contracts acquired in
connection with acquisitions of ATM assets. The estimated fair value
of the contracts is based upon the estimated net cash flows and
useful lives of the customer contracts, including renewals. Intangible
assets with finite lives are stated at cost, net of accumulated
amortization, and are subject to impairment testing under certain
circumstances. These assets are amortized using the straight-line
method over their estimated useful lives or period of expected
benefit. Intangible assets with indefinite lives are subject to
periodic impairment testing. All
other critical accounting policies and estimates as of September 30, 2004
are consistent with those discussed in our Form 10-K for the year ended
December 31, 2003. New Accounting Standards and Effects on Earnings Per Share In March 2004, the Financial Accounting Standards Board approved Emerging
Issues Task Force (EITF) Issue No. 03-6 Participating Securities and the
Two-Class Method under FASB Statement No. 128, Earnings Per Share. EITF 03-6
supersedes the guidance in Topic No. D-95, Effect of Participating Convertible
Securities on the Computation of Basic Earnings per Share, and requires the
use of the two-class method for the computation of basic earnings per share for
companies that have participating securities. The two-class method is an
earnings allocation formula that determines earnings per share for each class
of common stock and participating security according to dividends declared (or
accumulated) and participation rights in undistributed earnings. In addition,
EITF 03-6 addresses other forms of participating securities, including options,
warrants, forwards and other contracts to issue an entitys common stock, with
the exception of stock-based compensation (unvested options and restricted
stock) subject to the provisions of APB Opinion 25 and SFAS 123. EITF 03-6 is
effective for reporting periods beginning after March 31, 2004 and must be
applied by restating previously reported earnings per share. We have adopted
the provisions of EITF 03-6 beginning in the second quarter of 2004, and,
accordingly, have restated previously reported earnings per share. The
application of EITF 03-6 as of September 30, 2004 has resulted in a reduction
in our per share earnings, both basic and diluted, for the three and nine-month
periods ended September 30, 2003. EITF 03-6 provides a new method for
calculating per share earnings and does not otherwise affect our financial
statements or have any economic or operating impact on us. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk from changes in interest rates and foreign
currency exchange rates, which could impact our results of operations and
financial condition. We do not hold or issue derivative commodity instruments
or other financial instruments for trading purposes. Interest Rate Risk We invest our cash in money market funds. The income earned from these
money market funds is subject to changes in interest rates. Interest income
was $129,000 and $201,000 for the three and nine-month periods ended September
30, 2004, respectively, and $18,000 and $65,000, respectively, for the same
periods in 2003. If the interest rate we earn on the $44 million cash we had
available for investment at September 30, 2004 increased or decreased by 1%,
our interest income would change by $440,000 per year. 27




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Interest on short-term borrowings under our revolving line of credit is at
the banks prime rate minus one-half percent. As of September 30, 2004, this
rate was 4.0%. We had no outstanding borrowings under our credit facility
with Bank of America as of September 30, 2004. The Trust borrows money pursuant to a note funded by the sale of
commercial paper. The Trust owed $31.4 million at September 30, 2003 and $35.0
million at September 30, 2004 under this arrangement. The weighted average
interest rate on these borrowings at September 30, 2004 was 3.6%. Interest and
fees relating to the Trusts borrowings, which are included in cost of sales in
our consolidated financial statements, totaled $258,000 and $355,000 for the
quarters ended September 30, 2003 and 2004, respectively, and $730,000 and
$840,000 for the nine-month periods ended September 30, 2003 and 2004,
respectively. If the interest rate for the Trusts borrowings at June 30, 2004
increased by 1%, to a weighted average of 4.6%, our cost of sales would
increase by $365,000 per year. Our United Kingdom ATM business obtains vault cash under an agreement with
a local bank. Vault cash obtained under the program remains the property of
the bank, and the cash is not included in our consolidated balance sheet.
During the first nine months of 2003 we accessed amounts ranging from £23.3
million ($41.9 million based upon exchange rates as of September 30, 2004) to £36.5 million ($66.5
million based upon exchange rates as of September 30, 2004). During the first nine months of 2004 we
accessed amounts ranging from £25.0 million ($45.0 million based upon exchange rates as of September 30,
2004) to £36.3 million ($65.2 million based upon exchange rates as of September 30, 2004). Fees that we
pay for use of the cash are related to the banks interest rates. Based on the
£32.1 million balance being used at September 30, 2004, if the cost of the cash
increased by 1%, our cost of sales would increase by £321,000 ($577,000 based upon exchange rates as of
September 30, 2004) per year. Foreign Currency Risk We have international subsidiaries subject to foreign currency exchange
rate exposure. We realize sales from, and pay the expenses of our
international operations in British pounds and Canadian dollars. Accordingly,
we are exposed to the risk of foreign exchange rate fluctuations. Foreign exchange rate transaction gains, net of losses, were $98,000 and
$209,000 for the three and nine-month periods ended September 30, 2004.
Foreign exchange transactions resulted in gains of $105,000 for the three
months ended September 30, 2003, and $100,000 for the nine months ended
September 30, 2003. If foreign currency rates were to fluctuate from rates at
September 30, 2004, our financial position might be materially affected.
Assuming a 10% appreciation in foreign currency values versus the U.S. dollar
from the quoted foreign currency exchange rates at September 30, 2004, the
potential increase in the fair value of foreign currency-denominated assets and
liabilities would have been an aggregate of approximately $714,000. Assuming a
10% appreciation in foreign currency values versus the U.S. dollar from the
average for the quarter ended September 30, 2004, the impact on sales would
have been an aggregate increase of approximately $1.5 million, or 5.1%. The
impact on net income for the three months ended September 30, 2004 would have
been an aggregate increase of 28




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approximately $206,000, or 10%. Assuming a 10% depreciation in foreign
currency values versus the U.S. dollar from the quoted foreign currency
exchange rates at September 30, 2004, the potential decrease in the fair value
of foreign currency-denominated assets and liabilities would have been an
aggregate of approximately $714,000. Assuming a 10% depreciation in foreign
currency values versus the U.S. dollar from the average quoted foreign currency
exchanges rates for the quarter ended September 30, 2004, the impact on sales
would have been an aggregate decrease of $1.5 million, or 5.1%. The impact on
net income for the three months ended September 30, 2004 would have been an
aggregate decrease of approximately $206,000, or 10%. 
 ITEM 4. CONTROLS AND PROCEDURES We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Securities and Exchange Act of
1934 reports is recorded, processed, summarized and reported within the periods
specified in the SECs rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and our Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and disclosures, our management recognized that any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives, and our
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Under the supervision of our Chief Executive Officer and Chief Financial
Officer and with the participation of our disclosure committee appointed by
such officers, we have carried out an evaluation of the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this
report. Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are
effective at a reasonable assurance level. There have been no significant changes in our internal controls over
financial reporting that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting during our
most recent fiscal quarter. 
 PART II  OTHER INFORMATION 
 ITEM 6. EXHIBITS (a) Exhibits  10.1
    
    Fifth Amendment to Business Loan Agreement dated July
30, 2004, between TRM Corporation and Bank of America, N.A.10.2
    
    Sixth Amendment to Business Loan Agreement dated August
31, 2004, between TRM Corporation and Bank of America, N.A.10.3
    
    Purchase Agreement, made as of September 20, 2004, by
and among eFunds Corporation, eFunds (Canada) Corporation, TRM ATM
Corporation and TRM Canada Corporation. 29




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31.1
    
    Certification of Chief Executive Officer of TRM
Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    Certification of Chief Financial Officer of TRM
Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.32.1
    
    Certification of Chief Executive Officer of TRM
Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350.32.2
    
    Certification of Chief Financial Officer of TRM
Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350. 
 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. TRM CORPORATIONDate: November 12, 2004
    By:
    /s/ Daniel E. O'BrienDaniel E. O'BrienChief Financial Officer 30