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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] 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
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OREGON 93-0809419
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
5208 N.E. 122ND AVENUE
PORTLAND, OREGON 97230-1074
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (503) 257-8766
-------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock
(TITLE OF EACH CLASS)
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 [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 1, 2000 the aggregate market value of the registrant's Common
Stock held by non affiliates of the registrant was $40,763,912. Solely for
purposes of this calculation, the registrant has treated its Board of Directors
and executive officers as affiliates.
As of March 1, 2000, the number of shares of the registrant's Common Stock
outstanding was 7,074,440.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts of registrant's Proxy Statement for the annual meeting of
shareholders on MAY 23, 2000 are incorporated by reference into Part III of this
report.
TRM CORPORATION
TABLE OF CONTENTS
ITEM PAGE
NO. NO.
- - --- ---
PART I
1. Business.....................................................................................................1
2. Properties...................................................................................................5
3. Legal Proceedings............................................................................................5
4. Submission of Matters to a Vote of Security Holders..........................................................5
4(a).Executive Officers of the Registrant........................................................................5
5. Market for Registrant's Common Equity and Related Stockholder Matters........................................8
6. Selected Financial Data......................................................................................8
7. Management's Discussion and Analysis of Financial Condition..................................................9
7(a).Quantitative and Qualitative Disclosures about Market Risk15
8. Financial Statements and Supplemental Data..................................................................15
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................15
10. Directors and Executive Officers of the Registrant..........................................................16
11. Executive Compensation......................................................................................16
12. Security Ownership of Certain Beneficial Owners and Management..............................................16
13. Certain Relationships and Related Transactions..............................................................16
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................17
PART I
ITEM 1. BUSINESS
GENERAL
TRM Corporation delivers convenience services in retail environments to
consumers. The Company currently provides self-service cash delivery and account
balance inquiry, delivered through automatic teller machines, and photocopy
services delivered through TRM CopyCenters-TM-. The Company's ATMs are referred
to as "SmartATMs" because they are manufactured with PC-based architecture and
offer dial-up modem capabilities and which are technologically scalable. TRM's
convenience service locations are easily recognized by the Company's distinctive
yellow trapezoidal signage that has achieved significant consumer recognition.
As used in this Form 10-K, the terms "the Company" and "TRM" refer to TRM
Corporation and its subsidiaries, unless the context requires otherwise.
TRM's convenience services are made available in high traffic retail
locations that are convenient to consumers. TRM offers its services in over
34,000 retail locations in six countries-the United States, Canada, England,
France, Scotland and Wales. TRM provides the equipment, maintenance, supplies
and point of sale materials required for each of its installations, while the
retailer oversees the daily operation of the equipment, provides the necessary
floor space and shares in the revenue generated by TRM's offerings.
The Company has developed long term contracts with its retail partners,
such as grocery, drug, hardware, convenience stores and other retailers, and has
entered into relationships with national and regional chain multi-site retailers
such as Albertson's, Eckerd Drugs, The Pantry, A&P food stores, and
international multi-site retailers that include Londis, Martins, Balfour,
Couche-Tard, and Depan-Escompt.
The Company believes one of its strengths is the existence of a service and
distribution system with 52 office and warehouse locations, from which
equipment, supplies and parts, as well as office support services, are available
to TRM's service technicians who provide support for the Company's retail
partners in over 200 service areas. As the result of this extensive service
system, TRM is able to provide its customers prompt attention for emergency
service requirements in addition to regularly scheduled maintenance
TRM also provides a multi-lingual customer support call center that
supports English, Spanish, French and German languages and is available to the
Company's customers domestically and abroad during their business hours. In
addition, the Company's virtual private network provides a secure communications
channel to all of TRM's personnel throughout six countries. This network
provides a secure tunnel through the Internet that allows instant access to
TRM's I/T infrastructure, including ERP, Groupware, and Intranet applications. A
local access telephone number allows Company representatives to securely link to
the network at TRM's world headquarters via their computer modems.
TRM has established a centralized support infrastructure at its world
headquarters located in Portland, Oregon where it oversees the management of
business and customer locations in 48 states and 6 countries. This
infrastructure oversees all the requirements of individual states and countries:
from accounting requirements, to human resources needs, and providing the
necessary information systems and technology to conduct business on a global
scale.
TRM believes its financial position at December 31, 1999 is sound due to a
low amount of debt in relation to its asset base and the continued positive cash
flow generated by its CopyCenter-TM- business . Excluding the impact of the
$16.1 million in cash balances held to fund its SmartATM network, the Company
has total long-term debt of only $7.1 million compared to total assets of $79.8
million at December 31, 1999, and 1999's earnings before interest, depreciation,
amortization, and taxes was $12.9 million. The Company expects its financial
position will allow for the implementation of an aggressive growth strategy
related to its SmartATM business as discussed under the "Strategy" and "Products
and Services" sections.
1
TRM's senior leadership team is comprised of individuals with a strong base
of experience, individually averaging over 10 years of experience in the retail
and service industry.
STRATEGY
TRM's management is working to execute a business strategy which focuses on
aggressively growing its new SmartATM services business within the existing
infrastructure while optimizing and sustaining the Company's CopyCenter-TM-
service business.
Looking forward, the Company believes that it will be able to take
advantage of significant growth opportunities made available to it once its
SmartATM network is broadened. Besides the cash delivery and balance inquiry
services that SmartATMs provide consumers, the PC-based technology of its
SmartATMs can provide Internet access. Internet connectivity will allow the
delivery of e-commerce products and services into retail environments. The
strategic objective of the Company is to participate in the development of, and
deploy, the technology required to open this significant channel of
distribution. The Company also intends to form strategic relationships with the
appropriate e-commerce companies so that they may provide their products and
services to the retailers and their respective customers.
PRODUCTS AND SERVICES
SMARTATMS
During 1999 the Company's new cash delivery and balance inquiry services
were successfully launched. A contract for the installation of more than 700 TRM
SmartATMs was signed with The Pantry stores during the first quarter of 1999.
TRM SmartATMs provide cash delivery and balance inquiry services through various
banking networks such as, Cirrus, PLUS, Discover/Novus, and LINK, and with major
credit card companies VISA, MasterCard, and American Express. As of December 31,
the Company had installed TRM SmartATMs in 443 locations in the U.S. and the
United Kingdom.
TRM was one of the early entrants in the United Kingdom convenience ATM
market by being one of the first firms to offer convenience cash delivery and
balance inquiry services at retail locations in the United Kingdom during 1999.
The Company participated in building the required technology solution enabling
dial-up TRM SmartATMs to connect to the United Kingdom's LINK cash delivery
network. This activity included developing strategic partnerships with NCR, TNS
(a wholly owned subsidiary of PSI.net) and ATMOS (a part of the LINK cash
delivery network). In addition, a strategic partnership was formed with Woolwich
PLC for the delivery of cash inventory and cash management services in England,
Scotland and Wales.
In the first quarter of 1999, the Company entered into a strategic
relationship with NCR to manufacture its PC-based SmartATMs. The PC-based
SmartATM provides the hardware and software platform which will provide TRM the
ability to deliver additional Internet-based convenience e-commerce goods and
services.
The PC-based architecture and dial-up modem technology of the Company's
SmartATMs offers several strategic advantages over competitors' ATMs. First,
TRM's SmartATMs allow connection through multiple credit card and banking
networks to allow cash delivery and balance inquiry. Second, connection to the
Internet via dial-up modems will allow TRM SmartATMs to deliver e-commerce goods
and services through their current convenience locations. Finally, this
technology will allow access to other private networks that may provide specific
products, services and solutions for the Company's particular retail partners.
TRM intends to increase the number of retail locations where its cash
delivery and balance inquiry services are offered by installing a minimum of
3,000 new TRM SmartATM locations during fiscal year 2000. The Company believes
that because of its position as an early entrant into the United Kingdom
convenience ATM market, there is significant business growth opportunity to be
achieved in England, Scotland and Wales. The ATM market in the United Kingdom is
growing rapidly. As of December 31, 1999 there were 25,000 ATMs installed in the
United Kingdom and the Company believes that number will double by 2002. The
Company currently has over 7,000 retail relationships through TRM
CopyCenters(tm) within the United Kingdom. and has established the
infrastructure and support personnel to meet the needs of that market. TRM
believes it is well-positioned to
2
penetrate the ATM market in the United States because of its ability to leverage
its existing photocopy services customer base of over 23,000, and its existing
infrastructure and support personnel.
PHOTOCOPIERS
As of December 1999, TRM owned and maintained approximately 34,000
self-service CopyCenters-TM- in retail establishments such as grocery retailers,
pharmacies, stationery stores, hardware stores and gift shops located in 6
countries. TRM's photocopy services include the installation, maintenance, and
supply of photocopiers and the regular monitor of their usage. Each TRM Copy
Center-TM- consists of a photocopier, a machine stand, advertising signs and in
some cases a coin-operated unit. Each retail business collects payment from its
customers, shares in the revenue generated by the TRM Copy Center and benefits
from any increase in walk-in traffic. The Company invoices and collects payment
from each retailer monthly. This is the same financial model in the case of TRM
ATMs.
TRM has become the leading provider in self-service photocopying in many of
the markets it serves by focusing on service and convenience.
The Company services its CopyCenters-TM- and provides all necessary
supplies. The retail business supplies space and electrical power for the TRM
CopyCenter-TM- and supervises its use. Consumers report the number of uses of
the TRM Copy Center to the retail business cashier, who collects payment. Each
month, the retail business keeps a percentage of the TRM Copy Center's revenue,
which generally is based on a sliding scale related to usage, as recorded by the
TRM Copy Center's tamper-proof internal counter, and remits the remainder to
TRM.
All accounting, training, purchasing, billing and collection functions, as
well as coordination of customer service, are centralized in the Company's
headquarters in Portland, Oregon. Generally, the only personnel outside the
Portland headquarters are service and sales personnel. TRM minimizes costs by
buying large quantities of new photocopiers and by centrally purchasing large
quantities of parts, paper and toner. The Company believes that its centralized
operating systems and standardized operating procedures enable it to efficiently
open in new geographic areas and to install and service thousands of TRM Copy
Centers. The Company is aggressively leveraging this infrastructure to expand
its SmartATM business.
Photocopy pricing is based on market competition, volume and retailer
preference. Pricing decisions are made by the retailer based on the experience
and recommendations of TRM for individual site pricing strategy.
The Company intends to continue to manage the photocopy business with
controlled growth from new and existing U.S. market areas, international
expansion and new products and services that can be delivered to its core
customer base and similar consumers.
COMPETITION
Individuals seeking convenience photocopy services, cash delivery, and
balance inquiry services have a variety of choices at banking locations and
within retail establishments. The choices for photocopy services include
specialty full-service business centers, copy and print shops, coin-operated
photocopiers and other photocopiers located within retail shops. Each of these
alternatives may to some extent compete with the Company. The Company does not
attempt to compete directly with most alternative suppliers of photocopy
services. Instead, the Company seeks to distinguish itself by blanketing its
service areas with large numbers of convenient photocopiers and by providing
high quality service to those locations.
Full-service business centers and copy and print shops generally serve a
market more interested in high volume and sophisticated copying than in
convenience of location.
Coin-operated photocopiers are sometimes located in retail establishments
similar to TRM's locations. While these coin-operated photocopiers provide a
similar service to TRM CopyCenters-TM-, the Company believes they do not pose a
significant competitive threat to the majority of TRM's retailers.
3
The Company is aware of several self-service, non-coin-operated space
photocopier businesses using the retail business concept. To the Company's
knowledge, each is limited to a relatively small geographic market and a
relatively small number of photocopiers. Because of barriers to entry in the
Company's business, such as developing operating systems, establishing sources
of supply and achieving economies of scale, the Company does not believe any of
these competitors currently represents a significant threat to the Company's
business.
Personal copiers provide a substitute for TRM CopyCenters-TM-. While these
photocopiers have been on the market for a number of years, the Company does not
believe that they have had a significant adverse effect on its business. The
Company is unable to predict whether a technological or price breakthrough might
increase sales of personal copiers and reduce demand for the Company's copy
services.
The convenience cash delivery and balance inquiry market is, and is
expected to remain, highly competitive. The Company's principal competition is
expected to come from national and regional banks, but the Company will also
compete with other independent providers of cash delivery and balance inquiry
services. The independent ATM business has become increasingly competitive as
entities other than banks have entered the market with relatively few barriers
to entry. Currently, these competitors offer similar services as those offered
by the Company. Many of these competitors' ATMs, however, do not have the
PC-based technology the Company plans to leverage to offer e-commerce solutions
in the future.
QUARTERLY SEASONALITY
Historically, the Company has experienced slightly higher than average
revenue in the January-March and April-June Quarters due to those quarters being
tax season in the U.S. The Company experiences slightly lower than average
revenues per retail location in its July-September quarter as the European
countries have extended holiday periods.
KEY PARTNER AND SUPPLY RELATIONSHIPS
TRM entered into a strategic relationship with NCR to provide the Company
with SmartATMs. The Company purchases PC-based ATMs that it believes are best
suited for deployment into retail environments and provide upgrade scalability
for the future. The SmartATMs offer color display, PC-based architecture,
thermal printing, and dial-up and remote monitoring capabilities. By working
closely with NCR, TRM has developed its convenience cash access and balance
inquiry services delivered through its SmartATMs that have the built-in ability
to provide consumers access to e-commerce goods and services in the future at
convenient locations.
In the United Kingdom, TRM has established a partnership with TNS, which is
part of PSI.net in developing a dial-up communications solution. Utilizing
dial-up technology allows the Company to cost-effectively provide cash delivery
and balance inquiry services in the United Kingdom with high-quality uptime
connection to the LINK cash delivery network.
TRM entered into a strategic banking relationship with Woolwich PLC to
provide ATM services in the United Kingdom. Woolwich provides cash inventory and
cash management services for all of TRM's ATMs located in retail establishments
in England, Scotland and Wales. In addition, Woolwich also provides sponsorship
into the LINK cash delivery network in the United Kingdom.
TRM has maintained a strategic relationship with Konica since 1997. In the
beginning of the relationship, Konica worked closely with TRM to develop the
NextGen-TM- photocopiers, which have now been installed in over 20,000 of the
Company's 34,000 CopyCenters(tm) locations worldwide. During 1999 TRM and Konica
began to develop the NextGen 2000-TM- Digital Printer/Copier photocopier with
enhanced capabilities. The NextGen 2000-TM- could aid in the Company's ability
to deliver e-commerce products and services to consumers at convenience
locations because it is designed to allow scanning, printing and copying, as
well as PC-based network connectivity. The Company believes the NextGen-TM- 2000
is an important hardware element of its e-commerce retail distribution strategy.
In addition to the establishment of these strategic partnerships, TRM has
established relationships with parts suppliers, to assure that the needs of
TRM's customers can be met at all times by its service technicians. Based
4
on these relationships with suppliers, the Company believes it has sufficient
stock at hand, as well as resources, to assure that the needs of an expanding
business are met.
EMPLOYEES
As of December 31, 1999, the Company had 505 employees, most of whom were
full time. Three hundred eighteen are in field service, and 187 are in sales,
marketing, customer service, purchasing, billing, administration, training,
production and warehouse functions. None of the Company's employees are
represented by unions. The Company believes it has good relations with its
employees.
TRADE MARKS
Most TRM convenience locations are identified by distinctive yellow, green
and black trapezoidal signs bearing "TRM ATM," "Got cash?," "Cash Machine," "TRM
Copies," "TRM Photocopies." In France, the Company operates under the name of
FPC France Ltd. TRM and FPC's signs are registered trade marks. The Company
registered "NextGen-TM-" as it relates to black and white technology
photocopiers.
GOVERNMENTAL REGULATION
The Company's two businesses-cash delivery and balance inquiry and
photocopier businesses-are not subject to significant governmental regulation.
Various regulations have been proposed to reduce or eliminate amounts charged to
users (commonly referred to as surcharges or convenience fees) of ATMs. The
enactment of such regulations would impact the profitability of individual
convenience locations and may cause the Company to withdraw from markets in such
jurisdiction. Occasionally, local zoning and sign regulations prohibit a retail
business from displaying the company's signage on exterior walls or windows that
identify a TRM convenience service location. In addition, local zoning or use
restrictions may prohibit the Company from opening a convenience service
location in an otherwise desirable retail business. These restrictions, however,
are not expected to have a material adverse effect on the Company's expansion
plans.
ITEM 2. PROPERTIES
The Company leases approximately 59,250 square feet of office and warehouse
space for its team headquarters in Portland, Oregon. The leases expire in 2010,
with options to renew for an additional five years. Such space is currently
adequate for the Company's business.
The Company leases warehouse space for 52 Service Center locations outside
Portland, Oregon. A Service Center location typically consists of approximately
2,000 to 7,000 square feet of office and warehouse space. The leases typically
run for three to twelve years, some with extensions available upon exercise of
renewal options. The Company does not anticipate any difficulty in locating or,
if necessary, relocation of Service Center locations.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various claims and legal proceedings from time to
time in the ordinary course of its business. There are no pending or threatened
matters which in the Company's opinion would have a material effect on the
Company's operations or its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1999.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
5
The following table sets forth certain information with respect to the
executive officers of the Company as of March 15, 2000.
NAME AGE POSITION
Frederic P. Stockton 48 Chief Executive Officer and President
of TRM Corporation
Paul M. Brown 46 Senior Vice President of Operations
and Chief Operating Officer of TRM
Corporation
Danial J. Tierney 44 Senior Vice President of Corporate
Sales and Marketing of TRM Corporation
Shami Patel 31 Vice President of Finance and Chief
Financial Officer of TRM Corporation
Kathleen O. Hoogerhuis 44 Vice President of ATM Business of TRM
Corporation
Gary M. Cosmer 29 Vice president and Chief Information
Officer of TRM Corporation
Bryan Clark 40 Vice President Photocopy Business of
TRM Corporation
Frederic P. Stockton was appointed President, Chief Executive Officer and a
director in August 1997. Prior to joining TRM and since 1985, Mr. Stockton was
employed by The Estey Corporation, a privately-held company with six business
groups including vending, equipment distribution, food distribution, mobile
catering, recreational properties and food service. Most recently and since
1994, he served as President and Chief Executive Officer. From 1985 to 1994, Mr.
Stockton served as President of The Estey Corporation's Equipment Distribution
Group. From 1978 to 1985, he was employed by Omark Industries (now the Oregon
Cutting Systems Division of Blount, Inc.) in positions of increasing
responsibility. Mr. Stockton holds a B.A. degree from the University of
Washington.
Paul M. Brown was appointed Senior Vice President Operations in January
2000. He joined the Company as Chief Financial Officer and Vice President of
Finance in September 1997. In December of 1998, Mr. Brown was promoted to Vice
President of Operations and Chief Operating Officer. Prior to joining the
Company and since 1993, Mr. Brown was Senior Vice President and Chief Financial
Officer for SMC Corporation, a manufacturer of motorized recreational vehicles.
Before joining SMC Corporation, Mr. Brown served as Chief Financial Officer for
several privately-held manufacturing companies and also worked as a consultant
with Arthur Andersen & Co. Mr. Brown attended Harvard University and holds a
B.S. degree from Portland State University.
Danial J. Tierney joined the Company in January of 1995 and was appointed
Senior Vice President Sales and Marketing in January 1999. For 16 years prior to
joining TRM, Mr. Tierney was employed by Spectra Physics Scanning Systems, Inc.
and its affiliates in various locations and in positions of increasing
responsibility, most recently in Eugene, Oregon, as Director of Marketing. He
holds a B.S. degree from the University of California, Berkeley, and an M.B.A.
from the University of Santa Clara.
Shami Patel joined TRM Corporation in April 1999 as Vice President of
Finance and Chief Financial Officer. Prior to joining TRM, and from 1998 to
April 1999, Mr. Patel was a Vice President and Investment Manager for Sirrom
Capital Corporation in San Francisco. Previous to working at Sirrom Capital, and
from 1997 to 1998, Mr. Patel worked as an Investment Banker at Robertson
Stephens and Company. Prior to working for Robertson Stephens, Mr. Patel held
positions at Enron Capital and Trade and Continental Bank where he was involved
in mergers and acquisitions and mezzanine finance. Mr. Patel was a Senior
Consultant at Anderson
6
Consulting from August 1991 to June 1993 providing systems and strategy
consulting services. Mr. Patel holds B.A. degrees in both Economics and
Philosophy from Trinity University. He also holds a J.D. and M.B.A. from Duke
University.
Kathleen Hoogerhuis was appointed Vice President of ATM Business in October
1999. Prior to holding that position, Ms. Hoogerhuis served as the Company's
Vice President of Organizational Development. Prior to joining TRM in September
1998 and since 1996, Ms. Hoogerhuis was the Vice President for Human Resources
and Organizational Development for Cascade Microtech, Inc. Prior to joining
Cascade Microtech and since 1993, Ms. Hoogerhuis was Vice President and Chief
Operating Officer for Superior Transportation Services, a third party contract
logistics company. Before joining Superior Transportation Services and since
1988, Ms. Hoogerhuis was a human resources executive at Precision Castparts. Ms.
Hoogerhuis holds an M.S. degree in Organization Development from Pepperdine
University and a B.A. degree in Social Ecology from the University of
California, Irvine.
Gary M. Cosmer was named Chief Information Officer and Vice President of
Information Systems in February 1999. Prior to that and since December 1997, Mr.
Cosmer served the company as Director of Information Systems. Before joining
TRM, Mr. Cosmer was a systems engineer for CTR Business Systems Corporation, a
partner level Microsoft Solutions Provider. Before joining CTR Business Systems,
Mr. Cosmer served as Service and Training Manager for Lucky Distributing, a
privately held distribution company. Mr. Cosmer holds a B.S. degree in Advanced
Technology Studies and an A.A.S. degree in Aviation Technology from Southern
Illinois University.
Bryan R. Clark was appointed Vice President of Photocopy Business in
January 2000. He joined TRM in March of 1997 as a Regional Sales Manager and was
promoted to US Director of Sales in April of 1999. Mr. Clark spent the first few
years of his career as an accountant in the oil and gas industry. From 1986 to
February 1997, Mr. Clark worked as a broker, financial planner and sales manager
for MerrillLynch. Mr. Clark holds B.A. degrees in both Finance and Accounting.
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the Nasdaq National Market
System since December 18, 1991 under the symbol TRMM. Information with respect
to the high and low sales prices for the Common Stock is set forth on the inside
back cover of the Company's 1999 Annual Report to Shareholders and is
incorporated by reference herein.
At March 15, 2000 there were 266 shareholders of record of the Company's
Common Stock and 7,079,440 shares were outstanding. The Company believes the
number of beneficial owners is substantially greater than the number of record
holders because a large portion of the Company's outstanding Common Stock is
held of record in broker "street names" for the benefit of individual investors.
The Company did not pay any dividends related to common stock in fiscal
1997 or fiscal 1998 or in the six-month period ended December 31, 1998, or in
the fiscal year ended December 31, 1999. The Company intends to retain future
earnings for use in its business and therefore does not anticipate paying cash
dividends to Common Stock shareholders in the foreseeable future. The Company
paid Series A Preferred Stock dividends of $1.5 million during the year ended
December 31, 1999.
On June 24, 1998, the Company issued and sold 1,777,778 shares of
unregistered Series A Preferred Stock and Warrants to purchase 500,000 shares of
Common Stock for net proceeds of approximately $19,853,000. The Company claims
exemption from the registration of such shares under the Securities Act of 1933,
as amended, in reliance on the exemption available under Section 4(2) thereof.
Each share is convertible at any time at the option of the holder into .7499997
of a share of Common Stock. In addition, each share of Series A Preferred Stock
is automatically converted into .7499997 shares of Common Stock if the price of
Common Stock is at least $20.00 for a period of 90 consecutive days commencing
after June 30, 1999. The conversion ratio and exercise prices are adjusted for
any combination or subdivision of shares, stock dividend, stock split or
recapitalization. The Series A Preferred Stock bears a dividend rate of 7.5%,
payable quarterly. The Company has utilized the proceeds to fund the operations
of its ATM business.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below for, and as of the end of, each
of the years in the four-year period ended June 30, 1998, the six-month period
ended December 31, 1998, and the year ended December 31, 1999 have been derived
from the audited financial statements of the Company. Quarterly financial data
is included in footnote 13 included in the financial statement beginning at F-1
of this report. This data should be read in conjunction with the financial
statements, related notes and other financial information included elsewhere in
this report.
8
SELECTED FINANCIAL DATA
(In thousands, except per share and other operating data)
Six-month Fiscal Year
period Ended
ended ecember 31,
December
Fiscal Years Ended June 30, 31, D
------------------------------------------------------ ------------ -----------------
1995 1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------ -----------------
Sales $ 60,544 $ 67,538 $ 69,881 $ 68,352 $ 33,334 $ 68,338
Sales Discount (11,138) (11,728) (11,676) (11,331) (5,802) (12,099)
Net Sales 49,406 55,810 58,205 57,021 27,532 56,239
Gross Profit 24,150 27,800 29,816 28,797 13,267 26,173
Operating income (loss) 7,543 8,311 5,283 (220) 1,830 3,568
Net income (loss) 3,699 4,124 2,575 (582) 1,311 2,090
Preferred Stock Dividend -- -- -- -- (785) (1,500)
Net income (loss) available
to common stockholders 3,699 4,124 2,575 (582) 526 590
Basic net income (loss)
per share 0.58 0.64 0.39 (0.08) 0.07 0.08
Diluted net income (loss)
per share 0.53 0.57 0.35 (0.08) 0.07 0.08
Balance Sheet Data:
Working capital 9,543 8,860 9,886 22,277 14,222 25,298
Total assets 55,736 54,251 50,478 75,606 79,152 95,906
Long-term debt 14,238 8,128 400 -- -- 23,192
Preferred stock -- -- -- 19,853 19,798 19,798
Shareholders' equity 31,528 35,444 38,828 60,060 61,325 61,279
Other Operating Data:
TRM Copy Centers 28,995 31,719 34,796 33,349 30,953 34,414
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" included herein and the consolidated financial statements and
the related notes thereto of the Company incorporated by reference or included
elsewhere. The following information contains forward-looking statements which
involve certain risks and uncertainties.
See "Forward-Looking Statements."
OVERVIEW
GENERAL
In 1999, TRM aggressively grew its new ATM services business while its core
Photocopy services business generated sound cash flow and continued to solidify
future cash flow with the implementation of the Next Gen -TM- Copy Center
Program. The Company's financial position remains sound, offering it flexibility
to meet its aggressive growth strategy.
The Company launched ATM operations in the first quarter of 1999 and ended
the year with 392 operating units deployed in the United States and 51 in
Europe. The ATM business contributed to $1.4 million to annual gross revenues.
The Company plans that revenues generated from services delivered through its
ATM network will become an increasingly higher percentage of its overall revenue
in the future as it expands the product offerings through its ATM network, and
pursues new geographic opportunities.
In the Photocopy business, the number of service areas the Company operates
in has increased from 54 to 69 since June 1995 and now include 46 in the United
States, 5 in Canada, 15 in the United Kingdom and 3 in France.
9
The number of TRM Copy Centers has increased 18.7 percent over the same period
of time, from 28,995 to 34,414. In 1999, the Photocopy business generated $14.0
million dollars in earnings before interest, taxes and depreciation. In
implementing the Nex Gen-TM- program, the Company was able to convert close to
65% of its revenue stream to three to five year agreements. The long term
agreements were achieved as larger chain stores perceived the quality of the
machines the Company is able to offer coupled with the Company's reputations for
superior customer service.
The Company's balance sheet maintains a low debt to asset ratio. This
financial position offers the Company flexibility to meet the strategic
expansion plans related to its ATM business. To support the vault cash
requirements to supply cash in its ATMs, the Company has invested a total of
$16.1 million of cash which it has raised using bank debt. Excluding this
component of the outstanding debt, the Company has only $7.1 million in
long-term debt as of December 31, 1999. The Company has plans to secure a
non-recourse source of financing in 2000 which will allow it to keep both the
ATM cash and related debt off of the balance sheet. Off-balance sheet
financing means the Company can obtain cash without recording the asset or
the related debt in its accounting records.
MATTERS AFFECTING ANALYSIS
As a result of the Company's change in fiscal year end from June 30 to
December 31, which commenced with December of 1998, for purposes of the
following analysis, the Company has compared the fiscal year ended December 31,
1999 to the comparable period in 1998, which has been developed solely for
comparative purposes, and has compared the fiscal year ended June 30, 1998 to
the fiscal year ended June 30, 1997. The results for the twelve-month period
ended December 31, 1998 were not audited.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statement of operations data, expressed as a percentage of sales, and the
percentage change in dollar amounts of each item on the Consolidated Statements
of Operations (see page F-4 of this Form 10-K).
Percentage Change As a Percentage of Sales
----------------------------------------- -------------------------------------------------------------------
Six month Six-month
periods Fiscal period
Fiscal year ended years ended ended Fiscal years ended
ended June 30, December 31, December 31, Fiscal years ended June 30, December 31, December 31,
------------- ------------- ------------- --------------------------- ------------ ------------------------
(unaudited)
1997-98 1997-98 1998-99 1997 1998 1998 1998 1999
------------- ------------- ----------- ------------- ------------ ------------ ------------ ------------
Sales (2.2)% 1.2% (0.6)% 100.0% 100.0% 100.0% 100.0% 100.0%
Sales discounts (3.0) 9.8 2.1 16.7 16.6 17.4 17.2 17.7
Cost of sales (0.6) 1.6 5.6 40.6 41.3 42.9 41.5 44.0
Selling, general and
administrative 5.1 12.4 (2.5) 29.3 31.5 34.2 33.7 33.1
Non-cash stock
compensation -- -- -- -- 1.7 -- -- --
Special charges 84.1 -- (100.0) 5.8 9.3 -- 10.9 --
------------- ------------- ----------- ------------- ------------ ------------ ------------ ------------
------------- ------------- ----------- ------------- ------------ ------------ ------------ ------------
Operating income (loss) (104.2) (45.3) 255.4 7.6 (0.4) 5.5 (3.3) 5.2
Interest expense, net (82.8) 81.8 232.3 0.6 -- 0.1 0.2 0.6
Other, net (7.4) -- (23.4) 1.0 1.0 (1.0) (0.6) (0.5)
------------- ------------- ----------- ------------- ------------ ------------ ------------ ------------
------------- ------------- ----------- ------------- ------------ ------------ ------------ ------------
Income (loss) before
income taxes (122.9) (32.9) 273.8 6.0 (1.4) 6.4 (2.9) 5.1
Provision for income
taxes (123.4) (34.6) 273.4 2.3 0.5 2.5 (1.2) 2.0
------------- ------------- ----------- ------------- ------------ ------------ ------------ ------------
============= ============= =========== ============= ============ ============ ============ ============
Net income (loss) (122.6)% (31.9)% 274.0% 3.7% (0.9)% 3.9% (1.7)% 3.1%
============= ============= =========== ============= ============ ============ ============ ============
FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1998 (UNAUDITED)
For the year ended December 31, 1999, consolidated sales decreased by
$402,000 (.6%) to $68.3 million from $68.7 million for 1998. Although
photocopy sales alone were down by $1.6 million (2.3%), average billed
revenue per unit increased 3.4%. The increase in billed revenue per unit was
the result of the higher production achieved through the implementation of
the Company's strategy, commenced in 1998, to install thousands of new
NextGen-TM- photocopiers in existing sites and new multi-site retail
locations. As part of the strategy, many low-volume producing sites were
eliminated late in 1998. As a result, the total units billed during the
entire year of 1999 was 4.1% lower than in 1998, but, EBITDA was $14.0
million versus $5.2 million in 1998 on a lower billed unit base. $7.5 million
of the increased EBITDA was the result of one-time charges in 1998, but the
remaining $1.3 million increase was the result of improved cash flow. The
overall impact of the strategy in 1999 was optimization
10
of revenue and cash flow on a unit basis, and the Company's management is
planning on increased Photocopy revenues and cash flow in the year 2000 as a
result of the strategy.
Revenues from the Company's new ATM business were $1.4 million during 1999
with no revenues in 1998. The Company is expecting a significant increase in ATM
revenues in 2000 over 1999's revenue because of the aggressive growth plans it
has for the newly established ATM services business. This growth is expected to
be facilitated by the Company's sound financial position, evidenced by continued
positive cash flow under long-term contracts and a balance sheet with a low debt
to asset ratio.
Sales discounts are the portion of revenue retained by retail customers.
They generally vary at individual retail businesses depending on volume - the
higher the volume, the greater the discount. The upward trend in sales discounts
as a percentage of sales in 1999 compared to 1998 reflects changes made in
business agreements with new customers over the periods. In 1999, the Company
had entered many more long-term contracts with multi-state retail customers.
Additional discounts were granted in an effort to secure the long-term
contracts. As a result of this effort, approximately 65% of the Company's
Photocopy revenue stream is now under long-term contracts.
Costs of sales on a consolidated basis increased $1.6 million (5.6%) for
the year ended December 31, 1999 compared to 1998. $1.0 million of the increase
is due to the new ATM Business. Costs of paper, toner, parts, field labor and
other costs decreased by $1.5 million. These decreases were the result of
increased efficiencies gained by the installation of the new NextGen-TM-
photocopiers. The cost savings were offset by increased costs primarily due to
increased copier machine depreciation of $2.1 million. The increased copier
depreciation relates to the increase in installed NextGen-TM- photocopiers.
Selling, general and administrative expenses decreased $572,000 (2.5%)
during the year ended December 31, 1999 compared to 1998. These costs were 33.1
percent and 33.7 percent of sales for 1999 and 1998, respectively. The decrease
is primarily the result of reduced labor and operating costs.
During the year ended December 31, 1999, interest expense increased to
$412,000 from $124,000 in 1998. The increase was due to an increase in
borrowings on the Company's revolving line of credit during 1999 primarily as
the result of increased borrowings to finance the carrying of cash balances in
ATM machines operated by the Company in its newly formed ATM business.
Other income decreased to $321,000 from $419,000 during the year ended
December 31, 1999 compared to 1998. The decrease was primarily due to interest
income generated of $585,000 in 1998, compared to $220,000 in 1999, related to
interest earned on short-term investments as a result of proceeds from the
preferred stock offering in June of 1998, which was unavailable during most of
1999. Changes in other individually insignificant items explain the rest of the
change in other income from 1998 to 1999.
The Company's effective tax rate for the year ended December 31, 1999 was
39.9 percent, resulting in an income tax provision of $1.4 million, compared to
an effective rate of 38.1 percent and an income tax benefit of $807,000 in 1998.
FISCAL YEAR ENDED JUNE 30, 1998 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997
Sales decreased by $1.5 million (2.2%) to $68.4 million for fiscal 1998
from $69.9 million for fiscal 1997. The decrease represents a 7.4 percent
decrease in the average net sales per unit, offset by a 5.8 percent overall
increase in the number of billed units. Sales in North America declined 5.6
percent during fiscal 1998, while sales in Europe increased 5.5 percent during
the same period. The decline in North America represents a maturing market in
the small, independent retail customer base and increasing market demand for new
black and white technology photocopiers. The Company has shifted its marketing
efforts to address the decline by moving to NextGen-TM- photocopier technology
and multi-site retailer customers.
Sales for products not related to black and white photocopying have been
insignificant, amounting to less than 5 percent of total sales.
11
Sales discounts are the portion of revenue retained by retail customers.
They generally vary at individual retail businesses depending on volume--the
higher the volume, the greater the discount. The downward trend in sales
discounts as a percentage of sales in fiscal 1998 and fiscal 1997 reflects
changes made in business agreements with new customers over the periods.
Cost of sales decreased $165,000 (0.6%) from 1997 to 1998. Offsetting
factors resulted in relatively unchanged costs of sales compared to fiscal 1997.
Costs of paper, toner and parts decreased by $751,000, but were offset by
increased costs of $548,000 for copier machine depreciation. The increased
copier depreciation relates to the new Konica copier machines purchased and
installed during the year. Other individually insignificant variances explain
the rest of the decrease in cost of sales.
Selling, general and administrative expenses increased $1.1 million (5.1%)
from $20.4 million in fiscal 1997 to $21.5 million in fiscal 1998. Selling,
general and administrative costs were 31.5 percent and 29.3 percent of sales for
fiscal 1998 and fiscal 1997, respectively. Selling, general and administrative
costs increased due to increased costs of medical, property and auto insurance,
higher vehicle costs, increased legal and accounting fees, and increased office
and administrative payroll costs.
In conjunction with the sale of Series A Preferred Stock (see Note 8 to the
Consolidated Financial Statementsbeginning on page F-1 of this report), the
Company amended certain Board members' stock option agreements to extend the
exercise period for the options to ten years from June 24, 1998. Pursuant to APB
No. 25, and due to the extension of the exercise period, the Company recognized
$1.1 million as non-cash compensation expense in the year ended June 30, 1998.
During fiscal 1998, the Company recorded a pre-tax special charge of $6.4
million ($3.9 million after tax) related to the write-down of certain
under-performing assets of its photocopy business. The major components of the
1998 special charge included the disposal of under-performing machines ($4.3
million), the disposal of replacement parts and inventory relating to
under-performing machines ($1.5 million) and other charges related to the
disposal of equipment ($600,000).
Interest expense decreased 82.8 percent to $68,000 in fiscal 1998 from
$396,000 in fiscal 1997. The decrease was due to reduced bank borrowings on the
Company's revolving line of credit during fiscal 1998.
The Company's effective tax rate for fiscal 1998 was 39.1 percent,
resulting in an income tax benefit of $373,000, compared to an effective rate of
38.2 percent and an income tax provision of $1.6 million in fiscal 1997. The
increase in the effective tax rate from fiscal 1997 to fiscal 1998 is due to an
increase in permanent differences in the Company's income for financial and tax
reporting.
LIQUIDITY AND CAPITAL RESOURCES
During 1999 TRM generated $3.6 million in cashflows from operations and
increased its net working capital from $14.2 million at December 31, 1998 to
$25.3 million at December 31, 1999 (including cash and cash equivalents of $16.8
million). The Company also has a $30.0 million bank line of credit, with $23.2
million borrowings outstanding at December 31, 1999. The Company was in
compliance with all loan covenants at December 31, 1999.
During 1999, the Company funded capital expenditures of $21.3 million
primarily from cash which was available as of December 31, 1998 as well as bank
borrowings on its line of credit. Capital expenditures were primarily for
installations of NextGen-TM- copiers and NCR ATM machines, and computer systems
implementation costs.
The Company also funded vault cash inventory in its ATM network during
1999. As of December 31, 1999, the Company had a cash balance related to the ATM
vault cash inventory of $16.1 million. The Company used its line of credit to
finance this increase in cash. In March of 2000, the Company established a $30.0
million financing facility to access a commercial paper conduit to provide vault
cash for its ATM network. This facility can be increased to $75 million, and the
agreement resulted in the removal of the cash and underlying bank borrowings
12
from the Company's balance sheet. The financing was completed off the Company's
balance sheet on a non-recourse basis.
The Company currently anticipates capital expenditures of approximately $35
million during calendar 2000. Approximately $30 million will be used to acquire
ATM machines and the remainder will be used to acquire computer related systems
and other capital items. The Company expects to finance these capital
expenditures with cash generated from operations and bank borrowings. The
Company intends to enter into a new bank line of credit arrangement which will
allow it greater flexibility in its use of proceeds, and which does not encumber
its ATM assets. Such a line of credit would allow the Company to refinance ATM
assets thus resulting in an effective borrowing base close to $60 million. The
Company expects that these sources will provide adequate cash to fund its
expansion through at least December 31, 2000.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Any of the
Company's systems, equipment, or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000.
During 1999, the Company conducted a comprehensive project to identify,
review and remediate if necessary all internal information, communications and
facilities hardware and software used in the Company's financial and
administrative operations, global communications systems, and office facilities
systems. Once systems with potential year 2000 problems had been identified, the
Company developed contingency plans using upgrades and service packs from
manufacturers of third-party software as well as "hot fix" repairs created by
internal Information Systems staff. In addition, the Company identified
customers, lenders and suppliers of key goods and services and requested
information about their year 2000 readiness. All of these actions were completed
in the fourth quarter of 1999. With the passing of January 1, 2000, the Company
reports that no significant year 2000 problems arose and, to date, the Company
has not experienced any significant adverse effects related to the year 2000
transition.
The Company is not aware of any significant year 2000 problems at any of
its customers or suppliers. The Company believes that any additional resources
needed to address year 2000 issues will not be material.
NEW ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") Accounting Standards Executive Committee issued Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1.") SOP 98-1 is applicable to all nongovernmental
entities and provides guidance on accounting for the costs of computer software
developed or obtained for internal use. SOP 98-1 is effective for fiscal years
beginning after December 15, 1998. The Company adopted the SOP 98-1 in the
financial statements included as part of this report.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in fair values of the derivative
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings, or recognized through
comprehensive income until the hedged item is recognized in earnings. The
Company has adopted SFAS 133 effective in 1999 with no impact to the financial
statements.
13
DISCLOSURE REGARDING EURO CONVERSION
On January 1, 1999, eleven member countries of the European Community began
a process to convert their existing sovereign currencies to a single common
denomination, the Euro. The process of conversion is gradual over the next three
years, culminating in the eventual removal from circulation of all existing
domestic currency for the participating countries. The Company presently
operates in the United Kingdom and France and transacts business in the local
currency of those countries. France will be subject to the Euro Conversion, and
the United Kingdom may become subject to the conversion. The Company believes
that it will be able to accommodate the conversion to the Euro without a
material impact on its financial statements.
FORWARD-LOOKING STATEMENTS
Information in "Management's Discussion and Analysis," the letter to
shareholders and elsewhere in this Annual Report and Form 10-K about the
Company's goals, plans and expectations regarding: successfully operating the
ATM business, effectively using a third-party network of service providers,
purchasing and installing additional NextGen-TM- photocopiers, , achieving a net
cost savings as a result of the installation of NextGen-TM- photocopiers,
expansion in existing and new markets, adding approximately 3,000 SmartATMs,
expanding the ATM business, offering and providing e-commerce goods and services
through SmartATMs, the offering and providing e-commerce goods and services
through SmartATMs, and capital expenditures 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. Factors that could adversely
affect successfully operating the ATM Business include, but are not limited to,
competition from existing ATM providers and new entrants into the ATM market,
the Company's ability to attract and retain personnel necessary to execute its
ATM business plan, the Company's ability to manage and achieve growth in a new
line of business, changes in technology affecting ATM transactions, the
Company's ability to expand its current relationships with retailers and broaden
its distribution network, changes in consumer practices and preferences with
respect to the location of, and use of, ATM's, and changes in the laws and
regulations applicable to non-bank ATMs. Factors that could adversely affect the
effectiveness of a third-party network of service providers include, but are not
limited to, the availability of third-party service providers in the geographic
areas needed, the Company's ability to negotiate contracts with the third-party
service provider, and the service quality of the third-party service provider.
Factors that could adversely affect the purchasing and installing additional
NextGen-TM- photocopiers include, but are not limited to, changes in consumer
practices and preferences with respect to the use of TRM's new photocopy
machines, and the performance and profitability of NextGen-TM- photocopy
machines, the Company's ability to purchase the additional photocopy machines,
and the Company's ability to effectively sell the customers the benefits of the
NextGen-TM- program. Factors that could adversely affect the ability to achieve
net cost savings and increased revenues from the installation of NextGen-TM-
photocopiers include management's ability to reduce labor costs to required
levels, continued customer acceptance of the photocopy services and increased
usage of photocopy services by potential and existing customers, and continued
product efficiencies experienced by the NextGen-TM- photocopiers. Factors that
could adversely affect expansion in existing and new markets include, but are
not limited to, business conditions in the market areas the Company targets for
expansion, competitive factors, customer demand for the Company's services and
the Company's ability to execute its plans successfully. Factors that could
adversely affect the addition of 3,000 SmartATMs include, but are not limited
to, securing contracts with third-parties to install SmartATMs at their sites,
the ability to purchase and install the SmartATMs, and the items described above
regarding the operation of the ATM business. Factors that could adversely affect
the offering and providing of e-commerce goods and services through SmartATMs
include, but are not limited to, the Company's ability to develop the technology
to open the channel of distribution, securing contracts with e-commerce vendors,
customer acceptance of the e-commerce solutions, the continued feasibility of
e-commerce business, and the items described above regarding the operation of
the ATM business. Factors that could adversely affect capital expenditures
include, but are not limited to, the items described above regarding the
operation of the ATM business, purchasing additional NextGen-TM- photocopiers,
the continued availability of a credit facility, the ability of the Company to
enter into additional financing arrangements, and the Company's ability to
negotiate favorable purchase agreements with ATM manufacturers. Any
forward-looking statements should be considered in light of these factors.
14
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to minimal market risks. Sensitivity of results of
operations to these risks is managed by maintaining a conservative investment
portfolio, which is comprised solely of money market funds, and entering into
long-term debt obligations with appropriate price and term characteristics. The
Company does not hold or issue derivative, derivative commodity instruments or
other financial instruments for trading purposes. Financial instruments held for
other than trading purposes do not impose a material market risk.
The Company is exposed to interest rate risk, as additional financing will
be needed due to the capital expenditures associated with expanding the
Company's business operations. The interest rate that the Company will be able
to obtain on debt financing will depend on market conditions at that time, and
may differ from the rates the Company has secured on its current debt.
Additionally, the Company is exposed to interest rate risk related to its credit
facility as of December 31, 1999. Advances against the credit facility
periodically renew, at which point the borrowings are subject to the then
current market interest rates, which may differ from the rates the Company is
currently paying on its borrowings.
The Company is exposed to foreign currency exchange rate risk, as it has
operations in Canada, France and the United Kingdom. The relative amount of
business transacted in these countries is outlined in footnote 11 to the
Consolidated Financial Statements beginning on page F=1 pf this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements and supplementary data required by this item are
included in this Report on Form 10-K commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to directors of the Company will be included under
"Election of Directors" in the Company's definitive proxy statement for its 2000
annual meeting of shareholders (the "2000 Proxy Statement") to be filed not
later than 120 days after the end of the fiscal year covered by this Report and
is incorporated herein by reference. Information with respect to executive
officers of the Company is included under Item 4(a) of Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation will be included under
"Executive Compensation" in the Company's 2000 Proxy Statement and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial owners
and management will be included under "Security Ownership of Certain Beneficial
Owners and Management" in the Company's 2000 Proxy Statement and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions
with management will be included under "Certain Transactions" in the Company's
2000 Proxy Statement and is incorporated herein by reference.
16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS PAGE IN THIS REPORT.
--------------------
Independent Accountants' Report F-1
Independent Auditors' Report F-2
Consolidated Balance Sheets as of June 30, 1998 and December 31, 1998 and
December 31, 1999 F-3
Consolidated Statements of Operations for each of the two years in
the period ended June 30, 1998, the six-month period ended
December 31, 1998, and the year ended December 31, 1999 F-4
Consolidated Statements of Shareholders' Equity for each of the
two years in the period ended June 30, 1998, the six-month period
ended December 31, 1998, and the year ended December 31, 1999 F-5
Consolidated Statements of Cash Flows for each of the two years in
the period ended June 30, 1998, the six-month period ended
December 31, 1998 and the year ended December 31, 1999 F-6
Notes to Consolidated Financial Statements F-7
2. FINANCIAL STATEMENT SCHEDULES:
III -- Valuation and Qualifying Accounts S-1
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.
3. EXHIBITS:
(a) The exhibits listed below are filed as part of this report
Exhibit
Number
------
3.1(a) Amendments to the Restated Articles of Incorporation (Incorporated
herein by reference to Exhibit 3.1(a) of Form 10-K for the fiscal
year ended June 30, 1998)
3.1(b) Restated Articles of Incorporation (Incorporated herein by
reference to Exhibit 3.1(b) of Form 10-K for the fiscal year ended
June 30, 1998)
3.2 Restated Bylaws (Incorporated herein by reference to Exhibit 3.2 of
Form 10-K for the fiscal year ended June 30, 1998)
4.1 Investors' Rights Agreement (Incorporated herein by reference to
Exhibit 4.1 of Form 8-K dated July 9, 1998)
17
Exhibit
Number
------
4.2 Articles V, VI and VII of the Restated Articles of Incorporation,
as amended (See Exhibit 3.1)
4.3 Articles I, II, V, VII and X of the Restated Bylaws (See
Exhibit 3.2)
10.1 Form of Indemnity Agreements with Registrant's directors and
executive officers (Incorporated herein by reference to Exhibit
10.1 of Form 10-K for the fiscal year ended June 30, 1997)
10.2 Loan Agreement with United States National Bank of Oregon, dated
March 31, 1997 (Incorporated herein by reference to Exhibit 10.2 of
Form 10-K for the fiscal year ended June 30, 1997)
10.3 a) Lease dated October 14, 1991 between Pacific Realty
Associates, L. P. and Registrant (for Registrant's
training facility in Portland, Oregon) (Incorporated
herein by reference to Exhibit 10.7 of Form S-1 dated
November 8, 1991 [No. 33-43829])
b) Lease amendment dated February 7, 1994, between Pacific
Realty Associates, L.P. and Registrant (Incorporated
herein by reference to Exhibit 10.7 of Form 10-K for the
fiscal year ended June 30, 1994)
c) Lease amendment dated August 10, 1994, between Pacific
Realty Associates, L.P. and Registrant (Incorporated
herein by reference to Exhibit 10.5 of Form 10-K for the
fiscal year ended June 30, 1995)
d) Lease dated August 10, 1994 between Pacific Realty
Associates, L.P. and Registrant (for the Registrant's
corporate headquarters in Portland, Oregon) (Incorporated
herein by reference to Exhibit 10.4 of Form 10-K for the
fiscal year ended June 30, 1995)
10.4 Restated 1986 Stock Incentive Plan (Incorporated herein by
reference to Exhibit 10.8 of Form 10-K for the fiscal year ended
June 30, 1994)
10.5 1996 Stock Option Plan, as amended (Incorporated herein by
reference to Exhibit 10.5 of Form 10-K for the fiscal year ended
June 30, 1998)
10.6 Employee Stock Purchase Plan (Incorporated herein by reference to
Exhibit 28.1 of Form S-8 dated December 7, 1992 [No. 33-55370])
10.7 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)
10.8 Employment Agreements:
a) Employment Agreement dated January 17, 1995 with Michael
D. Simon (Incorporated herein by reference to Exhibit 10.9
of Form 10-K for the fiscal year ended June 30, 1995)
b) Employment Agreement dated April 25, 1996 with Michael D.
Simon (Incorporated herein by reference to Exhibit 10.9 of
Form 10-K for the fiscal year ended June 30, 1996)
c) Employment Agreement dated August 18, 1997 with Frederic
P. Stockton (Incorporated herein by reference to Exhibit
10.8 of Form 10-K for the fiscal year ended June 30, 1998)
d) Employment Agreement dated September 18, 1997 with Paul M.
Brown (Incorporated herein by reference to Exhibit 10.8 of
Form 10-K for the fiscal year ended June 30, 1998)
e) Employment Agreement dated June 22, 1998 with Danial J.
Tierney (Incorporated herein by reference to Exhibit 10.8
of Form 10-K for the period ended December 31, 1998)
f) Employment Agreement dated September 29, 1998 with
Kathleen O. Hoogerhuis (Incorporated herein by reference
to Exhibit 10.8 of Form 10-K for the period ended December
31, 1998)
g) Employment Agreement dated February 8, 1999 with Kurt
Schusterman (Incorporated herein by reference to Exhibit
10.8 of Form 10-K for the period ended December 31, 1998)
h) Employment Agreement dated October 1, 1999 with Kathleen
O. Hoogerhuis.
10.9 Executive Supplemental Retirement Agreement with Edwin S. Chan
dated January 9, 1995
18
Exhibit
Number
------
(Incorporated herein by reference to Exhibit
10.9 of Form 10-K for the fiscal year ended June 30, 1995)
10.10 Preferred Stock and Warrants Purchase Agreement dated March 29,
1998 between the Company and ReadyCash Investment Partners, L.P.
(Incorporated herein by reference to Exhibit 10 of Form 10-Q for
the quarter ended March 31, 1998)
16.1 Letter from KPMG LLP regarding change in certifying accountant
(Incorporated herein by reference to Exhibit 16 of Current Report
on Form 8-K filed on September 2, 1999).
21.1 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers, LLP, Independent Accountants
23.2 Consent of KPMG LLP, Independent Auditors
24.1 Power of Attorney (see Signature page)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K on December 9, 1998 which
was dated November 25, 1998 for the purpose of changing its fiscal
year end date to December 31 from June 30.
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in Portland, Oregon,
on March 30, 1999.
TRM CORPORATION
------------------------------------
By: /S/ FREDERIC P. STOCKTON
Frederic P. Stockton
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Frederic P. Stockton his
attorney-in-fact, with the power of substitution, for him in any and all
capacities, to sign any amendments to this Report, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on March 30, 1999 on
behalf of the Registrant and in the capacities indicated:
SIGNATURE TITLE
- - --------------------------------------- --------------------------------------------------------------
/S/ FREDERIC P. STOCKTON President, Chief Executive Officer and Director
- - --------------------------------------- (Principal Executive Officer)
Frederic P. Stockton
/S/ SHAMI PATEL Vice President of Finance and Chief Financial Officer
- - --------------------------------------- (Principal Financial Officer and Principal Accounting Officer)
Shami Patel
/S/ EDWARD E. COHEN Chairman of the Board and Director
- - ---------------------------------------
Edward E. Cohen
/S/ DANIEL G. COHEN Director
- - ---------------------------------------
Daniel G. Cohen
/S/ JOSEPH G. DENTON Director
- - ---------------------------------------
Joseph G. Denton
/S/ KENT B. GODFREY Director
- - ---------------------------------------
Kent B. Godfrey
/S/ JOEL R. MESZNIK Director
- - ---------------------------------------
Joel R. Mesznik
/S/ FREDERICK O. PAULSELL Director
- - ---------------------------------------
Frederick O. Paulsell
/S/ DEBBIE HURD BAPTIST Director
- - ---------------------------------------
Debbie Hurd Baptist
/S/ KENNETH L. TEPPER Director
- - ---------------------------------------
Kenneth L. Tepper
20
EXHIBIT INDEX
Exhibit
Number
------
3.1(a) Amendments to the Restated Articles of Incorporation (Incorporated
herein by reference to Exhibit 3.1(a) of Form 10-K for the fiscal
year ended June 30, 1998)
3.1(b) Restated Articles of Incorporation (Incorporated herein by
reference to Exhibit 3.1(b) of Form 10-K for the fiscal year
ended June 30, 1998)
3.2 Restated Bylaws (Incorporated herein by reference to Exhibit 3.2 of
Form 10-K for the fiscal year ended June 30, 1998)
4.1 Investors' Rights Agreement (Incorporated herein by reference to
Exhibit 4.1 of Form 8-K dated July 9, 1998)
4.2 Articles V, VI and VII of the Restated Articles of Incorporation,
as amended (See Exhibit 3.1)
4.3 Articles I, II, V, VII and X of the Restated Bylaws
(See Exhibit 3.2)
10.1 Form of Indemnity Agreements with Registrant's directors and
executive officers (Incorporated herein by reference to
Exhibit 10.1 of Form 10-K for the fiscal year ended June 30, 1997)
10.2 Loan Agreement with United States National Bank of Oregon, dated
March 31, 1997 (Incorporated herein by reference to Exhibit 10.2 of
Form 10-K for the fiscal year ended June 30, 1997)
10.3 a) Lease dated October 14, 1991 between Pacific Realty
Associates, L. P. and Registrant (for Registrant's
training facility in Portland, Oregon) (Incorporated
herein by reference to Exhibit 10.7 of Form S-1 dated
November 8, 1991 [No. 33-43829])
b) Lease amendment dated February 7, 1994, between Pacific
Realty Associates, L.P. and Registrant (Incorporated
herein by reference to Exhibit 10.7 of Form 10-K for the
fiscal year ended June 30, 1994)
c) Lease amendment dated August 10, 1994, between Pacific
Realty Associates, L.P. and Registrant (Incorporated
herein by reference to Exhibit 10.5 of Form 10-K for the
fiscal year ended June 30, 1995)
d) Lease dated August 10, 1994 between Pacific Realty
Associates, L.P. and Registrant (for the Registrant's
corporate headquarters in Portland, Oregon) (Incorporated
herein by reference to Exhibit 10.4 of Form 10-K for the
fiscal year ended June 30, 1995)
10.4 Restated 1986 Stock Incentive Plan (Incorporated herein by
reference to Exhibit 10.8 of Form 10-K for the fiscal year ended
June 30, 1994)
10.5 1996 Stock Option Plan, as amended (Incorporated herein by
reference to Exhibit 10.5 of Form 10-K for the fiscal year ended
June 30, 1998)
10.6 Employee Stock Purchase Plan (Incorporated herein by reference to
Exhibit 28.1 of Form S-8 dated December 7, 1992 [No. 33-55370])
10.7 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)
21
Exhibit
Number
------
10.8 Employment Agreements:
a) Employment Agreement dated January 17, 1995 with Michael
D. Simon (Incorporated herein by reference to Exhibit 10.9
of Form 10-K for the fiscal year ended June 30, 1995)
b) Employment Agreement dated April 25, 1996 with Michael D.
Simon (Incorporated herein by reference to Exhibit 10.9 of
Form 10-K for the fiscal year ended June 30, 1996)
c) Employment Agreement dated August 18, 1997 with
Frederic P. Stockton (Incorporated herein by reference to
Exhibit 10.8 of Form 10-K for the fiscal year ended
June 30, 1998)
i) Employment Agreement dated September 18, 1997 with Paul M.
Brown (Incorporated herein by reference to Exhibit 10.8 of
Form 10-K for the fiscal year ended June 30, 1998)
j) Employment Agreement dated June 22, 1998 with Danial J.
Tierney (Incorporated herein by reference to Exhibit 10.8
of Form 10-K for the period ended December 31, 1998)
k) Employment Agreement dated September 29, 1998 with
Kathleen O. Hoogerhuis (Incorporated herein by reference
to Exhibit 10.8 of Form 10-K for the period ended December
31, 1998)
l) Employment Agreement dated February 8, 1999 with Kurt
Schusterman (Incorporated herein by reference to Exhibit
10.8 of Form 10-K for the period ended December 31, 1998)
m) Employment Agreement dated October 1, 1999 with Kathleen
O. Hoogerhuis.
10.9 Executive Supplemental Retirement Agreement with Edwin S. Chan
dated January 9, 1995 (Incorporated herein by reference to Exhibit
10.9 of Form 10-K for the fiscal year ended June 30, 1995)
10.10 Preferred Stock and Warrants Purchase Agreement dated March 29,
1998 between the Company and ReadyCash Investment Partners, L.P.
(Incorporated herein by reference to Exhibit 10 of Form 10-Q for
the quarter ended March 31, 1998)
16.1 Letter from KPMG LLP regarding change in certifying accountant
(Incorporated herein by reference to Exhibit 16 of Current Report
on Form 8-K filed on September 2, 1999).
21.1 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.2 Consent of KPMG LLP, Independent Auditors
24.1 Power of Attorney (see Signature page)
27.1 Financial Data Schedule
22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of TRM Corporation:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statement of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of TRM
Corporation and its subsidiaries at December 31, 1999, and the results of
their operations and their cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States. In
addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14(a)(2) on page 17 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial
statements and the financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audit.
We conducted our audit of these statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Portland, Oregon
February 15, 2000 except as to Note 14
which is as of March 17, 2000
F-1
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors
TRM Corporation (formerly TRM Copy
Centers Corporation):
We have audited the accompanying consolidated balance sheets of TRM Corporation
(formerly TRM Copy Centers Corporation) and subsidiaries as of December 31, 1998
and June 30, 1998, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the six months ended December 31, 1998
and for each of the years in the two-year period ended June 30, 1998. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule, as listed in the 14(a)(2)
Schedule III of Form 10-K of TRM Corporation. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TRM Corporation and
subsidiaries as of December 31, 1998 and June 30, 1998, and the results of their
operations and their cash flows for the six months ended December 31, 1998 and
for each of the years in the two-year period ended June 30, 1998, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic '
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
Portland, Oregon
February 19, 1999
F-2
TRM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
JUNE 30, DECEMBER 31,
1998 1998 1999
---------------- ---------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents (note 1) $ 20,177 $ 14,285 $ 16,775
Accounts receivable, net 7,423 7,436 7,362
Income tax receivable 645 412 378
Inventories (note 2) 3,809 3,486 3,771
Prepaid expenses and other 1,240 1,640 2,188
Deferred tax asset (note 7) 644 542 1,243
---------------- ---------------- ----------------
Total current assets 33,938 27,801 31,717
Equipment and vehicles, less accumulated depreciation
(notes 3 and 4) 41,624 51,211 62,648
Other assets 44 140 1,541
---------------- ---------------- ----------------
$ 75,606 $ 79,152 $ 95,906
================ ================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 7,558 9,992 2,880
Accrued expenses (note 5) 4,103 3,587 3,539
---------------- ---------------- ----------------
Total current liabilities 11,661 13,579 6,419
Long-term debt (note 6) -- -- 23,192
Deferred tax liability (note 7) 3,885 4,248 5,016
---------------- ---------------- ----------------
Total liabilities 15,546 17,827 34,627
---------------- ---------------- ----------------
Commitments (note 10) Shareholders' equity
(notes 8 and 9):
Preferred stock, no par value.
Authorized 5,000 shares; 1,778 shares issued and
outstanding 19,853 19,798 19,798
Common stock, no par value.
50,000 shares authorized, 7,057, 7,091, and
7,071 shares issued and outstanding, respectively 18,617 19,143 19,095
Accumulated other comprehensive income (107) 161 (427)
Retained earnings 21,697 22,223 22,813
---------------- ---------------- ----------------
Total shareholders' equity 60,060 61,325 61,279
---------------- ---------------- ----------------
$ 75,606 $ 79,152 $ 95,906
================ ================ ================
See accompanying notes to consolidated financial statements.
F-3
TRM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
SIX-MONTH FISCAL YEAR
FISCAL YEAR ENDED PERIOD ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1998 1998 1999
-------------- -------------- -------------- -----------------
Sales $ 69,881 $ 68,352 $ 33,334 $ 68,338
Less discounts 11,676 11,331 5,802 12,099
-------------- -------------- -------------- -----------------
Net sales 58,205 57,021 27,532 56,239
Cost of sales 28,389 28,224 14,265 30,066
-------------- -------------- -------------- -----------------
Gross profit 29,816 28,797 13,267 26,173
Selling, general and administrative
expense 20,445 21,491 11,437 22,605
Non-cash stock compensation (note 8) -- 1,146 -- --
Special charges (note 4) 4,088 6,380 -- --
-------------- -------------- -------------- -----------------
Operating income (loss) 5,283 (220) 1,830 3,568
Interest expense 396 68 40 412
Other expense (income), net 720 667 (328) (321)
-------------- -------------- -------------- -----------------
Income (loss) before income taxes 4,167 (955) 2,118 3,477
Provision (benefit) for income taxes
(note 7) 1,592 (373) 807 1,387
-------------- -------------- -------------- -----------------
Net income (loss) $ 2,575 $ (582) $ 1,311 $ 2,090
============== ============== ============== =================
Earnings per share computation:
Net income $ 2,575 $ (582) $ 1,311 $ 2,090
Preferred stock dividends -- -- (785) (1,500)
-------------- -------------- -------------- -----------------
Net income available to common
shareholders $ 2,575 $ (582) $ 526 $ 590
============== ============== ============== =================
Basic net income (loss) per share:
Shares outstanding 6,666 6,992 7,074 7,096
============== ============== ============== =================
Net income (loss) per share $ 0.39 $ (0.08) $ .07 $ 0.08
============== ============== ============== =================
Diluted net income (loss) per share:
Shares outstanding 7,285 6,992 7,488 7,271
============== ============== ============== =================
Net income (loss) per share $ 0.35 $ (0.08) $ .07 $ 0.08
============== ============== ============== =================
See accompanying notes to consolidated financial statements.
F-4
TRM CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
ACCUMULATED
OTHER
COMPREHENSIVE PREFERRED STOCK COMMON STOCK COMPREHENSIVE RETAINED
INCOME SHARES AMOUNTS SHARES AMOUNTS INCOME EARNINGS
----------------- ---------- ----------- --------- ----------- ----------------- ------------
BALANCES, JUNE 30, 1996 -- -- 6,484 16,214 (474) 19,704
Comprehensive income
Net income $2,575 -- -- -- -- -- 2,575
Other Comprehensive
income, net of tax
Foreign currency
Translation adjustment 422 -- -- -- -- 422 --
-----------------
Comprehensive income $2,997 -- -- -- -- -- --
================
Exercise of stock options -- -- 468 517 -- --
Tax benefit of stock options -- -- -- 96 -- --
Issuance of stock to employees -- -- 6 53 -- --
Purchase of outstanding shares -- -- (27) (279) -- --
---------- ----------- --------- ----------- ----------------- ------------
BALANCES, JUNE 30, 1997 -- -- 6,931 16,601 (52) 22,279
Comprehensive income
Net loss $(582) -- -- -- -- -- (582)
Other Comprehensive
income (loss), net of tax
Foreign currency
translation adjustment (55) -- -- -- -- (55) --
-----------------
Comprehensive income (loss) $(637) -- -- -- -- -- --
=================
Exercise of stock options -- -- 114 571 -- --
Tax benefit of stock options -- -- -- 201 -- --
Issuance of stock to employees -- -- 12 98 -- --
Issuance of preferred stock 1,778 19,853 -- -- -- --
Noncash stock compensation -- -- -- 1,146 -- --
---------- ----------- --------- ----------- ----------------- ------------
BALANCES, JUNE 30, 1998 1,778 19,853 7,057 18,617 (107) 21,697
Comprehensive income
Net income $1,311 -- -- -- -- -- 1,311
Other Comprehensive
income, net of tax
Foreign currency
translation adjustment 268 -- -- -- -- 268 --
----------------
Comprehensive income $1,579 -- -- -- -- -- --
================
Exercise of stock options -- -- 28 179 -- --
Tax benefit of stock options -- -- -- 304 -- --
Issuance of stock to employees -- -- 6 43 -- --
Issuance cost of preferred -- (55) -- -- -- --
stock
Preferred stock dividends -- -- -- --- (785)
---------- ----------- --------- ----------- ----------------- ------------
--
BALANCES, DECEMBER 31, 1998 1,778 $19,798 7,091 $19,143 $ 161 $22,223
========== =========== ========= =========== ================= ============
Comprehensive income
Net income 2,090 -- -- -- -- -- 2,090
Other Comprehensive
income, net of tax
Foreign currency
translation adjustment (588) -- -- -- -- (588) --
-----
Comprehensive income $1,502 -- -- -- --
======
Repurchase of common stock -- -- (60) (293) -- --
Exercise of stock options -- -- 5 21 -- --
Issuance of stock to employees -- -- 25 149 -- --
Issuance of common stock -- -- 10 75 -- --
Preferred stock dividends -- -- -- --- (1,500)
---------- ----------- --------- ----------- ----------------- ------------
--
BALANCES, DECEMBER 31, 1999 1,778 $19,798 7,071 $19,095 $ (427) $22,813
========== =========== ========= =========== ================= ============
TOTAL
------------
BALANCES, JUNE 30, 1996 35,444
Comprehensive income
Net income 2,575
Other Comprehensive
income, net of tax
Foreign currency
Translation adjustment 422
Comprehensive income --
Exercise of stock options 517
Tax benefit of stock options 96
Issuance of stock to employees 53
Purchase of outstanding shares (279)
------------
BALANCES, JUNE 30, 1997 38,828
Comprehensive income
Net loss (582)
Other Comprehensive
income (loss), net of tax
Foreign currency
translation adjustment (55)
Comprehensive income (loss) --
Exercise of stock options 571
Tax benefit of stock options 201
Issuance of stock to employees 98
Issuance of preferred stock 19,853
Noncash stock compensation 1,146
------------
BALANCES, JUNE 30, 1998 60,060
Comprehensive income
Net income 1,311
Other Comprehensive
income, net of tax
Foreign currency
translation adjustment 268
Comprehensive income --
Exercise of stock options 179
Tax benefit of stock options 304
Issuance of stock to employees 43
Issuance cost of preferred (55)
stock
Preferred stock dividends (785)
------------
BALANCES, DECEMBER 31, 1998 $61,325
============
Comprehensive income
Net income 2,090
Other Comprehensive
income, net of tax
Foreign currency
translation adjustment (588)
Comprehensive income
Repurchase of common stock (293)
Exercise of stock options 21
Issuance of stock to employees 149
Issuance of common stock 75
Preferred stock dividends (1,500)
------------
BALANCES, DECEMBER 31, 1999 $61,279
============
See accompanying notes to consolidated financial statements.
F-5
TRM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
SIX-MONTH
FISCAL YEAR ENDED PERIOD ENDED FISCAL YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31
1997 1998 1998 1999
-------------- --------------- --------------- -----------------
OPERATING ACTIVITIES:
Net income (loss) 2,575 (582) 1,311 2,090
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 5,591 5,953 3,787 9,069
Loss (gain) on disposal of equipment
and vehicles 234 175 (8) 290
Non-cash stock compensation -- 1,146 -- --
Special charges 4,088 6,380 -- --
Changes in items affecting operations:
Accounts receivable (440) 281 (13) 74
Inventories 566 (692) 323 (285)
Income taxes receivable -- (645) 233 34
Prepaid expenses and other (189) 5 (400) (548)
Accounts payable 240 4,581 2,434 (7,112)
Accrued expenses 324 229 (516) (48)
Deferred income taxes (311) (1,017) 465 67
-------------- ------------- ------------- ---------------
Total operating activities 12,678 15,814 7,616 3,631
-------------- ------------- ------------- ---------------
INVESTING ACTIVITIES:
Proceeds from sale of equipment 456 1,780 684 639
Capital expenditures (4,562) (20,155) (13,811) (21,330)
Other (33) 2 (96) (1,491)
-------------- ------------- ------------- ---------------
Total investing activities (4,139) (18,373) (13,233) (22,182)
-------------- ------------- ------------- ---------------
FINANCING ACTIVITIES:
Net borrowings on notes payable (7,728) (400) -- 23,192
Repurchase of common stock -- -- -- (293)
Net proceeds from issuance of common stock 387 870 526 245
Net proceeds from issuance of preferred
stock -- 19,853 -- --
Issuance cost of preferred stock -- -- (55) --
Preferred stock dividends -- -- (785) (1,500)
-------------- ------------- ------------- ---------------
Total financing activities (7,341) 20,323 (314) 21,644
-------------- ------------- ------------- ---------------
Effect of exchange rate changes 457 (115) 29 (603)
-------------- ------------- ------------- ---------------
Net increase in cash and cash equivalents 1,655 17,649 (5,892) 2,490
Beginning cash and cash equivalents 873 2,528 20,177 14,285
-------------- ------------- ------------- ---------------
Ending cash and cash equivalents $ 2,528 $ 20,177 $ 14,285 $ 16,775
============== ============= ============= ===============
See accompanying notes to consolidated financial statements.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
TRM Corporation delivers convenience services in retail environments to
consumers. The Company currently provides self-service cash delivery and account
balance inquiry, delivered through ATM machines, and photocopy services
delivered through TRM CopyCenters-TM-. TRM's convenience service locations are
easily recognized by the Company's distinctive yellow trapezoidal signage that
has achieved significant consumer recognition.
TRM's convenience services are made available in high traffic retail
locations that are convenient to consumers. TRM offers its services in over
34,000 retail locations in six countries - the United States, Canada, England,
France, Scotland and Wales. TRM provides the equipment, maintenance, supplies
and point of sale material s required for each of its installations, while the
retailer oversees the daily operation of the equipment, provides the necessary
floor space and shares in the revenue generated by TRM's offerings.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the parent
and its subsidiary companies (the Company). All significant intercompany
accounts and profits have been eliminated. Assets and liabilities of foreign
operations are translated into U.S. dollars at current exchange rates. Income
and expense accounts are translated into U.S. dollars at average rates of
exchange prevailing during the periods. Adjustments resulting from translating
foreign functional currency financial statements into U.S. dollars are taken
directly to a separate component of stockholders' equity. Foreign currency
transaction gains and losses are included in income and have been immaterial to
date.
CHANGE IN FISCAL YEAR END
During 1998, the Company changed its fiscal year end from June 30 to
December 31 in an effort to align operational objectives with the financial
reporting year. As a result, the Company has presented its financial position as
of June 30, 1998, December 31, 1998, and December 31, 1999 and has presented its
results of operations, cash flow and changes in shareholders' equity for the
fiscal years ended June 30, 1997 and June 30, 1998, the six month period ended
December 31, 1998, and the fiscal year ended December 31, 1999. For comparative
purposes, the Company has included unaudited condensed consolidated financial
information in Note 12 for the six month period ended December 31, 1997, and the
twelve month period ended December 31, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments, including cash and cash equivalents, accounts
receivable, and accounts payable, approximate fair market value because of
the short maturity for these instruments. Fair value approximates carrying
value of the Company's borrowings under its long-term debt arrangements based
upon interest rates available for the same or similar loans.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturity
dates of three months or less to be cash equivalents. As of December 31, 1999,
$16.1 million of the Company's reported cash balance represents cash held in its
ATM network.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
A portion of each copy sale is retained by the retail business, generally
depending on copy volume. The Company invoices each retailer via monthly
billings based on usage at the program price per copy less the applicable
discount (the amount retained by the retailer). Total sales activity and
discount amounts are recorded separately in the accounting records and in the
consolidated statements of operations to arrive at net sales.
F-7
Accounts receivable are shown net of allowance for doubtful accounts of
$156,000, $172,000 and $140,000 at June 30, 1998, December 31, 1998 and 1999,
respectively.
INVENTORIES
Inventories are stated at the lower of FIFO cost or market.
EQUIPMENT AND VEHICLES
Equipment and vehicles are recorded at cost plus amounts required to place
equipment in service. Depreciation begins when the asset is placed in service
and is generally recorded using the straight-line method over the estimated
remaining useful lives of the related assets as follows:
Photocopy centers 7-10 years
ATMs 10 years
Furniture and fixtures 5-7 years
Computer equipment 5 years
Vehicles 5 years
INCOME TAXES
The Company accounts for income taxes utilizing the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and income tax bases of assets and liabilities, and are measured by applying
enacted tax rates and laws to the taxable years in which such differences are
expected to reverse.
STOCK-BASED COMPENSATION
The Company applies APB No. 25, "Accounting for Stock Issued to Employees,"
and the related interpretations in accounting for stock-based compensation
plans. In fiscal 1998, the Company recorded $1.1 million of non-cash
compensation expense related to the revision of stock options of certain
retiring members of the Company's Board of Directors. In accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company has provided the
required footnote disclosures (see note 8).
STATEMENTS OF CASH FLOWS SUPPLEMENTAL INFORMATION
Income taxes paid were approximately $1,635,000, $1,171,000 and $942,000
for fiscal years ended June 30, 1997, 1998 and December 31,1999, respectively.
During the six-month period ended December 31, 1998, income taxes paid were
$280,000. Interest paid does not materially differ from interest expense.
NET INCOME (LOSS) PER SHARE
The Company follows the provisions of SFAS 128, "Earnings Per Share" which
requires presentation of both basic and diluted earnings per share (EPS) on the
face of the income statement. Basic EPS is computed using the weighted average
number of common shares outstanding during the period. Diluted EPS reflects the
potential dilution that could occur if convertible preferred shares outstanding
at the beginning of each year were converted at those dates with related
interest, preferred stock dividend requirements and outstanding common shares
adjusted accordingly. It also assumes that outstanding common shares were
increased by shares issuable upon exercise of those stock options for which
market price exceeds exercise price, less shares which could have been purchased
by the Company with related proceeds. The convertible preferred stock was not
included in the computation of diluted earnings per common share for the fiscal
period ended June 30, 1998 since it would have resulted in an antidilutive
effect. Dilutive common shares consist of options to purchase common stock.
F-8
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation. These changes had no impact on previously reported results of
operations or shareholder's equity.
2. INVENTORIES (in thousands):
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1998 1999
---- ---- ----
Paper $ 1,019 $ 795 $ 696
Toner and developer 629 678 550
Parts 2,161 2,013 2,525
----------------- ------------------- -------------------
$ 3,809 $ 3,486 $ 3,771
================= =================== ===================
3. EQUIPMENT AND VEHICLES (in thousands):
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1998 1999
---- ---- ----
Photocopiers $ 50,741 $ 64,094 $ 73,848
ATMs 6,160
Furniture and fixtures 1,436 1,474 1,437
Computer equipment 1,834 1,976 4,801
Vehicles 4,680 3,626 2,874
----------------- ------------------- -------------------
58,691 71,170 89,120
Accumulated depreciation (17,067) (19,959) (26,472)
----------------- ------------------- -------------------
$ 41,624 $ 51,211 $ 62,648
================= =================== ===================
4. SPECIAL CHARGES:
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," during fiscal
1997. This new accounting standard requires long-lived assets to be reviewed for
impairment when circumstances indicate the carrying amount of an asset may not
be recoverable. The Company considers historical performance and future
estimated results in its evaluation of potential impairment and then compares
the carrying amount of the asset to the estimated future cash flows expected to
result from the use of the asset. If the carrying amount of the asset exceeds
estimated expected undiscounted future cash flows, the Company measures the
amount of the impairment by comparing the carrying amount of the asset to its
fair value.
During the period ended June 30, 1997, the Company recognized a non-cash
impairment charge of $4,088,000 pretax ($2,526,000 and $0.35 per share after
tax). This charge included impairment write downs of equipment in three
categories: color copiers, custom business card printing components and certain
older generation black and white copiers. It was concluded during 1997 that the
equipment purchased in 1993 and 1994 to support the Company's color and business
card businesses was technologically dated and that the full asset carrying
amounts were not recoverable. In addition, the Company entered an agreement with
a major copier manufacturer to purchase a new generation black and white copier
("NextGen-TM-") to expand its core black and white photocopy business.
F-9
During the period ended June 30, 1998, new management joined the Company
and evaluated the performance of assets in the photocopy business. With the
growth of the NextGen-TM- photocopy program, the Company has decided to retire
over half of its older Savin photocopiers at low-volume locations, resulting in
the recording of special charges as noted hereafter:
Disposal of under-performing machines $4,324
Disposal of replacement parts and inventory relating to under-performing machines 1,494
Other 562
-------
Total special charges $6,380
=======
5. ACCRUED EXPENSES (in thousands):
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1998 1999
---- ---- ----
Accrued payroll expenses $ 2,918 $ 2,287 $ 2,059
Customer security deposits 218 225 197
Accrued taxes other than income 330 358 114
Other accrued expenses 637 717 1,169
----------------- ------------------- -------------------
$ 4,103 $ 3,587 $ 3,539
================= =================== ===================
6. BANK BORROWINGS (in thousands):
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1998 1999
---- ---- ----
Bank revolving loan, unsecured, maximum
limit of $30.0 million $ -- $ -- $ 23,192
================= =================== ===================
The revolving loan agreement calls for monthly payments of interest only
until expiration on April 1, 2000, or as renegotiated. (See Note 14.) At that
time, no additional borrowings will be available, and the outstanding loan
balance will be due and payable. The arrangement allows the Company to choose
from interest rate alternatives based on the bank's reference rate or on LIBOR.
It also calls for a loan fee which was paid at the date of the loan. The
interest rate applicable to bank borrowings as of December 31, 1999 ranged
between 7.38% and 8.5% according to the LIBOR attached to specific borrowings
under the credit facility. The loan agreement contains certain restrictive
covenants as to working capital, total liabilities and stockholders' equity. The
Company is in compliance with the covenants.
7. INCOME TAXES:
Income (loss) before income taxes is as follows (in thousands):
FISCAL YEAR ENDED JUNE 30, SIX-MONTH PERIOD FISCAL YEAR ENDED
ENDED DECEMBER 31 DECEMBER 31,
1997 1998 1998 1999
---- ---- ---- ----
United States $ 1,223 $ (3,900) $ 971 $ 2,673
Foreign 2,944 2,945 1,147 804
-------------------------------------------------------------------------------
$ 4,167 $ (955) $ 2,118 $ 3,477
===============================================================================
The components of income tax expense (benefit) are as follows (in thousands):
F-10
SIX-MONTH PERIOD FISCAL YEAR ENDED
FISCAL YEAR ENDED JUNE 30, ENDED DECEMBER 31, DECEMBER 31,
-------------------------- ------------------ ------------
1997 1998 1998 1999
---- ---- ---- ----
CURRENT:
Federal $ 1,074 $ (537) $ -- $ --
State 459 -- -- 80
Foreign 370 877 275 472
DEFERRED:
Federal (1,097) (598) 314 910
State (320) (384) 68 186
Foreign 1,106 269 150 (261)
==============================================================================
$ 1,592 $ (373) $ 807 $ 1,387
==============================================================================
Deferred tax assets (liabilities) are comprised of the following components
(in thousands):
JUNE 30, DECEMBER 31, DECEMBER 31,
-------- ------------ ------------
1998 1998 1999
---- ---- ----
CURRENT:
Accrued liabilities $ 432 $ 428 $ 1,163
Accounts receivable allowance 52 52 18
Other 160 62 62
=========================================================================
$ 644 $ 542 $ 1,243
=========================================================================
NONCURRENT:
Deferred Compensation $ 458 $ 443 $ 454
Net operating losses 126 498 2,166
Tax depreciation in excess
of book depreciation (4,469) (5,189) (7,636)
-------------------------------------------------------------------------
$ (3,885) $ (4,248) $ (5,016)
=========================================================================
No valuation allowance has been recorded at June 30, 1998, or December 31, 1998
or 1999.
The effective tax rate differs from the federal statutory tax rate as
follows:
FISCAL YEAR ENDED SIX-MONTH PERIOD FISCAL YEAR ENDED
----------------- ---------------- -----------------
JUNE 30, ENDED DECEMBER 31 DECEMBER 31,
-------- ----------------- ------------
1997 1998 1998 1999
---- ---- ---- ----
Statutory federal rate 34.0% 34.0% 34.0% 34.0%
State taxes, net of federal benefit 7.6 5.0 1.8 4.8
(Benefit) provision for foreign tax rates (4.1) (5.1) 0.4 (0.6)
Other 0.7 5.2 1.9 1.7
-----------------------------------------------------------------------------
38.2% 39.1% 38.1% 39.9%
=========== =================================================================
8. STOCKHOLDERS' EQUITY:
PREFERRED STOCK
On June 24, 1998 the Company issued and sold 1,777,778 Series A Preferred
Shares and Warrants to purchase 500,000 shares of Common Stock for net proceeds
of approximately $19.8 million. Each share of Preferred Stock has one vote, and
votes together with the Common Stock as a single class on all matters. Each
share is convertible at any time at the option of the holder into .7499997 of a
share of Common Stock. In addition, each share of
F-11
Preferred Stock is automatically converted into .7499997 shares of Common Stock
if the price of Common Stock is at least $20.00 for a period of 90 consecutive
days commencing after June 30, 1999. The conversion ratio and exercise prices
are adjusted for any combination or subdivision of shares, stock dividend, stock
split or recapitalization. Dividends on the Series A Preferred Shares are
cumulative from the date of original issuance and are payable quarterly in
March, June, September and December of each year, commencing June 1998, at the
rate of 7-1/2% per annum. In the event of any liquidation, dissolution or
winding up of the affairs of the Company, each holder of Series A Preferred
Stock shall be paid the aggregate Liquidation Value, $11.25 per share, plus all
accumulated and unpaid dividends to the date of liquidation, dissolution or
winding up of affairs before any payment to holders of Junior Securities.
Preferred dividends totaling $785,000 were paid during the six-month period
ending December 31, 1998, and $1.5 million in preferred dividends were paid
during the year ended December 31, 1999.
In conjunction with closing the preferred share transaction, the Company
amended certain retiring Board members' stock option agreements to extend the
exercise period for the options to ten years from June 24, 1998. Pursuant to APB
No. 25, and due to the extension of the exercise period, $1.1 million was
recognized as non-cash compensation expense in the year ended June 30, 1998.
COMMON STOCK
On June 24, 1998 the Company announced shareholder approval of an amendment
to the Company's Restated Articles of Incorporation increasing the number of
authorized shares of common stock from 10,000,000 shares to 50,000,000 shares.
REPURCHASE OF COMMON STOCK
During 1999, the Company repurchased common stock in accordance with the
authority granted to it by its Board of Directors in a September of 1997
meeting. The Board authorized the repurchase of up to 500,000 shares. A total of
60,000 shares were repurchased in 1999 for a total price of $293,000 at prices
ranging from $4.56 to $6.09 per share. No shares were repurchased prior to 1999.
ISSUANCE OF COMMON STOCK
During 1999, the Company issued 9,956 shares of its common stock in order
to purchase certain photocopy location contracts and related photocopy equipment
from a related party. The market value of the common stock issued was $75,000.
COMMON STOCK WARRANTS
On June 24, 1998 the Company granted Warrants to the purchasers of the
Series A Preferred Stock which allow the purchase of 500,000 shares of Common
Stock at $15.00 per share . The Warrants are exercisable in whole or in
increments of at least 75,000 shares. Warrants representing 200,000 shares
expire three years after the date of grant, and Warrants representing 300,000
shares expire seven years after the date of grant. The Warrants may be exercised
by the payment of cash, by payment in shares of Common Stock, or on a cashless
basis whereby the Company will issue the number of shares of Common Stock equal
in value to the difference between the fair market value of the Warrant shares
and the exercise price.
COMMON STOCK OPTIONS
The Company reserved 1,300,000 shares of common stock for issuance under an
incentive and nonqualified stock option plan established in 1986 (the "1986
Plan"). In October 1996, the 1996 Stock Option Plan (the "1996 Plan") was
approved by shareholders of the Company, which provided for the granting of a
maximum of 700,000 options to purchase common shares to key employees of the
Company. In June 1998, the shareholders of the Company approved a proposal to
increase the maximum options in the 1996 Plan from 700,000 to 1,200,000, thus
bringing the total shares of common stock for issuance under stock option plans
to 2,500,000. In May of 1999, the shareholders of the Company approved a
proposal to increase the maximum options in the 1996 Plan from 1,200,000 to
1,700,000, thus bringing the total shares of common stock eligible for issuance
under all stock option plans to 3,000,000. Under both plans ("the Plans"),
incentive stock options are granted at no less than 100% of the
F-12
fair market value per share of the common stock. Nonqualified stock options
under the 1986 Plan were granted at prices determined by the Board of Directors,
while grants under the 1996 Plan are granted at no less than 100% of fair market
value. The options are exercisable over a period of ten years from the date of
grant. Generally, the options vest over five years.
A summary of stock option activity follows:
SHARES PRICE RANGE WEIGHTED AVERAGE
UNDER OPTION EXERCISE PRICE
------------------------------------------------------------------------
BALANCE, JUNE 30, 1997 1,048,550 $ 2.00 - $ 10.625 $ 6.29
Options granted 437,500 $ 9.00 - $ 14.50 $ 9.99
Options exercised (113,850) $ 4.00 - $ 10.375 $ 5.01
Options canceled (32,700) $ 6.25 - $ 10.625 $ 8.39
------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 1,339,500 $ 2.00 - $ 14.50 $ 7.56
Options granted 256,500 $ 8.00 - $ 10.00 $ 8.85
Options exercised (28,200) $ 4.125 - $ 6.375 $ 6.35
Options canceled (55,400) $ 6.25 - $ 10.375 $ 9.03
------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 1,512,400 $ 2.00 - $ 10.375 $ 7.13
Options granted 767,000 $ 4.50 - $ 8.00 $ 6.10
Options exercised (5,000) $ 4.125 - $ 4.125 $ 4.13
Options canceled (211,300) $ 6.375 - $ 9.875 $ 7.79
------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999
(1,153,019 EXERCISABLE, 2,063,100 $ 2.00 - $ 10.375 $ 6.97
99,700 AVAILABLE FOR GRANT)
------------------------------------------------------------------------
------------------------------------------------------------------------
On December 14, 1998, the Company repriced a total of 608,500 options from
their original granted exercise price to $8.00 which was above the market value
on that date. The weighted average of the original exercise price of the options
was $11.60. No compensation expense was required to be recorded in the financial
statements of the Company as a result of the repricing.
A summary of stock options outstanding follows:
Options Outstanding Options Exercisable
------------------------------------------------------------ --------------------------------------------
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding at Remaining Exercise Exercisable at Exercise
Exercise Price December 31,1999 Contractual Life Price December 31, 1999 Price
- - ----------------------------------------------------------------------------------------------------------------------------------
$ 2.00 to $ 4.875 844,900 7.0 $ 4.11 409,900 $ 3.72
- - ----------------------------------------------------------------------------------------------------------------------------------
$ 5.00 to $ 7.875 65,700 5.5 $ 6.04 52,300 $ 5.85
- - ----------------------------------------------------------------------------------------------------------------------------------
$ 8.00 to $10.625 1,152,500 8.0 $ 8.59 690,819 $ 8.98
- - ----------------------------------------------------------------------------------------------------------------------------------
$ 2.00 to $10.625 2,063,100 7.5 $ 6.97 1,153,019 $ 6.97
- - ----------------------------------------------------------------------------------------------------------------------------------
The Company applies APB No. 25 and related interpretations in accounting
for its stock-based compensation plans. Accordingly, no compensation expense has
been recognized for its stock-based compensation plans, except for $1,146,000 in
fiscal 1998 for the extension of the exercise period for certain directors. Had
compensation cost for the Company's stock option and stock purchase plans been
determined based upon the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under SFAS No. 123, "Accounting
for Stock-Based Compensation," the Company's net income (loss) and earnings
(loss) per share would have been reduced to the pro forma amounts indicated
below:
F-13
FISCAL YEAR
SIX MONTHS ENDED ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31, DECEMBER 31,
---------------------------------- ------------------ ----------------
1997 1998 1998 1999
---- ---- ---- ----
(In thousands except per share amounts)
Net Income As Reported $ 2,575 $ (582) $ 1,311 $ 2,090
Pro Forma $ 2,395 $ (1,339) $ 1,129 $ 61
$
Earnings per share - basic As Reported $ .39 $ (.08) $ .07 $ .08
Pro Forma $ .36 $ (.19) $ .05 $ .01
Earnings per share - dilutedAs Reported $ .35 $ (.08) $ .07 $ .08
Pro Forma $ .33 $ (.19) $ .05 $ .01
- - ------------------------------------------------------------------------------------------------------------------------------
For purposes of the pro forma calculations, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
method. The weighted average fair value of options granted for the fiscal years
ended June 30, 1997, 1998, for the six-month period ended December 31, 1998, and
the fiscal year ended December 31, 1999 as calculated by the Black-Scholes
model, and the assumptions used are shown in the following table:
FISCAL YEAR ENDED SIX-MONTH FISCAL YEAR
JUNE 30, PERIOD ENDED ENDED
----------------------------- DECEMBER 31, DECEMBER 31,
1997 1998 1998 1999
---- ---- ---- ----
Weighted average fair value of options: $ 4.13 $ 3.59 $ 2.78 $ 2.09
Dividend yield: -- --- -- --
Expected volatility: 39.60% 36.80% 35.60% 38.11%
Risk-free interest rate: 6.40% 5.52% 4.61% 5.641%
Expected life: 4 years 4 years 4 years 3.5 years
The results of applying SFAS No. 123 for providing the pro-forma disclosure
for the periods presented above are not likely to be representative of future
years because options are generally granted on an annual basis and vest over
time.
9. BENEFIT PLANS:
PROFIT SHARING RETIREMENT PLAN
On January 1, 1990, the Company established a profit sharing retirement
plan for eligible U.S. employees. The Plan has profit sharing and 401(k)
components. The Company's contribution under the profit sharing portion of the
Plan is discretionary. Under the 401(k) part of the Plan, each employee may
contribute, on a pretax basis, up to 20% of the employee's gross earnings,
subject to certain limitations. The Company also has supplemental retirement
plans in Canada and the United Kingdom. The Company accrued profit sharing
contributions of $260,000 for fiscal 1997 and $270,000 for fiscal 1998. No
amounts were accrued for profit sharing during the six-month period ended or
December 31, 1998, or the year ended December 31, 1999. The Company paid
matching contributions of $228,000 to the 401k plan during the year ended
December 31, 1999, with no matching amounts in earlier periods.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan permits each eligible employee
to purchase shares of common stock through payroll deductions, not to exceed 10%
of the employee's compensation. The purchase price of the shares is the lower of
85% of the fair market value of the stock at the beginning of each six-month
offering period or 85% of the fair market value at the end of such period.
Amounts accumulated through payroll deductions during the offering period are
used to purchase shares on the last day of the offering period. Of the 100,000
shares authorized
F-14
to be issued under the Plan, 96,938 shares have been purchased, and 3,062 shares
remain available for purchase as of December 31, 1999. The Company has not been
authorized to offer additional shares to be deferred under this plan as of the
date of this report.
10. COMMITMENTS:
The Company leases vehicles and office and warehouse space in several
locations under operating leases. Minimum lease payments are as follows:
$2,153,000, $1,821,000, $1,441,000, $1,095,000 and $1,174,000 for calendar
years, 2000, 2001, 2002, 2003 and 2004, respectively, and $2,773,000
thereafter. Rental expense for fiscal years 1997, 1998 and 1999 was
$2,358,000, $2,818,000, and 1,772,000 respectively. Rental expense for the
six month period ended December 31, 1998 was $1,313,000.
In 1998, the Company entered an agreement with Konica Business Machines
("Konica") to purchase 10,000 new, state-of-the-art black and white NextGen(TM)
photocopiers over a three year span. At December 31, 1998, the Company had
purchased over 6,000 units under this agreement. The Company fulfilled its
remaining obligation during 1999. The Company has signed an agreement with
Konica to purchase 10,000 additional photocopiers in 2000. The Company has
signed an agreement to purchase 1,000 NCR ATMs of which it had already acquired
170 at December 31, 1999.
11. SEGMENT REPORTING:
In fiscal 1998, the Company adopted SFAS No. 131 - "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). This statement
establishes new standards for the manner in which companies report operating
segment information, as well as disclosures about products and services and
major customers. Prior to 1999, the Company had only one business segment.
The Company has two reportable segments: Photocopy and ATM. Photocopy owns
and maintains self-service photocopiers in retail establishments. ATM owns and
operates ATM machines in retail establishments.
The accounting policies of the segments are substantially the same as those
described in Note 1. The Company evaluates each segment's performance based on
income or loss before interest and income taxes, excluding non-recurring
charges. Information regarding the operations in these reportable segments is as
follows:
FOR THE YEAR ENDED
DECEMBER 31, 1999
--------------------------
(AMOUNTS IN THOUSANDS)
Sales:
Photocopy.................................. $ 67,183
ATM........................................ 1,432
Eliminations............................... (277) (1)
----------------------------
$ 68,338
============================
Depreciation and Amortization:
Photocopy.................................. 8,889
ATM........................................ 180
----------------------------
$ 9,069
============================
Income (Loss) Before Interest and Taxes:
Photocopy.................................. 5,087
ATM........................................ (1,198)
----------------------------
$ 3,889
============================
FOR THE YEAR ENDED
DECEMBER 31, 1999
--------------------------
(AMOUNTS IN THOUSANDS)
F-15
Capital Expenditures:
Photocopy.................................. $ 15,040
ATM........................................ 6,290
----------------------------
$ 21,330
============================
Assets:
Photocopy.................................. 71,984
ATM........................................ 23,922
----------------------------
$ 95,906
============================
(1) Eliminations are for inter-company Revenue charged by the Photocopy business
to the ATM business.
Revenues are attributed to geographic areas based on the location of the
assets producing the revenues. All revenues are attributed to external
customers. No customers accounted for 10% or more of the Company's revenue for
the two-year period ended June 30, 1998, or the six-month period ended December
31, 1998, or the year ended December 31, 1999. Information about the Company's
domestic and foreign operations are presented hereafter (in thousands).
SALES LONG LIVED ASSETS
--------------------------------------------------------------------- -----------------------------------------
Six-month Fiscal year
period ended ended
Fiscal year ended June 30, December 31, December 31, June 30, December 31, December 31,
-------------------------------- --------------- -------------- ----------- -------------- --------------
1997 1998 1998 1999 1998 1998 1999
----------- ---------- --------------- -------------- ----------- -------------- --------------
United States $43,949 $41,563 $20,813 $44,613 $23,554 $33,975 $46,784
Foreign:
United Kingdom 18,335 19,437 9,113 16,834 12,634 11,691 11,324
Canada 4,543 4,223 1,894 4,027 2,059 2,135 3,510
France 3,038 3,093 1,514 2,864 3,421 3,550 2,571
Other -- -- -- -
---------- --------- -------------- ------------- ---------- ------------- -------------
16 36 --
-- -- --
$69,881 $68,352 $33,334 $68,338 $41,668 $51,351 $64,189
======= ======= ======= ======= ======= ======= =======
12. UNAUDITED OPERATING RESULTS
The unaudited condensed consolidated results of operations of the Company
for the six month period ended December 31, 1997 and the year ended December 31,
1998 are presented below. In the opinion of management, the accompanying
unaudited condensed consolidated results of operations contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly the
results of operations:
For the twelve
For the six months months ended
ended December 31, 1997 December 31, 1998
------------------------ ------------------
(Amounts in thousands, except per share data)
Sales $ 32,947 $ 68,740
Income before income taxes 3,158 (2,001)
Income taxes 1,234 (800)
Net income $ 1,924 $ (1,201)
Net Income per Common Share:
Net income per share--basic $ 0.28 $ (0.28)
Net income per share--diluted $ 0.26 $ (0.28)
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
CALENDAR YEAR ENDED DECEMBER 31, 1997: (In thousands except per share amounts)
F-16
Sales $ 18,023 $ 17,934 $ $ 16,238 $ $ 16,709
Net Sales 14,981 14,956 13,668 13,994
Gross Profit 7,851 7,764 6,774 6,847
Net Income (loss) 1,365 (990) 1,033 891
Preferred Stock Dividend -- -- -- --
Net income (loss) available to common 1,365 (990) 1,033 891
shareholders
Basic Net Income (loss) per share .20 (.14) .15 .13
Diluted Net Income (loss) per share .19 (.14) .14 .12
CALENDAR YEAR ENDED DECEMBER 31, 1998:
Sales $ 17,648 $ 17,757 $ 15,848 $ 17,487
Net Sales 14,702 14,657 13,169 14,363
Gross Profit 7,288 7,888 6,213 7,018
Net Income (loss) (3,173) 667 484 821
Preferred Stock Dividend -- -- (404) (381)
Net income (loss) available to common (3,173) 667 80 440
shareholders
Basic Net Income (loss) per share (.45) .09 .01 .06
Diluted Net Income (loss) per share (.45) .09 .01 .06
CALENDAR YEAR ENDED DECEMBER 31, 1999:
Sales 16,948 17,268 16,257 17,865
Net Sales 13,859 14,170 13,470 14,740
Gross Profit 6.750 6.883 5.915 6.625
Net Income 881 788 206 215
Preferred Stock Dividend 370 374 374 382
Net income available to common 511 414 (168) (167)
shareholders
Basic Net Income per share .07 .06 (.02) (.02)
Diluted Net Income per share .07 .06 (.02) (.02)
14. SUBSEQUENT EVENTS
RESTRUCTURED BANK LINE OF CREDIT. On March 17, 2000, the Company signed a
Business Loan Agreement (the "Loan Agreement") with Bank of America N.A. which
extends through June 30, 2002. The terms of the Loan Agreement provide the
Company with a line of credit commitment equal to $30 million through June 30,
2001, reducing to $25 million though June 30, 2002. The interest rate is based
on the bank's prime rate with options to secure LIBOR-based rate during the term
of the Loan Agreement. The loan is secured by a first-interest lien on the
Company's photocopy-based assets. Assets related to he Company's ATM business
are not encumbered as part of the Loan Agreement. The terms of the Loan
Agreement require the Company to maintain certain financial covenants pertaining
to net worth, cash flow, and debt to equity ratios.
COMMERCIAL PAPER FACILITY. In March of 2000, the Company established a $30.0
million financing facility to access a commercial paper conduit to provide vault
cash for its ATM network. This facility can be increased to $75 million, and the
agreement resulted in the removal of the cash and underlying bank borrowings
from the Company's balance sheet. The financing was completed off the Company's
balance sheet on a non-recourse basis. The Company initially funded $23.6
million under the facility to supply its ATMs with cash.
F-17
TRM CORPORATION (FORMERLY TRM COPY CENTERS CORPORATION) AND SUBSIDIARIES
SCHEDULE III - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1997 AND 1998
THE TRANSITION PERIOD ENDED DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
Balance at Charged to Charged to Balance at
Beginning of Costs and Other Deductions - End of
Period Expenses Accounts Write Offs Period
--------------- ---------------- ------------- ---------------- ------------
Year ended June 30, 1997
Allowance for doubtful accounts $287 $835 $ -- $(974) $148
--------------- ---------------- ------------- ---------------- ------------
Year ended June 30, 1998
Allowance for doubtful accounts $148 $771 $ -- $(763) $156
--------------- ---------------- ------------- ---------------- ------------
Reserve for deposit $100 $200 $ -- $ -- $300
--------------- ---------------- ------------- ---------------- ------------
Six months ended December 31,
1998
Allowance for doubtful accounts $156 $349 $ -- $(333) $172
--------------- ---------------- ------------- ---------------- ------------
Reserve for deposit $300 $ -- $ -- $ -- $300
--------------- ---------------- ------------- ---------------- ------------
Year Ended December 31, 1999
Allowance for doubtful accounts $172 $392 $ -- $(424) $140
--------------- ---------------- ------------- ---------------- ------------
Reserve for deposit $300 $ -- $ -- $ -- $300
================ =============== ============= ================ =============
S-11