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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, 2000
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, 2001 the aggregate market value of the registrant's
Common Stock held by non-affiliates of the registrant was $6,753,253. Solely for
purposes of this calculation, the registrant has treated its Board of Directors
and executive officers as affiliates.
As of March 1, 2001 the number of shares of the registrant's Common
Stock outstanding was 7,063,190.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts of registrant's Proxy Statement for the annual meeting of
shareholders on June 7, 2001 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........................................7
6. Selected Financial Data......................................................................................7
7. Management's Discussion and Analysis of Financial Condition..................................................8
7(a) Quantitative and Qualitative Disclosures about Market Risk .................................................15
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. 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
35,000 retail locations in the United States, the United Kingdom, Canada, and
France. 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, Bi-Lo, and international
multi-site retailers that include Londis, Martins, Balfour, Couche-Tard,
Depan-Escompt, and WalMart Canada.
The Company believes one of its strengths is the existence of a service
and distribution system with both Company operated and service partner operated
locations, from which equipment, supplies and parts, as well as office support
services, are available to service technicians who provide support for the
Company's retail partners. 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 the 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. 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. This infrastructure oversees all the
requirements of individual states and countries from accounting requirements, to
human resources needs, and provides the necessary information systems and
technology to conduct business on a global scale.
During 2000, TRM established a majority owned subsidiary,
iATMglobal.net, to develop and commercially establish the ability to deliver
multiple products and services through the ATM distribution channel.
TRM believes its financial position at December 31, 2000 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. At December 31, 2000, the
Company has total long-term debt of $29.6 million compared to total assets of
$110.9 million.
The Company was not in compliance with all the financial ratios under
its Loan Agreement with Bank of America N.A. at December 31, 2000. This
agreement was amended on February 14, 2001 to waive noncompliance and to
establish amended ratios for the year 2001. The Company expects its financial
position will continue to allow for the implementation of its growth strategy
related to its SmartATM business as discussed under the "Strategy" and "Products
and Services" sections.
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 industries.
1
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 once its SmartATM
network is broadened. In addition to 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
TRM entered the SmartATM business in 1999 in portions of both the
United States and the United Kingdom. The Company entered the year 2000 with an
installed base of 443 ATMs and expanded its installed machine base to 1,857 ATMs
by December 31, 2000.
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.
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 believes it is one of the largest ISO (independent system operators)
or non-bank ATM deployers in the United Kingdom.
In 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 that will provide TRM the ability to deliver additional
Internet-based convenience e-commerce goods and services in addition to the cash
delivery and balance inquiry services presently being offered.
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 an estimated
1200 new TRM SmartATM locations during fiscal year 2001. The Company believes
that its position as an early entrant into the United Kingdom convenience ATM
market presents significant business growth opportunity to be achieved in
England, Scotland and Wales. The Company expects that the majority of its ATM
placements in 2001 will be in that market. As of December 31, 1999 there were
25,000 ATMs installed by all ATM providers in the United Kingdom. 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.
PHOTOCOPIERS
As of December 2000, TRM owned and maintained approximately 33,000
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 monitoring of their usage. Each TRM
CopyCenter-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 CopyCenter-TM-
and benefits from any increase in walk-in traffic. The Company invoices and
collects payment from each retailer monthly.
2
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 the space and electrical power for the
TRM CopyCenter-TM- and supervises its use. Consumers report the number of uses
of the TRM CopyCenter-TM- to the retail business cashier, who collects payment.
Each month, the retail business keeps a percentage of the TRM CopyCenter-TM-'s
revenue, generally based on a sliding scale related to usage as recorded by the
TRM CopyCenter-TM-'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 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 CopyCenters-TM-.
The Company is seeking to further leverage this infrastructure in order to
expand its SmartATM business.
Photocopy pricing is based on market competition, volume and retailer
preference. Retail pricing decisions are made by the retailer based on the
experience and recommendations of TRM for individual site pricing strategies.
The Company views the photocopy business as a mature business with
limited opportunities for large-scale expansion. TRM intends to continue to
manage the photocopy business by controlling growth in new and existing market
areas. The Company expects to continue to evaluate 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 retail customers.
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
consumers are increasing ownership of personal copiers, the Company does not
believe that this has 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 in the future.
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 to those offered
by the Company. Many of these competitors' ATMs, however, do not have the
PC-based technology and the Company plans to leverage its ATMs to offer
e-commerce solutions in the future.
3
QUARTERLY SEASONALITY
Historically, the Company has experienced slightly higher than average
revenue in the January-March and April-June quarters which coincide with tax
season in the U.S. The Company experiences slightly lower than average revenues
per retail location during July-September with European countries having
extended holiday periods during this time of year.
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 provides 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 consumer access to e-commerce goods and services in the
future at convenient locations.
Previously, TRM entered into a strategic banking relationship with
Woolwich PLC to provide ATM services in the United Kingdom. Woolwich provided
cash inventory and cash management services for all of TRM's ATMs located in
retail establishments in England, Scotland and Wales. In addition, Woolwich
provided sponsorship into the LINK cash delivery network in the United Kingdom.
In mid-2000, a change in regulations allowed TRM to be a direct member of LINK.
As a result of this change, and Woolwich's desire to exit the surcharging ATM
market in the United Kingdom, TRM and Woolwich terminated their relationship in
March 2001.
TRM entered into strategic relationships early in 2001 with Alliance &
Leicester PLC and its affiliate, Girobank PLC to provide cash inventory and
certain services to some of TRM's ATM's 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 23,000 of the
Company's 33,355 CopyCenter-TM- locations worldwide.
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 on
these relationships with suppliers, the Company believes it has sufficient stock
and resources at hand to assure that the needs of the business are met.
EMPLOYEES
As of December 31, 2000, the Company had 466 employees, most of whom
were full time. Two hundred sixty two are in field service, and 204 are in
sales, marketing, customer service, purchasing, billing, administration,
training, and 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 trademarks. 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
photocopy 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
jurisdictions. 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.
4
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 70 Service Center locations
outside Portland, Oregon, in the USA and abroad. 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. As of December 31, 2000 ,
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 2000.
ITEM 4(a). EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers of the Company as of March 15, 2001.
NAME AGE POSITION
---- --- --------
Frederic P. Stockton 49 Chief Executive Officer and President
Daniel L. Spalding 47 Vice President of Finance and Chief Financial Officer
Paul M. Brown 47 Senior Vice President of Operations
Danial J. Tierney 45 Senior Vice President of Sales and Marketing
Kathleen O. Hoogerhuis 45 Vice President of ATM Business
Gary M. Cosmer 30 Vice President and Chief Technology Officer
Bryan Clark 41 Vice President of Operations
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.
Daniel L. Spalding was appointed Vice President and Chief Financial
Officer in May 2000. Prior to joining TRM, Mr. Spalding was Senior Vice
President of PacifiCorp, a diversified electric utility, since 1992, and
Chairman and Chief Executive Officer of its Powercor Australia subsidiary since
1995. Mr. Spalding holds a B.B.A. degree from the University of
Wisconsin-Whitewater.
5
Paul M. Brown was appointed Senior Vice President of 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 of 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 a M.B.A. from the University of Santa Clara.
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 Technology 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 Operations in
January 2000. He joined TRM in March of 1997 as a Regional Sales Manager and was
promoted to U.S. 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 Merrill Lynch. Mr. Clark holds B.A. degrees in both Finance and
Accounting from Kansas State University.
6
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.
At March 1, 2001 there were 266 shareholders of record of the Company's
Common Stock and 7,063,190 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
1998 or in the six-month period ended December 31, 1998, or in the fiscal year
ended December 31, 1999, or in the fiscal year ended December 31, 2000. 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 $1.1
million during the year ended December 31, 2000 and has accrued an additional
$377,000 at year-end. The company ceased paying dividends on the Series A
Preferred Stock late in year 2000.
The Company's amended loan agreement prohibits the payment of preferred
dividends except dividends payable in the form of additional preferred shares of
the Company's stock (see "Liquidity and Capital Resources"). The Company does
not anticipate the payment of preferred dividends in the form of additional
shares of preferred stock.
COMMON STOCK PRICE HISTORY
The following table sets forth the high and low sale prices for the
last 8 quarters.
High Low
1st Quarter 1999 $7.250 $7.000
2nd Quarter 1999 $6.750 $6.250
3rd Quarter 1999 $5.500 $4.500
4th Quarter 1999 $6.125 $5.250
1st Quarter 2000 $7.063 $6.813
2nd Quarter 2000 $7.000 $4.750
3rd Quarter 2000 $6.000 $2.031
4th Quarter 2000 $3.500 $0.563
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below for, and as of the end of,
each of the years in the three-year period ended June 30, 1998, the six-month
period ended December 31, 1998, and the years ended December 31, 1999 and 2000
have been derived from the audited financial statements of the Company.
Quarterly financial data is included in Note 15 included in the financial
statements 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.
7
SELECTED FINANCIAL DATA
(In thousands, except per share and other operating data)
Six-month
period Fiscal Year Fiscal Year
Fiscal Years ended ended ended
ended June 30, December 31, December 31, December 31,
--------------------------------------- ------------------------------------------
1996 1997 1998 1998 1999 2000
--------------------------------------- ------------------------------------------
Sales $ 67,538 $ 69,881 $ 68,352 33,334 $ 68,338 $ 76,081
Sales discount (11,728) (11,676) (11,331) (5,802) (12,099) (12,268)
Net sales 55,810 58,205 57,021 27,532 56,239 63,813
Gross profit 27,800 29,816 28,797 13,267 26,173 24,380
Operating income (loss) 8,311 5,283 (220) 1,830 3,568 (5,311)
Income before cumulative effect of
change in accounting principle 4,124 2,575 (582) 1,311 2,090 (4,755)
Cumulative effect of change
in accounting principle -- -- -- -- -- 856
Net income (loss) 4,124 2,575 (582) 1,311 2,090 (3,899)
Preferred stock dividend -- -- -- (785) (1,500) (1,500)
Net income (loss) available
to common stockholders 4,124 2,575 (582) 526 590 (5,399)
Basic net income (loss) per share
before accounting change 0.64 0.39 (0.08) 0.07 0.08 (0.88)
Diluted net income (loss) per share
before accounting change 0.57 0.35 (0.08) 0.07 0.08 (0.88)
PRO FORMA AMOUNTS, ASSUMING
THE CHANGE IN ACCOUNTING WAS
APPLIED RETROACTIVELY;
Effect of accounting
change per share -- -- 0.01 0.02 0.09 --
Net income (loss) per share after
accounting change 0.57 0.35 (0.07) 0.09 0.17 (0.88)
Balance Sheet Data:
Working capital 8,860 9,886 22,277 14,222 25,298 (3,449)
Total assets 54,251 50,478 75,606 79,152 95,906 110,920
Long-term debt 8,128 400 -- -- 23,192 21,513
Preferred stock -- -- 19,853 19,798 19,798 19,798
Shareholders' equity 35,444 38,828 60,060 61,325 61,279 54,547
Other Operating Data:
TRM Copy Centers 31,719 34,796 33,349 30,953 34,414 33,355
ATM locations -- -- -- -- 443 1,857
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 2000, TRM aggressively grew its new ATM services business and
established its e-commerce business while its core Photocopy services business
generated solid revenue and cash flow. Financial results for the year were
adversely effected by losses associated with the expansion of the ATM services
business and the start up of the e-commerce business.
The Company launched ATM operations in the first quarter of 1999 in the
United States, and the third quarter of 1999 in the United Kingdom. The Company
ended the year 2000 with 850 operating units deployed in the United States and
1,007 in
8
Europe. The ATM business contributed $10.4 million to annual gross revenues and
the e-commerce business contributed $800,000 in revenues. The Company expects
that revenues generated from services delivered through its ATM network and
e-commerce subsidiary will become an increasingly higher percentage of its
overall revenue in the future as it expands the placements and product offerings
in these businesses, and pursues new geographic opportunities.
In the Photocopy business, the number of service areas the Company
operates in has increased from 54 to 70 since June 1995 and now includes 47 TRM
service centers in the United States, 5 in Canada, 15 in the United Kingdom and
3 in France. Additionally, third party service providers support the Company's
customers in over 100 additional locations. The number of TRM CopyCenters-TM-
has increased 15% percent, from 28,995 in 1995 to 33,355 in 2000. In 2000, the
Photocopy business generated $5.5 million dollars in earnings before interest,
taxes and cumulative effect of accounting change. In implementing the
NextGen-TM- program, the Company has been able to convert 82% of its revenue
stream to three- to five-year agreements. The long term agreements were achieved
as larger chain stores perceived increased quality in 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.
However, losses associated with the Company's growing ATM and e-commerce
businesses have adversely effected the Company's financial ratios and compliance
with its debt covenants. Early in 2001 the Company reached agreement with its
bank to waive existing non-compliances and amend the applicable covenants for
2001. The Company expects to be in compliance with the amended covenants. The
Company anticipates generating adequate cash from operations and from current
financing facilities to service its debt obligations and continue to expand its
ATM business.
MATTERS AFFECTING ANALYSIS
As a result of the Company's change in fiscal year end from June 30 to
December 31, which commenced in 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. The results for the twelve-month period ended December 31, 1998 were
not audited.
In the fourth quarter of 2000, the Company changed its accounting
policy and adopted the units-of-production method of depreciating its Konica
model 2223 and 2230 photocopy machines. The new depreciation method was applied
retroactively as of January 1, 2000, resulting in a cumulative effect of the
accounting change of $856,000 net of tax. Pro forma amounts, assuming the change
in accounting method was applied retroactively are shown on the face of the
consolidated statement of operations (see discussion in note 3).
9
RESULTS OF OPERATIONS
The following tables set 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
Six Month Fiscal Year Fiscal Year
Fiscal Year Period Ended Ended Ended
Ended June 30, December 31, December 31, December 31,
1997-98 1997-98 1998-99 1999-00
-------------- ------------ ------------ ------------
Sales (2.20)% 1.20% (0.60)% 11.30%
Sales discounts (3.00) 9.80 2.10 1.30
Cost of sales (0.60) 1.60 5.60 31.10
Selling, general and administrative 5.10 12.40 (2.50) 31.30
Non-cash stock compensation -- -- -- --
Special charges 84.10 -- 100.00 --
Operating income (loss) (104.20) (45.30) 255.40 (248.80)
Interest Expense, net (82.80) 81.80 232.30 429.60
Other, net (7.40) -- (23.40) (37.00)
Income (loss) before income taxes
and cumulative effect of accounting change (122.90) (32.90) 273.80 (295.40)
Provision for income taxes (123.40) (34.60) 273.4 (247.10)
Income before cumulative effect of
accounting change -- -- -- (327.50)
Cumulative effect of accounting
change -- -- -- 100.00
Net income (loss) (122.60)% (31.90)% 274.0 (286.60)%
10
Percentage of Sales
Fiscal Years Six Month
Ended Period Ended
June 30, December 31, Fiscal Years Ended December 31,
(unaudited)
1997 1998 1998 1998 1999 2000
---- ---- ---- ---- ---- ----
Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Sales discounts taxes 16.70 16.60 17.40 17.20 17.70 16.10
Cost of sales 40.60 41.30 42.90 41.50 44.00 51.80
Selling, general and administrative 29.30 31.50 34.20 33.70 33.10 39.00
Non-cash stock compensation -- 1.70 -- -- -- --
Special charges 5.80 9.30 -- 10.90 -- --
---- ----- ---- ------ ----- -----
Operating income (loss) 7.60 (0.40) 5.50 (3.30) 5.20 (6.90)
Interest Expense, net 0.60 -- 0.10 0.20 0.60 2.80
Other, net 1.00 1.00 (1.00) (0.60) (0.50) (0.20)
---- ----- ----- ------ ----- -----
Income (loss) before minority
interest 6.00 (1.40) 6.40 (2.90) 5.10 (9.50)
Minority Interest -- -- -- -- -- 0.60
---- ----- ----- ------ ----- -----
Income (loss) before income taxes
and cumulative effect of
accounting change 6.00 (1.40) 6.40 (2.90) 5.10 (8.90)
Provision (benefit) for income
taxes 2.30 0.50 2.50 (1.20) 2.00 (2.60)
---- ----- ----- ------ ----- -----
Income (loss) before cumulative
effect of accounting change 3.70 0.90 3.90 (1.70) 3.10 (6.30)
Cumulative effect of accounting
change -- -- -- -- -- 1.20
---- ----- ----- ------ ----- -----
Net income (loss) 3.70% (0.90)% 3.90% (1.70)% 3.10% (5.10)%
==== ===== ===== ====== ===== =====
FISCAL YEAR ENDED DECEMBER 31, 2000 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1999
For the year ended December 31, 2000, consolidated sales increased by
$7.75 million (11.3%) to $ 76 million from $68.3 million for 1999. Photocopy
sales alone were down by $2.3 million (3.4%), and average billed revenue per
unit decreased 12.21%. The decrease in billed revenue per unit was primarily the
result of a 1.43% decrease in overall copy volume and a decrease of 3% in the
number of installed units.
Revenues from the Company's ATM business increased to $10.4 million
during 2000 from $1.43 million in 1999. The Company experienced this significant
increase in ATM revenues due to increases in the Company's base of installed ATM
units.
Sales discounts are the portion of revenue retained by retail
customers. Sales discounts are greater in the photocopy business than in the ATM
business and 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 2000 compared to 1999 reflects the
decrease in overall copy volume per unit and the increased size of the ATM
business.
Costs of sales on a consolidated basis increased $9.4 million (31%) for
the year ended December 31, 2000 compared to 1999. The $9.4 million increase is
due to the expansion of the ATM business. This increase, plus increasing third
party service provider fees were partially offset by a $2.4 million reduction in
the amount of current year depreciation expense recorded for certain photocopy
equipment due to a change in accounting method that occurred in the fourth
quarter, retroactive to January 1, 2000 (see discussion under note 3). Costs of
paper, toner, parts, field labor and other costs remained at 1999 levels.
11
Selling, general and administrative expenses increased $7.1 million
(31%) during the year ended December 31, 2000 compared to 1999. These costs were
33.1 percent and 39.0 percent of sales for 1999 and 2000, respectively. The
increase is primarily the result of increased labor and operating costs.
During the year ended December 31, 2000, interest expense increased to
$2.2 million from $412,000 in 1999. The increase was due to an increase in
borrowings on the Company's revolving line of credit during 2000 primarily as
the result of increased borrowings to finance the purchase of ATMs related to
the expansion of the ATM business and the formation of the e-commerce
subsidiary.
Other income decreased to $202,000 from $321,000 during the year ended
December 31, 2000 compared to 1999. The decrease was primarily due to the
reduction in interest income earned caused by the decrease in cash balances.
The Company's effective tax rate for the year ended December 31, 2000
was 30 percent, resulting in an income tax benefit of $2 million, compared to an
effective rate of 39.9 percent in 1999. The change in the effective tax rate for
fiscal year 2000 as compared to fiscal year 1999 is due to the valuation
allowance of $765,000 related to the subsidiary's net operating loss. The
effective tax rate would be 39.6% if the valuation allowance had not been
recognized.
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 of revenue and
cash flow on a unit basis.
Revenues from the Company's new ATM business were $1.4 million during
1999 with no revenues in 1998.
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.
12
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.
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 Statements beginning 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 2000, TRM generated $9.8 million in cashflows from operations
and decreased its net working capital from $25.3 million at December 31, 1999
(including cash and cash equivalents of $16.8 million) to $(3.4) million at
December 31, 2000. The Company also has a $30.0 million bank line of credit,
with $28 million in borrowings and $900,000 in standby letters of credit
outstanding at December 31, 2000. The Company was not in compliance with all
loan covenants at December 31, 2000. In February 2001, the Company executed an
amendment to its loan agreement waiving existing non-compliances and
establishing new covenants for 2001. Under this agreement, the line of credit
will reduce monthly to a level of $19.6 million at December 31, 2001 and will
mature on January 4, 2002.
During 2000, the Company funded capital expenditures of $29.2 million
primarily from cash which was available as of December 31, 1999, cash generated
from operations, and proceeds from an asset lease facility, 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 invested $5 million in the establishment
of its e-commerce subsidiary.
13
Prior to 2000, the Company also funded vault cash inventory in its U.S.
ATM network. In March 2000, the Company established a $30.0 million financing
facility to access a commercial paper conduit to provide vault cash for its U.S.
ATM network. This facility can be increased to $75 million. The financing was
completed off the Company's balance sheet on a non-recourse basis. In March
2001, this facility was renewed at a level of $20 million.
The Company currently anticipates capital expenditures of approximately
$8 million during calendar 2001. Most of the expenditures 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. The Company intends to seek
longer term financing of its asset base in the upcoming year.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The standard, as amended by Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities Deferral of the Effective Date of FASB Statement No. 133,
an amendment of FASB Statement No. 133", and Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of FASB Statement No. 133" (referred to
hereafter as "FAS 133"), is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. FAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or in
other comprehensive income, depending on whether a derivative is designated as
part of a hedging relationship and, if it is, depending on the type of hedging
relationship. The Company adopted FAS 133 effective in 1999 with no impact to
the financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 provides guidance for revenue recognition under certain
circumstances. The Company has complied with the guidance provided by SAB No.
101 for the year ending December 31, 2000. Compliance with this provision did
not have a material impact on the Company's financial position, results of
operations or cash flows.
In September 2000, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
FAS 140 is effective for transfer and servicing transactions occurring after
March 31, 2001. It is effective for disclosures about securitizations and
collateral and for the recognition and reclassification of collateral for fiscal
years ending after December 15, 2000. Adoption of this standard is not expected
to have a material impact on the Company's financial position, results of
operations or cash flows.
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 is now converting to the Euro, and
the United Kingdom may become subject to the conversion. The Company believes
that it is accommodating 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 1,200 SmartATMs;
complying with new debt covenants and the ability to service its debt
obligations; expanding the ATM business; offering and providing e-commerce goods
and services through SmartATMs; and the financing of 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,
ATMs, 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
14
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 purchase and installation of 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, 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 1,200 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 affect expansion
of the ATM business include, but are not limited to, items described above
regarding expansion in existing and new markets and operation of the ATM
business. Factors that would affect the Company's compliance with new debt
covenants and the ability to service its debt obligations include, but are not
limited to, the items described above regarding operation of the ATM business,
expansion in new and existing markets, and capital expenditures and the
financing of capital expenditures. 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 and
the financing of 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, and continued cash flow from the Company's operations, 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.
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, 2000. 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 note 12 to the
Consolidated Financial Statements beginning on page F-1 of 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 2001 annual meeting of shareholders (the "2001 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 the Company's officers' and directors' compliance
with the reporting requirements of Section 16(a) of the Securities Exchange
Act of 1934, as amended, will be included in the 2001 Proxy Statement.
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 2001 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 2001 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 2001 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 December 31, 1999 and December 31, 2000 F-3
Consolidated Statements of Operations for the fiscal year ended June 30, 1998, the six-
month period ended December 31, 1998, the fiscal years ended December 31, 1999, and
December 31, 2000 F-4
Consolidated Statements of Shareholders' Equity for the fiscal year ended June 30, 1998,
the six-month period ended December 31, 1998, and the fiscal years ended December 31,
1999, and December 31, 2000 F-5
Consolidated Statements of Cash Flows for the fiscal year ended June 30, 1998, the six-
month period ended December 31, 1998 and the fiscal years ended December 31, 1999 and
December 31, 2000 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)
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)
17
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:
c) Employment Agreement dated dated August 14, 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.
i) Employment Agreement dated January 1, 2000 with Paul Brown.
j) Employment Agreement dated January 1, 2000 with Bryan Clark.
k) Employment Agreement dated February 8, 2000 with Gary Cosmer.
l) Employment Agreement dated January 1, 2000 with Danial Tierney.
m) Employment Agreement dated April 24, 2000 with Daniel Spalding.
10.9 Executive Supplemental Retirement Agreement with Edwin S. Chan dated January 9, 1995 (Incorporated herein b
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)
10.11 First Amendment to Third Amended and Restated Business Loan Agreement
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
18
EXHIBIT
NUMBER
- ------
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.2 Consent of KPMG LLP, Independent Auditors
23.3 Independent Accountant's Letter of Preferability for Account Change
24.1 Power of Attorney (see Signature page)
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fiscal year
ended December 31, 2000.
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, 2001.
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, 2001 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/ Daniel L. Spalding Vice President of Finance and Chief Financial Officer
- -------------------------------- (Principal Financial Officer and Principal Accounting Officer)
Daniel L. Spalding
/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/ Slavka Glaser Director
- --------------------------------
Slavka Glaser
/s/ Joel R. Mesznik Director
- --------------------------------
Joel R. Mesznik
/s/ Frederick O. Paulsell Director
- --------------------------------
Frederick O. Paulsell
/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 fisca
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:
c) Employment Agreement dated dated August 14, 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
i) Employment Agreement dated January 1, 2000 with Paul Brown
j) Employment Agreement dated January 1, 2000 with Bryan Clark
k) Employment Agreement dated February 8, 2000 with Gary Cosmer
l) Employment Agreement dated January 1, 2000 with Danial Tierney
m) Employment Agreement dated April 24, 2000 with Daniel Spalding
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)
10.11 First Amendment to Third Amended and Restated Business Loan Agreement
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
23.3 Independent Accountant's Letter of Preferability for Accounting
Change
24.1 Power of Attorney (see Signature page)
22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of TRM Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and of cash
flows, present fairly, in all material respects, the financial position of
TRM Corporation and its subsidiaries at December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our
opinion, the financial statement schedule listed in the index on page 17
appearing under Item 14(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, 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 audits provide a
reasonable basis for our opinion.
As discussed in note 3 of the consolidated financial statements, the Company
changed its method of depreciating photocopy equipment as of January 1, 2000.
PricewaterhouseCoopers LLP
Portland, Oregon
March 2, 2001
F-1
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
TRM Corporation (formerly TRM Copy Centers Corporation):
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of TRM Corporation (formerly TRM Copy
Centers Corporation) and subsidiaries for the fiscal year ended June 30, 1998
and the six months ended December 31, 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. Those 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 results of operations and the
cash flows of TRM Corporation (formerly TRM Copy Centers Corporation) and
subsidiaries for the fiscal year ended June 30, 1998 and the six months ended
December 31, 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.
/s/ KPMG LLP
Portland, Oregon
February 19, 1999
F-2
TRM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
DECEMBER 31,
1999 2000
------------------------------------
ASSETS
Current assets:
Cash and cash equivalents (note 1) $ 16,775 $ 6,012
Accounts receivable, net 7,362 10,703
Income tax receivable 378 101
Inventories (note 2) 3,771 3,616
Prepaid expenses and other 2,188 1,843
Deferred tax asset (note 7) 1,243 1,328
-------------- ---------------
Total current assets 31,717 23,603
Equipment and vehicles, less accumulated depreciation (notes 3 and 4) 62,648 80,478
Restricted Cash (note 6) 1,780
-------------- ---------------
Other assets 1,541 5,059
-------------- ---------------
$ 95,906 $ 110,920
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,880 $ 11,406
Accrued expenses (note 5) 3,539 7,286
Current portion of long-term debt 8,360
-------------- ---------------
Total current liabilities 6,419 27,052
Long-term debt (note 6) 23,192 21,285
Deferred tax liability (note 7) 5,016 3,053
Other long-term liabilities -- 228
-------------- ---------------
Total liabilities 34,627 51,618
-------------- ---------------
Minority Interest 4,755
-------------- ---------------
-- --
Commitments (note 10)
Shareholders' equity (notes 8 and 9):
Preferred stock, no par value.
Authorized 5,000 shares; 1,778 shares issued and outstanding 19,798 19,798
Common stock, no par value.
50,000 shares authorized 7,071, and 7,063 shares issued and
outstanding, respectively 19,095 19,032
Accumulated other comprehensive income (427) (1,697)
Retained earnings 22,813 17,414
-------------- ---------------
Total shareholders' equity 61,279 54,547
-------------- ---------------
$ 95,906 $ 110,920
============== ===============
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
FISCAL YEAR PERIOD ENDED ENDED ENDED
ENDED JUNE 30 DECEMBER 31 DECEMBER 31, DECEMBER 31,
1998 1998 1999 2000
------------ ------------- -------------- ----------------
Sales $ 68,352 $ 33,334 $ 68,338 $ 76,081
Less discounts 11,331 5,802 12,099 12,268
------------ ------------- -------------- ----------------
Net sales 57,021 27,532 56,239 63,813
Cost of sales 28,224 14,265 30,066 39,433
------------ ------------- -------------- ----------------
Gross profit 28,797 13,267 26,173 24,380
Selling, general and administrative expense 21,491 11,437 22,605 29,691
Non-cash stock compensation (note 8) 1,146 -- -- --
Special charges (note 4) 6,380 -- -- --
------------ ------------- -------------- ----------------
Operating income (loss) (220) 1,830 3,568 (5,311)
Interest expense 68 40 412 2,182
Other expense (income), net 667 (328) (321) (202)
------------ ------------- -------------- ----------------
Income (loss) before Minority Interest (955) 2,118 3,477 (7,291)
Minority Interest in Earnings of Consolidated
Subsidiary -- -- -- 495
------------ ------------- -------------- ----------------
Income (loss) before income taxes and cumulative
effect of change in accounting principle (955) 2,118 3,477 (6,796)
------------ ------------- -------------- ----------------
Provision (benefit) for income taxes (note 7) (373) 807 1,387 (2,041)
------------ ------------- -------------- ----------------
Income before cumulative effect of
accounting change (582) 1,311 2,090 (4,755)
Cumulative effect of accounting change -- -- -- 856
------------ ------------- -------------- ----------------
Net income (loss) $ (582) $ 1,311 $ 2,090 $ (3,899)
============ ============= ============== ================
Earnings per share computation:
Net income (loss) $ (582) $ 1,311 $ 2,090 $ (3,899)
Preferred stock dividends -- (785) (1,500) (1,500)
------------ ------------- -------------- ----------------
Net income (loss) available to common
shareholders $ (582) $ 526 $ 590 $ (5,399)
============ ============= ============== ================
Basic net income (loss) per share:
Shares outstanding 6,992 7,074 7,096 7,068
============ ============= ============== ================
Net income (loss) per share $ (0.08) $ 0.07 $ 0.08 $ (0.76)
============ ============= ============== ================
Diluted net income (loss) per share:
Shares outstanding 6,992 7,488 7,271 7,068
Net income (loss) per share $ (0.08) $ 0.07 $ 0.08 $ (0.76)
Cumulative effect of accounting change
per share (0.12)
================
Diluted loss per share before cumulatative
effect of accounting change $ (0.88)
================
PRO FORMA AMOUNTS, ASSUMING THE CHANGE
IN ACCOUNTING WAS APPLIED RETROACTIVELY
Net Income (loss) (510) 1,473 2,712 $ (4,755)
================
Net Income (loss) available to common shareholders (510) 688 1,212 $ (6,255)
================
Basic Net Income (Loss) per share (0.07) 0.09 0.17 $ (0.88)
================
Diluted Net Income (Loss) per share (0.07) 0.09 0.17 $ (0.88)
================
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 TOTAL
INCOME SHARES AMOUNTS SHARES AMOUNTS INCOME EARNINGS
-------------------------------------------------------------------------------------------------------
BALANCES, JUNE 30, 1997 - - 6,931 $16,601 $(52) $22,279 $38,828
Comprehensive income
Net Income $(582) - - - - - (582) (582)
Other comprehensive
income, net of tax
foreign currency
translation adjustment (55) - - - - (55) - (55)
------
Comprehensive income $(637) - - - - - - -
======
Exercise of stock options - - 114 571 - - 571
Tax benefit of stock options - - - 201 - - 201
Issuance of stock to employees - - 12 98 - - 98
Issuance of cost of preferred stock 1,778 19,853 - - - - 19,853
Noncash stock compensation - - - 1,146 - - 1,146
----- ------- ----- ------- ------ ------- -------
BALANCES, JUNE 30, 1998 1,778 $19,853 7,057 $18,617 $(107) $21,697 $60,060
Comprehensive income
Net income $1,311 - - - - - 1,311 1,311
Other comprehensive
income, net of tax
foreign currency
translation adjustment 268 - - - - 268 - 268
------
Comprehensive income $1,579 - - - - - - -
======
Exercise of stock options - - 28 179 - - 179
Tax benefit of stock options - - - 304 - - 304
Issuance of stock to employees - - 6 43 - - 43
Issuance cost of preferred - (55) - - - - (55)
stock
Preferred stock dividends - - - - - (785) (785)
----- ------- ----- ------ ------ ------ ------
BALANCES, DECEMBER 31, 1998 1,778 $19,798 7,091 $19,143 161 $22,223 $61,325
Comprehensive income
Net income $2,090 - - - - - 2,090 2,090
Other comprehensive
income, net of tax
foreign currency
translation adjustment (588) - - - - (588) - (588)
------
Comprehensive income $1,502 - - - - - -
======
Repurchase of common stock - - (60) (293) - - (293)
Exercise of stock options - - 5 21 - - 21
Issuance of stock to employees - - 25 149 - - 149
Issuance of common stock - - 10 75 - - 75
Preferred stock dividends - - - - - (1,500) (1,500)
----- ------- ----- ------ ------ ------ ------
BALANCES, DECEMBER 31, 1999 1,778 $19,798 7,071 $19,095 $(427) $22,813 $61,279
Comprehensive income
Net income $(3,899) - - - - - (3,899) (3,899)
Other comprehensive
income, net of tax - - - - - - -
foreign currency
translation adjustment (1,270) - - - - (1,270) - (1,270)
-----
Comprehensive income $(5,169) - - - - - - -
========
Repurchase of common stock - - (16) (98) - - (98)
Exercise of stock options - - 5 20 - - 20
Issuance of stock to employees - - 3 15 - - 15
Preferred stock dividends - - - - - (1,500) (1,500)
----- ------- ----- ------- ------- ------- -------
BALANCES, DECEMBER 31, 2000 1,778 $19,798 7,063 $19,032 $(1,697) $17,414 $54,547
===== ======= ===== ======= ======= ======= =======
See accompanying notes to consolidated financial statements.
F-5
TRM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
SIX-MONTH FISCAL YEAR FISCAL YEAR
FISCAL YEAR PERIOD ENDED ENDED ENDED
ENDED JUNE 30 DECEMBER 31 DECEMBER 31, DECEMBER 31,
1998 1998 1999 2000
------------- ----------- ------------ ------------
OPERATING ACTIVITIES:
Net income (loss) $ (582) 1,311 $ 2,090 $ (3,899)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Cumulative effect of accounting change,
net of tax (856)
Depreciation and amortization 5,953 3,787 9,069 9,393
Minority interest in earnings of consolidate
subsidiary (495)
Loss (gain) on disposal of equipment and vehicles 175 (8) 290 244
Non-cash stock compensation 1,146
Special charges 6,380
Write-off of intangible 152
Changes in items affecting operations:
Restricted cash (1,780)
Accounts receivable 281 (13) 74 (3,091)
Inventories (692) 323 (285) 214
Income taxes receivable (645) 233 34 277
Prepaid expenses and other 5 (400) (548) 345
Accounts payable 4,581 2,434 (7,112) 8,199
Accrued expenses 229 (516) (48) 3,747
Deferred income taxes (1,017) 465 67 (2,613)
------------- ----------- ------------ -----------
Total operating activities 15,814 7,616 3,631 9,837
------------- ----------- ------------ -----------
INVESTING ACTIVITIES:
Proceeds from sale of equipment 1,780 684 639 2,709
Capital expenditures (20,155) (13,811) (21,330) (29,180)
Other 2 (96) (1,491) (1,688)
Proceeds from sale of subsidiary shares 5,000
Acquisition of e-commerce business (799)
------------- ----------- ------------ -----------
Total investing activities (18,373) (13,223) (22,182) (23,958)
------------- ----------- ------------ -----------
FINANCING ACTIVITIES:
Net borrowings on notes payable (400) 23,192 4,897
Other long-term liabilities 228
Repurchase of common stock (293) (98)
Net proceeds from issuance of common stock 870 526 245 35
Net proceeds from issuance of preferred
stock 19,853
Issuance cost of preferred stock (55)
Preferred stock dividends (785) (1,500) (1,123)
------------- ----------- ------------ -----------
Total financing activities 20,323 (314) 21,644 3,939
------------- ----------- ------------ -----------
Effect of exchange rate changes (115) 29 (603) (581)
------------- ----------- ------------ -----------
Net increase (decrease) in cash and cash equivalents 17,649 (5,892) 2,490 (10,763)
Beginning cash and cash equivalents 2,528 20,177 14,285 16,775
------------- ----------- ------------ -----------
Ending cash and cash equivalents $ 20,177 $ 14,285 $ 16,775 $ 6,012
============= ============= ============= ===========
Acquistion of e-commerce business:
Net assets acquired $ 1,049
Stock issued (250)
----
Cash paid $ 799
===========
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
35,000 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.
During 2000, the Company formed an e-commerce subsidiary,
iATMglobal.net, to deliver a unique distribution channel to access the Internet
initially using its existing ATMs and eventually rolling out the software
capability worldwide to other ATMs. The Company presently owns 71.2% of
iATMglobal.net.
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 shareholders' equity.
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 December 31, 1999 and December 31, 2000 and has presented its results of
operations, cash flow and changes in shareholders' equity for the fiscal year
June 30, 1998, the six month period ended December 31, 1998, and the fiscal
years ended December 31, 1999 and 2000.
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 and 2000 the Company's reported cash balance held in its ATM network
was $16.1 million and $8,000 respectively. As of December 31, 1999 the cash
balance was financed through its line of credit. In March 2000, the Company
obtained a new source for vault cash inventory in its ATM network by
establishing a $30.0 million financing facility to access a commercial paper
conduit to provide vault cash for its ATM network. This 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. As such, the ATM vault cash inventory and related debt
financing was removed from the balance sheet as of March 31, 2000.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
A portion of each copy sale and each ATM revenue generating
transaction, primarily a balance inquiry or a withdrawal, is retained by the
retail business, generally depending on transaction volume. The Company invoices
each retailer via monthly billings based on usage at the program price 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
$140,000 and $157,000 at December 31, 1999 and 2000, respectively.
INVENTORIES
Inventories are stated at the lower of first-in, first-out (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. ATMs, furniture and fixtures, computer equipment, and vehicles are
generally recorded using the straight-line method over the estimated remaining
useful lives of the related assets. Photocopy centers utilizing Konica models
2230 and 2223 are depreciated using the units-of-production method (see
discussion in note 3). Those photocopy centers utilizing non-Konica models are
depreciated using the straight-line method over the estimated remaining useful
life. Estimated useful lives are as follows:
Konica Photocopy centers 500,000 photocopies per machine
Non-Konica Photocopy centers 10 years
ATMs 10 years
Oracle ERP system 7 years
Computer equipment 5 years
Furniture and fixtures 5-7 years
Vehicles 5 years
INTANGIBLE ASSETS
In the second quarter of 2000, iATMglobal.net, the e-commerce
infrastructure subsidiary of the Company, acquired Strategic Software Solutions
Limited, a leading developer of custom Internet solutions for automated teller
machines (ATMs) for $2.7 million, most of which was recorded as goodwill which
is being amortized over 10 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 disclosures (see note 8).
STATEMENTS OF CASH FLOWS SUPPLEMENTAL INFORMATION
Income taxes paid were approximately $1,171,000, $942,000 $1,203,000
for fiscal years ended June 30, 1998, and December 31, 1999 and 2000
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 effect of preferred stock, options and
warrants for the fiscal years ended June 30, 1998 and December 31, 2000 on
diluted earnings per share was not considered as the impact would be
antidilutive. 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.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The standard, as amended by Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities Deferral of the Effective Date of FASB Statement No. 133,
an amendment of FASB Statement No. 133", and Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of FASB Statement No. 133" (referred to
hereafter as "FAS 133"), is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. FAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or in
other comprehensive income, depending on whether a derivative is designated as
part of a hedging relationship and, if it is, depending on the type of hedging
relationship. The Company adopted FAS 133 effective in 1999 with no impact to
the financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 provides guidance for revenue recognition under certain
circumstances. The Company has complied with the guidance provided by SAB No.
101 for the year ending December 31, 2000. Compliance with this provision did
not have a material impact on the Company's financial position, results of
operations or cash flows.
In September 2000, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
FAS 140 is effective for transfer and servicing transactions occurring after
March 31, 2001. It is effective for disclosures about securitizations and
collateral and for the recognition and reclassification of collateral for fiscal
years ending after December 15, 2000. Adoption of this standard is not expected
to have a material impact on the Company's financial position, results of
operations or cash flows.
2. INVENTORIES (in thousands):
DECEMBER 31, 1999 DECEMBER 31,
1999 2000
----------------- --------------
Paper $ 696 $ 661
Toner and developer 550 482
Parts 2,525 2,473
----------------- --------------
$ 3,771 $ 3,616
================= ===============
3. EQUIPMENT, VEHICLES, AND CHANGE IN ACCOUNTING METHOD (in thousands):
In the fourth quarter of 2000, the Company changed its accounting
policy and adopted the units-of-production method of depreciating its Konica
model 2223 and 2230 photocopy machines. The Company believes the
units-of-production method provides better matching of revenues and expenses
because revenue is based on copy volume for photocopiers which varies by machine
depending upon market conditions, customer location and time of year. Under this
new method, photocopy equipment is stated at cost, including the related costs
to prepare and install such equipment at customer locations, less accumulated
depreciation and is depreciated beginning in the first month the equipment
produces revenue generating transactions. A minimum depreciation charge of 2.5%
of the photocopier cost is taken annually. The estimated useful life is 500,000
copy transactions per photocopy machine with no provision for salvage value.
The method for calculating depreciation of Konica photocopy machines in
1999 and prior years was as follows: Konica machines, together with the related
costs to prepare and install such machines at customer locations, were
depreciated over 7 years on a straight-line basis with no provision for salvage
value.
The new depreciation method was applied retroactively as of January 1,
2000, resulting in a cumulative effect of the accounting change of $856,000 net
of tax. Pro forma amounts, assuming the change in accounting method was applied
retroactively, are shown on the face of the consolidated statement of
operations.
F-9
Implementation of the new accounting method decreased 2000
depreciation expense by $2.4 million and increased net income by $1.4 million
after tax and earnings per share by $0.20. The previously reported 2000
quarterly information has been restated for the new accounting method in the
consolidated unaudited quarterly information.
DECEMBER 31, DECEMBER 31,
1999 2000
--------------- ---------------
Photocopiers $ 73,848 $ 80,800
ATMs 6,160 20,098
Furniture and fixtures 1,437 2,471
Computer equipment 4,801 6,045
Vehicles 2,874 1,246
--------------- ---------------
89,120 110,660
Accumulated depreciation (26,472) (30,182)
--------------- ---------------
$ 62,648 $ 80,478
=============== ===============
4. SPECIAL CHARGES:
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):
DECEMBER 31, DECEMBER 31,
1999 2000
--------------- ----------------
Accrued payroll expenses $ 2,059 $ 2,785
Customer security deposits 197 188
Accrued taxes other than income 114 --
Preferred dividends -- 377
ATM maintenance & other expenses 406 2,722
Other accrued expenses 763 1,214
--------------- ----------------
$ 3,539 $ 7,286
=============== ================
6. LONG-TERM DEBT (in thousands):
DECEMBER 31, DECEMBER 31,
1999 2000
--------------- ----------------
Bank revolving loan, unsecured,
Maximum limit of $30.0 million $ 23,192 $ 28,000
Notes Payable -- 1,556
Other Long-term debt -- 89
--------------- ----------------
23,192 29,645
Less Current Portion of Long-term
Debt -- (8,360)
--------------- ----------------
$ 23,192 $ 21,285
=============== ================
Early in 2000, the Company signed a new Loan Agreement with Bank of
America N.A. to provide a line of credit commitment equal to $30 million through
June 30, 2001, reducing to $25 million through June 30, 2002. On February 14,
2001 the Loan Agreement was amended. Per the amendment, the bank agreed to waive
non-compliance and amend certain provisions of the Loan Agreement.
The amended agreement provides for monthly reductions in the line of
credit commitment from $30 million at January 1, 2001 to $19.6 million at
December 31, 2001 and reducing to zero on January 4, 2002. At December 31, 2000,
the Company had $28 million in borrowings outstanding under the Loan Agreement.
The interest rate is based upon the bank's prime rate with
F-10
options to secure LIBOR-based rates. The Loan is secured by a first-interest
lien on substantially all of the Company's U.S. based photocopiers and ATM
assets as well as a pledge of the portion of the stock of the Company's non-U.S
based subsidiaries. The amended agreement requires the Company to maintain
certain financial covenants related to cash flow.
The interest rate applicable to the bank borrowings as of December 31,
2000 ranged between 7.35% and 9.75%
In 2000, the Company (through a special purpose finance entity)
established a $30 million Loan Facility to provide vault cash for its ATM
network. The financing was completed off the Company's balance sheet on a
non-recourse basis. At December 31, 2000, there was $22.4 million funded under
the facility to supply its ATMs with cash.
As part of the acquisition of Strategic Software Solutions, Ltd. (SSS)
(note 1), the Company's subsidiary, iATMglobal.net, issued notes payable to the
selling shareholders of SSS in the principal amount of 1 million great british
pounds (GBP) which the US dollar equivalent is $1.6 million at December 31,
2000. The notes bear interest at 4% per annum. The notes are due in full by May
16, 2002. The notes are secured by a letter of credit issued by the Company's
principal banking partner. The terms of the letter of credit require
iATMglobal.net to pledge an agreed amount of cash to the bank to secure the
letter of credit facility. A certificate of deposit in the amount of $1.78
million has been pledged as of December 31, 2000 and is presented as
"restricted cash" on the balance sheet in the accompanying financial statements.
The Company's subsidiary, iATMglobal.net, has outstanding obligations
to the principal bank of its Scotland based company SSS with a dollar equivalent
of $88,851 at December 31, 2001. The debt has an outstanding interest rate of
7.7% at December 31, 2001, and is secured by certain assets of SSS.
The aggregate maturities of long-term debt for the next five years and
thereafter as of December 31, 2000 are $8,360,000 million due in 2001, and
$21,216,000, $20,000, $20,000, $20,000, and $9,000, respectively.
7. INCOME TAXES:
Income (loss) before income taxes is as follows (in thousands):
FISCAL YEAR SIX-MONTH FISCAL YEAR FISCAL YEAR
ENDED PERIOD ENDED ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1998 1999 2000
-------------- ---------------- ----------------- ----------------
United States $ (3,900) $ 971 $ 2,673 $ (2,710)
Foreign 2,945 1,147 804 (4,086)
-------------- ----------------- ----------------- ----------------
$ (955) $ 2,118 $ 3,477 $ (6,796)
============== ================= ================= ================
F-11
The components of income tax expense (benefit) are as follows (in
thousands):
FISCAL YEAR SIX-MONTH FISCAL YEAR FISCAL YEAR
ENDED PERIOD ENDED ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1998 1999 2000
----------- --------- ----------- -----------
CURRENT:
Federal $ (537) $ -- $ -- $ --
State -- -- 80 70
Foreign 877 275 472 13
DEFERRED:
Federal (598) 314 910 (524)
State (384) 68 186 (92)
Foreign 269 150 (261) (1,508)
--------------- ----------------- ------------------- ---------------
$ (373) $ 807 $ 1,387 $ (2,041)
=============== ================= =================== ===============
Deferred tax assets (liabilities) are comprised of the following
components (in thousands):
DECEMBER 31, DECEMBER 31,
1999 2000
------------ ------------
CURRENT:
Accrued liabilities $ 1,163 $ 1,309
Accounts receivable allowance 18 19
Other 62 --
------------ ------------
$ 1,243 $ 1,328
================ ================
NONCURRENT:
Deferred Compensation $ 454 $ 462
Net operating losses 2,166 7,709
Valuation allowance -- (765)
Tax depreciation in excess
of book depreciation (7,636) (10,459)
------------ ------------
$ (5,016) $ (3,053)
================ ===============
The deferred tax asset valuation allowance at December 31, 2000 is
related to the deferred tax assets of the subsidiary, iATMglobal.net. The
Company recorded the valuation allowance amounting to the entire deferred tax
asset balance of iATMglobal.net because the subsidiary's start-up position and
anticipated further losses through its development stage give rise to
uncertainty as to whether the deferred tax asset is realizable. No valuation
allowance was recorded at June 30, 1998, or December 31, 1998 or 1999.
F-12
The effective tax rate differs from the federal statutory tax rate as
follows:
FISCAL YEAR SIX-MONTH FISCAL YEAR FISCAL YEAR
ENDED PERIOD ENDED ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1998 1999 2000
-------- ------------ ------------ ------------
Statutory federal rate (34.0)% 34.0% 34.0% (34.0)%
State taxes, net of federal benefit (5.0) 1.8 4.8 (4.8)
(Benefit) provision for foreign tax 5.1 0.4 (0.6) 0.1
rates
Other (5.2) 1.9 1.7 (0.9)
Deferred tax asset valuation
allowance -- -- -- 9.6
--------------------------------------------------------------------------------
(39.1)% 38.1% 39.9% (30.0)%
================================================================================
The change in the effective tax rate for fiscal year 2000 as compared
to fiscal year 1999 is due to the valuation allowance of $765,000 related to the
subsidiary's net operating loss. The effective tax rate would be 39.6% if the
valuation allowance had not been recognized.
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 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 and $1.1 million in preferred dividends were paid during
the years ended December 31, 1999 and 2000, respectively. Preferred dividends of
$377,000 are accrued as of December 31, 2000.
The Company's amended loan agreement prohibits the payment of
preferred dividends except dividends payable in the form of additional
preferred shares of the Company's stock. The Company does not anticipate the
payment of preferred dividends in the form of additional shares of preferred
stock.
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.
A total of 16,250 shares were repurchased in 2000 for a total price of $98,000
at prices ranging from $5.00 to $6.63 per share.
F-13
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. During 2000, there were 3,062 shares of common stock issued under the
Employee Stock Purchase Plan. The market value of the common stock issued was
$15,000.
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 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 WEIGHTED
UNDER OPTION PRICE RANGE AVERAGE
EXERCISE PRICE
---------------------------------------------------------------------------
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 783,000 $ 4.50 - $ 8.00 $ 6.05
Options exercised (5,000) $ 4.125 - $ 4.125 $ 4.13
Options canceled (211,300) $ 6.375 - $ 9.875 $ 7.70
---------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 2,079,100 $ 2.00 - $ 15.125 $ 7.18
Options granted 100,000 $ 5.00 $ 7.875 $ 5.48
Options exercised (5,000) $ 4.00 $ 4.00 $ 4.00
Options canceled (43,200) $ 4.50 $ 9.75 $ 7.22
---------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000
(1,396,769 EXERCISABLE, 2,130,900 $ 2.00 $ 15.125 $ 7.11
31,900 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.
F-14
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, 2000 Contractual Life Price December 31, 2000 Price
---------------------------------------------------------------------------------------------------------
$2.00 to $ 4.538 824,400 5.2 $4.11 513,150 $3.87
$4.539 to $ 9.080 849,000 7.4 $7.50 501,119 $7.72
$9.081 to $15.125 457,500 5.7 $11.78 382,500 $11.13
$2.00 to $15.125 2,130,900 6.2 $7.11 1,396,769 $7.24
---------------------------------------------------------------------------------------------------------
The Company's subsidiary, iATMglobal.net has reserved 3,333,375 shares
of its common stock for issuance under an incentive and nonqualified stock
option plan (the "2000 Plan"). Nonqualified stock options under the 2000 Plan
were granted at prices determined by the Board of Directors, and were 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
four years. A total of 2,604,021 options were issued during 2000 with exercise
prices ranging from $.33 to $.75 per share, and all options issued are still
outstanding at December 31, 2000. The weighted average exercise price of options
issued during 2000 and outstanding at December 31, 2000 was $.48. No options are
exercisable at December 31, 2000. The average remaining contractual lives of the
outstanding options is 9.6 years at December 31, 2000, and 729,354 shares were
available to be granted.
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 year ended June 30,1998 for the extension of the exercise
period for certain directors. Had compensation cost for the Company's and
iATMglobal.net's stock option and stock purchase plans been determined, based
upon the fair value at the grant date for awards under the 2000 Plan 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
after the impact of the applicable minority interest percentage would have been
reduced to the pro forma amounts indicated below:
SIX MONTHS FISCAL YEAR
FISCAL YEAR ENDED FISCAL YEAR ENDED ENDED
ENDED JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1998 1999 2000
-------------- ------------ ----------------- ------------
(In thousands except per share amounts)
Net Income As Reported $ (582) $1,311 $2,090 $(3,899)
Pro Forma $(1,339) $1,129 $1,834 $(4,426)
Earnings per share - As Reported $ (.08) $ .07 $ .08 $ (.76)
basic Pro Forma $ (.19) $ .05 $ .05 $ (.83)
Earnings per share - diluted As Reported $ (.08) $ .07 $ .08 $ (.76)
Pro Forma $ (.19) $ .05 $ .05 $ (.83)
-----------------------------------------------------------------------------------------------
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, 1998, for the six-month period ended December
31, 1998, and the fiscal years ended December 31, 1999 and 2000 as calculated by
the Black-Scholes model, and the assumptions used are shown in the following
table:
TRM Corporation
FISCAL YEAR SIX-MONTH FISCAL YEAR FISCAL YEAR
ENDED PERIOD ENDED ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
-------- ------------ ------------ ------------
Weighted average fair value of options: $ 3.59 $ 2.78 $ 2.09 $ 0.00
Dividend yield: --- -- -- --
Expected volatility: 36.80% 35.60% 38.11% 104.89%
Risk-free interest rate: 5.52% 4.61% 5.641% 5.66%
Expected life: 4 years 4 years 3.5 years 6 years
F-15
iATMglobal.net
FISCAL YEAR ENDED
DECEMBER 31, 2000
-----------------
Weighted average fair value of options: $ .38
Dividend yield: --
Expected volatility: 85.00%
Risk-free interest rate: 5.66%
Expected life: 7.0 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. No amounts were accrued for profit
sharing for the fiscal years ended December 31, 1999 and 2000. The Company paid
matching contributions of $228,000 and $ 267,000 to the 401k plan during the
year ended December 31, 1999 and 2000 respectively, 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 to be issued under the Plan 100,000 shares have
been purchased, and no shares remain available for purchase as of December 31,
2000. 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, ATMs, and office and warehouse space in
several locations under operating leases. Minimum lease payments are as follows
2001 2002 2003 2004 2005 Thereafter Total
Warehouse
leases $1,606,740 $1,417,676 $1,169,374 $853,987 $618,722 $2,188,960 $7,855,460
Auto leases 931,319 833,411 710,479 688,832 251,690 0 3,415,731
ATM leases 472,500 495,000 495,000 495,000 288,750 0 2,246,250
-------------------------------------------------------------------------------------
Total $3,010,560 $2,746,087 $2,374,853 $2,037,819 $1,159,162 $2,188,960 $13,517,441
====================================================================================
Rental expense for fiscal years 1998, 1999, and 2000 was, $2,818,000,
$1,772,000 and $1,826,000 respectively. This 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 had signed an agreement with
Konica to purchase 10,000 additional photocopiers in 2000. This agreement was
amended to 6,700 additional photocopiers, 3,300 of which were purchased in 2000.
The remainder are expected to be purchased in 2001. The Company has signed an
agreement to purchase 1,500 NCR ATMs, most of which have been acquired as of
December 31, 2000.
F-16
During the third quarter 2000, the Company completed a sale-leaseback
on 250 of it's ATMs producing total proceeds of $2.1 million and $228,000 in
deferred gains. The resulting gain is being amortized over the five year term of
the lease. The lease is correctly accounted for as an operating lease.
11. RELATED PARTY TRANSACTIONS
In the first quarter of 2000, the Company formed a subsidiary,
iATMglobal.net, to deliver a unique distribution channel to access the Internet
using its existing ATMs initially and eventually rolling out the software
capability worldwide to other ATMs.
In the second quarter of 2000, iATMglobal.net, the e-commerce
infrastructure subsidiary of the Company acquired Strategic Software
Solutions Limited, a leading developer of custom Internet solutions for
Automated Teller Machines (ATMs) for $2.7 million, most of which was recorded as
goodwill. The accounting for this acquisition was treated as a business purchase
combination. Strategic Software Solutions develops custom Internet and software
solutions for ATMs manufactured by NCR Corporation. Strategic Software Solutions
and NCR jointly market @tmLink, the only Internet-based ATM uploading and
notification product for NCR-built ATMs.
In the third quarter of 2000, NCR, the largest global supplier of
Automated Teller Machines (ATMs), made a strategic equity investment in
iATMglobal.net. NCR invested $5 million in exchange for 24% ownership interest
in iATMglobal.net and has agreed to enable iATMglobal.net's e-commerce software
on NCR ATMs.
Substantially all $800,000 of the revenue and $300,000 in related
receivables recorded by iATMglobal.net in the year 2000 resulted from internet
and software development performed by Strategic Software Solutions for NCR.
Since the inception of the ATM business in 1999, TRM Corporation has
purchased substantially all of its Automated Teller Machines from NCR. In
addition NCR provides related maintenance and services for a portion of the
Company's base of installed ATMs. In 1999 and 2000, respectively, the Company
paid NCR $5.8 million and $13.2 million for equipment and services and had
$294,000 and $1.2 million in accrued expenses for service and equipment from
NCR.
In the third quarter of 2000, iATMglobal.net deposited $3.5 million
in a cash money market account with thebancorp.com, an internet banking and
financial services corporation. The account is completely liquid and
available for use by the e-commerce business. Daniel Cohen is the Chairman of
the Board of Directors of both iATMglobal.net and thebancorp.com. In addition,
Mr. Cohen has served as the Chairman of the Executive Committee of TRM
Corporation since 1998.
12. 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 three reportable segments: Photocopy, ATM, and
e-commerce. Photocopy owns and maintains self-service photocopiers in retail
establishments. ATM owns and operates ATM machines in retail establishments. The
e-commerce business develops software to deliver products and services through
ATMs.
The accounting policies of the segments are substantially the same as
those described in note 1. 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:
F-17
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 2000
---------------------- ----------------------
(amounts in thousands) (amounts in thousands)
Sales
Photocopy........................... $ 67,183 $ 64,860
ATM................................. 1,432 10,383
Eliminations........................ (277)(1) --
e-Commerce.......................... -- 838
-------------- --------------
$ 68,338 $ 76,081
============== ==============
Depreciation and Amortization (see note 3)
Photocopy........................... 8,889 7,831
ATM................................. 180 1,344
e-Commerce.......................... -- 218
-------------- --------------
$ 9,069 $ 9,393
============== ==============
Income (Loss) Before Interest, taxes, minority
interest, and cumulative effect of accounting change:
Photocopy........................... $ 5,087 $ 5,464
ATM................................. (1,198) (8,571)
e-Commerce.......................... $ -- (2,002)
-------------- --------------
$ 3,889 $ (5,109)
============== ==============
(1) Eliminations are for inter-company Revenue charged by the Photocopy business to the ATM business.
In the fourth quarter, the Company changed its method of allocating
Team Headquarters overhead expenses across the Photocopy and ATM segments. This
change in allocation method is intended to reflect the changing business model
experienced as the ATM segment becomes an increasingly larger portion of the
overall business. This reallocation of Team Headquarters expense is based on
activity directly related to each segment. The reallocation resulted in a fiscal
2000 year-to-date benefit in Photocopy income (loss) before interest, taxes,
minority interest, and cumulative effect of change in accounting of $800,000 and
a corresponding decrease of $800,000 in the ATM business.
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS) (AMOUNTS IN THOUSANDS)
---------------------- ----------------------
Capital Expenditures
Photocopy........................... $ 15,040 $ 11,634
ATM................................. 6,290 17,351
e-Commerce.......................... -- 195
-------------- --------------
$ 21,330 $ 29,180
============== ==============
Assests
Photocopy........................... 71,984 73,055
ATM................................. 23,922 27,506
e-Commerce.......................... -- 10,359
-------------- --------------
$ 95,906 $ 110,920
============== ==============
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 any of the
periods presented. Information about the Company's domestic and foreign
operations is presented hereafter (in thousands).
SALES LONG LIVED ASSETS
----------------------------------------------------------------- ----------------------------------------------------
Fiscal year Six-month Fiscal year Fiscal Year
ended period ended ended ended
June 30, December 31, December 31, December 31, June 30, December 31, December 31, December 31,
-------- ------------ ------------ ------------ -------- ------------ ------------ ------------
1998 1998 1999 2000 1998 1998 1999 2000
-------- ------------ ------------ ------------ -------- ------------ ------------ ------------
United
States $41,563 $20,813 $44,613 51,063 $23,554 $33,975 $46,784 $60,949
Foreign:
United 19,437 9,113 16,834 18,608 12,634 11,691 11,324 19,208
Kingdom
Canada 4,223 1,894 4,027 3,956 2,059 2,135 3,510 5,158
France 3,093 1,514 2,864 2,454 3,421 3,550 2,571 2,002
Other 36 -- -- -- -- -- - --
------- ------- ------- ------- ------- ------- ------- -------
$68,352 $33,334 $68,338 $76,081 $41,668 $51,351 $64,189 $87,317
======= ======= ======= ======= ======= ======= ======= =======
F-18
13. DEBT FINANCING ARRANGEMENTS AND LIQUIDITY
The Company experienced a net loss of $3,899,000 but has positive cash
flow from operations of $9,837,000 during the year ended December 31, 2000.
Despite the unfavorable net loss, the Company has been able to fulfill its needs
for working capital and capital expenditures, due in part to its ability to
maintain adequate financing arrangements. The Company's line of credit becomes
due on January 4, 2002. Company borrowings at December 31, 2000 were $29,645,000
on an asset base of $110,920,000. The Company expects that operations will
continue for 2001, with the realization of assets, and discharge of liabilities
in the ordinary course of business. The Company believes that its prospective
needs for working capital and capital expenditures will be met from cash flows
generated by operations and borrowings pursuant to the bank line of credit. If
operations are not consistent with management's plan, there is no assurance,
however, that the amounts from these sources will be sufficient for such
purposes. In that event, or for other reasons, the Company may be required to
seek alternative financing arrangements. There is no assurance that such sources
of financing will be available if required, or if available, will be on terms
satisfactory to the Company.
14. UNAUDITED OPERATING RESULTS
The unaudited condensed consolidated result of operations of the
Company for the year ended December 31, 1998 is presented below. In the opinion
of management, the accompanying unaudited condensed consolidated result of
operations contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the result of operations:
FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1998
-----------------------
(Amounts in thousands,
except per share data)
Sales $ 68,740
Income (loss) before income taxes (2,001)
Income (loss) taxes (800)
Net income (loss) $ (1,201)
Net income (loss) per Common Share:
Net income per share-basic $ (0.28)
Net income per share-diluted $ (0.28)
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
CALENDAR YEAR ENDED DECEMBER 31, 1998: (In thousands except per share amounts)
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 shareholders (3,173) 667 80 440
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 (loss) 881 788 206 215
Preferred Stock Dividend 370 374 374 382
Net income (loss) available to common shareholders 511 414 (168) (167)
Basic Net Income (loss) per share .07 .06 (.02) (.02)
Diluted Net Income (loss) per share .07 .06 (.02) (.02)
CALENDAR YEAR ENDED DECEMBER 31, 2000;
As Filed in Form 10-Qs:
Sales 18,081 19,337 19,159
Net Sales 14,912 16,124 16,313
Gross Profit 5,979 6,039 4,820
Net Income (loss) (811) (1,244) (1,464)
Preferred Stock Dividend (374) (373) (377)
Net income (loss) available to common shareholders (1,185) (1,617) (1,841)
Basic Net Income (loss) per share (.17) (.23) (.26)
Diluted Net Income (loss) per share (.17) (.23) (.26)
F-19
In the fourth quarter of 2000 the company adopted a new accounting policy to
depreciate certain photocopy equipment under the units-of-production method. The
new policy was applied retroactively as of January 1, 2000 and resulted in
restating previously reported quarterly information. Presented below are the
restated first, second and third quarters along with the fourth quarter
information.
FIRST SECOND THIRD FOURTH
CALENDAR YEAR ENDED DECEMBER 31, 2000 QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
RESTATED:
Sales 18,081 19,337 19,159 19,504
Net Sales 14,912 16,124 16,313 16,464
Gross Profit 6,507 6,607 5,483 5,783
Net Income before cumulative effect
of accounting change (494) (904) (1,067) (2,290)
Cumulative effect of accounting change 856
Net Income 362 (904) (1,067) (2,290)
Preferred Stock Dividend (374) (373) (377) (377)
Net income available to common
shareholders (12) (1,277) (1,444) (2,667)
Basic Net Income per share (.00) (.18) (.20) (.38)
Diluted Net Income per share (.00) (.18) (.20) (.38)
F-20
SCHEDULE III - VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED JUNE 30, 1998
THE TRANSITION PERIOD ENDED DECEMBER 31, 1998,
THE YEAR ENDED DECEMBER 31, 1999, AND THE YEAR ENDED
DECEMBER 31, 2000
(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
==============================================================================
Year ended December 31, 2000
Allowance for deferred tax asset $-- $765 $ -- $-- $765
==============================================================================
Allowance for doubtful accounts $140 $384 $ -- $(367) $157
==============================================================================
Reserve for deposit $300 $-- $ -- $-- $300
==============================================================================
S-1