e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 30, 2009
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-21057
DYNAMEX INC.
(Exact name of registrant as specified in its charter)
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Delaware
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86-0712225 |
(State of incorporation)
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(I.R.S. Employer Identification No.) |
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5429 LBJ Freeway, Suite 1000, Dallas, Texas
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75240 |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code:
(214) 560-9000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes o No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated filer þ |
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Non-accelerated filer o (Do not check if a smaller reporting
company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of
shares of the registrants common stock, $.01 par value, outstanding as of May 31, 2009 was 9,724,574 shares.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
DYNAMEX INC.
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
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April 30, |
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July 31, |
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2009 |
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2008 |
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(Unaudited) |
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ASSETS
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
10,422 |
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$ |
19,888 |
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Accounts receivable (net of allowance for doubtful accounts
of $1,777 and $915, respectively) |
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43,247 |
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47,288 |
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Income taxes receivable |
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2,989 |
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1,546 |
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Prepaid and other current assets |
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4,079 |
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4,429 |
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Deferred income taxes |
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4,099 |
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3,504 |
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Total current assets |
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64,836 |
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76,655 |
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PROPERTY AND EQUIPMENT net |
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11,237 |
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8,670 |
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GOODWILL |
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46,358 |
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48,109 |
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INTANGIBLES net |
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606 |
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808 |
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OTHER |
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3,077 |
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4,382 |
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Total assets |
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$ |
126,114 |
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$ |
138,624 |
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LIABILITIES AND STOCKHOLDERS EQUITY
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CURRENT LIABILITIES |
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Accounts payable trade |
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$ |
8,867 |
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$ |
12,621 |
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Accrued liabilities and other |
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21,397 |
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24,160 |
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Total current liabilities |
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30,264 |
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36,781 |
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LONG-TERM DEBT |
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OTHER LONG-TERM LIABILITIES |
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4,673 |
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4,209 |
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Total liabilities |
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34,937 |
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40,990 |
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COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS EQUITY |
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Preferred stock; $0.01 par value, 10,000 shares authorized;
none outstanding |
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Common stock; $0.01 par value, 50,000 shares authorized;
9,713 and 10,148 outstanding, respectively |
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97 |
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101 |
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Additional paid-in capital |
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35,839 |
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45,311 |
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Retained earnings |
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53,888 |
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46,905 |
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Accumulated other comprehensive income |
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1,353 |
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5,317 |
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Total stockholders equity |
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91,177 |
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97,634 |
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Total liabilities and
stockholders equity |
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$ |
126,114 |
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$ |
138,624 |
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See accompanying notes to the condensed consolidated financial statements.
2
DYNAMEX INC.
Condensed Statements of Consolidated Operations
(in thousands except per share data)
(Unaudited)
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Three months ended |
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Nine months ended |
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April 30, |
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April 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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Sales |
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$ |
92,234 |
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$ |
112,976 |
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$ |
305,242 |
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$ |
336,684 |
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Cost of sales: |
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Purchased transportation |
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59,450 |
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74,521 |
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197,705 |
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222,038 |
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Other direct costs |
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7,934 |
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8,865 |
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26,367 |
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25,518 |
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Cost of sales |
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67,384 |
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83,386 |
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224,072 |
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247,556 |
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Gross profit |
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24,850 |
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29,590 |
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81,170 |
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89,128 |
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Selling, general and administrative expenses: |
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Salaries and employee benefits |
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14,854 |
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15,591 |
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47,891 |
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48,631 |
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Other |
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6,480 |
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7,228 |
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19,451 |
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20,744 |
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Selling, general and administrative
expenses |
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21,334 |
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22,819 |
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67,342 |
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69,375 |
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Depreciation and amortization |
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849 |
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747 |
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2,443 |
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2,119 |
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(Gain) loss on disposal of property and
equipment |
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(37 |
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1 |
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(38 |
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(15 |
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Operating income |
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2,704 |
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6,023 |
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11,423 |
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17,649 |
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Interest expense |
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51 |
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48 |
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132 |
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180 |
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Other income, net |
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(64 |
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(124 |
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(373 |
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(427 |
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Income before income taxes |
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2,717 |
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6,099 |
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11,664 |
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17,896 |
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Income tax expense |
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1,082 |
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2,325 |
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4,681 |
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6,709 |
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Net income |
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$ |
1,635 |
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$ |
3,774 |
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$ |
6,983 |
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$ |
11,187 |
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Basic earnings per common share: |
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$ |
0.17 |
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$ |
0.37 |
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$ |
0.71 |
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$ |
1.10 |
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Diluted earnings per common share: |
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$ |
0.17 |
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$ |
0.37 |
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$ |
0.71 |
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$ |
1.09 |
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Weighted average shares: |
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Common shares outstanding |
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9,711 |
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10,243 |
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9,802 |
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10,216 |
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Adjusted common shares assuming
exercise of stock options |
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9,723 |
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10,329 |
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9,838 |
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10,308 |
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See accompanying notes to the condensed consolidated financial statements.
3
DYNAMEX INC.
Condensed Statements of Consolidated Cash Flows
(in thousands)
(Unaudited)
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Nine months ended |
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April 30, |
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2009 |
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2008 |
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OPERATING ACTIVITIES |
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Net income |
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$ |
6,983 |
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$ |
11,187 |
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Adjustments to reconcile net income to net cash provided
by operating activities: |
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Depreciation and amortization |
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2,443 |
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2,119 |
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Amortization of deferred bank financing fees |
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2 |
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10 |
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Provision for losses on accounts receivable |
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1,242 |
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608 |
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Stock option compensation |
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1,096 |
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893 |
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Deferred income taxes |
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779 |
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809 |
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Non-cash rent expense |
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136 |
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37 |
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Gain on disposal of property and equipment |
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(38 |
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(15 |
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Changes in current operating assets and liabilities: |
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Accounts receivable |
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2,799 |
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(5,995 |
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Prepaids and other current assets |
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(949 |
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(804 |
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Accounts payable and accrued liabilities |
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(7,440 |
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(2,473 |
) |
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Net cash provided by operating activities |
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7,053 |
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6,376 |
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INVESTING ACTIVITIES |
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Purchase of property and equipment |
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(5,114 |
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(2,307 |
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Acqusition of customer lists |
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(491 |
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Withdrawal (purchase) of deferred compensation investments |
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664 |
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(295 |
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Net cash used in investing activities |
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(4,450 |
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(3,093 |
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FINANCING ACTIVITIES |
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Proceeds from stock option exercise |
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8 |
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967 |
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Tax benefit realized by exercise of stock options |
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16 |
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325 |
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Purchase and retirement of treasury stock |
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(10,597 |
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Other assets and deferred financing fees |
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521 |
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(127 |
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Net cash provided by (used in) financing activities |
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(10,052 |
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1,165 |
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EFFECT OF EXCHANGE RATES ON CASH |
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(2,017 |
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308 |
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NET INCREASE IN CASH AND CASH EQUIVALENTS |
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(9,466 |
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4,756 |
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
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19,888 |
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8,857 |
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CASH AND CASH EQUIVALENTS, END OF PERIOD |
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$ |
10,422 |
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$ |
13,613 |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
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Cash paid for interest |
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$ |
101 |
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$ |
119 |
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Cash paid for taxes |
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$ |
5,067 |
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$ |
6,649 |
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See accompanying notes to the condensed consolidated financial statements.
4
DYNAMEX INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Summary of Significant Accounting Polices
Description of Business - Dynamex Inc. (the Company or Dynamex) provides same-day delivery and
logistics services in the United States and Canada. The Companys primary services are (i)
same-day, on-demand delivery and (ii) same-day local and regional
distribution.
Basis of presentation The consolidated financial statements include the accounts of Dynamex Inc.
and its wholly-owned subsidiaries. All significant inter-company accounts and transactions have
been eliminated. All dollar amounts in the financial statements and notes to the financial
statements, except per share data, are stated in thousands of dollars unless otherwise indicated.
Except as otherwise indicated, references to years mean our fiscal year ending July 31, 2008 or
ended July 31 of the year referenced, and comparisons are to the corresponding period of the prior
year.
The accompanying interim financial statements are unaudited. Certain information and disclosures
normally included in financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted, although the Company believes the disclosures included
herein are adequate to make the information presented not misleading. The results of the interim
periods presented are not necessarily indicative of results to be expected for the full fiscal
year, and should be read in conjunction with the Companys audited financial statements for the
fiscal year ended July 31, 2008.
The accompanying interim financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the Companys financial position at
April 30, 2009, the results of its operations for the three and nine months periods ended April 30,
2009 and 2008, and cash flows for the nine-month periods ended April 30, 2009 and 2008. The tax
provisions for the three and nine months periods ended April 30, 2009 and 2008 are based upon
managements estimates of the Companys annualized effective tax rate.
Business and credit concentrations The Companys customers are not concentrated in any specific
geographic region or industry. During the nine months ended April 30, 2009 and 2008, sales to
Office Depot, Inc. represented approximately 14.4% and 14.7%, respectively, of the Companys
revenue. Sales to the Companys five largest customers, including Office Depot, represented
approximately 24.9% and 26.1% of the Companys consolidated sales for the nine months ended April
30, 2009 and 2008, respectively.
A significant portion of the Companys revenues are generated in Canada. For the nine month period
ended April 30, 2009, Canadian revenues accounted for approximately 36.0% of total consolidated
revenue, compared to 38.4% for the same period in 2008. The exchange rate between the Canadian
dollar and the U.S. dollar decreased 14.9% in the nine month period ended April 30, 2009 compared
to the corresponding period in the prior year. Had the exchange rate been the same as in the prior
period, Canadian sales for the nine month period ended April 30, 2009 would have accounted for
39.8% of total sales.
Office Depot represented approximately 21.8% of the net accounts receivable at April 30, 2009.
There were no other significant accounts receivable from a single customer. The Company
establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of
specific customers, historical trends and other information.
Other assets Recoverable contract contingency costs - The Company has recorded as an Other Asset
certain costs related to contractually reimbursable contingency costs incurred in connection with
the launch of certain contracts in accordance with EITF 99-5, Accounting for Pre-Production Costs
Related to Long-Term Supply Arrangements. These costs will be recovered during the initial
contract term from a designated portion of the unit price specified in the contract. Should the
contract be cancelled for any reason, the customer is obligated to reimburse the Company for any
unamortized balance. Total net recoverable contract contingency costs capitalized at April 30,
2009 amount to $876 compared to $1,172 at July 31, 2008.
Other long-term liabilities - During July 2006 the Company entered into a new lease for its U.S.
corporate headquarters. This lease agreement contains tenant improvement allowances and rent
escalation clauses. The Company recognizes a deferred rent liability for tenant improvement
allowances within other long-term liabilities
5
DYNAMEX INC.
and amortizes these amounts over the term of the lease as a reduction of rent expense. For
scheduled rent escalation clauses during the lease term, the Company records rental expense on a
straight-line basis over the term of the lease.
Certain reclassifications have been made to conform prior period data to the current presentation.
2. Comprehensive Income
The three components of comprehensive income are net income, foreign currency translation gains
(losses) and unrealized gains (losses) on investments. Investments consist of payroll withholdings
from participants in the Companys deferred compensation plan that are invested in funds designated
by the individual participants. Comprehensive income for the three and nine months ended April 30,
2009 and 2008 was as follows:
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Three months ended |
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Nine months ended |
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April 30, |
|
|
April 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net income |
|
$ |
1,635 |
|
|
$ |
3,774 |
|
|
$ |
6,983 |
|
|
$ |
11,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gains
(losses) |
|
|
687 |
|
|
|
(115 |
) |
|
|
(3,845 |
) |
|
|
1,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on investments |
|
|
13 |
|
|
|
8 |
|
|
|
(119 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
2,335 |
|
|
$ |
3,667 |
|
|
$ |
3,019 |
|
|
$ |
12,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. Intangibles net
At April 30, 2009, intangibles and related amortization expense for the three and nine months ended
April 30, 2009 and 2008 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Asset |
|
|
amortization |
|
|
Net |
|
Deferred bank financing fees |
|
$ |
138 |
|
|
$ |
(133 |
) |
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists |
|
|
505 |
|
|
|
(175 |
) |
|
|
330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and other |
|
|
470 |
|
|
|
(199 |
) |
|
|
271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,113 |
|
|
$ |
(507 |
) |
|
$ |
606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense |
|
|
Amortization expense |
|
|
|
Three months ended April 30, |
|
|
Nine months ended April 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Deferred bank financing fees |
|
$ |
2 |
|
|
$ |
|
|
|
$ |
2 |
|
|
$ |
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists |
|
|
44 |
|
|
|
22 |
|
|
|
119 |
|
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and other |
|
|
5 |
|
|
|
5 |
|
|
|
14 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
51 |
|
|
$ |
27 |
|
|
$ |
135 |
|
|
$ |
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
DYNAMEX INC.
4. Computation of Earnings Per Share
The following is a reconciliation of the numerators and denominators of the basic and diluted
earnings per share computation as required by Statement of Financial Accounting Standards No. 128,
Earnings Per Share. Common stock equivalents related to stock options are excluded from diluted
earnings per share calculations if their effect would be anti-dilutive to earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
April 30, |
|
|
April 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net income |
|
$ |
1,635 |
|
|
$ |
3,774 |
|
|
$ |
6,983 |
|
|
$ |
11,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
9,711 |
|
|
|
10,243 |
|
|
|
9,802 |
|
|
|
10,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common share equivalents related to options |
|
|
12 |
|
|
|
86 |
|
|
|
36 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares and common share equivalents |
|
|
9,723 |
|
|
|
10,329 |
|
|
|
9,838 |
|
|
|
10,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.17 |
|
|
$ |
0.37 |
|
|
$ |
0.71 |
|
|
$ |
1.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.17 |
|
|
$ |
0.37 |
|
|
$ |
0.71 |
|
|
$ |
1.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Repurchase of Equity Securities
The Board of Directors has authorized the Company to purchase up to $78 million of Dynamex Inc.
common stock on the open market. Through July 31, 2008, the Company had repurchased a total of
1,962 shares at an average price of $20.07 per share for a total dollar cost of $39,368. Delaware
law permits treasury shares to be retired when appropriately authorized by the Board of Directors,
and the Company has retired such shares by appropriate reductions in the value of common stock and
additional paid-in capital. During the nine months ended April 30, 2009, the Company repurchased a
total of 439 shares at an average price of $24.13 per share for a total dollar cost of $10,597,
leaving a balance of $28,035 in the current authorization. The Company decided during the second
quarter of FY 2009 to suspend the share repurchase program.
6. Contingencies
The California Employment Development Department conducted an employment tax audit of the Companys
California operations in 2006. Based on its conclusion that certain independent contractors used
by the Company should be reclassified as employees, a Notice of Assessment was issued by the EDD in
April 2007 in the amount of $2.8 million; $2.0 million of which the EDD claims represents personal
income tax of the reclassified individuals. The Company has collected and submitted documentation
which will work to reduce the personal income tax portion of the assessment through the California
abatement process. The Company has filed a Petition for Reassessment and intends to vigorously
contest the assessment.
On April 15, 2005, a putative class action was filed against the Company by a former independent
contractor in the Superior Court of California, Los Angeles County, alleging that the Company
unlawfully misclassified its California drivers as independent contractors, rather than employees,
and asserting, as a consequence, entitlement on behalf of the purported class claimants to overtime
compensation and other benefits under California wage and hour laws, reimbursement of certain
operating expenses, and various insurance and other benefits and the obligation of the Company to
pay employer payroll taxes under federal and state law. Plaintiffs Motion for Class Certification
was denied in December 2006, and appealed by Plaintiff. The Appellate Court determined that the
Trial Courts denial
of Plaintiffs earlier Motion to Compel Disclosure of the names and contact information for all
members of the putative class prejudiced Plaintiffs ability to support his Motion for Class
Certification. The ruling reversed the Denial of the Motion for Class Certification and remanded
the matter for additional discovery and eventual re-
7
DYNAMEX INC.
hearing of the Motion. Pursuant to Order of the Court, the names and contact information for
members of the putative class were produced by the Company in January 2009. In early February
2009, Plaintiff was permitted to file a First Amended Complaint, which among other matters, added
an additional named Plaintiff. Electronic Discovery is continuing and is expected to lead to the
filing of a Motion by Plaintiff for Class Certification in June, 2009.
On July 25, 2008, two independent contractor drivers filed a purported class action suit in San
Bernardino County, California Superior Court alleging that the Companys classification of
California drivers as independent contractors was unlawful, and that as a consequence they were
denied the benefit of various California wage laws. They further alleged that such
misclassification constituted unfair competition under California business statutes. Because the
Complaint in large measure contains the same causes of action as the on-going 2005 Los Angeles
County, California Superior Court case, the Company filed a Special Demurrer and a Motion to Stay
further proceedings pending the outcome of the earlier action. Following a November 2008 Hearing,
the Court issued a Stay. Plaintiffs subsequent attempt to consolidate their action with the Los
Angeles County action described above was denied. On January 21, 2009, one of the named Plaintiffs
voluntarily dismissed his claims without prejudice in order to attempt to join the Los Angeles
County suit. The Plaintiff has subsequently been added to the Los Angeles County suit.
On October 9, 2008, the Company was served with a one count Massachusetts State Court Complaint by
a former independent contractor driver alleging that the Company had unlawfully misclassified him
as an independent contractor rather than as an employee. He alleges that the misclassification
resulted in the denial of overtime compensation. The Company has filed an Answer and various
Affirmative Defenses to the Action, and expects to begin discovery.
On September 29, 2008, five former independent contractor drivers filed an action in California
State Court alleging that the Company misclassified them as independent contractors rather than
employees and further that the Company committed unlawful racial harassment and discrimination
ultimately resulting in their wrongful termination or wrongful constructive termination, all in
violation of the public policy of the State of California. An Amended Complaint was filed on
November 20, 2008, and the Company thereafter timely filed its Answer. At the Case Management
Conference in early February 2009, the parties were ordered to participate in mediation before
December 4, 2009, and a trial date of February 8, 2010 was set. Discovery continues. The Company
believes that the Plaintiffs were properly classified as independent contractors and further
believes that Plaintiffs were treated in conformity with all State and Federal laws.
The Company believes that the independent contractor owner-operator drivers are properly classified
as independent contractors and intends to vigorously defend this litigation. Given the nature and
preliminary status of the claims, however, the Company cannot yet determine the amount or a
reasonable range of potential loss in these matters, if any.
The Company is a party to various legal proceedings arising in the ordinary course of its business.
The Company believes that the ultimate resolution of these proceedings will not, in the aggregate,
have a material adverse effect on the financial condition, results of operations, or liquidity of
the Company.
8. Income Taxes
Income tax expense was $1,082, 39.8% of income before taxes in the current year quarter compared to
$2,325, 38.1% of income before taxes in the prior year. Income tax expense was $4,681, 40.1% of
income before taxes in the nine months ended April 30, 2009 compared to $6,709, 37.5% of income
before taxes in the same period of the prior year. The increase in the effective tax rate is
primarily attributable to both a higher effective U.S. tax rate and a higher proportion of income
being generated in the U.S. in the current year compared to the prior year. The annual effective
U.S. tax rate is approximately 2% higher than the prior year due to the Companys decision to
repatriate excess Canadian cash rather than keep it permanently invested. The Company made the
decision to repatriate excess cash from Canada in during the first quarter of FY 2009 to support
its ongoing share repurchase program. The Company decided during the second quarter of FY 2009 to
suspend the share repurchase program. In June 2006, the FASB issued FASB Interpretation (FIN) No.
48, Accounting for Uncertainty in Income Taxes, (FIN 48) that provides guidance on the accounting
for uncertainty in income taxes recognized in financial statements. The Company adopted FIN 48 on
August 1, 2007. The adoption of the FIN 48 provision did not have a material effect on the
Companys financial position, results of operations or cash flows.
8
DYNAMEX INC.
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations
This discussion contains forward-looking statements, which involve assumptions regarding Company
operations and future prospects. Although the Company believes its expectations are based on
reasonable assumptions, such statements are subject to risk and uncertainty, including, among other
things, competition, foreign exchange, and risks associated with the same-day transportation
industry. These and other risks are mentioned from time to time in the Companys filings with the
Securities and Exchange Commission. Caution should be taken that these factors could cause the
actual results to differ from those stated or implied in this and other Company communications.
General
The Company, through its national network of same-day delivery and logistics operations, is the
leading provider of such services in the United States and Canada.
A significant portion of the Companys revenues are generated in Canada. For the nine month period
ended April 30, 2009, Canadian revenues accounted for approximately 36.0% of total consolidated
revenue, compared to 38.4% for the same period in 2008. The exchange rate between the Canadian
dollar and the U.S. dollar decreased 14.9% in the nine month period ended April 30, 2009 compared
to the corresponding period in the prior year. Had the exchange rate been the same as in the prior
period, Canadian sales for the nine month period ended April 30, 2009 would have accounted for
39.8% of total sales.
Sales consist primarily of charges to customers for delivery services and weekly or monthly charges
for recurring services, such as facilities management. Sales are recognized when the service is
performed. The yield (value per transaction) for a particular service is dependent upon a number
of factors including size and weight of articles transported, distance transported, special
handling requirements, requested delivery time and local market conditions. Generally, articles of
greater weight transported over longer distances and those that require special handling produce
higher yields.
Cost of sales consists of costs relating directly to performance of services, including driver and
messenger costs, third party delivery charges, warehousing and sorting expenses, bad debts,
insurance, and workers compensation costs. Substantially all of the drivers used by the Company
provide their own vehicles, and more than 99% are independent contractors as opposed to employees
of the Company. Drivers and messengers are generally compensated based on a percentage of the
delivery charge. Consequently, the Companys driver and messenger costs are variable in nature.
To the extent that delivery personnel are employees of the Company, employee benefit costs related
to them, such as payroll taxes and insurance, are also included in cost of sales.
Selling, general and administrative expenses (SG & A) include salaries and benefit costs incurred
at the business center level related to taking orders and dispatching drivers and messengers, as
well as administrative costs related to such functions. Also included in SG & A expenses are
regional and corporate level marketing and administrative costs and occupancy costs related to
business center and corporate locations.
Generally, the Companys on-demand services provide higher gross profit margins than do local and
regional distribution or fleet management services because driver payments for on-demand services
are generally lower as a percentage of sales from such services due to the smaller size of the
vehicle required. However, scheduled distribution and fleet management services generally have
fewer administrative requirements related to order taking, dispatching drivers and billing
resulting in a contribution to fixed overhead comparable to on-demand services. As a result of
these variances, the Companys gross margin is dependent in part on the mix of business for a
particular period.
During the nine months ended April 30, 2009 and 2008, sales to Office Depot, Inc. represented
approximately 14.4% and 14.7%, respectively, of the Companys consolidated sales. Sales to the
Companys five largest customers, including Office Depot, represented approximately 24.9% and 26.1%
of the Companys consolidated sales for the nine months ended April 30, 2009 and 2008,
respectively.
9
DYNAMEX INC.
Critical Accounting Policies
The Companys discussion and analysis of its financial condition and results of operations are
based on the Companys financial statements, which have been prepared in accordance with accounting
policies generally accepted in the United States of America. The Companys critical accounting
policies are set forth in the Companys Form 10-K for the year ended July 31, 2008. As of, and for
the nine month period ended April 30, 2009, there have been no material changes or updates to the
Companys critical accounting policies.
Recent Accounting Pronouncements
In September 2006, the FASB issued Statement No. 157 (SFAS 157), Fair Value Measurement, This
Statement establishes a framework for measuring fair value in generally accepted accounting
principles and expands disclosures about fair value measurements. While SFAS 157 does not require
any new value measurements, it may change the application of fair value measurements embodied in
other accounting standards. SFAS 157 was effective at the beginning of the Companys 2009 fiscal
year. The Company believes the adoption of SFAS No. 157 did not have a material impact on its
consolidated financial statements.
In December 2007, the FASB issued Statement No. 141R (SFAS No. 141R), Business Combinations.
This Statement requires most identifiable assets, liabilities, noncontrolling interests, and
goodwill acquired in a business combination to be recorded at full fair value. The Statement
applies to all business combinations, including combinations among mutual entities and combinations
by contract alone. Under SFAS 141R, all business combinations will be accounted for by applying the
acquisition method. SFAS 141R is effective for periods beginning on or after December 15, 2008 and
became effective for us beginning in the second quarter of fiscal 2009 for business combinations
occurring after the effective date. The Company believes the adoption of SFAS No. 141R had no
material impact on its consolidated financial statements.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51 (SFAS
No. 160). SFAS No. 160 changes the accounting and reporting for minority interests, which will be
recharacterized as non-controlling interests and classified as a component of equity. SFAS No. 160
is effective for fiscal years and interim periods beginning after December 15, 2008. As of April
30, 2009, the Company did not have any minority interests; therefore the adoption of SFAS No. 160
did not have an impact on the Companys consolidated financial statements.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosure
about Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133, (SFAS 161).
This statement requires that objectives for using derivative instruments be disclosed in terms of
underlying risk and accounting designation. SFAS No. 161 is effective for fiscal years and interim
periods beginning after November 15, 2008. The Company currently does not participate in any
derivative instruments or hedging activities as defined under SFAS 133 and, therefore, the adoption
of SFAS 161 will not have any impact on the Companys consolidated financial statements.
In April 2008 the FASB issued FASB Staff Position on Financial Accounting Standard (FSP) No.
142-3, Determination of the Useful Life of Intangible Assets, which amends the factors that
should be considered in developing renewal or extension assumptions used to determine the useful
life of intangible assets under SFAS No. 142 Goodwill and Other Intangible Assets. The intent of
this FSP is to improve the consistency between the useful life of a recognized intangible asset
under SFAS No. 142 and the period of the expected cash flows used to measure the fair value of the
asset under SFAS No. 141 (revised 2007) Business Combinations and other U.S. generally accepted
accounting principles. FSP 142-3 is effective for fiscal years and interim periods beginning after
December 15, 2008. The adoption of FSP 142-3 did not have a material impact on the Companys
consolidated financial position and results of operations.
10
DYNAMEX INC.
Results of Operations
The following table sets forth for the periods indicated, certain items from the Companys
condensed statements of consolidated operations, expressed as a percentage of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
April 30, |
|
|
April 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased transportation |
|
|
64.5 |
% |
|
|
66.0 |
% |
|
|
64.8 |
% |
|
|
65.9 |
% |
Other direct costs |
|
|
8.6 |
% |
|
|
7.8 |
% |
|
|
8.6 |
% |
|
|
7.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
73.1 |
% |
|
|
73.8 |
% |
|
|
73.4 |
% |
|
|
73.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
26.9 |
% |
|
|
26.2 |
% |
|
|
26.6 |
% |
|
|
26.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
16.1 |
% |
|
|
13.8 |
% |
|
|
15.7 |
% |
|
|
14.3 |
% |
Other |
|
|
7.0 |
% |
|
|
6.4 |
% |
|
|
6.4 |
% |
|
|
6.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
23.1 |
% |
|
|
20.2 |
% |
|
|
22.1 |
% |
|
|
20.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
0.9 |
% |
|
|
0.7 |
% |
|
|
0.8 |
% |
|
|
0.6 |
% |
(Gain) loss on disposal of property and equipment |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
2.9 |
% |
|
|
5.3 |
% |
|
|
3.7 |
% |
|
|
5.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
0.1 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.1 |
% |
Other income, net |
|
|
-0.1 |
% |
|
|
-0.1 |
% |
|
|
-0.1 |
% |
|
|
-0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
2.9 |
% |
|
|
5.4 |
% |
|
|
3.8 |
% |
|
|
5.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
1.2 |
% |
|
|
2.1 |
% |
|
|
1.5 |
% |
|
|
2.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
1.7 |
% |
|
|
3.3 |
% |
|
|
2.3 |
% |
|
|
3.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
11
DYNAMEX INC.
The following tables sets forth for the periods indicated, the Companys sales accumulated by
service type and country:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
April 30, |
|
|
|
2009 |
|
|
2008 |
|
Sales by service type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On demand |
|
$ |
28,594 |
|
|
|
31.0 |
% |
|
$ |
35,821 |
|
|
|
31.7 |
% |
Scheduled/distribution |
|
|
63,640 |
|
|
|
69.0 |
% |
|
|
77,155 |
|
|
|
68.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
$ |
92,234 |
|
|
|
100.0 |
% |
|
$ |
112,976 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by country: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
60,348 |
|
|
|
65.4 |
% |
|
$ |
69,851 |
|
|
|
61.8 |
% |
Canada |
|
|
31,886 |
|
|
|
34.6 |
% |
|
|
43,125 |
|
|
|
38.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
$ |
92,234 |
|
|
|
100.0 |
% |
|
$ |
112,976 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
April 30, |
|
|
|
2009 |
|
|
2008 |
|
Sales by service type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On demand |
|
$ |
97,262 |
|
|
|
31.9 |
% |
|
$ |
109,921 |
|
|
|
32.6 |
% |
Scheduled/distribution |
|
|
207,980 |
|
|
|
68.1 |
% |
|
|
226,763 |
|
|
|
67.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
$ |
305,242 |
|
|
|
100.0 |
% |
|
$ |
336,684 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by country: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
195,382 |
|
|
|
64.0 |
% |
|
$ |
207,491 |
|
|
|
61.6 |
% |
Canada |
|
|
109,860 |
|
|
|
36.0 |
% |
|
|
129,193 |
|
|
|
38.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
$ |
305,242 |
|
|
|
100.0 |
% |
|
$ |
336,684 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended April 30, 2009 compared to three months ended April 30, 2008
Net income for the three months ended April 30, 2009 was $1.6 million ($0.17 per fully diluted
share) compared to $3.8 million ($0.37 per fully diluted share) for the three months ended April
30, 2008.
Sales for the three months ended April 30, 2009 were $92 million, an 18.4% decrease compared to the
same period in 2008. The average conversion rate between the Canadian dollar and the U.S. dollar
decreased 19.2% compared to the prior year quarter, which had the effect of decreasing sales for
the three months ended April 30, 2009 by approximately $7.6 million or 6.7% had the conversion rate
been the same as the prior year period. Also, management estimates that approximately 5.1% of the
year-over-year decrease in sales is attributable to a reduction of fuel surcharges from the prior
year quarter. The core growth rate, the rate excluding changes in foreign exchange and fuel
surcharges, declined 6.6% this quarter. U.S. core sales decreased approximately 9.5% while Canadian
core sales, in Canadian dollars, decreased approximately 3.1% this quarter compared to last year.
Over half of the decline in U.S. core sales is attributable to a reduction in shipment volumes from
our largest U.S. customer.
Cost of sales for the three months ended April 30, 2009 decreased $16.0 million, or 19.2%, to $67.4
million from $83.4 million for the same period in the prior year. Cost of sales, as a percentage
of sales was 73.1% for the three months ended April 30, 2009, lower than the 73.8% for the same
period in the prior year. Purchased transportation costs, the largest component of cost of sales
represented 64.5% of sales in the current year quarter, compared to 66.0% in the prior year. Other
direct costs, that are less variable than purchased transportation, were 8.6% of sales compared to
7.8% last year.
SG & A expenses for the three months ended April 30, 2009 decreased $1.5 million, or 6.5%, to $21.3
million from $22.8 million for the same period in the prior year. As a percentage of sales, SG & A
expenses were 23.1% for the three months ended April 30, 2009, compared to 20.2% in the same period
last year. Substantially all the dollar decline is attributable to the lower Canadian dollar this
year compared to the prior year. The incremental investments we are making in the sales force
offset lower bonus accruals and the reductions in force made last quarter.
12
DYNAMEX INC.
For the three months ended April 30, 2009, depreciation and amortization was $849,000 compared to
$747,000 for the same period in the prior year. The increase is principally due to the higher
level of capital additions over the last two fiscal years. As a percent of sales, depreciation and
amortization was 0.9%, compared to 0.7% in the prior year period. In the current quarter, the
Company purchased approximately $2.8 million of specialized equipment to service a specific
customer under a five-year contract extension that will increase future depreciation and
amortization.
Other income, net for the three months ended April 30, 2009, was $64,000 compared to $124,000 for
the same period in the prior year. This decrease is principally attributable to interest income
due to lower cash and cash equivalents on hand during the current year quarter compared to the
prior year.
Interest expense was $51,000, an increase of $3,000 or 6.3% for the current quarter.
The effective income tax rate was 39.8% for the current quarter compared to 38.1% for the prior
year. Income tax expense was $1.1 million of income before taxes in the current year quarter
compared to $2.3 million of income before taxes in the prior year. The higher effective tax rate
this year results from the repatriation of approximately $6 million from Canada in the first
quarter of FY 2009. We expect the effective tax rate to be in the 40% range for the remainder of
the 2009 fiscal year.
Nine months ended April 30, 2009 compared to nine months ended April 30, 2008
Net income for the nine months ended April 30, 2009 was $7.0 million ($.71 per fully diluted share)
compared to $11.2 million ($1.09 per fully diluted share) for the nine months ended April 30, 2008.
A one-time, special payment to the current Chairman of the Board and former President and CEO in
the first quarter of fiscal year 2009 of $1.0 million, net of taxes, reduced net income per fully
diluted share by approximately $0.10.
Sales for
the nine months ended April 30, 2009 were $305 million, a
9.3% decrease from $337 million
for the same period in 2008. The average conversion rate between the Canadian dollar and the U.S.
dollar declined 14.9% from the prior year period, which had the effect of decreasing sales for the
nine months ended April 30, 2009 by approximately $19.2 million or 5.7% had the conversion rate
been the same as the prior year period. Also, management estimates that fuel surcharges decreased
approximately 1.4% from the prior year period. The core growth rate, the rate excluding changes in
foreign exchange and fuel surcharges, declined 2.2% for the nine months ended April 30, 2009. U.S.
core sales per day decreased approximately 3.7% and Canadian core sales per day, in Canadian
dollars, increased approximately 1.1% this year compared to last year.
Cost of sales for the nine months ended April 30, 2009 decreased $23.5 million, or 10.1%, to $224.1
million from $247.6 million for the same period in the prior year. Cost of sales, as a percentage
of sales was 73.4% for the nine months ended April 30, 2009, compared to 73.6% for the nine months
ended April 30, 2008. Purchased transportation costs, the largest component of cost of sales
represented 64.8% of sales in the current year, compared to 65.9% in the prior year. Other direct
cost of sales increased from 7.7% last year to 8.6% in the current year principally due to a $0.8
million increase in the reserve for doubtful accounts and increased space and labor for
cross-docking and sorting operations related to new business started over the last year.
SG &
A expenses for the nine months ended April 30, 2009 decreased $2.1 million, or 2.9%, to $67.3
million from $69.4 million for the same period in the prior year. As a percentage of sales, SG & A
expenses were 22.1% for the nine months ended April 30, 2009, compared to 20.5% for the nine months
ended April 30, 2008. The decline is attributable to the weaker Canadian dollar, lower bonus
accruals, travel and entertainment, reductions in force made last quarter and general corporate
expenses, which was partially offset by a $1.5 million one-time, pre-tax special payment to the
current Chairman of the Board and former President and CEO in the first quarter of the current
fiscal year and the incremental investments we are making in the sales force.
For the nine months ended April 30, 2009, depreciation and amortization was $2.4 million compared
to $2.1 million for the same period in the prior year. The increase is principally due to the
recent completion of several longer-term projects and the amortization of customer list
acquisitions.
Other income, net for the nine months ended April 30, 2009, was $373,000 compared to $427,000 for
the same period in the prior year. The decrease is principally attributable to interest income
due to lower cash and cash equivalents on hand during the current year quarter compared to the
prior year.
13
DYNAMEX INC.
Interest
expense was $132,000, a decrease of $48,000 or 26.7% from the prior
year. Lower
interest expense compared to the prior year is primarily attributable to a lower average
outstanding debt.
The effective income tax rate was 40.1% for the current period compared to 37.5% for the prior
year. The increase in the effective tax rate is primarily attributable to both a higher effective
U.S. tax rate and a higher proportion of income being generated in the U.S. in the current year
compared to the prior year. The effective U.S. tax rate is approximately 2% higher than the prior
year due to the Companys decision to repatriate excess Canadian cash to support its ongoing share
repurchase program during the first quarter of FY 2009. The Company decided during the second
quarter of FY 2009 to suspend the share repurchase program.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flow provided from operations and our revolving credit
facility. Net cash provided by operating activities for the nine months ended April 30, 2009 was
$7.1 million compared to net cash provided by operating activities for the nine months ended April
30, 2008 of $6.4 million. The increase in cash provided by operating activities this year
compared to last year is principally attributable to an increase in
operating assets and liabilities principally from the reduction in accounts payable and accrued
liabilities, partially
offset by lower level of earnings. The timing of payments to service providers, vendors and employees, the lower
Canadian dollar exchange rate and reduced bonus accruals are the principal reasons for the decline
in accounts payable and accrued liabilities compared to the prior year.
Net cash used in investing activities increased $1.4 million in the nine months ended April 30,
2009 compared to the prior year. In the current quarter, the Company purchased approximately $2.8
million of specialized equipment to service a specific customer under a five-year contract
extension that will increase future depreciation and amortization. The prior year included
approximately $0.5 million for acquisition of customer lists. The increase is partially offset by a
withdrawal of deferred compensation investments of approximately $0.7 million. Our cash flow from
operations has been our primary source of liquidity, and we expect it to continue to be the primary
source in the future. The Company does not have significant capital expenditure requirements to
replace or expand the number of vehicles used in its operations because substantially all of its
drivers are independent contractors who provide their own vehicles.
The Board of Directors has authorized the Company to purchase up to $78 million of Dynamex Inc.
common stock on the open market. Through July 31, 2008, the Company had repurchased a total of 2.0
million shares at an average price of $20.07 per share for a total dollar cost of $39.4 million.
Delaware law permits treasury shares to be retired when appropriately authorized by the Board of
Directors, and the Company has retired such shares by appropriate reductions in the value of common
stock and additional paid-in capital. During the nine months ended April 30, 2009, the Company
repurchased and retired a total of 0.4 million shares at an average price of $24.13 per share for a
total dollar cost of $10.6 million, leaving a balance of $28.0 million in the current
authorization. The Company decided during the second quarter of FY 2009 to suspend the share
repurchase program.
The Companys revolving credit facility was initially established in 2004 and last amended on
January 26, 2009. The credit facility has a maturity date of July 31, 2013 and has no scheduled
principal payments. The $40 million revolving credit facility is secured by all of the Companys
U.S. assets and 100% of the stock of its domestic subsidiaries. At April 30, 2009, there were $6.9
million letters of credit issued but no outstanding borrowings under the revolving credit
agreement.
14
DYNAMEX INC.
The revolving credit facility requires us to satisfy certain financial and other covenants,
including:
|
|
|
|
|
|
|
|
|
Level at April 30, |
Compliance Area |
|
Covenant |
|
2009 |
Ratio of funded debt to EBITDA
|
|
Maximum of 2.00 to 1.00
|
|
0.29 to 1.00 |
Total indebtedness
|
|
$40 million, including LOCs
|
|
$6.9 million |
Letters of credit sublimit
|
|
$10.0 million
|
|
$6.9 million |
Treasury stock purchases during
the subject period
|
|
Ratio of funded debt to EBITDA
maximum of 1.50 to 1.00; based on
pro forma effect of treasury stock
purchases
|
|
0.29 to 1.00 |
Fixed charge coverage ratio
|
|
Equal to or greater than 1.35 to 1.00
|
|
7.17 to 1.00 |
The Companys EBITDA (earnings before interest expense, taxes, depreciation and amortization) was
approximately $3.6 million (3.9% of sales) for the three months ended April 30, 2009, compared to
$6.9 million (6.1% of sales) in the same period last year. The Companys EBITDA was approximately
$14.2 million (4.7% of sales) for the nine months ended April 30, 2009, compared to $20.2 million
(6.0% of sales) in the same period last year. The decrease in EBITDA for the nine months ended
April 30, 2009, as a percentage of sales include the one-time special compensation award to the
Companys current Chairman of the Board and former President and CEO of $1.5 million, pre-tax.
Excluding this one-time special compensation award, EBITDA was $15.7 million (5.2% of sales) for
the nine months ended April 30, 2009. EBITDA and EBITDA margin (percentage of EBITDA to sales) are
supplementally presented because management believes that it is a widely accepted and useful
financial indicator regarding our results of operations. Management believes EBITDA assists in
analyzing and benchmarking the performance and value of our business. Although our management uses
EBITDA as a financial measure to assess the performance of our business compared to that of others
in our industry, the use of EBITDA is limited because it does not include certain costs that are
material in amount, such as interest expense, taxes, depreciation and amortization, necessary to
operate our business. EBITDA is not a recognized term under generally accepted accounting
principles and, when analyzing our operating performance, investors should use EBITDA in addition
to, not as an alternative for, operating income, net income and cash flows from operating
activities. The following table reconciles net income presented in accordance with generally
accepted accounting principles (GAAP) to EBITDA, which is a non-GAAP financial measure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
April 30, |
|
|
April 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net income |
|
$ |
1,635 |
|
|
$ |
3,774 |
|
|
$ |
6,983 |
|
|
$ |
11,187 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
1,082 |
|
|
|
2,325 |
|
|
|
4,681 |
|
|
|
6,709 |
|
Interest expense |
|
|
51 |
|
|
|
48 |
|
|
|
132 |
|
|
|
180 |
|
Depreciation and amortization |
|
|
849 |
|
|
|
747 |
|
|
|
2,443 |
|
|
|
2,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
3,617 |
|
|
$ |
6,894 |
|
|
$ |
14,239 |
|
|
$ |
20,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA margin |
|
|
3.9 |
% |
|
|
6.1 |
% |
|
|
4.7 |
% |
|
|
6.0 |
% |
Management expects internally generated cash flow and temporary borrowings from its bank credit
facility will be sufficient to fund its operations, capital requirements and common stock
repurchases.
Inflation
The Company does not believe that inflation has had a material effect on the Companys results of
operations nor does it believe it will do so in the foreseeable future. However, there can be no
assurance the Companys business will not be affected by inflation in the future.
15
DYNAMEX INC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Exposure
Significant portions of the Companys operations are conducted in Canada. Exchange rate
fluctuations between the U.S. and Canadian dollar result in fluctuations in the amounts relating to
the Canadian operations reported in the Companys consolidated financial statements. The Company
historically has not entered into hedging transactions with respect to its foreign currency
exposure, but may do so in the future.
The sensitivity analysis model used by the Company for foreign exchange exposure compares the
revenue and net income figures from Canadian operations, at the actual exchange rate, to a 10%
decrease in the exchange rate. Based on this model, a 10% decrease would result in a decrease in
quarterly revenue of approximately $3.2 million and a decrease in quarterly net income of
approximately $68,000 over this period. There can be no assurances that the above projected
exchange rate decrease will materialize. Fluctuations of exchange rates are beyond the control of
the Companys management.
Interest Rate Exposure
The sensitivity analysis model used by the Company for interest rate exposure compares interest
expense fluctuations over a one-year period based on current debt levels and current average
interest rates versus current debt levels at current average interest rates with a 10% increase.
Based on this model, a 10% increase would result in no material increase in interest expense.
There can be no assurances that the above projected interest rate increase will materialize.
Fluctuations of interest rates are beyond the control of the Companys management.
16
DYNAMEX INC.
Item 4. Controls and Procedures
An evaluation was carried out under the supervision and with the participation of the Companys
management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of its disclosure controls and procedures (as defined in Rules 13a -
15(e) and 15d 15(e) under the Securities Exchange Act of 1934) as of April 30, 2009 (the end of
the period covered by this Quarterly Report on Form 10-Q). Based upon the evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the design and operation of these
disclosure controls and procedures were effective.
There were no significant changes in the Companys internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material weaknesses.
17
DYNAMEX INC.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The California Employment Development Department conducted an employment tax audit of the Companys
California operations in 2006. Based on its conclusion that certain independent contractors used
by the Company should be reclassified as employees, a Notice of Assessment was issued by the EDD in
April 2007 in the amount of $2.8 million; $2.0 million of which the EDD claims represents personal
income tax of the reclassified individuals. The Company has collected and submitted documentation
which will work to reduce the personal income tax portion of the assessment through the California
abatement process. The Company has filed a Petition for Reassessment and intends to vigorously
contest the assessment.
On April 15, 2005, a putative class action was filed against the Company by a former independent
contractor in the Superior Court of California, Los Angeles County, alleging that the Company
unlawfully misclassified its California drivers as independent contractors, rather than employees,
and asserting, as a consequence, entitlement on behalf of the purported class claimants to overtime
compensation and other benefits under California wage and hour laws, reimbursement of certain
operating expenses, and various insurance and other benefits and the obligation of the Company to
pay employer payroll taxes under federal and state law. Plaintiffs Motion for Class Certification
was denied in December 2006, and appealed by Plaintiff. The Appellate Court determined that the
Trial Courts denial of Plaintiffs earlier Motion to Compel Disclosure of the names and contact
information for all members of the putative class prejudiced Plaintiffs ability to support his
Motion for Class Certification. The ruling reversed the Denial of the Motion for Class
Certification and remanded the matter for additional discovery and eventual re-hearing of the
Motion. Pursuant to Order of the Court, the names and contact information for members of the
putative class were produced by the Company in January 2009. In early February 2009, Plaintiff was
permitted to file a First Amended Complaint, which among other matters, added an additional named
Plaintiff. Electronic Discovery is continuing and is expected to lead to the filing of a Motion
by Plaintiff for Class Certification in June, 2009.
On July 25, 2008, two independent contractor drivers filed a purported class action suit in San
Bernardino County, California Superior Court alleging that the Companys classification of
California drivers as independent contractors was unlawful, and that as a consequence they were
denied the benefit of various California wage laws. They further alleged that such
misclassification constituted unfair competition under California business statutes. Because the
Complaint in large measure contains the same causes of action as the on-going 2005 Los Angeles
County, California Superior Court case, the Company filed a Special Demurrer and a Motion to Stay
further proceedings pending the outcome of the earlier action. Following a November 2008 Hearing,
the Court issued a Stay. Plaintiffs subsequent attempt to consolidate their action with the Los
Angeles County action described above was denied. On January 21, 2009, one of the named Plaintiffs
voluntarily dismissed his claims without prejudice in order to attempt to join the Los Angeles
County suit. The Plaintiff has subsequently been added to the Los Angeles County suit.
On October 9, 2008, the Company was served with a one count Massachusetts State Court Complaint by
a former independent contractor driver alleging that the Company had unlawfully misclassified him
as an independent contractor rather than as an employee. He alleges that the misclassification
resulted in the denial of overtime compensation. The Company has filed an Answer and various
Affirmative Defenses to the Action, and expects to begin discovery.
On September 29, 2008, five former independent contractor drivers filed an action in California
State Court alleging that the Company misclassified them as independent contractors rather than
employees and further that the Company committed unlawful racial harassment and discrimination
ultimately resulting in their wrongful termination or wrongful constructive termination, all in
violation of the public policy of the State of California. An Amended Complaint was filed on
November 20, 2008, and the Company thereafter timely filed its Answer. At the Case Management
Conference in early February 2009, the parties were ordered to participate in mediation before
December 4, 2009, and a trial date of February 8, 2010 was set. Discovery continues. The Company
believes that the Plaintiffs were properly classified as independent contractors and further believes that Plaintiffs
were treated in conformity with all State and Federal laws.
18
DYNAMEX INC.
The Company believes that the independent contractor owner-operator drivers are properly classified
as independent contractors and intends to vigorously defend this litigation. Given the nature and
preliminary status of the claims, however, the Company cannot yet determine the amount or a
reasonable range of potential loss in these matters, if any.
The Company is a party to various legal proceedings arising in the ordinary course of its business.
The Company believes that the ultimate resolution of these proceedings will not, in the aggregate,
have a material adverse effect on the financial condition, results of operations, or liquidity of
the Company.
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DYNAMEX INC.
Item 1A. Risk Factors.
In addition to other information in this report, the following risk factors should be considered
carefully in evaluating the Company and its business. This report contains forward-looking
statements, which involve risks and uncertainties. The Companys actual results could differ
materially from those anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere in this report.
The Global Economic Conditions Could Adversely Affect the Companys Business and Financial
Results and have a Material Adverse Affect on our Liquidity and Capital Resources
As the global financial crisis has broadened and intensified, most sectors of the economy have been
adversely impacted. Any resulting decreases in customer traffic or average value per transaction
will negatively impact the Companys financial performance as reduced revenues result in sales
de-leveraging which creates downward pressure on margins. Additionally, many of the effects and
consequences of the global financial crisis and a broader global economic downturn are currently
unknown; any one or all of them could potentially have a material adverse effect on the Companys
liquidity and capital resources, including our ability to raise additional capital if needed, the
ability of banks to honor draws on our credit facility, or otherwise negatively impact the
Companys business and financial results.
Changing Fuel Costs May Adversely Affect Our Financial Condition and Results of Operations
The independent contractor owner-operators we engage are responsible for all vehicle expense
including maintenance, insurance, fuel and all other operating costs. We make every reasonable
effort to include fuel cost adjustments in customer billings that we pay to independent contractor
owner-operators to offset the impact of fuel price increases. If future fuel cost adjustments are
insufficient to offset independent contractor owner-operators costs, we may be unable to attract a
sufficient number of independent contractor owner-operators that may negatively impact our
business, financial condition and results of operations.
Competition May Adversely Affect Our Results
The market for same-day delivery and logistics services has been and is expected to remain highly
competitive. Competition is often intense, particularly for basic delivery services. High
fragmentation and low barriers to entry characterize the industry. We compete with other companies
in the industry not only to be providers of services but also for qualified drivers. Some of these
companies have longer operating histories and greater financial and other resources than we do.
Because of the low cost of entry, companies that do not currently operate delivery and logistics
businesses may enter the industry in the future. See Business Competition in the July 31,
2008 Form 10K.
An Increase in Claims May Expose Us to Losses
As of April 30, 2009, we utilized the services of approximately 4,600 independent contractor
owner-operator drivers. From time to time such persons are involved in accidents or other
activities that may give rise to liability claims. We currently carry liability insurance with a
per occurrence and an aggregate limit of $30 million. Our independent contractor owner-operators
are required to maintain liability insurance of at least the minimum amounts required by applicable
state or provincial law (generally such minimum requirements range from $20,000 to $40,000). We
also have insurance policies covering property and fiduciary trust liability, which coverage
includes all drivers and messengers. We make no assurance that claims against us, whether under
the liability insurance or the surety bonds will not exceed the applicable amount of coverage, that
our insurer will be solvent at the time of settlement of an insured claim, or that we will be able
to obtain insurance at acceptable levels and costs in the future. If we were to experience a
material increase in the frequency or severity of accidents, liability claims, workers
compensation claims or unfavorable resolutions of claims, our business, financial condition and
results of operations
could be materially adversely affected. In addition, significant increases in insurance costs
could reduce our profitability.
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DYNAMEX INC.
We Rely on Independent Contractor Owner-Operator Drivers to Make Deliveries for Our Customers
Substantially all of our drivers at April 30, 2009 were independent contractor owner-operators. We
are currently a party to purported class actions brought by former drivers in California alleging,
among other things, that the Company has misclassified its drivers in these jurisdictions as
independent contractors rather than employees and seeking recovery of overtime pay and other
benefits and expense reimbursements. We believe that our classification of our owner-operators as
independent contractors is proper under applicable law and we intend to vigorously defend these
actions. However, in the event of an adverse determination in these actions, the Company could be
required to pay overtime pay and other benefits and expense reimbursements to former and current
drivers who are members of the class for prior periods and, in the case of current drivers,
prospectively. To the extent that we are required to pay our owner-operators overtime pay and
other benefits and expense reimbursements, our operating costs will increase, which could adversely
impact our financial condition and results of operations.
We also do not pay or withhold any federal, state or provincial employment tax with respect to or
on behalf of independent contractors. Our classification of our owner-operator drivers as
independent contractors has been challenged from time to time by various taxing authorities, as in
the case of California, where we have been subjected to assessments and interest for prior periods
as a result of audits by the California Employment Development Department. While we believe that
our owner-operators are not employees under existing interpretations of federal (U.S. and
Canadian), state and provincial laws and intend to vigorously defend such challenges, there is no
certainty that we will prevail. If we are required to pay employer taxes or pay backup
withholding in respect of prior periods on behalf of our owner-operators, our operating costs will
increase, which could adversely impact our financial condition and results of operations.
See Business Services and Employees in our July 31, 2008 Form 10K and Legal Proceedings
in Part I, Item 1 of this Form 10-Q.
We May Be Adversely Affected by Local Delivery Industry and General Economic Conditions
Our sales and earnings are especially sensitive to events that affect the delivery services
industry including extreme weather conditions, economic factors affecting our significant customers
and shortages of or disputes with independent contractors, any of which could result in our
inability to service our clients effectively or our inability to profitably manage our operations.
In addition, downturns in the level of general economic activity and employment in the U.S. or
Canada may negatively impact demand for our services.
Fluctuations of Foreign Exchange Rates May Adversely Affect Our Results
About one-third of our operations are conducted in Canada. Exchange rate fluctuations between the
U.S. and Canadian dollar result in fluctuations in the amounts relating to the Canadian operations
reported in our consolidated financial statements. The Canadian dollar is the functional currency
for the Canadian operations; therefore, any change in the exchange rate will affect our reported
sales, expenses and net income for such period. We historically have not entered into hedging
transactions with respect to our foreign currency exposure, but may do so in the future.
Fluctuations in the exchange rate have adversely affected our reported sales in FY 2009. We cannot
be assured that fluctuations in foreign currency exchange rates will not continue to have an
adverse effect on our business, financial condition or results of operations. See Managements
Discussion and Analysis of Financial Condition and Results of Operation in the July 31, 2008 Form
10K.
Failure to Maintain Permits and Licensing May Adversely Affect Our Ability to Operate
Although certain aspects of the transportation industry have been significantly deregulated, our
delivery operations are still subject to various federal (U.S. and Canadian), state, provincial and
local laws, ordinances and regulations that in many instances require certificates, permits and
licenses. If we fail to maintain required certificates, permits or licenses, or to comply with
applicable laws, ordinances or regulations we may incur substantial fines or possible
revocation of our authority to conduct certain of our operations. See Business Regulation in
the July 31, 2008 Form 10K.
We Depend Upon Key Personnel for Our Continued Operations
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DYNAMEX INC.
Our success is largely dependent on the skills, experience and performance of certain key members
of our management. The loss of the services of any of these key employees could have a material
adverse effect on our business, financial condition and results of operations. Our future success
and plans for growth also depend on its ability to attract and retain skilled personnel in all
areas of our business. There is strong competition for skilled personnel in the same-day delivery
and logistics businesses.
Technological Advances May Adversely Affect Our Business
Technological advances in the nature of facsimile, electronic mail and electronic signature capture
have affected the market for on-demand document delivery services. Although we have shifted our
focus to the distribution of non-faxable items and logistics services, there can be no assurance
that these or other technologies will not have a material adverse effect on our business, financial
condition and results of operations in the future.
We Are Highly Dependent Upon Our Technology Infrastructure
We rely heavily on technology to operate our transportation and business networks, and any
disruption to our technology infrastructure or the internet could harm our operations and our
reputation among our customers. Our ability to attract and retain customers and to compete
effectively depends in part upon the sophistication and reliability of our technology network,
including our ability to provide features of service that are important to our customers. Any
disruption to our computer systems and web site could adversely impact our customer service, our
ability to receive orders and respond to prompt delivery assignments and result in increased costs.
While we have invested and will continue to invest in technology security initiatives and disaster
recovery plans, these measures cannot fully insulate us from technology disruptions and the
resulting adverse effect on our operations and financial results.
We Are Dependent on Availability of Qualified Delivery Personnel
We are dependent upon our ability to attract and retain, as employees or through independent
contractor or other arrangements, qualified delivery personnel who possess the skills and
experience necessary to meet the needs of our operations. We compete in markets in which
unemployment is generally relatively low and the competition for independent contractor
owner-operators and other employees is intense. We must continually evaluate and upgrade our pool
of available independent contractor owner-operators to keep pace with demands for delivery
services. We have no assurance that qualified delivery personnel will continue to be available in
sufficient numbers and on terms acceptable to us. Our inability to attract and retain qualified
delivery personnel could have a material adverse impact on our business, financial condition and
results of operations.
We May Need Additional Financing to Pursue Our Acquisition Strategy
We intend to pursue acquisitions that are complementary to our existing operations. We may be
required to incur additional debt, issue additional securities that may potentially result in
dilution to current holders and also may result in increased goodwill, intangible assets and
amortization expense. We have no assurance that we will be able to obtain additional financing if
necessary, or that such financing can be obtained on terms we will deem acceptable. As a result,
we may be unable to successfully implement our acquisition strategy. See Managements Discussion
and Analysis of Financial Condition and Results of Operation Liquidity and Capital Resources.
Factors Beyond Our Control May Affect the Volatility of Our Stock Price
Prices for our common stock will be determined in the marketplace and may be influenced by many
factors, including the depth and liquidity of the market for our common stock, investor perception
of us and general economic and market conditions. Variations in our operating results, general
trends in the industry and other factors
could cause the market price of our common stock to fluctuate significantly. In addition, general
trends and developments in the industry, government regulation and other factors could have a
significant impact on the price of our common stock. The stock market has, on occasion,
experienced extreme price and volume fluctuations that have often particularly affected market
prices for smaller companies and that often have been unrelated or disproportionate to the
operating performance of the affected companies, and the price of our common stock could be
affected by such fluctuations.
22
DYNAMEX INC.
Item 6. Exhibits
Exhibits:
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31.1
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Certification of Chief Executive Officer of the Registrant,
pursuant to 17 CFR 240. 13a 15(e) or 17 CFR 240. 15d 15(e) |
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31.2
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Certification of Chief Financial Officer of the Registrant,
pursuant to 17 CFR 240. 13a 15(e) or 17 CFR 240. 15d 15(e) |
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32.1
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Certification of Chief Executive Officer of the Registrant,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
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32.2
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Certification of Chief Financial Officer of the Registrant,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
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DYNAMEX INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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DYNAMEX INC. |
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Dated: June 5, 2009
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by
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/s/ James L. Welch
James L. Welch
President and Chief Executive Officer
(Principal Executive Officer)
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Dated: June 5, 2009
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by
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/s/ Ray E. Schmitz |
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Ray E. Schmitz
Vice President Chief Financial Officer
(Principal Financial Officer) |
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Dated: June 5, 2009
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by
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/s/ Gilbert Jones |
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Gilbert Jones
Corporate Controller
(Principal Accounting Officer) |
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EXHIBIT INDEX
Exhibits
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31.1
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Certification of Chief Executive Officer of the Registrant, pursuant to 17 CFR 240. 13a -
15(e) or 17 CFR 240. 15d 15(e) |
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31.2
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Certification of Chief Financial Officer of the Registrant, pursuant to 17 CFR 240. 13a -
15(e) or 17 CFR 240. 15d 15(e) |
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32.1
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Certification of Chief Executive Officer of the Registrant, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2
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Certification of Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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