Edgar Filing: DYNAMEX INC

e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2006


o		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)


Delaware (State of incorporation)		86-0712225 (I.R.S. Employer Identification No.)

1870 Crown Drive, Dallas, Texas (Address of principal executive offices)		75234 (Zip Code)

Registrant’s telephone number, including area code:
(214) 561-7500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).


		Large accelerated filer o		Accelerated filer þ		Non-accelerated filer 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 registrant’s common stock, $.01 par value, outstanding as of February 28, 2006 was 11,080,327 shares.

DYNAMEX INC.

INDEX


	Page
PART I
FINANCIAL INFORMATION

Item 1. Financial Statements
Condensed Consolidated Balance Sheets January 31, 2006 (Unaudited) and July 31, 2005		2
Condensed Statements of Consolidated Operations (Unaudited) Three and six months ended January 31, 2006 and 2005		3
Condensed Statements of Consolidated Cash Flows (Unaudited) Six months ended January 31, 2006 and 2005		4
Notes to Condensed Consolidated Financial Statements (Unaudited)		5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		8
Item 3. Quantitative and Qualitative Disclosures About Market Risk		17
Item 4. Controls and Procedures		18

PART II
OTHER INFORMATION

Item 1. Legal Proceedings		19
Item 1A. Risk Factors		19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		20
Item 4. Submission of Matters to a Vote of Security Holders		20
Item 6. Exhibits		21
Signatures		22
Exhibit Index		E-1
2nd Amendment to Revolving Credit Facility
3rd Amendment to Revolving Credit Facility
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Certification of Chief Executive Officer
Certification of Chief Financial Officer

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

DYNAMEX INC.

Condensed Consolidated Balance Sheets
(in thousands, except per share data)


	January 31,			July 31,
	2006			2005
	(Unaudited)
ASSETS
CURRENT
Cash and cash equivalents	$	7,945		$	11,678
Accounts receivable (net of allowance for doubtful accounts of $877 and $767, respectively)		34,519			31,703
Prepaid and other current assets		1,546			3,115
Deferred income taxes		2,736			1,992

Total current assets		46,746			48,488

PROPERTY AND EQUIPMENT — net		5,085			5,597
GOODWILL		46,862			46,088
INTANGIBLES — net		424			463
DEFERRED INCOME TAXES		6,593			7,625
OTHER		1,514			1,214

Total assets	$	107,224		$	109,475


LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable trade	$	7,747		$	11,145
Accrued liabilities		16,776			14,426

Total current liabilities		24,523			25,571
LONG-TERM DEBT		7			8

Total liabilities		24,530			25,579

COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY
Preferred stock; $0.01 par value, 10,000 shares authorized; none outstanding		—			—
Common stock; $0.01 par value, 50,000 shares authorized; 11,703 and 11,612 outstanding, respectively		117			116
Additional paid-in capital		78,655			77,196
Treasury stock, 623 shares, at cost		(9,997	)		—
Retained earnings		9,635			3,768
Accumulated other comprehensive income		4,284			2,816

Total stockholders’ equity		82,694			83,896

Total liabilities and stockholders’ equity	$	107,224		$	109,475

See accompanying notes to the condensed consolidated financial statements.

DYNAMEX INC.

Condensed Statements of Consolidated Operations
(in thousands except per share data)
(Unaudited)


	Three months ended						Six months ended
	January 31,						January 31,
	2006			2005			2006			2005
Sales	$	86,346		$	78,646		$	176,915		$	155,206

Cost of sales:
Purchased transportation		56,034		$	50,510			115,252			98,948
Other direct costs		6,550			6,352			13,508			12,765

Cost of sales		62,584			56,862			128,760			111,713


Gross profit		23,762			21,784			48,155			43,493

Selling, general and administrative expenses:
Salaries and employee benefits		13,470			12,206			26,874			23,593
Other		5,631			5,171			11,249			10,005

Selling, general and administrative expenses		19,101			17,377			38,123			33,598


Depreciation and amortization		448			369			941			745
(Gain) loss on disposal of property and equipment		—			(2	)		1			3


Operating income		4,213			4,040			9,090			9,147

Interest expense		90			116			175			273
Other income, net		(57	)		(54	)		(164	)		(104	)


Income before income taxes		4,180			3,978			9,079			8,978

Income taxes		1,494			1,417			3,212			3,244


Net income	$	2,686		$	2,561		$	5,867		$	5,734


Basic earnings per common share:	$	0.24		$	0.22		$	0.52		$	0.50


Diluted earnings per common share:	$	0.24		$	0.22		$	0.51		$	0.49


Weighted average shares:
Common shares outstanding		11,108			11,547			11,326			11,496
Adjusted common shares — assuming exercise of stock options		11,347			11,798			11,552			11,732

See accompanying notes to the condensed consolidated financial statements.

DYNAMEX INC.

Condensed Statements of Consolidated Cash Flows
(in thousands)
(Unaudited)


	Six months ended
	January 31,
	2006			2005
OPERATING ACTIVITIES
Net income	$	5,867		$	5,734
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		941			745
Amortization of deferred bank financing fees		12			17
Provision for losses on accounts receivable		393			233
Stock option compensation		447			275
Deferred income taxes		289			1,971
Loss on disposal of property and equipment		1			3
Changes in current operating assets and liabilities:
Accounts receivable		(3,208	)		(3,927	)
Prepaids and other current assets		1,569			(851	)
Accounts payable and accrued liabilities		(1,048	)		(279	)

Net cash provided by operating activities		5,263			3,921


INVESTING ACTIVITIES
Purchase of property and equipment		(350	)		(888	)
Proceeds from sale of property and equipment		—			2
Purchase of investments		(100	)		(210	)

Net cash used in investing activities		(450	)		(1,096	)


FINANCING ACTIVITIES
Principal payments on long-term debt		(1	)		—
Net payments under line of credit		—			(4,201	)
Proceeds from stock option exercise		607			1,059
Tax benefit realized by exercise of stock options		405			126
Purchase of treasury stock		(9,997	)		—
Other assets		(192	)		—

Net cash used in financing activities		(9,178	)		(3,016	)



EFFECT OF EXCHANGE RATES ON CASH		632			521


NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(3,733	)		330
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		11,678			7,927

CASH AND CASH EQUIVALENTS, END OF YEAR	$	7,945		$	8,257


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	199		$	266

Cash paid for taxes	$	3,099		$	1,483

See accompanying notes to the condensed consolidated financial statements.

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 Company’s primary services are (i) same-day, on-demand delivery, (ii) scheduled and distribution and (iii) fleet outsourcing and facilities management.

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, 2005 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 Company’s audited financial statements for the fiscal year ended July 31, 2005.

The accompanying interim financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position at January 31, 2006, the results of its operations for the three and six months periods ended January 31, 2006 and 2005, and cash flows for the six-month periods ended January 31, 2006 and 2005. The tax provisions for the three and six months periods ended January 31, 2006 and 2005 are based upon management’s estimates of the Company’s annualized effective tax rate.

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 adjustments and unrealized gains (losses) on investments. Investments consist of payroll withholdings from participants in the Company’s deferred compensation plan that are invested in funds designated by the individual participants. Comprehensive income for the three and six months ended January 31, 2006 was as follows:


	Three months ended						Six months ended
	January 31,						January 31,
	2006			2005			2006		2005
Net income	$	2,686		$	2,561		$	5,867	$	5,734

Unrealized gain (loss) on investments		(15	)		31			9		37

Foreign currency translation gain (loss)		721			(270	)		1,459		1,277


Comprehensive income	$	3,392		$	2,322		$	7,335	$	7,048

DYNAMEX INC.

3. Intangibles

At January 31, 2006, intangibles and related amortization expense for the three and six months ended January 31, 2006 and 2005 consisted of the following:


			Accumulated
	Asset		amortization			Net
Deferred bank financing fees	$	126	$	(82	)	$	44

Customer lists		80		(29	)		51

Trademarks and other		470		(140	)		330


Total	$	676	$	(252	)	$	424


	Amortization expense				Amortization expense
	Three months ended January 31,				Six months ended January 31,
	2006		2005		2006		2005
Deferred bank financing fees	$	6	$	9	$	12	$	17

Customer lists		8		—		16		—

Trademarks and other		6		6		11		11


Total	$	20	$	15	$	39	$	28

Amortization of deferred financing fees is classified as interest expense in the condensed statements of consolidated operations. Estimated amortization expense for the succeeding five fiscal years, including deferred bank financing fees, is $75 for 2006, $75 for 2007 and $20 each year thereafter.

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				Six months ended
	January 31,				January 31,
	2006		2005		2006		2005
Net income	$	2,686	$	2,561	$	5,867	$	5,734

Weighted average common shares outstanding		11,108		11,547		11,326		11,496

Common share equivalents related to options		239		251		226		236


Common shares and common share equivalents		11,347		11,798		11,552		11,732


Net income per common share:
Basic	$	0.24	$	0.22	$	0.52	$	0.50

Diluted	$	0.24	$	0.22	$	0.51	$	0.49

DYNAMEX INC.

5. Purchases of Common Stock

On September 21, 2005, the Board of Directors authorized management to repurchase up to $10 million of Dynamex Inc. common shares from time to time. The Company completed this repurchase program in January 2006. The Company acquired a total of 623 shares at an average price of $16.04 per share. These shares are being held as treasury shares. The stock repurchases were temporarily financed by advances under the Company’s revolving credit facility, which advances were repaid in December 2005 On January 17, 2006, the Board of Directors authorized management to purchase an additional $10 million of Dynamex common shares from time to time utilizing cash flow generated from operations.

6. Revolving Credit Facility

On November 10, 2005, the Revolving Credit Facility was amended to increase the facility from $15 million to $20 million to accommodate the temporary advances required to fund stock repurchases. There were no borrowings outstanding at January 31, 2006.

7. Litigation

On February 4, 2005, a purported class action was filed against the Company by a former Company driver in the United States District Court for the Northern District of Illinois, Eastern Division, on behalf of himself and other past or present Company drivers alleging that the Company’s drivers are employees of the Company, rather than independent contractors, and as a consequence, are entitled to overtime compensation and other benefits under federal and state wage and hour laws. On February 8, 2006, the case was settled and an Agreed Order of Dismissal was entered at no material cost to the Company.

On April 15, 2005, a purported class action was filed against the Company by a former Company driver 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.

We believe that the Company’s drivers are properly classified as independent contractors and intend to vigorously defend this litigation. Given the nature and preliminary status of the claims, however, we cannot yet determine the amount or a reasonable range of potential loss in these matters, if any.

On January 19, 2006, a purported class action was filed against the Company by a former Company employee in the United States District Court, Southern District of New York, alleging that the Company unlawfully failed to pay wages for work performed for which they received no compensation as well as for overtime work for which they received no overtime pay to which the employees were entitled under the Fair Labor Standards Act (FLSA) and the New York Labor Law and the supporting New York State Department of Labor regulations (NYLL). The plaintiff seeks recovery of unpaid wages, overtime compensation, liquidated damages, additional liquidated damages for unreasonably delayed payment of wages, reasonable attorneys’ fees and costs under the action.

We believe the Company employees referred to above have been appropriately compensated for their regular work time and for their overtime and intend to vigorously defend this litigation. Given the nature and preliminary status of the claims, however, we 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. Management 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. Provision for Income Taxes

In the FY 2006 second quarter, the Company received a cash dividend in the amount of $8.1 million from its Canadian subsidiary, net of a withholding tax deduction of approximately $400. The income tax provisions for the three- and six-month periods ended January 31, 2006 were calculated on the pre-tax book income before the dividend using the company’s estimated income tax rate for the full fiscal year, after which the tax effect of the dividend and the income tax gross up for the foreign income taxes paid on the earnings was calculated and reduced by foreign income tax credits allowable to offset foreign source income. The resulting incremental income taxes increased the Company’s effective income tax rate by approximately one per cent and is included in the income tax provision for the periods mentioned above.

DYNAMEX INC.

Item 2.

Management’s 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 Company’s 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 Company’s revenues are generated in Canada. For the six month period ended January 31, 2006, Canadian revenues accounted for approximately 35.2% of total consolidated revenue, compared to 33.6% for the same period in 2005. The exchange rate between the Canadian dollar and the U.S. dollar increased 6.0% in the six month period ended January 31, 2006 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 six month period ended January 31, 2006 would have accounted for 33.9% 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, facilities management, bad debts, insurance, and workers’ compensation costs. Substantially all of the drivers used by the Company are independent contractors who provide their own vehicles. Drivers and messengers are generally compensated based on a percentage of the delivery charge. Consequently, the Company’s driver and messenger costs are variable in nature. To the extent that the drivers and messengers 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, wages and benefit costs incurred at the branch level related to taking orders and dispatching drivers and messengers, as well as general management and administrative costs related to such functions. Also included in SG & A expenses are regional and corporate level management, marketing and administrative costs and occupancy costs related to branch and corporate locations.

Generally, the Company’s on-demand services provide higher gross profit margins than do scheduled distribution or fleet management services because driver compensation for on-demand services is generally lower as a percentage of sales from such services. However, scheduled distribution and fleet management services generally have fewer administrative requirements related to order taking, dispatching drivers and billing. As a result of these variances, the Company’s margins are dependent in part on the mix of business for a particular period.

During the six months ended January 31, 2006 and 2005, sales to Office Depot, Inc. represented approximately 10.3% and 9.7%, respectively, of the Company’s consolidated sales.

Critical Accounting Policies

The Company’s discussion and analysis of its financial condition and results of operations are based on the Company’s financial statements, which have been prepared in accordance with accounting policies generally accepted in the United States of America. The Company believes certain critical accounting policies, as set forth in the Company’s Form 10-K for the year ended July 31, 2005, affect its more significant judgments and estimates

DYNAMEX INC.

used in the preparation of financial statements. As of, and for the six month period ended January 31, 2006, there have been no material changes or updates to the Company’s critical accounting policies.

Results of Operations

The following table sets forth for the periods indicated, certain items from the Company’s condensed statements of consolidated operations, expressed as a percentage of sales:


	Three months ended						Six months ended
	January 31,						January 31,
	2006			2005			2006			2005
Sales		100.0	%		100.0	%		100.0	%		100.0	%

Cost of sales:
Purchased transportation		64.9	%		64.2	%		65.1	%		63.8	%
Other direct costs		7.6	%		8.1	%		7.6	%		8.2	%

Cost of sales		72.5	%		72.3	%		72.7	%		72.0	%


Gross profit		27.5	%		27.7	%		27.3	%		28.0	%

Selling, general and administrative expenses:
Salaries and employee benefits		15.6	%		15.5	%		15.2	%		15.2	%
Other		6.5	%		6.6	%		6.4	%		6.4	%

Selling, general and administrative expenses		22.1	%		22.1	%		21.6	%		21.6	%


Depreciation and amortization		0.5	%		0.5	%		0.5	%		0.5	%
Gain on disposal of property and equipment		0.0	%		0.0	%		0.0	%		0.0	%


Operating income		4.9	%		5.1	%		5.2	%		5.9	%

Interest expense		0.1	%		0.1	%		0.1	%		0.2	%
Other income, net		-0.1	%		-0.1	%		-0.1	%		-0.1	%


Income before income taxes		4.9	%		5.1	%		5.2	%		5.8	%

Income taxes		1.7	%		1.8	%		1.8	%		2.1	%


Net income		3.2	%		3.3	%		3.4	%		3.7	%

DYNAMEX INC.

The following tables sets forth for the periods indicated, the Company’s sales accumulated by service type and country:


	Three months ended
	January 31,
	2006				2005
Sales by service type:
On demand	$	32,022	37.1	%	$	30,774	39.1	%
Scheduled/distribution	$	26,456	30.6	%		23,636	30.1	%
Outsourcing		27,868	32.3	%		24,236	30.8	%

Total sales	$	86,346	100.0	%	$	78,646	100.0	%


Sales by country:
United States	$	55,274	64.0	%	$	51,755	65.8	%
Canada		31,072	36.0	%		26,891	34.2	%

Total sales	$	86,346	100.0	%	$	78,646	100.0	%


	Six months ended
	January 31,
	2006				2005
Sales by service type:
On demand	$	66,608	37.6	%	$	61,386	39.5	%
Scheduled/distribution		54,703	30.9	%		45,606	29.4	%
Outsourcing		55,603	31.4	%		48,214	31.1	%

Total sales	$	176,915	100.0	%	$	155,206	100.0	%


Sales by country:
United States	$	114,628	64.8	%	$	102,983	66.4	%
Canada		62,287	35.2	%		52,223	33.6	%

Total sales	$	176,915	100.0	%	$	155,206	100.0	%

Three months ended January 31, 2006 compared to three months ended January 31, 2005

Net income for the three months ended January 31, 2006 was $2.7 million ($0.24 per fully diluted share) compared to $2.6 million ($0.22 per fully diluted share) for the three months ended January 31, 2005.

Sales for the three months ended January 31, 2006 were $86 million, a 9.8% increase compared to the same period in 2005. The current year quarter had the same number of business days as the prior year. The average conversion rate between the Canadian dollar and the U.S. dollar increased 4.0% over the prior year quarter, which had the effect of increasing sales for the three months ended January 31, 2006 by approximately $1.1 million had the conversion rate been the same as the prior year period. Excluding the effect of this increase, sales would have been approximately 8.3% higher in the current quarter compared to the prior year. Also during the quarter, fuel surcharges associated with higher fuel prices included in consolidated sales increased slightly less than 3% compared to the prior year. The core growth rate, the rate excluding the impact of the fuel surcharges and changes in the foreign exchange rate, was approximately 5.5% for the quarter (4.0% in the U.S. and 8.1% in Canada). Unusually high attrition in the U.S. negatively impacted the overall core growth this quarter by an estimated 3.0% to 3.5%. Canadian sales including fuel surcharges, in Canadian dollars, increased approximately 11.2% this quarter compared to last year.

Cost of sales for the three months ended January 31, 2006 increased $5.7 million, or 10.1%, to $62.6 million from $56.9 million for the same period in the prior year. Cost of sales, as a percentage of sales was 72.5% for the three months ended January 31, 2006, slightly lower than the 73.1% in the first quarter of FY 2006 but higher than the 72.3% for the same period in the prior year. The primary reason for the increase in cost of sales this quarter

DYNAMEX INC.

compared to the prior year, was the increase in purchased transportation costs as a percentage of sales from 64.2% of sales last year to 64.9% of sales in the current year quarter. This increase is attributable to the continuing change in business mix and the impact of higher fuel surcharges.

SG & A expenses for the three months ended January 31, 2006 increased $1.7 million, or 9.9%, to $19.1 million from $17.4 million for the same period in the prior year. Approximately $240 of this increase is due to the increase in the exchange rate between the Canadian dollar and the U.S. dollar. Excluding the impact of the exchange rate, SG & A increased 8.6% in the current quarter compared to the year-ago quarter. On a constant dollar basis, compensation expense increased approximately $650 while employee benefits, including medical and dental costs, stock option expense and payroll taxes, increased approximately $500. The increase in compensation results from additional personnel added over the last year to operate and manage new business as well as additional sales and IT personnel. As a percentage of sales, SG & A expenses were 22.1% for the three months ended January 31, 2006, the same percentage as in the same period last year.

For the three months ended January 31, 2006, depreciation and amortization was $448 compared to $369 for the same period in the prior year. The increase is primarily attributable to implementation of its new proprietary DECS software system late in FY 2005. Management does not expect a significant change in the level of depreciation and amortization expense due to limited capital requirements associated with its non-asset based business.

Interest expense was $90, a decrease of $26 or 22.4% for the current quarter. This decrease is primarily attributable to lower outstanding debt and a lower interest rate. Interest expense as a percentage of sales, was 0.1% in the current quarter compared to 0.1% in the prior period. Interest expense is expected to remain at or below current levels for the remainder of FY 2006.

The effective income tax rate was 35.7% for the current quarter compared to 35.6% for the prior year, primarily due to a lower effective tax rate on Canadian income offset by a slightly higher tax on the Canadian dividend.

Six months ended January 31, 2006 compared to six months ended January 31, 2005

Net income for the six months ended January 31, 2006 was $5.9 million ($0.51 per fully diluted share) compared to $5.7 million ($0.49 per fully diluted share) for the six months ended January 31, 2005.

Sales for the six months ended January 31, 2006 were $177 million, an 14.0% increase over $155 million for the same period in 2005. The current year period had the same number of business days as the prior year. The average conversion rate between the Canadian dollar and the U.S. dollar increased 6.0% over the prior year period, which had the effect of increasing sales for the six months ended January 31, 2006 by approximately $3.5 million had the conversion rate been the same as the prior year period. Excluding the effect of this increase, the sales would have been approximately 11.7% higher in the current period compared to the prior year. Also during the period, fuel surcharges associated with higher fuel prices included in consolidated sales increased an estimated 2.5% to 3.0%in the current six-month period compared to the same period of the prior year. The core growth rate of sales, the rate excluding the impact of the fuel surcharge and changes in the foreign exchange rate, was approximately 9.0% for the six months ended January 31, 2006 (8.8% in the U.S. and 9.5% in Canada). Canadian sales including fuel surcharges, in Canadian dollars, increased approximately 12.6% in the first six months of the current fiscal year compared to the same period last year.

Cost of sales for the six months ended January 31, 2006 increased $17.0 million, or 15.3%, to $128.8 million from $111.7 million for the same period in the prior year. Cost of sales, as a percentage of sales was 72.7% for the six months ended January 31, 2006, compared to 72.0% for the six months ended January 31, 2005. The primary reason for the increase in cost of sales this year was the increase in purchased transportation costs as a percentage of sales from 63.8% of sales last year to 65.1% this year. The impact of route optimization for certain customers last year, rapidly escalating fuel prices that were not recovered timely due to fuel surcharge mechanisms in certain contracts principally in the FY 2006 first quarter, “Greenfield” operations in the Southeast U.S. where margins were lower during initial phases and the continuing shift in business mix are the primary reasons for the increase in purchased transportation costs.

SG & A expenses for the six months ended January 31, 2006 increased $4.5 million, or 13.5%, to $38.1 million from $33.6 million for the same period in the prior year. Approximately $684 of this increase is due to the increase in the exchange rate between the Canadian dollar and the U.S. dollar. Excluding the impact of the exchange rate,

DYNAMEX INC.

over 73% of the increase in SG & A was for salaries and benefits that included approximately $320 in charges for discretionary bonuses and severance costs and higher employee benefit costs for medical and dental costs, stock option expense and payroll taxes. The remaining increase in salaries and benefits is primarily attributable to additional personnel required to operate and manage new business added over the last year as well as additional sales and IT personnel. As a percentage of sales, SG & A expenses were 21.6% for the six months ended January 31, 2006, the same percentage as the prior year.

For the six months ended January 31, 2006, depreciation and amortization was $941 compared to $745 for the same period in the prior year. The increase is primarily attributable to implementation of its new proprietary DECS software system late in FY 2005. Management does not expect a significant change in the level of depreciation and amortization expense due to limited capital requirements associated with its non-asset based business.

Interest expense was $175, a decrease of $98 or 35.9% for the current quarter. This decrease is primarily attributable to lower outstanding debt and a lower interest rate. Interest expense as a percentage of sales, was 0.1% in the current quarter compared to 0.2% in the prior period. Interest expense is expected to remain low throughout the remainder of FY 2006.

The effective income tax rate was 35.4% for the current period compared to 36.1% for the prior year, primarily due to a lower effective tax rate on Canadian income offset by a slightly higher tax on the Canadian dividend.

Liquidity and Capital Resources

Net cash provided by operating activities was $5.3 million for the six months ended January 31, 2006 compared to $3.9 million for the same period in 2005. The increase is attributable to higher net income and reduced requirements for working capital (changes in current assets and liabilities), $2.7 million in 2006 versus $5.1 million in 2005. The cash flow benefit from the reduction in working capital requirements in the current year was partially offset by higher income tax payments, primarily in the U.S. due to the full utilization of U.S. net operating losses in prior periods.

Capital expenditures for the six months ended January 31, 2006 were approximately $0.4 million compared to $0.9 million in 2005. The 2006 expenditures related primarily to improvements in the Company’s technology infrastructure to support its operations. Management expects capital expenditures to be at the lower end of the $2 million to $3 million range for the full fiscal year. 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 provide their own vehicles.

On April 22, 2005, the Company entered into the First Amendment (the “Amendment”) to the March 2, 2004 $30 million Revolving Credit Facility (the “Credit Facility”) (together the “Amended Credit Facility”). The Amendment decreased the facility from $30 million to $15 million, and reduced the applicable margin on LIBOR contracts from a range of 1.25% — 1.75% to 1.00% — 1.50%, based on the ratio of Funded Debt to EBITDA, as defined in the Credit Facility. The Amendment also extended the maturity date to November 30, 2008 from November 30, 2007 and reduced the restrictions on Permitted Acquisitions. The Amended Credit Facility has no scheduled principal payments; however, the Company is required to maintain certain financial ratios related to minimum amounts of stockholders’ equity, fixed charges to cash flow, funded debt to cash flow and funded debt to eligible receivables, as defined. Amounts outstanding under the Amended Credit Facility are secured by all of the Company’s U.S. assets and 100% of the stock of its domestic subsidiaries. The Credit Facility also contains restrictions on incurring additional debt and investments by the Company.

Effective October 31, 2005, the Revolving Credit Facility was amended to eliminate stock acquisitions of up to $25 million from the fixed charge coverage ratio calculation. On November 10, 2005, the Revolving Credit Facility was amended to increase the facility from $15 million to $20 million to accommodate temporary borrowings to fund the stock repurchase program. At January 31, 2006, letters of credit totaling $4.0 million were outstanding.

The Company’s EBITDA (earnings before interest, taxes, depreciation and amortization) was approximately $10.2 million (5.8% of sales) for the six months ended January 31, 2006, compared to $10.0 million (6.4% of sales) in the same period last year. The decrease as a percentage of sales is due to higher cost of sales and increased SG & A expenses mentioned above. EBITDA is 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

DYNAMEX INC.

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, 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						Six months ended
	January 31,						January 31,
	2006			2005			2006			2005
Net income	$	2,686		$	2,561		$	5,867		$	5,734
Adjustments:
Income tax expense		1,494			1,417			3,212			3,244
Interest expense		90			116			175			273
Depreciation and amortization		448			369			941			745

EBITDA	$	4,718		$	4,463		$	10,195		$	9,996


EBITDA margin		5.5	%		5.7	%		5.8	%		6.4	%

Management expects that its future capital requirements will generally be met from internally generated cash flow. The Company’s access to other sources of capital, such as additional bank borrowings and the issuance of debt securities, is affected by, among other things, general market conditions affecting the availability of such capital.

Inflation

The Company does not believe that inflation has had a material effect on the Company’s results of operations nor does it believe it will do so in the foreseeable future. However, there can be no assurance the Company’s business will not be affected by inflation in the future.

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 Company’s 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.

Certain Tax Matters Related to Drivers

Substantially all of the Company’s drivers own their own vehicles and as of January 31, 2006, approximately 99% of these owner-operators were independent contractors as opposed to employees of the Company. The Company does not pay or withhold any federal, state or provincial employment tax with respect to or on behalf of independent contractors. From time to time, taxing authorities in the U.S. and Canada have sought to assert that independent owner-operators in the transportation industry, including those utilized by the Company, are employees, rather than independent contractors. The Company believes that the independent owner-operators utilized by the Company are not employees under existing interpretations of federal (U.S. and Canadian), state and provincial laws. However, there can be no assurance that federal (U.S. and Canadian), state, provincial authorities or independent contractors will not challenge this position, or that other laws or regulations, including tax laws, or interpretations thereof, will not change. If, as a result of any of the foregoing, the Company were required to pay withholding taxes and pay for and administer added employee benefits to these drivers, the Company’s operating costs would increase. Additionally, if the Company is required to pay back-up withholding with respect to amounts previously paid to such drivers, it may also be required to pay penalties or be subject to other liabilities as a result of incorrect

DYNAMEX INC.

classification of such drivers. Any of the foregoing circumstances could have a material adverse impact on the Company’s financial condition and results of operations, and/or to restate financial information from prior periods.

Claims Exposure

As of January 31, 2006, the Company utilized the services of approximately 4,800 drivers and messengers. From time to time such persons are involved in accidents or other activities that may give rise to liability claims. The Company currently carries liability insurance with a per occurrence and an aggregate limit of $30 million with a per claim deductible of $250. 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 $35 to $75). The Company also has insurance policies covering property and fiduciary trust liability, which coverage includes all drivers and messengers. There can be no assurance that claims against the Company, whether under the liability insurance or the surety bonds, will not exceed the applicable amount of coverage, that the Company’s insurer will be solvent at the time of settlement of an insured claim, or that the Company will be able to obtain insurance at acceptable levels and costs in the future. If the Company were to experience a material increase in the frequency or severity of accidents, liability claims, workers’ compensation claims or unfavorable resolutions of claims, the Company’s business, financial condition and results of operations could be materially adversely affected. In addition, significant increases in insurance costs could reduce the Company’s profitability.

Highly Competitive Industry

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. Other companies in the industry compete with the Company not only for provision of services but also for qualified independent contractor drivers. Some of these companies have longer operating histories and greater financial and other resources than the Company. Additionally, companies that do not currently operate delivery and logistics businesses may enter the industry in the future.

Foreign Exchange

Significant portions of the Company’s operations are conducted in Canada. Exchange rate fluctuations between the U.S. and Canadian dollars result in fluctuations in the amounts relating to the Canadian operations reported in the Company’s consolidated financial statements. The Canadian dollar is the functional currency for the Company’s Canadian operations; therefore, any change in the exchange rate will affect the Company’s reported sales for such period. The Company historically has not entered into hedging transactions with respect to its foreign currency exposure, but may do so in the future. There can be no assurance that fluctuations in foreign currency exchange rates will not have a material adverse effect on the Company’s business, financial condition or results of operations.

Permits and Licensing

The Company’s delivery operations are 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. Failure by the Company to maintain required certificates, permits or licenses or to comply with applicable laws, ordinances or regulations could result in substantial fines or possible revocation of the Company’s authority to conduct certain of its operations.

Dependence on Key Personnel

The Company’s success is largely dependent on the skills, experience and performance of certain key members of its management. The loss of the services of any of these key employees could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company’s future success and plans for growth also depend on its ability to attract and retain skilled personnel in all areas of its business. There is strong competition for skilled personnel in the same-day delivery and logistics businesses.

DYNAMEX INC.

Risks Associated with the Same-day Transportation Industry; General Economic Conditions

The Company’s sales and earnings are especially sensitive to events that affect the same-day transportation industry including extreme weather conditions, economic factors affecting the Company’s customers and shortages of or disputes with labor, any of which could result in the Company’s inability to service its clients effectively or the inability of the Company to profitably manage its operations. In addition, downturns in the level of general economic activity and employment in the U.S. or Canada may negatively impact demand for the Company’s services.

Technological Advances

Technological advances in the nature of facsimile and electronic mail have affected the market for on-demand document delivery services. Although the Company has shifted its 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 the Company’s business, financial condition and results of operations in the future.

Dependence on Availability of Qualified Delivery Personnel

The Company is dependent upon its ability to attract and retain qualified delivery personnel who possess the skills and experience necessary to meet the needs of its operations. The Company competes in markets in which unemployment is relatively low and the competition for couriers and other employees is intense. The Company must continually evaluate and upgrade its pool of available delivery and support personnel to keep pace with demands for delivery services. There can be no assurance that qualified delivery personnel will continue to be available in sufficient numbers and on terms acceptable to the Company. The ability of the Company to retain independent contractor drivers may also be impacted by our ability to pass on fuel cost increases to customers to maintain profit margins and the quality of driver pay. The inability to attract and retain qualified delivery personnel would have a material adverse impact on the Company’s business, financial condition and results of operations.

Fuel Costs

The independent contractor drivers utilized by the Company are responsible for all vehicle expenses including maintenance, insurance, fuel and all other operating costs. The Company makes every reasonable effort to include fuel cost adjustments in customer billings that are paid to independent contractor drivers to offset the impact of fuel price increases. If future fuel cost adjustments are insufficient to offset independent contractor driver costs, the Company may be unable to attract a sufficient number of independent contractor drivers which may negatively impact the Company’s business, financial condition and results of operations.

“Safe Harbor” Statement Under The Private Securities Litigation Reform Act

With the exception of historical information, the matters discussed in this report are “forward looking statements” as that term is defined in Section 21E of the Securities Exchange Act of 1934.

Several important factors have been identified, which could cause actual results to differ materially from those predicted. By way of example:

	•		The competitive nature of the same-day delivery business.

	•		The ability of the Company to attract and retain qualified delivery personnel as well as retain key management personnel.

	•		A change in the current tax status of independent contractor drivers to employees or a change in the treatment of the reimbursement of vehicle operating costs to employee drivers.

	•		A significant increase in the number of workers’ compensation or vehicle liability claims.

	•		A significant reduction in the exchange rate between the Canadian dollar and the U.S. dollar.

DYNAMEX INC.

	•		Failure of the Company to maintain required certificates, permits or licenses or to comply with applicable laws, ordinances or regulations could result in substantial fines or possible revocation of the Company’s authority to conduct certain of its operations.

	•		The ability of the Company to obtain adequate financing.

	•		The ability of the Company to retain independent contractor drivers may be impacted by our ability to pass on fuel cost increases to customers to maintain profit margins and the quality of driver pay.

DYNAMEX INC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Exchange Exposure

Significant portions of the Company’s 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 Company’s 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 $.1 million 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 Company’s 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 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 Company’s management.

DYNAMEX INC.

Item 4. Controls and Procedures

An evaluation was carried out under the supervision and with the participation of the Company’s 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 January 31, 2006 (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 changes in the Company’s internal controls over financial reporting during the quarter ended January 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

DYNAMEX INC.

PART II
OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors.

No material changes have been made in the disclosure of risk factors from those set forth in the Company’s annual report on Form 10-K. However, reference is made to the disclosures in Item 2 of Part I of this report on Form 10-Q.

DYNAMEX INC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(c)

Common Stock Repurchases

Total number

Average

Total number of

Approximate dollar value

of shares

price paid

shares purchased as part of

of shares that may yet be

Period

purchased

per share

a publicly announced plan

purchased under the plan

November 1 to November 16, 2005

70,600

16.47

70,600

1,045,000

January 5 to January 17, 2006

52,100

20.00

52,100

None

All purchases were made in open market transactions pursuant to a plan approved by the Board of Directors of the Company on September 21, 2005 authorizing management to acquire up to $10 million of the Company’s common stock outstanding.

Item 4. Submission of Matters to a Vote of Security Holders

The Company held its annual shareholder meeting on January 10, 2006. At that meeting, the shareholders voted on the following three proposals:


Proposal #1		To elect six (6) directors of the Company


	Nominee	For	Withheld

	Richard K. McClelland	9,515,590	841,408
	Kenneth H. Bishop	9,514,990	842,008
	Brian J. Hughes	9,514,976	842,022
	Wayne Kern	9,451,166	905,832
	Bruce E. Ranck	9,515,584	841,414
	Stephen P. Smiley	9,476,099	880,899

Proposal #2	To ratify the appointment of BDO Seidman, LLP as independent auditors of the Company for the year ending July 31, 2006


For	Against	Abstain

10,332,940	18,857	5,201


Proposal #3		To transact such other business as may properly come before the Annual Meeting and any adjournments thereof.


For	Against	Abstain

7,142,305	3,163,751	50,942

DYNAMEX INC.


Item 6.		Exhibits Exhibits:


10.14.1		Second Amendment to the $30,000,000 Revolving Credit Facility by and among the Company and Bank of America, N.A., as administrative agent and a lender, dated November 10, 2005.

10.14.2		Third Amendment to the $30,000,000 Revolving Credit Facility by and among the Company and Bank of America, N.A., as administrative agent and a lender, dated December 23, 2005 (but effective as of October 31, 2005).

31.1		Certification of Chief Executive Officer of the Registrant, pursuant to 17 CFR 240. 13a — 15(e) or 17 CFR 240. 15d — 15(e)

31.2		Certification of Chief Financial Officer of the Registrant, pursuant to 17 CFR 240. 13a — 15(e) or 17 CFR 240. 15d — 15(e)

32.1		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

32.2		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

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.


		DYNAMEX INC.

Dated: March 3, 2006	by	/s/ Richard K. McClelland

		Richard K. McClelland
		President, Chief Executive Officer and
		Chairman of the Board
		(Principal Executive Officer)

Dated: March 3, 2006	by	/s/ Ray E. Schmitz

		Ray E. Schmitz
		Vice President — Chief Financial Officer
		(Principal Financial Officer)

Dated: March 3, 2006	by	/s/ Samuel T. Hicks

		Samuel T. Hicks
		Corporate Controller
		(Principal Accounting Officer)

EXHIBIT INDEX


Exhibits

10.14.1		Second Amendment to the $30,000,000 Revolving Credit Facility by and among the Company and Bank of America, N.A., as administrative agent and a lender, dated November 10, 2005.

10.14.2		Third Amendment to the $30,000,000 Revolving Credit Facility by and among the Company and Bank of America, N.A., as administrative agent and a lender, dated December 23, 2005 (but effective as of October 31, 2005).

31.1		Certification of Chief Executive Officer of the Registrant, pursuant to 17 CFR 240. 13a — 15(e) or 17 CFR 240. 15d — 15(e)

31.2		Certification of Chief Financial Officer of the Registrant, pursuant to 17 CFR 240. 13a — 15(e) or 17 CFR 240. 15d — 15(e)

32.1		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

32.2		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

E - 1

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents