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, 2006
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
(State of incorporation)
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86-0712225
(I.R.S. Employer Identification No.) |
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1870 Crown Drive, Dallas, Texas
(Address of principal executive offices)
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75234
(Zip Code) |
Registrants 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 registrants common stock, $.01 par value, outstanding as of
May 31, 2006 was 10,606,927 shares.
PART I
FINANCIAL INFORMATION
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Item 1. |
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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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2006 |
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2005 |
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(Unaudited) |
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|
ASSETS
|
CURRENT |
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|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4,798 |
|
|
$ |
11,678 |
|
Accounts receivable (net of allowance for doubtful accounts
of $903 and $767, respectively) |
|
|
36,609 |
|
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|
31,703 |
|
Prepaid and other current assets |
|
|
2,560 |
|
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|
3,115 |
|
Deferred income taxes |
|
|
3,131 |
|
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|
1,992 |
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|
|
|
|
|
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|
Total current assets |
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|
47,098 |
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|
48,488 |
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|
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|
PROPERTY AND EQUIPMENT net |
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|
4,795 |
|
|
|
5,597 |
|
GOODWILL |
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|
47,070 |
|
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|
46,088 |
|
INTANGIBLES net |
|
|
406 |
|
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|
463 |
|
DEFERRED INCOME TAXES |
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|
6,271 |
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|
7,625 |
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OTHER |
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|
1,588 |
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|
1,214 |
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Total assets |
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$ |
107,228 |
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$ |
109,475 |
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LIABILITIES AND STOCKHOLDERS EQUITY
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CURRENT LIABILITIES |
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Accounts payable trade |
|
$ |
7,301 |
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$ |
11,145 |
|
Accrued liabilities |
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|
19,099 |
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|
14,426 |
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Total current liabilities |
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26,400 |
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25,571 |
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LONG-TERM DEBT |
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|
2,406 |
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8 |
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Total liabilities |
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28,806 |
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25,579 |
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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;
11,756 and 11,612 outstanding, respectively |
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|
118 |
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|
116 |
|
Additional paid-in capital |
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|
79,354 |
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|
77,196 |
|
Treasury stock, 1,074 shares, at cost |
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|
(18,607 |
) |
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Retained earnings |
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|
12,848 |
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|
3,768 |
|
Accumulated other comprehensive income |
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|
4,709 |
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|
2,816 |
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Total stockholders equity |
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|
78,422 |
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|
83,896 |
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Total liabilities and stockholders equity |
|
$ |
107,228 |
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$ |
109,475 |
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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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|
2006 |
|
|
2005 |
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|
2006 |
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|
2005 |
|
Sales |
|
$ |
86,916 |
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|
$ |
81,778 |
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|
$ |
263,831 |
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|
$ |
236,981 |
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Cost of sales: |
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Purchased transportation |
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|
56,255 |
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|
$ |
52,649 |
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|
171,507 |
|
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|
151,597 |
|
Other direct costs |
|
|
6,195 |
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|
6,116 |
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|
19,702 |
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|
18,878 |
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|
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|
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|
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|
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Cost of sales |
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|
62,450 |
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|
58,765 |
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|
191,209 |
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|
170,475 |
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Gross profit |
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|
24,466 |
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|
23,013 |
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|
72,622 |
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66,506 |
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Selling, general and administrative expenses: |
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|
|
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Salaries and employee benefits |
|
|
12,855 |
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|
12,075 |
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|
39,729 |
|
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|
35,668 |
|
Other |
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|
5,795 |
|
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|
5,608 |
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|
17,044 |
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|
15,613 |
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|
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Selling, general and administrative expenses |
|
|
18,650 |
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|
17,683 |
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|
56,773 |
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|
51,281 |
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|
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|
|
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Depreciation and amortization |
|
|
523 |
|
|
|
414 |
|
|
|
1,464 |
|
|
|
1,159 |
|
(Gain) loss on disposal of property and equipment |
|
|
|
|
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|
(24 |
) |
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|
1 |
|
|
|
(21 |
) |
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|
|
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|
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|
|
|
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|
Operating income |
|
|
5,293 |
|
|
|
4,940 |
|
|
|
14,384 |
|
|
|
14,087 |
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|
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|
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|
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|
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|
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|
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Interest expense |
|
|
38 |
|
|
|
90 |
|
|
|
213 |
|
|
|
363 |
|
Other income, net |
|
|
(55 |
) |
|
|
(46 |
) |
|
|
(219 |
) |
|
|
(150 |
) |
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|
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Income before income taxes |
|
|
5,310 |
|
|
|
4,896 |
|
|
|
14,390 |
|
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|
13,874 |
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|
|
|
|
|
|
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|
|
|
|
|
|
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|
Income taxes |
|
|
2,098 |
|
|
|
2,166 |
|
|
|
5,310 |
|
|
|
5,410 |
|
|
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|
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|
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|
|
|
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|
Net income |
|
$ |
3,212 |
|
|
$ |
2,730 |
|
|
$ |
9,080 |
|
|
$ |
8,464 |
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Basic earnings per common share: |
|
$ |
0.29 |
|
|
$ |
0.24 |
|
|
$ |
0.81 |
|
|
$ |
0.73 |
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|
Diluted earnings per common share: |
|
$ |
0.29 |
|
|
$ |
0.23 |
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|
$ |
0.80 |
|
|
$ |
0.72 |
|
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Weighted average shares: |
|
|
|
|
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|
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|
|
|
|
|
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|
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|
Common shares outstanding |
|
|
10,915 |
|
|
|
11,586 |
|
|
|
11,192 |
|
|
|
11,525 |
|
Adjusted common shares assuming
exercise of stock options |
|
|
11,143 |
|
|
|
11,832 |
|
|
|
11,404 |
|
|
|
11,765 |
|
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 |
|
|
|
April 30, |
|
|
|
2006 |
|
|
2005 |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net income |
|
$ |
9,080 |
|
|
$ |
8,464 |
|
Adjustments to reconcile net income to net cash provided
by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,464 |
|
|
|
1,159 |
|
Amortization of deferred bank financing fees |
|
|
18 |
|
|
|
26 |
|
Provision for losses on accounts receivable |
|
|
556 |
|
|
|
344 |
|
Stock option compensation |
|
|
606 |
|
|
|
355 |
|
Deferred income taxes |
|
|
216 |
|
|
|
3,076 |
|
Loss on disposal of property and equipment |
|
|
1 |
|
|
|
(21 |
) |
Changes in current operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(5,460 |
) |
|
|
(5,235 |
) |
Prepaids and other current assets |
|
|
555 |
|
|
|
(1,292 |
) |
Accounts payable and accrued liabilities |
|
|
828 |
|
|
|
(340 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
7,864 |
|
|
|
6,536 |
|
|
|
|
|
|
|
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|
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|
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|
INVESTING ACTIVITIES |
|
|
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|
|
|
Purchase of property and equipment |
|
|
(560 |
) |
|
|
(1,450 |
) |
Cash payment for acquisition |
|
|
|
|
|
|
(100 |
) |
Proceeds from sale of property and equipment |
|
|
|
|
|
|
29 |
|
Purchase of investments |
|
|
(134 |
) |
|
|
(270 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(694 |
) |
|
|
(1,791 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Principal payments on long-term debt |
|
|
(2 |
) |
|
|
|
|
Net proceeds (payments) under line of credit |
|
|
2,400 |
|
|
|
(6,201 |
) |
Proceeds from stock option exercise |
|
|
844 |
|
|
|
1,065 |
|
Tax benefit realized by exercise of stock options |
|
|
708 |
|
|
|
126 |
|
Purchase of treasury stock |
|
|
(18,607 |
) |
|
|
|
|
Other assets |
|
|
(198 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(14,855 |
) |
|
|
(5,012 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATES ON CASH |
|
|
805 |
|
|
|
404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(6,880 |
) |
|
|
137 |
|
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
|
|
11,678 |
|
|
|
7,927 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF YEAR |
|
$ |
4,798 |
|
|
$ |
8,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
200 |
|
|
$ |
341 |
|
|
|
|
|
|
|
|
Cash paid for taxes |
|
$ |
4,324 |
|
|
$ |
2,354 |
|
|
|
|
|
|
|
|
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, (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 Companys 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 Companys financial position at
April 30, 2006, the results of its operations for the three and nine months periods ended April 30,
2006 and 2005, and cash flows for the nine-month periods ended April 30, 2006 and 2005. The tax
provisions for the three and nine months periods ended April 30, 2006 and 2005 are based upon
managements estimate of the Companys 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 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, 2006 and 2005 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
April 30, |
|
|
April 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net income |
|
$ |
3,212 |
|
|
$ |
2,730 |
|
|
$ |
9,080 |
|
|
$ |
8,464 |
|
|
Unrealized gain (loss) on investments |
|
|
34 |
|
|
|
(11 |
) |
|
|
42 |
|
|
|
26 |
|
|
Foreign currency translation gain (loss) |
|
|
391 |
|
|
|
(283 |
) |
|
|
1,851 |
|
|
|
994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
3,637 |
|
|
$ |
2,436 |
|
|
$ |
10,973 |
|
|
$ |
9,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
DYNAMEX INC.
3. Intangibles
At April 30, 2006, intangibles and related amortization expense for the three and nine months ended
April 30, 2006 and 2005 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Asset |
|
|
amortization |
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
Deferred bank financing fees |
|
$ |
126 |
|
|
$ |
(88 |
) |
|
$ |
38 |
|
|
Customer lists |
|
|
80 |
|
|
|
(37 |
) |
|
|
43 |
|
|
Trademarks and other |
|
|
470 |
|
|
|
(145 |
) |
|
|
325 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
676 |
|
|
$ |
(270 |
) |
|
$ |
406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense |
|
|
Amortization expense |
|
|
|
Three months ended April 30, |
|
|
Nine months ended April 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Deferred bank financing fees |
|
$ |
6 |
|
|
$ |
9 |
|
|
$ |
18 |
|
|
$ |
26 |
|
|
Customer lists |
|
|
8 |
|
|
|
|
|
|
|
24 |
|
|
|
|
|
|
Trademarks and other |
|
|
6 |
|
|
|
6 |
|
|
|
15 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
20 |
|
|
$ |
15 |
|
|
$ |
57 |
|
|
$ |
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
Nine months ended |
|
|
|
April 30, |
|
|
April 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net income |
|
$ |
3,212 |
|
|
$ |
2,730 |
|
|
$ |
9,080 |
|
|
$ |
8,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
10,915 |
|
|
|
11,586 |
|
|
|
11,192 |
|
|
|
11,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common share equivalents related to options |
|
|
228 |
|
|
|
246 |
|
|
|
212 |
|
|
|
240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares and common share equivalents |
|
|
11,143 |
|
|
|
11,832 |
|
|
|
11,404 |
|
|
|
11,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.29 |
|
|
$ |
0.24 |
|
|
$ |
0.81 |
|
|
$ |
0.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.29 |
|
|
$ |
0.23 |
|
|
$ |
0.80 |
|
|
$ |
0.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Purchases of Common Stock
On September 21, 2005, the Board of Directors authorized the repurchase up to $10 million of
Dynamex Inc.
6
DYNAMEX INC.
common shares. The Company subsequently completed this repurchase program in January
2006. The Company acquired a total of 623 shares at an average price of $16.04 per share. On
January 17, 2006, the Board of Directors authorized an additional $10 million repurchase of Dynamex
common shares. The Company completed this repurchase program in May 2006. The Company acquired a
total of 530 shares at an average price of $19.08 per share. All of the shares are being held as
treasury shares, but it is the Companys intention to cancel the repurchased shares.
6. Long-Term Debt
Revolving Credit Facility
On November 10, 2005, the Revolving Credit Facility (Facility) was amended to increase the
Facility from $15 million to $20 million to accommodate temporary advances required to fund stock
repurchases. As of April 30, 2006, $2.4 million and $4.4 million of debt and letters of credit,
respectively, were outstanding under the Facility .
7. Commitments and Contingencies
On April 15, 2005, a purported class action suit 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 Companys 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 this matter,
if any.
The California Employment Development Department (the EDD) conducted an employment tax audit of
certain of the Companys operations in California for the period April 2003 through March 2005. As
a result of the audit, the EDD concluded that certain independent contractors used by the Company
should be reclassified as employees. Based on such reclassification, the EDD made a $400
assessment against the Company. The Company has filed a request to extend the period to file a
petition for reassessment citing failure of proper notice. No hearing has been scheduled with
regard to the Companys request. The Company is in the process of providing further documentation
to reduce such assessment. The Company has established a reserve for the estimated liability
associated with the EDD assessment.
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 Companys employees referred to in the preceding paragraph were compensated
appropriately and intend to vigorously defend this litigation. We believe the outcome of this
action will not have a material adverse effect on the financial condition, results of operations,
or liquidity of the Company.
The Company is a party to various other 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
The Company received cash dividends from its Canadian subsidiaries in the amount of $8.1 million
and $1 million in the FY 2006 second and third quarters,
respectively, net of total withholding
tax deductions of approximately $455. The income tax provisions for the three- and nine-month
periods ended April 30, 2006 reflect the higher
7
DYNAMEX INC.
federal income tax rate of 35% compared to 34% for
the additional income from Canadian dividends and from the true-up of the estimated state income
tax rates based on actual tax returns. The effective rates were impacted by the effect on the
pre-tax book income of the dividends using the companys 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
Companys effective income tax rate by approximately one and one-half per cent for the nine months
ended April 30, 2006 and are included in the income tax provision for the periods mentioned above.
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, 2006, Canadian revenues accounted for approximately 35.3% of total consolidated
revenue, compared to 33.5% for the same period in 2005. The exchange rate between the Canadian
dollar and the U.S. dollar increased 6.3% in the nine month period ended April 30, 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 nine month period ended April 30, 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 Companys 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 Companys 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 Companys margins are
dependent in part on the mix of business for a particular period.
During the nine months ended April 30, 2006 and 2005, sales to Office Depot, Inc. represented
approximately 10.3% and 9.8%, respectively, of the Companys consolidated sales. Sales to the
Companys five largest customers, including Office Depot, represented approximately 24% of the
Companys consolidated sales for the nine months ended April 30, 2006 and 2005.
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
9
DYNAMEX INC.
accepted in the United States of America. The Company believes certain critical accounting
policies, as set forth in the Companys Form 10-K for the year ended July 31, 2005, affect its more
significant judgments and estimates used in the preparation of financial statements. As of, and
for the nine month period ended April 30, 2006, there have been no material changes or updates to
the Companys critical accounting policies.
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, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased transportation |
|
|
64.7 |
% |
|
|
64.4 |
% |
|
|
65.0 |
% |
|
|
64.0 |
% |
Other direct costs |
|
|
7.1 |
% |
|
|
7.5 |
% |
|
|
7.5 |
% |
|
|
8.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
71.8 |
% |
|
|
71.9 |
% |
|
|
72.5 |
% |
|
|
72.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
28.2 |
% |
|
|
28.1 |
% |
|
|
27.5 |
% |
|
|
28.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
14.8 |
% |
|
|
14.8 |
% |
|
|
15.1 |
% |
|
|
15.1 |
% |
Other |
|
|
6.7 |
% |
|
|
6.9 |
% |
|
|
6.5 |
% |
|
|
6.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
21.5 |
% |
|
|
21.7 |
% |
|
|
21.6 |
% |
|
|
21.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
0.6 |
% |
|
|
0.5 |
% |
|
|
0.6 |
% |
|
|
0.5 |
% |
Gain on disposal of property and equipment |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
6.1 |
% |
|
|
5.9 |
% |
|
|
5.3 |
% |
|
|
5.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
0.0 |
% |
|
|
0.1 |
% |
|
|
0.1 |
% |
|
|
0.2 |
% |
Other income, net |
|
|
-0.1 |
% |
|
|
-0.1 |
% |
|
|
-0.1 |
% |
|
|
-0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
6.2 |
% |
|
|
5.9 |
% |
|
|
5.3 |
% |
|
|
5.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
2.4 |
% |
|
|
2.6 |
% |
|
|
2.0 |
% |
|
|
2.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
3.8 |
% |
|
|
3.3 |
% |
|
|
3.3 |
% |
|
|
3.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
10
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 |
|
|
|
2006 |
|
|
2005 |
|
Sales by service type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On demand |
|
$ |
31,868 |
|
|
|
36.7 |
% |
|
$ |
31,130 |
|
|
|
38.1 |
% |
Scheduled/distribution |
|
$ |
26,284 |
|
|
|
30.2 |
% |
|
$ |
25,346 |
|
|
|
31.0 |
% |
Outsourcing |
|
$ |
28,764 |
|
|
|
33.1 |
% |
|
$ |
25,302 |
|
|
|
30.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
$ |
86,916 |
|
|
|
100.0 |
% |
|
$ |
81,778 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by country: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
56,187 |
|
|
|
64.6 |
% |
|
$ |
54,689 |
|
|
|
66.9 |
% |
Canada |
|
$ |
30,729 |
|
|
|
35.4 |
% |
|
$ |
27,089 |
|
|
|
33.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
$ |
86,916 |
|
|
|
100.0 |
% |
|
$ |
81,778 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
April 30 |
|
|
|
2006 |
|
|
2005 |
|
Sales by service type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On demand |
|
$ |
98,477 |
|
|
|
37.3 |
% |
|
$ |
92,513 |
|
|
|
39.1 |
% |
Scheduled/distribution |
|
$ |
80,987 |
|
|
|
30.7 |
% |
|
$ |
70,952 |
|
|
|
29.9 |
% |
Outsourcing |
|
$ |
84,367 |
|
|
|
32.0 |
% |
|
$ |
73,516 |
|
|
|
31.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
$ |
263,831 |
|
|
|
100.0 |
% |
|
$ |
236,981 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by country: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
170,815 |
|
|
|
64.7 |
% |
|
$ |
157,668 |
|
|
|
66.5 |
% |
Canada |
|
$ |
93,016 |
|
|
|
35.3 |
% |
|
$ |
79,313 |
|
|
|
33.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
$ |
263,831 |
|
|
|
100.0 |
% |
|
$ |
236,981 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended April 30, 2006 compared to three months ended April 30, 2005
Net income for the three months ended April 30, 2006 was $3.2 million ($0.29 per fully diluted
share) compared to $2.7 million ($0.23 per fully diluted share) for the three months ended April
30, 2005.
Sales for the three months ended April 30, 2006 were $87 million, a 6.3% increase compared to the
same period in 2005. The current year quarter had one less business day than the prior year. On a
sales per day basis, sales increased 8.0% in the current year quarter versus the prior year. The
average conversion rate between the Canadian dollar and the U.S. dollar increased 6.9% over the
prior year quarter, which had the effect of increasing sales for the three months ended April 30,
2006 by approximately $2.0 million, about 2.4%, had the conversion rate been the same as the prior
year period. Excluding the effect of this increase, sales per day would have been approximately
5.7% higher in the current quarter compared to the prior year. Also during the quarter, higher fuel
surcharges included in consolidated sales accounted for approximately 2.1% of the increase in sales
per day 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 3.6% for the quarter
(2.6% in the U.S. and 5.7% in Canada). The core growth rate was negatively impacted by customer
attrition this fiscal year, the bulk of which occurred in the 2nd quarter. Canadian
sales per day including fuel surcharges, in Canadian dollars, increased approximately 8.2% this
quarter compared to last year. We expect the core sales per day growth rate to be in the
mid-single digit range in the fourth quarter of FY 2006 and we expect it to increase to the 8% to
12% range by the second fiscal quarter of 2007.
Cost of sales for the three months ended April 30, 2006 increased $3.7 million, or 6.3%, to $62.5
million from $58.8 million for the same period in the prior year. Cost of sales, as a percentage
of sales was 71.8% for the three months
11
DYNAMEX INC.
ended April 30, 2006, slightly lower than the 71.9% for the same period in the prior year. Higher
sales in the current year quarter is the primary reason for the dollar increase in cost of sales
compared to the prior year. As a percentage of sales, the increase in purchased transportation,
attributable to the continuing change in business mix and the impact of higher fuel prices, was
more than offset by the reduction of other cost of sales.
SG & A expenses for the three months ended April 30, 2006 increased $1.0 million, or 5.5%, to $18.7
million from $17.7 million for the same period in the prior year. Approximately $400 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 3.2% in the current quarter
compared to the year-ago quarter. On a constant dollar basis, compensation expense increased
approximately $470 while employee benefits, including medical and dental costs, stock option
expense and payroll taxes, increased approximately $30. 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 21.5% for the
three months ended April 30, 2006, compared to 21.7% for the same period last year.
For the three months ended April 30, 2006, depreciation and amortization was $523 compared to $414
last year. The increase is primarily attributable to implementation of the Companys 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 $38, a decrease of $52 or 57.8% 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 less than 0.1% in the current quarter compared to 0.1% in the prior
period.
The effective income tax rate was 39.5% for the current quarter compared to 44.2% for the prior
year. The effective income tax rate this year was adjusted to reflect the impact of increased
taxable earnings associated with dividends received from the Companys Canadian subsidiary that
resulted in an increase in the U.S. federal income tax rate from 34% to 35%and from the true-up
of the estimated state income tax rates based on actual tax returns. The comparable quarter last
year included a true-up related to the FY 2004 returns and an adjustment to the estimated income
tax rate for FY 2005 based on those returns.
Nine months ended April 30, 2006 compared to nine months ended April 30, 2005
Net income for the nine months ended April 30, 2006 was $9.1 million ($0.80 per fully diluted
share) compared to $8.5 million ($0.72 per fully diluted share) for the nine months ended April 30,
2005.
Sales for the nine months ended April 30, 2006 were $264 million, an 11.3% increase over $237
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 6.3% over the prior year period, which had the effect of increasing sales for the nine
months ended April 30, 2006 by approximately $5.5 million, about 2.3%, had the conversion rate
been the same as the prior year period. Excluding the effect of this increase, sales would have
been approximately 9.0% higher in the current period compared to the prior year. Also during the
period, higher fuel surcharges included in consolidated sales increased an estimated 2.8% in the
current nine-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 6.4% for the nine months ended April 30, 2006 (5.7% in the U.S. and 7.7% in
Canada). The core growth rate was negatively impacted by customer attrition this fiscal year, the
bulk of which occurred in the 2nd fiscal quarter. Canadian sales including fuel
surcharges, in Canadian dollars, increased approximately 10.4% in the first nine months of the
current fiscal year compared to the same period last year.
Cost of sales for the nine months ended April 30, 2006 increased $20.7 million, or 12.2%, to $191.2
million from $170.5 million for the same period in the prior year. Cost of sales, as a percentage
of sales was 72.5% for the nine months ended April 30, 2006, compared to 72.0% for the nine months
ended April 30, 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 64.0% of sales last year
to 65.0% 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
12
DYNAMEX INC.
during initial phases of operations and the continuing shift in business mix are the primary
reasons for the increase in purchased transportation costs.
SG & A expenses for the nine months ended April 30, 2006 increased $5.5 million, or 10.7%, to $56.8
million from $51.3 million for the same period in the prior year. Approximately $1.1 million 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, over 75% of the increase in SG & A was for
salaries and benefits that included approximately $543 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 nine months ended April 30, 2006, down slightly from the prior year.
For the nine months ended April 30, 2006, depreciation and amortization was $1,464 compared to
$1,159 for the same period in the prior year. The increase is primarily attributable to
implementation of the 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 $213, a decrease of $150 or 41.3% for the current nine months. 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 nine month period compared to 0.2% in the prior year
period.
The effective income tax rate was 36.9% for the current period compared to 39.0% for the prior
year. The income tax provision for the nine months ended April 30, 2006 was adjusted to reflect
the higher federal income tax rate of 35% compared to 34% for the additional income from the
dividends received from the Companys Canadian subsidiary and from the true-up of the estimated
state income tax rates based on actual tax returns. The nine months last year included a true-up
related to the FY 2004 returns and an adjustment to the estimated income tax rate for FY 2005 based
on those returns.
Liquidity and Capital Resources
Net cash provided by operating activities was $7.9 million for the nine months ended April 30, 2006
compared to $6.5 million for the same period in 2005. The increase is attributable to higher net
income in the current fiscal year and reduced requirements for working capital (changes in current
assets and liabilities), $4.1 million in 2006 versus $6.9 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 nine months ended April 30, 2006 were approximately $0.6 million
compared to $1.5 million in 2005. The 2006 expenditures relate primarily to improvements in the
Companys technology infrastructure to support its operations. Management expects capital
expenditures to be in the $1.5 to $2.0 million range over the next two quarters as we update our
phone systems and purchase additional software to support our route optimization capabilities.
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 Companys 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
13
DYNAMEX INC.
increased from $15 million to $20 million to accommodate temporary borrowings to fund the stock
repurchase program. At April 30, 2006, borrowings under the credit agreement totaled $2.4
million and letters of credit totaling $4.4 million were outstanding.
The Companys EBITDA (earnings before interest, taxes, depreciation and amortization) was
approximately $16.1 million (6.1% of sales) for the nine months ended April 30, 2006, compared to
$15.4 million (6.5% of sales) in the same period last year. The decrease as a percentage of sales
is primarily due to higher purchased transportation costs 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
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 |
|
|
Nine months ended |
|
|
|
April 30, |
|
|
April 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net income |
|
$ |
3,212 |
|
|
$ |
2,730 |
|
|
$ |
9,080 |
|
|
$ |
8,464 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
2,098 |
|
|
|
2,166 |
|
|
|
5,310 |
|
|
|
5,410 |
|
Interest expense |
|
|
38 |
|
|
|
90 |
|
|
|
213 |
|
|
|
363 |
|
Depreciation and amortization |
|
|
523 |
|
|
|
414 |
|
|
|
1,464 |
|
|
|
1,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
5,871 |
|
|
$ |
5,400 |
|
|
$ |
16,067 |
|
|
$ |
15,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management expects that its future capital requirements will generally be met from internally
generated cash flow and from temporary borrowings available from the Revolving Credit Facility to
support the $10 million stock repurchase program authorized by the Board of Directors on June 7,
2006. The Companys 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 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.
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.
Certain Tax Matters Related to Drivers
Substantially all of the Companys drivers own their own vehicles and as of April 30, 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
14
DYNAMEX INC.
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 Companys 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
classification of such drivers. Any of the foregoing circumstances could have a material adverse
impact on the Companys financial condition and results of operations, and/or to restate financial
information from prior periods.
Claims Exposure
As of April 30, 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 Companys 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 Companys business, financial condition and results of operations could be materially
adversely affected. In addition, significant increases in insurance costs could reduce the
Companys 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 Companys 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 Companys consolidated financial statements. The
Canadian dollar is the functional currency for the Companys Canadian operations; therefore, any
change in the exchange rate will affect the Companys 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 Companys business,
financial condition or results of operations.
Permits and Licensing
The Companys 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 Companys authority to conduct certain of its operations.
Dependence on Key Personnel
15
DYNAMEX INC.
The Companys 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 Companys business, financial condition and results of operations.
The Companys 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.
Risks Associated with the Same-day Transportation Industry; General Economic Conditions
The Companys sales and earnings are especially sensitive to events that affect the same-day
transportation industry including extreme weather conditions, economic factors affecting the
Companys customers and shortages of or disputes with labor, any of which could result in the
Companys 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 Companys services.
Technological Advances
Technological advances for document distribution have affected the market for on-demand document
delivery services. Although the Company has shifted its focus to differentiated package
distribution and logistics services, there can be no assurance that these or other technologies
will not have a material adverse effect on the Companys 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 Companys 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 Companys 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.
|
16
DYNAMEX INC.
|
|
|
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. |
|
|
|
|
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 Companys 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. |
17
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 $3.1 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 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.
18
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, 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 Companys internal controls over financial reporting during the
quarter ended April 30, 2006 that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.
19
DYNAMEX INC.
PART II
OTHER INFORMATION
|
|
|
Item 1. |
|
Legal Proceedings |
On April 15, 2005, a purported class action suit 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 Companys 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 this matter,
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 Companys employees referred to in the preceding paragraph were compensated
appropriately and intend to vigorously defend this litigation. We believe the outcome of this
action will not have a material adverse effect on the financial condition, results of operations,
or liquidity of the Company.
The Company is a party to various other 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.
No material changes have been made in the disclosure of risk factors from those set forth in
the Companys 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.
20
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 |
|
|
|
|
|
|
|
|
|
March 1 to March
31, 2006 |
|
|
201,000 |
|
|
$ |
18.77 |
|
|
|
201,000 |
|
|
$ |
3,772,124 |
|
|
April 1 to April 30,
2006 |
|
|
250,000 |
|
|
$ |
19.35 |
|
|
|
250,000 |
|
|
$ |
4,837,530 |
|
All purchases were made in open market transactions pursuant to a plan approved by the Board
of Directors of the Company
on January 17, 2006 authorizing management to acquire up to $10 million of the Companys
common stock outstanding.
21
DYNAMEX INC.
Exhibits:
|
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 |
22
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: June 8, 2006
|
|
by
|
|
/s/ Richard K. McClelland |
|
|
|
|
|
|
|
|
|
Richard K. McClelland |
|
|
|
|
President, Chief Executive Officer and |
|
|
|
|
Chairman of the Board |
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
Dated: June 8, 2006
|
|
by
|
|
/s/ Ray E. Schmitz |
|
|
|
|
|
|
|
|
|
Ray E. Schmitz |
|
|
|
|
Vice President Chief Financial Officer |
|
|
|
|
(Principal Financial Officer) |
|
|
|
|
|
Dated: June 8, 2006
|
|
by
|
|
/s/ Samuel T. Hicks |
|
|
|
|
|
|
|
|
|
Samuel T. Hicks |
|
|
|
|
Corporate Controller |
|
|
|
|
(Principal Accounting Officer) |
23
EXHIBIT INDEX
Exhibits
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 |