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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 2001
OR
[ ] 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 86-0712225
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1870 CROWN DRIVE, DALLAS, TEXAS 75234
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(214) 561-7500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on October 19, 2001 was approximately $18,883,000.
The number of shares of the registrant's common stock, $.01 par value,
outstanding as of October 19, 2001 was 10,206,817 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The information required in Part III of the Form 10-K has been
incorporated by reference to the Registrant's definitive Proxy Statement on
Schedule 14-A to be filed with the Commission.
TABLE OF CONTENTS
PAGE
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PART I
ITEM 1. BUSINESS ...................................................... 1
ITEM 2 PROPERTIES .................................................... 9
ITEM 3. LEGAL PROCEEDINGS ............................................. 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........... 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS ........................................... 12
ITEM 6. SELECTED FINANCIAL DATA ....................................... 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ........................... 14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK ................................................... 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ................... 21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE ........................... 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ............ 22
ITEM 11. EXECUTIVE COMPENSATION ........................................ 22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT .................................................... 22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................ 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K ...................................................... 23
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PART I
Statements and information presented within this Annual Report on Form 10-K
for Dynamex Inc. (the "Company" and "Dynamex") contain "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. These forward-looking statements can be identified by the use
of predictive, future tense or forward-looking terminology, such as "believes,"
"anticipates," "expects," "estimates," "may," "will" or similar terms.
Forward-looking statements also include projections of financial performance,
statements regarding management's plans and objectives and statements concerning
any assumptions relating to the foregoing. Certain important factors which may
cause actual results to vary materially from these forward-looking statements
accompany such statements and appear elsewhere in this report, including without
limitation, the factors disclosed under "Risk Factors." All subsequent written
or oral forward-looking statements attributable to the Company or persons acting
on its behalf are expressly qualified by these factors.
ITEM 1. BUSINESS
GENERAL
Dynamex is a leading provider of same-day delivery and logistics services in
the United States and Canada. Through its network of branch offices, the Company
provides same-day, door-to-door delivery services utilizing its ground couriers.
For many of its inter-city deliveries, the Company uses third party air or motor
carriers in conjunction with its ground couriers to provide same-day service. In
addition to traditional on-demand delivery services, the Company offers
scheduled distribution services, which encompass recurring, often daily,
point-to-point deliveries or multiple destination deliveries that often require
intermediate handling. The Company also offers fleet and facilities management
services. These services include designing and managing systems to maximize
efficiencies in transporting, sorting and delivering customers' products on a
local and multi-city basis. With its fleet management service, the Company
manages and may provide a fleet of dedicated vehicles at single or multiple
customer sites. The Company's on-demand delivery capabilities are available to
supplement scheduled distribution arrangements or dedicated fleets as needed.
Facilities management services include the Company's operation and management of
a customer's mailroom.
The Company was organized under the laws of Delaware in 1992 as Parcelway
Systems Holding Corp. In May 1995, the Company acquired Dynamex Express and, in
July 1995, the Company changed its name to Dynamex Inc. At the time of its
acquisition by the Company, Dynamex Express had developed a national network of
20 locations across Canada and offered an array of services on a national,
multi-city and local basis. In December 1995, the Company acquired the on-demand
ground courier operations of Mayne Nickless, which had operations in eight U.S.
cities and two Canadian cities. In August 1996, in conjunction with the
Company's initial public offering (the "IPO") the Company acquired five same-day
delivery businesses in three U.S. and two Canadian cities (the "IPO
Acquisitions"). Subsequent to the IPO and through August 31, 1998 the Company
acquired 22 additional same-day delivery businesses in thirteen U.S. and three
Canadian cities.
INDUSTRY OVERVIEW
The delivery and logistics industry is large, highly fragmented and growing.
The industry is composed primarily of same-day, next-day and second-day service
providers. The Company primarily services the same-day, intra-city delivery
market. The same-day delivery and logistics industry in the U.S. and Canada
primarily consists of several thousand small, independent businesses serving
local markets and a small number of multi-location regional or national
operators. The Company believes that the same-day delivery and logistics
industry offers substantial consolidation opportunities as a result of industry
fragmentation and that there are significant operating benefits to large-scale
service providers. Relative to smaller operators in the industry, the Company
believes that national operators such as the Company benefit from several
competitive advantages including: national brand identity, professional
management, the ability to service national accounts and centralized
administrative and management information systems.
Management believes that the same-day delivery segment of the
transportation industry is benefiting from several recent trends. For example,
the trend toward outsourcing has resulted in numerous shippers turning to third
party providers for a range of services including same-day delivery and
management of in-house distribution. Many businesses that outsource their
distribution requirements prefer to purchase such services from one source that
can service multiple cities, thereby decreasing the number of vendors from which
they purchase services. Additionally, the growth of "just-in-time" inventory
practices designed to reduce inventory-carrying costs has increased the demand
for the same-day delivery of such
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inventory. Technological developments such as e-mail and facsimile have
increased the pace of business and other transactions, thereby increasing demand
for the same-day delivery of a wide array of items, ranging from voluminous
documents to critical manufacturing parts and medical devices. Consequently,
there has been increased demand for the same-day transportation of items that
are not suitable for fax or electronic transmission, but for which there is an
immediate need.
BUSINESS STRATEGY
The Company intends to expand its operations in the U.S. and Canada to
capitalize on the demand of local, regional and national businesses for
innovative same-day transportation solutions. The key elements of the Company's
business strategy are as follows:
Focus on Primary Services. The Company provides three primary services: (i)
same-day on-demand delivery services, (ii) same-day scheduled distribution
services and (iii) outsourcing services such as fleet management and facilities
management. The Company focuses its same-day on-demand delivery business on
transporting non-faxable, time sensitive items throughout metropolitan areas. By
delivering items of greater weight over longer distances and providing value
added on-demand services such as non-technical swap-out of failed equipment, the
Company expects to raise the yield per delivery relative to the yield generated
by delivering documents within a central business district. Additionally, the
Company intends to capitalize on the market trend towards outsourcing
transportation requirements by concentrating its logistics services in same-day
scheduled distribution and fleet management. The delivery transactions in a
fleet management and scheduled distribution program are recurring in nature,
thus creating the potential for long term customer relationships. Additionally,
these value added services are generally less vulnerable to price competition
than traditional on-demand delivery services.
Target National and Regional Accounts. The Company's sales force focuses on
pursuing and maintaining national and regional accounts. The Company anticipates
that its (i) existing multi-city network of locations combined with new
locations to be acquired, (ii) ability to offer value added services such as
fleet management to complement its basic same-day delivery services and (iii)
experienced, operations oriented management team and sales force, will create
further opportunities with many of its existing customers and attract new
national and regional accounts.
Create Strategic Alliances. By forming alliances with strategic partners
that offer services that complement those of the Company, the Company and its
partner can jointly market their services, thereby accessing one another's
customer base and providing such customers with a broader range of value added
services. For example, the Company has formed an alliance with Purolator, the
largest Canadian overnight courier company, whereby on an exclusive basis the
Company and Purolator provide one another with certain delivery services and
market one another's delivery services to their respective customers. See " --
Sales and Marketing."
SERVICES
The Company capitalizes on its routing, dispatch and vehicle and personnel
management expertise developed in the ground courier business to provide its
customers with a broad range of value added, same-day distribution services. By
creating innovative applications of its core services, the Company intends to
expand the market for its distribution services and increase the yield per
service provided.
Same-Day On-Demand Delivery. The Company provides same-day intra-city
on-demand delivery services whereby Company messengers or drivers respond to a
customer's request for immediate pick-up and delivery. The Company also provides
same-day inter-city delivery services by utilizing third-party air or motor
carriers in conjunction with the Company's ground couriers. The Company focuses
on the delivery of non-faxable, time sensitive items throughout major
metropolitan areas rather than traditional downtown document delivery. By
delivering items of greater weight over longer distances and providing value
added on-demand services such as non-technical swap-out of failed equipment, the
Company expects to continue to raise the yield per delivery relative to the
yield generated from downtown document deliveries. For the fiscal years ended
July 31, 2001, 2000 and 1999, approximately 55%, 58% and 62%, respectively, of
the Company's revenues were generated from on-demand same-day delivery services.
Same-Day Scheduled Distribution. The Company provides same-day scheduled
distribution services for time-sensitive local deliveries. Scheduled
distribution services include regularly scheduled deliveries made on a
point-to-point basis and deliveries that may require intermediate handling,
routing or sorting of items to be delivered to multiple locations. The
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Company's on-demand delivery capabilities are available to supplement the
scheduled drivers as needed. A bulk shipment may be received at the Company's
warehouse where it is sub-divided into smaller bundles and sorted for delivery
to specified locations. Same-day scheduled distribution services are provided on
both a local and multi-city basis. For example, in the suburban Washington,
D.C./Baltimore area the Company provides scheduled, as well as on-demand
delivery services for a group of local hospitals and medical laboratories,
transferring samples between these facilities. In Ontario, Canada, the Company
services the scheduled distribution requirements of a consortium of commercial
banks. These banks require regular pick-up of non-negotiable materials that are
then delivered by the Company on an intra- and inter-city basis. For the fiscal
years ended July 31, 2001, 2000 and 1999, approximately 21%, 19% and 12%,
respectively, of the Company's revenues were generated from same-day scheduled
distribution services.
Outsourcing Services. The Company's outsourcing services include fleet
management and mailroom or other facilities management, such as maintenance of
call centers for inventory tracking and delivery. With its outsourcing services,
the Company is able to apply its same-day delivery capability and logistics
experience to design and manage efficient delivery systems for its customers.
The outsourcing service offerings can expand along with the customer's needs.
Management believes that the trend toward outsourcing has resulted in many
customers reducing their reliance on in-house transportation departments and
increasing their use of third-party providers for a variety of delivery
services.
The largest component of the Company's outsourcing services is fleet
management. With its fleet management service, the Company provides
transportation services primarily for customers that previously managed such
operations in-house. This service is generally provided with a fleet of
dedicated vehicles that can range from passenger cars to tractor-trailers (or
any combination) and may display the customer's logo and colors. In addition,
the Company's on-demand delivery capability may supplement the dedicated fleet
as necessary, thereby allowing a smaller dedicated fleet to be maintained than
would otherwise be required. The Company's fleet management services include
designing and managing systems created to maximize efficiencies in transporting,
sorting and delivering customers' products on a local and multi-city basis.
Because the Company generally does not own vehicles but instead hires drivers
who do, the Company's fleet management solutions are not limited by the
Company's need to utilize its own fleet.
By outsourcing their fleet management, the Company's customers (i) utilize
the Company's distribution and route optimization experience to deliver their
products more efficiently, (ii) gain the flexibility to expand or contract fleet
size as necessary, and (iii) reduce the costs and administrative burden
associated with owning or leasing vehicles and hiring and managing
transportation employees. For example, the Company has configured and now
manages a distribution fleet for one of the largest distributors to drugstores
in Canada. For the fiscal years ended July 31, 2001, 2000 and 1999,
approximately 24%, 23% and 26%, respectively, of the Company's revenues were
generated from fleet management and other outsourcing services.
While the volume and profitability of each service provided varies
significantly from branch office to branch office, each of the Company's branch
offices generally offers the same core services. Factors, which impact the
business mix per branch, include customer base, competition, geographic
characteristics, available labor and general economic environment. The Company
can bundle its various delivery and logistics services to create customized
distribution solutions and, by doing so, seeks to become the single source for
its customers' distribution needs.
OPERATIONS
The Company's operations are divided into two U.S. regions and one Canadian
region, with each of the Company's approximately 40 branches assigned to the
appropriate region. Branch operations are locally managed with regional and
national oversight and support provided as necessary. A branch manager is
assigned to each branch office and is accountable for all aspects of such branch
operations including its profitability. Each branch manager reports to a
regional manager with similar responsibilities for all branches within his
region. Certain administrative and marketing functions may be centralized for
multiple branches in a given city or region. Dynamex believes that the strong
operational background of its senior management is important to building brand
identity throughout the United States while simultaneously overseeing and
encouraging individual managers to be successful in their local markets.
Same-Day On-Demand Delivery. Most branches have operations centers staffed
by dispatchers, as well as customer service representatives and operations
personnel. Incoming calls are received by trained customer service
representatives who utilize computer systems to provide the customer with a
job-specific price quote and to transmit the order to the appropriate dispatch
location. Certain of the Company's larger clients can access such software
through electronic data interface to enter dispatch requirements, page specific
drivers, make inquiries and receive billing information. A dispatcher
3
coordinates shipments for delivery within a specific time frame. Shipments are
routed according to the type and weight of the shipment, the geographic distance
between the origin and destination and the time allotted for the delivery.
Coordination and deployment of delivery personnel for on-demand deliveries is
accomplished either through communications systems linked to the Company's
computers, through pagers or by radio.
Same-Day Scheduled Distribution. A dispatcher coordinates and assigns
scheduled deliveries to the drivers and manages the delivery flow. In many
cases, certain drivers will handle a designated group of scheduled routes on a
recurring basis. Any intermediate handling required for a scheduled distribution
is conducted at the Company's warehouse or at a third-party facility such as the
airport.
Outsourcing Services. The largest component of the Company's outsourcing
services is its fleet management. Fleet management services are coordinated by
the Company's logistics specialists who have experience in designing,
implementing and managing integrated networks for transportation services. Based
upon the specialist's analysis of a customer's fleet and distribution
requirements, the Company develops a plan to optimize fleet configuration and
route design. The Company provides the vehicles and drivers necessary to
implement the fleet management plan. Such vehicles and drivers are generally
dedicated to a particular customer and may display the customer's name and logo
on its vehicles. The Company can supplement these dedicated vehicles and drivers
with its on-demand capability as necessary.
Prices for the Company's services are determined at the branch level based
on the distance, weight and time-sensitivity of a particular delivery. The
Company generally enters into customer contracts for scheduled distribution, and
fleet and facilities management, which are generally terminable by such customer
upon notice generally ranging from 30 to 90 days. The Company does not typically
enter into contracts with its customers for on-demand delivery services.
Substantially all of the Dynamex drivers are owner-operators who provide
their own vehicles, pay all expenses of operating their vehicles and receive a
percentage of the delivery charge as compensation. Management believes that this
creates a higher degree of responsiveness on the part of its drivers as well as
significantly lowering the capital required to operate the business and reducing
the Company's fixed costs.
SALES AND MARKETING
The Company markets its services through a sales force comprised of national
and local sales representatives. The Company's national sales force, comprised
of approximately 11 persons, includes product specialists dedicated to specific
services, such as fleet management. Additionally, some of these specialists have
developed expertise in servicing certain industries such as banks and
telecommunications companies. Approximately 100 local employee sales
representatives target business opportunities from the branch offices and
approximately 20 specialized sales representatives contact existing customers to
assess customer satisfaction and requirements. The Company's sales force will
seek to generate additional business from existing local accounts, which often
include large companies with multiple locations. The expansion of the Company's
national sales program and continuing investment in technology to support its
expanding operations have been undertaken at a time when large companies are
increasing their demand for delivery providers who offer a range of delivery
services at multiple locations.
The Company's local sales representatives make regular calls on existing and
potential customers to identify such customers' delivery and logistics needs.
The Company's national product and industry specialists augment the local
marketing efforts and seek new applications of the Company's primary services in
an effort to expand the demand for such services. Customer service
representatives on the local and national levels regularly communicate with
customers to monitor the quality of services and to quickly respond to customer
concerns. The Company maintains a database of its customers' service utilization
patterns and satisfaction level. This database is used by the Company's
specialized sales force to analyze opportunities and conduct performance audits.
Fostering strategic alliances with customers who offer services that
complement those of the Company is an important component of the Company's
marketing strategy. For example, under an agreement with Purolator, the Company
serves as Purolator's exclusive provider of same-day courier services, which
services are then marketed by Purolator to its customers. The Company also
provides Purolator with local and inter-city, same-day ground courier service
for misdirected Purolator shipments. Purolator reports that it is the largest
overnight courier in Canada.
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CUSTOMERS
The Company's target customer is a business that distributes time-sensitive,
non-faxable items that weigh from one to seventy pounds to multiple locations.
The primary industries served by the Company include financial services,
electronics, pharmaceuticals, medical laboratories and hospitals, auto parts,
legal services and Canadian governmental agencies. Management believes that for
the fiscal year ended July 31, 2001, no single industry accounted for more than
10% of the Company's annual revenues. A significant number of the Company's
customers are located in Canada. For the fiscal years ended July 31, 2001, 2000
and 1999, approximately 34%, 33% and 33% of the Company's revenues,
respectively, were generated in Canada. See Note 13 of Notes to Consolidated
Financial Statements for additional information concerning the Company's foreign
operations.
COMPETITION
The market for the Company's same-day delivery and logistics services has
been and is expected to remain highly competitive. The Company believes that the
principal competitive factors in the markets in which it competes are
reliability, quality, breadth of service and price.
Most of the Company's competitors in the same-day intra-city delivery market
are privately held companies that operate in only one location, with no one
competitor dominating the market. However, there is a trend toward industry
consolidation and companies with greater financial and other resources than the
Company that may not currently operate in the delivery and logistics business
may enter the industry to capitalize on such trend. Price competition for basic
delivery services is particularly intense.
The market for the Company's logistics services is also highly competitive,
and can be expected to become more competitive as additional companies seek to
capitalize on the growth in the industry. The Company's principal competitors
for such services are other delivery companies and in-house transportation
departments. The Company generally competes on the basis of its ability to
provide customized service regionally and nationally, which it believes is an
important advantage in this highly fragmented industry, and on the basis of
price.
The Company competes for acquisition candidates with other companies in the
industry and companies that may not currently operate in the industry but may
acquire and consolidate local courier businesses. Management believes that its
operating experience and its strategy to fully integrate each acquired company
by adding its core services and introducing national and multi-city marketing
will allow it to remain competitive in the acquisition market.
The Company's principal competitors for drivers are other delivery companies
within each market area. Management believes that its method of driver
compensation, which is based on a percentage of the delivery charge, is
attractive to drivers and helps the Company to recruit and retain drivers.
REGULATION
The Company's business and operations are subject to various federal (U.S.
and Canadian), state, provincial and local regulations and, in many instances,
require permits and licenses from state authorities. The Company holds
nationwide general commodities authority from the Federal Highway Administration
of the U.S. Department of Transportation to transport certain property as a
motor carrier on an inter-state basis within the contiguous 48 states. Where
required, the Company holds statewide general commodities authority. The Company
holds permanent extra-provincial (and where required, intra-provincial)
operating authority in all Canadian provinces where the Company does business.
In connection with the operation of certain motor vehicles, the handling of
hazardous materials in its courier operations and other safety matters,
including insurance requirements, the Company is subject to regulation by the
United States Department of Transportation, the states and by the appropriate
Canadian federal and provincial regulations. The Company is also subject to
regulation by the Occupational Safety and Health Administration, provincial
occupational health and safety legislation and federal and provincial employment
laws respecting such matters as hours of work, driver logbooks and workers'
compensation. To the extent the Company holds licenses to operate two-way radios
to communicate with its fleet, the Federal Communications Commission regulates
the Company. The Company believes that it is in substantial compliance with all
of these regulations. The failure of the Company to comply with the applicable
regulations could result in substantial fines or possible revocations of one or
more of the Company's operating permits.
5
SAFETY
From time to time, the Company's drivers are involved in accidents. The
Company carries liability insurance with a per claim and an aggregate limit of
$20 million. Owner-operators are required to maintain liability insurance of at
least the minimum amounts required by applicable state and provincial law
(generally such minimum requirements range from $35,000 to $75,000). The Company
also has insurance policies covering property and fiduciary trust liability,
which coverage includes all drivers. The Company reviews prospective drivers to
ensure that they have acceptable driving records. In addition, where required by
applicable law, the Company requires prospective drivers to take a physical
examination and to pass a drug test. Branch managers are responsible for
training drivers on any additional safety requirements as dictated by customer
specifications.
INTELLECTUAL PROPERTY
The Company has registered "DYNAMEX" and "DYNAMEX EXPRESS" as federal
trademarks in the Canadian Intellectual Office and has filed applications in the
U.S. Patents and Trademark's office for federal trademark registration of such
names. No assurance can be given that any such registration will be granted in
the U.S., or that if granted, such registration will be effective to prevent
others from using the trademark concurrently or preventing the Company from
using the trademark in certain locations.
EMPLOYEES
At September 1, 2001, the Company had approximately 3,000 employees, of whom
approximately 1,800 primarily were employed in various management, supervisory,
administrative, and other corporate positions and approximately 1,200 were
employed as drivers, messengers and mailroom workers. Additionally at September
1, 2001, the Company had contracts with approximately 3,700 independent
owner-operator drivers. Management believes that the Company's relationship with
such employees and independent owner-operators is good. See "Risk Factors --
Certain Tax Matters Related to Drivers."
Of the approximately 4,600 drivers and messengers used by the Company as of
September 1, 2001, approximately 1,600 are located in Canada and approximately
3,000 are located in the U.S. Although the drivers and messengers located in
Canada are generally independent contractors, approximately 65% are represented
by major international labor unions. Management believes that the Company's
relationship with such unions is good. Unions represent none of the Company's
U.S. employees, drivers or messengers.
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.
Acquisition Strategy; Possible Need for Additional Financing
The Company completed its last acquisition in August 1998. Currently, there
are no pending nor are there any contemplated acquisitions. Should the Company
pursue acquisitions in the future, the Company may be required to incur
additional debt, issue additional securities that may potentially result in
dilution to current holders and also may result in increased goodwill,
intangible assets and amortization expense. Additionally, the Company must
obtain the consent of its primary lenders to consummate any acquisition. There
can be no assurance that the Company's primary lenders will consent to such
acquisitions or that if additional financing is necessary, it can be obtained on
terms the Company deems acceptable. As a result, the Company might be unable to
successfully implement its acquisition strategy. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
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 and there is a recent trend toward
consolidation. Other companies in the industry compete with the
6
Company not only for provision of services but also for acquisition candidates
and qualified 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. See "Business -- Competition."
Claims Exposure
As of September 1, 2001, the Company utilized the services of approximately
4,600 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 claim and an aggregate
limit of $20 million. 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 $35,000 to
$75,000). 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.
Certain Tax Matters Related to Drivers
Substantially all of the Company's drivers own their own vehicles and as of
September 1, 2001, approximately 80% 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 or
provincial authorities 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 is 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 classification of such
drivers. If the drivers are deemed to be employees rather than independent
contractors, then the Company may be required to increase their compensation
since they will no longer be receiving commission-based compensation. 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. See "Business -- Services" and " -- Employees."
In addition to the drivers that are independent contractors, certain of the
Company's drivers are employed by the Company and own and operate their own
vehicles during the course of their employment. The Company reimburses these
employees for all or a portion of the operating costs of those vehicles. The
Company believes that these reimbursement arrangements do not represent
additional compensation to those employees. However, there can be no assurance
that federal (U.S. and Canadian), state or provincial taxing authorities will
not seek to recharacterize some or all of such payments as additional
compensation. If such amounts were so recharacterized, the Company would have to
pay additional employment related taxes on such amounts, and may also be
required to pay penalties, which could have an adverse impact on the Company's
financial condition and results of operations, and/or to restate financial
information from prior periods. See "Business -- Services" and " -- Employees."
Foreign Exchange
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 Canadian dollar is the
functional currency for the Company's Canadian operations; therefore, any change
in the exchange rate will effect the Company's reported revenues 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
7
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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 13 of Notes
to Consolidated Financial Statements.
Permits and Licensing
Although recent legislation has significantly deregulated certain aspects of
the transportation industry, the Company's delivery operations are still subject
to various federal (U.S. and Canadian), state, provincial and local laws,
ordinances and regulations that in many instances require certificates, permits
and licenses. 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. Furthermore, delays in obtaining approvals
for the transfer or grant of certificates, permits or licenses, or failure to
obtain such approvals, could impede the implementation of the Company's
acquisition program. See "Business -- Regulation."
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, train
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 Local Delivery Industry; General Economic Conditions
The Company's revenues and earnings are especially sensitive to events that
affect the delivery services industry including extreme weather conditions,
economic factors affecting the Company's significant 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. The Company's sales were negatively impacted by a
slowdown in the economy during the year ended July 31, 2001. The terrorist
attacks in the United States on September 11, 2001, and the U.S. response to
such attacks, may result in additional adverse impact to future general economic
activity.
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 Courier Personnel
The Company is dependent upon its ability to attract, train and retain, as
employees or through independent contractor or other arrangements, qualified
courier 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, train and upgrade its pool of
available couriers to keep pace with demands for delivery services. There can be
no assurance that qualified courier personnel will continue to be available in
sufficient numbers and on terms acceptable to the Company. The inability to
attract and retain qualified courier personnel would have a material adverse
impact on the Company's business, financial condition and results of operations.
Volatility of Stock Price
Prices for the Company's common stock will be determined in the marketplace
and may be influenced by many factors, including the depth and liquidity of the
market for the common stock, investor perception of the Company and general
economic and market conditions. Variations in the Company's operating results,
general trends in the industry and other factors could cause the market price of
the common stock to fluctuate significantly. In addition, general trends and
developments in the industry, government regulation and other factors could have
a significant impact on the price of the
8
common stock. The stock market has, on occasion, experienced extreme price and
volume fluctuations that have often particularly affected market prices for
smaller companies and that often have been unrelated or disproportionate to the
operating performance of the affected companies, and the price of the common
stock could be affected by such fluctuations.
ITEM 2. PROPERTIES
The Company leases facilities in 58 locations. These facilities are
principally used for operations and general and administrative functions. The
chart below summarizes the locations of facilities that the Company leases:
NUMBER OF
LOCATION LEASED PROPERTIES
- -------- -----------------
Canada
- ------
Alberta 5
British Columbia 3
Manitoba 2
Newfoundland 1
Nova Scotia 1
Ontario 9
Quebec 1
Saskatchewan 2
--
Canadian Total 24
U.S.
- ----
Arizona 2
California 3
Colorado 1
Connecticut 1
District of Columbia 1
Georgia 1
Illinois 3
Maryland 1
Massachusetts 1
Minnesota 1
Missouri 1
New Jersey 1
New York 7
North Carolina 1
Ohio 1
Pennsylvania 1
Tennessee 1
Texas 4
Virginia 1
Washington 1
--
U.S. Total 34
The Company believes that its properties are well maintained, in good
condition and adequate for its present needs. The Company anticipates that
suitable additional or replacement space will be available when required. The
Company's facilities rental expense for the fiscal years ended July 31, 2001,
2000 and 1999 were approximately $4.9, $4.5 and $4.3 million, respectively. The
Company's principal executive offices are located in Dallas, Texas. See Note 7
of Notes to the Consolidated Financial Statements for additional information.
9
ITEM 3. LEGAL PROCEEDINGS
In November and December 1998, two class action lawsuits were filed in the
United States District Court for the Northern District of Texas, naming the
Company, Richard K. McClelland, the Company's Chief Executive Officer, and
Robert P. Capps, the Company's former Chief Financial Officer, as defendants.
The lawsuits arose from the Company's November 2, 1998 announcement that the
Company was (i) revising its results of operations for the year ended July 31,
1998 from that which had been previously announced on September 16, 1998 and
(ii) restating its results of operations for the third quarter of fiscal 1998
from that which had been previously reported. On February 5, 1999, the Court
entered an Order consolidating the actions and approved the selection of three
law firms as co-lead counsel. A consolidated and amended complaint was filed on
March 22, 1999. In addition to the defendants named in the original complaints,
the amended complaint also named as defendants the underwriters of the Company's
May 1998 secondary offering of common stock, Schroder & Co., Inc., William Blair
& Company, and Hoak Breedlove Wesneski & Co. (the "Underwriter Defendants"). On
May 6, 1999, defendants filed a motion to dismiss the consolidated and amended
complaint in its entirety.
On June 14, 1999, the Company issued a press release announcing that the Audit
Committee of the Board of Directors had formed a Special Committee of outside
directors to review potentially unsupportable accounting entries for the third
and fourth quarters of fiscal year 1998. On September 17, 1999, the Company
issued a press release announcing that the Special Committee had completed its
review of the Company's financial reporting and that the Company would restate
its previously reported financial results for the fiscal years 1997 and 1998 and
the first three quarters of fiscal year 1999.
On October 14, 1999, pursuant to a stipulation of the parties, plaintiffs filed
a second amended class action complaint that added allegations relating to the
information disclosed in the Company's June 14 and September 17, 1999 press
releases. In addition to the defendants named in the amended complaint, the
Second Amended Class Action Complaint named Deloitte & Touche and Deloitte &
Touche LLP (the Court subsequently dismissed Deloitte & Touche LLP without
prejudice pursuant to the stipulation of the parties). The Second Amended Class
Action Complaint alleges that the defendants issued a series of materially false
and misleading statements and omitted material facts concerning the Company's
financial condition and business operations. The lawsuit alleged violations of
Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934. The plaintiffs sought
unspecified damages on behalf of all other purchasers of the Company's common
stock during the period of September 18, 1997 through and including September
17, 1999 (the "Class").
On September 20, 2000, the Company, Richard McClelland, Robert Capps and the
Underwriter Defendants signed a memorandum of understanding setting forth the
terms of a proposed settlement of this action. Deloitte & Touche is not a party
to the memorandum of understanding. On December 13, 2000, the Settling Parties
signed a Stipulation of Agreement of Settlement. The settlement provides that
the Company's primary directors and officers liability insurer, American Home
Insurance Company, will pay $2 million towards the settlement. In addition, the
Company will pay $1 million and contribute one million shares of common stock,
or the cash equivalent towards the proposed settlement. The Company also agreed
to pay to the class 75% of any recoveries, after legal expenses and costs, from
the Company's excess insurer, Reliance Insurance Company, and former auditors,
Deloitte & Touche LLP and Deloitte & Touche. A separate agreement has also been
reached to settle all claims by the Company and by plaintiffs in the class
action against Deloitte & Touche LLP and Deloitte & Touche for the total amount
of $2.25 million.
On April 10, 2000, Reliance Insurance Company filed a notice of action in the
Superior Court of Justice in Ontario, Canada, seeking a declaratory judgment
that defendants in the shareholder class action are not entitled to
reimbursement under the Reliance insurance policy for losses incurred in
connection with that action. The Reliance policy provides $3 million in excess
coverage to supplement the $2 million in coverage provided to the Company
pursuant to the underlying policy issued by American Home Assurance Company.
Dynamex, Richard McClelland, and Robert Capps have filed a complaint in the
United States District court for the Northern District of Texas that names
Reliance Insurance Company as a defendant. The complaint alleges claims for
breach of contract and breach of the duty of good faith and fair dealing arising
from the failure of Reliance to contribute to the settlement of the
above-referenced shareholder litigation. The plaintiffs seek unspecified
damages.
10
Reliance Insurance Company and Dynamex, Richard McClelland and Robert Capps have
signed an agreement to settle their respective claims. Pursuant to the
agreement, in the fourth quarter 2001 Reliance paid $1.9 million to the Company
for the benefit of the Company and the Class.
These settlements were finalized and approved by the Court on June 29, 2001. As
a result of the settlements, the Company recovered $695,000 from Reliance
Insurance Company, Deloitte & Touche LLP and Deloitte & Touche including legal
fees and costs incurred in connection with the Company's claims against these
entities. The amount recovered is reflected in the Consolidated Statement of
Operations as a reduction to the Provision for settlement of shareholder
litigation. As explained above, the additional amounts recovered by the Company
from Reliance Insurance Company, Deloitte & Touche LLP and Deloitte & Touche
were contributed to the settlement of the shareholder class action.
The Special Committee of the Board of Directors has kept the Securities and
Exchange Commission ("SEC") apprised of its inquiry and the restatement process.
The Company has received informal requests for information from the Staff of the
Commission for documents and testimony concerning the circumstances of the
restatement of the Company's prior period financial statements. The Company has
cooperated with the Commission. In early November 2001, the Company received
written notification from the SEC that the inquiry into the circumstances of the
restatements of the Company's financial statements has been closed with no
formal action being recommended.
The Company is also 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
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information -- The Company's common stock began trading on the AMEX
under the symbol "DDN" on May 17, 1999. Previously the Company's common stock
was traded over-the-counter on the NASDAQ National Market under the symbol
"DYMX" beginning on August 13, 1996. As a result of the Company's announcement
that financial statements for the years ended July 31, 1998 and 1997 would be
restated and should not be relied upon, the AMEX suspended trading in the
Company's common stock on September 16, 1999. The AMEX allowed trading in the
Company's common stock to resume on July 7, 2000. The following table summarizes
the high and low sale prices per share of common stock for the periods
indicated, as reported on the AMEX or NASDAQ National Market:
BID
--------------------
FISCAL YEAR 1999 HIGH LOW
------- -------
First Quarter $11.000 $ 6.000
Second Quarter $ 6.063 $ 3.625
Third Quarter $ 4.063 $ 2.031
Fourth Quarter $ 3.500 $ 2.688
FISCAL 2000
First Quarter $ 3.375 $ 2.063
Second Quarter $ -- $ --
Third Quarter $ -- $ --
Fourth Quarter $ 2.000 $ 1.125
FISCAL 2001
First Quarter $ 1.938 $ 1.000
Second Quarter $ 1.750 $ 1.125
Third Quarter $ 2.990 $ 1.350
Fourth Quarter $ 2.560 $ 1.650
Holders -- As of October 10, 2001, the approximate number of holders of
record of common stock was 90.
Dividends -- The Company has not declared or paid any cash dividends on its
common stock since its inception. The Company intends to retain future earnings
for the operation and expansion of its business and does not anticipate paying
any cash dividend in the foreseeable future. In addition, the Company's Credit
Agreement restricts the payment of dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".
12
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial data for the three years ended
July 31, 2001 have been derived from the audited consolidated financial
statements of the Company appearing elsewhere herein. The following selected
historical financial data for the years ended July 31, 1998 and 1997 has been
derived from the consolidated financial statements of the Company not appearing
elsewhere herein. The selected financial data are qualified in the entirety, and
should be read in conjunction with the Company's consolidated financial
statements, including the notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
herein.
Years ending July 31,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
(in thousands, except per share amounts)
Statement of Operations Data:
Sales $ 249,414 $ 251,475 $ 239,631 $ 208,019 $ 32,587
Cost of sales 172,908 171,675 163,156 140,037 88,342
--------- --------- --------- --------- ---------
Gross profit 76,506 79,800 76,475 67,982 44,245
Selling, general and administrative expenses 60,739 64,483 66,166 55,866 34,197
Depreciation and amortization (including
intangible impairment of $3,971 in 1999) 7,414 8,931 13,211 8,770 4,991
Provision for loss on settlement of shareholder
class action lawsuit (695) 2,313 -- -- --
(Gain) loss on disposal of property and equipment (403) 97 205 (199) (57)
--------- --------- --------- --------- ---------
Operating income (loss) 9,451 3,976 (3,107) 3,545 5,114
Interest expense, net 5,184 5,860 4,607 4,228 1,600
Other income, net (219) (203) (35) -- --
--------- --------- --------- --------- ---------
Income (loss) before taxes 4,486 (1,681) (7,679) (683) 3,514
Income taxes 2,461 1,718 (1,003) 935 1,825
--------- --------- --------- --------- ---------
Net income (loss) before extraordinary item $ 2,025 $ (3,399) $ (6,676) $ (1,618) $ 1,689
========= ========= ========= ========= =========
Net income (loss) per common share, before
extraordinary item
basic $ .20 $ (0.33) $ (0.66) $ (0.20) $ 0.25
========= ========= ========= ========= =========
diluted $ .20 $ (0.33) $ (0.66) $ (0.20) $ 0.25
========= ========= ========= ========= =========
Weighted average common shares outstanding
basic 10,207 10,207 10,099 7,937 6,670
diluted 10,237 10,207 10,099 7,937 6,839
Other Data:
Earnings (loss) before interest, taxes,
depreciation and amortization (1) $ 16,865 $ 12,907 $ 10,104 $ 12,315 $ 10,105
========= ========= ========= ========= =========
July 31,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
(in thousands)
Balance Sheet Data:
Working capital $ 9,359 $ 11,022 $ 11,329 $ 15,402 $ 11,236
Total assets 121,912 126,524 130,422 122,769 85,497
Long-term debt, excluding current portion 32,198 40,928 46,690 36,287 32,388
Stockholders' equity 59,990 58,410 61,547 67,959 38,948
1) EBITDA is defined as income excluding interest, taxes, depreciation and
amortization of goodwill and other assets (as presented on the face of the
income statement). EBITDA is supplementally presented because management
believes that it is a widely accepted
13
financial indicator of a company's ability to service and/or incur
indebtedness, maintain current operating levels of fixed assets and acquire
additional operations and businesses. EBITDA should not be considered as a
substitute for statement of income or cash flow data from the Company's
financial statements, which have been prepared in accordance with generally
accepted accounting principles. Cash flows provided by operating activities
for the three years ended July 31, 2001 were $7,771, $8,162, and $9,017
respectively. Cash flows used in investing activities for the three years
ended July 31, 2001 were $2,736, $3,185, and $17,204 respectively. Cash
flows (used) provided by financing activities for the three years ended July
31, 2001 were ($2,423), ($2,280), $9,979 respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the information
contained in the Company's consolidated financial statements, including the
notes thereto, and the other financial information appearing elsewhere in this
report. Statements regarding future economic performance, management's plans and
objectives, and any statements concerning its assumptions related to the
foregoing contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations constitute forward-looking statements.
Certain factors, which may cause actual results to vary materially from these
forward-looking statements, accompany such statements or appear elsewhere in
this report, including without limitation, the factors disclosed under "Risk
Factors."
GENERAL
In May 1995, the Company acquired Dynamex Express, the ground courier
operations of Air Canada ("Dynamex Express"), which was led by Richard K.
McClelland, the Company's Chief Executive Officer, and which had a national
network of 20 locations across Canada. In December 1995, the Company acquired
the on-demand ground courier operations of Mayne Nickless Incorporated and Mayne
Nickless Canada Inc. which had operations in eight U.S. cities and two Canadian
cities. In August 1996 in conjunction with its initial public offering ("IPO"),
the Company acquired five same-day delivery businesses in three U.S. and two
Canadian cities. Subsequent to the IPO and through July 31, 1997, the Company
acquired 11 same-day delivery businesses in six U.S. and two Canadian cities.
Between August 1, 1997 and July 31, 1998, the Company acquired nine same-day
delivery businesses in eight U.S. cities and one Canadian city. In August 1998,
the Company acquired two same-day delivery businesses in two U.S. cities. As a
result of these various acquisitions, the historical operating results of the
Company for the periods presented are not necessarily comparable.
Sales consist primarily of charges to customers for individual delivery
services and weekly or monthly charges for recurring services, such as fleet
management. Sales are recognized when the service is performed. The yield
(revenue 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 and third party delivery charges,
if any. Substantially all of the drivers used by the Company own their own
vehicles, and approximately 80% of these owner-operators are independent
contractors as opposed to employees of the Company. Drivers and messengers are
generally compensated based on a percentage of the delivery charge.
Consequently, the 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 include costs incurred at the
branch level related to taking orders and dispatching drivers and messengers, as
well as administrative costs related to such functions. Also included in
selling, general and administrative expenses are regional and corporate level
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.
14
As the Company has no significant investment in transportation equipment,
depreciation and amortization expense primarily relates to depreciation of
office, communication and computer equipment and the amortization of intangible
assets acquired in the Company's various acquisitions, each of which has been
accounted for using the purchase method of accounting.
A significant portion of the Company's revenues is generated in Canada. For
the fiscal years ended July 31, 2001, 2000 and 1999, approximately 34%, 33%, and
33%, respectively, of the Company's revenues were generated in Canada. Before
deduction of corporate costs, the majority of which are incurred in the U.S.,
the cost structure of the Company's operations in the U.S. and in Canada is very
similar. Consequently, when expressed as a percentage of U.S. or Canadian sales,
as appropriate, the operating profit generated in each such country (before
deduction of corporate costs) is not materially different.
The conversion rate between the U.S. dollar and Canadian dollar decreased
during the fiscal year ending July 31, 2001 compared to July 31, 2000. The
conversion rate between the U.S. dollar and Canadian dollar increased during the
fiscal year ending July 31, 2000 as compared to July 31, 1999. As the Canadian
dollar is the functional currency for the Company's Canadian operations, these
changes in the exchange rate have effected the Company's reported revenues. The
effect of these changes on the Company's net income (loss) for the fiscal years
ended July 31, 2001, 2000 and 1999 has not been significant, although there can
be no assurance that fluctuations in such currency exchange rate will not, in
the future, have a material adverse effect on the Company's business, financial
condition or results of operations.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain items from
the Company's consolidated statement of operations, expressed as a percentage of
sales. The following table excludes a recovery of $0.7 million for the period
ended July 31, 2001 and expense of $2.3 million related to the settlement of the
shareholder class-action lawsuit for the period ended July 31, 2000 and $4.6
million of unusual and non-recurring selling, general and administrative
expenses for the year ended July 31, 1999 ($2.5 million for the Special
Committee process and non-recurring audit fees, $1.4 million for the write-off
of expenses associated with the failed Q International and other acquisitions
and $0.7 million for severance and other restructuring costs). The table also
excludes an impairment of intangibles of $4.0 million from depreciation and
amortization for the year ended July 31, 1999.
Years ending July 31,
--------------------------
2001 2000 1999
------ ------ ------
(a) (a) (a)
Sales 100.0% 100.0% 100.0%
Cost of Sales 69.3% 68.3% 68.1%
------ ------ ------
Gross profit 30.7% 31.7% 31.9%
Selling, general and administrative expenses 24.4% 25.6% 25.7%
Depreciation and amortization 3.0% 3.6% 3.9%
(Gain) loss on disposal of property (0.2)% 0.0% 0.1%
------ ------ ------
Operating income 3.5% 2.5% 2.2%
Interest expense 2.0% 2.3% 1.9%
------ ------ ------
Income before taxes 1.5% 0.2% 0.3%
====== ====== ======
(a) Excludes litigation settlement and non-recurring and unusual charges and
adjustments described in the paragraph above.
15
YEAR ENDED JULY 31, 2001 COMPARED TO YEAR ENDED JULY 31, 2000
Net income for the year ended July 31, 2001 was $2.0 million compared to a
net loss of $3.4 million for the year ended July 31, 2000. Net income for 2001
includes other income of approximately $0.7 million related to the settlement of
claims related to the shareholder class-action lawsuit and gains on sales of
surplus radio licenses of $0.4 million. The results for 2000 include a provision
for the settlement of the shareholder class-action lawsuit of $2.3 million. The
Company also provided a 100% valuation allowance of approximately $2.4 million
for federal net operating losses and the shareholder class action lawsuit
settlement incurred in the fiscal years ended July 31, 2000 The following
discussion and analysis excludes the aforementioned non-recurring and unusual
charges and adjustments in this paragraph.
Sales for the year ended July 31, 2001 were $249 million compared to $251
million in 2000, a decline of less than 1%. The decline is attributable to a
number of factors. First, the Company exited approximately $4 million of
marginally profitable business in several locations in Canada at the beginning
of fiscal year 2001. Second, the economic slowdown in the U.S. negatively
impacted U.S. sales in 2001, primarily in the third and fourth quarters of the
fiscal year. Third, the decline in the exchange rate between the U.S. and
Canadian dollar had the effect of reducing sales by slightly over $3 million had
the exchange rate been the same as the prior year. Sales growth for the fiscal
year 2002 will be negatively impacted by the loss of approximately $7 million of
sales to a single customer who had informed the Company in the third quarter of
fiscal year 2001 that the contract will be phased out over the next 18 months.
While the Company is disappointed in the loss of this contract, a large portion
of the services provided is not part of the Company's core competencies.
Cost of sales increased $1.2 million (0.7%) to $173 million in 2001
compared to $172 million in the prior year. As a percentage of sales, cost of
sales increased from 68.3% in 2000 to 69.3% in 2001. This increase in cost is
primarily attributable to a change in the overall business mix of the Company.
On-demand sales were approximately 58% of total sales in fiscal year 2000
compared to 55% in fiscal year 2001. Scheduled and distribution and other
specialized service revenues increased as a percentage of total sales while
on-demand revenues have declined both as percentage of sales and in absolute
dollars. Historically on-demand revenues have lower cost of sales and higher
selling, general and administrative costs compared to scheduled and distribution
and other specialized service revenues. As a result of this change in business
mix, cost of sales has increased as a percentage of sales while SG & A costs
have declined as a percentage of sales.
Selling, general and administrative ("SG & A") costs were $61 million for
the fiscal year ended July 31, 2001 compared to $64 million for the year ended
July 31, 2000. As a percentage of sales, SG & A expenses decreased from 25.6% in
2000 to 24.4% in 2001. The decline from 2000 to 2001 is attributable to a number
of factors. Sales commissions were lower ($0.5 million) in the current year due
to a decline in new sales that was due, in large part, to the slowing U.S.
economy in 2001. The Dallas and Chicago branch operations were restructured
along with cost saving initiatives at other locations resulted in reduced
administrative costs ($0.8 million) and improved profitability. In the prior
year, the Company incurred contract accounting labor costs ($0.9 million)
associated with the audit of fiscal year 1999 and the re-audit of fiscal years
1998 and 1997. Legal and other professional fees associated with the class
action lawsuit were substantially less ($0.7 million) than the prior year
because of the settlement announced early in fiscal year 2001. The consolidation
of certain administrative functions including billing and collections resulted
in reduced employee-related costs in fiscal year 2001. In the prior year, the
Company also invested more heavily in technology in building its infrastructure.
Depreciation and amortization was $7.4 million in 2001 compared to $8.9
million in the prior year. This decrease is attributable to the reduction in
amortization of covenants not-to-compete that are fully amortized after three
years and to a reduction in depreciation of property and equipment. Most of the
Company's acquisitions occurred in fiscal years 1996 through 1998, therefore,
all covenants were fully amortized prior to or during the current fiscal year.
In addition certain property and equipment acquired through acquisitions has
been fully depreciated and has not been replaced with new equipment because the
old equipment is still in service. Also the Company has or will replace driver
communication equipment with two-way mobile data units that do not require an
up-front capital expenditure by the Company.
Interest expense decreased $0.7 million or 12% in the fiscal year ended
July 31, 2001 compared to 2000. This decrease is primarily attributable to a
lower level of debt in 2001 and lower interest rates in the fourth quarter of
2001 compared to the prior year. In the prior year fourth quarter, the bank
group imposed the default rate of interest in accordance with the bank credit
agreement because the Company did not have audited financial statements on file
with the Securities and Exchange Commission for the prior three years. Also in
the prior year fourth quarter, the Company was assessed special fees by the bank
group of approximately $200,000.
16
YEAR ENDED JULY 31, 2000 COMPARED TO YEAR ENDED JULY 31, 1999
The net loss for the year ended July 31, 2000 was $3.4 million compared to a
net loss of $6.7 million for the year ended July 31, 1999. The results for 2000
include a provision for the tentative settlement of the shareholder class-action
lawsuit of $2.3 million. The results for 1999 were also negatively impacted by
non-recurring and unusual charges and adjustments. Selling, general and
administrative costs include non-recurring audit fees of approximately $2.1
million related to the 1999 audit and the re-audit and restatement of the
results for the years ended July 31, 1998 and 1997, professional fees in support
of the Special Committee review of $0.4 million, $1.4 million for the write-off
of costs associated with the failed Q International and other acquisitions, and
$0.7 million for severance and other restructuring costs. In addition, the
Company reduced the carrying value of goodwill and covenants not-to-compete for
its Dallas, Texas and Hartford, Connecticut operations in the fourth quarter of
1999 by $4 million. The Company also provided a 100% valuation allowance of
approximately $2.4 million and $0.9 million for federal net operating losses and
the shareholder class action lawsuit settlement incurred in the fiscal years
ended July 31, 2000 and 1999, respectively. The following discussion and
analysis excludes the aforementioned non-recurring and unusual charges and
adjustments in this paragraph.
Sales for the year ended July 31, 2000 increased 4.9% to $251 million from
$240 million from the prior year. Sales for 2000 were negatively impacted in
three locations. In Hartford, Connecticut the Company exited an unprofitable
line-of-business in fiscal year 1999. At the Dallas, Texas branch location, the
combination of additional competition and the problems encountered in the
conversion of the two existing legacy customer order processing systems to the
standard COPS system and combining two business units resulted in a significant
sales decline for this branch. In the Prairie region of Canada (Alberta and
Saskatchewan provinces), the Company lost a major contract when the customer
decided to do the work in-house. Excluding these operations, revenue growth
would have been 7.1%. Management believes sales growth for the fiscal year 2001
will be negatively impacted because the Company has elected to exit
approximately $4.0 million annually of marginally profitable business in several
locations in Canada.
Cost of sales increased approximately $8.5 million or 5.2% to $172 million
in 2000 from $163 million in 1999. Cost of sales, as a percentage of sales,
increased from 68.1% in the 1999 fiscal year to 68.3% in fiscal year 2000. The
increase in this percentage primarily results from the change in business mix
from 1999 to 2000. Historically, cost of sales for on-demand revenues are lower
than the costs associated with other types of business. On-demand sales were
approximately 62% of total sales in fiscal year 1999 compared to 58% in fiscal
year 2000. This decline can be attributed somewhat to the impact of e-mail on
same-day deliveries and to the Company's sales effort to increase other types of
business. Management believes that cost of sales, as a percentage of sales, will
remain or be slightly above its current level in fiscal year 2001.
Selling, general and administrative (SG&A) costs were $64 million for the
fiscal year ended July 31, 2000 compared to $62 million (excluding $4.6 million
in unusual charges and adjustments described above) for the year ended July 31,
1999. As a percentage of sales, SG&A costs were 25.6% in 2000 compared to 25.7%
in 1999. Included in the year 2000, are non-recurring costs of $0.6 million for
temporary accounting assistance required to complete the 1999 fiscal year audit
and the re-audit of the 1998 and 1997 fiscal years. In addition, the fiscal year
ended July 31, 2000 includes $0.4 million in legal costs associated with the
shareholder lawsuit. The Company recently announced a tentative settlement of
the lawsuit. Management expects legal costs associated with the shareholder
lawsuit in fiscal year 2001 to be substantially less than the amounts incurred
in fiscal year 2000. The Company has recently initiated a new sales program
aimed specifically at national accounts. In this regard, the Company will
increase the number of sales personnel to implement this program. In addition, a
number of initiatives are currently in process to streamline administrative
processes and to reduce general and administrative costs. Management expects
SG&A costs to remain at or be slightly below their current level as a percentage
of sales in the 2001 fiscal year.
Depreciation and amortization was $8.9 million in the fiscal year ended July
31, 2000 compared to $9.2 million in the fiscal year ended July 31, 1999, after
adjustment for the $4.0 million reduction in the carrying value of goodwill and
intangibles described above. As a percentage of sales, depreciation and
amortization was 3.6% in 2000 versus 3.9% in 1999. Management expects
depreciation and amortization to continue to decline in fiscal year 2001 both as
a percentage of sales and dollar amount due primarily to the reduction in
amortization of covenants-not-to compete. The covenants are amortized over a
three-year period and substantially all covenants will be fully amortized by the
end of the second quarter of fiscal year 2001.
Interest expense increased $1.3 million or 27% in the fiscal year ended July
31, 2000 compared to the same period in 1999. The higher interest expense in
2000 resulted from higher interest rates in reaction to the increases imposed by
the
17
Federal Reserve Board during the year, the additional financing costs associated
with amending and extending the bank credit agreement terms and the imposition
by the banks of the default rate of interest in the fourth quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal years ended July 31, 2001 and 2000, the Company's capital needs
arose primarily from its capital expenditures and working capital needs. There
were no acquisitions made in fiscal year 2001 or 2000. In the fiscal year ended
July 31, 1999, the Company's capital needs arose primarily from its acquisition
program.
During the fiscal year ended July 31, 1999, the Company completed two
acquisitions for aggregate consideration of approximately $1.8 million. In
addition, in connection with certain acquisitions, the Company agreed to pay the
sellers additional consideration if the acquired operations met certain
performance goals related to their earnings before interest, taxes, depreciation
and amortization, as adjusted for certain factors. In conjunction with the
acquisitions, the Company issued 119,850 shares of common stock and paid
approximately $12 million in cash during the fiscal year ended July 31, 1999 as
additional consideration.
Effective July 31, 2000, the Company amended its bank credit agreement.
Under the terms of the amended agreement, the facility was extended through
November 30, 2001 and split into an amortizing term loan of $32.2 million and a
revolving credit facility of $19.5 million. The revolving credit facility is
governed by an eligible accounts receivable borrowing base agreement, defined as
80% of accounts receivable less than 60 days past due. Required principal
payments on the amortizing term loan consist of $794 on November 15, 2000 and
quarterly payments of $875 commencing January 31, 2001 until July 31, 2001 and
then $1.375 million quarterly until maturity, at which time any amounts
outstanding under the facility are due. Interest on outstanding borrowings is
payable monthly at prime or LIBOR, plus an applicable margin. The applicable
margins for prime range from 0.0% to 1.0%, and for LIBOR from 3.0% to 4.0%, and
are based on the ratio of the Company's funded debt to cash flow, both as
defined in the agreement. In addition, the company is required to pay a
commitment fee of 0.375% for any unused amounts of the revolving credit
facility. At July 31, 2001, the weighted-average interest rate for all
outstanding borrowings was approximately 7.5%. See Note 6 of Notes to
Consolidated Financial Statements.
On November 9, 2001, the Company amended its bank credit agreement. Under
the terms of the Third Amended and Restated Credit Agreement, the Company
prepaid $5 million of the amortizing term loan from available cash and the
facility was extended through February 28, 2003. The new bank credit agreement
consists of an amortizing term loan of $22.4 million and a $19.5 million
revolving credit facility. The revolving credit facility will be governed by an
eligible accounts receivable borrowing base agreement, defined as 80% of
accounts receivable less than 60 days past due. Required principal payments on
the amortizing term loan consist of $1.375 million quarterly, until maturity, at
which time any amounts outstanding under the facility, are due. Interest on
outstanding borrowings is payable monthly at prime plus 0.50% or LIBOR plus
3.50%. In addition, the company is required to pay a commitment fee of 0.50% for
any unused amounts of the revolving credit facility. Amounts outstanding under
the credit agreement are secured by all of the Company's U.S. assets and 100% of
the stock of the Company's principal Canadian subsidiaries.
The credit agreement also contains restrictions on the payment of dividends,
incurring additional debt, capital expenditures and investments by the Company
as well as requiring the Company to maintain certain financial ratios.
Generally, the Company must obtain the lenders' consent to consummate any
acquisition. See Note 6 of Notes to Consolidated Financial Statements and "Risk
Factors -- Acquisition Strategy; Possible Need for Additional Financing."
The Company entered into interest rate protection arrangements on a portion
of the borrowings under the credit agreement. The interest rate on $15 million
of outstanding debt was fixed at 6.26%, plus the applicable margin, and a collar
of between 5.50% and 6.50%, plus the applicable margin, was placed on $9 million
of outstanding debt. These hedging arrangements matured on August 31, 2000.
Effective September 7, 2000 the Company entered into a new interest rate
protection arrangement on $24 million of the borrowings under the Credit
Agreement. The interest rate on $24 million has been fixed at 9.79%, plus the
applicable margin. This hedging arrangement matured on July 31, 2001. On
November 9, 2001, the Company entered into an interest rate protection
arrangement on $13 million of the borrowings under the Third Amended and
Restated Credit Agreement. The interest rate has been fixed at 6.14%.
During the fiscal years ended July 31, 2001, 2000 and 1999, the Company
spent approximately $2.2 million, $2.7 million and $3.4 million, respectively,
on capital expenditures, which expenditures primarily related to improvements in
infrastructure and technology to support the Company's operations. Management
expects the amount of capital
18
expenditures for these purposes in future years to be at or below expenditures
made in the year ended July 31, 2001. The Company does not have significant
capital expenditure requirements to replace or expand the number of vehicles
used in its operations because substantially all of its drivers are
owner-operators who provide their own vehicles. The Company's expansion of its
national marketing program consists primarily of increased hiring and salary
expenditures related to additional product specialists. These marketing
expenditures have not, nor does management expect that in the future they will
have, a significant impact on the Company's liquidity. See "Business -- Sales
and Marketing."
The Company's cash flow provided by operations for the fiscal years ended
July 31, 2001, 2000 and 1999 were approximately $7.8 million, $8.2 and $9.0
million, respectively. Consequently, increases in working capital and purchases
of property and equipment during such periods were financed entirely by
internally generated cash flow.
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. The Company completed its last
acquisition in August 1998. Currently there are no pending nor are there any
contemplated acquisitions. Should the Company pursue acquisitions in the future,
the Company may be required to incur additional debt. There can be no assurance
that the Company's primary lenders will consent to such acquisitions or that if
additional financing is necessary, it can be obtained on terms the Company deems
acceptable. As a result, the Company may be unable to implement successfully its
acquisition strategy.
DEFERRED TAXES
The Company has incurred taxable net operating losses in the United States
of $2,333,000, $4,410,000 and $2,622,000 for the years ended July 31, 2001, 2000
and 1999, respectively. In addition, the Company has generated unused foreign
tax credits related to its Canadian operations and other tax credits of
$520,000. The Company has established 100% valuation allowance in accordance
with the provisions of SFAS No. 109 for U.S. operating losses and foreign and
other tax credits not currently deductible. The Company has also established an
100% valuation allowance of $829,000 for the tax benefits of the class action
lawsuit settlement that the Company believes, is more likely than not, not to be
realized. The Company continually reviews the adequacy of the valuation
allowance and releases the allowance, when it is determined that it is more
likely than not that the benefits will be realized. The remaining deferred tax
assets represent deductions for financial statement purposes that will reduce
future taxable income.
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.
FINANCIAL CONDITION
The Company believes its financial condition remains strong and that it has
the financial resources necessary to meet its needs. Cash provided by operating
activities and the Company's credit facility should be sufficient to meet the
Company's operational needs.
ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations (SFAS 141), No. 142, Goodwill and
Other Intangible Assets (SFAS 142), No. 143, Accounting for Asset Retirement
Obligations (SFAS 143) and No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS 144).
SFAS 141 requires the use of the purchase method of accounting and
prohibits the use of the pooling-of-interests method of accounting for business
combinations initiated after June 30, 2001. SFAS 141 also requires that the
Company recognize acquired intangible assets apart from goodwill if the acquired
intangible assets meet certain criteria. SFAS 141 applies to all business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS 142, that the Company reclassify the carrying amounts of certain
intangible assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for
19
impairment at least annually. In addition, SFAS 142 requires that the Company
identify reporting units for the purposes of assessing potential future
impairments of goodwill, reassess the useful lives of other existing recognized
intangible assets, and cease amortization of intangible assets with an
indefinite useful life. An intangible asset with an indefinite useful life
should be tested for impairment in accordance with the guidance in SFAS 142.
SFAS 142 is required to be applied by the Company in the fiscal year beginning
December 15, 2001 to all goodwill and other intangible assets recognized at that
date, regardless of when those assets were initially recognized. Early
application of SFAS 142 is permitted for entities with fiscal years beginning
after March 15, 2001, provided that the first interim financial statements have
not been issued previously. The Company has elected to early adopt the
provisions of SFAS 142 beginning August 1, 2001, the beginning of the 2002
fiscal year. SFAS 142 requires the Company to complete a transitional goodwill
impairment test six months from the date of adoption. The Company is also
required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.
The Company's previous business combinations were accounted for using the
purchase method. As of July 31, 2001, the net carrying amount of goodwill is
$73.9 million. Goodwill amortization expense during the year ended July 31, 2001
was $3.6 million. The Company intends to complete the transitional goodwill
impairment test within six months from the date of adoption. Currently, the
Company is assessing but has not yet determined how the adoption of SFAS 141 and
SFAS 142 will impact its financial position and results of operations.
SFAS 143 requires that the fair value for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made, and that the carrying amount of the asset, including
capitalized asset retirement costs, be tested for impairment. SFAS 143 is
effective for fiscal years beginning after June 15, 2002. Management does not
believe this statement will have a material effect on the Company's financial
position or results of operations.
SFAS 144 prescribes financial accounting and reporting for the impairment
of long-lived asses and for long-lived assets to be disposed of, and specifies
when to test a long-lived asset for recoverability. SFAS 144 is effective for
fiscal years beginning after December 15, 2001. Management does not believe this
statement will have a material effect on the Company's financial position or
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.
While the Company believes its strategic plan is on target and the business
outlook remains strong, 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 courier
personnel as well as retain key management personnel.
- A change in the current tax status of courier drivers from independent
contractor drivers to employees or a change in the treatment of the
reimbursement of vehicle operating costs to employee drivers.
- 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
Company's authority to conduct certain of its operations.
- The ability of the Company to obtain adequate financing.
- The ability of the Company to pass on fuel cost increases to customers
to maintain profit margins and the quality of driver pay.
- The loss of quality drivers to e-commerce companies.
20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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
over the previous four quarters at the actual exchange rate versus a 10%
decrease in the exchange rate. Based on this model, a 10% decrease would result
in a decrease in revenue of $8.4 million and a decrease in net income of $.2
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 Company has entered into interest rate protection arrangements on a
portion of the borrowings under the Credit Facility. Effective September 7, 2000
the Company entered into a new interest rate protection arrangement on $24
million of the borrowings under the Credit Agreement. The interest rate on $24
million was fixed at 9.79%, plus the applicable margin. These hedging
arrangements matured on July 31, 2001. On November 9, 2001, the Company entered
into an interest rate protection arrangement on $13 million of borrowings under
the Credit Agreement. The interest rate on $13 million was fixed at 6.14%. The
Company does not hold or issue derivative financial instruments for speculative
or trading purposes.
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 interest rates versus current debt levels at
current interest rates with a 10% increase. Based on this model, a 10% increase
would result in an increase in interest expense of $.2 million. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Directors and Executive
Officers" in the company's definitive proxy statement to be filed in connection
with the 2002 Annual Meeting of Stockholders is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Directors and Executive
Officers" in the company's definitive proxy statement to be filed in connection
with the 2002 Annual Meeting of Stockholders is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Beneficial Ownership of Common
Stock" in the company's definitive proxy statement to be filed in connection
with the 2002 Annual Meeting of Stockholders is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended July 31, 2001, the Company paid $55,000 to a
company affiliated with Kenneth Bishop, a director of the Company, for rent on
certain properties owned by such company. Rent payments for these properties are
$10,000 per month. The lease of the facilities was terminated in the third
quarter of the fiscal year ended July 31, 2001.
22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
See Index to Consolidated Financial Statements on page F-1.
(a) (2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore have been
omitted.
(a) (3) Exhibits
Reference is made to the Exhibit Index on page E-1 for a list of all
exhibits filed as a part of this report.
(b) Reports on Form 8-K
None
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dynamex Inc.,
A Delaware corporation
By: /s/ Ray E. Schmitz
- --------------------------------------------
Ray E. Schmitz Vice-President, Controller
and Chief Accounting Officer
Dated: November 13, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below be the following persons of the registrant and in
the capacities indicated on October 29, 2001.
NAME TITLE
---- -----
/s/ RICHARD K. McCLELLAND Chairman of the Board, Chief Executive
- --------------------------------- Officer, President and Director
Richard K. McClelland (Principal Executive Officer)
/s/ Ray E. Schmitz Vice President, Controller and Chief
- --------------------------------- Accounting Officer
Ray E. Schmitz
/s/ WAYNE KERN Director
- ---------------------------------
Wayne Kern
/s/ STEPHEN P. SMILEY Director
- ---------------------------------
Stephen P. Smiley
/s/ BRIAN J. HUGHES Director
- ---------------------------------
Brian J. Hughes
/s/ KENNETH H. BISHOP Director
- ---------------------------------
Kenneth H. Bishop
24
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
DYNAMEX INC.
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets, July 31, 2001 and 2000 F-3
Consolidated Statements of Operations for the fiscal years ended
July 31, 2001, 2000 and 1999 F-4
Consolidated Statements of Stockholders' Equity for the fiscal years ended
July 31, 2001, 2000 and 1999 F-5
Consolidated Statements of Cash Flows for the fiscal years ended
July 31, 2001, 2000 and 1999 F-6
Notes to the Consolidated Financial Statements F-7
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Dynamex Inc.
We have audited the accompanying consolidated balance sheets of Dynamex Inc. as
of July 31, 2001 and 2000 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended July 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dynamex Inc. as of
July 31, 2001 and 2000 and the results of its operations and its cash flows for
each of the three years in the period ended July 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.
/s/ BDO Seidman, LLP
- ----------------------------------------
BDO SEIDMAN, LLP
Dallas, Texas
October 26, 2001, except for
Note 6 which is as of November 9, 2001
F-2
DYNAMEX INC.
CONSOLIDATED BALANCE SHEETS
JULY 31, 2001 AND 2000
(IN THOUSANDS)
2001 2000
--------- ---------
ASSETS
CURRENT
Cash and cash equivalents $ 8,066 $ 5,600
Accounts receivable (net of allowance for doubtful accounts of $772
and $940, respectively) 24,799 26,887
Prepaid and other current assets 3,328 2,890
Deferred income taxes 1,577 1,518
--------- ---------
Total current assets 37,770 36,895
PROPERTY AND EQUIPMENT - net 6,165 7,225
INTANGIBLES - net 74,527 78,230
DEFERRED INCOME TAXES 2,635 3,273
OTHER 815 901
--------- ---------
Total assets $ 121,912 $ 126,524
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,265 $ 5,517
Accrued liabilities 12,709 16,445
Income taxes payable 371 182
Current portion of long-term debt 11,066 3,729
--------- ---------
Total current liabilities 28,411 25,873
LONG-TERM DEBT 32,198 40,928
OTHER LIABILITIES 1,313 1,313
--------- ---------
Total liabilities 61,922 68,114
--------- ---------
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; 10,207
shares outstanding 102 102
Additional paid-in capital 72,759 72,759
Accumulated deficit (11,576) (13,601)
Accumulated other comprehensive loss:
Cumulative translation adjustment (1,295) (850)
--------- ---------
Total stockholders' equity 59,990 58,410
--------- ---------
Total liabilities and stockholders' equity $ 121,912 $ 126,524
--------- ---------
See accompanying notes to the consolidated financial statements.
F-3
DYNAMEX INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN THOUSANDS EXCEPT PER SHARE DATA)
2001 2000 1999
--------- --------- ---------
Sales $ 249,414 $ 251,475 $ 239,631
Cost of Sales 172,908 171,675 163,156
--------- --------- ---------
Gross Profit 76,506 79,800 76,475
Costs and Expenses:
Selling, general and administrative expenses 60,739 64,483 66,166
Depreciation and amortization (including 1999 intangible impairment
of $3,971) 7,414 8,931 13,211
(Recovery) provision for settlement of shareholder litigation (695) 2,313 --
(Gain) Loss on disposal of property and equipment (403) 97 205
--------- --------- ---------
Total 67,055 75,824 79,582
--------- --------- ---------
Operating Income (Loss) 9,451 3,976 (3,107)
Interest Expense 5,184 5,860 4,607
Other Income, net (219) (203) (35)
--------- --------- ---------
Income (Loss) before income taxes 4,486 (1,681) (7,679)
Income taxes 2,461 1,718 (1,003)
--------- --------- ---------
Net income (loss) $ 2,025 $ (3,399) $ (6,676)
--------- --------- ---------
Net income (loss) per common share - basic and diluted $ .20 $ (0.33) $ (0.66)
--------- --------- ---------
Weighted average shares outstanding
Basic 10,207 10,207 10,099
========= ========= =========
Diluted 10,237 10,207 10,099
========= ========= =========
See accompanying notes to the consolidated financial statements
F-4
DYNAMEX INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN THOUSANDS)
ACCUMULATED
COMMON STOCK RECEIVABLE ADDITIONAL OTHER
------------------- FROM PAID-IN ACCUMULATED COMPREHENSIVE
SHARES AMOUNT STOCKHOLDER CAPITAL (DEFICIT) INCOME (LOSS) TOTAL
-------- -------- ----------- ---------- ----------- ------------- --------
BALANCE AT JULY 31, 1998 10,069 $ 101 $ (204) $ 72,307 $ (3,526) $ (719) $ 67,959
Issuance of common stock in connection with
Acquisitions 120 1 -- 394 -- -- 395
Issuance of common stock on exercise of stock
Options 18 -- -- 58 -- -- 58
Payments by shareholder -- -- 102 -- -- -- 102
Net loss -- -- -- -- (6,676) -- (6,676)
Unrealized foreign currency translation
Adjustment -- -- -- -- -- (291) (291)
-------- -------- -------- -------- -------- -------- --------
Total comprehensive loss -- -- -- -- -- -- (6,967)
-------- -------- -------- -------- -------- -------- --------
BALANCE AT JULY 31, 1999 10,207 102 (102) 72,759 (10,202) (1,010) 61,547
-------- -------- -------- -------- -------- -------- --------
Payments by shareholder -- -- 102 -- -- -- 102
Net loss -- -- -- -- (3,399) -- (3,399)
Unrealized foreign currency translation
Adjustment -- -- -- -- -- 160 160
-------- -------- -------- -------- -------- -------- --------
Total comprehensive loss -- -- -- -- -- -- (3,239)
-------- -------- -------- -------- -------- -------- --------
BALANCE AT JULY 31, 2000 10,207 102 -- 72,759 (13,601) (850) 58,410
-------- -------- -------- -------- -------- -------- --------
Net income -- -- -- -- 2,025 -- 2,025
Unrealized foreign currency translation
Adjustment -- -- -- -- -- (445) (445)
-------- -------- -------- -------- -------- -------- --------
TOTAL COMPREHENSIVE INCOME -- -- -- -- -- -- 1,580
-------- -------- -------- -------- -------- -------- --------
BALANCE AT JULY 31, 2001 10,207 $ 102 $ -- $ 72,759 $(11,576) $ (1,295) $ 59,990
-------- -------- -------- -------- -------- -------- --------
See accompanying notes to the consolidated financial statement
F-5
DYNAMEX INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN THOUSANDS)
2001 2000 1999
-------- -------- --------
OPERATING ACTIVITIES
Net income (loss) $ 2,025 $ (3,399) $ (6,676)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 3,117 3,600 3,067
Amortization and write-down of goodwill and other intangibles 4,297 5,331 10,144
Provision for losses on accounts receivable 970 1,119 2,109
Deferred income taxes 579 256 (2,824)
(Gain) loss on disposal of property and equipment (403) 97 205
(Recovery) provision for settlement of shareholder litigation -- 2,313 --
Changes in assets and liabilities:
Accounts receivable 1,118 (2,061) (1,330)
Prepaid and other current assets (438) 582 2,329
Accounts payable and accrued liabilities (3,494) 324 1,993
-------- -------- --------
Net cash provided by operating activities 7,771 8,162 9,017
-------- -------- --------
INVESTING ACTIVITIES
Cash payments for acquisitions (1,011) (555) (14,055)
Purchase of property and equipment (2,199) (2,707) (3,432)
Net proceeds from disposal of property and equipment 474 77 283
-------- -------- --------
Net cash used in investing activities (2,736) (3,185) (17,204)
-------- -------- --------
FINANCING ACTIVITIES
Principal payments on long-term debt (3,809) (360) (627)
Net borrowings under line of credit 1,300 (2,100) 10,680
Proceeds from shareholder receivable -- 102 102
Net proceeds from sale of common stock -- -- 58
Other assets and deferred financing fees 86 78 (234)
-------- -------- --------
Net cash (used) provided by financing activities (2,423) (2,280) 9,979
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (146) (30) (220)
-------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,466 2,667 1,572
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,600 2,933 1,361
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 8,066 $ 5,600 $ 2,933
-------- -------- --------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 5,928 $ 4,215 $ 3,952
Cash paid for taxes $ 1,467 $ 1,650 $ 2,436
-------- -------- --------
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Assets acquired, liabilities assumed and consideration paid for
acquisitions were as follows:
Fair value of net assets acquired $ -- $ -- $ 14,450
Accrual of earnouts to former owners 819 894 880
Issuance of common stock -- -- (395)
Prior year earnouts converted to notes payable (1,240) -- --
Change in accrued earnouts 1,432 (339) (880)
-------- -------- --------
Cash payments for acquisitions $ 1,011 $ 555 $ 14,055
-------- -------- --------
See accompanying notes to the consolidated financial statements
F-6
DYNAMEX INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 management.
The operating subsidiaries of the Company, with country of incorporation,
are as follows:
- Dynamex Operations East Inc. (U.S.)
- Dynamex Operations West Inc. (U.S.)
- Dynamex Dedicated Fleet Services, Inc. (U.S.)
- Dynamex Canada Inc (Canada)
- Alpine Enterprises Ltd. (Canada)
- Roadrunner Transportation, Inc. (U.S.)
- New York Document Exchange Corp. (U.S.)
Principles of consolidation - 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 are stated in thousands of dollars unless otherwise indicated.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the
balance sheet dates and the reported amounts of revenues and expenses.
Actual results may differ from such estimates. The Company reviews all
significant estimates affecting the financial statements on a recurring
basis and records the effect of any necessary adjustments prior to their
issuance.
Property and equipment - Property and equipment are carried at cost less
accumulated depreciation and amortization. Depreciation is provided using
the straight-line method over the estimated useful lives of the related
assets for financial reporting purposes and principally on accelerated
methods for tax purposes. Leasehold improvements are depreciated using the
straight-line method over their estimated useful lives or the lease term,
whichever is shorter. Ordinary maintenance and repairs are charged to
operations. Expenditures that extend the physical or economic life of
property and equipment are capitalized. The estimated useful lives of
property and equipment are as follows:
Leasehold Improvements 5 years
Furniture 5 years
Vehicles 3-12 years
Other 4 years
The Company periodically reviews property and equipment whenever events or
changes in circumstances indicate that their carrying amounts may not be
recoverable or their depreciation or amortization periods should be
accelerated. When any such impairment exists, the related assets will be
written down to their fair value.
Business and credit concentrations - Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
temporary cash investments and trade receivables.
The Company places its temporary cash investments with high-credit, quality
financial institutions. At times such amounts may exceed F.D.I.C. limits.
The company limits the amount of credit exposure with any one financial
institution and believes no significant concentration of credit risk exists
with respect to cash investments.
F-7
The Company's customers are not concentrated in any specific geographic
region or industry. No single customer accounted for a significant amount of
the Company's sales and there were no significant accounts receivable from a
single customer. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers,
historical trends and other information.
Intangibles - Intangibles arise from acquisitions accounted for as purchased
business combinations and include goodwill, covenants not-to-compete and
other identifiable intangibles. Goodwill represents the excess purchase
price over all tangible and identifiable intangible net assets acquired.
Intangible assets are being amortized over periods ranging from 3 to 25
years. On a periodic basis or as business conditions change, the Company
compares the carrying value of intangible assets to estimated future
undiscounted net cash flows from the acquired businesses. Should the net
book value of the intangible asset exceed future net cash flows, the
carrying value of the intangible asset is adjusted to equal the value of
discounted future net revenues. In the fourth quarter 1999, the Company
adjusted the carrying value of intangible assets associated with its Dallas
and Hartford operations by $3,971 with a corresponding charge to
amortization expense. Total amortization expense was $4,297, $5,331 and
$10,144 for the years ended July 31, 2001, 2000 and 1999, respectively.
Revenue recognition - Revenue and direct expenses are recognized when
services are rendered to customers.
Cash and cash equivalents - The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Financial instruments - Carrying values of cash and cash equivalents,
accounts receivable, accounts payable and current portion of long-term debt
approximate fair value due to the short-term maturities of these assets and
liabilities. Long-term debt consists primarily of variable rate borrowings
under the bank credit agreement. The carrying value of these borrowings
approximates fair value.
The Company utilizes derivative financial instruments, including interest
rate swaps and caps, to reduce interest rate fluctuation risk. Amounts paid
or received by the Company under these agreements are recorded as an
adjustment to interest expense, as realized, or over the term of the related
instrument, as appropriate. Fair value of these instruments is determined
based on estimated settlement costs using current interest rates. The
Company does not hold or issue derivative financial instruments for
speculative or trading purposes. In the event that a derivative financial
instrument were terminated prior to its contractual maturity, it is the
Company's policy to recognize the resulting gain or loss over the shorter of
the remaining original contract life of the derivative financial instrument
or the remaining term of the underlying hedged debt agreement.
Financing Costs - During the fiscal years ended July 31, 2001, 2000 and
1999, the Company incurred $208, $445 and $325, respectively of costs
incurred in connection with debt financings and amendments (See Note 6).
These costs are being amortized over the terms of the respective financings
and are included in interest expense. The amounts of amortization and the
write-off of previous deferred financing costs were $490 in 2001, $650 in
2000 and $730 in 1999.
Income taxes - Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of assets
and liabilities for financial and income tax reporting. The net deferred tax
assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled.
Stock-based compensation - Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation," (SFAS 123) encourages but
does not require companies to record compensation cost for stock based
employee compensation plans at fair value. In accordance with SFAS 123, the
Company has elected to continue to account for stock based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to
acquire the stock. (See Note 11 of Notes to the Consolidated Financial
Statements)
Net income (loss) per share - Basic net income (loss) per common share is
based on the weighted average number of common shares outstanding during the
period. Diluted net income is based on the weighted average
F-8
common shares outstanding and all dilutive potential common shares
outstanding during the period. Diluted earnings per share reflect the
potential dilution that could occur if outstanding stock options and
warrants were exercised, that would then share in the earnings of the
Company. Outstanding options to purchase 557 shares of common stock at July
31, 2001 were not included in the computation of net income per share as
their effect would be antidilutive. Due to the Company's net losses in the
years ended July 31, 2000 and 1999, diluted loss per share is the same as
basic loss per share. Outstanding stock options and warrants issued by the
Company represent the only dilutive effect reflected in diluted weighted
average shares.
Foreign currency translation - Assets and liabilities in foreign currencies
are translated into U.S. dollars at the rates in effect at the balance sheet
date. Revenues and expenses are translated at average rates for the year.
The net exchange differences resulting from these translations are recorded
in stockholders' equity. Where amounts denominated in a foreign currency are
converted into dollars by remittance or repayment, the realized exchange
differences are included in operations.
New accounting pronouncements - In June 2001, the Financial Accounting
Standards Board finalized FASB Statements No. 141, Business Combinations
(SFAS 141), No. 142, Goodwill and Other Intangible Assets (SFAS 142), No.
143, Accounting for Asset Retirement Obligations (SFAS 143) and No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144).
SFAS 141 requires the use of the purchase method of accounting and prohibits
the use of the pooling-of-interests method of accounting for business
combinations initiated after June 30, 2001. SFAS 141 also requires that the
Company recognize acquired intangible assets apart from goodwill if the
acquired intangible assets meet certain criteria. SFAS 141 applies to all
business combinations completed on or after July 1, 2001. It also requires,
upon adoption of SFAS 142, that the Company reclassify the carrying amounts
of certain intangible assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for
the purposes of assessing potential future impairments of goodwill, reassess
the useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An
intangible asset with an indefinite useful life should be tested for
impairment in accordance with the guidance in SFAS 142. SFAS 142 is required
to be applied by the Company in the fiscal year beginning December 15, 2001
to all goodwill and other intangible assets recognized at that date,
regardless of when those assets were initially recognized. Early application
of SFAS 142 is permitted for entities with fiscal years beginning after
March 15, 2001, provided that the first interim financial statements have
not been issued previously. The Company has elected to early adopt the
provisions of SFAS 142 beginning August 1, 2001, the beginning of its 2002
fiscal year. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company
is also required to reassess the useful lives of other intangible assets
within the first interim quarter after adoption of SFAS 142.
The Company's previous business combinations were accounted for using the
purchase method. As of July 31, 2001, the net carrying amount of goodwill is
$73.9 million. Goodwill amortization expense during the year ended July 31,
2001 was $3.6 million. The Company intends to complete the transitional
goodwill impairment test within six months from the date of adoption.
Currently, the Company is assessing but has not yet determined how the
adoption of SFAS 141 and SFAS 142 will impact its financial position and
results of operations.
SFAS 143 requires that the fair value for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made, and that the carrying amount of the asset, including
capitalized asset retirement costs, be tested for impairment. SFAS 143 is
effective for fiscal years beginning after June 15, 2002. Management does
not believe this statement will have a material effect on the Company's
financial position or results of operations.
SFAS 144 prescribes financial accounting and reporting for the impairment of
long-lived assets and for long-lived assets to be disposed of, and specifies
when to test a long-lived asset for recoverability. SFAS 144 is effective
for fiscal years beginning after December 15, 2001. Management does not
believe this statement will have a material effect on the Company's
financial position or results of operations.
F-9
Comprehensive Income (Loss) - Comprehensive income (loss) consists of net
income (loss) and unrealized gains and losses on foreign currency
translation. Balance sheet accounts of foreign operations are translated
using the year-end exchange rate, and income statement accounts are
translated on a monthly basis using the average exchange rate for the
period. Unrealized gains and losses on foreign currency translation
adjustments are recorded in shareholders' equity as other comprehensive
income.
Reclassification - Certain reclassifications have been made to conform prior
year data with the current presentation.
2. ACQUISITIONS
During the fiscal year ended July 31, 1999, the Company acquired two
same-day delivery businesses in two U.S. cities for approximately $1.8
million in cash.
Each of these acquisitions has been accounted for using the purchase method
of accounting and the results of operations of these companies have been
included in these financial statements from the date of acquisition. The
aggregate acquisition cost was allocated to the net assets of the companies
acquired based upon their respective fair market values, with the excess
recorded as goodwill. The following unaudited pro forma combined results of
operations for the year ended July 31, 1999, are presented as if the
acquisitions had occurred as of August 1, 1996.
JULY 31, 1999
PRO FORMA
---------
Sales $239,835
Net loss $ (6,669)
Per share - assuming dilution:
Net loss $ (0.66)
The unaudited pro forma results of operations are not necessarily indicative
of what the actual results of operations of the Company would have been had
the acquisition occurred at the beginning of the periods presented, nor do
they purport to be indicative of the future results of operations of the
Company.
The Company has recorded the fair value of net assets acquired as shown
below:
JULY 31, 1999
-------------
Accounts receivable $ 88
Property and equipment 23
Other assets 2
Intangibles 14,427
Liabilities assumed (90)
-------
Net assets acquired $14,450
-------
Consideration for these transactions consisted of the following:
JULY 31, 1999
-------------
Cash paid, net of cash acquired $14,055
Issuance of common stock 395
-------
Total consideration $14,450
-------
F-10
3. INTANGIBLES
Intangibles from the Company's various acquisitions consist of the
following:
JULY 31,
2001 2000
-------- --------
Goodwill $ 89,188 $ 88,647
Trademarks and covenants not-to-compete 10,349 10,251
-------- --------
99,537 98,898
Less accumulated amortization (25,010) (20,668)
-------- --------
Intangibles -- net $ 74,527 $ 78,230
-------- --------
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
JULY 31,
2001 2000
-------- --------
Equipment $ 16,512 $ 16,558
Furniture 1,482 1,780
Vehicles 1,243 1,342
Leasehold improvements 2,235 3,042
Other 24 --
-------- --------
21,496 22,722
Less accumulated depreciation (15,331) (15,497)
-------- --------
Property and equipment -- net $ 6,165 $ 7,225
-------- --------
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
JULY 31,
2001 2000
-------- --------
Salaries and wages $ 3,290 $ 3,302
Independent contractors 3,320 3,622
Workmen's compensation 1,320 1,279
Vacation 1,583 1,680
Interest 344 1,626
Other 2,852 4,936
-------- --------
Total accrued liabilities $ 12,709 $ 16,445
-------- --------
6. LONG-TERM DEBT
Long-term debt consists of the following:
JULY 31,
2001 2000
-------- --------
Bank credit agreement (a) $ 41,981 $ 44,100
Seller financing notes and other (b) 1,053 137
Capital lease obligations (Note 7) 230 420
-------- --------
43,264 44,657
Less current portion (11,066) (3,729)
-------- --------
Long-term debt $ 32,198 $ 40,928
-------- --------
F-11
a) Bank Credit Agreement
Effective July 31, 2000, the Company amended its bank credit agreement.
Under the terms of the amended agreement, the facility was extended through
November 30, 2001 and split into an amortizing term loan of $32.2 million
and a revolving credit facility of $19.5 million. The revolving credit
facility will be governed by an eligible accounts receivable borrowing base
agreement, defined as 80% of accounts receivable less than 60 days past due.
Required principal payments on the amortizing term loan consist of $794 on
November 15, 2000 and quarterly payments of $875 commencing January 31, 2001
until July 31, 2001 and then $1.375 million quarterly until maturity, at
which time any amounts outstanding under the facility are due. Interest on
outstanding borrowings is payable monthly at prime or LIBOR, plus an
applicable margin. The applicable margins for prime range from 0.0% to 1.0%,
and for LIBOR from 3.0% to 4.0%, and are based on the ratio of the Company's
funded debt to cash flow, both as defined in the agreement. In addition, the
company is required to pay a commitment fee of 0.375% for any unused amounts
of the revolving credit facility. At July 31, 2001, the weighted-average
interest rate for all outstanding borrowings was approximately 7.50%.
Borrowings under the agreement are secured by all of the Company's assets in
the United States and by 65% of the stock of the Company's Canadian
subsidiaries. The agreement contains restrictions on the payment of
dividends, incurring additional debt, capital expenditures and investments
by the Company. In addition, the Company is required to maintain certain
financial ratios related to minimum amounts of stockholders' equity, fixed
charges to cash flow and funded debt to cash flow, and to reduce the
amortizing term loan principal at the end of each quarter beginning July 31,
2001, by the amount of excess cash flow, all as defined in the agreement.
The agreement also requires the Company to obtain the consent of the lender
for additional acquisitions in certain instances.
On November 9, 2001, the Company amended its bank credit agreement. Under
the terms of the Third Amended and Restated Credit Agreement, the Company
prepaid $5 million of the amortizing term loan from available cash and the
facility was extended through February 28, 2003. The new credit agreement
consists of an amortizing term loan of $22.4 million and a $19.5 million
revolving credit facility. The revolving credit facility will be governed by
an eligible accounts receivable borrowing base agreement, defined as 80% of
accounts receivable less than 60 days past due. Required principal payments
on the amortizing term loan consist of $1.375 million quarterly, until
maturity, at which time any amounts outstanding under the credit agreement,
are due. Interest on outstanding borrowings is payable monthly at prime plus
0.50% or LIBOR plus 3.50%. In addition, the company is required to pay a
commitment fee of 0.50% for any unused amounts of the revolving credit
facility. Amounts outstanding under the Credit Facility are secured by all
of the Company's U.S. assets and 100% of the stock of the Company's
principal Canadian subsidiaries.
The Company entered into interest rate protection agreements on a portion of
the borrowings under the bank credit agreement. Through an interest rate
swap, the interest rate on $15 million of outstanding debt was fixed at
6.26%, plus the applicable margin, and a collar of between 5.50% and 6.50%,
plus the applicable margin, was placed on $9 million of outstanding debt.
Both of these hedging agreements had three-year terms that expired on August
31, 2000. Effective September 7, 2000, the Company entered into a new
interest rate protection agreement that fixed the interest rate on $24
million of outstanding debt at 9.79%, plus the applicable margin. This
agreement expired on July 31, 2001. On November 9, 2001, the Company entered
into an interest rate protection arrangement on $13 million of the
borrowings under the Third Amended and Restated Credit Agreement. The
interest rate has been fixed at 6.14%.
The counter party to these agreements is a major financial institution with
which the Company also has other financial relationships. The Company
believes that the risk of loss due to nonperformance by the counter party to
these agreements is remote and, in any event, the amount of such loss would
be immaterial to the Company's results of operations.
At July 31, 2001, the Company had unpaid settlements of approximately $26
related to the interest rate swap. The fair value of this agreement at July
31, 2001 and 2000 was a liability of approximately $64 and a receivable of
$32, respectively.
b) Seller Financing Notes and Other
In connection with various acquisitions (see Note 2) the Company issued
various notes to the sellers of those
F-12
businesses. These notes bear interest 10% per annum.
Scheduled principal payments in each of the next five years and thereafter
on long-term debt and capital lease obligations are as follows:
2002 $11,066
2003 32,198
-------
$43,264
-------
7. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company leases certain equipment and properties under non-cancelable lease
agreements, which expire at various dates.
At July 31, 2001, minimum annual lease payments for such leases are as follows:
CAPITAL OPERATING
LEASES LEASES
------- ------
2002 $ 244 $ 4,862
2003 4 4,160
2004 -- 2,771
2005 -- 1,438
2006 -- 581
Thereafter -- 709
------- ------
248 14,521
Less amount representing interest (18) --
------- -------
Net present value of future minimum lease payments $ 230 $14,521
------- -------
Rent expense related to operating leases amounted to approximately $7,069,
$6,131, and $5,756 for the years ended July 31, 2001, 2000 and 1999,
respectively.
CONTINGENCIES
In November and December 1998, two class action lawsuits were filed in the
United States District Court for the Northern District of Texas, naming the
Company, Richard K. McClelland, the Company's Chief Executive Officer, and
Robert P. Capps, the Company's former Chief Financial Officer, as defendants.
The lawsuits arose from the Company's November 2, 1998 announcement that the
Company was (i) revising its results of operations for the year ended July 31,
1998 from that which had been previously announced on September 16, 1998 and
(ii) restating its results of operations for the third quarter of fiscal 1998
from that which had been previously reported. On February 5, 1999, the Court
entered an Order consolidating the actions and approved the selection of three
law firms as co-lead counsel. A consolidated and amended complaint was filed on
March 22, 1999. In addition to the defendants named in the original complaints,
the amended complaint also named as defendants the underwriters of the Company's
May 1998 secondary offering of common stock, Schroder & Co., Inc., William Blair
& Company, and Hoak Breedlove Wesneski & Co. (the "Underwriter Defendants"). On
May 6, 1999, defendants filed a motion to dismiss the consolidated and amended
complaint in its entirety.
On June 14, 1999, the Company issued a press release announcing that the Audit
Committee of the Board of Directors had formed a Special Committee of outside
directors to review potentially unsupportable accounting entries for the third
and fourth quarters of fiscal year 1998. On September 17, 1999, the Company
issued a press release announcing that the Special Committee had completed its
review of the Company's financial reporting and that the Company would restate
its previously reported financial results for the fiscal years 1997 and 1998 and
the first three quarters of fiscal year 1999.
On October 14, 1999, pursuant to a stipulation of the parties, plaintiffs filed
a second amended class action complaint that added allegations relating to the
information disclosed in the Company's June 14 and September 17, 1999 press
releases. In addition to the defendants named in the amended complaint, the
Second Amended Class Action Complaint named Deloitte & Touche and Deloitte &
Touche LLP (the Court subsequently dismissed Deloitte
F-13
& Touche LLP without prejudice pursuant to the stipulation of the parties). The
Second Amended Class Action Complaint alleges that the defendants issued a
series of materially false and misleading statements and omitted material facts
concerning the Company's financial condition and business operations. The
lawsuit alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act
of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The
plaintiffs sought unspecified damages on behalf of all other purchasers of the
Company's common stock during the period of September 18, 1997 through and
including September 17, 1999 (the "Class").
On September 20, 2000, the Company, Richard McClelland, Robert Capps and the
Underwriter Defendants signed a memorandum of understanding setting forth the
terms of a proposed settlement of this action. Deloitte & Touche is not a party
to the memorandum of understanding. On December 13, 2000, the Settling Parties
signed a Stipulation of Agreement of Settlement. The settlement provides that
the Company's primary directors and officers liability insurer, American Home
Insurance Company, will pay $2 million towards the settlement. In addition, the
Company will pay $1 million and contribute one million shares of common stock,
or the cash equivalent towards the proposed settlement. The Company also agreed
to pay to the class 75% of any recoveries, after legal expenses and costs, from
the Company's excess insurer, Reliance Insurance Company, and former auditors,
Deloitte & Touche LLP and Deloitte & Touche. A separate agreement has also been
reached to settle all claims by the Company and by plaintiffs in the class
action against Deloitte & Touche LLP and Deloitte & Touche for the total amount
of $2.25 million.
On April 10, 2000, Reliance Insurance Company filed a notice of action in the
Superior Court of Justice in Ontario, Canada, seeking a declaratory judgment
that defendants in the shareholder class action are not entitled to
reimbursement under the Reliance insurance policy for losses incurred in
connection with that action. The Reliance policy provides $3 million in excess
coverage to supplement the $2 million in coverage provided to the Company
pursuant to the underlying policy issued by American Home Assurance Company.
Dynamex, Richard McClelland, and Robert Capps have filed a complaint in the
United States District court for the Northern District of Texas that names
Reliance Insurance Company as a defendant. The complaint alleges claims for
breach of contract and breach of the duty of good faith and fair dealing arising
from the failure of Reliance to contribute to the settlement of the
above-referenced shareholder litigation. The plaintiffs seek unspecified
damages.
Reliance Insurance Company and Dynamex, Richard McClelland and Robert Capps have
signed an agreement to settle their respective claims. Pursuant to the
agreement, in the fourth quarter 2001 Reliance paid $1.9 million to the Company
for the benefit of the Company and the Class.
These settlements were finalized and approved by the Court on June 29, 2001. As
a result of the settlements, the Company recovered $695,000 from Reliance
Insurance Company, Deloitte & Touche LLP and Deloitte & Touche including legal
fees and costs incurred in connection with the Company's claims against these
entities. The amount recovered is reflected in the Consolidated Statement of
Operations as a reduction to the provision for settlement of shareholder
litigation. As explained above, the additional amounts recovered by the Company
from Reliance Insurance Company, Deloitte & Touche LLP and Deloitte & Touche
were contributed to the settlement of the shareholder class action.
The Special Committee of the Board of Directors has kept the Securities and
Exchange Commission ("SEC") apprised of its inquiry and the restatement process.
The Company has received informal requests for information from the Staff of the
Commission for documents and testimony concerning the circumstances of the
restatement of the Company's prior period financial statements. The Company has
cooperated with the Commission. In early October 2001, the Company received
verbal notification from the SEC that the inquiry into the circumstances of the
restatements of the Company's financial statements has been closed with no
formal action being recommended.
The Company is also 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. INCOME TAXES
The United States and Canadian components of income (loss) before income
taxes are as follows:
F-14
YEARS ENDED JULY 31,
2001 2000 1999
--------- --------- ------
Canada $ 4,098 $ 3,299 $ 3,149
United States 388 (4,980) (10,828)
-------- -------- --------
$ 4,486 $ (1,681) $ (7,679)
-------- -------- --------
The provision for income tax consisted of the following:
Current tax expense (benefit):
Canada $ 1,991 $ 1,546 $ 1,489
U.S (109) -- --
-------- -------- --------
Total current tax expense 1,882 1,546 1,489
-------- -------- --------
Deferred tax expense (benefit):
Canada 47 87 107
U.S 532 85 (2,599)
-------- -------- --------
Total deferred tax expense (benefit) 579 172 (2,492)
-------- -------- --------
Total income tax provision (benefit) $ 2,461 $ 1,718 $ (1,003)
-------- -------- --------
Differences between financial accounting principles and tax laws cause
differences between the bases of certain assets and liabilities for
financial reporting purposes and tax purposes. The tax effects of these
differences, to the extent they are temporary, are recorded as deferred tax
assets and liabilities under SFAS 109 and consisted of the following
components (in thousands):
JULY 31,
2001 2000
-------- --------
Deferred tax asset:
Allowance for doubtful accounts $ 247 $ 304
Fixed assets 171 130
Amortization of intangibles 2,049 2,628
Accrued vacation 347 359
Accrued Liabilities & other 983 855
Provision for settlement of shareholder 704 829
litigation
Charitable contribution carryover 35 25
Foreign tax credit carryforward 393 393
WOTC tax credit carryforward 127 127
State net operating loss carryforward 1,112 1,145
Federal net operating loss carryforward 4,726 3,764
-------- --------
Total deferred tax benefits 10,894 10,559
Less valuation allowance (5,980) (5,113)
-------- --------
Net deferred tax asset 4,914 5,446
Deferred tax liabilities:
Fixed assets (702) (655)
-------- --------
Total deferred tax liabilities (702) (655)
-------- --------
Net deferred tax asset $ 4,212 $ 4,791
-------- --------
Financial Statements:
Current deferred tax assets $ 1,577 $ 1,518
-------- --------
Non-current deferred tax assets $ 2,635 $ 3,273
-------- --------
The Company has established valuation allowances in accordance with the
provisions of SFAS No. 109. The valuation allowances primarily relate to
U.S. operating losses not currently deductible and foreign tax credits. The
Company continually reviews the adequacy of the valuation allowances and
releases the allowances when it is determined that it is more likely than
not that the benefits will be realized.
The Company has a federal net operating loss carryforward of $13,182 as of
July 31, 2001. This carryforward is available to offset future United States
federal taxable income. The net operating losses expire as follows: $333 in
the year 2009, $3,197 in the year 2013, $2,622 in the year 2019, $4,347 in
the year 2020 and $2,683 in the
F-15
year 2021.
The Company has not provided for U.S. Federal and foreign withholding taxes
on the foreign subsidiaries' undistributed earnings as of July 31, 2001.
Such earnings are intended to be reinvested indefinitely.
The differences in income tax provided and the amounts determined by
applying the statutory rate to income before income taxes result from the
following:
YEARS ENDED JULY 31,
2001 2000 1999
------- ------- -------
Income taxes at statutory rate $ 1,525 $ (572) $(2,611)
Effect on taxes resulting from:
State taxes 314 (118) (541)
Foreign 410 330 315
Increase in valuation allowance 867 2,409 930
Other (including permanent differences) (655) (331) 904
------- ------- -------
$ 2,461 $ 1,718 $(1,003)
------- ------- -------
9. RELATED PARTY TRANSACTIONS
The Company leased facility from a member of the Company's board of
directors. During the years ended July 31, 2001, 2000 and 1999, the Company
paid approximately $55, $120 and $120, respectively, in rent to this party.
Rent payments for these property were $10 per month. This lease was
terminated in the third quarter of the fiscal year ended July 31, 2001.
10. RESERVE FOR DOUBTFUL ACCOUNTS
The changes in the reserve for doubtful accounts are summarized below:
Additions
Balance at Charged to Balance
Beginning of Costs and at End of
Year Expenses Deductions Year
---- -------- ---------- ----
Fiscal year ended:
July 31, 2001 $ 940 $ 970 $1,138 $ 772
July 31, 2000 $1,320 $1,119 $1,499 $ 940
July 31, 1999 $ 967 $2,109 $1,756 $1,320
11. STOCK OPTION PLAN
Effective June 5, 1996, the Company's stockholders approved the Amended and
Restated 1996 Stock Option Plan (the "Option Plan"). The Option Plan has
been subsequently amended to increase the maximum aggregate amount of common
stock with respect to which options may be granted to 1,000,000 shares. The
Option Plan provides for the granting of both incentive stock options and
non-qualified stock options. In addition, the Option Plan provides for the
granting of restricted stock, which may include, without limitation,
restrictions on the right to vote such shares and restrictions on the right
to receive dividends on such shares. The exercise price of all
F-16
options granted under the Option Plan may not be less than the fair market
value of the underlying common stock on the date of grant option. Generally,
the options vest and become exercisable ratably over a five-year period,
commencing one year after the grant date.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options and, accordingly, no compensation cost has
been recognized for stock options in the financial statements. Had the
Company determined compensation cost based on the fair value at the grant
date for its stock options consistent with the method set forth under SFAS
No. 123, the Company's net earnings would have been reduced to the pro forma
amounts indicated below:
YEARS ENDED JULY 31,
--------------------------
2001 2000 1999
------- ------- -------
Net income (loss) (in thousands):
As reported $ 2,025 $(3,399) $(6,676)
Pro forma $ 1,593 $(3,764) $(6,868)
Earnings (loss) per share -- assuming dilution:
As reported $ 0.20 $ (0.33) $ (0.66)
Pro forma $ 0.16 $ (0.37) $ (0.68)
The fair value of each grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2001, 2000 and 1999 respectively: dividend
yield of 0% for all years; expected volatility of 77%, 72% and 66%;
risk-free interest rate of 5.50%, 4.31%, and 5.53%; and expected lives of an
average of 10 years for all years. The weighted average fair value of
options granted during 2001,2000 and 1999 was $1.40, $1.32 and $3.91,
respectively.
Stock option activity during the periods indicated is as follows:
YEARS ENDED JULY 31,
--------------------------------
2001 2000 1999
-------- -------- --------
Number of shares under option:
Outstanding at beginning of year 814,330 734,220 501,477
Granted 18,000 185,000 374,000
Exercised -- -- (17,477)
Canceled (154,550) (184,890) (123,780)
-------- -------- --------
Outstanding at end of year 677,780 814,330 734,220
-------- -------- --------
Exercisable at end of year 403,318 288,572 177,044
-------- -------- --------
Weighted average exercise price:
Granted $ 1.683 $ 1.687 $ 4.828
Exercised -- -- 3.235
Canceled 4.881 5.543 9.706
Outstanding at end of year 5.457 5.195 6.129
Exercisable at end of year 6.236 6.657 7.124
-------- -------- --------
The following table summarizes information about stock options outstanding
at July 31, 2001:
WEIGHTED AVERAGE
NUMBER OF REMAINING LIFE WEIGHTED AVERAGE
SHARES (IN YEARS) EXERCISE PRICE
---------------- ---------------- ----------------
109,000 9.0 $ 1.438
12,000 9.3 $ 1.625
6,000 9.5 $ 1.800
160,750 7.7 $ 2.250
6,000 8.0 $ 2.875
79,000 3.5 $ 4.250
6,000 6.0 $ 7.250
178,500 5.0 $ 8.000
70,530 6.3 $ 10.375
50,000 6.8 $ 11.875
----------- --- --------
677,780 6.52 $ 5.457
F-17
12. EMPLOYEES' DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution plan (the Plan) for the benefit
of substantially all of its employees who meet certain eligibility
requirements, primarily age and length of service. The Plan allows employees
to invest up to 15% of their current gross cash compensation invested on a
pre-tax basis at their option. The Company may make discretionary
contributions to the Plan as determined by the Company's Board of Directors.
The Company did not make any discretionary contributions to the Plan during
the years ended July 31, 2001, 2000, and 1999.
13. SEGMENT INFORMATION
Dynamex Inc. operates in one reportable business segment, same-day delivery
services. The Company evaluates the performance of its geographic regions,
United States and Canada, based upon operating income (loss) before unusual
and non-recurring items. The following table summarizes selected financial
information for the United States and Canada for the years ended July 31,
2001, 2000 and 1999:
United
States Canada Total
------ ------ -----
2001
Sales $ 165,144 $ 84,270 $249,414
Operating income 4,299 5,222 9,451
Identifiable assets 96,678 25,234 121,912
Capital expenditures 1,930 269 2,199
Depreciation and amortization 2,528 589 3,117
Amortization of intangibles 3,909 388 4,297
2000
Sales $ 168,437 $ 83,038 $251,475
Operating income (loss) (977) 4,953 3,976
Identifiable assets 109,256 17,268 126,524
Capital expenditures 2,471 236 2,707
Depreciation and amortization 2,835 765 3,600
Amortization of intangibles 4,822 509 5,331
1999
Sales $161,515 $ 78,116 $239,631
Operating income (loss) (7,254) 4,147 (3,107)
Identifiable assets 108,724 21,698 130,422
Capital expenditures 2,909 523 3,432
Depreciation and amortization 2,186 881 3,067
Amortization of intangibles 9,635 509 10,144
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14. QUARTERLY DATA (UNAUDITED)
Summarized quarterly financial data for 2001 and 2000 is as follows (in
thousands except per share amounts and business days):
Quarter Ended
-------------
October 31, January 31, April 30, July 31,
----------- ----------- --------- --------
2001--
Sales $ 64,824 $ 62,531 $ 59,938 $ 62,121
Gross profit 20,004 19,307 18,383 18,811
Net income (loss) $ 498 $ 59 $ (17) $ 1,485
Net income (loss) per share
basic $ 0.05 $ 0.01 $ (0.00) $ 0.15
assuming dilution $ 0.05 $ 0.01 $ (0.00) $ 0.14
-------- -------- -------- --------
Average shares outstanding 10,207 10,207 10,207 10,207
-------- -------- -------- --------
Number of business days 63.4 62.2 63.3 64.0
-------- -------- -------- --------
Quarter Ended
-------------
October 31, January 31, April 30, July 31,
----------- ----------- --------- --------
2000--
Sales $ 62,723 $ 61,778 $ 63,022 $ 63,952
Gross profit 20,426 19,859 19,939 19,576
Net income (loss) $ 405 $ (352) $ (506) $ (2,946)
Net income (loss) per share
basic $ 0.04 $ (0.03) $ (0.05) $ (0.29)
assuming dilution $ 0.04 $ (0.03) $ (0.05) $ (0.29)
-------- -------- -------- --------
Average shares outstanding 10,207 10,207 10,207 10,207
-------- -------- -------- --------
Number of business days 64.3 61.8 62.0 63.9
-------- -------- -------- --------
Net income for the quarter ended July 31, 2001 includes other income of
approximately $700,000 related to the settlement of claims related to the
shareholder class-action lawsuit and gains on sales of surplus radio
licenses of $375,000. The quarter ending July 31, 2000 includes a provision
for the settlement of the shareholder class-action lawsuit of $2.3 million.
F-19
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------
3.1(2) -- Restated Certificate of Incorporation of Dynamex Inc.
3.2(3) -- Bylaws, as amended and restated, of Dynamex Inc.
4.1(2) -- Rights Agreement between Dynamex Inc. and Harris Trust and
Savings Bank, dated July 5, 1996.
4.2(1) -- Amendment No. 1 to Rights Agreement between Dynamex Inc. and
ComputerShare Investor Services, LLC (formerly Harris
Trust and Savings Bank), dated January 11, 2001.
4.3(1) -- Amendment No. 2 to Rights Agreement between Dynamex Inc. and
ComputerShare Investor Services, LLC (formerly Harris
Trust and Savings Bank), dated October 4, 2001.
10.1(4) -- Amendment No. 2 to Employment Agreement of Richard K. McClelland.
10.2(3) -- Dynamex Inc. Amended and Restated 1996 Stock Option Plan.
10.3(2) -- Marketing and Transportation Services Agreement, between
Purolator Courier Ltd. and Parcelway Courier Systems
Canada Ltd., dated November 20, 1995.
10.4(2) -- Form of Indemnity Agreements with Executive Officers and
Directors.
10.5(3) -- Second Amended and Restated Credit Agreement by and among the
Company and NationsBank of Texas, N.A., as agent for the
lenders named therein, dated August 26, 1997.
10.6(5) -- First Amendment to Second Amended and Restated Credit Agreement
by and among the Company and NationsBank of Texas, N.A.,
as agent for the lenders named therein, dated May 5, 1998.
10.7(6) -- Second Amendment to Second Amended and Restated Credit Agreement
by and among the Company and Nationsbank of Texas, N.A.,
as agent for the lenders therein, dated January 31, 1999.
10.8(6) -- Third Amendment to Second Amended and Restated Credit Agreement
by and among the Company and Nationsbank of Texas, N.A.,
as agent for the lenders therein, dated June 28, 2000.
10.8(7) -- Fourth Amendment to Second Amended and Restated Credit Agreement
by and among the Company and Nationsbank of Texas, N.A.,
as agent for the lenders therein, dated October 30, 2000.
10.8(1) -- Third Amended and Restated Credit Agreement by and among the
Company and Bank of America, N.A., as administrative agent
for the lenders therein, dated November 9, 2001.
11.1(1) -- Statement regarding computation of earnings (loss) per share.
21.1(1) -- Subsidiaries of the Registrant.
23.1(1) -- Consent of BDO Seidman, LLP.
- ----------
(1) Filed herewith.
(2) Filed as an exhibit to the registrant's Registration Statement on Form S-1
(File No. 333-05293), and incorporated herein by reference.
(3) Filed as an exhibit to the registrant's annual report on Form 10-K for the
fiscal year ended July 31, 1997, and incorporated herein by reference.
(4) Filed as an exhibit to Registration Statement on Form S-1 (File No.
333-49603), and incorporated herein by reference.
(5) Filed as an exhibit to the registrant's annual report on Form 10-K for the
fiscal year ended July 31, 1998, and incorporated herein by reference.
(6) Filed as an exhibit to the registrant's annual report on Form 10-K for the
fiscal year ended July 31, 1999, and incorporated herein by reference.
(7) Filed as an exhibit to the registrant's annual report on Form 10-K for the
fiscal year ended July 31, 2000, and incorporated herein by reference.
E-1