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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2003
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 75234
Dallas, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code:
(214) 561-7500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares of the registrant's common stock, $.01 par value,
outstanding as of May 30, 2003 was 11,208,017 shares.
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DYNAMEX INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets 2
April 30, 2003 (Unaudited) and July 31, 2002
Condensed Statements of Consolidated Operations (Unaudited) 3
Three and Nine months ended April 30, 2003 and 2002
Condensed Statements of Consolidated Cash Flows (Unaudited) 4
Nine months ended April 30, 2003 and 2002
Notes to Condensed Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition 9
and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 17
Item 4. Controls and Procedures 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 19
Item 6. Exhibits and Reports on Form 8-K. 19
Signature 20
Certifications 21-22
Exhibit Index E-1
1
DYNAMEX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except per share data)
April 30, July 31,
2003 2002
------------ ------------
(Unaudited)
ASSETS
CURRENT
Cash and cash equivalents $ 5,358 $ 4,489
Accounts receivable (net of allowance for doubtful accounts
of $721 and $562, respectively) 25,877 23,165
Prepaid and other current assets 1,922 3,223
Deferred income taxes 1,916 1,657
------------ ------------
Total current assets 35,073 32,534
Property and equipment - net 4,408 4,627
Goodwill 44,579 43,739
Intangibles - net 829 950
Deferred income taxes 10,360 11,407
Other assets 622 613
------------ ------------
Total assets $ 95,871 $ 93,870
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT
Accounts payable trade $ 5,247 $ 3,894
Accrued liabilities 13,785 13,543
Current portion of long-term debt 5,804 5,778
------------ ------------
Total current liabilities 24,836 23,215
Long-term debt 19,081 25,531
------------ ------------
Total liabilities 43,917 48,746
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock; $0.01 par value, 10,000 shares authorized;
none outstanding - -
Common stock; $0.01 par value, 50,000 shares authorized;
11,208 and 11,207 outstanding, respectively 112 112
Additional paid-in capital 74,064 74,062
Retained deficit (22,455) (27,828)
Unrealized foreign currency translation adjustment 233 (1,222)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 51,954 45,124
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 95,871 $ 93,870
============ ============
See accompanying notes to condensed consolidated financial Statements.
2
DYNAMEX INC.
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(in thousands except per share data)
(Unaudited)
Three months ended Nine months ended
April 30, April 30,
--------------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
(Restated)
Sales $ 62,146 $ 57,030 $ 183,209 $ 175,842
Cost of sales 44,321 39,990 129,626 123,272
----------- ----------- ----------- -----------
Gross profit 17,825 17,040 53,583 52,570
Selling, general and administrative expenses 14,422 13,676 42,827 42,811
Depreciation and amortization 518 699 1,609 2,217
(Gain) loss on disposal of property and equipment (3) (5) 10 (18)
----------- ----------- ----------- -----------
Operating income 2,888 2,670 9,137 7,560
Interest expense 571 667 1,787 2,343
Other (income) expense (19) (27) (93) 520
----------- ----------- ----------- -----------
Income before taxes 2,336 2,030 7,443 4,697
Income tax expense (benefit) 238 700 2,070 2,910
----------- ----------- ----------- -----------
Income before cumulative effect of change in
accounting principle 2,098 1,330 5,373 1,787
Cumulative effect of change in accounting for goodwill - - - (19,261)
----------- ----------- ----------- -----------
Net income (loss) $ 2,098 $ 1,330 $ 5,373 $ (17,474)
=========== =========== =========== ===========
Basic earnings (loss) per common share:
Before cumulative effect of accounting change $ 0.19 $ 0.12 $ 0.48 $ 0.17
Accounting change - - - (1.85)
----------- ----------- ----------- -----------
Basic earnings (loss) per common share $ 0.19 $ 0.12 $ 0.48 $ (1.68)
=========== =========== =========== ===========
Diluted earnings (loss) per common share:
Before cumulative effect of accounting change $ 0.18 $ 0.12 $ 0.47 $ 0.17
Accounting change - - - (1.84)
----------- ----------- ----------- -----------
Diluted earnings (loss) per common share $ 0.18 $ 0.12 $ 0.47 $ (1.67)
=========== =========== =========== ===========
Weighted average shares:
Common shares outstanding 11,208 10,680 11,207 10,414
Adjusted common shares - assuming
exercise of stock options 11,379 10,722 11,332 10,450
See accompanying notes to condensed consolidated financial statements.
3
DYNAMEX INC.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(in thousands)
(Unaudited)
Nine months ended
April 30,
-----------------------------
2003 2002
------------ ------------
OPERATING ACTIVITIES (Restated)
Net income (loss) $ 5,373 $ (17,474)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 1,582 2,146
Amortization and write down of goodwill and intangible assets 27 30,095
Provision for losses on accounts receivable 677 498
Deferred income taxes 788 (9,356)
Loss (gain) on disposal of property and equipment 10 (18)
Changes in current operating assets and liabilities:
Accounts receivable (3,388) (480)
Prepaids and other assets 1,302 525
Accounts payable and accrued liabilities 1,594 122
------------ ------------
Net cash provided by operating activities 7,965 6,058
------------ ------------
INVESTING ACTIVITIES
Purchase of property and equipment (1,366) (1,250)
Net proceeds from disposal of property and equipment 62 12
------------ ------------
Net cash used in investing activities (1,304) (1,238)
------------ ------------
FINANCING ACTIVITIES
Principal payments on long-term debt (4,346) (9,675)
Net payments under line of credit (2,075) (200)
Net proceeds from sale of common stock 3 -
Other assets and deferred financing costs (83) (235)
------------ ------------
Net cash used in financing activities (6,501) (10,110)
------------ ------------
------------ ------------
EFFECT OF EXCHANGE RATES ON CASH FLOW INFORMATION 709 422
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 869 (4,868)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,489 8,066
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,358 $ 3,198
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 1,369 $ 1,918
============ ============
Cash paid for taxes $ 938 $ 1,785
============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Issuance of 1,000 shares in shareholder class action lawsuit settlement $ - $ 1,313
Issuance of note receivable to finance customer trade receivable - 166
See accompanying notes to condensed consolidated financial statements.
4
DYNAMEX INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Dynamex Inc. (the "Company" and "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
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 Corp. (Canada)
- Alpine Enterprises Ltd. (Canada)
- Roadrunner Transportation, Inc. (U.S.)
- New York Document Exchange Corp. (U.S.)
Basis of presentation - The consolidated financial statements include the
accounts of Dynamex Inc. and its wholly-owned subsidiaries. All significant
inter-company accounts and transactions have been eliminated. All dollar amounts
in the financial statements and notes to the financial statements except per
share data are stated in thousands of dollars unless otherwise indicated. Except
as otherwise indicated, references to years mean our fiscal year ending July 31,
2003 or ended July 31 of the year referenced, and comparisons are to the
corresponding period of the prior year.
The accompanying interim financial statements are unaudited. Certain information
and disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted,
although the Company believes the disclosures included herein are adequate to
make the information presented not misleading. The results of the interim
periods presented are not necessarily indicative of results to be expected for
the full fiscal year, and should be read in conjunction with the Company's
audited financial statements for the fiscal year ended July 31, 2002.
The accompanying interim financial statements contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's financial position at April 30, 2003, the results
of its operations for the three and nine month periods ended April 30, 2003 and
2002, and cash flows for the nine month periods ended April 30, 2003 and 2002.
The tax provision for the three and nine-month periods ended April 30, 2003 and
2002 are based upon management's estimate of the Company's annualized effective
tax rate.
Comprehensive income (loss) - Comprehensive income for the three and nine months
ended April 30, 2003 was $3,044 and $6,828, respectively, compared to $1,523 and
$(17,254) for the same periods ended April 30, 2002. The two components of
comprehensive income are net income (loss) and foreign currency translation
adjustments. The changes in the exchange rate between the U.S. dollar and the
Canadian dollar resulted in foreign currency translation gains of $946 and
$1,455 in the three and nine month periods ended April 30, 2003, respectively,
compared to gains of $193 and $220 for the same periods in the prior year.
Goodwill - Effective August 1, 2001, the Company adopted SFAS No. 142 "Goodwill
and Other Intangible Assets" (SFAS No. 142). SFAS No. 142 requires, among other
things, that companies no longer amortize goodwill, but instead test goodwill
for impairment at least annually. In addition, SFAS No. 142 requires that the
Company identify reporting units for the purposes of assessing potential future
impairments of goodwill. The Company completed its goodwill impairment analysis
during the fourth quarter of fiscal 2002 and recognized a transitional goodwill
impairment loss related to its United States operations of $30.0 million and
recorded the charge net of $10.7 million of deferred tax benefits as the
cumulative effect of a change in accounting principle in the Condensed Statement
of Consolidated Operations. The valuations performed as part of the analysis
employed a combination of present value techniques to measure fair value
corroborated by comparisons to estimated market multiples. Third party
specialists were engaged to assist in the valuations. As required by SFAS No.
142, the charge was recorded in the first quarter of fiscal year 2002. Since the
financial statements for that period had previously been released, the nine
month period ended April 30, 2002 presented herein has been restated to reflect
this charge. Management will perform its annual test of impairment during the
fourth quarter of 2003.
5
DYNAMEX INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
New accounting pronouncements - In December 2002 the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
148, Accounting for Stock-Based Compensation - Transition and Disclosure (SFAS
No. 148). SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosure about the effects on reported net
income of an entity's accounting policy decisions with respect to stock-based
compensation. This Statement also amends APB Opinion No. 28, Interim Financial
Reporting, to require disclosure about those effects in interim financial
statements. SFAS No. 148 is effective for financial statements for fiscal years
ending after December 15, 2002. The Company has adopted the interim disclosure
provisions of SFAS No. 148 (see Note 4).
In January 2003, Interpretation No. 46 of the Financial Accounting Standards
Board, Consolidation of Variable Interest Entities (FIN 46) was issued. The
Company does not believe that it has any relationships with variable interest
entities that will be subject to the requirements of FIN 46.
In April 2003, the FASB issued Statement of Financial Accounting Standards No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging activities
(SFAS No. 149). SFAS No. 149 amends and clarifies financial reporting for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities under SFAS No. 133, Accounting for
Derivatives Instruments and Hedging Activities. This statement is effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The Company believes adoption of
SFAS No. 149 will not have a material effect on the financial condition, results
of operations, or liquidity of the Company.
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity (SFAS No. 150). SFAS No. 150 establishes standards for
how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity, and is effective for financial
instruments entered into after May 31, 2003. The Company believes it does not
have any financial instruments with characteristics of both liabilities and
equity and that adoption of SFAS No. 150 will not have a material effect on the
financial condition, results of operations, or liquidity of the Company.
2. INTANGIBLES
At April 30, 2003, intangibles and related amortization expense for the three
and nine months ended April 30, 2003 and 2002 consist of the following:
Amortization Expense
Three Months Ended April 30, Nine Months Ended April 30,
Accumulated ---------------------------- ---------------------------
Asset Amortization Net 2003 2002 2003 2002
-------------------------------- ------- ------- ------- -------
Covenants not-to-compete $ 9,949 $ 9,949 $ - $ 3 $ 9 $ 11 $ 55
Trademarks 470 82 388 2 5 16 16
Deferred bank financing fees 1,341 900 441 189 159 528 453
------- ------- ------- ------- ------- ------- -------
Total $11,760 $10,931 $ 829 $ 194 $ 173 $ 555 $ 524
-------------------------------- ------- ------- ------- -------
During the quarter ended October 31, 2002, the Company capitalized $649 related
to the amendment of its Bank Credit Agreement. These fees are being amortized
over the life of the Bank Credit Agreement, which matures November 2003.
Amortization of deferred financing fees is classified as interest expense in the
consolidated statement of operations. Estimated amortization expense for the
succeeding five fiscal years, including deferred bank financing fees, is $197
for the remainder of fiscal 2003, $270 for 2004 and approximately $20 per year
thereafter.
6
DYNAMEX INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
3. COMPUTATION OF EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings (loss) per share computation as required by Statement
of Financial Accounting Standards No. 128, Earnings Per Share. Common stock
equivalents related to stock options are excluded from diluted earnings (loss)
per share calculation if their effect would be anti-dilutive to earnings (loss)
per share before cumulative effect of change in accounting principle.
Three months ended Nine months ended
April 30, April 30,
---------------------------- -----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net income before cumulative effect of
change in accounting principle $ 2,098 $ 1,330 $ 5,373 $ 1,787
Cumulative effect of change in accounting principle - - - (19,261)
------------ ------------ ------------ ------------
Net income (loss) $ 2,098 $ 1,330 $ 5,373 $ (17,474)
============ ============ ============ ============
Weighted average common shares outstanding 11,208 10,680 11,207 10,414
Common share equivalents related to options 171 42 125 36
------------ ------------ ------------ ------------
Common shares and common share equivalents 11,379 10,722 11,332 10,450
============ ============ ============ ============
Basic earnings (loss) per common share:
Before cumulative effect of accounting change $ 0.19 $ 0.12 $ 0.48 $ 0.17
Accounting change - - - (1.85)
------------ ------------ ------------ ------------
Basic earnings (loss) per common share $ 0.19 $ 0.12 $ 0.48 $ (1.68)
============ ============ ============ ============
Diluted earnings (loss) per common share:
Before cumulative effect of accounting change $ 0.18 $ 0.12 $ 0.47 $ 0.17
Accounting change - - - (1.84)
------------ ------------ ------------ ------------
Diluted earnings (loss) per common share $ 0.18 $ 0.12 $ 0.47 $ (1.67)
============ ============ ============ ============
7
DYNAMEX INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
4. STOCK OPTION PLAN
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its stock options. The exercise price of stock options granted is equal to
the market price of the stock on the date of grant; therefore, using the
intrinsic value method to value the options, 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 (loss) would have been reduced to the pro forma amounts
indicated below:
Three months ended Nine months ended
April 30, April 30,
------------------------- -------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net income (loss):
As reported $ 2,098 $ 1,330 $ 5,373 $ (17,474)
Deduct: Total stock based compensation
expense determined under fair value based
method for all awards, net of related tax effects 68 151 198 455
---------- ---------- ---------- ----------
Pro forma net income (loss) $ 2,030 $ 1,179 $ 5,175 $ (17,929)
========== ========== ========== ==========
Earning (loss) per share:
Basic - as reported $ 0.19 $ 0.12 $ 0.48 $ (1.68)
Basic - pro forma $ 0.18 $ 0.11 $ 0.46 $ (1.72)
Diluted - as reported $ 0.18 $ 0.12 $ 0.47 $ (1.67)
Diluted - pro forma $ 0.18 $ 0.11 $ 0.46 $ (1.72)
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 2003 and 2002, respectively: dividend yield of 0%
for all years; expected volatility of 76% and 73%; risk-free interest rate of
4.10% and 5.10%; and expected lives of an average of 10 years for all years. The
weighted average fair value of options granted during 2003 and 2002 was $3.13
and $1.86, respectively.
During the third quarter of fiscal 2003, the Company's Board of Directors
elected to adopt the fair value recognition provisions of SFAS No. 123 for
stock-based employee compensation, effective as of the beginning of fiscal 2004.
Under the modified prospective method of adoption selected by the Company,
stock-based employee compensation cost recognized in 2004 will be the same as
that which would have been recognized had the fair value recognition provisions
of SFAS No. 123 been applied to all awards granted after August 1, 1995. Based
on the outstanding and unvested awards as of April 30, 2003, the anticipated
effect on net income for fiscal 2004, net of taxes, will be approximately $126.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion contains forward-looking statements, which involve
assumptions regarding Company operations and future prospects. Although the
Company believes its expectations are based on reasonable assumptions, such
statements are subject to risk and uncertainty, including, among other things,
competition, foreign exchange, and risks associated with the local delivery
industry. These and other risks are mentioned from time to time in the Company's
filings with the Securities and Exchange Commission. Caution should be taken
that these factors could cause the actual results to differ from those stated or
implied in this and other Company communications.
GENERAL
The Company is a leading provider of same-day delivery and logistics services in
the United States and Canada. Through internal growth and acquisitions, the
Company has built a national network of same-day delivery and logistics systems
in Canada and has established operations in 22 U.S. metropolitan areas.
Effective August 1, 2001, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets" (SFAS No. 142). As a result of the adoption of this new
accounting pronouncement, a goodwill impairment charge of $19.3 million was
recognized during fiscal 2002. In accordance with SFAS No. 142 and other
accounting pronouncements, the Company measured the impairment during fiscal
2002, and once the impairment was finalized, recorded the charge with an
effective date of August 1, 2001. Since the quarterly financial statements for
fiscal year 2002 had previously been released, prior year financial statements
presented herein have been restated to reflect this charge. The following
discussion of the Company's results of operations is based on income before the
accounting change.
A significant portion of the Company's revenues is generated in Canada. For the
three and nine month periods ended April 30, 2003, Canadian revenues accounted
for approximately 34.3% and 33.8%, respectively, of total consolidated revenue,
compared to 33.2% and 32.9%, respectively for the same periods in 2002. The
increase in current year versus the prior year is primarily attributable to the
change in the exchange rate between the Canadian dollar and the U.S. dollar.
RESULTS OF OPERATIONS
Three months ended Nine months ended
April 30, April 30,
-------------------------- ----------------------
2003 2002 2003 2002
---------- ---------- --------- --------
(Restated)
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 71.3% 70.1% 70.8% 70.1%
----- ----- ----- -----
Gross profit 28.7% 29.9% 29.2% 29.9%
Selling, general and administrative expenses 23.2% 24.0% 23.4% 24.3%
Depreciation and amortization 0.8% 1.2% 0.9% 1.3%
(Gain) loss on disposal of property and equipment 0.0% 0.0% 0.0% 0.0%
----- ----- ----- -----
Operating income 4.7% 4.7% 4.9% 4.3%
Interest expense 0.9% 1.2% 1.0% 1.3%
Other (income) expense 0.0% 0.0% -0.1% 0.3%
----- ----- ----- -----
Income before taxes 3.8% 3.5% 4.0% 2.7%
Income tax expense (benefit) 0.4% 1.2% 1.1% 1.7%
----- ----- ----- -----
Income before accounting change 3.4% 2.3% 2.9% 1.0%
----- ----- ----- -----
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 2003 COMPARED TO THREE MONTHS ENDED APRIL 30, 2002
Net income for the three months ended April 30, 2003 was $2.1 million ($0.19
basic earnings per share) compared to net income for the three months ended
April 30, 2002 of $1.3 million ($0.12 basic earnings per share). The increase is
attributable to higher sales and lower depreciation, interest and income tax
expense. Selling, general and administrative expenses ("SG & A") increased in
absolute dollars, but declined as a percentage of sales from 24.0% in 2002 to
23.2% in 2003.
Sales for the three months ended April 30, 2003 increased $5.1 million, or 9.0%,
to $62 million from $57 million for the same period in 2002. The increase in the
conversion rate between the Canadian dollar and the U.S. dollar had the effect
of increasing sales for the three months ended April 30, 2003 by approximately
$1.4 million had the conversion rate been the same as the prior year. Excluding
the impact of the exchange rate, sales were 6.5% higher in the current year. On
a sales per day basis in U.S. dollars, Canadian sales increased 12.6% and U.S.
sales increased 7.2%. In Canadian dollars, Canadian sales increased 4.9% on a
sales per day basis in 2003 versus 2002.
Approximately two-thirds of the increase in sales was from scheduled,
distribution and outsourcing services. These services increased $3.4 million
(11.8%) in the quarter ended April 30, 2003 compared to the prior year. Sales of
our on-demand services that were generally impacted to a greater extent by the
soft economy than our other services, grew by 6.0% in the second quarter of 2003
compared to prior year. On-demand services comprised 47.4% of total sales in the
three months ended April 30, 2003 compared to 48.7% in the same period last
year. While on-demand services will continue to be a significant component of
the Company's product offerings, it is believed that the major growth
opportunities are in the scheduled, distribution and outsourcing services.
Cost of sales for the three months ended April 30, 2003 increased $4.3 million,
or 10.8%, to $44 million from $40 million for the same period in 2002. Cost of
sales, as a percentage of sales, increased to 71.3% for the three months ended
April 30, 2003 from 70.1% in the prior year. The year-over-year increase is
attributable to several factors. The Company provided an additional bad debt
reserve of $0.2 this quarter to cover the balance of outstanding receivables
billed to Air Canada prior to their Companies' Creditors Arrangement Act filing,
resulting in an increase in cost of sales of approximately 0.3%. Cargo,
liability and other insurance costs increased approximately $0.3 million
resulting in an increase in the cost of sales percentage of 0.5%. Costs
associated with major new contract start-ups of approximately $60,000 increased
the percentage of cost of sales by 0.1%. Also, the Canadian dollar is much
stronger compared to the U.S. dollar this year than it was in the prior year
quarter. The impact of the strong Canadian dollar in the third quarter of 2003
also increased the cost of sales percentage by approximately 0.1% because the
Canadian operations generally have higher direct costs than the U.S. operations
due to a lower percentage of on-demand services compared to the U.S.
Selling, general and administrative expenses ("SG&A") for the three months ended
April 30, 2003 increased $0.7 million, or 5.5%, to $14.4 million from $13.7
million for the same period in 2002. Approximately $0.3 million of the increase
results from the change in the exchange rate between the Canadian dollar and the
U.S. dollar in the current year versus the prior year. The remainder of the
increase is primarily attributable to an increase in salaries and benefits.
During 2002 the Company had instituted a salary freeze and limited hiring in
order to offset the effects the soft economy had on sales. As sales began to
increase in this year's second quarter, the salary freeze was lifted and
additional sales and operating personnel were added to support expanding
operations. SG&A expenses were 23.0% of sales in the current year quarter
compared to 24.2% in the same quarter last year.
For the three months ended April 30, 2003, depreciation and amortization was
$0.5 million compared to $0.7 million last year. This decrease is due primarily
to lower capital expenditures in recent years, primarily because major
back-office software purchases were completed in prior years and the decision
was made to transition to two-way mobile data units to communicate with drivers
that require no capital expenditure.
Interest expense for the three months ended April 30, 2003 was $0.6 million,
down 14.4% from the prior year period. This decrease is attributable to lower
outstanding debt and lower interest rates. The weighted average interest rate at
April 30, 2003 was 4.9%, down from 5.7% at April 30, 2002. During the quarter
the Company's interest rate swap, that fixed the interest rate on $13 million of
outstanding debt at 6.14%, matured and was replaced by a new agreement that
fixed the interest rate at 4.94% on $10 million of outstanding debt.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The effective income tax rate for the three-month period ended April 30, 2003
was approximately 10%. Income tax expense was reduced by approximately $425,000
associated with a foreign tax credit created by Dynamex Canada Corp.'s payment
of a $2.5 million cash dividend to Dynamex Inc. this quarter. Excluding the tax
benefit of this transaction, the effective income tax rate would have been
32.7%, compared to 34.5% last year. The lower rate is primarily due to a
marginally lower tax rate in Canada in the current year.
NINE MONTHS ENDED APRIL 30, 2003 COMPARED TO NINE MONTHS ENDED APRIL 30, 2002
Net income for the nine months ended April 30, 2003 was $5.4 million ($0.48
basic earnings per share) compared to net income before the accounting change of
$1.8 million ($0.17 basic earnings per share) for the same period in 2002. This
increase results from higher gross profit associated with increased sales and
lower interest, depreciation and amortization expense and lower income taxes.
SG&A expenses were essentially the same as the prior year, but as a percentage
of sales declined from 24.3% in 2002 to 23.4% in 2003.
Sales for the nine months ended April 30, 2003 increased $7.4 million, or 4.2%,
to $183 million from $176 million for the same period in 2002. The increase in
the conversion rate between the U.S. dollar and the Canadian dollar had the
effect of increasing sales for the nine months ended April 30, 2003 by
approximately $1.7 million had the conversion rate been the same as the prior
year. On-demand sales increased $2.2 million (2.5%) to $89 million and sales
from scheduled, distribution and outsourcing services increased $5.1 million
(5.8%) to $94 million. The economy impacted on-demand sales to a greater extent
than other services and the Company is focusing its national sales efforts on
expanding scheduled, distribution and outsourcing services.
Cost of sales for the nine months ended April 30, 2003 increased both in terms
of absolute dollars and as a percentage of sales, by $6.3 million and 0.7%,
respectively, to $130 million. As a percentage of sales, scheduled and
distribution and other specialized services sales have increased while on-demand
sales have declined. Scheduled and distribution and other specialized services
generally have a higher cost of sales and lower selling, general and
administrative costs than on-demand sales. This change in business mix, combined
with increases in insurance costs, an additional bad debt charge associated with
a customer in Canada, and start-up costs on recently signed contracts, resulted
in cost of sales increasing as a percentage of sales from 70.1% in the nine
months ended April 30, 2002 to 70.8% in 2003.
SG & A expenses for the nine months ended April 30, 2003 were $43 million,
essentially unchanged from the prior year. As a percentage of sales, SG & A
expenses decreased from 24.3% for the nine months ended April 30, 2002 to 23.4%
in 2003. This decline is due to several factors. Salaries and benefits declined
as a percentage of sales by 0.5% as a result of the change in the business mix
that requires fewer personnel in the dispatch and customer service areas.
Communication costs have been reduced by approximately 0.2% as percentage of
sales primarily through the conversion to two-way mobile data units and
negotiations with vendors for reduced rates. In 2002, the Company upgraded the
U.S. human resources and payroll system. The Company incurred approximately $0.1
million on training and consulting related to this upgrade which, through the
third quarter 2003, reduced payroll processing fees by $0.1 million. Also, in
the period ended April 30, 2002, the company incurred $0.2 million on
non-recurring legal fees related to the tax reorganization of our Canadian
operations. Other SG&A costs, while increasing in absolute dollars, remained
relatively unchanged as a percentage of sales.
Depreciation and amortization for the nine months ended April 30, 2003 was $1.6
million compared to $2.2 million for the same period in 2002. This decrease is
attributable to lower capital expenditures in recent years, primarily because
major back-office software purchases were completed in prior years and the
decision was made to transition to two-way mobile data units to communicate with
drivers that require no capital expenditures.
Interest expense decreased $0.5 million, from $2.3 million in 2002 to $1.8
million in 2003, or 23.7%, and as a percentage of sales from 1.3% to 1.0%. This
decrease primarily results from lower debt levels.
The effective income tax rate declined from 62% in the nine-month period ended
April 30, 2002 to 27.8% in the current period. The primary reason for this
decline is the increase in U.S. taxable income that is substantially offset by
the utilization of the net operating loss carryforwards generated in prior years
and further by a marginally lower tax rate in Canada in the current year period.
In addition, the Company's Canadian subsidiary paid a $2.5 million dividend to
the U.S. in March 2003. The tax impact of this dividend was to reduce tax
expense in the U.S. by $0.4 million due to the realization of a foreign tax
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
credit. The prior year also included a $0.2 million non-recurring tax expense
and a $0.7 million non-tax deductible foreign exchange loss related to the tax
reorganization of the Company's Canadian operations.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $8.0 million for the nine months
ended April 30, 2003 compared to $6.1 million for the same period in 2002. Net
cash provided by operations, prior to changes in current operating assets and
liabilities and deferred income taxes, was $7.7 million for the nine months
ended April 30, 2003 compared to $4.5 million for the nine months ended April
30, 2002 (before the effects of the write-off of goodwill), primarily due to
higher net income.
Capital expenditures for the nine months ended April 30, 2003 were approximately
$1.4 million. Management expects annual capital expenditures to be in the $1.7
to $2.0 million range for the full fiscal year. The Company does not have
significant capital expenditure requirements to replace or expand the number of
vehicles used in its operations because substantially all of its drivers are
owner-operators who provide their own vehicles.
As of April 30, 2003, the Company's bank credit agreement ("Credit Agreement")
consisted of an amortizing term loan of $14.2 million and a revolving credit
facility of $19.5 million due November 30, 2003. Amounts outstanding under the
revolving credit facility included borrowings of $10.4 million and outstanding
letters of credit totaling $4.2 million. Interest on outstanding borrowings is
payable monthly at prime plus 0.50% or LIBOR plus 3.50%. The Company has entered
into interest rate protection arrangements on a portion of the borrowings under
the Credit Agreement. The interest rate on $10 million of outstanding debt has
been fixed at 4.94%. This hedging arrangement is effective March 1, 2003 and
matures on November 30, 2003. Amounts outstanding under the Credit Agreement are
secured by all of the Company's U.S. assets and 100% of the stock of its
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.
On May 30, 2003, the Company amended and extended its bank credit agreement.
Under the terms of the amended agreement, the Company prepaid $1.2 million of
the amortizing term loan from available cash and the facility was extended
through November 30, 2005. The amended agreement consists of an amortizing term
loan of $13 million and a revolving credit facility of $19.5 million. Required
principal payments, on the amortizing term loan, consist of $1.375 million
quarterly, with a final payment of $625,000 due on November 30, 2005. Interest
on outstanding borrowings is payable monthly at prime plus a margin ranging from
0.50% to 0.0% or LIBOR plus an applicable margin ranging from 3.5% to 2.0%,
based upon the ratio of Total Debt to EBITDA, as defined. A ratio of Total Debt
to EBITDA of less than 1.75 to 1.00 will lower the applicable margin from 0.5%
to 0.125% for prime based loans and from 3.5% to 2.5% on LIBOR based loans and
remove certain restrictions. At April 30, 2003, the Total Debt to EBITDA ratio
was 2.04 to 1.00.
The Company's EBITDA (earnings before interest, taxes, depreciation and
amortization) was approximately $10.8 million for the nine months ended April
30, 2003, compared to $10.2 million in the same period last year. This increase
is primarily attributable to higher sales. The 2002 EBITDA presented has been
adjusted to exclude unusual and non-recurring items related to the Company's
Canadian tax reorganization as shown in the reconciliation of net income to
EBITDA in the table below. Management believes that including these items in the
EBITDA calculation would distort comparability of data between years. EBITDA was
$3.4 million for the three months ended April 30, 2003, or 5.5% of sales,
compared to $3.4 million, or 6.0% of sales, for the same period in 2002. This
year's EBITDA was negatively impacted by the write-off of receivables from Air
Canada ($200,000), costs associated with new business start-ups ($60,000) and
severe weather. Weather conditions were unusually harsh this year compared to
prior years and disrupted our normal operations. The Company experienced major
disruptions in Dallas, Denver and on the east coast of the U.S. and Canada.
During this period, we continued to incur normal operating costs including rent,
communication and salaries and benefits. In the prior year, due to the impact on
sales resulting from the downturn in the economy after September 11, the Company
had taken steps to reduce costs including instituting a salary and hiring
freeze, eliminating non-essential positions, and all but essential travel was
eliminated. Management has included EBITDA in its discussion herein as a measure
of liquidity because it believes that it is a widely accepted 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
operations or cash flow data from the Company's financial statements, which have
been prepared in accordance with generally accepted accounting principles
(GAAP). In addition, the Company's definition of EBITDA
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
may not be identical to similarly entitled measures used by other companies. The
following table reconciles net income (loss) presented in accordance with GAAP
to EBITDA, which is a non-GAAP financial measure (in thousands):
Three months ended Nine months ended
April 30, April 30,
-------------------- --------------------
2003 2002 2003 2002
------ ------- ------- ------
Net income (loss) $2,098 $1,330 $ 5,373 $(17,474)
Adjustments:
Cumulative effect of change in accounting for goodwill - - - 19,261
Income tax expense 238 700 2,070 2,910
Interest expense 571 667 1,787 2,343
Depreciation and amortization 518 699 1,609 2,217
------ ------ ------- --------
EBITDA 3,425 3,396 10,839 9,257
Canadian tax reorganization:
Foreign currency transaction loss - - - 714
Legal and professional fees - - - 210
------ ------ ------- --------
EBITDA adjusted for unusual/non-recurring charges $3,425 $3,396 $10,839 $ 10,181
------ ------ ------- --------
The Company's cash flows from operations for the nine months ended April 30,
2003 were approximately $8.0 million. Consequently, purchases of property and
equipment and payments of long-term debt were financed entirely by internally
generated cash flow.
During the third quarter of fiscal 2003, the Company repatriated surplus
Canadian cash of $2.5 million, less a required 5% Canadian tax withholding. The
funds were used to reduce outstanding bank debt and for general corporate
purposes. The Company expects to pay only minimal cash taxes on this transaction
because of tax benefits currently available in the U.S. to offset dividend
income.
Management expects that its future capital requirements that are expected to
range between $1.5 and $2.5 million 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. 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.
CONTRACTUAL OBLIGATIONS
The following table sets forth the Company's contractual commitments as of April
30, 2003 for the periods indicated (in thousands):
Less than
Total 1 year 1-3 years 3-5 years Thereafter
----- ------ --------- --------- ----------
Long-term debt $24,881 $ 5,800 $19,081 $ - $ -
Capital lease obligations 4 4 - - -
Operating leases 9,218 3,918 3,879 1,013 408
------- ------- ------- ------- ------
Total $34,103 $ 9,722 $22,960 $ 1,013 $ 408
------- ------- ------- ------- ------
The Company has entered into an employment agreement with its CEO which provides
for the payment of a base salary in the annual amount of $300,000, participation
in an executive bonus plan, an auto allowance, and participation in other
employee benefit plans. In addition, the Company has entered into retention
agreements with certain key executive officers
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
and other employees that provide certain benefits in the event their employment
is terminated subsequent to a change in control of the Company, as defined in
the retention agreements. The Company believes that it is unlikely that these
circumstances will transpire, but if they did the potential exposure could range
between $3 million and $4 million.
DEFERRED TAXES
During the nine months ended April 30, 2003, U.S. tax deductions exceeded
financial statement deductions by approximately $4.0 million. As a result, net
deferred tax assets were reduced by approximately $0.8 million during this
period, with an offsetting charge to tax expense in the Condensed Statement of
Consolidated Operations. The Company has U.S. net operating losses totaling
approximately $11.9 million at April 30, 2003 and has established a 100%
valuation allowance in accordance with the provisions of SFAS No. 109 for U.S.
operating losses not currently deductible. 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.
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
Currently, there are no pending 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.
HIGHLY COMPETITIVE INDUSTRy
The market for same-day delivery and logistics services has been and is expected
to remain highly competitive. Competition is often intense, particularly for
basic delivery services. High fragmentation and low barriers to entry
characterize the industry. Other companies in the industry compete with the
Company not only for provision of services but also for 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.
CLAIMS EXPOSURE
As of April 30, 2003, the Company utilized the services of approximately 3,800
drivers and 500 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 limit of $20
million. Drivers are required to maintain vehicle 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
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 supply their own vehicles and as of
April 30, 2003, over 81% 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 were required to pay
withholding taxes and pay for and administer added employee benefits to these
drivers, the Company's operating costs would increase. Additionally, if the
Company is required to pay back-up withholding with respect to amounts
previously paid to such drivers, it may also be required to pay penalties or be
subject to other liabilities as a result of incorrect 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 the Company likely will be required to modify the drivers'
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 require the Company to restate financial information from
prior periods.
In addition to the drivers that are independent contractors, certain of the
Company's drivers are employed by the Company and supply 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.
FOREIGN EXCHANGE
Significant portions of the Company's operations are conducted in Canada.
Exchange rate fluctuations between the U.S. and Canadian dollars result in
fluctuations in the amounts relating to the Canadian operations reported in the
Company's consolidated financial statements. The Canadian dollar is the
functional currency for the Company's Canadian operations; therefore, any change
in the exchange rate will affect the Company's reported 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 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".
PERMITS AND LICENSING
The Company's delivery operations are subject to various federal (U.S. and
Canadian), state, provincial and local laws, ordinances and regulations that in
many instances require certificates, permits and licenses. Failure by the
Company to maintain required certificates, permits or licenses, or to comply
with applicable laws, ordinances or regulations could result in substantial
fines or possible revocation of the Company's authority to conduct certain of
its operations.
DEPENDENCE ON KEY PERSONNEL
The Company's success is largely dependent on the skills, experience and
performance of certain key members of its
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
management. The loss of the services of any of these key employees could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's future success and plans for growth also
depend on its ability to attract and retain skilled personnel in all areas of
its business. There is strong competition for skilled personnel in the same-day
delivery and logistics businesses.
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.
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 three-dimensional products, 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 and retain 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 and upgrade its pool of available
couriers and support personnel 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.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT:
With the exception of historical information, the matters discussed in this
report are "forward looking statements" as that term is defined in Section 21E
of the Securities Exchange Act of 1934.
Several important factors have been identified, which could cause actual results
to differ materially from those predicted. By way of example:
- - The competitive nature of the same-day delivery business
- - The ability of the Company to attract and retain qualified 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 retain independent contractor drivers may be
impacted by our ability to pass on fuel cost increases to customers to
maintain profit margins and the quality of driver pay.
16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE EXPOSURE
Significant portions of the Company's operations are conducted in Canada.
Exchange rate fluctuations between the U.S. and Canadian dollar result in
fluctuations in the amounts relating to the Canadian operations reported in the
Company's consolidated financial statements. The Company historically has not
entered into hedging transactions with respect to its foreign currency exposure,
but may do so in the future.
The sensitivity analysis model used by the Company for foreign exchange exposure
compares the revenue and net income figures from Canadian operations, at the
actual exchange rate, to a 10% decrease in the exchange rate. Based on this
model, a 10% decrease would result in a decrease in quarterly revenue of
approximately $2.1 million and a decrease in quarterly net income of
approximately $0.1 million. 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 an interest rate protection agreement on a portion
of the borrowings under its bank credit facility. Through an interest rate swap,
the interest rate on $10 million of outstanding debt has been fixed at 4.94%.
This hedging agreement expires on November 30, 2003. 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 approximately $0.1 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
17
ITEM 4. CONTROLS AND PROCEDURES
ITEM 4. CONTROLS AND PROCEDURES
The term "disclosure controls and procedures" is defined in Rules 13a-14(c) and
15d-14(c) of the Securities Exchange Act of 1934 (Exchange Act). These rules
refer to the controls and other procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports
that it files under the Exchange Act is recorded, processed, summarized and
reported within required time periods. The Company's Chief Executive and Chief
Financial Officer have evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days before the filing of this
quarterly report (the Evaluation Date), and have concluded that, as of the
Evaluation Date, such controls and procedures were effective at ensuring that
required information will be disclosed on a timely basis in reports filed under
the Exchange Act.
The Company maintains a system of internal accounting controls that is designed
to provide reasonable assurance that the Company's books and records accurately
reflect its transactions and that the established policies and procedures are
followed. Subsequent to the date of our most recent evaluation, there were no
significant changes to internal controls or in other factors that could
significantly affect the Company's internal controls.
18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is a party to various legal proceedings arising in the ordinary
course of its business. Management believes that the ultimate resolution of
these proceedings will not, in the aggregate, have a material adverse effect on
the financial condition, results of operations, or liquidity of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.13 Third Amendment to 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 May 30, 2003
99.1 Certification of CEO and CFO pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
Report on Form 8-K filed on June 6, 2003 concerning the June 4,
2003 press release announcing third quarter fiscal year 2003
results.
19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYNAMEX INC.
Dated: June 16, 2003 by /s/ Richard K. McClelland
-------------------------------------------
Richard K. McClelland
President, Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
Dated: June 16, 2003 by /s/ Ray E. Schmitz
-------------------------------------------
Ray E. Schmitz
Vice President - Chief Financial Officer
(Principal Financial Officer)
Dated: June 16, 2003 by /s/ George S. Stephens
-------------------------------------------
George S. Stephens
Corporate Controller
(Principal Accounting Officer)
20
CERTIFICATION
I, Richard K. McClelland, President and Chief Executive Officer of Dynamex Inc.
and Subsidiaries ("registrant") certify that:
1. I have reviewed this quarter report on Form 10-Q of the registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. Designed such controls and procedures to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing of this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function);
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weakness in internal controls, and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: June 16, 2003 by /s/ Richard K. McClelland
--------------------------------------
Richard K. McClelland
President, Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
21
CERTIFICATION
I, Ray E. Schmitz, Vice President and Chief Financial Officer of Dynamex Inc.
and Subsidiaries ("registrant") certify that:
1. I have reviewed this quarter report on Form 10-Q of the registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. Designed such controls and procedures to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing of this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function);
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weakness in internal controls, and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: June 16, 2003 by /s/ Ray E. Schmitz
----------------------------------------
Ray E. Schmitz
Vice President - Chief Financial Officer
(Principal Financial Officer)
22
EXHIBIT INDEX
Exhibits
10.13 Third Amendment to 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 May 30,
2003
99.1 Certification of CEO and CFO pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
E-1