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EX-32.2 - EX-32.2 - DYNAMEX INC | d69544exv32w2.htm |
EX-32.1 - EX-32.1 - DYNAMEX INC | d69544exv32w1.htm |
EX-23.1 - EX-23.1 - DYNAMEX INC | d69544exv23w1.htm |
EX-31.1 - EX-31.1 - DYNAMEX INC | d69544exv31w1.htm |
EX-31.2 - EX-31.2 - DYNAMEX INC | d69544exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended July 31, 2009
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-21057
DYNAMEX INC.
(Exact name of registrant as specified in its charter)
Delaware | 86-0712225 | |
(State of incorporation) | (I.R.S. Employer Identification No.) | |
5429 LBJ Freeway, Suite 1000, Dallas, Texas | 75240 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code:
(214) 560-9000
(214) 560-9000
Securities registered pursuant to Section 12(b) of the Act:
None
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Common Stock, $.01 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark 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 registrants 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. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Small reporting company filer o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The aggregate market value of the voting stock held by non-affiliates of the registrant on
January 31, 2009 was approximately $107,586,445.
The number of shares of the registrants common stock, $.01 par value, outstanding as of
September 30, 2009 was 9,724,574 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the information required in Part III of the Form 10-K have been incorporated
by reference to the Registrants definitive Proxy Statement on Schedule 14-A to be filed with the
Commission.
TABLE OF CONTENTS
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PART III |
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PART IV |
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EX-23.1 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
1
Table of Contents
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 managements
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. The Company was organized under the laws of Delaware in 1992 as Parcelway Systems
Holding Corp. and changed its name to Dynamex Inc. in 1995. Through its network of business
centers, the Company provides same-day, on-demand, 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
on-demand delivery services, the Company offers local and regional distribution services, which
encompass recurring, often daily, point-to-point deliveries or multiple destination deliveries that
often require intermediate handling. The Company also offers outsourcing services as well as 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 Companys on-demand delivery
capabilities are available to supplement scheduled distribution arrangements or dedicated fleets as
needed. Facilities management services include the Companys operation and management of
customers mailrooms. In Fiscal Year (FY) 2006, in conjunction with its franchising activities the
Company began to franchise its technology and certain business processes primarily to small,
privately held same-day transportation companies in order to increase market share, penetrate new
markets and increase operational efficiencies.
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 United States and Canada consists of several thousand small, independent businesses serving
local markets and a small number of multi-location regional or national operators. 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 accounts on a multi-market basis and centralized
administrative and management information systems.
Management believes that the same-day delivery segment of the transportation industry is
benefiting from several 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 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.
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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 Companys business strategy are as follows:
Focus on Primary Services. The Company operates in one reportable business segment, same day
delivery services, with two primary service offerings: (i) same-day, point-to-point on-demand
delivery services and (ii) same-day local and regional distribution services including 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, these value added services are generally less
vulnerable to price competition than traditional on-demand delivery services. Also, the Company
intends to capitalize on the market trend towards outsourcing transportation requirements by
concentrating its logistics services in same-day local and regional distribution and fleet
management. The delivery transactions in a fleet management and distribution program are recurring
in nature, thus creating the potential for long-term customer relationships.
Target National, Regional and Local Accounts. The Companys national account managers focus
on acquiring and maintaining national, regional and local accounts. The Company anticipates that
its (i) existing multi-city network of locations combined with its network of franchisees and
service partners, (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, regional and local 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 anothers customer base and providing such customers with a broader
range of value added services. For example, the Company has formed an alliance with Purolator
whereby on an exclusive basis the Company and Purolator provide one another with certain delivery
services and market one anothers delivery services to their respective customers. Purolator
reports that it is the largest overnight courier in Canada. See Sales and Marketing.
Services
The Company capitalizes on its routing, dispatch and vehicle and 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 independent contractor owner-operator drivers respond to a
customers 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
Companys ground couriers. The Company focuses on the delivery of non-faxable, time sensitive
items throughout major metropolitan areas rather than traditional downtown document delivery. For
the fiscal years ended July 31, 2009, 2008 and 2007, approximately 32%, 33%, and 33% respectively,
of the Companys sales were generated from same-day on-demand delivery services.
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Same-Day Local and Regional Distribution. The Company provides same-day scheduled local and
regional distribution services that 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 Companys on-demand delivery capabilities are available to
supplement scheduled services as needed. A bulk shipment may be received at the Companys
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 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.
The Companys distribution outsourcing services include fleet management and mailroom or other
facilities management, such as maintenance of call centers for inventory tracking and delivery.
With its distribution 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 distribution outsourcing service offerings can expand or contract depending on the
customers needs. Management believes that the distribution outsourcing trend has resulted in many
customers increasing their use of third-party providers for a variety of delivery services.
The largest component of the Companys distribution 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 customers logo and colors. In addition, the Companys 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 Companys fleet management
services include designing and managing systems to maximize efficiencies in transporting, sorting
and delivering customers products on a local and multi-city basis. Because the Company does not
own delivery vehicles, but instead contracts with drivers who do, the Companys fleet management
solutions are not limited by the Companys need to utilize its own fleet.
By outsourcing their fleet management, the Companys customers (i) utilize the Companys
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 the fiscal years ended July 31, 2009, 2008 and 2007, approximately 68%, 67%, and 67%,
respectively, of the Companys sales were generated from same-day local and regional distribution
services.
While the volume of individual services provided varies significantly between locations, each
of the Companys business centers generally offers the same core services. Factors that impact
business mix 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 Companys operations are divided into regions, four U.S. and four Canadian, with each of
the Companys approximately 48 business centers assigned to the appropriate region. Business
center operations are locally managed with regional and national oversight and support provided as
necessary. A business center manager is assigned to each business center and is accountable for
all aspects of such business center operations including its profitability. Each business center
manager reports to a regional manager with similar responsibilities for all business centers within
his region. Certain administrative and marketing functions may be centralized for multiple
business centers in a given city or region. Dynamex believes that the strong operational and sales
and marketing background of its senior management is important to building brand identity
throughout the United States and Canada while simultaneously overseeing and encouraging individual
managers to be successful in their local markets.
Same-Day On-Demand Delivery. Most business centers have operations 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
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the order to the appropriate dispatch location. All of the Companys clients have access to a
web-based electronic data interface to enter dispatch requirements, make inquiries and receive
billing information. A dispatcher 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 Companys computers, through two-way communication devices.
Same-Day Local and Regional Distribution. A dispatcher manages the delivery flow by
coordinating the scheduled deliveries with available drivers. 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 Companys warehouse or the customers
facility.
The largest component of the Companys distribution outsourcing services is its fleet
management. Fleet management services are coordinated by the Companys logistics specialists who
have experience in designing, implementing and managing integrated networks for transportation
services. Based upon the specialists analysis of a customers fleet and distribution
requirements, the Company develops a plan to optimize fleet configuration and route design. The
Company coordinates with independent contractor owner-operator drivers necessary to implement the
fleet management plan. Such independent contractor owner-operator drivers are generally dedicated
to a particular customer and may display the customers name and logo on its vehicles. The Company
can supplement these dedicated independent contractor owner-operator drivers with its on-demand
capability as necessary.
Prices for the Companys services are determined at the local level based on the distance,
weight and time-sensitivity of a particular delivery. The Company generally enters into customer
contracts for local and regional 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 independent contractor owner-operators who
provide their own vehicles, pay all expenses of operating their vehicles and receive a percentage
of the delivery charge as payment for their services. 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 reduces the Companys fixed costs.
Sales and Marketing
The Company markets its services through a sales force comprised of national and local sales
representatives and telemarketers. The total sales force including management, national and local
sales representatives and administrative support totaled 114 persons at July 31, 2009. The
Companys national sales force, comprised of 14 national account representatives supported by 2
managers at July 31, 2009, focus on regional and national customers who can utilize its services on
a multi-market basis. As of such date, 79 local employee sales representatives supported by 12
sales managers and 2 administrative employees target business opportunities in their local market,
and 5 specialized sales representatives contact existing customers to assess customer satisfaction
and requirements. The Companys sales force will seek to generate additional business from
existing local accounts, which often include large companies with multiple locations. The
expansion of the Companys 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 Companys local sales representatives make regular calls on existing and potential
customers to identify such customers delivery and logistics needs. The Companys national product
and industry specialists augment the local marketing efforts and seek new applications of the
Companys 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 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 Companys marketing strategy. For example, under an
agreement with Purolator, the
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Company serves as Purolators 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.
Customers
The Companys target customer is a business that distributes time-sensitive, non-faxable items
to multiple locations. The primary industries served by the Company include financial services,
electronics, pharmaceuticals, retail, office products, medical laboratories and hospitals, auto
parts, legal services and Canadian governmental agencies. During the years ended July 31, 2009,
2008 and 2007, sales to Office Depot, Inc. represented approximately 14.0%, 14.6% and 14.2%,
respectively, of the Companys revenue. Sales to the Companys five largest customers, including
Office Depot, represented approximately 24%, 27% and 28% of the Companys consolidated sales for
the years ended July 31, 2009, 2008 and 2007, respectively.
A significant number of the Companys customers are located in Canada. For the fiscal years
ended July 31, 2009, 2008 and 2007, approximately 36%, 38% and 38% of the Companys sales,
respectively, were generated in Canada. See Note 14 of Notes to the Consolidated Financial
Statements for additional information concerning the Companys foreign operations.
Competition
The market for the Companys 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 Companys 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.
Price competition for basic delivery services is particularly intense.
The market for the Companys logistics services is also highly competitive, and can be
expected to remain competitive as additional companies seek to capitalize on the growth in the
industry. The Companys 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 Companys 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, the large volume of available work and the use of proprietary
technology, are factors that are attractive to drivers and help the Company to recruit and retain
drivers.
Regulation
The Companys 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 U. S. Department of Transportation, the states and by the
appropriate Canadian federal and provincial regulations. The Company is also subject to regulation
by the U. S. Department of Transportation and 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 and driver logbooks. 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
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failure of the Company to comply with the applicable regulations could result in substantial
fines or possible revocations of one or more of the Companys operating permits.
Safety
From time to time, the independent contractor owner-operators performing services for the
Company are involved in accidents. The Company carries liability insurance with a per claim and an
aggregate limit of $30 million. Independent contractor 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 $20,000 to $40,000). 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 and conducts criminal background checks via a third party agency.. In addition, where
required by applicable law, contractually or by Company policy, the Company requires prospective
drivers to take a physical examination and to pass a drug test. Drivers are provided information
on any additional safety requirements as dictated by customer specifications.
Intellectual Property
The Company has registered DYNAMEX, DXFRANCHISE POWERED BY DYNAMEX, POWERED BY DYNAMEX,
DYNAMEX DELIVERS NOW, DXNOW.COM and STRATEGIC STOCKING LOCATIONS as federal trademarks in the
Canadian Intellectual Office and the U.S. Patents and Trademarks office for federal trademark
registration of such names. No assurance can be given that any such registration will be effective
to prevent others from using the trademark concurrently or to allow the Company to use the
trademark in certain locations.
Employees
At July 31, 2009, the Company had approximately 1,500 employees, of whom approximately 800
were employed in various management, supervisory, sales, administrative, and other corporate
positions and approximately 700 were employed as messengers and mailroom workers. Additionally at
July 31, 2009, the Company had contracts with approximately 3,300 independent contractor
owner-operator drivers. Management believes that the Companys relationship with such employees
and independent contractor owner-operators is good. See Risk Factors Certain Tax Matters
Related to Drivers.
Of the approximately 3,300 independent contractor owner-operator drivers used by the Company
as of July 31, 2009, approximately 1,600 are located in Canada and approximately 1,700 are located
in the U.S. Although the drivers and messengers located in Canada are generally independent
contractors, approximately 70% are represented by major international labor unions. Management
believes that the Companys relationship with such unions is good. Unions represent none of the
Companys U.S. employees, drivers or messengers.
Available Information
The Company electronically files its annual report on Form 10-K, quarterly reports on Form
10-Q, and current reports on Form 8-K with the Securities and Exchange Commission (SEC). Copies
of the Companys filings with the SEC may be obtained from its website at HTTP://WWW.DYNAMEX.COM or
at the SECs website, at HTTP://WWW.SEC.GOV. Access to these filings is free of charge.
ITEM 1A. | RISK FACTORS |
In addition to other information in this report, the following risk factors should be
considered carefully in evaluating the Company and its business. This report contains
forward-looking statements, which involve risks and uncertainties. The Companys actual results
could differ materially from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth in the following risk factors and elsewhere in this
report.
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The Global Economic Conditions Could Adversely Affect the Companys Business and
Financial Results and have a Material Adverse Affect on our Liquidity and Capital Resources
As the global financial crisis has broadened and intensified, most sectors of the economy have
been adversely impacted. Any resulting decreases in customer traffic or average value per
transaction will negatively impact the Companys financial performance as reduced revenues result
in sales de-leveraging which creates downward pressure on margins. Additionally, many of the
effects and consequences of the global financial crisis and a broader global economic downturn are
currently unknown; any one or all of them could potentially have a material adverse effect on the
Companys liquidity and capital resources, including our ability to raise additional capital if
needed, the ability of banks to honor draws on our credit facility, or otherwise negatively impact
the Companys business and financial results.
Changing Fuel Costs May Adversely Affect Our Financial Condition and Results of Operations
The independent contractor owner-operators we engage are responsible for all vehicle expense
including maintenance, insurance, fuel and all other operating costs. We make every reasonable
effort to include fuel cost adjustments in customer billings that we pay to independent contractor
owner-operators to offset the impact of fuel price increases. If future fuel cost adjustments are
insufficient to offset independent contractor owner-operators costs, we may be unable to attract a
sufficient number of independent contractor owner-operators that may negatively impact our
business, financial condition and results of operations.
Competition May Adversely Affect Our Results
The market for same-day delivery and logistics services has been and is expected to remain
highly competitive. Competition is often intense, particularly for basic delivery services. High
fragmentation and low barriers to entry characterize the industry. We compete with other companies
in the industry not only to be providers of services but also for qualified drivers. Some of these
companies have longer operating histories and greater financial and other resources than we do.
Because of the low cost of entry, companies that do not currently operate delivery and logistics
businesses may enter the industry in the future. See Business Competition.
An Increase in Claims May Expose Us to Losses
As of July 31, 2009, we utilized the services of approximately 3,300 independent contractor
owner-operator drivers. From time to time such persons are involved in accidents or other
activities that may give rise to liability claims. We currently carry liability insurance with a
per occurrence and an aggregate limit of $30 million. Our independent contractor owner-operators
are required to maintain liability insurance of at least the minimum amounts required by applicable
state or provincial law (generally such minimum requirements range from $20,000 to $40,000). We
also have insurance policies covering property and fiduciary trust liability, which coverage
includes all drivers and messengers. We make no assurance that claims against us, whether under
the liability insurance or the surety bonds will not exceed the applicable amount of coverage, that
our insurer will be solvent at the time of settlement of an insured claim, or that we will be able
to obtain insurance at acceptable levels and costs in the future. If we were to experience a
material increase in the frequency or severity of accidents, liability claims, workers
compensation claims or unfavorable resolutions of claims, our business, financial condition and
results of operations could be materially adversely affected. In addition, significant increases
in insurance costs could reduce our profitability.
We Rely on Independent Contractor Owner-Operator Drivers to Make Deliveries for Our Customers
Substantially all of our drivers at July 31, 2009 were independent contractor owner-operators.
We are currently a party to class actions brought by former drivers in California alleging, among
other things, that the Company has misclassified its drivers in California as independent
contractors rather than employees and seeking recovery of overtime pay and other benefits and
expense reimbursements. We believe that our classification of our owner-operators as independent
contractors is proper under applicable law and we intend to vigorously defend these actions.
However, in the event of an adverse determination in these actions, the Company could be required
to pay overtime pay and other benefits and expense reimbursements to former and current drivers who
are members of the class for prior periods and, in the case of current drivers, prospectively. To
the extent that we are required to pay our
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owner-operators overtime pay and other benefits and expense reimbursements, our operating
costs will increase, which could adversely impact our financial condition and results of
operations.
We
also do offer to withhold and pay any federal, state or provincial employment tax with
respect to or on behalf of independent contractors. Our classification of our owner-operator
drivers as independent contractors has been challenged from time to time by various taxing
authorities, as in the case of California, where we have been subjected to assessments and interest
for prior periods as a result of audits by the California Employment Development Department. While
we believe that our owner-operators are not employees under existing interpretations of federal
(U.S. and Canadian), state and provincial laws and intend to vigorously defend such challenges,
there is no certainty that we will prevail. If we are required to pay employer taxes or pay
backup withholding in respect of prior periods on behalf of our owner-operators, our operating
costs will increase, which could adversely impact our financial condition and results of
operations.
See Business Services and Employees and Legal Proceedings in Part I, Item 3 of this
Form 10-K.
We May Be Adversely Affected by Local Delivery Industry and General Economic Conditions
Our sales and earnings are especially sensitive to events that affect the delivery services
industry including extreme weather conditions, economic factors affecting our significant customers
and shortages of or disputes with independent contractors, any of which could result in our
inability to service our clients effectively or our inability to profitably manage our operations.
In addition, downturns in the level of general economic activity and employment in the U.S. or
Canada may negatively impact demand for our services.
Fluctuations of Foreign Exchange Rates May Adversely Affect Our Results
About one-third of our operations are conducted in Canada. Exchange rate fluctuations between
the U.S. and Canadian dollar result in fluctuations in the amounts relating to the Canadian
operations reported in our consolidated financial statements. The Canadian dollar is the
functional currency for the Canadian operations; therefore, any change in the exchange rate will
affect our reported sales, expenses and net income for such period. We historically have not
entered into hedging transactions with respect to our foreign currency exposure, but may do so in
the future. Fluctuations in the exchange rate have adversely affected our reported sales in FY
2009. We cannot be assured that fluctuations in foreign currency exchange rates will not continue
to have an adverse effect on our business, financial condition or results of operations. See
Managements Discussion and Analysis of Financial Condition and Results of Operation.
Failure to Maintain Permits and Licensing May Adversely Affect Our Ability to Operate
Although certain aspects of the transportation industry have been significantly deregulated,
our delivery operations are still subject to various federal (U.S. and Canadian), state, provincial
and local laws, ordinances and regulations that in many instances require certificates, permits and
licenses. If we fail to maintain required certificates, permits or licenses, or to comply with
applicable laws, ordinances or regulations we may incur substantial fines or possible revocation of
our authority to conduct certain of our operations. See Business Regulation.
We Depend Upon Key Personnel for Our Continued Operations
Our success is largely dependent on the skills, experience and performance of certain key
members of our management. The loss of the services of any of these key employees could have a
material adverse effect on our business, financial condition and results of operations. Our future
success and plans for growth also depend on its ability to attract and retain skilled personnel in
all areas of our business. There is strong competition for skilled personnel in the same-day
delivery and logistics businesses.
Technological Advances May Adversely Affect Our Business
Technological advances in the nature of facsimile, electronic mail and electronic signature
capture have affected the market for on-demand document delivery services. Although we have
shifted our focus to the distribution of non-faxable items and logistics services, there can be no assurance that these
or other technologies will not have a material adverse effect on our business, financial condition
and results of operations in the future.
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We Are Highly Dependent Upon Our Technology Infrastructure
We rely heavily on technology to operate our transportation and business networks, and any
disruption to our technology infrastructure or the internet could harm our operations and our
reputation among our customers. Our ability to attract and retain customers and to compete
effectively depends in part upon the sophistication and reliability of our technology network,
including our ability to provide features of service that are important to our customers. Any
disruption to our computer systems and web site could adversely impact our customer service, our
ability to receive orders and respond to prompt delivery assignments and result in increased costs.
While we have invested and will continue to invest in technology security initiatives and disaster
recovery plans, these measures cannot fully insulate us from technology disruptions and the
resulting adverse effect on our operations and financial results.
We Are Dependent on Availability of Qualified Delivery Personnel
We are dependent upon our ability to attract and retain, as employees or through independent
contractor or other arrangements, qualified delivery personnel who possess the skills and
experience necessary to meet the needs of our operations. We compete in markets where unemployment
has traditionally been relatively low and the competition for independent contractor
owner-operators and other employees is intense. We must continually evaluate and upgrade our pool
of available independent contractor owner-operators to keep pace with demands for delivery
services. We have no assurance that qualified delivery personnel will continue to be available in
sufficient numbers and on terms acceptable to us. Our inability to attract and retain qualified
delivery personnel could have a material adverse impact on our business, financial condition and
results of operations.
We May Need Additional Financing to Pursue Our Acquisition Strategy
We intend to pursue acquisitions that are complementary to our existing operations. We may be
required to incur additional debt, issue additional securities that may potentially result in
dilution to current holders and also may result in increased goodwill, intangible assets and
amortization expense. We have no assurance that we will be able to obtain additional financing if
necessary, or that such financing can be obtained on terms we will deem acceptable. As a result,
we may be unable to successfully implement our acquisition strategy. See Managements Discussion
and Analysis of Financial Condition and Results of Operation Liquidity and Capital Resources.
Factors Beyond Our Control May Affect the Volatility of Our Stock Price
Prices for our common stock will be determined in the marketplace and may be influenced by
many factors, including the depth and liquidity of the market for our common stock, investor
perception of us and general economic and market conditions. Variations in our operating results,
general trends in the industry and other factors could cause the market price of our common stock
to fluctuate significantly. In addition, general trends and developments in the industry,
government regulation and other factors could have a significant impact on the price of our common
stock. The stock market has, on occasion, experienced extreme price and volume fluctuations that
have often particularly affected market prices for smaller companies and that often have been
unrelated or disproportionate to the operating performance of the affected companies, and the price
of our common stock could be affected by such fluctuations.
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 2. | PROPERTIES |
The Company leased facilities in 79 locations at July 31, 2009. These facilities are
principally used for operations and general and administrative functions. The chart below
summarizes the locations of facilities that the Company leases:
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Number of | ||||
Location | Leased Properties | |||
Canada |
||||
Alberta |
4 | |||
British Columbia |
6 | |||
Manitoba |
2 | |||
Newfoundland |
1 | |||
Nova Scotia |
1 | |||
Ontario |
13 | |||
Quebec |
2 | |||
Saskatchewan |
2 | |||
Canadian Total |
31 |
Number of | ||||
Location | Leased Properties | |||
United States |
||||
Arizona |
1 | |||
California |
12 | |||
Colorado |
1 | |||
Connecticut |
1 | |||
Delaware |
1 | |||
Florida |
1 | |||
Georgia |
1 | |||
Illinois |
2 | |||
Indiana |
1 | |||
Kansas |
1 | |||
Maryland |
1 | |||
Massachusetts |
1 | |||
Minnesota |
1 | |||
Nevada |
1 | |||
New Jersey |
3 | |||
New York |
4 | |||
Ohio |
2 | |||
Pennsylvania |
3 | |||
Tennessee |
1 | |||
Texas |
4 | |||
Virginia |
3 | |||
Washington |
2 | |||
United States Total |
48 | |||
Total |
79 | |||
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.
Facility rental expense for the fiscal years ended July 31, 2009, 2008 and 2007 was
approximately $11.6 million, $10.6 million and $9.8 million, respectively. The Companys principal
executive offices are located in
Dallas, Texas. See Note 7 of Notes to the Consolidated Financial Statements for additional
information.
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ITEM 3. | LEGAL PROCEEDINGS |
The California Employment Development Department conducted an employment tax audit of the
Companys California operations in 2006. Based on its conclusion that certain independent
contractors used by the Company should be reclassified as employees, a Notice of Assessment was
issued by the EDD in April 2007 in the amount of $2.8 million; $2.0 million of which represents personal income tax of the reclassified individuals. The Company has collected and
submitted documentation which will work to reduce the personal income tax portion of the assessment
through the California abatement process. The Company believes that the independent contractors
were properly classified and has filed a Petition for Reassessment. The Company intends to
vigorously contest the assessment.
On April 15, 2005, a putative class action was filed against the Company by a former
independent contractor in the Superior Court of California, Los Angeles County, alleging that the
Company unlawfully misclassified its California drivers as independent contractors, rather than
employees, and asserting, as a consequence, entitlement on behalf of the purported class claimants
to overtime compensation and other benefits under California wage and hour laws, reimbursement of
certain operating expenses, and various insurance and other benefits and the obligation of the
Company to pay employer payroll taxes under federal and state law. Plaintiffs original Motion for
Class Certification was denied in December 2006. On appeal, the Appellate Court reversed the
Denial of the Motion for Class Certification and remanded the matter for additional discovery and
re-hearing of the Motion. Pursuant to Order of the Court, the names and contact information for
members of the putative class were produced by the Company in January 2009. In early February
2009, Plaintiff filed an Amended Complaint, which among other matters, added an additional named
Plaintiff. Plaintiffs filed a new Motion for Class Certification in June, 2009, seeking the
certification of a Class with four Subclasses, each dependent on the type of service rendered by
the independent contractor and the weight of the vehicle provided by the independent contractor.
On July 28, 2009, the Court granted the Motion. The four subclasses are each subject to between
four and eight exclusions. Plaintiffs proposed a Notice of Pendency of Class Action to be sent to
members of the Class. The Court approved the Notice over the Companys objections in early
October. Also in early October, Plaintiff filed a Motion for Summary Judgment requesting the Court
to issue an Order adjudicating that there is no merit to the Defendants Affirmative Defense that
Plaintiffs claims are barred because Plaintiffs and the putative class members are not employees,
but are independent contractors. The Court has set a Hearing on the Motion for December 17, 2009.
On July 25, 2008, two independent contractor drivers filed a purported class action suit in
San Bernardino County, California Superior Court alleging that the Companys classification of
California drivers as independent contractors was unlawful, and that as a consequence they were
denied the benefit of various California wage laws. They further alleged that such
misclassification constituted unfair competition under California business statutes. Because the
Complaint in large measure contains the same causes of action as the on-going 2005 Los Angeles
County, California Superior Court case, the Company filed a Special Demurrer and a Motion to Stay
further proceedings pending the outcome of the earlier action. Following a November 2008 Hearing,
the Court issued a Stay. Plaintiffs subsequent attempt to consolidate their action with the Los
Angeles County action described above was denied. On January 21, 2009, one of the named Plaintiffs
voluntarily dismissed his claims without prejudice in order to attempt to join the Los Angeles
County suit. The Plaintiff has subsequently been added to the Los Angeles County suit.
On May 19, 2009, a Truck Leasing Company filed an action against the Company in U.S. District
Court for the Southern District of Ohio, Western Division raising claims for breach of contract,
promissory estoppel, unjust enrichment, conversion, and tortious interference with business
relationships. The action further seeks injunctive relief and punitive damages. The action
relates to the lease of vehicles to various independent contractors and a certain Program Agreement
between the Leasing Company and the Company. The Company has filed its Answer denying all the
claims and presenting affirmative defenses. Discovery has started. The Company believes that it
met all of the limited obligations under the Program Agreement.
On September 29, 2008, five former independent contractor drivers filed an action in
California State Court alleging that the Company misclassified them as independent contractors
rather than employees and further that the
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Company committed unlawful racial harassment and discrimination ultimately resulting in their
wrongful termination or wrongful constructive termination, all in violation of the public policy of
the State of California. An Amended Complaint was filed on November 20, 2008, and the Company
thereafter timely filed its Answer. At the Case Management Conference in early February 2009, the
parties were ordered to participate in mediation before December 4, 2009, and a trial date of
February 8, 2010 was set. The Company has deposed all five of the Plaintiffs. The Company
believes that the Plaintiffs were properly classified as independent contractors and believes that
Plaintiffs were treated in conformity with all state and federal laws.
The Company believes that the independent contractor owner-operator drivers are properly
classified as independent contractors and intends to vigorously defend this litigation. Given the
nature and preliminary status of the claims, however, the Company cannot yet determine the amount
or a reasonable range of potential loss in these matters, if any.
The Company is a party to various legal proceedings arising in the ordinary course of its
business. The Company believes that the ultimate resolution of these proceedings will not, in the
aggregate, have a material adverse effect on the financial condition, results of operations, or
liquidity of the Company.
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
None.
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PART II
ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information The Companys common stock commenced trading on the Nasdaq Global Select
Market under the symbol DDMX on March 14, 2005. Previously, the common stock was listed on the
AMEX. The following table summarizes, for the periods indicated, the range of high and low closing
sale prices for our common stock, as reported on the Nasdaq Global Select Market. The NASDAQ prices
represent inter-dealer quotations without retail markups, markdowns or commissions and may not
represent actual transactions.
Bid | Bid | |||||||||||||||
Fiscal 2009 | High | Low | High | Low | ||||||||||||
First Quarter |
$ | 29.80 | $ | 20.74 | 9/18/08 | 10/28/08 | ||||||||||
Second Quarter |
25.45 | 11.02 | 11/3/08 | 12/16/08 | ||||||||||||
Third Quarter |
14.93 | 10.62 | 4/21/09 | 2/4/09 | ||||||||||||
Fourth Quarter |
18.18 | 13.92 | 5/8/09 | 7/2/09 |
Fiscal 2008 | High | Low | High | Low | ||||||||||||
First Quarter |
$ | 29.95 | $ | 23.50 | 10/29/07 | 8/10/07 | ||||||||||
Second Quarter |
30.47 | 22.70 | 12/11/07 | 1/15/08 | ||||||||||||
Third Quarter |
26.46 | 21.55 | 4/7/08 | 3/4/08 | ||||||||||||
Fourth Quarter |
29.57 | 23.05 | 7/22/08 | 5/21/08 |
Stock Price Performance
Set forth below is a line graph indicating the stock price performance of the Companys common
stock for the period beginning August 1, 2004 and ending July 31, 2009 as contrasted with the
Nasdaq Composite Index ** and the AMEX Composite Index and the Russell 2000 Stock Index***. The
graph assumes that $100 was invested at the beginning of the period and has been adjusted for any
stock dividends distributed after August 1, 2009. No cash or stock dividends have been paid during
this period.
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COMPARATIVE CUMULATIVE TOTAL RETURN
AMONG DYNAMEX INC.,
NASDAQ COMPOSITE INDEX, AMEX COMPOSITE INDEX
AND RUSSELL 2000 INDEX
AMONG DYNAMEX INC.,
NASDAQ COMPOSITE INDEX, AMEX COMPOSITE INDEX
AND RUSSELL 2000 INDEX
ASSUMES $100 INVESTED ON AUGUST 1, 2004
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING JULY 31, 2009
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING JULY 31, 2009
** | The Company transferred its listing to the Nasdaq Global Select Market from the AMEX on March 14, 2005. | |
*** | The Russell 2000 Stock Index represents companies with a market capitalization similar to that of the Company. The Company does not believe it can reasonably identify a peer group because it believes that there is only one public company engaged in lines of business directly comparative to those of the Company. |
Holders At September 30, 2009, the approximate number of holders of record of common stock
was 227.
Dividends The Company has not declared or paid any cash dividends on its common stock since
its inception. The Company does not anticipate paying any cash dividends in fiscal 2010. See
Managements Discussion and Analysis of Financial Condition and Results of Operation Liquidity
and Capital Resources.
Securities Authorized for Issuance Under Equity Compensation Plans The following table
provides information regarding the Companys equity compensation plan as of July 31, 2009.
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Number of securities to be | Number of securities | |||||||||||
issued upon exercise of | Weighted-average exercise | remaining available for future | ||||||||||
outstanding options, | price of outstanding | issuance under equity | ||||||||||
Plan category | warrants and rights | options, warrants and rights | compensation plans | |||||||||
Equity compensation plans
approved by security holders |
647,645 | $ | 22.22 | 908,355 | ||||||||
Equity compensation plans
not approved by security
holders |
| | | |||||||||
Total |
647,645 | $ | 22.22 | 908,355 | ||||||||
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ITEM 6. | SELECTED FINANCIAL DATA |
The following selected historical financial and other data for the three years ended July 31,
2009 and the balance sheet data at July 31, 2009 and 2008 have been derived from the audited
consolidated financial statements
of the Company appearing elsewhere herein. The following selected historical financial and
other data for the two years ended July 31, 2006 and 2005 and the balance sheet data at July 31,
2007, 2006 and 2005 have been derived from the consolidated financial statements of the Company not
appearing herein. The selected financial data are qualified in their entirety, and should be read
in conjunction with the Companys consolidated financial statements, including the notes thereto,
and Managements Discussion and Analysis of Financial Condition and Results of Operation
appearing elsewhere herein.
Years ending July 31, | ||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||||||
Statements of operations data: |
||||||||||||||||||||
Sales |
$ | 402,109 | $ | 455,776 | $ | 413,774 | $ | 358,374 | $ | 321,103 | ||||||||||
Expenses (1) |
383,483 | 427,730 | 389,660 | 336,437 | 301,051 | |||||||||||||||
Depreciation and amortization |
3,440 | 2,825 | 2,357 | 1,931 | 1,648 | |||||||||||||||
Restructuring cost (4) |
1,104 | | | | | |||||||||||||||
Operating income |
14,082 | 25,221 | 21,757 | 20,006 | 18,404 | |||||||||||||||
Interest expense, net |
177 | 232 | 299 | 295 | 466 | |||||||||||||||
Other (income) expense, net (2) |
(411 | ) | (516 | ) | (2,079 | ) | (275 | ) | (226 | ) | ||||||||||
Income before income taxes |
14,316 | 25,505 | 23,537 | 19,986 | 18,164 | |||||||||||||||
Income taxes |
5,566 | 9,722 | 8,575 | 7,594 | 6,979 | |||||||||||||||
Net income |
$ | 8,750 | $ | 15,783 | $ | 14,962 | $ | 12,392 | $ | 11,185 | ||||||||||
Earnings per share: |
||||||||||||||||||||
basic |
$ | 0.89 | $ | 1.55 | $ | 1.41 | $ | 1.12 | $ | 0.97 | ||||||||||
diluted |
$ | 0.89 | $ | 1.53 | $ | 1.39 | $ | 1.11 | $ | 0.95 | ||||||||||
Weighted average common shares outstanding: |
||||||||||||||||||||
basic |
9,782 | 10,207 | 10,612 | 11,057 | 11,544 | |||||||||||||||
diluted |
9,809 | 10,297 | 10,738 | 11,197 | 11,804 | |||||||||||||||
Other data: |
||||||||||||||||||||
Earnings before interest, taxes, depreciation and
amortization (EBITDA) (3) |
||||||||||||||||||||
Net income |
$ | 8,750 | $ | 15,783 | $ | 14,962 | $ | 12,392 | $ | 11,185 | ||||||||||
Adjustments: |
||||||||||||||||||||
Income tax expense |
5,566 | 9,722 | 8,575 | 7,594 | 6,979 | |||||||||||||||
Non-cash stock option expense |
1,418 | 1,180 | 771 | 717 | 459 | |||||||||||||||
Interest expense, net |
177 | 232 | 299 | 295 | 466 | |||||||||||||||
Depreciation and amortization |
3,440 | 2,825 | 2,357 | 1,931 | 1,648 | |||||||||||||||
Restructuring cost |
1,104 | | | | | |||||||||||||||
EBITDA |
$ | 20,455 | $ | 29,742 | $ | 26,964 | $ | 22,929 | $ | 20,737 | ||||||||||
July 31, | ||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Balance sheet data: |
||||||||||||||||||||
Working capital |
$ | 38,319 | $ | 39,874 | $ | 23,337 | $ | 18,889 | $ | 22,917 | ||||||||||
Total assets |
129,499 | 138,624 | 121,040 | 110,525 | 109,475 | |||||||||||||||
Long-term debt, excluding current portion |
| | | 905 | 8 | |||||||||||||||
Stockholders equity |
96,080 | 97,634 | 81,409 | 79,212 | 83,896 |
1) | Expenses include purchased transportation, salaries, wages and employee benefits as well as facility costs, communication, travel and entertainment, office supplies, equipment rentals and general corporate expenses. |
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2) | The increase in other income in the year ended July 31, 2007, is principally attributable to the resolution of inter-company, cross-border transfer pricing issues for fiscal years 2001 through 2005. As a result, the Company realized interest income of approximately $425,000 from the overpayment of prior year Canadian taxes without a corresponding increase in interest expense from the U.S. as the Company had available U.S. net operating losses to offset the additional income, and the realization of $937,000 in foreign currency transaction gains on cash settlement of those inter-company charges. These inter-company charges were denominated in Canadian dollars, the value of which increased in U.S. dollars from those prior year levels. The result was to increase net income by $972,000, $0.09 per fully diluted share, for the 2007 year. See Footnote 13 of Notes to the Consolidated Financial Statements for additional information. | |
3) | EBITDA is defined as income excluding interest, non-cash stock option expense, taxes, depreciation and amortization and restructuring cost (as presented on the face of the income statement and statement of cash flows). EBITDA is supplementally presented because management believes that it is a widely accepted and useful financial indicator regarding our results of operations. Management believes EBITDA assists in analyzing and benchmarking the performance and value of our business. Although our management uses EBITDA as a financial measure to assess the performance of our business compared to that of others in our industry, the use of EBITDA is limited because it does not include certain costs that are material in amount, such as interest, non-cash stock option expense, taxes, depreciation and amortization and restructuring cost, necessary to operate our business. EBITDA is not a recognized term under generally accepted accounting principles and, when analyzing our operating performance, investors should use EBITDA in addition to, not as an alternative for, operating income, net income and cash flows from operating activities. In addition, the Companys definition of EBITDA may not be identical to similarly entitled measures used by other companies. | |
4) | During the quarter ended July 31, 2009 the Company announced the closure of the Canadian administrative office in Toronto, Canada and moving all finance and accounting functions to the Dallas corporate office and the elimination of the positions of the Canadian and United States President. The restructuring was executed in order to reduce redundant overhead expenses and is expected to be completed no later than December 2009. The Company will record approximately an additional $0.4 million of restructuring expense during fiscal year 2010 primarily related to the lease obligation cost related to the Toronto, Canada administration office upon the cease use date of the facility. |
ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION |
The following discussion should be read in conjunction with the information contained in the
Companys consolidated financial statements, including the notes thereto, and the other financial
information appearing elsewhere in this report. Statements regarding future economic performance,
managements plans and objectives, and any statements concerning its assumptions related to the
foregoing contained in Managements Discussion and Analysis of Financial Condition and Results of
Operation 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
Sales consist primarily of charges to customers for delivery services and weekly or monthly
charges for recurring services, such as facilities management. Sales are recognized when the
service is performed. The yield (value per transaction) for a particular service is dependent upon
a number of factors including size and weight of articles transported, distance transported,
special handling requirements, requested delivery time and local market conditions. Generally,
articles of greater weight transported over longer distances and those that require special
handling produce higher yields.
Operating expenses primarily consist of costs relating directly to performance of services,
including driver and messenger costs, third party delivery charges, warehousing and sorting
expenses, insurance and workers compensation costs. Substantially all of the drivers used by the
Company are independent contractor owner-operators who provide their own vehicles as opposed to
employees of the Company. Drivers and messengers are generally compensated based on a percentage
of the delivery charge. Consequently, the Companys driver and messenger costs are variable in
nature. Also included in operating expenses are salaries, wages and benefit costs
18
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incurred at the business center level related to taking orders and dispatching drivers
and messengers, as well as administrative costs related to such functions and regional and
corporate level marketing and administrative costs and occupancy costs related to business center
and corporate locations.
Generally,
the Companys on-demand services provide higher margins
before overhead than do local and
regional distribution or fleet management services because driver payments for on-demand services
are generally lower as a percentage of sales from such services due primarily to the smaller size
of the vehicle required. However, scheduled distribution and fleet management services generally
have fewer administrative requirements related to order taking, dispatching drivers and billing and
collection. As a result of these variances, the Companys operating income is dependent in part on
the mix of business for a particular period.
During the years ended July 31, 2009, 2008 and 2007, sales to Office Depot, Inc. represented
approximately 14.0%, 14.6% and 14.2%, respectively, of the Companys revenue. Sales to the
Companys five largest customers, including Office Depot, represented approximately 24%, 27% and
28% of the Companys consolidated sales for the years ended July 31, 2009, 2008 and 2007,
respectively.
The Company has no significant investment in transportation equipment. Depreciation and
amortization expense primarily relates to office, communication, IT equipment and software,
leasehold improvements and intangible assets, which are primarily customer lists.
A significant portion of the Companys sales is generated in Canada. For the fiscal years
ended July 31, 2009, 2008 and 2007, approximately 36%, 38%, and 38%, respectively, of the Companys
sales were generated in Canada. Before deduction of corporate costs, the majority of which are
incurred in the U.S., the cost structure of the Companys operations in the U.S. and Canada are
similar.
The conversion rate of Canadian dollars to U.S. dollars decreased during the fiscal year
ending July 31, 2009 compared to July 31, 2008 and increased during the fiscal year ending July 31,
2008 compared to July 31, 2007. As the Canadian dollar is the functional currency for the
Companys Canadian operations, these changes in the exchange rate have affected the Companys
reported sales and net income. Management does not believe that the effect of these changes on the
Companys net income for the fiscal years ended July 31, 2009, 2008 and 2007 has been significant,
although there can be no assurance that fluctuations in such currency exchange rate will not, in
the future, have a material effect on the Companys business, financial condition or results of
operations.
Critical Accounting Policies
The Company believes that the following are its most significant accounting policies:
Use
of estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. 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.
Revenue
recognition Revenues are recognized after services are rendered to customers.
There may be a time lag between pickup and delivery and the generation of an invoice. Accordingly,
unbilled revenue is recognized for those shipments that have been delivered but have not been
invoiced.
Intangibles
Intangibles arise from acquisitions accounted for as purchased business
combinations and include goodwill, covenants not-to-compete and other identifiable intangibles and
from the payment of financing costs associated with the Companys credit facility. Goodwill
represents the excess of the purchase price over all tangible and identifiable intangible net
assets acquired. The Company tests goodwill for impairment at least annually. The Company has two
reporting units for the purposes of assessing potential future impairments of goodwill, Canada and
the United States. These two regions were identified as reporting units in accordance with
paragraph 30 of SFAS No. 142 because discrete financial information is available and management
regularly reviews the operating results of these regions. The Company performs its annual goodwill
impairment test as of the first day of the fourth quarter of each year. Based on this test, the Company determined that no impairment exists during the
three years ended July 31, 2009. Other intangible assets are being amortized over periods ranging
from 3 to 25 years.
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Other
assets Recoverable contract contingency costs - The Company has recorded as an Other
Asset certain costs related to contractually reimbursable contingency costs incurred in connection
with the launch of certain contracts in accordance with EITF 99-5, Accounting for Pre-Production
Costs Related to Long-Term Supply Arrangements, These costs will be recovered during the initial
contract term, from a designated portion of the unit price specified in the contract. Should the
contract be cancelled for any reason, the customer is obligated to reimburse the Company for any
unamortized balance. Recoverable contract contingency costs capitalized, net of amortization, at
July 31, 2009 and 2008 amount to $778 thousand and $1,172 thousand, respectively.
Self-insured claims liability The Company is primarily self-insured for U.S. workers
compensation and vehicle liability claims. A liability for unpaid claims and the associated claim
expenses, including incurred but unreported losses, are recorded based on the Companys estimates
of the aggregate liability for claims incurred. The Companys estimates are based on actual
experience and historical assumptions of development of unpaid liabilities over time. Factors
affecting the determination of amounts to be accrued for claims include, but are not limited to,
cost, frequency, or payment patterns resulting from new types of claims, the hazard level of our
operations, tort reform or other legislative changes, unfavorable jury decisions, court
interpretations, changes in the medical conditions of claimants and economic factors such as
inflation. The method of calculating the estimated accrued liability for claims is subject to
inherent uncertainty. If actual results are less favorable than what are used to calculate the
accrued liability, the Company would have to record expenses in excess of what has already been
accrued.
Allowance
for doubtful accounts The Company maintains an allowance for doubtful accounts
for estimated losses resulting from the inability of its customers to make payments when due or
within a reasonable period of time thereafter. Estimates are used in determining this allowance
based on the Companys historical collection experience, current trends, credit policy and a
percentage of accounts receivable by aging category. If the financial condition of the Companys
customers were to deteriorate, resulting in an impairment of their ability to make required
payments, additional allowances may be required. The allowance for doubtful accounts represented
approximately 4.1% of accounts receivable at July 31, 2009 compared to approximately 1.9% at July
31, 2008 The increase in allowance for doubtful accounts related to the broadened and intensified
global financial crisis. Most sectors of the economy have been adversely impacted.
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.
During the year ended July 31, 2009 and 2007, the Company repatriated approximately $4.7
million and $3.6 million, respectively from its Canadian subsidiary. Except for certain applicable
state income taxes, the Company was able to substantially offset the U.S. income tax liability
arising from the dividends with foreign tax credits. The Company establishes valuation allowances
in accordance with the provisions of Statement of Financial Accounting Standards No. 109
Accounting for Income Taxes (SFAS No. 109).
Stock-based
compensation Statement of Financial Accounting Standards No. 123 (Revised
2004), Share-Based Payment, (SFAS No. 123(R)) requires the measurement of all employee
share-based payments to employees, including grants of employee stock options, using a
fair-value-based method and the recording of such expense in our consolidated statements of
operations. The accounting provisions of SFAS No. 123(R) were adopted by the Company effective
August 1, 2005.
The fair value of each grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for grants in 2009, 2008,
and 2007, respectively: dividend yield of 0% for all years; expected volatility of 43%, 43%, and
44%; risk-free interest rate of 2.8%, 3.9%, and 4.6%, and expected lives of an average of 6.9, 7.2
and 7.2 years for options granted to employees and of 6.8, 6.8 and 6.8 years for options granted to
non-employee directors for all years. The weighted average grant-date fair value of stock options
granted during the years 2009, 2008 and 2007 was $10.12, $14.80 and $11.97, respectively.
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As discussed in Note 10 of Notes to the Consolidated Financial Statements, option expense in
2009, 2008 and 2007 amounted to $1,418,000, $1,180,000 and $771,000, respectively, under the fair
value approach. Based on the outstanding and unvested awards as of July 31, 2009, the anticipated
effect on net income for fiscal 2010, net of taxes, will be approximately $903,000.
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 during 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 U.S. dollars by remittance or repayment, the realized exchange differences are
included as other income (expense) in the Consolidated Statement of Operations.
Treasury
stock acquired and retired Treasury stock is recorded at cost. Delaware law
permits treasury shares to be retired when appropriately authorized by the Board of Directors, and
the Company has retired such shares by appropriate reductions in the value of common stock and
additional paid-in capital.
Other
long-term liabilities The Company recognizes a deferred rent liability for tenant
improvement allowances within other long-term liabilities and amortizes those amounts over the term
of the lease as a reduction of rent expense. For scheduled rent escalation clauses during the
lease term, the Company records rental expense on a straight-line basis over the term of the lease.
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Results of Operations
The following table sets forth for the periods indicated certain items from the Companys
consolidated statement of operations, expressed as a percentage of sales:
Years Ended July 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Sales |
100.0 | % | 100.0 | % | 100.0 | % | ||||||
Operating expenses: |
||||||||||||
Purchased transportation |
63.4 | % | 64.5 | % | 63.7 | % | ||||||
Salaries and employee benefits |
21.0 | % | 19.9 | % | 20.2 | % | ||||||
Facilities and communication |
4.8 | % | 4.0 | % | 4.1 | % | ||||||
Other |
6.2 | % | 5.5 | % | 6.1 | % | ||||||
Depreciation and amortization |
0.8 | % | 0.6 | % | 0.6 | % | ||||||
Restructuring cost |
0.3 | % | 0.0 | % | 0.0 | % | ||||||
Total operating expenses |
96.5 | % | 94.5 | % | 94.7 | % | ||||||
Operating income |
3.5 | % | 5.5 | % | 5.3 | % | ||||||
Interest expense |
0.0 | % | 0.1 | % | 0.1 | % | ||||||
Other income, net |
-0.1 | % | -0.1 | % | -0.5 | % | ||||||
Income before income taxes |
3.6 | % | 5.5 | % | 5.7 | % | ||||||
Income taxes |
1.4 | % | 2.1 | % | 2.1 | % | ||||||
Net income |
2.2 | % | 3.4 | % | 3.6 | % | ||||||
The following tables sets forth for the periods indicated, the Companys sales accumulated by
service type and country:
Years Ended July 31, | ||||||||||||||||||||||||
2009 | 2008 | 2007 | ||||||||||||||||||||||
Sales by service type: |
||||||||||||||||||||||||
On demand |
$ | 127,797 | 31.8 | % | $ | 148,410 | 32.6 | % | $ | 137,418 | 33.2 | % | ||||||||||||
Scheduled/distribution |
274,312 | 68.2 | % | 307,366 | 67.4 | % | 276,356 | 66.8 | % | |||||||||||||||
Total sales |
$ | 402,109 | 100.0 | % | $ | 455,776 | 100.0 | % | $ | 413,774 | 100.0 | % | ||||||||||||
Sales by country: |
||||||||||||||||||||||||
United States |
$ | 257,623 | 64.1 | % | $ | 280,583 | 61.6 | % | $ | 257,025 | 62.1 | % | ||||||||||||
Canada |
144,486 | 35.9 | % | 175,193 | 38.4 | % | 156,749 | 37.9 | % | |||||||||||||||
Total sales |
$ | 402,109 | 100.0 | % | $ | 455,776 | 100.0 | % | $ | 413,774 | 100.0 | % | ||||||||||||
Year Ended July 31, 2009 Compared to Year Ended July 31, 2008
Net income for the year ended July 31, 2009 was $8.8 million ($0.89 per fully diluted share)
compared to $15.8 million ($1.53 per fully diluted share) for the year ended July 31, 2008.
Sales for the year ended July 31, 2009 were $402 million, a $54 million (11.8%) decrease over
the prior year. The average conversion rate between the Canadian dollar and the U.S. dollar
decreased 14.0% over the prior year period, which had the effect of decreasing sales for the year
ended July 31, 2009 by approximately $23.4 million (5.1%).
Also, management estimates that approximately 2.6% of the year-over-year decrease in
sales is attributable to fuel surcharges. The core growth rate, the rate excluding the impact of
the fuel surcharge and changes in the
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foreign
exchange rate, decreased approximately -4.0% for the year
ended July 31, 2009 (-5.6% in the U.S. and -2.1% in Canada). Canadian sales, including fuel
surcharges, decreased approximately 4.2% in Canadian dollars in the current fiscal year compared to
last year. The remaining sales increase is primarily attributable to volume increases from the
expansion of business with existing and new customers. Price increases did not account for a
substantial increase in FY2009 sales.
Purchased transportation for the year ended July 31, 2009 decreased $38.7 million, or 13.2%,
to $254.8 million from $293.5 million for the same period in the prior year. Purchased
transportation, as a percentage of sales was 63.4% for the year ended July 31, 2009, compared to
64.4% for the year ended July 31, 2008.
Salaries and employee benefits for the year ended July 31, 2009 decreased $6.2 million, or
6.9%, to $84.5 million from $90.7 million for the same period in the prior year. Salaries and
employee benefits, as a percentage of sales was 21.0% for the year ended July 31, 2009, compared to
19.9% for the year ended July 31, 2008. Slightly over half the decline is due to the weaker
Canadian dollar, lower bonus accruals and the reduction in force we announced in our FY 2009 second
quarter with the balance due to lower shipment volumes. Those reductions were offset, in part, by
a $1.5 million one-time, pre-tax special payment to the current Chairman of the Board and former
President and CEO in the first quarter of the current fiscal year and higher salaries and benefits
of approximately $0.5 million from the expansion of the sales force.
Facilities and communication expense for the year ended July 31, 2009 increased $0.9 million,
or 5.0%, to $19.4 million from $18.5 million for the same period in the prior year. Facilities and
communication expense as a percentage of sales was 4.8% for the year ended July 31, 2009, compared
to 4.0% for the year ended July 31, 2008. The increase primarily related to new leased facilities
to service current and future business expansion.
Other expenses for the year ended July 31, 2009 decreased $0.3 million, or 1.1%, to $24.8
million from $25.1 million for the same period in the prior year. Other expenses as a percentage of
sales was 6.2% for the year ended July 31, 2009, compared to 5.5% for the year ended July 31, 2008.
Fiscal year 2009 include legal costs of approximately $0.5 million for the California class-action
litigation and $0.2 million related to the evaluation of our sales organization and processes.
For the year ended July 31, 2009, depreciation and amortization was $3.4 million compared to
$2.8 million for the same period in the prior year. The increase is principally due to the higher
level of capital additions over the last two fiscal years. As a percent of sales, depreciation and
amortization was 0.9%, compared to 0.6% in the prior year period. The Company purchased
approximately $2.8 million of specialized equipment to service a specific customer under a
five-year contract extension that will increase future depreciation and amortization. Management
expects the level of depreciation and amortization expense to increase next year due to the FY 2009
expenditures being above historical levels.
Restructuring
During the quarter ended July 31, 2009 the Company announced the closure of
the Canadian administrative office in Toronto, Canada and moving all finance and accounting
functions to the Dallas corporate office and the elimination of the
positions of President U.S. and Canada. The
restructuring was executed in order to reduce redundant overhead expenses and is expected to be
completed no later than December 2009 and consists primarily of severance, stay bonuses and benefit
costs. The Company recorded a charge of $1.1 million during the fourth quarter of fiscal year 2009
and will record an additional $0.4 million of restructuring expense during fiscal year 2010
primarily related to the lease obligation cost related to the Toronto, Canada administration office
upon the cease use date of the facility.
Other income, net for the year ended July 31, 2009, was $411,000 compared to $516,000 for the
same period in the prior year. This decrease is principally attributable to lower interest rates
and lower investments in Canada due to the Companys decision to repatriate excess Canadian cash to
support its share repurchase program during the first quarter of FY 2009. The Company decided
during the second quarter of FY 2009 to suspend the share repurchase program.
Interest expense was $177,000, a decrease of $55,000 or 23.7% for the year ended July 31,
2009. Lower interest expense compared to the prior year is primarily attributable to lower interest
rates and lower average outstanding debt.
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The effective income tax rate was 38.9% for the current year compared to 38.1% for the prior
year. The increase in the effective tax rate is primarily attributable to both a higher effective
U.S. tax rate and a higher proportion of income being generated in the U.S. in the current year
compared to the prior year. The effective U.S. tax rate was approximately 2% higher than the prior
year due to the Companys decision to repatriate excess Canadian cash to support its ongoing share
repurchase program during the first quarter of FY 2009. The Canadian
effective tax rate was 32.3% for the current year. The Company decided during the second
quarter of FY 2009 to suspend the share repurchase program.
Year Ended July 31, 2008 Compared to Year Ended July 31, 2007
Net income for the year ended July 31, 2008 was $15.8 million ($1.53 per fully diluted share)
compared to $15.0 million ($1.39 per fully diluted share) for the year ended July 31, 2007. Net
income for the year ended July 31, 2007, was favorably impacted by approximately $972,000 ($0.09
per fully diluted share) from the settlement of prior year cross border transfer pricing issues
between the U.S. and Canada. See Footnote 13 of the Notes to the Condensed Consolidated Financial
Statements.
Sales for the year ended July 31, 2008 were $456 million, a $42 million (10.2%) increase over
the prior year. The average conversion rate between the Canadian dollar and the U.S. dollar
increased 11.4% over the prior year period, which had the effect of increasing sales for the year
ended July 31, 2008 by approximately $17.6 million (4.2%). Also, management estimates that
approximately 2.7% of the year-over-year increase in sales is attributable to fuel surcharges. The
core growth rate, the rate excluding the impact of the fuel surcharge and changes in the foreign
exchange rate, was approximately 3.6% for the year ended July 31, 2008 (6.7% in the U.S. and -1.9%
in Canada). Canadian sales, including fuel surcharges, increased approximately 0.2% in Canadian
dollars in the current fiscal year compared to last year. Sales for the year ended July 31, 2007
include sales for services provided on an interim basis to one customer in Canada of approximately
$11 million U.S. Excluding the temporary sales last year in Canada, the core growth rate per day
was approximately 6.3%. The remaining sales increase is primarily attributable to volume increases
from the expansion of business with existing and new customers. Price increases did not account
for a substantial increase in FY2008 sales.
Purchased transportation for the year ended July 31, 2008 increased $29.6 million, or 11.2%,
to $293.5 million from $263.9 million for the same period in the prior year. Purchased
transportation, as a percentage of sales was 64.4% for the year ended July 31, 2008, compared to
63.7% for the year ended July 31, 2007, partially due to the decline in on-demand sales as a
percentage of total sales in the year ended 2008 compared to the prior year. Although on-demand
sales increased slightly this year compared to the prior year, it represented only 32.6% of total
sales compared to 33.2% last year, as distribution sales increased 11%.
Salaries and employee benefits for the year ended July 31, 2008 increased $7.0 million, or
8.4%, to $90.7 million from $83.7 million for the same period in the prior year. Salaries and
employee benefits, as a percentage of sales was 19.9% for the year ended July 31, 2008, compared to
20.2% for the year ended July 31, 2007. Approximately $3.3 million of the increase is attributable
to the stronger Canadian dollar with the balance primarily attributable to the impact of additional
personnel hired over the last twelve months to support not only the current level of business but
also future sales growth, in addition to normal increases in compensation and higher premiums
related to medical and dental coverage.
Facilities and communication expense for the year ended July 31, 2008 increased $1.7 million,
or 9.8%, to $18.5 million from $16.8 million for the same period in the prior year. Facilities and
communication expense as a percentage of sales was 4.0% for the year ended July 31, 2008, compared
to 4.1% for the year ended July 31, 2007. The increase primarily related to new leased facilities
to service current and future business expansion.
Other expenses for the year ended July 31, 2009 decreased $0.2 million, or 0.1%, to $25.1
million from $25.3 million for the same period in the prior year. Other expenses as a percentage of
sales was 5.5% for the year ended July 31, 2008, compared to 6.1% for the year ended July 31, 2007.
For the year ended July 31, 2008, depreciation and amortization was $2.8 million compared to
$2.4 million for the same period in the prior year. The increase is primarily attributable to the
lessor financed leasehold improvements that occurred during fiscal year 2007.
Other income, net for the year ended July 31, 2008, was $516,000 compared to $2,079,000 for
the same period in the prior year. This decrease is principally attributable to the prior year
resolution of cross-border transfer pricing issues between Canada and the U.S. for fiscal years
2001 through 2005. As a result, the Company realized interest
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Table of Contents
income of approximately $425,000 from the overpayment of prior year Canadian taxes without a corresponding increase in interest
expense in the U.S. as the Company had available net operating losses to offset the additional
income, and the realization of $937,000 in foreign currency transaction gains on cash settlement of
those inter-company charges. The inter-company charges were denominated in Canadian dollars, the
value of which increased in U.S. dollars from those prior year levels. See Footnote 13 of the Notes
to the Condensed Consolidated Financial Statements.
Interest expense was $232,000, a decrease of $67,000 or 22.4% for the year ended July 31,
2008.
The effective income tax rate was 38.1% for the current year compared to 36.4% for the prior
year. The higher income rate this year results from the higher proportion of pre-tax income
generated in the U.S. than the previous year. The Companys current year effective income tax rate
in the U.S. was approximately 41.6% and 33.3% in Canada. Excluding the impact of the one-time
benefit from the resolution of prior year cross-border transfer pricing issues, the prior year
income tax expense would have been approximately $8.2 million, 36.9% of income before taxes. See
Footnote 8 of the Notes to the Condensed Consolidated Financial Statements.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flow provided from operations and our revolving
credit facility. Net cash provided by operating activities for the fiscal years ended July 31,
2009, 2008 and 2007 were $7.8 million, $16.4 million and $24.6 million, respectively. The decrease
in cash provided by operating activities this year compared to last year is principally
attributable to lower level of earnings. The timing of payments to service providers, vendors and
employees, the lower Canadian dollar exchange rate and reduced bonus accruals are the principal
reasons for the decline in accounts payable and accrued liabilities compared to the prior year.
Net cash used in investing activities increased $2.3 million in FY 2009 compared to the prior
year. In the current year, the Company purchased approximately $2.8 million of specialized
equipment to service a specific customer under a five-year contract extension that will increase
future depreciation and amortization. The prior year included approximately $0.1 million more for
acquisition of customer lists than the current year. The increase is partially offset by a
withdrawal of deferred compensation investments of approximately $0.7 million. Our cash flow from
operations has been our primary source of liquidity, and we expect it to continue to be the primary
source in the future. The Company does not have significant capital expenditure requirements to
replace or expand the number of vehicles used in its operations because substantially all of its
drivers are independent contractors who provide their own vehicles.
The Board of Directors has authorized the Company to purchase up to $78 million of Dynamex
Inc. common stock on the open market. Through July 31, 2008, the Company had repurchased a total
of 1,962,000 shares at an average price of $20.07 per share for a total dollar cost of $39,368.
During the year ended July 31, 2009, the Company repurchased a total of 439,000 shares at an
average price of $24.13 per share for a total dollar cost of $10,597, leaving a balance of $28,035
in the current authorization. The Company decided during the second quarter of FY 2009 to suspend
the share repurchase program. Delaware law permits treasury shares to be retired when appropriately
authorized by the Board of Directors, and the Company has retired such shares by appropriate
reductions in the value of common stock and additional paid-in capital.
The Companys revolving credit facility was initially established in 2004 and last amended on
January 26, 2009. The credit facility has a maturity date of July 31, 2013 and has no scheduled
principal payments. The $40 million revolving credit facility is secured by all of the Companys
U.S. assets and 100% of the stock of its domestic subsidiaries. At July 31, 2009, there were $6.9
million letters of credit issued but no outstanding borrowings under the revolving credit
agreement.
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The revolving credit facility requires us to satisfy certain financial and other covenants,
including:
Level at July 31, | ||||
Compliance Area | Covenant | 2009 | ||
Ratio of funded debt to EBITDA
|
Maximum of 2.00 to 1.00 | 0.35 to 1.00 | ||
Total indebtedness
|
$40 million, including LOCs | $6.9 million | ||
Letters of credit sublimit
|
$10.0 million | $6.9 million | ||
Treasury stock purchases during the subject period
|
Ratio of funded debt to EBITDA maximum of 1.50 to 1.00; based on pro forma effect of treasury stock purchases | 0.35 to 1.00 | ||
Fixed charge coverage ratio
|
Equal to or greater than 1.50 to 1.00 | 5.31 to 1.50 |
Management expects internally generated cash flow and temporary borrowings from its bank
credit facility will be sufficient to fund its operations, capital requirements and common stock
repurchases.
Contractual Obligations
The following table sets forth the Companys contractual commitments as of July 31, 2009 for
the periods indicated (in thousands):
Less than | ||||||||||||||||||||
Total | 1 Year | 1 - 3 Years | 3 - 5 years | Thereafter | ||||||||||||||||
Operating Leases |
36,964 | 11,691 | 15,671 | 7,395 | 2,206 | |||||||||||||||
The Company has entered into an employment agreement with its President and CEO which provides
for the payment of a base salary in the annual amount of $525,000, 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 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 $1.6 million and $1.8 million. As of July 31, 2009 the Company had outstanding
letters of credit totaling $6.9 million.
Income Taxes
The provision for income taxes was $5.6 million in fiscal 2009 compared to $9.7 million and
$8.6 million in the years ended July 31, 2008 and 2007, respectively. The difference between the
statutory rates and the effective federal income tax rates is primarily attributable to foreign and
state income taxes; changes in the valuation allowance on net operating loss carry forwards and
foreign tax credits, and other expenses that are non-deductible for tax purposes. The effective
income tax rate was 38.9% for the current year compared to 38.1% for the prior year. The increase
in the effective tax rate is primarily attributable to both a higher effective U.S. tax rate and a
higher proportion of income being generated in the U.S. in the current year compared to the prior
year which was offset by a reduction in the Canadian effectcive tax
rate to 32.3%. The effective U.S. tax rate is approximately 2% higher than the prior year due to the
Companys decision to repatriate excess Canadian cash to support its ongoing share repurchase
program during the first quarter of FY 2009. The Company decided during the second quarter of FY
2009 to suspend the share repurchase program.
During the years ended July 31, 2009 and 2007, the Company repatriated approximately $4.7 and
$3.6 million from its Canadian subsidiary. Except for certain applicable state income taxes, the
Company was able to offset substantially all the U.S. income tax liability with foreign tax credits. At July 31, 2007 the
Company had utilized substantially all of its foreign tax credit carryforwards.
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Inflation
Inflationary pressures have not had a material effect on the Companys results of operations
for fiscal 2009. There can be no assurance the Companys business will not be affected by
inflation in the future.
Financial Condition
The Company believes its financial condition is strong and that it has the financial resources
necessary to meet its needs. Cash provided by operating activities and the Companys credit
facility should be sufficient to meet the Companys operational requirements.
Recent Accounting Pronouncements
In September 2006, the FASB issued Statement No. 157 (SFAS 157), Fair Value Measurement,
This Statement establishes a framework for measuring fair value in generally accepted accounting
principles and expands disclosures about fair value measurements. While SFAS 157 does not require
any new value measurements, it may change the application of fair value measurements embodied in
other accounting standards. SFAS 157 was effective at the beginning of the Companys 2009 fiscal
year. The Company believes the adoption of SFAS No. 157 did not have a material impact on its
consolidated financial statements.
In December 2007, the FASB issued Statement No. 141R (SFAS No. 141R), Business
Combinations. This Statement requires most identifiable assets, liabilities, noncontrolling
interests, and goodwill acquired in a business combination to be recorded at full fair value. The
Statement applies to all business combinations, including combinations among mutual entities and
combinations by contract alone. Under SFAS 141R, all business combinations will be accounted for by
applying the acquisition method. SFAS 141R is effective for periods beginning on or after December
15, 2008 and became effective for us beginning in the second quarter of fiscal 2009 for business
combinations occurring after the effective date. The Company believes the adoption of SFAS No. 141R
had no material impact on its consolidated financial statements.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51 (SFAS
No. 160). SFAS No. 160 changes the accounting and reporting for minority interests, which will be
recharacterized as non-controlling interests and classified as a component of equity. SFAS No. 160
is effective for fiscal years and interim periods beginning after December 15, 2008. As of April
30, 2009, the Company did not have any minority interests; therefore the adoption of SFAS No. 160
did not have an impact on the Companys consolidated financial statements.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161,
Disclosure about Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133,
(SFAS 161). This statement requires that objectives for using derivative instruments be disclosed
in terms of underlying risk and accounting designation. SFAS No. 161 is effective for fiscal years
and interim periods beginning after November 15, 2008. The Company currently does not participate
in any derivative instruments or hedging activities as defined under SFAS 133 and, therefore, the
adoption of SFAS 161 will not have any impact on the Companys consolidated financial statements.
In April 2008 the FASB issued FASB Staff Position on Financial Accounting Standard (FSP) No.
142-3, Determination of the Useful Life of Intangible Assets, which amends the factors that
should be considered in developing renewal or extension assumptions used to determine the useful
life of intangible assets under SFAS No. 142 Goodwill and Other Intangible Assets. The intent of
this FSP is to improve the consistency between the useful life of a recognized intangible asset
under SFAS No. 142 and the period of the expected cash flows used to measure the fair value of the
asset under SFAS No. 141 (revised 2007) Business Combinations and other U.S. generally accepted
accounting principles. FSP 142-3 is effective for fiscal years and interim periods beginning after
December 15, 2008. The adoption of FSP 142-3 did not have a material impact on the Companys
consolidated financial position and results of operations.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events. This standard incorporates
into authoritative accounting literature certain guidance that already existed within generally
accepted auditing standards, but the rules concerning recognition and disclosure of subsequent
events will remain essentially unchanged. SFAS No. 165 provides general standards of accounting for
and disclosure of events that occur after the balance sheet date
27
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but before financial statements are issued or are available to be issued. The Company adopted the provisions of SFAS No. 165 for
the quarter ended July 31, 2009. The adoption of these provisions did not have a material effect on
the Consolidated Financial Statements. The Company has evaluated subsequent events through October
14, 2009, the date the financial statements were issued. Events occurring after this date have not
been evaluated.
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.
The risk factors described in this report could cause actual results to differ materially from
those predicted. By way of example:
| The Global Economic Conditions Could Adversely Affect the Companys Business and Financial Results and have a Material Adverse Affect on our Liquidity and Capital Resources | ||
| 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. | ||
| A significant increase in the number of workers compensation or vehicle liability claims such that the Companys self insurance expense would increase significantly. | ||
| A significant reduction in the exchange rate between the Canadian dollar and the U.S. dollar. | ||
| Failure of the Company to maintain required certificates, permits or licenses, or to comply with applicable laws, ordinances or regulations could result in substantial fines or possible revocation of the Companys authority to conduct certain of its operations. | ||
| The ability of the Company to obtain adequate financing. | ||
| The ability of the Company to pass on fuel cost increases to customers to maintain profit margins and the quality of driver pay. |
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
Foreign Exchange Exposure
Significant portions of the Companys operations are conducted in Canada. Exchange rate
fluctuations between the U.S. and Canadian dollar result in fluctuations in the amounts relating to
the Canadian operations reported in the Companys consolidated financial statements. The Company
historically has not entered into hedging transactions with respect to its foreign currency
exposure, but may do so in the future.
The sensitivity analysis model used by the Company for foreign exchange exposure compares the
revenue and net income figures from Canadian operations 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 approximately $15.5 million and a decrease in net
income of approximately $0.4 million over this period. There can be no assurances that the above
projected exchange rate decrease will materialize. Fluctuations of exchange rates are beyond the control of the Companys management.
Interest Rate Exposure
The Company has no interest rate protection arrangements in effect at the present time. The
Company does not hold or issue derivative financial instruments for speculative or trading
purposes.
28
Table of Contents
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
See Item 15(a).
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. | CONTROLS AND PROCEDURES |
(a). Evaluation of disclosure control and procedures
An evaluation was carried out under the supervision and with the participation of the
Companys management, including its Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of its disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the
Companys fiscal year. Based upon the evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the design and operation of these disclosure controls and procedures were
effective.
There were no significant changes in the Companys internal controls or in other factors that
could significantly affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material weaknesses.
(b). Managements report on internal control over financial reporting.
Managements report on internal control over financial reporting, which appears on page F-2 of
this Annual Report, is incorporated herein by reference.
ITEM 9B. | OTHER INFORMATION |
None.
29
Table of Contents
PART III
The information set forth under the caption Directors and Executive Officers in the
Companys definitive proxy statement to be filed in connection with the 2010 Annual Meeting of
Stockholders is incorporated herein by reference.
The Company has adopted a code of ethics that applies to all members of Board of Directors and
employees of the Company, including, the principal executive officer, principal financial officer,
principal accounting officer, or persons performing similar functions. The Company has notice of
amendments to, or waivers of, the code posted on the Companys internet website at the internet
address: http://www.dynamex.com. Copies of the code may be obtained free of charge from the
Companys website at the above internet address.
The information set forth under the caption Directors and Executive Officers in the
Companys definitive proxy statement to be filed in connection with the 2010 Annual Meeting of
Stockholders is incorporated herein by reference.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information set forth under the caption Beneficial Ownership of Common Stock in the
Companys definitive proxy statement to be filed in connection with the 2010 Annual Meeting of
Stockholders is incorporated herein by reference.
The information set forth under the caption Certain Relationships and Related Transactions
in the Companys definitive proxy statement to be filed in connection with the 2010 Annual Meeting
of Stockholders is incorporated herein by reference.
The information set forth under the caption Principal Accountant Fees and Services in the
Companys definitive proxy statement to be filed in connection with the 2010 Annual Meeting of
Stockholders is incorporated herein by reference.
30
Table of Contents
PART IV
(a) (1) Financial Statements
See Index to Consolidated Financial Statements on page F-1.
(b) 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.
(c) 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
considered inapplicable and therefore have been omitted.
31
Table of Contents
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
A Delaware corporation
By:
|
/s/ Ray E. Schmitz | |||
Ray E. Schmitz, Executive Vice-President and Chief Financial Officer |
Dated: October 14, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons of the registrant and in the capacities indicated on
October 14, 2009.
Name | Title | |
/s/ James L. Welch
|
Chief Executive Officer, President
and Director (Principal Executive Officer) |
|
/s/ Ray E. Schmitz
|
Executive Vice President, Chief Financial
Officer (Principal Financial Officer) |
|
/s/ Gilbert Jones
|
Vice President, Corporate Controller
(Principal Accounting Officer) |
|
/s/ Richard K. McClelland
|
Chairman of the Board and Director | |
/s/ Wayne Kern
|
Director | |
/s/ Stephen P. Smiley
|
Director | |
/s/ Brian J. Hughes
|
Director | |
/s/ Bruce E. Ranck
|
Director | |
/s/ Craig R. Lentzsch
|
Director |
32
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||
Dynamex Inc. |
||
F-2 | ||
F-3 | ||
F-5 | ||
F-6 | ||
F-7 | ||
F-8 | ||
Notes to the Consolidated Financial Statements
|
F-9 |
F-1
Table of Contents
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Board of Directors and
Stockholders of Dynamex Inc.
Stockholders of Dynamex Inc.
Management of Dynamex Inc. is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934. Dynamex Inc.s internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external reporting purposes in accordance with generally accepted
accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Management, including our Chief Executive Officer and our Chief Financial Officer, assessed the
effectiveness of Dynamex Inc.s internal control over financial reporting as of July 31, 2009. In
making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal Control Integrated Framework. Based on our
assessment and those criteria, we believe that Dynamex Inc. maintained effective internal control
over financial reporting as of July 31, 2009.
Dynamex Inc.s independent registered public accounting firm, BDO Seidman, LLP, has issued an
attestation report dated October 14, 2009 on the effectiveness of Dynamex Inc.s internal control
over financial reporting. That report is included herein.
/s/ James L. Welch
|
/s/ Ray E. Schmitz | |
James L. Welch
Chief Executive Officer, President and Director (Principal Executive Officer) |
Ray E. Schmitz
Executive Vice President, Chief Financial Officer (Principal Financial Officer) |
F-2
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Dynamex Inc.
Dallas, Texas
Stockholders of Dynamex Inc.
Dallas, Texas
We have audited the accompanying consolidated balance sheets of Dynamex Inc. and Subsidiaries (the
Company) as of July 31, 2009 and 2008 and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three years in the period ended July 31, 2009.
These financial statements are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statement. 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 the Company at July 31, 2009 and 2008, and the results
of its operations and its cash flows for each of the three years in the period ended July 31, 2009,
in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Companys internal control over financial reporting
as of July 31, 2009, based on criteria established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated October 14, 2009 expressed an unqualified opinion thereon.
/s/ BDO Seidman, LLP
|
||
Dallas, Texas October 14, 2009 |
F-3
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Dynamex Inc.
Dallas, Texas
Stockholders of Dynamex Inc.
Dallas, Texas
We have audited the internal control over financial reporting maintained by Dynamex Inc. and
Subsidiaries (the Company) as of July 31, 2009, based on the criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Management of the Company is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Managements Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of July 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of the Company as of July 31, 2009 and 2008,
and the related consolidated statements of operations, stockholders equity, and cash flows for
each of the three years in the period ended July 31, 2009. Our report dated October 14, 2009
expressed an unqualified opinion on those consolidated financial statements.
/s/ BDO Seidman, LLP
|
||
Dallas, Texas October 14, 2009 |
F-4
Table of Contents
DYNAMEX
INC.
Consolidated Balance Sheets
July 31, 2009 and 2008
(in thousands, except per share data)
July 31, 2009 and 2008
(in thousands, except per share data)
2009 | 2008 | |||||||
ASSETS |
||||||||
CURRENT
|
||||||||
Cash and cash equivalents |
$ | 11,016 | $ | 19,888 | ||||
Accounts receivable (net of allowance for doubtful
accounts of $1,801 and $915, respectively) |
43,545 | 47,288 | ||||||
Income taxes receivable |
3,043 | 1,546 | ||||||
Prepaid and other current assets |
4,396 | 4,429 | ||||||
Deferred income taxes |
4,270 | 3,504 | ||||||
Total current assets |
66,270 | 76,655 | ||||||
PROPERTY AND
EQUIPMENT - net |
11,532 | 8,670 | ||||||
GOODWILL |
47,496 | 48,109 | ||||||
INTANGIBLES - net |
975 | 808 | ||||||
DEFERRED INCOME TAXES |
| | ||||||
OTHER |
3,226 | 4,382 | ||||||
Total assets |
$ | 129,499 | $ | 138,624 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Accounts payable trade |
$ | 5,581 | $ | 12,621 | ||||
Accrued liabilities |
22,370 | 24,160 | ||||||
Total current liabilities |
27,951 | 36,781 | ||||||
LONG-TERM DEBT |
| | ||||||
OTHER LONG-TERM LIABILITIES |
5,468 | 4,209 | ||||||
Total liabilities |
33,419 | 40,990 | ||||||
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;
9,725 and 10,148 outstanding, respectively |
97 | 101 | ||||||
Additional paid-in capital |
36,276 | 45,311 | ||||||
Retained earnings |
55,655 | 46,905 | ||||||
Accumulated other comprehensive income: |
||||||||
Cumulative translation adjustment |
4,052 | 5,317 | ||||||
Total stockholders equity |
96,080 | 97,634 | ||||||
Total liabilities and stockholders equity |
$ | 129,499 | $ | 138,624 | ||||
See accompanying notes to the consolidated financial statements.
F-5
Table of Contents
DYNAMEX INC.
Consolidated Statements of Operations
Years ended July 31, 2009, 2008 and 2007
(in thousands except per share data)
Years ended July 31, 2009, 2008 and 2007
(in thousands except per share data)
2009 | 2008 | 2007 | ||||||||||
Sales |
$ | 402,109 | $ | 455,776 | $ | 413,774 | ||||||
Operating expenses: |
||||||||||||
Purchased transportation |
254,789 | 293,459 | 263,861 | |||||||||
Salaries and employee benefits |
84,515 | 90,744 | 83,741 | |||||||||
Facilities expense |
19,378 | 18,458 | 16,808 | |||||||||
Other expenses |
24,801 | 25,069 | 25,250 | |||||||||
Depreciation and amortization |
3,440 | 2,825 | 2,357 | |||||||||
Restructuring cost |
1,104 | | | |||||||||
Total operating expenses |
388,027 | 430,555 | 392,017 | |||||||||
Operating income |
14,082 | 25,221 | 21,757 | |||||||||
Interest expense |
177 | 232 | 299 | |||||||||
Other income, net |
(411 | ) | (516 | ) | (2,079 | ) | ||||||
Income before income taxes |
14,316 | 25,505 | 23,537 | |||||||||
Income taxes |
5,566 | 9,722 | 8,575 | |||||||||
Net income |
$ | 8,750 | $ | 15,783 | $ | 14,962 | ||||||
Basic earnings per common share |
$ | 0.89 | $ | 1.55 | $ | 1.41 | ||||||
Diluted earnings per common share |
$ | 0.89 | $ | 1.53 | $ | 1.39 | ||||||
Weighted average shares: |
||||||||||||
Common shares outstanding |
9,782 | 10,207 | 10,612 | |||||||||
Adjusted
common shares - assuming
exercise of stock options |
9,809 | 10,297 | 10,738 |
See accompanying notes to the consolidated financial statements.
F-6
Table of Contents
DYNAMEX INC.
Consolidated Statements of Stockholders
Equity
Years ended July 31, 2009, 2008 and 2007
(in thousands)
Years ended July 31, 2009, 2008 and 2007
(in thousands)
Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common Stock | Paid-in | Retained | Comprehensive | |||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income | Total | |||||||||||||||||||
BALANCE AT JULY 31, 2006 |
10,638 | $ | 106 | $ | 58,514 | $ | 16,160 | $ | 4,432 | $ | 79,212 | |||||||||||||
Issuance of common stock, including
tax benefit of $142 |
128 | 1 | 1,244 | 1,245 | ||||||||||||||||||||
Stock option compensation |
771 | 771 | ||||||||||||||||||||||
Treasury stock purchase and
retirement |
(621 | ) | (6 | ) | (14,858 | ) | (14,864 | ) | ||||||||||||||||
Net income |
14,962 | 14,962 | ||||||||||||||||||||||
Unrealized foreign currency translation
adjustment |
83 | 83 | ||||||||||||||||||||||
Total comprehensive income |
15,045 | |||||||||||||||||||||||
BALANCE AT JULY 31, 2007 |
10,145 | 101 | 45,671 | 31,122 | 4,515 | 81,409 | ||||||||||||||||||
Issuance of common stock, including
tax benefit of $328 |
124 | 1 | 1,425 | 1,426 | ||||||||||||||||||||
Stock option compensation |
1,180 | 1,180 | ||||||||||||||||||||||
Treasury stock purchase and
retirement |
(121 | ) | (1 | ) | (2,965 | ) | (2,966 | ) | ||||||||||||||||
Net income |
15,783 | 15,783 | ||||||||||||||||||||||
Unrealized foreign currency translation
adjustment |
802 | 802 | ||||||||||||||||||||||
Total comprehensive income |
16,585 | |||||||||||||||||||||||
BALANCE AT JULY 31, 2008 |
10,148 | 101 | 45,311 | 46,905 | 5,317 | 97,634 | ||||||||||||||||||
Issuance of common stock, including
tax benefit of $16 |
16 | 0 | 140 | 140 | ||||||||||||||||||||
Stock option compensation |
1,418 | 1,418 | ||||||||||||||||||||||
Treasury stock purchase and
retirement |
(439 | ) | (4 | ) | (10,593 | ) | (10,597 | ) | ||||||||||||||||
Net income |
8,750 | 8,750 | ||||||||||||||||||||||
Unrealized foreign currency translation
adjustment |
(1,265 | ) | (1,265 | ) | ||||||||||||||||||||
Total comprehensive income |
7,485 | |||||||||||||||||||||||
BALANCE AT JULY 31, 2009 |
9,725 | $ | 97 | $ | 36,276 | $ | 55,655 | $ | 4,052 | $ | 96,080 | |||||||||||||
See accompanying notes to the consolidated financial statements.
F-7
Table of Contents
DYNAMEX
INC.
Consolidated Statements of Cash Flows
Years ended July 31, 2009, 2008 and 2007
(in thousands)
Years ended July 31, 2009, 2008 and 2007
(in thousands)
2009 | 2008 | 2007 | ||||||||||
OPERATING ACTIVITIES
|
||||||||||||
Net income |
$ | 8,750 | $ | 15,783 | $ | 14,962 | ||||||
Adjustments to reconcile net income to net cash provided
by operating activities: |
||||||||||||
Depreciation and amortization |
3,440 | 2,825 | 2,357 | |||||||||
Amortization of deferred bank financing fees |
2 | 10 | 28 | |||||||||
Provision for losses on accounts receivable |
1,487 | 1,039 | 499 | |||||||||
Stock option compensation |
1,418 | 1,180 | 771 | |||||||||
Deferred income taxes |
822 | 1,472 | 3,368 | |||||||||
Lessor financed leasehold improvements |
896 | | 1,997 | |||||||||
Non-cash rent expense |
143 | 49 | 860 | |||||||||
Gain on disposal of property and equipment |
(34 | ) | (8 | ) | (19 | ) | ||||||
Changes in current operating assets and liabilities: |
||||||||||||
Accounts receivable |
2,255 | (5,678 | ) | (6,722 | ) | |||||||
Prepaids and other current assets |
(1,465 | ) | (1,405 | ) | (105 | ) | ||||||
Accounts payable and accrued liabilities |
(9,907 | ) | 1,087 | 6,589 | ||||||||
Net cash provided by operating activities |
7,807 | 16,354 | 24,585 | |||||||||
INVESTING ACTIVITIES
|
||||||||||||
Purchase of property and equipment |
(6,253 | ) | (2,845 | ) | (4,961 | ) | ||||||
Cash payment for acquisition |
(367 | ) | (491 | ) | | |||||||
Withdrawal (purchase) of deferred compensation investments |
650 | (322 | ) | (278 | ) | |||||||
Net cash used in investing activities |
(5,970 | ) | (3,658 | ) | (5,239 | ) | ||||||
FINANCING ACTIVITIES
|
||||||||||||
Principal payments on long-term debt |
| | (5 | ) | ||||||||
Net (payments) receipts under line of credit |
| | (900 | ) | ||||||||
Proceeds from stock option exercise |
124 | 1,099 | 1,103 | |||||||||
Tax benefit realized from exercise of stock options |
16 | 328 | 142 | |||||||||
Purchase and retirement of treasury stock |
(10,597 | ) | (2,966 | ) | (14,864 | ) | ||||||
Other assets and deferred financing fees |
411 | (176 | ) | (1,212 | ) | |||||||
Net cash used in financing activities |
(10,046 | ) | (1,715 | ) | (15,736 | ) | ||||||
EFFECT OF EXCHANGE RATES ON CASH |
(663 | ) | 50 | (811 | ) | |||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
(8,872 | ) | 11,031 | 2,799 | ||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
19,888 | 8,857 | 6,058 | |||||||||
CASH AND CASH EQUIVALENTS, END OF YEAR |
$ | 11,016 | $ | 19,888 | $ | 8,857 | ||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
||||||||||||
Cash paid for interest |
$ | 137 | $ | 157 | $ | 262 | ||||||
Cash paid for taxes |
$ | 5,901 | $ | 8,043 | $ | 5,226 | ||||||
See accompanying notes to the consolidated financial statements.
F-8
Table of Contents
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business - Dynamex Inc. and Subsidiaries (the Company or Dynamex) provide
same-day delivery and logistics services in the United States and Canada. The Companys primary
services are (i) same-day, on-demand delivery, (ii) scheduled and distribution and (iii) fleet
outsourcing and facilities management.
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 Fleet Services, Inc. (U.S.) | ||
| Dynamex Franchise Holdings, Inc. (U.S.) | ||
| Dynamex Domestic Franchising, Inc. (U.S.) | ||
| Dynamex Canada Corp. (Canada) | ||
| Dynamex Canada Franchise Holdings, Inc. (Canada) |
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 expense as incurred. 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:
Equipment | 3-7 years | |
Software | 3-5 years | |
Furniture | 7 years | |
Vehicles | 5 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.
The Company capitalizes both internal and external costs of developing or obtaining computer
software for internal use. Costs incurred to develop internal-use software during the
application development stage are capitalized, while data conversion, training and maintenance
costs associated with internal-use software are expensed as incurred. As of July 31, 2009 and
2008, the net book value of capitalized software costs was $973 and $1,554, respectively.
Amortization expense related to capitalized software was $826, $756 and $737 in fiscal years
2009, 2008 and 2007, respectively.
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.
F-9
Table of Contents
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.
The Companys customers are not concentrated in any specific geographic region or industry.
During the years ended July 31, 2009, 2008 and 2007, sales to Office Depot, Inc. represented
approximately 14.0%, 14.6% and 14.2%, respectively, of the Companys revenue. Sales to the
Companys five largest customers, including Office Depot, represented approximately 24%, 27% and
28% of the Companys consolidated sales for the years ended July 31, 2009, 2008 and 2007,
respectively.
A significant number of the Companys customers are located in Canada. For the fiscal years
ended July 31, 2009, 2008 and 2007, approximately 36%, 38% and 38% of the Companys sales,
respectively, were generated in Canada. See Note 14 of Notes to the Consolidated Financial
Statements for additional information concerning the Companys foreign operations.
Office Depot represented approximately 21.6% and 10.5% of the net accounts receivable at
July 31, 2009 and July 31, 2008, respectively. There were no other significant accounts
receivable from a single customer. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers, historical trends and
other information.
Goodwill
and intangibles Intangibles arise from acquisitions accounted for as purchased
business combinations and include goodwill, covenants not-to-compete and other identifiable
intangibles and from the payment of financing costs associated with the Companys credit
facility. Goodwill represents the excess purchase price over all tangible and identifiable
intangible net assets acquired. Effective August 1, 2001 the Company adopted Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142)
which requires, among other things, that companies no longer amortize goodwill and instead sets
forth methods to periodically evaluate goodwill for impairment. The Company conducts on at
least an annual basis a review of its reporting units to determine whether their carrying value
exceeds their market value and, if so, performs a detailed analysis of the reporting units
assets and liabilities to determine whether the goodwill is impaired. The Company performed its
goodwill impairment test as of the first day of the fourth quarter of fiscal 2009. Based on
this test, no impairment was indicated. Other intangible assets are being amortized over
periods ranging from 3 to 25 years. Deferred bank financing fees are amortized over the term of
the related credit facility. Amortization of deferred financing fees is classified as interest
expense in the consolidated statement of operations. Aggregate amortization expense during the
years ended July 31, 2009, 2008 and 2007 totaled $206, $81 and $51, respectively. Estimated
amortization expense for the succeeding five fiscal years is approximately $422 for the year
2010, $310 for 2011, $374 for 2012, $110 for 2013 and $18 for 2014.
Revenue recognition - Revenues are recognized when services are rendered to customers, that is,
primarily when the pickup and delivery is complete. There may be a time lag between the
completion of the service and the generation of an invoice. Accordingly, unbilled revenue is
recognized for those shipments that have been completed but have not been invoiced.
Cash and cash equivalents - The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Allowance
for doubtful accounts The Company maintains an allowance for doubtful accounts for
estimated losses resulting from the inability of its customers to make payments when due or
within a reasonable period of time thereafter. Estimates are used in determining this allowance
based on the Companys historical collection experience, current trends, credit policy and aging
category. If the financial condition of the Companys customers were to deteriorate, thus
impairing their ability to make required payments, additional allowances may be required. The
Companys allowance at July 31, 2009 is approximately 4.1% of outstanding accounts receivable
compared to approximately 1.9% at July 31, 2008.
Financial instruments - Carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximate fair value due to the short-term maturities
of these assets and liabilities.
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Long-term debt consists primarily of variable rate borrowings under the bank credit agreement.
The carrying value of these borrowings approximates fair value.
Financing costs - During the fiscal years ended July 31, 2009, 2008, and 2007, the Company
capitalized $6, $0 and $3, respectively of costs incurred in connection with debt financings and
amendments. 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 $1 in 2009, $10 in 2008 and $32 in 2007.
Other
assets Recoverable contract contingency costs - The Company has recorded as an Other
Asset certain costs related to contractually reimbursable contingency costs incurred in
connection with the launch of certain contracts in accordance with EITF 99-5, Accounting for
Pre-Production Costs Related to Long-Term Supply Arrangements, These costs will be recovered
during the initial contract term, from a designated portion of the unit price specified in the
contract. Should the contract be cancelled for any reason, the customer is obligated to
reimburse the Company for any unamortized balance. Total recoverable contract contingency costs
capitalized at July 31, 2009 and 2008 amount to $778 and $1,172, respectively.
Other long-term liabilities - During July 2006 the Company entered into a new lease for its U.S.
corporate headquarters. This lease agreement contains tenant improvement allowances and rent
escalation clauses. The Company recognizes a deferred rent liability for tenant improvement
allowances within other long-term liabilities and amortizes these amounts over the term of the
lease as a reduction of rent expense. For scheduled rent escalation clauses during the lease
term, the Company records rental expense on a straight-line basis over the term of the lease.
Self-insured
claims liability - The Company is primarily self-insured for U.S. workers
compensation and vehicle liability claims. A liability for unpaid claims and the associated
claim expenses, including incurred but unreported losses, are recorded based on the Companys
estimates of the aggregate liability for claims incurred. The Companys estimates are based on
actual experience and historical assumptions of development of unpaid liabilities over time.
Factors affecting the determination of amounts to be accrued for claims include, but are not
limited to, cost, frequency, or payment patterns resulting from new types of claims, the hazard
level of our operations, tort reform or other legislative changes, unfavorable jury decisions,
court interpretations, changes in the medical conditions of claimants and economic factors such
as inflation. The method of calculating the estimated accrued liability for claims is subject
to inherent uncertainty. If actual results are less favorable than what are used to calculate
the accrued liability, the Company would have to record expenses in excess of what has already
been accrued.
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 (Revised 2004),
Share-Based Payment, (SFAS No. 123(R)) requires the measurement and recording of all
share-based payments to employees, including grants of stock options, be determined using a
fair-value-based method.
The fair value of each grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for grants in 2009,
2008, and 2007, respectively: dividend yield of 0% for all years; expected volatility of 43%,
43%, and 44%; risk-free interest rate of 2.8%, 3.9%, and 4.6%, and expected lives of an average
of 6.9 years for options granted to employees and of 6.8 years for options granted to
non-employee directors for all years. The weighted average grant-date fair value of stock
options granted during the years 2009, 2008 and 2007 was $10.12, $14.80 and $11.97,
respectively.
As discussed in Note 10 of Notes to the Consolidated Financial Statements, option expense in
2009, 2008 and 2007 amounted to $1,418, $1,180 and $771, respectively, under the fair value
approach. Based on the outstanding and unvested awards as of July 31, 2009, the anticipated
effect on net income for fiscal 2010, net of taxes, will be approximately $903.
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Net income per share - Basic net income per common share is based on the weighted average number
of common shares outstanding during the period. Diluted net income per common share is based on
the weighted average common shares outstanding and all potentially dilutive common shares
outstanding during the period determined using the treasury stock method. Diluted earnings per
share reflect the potential dilution that could occur if outstanding stock options were
exercised, that would then share in the earnings of the Company. Outstanding options to
purchase 372, 146 and 20 shares of common stock at July 31, 2009, 2008 and 2007, respectively,
were not included in the computation of net income per share as their effect would be
antidilutive. Outstanding stock options 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 during 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 the Consolidated Statement of Operations.
Treasury stock acquired and retired Treasury stock is recorded at cost. Delaware law
permits treasury shares to be retired when appropriately authorized by the Board of Directors,
and the Company has retired such shares by appropriate reductions in the value of common stock
and additional paid-in capital.
New
accounting pronouncements In September 2006, the FASB issued Statement No. 157 (SFAS
157), Fair Value Measurement, This Statement establishes a framework for measuring fair value
in generally accepted accounting principles and expands disclosures about fair value
measurements. While SFAS 157 does not require any new value measurements, it may change the
application of fair value measurements embodied in other accounting standards. SFAS 157 was
effective at the beginning of the Companys 2009 fiscal year. The Company believes the adoption
of SFAS No. 157 did not have a material impact on its consolidated financial statements.
In December 2007, the FASB issued Statement No. 141R (SFAS No. 141R), Business Combinations.
This Statement requires most identifiable assets, liabilities, noncontrolling interests, and
goodwill acquired in a business combination to be recorded at full fair value. The Statement
applies to all business combinations, including combinations among mutual entities and
combinations by contract alone. Under SFAS 141R, all business combinations will be accounted for
by applying the acquisition method. SFAS 141R is effective for annual reporting periods
beginning on or after December 15, 2008 and will become effective for us beginning August 1,
2009 for business combinations occurring after the effective date. The Company believes the
adoption of SFAS No. 141R will not have a material impact on its consolidated financial
statements.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160 changes the accounting and reporting for minority interests,
which will be recharacterized as non-controlling interests and classified as a component of
equity. SFAS No. 160 is effective for fiscal years and interim periods beginning after December
15, 2008. As of April 30, 2009, the Company did not have any minority interests; therefore the
adoption of SFAS No. 160 did not have an impact on the Companys consolidated financial
statements.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosure
about Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133, (SFAS
161). This statement requires that objectives for using derivative instruments be disclosed in
terms of underlying risk and accounting designation. SFAS No. 161 is effective for fiscal years
and interim periods beginning after November 15, 2008. The Company currently does not
participate in any derivative instruments or hedging activities as defined under SFAS 133 and,
therefore, the adoption of SFAS 161 will not have any impact on the Companys consolidated
financial statements.
In April 2008 the FASB issued FASB Staff Position on Financial Accounting Standard (FSP)
No. 142-3, Determination of the Useful Life of Intangible Assets, which amends the factors
that should be considered in developing renewal or extension assumptions used to determine the
useful life of intangible assets under SFAS No. 142 Goodwill and Other Intangible Assets. The intent of this FSP is to improve the consistency between the useful
life of a recognized intangible asset under SFAS No. 142 and the period of the expected cash
flows
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used to measure the fair value of the asset under SFAS No. 141 (revised 2007) Business
Combinations and other U.S. generally accepted accounting principles. FSP 142-3 is effective
for fiscal years and interim periods beginning after December 15, 2008. The adoption of FSP
142-3 will not have a material impact on the Companys consolidated financial position and
results of operations.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events. This standard incorporates into
authoritative accounting literature certain guidance that already existed within generally
accepted auditing standards, but the rules concerning recognition and disclosure of subsequent
events will remain essentially unchanged. SFAS No. 165 provides general standards of accounting
for and disclosure of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. The Company adopted the provisions of SFAS
No. 165 for the quarter ended July 31, 2009. The adoption of these provisions did not have a
material effect on the Consolidated Financial Statements. The Company has evaluated subsequent
events through October 14, 2009, the date the financial statements were issued. Events occurring
after this date have not been evaluated.
Reclassification Certain reclassifications have been made to conform prior year data to the
current presentation.
Subsequent events In the preparation of its consolidated financial statements, the Company
considered subsequent events through October 14, 2009, which was the date the Companys
consolidated financial statements were issued.
2. COMPUTATION OF EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the basic and diluted
earnings per share computation as required by Statement of Financial Accounting Standards No.
128, Earnings Per Share. Common stock equivalents related to stock options are excluded from
diluted earnings per share calculation if their effect would be antidilutive to earnings per
share.
Years Ended July 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Net income |
$ | 8,750 | $ | 15,783 | $ | 14,962 | ||||||
Weighted average common shares outstanding |
9,782 | 10,207 | 10,612 | |||||||||
Common share equivalents related to options |
27 | 90 | 126 | |||||||||
Common shares and common share equivalents |
9,809 | 10,297 | 10,738 | |||||||||
Basic earnings per common share |
$ | 0.89 | $ | 1.55 | $ | 1.41 | ||||||
Diluted earnings per common share |
$ | 0.89 | $ | 1.53 | $ | 1.39 | ||||||
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3. INTANGIBLES
Intangibles consist of the following:
July 31, | ||||||||
2009 | 2008 | |||||||
Carrying amount: |
||||||||
Deferred bank financing fees |
$ | 138 | $ | 132 | ||||
Customer lists |
950 | 583 | ||||||
Trademarks |
470 | 470 | ||||||
1,558 | 1,185 | |||||||
Less accumulated amortization: |
||||||||
Deferred bank financing fees |
(133 | ) | (132 | ) | ||||
Customer lists |
(246 | ) | (59 | ) | ||||
Trademarks |
(204 | ) | (186 | ) | ||||
(583 | ) | (377 | ) | |||||
Intangibles - net |
$ | 975 | $ | 808 | ||||
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4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
July 31, | ||||||||
2009 | 2008 | |||||||
Equipment |
$ | 22,603 | $ | 20,852 | ||||
Software |
8,857 | 8,633 | ||||||
Furniture |
2,240 | 2,098 | ||||||
Vehicles |
2,511 | 544 | ||||||
Leasehold improvements |
5,051 | 4,066 | ||||||
Other |
| | ||||||
41,262 | 36,193 | |||||||
Less accumulated depreciation |
(29,730 | ) | (27,523 | ) | ||||
Property and equipment - net |
$ | 11,532 | $ | 8,670 | ||||
Depreciation expense included in the accompanying consolidated statements of operations for the
years ended July 31, 2009, 2008 and 2007 was $3,240, $2,745 and $2,306, respectively.
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
July 31, | ||||||||
2009 | 2008 | |||||||
Salaries and wages |
$ | 2,052 | $ | 3,936 | ||||
Independent contractor settlements |
6,870 | 8,067 | ||||||
Workers compensation estimated claims |
1,326 | 1,483 | ||||||
Vehicle liability estimated claims |
1,990 | 2,268 | ||||||
Vacation |
2,590 | 2,621 | ||||||
Restructuring |
1,120 | | ||||||
Deferred revenue |
503 | 352 | ||||||
Taxes - other |
772 | 1,104 | ||||||
Other |
5,149 | 4,329 | ||||||
Total accrued liabilities |
$ | 22,370 | $ | 24,160 | ||||
Restructuring During the quarter ended July 31, 2009 the Company announced the closure of the
Canadian administrative office in Toronto, Canada and moving all finance and accounting
functions to the Dallas corporate office and the elimination of the position of President U.S.
operations. The restructuring was executed in order to reduce redundant overhead expenses and is
expected to be completed no later than December 2009. The Company will record approximately an
additional $400 of restructuring expense during fiscal year 2010 primarily related to the lease
obligation cost of the Toronto, Canada administration office upon the cease use date of the
facility. See the below chart for a summary of the restructuring expense and accrual as of July
31, 2009.
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Balance at | Balance at | |||||||||||||||||||
Restructuring | April 30, 2009 | Expense | Payment | Other (1) | July 31, 2009 | |||||||||||||||
Severance and stay bonuses |
$ | | $ | 952 | $ | | $ | | $ | 952 | ||||||||||
Benefits and employer taxes |
| 98 | | | 98 | |||||||||||||||
Travel and other |
| 54 | (8 | ) | 24 | 70 | ||||||||||||||
Total restructuring |
$ | | $ | 1,104 | $ | (8 | ) | $ | 24 | $ | 1,120 | |||||||||
(1) | Represents difference in end of period and for the period foreign exchange rates. |
6. LONG-TERM DEBT AND OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
July 31, | ||||||||
2009 | 2008 | |||||||
Operating leases (a) |
$ | 2,742 | $ | 2,327 | ||||
Deferred compensation |
695 | 1,440 | ||||||
Deferred income taxes |
2,031 | 442 | ||||||
Total other long-term liabilties |
$ | 5,468 | $ | 4,209 | ||||
(a) Operating leases
The Company recognizes a deferred rent liability for tenant improvement allowances within other
long-term liabilities and amortizes these amounts over the term of the lease as a reduction of
rent expense. For scheduled rent escalation clauses during the lease term, the Company records
rental expense on a straight-line basis over the term of the lease.
Long-Term Debt
The revolving credit facility was initially established in 2004 and last amended in January 26,
2009..The revolving credit facility line of credit is $40 million, has a maturity date of July
31, 2013 and has no scheduled principal payments. The revolving credit facility is secured by
all of the Companys U.S. assets and 100% of the stock of its domestic subsidiaries. At July
31, 2009, there were $6.9 million letters of credit issues but no outstanding borrowings under
the revolving credit agreement. The revolving credit facility requires the Company to satisfy
certain financial and other covenants. As of July 31, 2009, the Company was in compliance with
all financial and other covenants.
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7. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company leases certain equipment and properties under non-cancelable operating lease
agreements, which expire at various dates.
At July 31, 2009, minimum annual lease payments for such operating leases are as follows:
Operating | ||||
Leases | ||||
2010 |
$ | 11,691 | ||
2011 |
9,240 | |||
2012 |
6,431 | |||
2013 |
4,565 | |||
2014 |
2,830 | |||
Thereafter |
2,206 | |||
$ | 36,964 | |||
Rent expense related to operating leases amounted to approximately $17,177, $16,606, and $17,855
for the years ended July 31, 2009, 2008 and 2007, respectively.
The Company has entered into an employment agreement with its President and CEO which provides
for the payment of a base salary in the annual amount of $525, 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 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 $1.6 million and $1.8 million.
CONTINGENCIES
The California Employment Development Department conducted an employment tax audit of the
Companys California operations in 2006. Based on its conclusion that certain independent
contractors used by the Company should be reclassified as employees, a Notice of Assessment was
issued by the EDD in April 2007 in the amount of $2.8 million; $2.0 million of which represents personal income tax of the reclassified individuals. The Company has
collected and submitted documentation which will work to reduce the personal income tax portion
of the assessment through the California abatement process. The Company believes that the
independent contractors were properly classified and has filed a Petition for Reassessment. The
Company intends to vigorously contest the assessment however has
recorded a liability of $1.3 million as of July 31, 2009. The
liability accrual began in fiscal year 2007. The expense impact to
fiscal year 2009 was $0.3 million.
On April 15, 2005, a putative class action was filed against the Company by a former independent
contractor in the Superior Court of California, Los Angeles County, alleging that the Company
unlawfully misclassified its California drivers as independent contractors, rather than
employees, and asserting, as a consequence, entitlement on behalf of the purported class
claimants to overtime compensation and other benefits under California wage
and hour laws, reimbursement of certain operating expenses, and various insurance and other
benefits and the obligation of the Company to pay employer payroll taxes under federal and state
law. Plaintiffs original Motion for Class Certification was denied in December 2006. On
appeal, the Appellate Court reversed the Denial of the Motion for Class Certification and
remanded the matter for additional discovery and re-hearing of the Motion. Pursuant to Order of
the Court, the names and contact information for members of the putative class were produced by
the Company in January 2009. In early February 2009, Plaintiff filed an Amended Complaint,
which among other matters, added an additional named Plaintiff. Plaintiffs filed a new Motion
for Class Certification in June, 2009, seeking the certification of a Class with four
Subclasses, each dependent on the type of service rendered by the independent contractor and the
weight of the vehicle provided by the independent contractor. On July 28, 2009, the Court
granted the Motion. The four subclasses are each subject to between four and eight exclusions.
Plaintiffs proposed a Notice of Pendency of
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Class Action to be sent to members of the Class. The Court approved the Notice over the
Companys objections in early October. Also in early October, Plaintiff filed a Motion for
Summary Judgment requesting the Court to issue an Order adjudicating that there is no merit to
the Defendants Affirmative Defense that Plaintiffs claims are barred because Plaintiffs and
the putative class members are not employees, but are independent contractors. The Court has
set a Hearing on the Motion for December 17, 2009.
On July 25, 2008, two independent contractor drivers filed a purported class action suit in San
Bernardino County, California Superior Court alleging that the Companys classification of
California drivers as independent contractors was unlawful, and that as a consequence they were
denied the benefit of various California wage laws. They further alleged that such
misclassification constituted unfair competition under California business statutes. Because
the Complaint in large measure contains the same causes of action as the on-going 2005 Los
Angeles County, California Superior Court case, the Company filed a Special Demurrer and a
Motion to Stay further proceedings pending the outcome of the earlier action. Following a
November 2008 Hearing, the Court issued a Stay. Plaintiffs subsequent attempt to consolidate
their action with the Los Angeles County action described above was denied. On January 21,
2009, one of the named Plaintiffs voluntarily dismissed his claims without prejudice in order to
attempt to join the Los Angeles County suit. The Plaintiff has subsequently been added to the
Los Angeles County suit.
On May 19, 2009, a Truck Leasing Company filed an action against the Company in U.S. District
Court for the Southern District of Ohio, Western Division raising claims for breach of contract,
promissory estoppel, unjust enrichment, conversion, and tortious interference with business
relationships. The action further seeks injunctive relief and punitive damages. The action
relates to the lease of vehicles to various independent contractors and a certain Program
Agreement between the Leasing Company and the Company. The Company has filed its Answer denying
all the claims and presenting affirmative defenses. Discovery has started. The Company
believes that it met all of the limited obligations under the Program Agreement.
On September 29, 2008, five former independent contractor drivers filed an action in California
State Court alleging that the Company misclassified them as independent contractors rather than
employees and further that the Company committed unlawful racial harassment and discrimination
ultimately resulting in their wrongful termination or wrongful constructive termination, all in
violation of the public policy of the State of California. An Amended Complaint was filed on
November 20, 2008, and the Company thereafter timely filed its Answer. At the Case Management
Conference in early February 2009, the parties were ordered to participate in mediation before
December 4, 2009, and a trial date of February 8, 2010 was set. The Company has deposed all
five of the Plaintiffs. The Company believes that the Plaintiffs were properly classified as
independent contractors and believes that Plaintiffs were treated in conformity with all State
and Federal laws.
The Company believes that the independent contractor owner-operator drivers are properly
classified as independent contractors and intends to vigorously defend this litigation. Given
the nature and preliminary status of the claims, however, the Company cannot yet determine the
amount or a reasonable range of potential loss in these matters, if any.
The Company is a party to various legal proceedings arising in the ordinary course of its
business. The Company believes that the ultimate resolution of these
proceedings are less than probable and 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 before income taxes are as follows:
Years ended July 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Canada |
$ | 5,180 | $ | 10,598 | $ | 10,547 | ||||||
United States |
9,136 | 14,907 | 12,990 | |||||||||
$ | 14,316 | $ | 25,505 | $ | 23,537 | |||||||
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The provision for income tax expense consisted of the following:
Years ended July 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Current tax expense: |
||||||||||||
Canada |
$ | 2,017 | $ | 3,509 | $ | 1,641 | ||||||
United States Federal |
2,320 | 3,893 | 2,935 | |||||||||
United States States |
406 | 848 | 631 | |||||||||
Total current tax expense |
4,743 | 8,250 | 5,207 | |||||||||
Deferred tax expense (credit): |
||||||||||||
Canada |
(334 | ) | 12 | 50 | ||||||||
United States Federal |
984 | 1,242 | 3,021 | |||||||||
United States States |
173 | 218 | 297 | |||||||||
Total deferred tax expense |
823 | 1,472 | 3,368 | |||||||||
Total income tax provision |
$ | 5,566 | $ | 9,722 | $ | 8,575 | ||||||
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 Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes (SFAS No. 109) and consisted of the following components:
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July 31, | ||||||||
2009 | 2008 | |||||||
Deferred tax asset: |
||||||||
Allowance for doubtful accounts |
$ | 351 | $ | 276 | ||||
Accrued vacation |
715 | 690 | ||||||
Accrued liabilities and other |
3,078 | 2,414 | ||||||
Stock option expense |
950 | 602 | ||||||
Deferred compensation |
237 | 543 | ||||||
WOTC tax credit carryforward |
125 | 125 | ||||||
Capitalized start-up costs |
35 | 35 | ||||||
Total deferred tax benefits |
5,491 | 4,685 | ||||||
Less valuation allowance |
| | ||||||
Net deferred tax asset |
5,491 | 4,685 | ||||||
Deferred tax liability: |
||||||||
Fixed assets |
(632 | ) | (1,185 | ) | ||||
Amortization of intangibles |
(2,620 | ) | (438 | ) | ||||
Total deferred tax liability |
(3,252 | ) | (1,623 | ) | ||||
Net deferred tax asset |
$ | 2,239 | $ | 3,062 | ||||
Financial statements: |
||||||||
Current deferred tax asset |
$ | 4,270 | $ | 3,504 | ||||
Non-current deferred tax liability |
$ | 2,031 | $ | 442 | ||||
The Company establishes valuation allowances in accordance with the provisions of SFAS No.
109. The Company continually reviews the adequacy of its valuation allowances and adjusts the
allowances for changes in expected realization.
During the years ended July 31, 2009 and 2007, the Company repatriated approximately $4.7 and
$3.6 million from its Canadian subsidiary. Except for certain applicable state income taxes,
the Company was able to offset substantially all the U.S. income tax liability with foreign tax
credits for fiscal year 2007. At July 31, 2007 the Company had utilized substantially all of its foreign tax credit
carryforwards.
The Company has not provided for U.S. Federal and foreign withholding taxes on the foreign
subsidiaries undistributed earnings as of July 31, 2009. Such earnings were intended to be
reinvested indefinitely.
Total income tax expense was $5.6 million, 38.9% of income before taxes in the current fiscal
year compared to $9.7 million, 38.1% of income before taxes in fiscal year 2008. The increase in
the effective tax rate is primarily attributable to both a higher effective U.S. tax rate and a
higher proportion of income being generated in the U.S. in the current year compared to the
prior year. The effective U.S. tax rate is approximately 2% higher than the prior year due to
the Companys decision to repatriate excess Canadian cash to support its ongoing share
repurchase program during the first quarter of FY 2009. The Company decided during the second
quarter of FY 2009 to suspend the share repurchase program.
The Company adopted FIN 48 on August 1, 2007. The adoption of the FIN 48 provision did not have
a material effect on the Companys financial position, results of operations or cash flows.
The differences in income tax provided and the amounts determined by applying the statutory rate
to income before income taxes result from the following:
F-20
Table of Contents
Years ended July 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Income taxes at statutory rate |
$ | 4,867 | $ | 8,927 | $ | 8,003 | ||||||
Effect on taxes resulting from: |
||||||||||||
State taxes |
579 | 1,066 | 928 | |||||||||
Foreign refunds |
(78 | ) | (182 | ) | (1,971 | ) | ||||||
Decrease in foreign tax credit |
| | 3,608 | |||||||||
Decrease in valuation allowance |
| | (1,724 | ) | ||||||||
Other (including permanent differences) |
198 | (89 | ) | (269 | ) | |||||||
$ | 5,566 | $ | 9,722 | $ | 8,575 | |||||||
9. RESERVE FOR DOUBTFUL ACCOUNTS
The changes in the reserve for doubtful accounts are summarized below:
Balance at | Additions Charges | Balance | ||||||||||||||
Beginning of | to Costs and | at End of | ||||||||||||||
Year | Expenses | Deductions | Year | |||||||||||||
Fiscal year ended: |
||||||||||||||||
July 31, 2009 |
$ | 915 | $ | 1,487 | $ | 601 | $ | 1,801 | ||||||||
July 31, 2008 |
866 | 1,039 | 990 | 915 | ||||||||||||
July 31, 2007 |
676 | 499 | 309 | 866 |
10. STOCK OPTION PLAN
On September 19, 2007, the Companys Board of Directors approved the 2008 Equity Compensation
Plan (the Equity Plan), to replace the 1996 Stock Option Plan and reserved a total of
1,200,000 shares for issuance under the Equity Plan, inclusive of 339,579 shares remaining
available for issuance under the Companys 1996 Stock Option Plan (the Stock Option Plan) and
being transferred to the new Equity Plan. On January 8, 2008, the Equity Plan was approved by
the Companys shareholders. The Equity Plan provides for the granting of incentive stock
options and non-qualified stock options and restricted stock. Awards under the Equity Plan may
also take the form of stock appreciation rights or performance units. Subject to certain
restrictions that are set forth in the plan, the Compensation Committee will have complete and
absolute authority to set the terms, conditions and provisions of each award, including the size
of the award, the exercise or base price, the vesting and exercisability schedule (including
provisions regarding acceleration of vesting and exercisability) and termination, cancellation
and forfeiture provisions. The exercise price of all options granted under the Equity Plan may
not be less than the fair market value of the underlying common stock on the date of grant.
Generally, the options and restricted stock grants vest and become exercisable ratably over a
four-year period, commencing one year after the grant date. The options expire 10 years from
the date of grant. Performance units and performance based options vest at the end of the
performance period, generally three years.
F-21
Table of Contents
Stock option activity during the year ended July 31, 2009, is as follows:
Weighted | ||||||||
Number of | Average | |||||||
Shares | Exercise Price | |||||||
Number of shares under option: |
||||||||
Outstanding at beginning of year |
512,250 | $ | 20.66 | |||||
Granted |
186,645 | 26.01 | ||||||
Exercised |
(15,750 | ) | 7.82 | |||||
Forfeited |
(35,500 | ) | 26.09 | |||||
Outstanding at end of year |
647,645 | 22.22 | ||||||
Exercisable at end of year |
274,000 | 17.73 | ||||||
Nonvested stock option activity during the year ended July 31, 2009, is as follows:
Weighted Avg. | ||||||||
Number of | Grant Date Fair | |||||||
Shares | Value | |||||||
Number of nonvested shares: |
||||||||
Nonvested at beginning of year |
329,600 | $ | 12.52 | |||||
Granted |
171,645 | 11.00 | ||||||
Vested |
(117,000 | ) | 11.07 | |||||
Forfeited |
(10,600 | ) | 12.97 | |||||
Nonvested at end of year |
373,645 | 11.78 | ||||||
The following table summarizes information about stock options outstanding at July 31,
2009:
Stock Options Outstanding | Stock Options Exercisable | |||||||||||||||||||||||
Weighted | Weighted | Weighted | Weighted | |||||||||||||||||||||
Range of | Average | Average | Average | Average | ||||||||||||||||||||
Exercise Prices | Shares | Rem. Life (Yrs) | Exercise Price | Shares | Rem. Life (Yrs) | Exercise Price | ||||||||||||||||||
$2.30 - 19.97 | 210,900 | 5.81 | $ | 14.35 | 163,900 | 5.45 | $ | 13.66 | ||||||||||||||||
$20.40 - 29.22 | 436,745 | 8.21 | 26.02 | 110,100 | 7.56 | 23.79 | ||||||||||||||||||
647,645 | 7.43 | $ | 22.22 | 274,000 | 6.30 | $ | 17.73 | |||||||||||||||||
At July 31, 2009, the aggregate intrinsic value (i.e., the difference in market price of
$15.57 and the exercise price to be paid by the optionee) of stock options outstanding was $0.4
million. The aggregate intrinsic value of exercisable stock options at that date was $0.4
million.
At July 31, 2009, the total future compensation cost related to non-vested stock options not yet
recognized in the statement of income was $3.1 million and the weighted average period over
which these awards are expected to be recognized was 1.8 years. Of that total, $1,134, $1,021,
$772, $155 and $0 will be recognized in 2010, 2011, 2012, 2013 and 2014, respectively.
F-22
Table of Contents
The following table summarizes information about options granted, options exercised and options
becoming exercisable during the years shown:
Years ended July 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Weighted average grant date fair
value for options granted |
$ | 10.12 | $ | 14.80 | $ | 11.97 | ||||||
Total Intrinsic value of shares
underlying options: |
||||||||||||
Options exercised |
$0.1 million | $2.1 million | $1.9 million | |||||||||
Options becoming exercisable |
$0.0 million | $0.8 million | $1.0 million |
11. REPURCHASE OF EQUITY SECURITIES
The Board of Directors has authorized the Company to purchase up to $78 million of Dynamex Inc.
common stock on the open market. Through July 31, 2008, the Company had repurchased a total of
1,962 shares at an average price of $20.07 per share for a total dollar cost of $39,368. During
the year ended July 31, 2009, the Company repurchased a total of 439 shares at an average price
of $24.13 per share for a total dollar cost of $10,597, leaving a balance of $28,035 in the
current authorization. The Company decided during the second quarter of FY 2009 to suspend the
share repurchase program. Delaware law permits treasury shares to be retired when appropriately
authorized by the Board of Directors, and the Company has retired such shares by appropriate
reductions in the value of common stock and additional paid-in capital.
12. EMPLOYEES DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution 401K 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 on a pre-tax basis at their option up to a maximum of $15,500. Beginning January
1, 2002, changes in the tax law provided for catch-up contributions which allow participants
over 50 years of age to contribute an additional $1 per year, rising $1 per year each year
thereafter, until reaching an additional $5 per year in 2006. The Company may make
discretionary contributions to the Plan as determined by the Companys Board of Directors. The
Company made 401K matched contributions of $294, $295 and $138 for 2009, 2008 and 2007,
respectively.
13. OTHER INCOME
In December 2006 the Company reached agreement with Canadian taxing authorities on the valuation
of intercompany services performed by the U.S. on behalf of Dynamex Canada. The Canadian
Revenue Authority (CRA) specifically challenged certain allocations of expenses between the
Canadian and United States operations during audits of fiscal years 2001 and 2002. As a result
of the agreement, Canadian taxable income was reduced approximately $4 million with a
corresponding increase in U.S. taxable income. During the second quarter of fiscal 2007 Dynamex
Canada transferred cash to the U.S. in payment for services provided by the U.S. from 2001 to
2005 which resulted in a foreign currency transaction gain of approximately $937.
In December 2006, Dynamex Canada received approximately $1.35 million Cdn from the CRA in income
tax refunds for tax years 2001 to 2003 and approximately $345 Cdn in interest on the overpayment
of such Canadian income taxes. The effects of the foreign currency transaction gain and the
total interest income of $425 are recorded in Other Income in the Condensed Statements of
Consolidated Operations.
Management recorded the net effects of the above described items during the second quarter of
fiscal 2007. Since the challenge by the CRA and the resulting transfer pricing studies were
accounting estimates resolved during the second quarter, management considers it appropriate to
record the effects during the second quarter of fiscal 2007. The effect of this resolution was
an increase in net income of approximately $972 ($0.09 per basic and per fully diluted share for the year ended April 30, 2007). Excluding the impact of
this transaction, fully diluted earnings per common share for the year ended April 30, 2007,
would have been $1.30 as shown in the following table:
F-23
Table of Contents
Transfer
pricing impact on the year ended:
Year ended | ||||||||||||
July 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Income before income taxes - As reported |
$ | 14,316 | $ | 25,505 | $ | 23,537 | ||||||
Income from transfer pricing (foreign exchange
gain and interest income) |
| | 1,362 | |||||||||
Income before income taxes - Excluding
transfer pricing effects |
$ | 14,316 | $ | 25,505 | $ | 22,175 | ||||||
Income taxes - As reported |
$ | 5,566 | $ | 9,722 | $ | 8,575 | ||||||
Income tax effects (foreign exchange
gain, interest income and intercompany services) |
| | 390 | |||||||||
Income taxes - Excluding transfer pricing effects |
$ | 5,566 | $ | 9,722 | $ | 8,185 | ||||||
Net income - As reported |
$ | 8,750 | $ | 15,783 | $ | 14,962 | ||||||
Net income - Excluding transfer pricing effects |
$ | 8,750 | $ | 15,783 | $ | 13,990 | ||||||
Net income from the transfer pricing transactions |
$ | | $ | | $ | 972 | ||||||
Earnings per share: |
||||||||||||
Basic - As reported |
$ | 0.89 | $ | 1.55 | $ | 1.41 | ||||||
Transfer pricing adjustment |
| | 0.09 | |||||||||
Basic - Excluding transfer pricing effects |
$ | 0.89 | $ | 1.55 | $ | 1.32 | ||||||
Fully diluted - As reported |
$ | 0.89 | $ | 1.53 | $ | 1.39 | ||||||
Transfer pricing adjustment |
| | 0.09 | |||||||||
Basic - Excluding transfer pricing effects |
$ | 0.89 | $ | 1.53 | $ | 1.30 | ||||||
14. GEOGRAPHIC AREA INFORMATION
Dynamex Inc. operates in one reportable business segment, same-day delivery services, with two
primary service offerings: (i) same-day on-demand delivery services and (ii) same-day local and
regional distribution services including outsourcing services such as fleet management and
facilities management. The Company evaluates the performance of its geographic regions, United
States and Canada, based upon operating income before unusual and non-recurring items.
F-24
Table of Contents
The following table summarizes selected financial information for the United States and Canada
for the years ended July 31, 2009, 2008 and 2007:
United | ||||||||||||
States | Canada | Total | ||||||||||
2009 |
||||||||||||
Sales |
$ | 257,623 | $ | 144,486 | $ | 402,109 | ||||||
Operating income |
7,834 | 6,248 | 14,082 | |||||||||
Identifiable assets |
91,522 | 37,977 | 129,499 | |||||||||
Goodwill, net |
36,111 | 11,385 | 47,496 | |||||||||
Capital expenditures |
5,836 | 417 | 6,253 | |||||||||
Depreciation and amortization |
2,901 | 539 | 3,440 | |||||||||
Amortization
of deferred bank financing fees |
2 | | 2 | |||||||||
2008 |
||||||||||||
Sales |
$ | 280,583 | $ | 175,193 | $ | 455,776 | ||||||
Operating income |
12,855 | 12,366 | 25,221 | |||||||||
Identifiable assets |
100,397 | 38,227 | 138,624 | |||||||||
Goodwill, net |
36,111 | 11,998 | 48,109 | |||||||||
Capital expenditures |
1,981 | 864 | 2,845 | |||||||||
Depreciation and amortization |
2,370 | 455 | 2,825 | |||||||||
Amortization
of deferred bank financing fees |
10 | | 10 | |||||||||
2007 |
||||||||||||
Sales |
$ | 257,025 | $ | 156,749 | $ | 413,774 | ||||||
Operating income |
9,896 | 11,861 | 21,757 | |||||||||
Identifiable assets |
91,334 | 29,706 | 121,040 | |||||||||
Goodwill, net |
36,111 | 11,502 | 47,613 | |||||||||
Capital expenditures |
4,579 | 382 | 4,961 | |||||||||
Depreciation and amortization |
2,079 | 278 | 2,357 | |||||||||
Amortization
of deferred bank financing fees |
28 | | 28 |
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Table of Contents
15. QUARTERLY DATA (Unaudited)
Summarized quarterly financial data for 2009 and 2008 is as follows (in thousands except per
share amounts and business days):
Quarter Ended | ||||||||||||||||
October 31, | January 31, | April 30, | July 31, | |||||||||||||
2009 |
||||||||||||||||
Sales |
$ | 115,452 | $ | 97,557 | $ | 92,234 | $ | 96,867 | ||||||||
Operating income |
5,547 | (1) | 3,173 | 2,704 | 2,659 | (2) | ||||||||||
Net income |
3,045 | 2,304 | 1,635 | 1,766 | ||||||||||||
Net income per share: |
||||||||||||||||
Basic |
0.31 | 0.24 | 0.17 | 0.18 | ||||||||||||
Assuming dilution |
0.30 | 0.24 | 0.17 | 0.18 | ||||||||||||
Average shares outstanding |
9,948 | 9,747 | 9,711 | 9,722 | ||||||||||||
Number of business days |
64 | 60 | 63 | 64 | ||||||||||||
2008 |
||||||||||||||||
Sales |
$ | 111,752 | $ | 111,957 | $ | 112,976 | $ | 119,092 | ||||||||
Operating income |
6,384 | 5,242 | 6,023 | 7,572 | ||||||||||||
Net income |
3,994 | 3,419 | 3,774 | 4,596 | ||||||||||||
Net income per share: |
||||||||||||||||
Basic |
0.39 | 0.33 | 0.37 | 0.45 | ||||||||||||
Assuming dilution |
0.39 | 0.33 | 0.37 | 0.45 | ||||||||||||
Average shares outstanding |
10,174 | 10,232 | 10,243 | 10,181 | ||||||||||||
Number of business days |
64 | 60 | 63 | 64 | ||||||||||||
(1) | Includes one-time special bonus to former CEO of $1.5 million. | |
(2) | Includes restructuring charge of $1.1 million. |
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Table of Contents
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. |
|||
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. |
|||
10.14 | (5) | | Credit Agreement by and among the Company and Bank of America N.A., as administrative
agent for the lenders therein, dated March 2, 2004. |
|||
10.14 | (6) | | First Amendment to the $30,000,000 Revolving Credit Facility by and among the Company
and Bank of America, N.A., as administrative agent and a lender, dated
April 22, 2005. |
|||
10.14 | (7) | | Second Amendment to the $30,000,000 Revolving Credit Facility by and among the Company
and Bank of America, N.A., as administrative agent and a lender, dated
November 10, 2005. |
|||
10.14 | (7) | | Third Amendment to the $30,000,000 Revolving Credit Facility by and among the Company
and Bank of America, N.A., as administrative agent and a lender, dated
December 23, 2005 (but effective as of October 31, 2005). |
|||
10.14 | (8) | | Fourth Amendment to the $30,000,000 Revolving Credit Facility by and among the Company
and Bank of America, N.A., as administrative agent and a lender, dated
April 22, 2005. |
|||
10.14 | (9) | | Fifth Amendment to the $30,000,000 Revolving Credit Facility by and among the Company
and Bank of America, N.A., as administrative agent and a lender, dated October 5,
2006. |
|||
10.14 | (10) | | Sixth Amendment to the $30,000,000 Revolving Credit Facility by and among the Company
and Bank of America, N.A., as administrative agent and a lender, dated July 31, 2007. |
|||
10.14 | (11) | | Seventh Amendment to the $40,000,000 Revolving Credit Facility by and among the Company
and Bank of America, N.A., as administrative agent and a lender, dated September 17, 2008. |
|||
10.14 | (12) | | Eight Amendment to the $40,000,000 Revolving Credit Facility by and among the Company
and Bank of America, N.A., as administrative agent and a lender, dated January 26, 2009. |
|||
10.15 | (11) | | Dynamex Inc. 2008 Equity Compensation Plan |
|||
11.1 | | Statement regarding computation of earnings (loss) per share. All information required by
Exhibit 11.1 is presented in Note 2 of the Companys Consolidated Financial
Statements in accordance with the provisions of SFAS No. 128 |
||||
21.1 | (8) | | Subsidiaries of the Registrant. |
|||
23.1 | (1) | | Consent of BDO Seidman, LLP. |
|||
31.1 | (1) | | Certification of Chief Executive Officer of the Registrant, pursuant to 17 CFR 240.13a 14(a)
Or 17 CFR 240.15d 14(a) |
|||
31.2 | (1) | | Certification of Chief Financial Officer of the Registrant, pursuant to 17 CFR 240.13a 14(a)
Or 17 CFR 240.15d 14(a) |
|||
32.1 | (1) | | Certification of Chief Executive Officer of the Registrant, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
32.2 | (1) | | Certification of Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(1) | Filed herewith. | |
(2) | Filed as an exhibit to the registrants Registration Statement on Form S-1 (File No. 333-05293), and incorporated herein by reference. | |
(3) | Filed as an exhibit to the registrants 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. |
E-1
Table of Contents
(5) | Filed as an exhibit to the registrants quarterly report on Form 10-Q for the quarterly period ended April 30, 2004, and incorporated herein by reference. | |
(6) | Filed as an exhibit to the registrants quarterly report on Form 10-Q for the quarterly period ended April 30, 2005, and incorporated herein by reference. | |
(7) | Filed as an exhibit to the registrants quarterly report on Form 10-Q for the quarterly period ended January 31, 2006, and incorporated herein by reference. | |
(8) | Filed as an exhibit to the registrants annual report on Form 10-K for the fiscal year ended July 31, 2006, and incorporated herein by reference. | |
(9) | Filed as an exhibit to the registrants quarterly report on Form 10-Q for the quarterly period ended October 31, 2006, and incorporated herein by reference. | |
(10) | Filed as an exhibit to the registrants annual report on Form 10-K for the fiscal year ended July 31, 2007, and incorporated herein by reference. | |
(11) | Filed as an exhibit to the registrants annual report on Form 10-K for the fiscal year ended July 31, 2008, and incorporated herein by reference. | |
(12) | Filed as an exhibit to the registrants quarterly report on Form 10-Q for the quarterly period ended January 31, 2009, and incorporated herein by reference. |
E-2