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EX-32.2 - EX-32.2 - DYNAMEX INCd69544exv32w2.htm
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EX-23.1 - EX-23.1 - DYNAMEX INCd69544exv23w1.htm
EX-31.1 - EX-31.1 - DYNAMEX INCd69544exv31w1.htm
EX-31.2 - EX-31.2 - DYNAMEX INCd69544exv31w2.htm
Table of Contents

 
 
UNITED STATES
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)
Registrant’s telephone number, including area code:
(214) 560-9000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
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 registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 registrant’s 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 Registrant’s definitive Proxy Statement on Schedule 14-A to be filed with the Commission.
 
 

 


 

TABLE OF CONTENTS
         
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PART II
 
       
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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

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PART I
     Statements and information presented within this Annual Report on Form 10-K for Dynamex Inc. (the “Company” and “Dynamex”) contain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can be identified by the use of predictive, future tense or forward-looking terminology, such as “believes”, “anticipates”, “expects”, “estimates”, “may”, “will” or similar terms. Forward-looking statements also include projections of financial performance, statements regarding management’s plans and objectives and statements concerning any assumptions relating to the foregoing. Certain important factors which may cause actual results to vary materially from these forward-looking statements accompany such statements and appear elsewhere in this report, including without limitation, the factors disclosed under “Risk Factors.” All subsequent written or oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified by these factors.
ITEM 1.   BUSINESS
General
     Dynamex is a leading provider of same-day delivery and logistics services in the United States and Canada. 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 Company’s on-demand delivery capabilities are available to supplement scheduled distribution arrangements or dedicated fleets as needed. Facilities management services include the Company’s operation and management of 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 Company’s 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 Company’s 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 another’s customer base and providing such customers with a broader range of value added services. For example, the Company has formed an alliance with Purolator whereby on an exclusive basis the Company and Purolator provide one another with certain delivery services and market one another’s delivery services to their respective customers. 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 customer’s request for immediate pick-up and delivery. The Company also provides same-day inter-city delivery services by utilizing third-party air or motor carriers in conjunction with the Company’s ground couriers. The Company focuses on the delivery of non-faxable, time sensitive items throughout major metropolitan areas rather than traditional downtown document delivery. For the fiscal years ended July 31, 2009, 2008 and 2007, approximately 32%, 33%, and 33% respectively, of the Company’s 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 Company’s on-demand delivery capabilities are available to supplement scheduled services as needed. A bulk shipment may be received at the Company’s warehouse where it is sub-divided into smaller bundles and sorted for delivery to specified locations. Same-day scheduled distribution services are provided on both a local and multi-city basis. For example, in 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 Company’s 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 customer’s 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 Company’s 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 customer’s logo and colors. In addition, the Company’s on-demand delivery capability may supplement the dedicated fleet as necessary, thereby allowing a smaller dedicated fleet to be maintained than would otherwise be required. The Company’s fleet management services include designing and managing systems 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 Company’s fleet management solutions are not limited by the Company’s need to utilize its own fleet.
     By outsourcing their fleet management, the Company’s customers (i) utilize the Company’s distribution and route optimization experience to deliver their products more efficiently, (ii) gain the flexibility to expand or contract fleet size as necessary, and (iii) reduce the costs and administrative burden associated with owning or leasing vehicles and hiring and managing transportation employees
     For the fiscal years ended July 31, 2009, 2008 and 2007, approximately 68%, 67%, and 67%, respectively, of the Company’s 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 Company’s 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 Company’s operations are divided into regions, four U.S. and four Canadian, with each of the Company’s 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 Company’s 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 Company’s 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 Company’s warehouse or the customer’s facility.
     The largest component of the Company’s distribution outsourcing services is its fleet management. Fleet management services are coordinated by the Company’s logistics specialists who have experience in designing, implementing and managing integrated networks for transportation services. Based upon the specialist’s analysis of a customer’s fleet and distribution requirements, the Company develops a plan to optimize fleet configuration and route design. The Company 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 customer’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s sales force will seek to generate additional business from existing local accounts, which often include large companies with multiple locations. The expansion of the Company’s national sales program and continuing investment in technology to support its expanding operations have been undertaken at a time when large companies are increasing their demand for delivery providers who offer a range of delivery services at multiple locations.
     The Company’s local sales representatives make regular calls on existing and potential customers to identify such customers’ delivery and logistics needs. The Company’s national product and industry specialists augment the local marketing efforts and seek new applications of the Company’s primary services in an effort to expand the demand for such services. Customer service representatives on the local and national levels regularly communicate with customers to monitor the quality of services and to quickly respond to customer concerns. The Company maintains a database of its customers’ service utilization patterns and satisfaction level. This database is used to analyze opportunities and conduct performance audits.
     Fostering strategic alliances with customers who offer services that complement those of the Company is an important component of the Company’s marketing strategy. For example, under an agreement with Purolator, the

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Company serves as Purolator’s exclusive provider of same-day courier services, which services are then marketed by Purolator to its customers. The Company also provides Purolator with local and inter-city, same-day ground courier service for misdirected Purolator shipments. Purolator reports that it is the largest overnight courier in Canada.
Customers
     The Company’s 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 Company’s revenue. Sales to the Company’s five largest customers, including Office Depot, represented approximately 24%, 27% and 28% of the Company’s consolidated sales for the years ended July 31, 2009, 2008 and 2007, respectively.
     A significant number of the Company’s customers are located in Canada. For the fiscal years ended July 31, 2009, 2008 and 2007, approximately 36%, 38% and 38% of the Company’s sales, respectively, were generated in Canada. See Note 14 of Notes to the Consolidated Financial Statements for additional information concerning the Company’s foreign operations.
Competition
     The market for the Company’s same-day delivery and logistics services has been and is expected to remain highly competitive. The Company believes that the principal competitive factors in the markets in which it competes are reliability, quality, breadth of service and price.
     Most of the Company’s competitors in the same-day intra-city delivery market are privately held companies that operate in only one location, with no one competitor dominating the market. Price competition for basic delivery services is particularly intense.
     The market for the Company’s logistics services is also highly competitive, and can be expected to remain competitive as additional companies seek to capitalize on the growth in the industry. The Company’s principal competitors for such services are other delivery companies and in-house transportation departments. The Company generally competes on the basis of its ability to provide customized service regionally and nationally, which it believes is an important advantage in this highly fragmented industry, and on the basis of price.
     The Company’s principal competitors for drivers are other delivery companies within each market area. Management believes that its method of driver compensation, which is based on a percentage of the delivery charge, 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 Company’s business and operations are subject to various federal (U.S. and Canadian), state, provincial and local regulations and, in many instances, require permits and licenses from state authorities. The Company holds nationwide general commodities authority from the Federal Highway Administration of the U.S. Department of Transportation to transport certain property as a motor carrier on an inter-state basis within the contiguous 48 states. Where required, the Company holds statewide general commodities authority. The Company holds permanent extra-provincial (and where required, intra-provincial) operating authority in all Canadian provinces where the Company does business.
     In connection with the operation of certain motor vehicles, the handling of hazardous materials in its courier operations and other safety matters, including insurance requirements, the Company is subject to regulation by the 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 Company’s 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 Trademark’s 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 Company’s 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 Company’s relationship with such unions is good. Unions represent none of the Company’s 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 Company’s filings with the SEC may be obtained from its website at HTTP://WWW.DYNAMEX.COM or at the SEC’s 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 Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in the following risk factors and elsewhere in this report.

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The Global Economic Conditions Could Adversely Affect the Company’s 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 Company’s 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 Company’s 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 Company’s 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 “Management’s 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 “Management’s 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 Company’s 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 Company’s 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. Plaintiff’s 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 Company’s 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 Defendant’s 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 Company’s 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 REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information — The Company’s 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 Company’s 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
(LINE GRAPH)
ASSUMES $100 INVESTED ON AUGUST 1, 2004
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 “Management’s 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 Company’s 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 Company’s consolidated financial statements, including the notes thereto, and “Management’s 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 Company’s 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.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
     The following discussion should be read in conjunction with the information contained in the Company’s consolidated financial statements, including the notes thereto, and the other financial information appearing elsewhere in this report. Statements regarding future economic performance, management’s plans and objectives, and any statements concerning its assumptions related to the foregoing contained in Management’s Discussion and Analysis of Financial Condition and Results of 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 Company’s driver and messenger costs are variable in nature. Also included in operating expenses are salaries, wages and benefit costs

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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 Company’s 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 Company’s 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 Company’s revenue. Sales to the Company’s five largest customers, including Office Depot, represented approximately 24%, 27% and 28% of the Company’s 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 Company’s sales is generated in Canada. For the fiscal years ended July 31, 2009, 2008 and 2007, approximately 36%, 38%, and 38%, respectively, of the Company’s 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 Company’s 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 Company’s Canadian operations, these changes in the exchange rate have affected the Company’s reported sales and net income. Management does not believe that the effect of these changes on the Company’s 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 Company’s 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 Company’s 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 Company’s estimates of the aggregate liability for claims incurred. The Company’s 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 Company’s historical collection experience, current trends, credit policy and a percentage of accounts receivable by aging category. If the financial condition of the Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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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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 Company’s 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 Company’s 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 Company’s 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 LOC’s   $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 Company’s 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 Company’s 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 Company’s results of operations for fiscal 2009. There can be no assurance the Company’s business will not be affected by inflation in the future.
Financial Condition
     The Company believes its financial condition is strong and that it has the financial resources necessary to meet its needs. Cash provided by operating activities and the Company’s credit facility should be sufficient to meet the Company’s operational 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 Company’s 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 Statements—an 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 Company’s 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 Company’s 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 Company’s 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

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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 Company’s 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 Company’s 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 Company’s authority to conduct certain of its operations.
 
    The ability of the Company to obtain adequate financing.
 
    The ability of the Company to pass on fuel cost increases to customers to maintain profit margins and the quality of driver pay.
ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Foreign Exchange Exposure
     Significant portions of the Company’s operations are conducted in Canada. Exchange rate fluctuations between the U.S. and Canadian dollar result in fluctuations in the amounts relating to the Canadian operations reported in the Company’s consolidated financial statements. The Company historically has not entered into hedging transactions with respect to its foreign currency exposure, but may do so in the future.
     The sensitivity analysis model used by the Company for foreign exchange exposure compares the revenue and net income figures from Canadian operations over the previous four quarters at the actual exchange rate versus a 10% decrease in the exchange rate. Based on this model, a 10% decrease would result in a decrease in revenue of 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 Company’s 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.

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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 Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the Company’s 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 Company’s 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). Management’s report on internal control over financial reporting.
     Management’s 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.

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PART III
ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
     The information set forth under the caption “Directors and Executive Officers” in the Company’s definitive proxy statement to be filed in connection with the 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 Company’s internet website at the internet address: http://www.dynamex.com. Copies of the code may be obtained free of charge from the Company’s website at the above internet address.
ITEM 11.   EXECUTIVE COMPENSATION
     The information set forth under the caption “Directors and Executive Officers” in the Company’s definitive proxy statement to be filed in connection with the 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 Company’s definitive proxy statement to be filed in connection with the 2010 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
     The information set forth under the caption “Certain Relationships and Related Transactions” in the Company’s definitive proxy statement to be filed in connection with the 2010 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES
     The information set forth under the caption “Principal Accountant Fees and Services” in the Company’s definitive proxy statement to be filed in connection with the 2010 Annual Meeting of Stockholders is incorporated herein by reference.

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PART IV
ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(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.

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SIGNATURES
     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dynamex Inc.,
A Delaware corporation
         
By:
  /s/ Ray E. Schmitz    
 
       
 
  Ray E. Schmitz, 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
 
James L. Welch
  Chief Executive Officer, President and Director
(Principal Executive Officer)
/s/ Ray E. Schmitz
 
Ray E. Schmitz
  Executive Vice President, Chief Financial Officer
(Principal Financial Officer)
/s/ Gilbert Jones
 
Gilbert Jones
  Vice President, Corporate Controller
(Principal Accounting Officer)
/s/ Richard K. McClelland
 
Richard K. McClelland
  Chairman of the Board and Director
/s/ Wayne Kern
 
Wayne Kern
  Director
/s/ Stephen P. Smiley
 
Stephen P. Smiley
  Director
/s/ Brian J. Hughes
 
Brian J. Hughes
  Director
/s/ Bruce E. Ranck
 
Bruce E. Ranck
  Director
/s/ Craig R. Lentzsch
 
Craig R. Lentzsch
  Director

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Board of Directors and
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)

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
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 Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 Company’s 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
 
BDO Seidman, LLP
   
 
   
Dallas, Texas
October 14, 2009
   

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
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 Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s 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 company’s 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 company’s 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 company’s 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
 
BDO Seidman, LLP
   
 
   
Dallas, Texas
October 14, 2009
   

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DYNAMEX INC.
Consolidated Balance Sheets
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.

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DYNAMEX INC.
Consolidated Statements of Operations
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.

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DYNAMEX INC.
Consolidated Statements of Stockholders’ Equity
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.

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DYNAMEX INC.
Consolidated Statements of Cash Flows
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.

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     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 Company’s 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.

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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 Company’s 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 Company’s revenue. Sales to the Company’s five largest customers, including Office Depot, represented approximately 24%, 27% and 28% of the Company’s consolidated sales for the years ended July 31, 2009, 2008 and 2007, respectively.
A significant number of the Company’s customers are located in Canada. For the fiscal years ended July 31, 2009, 2008 and 2007, approximately 36%, 38% and 38% of the Company’s sales, respectively, were generated in Canada. See Note 14 of Notes to the Consolidated Financial Statements for additional information concerning the Company’s 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 Company’s 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 unit’s 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 Company’s historical collection experience, current trends, credit policy and aging category. If the financial condition of the Company’s customers were to deteriorate, thus impairing their ability to make required payments, additional allowances may be required. The Company’s 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 Company’s estimates of the aggregate liability for claims incurred. The Company’s 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 Company’s 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 Statements—an 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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. Plaintiff’s 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 Company’s 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 Defendant’s 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 Company’s 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 Company’s 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 Company’s 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:

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    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 Company’s 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 Company’s 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 Company’s 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.

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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.

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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 Company’s 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:

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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.

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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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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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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 Company’s 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 registrant’s Registration Statement on Form S-1 (File No. 333-05293), and incorporated herein by reference.
 
(3)   Filed as an exhibit to the registrant’s annual report on Form 10-K for the fiscal year ended July 31, 1997, and incorporated herein by reference.
 
(4)   Filed as an exhibit to Registration Statement on Form S-1 (File No. 333-49603), and incorporated herein by reference.

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(5)   Filed as an exhibit to the registrant’s 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 registrant’s 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 registrant’s 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 registrant’s 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 registrant’s 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 registrant’s 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 registrant’s 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 registrant’s quarterly report on Form 10-Q for the quarterly period ended January 31, 2009, and incorporated herein by reference.

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