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Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2010
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
(State of incorporation)
  86-0712225
(I.R.S. Employer Identification No.)
     
5429 LBJ Freeway, Suite 1000, Dallas, Texas
(Address of principal executive offices)
  75240
(Zip Code)
Registrant’s telephone number, including area code:
(214) 560-9000
     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   Noo
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
             
Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o (Do not check if a smaller reporting company)   Small reporting company o
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No þ
     The number of shares of the registrant’s common stock, $.01 par value, outstanding as of February 28, 2010 was 9,734,374 shares.
 
 

 


 

DYNAMEX INC.
 
INDEX
         
    Page  
PART I
FINANCIAL INFORMATION
 
       
       
 
       
    2  
 
       
    3  
 
       
    4  
 
       
    5  
 
       
    10  
 
       
    17  
 
       
    18  
 
       
PART II
OTHER INFORMATION
 
       
    19  
 
       
    20  
 
       
    23  
 
       
    24  
 
       
    25  
 
       
    E-1  
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

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Table of Contents

PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
DYNAMEX INC.
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
                 
    January 31,     July 31,  
    2010     2009  
    (Unaudited)          
ASSETS
CURRENT
               
Cash and cash equivalents
  $ 12,568     $ 11,016  
Accounts receivable (net of allowance for doubtful accounts of $1,734 and $1,801, respectively)
    50,158       43,545  
Income taxes receivable
    4,255       3,043  
Prepaid and other current assets
    2,505       4,396  
Deferred income taxes
    4,270       4,270  
 
           
Total current assets
    73,756       66,270  
 
               
PROPERTY AND EQUIPMENT (net of accumulated depreciation of $30,835 and $29,730, respectively)
    11,322       11,532  
GOODWILL
    47,586       47,496  
INTANGIBLES — net
    961       975  
OTHER
    3,429       3,226  
 
           
Total assets
  $ 137,054     $ 129,499  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
               
Accounts payable trade
  $ 6,883     $ 5,581  
Accrued liabilities
    22,341       22,370  
 
           
Total current liabilities
    29,224       27,951  
 
               
LONG-TERM DEBT
           
OTHER LONG-TERM LIABILITIES
    5,399       5,468  
 
           
Total liabilities
    34,623       33,419  
 
           
 
               
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; 9,734 and 9,725 outstanding, respectively
    97       97  
Additional paid-in capital
    37,196       36,276  
Retained earnings
    60,896       55,655  
Accumulated other comprehensive income
    4,242       4,052  
 
           
Total stockholders’ equity
    102,431       96,080  
 
           
Total liabilities and stockholders’ equity
  $ 137,054     $ 129,499  
 
           
See accompanying notes to the condensed consolidated financial statements.

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DYNAMEX INC.
Condensed Statements of Consolidated Operations
(in thousands except per share data)
(Unaudited)
                                 
    Three months ended     Six months ended  
    January 31,     January 31,  
    2010     2009     2010     2009  
Sales
  $ 98,436     $ 97,557       197,883     $ 213,009  
 
                               
Operating expenses:
                               
Purchased transportation
    63,281       61,537       126,870       135,424  
Salaries and employee benefits
    19,913       20,428       39,623       44,517  
Facilities and communication
    5,063       4,877       9,783       9,698  
Other
    5,450       6,731       11,177       13,057  
Depreciation and amortization
    1,042       811       2,104       1,594  
Restructuring cost
    282             282        
 
                       
Total operating expenses
    95,031       94,384       189,839       204,290  
 
                       
 
                               
Operating income
    3,405       3,173       8,044       8,719  
 
                               
Interest expense
    44       43       92       81  
Other income, net
    (188 )     (291 )     (201 )     (309 )
 
                       
 
                               
Income before income taxes
    3,549       3,421       8,153       8,947  
 
                               
Income taxes
    1,334       1,117       2,912       3,599  
 
                       
 
                               
Net income
  $ 2,215     $ 2,304     $ 5,241     $ 5,348  
 
                       
 
                               
Basic earnings per common share
  $ 0.23     $ 0.24     $ 0.54     $ 0.54  
 
                       
 
                               
Diluted earnings per common share
  $ 0.23     $ 0.24     $ 0.54     $ 0.54  
 
                       
 
                               
Weighted average shares:
                               
Common shares outstanding
    9,732       9,747       9,729       9,848  
Adjusted common shares — assuming exercise of stock options
    9,757       9,768       9,751       9,902  
See accompanying notes to the condensed consolidated financial statements.

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DYNAMEX INC.
Condensed Statements of Consolidated Cash Flows
(in thousands)
(Unaudited)
                 
    Six months ended  
    January 31,  
    2010     2009  
OPERATING ACTIVITIES
               
Net income
  $ 5,241     $ 5,348  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
               
Depreciation and amortization
    2,104       1,594  
Amortization of deferred bank financing fees
    4        
Provision for losses on accounts receivable
    257       1,016  
Stock option compensation
    768       746  
Deferred income taxes
    180       553  
Non-cash rent expense
    (13 )     71  
Gain on disposal of property and equipment
    (5 )     (2 )
Changes in current operating assets and liabilities:
               
Accounts receivable
    (6,870 )     (172 )
Prepaids and other current assets
    675       73  
Accounts payable and accrued liabilities
    1,263       (10,882 )
 
           
Net cash provided by (used in) operating activities
    3,604       (1,655 )
 
           
 
               
INVESTING ACTIVITIES
               
Purchase of property and equipment
    (1,680 )     (1,746 )
Proceeds from sale of property and equipment
    5        
Acquisition of customer lists
    (204 )      
Withdrawal (purchase) of investments
    (27 )     676  
 
           
Net cash used in investing activities
    (1,906 )     (1,070 )
 
           
 
               
FINANCING ACTIVITIES
               
Proceeds from stock option exercise
    152        
Purchase and retirement of treasury stock
          (10,597 )
Other assets and deferred financing fees
    (174 )     532  
 
           
Net cash used in financing activities
    (22 )     (10,065 )
 
           
 
               
 
           
EFFECT OF EXCHANGE RATES ON CASH
    (124 )     (2,364 )
 
           
 
               
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    1,552       (15,154 )
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    11,016       19,888  
 
           
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 12,568     $ 4,734  
 
           
 
               
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
               
Cash paid for interest
  $ 38     $ 31  
 
           
Cash paid for taxes
  $ 3,945     $ 4,291  
 
           
See accompanying notes to the consolidated financial statements.

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DYNAMEX INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Summary of Significant Accounting Policies
Description of Business — Dynamex Inc. (the “Company” or “Dynamex”) provides same-day delivery and logistics services in the United States and Canada. The Company’s primary services are (i) same-day, on-demand delivery and (ii) same-day local and regional distribution.
Basis of presentation — The consolidated financial statements include the accounts of Dynamex Inc. and its wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated. All dollar amounts in the financial statements and notes to the financial statements, except per share data, are stated in thousands of dollars unless otherwise indicated. Except as otherwise indicated, references to years mean our fiscal year ending July 31, 2009 or ended July 31 of the year referenced, and comparisons are to the corresponding period of the prior year.
The accompanying interim financial statements are unaudited. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, although the Company believes the disclosures included herein are adequate to make the information presented not misleading. The results of the interim periods presented are not necessarily indicative of results to be expected for the full fiscal year, and should be read in conjunction with the Company’s audited financial statements for the fiscal year ended July 31, 2009.
The accompanying interim financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position at January 31, 2010, the results of its operations for the three and six months periods ended January 31, 2010 and 2009, and cash flows for the six-month periods ended January 31, 2010 and 2009. The tax provisions for the three and six months periods ended January 31, 2010 and 2009 are based upon management’s estimates of the Company’s annualized effective tax rate.
Business and credit concentrations — The Company’s customers are not concentrated in any specific geographic region or industry. During the six months ended January 31, 2010 and 2009, sales to Office Depot, Inc. represented approximately 12.2% and 14.6%, respectively, of the Company’s revenue. Sales to the Company’s five largest customers, including Office Depot, represented approximately 23.3% and 25.3% of the Company’s consolidated sales for the six months ended January 31, 2010 and 2009, respectively.
A significant portion of the Company’s revenues are generated in Canada. For the six month period ended January 31, 2010, Canadian revenues accounted for approximately 37.4% of total consolidated revenue, compared to 36.6% for the same period in 2009. The exchange rate between the Canadian dollar and the U.S. dollar increased 8.4% in the six month period ended January 31, 2010 compared to the corresponding period in the prior year. Had the exchange rate been the same as in the prior period, Canadian sales for the six month period ended January 31, 2010 would have accounted for 35.5% of total sales.
Office Depot represented approximately 17.2% of the net accounts receivable at January 31, 2010. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.
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 Accounting Standards Codification, (“ASC”) 340-10-05-6, Preproduction 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 net recoverable contract contingency costs capitalized at January 31, 2010 amount to $581 compared to $778 at July 31, 2009.
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.

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DYNAMEX INC.
Certain reclassifications have been made to conform prior period data to the current presentation.
2. Comprehensive Income
The three components of comprehensive income are net income, foreign currency translation gains (losses) and unrealized losses on investments. Investments consist of payroll withholdings from participants in the Company’s deferred compensation plan that are invested in funds designated by the individual participants. Comprehensive income for the three and six months ended January 31, 2010 and 2009 was as follows:
                                 
    Three months ended     Six months ended  
    January 31,     January 31,  
    2010     2009     2010     2009  
Net income
  $ 2,215     $ 2,304     $ 5,241     $ 5,348  
 
                               
Unrealized losses on investments
          (20 )     (3 )     (132 )
Foreign currency translation gains (losses)
    317       (723 )     194       (4,532 )
 
                       
 
                               
Comprehensive income
  $ 2,532     $ 1,561     $ 5,432     $ 684  
 
                       
3. Intangibles — net
At January 31, 2010, intangibles and related amortization expense for the three and six months ended January 31, 2010 and 2009 consisted of the following:
                         
            Accumulated        
    Asset     Amortization     Net  
Deferred bank financing fees
  $ 138     $ (134 )     4  
 
                       
Customer lists
    1,154       (454 )     700  
 
                       
Trademarks and other
    470       (213 )     257  
 
                 
 
                       
Total
  $ 1,762     $ (801 )   $ 961  
 
                 
                                 
    Amortization Expense     Amortization Expense  
    Three months ended January 31,     Six months ended January 31,  
    2010     2009     2010     2009  
Deferred bank financing fees
                4        
 
                               
Customer lists
    111       40       208       75  
 
                               
Trademarks and other
    4       4       9       9  
 
                       
 
                               
Total
  $ 115     $ 44     $ 221     $ 84  
 
                       
4. Computation of Earnings Per Share
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computation as required by ASC 260-10-05, Earnings Per Share. Common stock equivalents related to stock options are excluded from diluted earnings per share calculations if their effect would be anti-dilutive to earnings per share.

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DYNAMEX INC.
                                 
    Three months ended     Six months ended  
    January 31,     January 31,  
    2010     2009     2010     2009  
Net income
  $ 2,215     $ 2,304     $ 5,241     $ 5,348  
 
                       
 
                               
Weighted average common shares outstanding
    9,732       9,747       9,729       9,848  
 
                               
Common share equivalents related to options
    25       21       22       54  
 
                       
 
                               
Common shares and common share equivalents
    9,757       9,768       9,751       9,902  
 
                       
 
                               
Net income per common share:
                               
Basic
  $ 0.23     $ 0.24     $ 0.54     $ 0.54  
 
                       
Diluted
  $ 0.23     $ 0.24     $ 0.54     $ 0.54  
 
                       
5. 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, 2009, the Company had repurchased a total of 2,401,000 shares at an average price of $20.81 per share for a total dollar cost of $49,965 leaving a balance of $28,035 in the current authorization. The Company decided during the second quarter of Fiscal Year (“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.
6. 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 the EDD claims 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 the Company has recorded a liability of $1.4 million as of January 31, 2010. The liability accrual, primarily for employer payroll taxes, began in fiscal year 2006. The expense impact to fiscal year 2010 was $0.2 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

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DYNAMEX INC.
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 denied the Motion following a Hearing held December 17, 2009. The Class Notice was mailed to potential Class members early in January, 2010, giving each notice of the pendency of the suit and an opportunity to opt out of the action. The Parties have agreed to engage in a process whereby the Court sends a Questionnaire to each potential member of the Class to gather information. A tentative trial date has been set for September 27, 2010.
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.
On May 19, 2009, a Truck Leasing Company filed an action against the Company in U.S. District Court 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. The Company is still engaged in the discovery process. The Company believes that it met all of the limited obligations under the Program Agreement. The Company continues to vigorously contest the allegations in the Complaint.
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.
7. Income Taxes
Income tax expense was $1,334, 37.6% of income before taxes in the current year quarter compared to $1,117, 32.7% of income before taxes in the prior year. Income tax expense was $2,912, 35.7% of income before taxes in the six months ended January 31, 2010 compared to $3,599, 40.2% of income before taxes in the same period of the prior year. The current year benefited from a lower Canadian income tax rate resulting in an adjustment of the effective income tax rate for Canada from 35.5% to 32.0% and a $100 reduction in tax expense from an adjustment of deferred tax liabilities. The prior year includes the impact of repatriating $6 million from Canada that increased income tax expense by $400. The Company has not provided for U.S. Federal and foreign withholding taxes on the foreign subsidiaries’ undistributed earnings as of January 31, 2010. Such earnings were intended to be reinvested indefinitely. The Company’s current annual effective income tax rate in the U.S. is approximately 42.5% and 32.0% in Canada.
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.
8. Restructuring Accrual
During the quarter ended July 31, 2009, the Company announced the closure of the Canadian administrative office in Toronto, Canada, the consolidation of all finance and accounting functions into the Dallas corporate office and the elimination of the position of President U.S. operations. The Company recorded an additional restructuring expense of $282 during the second quarter ended January 31, 2010 primarily related to the remaining lease obligation of the Toronto, Canada administration office upon the “cease use” date of the facility. See the chart below for a summary of the restructuring expense and accrual as of January 31, 2010.

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DYNAMEX INC.
                                         
    Balance at                             Balance at  
Restructuring   July 31, 2009     Expense     Payment     Other (1)     January 31, 2010  
Severance and stay bonuses
  $ 952     $ 38     $ (632 )   $ (1 )   $ 357  
Benefits and employer taxes
    98             (98 )            
Travel and other
    70       16       (70 )     5       21  
Terminating a lease
          228             15       243  
 
                             
Total restructuring
  $ 1,120     $ 282     $ (800 )   $ 19     $ 621  
 
                             
 
(1)   Represents difference in “end of period” and “for the period” foreign exchange rates.

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DYNAMEX INC.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion contains forward-looking statements, which involve assumptions regarding Company operations and future prospects. Although the Company believes its expectations are based on reasonable assumptions, such statements are subject to risk and uncertainty, including, among other things, competition, foreign exchange, and risks associated with the same-day transportation industry. These and other risks are mentioned from time to time in the Company’s filings with the Securities and Exchange Commission. Caution should be taken that these factors could cause the actual results to differ from those stated or implied in this and other Company communications.
General
The Company, through its national network of same-day delivery and logistics operations, is the leading provider of such services in the United States and Canada.
A significant portion of the Company’s sales are generated in Canada. For the six month period ended January 31, 2010, Canadian sales accounted for approximately 37.4% of total consolidated sales, compared to 36.6% for the same period in 2009. The exchange rate between the Canadian dollar and the U.S. dollar increased 8.4% in the six month period ended January 31, 2010 compared to the corresponding period in the prior year. Had the exchange rate been the same as in the prior period, Canadian sales for the six month period ended January 31, 2010 would have accounted for 35.5% of total sales.
Sales consist primarily of charges to customers for delivery services and weekly or monthly charges for recurring services, such as facilities management. Sales are recognized when the service is performed. The yield (value per transaction) for a particular service is dependent upon a number of factors including size and weight of articles transported, distance transported, special handling requirements, requested delivery time and local market conditions. Generally, articles of greater weight transported over longer distances and those that require special handling produce higher yields.
Operating expenses primarily consist of costs relating directly to performance of services, including driver and messenger costs, third party delivery charges, warehousing and sortation 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 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 purchased transportation payments are at a lower percentage of sales, yielding higher margins before overhead, compared to local and regional distribution or fleet management services. Purchased transportation for on-demand driver services represent a lower percentage of sales since the vehicles are generally smaller. 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 expenses are dependent in part on the mix of business for a particular period.
During the six months ended January 31, 2010 and 2009, sales to Office Depot, Inc. represented approximately 12.2% and 14.6%, respectively, of the Company’s consolidated sales. Sales to the Company’s five largest customers, including Office Depot, represented approximately 23.3% and 25.3% of the Company’s consolidated sales for the six months ended January 31, 2010 and 2009, respectively. Contracts for individual locations with Office Depot expire over the next two years. Office Depot has indicated it intends to do a market check for regional business as contracts expire. Although the Company intends to aggressively pursue this business, there can be no assurance the Company will retain all or part of this business.

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Critical Accounting Policies
The Company’s discussion and analysis of its financial condition and results of operations are based on the Company’s financial statements, which have been prepared in accordance with accounting policies generally accepted in the United States of America. The Company’s critical accounting policies are set forth in the Company’s Form 10-K for the year ended July 31, 2009. As of, and for the six month period ended January 31, 2010, there have been no material changes or updates to the Company’s critical accounting policies.
Recent Accounting Pronouncements
In May 2009, the FASB issued ASC 855, 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. ASC 855 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 ASC 855, Subsequent Events for the quarter ended July 31, 2009. The adoption of these provisions did not have a material effect on the Consolidated Financial Statements.
Results of Operations
The following table sets forth for the periods indicated, certain items from the Company’s condensed statements of consolidated operations, expressed as a percentage of sales:
                                 
    Three months ended     Six months ended  
    January 31,     January 31,  
    2010     2009     2010     2009  
Sales
    100.0 %     100.0 %     100.0 %     100.0 %
 
                               
Operating expenses:
                               
Purchased transportation
    64.3 %     63.1 %     64.1 %     63.6 %
Salaries and employee benefits
    20.2 %     20.9 %     20.0 %     20.9 %
Facilities and communication
    5.1 %     5.0 %     4.9 %     4.6 %
Other
    5.5 %     6.9 %     5.7 %     6.1 %
Depreciation and amortization
    1.1 %     0.8 %     1.1 %     0.7 %
Restructuring cost
    0.3 %     0.0 %     0.1 %     0.0 %
 
                       
Total operating expenses
    96.5 %     96.7 %     95.9 %     95.9 %
 
                       
 
                               
Operating income
    3.5 %     3.3 %     4.1 %     4.1 %
 
                               
Interest expense
    0.0 %     0.0 %     0.0 %     0.0 %
Other income, net
    -0.1 %     -0.3 %     0.0 %     -0.1 %
 
                       
 
                               
Income before income taxes
    3.6 %     3.6 %     4.1 %     4.2 %
 
                               
Income taxes
    1.3 %     1.1 %     1.5 %     1.7 %
 
                       
 
                               
Net income
    2.3 %     2.5 %     2.6 %     2.5 %
 
                       

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The following tables sets forth for the periods indicated, the Company’s sales accumulated by service type and country:
                                 
            Three months ended          
            January 31,          
    (amounts in thousands)  
    2010     2009  
Sales by service type:
                               
On demand
    30,998       31.5 %     30,964       31.7 %
Scheduled/distribution
    67,438       68.5 %     66,593       68.3 %
 
                       
Total sales
  $ 98,436       100.0 %   $ 97,557       100.0 %
 
                       
 
                               
Sales by country:
                               
United States
  $ 60,892       61.9 %   $ 62,674       64.2 %
Canada
    37,544       38.1 %     34,883       35.8 %
 
                       
Total sales
  $ 98,436       100.0 %   $ 97,557       100.0 %
 
                       
                                 
            Six months ended          
            January 31,          
    (amounts in thousands)  
    2010     2009  
Sales by service type:
                               
On demand
    62,429       31.5 %     68,667       32.2 %
Scheduled/distribution
    135,454       68.5 %     144,342       67.8 %
 
                       
Total sales
  $ 197,883       100.0 %   $ 213,009       100.0 %
 
                       
 
                               
Sales by country:
                               
United States
  $ 123,912       62.6 %   $ 135,034       63.4 %
Canada
    73,971       37.4 %     77,975       36.6 %
 
                       
Total sales
  $ 197,883       100.0 %   $ 213,009       100.0 %
 
                       
Three months ended January 31, 2010 compared to three months ended January 31, 2009
Net income for the three months ended January 31, 2010 was $2.2 million ($0.23 per fully diluted share) compared to $2.3 million ($0.24 per fully diluted share) for the three months ended January 31, 2009. The current quarter includes a pre-tax restructuring charge of $0.3 million, or $0.02 per fully diluted share, related to the closure of the Canadian administrative office.
Sales were $98 million in the current quarter, which represented a 0.9% year-over-year increase due primarily to foreign exchange and higher fuel surcharges, which were offset, in part, by a decline in core sales. The decrease in core sales (sales excluding changes in fuel surcharge and foreign exchange), was 4.8% or 6.1% on a per day basis. The core sales decline is attributable to lower sales volume from our largest customer and the general macroeconomic challenges to our customers’ businesses. Core sales per day declined approximately 7.0% in Canada and 5.6% in the U.S. while fuel surcharges increased 0.4%. The higher exchange rate between the Canadian dollar and the U.S. dollar increased reported sales by 5.3%.
Purchased transportation for the three months ended January 31, 2010 increased $1.7 million, or 2.8%, to $63.3 million from $61.5 million for the same period in the prior year. Purchased transportation, as a percentage of sales was 64.3% for the three months ended January 31, 2010, compared to 63.1% for the three months ended January 31, 2009. The increase in purchased transportation, as a percentage of sales, is due to the change in business mix along with the impact of a more competitive pricing environment.
Salaries and employee benefits for the three months ended January 31, 2010 decreased $0.5 million, or 2.5%, to $19.9 million from $20.4 million for the same period in the prior year. The bulk of this decline is attributable to

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company initiatives including the FY 2009 fourth quarter management realignment, the closing of the Canadian administrative office and the reduction in force we made in our FY 2009 second quarter. On a constant dollar basis (converting Canadian dollars at a fixed exchange rate), salaries and employee benefit costs declined $1.2 million or 5.7%. Salaries and employee benefits were 20.2% of sales for the three months ended January 31, 2010, compared to 20.9% for the three months ended January 31, 2009. The decrease in the percentage of sales, was due to the previously discussed company initiatives that were offset in part by higher bonus accruals and an increase in sales headcount.
Facilities and communication expense for the three months ended January 31, 2010 increased $0.2 million, or 3.8%, to $5.0 million from $4.9 million for the same period in the prior year and increased as a percentage of sales, to 5.1% for the three months ended January 31, 2010, compared to 5.0% for the three months ended January 31, 2009.
Other expenses for the three months ended January 31, 2010 decreased $1.3 million, or 19%, to $5.5 million from the same period in the prior year. The decrease is primarily attributable to a $0.8 million reduction to bad debt expense and certain variable costs that are directly related to the decrease in core sales. Other expenses, as a percentage of sales, were 5.5% for the three months ended January 31, 2010, compared to 6.9% for the three months ended January 31, 2009.
For the three months ended January 31, 2010, depreciation and amortization was $1.0 million compared to $0.8 million for the same period in the prior year. The increase is principally due to the purchase of specialized equipment in the FY 2009 third quarter to service a specific customer. As a percent of sales, depreciation and amortization was 1.1%, compared to 0.8% in the prior year period.
The Company recorded an $0.3 million restructuring charge in the quarter to expense the remaining lease obligation for the Toronto, Canada administration office upon the “cease use” date of the facility. During the quarter ended July 31, 2009, the Company announced the closure of the Canadian administrative office in Toronto, Canada, moved all finance and accounting functions to the Dallas corporate office and eliminated the positions of President U.S and President Canada. The restructuring was undertaken to reduce redundant overhead expenses. The Company has completed the restructuring process and will not incur any further charges.
Interest expense was $44,000, an increase of $1,000 or 2.3% for the current quarter. The increase was not significant compared to the same period in the prior year.
Other income, net for the three months ended January 31, 2010, was $188,000 compared to $291,000 for the same period in the prior year. The decline from the prior year is primarily due to lower realized currency gains in Canada.
The effective income tax rate was 37.6% for the current quarter compared to 32.7% for the prior year. In the prior year quarter, the effective income tax rate in the U.S. was reduced from 44.8% to 42.5% as the Company decided that it would no longer repatriate excess cash from Canada. As a result, income tax expense for the prior year quarter was reduced by approximately $140,000. The Company’s current annual effective income tax rate in the U.S. is approximately 42.5% and 32.0% in Canada.
Six months ended January 31, 2010 compared to six months ended January 31, 2009
Net income for the six months ended January 31, 2010 was $5.2 million ($0.54 per fully diluted share) compared to $5.3 million ($0.54 per fully diluted share) for the six months ended January 31, 2009. A one-time, special payment to the current Chairman of the Board and former President and CEO in the first quarter of fiscal year 2009 of $1.0 million, net of taxes, reduced net income per fully diluted share by approximately $0.10. The current year period includes a pre-tax restructuring charge of $0.3 million, or $0.02 per fully diluted share, related to the closure of the Canadian administrative office.
Sales were $197.9 million for the six months ended January 31, 2010, a 7.1% year-over-year decline due primarily to lower core sales and lower fuel surcharges. The decline in core sales is attributable to lower sales from our largest customer and and the general macroeconomic challenges to our customers’ businesses. On a per day basis, total core sales declined 7.4%. Core sales per day declined approximately 8.1% in Canada and 6.9% in the U.S. while lower fuel surcharges account for approximately 2.7% of the decline in sales. These declines were offset,

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in part, by the higher exchange rate between the Canadian dollar and the U.S. dollar that increased reported sales by 2.7%.
Purchased transportation for the six months ended January 31, 2010 decreased $8.6 million, or 6.3%, to $126.9 million from $135.4 million for the same period in the prior year. Purchased transportation, as a percentage of sales, was 64.1% for the six months ended January 31, 2010 compared to 63.6% for the six months ended January 31, 2009. The increase as a percentage of sales was primarily due to a shift in sales mix and the impact of a more competitive pricing environment.
Salaries and employee benefits for the six months ended January 31, 2010 decreased $4.9 million, or 11.0%, to $39.6 million from $44.5 million for the same period in the prior year. The decline is attributable to Company initiatives including the FY 2009 fourth quarter management realignment, the closing of the Canadian administrative office and the reduction in force we made in our FY 2009 second quarter. The prior year includes a $1.5 million one-time, pre-tax special payment to the current Chairman of the Board and former President and CEO that accounts for the remaining difference. Salaries and employee benefits were 20.0% of sales for the six months ended January 31, 2010, compared to 20.9% for the six months ended January 31, 2009. The decrease in the percentage of sales was primarily due to the previously discussed company initiatives that were offset, in part, by an increase in sales headcount.
Facilities and communication expense for the six months ended January 31, 2010 increased $0.1 million, or 0.9%, to $9.8 million from $9.7 million for the same period in the prior year but increased as a percentage of sales, to 4.9% for the current year, compared to 4.6% for the prior year.
Other expenses for the six months ended January 31, 2010 decreased $1.9 million, or 14.4%, to $11.2 million from $13.1 million for the same period in the prior year. The decrease is primarily attributable to a $0.8 million reduction to bad debt expense from the six months ended January 31, 2009 and certain variable costs that are directly related to the decrease in core sales. Other expenses, as a percentage of sales, were 5.7% in the current year compared to 6.1% in the prior year.
For the six months ended January 31, 2010, depreciation and amortization was $2.1 million compared to $1.6 million for the same period in the prior year, due principally to the purchase of specialized equipment in the FY 2009 third quarter to service a specific customer As a percent of sales, depreciation and amortization was 1.1%, compared to 0.7% in the prior year period.
The Company recorded an $0.3 million restructuring charge in the quarter to expense the remaining lease obligation of the Toronto, Canada administration office upon the “cease use” date of the facility. During the quarter ended July 31, 2009 the Company announced the closure of the Canadian administrative office in Toronto, Canada, the consolidation of all finance and accounting functions into the Dallas corporate office and eliminated the positions of President U.S and President Canada. The restructuring was undertaken to reduce redundant overhead expenses. The Company has completed the restructuring process and will not incur any further charges.
Interest expense was $92,000, an increase of $11,000 or 13.6% for the six months ended January 31, 2010, compared to the same period in the prior year. Higher interest expense compared to the prior year is primarily attributable to the increase in the size of the revolving credit facility from $20 million to $40 million.
Other income, net for the six months ended January 31, 2010, was $201,000 compared to $309,000 for the same period in the prior year. The decline from the prior year is primarily due to lower interest income and currency gains in Canada, which was driven by the repatriation of excess funds from Canada to fund share repurchases in the prior year.
The effective income tax rate was 35.7% for the current period compared to 40.2% for the prior year. The current year benefited from a lower Canadian income tax rate that reduced the effective income tax rate for Canada from 35.5% to 32.0%. In addition to the lower Canadian tax rate, pre-tax Canadian income is a higher percentage of consolidated pre-tax income for the six months ended January 31, 2010, compared to the same period in the prior year. The Company’s current annual effective income tax rate in the U.S. is approximately 42.5% and 32.0% in Canada.

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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 six months ended January, 31 2010 was $3.6 million compared to net cash used in operating activities for the six months ended January, 2009 of $1.7 million. The increase in cash provided by operating activities this year compared to last year is principally attributable to the decline in cash needed to fund current operating assets and liabilities.
Net cash used in investing activities was higher in the six months ended January 31, 2010 compared to the prior year due to the $0.2 million expenditure on customer lists this year and the withdrawal of approximately $0.7 million of deferred compensation investments in the prior year. 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 Company expects fiscal year 2010 capital expenditures to range from $2 to $3 million.
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, 2009, the Company had repurchased a total of 2.4 million shares at an average price of $20.81 per share for a total dollar cost of $50 million leaving a balance of $28 million in the current authorization. The Company suspended the share repurchase program in the FY 2009 second quarter. 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 prior to maturity. 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 January 31, 2010, there were $6.1 million letters of credit issued but no outstanding borrowings under the revolving credit agreement.
The revolving credit facility requires us to satisfy certain financial and other covenants, including:
         
Compliance Area   Covenant   Level at January 31, 2010
Ratio of funded debt to EBITDA
  Maximum of 2.00 to 1.00   0.35 to 1.00
Total indebtedness
  $40 million, including Stand-by Letters of Credit   $6.1 million
Letters of credit sublimit
  $10.0 million   $6.1 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   5.41 to 1.50
The Company’s EBITDA (earnings before interest expense, taxes, depreciation and amortization) was approximately $4.6 million (4.7% of sales) for the three months ended January 31, 2010, compared to $4.3 million (4.4% of sales) in the same period last year. The Company’s EBITDA (earnings before interest expense, taxes, depreciation and amortization) was approximately $10.3 million (5.2% of sales) for the six months ended January 31, 2010, compared to $10.6 million (5.0% of sales) in the same period last year. EBITDA and EBITDA margin (percentage of EBITDA to sales) are supplementally presented because management believes that it is a widely accepted and useful financial indicator regarding our results of operations. The Company believes EBITDA assists in analyzing and benchmarking the performance and value of our business. Although The Company 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 expense, taxes, depreciation and amortization, necessary to operate our business. EBITDA is not a recognized term under generally accepted accounting principles and, when analyzing our operating performance, investors should use EBITDA in addition to, not as an alternative for, operating income, net income and cash flows from operating activities. The following table reconciles net income presented in accordance with generally accepted accounting principles (“GAAP”) to EBITDA, which is a non-GAAP financial measure:

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    Three months ended     Six months ended  
    January 31,     January 31,  
    (amounts in thousands)     (amounts in thousands)  
    2010     2009     2010     2009  
Net income
  $ 2,215     $ 2,304     $ 5,241     $ 5,348  
Adjustments:
                               
Income tax expense
    1,334       1,117       2,912       3,599  
Interest expense
    44       43       92       81  
Depreciation and amortization
    1,042       811       2,104       1,594  
 
                               
 
                       
EBITDA
    4,635       4,275       10,349       10,622  
 
                       
 
                               
EBITDA % to Sales
    4.7 %     4.4 %     5.2 %     5.0 %
The Company expects internally generated cash flow and temporary borrowings from its bank credit facility will be sufficient to fund its operations and capital requirements.
Inflation
The Company does not believe that inflation has had a material effect on the Company’s results of operations nor does it believe it will do so in the foreseeable future. However, there can be no assurance the Company’s business will not be affected by inflation in the future.

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Item 3.   Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Exposure
Significant portions of the Company’s operations are conducted in Canada. Exchange rate fluctuations between the U.S. and Canadian dollar result in fluctuations in the amounts relating to the Canadian operations reported in the Company’s consolidated financial statements. The Company historically has not entered into hedging transactions with respect to its foreign currency exposure, but may do so in the future.
The sensitivity analysis model used by the Company for foreign exchange exposure compares the revenue and net income figures from Canadian operations, at the actual exchange rate, to a 10% decrease in the exchange rate. Based on this model, a 10% decrease would result in a decrease in quarterly revenue of approximately $3.8 million and a decrease in quarterly net income of approximately $133,000 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 sensitivity analysis model used by the Company for interest rate exposure compares interest expense fluctuations over a one-year period based on current debt levels and current average interest rates versus current debt levels at current average interest rates with a 10% increase. Based on this model, a 10% increase would result in no material increase in interest expense. There can be no assurances that the above projected interest rate increase will materialize. Fluctuations of interest rates are beyond the control of the Company’s management.

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Item 4.   Controls 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 Rules 13a — 15(e) and 15d — 15(e) under the Securities Exchange Act of 1934) as of January 31, 2010 (the end of the period covered by this Quarterly Report on Form 10-Q). Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective.
There were no 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.

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PART II
OTHER INFORMATION
Item 1. 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 the EDD claims 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 denied the Motion following a Hearing held December 17, 2009. The Class Notice was mail to potential Class members early in January, 2010, giving each notice of the pendency of the suit and an opportunity to opt out of the action. The Parties have agreed to engage in a process whereby the Court sends a Questionnaire to each potential member of the Class to gather information. A tentative trial date has been set for September 27, 2010.
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.
On May 19, 2009, a Truck Leasing Company filed an action against the Company in U.S. District Court 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. The Company is still engaged in the discovery process. The Company believes that it met all of the limited obligations under the Program Agreement. The Company continues to vigorously contest the allegations in the Complaint.
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.

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DYNAMEX INC.
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.
The current global economic crisis could adversely affect the Company’s business and financial results and have a material adverse affect on our liquidity and capital resources
As the current global financial crisis has broadened and intensified, other 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” in the July 31, 2009 Form 10K.
An Increase in Claims May Expose Us to Losses
As of January 31, 2010, we utilized the services of approximately 4,600 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.

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DYNAMEX INC.
We Rely on Independent Contractor Owner-Operator Drivers to Make Deliveries for Our Customers
Substantially all of our drivers at January 31, 2010 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 these jurisdictions 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 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 not pay or withhold 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” in our July 31, 2009 Form 10K and “Legal Proceedings” in Part I, Item 1 of this Form 10-Q.
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. We cannot be assured that fluctuations in foreign currency exchange rates will not have a material adverse effect on our business, financial condition or results of operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in the July 31, 2009 Form 10K.
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” in the July 31, 2009 Form 10K.

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DYNAMEX INC.
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 our 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.
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 service features 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 in which unemployment is generally 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.

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DYNAMEX INC.
Item 4.   Submission of Matters to a Vote of Security Holders
The Company held its annual shareholder meeting on January 5, 2010. At that meeting, the shareholders voted on the proposal to elect seven (7) directors of the Company.
                 
Nominee   For     Withheld  
Richard K. McClelland
    6,287,660       1,485,780  
Brian J. Hughes
    6,104,113       1,669,327  
Wayne Kern
    6,004,586       1,768,854  
Bruce E. Ranck
    6,104,113       1,669,327  
Stephen P. Smiley
    6,104,113       1,669,327  
Craig R. Lentzsch
    6,027,917       1,745,523  
James L. Welch
    6,190,091       1,583,349  

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DYNAMEX INC.
Item 6.   Exhibits
     Exhibits:
  31.1   Certification of Chief Executive Officer of the Registrant, pursuant to 17 CFR 240. 13a — 15(e) or 17 CFR 240. 15d — 15(e)
 
  31.2   Certification of Chief Financial Officer of the Registrant, pursuant to 17 CFR 240. 13a — 15(e) or 17 CFR 240. 15d — 15(e)
 
  32.1   Certification of Chief Executive Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
  32.2   Certification of Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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DYNAMEX INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  DYNAMEX INC.
 
 
Dated: March 5, 2010  by  /s/ James L. Welch    
   James L. Welch   
   President and Chief Executive Officer
(Principal Executive Officer) 
 
 
      
Dated: March 5, 2010  by  /s/ Ray E. Schmitz    
   Ray E. Schmitz   
   Executive Vice President — Chief Financial Officer
(Principal Financial Officer) 
 
 
      
Dated: March 5, 2010  by  /s/ Gilbert Jones    
   Gilbert Jones   
   Vice President — Corporate Controller
(Principal Accounting Officer) 
 

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EXHIBIT INDEX
Exhibits
31.1   Certification of Chief Executive Officer of the Registrant, pursuant to 17 CFR 240. 13a - 15(e) or 17 CFR 240. 15d — 15(e)
31.2   Certification of Chief Financial Officer of the Registrant, pursuant to 17 CFR 240. 13a - 15(e) or 17 CFR 240. 15d — 15(e)
32.1   Certification of Chief Executive Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2   Certification of Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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