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EX-3.2 - EX-3.2 - DYNAMEX INC | d76353exv3w2.htm |
EX-31.2 - EX-31.2 - DYNAMEX INC | d76353exv31w2.htm |
EX-23.1 - EX-23.1 - DYNAMEX INC | d76353exv23w1.htm |
EX-32.1 - EX-32.1 - DYNAMEX INC | d76353exv32w1.htm |
EX-32.2 - EX-32.2 - DYNAMEX INC | d76353exv32w2.htm |
EX-31.1 - EX-31.1 - DYNAMEX INC | d76353exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended July 31, 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 | 86-0712225 | |
(State of incorporation) | (I.R.S. Employer Identification No.) | |
5429 LBJ Freeway, Suite 1000, Dallas, Texas | 75240 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (214) 560-9000
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered | |
Common Stock, par value $0.1 per share | Nasdaq Global Select Market |
Securities registered pursuant to Section 12(g) of the Act: None
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 (§ 232.405 of this chapter) 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 (§ 232.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Small reporting company filer 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 aggregate market value of the voting stock held by non-affiliates of the registrant on
January 31, 2010 was approximately $155,275,449.
The number of shares of the registrants common stock, $.01 par value, outstanding as of
August 31, 2010 was 9,753,483 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the information required in Part III of the Form 10-K have been incorporated by
reference to the Registrants definitive Proxy Statement on Schedule 14-A to be filed with the
Commission.
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1
Table of Contents
PART I
Statements and information presented within this Annual Report on Form 10-K for Dynamex Inc.
(the Company and Dynamex) contain forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can be
identified by the use of predictive, future tense or forward-looking terminology, such as
believes, anticipates, expects, estimates, may, will or similar terms. Forward-looking
statements also include projections of financial performance, statements regarding managements
plans and objectives and statements concerning any assumptions relating to the foregoing. Certain
important factors which may cause actual results to vary materially from these forward-looking
statements accompany such statements and appear elsewhere in this report, including without
limitation, the factors disclosed under Risk Factors. All subsequent written or oral
forward-looking statements attributable to the Company or persons acting on its behalf are
expressly qualified by these factors.
ITEM 1. BUSINESS
General
Dynamex is a leading provider of same-day delivery and logistics services in the United States
and Canada. The Company was organized under the laws of Delaware in 1992 as Parcelway Systems
Holding Corp. and changed its name to Dynamex Inc. in 1995. Through its network of business
centers, the Company provides same-day, on-demand, door-to-door delivery services utilizing company
messengers and independent contractors. In addition to on-demand delivery services, the Company
offers same-day scheduled local and regional distribution services, which encompass recurring
often daily point-to-point or multiple-destination deliveries. The Company also offers fleet
outsourcing services and facilities management. These services include design and management of
systems to maximize efficiencies in transporting, sorting and delivering customers products
locally or to multiple cities. With its fleet-management service, the Company may provide and
manage a fleet of dedicated vehicles at multiple customer sites. On-demand service can supplement
customers scheduled distribution arrangements or dedicated fleets. Facilities management services
include the operation and management of customers mailrooms.
Industry Overview
The delivery and logistics industry is large and highly fragmented. 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 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, which
cannot be emailed or sent by facsimile, to critical manufacturing parts and medical devices.
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Business Strategy
The Company intends to expand its operations in the U.S. and Canada to capitalize on the
demand of local, regional and national businesses for innovative same-day transportation solutions.
The key elements of the Companys business strategy are as follows:
Focus on Primary Services. The Company operates in one reportable business segment, same day delivery services, with two primary service offerings: (i) same-day, point-to-point on-demand delivery services and (ii) same-day scheduled 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 time sensitive items throughout metropolitan areas. The Company can generate a higher yield, relative to delivering documents within a central business district, by delivering items of greater weight over longer distances and providing value added on-demand services (such as non-technical equipment swap-out). These value-added services are generally less vulnerable to price competition than traditional on-demand delivery services. Outsourcing transportation to specialized logistics providers is a trend, and the Company intends to capitalize on that trend by concentrating its logistics services in same-day scheduled local and regional distribution and fleet management. Delivery transactions in a fleet management and distribution program are recurring in nature, which creates the potential for long-term customer relationships.
Target National, Regional and Local Accounts. The Companys national account managers focus on acquiring and maintaining national, regional and local accounts. The Company anticipates that its (i) existing multi-city network of locations, (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.
Pursue Acquisitions. The Company believes that the highly fragmented nature of the delivery and logistics industry creates significant opportunities to expand its network and further leverage its national marketing and operational expertise. The Company will focus its acquisition program principally in the U.S. market. The Company will seek to acquire high
quality, same-day delivery businesses in new markets as well as in
markets in which it has already established a presence. In addition,
the Company may acquire companies that provide complimentary services such as expedite, carthage and white glove deliveries. Management expects that acquisitions in existing markets will provide access to an acquired companys customer base while creating operating efficiencies within these markets. Management believes that its
operating and acquisition experience and the Companys ability to offer cash as purchase consideration is an important advantage in pursuing acquisition candidates.
Services
The Company capitalizes on its routing, dispatch and transportation management expertise to
provide its customers with a broad range of value added, same-day on-demand and distribution
services
Same-Day On-Demand Delivery. Same-day, on-demand delivery services principally involve
Company messengers or independent contractors responding to a customers request for immediate
pick-up and delivery, generally within a 50 mile radius of the Companys facilities. The Company
also provides same-day inter-city delivery services by utilizing independent contractors and other
third-party air or motor carriers. The Company focuses on the delivery of time sensitive items
throughout major metropolitan areas, rather than traditional downtown document delivery. For the
fiscal years (FY) ended July 31, 2010, 2009 and 2008, approximately 32%, 32%, and 33%
respectively, of the Companys sales were generated from same-day on-demand delivery services.
Same-Day Scheduled Local and Regional Distribution. The Company provides same-day scheduled
local and regional distribution services that include regularly scheduled deliveries made on a
point-to-point basis and deliveries that may require intermediate handling, routing or sorting of
items to be delivered to multiple locations. The Companys on-demand delivery capabilities are
available to supplement scheduled services as needed. A bulk shipment may be received at the
Companys warehouse where it is sub-divided into smaller bundles and sorted for delivery to
specified locations. Same-day scheduled distribution services are provided on both a local and
multi-city basis. For example, in Ontario, Canada, the Company services the scheduled distribution
requirements of a consortium of commercial banks. These banks require regular pick-up of
non-negotiable material that is then delivered by the Company on an intra- and inter-city basis.
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The Companys distribution outsourcing services include fleet management and management of
mailroom or other facilities, such as maintenance of call centers for inventory tracking and
delivery. With its distribution outsourcing services, the Company is able to apply its same-day
delivery capability and logistics experience to design and manage efficient delivery systems for
its customers. The distribution outsourcing service offerings can expand or contract depending on
the customers needs. Management believes that the distribution outsourcing trend has resulted in
many customers increasing their use of third-party providers for a variety of delivery services.
The largest component of the Companys distribution outsourcing services is fleet management.
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
may display the customers logo and colors; the fleet of vehicles can range from passenger cars to
tractor-trailers (or any combination). In addition, the Companys on-demand delivery capability
may supplement the customers fleet, allowing the customer to maintain a smaller dedicated fleet,
which is more efficient. The Companys fleet management services include designing and managing
systems to maximize efficiencies in transporting, sorting and delivering customers products on a
local and multi-city basis.
By outsourcing their fleet management, the Companys customers (i) utilize the Companys
distribution and route optimization experience to deliver their products more efficiently, (ii)
gain the flexibility to expand or contract fleet size as necessary, and (iii) reduce the costs and
administrative burden associated with owning or leasing vehicles and hiring and managing
transportation employees.
For the fiscal years ended July 31, 2010, 2009 and 2008, approximately 68%, 68%, and 67%,
respectively, of the Companys sales were generated from same-day scheduled local and regional
distribution services.
Each of the Companys business centers generally offers the same core services. The mix of
services can vary by location, depending on the customer base, competition, geographic
characteristics, available labor and general economic environment. The Company can bundle its
various delivery and logistics services to create customized distribution solutions and, by doing
so, seeks to become the single source for its customers distribution needs.
Operations
The Companys operations are divided into regions, four U.S. and four Canadian, with each of
the Companys 51 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 vice president 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 the order to the appropriate dispatch location. All of
the Companys clients have access to a web-based electronic data interface to enter dispatch
requirements, make inquiries and receive billing information. A dispatcher coordinates shipments
for delivery. 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.
Same-Day Scheduled 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 group of scheduled routes on a recurring basis. Any intermediate handling required for a
scheduled distribution is conducted at the Companys warehouse or the customers facility.
The largest component of the Companys distribution outsourcing services is its fleet
management. Fleet management services are coordinated by the Companys logistics specialists who
have experience in designing, implementing and managing integrated networks for transportation
services. Based upon the specialists analysis of a customers fleet and distribution
requirements, the Company develops a plan to optimize fleet configuration and
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route design. The Company coordinates with independent contractors to implement the fleet
management plan. Such independent contractors are generally dedicated to a particular customer and
may display the customers name and logo on its vehicles. The Company can supplement these
dedicated independent contractors with its on-demand capability as necessary.
Prices for the Companys services are determined at the local level based on the distance,
weight and time-sensitivity of a particular delivery. The Company generally enters into customer
contracts for local and regional distribution, and fleet and facilities management. The customer
can generally terminate the contract with notice that ranges 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 contractors 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 makes the drivers more
responsive and efficient. Also, this significantly lowers the capital required to operate the
business, which reduces the Companys fixed costs.
Sales and Marketing
The Company markets its services through an integrated sales force comprised of national sales
executives, local account executives and inside sales executives. The total sales force including
management, national sales executives, local account executives, inside sales executives and
administrative sales support staff totaled 111 associates as of July 31, 2010.
The Companys sales management team is comprised of three local and/or national sales vice
presidents, seven regional sales directors and four sales managers. The companys sales team is
comprised of 17 national sales executives, 68 local account executives, eight inside sales
executives and four administrative personnel.
The national sales executives focus is on national customers that can utilize the Companys
services across multiple markets and geographies. In addition, the national sales executives
augment local efforts to expand the demand for services and identify cross-selling opportunities
with larger companies with multiple locations.
The Companys local account executives focus on regional business development initiatives.
This group targets business opportunities in their respective markets and geographies and conduct
regular calls to existing and potential customers to identify and support delivery and logistics
needs. Additionally, the inside sales executives contact existing customers to assess customer
requirements and identify additional sales opportunities.
The Company is expanding the sales program and investing in technology to reach customers that
need to work with service providers that offer a range of logistics solutions across the United
States and Canada. The Company maintains a data base of sales patterns to analyze customer needs,
identify cross-selling opportunities and conduct performance audits. The sales team is an
important component of the Company. They not only focus on business development opportunities on a
local and national level but also customer service which includes prompt response to customer
inquiries.
Customers
The Companys target customer is a business that distributes time-sensitive items to multiple
locations. The primary industries served by the Company include medical laboratories and
hospitals, office products, pharmaceuticals, retail electronics, financial services, auto parts,
construction and Canadian governmental agencies. During the years ended July 31, 2010, 2009 and
2008, sales to Office Depot, Inc. represented approximately 11.6%, 14.0% and 14.6%, respectively,
of the Companys sales. Sales to the Companys five largest customers, including Office Depot,
represented approximately 22%, 24% and 27% of the Companys consolidated sales for the years ended
July 31, 2010, 2009 and 2008, respectively.
A significant number of the Companys customers are located in Canada. For the fiscal years
ended July 31, 2010, 2009 and 2008, approximately 38%, 36% and 38% of the Companys sales,
respectively, were generated in Canada. See Note 12 of Notes to the Consolidated Financial
Statements for additional information concerning the Companys foreign operations.
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Competition
The market for the Companys same-day delivery and logistics services has been and is expected
to remain highly competitive. The Company competes on reliability, quality, breadth of service and
price.
Most of the Companys competitors in the same-day, intra-city delivery market are privately
held companies that operate in only one location, with no single competitor dominating the market.
Price competition for basic delivery services is particularly intense.
The market for the Companys logistics services is also highly competitive, and can be
expected to remain competitive as additional companies seek to capitalize on the growth in the
industry. The Companys principal competitors for such services are other delivery companies and
in-house transportation departments. The Company generally competes on the basis of price and its
ability to provide customized service regionally and nationally, which is an important advantage in
this highly fragmented industry.
The Companys principal competitors for drivers are other delivery companies within each
market area. Management believes that payments to independent contractors, which are 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 independent contractors and help the Company to
recruit and retain independent contractors.
Regulation
The Companys business and operations are subject to various federal (U.S. and Canadian),
state, provincial and local regulations and, in many instances, require permits and licenses from
state authorities. The Company holds nationwide general commodities authority from the Federal
Highway Administration of the U.S. Department of Transportation to transport certain property as a
motor carrier on an inter-state basis within the contiguous 48 states. Where required, the Company
holds statewide general commodities authority. The Company holds permanent extra-provincial (and
where required, intra-provincial) operating authority in all Canadian provinces where the Company
does business.
In connection with the operation of certain motor vehicles, the handling of hazardous
materials 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 concerning
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 failure of the Company to comply with the applicable regulations could result in
substantial fines or possible revocations of one or more of the Companys operating permits.
Safety
From time to time, the independent contractors performing services for the Company are
involved in accidents. The Company carries liability insurance with a per claim limit of $30
million. Independent contractors are required to maintain liability insurance of at least $250,000
per accident or higher amounts as required. The Company also has insurance policies covering
property (owned, leased and under consignment to Dynamex), which coverage includes all independent
contractors. The Company reviews prospective independent contractors 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 independent contractors to take a physical examination and to pass a drug
test. Independent contractors are provided information on any additional safety requirements as
dictated by customer specifications.
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Intellectual Property
The Company has registered DYNAMEX, DXFRANCHISE POWERED BY DYNAMEX, POWERED
BY DYNAMEX, DYNAMEX DELIVERS NOW, DXNOW.COM and STRATEGIC STOCKING LOCATIONS as federal
trademarks in the Canadian Intellectual Office and the U.S. Patents and Trademarks office for
federal trademark registration of such names. No assurance can be given that any such registration
will be effective to prevent others from using the trademark concurrently or to allow the Company
to use the trademark in certain locations.
Employees
At July 31, 2010, the Company employed approximately 1,500 workers in the following roles:
approximately 800 in various management, supervisory, sales, and administrative positions in branch
and regional operations, approximately 550 employed as messengers and mailroom workers, and
approximately 150 in various corporate functions such as information technology, finance, sales,
and marketing. Approximately 70 employees are represented by major international labor unions in
Canada.
Independent Contractors
At July 31, 2010, the Company had contracts with approximately 3,700 independent contractors of
which approximately 1,700 are located in Canada and approximately 2,000 are located in the United
States. Approximately 70% of the independent contractors in Canada are represented by major
international labor unions. Unions do not represent any of the Companys U.S. independent
contractors. Management believes that the Companys relationship with the independent contractors
is good. See Risk Factors Certain Tax and Legal Matters Related to Independent Contractors,
and Risk Factors We Are Dependent Upon Independent Contractors Represented by International
Labor Unions in Canada.
Available Information
The Company electronically files its annual report on Form 10-K, quarterly reports on Form
10-Q, and current reports on Form 8-K with the Securities and Exchange Commission (SEC). Copies
of the Companys filings with the SEC may be obtained from its website at HTTP://WWW.DYNAMEX.COM or
at the SECs website, at HTTP://WWW.SEC.GOV. Access to these filings is free of charge.
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ITEM 1A. RISK FACTORS
In addition to other information in this report, the following risk factors should be
considered carefully in evaluating the Company and its business. This report contains
forward-looking statements, which involve risks and uncertainties. The Companys actual results
could differ materially from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth in the following risk factors and elsewhere in this
report.
Certain Tax and Legal Matters Related to Independent Contractors
Substantially all of our drivers at July 31, 2010 were independent contractors as opposed to
employees of the Company. The Company does not pay or withhold any federal or state employment tax
with respect to or on behalf of independent contractors. From time to time, taxing authorities in
the United States and Canada have sought to assert that independent contractors in the
transportation industry, including those utilized by the Company, are employees, rather than
independent contractors. The Company believes that the independent contractors utilized by the
Company are not employees under existing interpretations of federal (U.S. and Canadian), state and
provincial laws. However, there can be no assurance that federal (U.S. and Canadian), state,
provincial authorities or independent contractors will not challenge this position, or that other
laws or regulations, including tax laws, or interpretations thereof, will not change. If, as a
result of any of the foregoing, the Company were required to pay withholding taxes and pay for and
administer added employee benefits to these drivers, the Companys operating costs would increase.
Additionally, if the Company is required to pay back-up withholding with respect to amounts
previously paid to such drivers, it may also be required to pay penalties or be subject to other
liabilities as a result of incorrect classification of such drivers. Any of the foregoing
circumstances could have a material adverse impact on the Companys financial condition and results
of operations, and/or cause the Company to restate financial information from prior periods. See
Business Services and Business Independent Contractors.
Certain states, including California and Massachusetts, have alleged that the Company has
misclassified its drivers as independent contractors rather than employees. The California
Employment Development Department conducted an employment tax audit of the Companys California
operations in 2006. Based on its conclusion that certain independent contractors used by the
Company should be reclassified as employees, a Notice of Assessment was issued by the EDD in April
2007. The Company believes that the independent contractors were properly classified and has filed
a Petition for Reassessment, however, the Company recorded a liability of $0.8 million in fiscal
year 2006. The California Employment Development Department has recently commenced an additional
audit to include subsequent years.
The Company is currently the subject of a wage/hour examination in Massachusetts related to
the alleged misclassification of independent contractors.
The Company is currently a party to lawsuit brought by certain independent contractors 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 independent
contractors is proper under applicable law. 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 independent contractors who are members of the class for prior
periods and, in the case of current independent contractors, prospectively. To the extent that we
are required to pay our independent contractors overtime pay and other benefits and expense
reimbursements, our operating costs will increase, which could adversely impact our financial
condition and results of operations. See Business Services and Business
Independent Contractors and Legal Proceedings in Part I, Item 3 of this Form 10-K.
Loss of a Key Customer May Adversely Impact our Business
The Companys five largest customers represent over 20% of the Companys consolidated sales. The
loss of any of these customers may adversely impact our business, financial condition and results
of operations.
We Are Dependent on Availability of Independent Contractors
We are dependent upon our ability to attract and retain independent contractors who possess
the skills and experience necessary to meet the needs of our operations. We compete in markets
where unemployment has
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traditionally been relatively low and the competition for independent contractors is intense.
We must continually evaluate and upgrade our pool of available independent contractors to keep pace
with demands for delivery services. We have no assurance that qualified independent contractors
will continue to be available in sufficient numbers and on terms acceptable to us. Our inability
to attract and retain qualified independent contractors could have a material adverse impact on our
business, financial condition and results of operations.
Global Economic Conditions Could Adversely Affect the Companys Business and Financial Results
Most sectors of the economy have been or could be adversely impacted by slowdowns in economic
activity. Any resulting decreases in customer traffic or average value per transaction will
negatively impact the Companys financial performance as reduced sales result in operations
de-leveraging which creates downward pressure on margins that could potentially have a material
adverse impact on the Companys liquidity and capital resources, including our ability to raise
additional capital if needed, the ability of banks to honor draws on our credit facility, or
otherwise negatively impact the Companys business and financial results.
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 impact 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.
We Are Dependent Upon Independent Contractors Represented by International Labor Unions in Canada
Approximately 70% of our independent contractor drivers in Canada are represented by major
international labor unions. We have never had a work stoppage and management believes our
relationships with those unions are good. Should we experience a work stoppage in the future, this
could have a material adverse impact on the Companys financial condition and results of
operations. See Business Independent Contractors.
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 for customers and also for qualified independent contractors. 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 Part I.
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 our website 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 technology infrastructure or our web site could adversely impact our customer
service, our ability to receive orders and respond promptly to delivery assignments which may
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 impact on our business, financial condition and
results of operations.
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Fluctuations of Foreign Exchange Rates May Adversely Affect Our Results
About one-third of the Companys operations are conducted in Canada. Exchange rate
fluctuations between the U.S. and Canadian dollar result in fluctuations in reported amounts from
Canadian operations in our Consolidated Financial Statements. The Canadian dollar is the
functional currency for Canadian operations; therefore, any change in the exchange rate will affect
our reported sales, expenses and net income. Historically, we 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
impact on our business, financial condition or results of operations. See Managements Discussion
and Analysis of Financial Condition and Results of Operation in Part 7 of this Form 10-K.
An Increase in Claims May Expose Us to Losses
As of July 31, 2010, the Company utilized the services of approximately 3,700 independent
contractors, who may occasionally be 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 contractors are required to maintain liability insurance of
at least $250,000 per accident or higher amounts as required. The Company also has insurance
policies covering property (owned, leased and under consignment to Dynamex), which coverage
includes all independent contractors. We make no assurance that we will be able to obtain
insurance at acceptable levels and costs in the future or that our insurer will be solvent at the
time of settlement of an insured claim. We make no assurance that we have the proper amount of
coverage whether under the liability insurance or the surety bonds relative to potential
claims. 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 impacted.
Rising Fuel Costs May Adversely Impact Our Financial Condition and Results of Operations
The independent contractors we engage
are responsible for all vehicle expense including maintenance, insurance, fuel and all other operating costs. To offset the impact of fuel price increases on our independent contractors, we make every reasonable effort to adjust customer billings to include the higher cost of fuel. If future fuel cost adjustments are
insufficient to offset independent contractors costs, we may be unable to attract a sufficient number of independent
contractors, and this may adversely impact our business, financial condition and results of operations.
Failure to Maintain Permits and Licensing May Adversely Impact 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 if we fail 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.
Technological Advances May Adversely Impact 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 logistics and the distribution of items that cannot be faxed or emailed, there
can be no assurance that these or other technologies will not have a material adverse impact on our
business, financial condition and results of operations in the future.
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 and issue additional securities that may potentially
result in dilution to current holders and also
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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 Business Industry Overview and Managements Discussion
and Analysis of Financial Condition and Results of Operation Liquidity and Capital Resources in
Item 7 of this Form 10-K
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 84 locations at July 31, 2010. 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 | ||||
Leased | ||||
Location | Properties | |||
Unites States |
||||
Arizona |
1 | |||
California |
11 | |||
Colorado |
1 | |||
Connecticut |
1 | |||
Deleware |
1 | |||
Georgia |
1 | |||
Illinois |
2 | |||
Indiana |
1 | |||
Kansas |
1 | |||
Massachusetts |
1 | |||
Maryland |
1 | |||
Michigan |
1 | |||
Minnesota |
2 | |||
New Jersey |
3 | |||
Nevada |
1 | |||
New York |
6 | |||
Ohio |
3 | |||
Oregon |
1 | |||
Pennsylvania |
3 | |||
Tennessee |
1 | |||
Texas |
4 | |||
Virginia |
3 | |||
Washington |
2 | |||
United States Total |
52 |
Number of | ||||
Leased | ||||
Location | Properties | |||
Canada |
||||
Alberta |
5 | |||
British Columbia |
7 | |||
Manitoba |
2 | |||
Newfoundland |
1 | |||
Nova Scotia |
1 | |||
Ontario |
12 | |||
Quebec |
2 | |||
Saskatchewan |
2 | |||
Canada Total |
32 | |||
Grand Total |
84 | |||
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, 2010, 2009 and 2008 was
approximately $12.1 million, $11.6 million and $10.6 million, respectively. The Companys
principal executive offices are located in Dallas, Texas. See Note 6 of Notes to the Consolidated
Financial Statements for additional information about lease payments.
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ITEM 3. LEGAL PROCEEDINGS
The California Employment Development Department (EDD) conducted an employment tax audit of
the Companys California operations in 2006. Based on its conclusion that certain independent
contractors used by the Company should be reclassified as employees, a Notice of Assessment was
issued by the EDD in April 2007 in the amount of $2.8 million; $2.0 million of which the EDD claims
represents personal income tax of the reclassified individuals. The Company intends to vigorously
contest the assessment; however, the Company recorded a liability of $0.8 million in fiscal year
2006. The Company has collected and submitted documentation which will work to reduce the personal
income tax (PIT) portion of the assessment through the California PIT abatement process. As of July
31, 2010, the Company had been notified that the amount of personal income tax assessed by the
Notice of Assessment had been abated by $0.8 million. The Company expects the remaining personal
income tax to also be abated. The Company believes that the independent contractors were properly
classified and has filed a Petition for Reassessment. The California Employment Development
Department has recently commenced an audit of subsequent years.
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. In early February 2009,
Plaintiff filed an Amended Complaint, which among other matters, added an additional named
Plaintiff. Plaintiffs filed a 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 were each subject to between
four and eight exclusions. In January 2010, the Parties agreed to a process whereby the Court
modified its earlier Order granting certification of a Class to clarify that the earlier Order
conditionally granted Certification. The Order initiated a process whereby a questionnaire was
to be sent by an impartial Class Administrator to each potential member of the Class to gather
information. As a part of the process, the Court would dismiss from the Class those individuals
who failed to respond to the questionnaire within the allotted time. Incomplete or deficient
questionnaires could be cured through written or telephonic inquiry by the Class Administrator.
Approximately 260
questionnaires were timely returned. Further clarification and additional information has
been requested from approximately 120 of the individuals returning the questionnaires with a due
date of August 12, 2010. A further certification hearing will be held on October 25, 2010, and a
tentative trial date has been set for April 4, 2011.
The Company believes that its independent contractors 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 a certain Program Agreement between the truck leasing
company and the Company, the lease of vehicles to various independent contractors and the early
termination of such leases. The Company filed a response denying all the claims and presenting
affirmative defenses. In December 2009, the truck leasing company filed an Amended Complaint
adding both a customer of the Company as an additional defendant and making additional claims
against the Company. A confidential agreement in principle to resolve and settle all claims
against the Company was reached in July 2010.
The Company is currently the subject of a wage/hour examination in Massachusetts related to
the alleged misclassification of independent contractors. The Company believes that the independent
contractors are properly classified and intends to vigorously contest this examination. Given the
nature and preliminary status of the examination, the Company cannot yet determine the amount or a
reasonable range of potential loss in this matter, if any.
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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 impact on the business, financial condition, results of
operations, or liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Information The Companys common stock commenced trading on the NASDAQ Global Select
Market under the symbol DDMX on March 14, 2005. Previously, the common stock was listed on the
AMEX. The following table summarizes, for the periods indicated, the range of high and low closing
sale prices for our common stock, as reported on the NASDAQ Global Select Market. The NASDAQ prices
represent inter-dealer quotations without retail markups, markdowns or commissions and may not
represent actual transactions.
Bid | Bid | |||||||||||||||
Fiscal 2010 | High | Low | High | Low | ||||||||||||
First Quarter |
$ | 19.66 | $ | 15.13 | 10/22/09 | 08/14/09 | ||||||||||
Second Quarter |
18.89 | 15.92 | 11/09/09 | 01/29/10 | ||||||||||||
Third Quarter |
18.14 | 14.61 | 04/29/10 | 02/04/10 | ||||||||||||
Fourth Quarter |
17.97 | 12.15 | 05/12/10 | 06/29/10 |
Fiscal 2009 | High | Low | High | Low | ||||||||||||
First Quarter |
$ | 29.80 | $ | 20.74 | 09/18/08 | 10/28/08 | ||||||||||
Second Quarter |
25.45 | 11.02 | 11/03/08 | 12/16/08 | ||||||||||||
Third Quarter |
14.93 | 10.62 | 04/21/09 | 02/04/09 | ||||||||||||
Fourth Quarter |
18.18 | 13.92 | 05/08/09 | 07/02/09 |
Stock Price Performance
Set forth below is a line graph indicating the stock price performance of the Companys common
stock for the period beginning August 1, 2005 and ending July 31, 2010 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, 2010. No cash or stock dividends have been paid during
the current fiscal year.
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COMPARATIVE CUMULATIVE TOTAL RETURN
AMONG DYNAMEX INC.,
NASDAQ COMPOSITE INDEX, AMEX COMPOSITE INDEX
AND RUSSELL 2000 INDEX
AMONG DYNAMEX INC.,
NASDAQ COMPOSITE INDEX, AMEX COMPOSITE INDEX
AND RUSSELL 2000 INDEX
ASSUMES $100 INVESTED ON AUGUST 1, 2005
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING JULY 31, 2010
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING JULY 31, 2010
** | 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 August 31, 2010, the approximate number of holders of record of common stock was
214, although there are a much larger number of beneficial owners.
Dividends The Company has not declared or paid any cash dividends on its common stock since
its inception. The Company does not anticipate paying cash dividends in fiscal 2011. See
Managements Discussion and Analysis of Financial Condition and Results of Operation Liquidity
and Capital Resources in Item 7 of this Form 10-K.
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Securities Authorized for Issuance Under Equity Compensation Plans The following table
provides information regarding the Companys equity compensation plan as of July 31, 2010.
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 |
550,764 | $ | 21.60 | 995,436 | ||||||||
Equity compensation plans
not approved by security
holders |
| | | |||||||||
Total |
550,764 | $ | 21.60 | 995,436 | ||||||||
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ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial and other data for the three years ended July 31,
2010 and the balance sheet data at July 31, 2010 and 2009 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, 2007 and the balance
sheet data at July 31, 2008, 2007 and 2006 have been derived from the Consolidated Financial
Statements of the Company not appearing herein. The selected financial data are qualified in their
entirety, and should be read in conjunction with the Companys Consolidated Financial Statements,
including the notes thereto, and Managements Discussion and Analysis of Financial Condition and
Results of Operation appearing elsewhere herein.
Years ending July 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||||||
Statements of operations data: |
||||||||||||||||||||
Sales |
$ | 406,448 | $ | 402,109 | $ | 455,776 | $ | 413,774 | $ | 358,374 | ||||||||||
Operating expenses (1) |
385,601 | 383,483 | 427,730 | 389,660 | 336,437 | |||||||||||||||
Depreciation and amortization |
4,240 | 3,440 | 2,825 | 2,357 | 1,931 | |||||||||||||||
Restructuring cost (4) |
282 | 1,104 | | | | |||||||||||||||
Operating income |
16,325 | 14,082 | 25,221 | 21,757 | 20,006 | |||||||||||||||
Interest expense |
179 | 177 | 232 | 299 | 295 | |||||||||||||||
Other income (2) |
(289 | ) | (411 | ) | (516 | ) | (2,079 | ) | (275 | ) | ||||||||||
Income before income taxes |
16,435 | 14,316 | 25,505 | 23,537 | 19,986 | |||||||||||||||
Income taxes |
5,780 | 5,566 | 9,722 | 8,575 | 7,594 | |||||||||||||||
Net income |
$ | 10,655 | $ | 8,750 | $ | 15,783 | $ | 14,962 | $ | 12,392 | ||||||||||
Earnings per share: |
||||||||||||||||||||
basic |
$ | 1.09 | $ | 0.89 | $ | 1.55 | $ | 1.41 | $ | 1.12 | ||||||||||
diluted |
$ | 1.09 | $ | 0.89 | $ | 1.53 | $ | 1.39 | $ | 1.11 | ||||||||||
Weighted average common shares outstanding: |
||||||||||||||||||||
basic |
9,736 | 9,782 | 10,207 | 10,612 | 11,057 | |||||||||||||||
diluted |
9,753 | 9,809 | 10,297 | 10,738 | 11,197 | |||||||||||||||
Other data: |
||||||||||||||||||||
Earnings before interest, taxes, depreciation and
amortization (EBITDA) (3) |
||||||||||||||||||||
Net income |
$ | 10,655 | $ | 8,750 | $ | 15,783 | $ | 14,962 | $ | 12,392 | ||||||||||
Adjustments: |
||||||||||||||||||||
Income tax expense |
5,780 | 5,566 | 9,722 | 8,575 | 7,594 | |||||||||||||||
Interest expense |
179 | 177 | 232 | 299 | 295 | |||||||||||||||
Depreciation and amortization |
4,240 | 3,440 | 2,825 | 2,357 | 1,931 | |||||||||||||||
EBITDA |
$ | 20,854 | $ | 17,933 | $ | 28,562 | $ | 26,193 | $ | 22,212 | ||||||||||
July 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Balance sheet data: |
||||||||||||||||||||
Working capital |
$ | 53,071 | $ | 38,319 | $ | 39,874 | $ | 23,337 | $ | 18,889 | ||||||||||
Total assets |
150,266 | 129,499 | 138,624 | 121,040 | 110,525 | |||||||||||||||
Long-term debt, excluding current portion |
| | | | 905 | |||||||||||||||
Stockholders equity |
109,765 | 96,080 | 97,634 | 81,409 | 79,212 |
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1) | Operating expenses are purchased transportation, salaries and employee benefits, facilities and communication, depreciation and amortization and other costs. Purchased transportation includes independent contractor and third-party delivery charges. Salary and employee benefits cost includes employee salaries, benefits and workers compensation costs. Facilities and communications includes warehouse, radio and communications costs. Other costs include bad debt, insurance, uniforms, office costs, and general and administrative costs. | |
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. The Company realized income of approximately $425,000 from the overpayment of prior year Canadian taxes without a corresponding increase in expense from the U.S. since the Company had available U.S. net operating losses to offset the additional income. The Company also realized $937,000 in pre-tax foreign currency transaction gains on the cash settlement of those inter-company charges. The result was to increase net income by $972,000, $0.09 per fully diluted share, for the 2007 year. | |
3) | EBITDA is defined as income excluding interest, taxes, depreciation and amortization. EBITDA is 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, taxes, depreciation and amortization, which are 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. | |
4) | 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 elimination of the position of President U.S. The restructuring was undertaken to reduce redundant overhead expenses. The Company recorded an $1.1 million restructuring expense during fiscal year 2009 and an $0.3 million restructuring expense during fiscal year 2010. The FY 2010 charge expensed the remaining lease obligation of the Toronto, Canada administration office upon the cease use date of the facility. |
19
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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION |
The following discussion should be read in conjunction with the information contained in the
Companys consolidated financial statements, including the notes thereto, and the other financial
information appearing elsewhere in this report. Statements regarding future economic performance,
managements plans and objectives, and any statements concerning its assumptions related to the
foregoing contained in Managements Discussion and Analysis of Financial Condition and Results of
Operation constitute forward-looking statements. Certain factors, which may cause actual results
to vary materially from these forward-looking statements, accompany such statements or appear
elsewhere in this report, including without limitation, the factors disclosed under Risk Factors.
General
Sales consist primarily of charges to customers for delivery services and weekly or monthly
charges for recurring services, such as facilities management. Sales are recognized when the
service is performed. The yield (value per transaction) for a particular service is dependent upon
a number of factors including size and weight of articles transported, distance transported,
special handling requirements, requested delivery time and local market conditions. Generally,
articles of greater weight transported over longer distances and those that require special
handling produce higher yields.
A significant portion of the Companys sales are generated in Canada. For the fiscal years
ended July 31, 2010, 2009, and 2008, approximately 38.0%, 35.9% and 38.4%, respectively, of sales
were generated in Canada. The exchange rate between the Canadian dollar and the U.S. dollar
increased 11.6% in the twelve month period ended July 31, 2010, compared to the corresponding
period in the prior year, which had the effect of increasing reported sales by $16 million. During
FY 2009, the exchange rate between the Canadian dollar and the U.S. dollar decreased 14.0%,
compared to FY 2008, which had the effect of decreasing 2009 reported sales by $20 million.
The conversion rate of Canadian dollars to U.S. dollars increased during the fiscal year
ending July 31, 2010 compared to July 31, 2009 and decreased during the fiscal year ending July 31,
2009 compared to July 31, 2008. As the Canadian dollar is the functional currency for the
Companys Canadian operations, these changes in the exchange rate have affected the Companys
reported sales and net income. Management does not believe that the effect of these changes on the
Companys net income for the fiscal years ended July 31, 2010, 2009 and 2008 has been significant,
although there can be no assurance that fluctuations in such currency exchange rate will not, in
the future, have a material effect on the Companys business, financial condition or results of
operations.
Operating expenses are purchased transportation, salaries and employee benefits, facilities
and communication, depreciation and amortization and other costs. Purchased transportation is
driver, messenger, and third-party delivery charges. Salary and employee benefits cost includes
employee salaries, benefits and workers compensation costs. Facilities and communications includes
warehouse, radio and communications costs. Other costs include bad debt, insurance, uniforms,
office costs, and general and administrative costs. Substantially all of the drivers used by the
Company in purchased transportation are independent contractors who provide their own vehicles, as
opposed to employees of the Company.
Generally, the Companys on-demand purchased transportation costs are at a lower percentage of
sales, yielding higher margins before overhead, compared to scheduled local and regional
distribution or fleet management services. Purchased transportation costs for on-demand driver
services represent a lower percentage of sales since the vehicles are generally smaller. However,
scheduled local and regional distribution and fleet management services generally have fewer
administrative requirements related to order taking, dispatching drivers and billing and
collection. As a result of these variances, the Companys operating expenses are dependent in part
on the mix of business for a particular period.
During the twelve months ended July 31, 2010, 2009, and 2008 sales to Office Depot, Inc.
represented approximately 11.6%, 14.0%, and 14.6% respectively, of the Companys consolidated
sales. Sales to the Companys five largest customers, including Office Depot, represented
approximately 22%, 24%, and 27% of the Companys consolidated sales for the twelve months ended
July 31, 2010, 2009, and 2008 respectively.
20
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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 from the payment of financing costs associated with the Companys credit facility.
Intangibles include goodwill, covenants not-to-compete and other identifiable intangibles.
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 purpose of assessing potential future impairments of goodwill, Canada
and the United States. These two regions were identified as reporting units in accordance with the
Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
350-20-35-34, Intangibles, 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 has determined that no impairment exists during the three years ended July 31, 2010. Other
intangible assets are being amortized over periods ranging from 2 to 25 years.
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 ASC 340-10-05, 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, 2010
and 2009 amount to $340 thousand and $778 thousand, respectively.
Self-insured claims liability The Company is primarily self-insured for U.S. workers
compensation and non-owned vehicle liability claims. A liability for unpaid claims and the
associated claim expenses, including incurred but unreported losses, are recorded based on the
Companys estimates of the aggregate liability for claims incurred. The Companys estimates are
based on actual experience and historical assumptions of development of unpaid liabilities over
time. Factors affecting the determination of amounts to be accrued for claims include, but are not
limited to, cost, frequency, or payment patterns resulting from new types of claims, the hazard
level of our operations, tort reform or other legislative changes, unfavorable jury decisions,
court interpretations, changes in the medical conditions of claimants and economic factors such as
inflation. The method of calculating the estimated accrued liability for claims is subject to
inherent uncertainty. If actual results are less favorable than what are used to calculate the
accrued liability, the Company would have to record expenses in excess of what has already been
accrued.
Allowance for doubtful accounts The Company maintains an allowance for doubtful accounts
for estimated losses resulting from the inability of its customers to make payments when due or
within a reasonable period of time thereafter. Estimates are used in determining this allowance
based on the Companys historical collection experience, current trends, credit policy and a
percentage of accounts receivable by aging category. If the financial condition of the Companys
customers were to deteriorate, resulting in an impairment of their ability to make required
payments, additional allowances may be required. The allowance for doubtful accounts represented
approximately 2.2% of accounts receivable at July 31, 2010 compared to approximately 4.1% at July
31, 2009. The allowance for doubtful accounts was higher last year due to the onset of the
intensified global financial crisis. The decrease in the allowance from the prior year is due to
an improvement in the Companys collections statistics.
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Income taxes Income taxes consist of taxes currently due plus deferred taxes related
primarily to differences
between the financial reporting 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, the Company repatriated approximately $4.7 million from its Canadian
subsidiary. The Company establishes valuation allowances in accordance with the provisions of ASC
740 Income Taxes.
Stock-based compensation ASC 718, Compensation Stock Compensation, 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 fair value of each stock option 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 2010, 2009, and 2008, respectively: dividend yield of 0% for all years; expected volatility of
48%, 43%, and 43%; risk-free interest rate of 2.4%, 2.8%, and 3.9%, and expected lives of an
average of 6.8, 6.9 and 7.2 years for options granted to employees and of 6.7, 6.8 and 6.8 years
for options granted to non-employee directors. The weighted average grant-date fair value of stock
options granted during the years 2010, 2009 and 2008 was $9.14, $10.12 and $14.80, respectively.
As discussed in Notes 1 and 9 of this Form 10-K, option expense in 2010, 2009 and 2008
amounted to $1,448,000, $1,418,000 and $1,180,000, respectively, under the fair value approach.
Based on the outstanding and unvested awards as of July 31, 2010, the anticipated effect on net
income for fiscal 2011, net of taxes, will be approximately $1,013,000.
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, net 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.
Leases deferred credits The Company has lease agreements that contain 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. The Company records rental expense on a straight-line basis over the term of
the lease when a lease has rent escalation clauses.
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Table of Contents
Results of Operations
The following table sets forth for the periods indicated certain items from the Companys
Consolidated Statement of Operations, expressed as a percentage of sales:
Years Ended July 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Sales |
100.0 | % | 100.0 | % | 100.0 | % | ||||||
Operating expenses: |
||||||||||||
Purchased transportation |
64.8 | % | 63.4 | % | 64.4 | % | ||||||
Salaries and employee benefits |
19.8 | % | 21.0 | % | 19.9 | % | ||||||
Facilities and communication |
4.8 | % | 4.8 | % | 4.0 | % | ||||||
Other |
5.5 | % | 6.1 | % | 5.6 | % | ||||||
Depreciation and amortization |
1.0 | % | 0.9 | % | 0.6 | % | ||||||
Restructuring cost |
0.1 | % | 0.3 | % | 0.0 | % | ||||||
Total operating expenses |
96.0 | % | 96.5 | % | 94.5 | % | ||||||
Operating income |
4.0 | % | 3.5 | % | 5.5 | % | ||||||
Interest expense |
0.0 | % | 0.0 | % | 0.1 | % | ||||||
Other income, net |
0.0 | % | -0.1 | % | -0.1 | % | ||||||
Income before income taxes |
4.0 | % | 3.6 | % | 5.5 | % | ||||||
Income taxes |
1.4 | % | 1.4 | % | 2.1 | % | ||||||
Net income |
2.6 | % | 2.2 | % | 3.4 | % | ||||||
The following tables sets forth for the periods indicated, the Companys sales accumulated by
service type and country:
Years Ended July 31, | ||||||||||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||||||||||
Sales by service type: |
||||||||||||||||||||||||
On demand |
$ | 129,374 | 31.8 | % | $ | 127,797 | 31.8 | % | $ | 148,410 | 32.6 | % | ||||||||||||
Scheduled/distribution |
277,074 | 68.2 | % | 274,312 | 68.2 | % | 307,366 | 67.4 | % | |||||||||||||||
Total sales |
$ | 406,448 | 100.0 | % | $ | 402,109 | 100.0 | % | $ | 455,776 | 100.0 | % | ||||||||||||
Sales by country: |
||||||||||||||||||||||||
United States |
$ | 252,143 | 62.0 | % | $ | 257,623 | 64.1 | % | $ | 280,583 | 61.6 | % | ||||||||||||
Canada |
154,305 | 38.0 | % | 144,486 | 35.9 | % | 175,193 | 38.4 | % | |||||||||||||||
Total sales |
$ | 406,448 | 100.0 | % | $ | 402,109 | 100.0 | % | $ | 455,776 | 100.0 | % | ||||||||||||
Year Ended July 31, 2010 Compared to Year Ended July 31, 2009
Net income for the twelve months ended July 31, 2010 was $10.7 million ($1.09 per fully
diluted share) compared to $8.8 million ($0.89 per fully diluted share) for the twelve months ended
July 31, 2009. FY 2009 results include a restructuring charge of $1.1 million pre-tax, $0.7 million
after tax ($0.07 per fully diluted share), related to the closing of the Canadian Administrative
office and the elimination of the position of President Dynamex U.S. and a first quarter special
payment of $1.5 million pre-tax, $1.0 million after-tax ($0.10 per fully diluted share), to the
former President and CEO of the Company.
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Sales for the twelve months ending July 31, 2010 increased 1.1% to $406.5 million from $402.1
million for the same period in the prior year. The higher exchange rate between the Canadian
dollar and the U.S. dollar increased sales by 4.0%, and this was offset in part by lower core sales
and lower fuel surcharges. The decline in core sales is attributable to lower sales from our
largest customer and the general macroeconomic challenges to our customers businesses. Total core
sales per business-day declined 2.5%, and lower fuel surcharges account for approximately 0.4% of
the decline in sales.
Purchased transportation for the twelve months ended July 31, 2010 increased 3.3%, to $263.2
million from $254.8 million for the same period in the prior year. Purchased transportation, as a
percentage of sales, was 64.8% for the twelve months ended July 31, 2010 compared to 63.4% for the
twelve months ended July 31, 2009. The increase as a percentage of sales was primarily due to the
impact of a more competitive pricing environment.
Salaries and employee benefits for the twelve months ended July 31, 2010 decreased 4.9%, to
$80.4 million from $84.5 million for the same period in the prior year. The decline is attributable
to Company cost reduction initiatives including the management realignment and reduction in force
that occurred during FY 2009, and the closing of the Canadian administrative office. In addition,
the prior fiscal year includes a $1.5 million one-time, pre-tax special payment to the current
Chairman of the Board and former President and CEO. Cost reduction initiatives were offset, in
part, by the higher exchange rate between the Canadian dollar and the U.S. dollar. On a constant
dollar basis (holding the exchange rate constant), salaries and employee benefit costs declined
$6.6 million or 7.8% Salaries and employee benefits were 19.8% of sales for the twelve months ended
July 31, 2010, compared to 21.0% for the twelve months ended July 31, 2009..
Facilities and communication expense was $19.4 million for the twelve months ended July 31,
2010 and 2009 and remained a consistent 4.8% percentage of sales.
Other expenses for the twelve months ended July 31, 2010 decreased $2.2 million to $22.6
million from $24.8 million for the same period in the prior year. The decrease is primarily
attributable to a year over year $1.8 million reduction to bad debt expense (reflecting
improvements in collections), and lower vehicle insurance costs of $1.0 million. These reductions
to expense were partially offset by a stronger Canadian currency, which increased expenses by $0.6
million. Other expenses, as a percentage of sales, were 5.5% in the current year compared to 6.1%
in the prior year.
Depreciation and amortization for the twelve months ended July 31, 2010 was $4.2 million
compared to $3.4 million for the same period in the prior year. The increase is principally due to
the purchase of specialized equipment during FY 2009 to service a specific customer. As a percent
of sales, depreciation and amortization was 1.0%, compared to 0.9% in the prior year period.
The Company recorded a $0.3 million pre-tax restructuring charge in the companys FY 2010
second fiscal quarter to expense the remaining lease obligation of the Toronto, Canada
administration office upon the cease use date of the facility. In 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 elimination of the position of
President U.S. operations. 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 for the twelve months ended July 31, 2010 was $179,000, compared to $177,000
for the same period in the prior year. Interest expense is principally attributable to the cost of
availability charges and letters of credit related to the bank credit facility.
Other income, net for the twelve months ended July 31, 2010, was $289,000 compared to $411,000
for the same period in the prior year. The decline from the prior year is primarily due to lower
realized currency gains in Canada.
Income tax expense for the twelve month period ended July 31, 2010 increased $0.2 million to
$5.7 million on higher income. The effective income tax rate was 35.2% for the current period
compared to 38.9% for the prior year. The current year benefited from a reduction in the effective
income tax rate for Canada to 31.0% from 35.5%. In addition to the lower Canadian tax rate, pre-tax
Canadian income is a higher percentage of consolidated pre-tax income for the twelve months ended
July 31, 2010, compared to the same period in the prior year. Moreover, in the prior year, the
Company repatriated excess cash from Canada to the U.S. to support its share repurchase program.
The Companys current annual effective income tax rate in the U.S. is approximately 42.5% and 31.0%
in Canada.
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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 decreased 11.8% to $402 million from $456 million for
the same period in 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 by
approximately $23.4 million or 5.1%. Also, management estimates that approximately 2.6% of the
year-over-year decrease in sales is attributable to a reduction in fuel surcharges. The core growth
rate, the rate excluding the impact of the fuel surcharge and changes in the foreign exchange rate,
was an approximately 4.0% decrease for the year ended July 31, 2009 (a 5.6% decrease in the U.S.
and 1.7% decrease in Canada). Canadian sales, including fuel surcharges, decreased approximately
4.2% in Canadian dollars compared to the previous year.
Purchased transportation for the year ended July 31, 2009 decreased 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 6.9% to $84.5
million from $90.7 million for the same period in the prior year. Slightly over half the decline
is due to the weaker Canadian dollar, lower bonus accruals and the reduction in force the Company
announced in the 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 2009 and higher salaries
and benefits of approximately $0.5 million from the expansion of the sales force. 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.
Facilities and communication expense for the year ended July 31, 2009 increased 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
business expansion.
Other expenses for the year ended July 31, 2009 decreased 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 6.1% for
the year ended July 31, 2009, compared to 5.5% for the year ended July 31, 2008. Fiscal year 2009
included 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.
Depreciation and amortization was $3.4 million for the year ended July 31, 2009, compared to
$2.8 million for the same period in the prior year. The increase was principally due to more
capital expenditures over the preceding two fiscal years. As a percent of sales, depreciation and
amortization was 0.9%, compared to 0.6% in the prior year period. As part of a five-year contract
with a specific customer, the Company purchased approximately $2.8 million of specialized
equipment, which increased depreciation.
During the quarter ended July 31, 2009 the Company announced the closure of the Canadian
administrative office in Toronto, Canada and the elimination of the position of President U.S.
operations. The restructuring was to reduce redundant overhead expenses. The Company recorded a
pre-tax charge of $1.1 million during the fourth quarter of fiscal year 2009. See Restructuring
in Note 5 of this Form 10-K.
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 a decrease in investments in Canada. The Company repatriated excess Canadian cash to support
its share repurchase program during the first quarter of FY 2009. Then, during the second quarter
of FY 2009, the Company decided to suspend the share repurchase program.
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Interest expense for the year ended July 31, 2009 decreased 23.7% to $177,000 from $232,000
for the same period in the prior year. Lower interest expense compared to the prior year is
primarily attributable to lower interest rates and a reduced use of the Companys line of credit.
Income tax expense for the twelve month period ended July 31, 2009 decreased $4.1 million to
$5.6 million on lower income. The effective income tax rate was 38.9% for the year ended July 31,
2009, compared to 38.1% for the previous 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., compared to the prior year. Also, the effective U.S. tax rate was
approximately 2.0% higher than the prior year due to the Companys decision to repatriate excess
Canadian cash to support its share repurchase program. The Canadian effective tax rate was 32.3%
for the year ended July 31, 2009.
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 twelve months ended July 31,
2010 was $18.3 million compared to $7.8 million in the prior period. The increase in cash
provided by operating activities this year compared to last year is principally attributable to
improved net income and the decrease in cash needed to fund current operating assets and
liabilities.
Net cash used in investing activities in the twelve months ended July 31, 2010 was $3.7
million, compared to $6.0 million used during the twelve months ended July 31, 2009. The decrease
was due to a purchase of specialized equipment to serve a specific customer in the prior year. The
Company does not have significant capital expenditure requirements to replace or expand the number
of vehicles used in its operations because substantially all of its drivers are 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, 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 second quarter of FY 2009. Delaware law permits treasury shares to be
retired when appropriately authorized by the Board of Directors, and the Company has retired such
shares by appropriate reductions in the value of common stock and additional paid-in capital.
The Companys revolving credit facility was initially established in 2004 and last amended on
January 26, 2009. The credit facility has a maturity date of July 31, 2013 and has no scheduled
principal payments prior to maturity. The $40 million revolving credit facility is secured by all
of the Companys U.S. assets and 100% of the stock of its domestic subsidiaries. At July 31, 2010,
there were $6.1 million stand-by letters of credit issued but no outstanding borrowings under the
revolving credit facility.
The revolving credit facility requires us to satisfy certain customary financial and other
covenants, including:
Compliance Area | Covenant | Level at July 31, 2010 | ||
Ratio of funded debt to EBITDA
|
Maximum of 2.00 to 1.00 | 0.26 to 1.00 | ||
Total indebtedness
|
$40 million, including LOCs | $6.1 million | ||
Letters of credit sublimit
|
$10 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 | 0.26 to 1.00 | ||
Fixed charge coverage ratio
|
Equal to or greater than 1.50 to 1.00 | 10.69 to 1.00 |
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, if
the repurchase program is reinstituted.
26
Table of Contents
Contractual Obligations
The following table sets forth the Companys contractual commitments as of July 31, 2010 for
the periods indicated (in thousands):
Less than | ||||||||||||||||||||
Total | 1 Year | 1 - 3 Years | 3 - 5 years | Thereafter | ||||||||||||||||
Operating Leases |
38,598 | 11,751 | 15,982 | 8,228 | 2,637 | |||||||||||||||
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
$550 thousand, participation in an
executive bonus plan, an auto allowance, and participation in other employee benefit plans. The
Company has entered into an employment agreement with its Chief Operating Officer which provides
for the payment of a base salary in the annual amount of $250 thousand, 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 potential exposure
ranges between $1.6 million and $1.8 million. As of July 31, 2010, the Company had outstanding
stand-by letters of credit totaling $6.1 million.
Income Taxes
The provision for income taxes was $5.8 million in fiscal 2010 compared to $5.6 million and
$9.7 million in the years ended July 31, 2009 and 2008, respectively. The difference between the
statutory rates and the effective federal income tax rates is primarily attributable to foreign and
state income taxes and other expenses that are non-deductible for tax purposes. The effective
income tax rate was 35.2% for the current year compared to 38.9% for the prior year. The decrease
in the effective tax rate is primarily attributable to both a lower effective Canadian tax rate and
a higher proportion of income being generated in Canada in the current year compared to the prior
year.
During the year ended July 31, 2009, the Company repatriated approximately $4.7 million from
its Canadian subsidiary. This transaction resulted in an 2.9% increase in the FY 2009s effective
U.S. federal income tax rate.
Inflation
Inflationary pressures have not had a material effect on the Companys results of operations
for fiscal 2010. There can be no assurance the Companys business will not be affected by
inflation in the future.
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; 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. Also, in March 2010, the FASB issued amended guidance to ASC 855,
Subsequent Events. Under this amended guidance, public entities are no longer required to disclose
the date through which subsequent events have been evaluated. The adoption of these provisions did
not have a material effect on the Consolidated Financial Statements.
27
Table of Contents
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:
| a change in the current tax status of independent contractor to employees. | ||
| the loss of any of our key customers | ||
| the ability of the Company to attract and retain qualified independent contractors at acceptable rates | ||
| the competitive nature of the same-day delivery business. | ||
| the ability of the Company to retain key employees | ||
| global economic conditions could adversely affect the Companys business and financial results | ||
| the ability of the Company to pass on fuel cost increases to customers to maintain profit margins and the quality of independent contractor payments. | ||
| a significant reduction in the exchange rate between the Canadian dollar and the U.S. dollar. | ||
| Maintaining good relationships with International Labor Unions | ||
| a significant increase in the number of workers compensation or vehicle liability claims such that the Companys self insurance expense would increase significantly. | ||
| failure of the Company to maintain required certificates, permits or licenses, or to comply with applicable laws, ordinances or regulations could result in substantial fines or possible revocation of the Companys authority to conduct certain of its operations. | ||
| the ability of the Company to obtain adequate financing. |
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
Foreign Exchange Exposure
Significant portions of the Companys operations are conducted in Canada. Exchange rate
fluctuations between the U.S. and Canadian dollar result in fluctuations in the amounts relating to
the Canadian operations reported in the Companys consolidated financial statements. The Company
historically has not entered into hedging transactions with respect to its foreign currency
exposure, but may do so in the future.
The sensitivity analysis model used by the Company for foreign exchange exposure compares the
revenue and net income figures from Canadian operations over the previous four quarters at the
actual exchange rate versus a 10% decrease in the exchange rate. Based on this model, a 10%
decrease would result in a decrease in revenue of approximately $15.4 million and a decrease in net
income of approximately $0.7 million over this period. There can be no assurances that the above
projected exchange rate decrease will materialize. Fluctuations of exchange rates are beyond the
control of the Companys management.
Interest Rate Exposure
The Company has no interest rate protection arrangements in effect at the present time. The
Company does not hold or issue derivative financial instruments for speculative or trading
purposes.
28
Table of Contents
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
See Item 15(a).
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. | CONTROLS AND PROCEDURES |
(a). Evaluation of disclosure control and procedures
An evaluation was carried out under the supervision and with the participation of the
Companys management, including its Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of its disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the
Companys fiscal year. Based upon the evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the design and operation of these disclosure controls and procedures were
effective.
There were no significant changes in the Companys internal controls or in other factors that
could significantly affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material weaknesses.
(b). Managements report on internal control over financial reporting.
Managements report on internal control over financial reporting, which appears on page F-2 of
this Annual Report, is incorporated herein by reference.
ITEM 9B. | OTHER INFORMATION |
None.
29
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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
Companys definitive proxy statement to be filed in connection with the 2011 Annual Meeting of
Stockholders is incorporated herein by reference.
The Company has adopted a code of ethics that applies to all members of Board of Directors and
employees of the Company, including, the principal executive officer, principal financial officer,
principal accounting officer, or persons performing similar functions. The Company has notice of
amendments to, or waivers of, the code posted on the Companys internet website at the internet
address: http://www.dynamex.com. Copies of the code may be obtained free of charge from the
Companys website at the above internet address.
ITEM 11. | EXECUTIVE COMPENSATION |
The information set forth under the caption Directors and Executive Officers in the
Companys definitive proxy statement to be filed in connection with the 2011 Annual Meeting of
Stockholders is incorporated herein by reference.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information set forth under the caption Beneficial Ownership of Common Stock in the
Companys definitive proxy statement to be filed in connection with the 2011 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 Companys definitive proxy statement to be filed in connection with the 2011 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
Companys definitive proxy statement to be filed in connection with the 2011 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.
31
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dynamex Inc.,
A Delaware corporation
A Delaware corporation
By:
|
/s/ Ray E. Schmitz
|
|||
Ray E. Schmitz, Executive Vice-President and
Chief Financial Officer Dated: September 22, 2010 |
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
September 22, 2010.
Name | Title | |
/s/ James L. Welch
|
Chief Executive Officer, President and Director | |
James L. Welch
|
(Principal Executive Officer) | |
/s/ Ray E. Schmitz
|
Executive Vice President, Chief Financial Officer | |
Ray E. Schmitz
|
(Principal Financial Officer) | |
/s/ Gilbert Jones
|
Vice President, Corporate Controller | |
Gilbert Jones
|
(Principal Accounting Officer) | |
/s/ Richard K. McClelland
|
Chairman of the Board and Director | |
Richard K. McClelland |
||
/s/ Wayne Kern
|
Director | |
Wayne Kern |
||
/s/ Stephen P. Smiley
|
Director | |
Stephen P. Smiley |
||
/s/ Brian J. Hughes
|
Director | |
Brian J. Hughes |
||
/s/ Bruce E. Ranck
|
Director | |
Bruce E. Ranck |
||
/s/ Craig R. Lentzsch
|
Director | |
Craig R. Lentzsch |
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
Dynamex Inc. |
||||
F-2 | ||||
F-3 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-8 | ||||
F-9 |
F - 1
Table of Contents
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Board of Directors and
Stockholders of Dynamex Inc.
Stockholders of Dynamex Inc.
Management of Dynamex Inc. is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934. Dynamex Inc.s internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external reporting purposes in accordance with generally accepted
accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Management, including our Chief Executive Officer and our Chief Financial Officer, assessed the
effectiveness of Dynamex Inc.s internal control over financial reporting as of July 31, 2010. 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, 2010.
Dynamex Inc.s independent registered public accounting firm, BDO USA, LLP, has issued an
attestation report dated September 22, 2010 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
|
Ray E. Schmitz | |||||
Chief Executive Officer, President and Director
|
Executive Vice President, Chief Financial Officer | |||||
(Principal Executive Officer)
|
(Principal Financial Officer) |
F - 2
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Dynamex Inc.
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, 2010 and 2009 and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three years in the period ended July 31, 2010.
These financial statements are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statement. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company at July 31, 2010 and 2009, and the results
of its operations and its cash flows for each of the three years in the period ended July 31, 2010,
in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Companys internal control over financial reporting
as of July 31, 2010, 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 September 22, 2010 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
BDO USA, LLP
BDO USA, LLP
Dallas, Texas
September 22, 2010
September 22, 2010
F - 3
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Dynamex Inc.
Dallas, Texas
Stockholders of Dynamex Inc.
Dallas, Texas
We have audited the internal control over financial reporting maintained by Dynamex Inc. and
Subsidiaries (the Company) as of July 31, 2010, based on the criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Management of the Company is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Managements Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of July 31, 2010, 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, 2010 and 2009,
and the related consolidated statements of operations, stockholders equity, and cash flows for
each of the three years in the period ended July 31, 2010. Our report dated September 22, 2010
expressed an unqualified opinion on those consolidated financial statements.
/s/ BDO USA, LLP
BDO USA, LLP
BDO USA, LLP
Dallas, Texas
September 22, 2010
September 22, 2010
F - 4
Table of Contents
DYNAMEX INC.
Consolidated Balance Sheets
July 31, 2010 and 2009
(in thousands, except per share data)
July 31, 2010 and 2009
(in thousands, except per share data)
2010 | 2009 | |||||||
ASSETS |
||||||||
CURRENT |
||||||||
Cash and cash equivalents |
$ | 26,318 | $ | 11,016 | ||||
Accounts receivable (net of allowance for doubtful accounts
of $1,048 and $1,801, respectively) |
47,455 | 43,545 | ||||||
Income taxes receivable |
4,062 | 3,043 | ||||||
Prepaid and other current assets |
4,032 | 4,396 | ||||||
Deferred income taxes |
4,029 | 4,270 | ||||||
Total current assets |
85,896 | 66,270 | ||||||
PROPERTY AND EQUIPMENT net |
11,138 | 11,532 | ||||||
GOODWILL |
48,058 | 47,496 | ||||||
INTANGIBLES net |
2,091 | 975 | ||||||
OTHER |
3,083 | 3,226 | ||||||
Total assets |
$ | 150,266 | $ | 129,499 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Accounts payable trade |
$ | 8,248 | $ | 5,581 | ||||
Independent contractor owner operator settlements |
7,706 | 6,870 | ||||||
Accrued salaries and employee benefits |
6,016 | 5,296 | ||||||
Self-insured accruals |
1,979 | 3,294 | ||||||
Other accrued liabilities |
8,876 | 6,910 | ||||||
Total current liabilities |
32,825 | 27,951 | ||||||
LONG-TERM DEBT |
| | ||||||
LEASES DEFERRED CREDITS |
2,369 | 2,742 | ||||||
DEFERRED INCOME TAX PAYABLE |
4,523 | 2,031 | ||||||
DEFERRED COMPENSATION |
784 | 695 | ||||||
Total liabilities |
40,501 | 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;
9,753 and 9,725 outstanding, respectively |
97 | 97 | ||||||
Additional paid-in capital |
37,876 | 36,276 | ||||||
Retained earnings |
66,310 | 55,655 | ||||||
Accumulated other comprehensive income: |
||||||||
Cumulative translation adjustment |
5,482 | 4,052 | ||||||
Total stockholders equity |
109,765 | 96,080 | ||||||
Total liabilities and stockholders equity |
$ | 150,266 | $ | 129,499 | ||||
See accompanying notes to the consolidated financial statements.
F - 5
Table of Contents
DYNAMEX INC.
Consolidated Statements of Operations
Years ended July 31, 2010, 2009 and 2008
(in thousands, except per share data)
Years ended July 31, 2010, 2009 and 2008
(in thousands, except per share data)
2010 | 2009 | 2008 | ||||||||||
Sales |
$ | 406,448 | $ | 402,109 | $ | 455,776 | ||||||
Operating expenses: |
||||||||||||
Purchased transportation |
263,237 | 254,789 | 293,459 | |||||||||
Salaries and employee benefits |
80,422 | 84,515 | 90,744 | |||||||||
Facilities and communication |
19,381 | 19,378 | 18,458 | |||||||||
Other |
22,561 | 24,801 | 25,069 | |||||||||
Depreciation and amortization |
4,240 | 3,440 | 2,825 | |||||||||
Restructuring cost |
282 | 1,104 | | |||||||||
Total operating expenses |
390,123 | 388,027 | 430,555 | |||||||||
Operating income |
16,325 | 14,082 | 25,221 | |||||||||
Interest expense |
179 | 177 | 232 | |||||||||
Other income, net |
(289 | ) | (411 | ) | (516 | ) | ||||||
Income before income taxes |
16,435 | 14,316 | 25,505 | |||||||||
Income taxes |
5,780 | 5,566 | 9,722 | |||||||||
Net income |
$ | 10,655 | $ | 8,750 | $ | 15,783 | ||||||
Basic earnings per common share |
$ | 1.09 | $ | 0.89 | $ | 1.55 | ||||||
Diluted earnings per common share |
$ | 1.09 | $ | 0.89 | $ | 1.53 | ||||||
Weighted average shares: |
||||||||||||
Common shares outstanding |
9,736 | 9,782 | 10,207 | |||||||||
Adjusted common shares assuming
exercise of stock options |
9,753 | 9,809 | 10,297 |
See accompanying notes to the consolidated financial statements.
F - 6
Table of Contents
DYNAMEX INC.
Consolidated Statements of Stockholders Equity
Years ended July 31, 2010, 2009 and 2008
(in thousands)
Years ended July 31, 2010, 2009 and 2008
(in thousands)
Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common Stock | Paid-in | Retained | Comprehensive | |||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income | Total | |||||||||||||||||||
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 | ||||||||||||||||||
Issuance of common stock, including
tax benefit of $0 |
28 | 0 | 152 | 152 | ||||||||||||||||||||
Stock option compensation |
1,448 | 1,448 | ||||||||||||||||||||||
Net income |
10,655 | 10,655 | ||||||||||||||||||||||
Unrealized foreign currency translation
adjustment |
1,430 | 1,430 | ||||||||||||||||||||||
Total comprehensive income |
12,085 | |||||||||||||||||||||||
BALANCE AT JULY 31, 2010 |
9,753 | $ | 97 | $ | 37,876 | $ | 66,310 | $ | 5,482 | $ | 109,765 | |||||||||||||
See accompanying notes to the consolidated financial statements.
F - 7
Table of Contents
DYNAMEX INC.
Consolidated Statements of Cash Flows
Years ended July 31, 2010, 2009 and 2008
(in thousands)
Years ended July 31, 2010, 2009 and 2008
(in thousands)
2010 | 2009 | 2008 | ||||||||||
OPERATING ACTIVITIES |
||||||||||||
Net income |
$ | 10,655 | $ | 8,750 | $ | 15,783 | ||||||
Adjustments to reconcile net income to net cash provided
by operating activities: |
||||||||||||
Depreciation and amortization |
4,240 | 3,440 | 2,825 | |||||||||
Amortization of deferred bank financing fees |
5 | 2 | 10 | |||||||||
Provision for losses on accounts receivable |
(347 | ) | 1,487 | 1,039 | ||||||||
Stock option compensation |
1,448 | 1,418 | 1,180 | |||||||||
Deferred income taxes |
2,732 | 822 | 1,472 | |||||||||
Lessor financed leasehold improvements |
| 896 | | |||||||||
Non-cash rent expense |
7 | 143 | 49 | |||||||||
Gain on disposal of property and equipment |
(2 | ) | (34 | ) | (8 | ) | ||||||
Changes in current operating assets and liabilities: |
||||||||||||
Accounts receivable |
(3,563 | ) | 2,255 | (5,678 | ) | |||||||
Prepaids and other current assets |
(1,944 | ) | (1,465 | ) | (1,405 | ) | ||||||
Accounts payable and accrued liabilities |
5,019 | (9,907 | ) | 1,087 | ||||||||
Net cash provided by operating activities |
18,250 | 7,807 | 16,354 | |||||||||
INVESTING ACTIVITIES |
||||||||||||
Purchase of property and equipment |
(3,283 | ) | (6,253 | ) | (2,845 | ) | ||||||
Proceeds from sale of equipment |
49 | | | |||||||||
Acquisition of customer lists |
(399 | ) | (367 | ) | (491 | ) | ||||||
Withdrawal (purchase) of deferred compensation investments |
(66 | ) | 650 | (322 | ) | |||||||
Net cash used in investing activities |
(3,699 | ) | (5,970 | ) | (3,658 | ) | ||||||
FINANCING ACTIVITIES |
||||||||||||
Receipts under line of credit |
| 7,300 | 23,200 | |||||||||
Payments receipts under line of credit |
| (7,300 | ) | (23,200 | ) | |||||||
Proceeds from stock option exercise |
152 | 124 | 1,099 | |||||||||
Tax benefit realized from exercise of stock options |
| 16 | 328 | |||||||||
Purchase and retirement of treasury stock |
| (10,597 | ) | (2,966 | ) | |||||||
Other assets and deferred financing fees |
225 | 411 | (176 | ) | ||||||||
Net cash provided by (used in) financing activities |
377 | (10,046 | ) | (1,715 | ) | |||||||
EFFECT OF EXCHANGE RATES ON CASH |
374 | (663 | ) | 50 | ||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
15,302 | (8,872 | ) | 11,031 | ||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
11,016 | 19,888 | 8,857 | |||||||||
CASH AND CASH EQUIVALENTS, END OF YEAR |
$ | 26,318 | $ | 11,016 | $ | 19,888 | ||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
||||||||||||
Cash paid for interest |
$ | 105 | $ | 137 | $ | 157 | ||||||
Cash paid for taxes |
$ | 5,302 | $ | 5,901 | $ | 8,043 | ||||||
See accompanying notes to the consolidated financial statements.
F - 8
Table of Contents
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business Dynamex Inc. and Subsidiaries (the Company or Dynamex) provide same-day delivery and logistics services in the United States and Canada. The Companys primary services are (i) same-day, on-demand delivery and (ii) scheduled and distribution and 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 Limited (Canada) | ||
| Dynamex Canada Franchise Holdings, Inc. (Canada) | ||
| Dynamex Canada Holdings, Inc. (U.S.) | ||
| Dynamex Provincial Couriers, Inc. (U.S.) |
Principles of consolidation The consolidated financial statements include the accounts of Dynamex Inc. and its wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated. All dollar amounts in the financial statements and notes to the financial statements are stated in thousands of dollars unless otherwise indicated. | ||
Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses. Actual results may differ from such estimates. The Company reviews all significant estimates affecting the financial statements on a recurring basis and records the effect of any necessary adjustments prior to their issuance. | ||
Property and equipment Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets for financial reporting purposes and principally on accelerated methods for tax purposes. Leasehold improvements are depreciated using the straight-line method over their estimated useful lives or the lease term, whichever is shorter. Ordinary maintenance and repairs are charged to 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 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, 2010 and 2009, the net book value of capitalized software costs was $944 and $973, respectively. Amortization expense related to capitalized software was $715, $826 and $756 in fiscal years 2010, 2009 and 2008, respectively. |
Business and credit concentrations Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. |
F - 9
Table of Contents
The Company places its temporary cash investments with high-credit, quality financial institutions. At times such amounts may exceed F.D.I.C. limits. The Company limits the amount of credit exposure with any one financial institution and believes no significant concentration of credit risk exists with respect to cash investments. | ||
The Companys customers are not concentrated in any specific geographic region or industry. During the years ended July 31, 2010, 2009, and 2008, sales to Office Depot, Inc. represented approximately 11.6%, 14.0% and 14.6%, respectively, of the Companys revenue. Sales to the Companys five largest customers, including Office Depot, represented approximately 22%, 24% and 27% of the Companys consolidated sales for the years ended July 31, 2010, 2009 and 2008, respectively. | ||
A significant number of the Companys customers are located in Canada. For the fiscal years ended July 31, 2010, 2009 and 2008, approximately 38%, 36% and 38% of the Companys sales, respectively, were generated in Canada. See Note 12 of Notes to the Consolidated Financial Statements for additional information concerning the Companys foreign operations. | ||
Office Depot represented approximately 15.7% and 21.6% of the net accounts receivable at July 31, 2010 and July 31, 2009, respectively. There were no other significant accounts receivable from a single customer. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. | ||
Goodwill and intangibles Intangibles arise from acquisitions accounted for as purchased business combinations and include goodwill, covenants not-to-compete and other identifiable intangibles and from the payment of financing costs associated with the Companys credit facility. Goodwill represents the excess purchase price over all tangible and identifiable intangible net assets acquired. The Company adopted ASC 350, Intangibles, which requires, among other things, that companies no longer amortize goodwill and instead sets forth methods to periodically evaluate goodwill for impairment. The Company conducts on at least an annual basis a review of its reporting units to determine whether their carrying value exceeds their market value and, if so, performs a detailed analysis of the reporting units assets and liabilities to determine whether the goodwill is impaired. The Company performed its goodwill impairment test as of the first day of the fourth quarter of fiscal 2010. Based on this test, no impairment was indicated. Other intangible assets are being amortized over periods ranging from 2 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, 2010, 2009 and 2008 totaled $576, $206 and $81, respectively. Estimated amortization expense for the succeeding five fiscal years is approximately $794 for 2011, $857 for 2012, $560 for 2013, $18 for 2014, and $18 for 2015. | ||
Revenue recognition Revenues are recognized when services are rendered to customers, that is, primarily when the pickup and delivery is complete. There may be a time lag between the completion of the service and the generation of an invoice. Accordingly, unbilled revenue is recognized for those shipments that have been completed but have not been invoiced. | ||
Cash and cash equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. | ||
Allowance for doubtful accounts The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make payments when due or within a reasonable period of time thereafter. Estimates are used in determining this allowance based on the Companys historical collection experience, current trends, credit policy and aging category. If the financial condition of the Companys customers were to deteriorate, thus impairing their ability to make required payments, additional allowances may be required. The Companys allowance at July 31, 2010 is approximately 2.2% of outstanding accounts receivable compared to approximately 4.1% at July 31, 2009. The allowance for doubtful accounts was higher last year due to the onset of the intensified global financial crisis. The decrease in the allowance from the prior year is due to an improvement in the Companys collections statistics. |
F - 10
Table of Contents
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. Long-term debt consists primarily of variable rate borrowings under the bank credit agreement. The carrying value of these borrowings approximates fair value. | ||
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 ASC 340-10-05, 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, 2010 and 2009 amount to $340 and $778, respectively. | ||
Deferred compensation plan Deferred Compensation Plan investments are recorded in other assets at fair value as determined by quoted prices in an active market and the associated liability is recorded in other long term liabilities. The Deferred compensation plan assets at July 21, 2010 and 2009 were $784 and $695, respectively. The Deferred compensation plan liability at July 21, 2010 and 2009 were $784 and $695, respectively. | ||
Leases deferred credits The Company has lease agreements that contain tenant improvement allowances and rent escalation clauses. The Company recognizes a deferred rent liability for tenant improvement allowances paid by the lessor within other long-term liabilities and amortizes these amounts over the term of the lease.. The Company records rental expense on a straight-line basis over the term of the lease when a lease has rent escalation clauses. | ||
Self-insured claims liability The Company is primarily self-insured for U.S. workers compensation and non owned vehicle liability claims. A liability for unpaid claims and the associated claim expenses, including incurred but unreported losses, are recorded based on the Companys estimates of the aggregate liability for claims incurred. The Companys estimates are based on actual experience and historical assumptions of development of unpaid liabilities over time. Factors affecting the determination of amounts to be accrued for claims include, but are not limited to, cost, frequency, or payment patterns resulting from new types of claims, the hazard level of our operations, tort reform or other legislative changes, unfavorable jury decisions, court interpretations, changes in the medical conditions of claimants and economic factors such as inflation. The method of calculating the estimated accrued liability for claims is subject to inherent uncertainty. If actual results are less favorable than what are used to calculate the accrued liability, the Company would have to record expenses in excess of what has already been accrued. | ||
Income taxes Income taxes consist of taxes currently due plus deferred taxes related primarily to differences between the financial reporting 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 ASC 718, Compensation Stock Compensation, 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 fair value of each stock option 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 2010, 2009, and 2008, respectively: dividend yield of 0% for all years; expected volatility of 48%, 43%, and 43%; risk-free interest rate of 2.4%, 2.8%, and 3.9%, and expected lives of an average of 6.8, 6.9 and 7.2 years for options granted to employees and of 6.7, 6.8 and 6.8 years for options granted to non-employee directors. The weighted average grant-date fair value of stock options granted during the years 2010, 2009 and 2008 was $9.14, $10.12 and $14.80, respectively. | ||
As discussed in Note 9, stock-based compensation expense in 2010, 2009 and 2008 amounted to $1,448, $1,418 and $1,180, respectively, under the fair value approach. Based on the outstanding and unvested awards as of July 31, 2010, the anticipated effect on net income for fiscal 2011, net of taxes, will be approximately $1,013. |
F - 11
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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 405, 372 and 146 shares of common stock at July 31, 2010, 2009 and 2008, respectively, were not included in the computation of net income per share as their effect would be anti-dilutive. 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 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. | ||
New 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; 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. Also, in March 2010, the FASB issued amended guidance to ASC 855, Subsequent Events. Under this amended guidance, public entities are no longer required to disclose the date through which subsequent events have been evaluated. The adoption of these provisions did not have a material effect on the Consolidated Financial Statements. | ||
Reclassification Certain reclassifications have been made to conform prior year data to the current presentation. |
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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 ASC 260, Earnings Per Share. Common stock equivalents related to stock options are excluded from diluted earnings per share calculation if their effect would be anti-dilutive to earnings per share. |
Years Ended July 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Net income |
$ | 10,655 | $ | 8,750 | $ | 15,783 | ||||||
Weighted average common shares outstanding |
9,736 | 9,782 | 10,207 | |||||||||
Common share equivalents related to options |
17 | 27 | 90 | |||||||||
Common shares and common share equivalents |
9,753 | 9,809 | 10,297 | |||||||||
Basic earnings per common share |
$ | 1.09 | $ | 0.89 | $ | 1.55 | ||||||
Diluted earnings per common share |
$ | 1.09 | $ | 0.89 | $ | 1.53 | ||||||
3. INTANGIBLES
Intangibles consist of the following: |
July 31, | ||||||||
2010 | 2009 | |||||||
Carrying amount: |
||||||||
Deferred bank financing fees |
$ | 138 | $ | 138 | ||||
Customer lists |
2,645 | 950 | ||||||
Trademarks and other |
470 | 470 | ||||||
3,253 | 1,558 | |||||||
Less accumulated amortization: |
||||||||
Deferred bank financing fees |
(134 | ) | (133 | ) | ||||
Customer lists |
(805 | ) | (246 | ) | ||||
Trademarks |
(223 | ) | (204 | ) | ||||
(1,162 | ) | (583 | ) | |||||
Intangibles net |
$ | 2,091 | $ | 975 | ||||
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4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following: |
July 31, | ||||||||
2010 | 2009 | |||||||
Equipment |
$ | 23,836 | $ | 22,603 | ||||
Software |
9,579 | 8,857 | ||||||
Furniture |
2,317 | 2,240 | ||||||
Vehicles |
2,323 | 2,511 | ||||||
Leasehold improvements |
5,863 | 5,051 | ||||||
43,918 | 41,262 | |||||||
Less accumulated depreciation |
(32,780 | ) | (29,730 | ) | ||||
Property and equipment net |
$ | 11,138 | $ | 11,532 | ||||
Depreciation expense included in the accompanying Consolidated Statements of Operations for the years ended July 31, 2010, 2009 and 2008 was $3,670, $3,240 and $2,745, respectively. |
5. ACCRUED LIABILITIES
Other accrued liabilities consist of the following: |
July 31, | ||||||||
2010 | 2009 | |||||||
Accrued taxes other |
$ | 1,338 | $ | 772 | ||||
Restructuring |
198 | 1,120 | ||||||
Other accrued liabilities |
7,340 | 5,018 | ||||||
$ | 8,876 | $ | 6,910 | |||||
Restructuring 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.. 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 July 31, 2010. |
Balance at | Balance at | |||||||||||||||||||
Restructuring | July 31, 2009 | Expense | Payment | Other (1) | July 31, 2010 | |||||||||||||||
Severance and stay bonuses |
952 | 38 | (860 | ) | 7 | $ | 137 | |||||||||||||
Benefits and employer taxes |
98 | | (98 | ) | | | ||||||||||||||
Travel and other |
70 | 16 | (93 | ) | 4 | (3 | ) | |||||||||||||
Terminating a lease |
| 228 | (164 | ) | | 64 | ||||||||||||||
Total restructuring |
$ | 1,120 | $ | 282 | $ | (1,215 | ) | $ | 11 | $ | 198 | |||||||||
(1) | Represents difference in end of period and for the period foreign exchange rates. |
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6. 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, 2010, minimum annual lease payments for such operating leases are as follows (in thousands): |
Operating | ||||
Leases | ||||
2011 |
$ | 11,751 | ||
2012 |
9,019 | |||
2013 |
6,963 | |||
2014 |
4,949 | |||
2015 |
3,279 | |||
Thereafter |
2,637 | |||
$ | 38,598 | |||
Rent expense related to operating leases amounted to approximately $17,167, $17,177, and $16,606 for the years ended July 31, 2010, 2009 and 2008, 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 $550, participation in an executive bonus plan, an auto allowance, and participation in other employee benefit plans. The Company has entered into an employment agreement with its Chief Operating Officer which provides for the payment of a base salary in the annual amount of $250, 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 potential liability for these agreements ranges between $1.6 million and $1.8 million. |
CONTINGENCIES |
The California Employment Development Department (EDD) conducted an employment tax audit of the Companys California operations in 2006. Based on its conclusion that certain independent contractors used by the Company should be reclassified as employees, a Notice of Assessment was issued by the EDD in April 2007 in the amount of $2.8 million; $2.0 million of which the EDD claims represents personal income tax of the reclassified individuals. The Company intends to vigorously contest the assessment; however, the Company recorded a liability of $0.8 million in fiscal year 2006. The Company has collected and submitted documentation which will work to reduce the personal income tax (PIT) portion of the assessment through the California PIT abatement process. As of July 31, 2010, the Company had been notified that the amount of personal income tax assessed by the Notice of Assessment had been abated by $0.8 million. The Company expects the remaining personal income tax to also be abated. The Company believes that the independent contractors were properly classified and has filed a Petition for Reassessment. The California Employment Development Department has recently commenced a subsequent audit to include subsequent years. |
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. In early February 2009, Plaintiff filed an Amended Complaint, which among other matters, added an additional named Plaintiff. Plaintiffs filed a 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 |
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subclasses were each subject to between four and eight exclusions. In January 2010, the Parties agreed to a process whereby the Court modified its earlier Order granting certification of a Class to clarify that the earlier Order conditionally granted Certification. The Order initiated a process whereby a questionnaire was to be sent by an impartial Class Administrator to each potential member of the Class to gather information. As a part of the process, the Court would dismiss from the Class those individuals who failed to respond to the questionnaire within the allotted time. Incomplete or deficient questionnaires could be cured through written or telephonic inquiry by the Class Administrator. Approximately 260 questionnaires were timely returned. Further clarification and additional information has been requested from approximately 120 of the individuals returning the questionnaires with a due date of August 12, 2010. A further certification hearing will be held on October 25, 2010, and a tentative trial date has been set for April 4, 2011. |
The Company believes that its independent contractors 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 teasing 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 a certain Program Agreement between the truck leasing company and the Company, the lease of vehicles to various independent contractors and the early termination of such leases. The Company filed a response denying all the claims and presenting affirmative defenses. In December 2009, the truck leasing company filed an Amended Complaint adding both a customer of the Company as an additional defendant and making additional claims against the Company. A confidential agreement in principle to resolve and settle all claims against the Company was reached in July 2010. |
The Company is currently the subject of a wage/hour examination in Massachusetts related to the alleged misclassification of independent contractors. The Company believes that the independent contractors are properly classified and intends to vigorously contest this examination. Given the nature and preliminary status of the examination, however, the Company cannot yet determine the amount or a reasonable range of potential loss in this matter, 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 impact on the financial condition, results of operations, or liquidity of the Company. |
7. INCOME TAXES
The United States and Canadian components of income before income taxes are as follows: |
Years ended July 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Canada |
$ | 9,633 | $ | 5,180 | $ | 10,598 | ||||||
United States |
6,802 | 9,136 | 14,907 | |||||||||
$ | 16,435 | $ | 14,316 | $ | 25,505 | |||||||
The provision for income tax expense consisted of the following: |
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Years ended July 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Current tax expense: |
||||||||||||
Canada |
$ | 2,786 | $ | 2,017 | $ | 3,509 | ||||||
United States Federal |
201 | 2,320 | 3,893 | |||||||||
United States States |
61 | 406 | 848 | |||||||||
Total current tax expense |
3,048 | 4,743 | 8,250 | |||||||||
Deferred tax expense (credit): |
||||||||||||
Canada |
103 | (334 | ) | 12 | ||||||||
United States Federal |
2,180 | 984 | 1,242 | |||||||||
United States States |
449 | 173 | 218 | |||||||||
Total deferred tax expense |
2,732 | 823 | 1,472 | |||||||||
Total income tax provision |
$ | 5,780 | $ | 5,566 | $ | 9,722 | ||||||
The tax effects of differences between financial accounting principles and tax laws, to the extent they are temporary, are recorded as deferred tax assets and liabilities under ASC 740, Income Taxes, and consisted of the following components: |
July 31, | ||||||||
2010 | 2009 | |||||||
Deferred tax asset: |
||||||||
Allowance for doubtful accounts |
$ | 246 | $ | 351 | ||||
Accrued vacation |
702 | 715 | ||||||
Accrued liabilities and other |
2,955 | 3,078 | ||||||
Stock option expense |
1,350 | 950 | ||||||
Deferred compensation |
315 | 237 | ||||||
WOTC carryforward |
125 | 125 | ||||||
Capitalized start-up costs |
36 | 35 | ||||||
Total deferred tax benefits |
5,729 | 5,491 | ||||||
Less valuation allowance |
| | ||||||
Net deferred tax asset |
5,729 | 5,491 | ||||||
Deferred tax liability: |
||||||||
Fixed assets |
(1,332 | ) | (632 | ) | ||||
Amortization of intangibles |
(4,891 | ) | (2,620 | ) | ||||
Total deferred tax liability |
(6,223 | ) | (3,252 | ) | ||||
Net deferred tax asset |
$ | (494 | ) | $ | 2,239 | |||
Financial statements: |
||||||||
Current deferred tax asset |
$ | 4,029 | $ | 4,270 | ||||
Non-current deferred tax liability |
$ | 4,523 | $ | 2,031 | ||||
The Company establishes valuation allowances in accordance with the provisions of ASC 740. The Company continually reviews the adequacy of its valuation allowances and adjusts the allowances for changes in expected realization. |
During the year ended July 31, 2009 the Company repatriated approximately $4.7 million from its Canadian subsidiary. As a result, the effective U.S. federal income tax rate was approximately 3% in higher FY 2009 |
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compared to FY 2010. |
The Company has not provided for U.S. Federal and foreign withholding taxes on the foreign subsidiaries undistributed earnings as of July 31, 2010. Such earnings are intended to be reinvested indefinitely. |
Total income tax expense was $5.8 million, 35.2% of income before taxes in the current fiscal year compared to $5.6 million, 38.9% of income before taxes in fiscal year 2009. The decrease in the effective tax rate is primarily attributable to both a lower effective Canada tax rate and a higher proportion of income being generated in Canada in the current year compared to the prior year. |
The differences in income tax provided and the amounts determined by applying the statutory rate to income before income taxes result from the following: |
Years ended July 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Income taxes at statutory rate |
$ | 5,752 | $ | 4,867 | $ | 8,927 | ||||||
Effect on taxes resulting from: |
||||||||||||
State taxes |
510 | 579 | 1,066 | |||||||||
Foreign tax rate difference |
(3,275 | ) | (78 | ) | (182 | ) | ||||||
Other (including permanent differences) |
2,793 | 198 | (89 | ) | ||||||||
$ | 5,780 | $ | 5,566 | $ | 9,722 | |||||||
8. RESERVE FOR DOUBTFUL ACCOUNTS
The changes in the reserve for doubtful accounts are summarized below: |
Balance at | Charges to / | Balance | ||||||||||||||
Beginning of | (Reductions in) | Other | at End of | |||||||||||||
Year | Expense | Deductions | Year | |||||||||||||
Fiscal year ended: |
||||||||||||||||
July 31, 2010 |
$ | 1,801 | $ | (347 | ) | $ | (406 | ) | $ | 1,048 | ||||||
July 31, 2009 |
915 | 1,487 | (601 | ) | 1,801 |
9. STOCK OPTION PLAN
On September 19, 2007, the Companys Board of Directors approved the 2008 Equity Compensation Plan (the Equity Plan), to replace the 1996 Stock Option Plan and reserved a total of 1,200,000 shares for issuance under the Equity Plan, inclusive of 339,579 shares remaining available for issuance under the Companys 1996 Stock Option Plan (the Stock Option Plan) and being transferred to the Equity Plan. On January 8, 2008, the Equity Plan was approved by the Companys shareholders. The Equity Plan provides for the granting of incentive stock options and non-qualified stock options and restricted stock. Awards under the Equity Plan may also take the form of stock appreciation rights or performance units. Subject to certain restrictions that are set forth in the plan, the Compensation Committee will have complete and absolute authority to set the terms, conditions and provisions of each award, including the size of the award, the exercise or base price, the vesting and exercisability schedule (including provisions regarding acceleration of vesting and exercisability) and termination, cancellation and forfeiture provisions. The exercise price of all options granted under the Equity Plan may not be less than the fair market value of the underlying common stock on the date of grant. Generally, the options and restricted stock grants vest and become exercisable ratably over a four-year period, commencing one year after the grant date. The options expire ten 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, 2010, is as follows: |
Weighted | ||||||||
Number of | Average | |||||||
Shares | Exercise Price | |||||||
Number of shares under option: |
||||||||
Outstanding at beginning of year |
647,645 | $ | 22.22 | |||||
Granted |
65,656 | 18.48 | ||||||
Exercised |
(9,800 | ) | 15.48 | |||||
Forfeited |
(152,737 | ) | 23.33 | |||||
Outstanding at end of year |
550,764 | 21.60 | ||||||
Exercisable at end of year |
299,382 | 19.24 | ||||||
Nonvested stock option activity during the year ended July 31, 2010, is as follows: |
Weighted Avg. | ||||||||
Number of | Grant Date Fair | |||||||
Shares | Value | |||||||
Number of nonvested shares: |
||||||||
Nonvested at beginning of year |
373,645 | $ | 11.78 | |||||
Granted |
50,656 | 9.14 | ||||||
Vested |
(101,029 | ) | 11.30 | |||||
Forfeited |
(71,890 | ) | 12.33 | |||||
Nonvested at end of year |
251,382 | 11.19 | ||||||
The following table summarizes information about stock options outstanding at July 31, 2010: |
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 |
227,256 | 6.18 | $ | 15.37 | 155,100 | 5.10 | $ | 14.12 | ||||||||||||||||
$20.40 - 29.22 |
323,508 | 7.24 | 25.98 | 144,282 | 6.87 | 24.76 | ||||||||||||||||||
550,764 | 6.80 | $ | 21.60 | 299,382 | 5.95 | $ | 19.24 | |||||||||||||||||
At July 31, 2010, the aggregate intrinsic value (i.e., the difference in market price of $13.46 and the exercise price to be paid by the optionee) of stock options outstanding was $0.2 million. The aggregate intrinsic value of exercisable stock options at that date was $0.2 million. |
At July 31, 2010, the total future compensation cost related to non-vested stock options not yet recognized in the statement of income was $2.8 million and the weighted average period over which these awards are expected to be recognized was 1.2 years. Of that total, $1,346, $1,024, $377, and $96, will be recognized in 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, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Weighted average grant date fair
value for options granted |
$ | 9.14 | $ | 10.12 | $ | 14.80 | ||||||
Total Intrinsic value of shares
underlying options: |
||||||||||||
Options exercised |
$0.2 million | $0.1 million | $2.1 million | |||||||||
Options becoming exercisable |
$0.0 million | $0.0 million | $0.8 million |
10. 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. |
11. 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 $16,500 per year, and employees over the age of 50 may make an additional contribution of $5,500 per year. The Company may make discretionary contributions to the Plan as determined by the Companys Board of Directors. The Company made 401K matched contributions of $276, $294, and $295 for 2010, 2009, and 2008, respectively. |
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12. 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. |
The following table summarizes selected financial information for the United States and Canada for the years ended July 31, 2010, 2009 and 2008: |
United | ||||||||||||
States | Canada | Total | ||||||||||
2010 |
||||||||||||
Sales |
$ | 252,143 | $ | 154,305 | $ | 406,448 | ||||||
Operating income |
5,797 | 10,528 | 16,325 | |||||||||
Identifiable assets |
98,783 | 51,483 | 150,266 | |||||||||
Goodwill |
36,112 | 11,946 | 48,058 | |||||||||
Capital expenditures |
2,269 | 1,014 | 3,283 | |||||||||
Depreciation and amortization |
3,490 | 750 | 4,240 | |||||||||
Amortization of deferred bank financing fees |
5 | | 5 | |||||||||
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 |
36,111 | 11,385 | 47,496 | |||||||||
Capital expenditures |
5,836 | 417 | 6,253 | |||||||||
Depreciation and amortization |
120 | 3,320 | 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 |
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 |
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13. QUARTERLY DATA (Unaudited)
Summarized quarterly financial data for 2010 and 2009 is as follows (in thousands except per share amounts and business days): |
Quarter Ended | ||||||||||||||||
October 31, | January 31, | April 30, | July 31, | |||||||||||||
2010 |
||||||||||||||||
Sales |
$ | 99,447 | $ | 98,436 | $ | 104,041 | $ | 104,524 | ||||||||
Operating income |
4,640 | 3,405 | (3) | 4,135 | 4,146 | |||||||||||
Net income |
3,026 | 2,215 | 2,624 | 2,789 | ||||||||||||
Net income per share: |
||||||||||||||||
Basic |
0.31 | 0.23 | 0.27 | 0.29 | ||||||||||||
Assuming dilution |
0.31 | 0.23 | 0.27 | 0.29 | ||||||||||||
Average shares outstanding |
9,725 | 9,732 | 9,734 | 9,753 | ||||||||||||
Number of business days |
63 | 61 | 64 | 63 | ||||||||||||
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 | ||||||||||||
(1) | Includes one-time special payment to former CEO of $1.5 million. | |
(2) | Includes a restructuring charge of $1.1 million. | |
(3) | Includes a restructuring charge of $0.3 million. |
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INDEX TO EXHIBITS
Exhibit | ||
Number | Description | |
3.1(2)
|
| Restated Certificate of Incorporation of Dynamex Inc. |
3.2(1)
|
| Bylaws, as amended, of Dynamex Inc. |
10.1(4)
|
| Dynamex Inc. Employment Agreement dated November 1, 2008 to James L. Welch. |
10.1(13)
|
| Dynamex Inc. Employment Agreement dated May 13, 2010 to Maynard F. Sharka |
10.3(11)
|
| Dynamex Inc. 2008 Equity Compensation Plan |
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. |
11.1
|
| Statement regarding computation of earnings (loss) per share. All information required by Exhibit 11.1 is presented in Note 2 of the Companys Consolidated Financial Statements in accordance with the provisions of SFAS No. 128 |
21.1(8)
|
| Subsidiaries of the Registrant. |
23.1(1)
|
| Consent of BDO USA, LLP. |
31.1(1)
|
| Certification of Chief Executive Officer of the Registrant, pursuant to 17 CFR 240.13a 14(a) Or 17 CFR 240.15d 14(a) |
31.2(1)
|
| Certification of Chief Financial Officer of the Registrant, pursuant to 17 CFR 240.13a 14(a) Or 17 CFR 240.15d 14(a) |
32.1(1)
|
| Certification of Chief Executive Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2(1)
|
| Certification of Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(1) | Filed herewith. | |
(2) | Filed as an exhibit to the registrants Registration Statement on Form S-1 (File No. 333-05293), and incorporated herein by reference. | |
(3) | Filed as an exhibit to the registrants annual report on Form 10-K for the fiscal year ended July 31, 1997, and incorporated herein by reference. |
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Table of Contents
(4) | Filed as an exhibit to the registrants quarterly report on Form 10-Q for the quarterly period ended October 31, 2008, and incorporated herein by reference. | |
(5) | Filed as an exhibit to the registrants quarterly report on Form 10-Q for the quarterly period ended April 30, 2004, and incorporated herein by reference. | |
(6) | Filed as an exhibit to the registrants quarterly report on Form 10-Q for the quarterly period ended April 30, 2005, and incorporated herein by reference. | |
(7) | Filed as an exhibit to the registrants quarterly report on Form 10-Q for the quarterly period ended January 31, 2006, and incorporated herein by reference. | |
(8) | Filed as an exhibit to the registrants annual report on Form 10-K for the fiscal year ended July 31, 2006, and incorporated herein by reference. | |
(9) | Filed as an exhibit to the registrants quarterly report on Form 10-Q for the quarterly period ended October 31, 2006, and incorporated herein by reference. | |
(10) | Filed as an exhibit to the registrants annual report on Form 10-K for the fiscal year ended July 31, 2007, and incorporated herein by reference. | |
(11) | Filed as an exhibit to the registrants annual report on Form 10-K for the fiscal year ended July 31, 2008, and incorporated herein by reference. | |
(12) | Filed as an exhibit to the registrants quarterly report on Form 10-Q for the quarterly period ended January 31, 2009, and incorporated herein by reference. | |
(13) | Filed on Form 8-K May 19, 2010, and incorporated herein by reference. |
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