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EX-32.2 - EX-32.2 - DYNAMEX INC | d78171exv32w2.htm |
EX-31.2 - EX-31.2 - DYNAMEX INC | d78171exv31w2.htm |
EX-32.1 - EX-32.1 - DYNAMEX INC | d78171exv32w1.htm |
EX-31.1 - EX-31.1 - DYNAMEX INC | d78171exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 31, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-21057
DYNAMEX INC.
(Exact name of registrant as specified in its charter)
Delaware (State of incorporation) |
86-0712225 (I.R.S. Employer Identification No.) |
|
5429 LBJ Freeway, Suite 1000, Dallas, Texas (Address of principal executive offices) |
75240 (Zip Code) |
Registrants telephone number, including area code:
(214) 560-9000
(214) 560-9000
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, an non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Small reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares of the registrants common stock, $.01 par value, outstanding as of
November 30, 2010 was 9,755,883 shares.
DYNAMEX INC.
INDEX
Page | ||||||||
PART I |
||||||||
FINANCIAL INFORMATION |
||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
10 | ||||||||
15 | ||||||||
15 | ||||||||
PART II |
||||||||
OTHER INFORMATION |
||||||||
16 | ||||||||
17 | ||||||||
18 | ||||||||
E-1 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
1
Table of Contents
PART I
FINANCIAL INFORMATION
FINANCIAL INFORMATION
Item 1. Financial Statements
DYNAMEX INC.
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(in thousands, except per share data)
October 31, | July 31, | |||||||
2010 | 2010 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
CURRENT |
||||||||
Cash and cash equivalents |
$ | 24,326 | $ | 26,318 | ||||
Accounts receivable (net of allowance for doubtful accounts
of $1,169 and $1,048, respectively) |
54,168 | 47,455 | ||||||
Income taxes receivable |
2,799 | 4,062 | ||||||
Prepaid and other current assets |
3,929 | 4,032 | ||||||
Deferred income taxes |
4,029 | 4,029 | ||||||
Total current assets |
89,251 | 85,896 | ||||||
PROPERTY AND EQUIPMENT (net of accumulated
depreciation of $33,708 and $32,780, respectively) |
11,332 | 11,138 | ||||||
GOODWILL |
50,711 | 48,058 | ||||||
INTANGIBLES net |
2,557 | 2,091 | ||||||
OTHER |
2,515 | 3,083 | ||||||
Total assets |
$ | 156,366 | $ | 150,266 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Accounts payable trade |
$ | 10,493 | $ | 8,248 | ||||
Independent contractor owner operator settlements |
8,821 | 7,706 | ||||||
Accrued salaries and employee benefits |
6,236 | 6,016 | ||||||
Self-insured accruals |
2,180 | 1,979 | ||||||
Other accrued liabilities |
9,183 | 8,876 | ||||||
Short-term debt revolver |
500 | | ||||||
Total current liabilities |
37,413 | 32,825 | ||||||
LONG-TERM DEBT |
| | ||||||
LEASES DEFERRED CREDITS |
2,277 | 2,369 | ||||||
DEFERRED INCOME TAX PAYABLE |
4,528 | 4,523 | ||||||
OTHER LONG-TERM LIABILITIES |
417 | 784 | ||||||
Total liabilities |
44,635 | 40,501 | ||||||
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;
9,756 and 9,753 outstanding, respectively |
97 | 97 | ||||||
Additional paid-in capital |
38,124 | 37,876 | ||||||
Retained earnings |
67,699 | 66,310 | ||||||
Accumulated other comprehensive income |
||||||||
Cumulative translation adjustment |
5,811 | 5,482 | ||||||
Total stockholders equity |
111,731 | 109,765 | ||||||
Total liabilities and stockholders equity |
$ | 156,366 | $ | 150,266 | ||||
See accompanying notes to the condensed consolidated financial statements.
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DYNAMEX INC.
Condensed Statements of Consolidated Operations
(in thousands except per share data)
(Unaudited)
(in thousands except per share data)
(Unaudited)
Three months ended | ||||||||
October 31, | ||||||||
2010 | 2009 | |||||||
Sales |
$ | 110,618 | $ | 99,447 | ||||
Operating expenses: |
||||||||
Purchased transportation |
72,717 | 63,450 | ||||||
Salaries and employee benefits |
20,436 | 19,850 | ||||||
Facilities and communication |
4,959 | 4,720 | ||||||
Other |
6,626 | 5,725 | ||||||
Depreciation and amortization |
1,087 | 1,062 | ||||||
Merger related cost |
1,811 | | ||||||
Total operating expenses |
107,636 | 94,807 | ||||||
Operating income |
2,982 | 4,640 | ||||||
Interest expense |
43 | 48 | ||||||
Other income, net |
(19 | ) | (12 | ) | ||||
Income before income taxes |
2,958 | 4,604 | ||||||
Income taxes |
1,569 | 1,578 | ||||||
Net income |
$ | 1,389 | $ | 3,026 | ||||
Basic earnings per common share |
$ | 0.14 | $ | 0.31 | ||||
Diluted earnings per common share |
$ | 0.14 | $ | 0.31 | ||||
Weighted average shares: |
||||||||
Common shares outstanding |
9,754 | 9,725 | ||||||
Adjusted common shares assuming
exercise of stock options |
9,769 | 9,748 |
See accompanying notes to the condensed consolidated financial statements.
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DYNAMEX INC.
Condensed Statements of Consolidated Cash Flows
(in thousands)
(Unaudited)
(in thousands)
(Unaudited)
Three months ended | ||||||||
October 31, | ||||||||
2010 | 2009 | |||||||
OPERATING ACTIVITIES |
||||||||
Net income |
$ | 1,389 | $ | 3,026 | ||||
Adjustments to reconcile net income to net cash provided
by operating activities: |
||||||||
Depreciation and amortization |
1,087 | 1,062 | ||||||
Amortization of deferred bank financing fees |
| 4 | ||||||
Provision for doubtful accounts |
143 | 212 | ||||||
Stock option compensation |
209 | 340 | ||||||
Deferred income taxes |
| 171 | ||||||
Non-cash (decrease) / increase in rent expense |
14 | (1 | ) | |||||
Gain on disposal of property and equipment |
| (5 | ) | |||||
Changes in current operating assets and liabilities net of the
effects from business acquisitions |
||||||||
Accounts receivable |
(6,594 | ) | (8,083 | ) | ||||
Prepaids and other current assets |
1,370 | 1,971 | ||||||
Accounts payable and accrued liabilities |
3,572 | 2,390 | ||||||
Net cash provided by operating activities |
1,190 | 1,087 | ||||||
INVESTING ACTIVITIES |
||||||||
Purchase of property and equipment |
(761 | ) | (511 | ) | ||||
Acquisitions |
(3,720 | ) | (86 | ) | ||||
Withdrawal / (purchase) of investments |
405 | (14 | ) | |||||
Net cash used in investing activities |
(4,076 | ) | (611 | ) | ||||
FINANCING ACTIVITIES |
||||||||
Borrowings on short-term debt revolver |
3,000 | | ||||||
Payments on short-term debt revolver |
(2,500 | ) | | |||||
Proceeds from stock option exercise |
39 | 71 | ||||||
Other assets and deferred financing fees |
241 | (291 | ) | |||||
Net cash provided by (used in) financing activities |
780 | (220 | ) | |||||
EFFECT OF EXCHANGE RATES ON CASH |
114 | (259 | ) | |||||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
(1,992 | ) | (3 | ) | ||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
26,318 | 11,016 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 24,326 | $ | 11,013 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
||||||||
Cash paid for interest |
$ | 38 | $ | 5 | ||||
Cash paid for taxes |
$ | 330 | $ | 581 | ||||
See accompanying notes to the consolidated financial statements.
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DYNAMEX INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Summary of Significant Accounting Policies
Description of business Dynamex Inc. and its 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/distribution and fleet outsourcing
and facilities management.
Basis of presentation The consolidated financial statements include the accounts of Dynamex Inc.
and its wholly-owned subsidiaries. All significant inter-company accounts and transactions have
been eliminated. All dollar amounts in the financial statements and notes to the financial
statements, except per share data, are stated in thousands of dollars unless otherwise indicated.
Except as otherwise indicated, references to years mean our fiscal year ending July 31, 2010 or
ended July 31 of the year referenced, and comparisons are to the corresponding period of the prior
year.
The accompanying interim financial statements are unaudited. Certain information and disclosures
normally included in financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted, although the Company believes the disclosures included
herein are adequate to make the information presented not misleading. The results of the interim
periods presented are not necessarily indicative of results to be expected for the full fiscal
year, and should be read in conjunction with the Companys audited financial statements for the
fiscal year ended July 31, 2010.
The accompanying interim financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the Companys financial position at
October 31, 2010, the results of its operations for the three month periods ended October 31, 2010
and 2009, and cash flows for the three-month periods ended October 31, 2010 and 2009. The tax
provisions for the three month periods ended October 31, 2010 and 2009 are based upon managements
estimates of the Companys annualized effective tax rate.
Business and credit concentrations Financial instruments that potentially subject the Company to
concentrations of credit risk consists principally of temporary cash investments and trade
receivables.
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 three months ended October 31, 2010 and 2009, sales to Office Depot, Inc. represented
approximately 11.0% and 12.7%, respectively, of the Companys revenue. Sales to the Companys five
largest customers, including Office Depot, represented approximately 21.6% and 23.1% of the
Companys consolidated sales for the three months ended October 31, 2010 and 2009, respectively.
A significant portion of the Companys revenues are generated in Canada. For the three month
period ended October 31, 2010, Canadian revenues accounted for approximately 37.7% of total
consolidated revenue, compared to 36.6% for the same period in 2009. The exchange rate between the
Canadian dollar and the U.S. dollar increased 4.2% in the three month period ended October 31, 2010
compared to the corresponding period in the prior year. If the exchange rate had been the same as
in the prior period, Canadian sales for the three month period ended October 31, 2010 would have
accounted for 36.8% of total consolidated sales.
Office Depot represented approximately 16.1% and 15.7% of the net accounts receivable at October
31, 2010 and July 31, 2010, 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.
Other assets Recoverable contract contingency costs - The Company has recorded as an Other Asset
certain costs related to contractually reimbursable contingency costs incurred in connection with
the launch of certain contracts in accordance with Accounting Standards Codification, (ASC)
340-10-05-6, Preproduction Costs Related to Long-Term Supply Arrangements. These costs will be
recovered during the initial contract term, from a designated portion of the unit price specified
in the contract. Should the contract be cancelled for any reason, the customer is
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DYNAMEX INC.
obligated to reimburse the Company for any unamortized balance. Total net recoverable contract
contingency costs capitalized at October 31, 2010 amount to $250 compared to $340 at July 31, 2010.
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 as a reduction of rent expense. The Company records rental expense on a
straight-line basis over the term of the lease when a lease has rent escalation clauses.
Certain reclassifications have been made to conform prior period data to the current presentation.
2. Comprehensive Income
The three components of comprehensive income are net income, foreign currency translation gains
(losses) and unrealized gains (losses) on investments. Investments consist of payroll withholdings
from participants in the Companys deferred compensation plan that are invested in funds designated
by the individual participants. Comprehensive income for the three months ended October 31, 2010
and 2009 was as follows:
Three months ended | ||||||||
October 30, | ||||||||
2010 | 2009 | |||||||
Net income |
$ | 1,389 | $ | 3,026 | ||||
Unrealized losses on investments |
| (3 | ) | |||||
Foreign currency translation gains / (losses) |
329 | (123 | ) | |||||
Comprehensive income |
$ | 1,718 | $ | 2,900 | ||||
3. Intangibles net
At October 31, 2010, intangibles and related amortization expense for the three months ended
October 31, 2010 and 2009 consisted of the following:
Accumulated | ||||||||||||
Asset | Amortization | Net | ||||||||||
Deferred bank financing fees |
$ | 138 | $ | (135 | ) | $ | 3 | |||||
Customer lists |
3,252 | (1,007 | ) | 2,245 | ||||||||
Trademarks and other |
537 | (228 | ) | 309 | ||||||||
Total |
$ | 3,927 | $ | (1,370 | ) | $ | 2,557 | |||||
Amortization Expense | ||||||||
Three months ended October 30, | ||||||||
2010 | 2009 | |||||||
Deferred bank financing fees |
$ | | $ | 4 | ||||
Customer lists |
201 | 97 | ||||||
Trademarks and other |
7 | 5 | ||||||
Total |
$ | 208 | $ | 106 | ||||
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DYNAMEX INC.
4. Computation of Earnings Per Share
The following is a reconciliation of the numerators and denominators of the basic and diluted
earnings per share computation as required by ASC 260-10-05, Earnings Per Share. Common stock
equivalents related to stock options are excluded from diluted earnings per share calculations if
their effect would be anti-dilutive to earnings per share.
Three months ended | ||||||||
April 30, | ||||||||
2010 | 2009 | |||||||
Net income |
$ | 1,389 | $ | 3,026 | ||||
Weighted average common shares outstanding |
9,754 | 9,725 | ||||||
Common share equivalents related to options |
15 | 23 | ||||||
Common shares and common share equivalents |
9,769 | 9,748 | ||||||
Net income per common share: |
||||||||
Basic |
$ | 0.14 | $ | 0.31 | ||||
Diluted |
$ | 0.14 | $ | 0.31 | ||||
5. 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 is vigorously
contesting 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 was notified that the amount of personal income tax assessed by the Notice of
Assessment was 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 EDD has 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 for Class Certification. 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 was
requested from approximately 120 of the individuals returning the questionnaires with a due date of
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DYNAMEX INC.
August 12, 2010. A further certification hearing was held on October 25, 2010, during which the
Court considered Motions for clarification from each Party. The Court denied both Motions, ruling
that insufficient meet and confer practice had occurred between the Parties. A tentative trial
date has been set for April 4, 2011.
The Company believes that its independent contractors are properly classified as independent
contractors is vigorously defending this litigation. Given the nature and preliminary status of
the claims, however, the Company cannot yet determine the amount or a reasonable range of potential
loss in these matters, if any.
The Company is 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 is vigorously contesting 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.
On October 19, 2010, a putative class action complaint was commenced against us, our directors,
DashNow Holding Corp., and affiliate of Greenbriar Equity Group LLC (Greenbriar), and DashNow
Acquisition Corp., an affiliate of Greenbriar, in the District Court of Dallas County, Texas. In
this action, styled Kaner v. Welch et al., No. 10-13845 (298th Judicial District Court), the
plaintiff purports to bring the action on behalf of the public stockholders of the Company, and
seeks, among other things, equitable relief, to enjoin the consummation of the merger, and awarding
the plaintiff fees and costs. The plaintiff alleges in the complaint that our directors breached
their fiduciary duties by, among other things, failing to engage in an honest and fair sale
process. The complaint further alleges that the Company, DashNow Holding Corp. and DashNow
Acquisition Corp. aided and abetted the directors purported breaches. The Company believes that
the claims asserted in the Kaner action are without merit.
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.
6. Income Taxes
Income tax expense was $1,569, 53.0% of income before taxes in the current year quarter, compared
to $1,578, 34.3% of income before taxes in the prior year. The effective tax rate in the current
year quarter was impacted by merger related costs of $1,811 that are expensed for financial
accounting purposes but not currently deductible for federal income tax purposes as these costs are
required to be added to the tax basis of the new merged Company. The prior quarter benefited from a
reduction in the Canadian federal income tax rate and a $0.1 million reduction in deferred tax
liabilities associated with the reduced tax rate. Excluding merger related costs, the Companys
current annual effective income tax rate in the U.S. is approximately 41.5% and 29.0% in Canada.
The Company has not provided for U.S. federal and foreign withholding taxes on the foreign
subsidiaries undistributed earnings as of October 31, 2010. Such earnings are intended to be
reinvested indefinitely. The Company adopted FIN 48 on August 1, 2007. The adoption of the FIN 48
provision did not have a material effect on the Companys financial position, results of operations
or cash flows.
7. Restructuring Accrual
During the quarter ended July 31, 2009, the Company announced the closure of the Canadian
administrative office in Toronto, Canada, the consolidation of all finance and accounting functions
into the Dallas corporate office and the elimination of the position of President U.S. operations.
The Company recorded an additional restructuring expense of $282 during the second quarter ended
January 31, 2010 primarily related to the remaining lease obligation of the Toronto, Canada
administration office upon the cease use date of the facility. See the chart below for a summary
of the restructuring expense and accrual as of October 31, 2010.
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Balance at | Balance at | |||||||||||||||||||
Restructuring | July 31, 2010 | Expense | Payment | Other (1) | October 31, 2010 | |||||||||||||||
Severance and stay bonuses |
$ | 137 | $ | | $ | (70 | ) | $ | | $ | 67 | |||||||||
Benefits and employer taxes |
| | | | | |||||||||||||||
Travel and other |
(3 | ) | | | | (3 | ) | |||||||||||||
Terminating a lease |
64 | | (63 | ) | (1 | ) | | |||||||||||||
Total restructuring |
$ | 198 | $ | | $ | (133 | ) | $ | (1 | ) | $ | 64 | ||||||||
(1) | Represents difference in end of period and for the period foreign exchange rates. |
8. Significant Events
On October 1, 2010, the Company entered into an Agreement and Plan of Merger, by and among DashNow
Holding Corp., DashNow Acquisition Corp. and the Company, as amended by Amendment No. 1 dated
November 30, 2010 (which agreement, as it may be further amended from time to time, being referred
to herein as the merger agreement), providing for the acquisition of the Company by DashNow Holding
Corp., an affiliate of Greenbriar Equity Group LLC. At a special meeting, stockholders will be
asked to consider and vote upon a proposal to adopt the merger agreement. If the merger
contemplated by the merger agreement is completed, stockholders will be entitled to receive $24.00
in cash, without interest, less any applicable withholding taxes, for each share of the Companys
common stock owned by stockholders (unless a stockholder has properly exercised appraisal rights
with respect to their shares).
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DYNAMEX INC.
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations
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 three month period
ended October 31, 2010, Canadian sales accounted for approximately 37.7% of total consolidated
sales, compared to 36.6% for the same period in 2009. The exchange rate between the Canadian
dollar and the U.S. dollar increased 4.2% in the three month period ended October 31, 2010 compared
to the corresponding period in the prior year. If the exchange rate had been the same as in the
prior period, Canadian sales for the three month period ended October 31, 2010 would have accounted
for 36.8% of total consolidated sales.
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 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
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 three months ended October 31, 2010 and 2009, sales to Office Depot, Inc. represented
approximately 11.0% and 12.7%, respectively, of the Companys consolidated sales. Sales to the
Companys five largest customers, including Office Depot, represented approximately 21.6% and 23.1%
of the Companys consolidated sales for the three months ended October 31, 2010 and 2009,
respectively.
Critical Accounting Policies
The Companys discussion and analysis of its financial condition and results of operations are
based on the Companys financial statements, which have been prepared in accordance with accounting
policies generally accepted in the United States of America. The Companys critical accounting
policies are set forth in the Companys Form 10-K for the year ended July 31, 2010. As of, and for
the three month period ended October 31, 2010, there have been no material changes or updates to
the Companys critical accounting policies.
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DYNAMEX INC.
Results of Operations
The following table sets forth for the periods indicated, certain items from the Companys
condensed statements of consolidated operations, expressed as a percentage of sales:
Three months ended | ||||||||
October 31, | ||||||||
2010 | 2009 | |||||||
Sales |
100.0 | % | 100.0 | % | ||||
Operating expenses: |
||||||||
Purchased transportation |
65.7 | % | 63.8 | % | ||||
Salaries and employee benefits |
18.5 | % | 20.0 | % | ||||
Facilities and communication |
4.5 | % | 4.7 | % | ||||
Other |
6.0 | % | 5.7 | % | ||||
Depreciation and amortization |
1.0 | % | 1.1 | % | ||||
Merger related cost |
1.6 | % | 0.0 | % | ||||
Total operating expenses |
97.3 | % | 95.3 | % | ||||
Operating income |
2.7 | % | 4.7 | % | ||||
Interest expense |
0.0 | % | 0.1 | % | ||||
Other income, net |
0.0 | % | 0.0 | % | ||||
Income before income taxes |
2.7 | % | 4.6 | % | ||||
Income taxes |
1.4 | % | 1.6 | % | ||||
Net income |
1.3 | % | 3.0 | % | ||||
The following tables sets forth for the periods indicated, the Companys sales accumulated by
service type and country:
Three months ended | ||||||||||||||||
October 30, | ||||||||||||||||
(amounts in thousands) | ||||||||||||||||
2010 | 2009 | |||||||||||||||
Sales by service type: |
||||||||||||||||
On demand |
$ | 34,145 | 30.9 | % | $ | 31,430 | 31.6 | % | ||||||||
Scheduled/distribution |
76,473 | 69.1 | % | 68,017 | 68.4 | % | ||||||||||
Total sales |
$ | 110,618 | 100.0 | % | $ | 99,447 | 100.0 | % | ||||||||
Sales by country: |
||||||||||||||||
United States |
$ | 68,862 | 62.3 | % | $ | 63,020 | 63.4 | % | ||||||||
Canada |
41,756 | 37.7 | % | 36,427 | 36.6 | % | ||||||||||
Total sales |
$ | 110,618 | 100.0 | % | $ | 99,447 | 100.0 | % | ||||||||
Three months ended October 31, 2010 compared to three months ended October 31, 2009
Net income for the three months ended October 31, 2010 was $1.4 million ($0.14 per fully diluted
share) compared to $3.0 million ($0.31 per fully diluted share) for the three months ended October
31, 2009. The three months ended October 31, 2010 results include a merger related charge of $1.8
million pre-tax, $1.7 million after tax ($0.17 per fully diluted share). Merger related costs are
expensed for financial accounting purposes but not currently deductible
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DYNAMEX INC.
for federal income tax
purposes as these costs are required to be added to the tax basis of the new merged Company. On
October 1, 2010, the Company entered into an Agreement and Plan
of Merger, dated as of October 1, 2010, by and among DashNow
Holding Corp., DashNow Acquisition Corp. and the Company, as amended
by the Amendment No. 1 dated
November 30, 2010
(which agreement, as it may be further amended from time to time, being referred to herein as the
merger agreement), providing for the acquisition of the Company by DashNow Holding Corp., an
affiliate of Greenbriar Equity Group LLC. At a special meeting, stockholders will be asked to
consider and vote upon a proposal to adopt the merger agreement. If the merger contemplated by the
merger agreement is completed, stockholders will be entitled to receive $24.00 in cash, without
interest, less any applicable withholding taxes, for each share of the Companys common stock owned
by stockholders (unless a stockholder has properly exercised appraisal rights with respect to their
shares) .
Sales were $110.6 million this quarter, representing an 11.2% year-over-year increase due
principally to the stronger Canadian dollar, higher fuel surcharges, and higher core sales. The
stronger Canadian dollar increased sales approximately $1.7 million, fuel surcharges increased
approximately $1.3 million and core sales were $8.1 million higher compared to the same quarter
last year. The increase in core sales (sales excluding changes in fuel surcharge and foreign
exchange), was 8.2% (or 8.6% per day). Core sales-per-day this quarter increased 9.1% in Canada and
increased 8.3% in the U.S., compared to last year. The sales increase was attributable to an
increase in market share and growth with certain existing customers.
Purchased transportation for the three months ended October 31, 2010 increased 14.6%, to $72.7
million from $63.5 million for the same period in the prior year. Purchased transportation, as a
percentage of sales was 65.7% for the three months ended October 31, 2010, compared to 63.8% for
the three months ended October 31, 2009. The increase in purchased transportation, as a percentage
of sales, is due principally to a more competitive pricing environment and certain start-up costs
for new business.
Salaries and employee benefits for the three months ended October 31, 2010 increased 2.9%, to $20.4
million from $19.9 million for the same period in the prior year. $0.2 million of the increase is
attributable to the increase in the Canadian dollar exchange rate. On a constant dollar basis,
salaries and employee benefit costs increased $0.3 million or 1.6%. The increase related to higher
medical and dental costs and higher severance. Salaries and employee benefits were 18.5% of sales
for the three months ended October 31, 2010, compared to 20.0% for the three months ended October
31, 2009.
Facilities and communication expense for the three months ended October 31, 2010 increased 5.1%, to
$5.0 million from $4.7 million for the same period in the prior year due to certain markets moving
to new facilities which have increased operating capacity and efficiencies. As a percentage of
sales, facilities and communication expense decreased to 4.5% for the three months ended October
31, 2010, compared to 4.7% for the three months ended October 31, 2009.
Other expenses for the three months ended October 31, 2010 increased 15.7% from the same period in
the prior year to $6.6 million. The increase is primarily due to $0.5 million of contract labor
related directly to the increase in sales and $0.5 million for higher claims and legal settlements.
Other expenses, as a percentage of sales, were 6.0% for the three months ended October 31, 2010,
compared to 5.7% for the three months ended October 31, 2009.
For the three months ended October 31, 2010 and 2009, depreciation and amortization was $1.1
million. As a percent of sales, depreciation and amortization was 1.0%, compared to 1.1% in the
prior year period.
Interest expense is predominately comprised of letter of credit fees and commitment fees for the
Companys line of credit. Interest expense was $43,000, a decrease of $5,000 or 10.4%, compared to
the same period in the prior year. Interest expense is principally attributable to the cost of
availability charges and standby letters of credit related to the revolving credit facility. The
decrease related to a reduction in the amount of standby letters of credit from the prior year.
Other income, net for the three months ended October 31, 2010, was $19,000, an increase of $7,000
or 58.3% compared to the same period in the prior year. The Company earns interest income on its
cash balances and the Companys cash balances at October 31, 2010 are $24.3 million, compared to
$11.0 million at October 31, 2009.
The effective income tax rate was 53.0% for the current quarter compared to 34.3% for the prior
year. The effective tax rate in the current year quarter was impacted by merger related costs of
$1,811 that are expensed for financial
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DYNAMEX INC.
accounting purposes but not currently deductible for federal
income tax purposes as these costs are required to be added to the tax basis of the new merged
Company. The prior year benefited from a reduction in the Canadian federal income tax rate and a
$0.1 million reduction in deferred tax liabilities associated with the reduced tax rate.
Excluding merger related costs, the Companys current annual effective income tax rate in the U.S.
is approximately 41.5% and 29.0% in Canada.
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 three months ended October 31, 2010 was
$1.2 million compared to the prior year period of $1.1 million. A $2.1 million improvement in cash
needed to fund current operating assets and liabilities was partially offset by a $1.6 million
decline in net income.
Net cash used in investing activities in the three months ended October 31, 2010 was $4.1 million,
compared to $0.6 million used during the prior year due. The increase is due to $3.7 million for
acquisitions. Partially offsetting this expenditure was the withdrawal of investments from the
Companys deferred compensation plan, which provided $0.4 million cash.
Our cash flow from operations has been our primary source of liquidity. The Company does not have
significant capital expenditure requirements to replace or expand the number of vehicles used in
its operations because substantially all of its drivers are independent contractors who provide
their own vehicles. The Company expects fiscal year 2011 capital expenditures for purchases of
property and equipment to range from $2.0 to $3.0 million.
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 October 31,
2010, there were $4.0 million standby letters of credit issued. During the three month period
ended October 31, 2010, the Company borrowed $3.0 million and repaid $2.5 million under the
revolving credit facility.
The revolving credit facility requires us to satisfy certain financial and other covenants,
including:
Level at October | ||||
Compliance Area | Covenant | 31, 2010 | ||
Ratio of funded debt to EBITDA
|
Maximum of 2.00 to 1.00 | 0.22 to 1.00 | ||
Total indebtedness
|
$40 million, including Standby Letters of Credit | $4.0 million | ||
Letters of credit sublimit
|
$10.0 million | $4.0 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 | 0.22 to 1.00 | ||
Fixed charge coverage ratio
|
Equal to or greater than 1.50 to 1.00 | 10.91 to 1.00 |
The Companys EBITDA (earnings before interest expense, taxes, depreciation and amortization) was
approximately $4.1 million (3.7% of sales) for the three months ended October 31, 2010, compared to
$5.7 million (5.7% of sales) in the same period last year. The three months ended October 31, 2010
results include a merger related charge of $1.8 million (1.6% of sales). EBITDA and EBITDA margin
(percentage of EBITDA to sales) are presented because management believes that it is a widely
accepted and useful financial indicator regarding our results of operations. The Company believes
EBITDA assists in analyzing and benchmarking the performance and value of our business. Although
the Company uses EBITDA as a financial measure to assess the performance of our business compared
to that of others in our industry, the use of EBITDA is limited because it does not include certain
costs that are material in amount, such as interest expense, taxes, depreciation and amortization,
necessary to operate our business. EBITDA is not a recognized term under generally accepted
accounting principles and, when analyzing our operating performance, investors should use EBITDA in
addition to, not as an alternative for, operating income, net income and cash flows from operating
activities. The following table reconciles net income presented in accordance with generally
accepted accounting principles (GAAP) to EBITDA, which is a non-GAAP financial measure:
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DYNAMEX INC.
Three months ended | ||||||||
October 31, | ||||||||
(amounts in thousands) | ||||||||
2010 | 2009 | |||||||
Net income |
$ | 1,389 | $ | 3,026 | ||||
Adjustments: |
||||||||
Income tax expense |
1,569 | 1,578 | ||||||
Interest expense |
43 | 48 | ||||||
Depreciation and amortization |
1,087 | 1,062 | ||||||
EBITDA |
4,088 | 5,714 | ||||||
EBITDA % to Sales |
3.7 | % | 5.7 | % |
The Company expects internally generated cash flow and temporary borrowings from its bank credit
facility will be sufficient to fund its operations and capital requirements.
Inflation
The Company does not believe that inflation has had a material effect on the Companys results of
operations nor does it believe it will do so in the foreseeable future. However, there can be no
assurance the Companys business will not be affected by inflation in the future.
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DYNAMEX INC.
Item 3. Quantitative and Qualitative Disclosures 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 it may do so in the future.
The sensitivity analysis model used by the Company for foreign exchange exposure compares the
revenue and net income figures from Canadian operations, at the actual exchange rate, to a 10%
decrease in the exchange rate. Based on this model, a 10% decrease would result in a decrease in
quarterly revenue of approximately $4.2 million and a decrease in quarterly net income of
approximately $204,000 over this period. There can be no assurances that the above projected
exchange rate decrease will materialize. Fluctuations of exchange rates are beyond the control of
the Companys management.
Interest Rate Exposure
The sensitivity analysis model used by the Company for interest rate exposure compares interest
expense fluctuations over a one-year period based on current debt levels and current average
interest rates versus current debt levels at current average interest rates with a 10% increase.
Based on this model, a 10% increase would result in no material increase in interest expense.
There can be no assurances that the above projected interest rate increase will materialize.
Fluctuations of interest rates are beyond the control of the Companys management.
Item 4. Controls 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 Rules 13a -
15(e) and 15d 15(e) under the Securities Exchange Act of 1934) as of October 31, 2010 (the end of
the period covered by this Quarterly Report on Form 10-Q). Based upon the evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the design and operation of these
disclosure controls and procedures were effective.
There were no significant changes in the 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.
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DYNAMEX INC.
PART II
OTHER INFORMATION
OTHER INFORMATION
Item 1. Legal Proceedings
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 was requested from
approximately 120 of the individuals returning the questionnaires with a due date of August 12,
2010. A further certification hearing was held on October 25, 2010, during which the Court
considered Motions for clarification from each Party. The Court denied both Motions, ruling that
insufficient meet and confer practice had occurred between the Parties. A tentative trial date
has been set for April 4, 2011.
On October 19, 2010, a putative class action complaint was commenced against us, our directors,
DashNow Holding Corp., and affiliate of Greenbriar Equity Group LLC (Greenbriar), and DashNow
Acquisition Corp., an affiliate of Greenbriar, in the District Court of Dallas County, Texas. In
this action, styled Kaner v. Welch et al., No. 10-13845 (298th Judicial District Court), the
plaintiff purports to bring the action on behalf of the public stockholders of the Company, and
seeks, among other things, equitable relief, to enjoin the consummation of the merger, and awarding
the plaintiff fees and costs. The plaintiff alleges in the complaint that our directors breached
their fiduciary duties by, among other things, failing to engage in an honest and fair sale
process. The complaint further alleges that the Company, DashNow Holding Corp. and DashNow
Acquisition Corp. aided and abetted the directors purported breaches. The Company believes that
the claims asserted in the Kaner action are without merit.
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DYNAMEX INC.
Item 6. Exhibits
Exhibits:
10.1 | Agreement and Plan of Merger, dated as of October 1, 2010, by and among Dynamex Inc., DashNow Holding Corp., and DashNow Acquisition Corp. (filed as Exhibit 2.1 to the Companys Current Report on Form 8-K filed on October 1, 2010 and incorporated herein by reference). | ||
31.1 | Certification of Chief Executive Officer of the Registrant, pursuant to 17 CFR 240. 13a 15(e) or 17 CFR 240. 15d 15(e) | ||
31.2 | Certification of Chief Financial Officer of the Registrant, pursuant to 17 CFR 240. 13a 15(e) or 17 CFR 240. 15d 15(e) | ||
32.1 | Certification of Chief Executive Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
32.2 | Certification of Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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DYNAMEX INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
DYNAMEX INC. |
||||
Dated: December 2, 2010 | by | /s/ James L. Welch | ||
James L. Welch | ||||
President and Chief Executive Officer (Principal Executive Officer) |
||||
Dated: December 2, 2010 | by | /s/ Ray E. Schmitz | ||
Ray E. Schmitz | ||||
Executive Vice President Chief Financial Officer (Principal Financial Officer) |
||||
Dated: December 2, 2010 | by | /s/ Gilbert Jones | ||
Gilbert Jones | ||||
Vice President - Corporate Controller (Principal Accounting Officer) |
||||
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EXHIBIT INDEX
Exhibits
10.1 | Agreement and Plan of Merger, dated as of October 1, 2010, by and among Dynamex Inc., DashNow Holding Corp., and DashNow Acquisition Corp. (filed as Exhibit 2.1 to the Companys Current Report on Form 8-K filed on October 1, 2010 and incorporated herein by reference). | |
31.1 | Certification of Chief Executive Officer of the Registrant, pursuant to 17 CFR 240. 13a - 15(e) or 17 CFR 240. 15d 15(e) | |
31.2 | Certification of Chief Financial Officer of the Registrant, pursuant to 17 CFR 240. 13a - 15(e) or 17 CFR 240. 15d 15(e) | |
32.1 | Certification of Chief Executive Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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