e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the fiscal year ended July 31, 2005
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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)
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| Delaware
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86-0712225 |
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(I.R.S. Employer Identification No.) |
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| 1870 Crown Drive, Dallas, Texas
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75234 |
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(Zip Code) |
Registrant’s telephone number, including area code:
(214) 561-7500
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
None
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes þ No o
The aggregate market value of the voting stock held by non-affiliates of the registrant on
January 31, 2005 was approximately $208,283,100.
The number of shares of the registrant’s common stock, $.01 par value, outstanding as of
September 28, 2005 was 11,620,297 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the information required in Part III of the Form 10-K have been incorporated by
reference to the Registrant’s definitive Proxy Statement on Schedule 14-A to be filed with the
Commission.
PART I
Statements and information presented within this Annual Report on Form 10-K for Dynamex Inc.
(the “Company” and “Dynamex”) contain “forward-looking statements” within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can be
identified by the use of predictive, future tense or forward-looking terminology, such as
“believes”, “anticipates”, “expects”, “estimates”, “may”, “will” or similar terms. Forward-looking
statements also include projections of financial performance, statements regarding management’s
plans and objectives and statements concerning any assumptions relating to the foregoing. Certain
important factors which may cause actual results to vary materially from these forward-looking
statements accompany such statements and appear elsewhere in this report, including without
limitation, the factors disclosed under “Risk Factors.” All subsequent written or oral
forward-looking statements attributable to the Company or persons acting on its behalf are
expressly qualified by these factors.
ITEM 1. BUSINESS
General
Dynamex is a leading provider of same-day delivery and logistics services in the United States
and Canada. The Company was organized under the laws of Delaware in 1992 as Parcelway Systems
Holding Corp. and changed its name to Dynamex Inc. in 1995. Through its network of branch offices,
the Company provides same-day, on-demand, door-to-door delivery services utilizing its ground
couriers. For many of its inter-city deliveries, the Company uses third party air or motor
carriers in conjunction with its ground couriers to provide same-day service. In addition to
on-demand delivery services, the Company offers local and regional distribution services, which
encompass recurring, often daily, point-to-point deliveries or multiple destination deliveries that
often require intermediate handling. The Company also offers outsourcing services, fleet and
facilities management services. These services include designing and managing systems to maximize
efficiencies in transporting, sorting and delivering customers’ products on a local and multi-city
basis. With its fleet management service, the Company manages and may provide a fleet of dedicated
vehicles at single or multiple customer sites. The Company’s on-demand delivery capabilities are
available to supplement scheduled distribution arrangements or dedicated fleets as needed.
Facilities management services include the Company’s operation and management of a customer’s
mailroom and call center management.
Industry Overview
The delivery and logistics industry is large, highly fragmented and growing. The industry is
composed primarily of same-day, next-day and second-day service providers. The Company primarily
services the same-day, intra-city delivery market. The same-day delivery and logistics industry in
the United States and Canada primarily consists of several thousand small, independent businesses
serving local markets and a small number of multi-location regional or national operators.
Relative to smaller operators in the industry, the Company believes that national operators such as
the Company benefit from several competitive advantages including: national brand identity,
professional management, the ability to service accounts on a multi-market basis and centralized
administrative and management information systems.
Management believes that the same-day delivery segment of the transportation industry is
benefiting from several trends. For example, the trend toward outsourcing has resulted in numerous
shippers turning to third party providers for a range of services including same-day delivery and
management of in-house distribution. Many businesses that outsource their distribution
requirements prefer to purchase such services from one source that can service multiple cities,
thereby decreasing the number of vendors from which they purchase services. Additionally, the
growth of “just-in-time” inventory practices designed to reduce inventory-carrying costs has
increased the demand for the same-day delivery of such inventory. Technological developments such
as e-mail and facsimile have increased the pace of business and other transactions, thereby
increasing demand for the same-day delivery of a wide array of items, ranging from voluminous
documents to critical manufacturing parts and medical devices. Consequently, there has been
increased demand for the same-day transportation of items that are not suitable for fax or
electronic transmission, but for which there is an immediate need.
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Business Strategy
The Company intends to expand its operations in the U.S. and Canada to capitalize on the
demand of local, regional and national businesses for innovative same-day transportation solutions.
The key elements of the Company’s business strategy are as follows:
Focus on Primary Services. The Company operates in one reportable business segment, same day
delivery services, with three primary service offerings: (i) same-day on-demand delivery services,
(ii) same-day local and regional distribution services and (iii) outsourcing services such as fleet
management and facilities management. The Company focuses its same-day on-demand delivery business
on transporting non-faxable, time sensitive items throughout metropolitan areas. By delivering
items of greater weight over longer distances and providing value added on-demand services such as
non-technical swap-out of failed equipment, the Company expects to raise the yield per delivery
relative to the yield generated by delivering documents within a central business district.
Additionally, the Company intends to capitalize on the market trend towards outsourcing
transportation requirements by concentrating its logistics services in same-day local and regional
distribution and fleet management. The delivery transactions in a fleet management and
distribution program are recurring in nature, thus creating the potential for long-term customer
relationships. Additionally, these value added services are generally less vulnerable to price
competition than traditional on-demand delivery services.
Target National and Regional Accounts. The Company’s national account managers focus on
pursuing and maintaining national and regional accounts. The Company anticipates that its (i)
existing multi-city network of locations combined with its network of service partners, (ii)
ability to offer value added services such as fleet management to complement its basic same-day
delivery services and (iii) experienced, operations oriented management team and sales force, will
create further opportunities with many of its existing customers and attract new national and
regional accounts.
Create Strategic Alliances. By forming alliances with strategic partners that offer services
that complement those of the Company, the Company and its partner can jointly market their
services, thereby accessing one another’s customer base and providing such customers with a broader
range of value added services. For example, the Company has formed an alliance with Purolator, the
largest Canadian overnight courier company, whereby on an exclusive basis the Company and Purolator
provide one another with certain delivery services and market one another’s delivery services to
their respective customers. See “— Sales and Marketing.”
Services
The Company capitalizes on its routing, dispatch and vehicle and personnel management
expertise developed in the ground courier business to provide its customers with a broad range of
value added, same-day distribution services. By creating innovative applications of its core
services, the Company intends to expand the market for its distribution services and increase the
yield per service provided.
Same-Day On-Demand Delivery. The Company provides same-day, intra-city on-demand delivery
services whereby Company messengers or drivers respond to a customer’s request for immediate
pick-up and delivery. The Company also provides same-day inter-city delivery services by utilizing
third-party air or motor carriers in conjunction with the Company’s ground couriers. The Company
focuses on the delivery of non-faxable, time sensitive items throughout major metropolitan areas
rather than traditional downtown document delivery. By delivering items of greater weight over
longer distances and providing value added services such as non-technical swap-out of failed
equipment, the Company expects to continue to raise the yield per delivery. For the fiscal years
ended July 31, 2005, 2004 and 2003, approximately 39%, 41%, and 48% respectively, of the Company’s
sales were generated from same-day on-demand delivery services.
Same-Day Local and Regional Distribution. The Company provides same-day scheduled local and
regional distribution services that include regularly scheduled deliveries made on a point-to-point
basis and deliveries that may require intermediate handling, routing or sorting of items to be
delivered to multiple locations. The Company’s on-demand delivery capabilities are available to
supplement scheduled services as needed. A bulk shipment may be received at the Company’s
warehouse where it is sub-divided into smaller bundles and sorted for delivery to specified
locations. Same-day scheduled distribution services are provided on both a local and multi-city
basis. For example, in the suburban Washington, D.C./Baltimore area, the Company provides
scheduled, as well as on-demand delivery services for a group of local hospitals and medical
laboratories, transferring samples between these
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facilities. In Ontario Canada, the Company services the scheduled distribution requirements
of a consortium of commercial banks. These banks require regular pick-up of non-negotiable
materials that are then delivered by the Company on an intra- and inter-city basis. For the fiscal
years ended July 31, 2005, 2004 and 2003, approximately 30%, 28%, and 24%, respectively, of the
Company’s sales were generated from same-day scheduled distribution services.
Outsourcing Services. The Company’s outsourcing services include fleet management and
mailroom or other facilities management, such as maintenance of call centers for inventory tracking
and delivery. With its 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 outsourcing service offerings can expand or contract depending on the customer’s
needs. Management believes that the outsourcing trend has resulted in many customers increasing
their use of third-party providers for a variety of delivery services.
The largest component of the Company’s outsourcing services is fleet management. With its
fleet management service, the Company provides transportation services primarily for customers that
previously managed such operations in-house. This service is generally provided with a fleet of
dedicated vehicles that can range from passenger cars to tractor-trailers (or any combination) and
may display the customer’s logo and colors. In addition, the Company’s on-demand delivery
capability may supplement the dedicated fleet as necessary, thereby allowing a smaller dedicated
fleet to be maintained than would otherwise be required. The Company’s fleet management services
include designing and managing systems to maximize efficiencies in transporting, sorting and
delivering customers’ products on a local and multi-city basis. Because the Company does not own
delivery vehicles, but instead contracts drivers who do, the Company’s fleet management solutions
are not limited by the Company’s need to utilize its own fleet.
By outsourcing their fleet management, the Company’s customers (i) utilize the Company’s
distribution and route optimization experience to deliver their products more efficiently, (ii)
gain the flexibility to expand or contract fleet size as necessary, and (iii) reduce the costs and
administrative burden associated with owning or leasing vehicles and hiring and managing
transportation employees. For example, the Company has configured and now manages a distribution
fleet for one of the largest distributors to drugstores in Canada. For the fiscal years ended July
31, 2005, 2004 and 2003, approximately 31%, 31% and 28%, respectively, of the Company’s sales were
generated from fleet management and other outsourcing services.
While the volume of individual services provided varies significantly between locations, each
of the Company’s branch offices generally offers the same core services. Factors that impact
business mix include customer base, competition, geographic characteristics, available labor and
general economic environment. The Company can bundle its various delivery and logistics services
to create customized distribution solutions and, by doing so, seeks to become the single source for
its customers’ distribution needs.
Operations
The Company’s operations are divided into regions, six U.S. and four Canadian, with each of
the Company’s approximately 46 branches assigned to the appropriate region. Branch operations are
locally managed with regional and national oversight and support provided as necessary. A branch
manager is assigned to each branch office and is accountable for all aspects of such branch
operations including its profitability. Each branch manager reports to a regional manager with
similar responsibilities for all branches within his region. Certain administrative and marketing
functions may be centralized for multiple branches in a given city or region. Dynamex believes
that the strong operational background of its senior management is important to building brand
identity throughout the United States while simultaneously overseeing and encouraging individual
managers to be successful in their local markets.
Same-Day On-Demand Delivery. Most branches have operations centers 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 Company’s clients have access to a web-based electronic data interface to enter dispatch
requirements, page specific drivers, make inquiries and receive billing information. A dispatcher
coordinates shipments for delivery within a specific time frame. Shipments are routed according to
the type and weight of the shipment, the geographic distance between the origin and destination,
and the time allotted for the delivery. Coordination and deployment of delivery personnel for
on-demand deliveries is accomplished
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either through communications systems linked to the Company’s computers, through pagers or by
two-way communication devices.
Same-Day Local and Regional Distribution. A dispatcher manages the delivery flow by
coordinating the scheduled deliveries with available drivers. In many cases, certain drivers will
handle a designated group of scheduled routes on a recurring basis. Any intermediate handling
required for a scheduled distribution is conducted at the Company’s warehouse or the customer’s
facility.
Outsourcing Services. The largest component of the Company’s outsourcing services is its
fleet management. Fleet management services are coordinated by the Company’s logistics specialists
who have experience in designing, implementing and managing integrated networks for transportation
services. Based upon the specialist’s analysis of a customer’s fleet and distribution
requirements, the Company develops a plan to optimize fleet configuration and route design. The
Company provides the vehicles and drivers necessary to implement the fleet management plan. Such
vehicles and drivers are generally dedicated to a particular customer and may display the
customer’s name and logo on its vehicles. The Company can supplement these dedicated vehicles and
drivers with its on-demand capability as necessary.
Prices for the Company’s services are determined at the local level based on the distance,
weight and time-sensitivity of a particular delivery. The Company generally enters into customer
contracts for local and regional distribution, and fleet and facilities management, which are
generally terminable by such customer upon notice generally ranging from 30 to 90 days. The
Company does not typically enter into contracts with its customers for on-demand delivery services.
Substantially all of the Dynamex drivers are owner-operators who provide their own vehicles,
pay all expenses of operating their vehicles and receive a percentage of the delivery charge as
compensation. Management believes that this creates a higher degree of responsiveness on the part
of its drivers as well as significantly lowering the capital required to operate the business as
well as reducing the Company’s fixed costs.
Sales and Marketing
The Company markets its services through a sales force comprised of national and local sales
representatives and telemarketers. The total sales force including management, strategic
relationships, business development and administrative support currently totals approximately 115.
The Company’s national sales force, comprised of approximately 19 persons, focus on regional and
national customers who can utilize services on a multi-market basis. Approximately 60 local
employee sales representatives target business opportunities from the branch offices, and
approximately 9 specialized sales representatives contact existing customers to assess customer
satisfaction and requirements. The Company’s sales force will seek to generate additional business
from existing local accounts, which often include large companies with multiple locations. The
expansion of the Company’s national sales program and continuing investment in technology to
support its expanding operations have been undertaken at a time when large companies are increasing
their demand for delivery providers who offer a range of delivery services at multiple locations.
The Company’s local sales representatives make regular calls on existing and potential
customers to identify such customers’ delivery and logistics needs. The Company’s national product
and industry specialists augment the local marketing efforts and seek new applications of the
Company’s primary services in an effort to expand the demand for such services. Customer service
representatives on the local and national levels regularly communicate with customers to monitor
the quality of services and to quickly respond to customer concerns. The Company maintains a
database of its customers’ service utilization patterns and satisfaction level. This database is
used to analyze opportunities and conduct performance audits.
Fostering strategic alliances with customers who offer services that complement those of the
Company is an important component of the Company’s marketing strategy. For example, under an
agreement with Purolator, the Company serves as Purolator’s exclusive provider of same-day courier
services, which services are then marketed by Purolator to its customers. The Company also
provides Purolator with local and inter-city, same-day ground courier service for misdirected
Purolator shipments. Purolator reports that it is the largest overnight courier in Canada.
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Customers
The Company’s target customer is a business that distributes time-sensitive, non-faxable items
to multiple locations. The primary industries served by the Company include financial services,
electronics, pharmaceuticals, retail, office products, medical laboratories and hospitals, auto
parts, legal services and Canadian governmental agencies. For the fiscal year ended July 31, 2005,
no single customer accounted for more than 10% of the Company’s annual sales. During the year
ended July 31, 2005, sales to Office Depot, Inc. represented approximately 9.9% of the Company’s
revenue. Management believes that sales to this customer may exceed 10% of consolidated sales
during the next fiscal year.
A significant number of the Company’s customers are located in Canada. For the fiscal years
ended July 31, 2005, 2004 and 2003, approximately 33%, 33% and 34% of the Company’s sales,
respectively, were generated in Canada. See Note 13 of Notes to the Consolidated Financial
Statements for additional information concerning the Company’s foreign operations.
Competition
The market for the Company’s same-day delivery and logistics services has been and is expected
to remain highly competitive. The Company believes that the principal competitive factors in the
markets in which it competes are reliability, quality, breadth of service and price.
Most of the Company’s competitors in the same-day intra-city delivery market are privately
held companies that operate in only one location, with no one competitor dominating the market.
Price competition for basic delivery services is particularly intense.
The market for the Company’s logistics services is also highly competitive, and can be
expected to become more competitive as additional companies seek to capitalize on the growth in the
industry. The Company’s principal competitors for such services are other delivery companies and
in-house transportation departments. The Company generally competes on the basis of its ability to
provide customized service regionally and nationally, which it believes is an important advantage
in this highly fragmented industry, and on the basis of price.
The Company’s principal competitors for drivers are other delivery companies within each
market area. Management believes that its method of driver compensation, which is based on a
percentage of the delivery charge, the large volume of available work and the use of proprietary
technology, are factors that are attractive to drivers and help the Company to recruit and retain
drivers.
Regulation
The Company’s business and operations are subject to various federal (U.S. and Canadian),
state, provincial and local regulations and, in many instances, require permits and licenses from
state authorities. The Company holds nationwide general commodities authority from the Federal
Highway Administration of the U.S. Department of Transportation to transport certain property as a
motor carrier on an inter-state basis within the contiguous 48 states. Where required, the Company
holds statewide general commodities authority. The Company holds permanent extra-provincial (and
where required, intra-provincial) operating authority in all Canadian provinces where the Company
does business.
In connection with the operation of certain motor vehicles, the handling of hazardous
materials in its courier operations and other safety matters, including insurance requirements, the
Company is subject to regulation by the U. S. Department of Transportation, the states and by the
appropriate Canadian federal and provincial regulations. The Company is also subject to regulation
by the Occupational Safety and Health Administration, provincial occupational health and safety
legislation and federal and provincial employment laws respecting such matters as hours of work,
driver logbooks and workers’ compensation. 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 Company’s operating permits.
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Safety
From time to time, the owner-operators performing services for the Company are involved in
accidents. The Company carries liability insurance with a per claim and an aggregate limit of $30 million.
Owner-operators are required to maintain liability insurance of at least the minimum amounts
required by applicable state and provincial law (generally such minimum requirements range from
$35,000 to $75,000). The Company also has insurance policies covering property and fiduciary trust
liability, which coverage includes all drivers. The Company reviews prospective drivers to ensure
that they have acceptable driving records and conducts criminal background investigations. In
addition, where required by applicable law, the Company requires prospective drivers to take a
physical examination and to pass a drug test. Drivers are provided information on any additional
safety requirements as dictated by customer specifications.
Intellectual Property
The Company has registered “DYNAMEX” and “DYNAMEX EXPRESS” as federal trademarks in the
Canadian Intellectual Office and has filed applications in the U.S. Patents and Trademark’s office
for federal trademark registration of such names. No assurance can be given that any such
registration will be granted in the U.S., or that if granted, 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, 2005, the Company had approximately 1,990 employees, of whom approximately 960
primarily were employed in various management, supervisory, sales, administrative, and other
corporate positions and approximately 1,030 were employed as drivers, messengers and mailroom
workers. Additionally at July 31, 2005, the Company had contracts with approximately 4,300
independent owner-operator drivers. Management believes that the Company’s relationship with such
employees and independent owner-operators is good. See “Risk Factors — Certain Tax Matters Related
to Drivers.”
Of the approximately 4,800 drivers and messengers used by the Company as of July 31, 2005,
approximately 1,600 are located in Canada and approximately 3,200 are located in the U.S. Although
the drivers and messengers located in Canada are generally independent contractors, approximately
71% are represented by major international labor unions. Management believes that the Company’s
relationship with such unions is good. Unions represent none of the Company’s U.S. employees,
drivers or messengers.
Risk Factors
In addition to other information in this report, the following risk factors should be
considered carefully in evaluating the Company and its business. This report contains
forward-looking statements, which involve risks and uncertainties. The Company’s actual results
could differ materially from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth in the following risk factors and elsewhere in this
report.
Highly Competitive Industry
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. Other companies in the industry
compete with the Company not only for provision of services but also for qualified drivers. Some
of these companies have longer operating histories and greater financial and other resources than
the Company. Additionally, companies that do not currently operate delivery and logistics
businesses may enter the industry in the future. See “Business — Competition.”
Claims Exposure
As of July 31, 2005, the Company utilized the services of approximately 4,800 drivers and
messengers. From time to time such persons are involved in accidents or other activities that may
give rise to liability claims. The Company currently carries liability insurance with a per
occurrence and an aggregate limit of $30 million. Owner-operators are required to maintain
liability insurance of at least the minimum amounts required by applicable state or provincial law
(generally such minimum requirements range from $35,000 to $75,000). The Company also has
insurance policies covering property and fiduciary trust liability, which coverage includes all
drivers and messengers. There can be no assurance that claims against the Company, whether under
the liability insurance or
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the surety bonds, will not exceed the applicable amount of coverage, that the Company’s
insurer will be solvent at the time of settlement of an insured claim, or that the Company will be
able to obtain insurance at acceptable levels and costs in the future. If the Company were to
experience a material increase in the frequency or severity of accidents, liability claims,
workers’ compensation claims or unfavorable resolutions of claims, the Company’s business,
financial condition and results of operations could be materially adversely affected. In addition,
significant increases in insurance costs could reduce the Company’s profitability.
Certain Tax Matters Related to Drivers
Substantially all of the Company’s drivers own their own vehicles and as of July 31, 2005,
approximately 99% of these owner-operators were independent contractors as opposed to employees of
the Company. The Company does not pay or withhold any federal, state or provincial employment tax
with respect to or on behalf of independent contractors. From time to time, taxing authorities in
the U.S. and Canada have sought to assert that independent owner-operators in the transportation
industry, including those utilized by the Company, are employees, rather than independent
contractors. The Company believes that the independent owner-operators 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 Company’s 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 Company’s financial condition and results
of operations, and/or to restate financial information from prior periods. See “Business —
Services” and “— Employees.”
In addition to the drivers that are independent contractors, certain of the Company’s drivers
are employed by the Company and own and operate their own vehicles during the course of their
employment. The Company reimburses these employees for all or a portion of the operating costs of
those vehicles. The Company believes that these reimbursement arrangements do not represent
additional compensation to those employees. However, there can be no assurance that federal (U.S.
and Canadian), state or provincial taxing authorities will not seek to re-characterize some or all
of such payments as additional compensation. If such amounts were so re-characterized, the Company
would have to pay additional employment related taxes on such amounts, and may also be required to
pay penalties, which could have an adverse impact on the Company’s financial condition and results
of operations, and/or to restate financial information from prior periods. See “Business —
Services” and “— Employees.”
Local Delivery Industry; General Economic Conditions
The Company’s sales and earnings are especially sensitive to events that affect the delivery
services industry including extreme weather conditions, economic factors affecting the Company’s
significant customers and shortages of or disputes with labor, any of which could result in the
Company’s inability to service its clients effectively or the inability of the Company to
profitably manage its operations. In addition, downturns in the level of general economic activity
and employment in the U.S. or Canada may negatively impact demand for the Company’s services.
Foreign Exchange
Significant portions of the Company’s operations are conducted in Canada. Exchange rate
fluctuations between the U.S. and Canadian dollar result in fluctuations in the amounts relating to
the Canadian operations reported in the Company’s consolidated financial statements. The Canadian
dollar is the functional currency for the Company’s Canadian operations; therefore, any change in
the exchange rate will affect the Company’s reported sales for such period. The Company
historically has not entered into hedging transactions with respect to its foreign currency
exposure, but may do so in the future. There can be no assurance that fluctuations in foreign
currency exchange rates will not have a material adverse effect on the Company’s business,
financial condition or results of operations. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operation”.
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Permits and Licensing
Although certain aspects of the transportation industry have been significantly deregulated,
the Company’s 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. Failure by the Company to maintain required certificates, permits or
licenses, or to comply with applicable laws, ordinances or regulations could result in substantial
fines or possible revocation of the Company’s authority to conduct certain of its operations.
See “Business — Regulation.”
Dependence on Key Personnel
The Company’s success is largely dependent on the skills, experience and performance of
certain key members of its management. The loss of the services of any of these key employees
could have a material adverse effect on the Company’s business, financial condition and results of
operations. The Company’s future success and plans for growth also depend on its ability to
attract and retain skilled personnel in all areas of its business. There is strong competition for
skilled personnel in the same-day delivery and logistics businesses.
Technological Advances
Technological advances in the nature of facsimile, electronic mail and electronic signature
capture have affected the market for on-demand document delivery services. Although the Company
has shifted its focus to the distribution of non-faxable items and logistics services, there can be
no assurance that these or other technologies will not have a material adverse effect on the
Company’s business, financial condition and results of operations in the future.
Dependence on Availability of Qualified Delivery Personnel
The Company is dependent upon its ability to attract and retain, as employees or through
independent contractor or other arrangements, qualified delivery personnel who possess the skills
and experience necessary to meet the needs of its operations. The Company competes in markets in
which unemployment is generally relatively low and the competition for owner-operators and other
employees is intense. The Company must continually evaluate and upgrade its pool of available
owner-operators to keep pace with demands for delivery services. There can be no assurance that
qualified delivery personnel will continue to be available in sufficient numbers and on terms
acceptable to the Company. The inability to attract and retain qualified delivery personnel could
have a material adverse impact on the Company’s business, financial condition and results of
operations.
Acquisition Strategy; Possible Need for Additional Financing
The Company completed its last significant acquisition in August 1998. Currently, there are no pending
nor are there any contemplated acquisitions. Should the Company pursue acquisitions in the future,
the Company may be required to incur additional debt, issue additional securities that may
potentially result in dilution to current holders and also may result in increased goodwill,
intangible assets and amortization expense. There can be no assurance that the
Company will be able to obtain additional financing if necessary, or that such financing
can be obtained on terms the Company deems acceptable. As a result, the Company
might be unable to successfully implement its acquisition strategy. See “Management’s Discussion
and Analysis of Financial Condition and Results of Operation — Liquidity and Capital Resources.”
Volatility of Stock Price
Prices for the Company’s common stock will be determined in the marketplace and may be
influenced by many factors, including the depth and liquidity of the market for the common stock,
investor perception of the Company and general economic and market conditions. Variations in the
Company’s operating results, general trends in the industry and other factors could cause the
market price of the 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 the 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 the common stock could be affected by such fluctuations.
9
Fuel Costs
The owner-operators utilized by the Company are responsible for all vehicle expense including
maintenance, insurance, fuel and all other operating costs. The Company makes every reasonable
effort to include fuel cost adjustments in customer billings that are paid to owner-operators to
offset the impact of fuel price increases. If future fuel cost adjustments are insufficient to
offset owner-operators’ costs, the Company may be unable to attract a sufficient number of
owner-operators that may negatively impact the Company’s business, financial condition and results
of operations.
Available Information
The Company electronically files its annual report on Form 10-K, quarterly reports on Form
10-Q, and current reports on Form 8-K with the Securities and Exchange Commission (“SEC”). Copies
of the Company’s filings with the SEC may be obtained from its website at HTTP://WWW.DYNAMEX.COM or
at the SEC’s website, at HTTP://WWW.SEC.GOV. Access to these filings is free of charge.
ITEM 2. PROPERTIES
The Company leases facilities in 75 locations. These facilities are principally used for
operations and general and administrative functions. The chart below summarizes the locations of
facilities that the Company leases:
| |
|
|
|
|
| |
|
Number of |
|
| Location |
|
Leased Properties |
|
Canada |
|
|
|
|
|
|
|
|
|
Alberta |
|
|
4 |
|
British Columbia |
|
|
5 |
|
Manitoba |
|
|
2 |
|
Newfoundland |
|
|
1 |
|
Nova Scotia |
|
|
1 |
|
Ontario |
|
|
10 |
|
Quebec |
|
|
3 |
|
Saskatchewan |
|
|
2 |
|
Canadian Total |
|
|
28 |
|
10
| |
|
|
|
|
| |
|
Number of |
|
| Location |
|
Leased Properties |
|
United
States |
|
|
|
|
|
|
|
|
|
Arizona |
|
|
1 |
|
California |
|
|
8 |
|
Colorado |
|
|
1 |
|
Connecticut |
|
|
1 |
|
Florida |
|
|
1 |
|
Georgia |
|
|
1 |
|
Illinois |
|
|
2 |
|
Indiana |
|
|
2 |
|
Kansas |
|
|
1 |
|
Maryland |
|
|
1 |
|
Massachusetts |
|
|
1 |
|
Minnesota |
|
|
1 |
|
Missouri |
|
|
2 |
|
Nevada |
|
|
1 |
|
New Jersey |
|
|
1 |
|
New York |
|
|
6 |
|
North Carolina |
|
|
1 |
|
Ohio |
|
|
1 |
|
Pennsylvania |
|
|
2 |
|
Tennessee |
|
|
1 |
|
Texas |
|
|
6 |
|
Virginia |
|
|
3 |
|
Washington |
|
|
2 |
|
|
|
|
|
United States Total |
|
|
47 |
|
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, 2005, 2004 and 2003 was
approximately $6.2 million, $5.2 million and $4.8 million, respectively. The Company’s principal
executive offices are located in Dallas, Texas. See Note 7 of Notes to the Consolidated Financial
Statements for additional information.
ITEM 3. LEGAL PROCEEDINGS
On February 4, 2005, a purported class action was filed against the Company by a former
Company driver in the United States District Court for the Northern District of Illinois, Eastern
Division, on behalf of himself and other past or present Company drivers alleging that the
Company’s drivers are employees of the Company, rather than independent contractors, and as a
consequence, are entitled to overtime compensation and other benefits under federal and state wage
and hour laws.
On April 15, 2005, a similar purported class action was filed against the Company by a former
Company driver 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.
We believe that the Company’s drivers are properly classified as independent contractors and
intend to vigorously defend this litigation. Given the nature and preliminary status of the
claims, however, we cannot yet determine the amount or a reasonable range of potential loss in these matters, if any.
11
The Company is a party to various legal proceedings arising in the ordinary course of its
business. Management believes that the ultimate resolution of these proceedings will not, in the
aggregate, have a material adverse effect on the financial condition, results of operations, or
liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
PART II
|
|
|
| ITEM 5. |
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information — The Company’s common stock commenced trading on the NASDAQ under the
symbol “DDMX” on March 14, 2005. Previously, the common stock was listed on the AMEX. The
following table summarizes the high and low sale prices per share of common stock for the periods
indicated, as reported on the AMEX and NASDAQ:
| |
|
|
|
|
|
|
|
|
| |
|
Bid |
|
| Fiscal 2005 |
|
High |
|
|
Low |
|
First Quarter |
|
$ |
21.40 |
|
|
$ |
12.74 |
|
Second Quarter |
|
|
22.03 |
|
|
|
16.81 |
|
Third Quarter |
|
|
20.98 |
|
|
|
15.00 |
|
Fourth Quarter |
|
|
18.80 |
|
|
|
15.50 |
|
|
|
|
|
|
|
|
|
|
Fiscal 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
10.00 |
|
|
$ |
7.59 |
|
Second Quarter |
|
|
13.10 |
|
|
|
9.80 |
|
Third Quarter |
|
|
14.99 |
|
|
|
11.00 |
|
Fourth Quarter |
|
|
15.85 |
|
|
|
12.84 |
|
Holders — As of September 28, 2005, the approximate number of holders of record of common
stock was 283.
Dividends — The Company has not declared or paid any cash dividends on its common stock since
its inception. The Company does not anticipate paying any cash dividend in fiscal 2006. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operation — Liquidity
and Capital Resources”.
Common Stock Repurchase — On September 21, 2005, the Board of Directors authorized management
to purchase up to $10 million of Dynamex Inc. Common stock on the open market. The Company intends to purchase such stock
at prices acceptable to the Company.
Securities Authorized for Issuance Under Equity Compensation Plans — The following table
provides information regarding the Company’s equity compensation plan as of July 31, 2005.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Plan category |
|
Number of securities to be |
|
|
|
|
|
|
Number of securities |
|
| |
|
issued upon exercise of |
|
|
Weighted-average exercise |
|
|
remaining available for |
|
| |
|
outstanding options, |
|
|
price of outstanding |
|
|
future issuance under equity |
|
| |
|
warrants and rights |
|
|
options, warrants and rights |
|
|
compensation plans |
|
Equity compensation plans
approved by security
holders |
|
|
630,780 |
|
|
$ |
7.68 |
|
|
|
578,356 |
|
Equity compensation plans
not approved by security
holders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
630,780 |
|
|
$ |
7.68 |
|
|
|
578,356 |
|
|
|
|
|
|
|
|
|
|
|
13
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial statements of operations data for the three years
ended July 31, 2005 and the balance sheet data at July 31, 2005 and 2004 have been derived from the
audited consolidated financial statements of the Company appearing elsewhere herein. The following
selected historical financial statements of operations data for the two years ended July 31, 2002
and 2001 and the balance sheet data at July 31, 2003, 2002 and 2001 have been derived from the
consolidated financial statements of the Company not appearing herein. The net impact of $19.3
million related to the transitional goodwill impairment charge, recognized as a result of adopting
SFAS No. 142, has been excluded from the Statements of Operations Data for the year ended July 31,
2002. The selected financial data are qualified in their entirety, and should be read in
conjunction with the Company’s consolidated financial statements, including the notes thereto, and
“Management’s Discussion and Analysis of Financial Condition and Results of Operation” appearing
elsewhere herein.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years ending July 31, |
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
| |
|
(in thousands, except per share amounts) |
|
Statements of operations data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
321,103 |
|
|
$ |
287,856 |
|
|
$ |
250,801 |
|
|
$ |
235,945 |
|
|
$ |
249,414 |
|
Cost of sales |
|
|
232,023 |
|
|
|
206,487 |
|
|
|
177,850 |
|
|
|
165,919 |
|
|
|
172,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
89,080 |
|
|
|
81,369 |
|
|
|
72,951 |
|
|
|
70,026 |
|
|
|
76,506 |
|
Selling, general and
administrative expenses (1) |
|
|
69,049 |
|
|
|
64,026 |
|
|
|
58,417 |
|
|
|
56,944 |
|
|
|
60,739 |
|
Depreciation and amortization |
|
|
1,648 |
|
|
|
1,890 |
|
|
|
2,124 |
|
|
|
2,957 |
|
|
|
7,414 |
|
Recovery for loss on settlement of
shareholder class action lawsuit |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(695 |
) |
(Gain) loss on disposal of
property and equipment |
|
|
(21 |
) |
|
|
(41 |
) |
|
|
19 |
|
|
|
(21 |
) |
|
|
(403 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
18,404 |
|
|
|
15,494 |
|
|
|
12,391 |
|
|
|
10,146 |
|
|
|
9,451 |
|
Interest expense, net |
|
|
466 |
|
|
|
1,406 |
|
|
|
2,194 |
|
|
|
3,065 |
|
|
|
5,184 |
|
Other (income) expense, net |
|
|
(226 |
) |
|
|
(182 |
) |
|
|
(340 |
) |
|
|
414 |
|
|
|
(219 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
18,164 |
|
|
|
14,270 |
|
|
|
10,537 |
|
|
|
6,667 |
|
|
|
4,486 |
|
Income taxes |
|
|
6,979 |
|
|
|
1,437 |
|
|
|
2,959 |
|
|
|
3,658 |
|
|
|
2,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before accounting change |
|
$ |
11,185 |
|
|
$ |
12,833 |
|
|
$ |
7,578 |
|
|
$ |
3,009 |
|
|
$ |
2,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share before
accounting change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basic |
|
$ |
0.97 |
|
|
$ |
1.13 |
|
|
$ |
0.68 |
|
|
$ |
0.28 |
|
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted |
|
$ |
0.95 |
|
|
$ |
1.11 |
|
|
$ |
0.67 |
|
|
$ |
0.28 |
|
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basic |
|
|
11,544 |
|
|
|
11,314 |
|
|
|
11,208 |
|
|
|
10,614 |
|
|
|
10,207 |
|
diluted |
|
|
11,804 |
|
|
|
11,532 |
|
|
|
11,364 |
|
|
|
10,651 |
|
|
|
10,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest, taxes,
depreciation and
amortization (EBITDA) (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before accounting change |
|
$ |
11,185 |
|
|
$ |
12,833 |
|
|
$ |
7,578 |
|
|
$ |
3,009 |
|
|
$ |
2,025 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
6,979 |
|
|
|
1,437 |
|
|
|
2,959 |
|
|
|
3,658 |
|
|
|
2,461 |
|
Interest expense, net |
|
|
466 |
|
|
|
1,406 |
|
|
|
2,194 |
|
|
|
3,065 |
|
|
|
5,184 |
|
Depreciation and amortization |
|
|
1,648 |
|
|
|
1,890 |
|
|
|
2,124 |
|
|
|
2,957 |
|
|
|
7,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
20,278 |
|
|
$ |
17,566 |
|
|
$ |
14,855 |
|
|
$ |
12,689 |
|
|
$ |
17,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
July 31, |
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
| |
|
(in thousands) |
|
Balance sheet data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
|
$ |
22,917 |
|
|
$ |
16,704 |
|
|
$ |
7,779 |
|
|
$ |
9,319 |
|
|
$ |
9,359 |
|
Total assets |
|
|
109,475 |
|
|
|
102,072 |
|
|
|
95,541 |
|
|
|
93,870 |
|
|
|
121,912 |
|
Long-term debt, excluding current portion |
|
|
8 |
|
|
|
10,000 |
|
|
|
14,116 |
|
|
|
25,531 |
|
|
|
32,198 |
|
Stockholders’ equity |
|
|
83,896 |
|
|
|
69,310 |
|
|
|
54,328 |
|
|
|
45,124 |
|
|
|
59,990 |
|
14
| 1) |
|
Selling, general and administrative expenses include salaries, wages and employee benefits
as well as selling, general and administrative expenses. |
| |
| 2) |
|
EBITDA is defined as income excluding interest, taxes, depreciation and amortization of
goodwill and other assets (as presented on the face of the income statement). EBITDA is
supplementally presented because management believes that it is a widely accepted financial
indicator of a company’s ability to service and/or incur indebtedness, maintain current
operating levels of fixed assets and acquire additional operations and businesses. EBITDA
should not be considered as a substitute for statement of income or cash flow data from the
Company’s financial statements, which have been prepared in accordance with accounting
principles generally accepted in the U.S. In addition, the Company’s definition of EBITDA may
not be identical to similarly entitled measures used by other companies. |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with the information contained in the
Company’s consolidated financial statements, including the notes thereto, and the other financial
information appearing elsewhere in this report. Statements regarding future economic performance,
management’s plans and objectives, and any statements concerning its assumptions related to the
foregoing contained in Management’s Discussion and Analysis of Financial Condition and Results of
Operation constitute forward-looking statements. Certain factors, which may cause actual results
to vary materially from these forward-looking statements, accompany such statements or appear
elsewhere in this report, including without limitation, the factors disclosed under “Risk Factors.”
General
Sales consist primarily of charges to customers for delivery services and weekly or monthly
charges for recurring services, such as facilities management. Sales are recognized when the
service is performed. The yield (value per transaction) for a particular service is dependent upon
a number of factors including size and weight of articles transported, distance transported,
special handling requirements, requested delivery time and local market conditions. Generally,
articles of greater weight transported over longer distances and those that require special
handling produce higher yields.
Cost of sales consists of costs relating directly to performance of services, including driver
and messenger costs, third party delivery charges, insurance and workers’ compensation costs.
Substantially all of the drivers used by the Company provide their own vehicles, and approximately
99% of these owner-operators are independent contractors as opposed to employees of the Company.
Drivers and messengers are generally compensated based on a percentage of the delivery charge.
Consequently, the Company’s driver and messenger costs are variable in nature. To the extent that
the drivers and messengers are employees of the Company, employee benefit costs related to them,
such as payroll taxes and insurance, are also included in cost of sales.
Selling, general and administrative expenses (“SG & A”) include salaries, wages and benefit
costs incurred at the branch level related to taking orders and dispatching drivers and messengers,
as well as administrative costs related to such functions. Also included in SG & A expenses are
regional and corporate level marketing and administrative costs and occupancy costs related to
branch and corporate locations.
Generally, the Company’s on-demand services provide higher gross profit margins than do local
and regional distribution or fleet management services because driver compensation for on-demand
services is generally lower as a percentage of sales from such services. However, scheduled
distribution and fleet management services generally have fewer administrative requirements related
to order taking, dispatching drivers and billing. As a result of these variances, the Company’s
gross profit margin is dependent in part on the mix of business for a particular period.
During the year ended July 31, 2005, sales to Office Depot, Inc. represented approximately
9.9% of the Company’s revenue. Management believes that sales to this customer may exceed 10% of
consolidated sales during the next fiscal year.
The Company has no significant investment in transportation equipment. Depreciation and
amortization expense primarily relates to depreciation of office, communication and computer
equipment, and software and the amortization of intangible assets acquired in the Company’s various
acquisitions, each of which has been accounted
15
for using the purchase method of accounting. Effective August 1, 2001 the Company adopted
Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (“SFAS
No. 142”) which requires, among other things, that companies no longer amortize goodwill.
A significant portion of the Company’s sales is generated in Canada. For the fiscal years
ended July 31, 2005, 2004 and 2003, approximately 33%, 33%, and 34%, respectively, of the Company’s
sales were generated in Canada. Before deduction of corporate costs, the majority of which are
incurred in the U.S., the cost structure of the Company’s operations in the U.S. and in Canada is
similar.
The conversion rate of Canadian dollars to U.S. dollars increased during the fiscal year
ending July 31, 2005 compared to July 31, 2004 and increased during the fiscal year ending July 31,
2004 compared to July 31, 2003. As the Canadian dollar is the functional currency for the
Company’s Canadian operations, these changes in the exchange rate have affected the Company’s
reported sales. The effect of these changes on the Company’s net income (loss) for the fiscal
years ended July 31, 2005, 2004 and 2003 has not been significant, although there can be no
assurance that fluctuations in such currency exchange rate will not, in the future, have a material
effect on the Company’s business, financial condition or results of operations.
Critical Accounting Policies
The Company believes that the following are its most significant accounting policies:
Use
of estimates — The preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the balance sheet dates and the reported amounts of revenues and expenses. Actual
results may differ from such estimates. The Company reviews all significant estimates affecting
the financial statements on a recurring basis and records the effect of any necessary adjustments
prior to their issuance.
Intangibles — Intangibles arise from acquisitions accounted for as purchased business
combinations and include goodwill, covenants not-to-compete and other identifiable intangibles and
from the payment of financing costs associated with the Company’s credit facility. Goodwill
represents the excess of the purchase price over all tangible and identifiable intangible net
assets acquired. Effective August 2001, the Company adopted SFAS No. 142, which requires, among
other things, that companies no longer amortize goodwill, but instead test goodwill for impairment
at least annually. In addition, SFAS No. 142 requires that the Company identify reporting units
for the purposes of assessing potential future impairments of goodwill. The Company’s operations
are conducted in two geographic regions, Canada and the United States. These two regions were
identified as reporting units in accordance with paragraph 30 of SFAS No. 142 because discrete
financial information is available and management regularly reviews the operating results of these
regions. In fiscal 2002, management performed a valuation on each of these reporting units using a
discounted cash flow model. This model indicated a valuation that was far in excess of the
Company’s market capitalization, however, management did not believe this could be used as the sole
indicator of fair value. Accordingly, the Company engaged an independent business valuation firm
to perform a valuation of these reporting units. The independent firm utilized a methodology
combining the income approach and the market approach. The income approach is based on the present
value of future economic benefits that accrue to the shareholders. The market approach establishes
value through the analysis of the market price of the common stock of comparable, publicly traded
companies. The independent firm’s conclusion of the value of Dynamex was derived by applying a
weight of 30% to the value determined under the income approach and 70% to the value determined
under the market approach. Using this valuation as the purchase price in a purchase price
allocation model, the implied value of the goodwill for the United States segment was approximately
$36.5 million, compared to a carrying value of approximately $66.5 million. As a result, the
Company recognized a goodwill impairment loss related to this segment of $30 million. Although the
performance of the United States operations has improved, the large amount of goodwill recorded
during the competitive acquisition environment of the late 1990s was not fully supported by the
valuation model. The implied value of the goodwill for the Company’s Canadian operations was in
excess of $29 million compared to a carrying value of approximately $8 million. The Company
completed its goodwill impairment analysis during the fourth quarter of fiscal 2002 and recorded
the $30 million charge net of $10.7 million of deferred tax benefits as the cumulative effect of a
change in accounting principle in the Consolidated Statement of Operations. In fiscal 2003, 2004
and 2005, the Company performed its annual goodwill impairment test as of the first day of the
fourth quarter. Based on this test, the fair value of the goodwill exceeded
16
the carrying amount in both periods. Other intangible assets are being amortized over periods
ranging from 3 to 25 years.
Self-insured claims liability — The Company is primarily self-insured for U.S. workers’
compensation claims. A liability for unpaid claims and the associated claim expenses, including
incurred but unreported losses, are recorded based on the Company’s estimates of the aggregate
liability for claims incurred. The Company’s estimates are based on actual experience and
historical assumptions of development of unpaid liabilities over time. Factors affecting the
determination of amounts to be accrued for workers’ compensation 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 workers’ compensation
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. Effective July 1, 2005 the Company elected
to become primarily self-insured for vehicle
liability claims. The Company will estimate its liability for claims in a manner similar to
workers’ compensation claims.
Allowance for doubtful accounts — The Company maintains an allowance for doubtful accounts
for estimated losses resulting from the inability of its customers to make payments when due or
within a reasonable period of time thereafter. Estimates are used in determining this allowance
based on the Company’s historical collection experience, current trends, credit policy and a
percentage of accounts receivable by aging category. If the financial condition of the Company’s
customers were to deteriorate, resulting in an impairment of their ability to make required
payments, additional allowances may be required. The Company reduced its allowance at July 31,
2005 to approximately 2.4% from the July 31, 2004 allowance of approximately 2.7% of outstanding
accounts receivable as a result of improved collection efforts during fiscal 2005 compared to
previous periods.
Income taxes — Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes related primarily to
differences between the basis of assets and liabilities for financial and income tax reporting.
The net deferred tax assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and liabilities are
recovered or settled.
As of July 31, 2005, the Company had available a U.S. federal net operating loss carryforward
(“NOL”) to offset future taxable income of $0.4 million. In addition, the Company generated unused
foreign tax credits related to its Canadian operations and other tax credits of $2.1 million. The
Company establishes valuation allowances in accordance with the provisions of Statement of
Financial Accounting Standards No. 109 “Accounting for Income Taxes” (“SFAS No. 109”). During the
year ended July 31, 2004, the Company determined that it was more likely than not that the benefits
of the NOL totaling $10.6 million at January 31, 2004 would be realized, based on first-half
results for the 2004 fiscal year and projected results over the next three years. The Company had
previously provided a 100% valuation allowance on the NOL, and based on the determination that the
Company would be able to realize the NOL, reversed the valuation allowance during the second
quarter of the fiscal year 2004, resulting in a credit to income tax expense of approximately $3.7
million. The Company has utilized substantially all of the NOL during the 2004 and 2005 fiscal
years. The Company’s current valuation allowance of approximately $1.3 million relates to a
foreign tax credit carryforward. The Company continually reviews the adequacy of the valuation
allowances and releases the allowances when it is determined that it is more likely than not that
the benefits will be realized.
Stock-based compensation — Statement of Financial Accounting Standards No. 123, “Accounting
for Stock Based Compensation,” (“SFAS No. 123”) encourages but does not require companies to record
compensation cost for stock based employee compensation plans at fair value. In accordance with
SFAS No. 123, the Company had previously elected to continue to account for stock based
compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, “Accounting for Stock Issued to Employees,” and related Interpretations during the fiscal years
ended on or before July 31, 2003. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company’s stock at the date of the grant over
the amount an employee must pay to acquire the stock. (See Note 10 of Notes to the Consolidated
Financial Statements)
Effective August 1, 2003, the Company elected to adopt the fair value recognition provisions
of SFAS No. 123 for stock-based employee compensation. Under the Statement of Financial Accounting
Standards No. 148
17
“Accounting for Stock-Based Compensation — Transition and Disclosure an Amendment of FASB
Statement No. 123” (“SFAS No. 148”), the modified prospective method of adoption was selected by
the Company, in which stock-based employee compensation cost recognized in 2004 would be the same
as that which would have been recognized had the fair value recognition provisions of SFAS No. 123
been applied to all awards granted after August 1, 1995. As discussed below, option expense in
2005 and 2004 amounted to $459 and $318, respectively, under the fair value approach, compared to
no expense in 2003 under the intrinsic value method. Based on the outstanding and unvested awards
as of July 31, 2005, the anticipated effect on net income for fiscal 2006, net of taxes, will be
approximately $403.
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.
Results of Operations
The following table sets forth for the periods indicated certain items from the Company’s
consolidated statement of operations, expressed as a percentage of sales:
| |
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| |
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Years Ended July 31, |
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchased transportation |
|
|
64.3 |
% |
|
|
62.7 |
% |
|
|
62.4 |
% |
Other |
|
|
8.0 |
% |
|
|
9.0 |
% |
|
|
8.5 |
% |
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
72.3 |
% |
|
|
71.7 |
% |
|
|
70.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
27.7 |
% |
|
|
28.3 |
% |
|
|
29.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
14.8 |
% |
|
|
15.5 |
% |
|
|
16.1 |
% |
Other |
|
|
6.7 |
% |
|
|
6.7 |
% |
|
|
7.2 |
% |
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
21.5 |
% |
|
|
22.2 |
% |
|
|
23.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
0.5 |
% |
|
|
0.7 |
% |
|
|
0.8 |
% |
(Gain) loss on sale of property and equipment |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
5.7 |
% |
|
|
5.4 |
% |
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
0.1 |
% |
|
|
0.5 |
% |
|
|
0.9 |
% |
Other income |
|
|
-0.1 |
% |
|
|
-0.1 |
% |
|
|
-0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
5.7 |
% |
|
|
5.0 |
% |
|
|
4.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
2.2 |
% |
|
|
0.5 |
% |
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before accounting change |
|
|
3.5 |
% |
|
|
4.5 |
% |
|
|
3.0 |
% |
|
|
|
|
|
|
|
|
|
|
Year Ended July 31, 2005 Compared to Year Ended July 31, 2004
Net income for the year ended July 31, 2005 (FY 2005) was $11.2 million ($0.95 diluted
earnings per common share) compared to $12.8 million ($1.11 diluted earnings per common share) for
the year ended July 31,
18
2004 (FY 2004). Net income for FY 2004 included a $3.7 million income tax
benefit from the recognition of available U.S. net operating losses not previously recognized.
Excluding income taxes from the comparison, income
before taxes increased 27% to $18.2 million for FY 2005 compared to the prior year. This
improvement results from higher gross profit from increased sales and lower interest expense that
was offset, in part, by higher selling, general & administrative expense.
Sales increased $33 million to $321 million in FY 2005, an increase of 11.5% compared to the
prior year. The average conversion rate between the Canadian dollar and the U.S. dollar increased
7.8% over the prior year period, which had the effect of increasing sales for the year by
approximately $7.8 million had the conversion rate been the same as the prior year period.
Excluding the effect of this increase, sales would have been approximately 8.8% higher for FY 2005
compared to the prior year. If the exchange rate had been the same in FY 2005 as it was in FY
2004, on-demand sales would have been approximately the same in both years while local and regional
distribution and outsourcing services would have shown an increase of $23 million, or 13.2%. Fuel
surcharges associated with rising fuel costs accounted for slightly less than 2% of the increase in
sales in FY 2005 compared to FY 2004.
Cost of sales for FY 2005 increased $26 million (12.4%) to $232 million and increased as a
percentage of sales from 71.7% to 72.3% compared to FY 2004. Approximately $20 million of the
increase was from actual cost increases while approximately $6 million was from exchange rate
increases from the prior year. Cost of sales increased as a percentage of sales over the last
three quarters of FY 2005 due to the increase in purchased transportation, the result of the
continuing change in business mix, our decision to modify a number of route networks for certain
clients that was triggered by changes to their distribution models and more recently, by
rapidly rising fuel costs. While we have been proactive in assisting our clients with route
optimization, the result is generally reduced revenues from those customers without a proportionate
reduction in transportation costs, thereby adversely impacting our cost of sales percentage on
those routes. Likewise, the rapid rise in fuel costs principally in the 4th quarter had
a negative impact on our ability to recover those costs from our customers as quickly as the fuel
prices were escalating. As a result, our structure for fuel surcharge compensation to our drivers
was not always occurring on a timely basis. Therefore, to resolve the issue on a short-term basis,
we increased the commissions paid to our drivers in order to maintain service quality. We began to
approach customers, where fuel price mechanisms included an extended period for determining the
surcharge, to shorten the period and their response has been positive. However, those changes were
not completed until the middle of the first quarter of FY 2006. Management expects cost of sales
to range between 72.0% and 72.6% for fiscal year 2006.
SG & A expenses increased $4.9 million, or 7.8% for FY 2005, to $69 million compared to $64
million in FY 2004 but decreased as a percentage of sales from 22.2% in 2004 to 21.5% in 2005.
Approximately $1.5 million of the increase is due to the increase in the exchange rate between the
Canadian dollar and the U.S. dollar. Other increases are primarily attributable to the cost of
additional personnel required to operate and manage new business added during 2005, the increase in
personnel and associated costs related to the growth of the sales organization and the higher audit
and outside professional fees associated with Sarbanes-Oxley compliance. The Company also increased
the number of operations personnel at the branch level by adding mid-level managers and driver
recruiters (capacity managers) to maintain service quality and support continued growth. In the
fourth quarter of FY 2005, additional personnel were added to the Information Technology group who
will roll out the Dynamex proprietary customer order and dispatch system (DECS) to all branches
throughout Canada and the U.S over the next 24 to 36 months. We do not expect to achieve
significant savings from this roll-out in FY 2006.
Depreciation and amortization for FY 2005 was $1.6 million compared to $1.9 million in FY
2004. Management expects depreciation and amortization to be in the $2.0 million range for all of
FY 2006 due to limited capital requirements associated with its non-asset based business.
Interest expense was $0.5 million, a decrease of $0.9 million from FY 2004’s expense of $1.4
million, a decrease of 67%. FY 2004 included a write-off of $0.6 related to deferred bank
financing fees. The Company’s long-term bank debt was eliminated as of July 31, 2005.
Income tax expense for FY 2005 was $6,979 million compared to $1,437 for FY 2004, an increase
of $5,542 million. The effective income tax rate was 38.4% for FY 2005 versus 10% for FY 2004. FY
2004 included a $3.7 million tax benefit realized from the recognition of a U.S. net operating loss
carryforward of approximately $10.6 million not recognized in prior years due to uncertainty of
realization. Without the tax benefit, the FY 2004 effective rate would have been approximately
36%.
19
Year Ended July 31, 2004 Compared to Year Ended July 31, 2003
Net income for the year ended July 31, 2004 was $12.8 million ($1.11 per fully diluted share)
compared to $7.6 million ($0.67 per fully diluted share) for the prior year. Both years were
impacted by the recognition of benefits from U.S. net operating losses that reduced income tax
expense with a much larger benefit recognized in fiscal year 2004. Excluding income taxes from the
comparison, fiscal year 2004 income before taxes increased 35% compared to fiscal year 2003 to
$14.3 million. This improvement results from higher gross profit associated with increased sales,
lower interest expense due to reduction in outstanding debt and lower depreciation and amortization
expense. These improvements were offset, in part, by increased SG & A expenses.
Sales for the year ended July 31, 2004 increased $37 million, or 15%, to $288 million from
$251 million for the year ended July 31, 2003. Scheduled, distribution and outsourcing services
increased $35 million (26%) compared to the prior year while on-demand sales increased $2 million
(1.9%). The average conversion rate between the Canadian dollar and the U.S. dollar increased 12%
over the prior year period, which had the effect of increasing sales for the year by approximately
$9.8 million had the conversion rate been the same as the prior year period. Excluding the effect
of this increase, sales would have been approximately 11% higher for the year ended July 31, 2004
compared to the prior year. If the exchange rate had been the same in 2004 as it was in 2003,
on-demand sales would have decreased approximately $2 million, or 2%, in the current year and
scheduled, distribution and outsourcing services would have shown an increase of $30 million, or
22%.
Cost of sales for the year ended July 31, 2004 increased $29 million, or 16%, to $206 million
and increased as a percentage of sales from 70.9% to 71.7% compared to the year ended July 31,
2003. The primary reason for the increase in cost of sales percentage continues to be the change
in business mix. Scheduled, distribution and outsourcing services generally require larger
vehicles than on-demand sales resulting in a higher cost of purchased transportation; however,
on-demand sales are transaction intensive requiring more people to receive orders, dispatch
drivers, bill customers and collect and process payments received. Sales of scheduled,
distribution and outsourcing services comprised approximately 59% and 53% of total sales for the
years ended July 31, 2004 and 2003, respectively. On-demand sales were approximately 41% of total
sales in the current year compared to 47% in the prior year.
SG & A expenses increased $5.6 million, or 9.6% for the year ended July 31, 2004, to $64
million from $58.4 million in the prior year. Approximately $1.9 million of this increase is due
to the increase in the exchange rate between the Canadian dollar and the U.S. dollar. Excluding
the impact of the exchange rate, salaries and wages increased $2.9 million. The Company hired
additional personnel to manage and service significant new business startups and paid sales
commissions on the new business generated. The improved operating performance during fiscal 2004
also led to higher bonuses earned by management and operating personnel. In addition, the Company
incurred stock option expense of $318,000 (See — Critical Accounting Policies — Stock-based
compensation) and additional professional fees of $131,000 to implement the additional reporting
requirements mandated by Sarbanes-Oxley. As a percentage of sales, SG & A expenses were 22.2% for
the year ended July 31, 2004, compared to 23.3% for the year ended July 31, 2003.
Depreciation and amortization for the year ended July 31, 2004 was $1.9 million compared to
$2.1 million for the year ended July 31, 2003. Management does not expect a significant change in
the level of depreciation and amortization expense due to limited capital requirements associated
with its non-asset based business.
Interest expense was $1.4 million, a decrease of $.8 million or 36% for the year ended July
31, 2004 compared to the prior year. Interest expense in the current period included the write-off
of $.4 million in unamortized deferred financing costs associated with the refinancing of the
Company’s Credit Facility at the end of the second quarter of fiscal 2004. Excluding this charge,
interest expense as a percentage of sales was 0.3% compared to 0.9% last year. This decrease is
primarily attributable to lower outstanding debt and a lower interest rate.
The effective income tax rate was 10% for the year ended July 31, 2004 compared to 28% for the
prior year period. The current year includes a $3.7 million tax benefit realized from the
recognition of a U.S. net operating loss carryforward of approximately $10.6 million in the second
quarter that was not recognized in prior years due to the uncertainty of realization. The Company
has utilized substantially all of the net operating loss during the 2004 and 2005 fiscal years.
Based on first-half results for the current year and projected results over the next three years,
that uncertainty was overcome. The prior year includes the benefit of U.S. net operating losses of
$2.1 million that
20
were used to offset current taxable income and the recognition of a foreign tax
credit of $0.4 million. The Company expects the effective tax rate in future years to be
approximately 37% based on current federal, state and provincial tax rates.
Liquidity and Capital Resources
In fiscal years ended July 31, 2005, 2004 and 2003, the Company used cash generated from
operations primarily for capital expenditures, working capital needs and debt reduction.
On April 22, 2005, the Company entered into the First Amendment (the “Amendment”) to the March
2, 2004 $30,000,000 Revolving Credit Facility (the “Credit Facility”) (together the “Amended Credit
Facility”). The Amendment decreased the facility from $30,000,000 to $15,000,000, and reduced the
applicable margin on LIBOR contracts from a range of 1.25% — 1.75% to 1.00% — 1.50%, based on the
ratio of Funded Debt to EBITDA, as defined in the Credit Facility. The Amendment also extended the
maturity date to November 30, 2008 from November 30, 2007 and reduced the restrictions on Permitted
Acquisitions. The Amended Credit Facility has no scheduled principal payments; however, the
Company is required to maintain certain financial ratios related to minimum amounts of
stockholders’ equity, fixed charges to cash flow, funded debt to cash flow and funded debt to
eligible receivables, as defined. Amounts outstanding under the Amended Credit Facility are
secured by all of the Company’s U.S. assets and 100% of the stock of its domestic subsidiaries.
The Credit Facility also contains restrictions on incurring additional debt and investments by the
Company. There was no debt outstanding under the Amended Credit Facility at July 31, 2005;
however, there were outstanding letters of credit totaling $3.2 million.
On March 2, 2004, the Company replaced its bank credit agreement with a new $30,000,000 Senior
Secured, Revolving Credit Facility that matures on November 30, 2007, (the “Revolving Credit
Facility”). Under the terms of the new facility, interest is payable quarterly at prime, or LIBOR
plus a margin ranging from 1.25% to 1.75% (1.5% at July 31, 2004), based on the ratio of Funded
Debt to EBITDA, as defined in the Revolving Credit Facility. There are no scheduled principal
payments; however, the Company is required to maintain certain financial ratios related to minimum
amounts of stockholders’ equity, fixed charges to cash flow, funded debt to cash flow and funded
debt to eligible receivables, as defined. Amounts outstanding under the Revolving Credit Facility
are secured by all of the Company’s U.S. assets and 100% of the stock of its domestic subsidiaries.
The Revolving Credit Facility also contains restrictions on incurring additional debt and
investments by the Company. Amounts outstanding under the Revolving Credit Facility at July 31,
2004 included borrowings of $10 million and outstanding letters of credit totaling $4.1 million.
In conjunction with the Bank Credit Agreement described below, the Company entered into an
interest rate protection arrangement effective June 20, 2003 for a notional amount of $13 million.
The notional amount decreases by $1.375 million per quarter until maturity, and as of July 31,
2005, the notional amount was zero as a result of terminating the agreement on July 6, 2005, which
termination resulted in a nominal gain. The interest rate had been fixed at LIBOR plus a margin of
1.49% (2.99% at July 31, 2004). This arrangement originally matured November 30, 2005.
The Third Amendment to the Third Amended and Restated Credit Agreement (the “Bank Credit
Agreement”) was executed May 30, 2003 and paid in full with proceeds from the Revolving Credit
Facility in March 2004. The revolving portion of the Bank Credit Agreement was governed by an
eligible accounts receivable borrowing base agreement, defined as 80% of accounts receivable less
than 60 days past due. Required principal payments on the amortizing term loan consisted of $1.375
million quarterly, with a final payment of $625,000 due on November 30, 2005. Interest on
outstanding borrowings was payable monthly at prime plus a margin ranging from 0.5% to 0.0%, or
LIBOR plus a margin ranging from 3.5% to 2.0%, based on the ratio of Total Debt to EBITDA, as
defined. In addition, the Company was required to pay a commitment fee for any unused amounts of
the revolving credit facility, ranging from 0.5% to 0.25% per annum based on the ratio of Total
Debt to EBITDA.
During the fiscal years ended July 31, 2005, 2004 and 2003, the Company spent approximately
$2.4 million, $2.2 million and $1.7 million, respectively, on capital expenditures, which
expenditures primarily related to improvements in its technology infrastructure to support the
Company’s operations. Management expects the amount of capital expenditures for these purposes in
future years to range between $2 million and $3 million. 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 provide their own vehicles.
21
The Company’s cash flow provided by operations for the fiscal years ended July 31, 2005, 2004
and 2003 were $14.8 million, $15.3 million and $13.1 million, respectively. This internally generated cash
flow financed entirely the Company’s increases in working capital and purchases of property and
equipment. For the year ended July 31, 2005 changes in working capital used $3.0 million of
operating cash flow as compared to using $0.1 million and providing $0.9 million of operating cash
flow in fiscal 2004 and 2003, respectively.
Management expects internally generated cash flow will be sufficient to support its future
capital requirements. The Company completed an insignificant acquisition in FY 2005 and its last
significant acquisition in August 1998 and there currently are no pending or contemplated
acquisitions.
Contractual Obligations
The following table sets forth the Company’s contractual commitments as of July 31, 2005 for
the periods indicated (in thousands):
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Less than |
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| |
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Total |
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|
1 year |
|
|
1 - 3 years |
|
|
3 - 5 years |
|
|
Thereafter |
|
Capital leases |
|
$ |
8 |
|
|
$ |
— |
|
|
$ |
8 |
|
|
$ |
— |
|
|
$ |
— |
|
Operating leases |
|
|
18,922 |
|
|
|
6,592 |
|
|
|
8,416 |
|
|
|
3,665 |
|
|
|
249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
18,930 |
|
|
$ |
6,592 |
|
|
$ |
8,424 |
|
|
$ |
3,665 |
|
|
$ |
249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has entered into an employment agreement with its CEO which provides for the
payment of a base salary in the annual amount of $350,000, participation in an executive bonus
plan, an auto allowance, and participation in other employee benefit plans. In addition, the
Company has entered into retention agreements with certain key executive officers and other
employees that provide certain benefits in the event their employment is terminated subsequent to a
change in control of the Company, as defined in the retention agreements. The Company believes
that it is unlikely that these circumstances will transpire, but if they did the potential exposure
could range between $3.5 million and $4.0 million. As of July 31, 2005 the Company had outstanding
letters of credit totaling $3.2 million.
Income Taxes
The provision for income taxes was $7.0 million in fiscal 2005 compared to $1.4 million and
$3.0 million in the years ended July 31, 2004 and 2003, respectively. The difference between the
statutory rates and the effective federal income tax rates is primarily attributable to foreign and
state income taxes, changes in the valuation allowance on net operating loss carryforwards and
foreign tax credit, and other expenses that are non-deductible for tax purposes.
As of July 31, 2005, the Company had available U.S. federal net operating loss carryforwards
to offset future taxable income of $0.4 million. In addition, the Company generated unused foreign
tax credits related to its Canadian operations and other tax credits of $2.1 million. The Company
establishes valuation allowances in accordance with the provisions of SFAS No. 109. During the
year ended July 31, 2004, the Company determined that it was more likely than not that the benefits
of the net operating loss carryforward totaling $10.6 million at January 31, 2004 would be realized
based on first-half results for the 2004 fiscal year and projected results over the next three
years. The Company had previously provided a 100% valuation allowance on this NOL and based on the
determination that the Company would be able to realize the NOL, reversed the remaining valuation
allowance during the second quarter of the fiscal year 2004, resulting in a credit to income tax
expense of approximately $3.7 million. The Company has utilized substantially all of the NOL
during the 2004 and 2005 fiscal years. The Company has provided a valuation allowance of
approximately $1.3 million against a foreign tax credit carryforward at July 31, 2005. The Company
continually reviews the adequacy of the valuation allowances and releases the allowances when it is
determined that it is more likely than not that the benefits will be realized.
22
Inflation
The Company believes that it is experiencing some inflationary impacts from the rapid rise in
fuel prices and will, along with other segments of the economy, experience further impacts of
inflation in the form of utility cost and other cost increases. However, such inflationary
pressures have not had a material effect on the Company’s results of operations for fiscal 2005.
However, there can be no assurance the Company’s business will not be affected by inflation in the
future.
Financial Condition
The Company believes its financial condition remains strong and that it has the financial
resources necessary to meet its needs. Cash provided by operating activities and the Company’s
credit facility should be sufficient to meet the Company’s operational needs.
Recent Accounting Pronouncements
In October 2004, the American Jobs Creation Act of 2004 (the “Act”) was signed into law. The
Act creates a temporary incentive for U.S. corporations to repatriate undistributed foreign
earnings by providing an 85% dividends received deduction The Company is studying the impact of the
Act but currently does not expect it to have a material impact on its consolidated financial
position or results of operations.
In November 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No.
151. “Inventory Costs, an amendment of APB No. 43, Chapter 4.” SFAS 151 clarifies that abnormal
inventory costs such as costs of idle facilities, excess freight and handling costs, and wasted
materials (spoilage) are required to be recognized as current period charges. The provisions of
SFAS 151 are effective for our fiscal year beginning July 31, 2006. The Company does not expect
that the adoption of SFAS 151 will have a material impact on its consolidated financial position or
results of operations.
In December 2004, the FASB enacted Statement of Financial Accounting Standards No. 123R,
“Share-Based Payment” (“SFAS No. 123R”) which replaces Statement of Financial Accounting Standards
No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and supersedes APB Opinion No.
25, “Accounting for Stock Issued to Employees.” SFAS No. 123R requires the measurement of all
employee share-based payments to employees, including grants of employee stock options, using a
fair-value-based method and the recording of such expense in our consolidated statements of
operations. The accounting provisions of SFAS No. 123R have been substantially adopted by the
Company for reporting periods beginning on and after August 1, 2003 (see the discussion above under
the caption “Critical Accounting Policies,”
“Stock-based compensation.”)
In May 2005, the FASB issued Statement No. 154, “Accounting Changes and Error Corrections”
(SFAS 154). SFAS 154 replaces APB Opinion No. 20, “Accounting Changes” and FASB Statement No.
3,“Reporting Accounting Changes in Interim Financial Statements” SFAS 154 requires that a voluntary
change in accounting principle be applied retrospectively with all prior period financial
statements presented on the new accounting principle, unless it is impracticable to do so. SFAS 154
also provides that a correction of errors in previously issued financial statements should be
termed a “restatement.” The new standard is effective for accounting changes and correction of
errors beginning July 1, 2005. The Company does not expect that the adoption of SFAS 154 will have
a material impact on our consolidated financial position or results of operations.
“Safe Harbor” Statement Under The Private Securities Litigation Reform Act:
With the exception of historical information, the matters discussed in this report are
“forward looking statements” as that term is defined in Section 21E of the Securities Exchange Act
of 1934.
The risk factors described in this report could cause actual results to differ materially from
those predicted. By way of example:
| |
• |
|
The competitive nature of the same-day delivery business. |
| |
| |
• |
|
The ability of the Company to attract and retain qualified courier personnel as well as retain key
management personnel. |
23
| |
• |
|
A change in the current tax status of courier drivers from independent contractor
drivers to employees or a change in the treatment of the reimbursement of vehicle operating
costs to employee drivers. |
| |
| |
• |
|
A significant increase in the number of workers’ compensation or vehicle liability
claims such that the Company’s self insurance expense would increase significantly. |
| |
| |
• |
|
A significant reduction in the exchange rate between the Canadian dollar and the U.S.
dollar. |
| |
| |
• |
|
Failure of the Company to maintain required certificates, permits or licenses, or to
comply with applicable laws, ordinances or regulations could result in substantial fines or
possible revocation of the Company’s authority to conduct certain of its operations. |
| |
| |
• |
|
The ability of the Company to obtain adequate financing. |
| |
| |
• |
|
The ability of the Company to pass on fuel cost increases to customers to maintain
profit margins and the quality of driver pay. |
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Foreign Exchange Exposure
Significant portions of the Company’s operations are conducted in Canada. Exchange rate
fluctuations between the U.S. and Canadian dollar result in fluctuations in the amounts relating to
the Canadian operations reported in the Company’s consolidated financial statements. The Company
historically has not entered into hedging transactions with respect to its foreign currency
exposure, but may do so in the future.
The sensitivity analysis model used by the Company for foreign exchange exposure compares the
revenue and net income figures from Canadian operations over the previous four quarters at the
actual exchange rate versus a 10% decrease in the exchange rate. Based on this model, a 10%
decrease would result in a decrease in revenue of approximately $10.7 million and a decrease in net
income of approximately $0.4 million over this period. There can be no assurances that the above
projected exchange rate decrease will materialize. Fluctuations of exchange rates are beyond the
control of the Company’s management.
Interest Rate Exposure
Effective June 20, 2003, the Company entered into an interest rate protection arrangement.
The interest rate had been fixed at the LIBOR margin plus 1.49% (2.99% at July 31, 2004). This
arrangement, scheduled to mature November 30, 2005, was terminated on July 6, 2005. The Company
does not hold or issue derivative financial instruments for speculative or trading purposes.
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 15(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a). Evaluation of disclosure control and procedures
An evaluation was carried out under the supervision and with the participation of the
Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of its disclosure controls and procedures (as defined in
Rule 13a-14(c) under the Securities Exchange Act of 1934) as of the end of the Company’s fiscal
year. Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the design and operation of these disclosure controls and procedures were effective.
There were no significant changes in the Company’s internal controls or in other factors that
could significantly affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material weaknesses.
(b). Management’s report on internal control over financial reporting.
Management’s report on internal control over financial reporting, which appears on page F-2 of
this Annual Report, is incorporated herein by reference.
ITEM 9B. OTHER INFORMATION
None.
25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption “Directors and Executive Officers” in the
Company’s definitive proxy statement to be filed in connection with the 2006 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 controller, or persons performing similar functions. The Company
has posted a copy of the code on the Company’s internet website at the internet address:
http://www.dynamex.com. Copies of the code may be obtained free of charge from the Company’s
website at the above internet address.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption “Directors and Executive Officers” in the
Company’s definitive proxy statement to be filed in connection with the 2006 Annual Meeting of
Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption “Beneficial Ownership of Common Stock” in the
Company’s definitive proxy statement to be filed in connection with the 2006 Annual Meeting of
Stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption “Certain Relationships and Related Transactions”
in the Company’s definitive proxy statement to be filed in connection with the 2006 Annual Meeting
of Stockholders is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information set forth under the caption “Principal Accountant Fees and Services” in the
Company’s definitive proxy statement to be filed in connection with the 2006 Annual Meeting of
Stockholders is incorporated herein by reference.
26
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
See Index to Consolidated Financial Statements on page F-1.
(a) (2) 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
inapplicable and therefore have been omitted.
(a) (3) 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.
(b) Reports on Form 8-K
Report on Form 8-K filed on June 2, 2005 concerning the June 1, 2005 press release announcing
third quarter fiscal year 2005 results.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dynamex Inc.,
A Delaware corporation
By: /s/ Ray E. Schmitz
Ray E. Schmitz, Vice-President and Chief Financial Officer
Dated: October 14, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons of the registrant and in the capacities indicated on
October 14, 2005.
| |
|
|
| Name |
|
Title |
|
|
|
/s/ Richard K. McClelland
Richard K. McClelland
|
|
Chairman of the Board, Chief Executive
Officer, President and Director
(Principal Executive Officer) |
|
|
|
/s/ Ray E. Schmitz
Ray E. Schmitz
|
|
Vice President, Chief Financial Officer
(Principal Financial Officer) |
|
|
|
/s/ Samuel T. Hicks
Samuel T. Hicks
|
|
Corporate Controller
(Principal Accounting Officer) |
|
|
|
/s/ Wayne Kern
Wayne Kern
|
|
Director |
|
|
|
/s/ Stephen P. Smiley
Stephen P. Smiley
|
|
Director |
|
|
|
/s/ Brian J. Hughes
Brian J. Hughes
|
|
Director |
|
|
|
/s/ Kenneth H. Bishop
Kenneth H. Bishop
|
|
Director |
|
|
|
/s/ Bruce E. Ranck
Bruce E. Ranck
|
|
Director |
28
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| |
|
|
|
|
| |
|
Page |
|
Dynamex Inc. |
|
|
|
|
Management’s Report on Internal Controls over Financial Reporting |
|
|
F-2 |
|
Reports of Independent Registered Public Accounting Firm |
|
|
F-3 |
|
Consolidated Balance Sheets, July 31, 2005 and 2004 |
|
|
F-5 |
|
Consolidated Statements of Operations for the fiscal years ended
July 31, 2005, 2004 and 2003 |
|
|
F-6 |
|
Consolidated Statements of Stockholders’ Equity for the fiscal years ended
July 31, 2005, 2004 and 2003 |
|
|
F-7 |
|
Consolidated Statements of Cash Flows for the fiscal years ended
July 31, 2005, 2004 and 2003 |
|
|
F-8 |
|
Notes to the Consolidated Financial Statements |
|
|
F-9 |
|
F-1
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Board of Directors and
Stockholders of Dynamex Inc.
Management of Dynamex Inc. is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934. Dynamex Inc.’s internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external reporting purposes in accordance with generally accepted
accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Management, including our Chief Executive Officer and our Chief Financial Officer, assessed the
effectiveness of Dynamex Inc.’s internal control over financial reporting as of July 31, 2005. 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, 2005.
Dynamex Inc.’s independent auditors, BDO Seidman, LLP, have issued an attestation report dated
October 10, 2005 on management’s assessment of Dynamex Inc.’s internal control over financial
reporting. That report is included herein.
| |
|
|
/s/ Richard K. McClelland
|
|
/s/ Ray E. Schmitz |
|
|
|
Richard K. McClelland
|
|
Ray E. Schmitz |
Chairman of the Board, Chief Executive
|
|
Vice President, Chief Financial Officer |
Officer, President and Director
|
|
(Principal Financial Officer) |
(Principal Executive Officer) |
|
|
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Dynamex Inc.
We have audited the accompanying consolidated balance sheets of Dynamex Inc. as of July 31, 2005
and 2004 and the related consolidated statements of operations, stockholders’ equity and cash flows
for each of the three years in the period ended July 31, 2005. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. 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 Dynamex Inc. as of July 31, 2005 and 2004 and the
results of its operations and its cash flows for each of the three years in the period ended July
31, 2005 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 Dynamex Inc.’s internal control over financial
reporting as of July 31, 2005, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
and our report dated October 10, 2005, expressed an unqualified opinion thereon.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
Dallas, Texas
October 10, 2005
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Dynamex Inc.
We have audited management’s assessment, included in the accompanying Management’s Report on
Internal Control over Financial Reporting appearing on page F - 2, that Dynamex Inc. maintained
effective internal control over financial reporting as of July 31, 2005, based on the criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). Management of Dynamex Inc. is responsible for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express an
opinion on management’s assessment and an opinion on the effectiveness of the internal control over
financial reporting of Dynamex Inc. 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, evaluating management’s assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Dynamex Inc. maintained effective internal control
over financial reporting as of July 31, 2005, is fairly stated, in all material respects, based on
criteria established in Internal Control — Integrated Framework issued by the COSO. Also, in our
opinion, Dynamex Inc. maintained, in all material respects, effective internal control over
financial reporting as of July 31, 2005, based on the criteria established in Internal Control —
Integrated Framework issued by the COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets Dynamex Inc. as of July 31, 2005 and 2004,
and the related consolidated statements of income, stockholders’ equity, and cash flows for each of
the three years in the period ended July 31, 2005. Our report dated October 10, 2005 expressed an
unqualified opinion on those consolidated financial statements.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
Dallas, Texas
October 10, 2005
F-4
DYNAMEX INC.
Consolidated Balance Sheets
July 31, 2005 and 2004
(in thousands, except per share data)
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
ASSETS |
|
|
|
|
|
|
|
|
CURRENT |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
11,678 |
|
|
$ |
7,927 |
|
Accounts receivable (net of allowance for doubtful
accounts of $767 and $751, respectively) |
|
|
31,703 |
|
|
|
27,355 |
|
Prepaid and other current assets |
|
|
3,115 |
|
|
|
1,825 |
|
Deferred income taxes |
|
|
1,992 |
|
|
|
2,359 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
48,488 |
|
|
|
39,466 |
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT — net |
|
|
5,597 |
|
|
|
4,731 |
|
GOODWILL |
|
|
46,088 |
|
|
|
45,271 |
|
INTANGIBLES — net |
|
|
463 |
|
|
|
475 |
|
DEFERRED INCOME TAXES |
|
|
7,625 |
|
|
|
10,910 |
|
OTHER |
|
|
1,214 |
|
|
|
1,219 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
109,475 |
|
|
$ |
102,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable trade |
|
$ |
11,145 |
|
|
$ |
5,216 |
|
Accrued liabilities |
|
|
14,426 |
|
|
|
17,546 |
|
Current portion of long-term debt |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
25,571 |
|
|
|
22,762 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT |
|
|
8 |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
25,579 |
|
|
|
32,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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;
11,612 and 11,435 outstanding, respectively |
|
|
116 |
|
|
|
114 |
|
Additional paid-in capital |
|
|
77,196 |
|
|
|
75,309 |
|
Retained earnings (accumulated deficit) |
|
|
3,768 |
|
|
|
(7,417 |
) |
Accumulated other comprehensive income: |
|
|
|
|
|
|
|
|
Cumulative translation adjustment |
|
|
2,816 |
|
|
|
1,304 |
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
83,896 |
|
|
|
69,310 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
109,475 |
|
|
$ |
102,072 |
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-5
DYNAMEX INC.
Consolidated Statements of Operations
Years ended July 31, 2005, 2004 and 2003
(in thousands except per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Sales |
|
$ |
321,103 |
|
|
$ |
287,856 |
|
|
$ |
250,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchased transportation |
|
|
206,316 |
|
|
|
180,509 |
|
|
|
156,611 |
|
Other direct costs |
|
|
25,707 |
|
|
|
25,978 |
|
|
|
21,239 |
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
232,023 |
|
|
|
206,487 |
|
|
|
177,850 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
89,080 |
|
|
|
81,369 |
|
|
|
72,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
47,606 |
|
|
|
44,632 |
|
|
|
40,443 |
|
Other |
|
|
21,443 |
|
|
|
19,394 |
|
|
|
17,974 |
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
69,049 |
|
|
|
64,026 |
|
|
|
58,417 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,648 |
|
|
|
1,890 |
|
|
|
2,124 |
|
(Gain) loss on disposal of property and equipment |
|
|
(21 |
) |
|
|
(41 |
) |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
18,404 |
|
|
|
15,494 |
|
|
|
12,391 |
|
Interest expense |
|
|
466 |
|
|
|
1,406 |
|
|
|
2,194 |
|
Other income, net |
|
|
(226 |
) |
|
|
(182 |
) |
|
|
(340 |
) |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
18,164 |
|
|
|
14,270 |
|
|
|
10,537 |
|
Income taxes |
|
|
6,979 |
|
|
|
1,437 |
|
|
|
2,959 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
11,185 |
|
|
$ |
12,833 |
|
|
$ |
7,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.97 |
|
|
$ |
1.13 |
|
|
$ |
0.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
0.95 |
|
|
$ |
1.11 |
|
|
$ |
0.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding |
|
|
11,544 |
|
|
|
11,314 |
|
|
|
11,208 |
|
Adjusted common shares — assuming
exercise of stock options |
|
|
11,804 |
|
|
|
11,532 |
|
|
|
11,364 |
|
See accompanying notes to the consolidated financial statements.
F-6
DYNAMEX INC.
Consolidated Statements of Stockholders’ Equity
Years ended July 31, 2005, 2004 and 2003
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
| |
|
Common Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
Comprehensive |
|
|
|
|
| |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
(Deficit) |
|
|
Income (Loss) |
|
|
Total |
|
BALANCE AT JULY 31, 2002 |
|
|
11,207 |
|
|
$ |
112 |
|
|
$ |
74,062 |
|
|
$ |
(27,828 |
) |
|
$ |
(1,222 |
) |
|
$ |
45,124 |
|
Issuance of common stock |
|
|
1 |
|
|
|
— |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,578 |
|
|
|
|
|
|
|
7,578 |
|
Unrealized foreign currency
translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,624 |
|
|
1,624 |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JULY 31, 2003 |
|
|
11,208 |
|
|
|
112 |
|
|
|
74,064 |
|
|
|
(20,250 |
) |
|
|
402 |
|
|
|
54,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
common stock, including tax benefit of $164 |
|
|
227 |
|
|
|
2 |
|
|
|
927 |
|
|
|
|
|
|
|
|
|
|
|
929 |
|
Stock option compensation |
|
|
|
|
|
|
|
|
|
|
318 |
|
|
|
|
|
|
|
|
|
|
|
318 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,833 |
|
|
|
|
|
|
|
12,833 |
|
Unrealized foreign currency
translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
902 |
|
|
902 |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JULY 31, 2004 |
|
|
11,435 |
|
|
$ |
114 |
|
|
$ |
75,309 |
|
|
$ |
(7,417 |
) |
|
$ |
1,304 |
|
|
$ |
69,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
common stock, including tax benefit of $317 |
|
|
177 |
|
|
|
2 |
|
|
|
1,428 |
|
|
|
|
|
|
|
|
|
|
|
1,430 |
|
Stock option compensation |
|
|
|
|
|
|
|
|
|
|
459 |
|
|
|
|
|
|
|
|
|
|
|
459 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,185 |
|
|
|
|
|
|
|
11,185 |
|
Unrealized foreign currency
translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,512 |
|
|
1,512 |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JULY 31, 2005 |
|
|
11,612 |
|
|
$ |
116 |
|
|
$ |
77,196 |
|
|
$ |
3,768 |
|
|
$ |
2,816 |
|
|
$ |
83,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-7
DYNAMEX INC.
Consolidated Statements of Cash Flows
Years ended July 31, 2005, 2004 and 2003
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
11,185 |
|
|
$ |
12,833 |
|
|
$ |
7,578 |
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,648 |
|
|
|
1,890 |
|
|
|
2,124 |
|
Amortization of deferred bank financing fees |
|
|
59 |
|
|
|
610 |
|
|
|
632 |
|
Provision for losses on accounts receivable |
|
|
531 |
|
|
|
919 |
|
|
|
896 |
|
Stock option compensation |
|
|
459 |
|
|
|
318 |
|
|
|
— |
|
Deferred income taxes |
|
|
3,652 |
|
|
|
(1,229 |
) |
|
|
1,024 |
|
Tax benefit realized by exercise of stock options |
|
|
317 |
|
|
|
164 |
|
|
|
— |
|
(Gain) loss on disposal of property and equipment |
|
|
(21 |
) |
|
|
(41 |
) |
|
|
19 |
|
Changes in current operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(4,879 |
) |
|
|
(2,165 |
) |
|
|
(3,840 |
) |
Prepaids and other current assets |
|
|
(929 |
) |
|
|
628 |
|
|
|
770 |
|
Accounts payable and accrued liabilities |
|
|
2,812 |
|
|
|
1,393 |
|
|
|
3,932 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
14,834 |
|
|
|
15,320 |
|
|
|
13,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(2,423 |
) |
|
|
(2,243 |
) |
|
|
(1,744 |
) |
Cash payment for acquisition |
|
|
(100 |
) |
|
|
— |
|
|
|
— |
|
Net proceeds from disposal of property and equipment |
|
|
28 |
|
|
|
12 |
|
|
|
56 |
|
Purchase of investments |
|
|
(358 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(2,853 |
) |
|
|
(2,231 |
) |
|
|
(1,688 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt |
|
|
(2 |
) |
|
|
(2,979 |
) |
|
|
(6,991 |
) |
Net payments under line of credit |
|
|
(10,000 |
) |
|
|
(6,866 |
) |
|
|
(4,475 |
) |
Proceeds from stock option exercise |
|
|
1,113 |
|
|
|
765 |
|
|
|
2 |
|
Other assets |
|
|
(2 |
) |
|
|
(752 |
) |
|
|
(801 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(8,890 |
) |
|
|
(9,832 |
) |
|
|
(12,265 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATES ON CASH |
|
|
661 |
|
|
|
332 |
|
|
|
667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
3,751 |
|
|
|
3,589 |
|
|
|
(151 |
) |
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
|
|
7,927 |
|
|
|
4,338 |
|
|
|
4,489 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF YEAR |
|
$ |
11,678 |
|
|
$ |
7,927 |
|
|
$ |
4,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
506 |
|
|
$ |
734 |
|
|
$ |
1,767 |
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes |
|
$ |
2,872 |
|
|
$ |
2,124 |
|
|
$ |
1,413 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-8
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description
of business — Dynamex Inc. (the “Company” or “Dynamex”) provides same-day delivery
and logistics services in the United States and Canada. The Company’s primary services are (i)
same-day, on-demand delivery, (ii) scheduled and distribution and (iii) fleet outsourcing and
facilities management.
The operating subsidiaries of the Company, with country of incorporation, are as follows:
| • |
|
Dynamex Operations East Inc. (U.S.) |
| |
| • |
|
Dynamex Operations West Inc. (U.S.) |
| |
| • |
|
Dynamex Dedicated Fleet Services, Inc. (U.S.) |
| |
| • |
|
Dynamex Fleet Services, Inc. (U.S.) |
| |
| • |
|
Dynamex Canada Corp. (Canada) |
| |
| • |
|
Alpine Enterprises Ltd. (Canada) |
| |
| • |
|
Roadrunner Transportation, Inc. (U.S.) |
| |
| • |
|
New York Document Exchange Corp. (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 |
Leasehold Improvements
|
|
5 years |
The Company periodically reviews property and equipment whenever events or changes in
circumstances indicate that their carrying amounts may not be recoverable or their depreciation
or amortization periods should be accelerated. When any such impairment exists, the related
assets will be written down to their fair value.
The Company capitalizes both internal and external costs of developing or obtaining computer
software for internal use. Costs incurred to develop internal-use software during the
application development stage are capitalized, while data conversion, training and maintenance
costs associated with internal-use software are expensed as incurred. As of July 31, 2005 and
2004, the net book value of capitalized software costs was $2,044 and $945, respectively.
Amortization expense related to capitalized software was $414, $488 and $555 in fiscal years
2005, 2004 and 2003, 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
The Company places its temporary cash investments with high-credit, quality financial
institutions. At times such amounts may exceed F.D.I.C. limits. The Company limits the amount
of credit exposure with any one financial institution and believes no significant concentration
of credit risk exists with respect to cash investments.
The Company’s customers are not concentrated in any specific geographic region or industry. No
single customer accounted for a significant amount of the Company’s sales and there were no
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. During the year ended July 31, 2005, sales to Office
Depot, Inc. represented approximately 9.9% of the Company’s revenue. Management believes that
sales to this customer may exceed 10% of consolidated sales during the ensuing fiscal year.
Intangibles — Intangibles arise from acquisitions accounted for as purchased business
combinations and include goodwill, covenants not-to-compete and other identifiable intangibles
and from the payment of financing costs associated with the Company’s credit facility. Goodwill
represents the excess purchase price over all tangible and identifiable intangible net assets
acquired. Effective August 1, 2001 the Company adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”) which requires, among
other things, that companies no longer amortize goodwill and instead sets forth methods to
periodically evaluate goodwill for impairment. The Company will conduct 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, perform a detailed analysis of the reporting unit’s assets and
liabilities to determine whether the goodwill is impaired. The Company performed its goodwill
impairment test as of the first day of the fourth quarter of fiscal 2005. Based on this test,
the fair value of the goodwill exceeds the carrying amount. Other intangible assets are being
amortized over periods ranging from 3 to 25 years. Deferred bank financing fees are amortized
over the term of the related credit facility. Amortization of deferred financing fees is
classified as interest expense in the consolidated statement of operations. Aggregate
amortization expense during the years ended July 31, 2005, 2004 and 2003 totaled $34, $21 and
$33, respectively. Estimated amortization expense for the succeeding five fiscal years is
approximately $75 per year for years 2006 and 2007 and approximately $20 thereafter.
Revenue
recognition — Revenue and direct expenses are recognized when services are rendered to
customers.
Cash
and cash equivalents — The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Allowance for doubtful accounts — The Company maintains an allowance for doubtful accounts for
estimated losses resulting from the inability of its customers to make payments when due or
within a reasonable period of time thereafter. Estimates are used in determining this allowance
based on the Company’s historical collection experience, current trends, credit policy and a
percentage of accounts receivable by aging category. If the financial condition of the
Company’s customers were to deteriorate, resulting in an impairment of their ability to make
required payments, additional allowances may be required. The Company’s allowance at July 31,
2005 is approximately 2.4% of outstanding accounts receivable compared to approximately 2.7% at
July 31, 2004.
Financial
instruments — Carrying values of cash and cash equivalents, accounts receivable,
accounts payable and the current portion of long-term debt 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.
The Company utilizes interest rate swaps to reduce interest rate fluctuation risk. Fair value
of these instruments is determined based on estimated settlement costs using current interest
rates. Mark-to-market adjustments under these agreements are recorded quarterly as an
adjustment to interest expense. The Company does not hold or issue derivative financial
instruments for speculative or trading purposes. In the event that this swap was terminated
prior to its contractual maturity, the resulting gain or loss would be recognized immediately.
Financing
costs — During the fiscal years ended July 31, 2004, and 2003, the Company incurred
$124, and $878, respectively of costs incurred in connection with debt financings and amendments
(See Note 6 of Notes to the Consolidated Financial Statements). These costs are being amortized
over the terms of the respective
F-10
financings and are included in interest expense. The amounts of amortization and the write-off
of previous deferred financing costs were $59 in 2005, $610 in 2004 and $632 in 2003.
Self-insured claims liability — The Company is primarily self-insured for U.S. workers’
compensation and vehicle liability claims. A liability for unpaid claims and the associated
claim expenses, including incurred but unreported losses, are recorded based on the Company’s
estimates of the aggregate liability for claims incurred. The Company’s estimates are based on
actual experience and historical assumptions of development of unpaid liabilities over time.
Factors affecting the determination of amounts to be accrued for claims include, but are not
limited to, cost, frequency, or payment patterns resulting from new types of claims, the hazard
level of our operations, tort reform or other legislative changes, unfavorable jury decisions,
court interpretations, changes in the medical conditions of claimants and economic factors such
as inflation. The method of calculating the estimated accrued liability for claims is subject
to inherent uncertainty. If actual results are less favorable than what are used to calculate
the accrued liability, the Company would have to record expenses in excess of what has already
been accrued.
Income taxes — Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes related primarily to
differences between the basis of assets and liabilities for financial and income tax reporting.
The net deferred tax assets and liabilities represent the future tax return consequences of
those differences, which will either be taxable or deductible when the assets and liabilities
are recovered or settled.
Stock-based compensation — Statement of Financial Accounting Standards No. 123, “Accounting for
Stock Based Compensation,” (“SFAS No. 123”) encourages but does not require companies to record
compensation cost for stock based employee compensation plans at fair value. In accordance with
SFAS No. 123, the Company had previously elected to continue to account for stock based
compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion
No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations during the
fiscal years ended on or before July 31, 2003. Accordingly, compensation cost for stock options
is measured as the excess, if any, of the quoted market price of the Company’s stock at the date
of the grant over the amount an employee must pay to acquire the stock. (See Note 10 of Notes
to the Consolidated Financial Statements)
Prior to August 1, 2003, the Company applied APB Opinion No. 25 and related interpretations in
accounting for its stock options. The exercise price of stock options granted was equal to the
market price of the stock on the date of grant; therefore, using the intrinsic value method to
value the options, no compensation cost had been recognized for stock options in the financial
statements. Had the Company determined compensation cost based on the fair value at the grant
date for its stock options consistent with the method set forth under SFAS No. 123, the
Company’s net earnings would have been reduced to the pro forma amounts indicated below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years ended July 31, |
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Net income (loss): |
|
$ |
11,185 |
|
|
$ |
12,833 |
|
|
$ |
7,578 |
|
As reported |
|
|
|
|
|
|
|
|
|
|
|
|
Deduct: Total stock based compensation expense
determined under fair value based method for
all awards, net of related tax effects |
|
|
— |
|
|
|
— |
|
|
|
416 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
11,185 |
|
|
$ |
12,833 |
|
|
$ |
7,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share — assuming dilution: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic — as reported |
|
$ |
0.97 |
|
|
$ |
1.13 |
|
|
$ |
0.68 |
|
Basic — pro forma |
|
|
0.97 |
|
|
|
1.13 |
|
|
|
0.64 |
|
Diluted — as reported |
|
|
0.95 |
|
|
|
1.11 |
|
|
|
0.67 |
|
Diluted — pro forma |
|
|
0.95 |
|
|
|
1.11 |
|
|
|
0.63 |
|
F-11
The fair value of each grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for grants in 2005, 2004, and 2003,
respectively: dividend yield of 0% for all years; expected volatility of 70%, 83%, and 76%;
risk-free interest rate of 4.2%, 4.7%, and 4.1%, and expected lives of an average of 10 years
for all years. The weighted average fair value of options granted during 2005, 2004, and 2003
was $10.02, $6.67, and $3.13, respectively.
Effective August 1, 2003, the Company elected to adopt the fair value recognition provisions of
SFAS No. 123 for stock-based employee compensation. Under the modified prospective method of
adoption selected by the Company, stock-based employee compensation cost recognized in 2005 and
2004 was the same as that which would have been recognized had the fair value recognition
provisions of SFAS No. 123 been applied to all awards granted after August 1, 1995. As
discussed in Note 10 of Notes to the Consolidated Financial Statements, option expense in 2005
and 2004 amounted to $459 and $318, respectively, under the fair value approach compared to no
expense in 2003 under the intrinsic value method. Based on the outstanding and unvested awards
as of July 31, 2005, the anticipated effect on net income for fiscal 2006, net of taxes, will be
approximately $403.
Net
income (loss) per share — Basic net income (loss) 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. 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 10, 230 and 297 shares of common
stock at July 31, 2005, 2004 and 2003, respectively, were not included in the computation of net
income per share as their effect would be antidilutive. Outstanding stock options issued by the
Company represent the only dilutive effect reflected in diluted weighted average shares.
Foreign
currency translation — Assets and liabilities in foreign currencies are translated into
U.S. dollars at the rates in effect at the balance sheet date. Revenues and expenses are
translated at average rates during the year. The net exchange differences resulting from these
translations are recorded in stockholders’ equity. Where amounts denominated in a foreign
currency are converted into dollars by remittance or repayment, the realized exchange
differences are included in the Consolidated Statement of Operations.
New accounting pronouncements — In October 2004, the American Jobs Creation Act of 2004 (the
“Act”) was signed into law. The Act creates a temporary incentive for U.S. corporations to
repatriate undistributed foreign earnings by providing an 85% dividends received deduction The
Company is studying the impact of the Act but currently does not expect it to have a material
impact on its consolidated financial position or results of operations.
In November 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 151.
“Inventory Costs, an amendment of APB No. 43, Chapter 4.” SFAS 151 clarifies that abnormal
inventory costs such as costs of idle facilities, excess freight and handling costs, and wasted
materials (spoilage) are required to be recognized as current period charges. The provisions of
SFAS 151 are effective for our fiscal year beginning July 31, 2006. The Company does not expect
that the adoption of SFAS 151 will have a material impact on its consolidated financial position
or results of operations.
In December 2004, the FASB enacted Statement of Financial Accounting Standards No. 123R,
“Share-Based Payment” (“SFAS No. 123R”) which replaces Statement of Financial Accounting
Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and supersedes APB
Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123R requires the
measurement of all employee share-based payments to employees, including grants of employee
stock options, using a fair-value-based method and the recording of such expense in our
consolidated statements of operations. The accounting provisions of SFAS No. 123R have been
substantially adopted by the Company for reporting periods beginning on and after August 1, 2003
(see the discussion above under the caption “Stock-based compensation.”
In May 2005, the FASB issued Statement No. 154, “Accounting Changes and Error Corrections” (SFAS
154). SFAS 154 replaces APB Opinion No. 20, “Accounting Changes” and FASB Statement No.
3,“Reporting Accounting Changes in Interim Financial Statements” SFAS 154 requires that a
voluntary change in accounting principle be applied retrospectively with all prior period
financial statements presented on the new accounting principle, unless it is impracticable to do
so. SFAS 154 also provides that a correction of errors in previously issued financial statements
should be termed a “restatement.” The new standard is effective for accounting
F-12
changes and correction of errors beginning July 1, 2005. The Company does not expect that the
adoption of SFAS 154 will have a material impact on our consolidated financial position or
results of operations.
Reclassification — Certain reclassifications have been made to conform prior year data to the
current presentation.
2. COMPUTATION OF EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the basic and diluted
earnings per share computation as required by Statement of Financial Accounting Standards No.
128, Earnings Per Share. Common stock equivalents related to stock options are excluded from
diluted earnings per share calculation if their effect would be antidilutive to earnings per
share.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended July 31, |
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Net income |
|
$ |
11,185 |
|
|
$ |
12,833 |
|
|
$ |
7,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
11,544 |
|
|
|
11,314 |
|
|
|
11,208 |
|
Common share equivalents related to options |
|
|
260 |
|
|
|
218 |
|
|
|
156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares and common share equivalents |
|
|
11,804 |
|
|
|
11,532 |
|
|
|
11,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.97 |
|
|
$ |
1.13 |
|
|
$ |
0.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
0.95 |
|
|
$ |
1.11 |
|
|
$ |
0.67 |
|
|
|
|
|
|
|
|
|
|
|
3. INTANGIBLES
Intangibles consist of the following:
| |
|
|
|
|
|
|
|
|
| |
|
July 31, |
|
| |
|
2005 |
|
|
2004 |
|
Carrying amount: |
|
|
|
|
|
|
|
|
Deferred bank financing fees |
|
$ |
126 |
|
|
$ |
124 |
|
Customer lists |
|
|
80 |
|
|
|
— |
|
Trademarks |
|
|
470 |
|
|
|
470 |
|
|
|
|
|
|
|
|
|
|
|
676 |
|
|
|
594 |
|
|
|
|
|
|
|
|
|
|
Less accumulated amortization: |
|
|
|
|
|
|
|
|
Deferred bank financing fees |
|
|
(70 |
) |
|
|
(11 |
) |
Customer lists |
|
|
(13 |
) |
|
|
— |
|
Trademarks |
|
|
(130 |
) |
|
|
(108 |
) |
|
|
|
|
|
|
|
|
|
|
(213 |
) |
|
|
(119 |
) |
|
|
|
|
|
|
|
Intangibles — net |
|
$ |
463 |
|
|
$ |
475 |
|
|
|
|
|
|
|
|
F-13
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
| |
|
|
|
|
|
|
|
|
| |
|
July 31, |
|
| |
|
2005 |
|
|
2004 |
|
Equipment |
|
$ |
16,260 |
|
|
$ |
15,399 |
|
Software |
|
|
6,921 |
|
|
|
5,036 |
|
Furniture |
|
|
1,985 |
|
|
|
1,949 |
|
Vehicles |
|
|
564 |
|
|
|
618 |
|
Leasehold improvements |
|
|
2,596 |
|
|
|
2,656 |
|
Other |
|
|
2 |
|
|
|
969 |
|
|
|
|
|
|
|
|
|
|
|
28,328 |
|
|
|
26,627 |
|
Less accumulated depreciation |
|
|
(22,731 |
) |
|
|
(21,896 |
) |
|
|
|
|
|
|
|
Property and equipment — net |
|
$ |
5,597 |
|
|
$ |
4,731 |
|
|
|
|
|
|
|
|
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
| |
|
|
|
|
|
|
|
|
| |
|
July 31, |
|
| |
|
2005 |
|
|
2004 |
|
Salaries and wages |
|
$ |
2,967 |
|
|
$ |
5,135 |
|
Independent contractor settlements |
|
|
3,364 |
|
|
|
4,458 |
|
Workers’ compensation |
|
|
1,951 |
|
|
|
1,846 |
|
Vacation |
|
|
1,824 |
|
|
|
1,761 |
|
Interest |
|
|
34 |
|
|
|
51 |
|
Deferred Revenue |
|
|
362 |
|
|
|
285 |
|
Taxes — other |
|
|
1,070 |
|
|
|
1,036 |
|
Other |
|
|
2,854 |
|
|
|
2,974 |
|
|
|
|
|
|
|
|
Total accrued liabilities |
|
$ |
14,426 |
|
|
$ |
17,546 |
|
|
|
|
|
|
|
|
6. LONG-TERM DEBT
Long-term debt consists of the following:
| |
|
|
|
|
|
|
|
|
| |
|
July 31, |
|
| |
|
2005 |
|
|
2004 |
|
Revolving credit facility (a) |
|
$ |
— |
|
|
$ |
10,000 |
|
Bank credit agreement (b) |
|
|
— |
|
|
|
— |
|
Capital leases (c) |
|
|
8 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
10,000 |
|
Less current portion |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
8 |
|
|
$ |
10,000 |
|
|
|
|
|
|
|
|
F-14
a) Revolving Credit Agreement
On April 22, 2005, the Company entered into the First Amendment (the “Amendment”) to the March
2, 2004 $30,000,000 Revolving Credit Facility (the “Credit Facility”) (together the “Amended
Credit Facility”). The Amendment decreased the facility from $30,000,000 to $15,000,000, and
reduced the applicable margin on LIBOR contracts from a range of 1.25% — 1.75% to 1.00% — 1.50%,
based on the ratio of Funded Debt to EBITDA, as defined in the Credit Facility. The Amendment
also extended the maturity date to November 30, 2008 from November 30, 2007 and reduced the
restrictions on Permitted Acquisitions. The Amended Credit Facility has no scheduled principal
payments; however, the Company is required to maintain certain financial ratios related to
minimum amounts of stockholders’ equity, fixed charges to cash flow, funded debt to cash flow
and funded debt to eligible receivables, as defined. Amounts outstanding under the Amended
Credit Facility are secured by all of the Company’s U.S. assets and 100% of the stock of its
domestic subsidiaries. The Credit Facility also contains restrictions on incurring additional
debt and investments by the Company. There was no debt outstanding under the Amended Credit
Facility at July 31, 2005; however, there were outstanding letters of credit totaling $3.2
million.
On March 2, 2004, the Company replaced its existing bank credit agreement with a new $30 million
Senior Secured, Revolving Credit Facility that matures on November 30, 2007, (the “Revolving
Credit Facility”). Under the terms of the new facility, interest is payable quarterly at prime,
or LIBOR plus a margin ranging from 1.25% to 1.75% (1.5% at July 31, 2004), based on the ratio
of Funded Debt to EBITDA, as defined in the Revolving Credit Facility. There are no scheduled
principal payments; however, the Company is required to maintain certain financial ratios
related to minimum amounts of stockholders’ equity, fixed charges to cash flow, funded debt to
cash flow and funded debt to eligible receivables, as defined. Amounts outstanding under the
Revolving Credit Facility are secured by all of the Company’s U.S. assets and 100% of the stock
of its domestic subsidiaries. The Revolving Credit Facility also contains restrictions on
incurring additional debt and investments by the Company. Amounts outstanding under the
Revolving Credit Facility at July 31, 2004 included borrowings of $10 million and outstanding
letters of credit totaling $4.1 million.
In conjunction with the Bank Credit Agreement described below, the Company entered into an
interest rate protection arrangement effective June 20, 2003 for a notional amount of $13
million. The notional amount decreases by $1.375 million per quarter until maturity, and as of
July 31, 2005, the notional amount was zero as a result of terminating the agreement on July 6,
2005, which termination resulted in a nominal gain. The interest rate had been fixed at LIBOR
plus a margin of 1.49% (2.99% at July 31, 2004). This arrangement originally matured November
30, 2005. The fair value of the Company’s interest rate protection arrangement was an asset of
approximately $30 at July 31, 2004.
b) Bank Credit Agreement
The Third Amendment to the Third Amended and Restated Credit Agreement (the “Bank Credit
Agreement”) was executed May 30, 2003 and paid in full with proceeds from the Revolving Credit
Facility in March 2004. The revolving portion of the Bank Credit Agreement was governed by an
eligible accounts receivable borrowing base agreement, defined as 80% of accounts receivable
less than 60 days past due. Required principal payments on the amortizing term loan consisted
of $1.375 million quarterly, with a final payment of $625 due on November 30, 2005. Interest on
outstanding borrowings was payable monthly at prime plus a margin ranging from 0.5% to 0%, or
LIBOR plus a margin ranging from 3.5% to 2%, based on the ratio of Total Debt to EBITDA, as
defined. In addition, the Company was required to pay a commitment fee for any unused amounts
of the revolving credit facility, ranging from 0.5% to 0.25% per annum based on the ratio of
Total Debt to EBITDA.
c) Capital leases
In connection with the acquisition of certain property the Company has capitalized certain
leases which are expected to be repaid by 2007.
F-15
Scheduled payments in each of the next five years and thereafter on capital lease obligations
are as follows:
| |
|
|
|
|
2006 |
|
$ |
— |
|
2007 |
|
|
8 |
|
2008 |
|
|
— |
|
2009 |
|
|
— |
|
2010 |
|
|
— |
|
Thereafter |
|
|
— |
|
|
|
|
|
|
|
$ |
8 |
|
|
|
|
|
7. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company leases certain equipment and properties under non-cancelable operating lease
agreements, which expire at various dates.
At July 31, 2005, minimum annual lease payments for such operating leases are as follows:
| |
|
|
|
|
2006 |
|
$ |
6,592 |
|
2007 |
|
|
4,945 |
|
2008 |
|
|
3,471 |
|
2009 |
|
|
2,368 |
|
2010 |
|
|
1,297 |
|
Thereafter |
|
|
250 |
|
|
|
|
|
|
|
$ |
18,922 |
|
|
|
|
|
Rent expense related to operating leases amounted to approximately $12,318, $10,276, and
$8,501 for the years ended July 31, 2005, 2004 and 2003, respectively.
CONTINGENCIES
On February 4, 2005, a purported class action was filed against the Company by a former Company
driver in the United States District Court for the Northern District of Illinois, Eastern
Division, on behalf of himself and other past or present Company drivers alleging that the
Company’s drivers are employees of the Company, rather than independent contractors, and as a
consequence, are entitled to overtime compensation and other benefits under federal and state
wage and hour laws.
On April 15, 2005, a similar purported class action was filed against the Company by a former
Company driver 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.
We believe that the Company’s drivers are properly classified as independent contractors and
intend to vigorously defend this litigation. Given the nature and preliminary status of the
claims, however, we cannot yet determine the amount or a reasonable range of potential loss in
these matters, if any.
The Company is a party to various legal proceedings arising in the ordinary course of its
business. Management believes that the ultimate resolution of these proceedings will not, in
the aggregate, have a material adverse effect on the financial condition, results of operations,
or liquidity of the Company.
F-16
8. INCOME TAXES
The United States and Canadian components of income before income taxes are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years ended July 31, |
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Canada |
|
$ |
6,135 |
|
|
$ |
5,671 |
|
|
$ |
4,404 |
|
United States |
|
|
12,029 |
|
|
|
8,599 |
|
|
|
6,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,164 |
|
|
$ |
14,270 |
|
|
$ |
10,537 |
|
|
|
|
|
|
|
|
|
|
|
The provision (credit) for income tax expense (benefit) consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years ended July 31, |
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Current tax expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
$ |
2,091 |
|
|
$ |
2,051 |
|
|
$ |
1,619 |
|
United States — Federal |
|
|
519 |
|
|
|
89 |
|
|
|
32 |
|
United States — States |
|
|
717 |
|
|
|
526 |
|
|
|
284 |
|
|
|
|
|
|
|
|
|
|
|
Total current tax expense |
|
|
3,327 |
|
|
|
2,666 |
|
|
|
1,935 |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
|
64 |
|
|
|
27 |
|
|
|
— |
|
United States — Federal |
|
|
3,426 |
|
|
|
(1,589 |
) |
|
|
765 |
|
United States — States |
|
|
162 |
|
|
|
333 |
|
|
|
259 |
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax expense (benefit) |
|
|
3,652 |
|
|
|
(1,229 |
) |
|
|
1,024 |
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision |
|
$ |
6,979 |
|
|
$ |
1,437 |
|
|
$ |
2,959 |
|
|
|
|
|
|
|
|
|
|
|
Differences between financial accounting principles and tax laws cause differences between the
bases of certain assets and liabilities for financial reporting purposes and tax purposes. The
tax effects of these differences, to the extent they are temporary, are recorded as deferred tax
assets and liabilities under Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes (“SFAS No. 109”) and consisted of the following components:
F-17
| |
|
|
|
|
|
|
|
|
| |
|
July 31, |
|
| |
|
2005 |
|
|
2004 |
|
Deferred tax asset: |
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
252 |
|
|
$ |
206 |
|
Fixed assets |
|
|
18 |
|
|
|
(311 |
) |
Amortization of intangibles |
|
|
6,090 |
|
|
|
7,413 |
|
Accrued Vacation |
|
|
488 |
|
|
|
454 |
|
Accrued liabilities and other |
|
|
1,252 |
|
|
|
1,699 |
|
Stock option expense |
|
|
182 |
|
|
|
121 |
|
Deferred Compensation |
|
|
247 |
|
|
|
— |
|
Charitable contribution carryover |
|
|
— |
|
|
|
— |
|
Foreign tax credit carryforward |
|
|
2,104 |
|
|
|
1,566 |
|
WOTC tax credit carryforward |
|
|
127 |
|
|
|
127 |
|
State net operating loss carryforward |
|
|
597 |
|
|
|
1,022 |
|
Federal net operating loss carryforward |
|
|
157 |
|
|
|
2,375 |
|
Alternative minimum tax credit |
|
|
237 |
|
|
|
127 |
|
|
|
|
|
|
|
|
Total deferred tax benefits |
|
|
11,751 |
|
|
|
14,799 |
|
Less valuation allowance |
|
|
(1,294 |
) |
|
|
(754 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
|
|
10,457 |
|
|
|
14,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability: |
|
|
|
|
|
|
|
|
Fixed assets |
|
|
(840 |
) |
|
|
(776 |
) |
|
|
|
|
|
|
|
Total deferred tax liability |
|
|
(840 |
) |
|
|
(776 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
9,617 |
|
|
$ |
13,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial statements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax asset |
|
$ |
1,992 |
|
|
$ |
2,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax asset |
|
$ |
7,625 |
|
|
$ |
10,910 |
|
|
|
|
|
|
|
|
The Company establishes valuation allowances in accordance with the provisions of SFAS No. 109.
During the year ended July 31, 2004, the Company determined that it was more likely than not
that the benefits of the net operating loss carryforward totaling $10.6 million at January 31,
2004 would be realized based on first-half results for the current year and projected results
over the next three years. The Company had previously provided a 100% valuation allowance on
this NOL and based on the determination that the Company would be able to realize the NOL,
reversed the remaining valuation allowance during the second quarter of the fiscal year 2004,
resulting in a credit to income tax expense of approximately $3.7 million. The Company has
utilized substantially all of the NOL during the 2004 and 2005 fiscal years. At July 31, 2005
the Company has provided a valuation allowance of approximately $1.3 million against a foreign
tax credit carryforward. At July 31, 2004 the valuation allowance provided was $627 against a
foreign tax credit and $127 for a WOTC tax credit carryforward, respectively. The Company
continually reviews the adequacy of the valuation allowances and releases the allowances when it
is determined that it is more likely than not that the benefits will be realized.
F-18
The Company has an estimated foreign tax credit carryforward of $2.1 million as of July 31,
2005. This carryforward is available to offset future United States federal income taxes on foreign source income. The
foreign tax credit expires as follows:
| |
|
|
|
|
| Year of |
|
|
|
| Expiration |
|
Amount |
|
2014 |
|
$ |
1,434 |
|
2015 |
|
|
670 |
|
|
|
|
|
|
|
$ |
2,104 |
|
|
|
|
|
The Company has not provided for U.S. Federal and foreign withholding taxes on the foreign
subsidiaries’ undistributed earnings as of July 31, 2005. Such earnings are intended to be
reinvested indefinitely.
The company has engaged professional tax advisors in Canada to assist in the ongoing discussions
with the Canadian Revenue Authority regarding issues surrounding transfer pricing. The Canadian
Revenue Authority is challenging specifically certain of the allocations of expenses between the
Canadian and United States operations for the 2002 and 2003 fiscal years. The Company does not
anticipate any significant adjustments relating to the challenges raised by the Canadian Revenue
Authority.
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, |
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Income taxes at statutory rate |
|
$ |
6,176 |
|
|
$ |
4,852 |
|
|
$ |
3,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on taxes resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
State taxes |
|
|
879 |
|
|
|
859 |
|
|
|
599 |
|
Foreign |
|
|
245 |
|
|
|
227 |
|
|
|
1,265 |
|
(Increase) decrease in foreign tax credit |
|
|
(538 |
) |
|
|
(627 |
) |
|
|
(939 |
) |
Increase (decrease) in valuation allowance |
|
|
540 |
|
|
|
(3,523 |
) |
|
|
(753 |
) |
Foreign previously taxed income |
|
|
— |
|
|
|
— |
|
|
|
(1,107 |
) |
Other (including permanent differences) |
|
|
(323 |
) |
|
|
(351 |
) |
|
|
312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,979 |
|
|
$ |
1,437 |
|
|
$ |
2,959 |
|
|
|
|
|
|
|
|
|
|
|
9. RESERVE FOR DOUBTFUL ACCOUNTS
The changes in the reserve for doubtful accounts are summarized below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance at |
|
|
Additions Charges |
|
|
|
|
|
|
Balance |
|
| |
|
Beginning of |
|
|
to Costs and |
|
|
|
|
|
|
at End of |
|
| |
|
Year |
|
|
Expenses |
|
|
Deductions |
|
|
Year |
|
Fiscal year ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2005 |
|
$ |
751 |
|
|
$ |
531 |
|
|
$ |
515 |
|
|
$ |
767 |
|
July 31, 2004 |
|
|
721 |
|
|
|
919 |
|
|
|
889 |
|
|
|
751 |
|
July 31, 2003 |
|
|
562 |
|
|
|
896 |
|
|
|
737 |
|
|
|
721 |
|
10. STOCK OPTION PLAN
Effective June 5, 1996, the Company’s stockholders approved the Amended and Restated 1996 Stock
Option Plan (the “Option Plan”). The Option Plan has been subsequently amended to increase the
maximum aggregate amount of common stock with respect to which options may be granted to
1,750,000 shares. The Option Plan provides for the granting of both incentive stock options and
non-qualified stock options. In addition, the Option Plan provides for the granting of
restricted stock, which may include, without limitation, restrictions
on the right to vote such shares and restrictions on the right to receive dividends on such shares. The exercise price of
all options granted under the Option Plan may not be less than the fair market value of the
underlying
F-19
common stock on the date of grant. Generally, the options vest and become
exercisable ratably over a five-year period, commencing one year after the grant date. The
options expire 10 years from the date of grant.
Effective August 1, 2003, the Company adopted the fair value recognition provisions of Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS No.
123”) for stock-based employee compensation. Under the modified prospective method of adoption
selected by the Company under the provisions of Statement of Financial Accounting Standards No.
148, Accounting for Stock-Based Compensation — Transition and Disclosure, stock-based employee
compensation cost recognized in 2004 is the same as that which would have been recognized had
the fair value recognition provisions of SFAS No. 123 been applied to all awards granted after
August 1, 1995. Results for prior periods have not been restated. During the years ended July
31, 2005 and 2004, the Company recognized $459 and $318 of stock based compensation.
Stock option activity during the periods indicated is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years ended July 31, |
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Number of shares under option: |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year |
|
|
799,080 |
|
|
|
861,180 |
|
|
|
858,180 |
|
Granted |
|
|
22,000 |
|
|
|
181,000 |
|
|
|
10,000 |
|
Exercised |
|
|
(177,800 |
) |
|
|
(226,480 |
) |
|
|
(1,200 |
) |
Canceled |
|
|
(12,500 |
) |
|
|
(16,620 |
) |
|
|
(5,800 |
) |
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year |
|
|
630,780 |
|
|
|
799,080 |
|
|
|
861,180 |
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year |
|
|
428,180 |
|
|
|
516,600 |
|
|
|
639,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average exercise price: |
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
$ |
15.95 |
|
|
$ |
13.89 |
|
|
$ |
3.83 |
|
Exercised |
|
|
6.26 |
|
|
|
3.38 |
|
|
|
2.25 |
|
Canceled |
|
|
14.10 |
|
|
|
2.57 |
|
|
|
9.25 |
|
Outstanding at end of year |
|
|
7.68 |
|
|
|
7.23 |
|
|
|
4.73 |
|
Exercisable at end of year |
|
|
6.51 |
|
|
|
6.11 |
|
|
|
5.61 |
|
The following table summarizes information about stock options outstanding at July 31, 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Stock Options Outstanding |
|
|
Stock Options Exercisable |
|
| |
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
| Range of |
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
| Exercise Prices |
|
Shares |
|
|
Remaining Life |
|
|
Exercise Price |
|
|
Shares |
|
|
Exercise Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.40 - 2.24 |
|
|
87,000 |
|
|
|
5.07 |
|
|
$ |
1.49 |
|
|
|
86,000 |
|
|
$ |
1.49 |
|
$2.25 - 3.00 |
|
|
190,350 |
|
|
|
6.06 |
|
|
|
2.30 |
|
|
|
124,750 |
|
|
|
2.30 |
|
$3.01 - 7.00 |
|
|
7,500 |
|
|
|
7.45 |
|
|
|
3.83 |
|
|
|
7,500 |
|
|
|
3.83 |
|
$7.01 - 10.00 |
|
|
52,500 |
|
|
|
1.15 |
|
|
|
7.91 |
|
|
|
52,500 |
|
|
|
7.91 |
|
$10.01 - 12.00 |
|
|
103,430 |
|
|
|
2.60 |
|
|
|
11.10 |
|
|
|
103,430 |
|
|
|
11.10 |
|
$12.01 - 14.00 |
|
|
180,000 |
|
|
|
8.87 |
|
|
|
13.89 |
|
|
|
44,000 |
|
|
|
13.56 |
|
$14.01 - 19.00 |
|
|
10,000 |
|
|
|
9.45 |
|
|
|
18.16 |
|
|
|
10,000 |
|
|
|
18.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
630,780 |
|
|
|
5.82 |
|
|
$ |
7.68 |
|
|
|
428,180 |
|
|
$ |
6.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
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 15% of their current gross cash
compensation on a pre-tax basis at their option. Beginning January 1, 2002, changes in the tax
law provided for catch-up contributions which allow participants over 50 years of age to
contribute an additional $1 per year, rising $1 per year each year thereafter, until reaching an
additional $5 per year in 2006. The Company may make discretionary contributions to the Plan as
determined by the Company’s Board of Directors. The Company did not make any discretionary
contributions to the Plan during the years ended July 31, 2005, 2004 and 2003.
12. SHAREHOLDER RIGHTS AGREEMENT
In June 1996, the Board of Directors of the Company approved a Rights Agreement which is
designed to protect stockholders should the Company become the target of coercive and unfair
takeover tactics. Pursuant to the Rights Agreement, the Board of Directors declared a dividend
of one preferred stock purchase right (a “Right”) for each outstanding share of Common Stock on
May 31, 1996. Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of the Series A Preferred Stock, at a price of $45.00 per one
one-hundredth of a share of Series A preferred Stock, subject to possible adjustment.
13. SEGMENT INFORMATION
Dynamex Inc. operates in one reportable business segment, same-day delivery services, with three
primary service offerings: (i) same-day on-demand delivery services, (ii) same-day local and
regional distribution services and (iii) outsourcing services such as fleet management and
facilities management. The Company evaluates the performance of its geographic regions, United
States and Canada, based upon operating income before unusual and non-recurring items.
F-21
The following table summarizes selected financial information for the United States and Canada
for the years ended July 31, 2005, 2004 and 2003:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
United |
|
|
|
|
|
|
|
| |
|
States |
|
|
Canada |
|
|
Total |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
213,718 |
|
|
$ |
107,385 |
|
|
$ |
321,103 |
|
Operating income |
|
|
10,899 |
|
|
|
7,505 |
|
|
|
18,404 |
|
Identifiable assets |
|
|
75,817 |
|
|
|
33,658 |
|
|
|
109,475 |
|
Goodwill, net |
|
|
36,111 |
|
|
|
9,977 |
|
|
|
46,088 |
|
Capital expenditures |
|
|
2,200 |
|
|
|
223 |
|
|
|
2,423 |
|
Depreciation and amortization |
|
|
1,388 |
|
|
|
260 |
|
|
|
1,648 |
|
Amortization of intangibles |
|
|
59 |
|
|
|
— |
|
|
|
59 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
192,881 |
|
|
$ |
94,975 |
|
|
$ |
287,856 |
|
Operating income |
|
|
8,544 |
|
|
|
6,950 |
|
|
|
15,494 |
|
Identifiable assets |
|
|
74,771 |
|
|
|
27,301 |
|
|
|
102,072 |
|
Goodwill, net |
|
|
36,111 |
|
|
|
9,160 |
|
|
|
45,271 |
|
Capital expenditures |
|
|
2,058 |
|
|
|
185 |
|
|
|
2,243 |
|
Depreciation and amortization |
|
|
1,604 |
|
|
|
286 |
|
|
|
1,890 |
|
Amortization of intangibles |
|
|
610 |
|
|
|
— |
|
|
|
610 |
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
165,374 |
|
|
$ |
85,427 |
|
|
$ |
250,801 |
|
Operating income |
|
|
6,767 |
|
|
|
5,624 |
|
|
|
12,391 |
|
Identifiable assets |
|
|
72,776 |
|
|
|
22,765 |
|
|
|
95,541 |
|
Goodwill, net |
|
|
36,111 |
|
|
|
8,632 |
|
|
|
44,743 |
|
Capital expenditures |
|
|
1,454 |
|
|
|
290 |
|
|
|
1,744 |
|
Depreciation and amortization |
|
|
1,745 |
|
|
|
379 |
|
|
|
2,124 |
|
Amortization of intangibles |
|
|
620 |
|
|
|
12 |
|
|
|
632 |
|
F-22
14. QUARTERLY DATA (Unaudited)
Summarized quarterly financial data for 2005 and 2004 is as follows (in thousands except per
share amounts and business days):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Quarter Ended |
|
| |
|
October 31, |
|
|
January 31, |
|
|
April 30, |
|
|
July 31, |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
76,560 |
|
|
$ |
78,646 |
|
|
$ |
81,775 |
|
|
$ |
84,122 |
|
Gross profit |
|
|
21,709 |
|
|
|
21,784 |
|
|
|
23,013 |
|
|
|
22,574 |
|
Net income |
|
|
3,173 |
|
|
|
2,561 |
|
|
|
2,730 |
|
|
|
2,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.28 |
|
|
|
0.22 |
|
|
|
0.24 |
|
|
|
0.23 |
|
Assuming dilution |
|
|
0.27 |
|
|
|
0.22 |
|
|
|
0.23 |
|
|
|
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding |
|
|
11,445 |
|
|
|
11,547 |
|
|
|
11,586 |
|
|
|
11,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of business days |
|
|
64.0 |
|
|
|
62.0 |
|
|
|
63.0 |
|
|
|
63.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
70,073 |
|
|
$ |
69,375 |
|
|
$ |
74,016 |
|
|
$ |
74,392 |
|
Gross profit |
|
|
19,623 |
|
|
|
19,563 |
|
|
|
20,926 |
|
|
|
21,257 |
|
Net income |
|
|
2,250 |
|
|
|
5,219 |
* |
|
|
2,300 |
|
|
|
3,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.20 |
|
|
|
0.46 |
|
|
|
0.20 |
|
|
|
0.27 |
|
Assuming dilution |
|
|
0.20 |
|
|
|
0.45 |
|
|
|
0.20 |
|
|
|
0.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding |
|
|
11,237 |
|
|
|
11,271 |
|
|
|
11,351 |
|
|
|
11,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of business days |
|
|
64.3 |
|
|
|
60.4 |
|
|
|
63.8 |
|
|
|
63.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| * |
|
During the second quarter of fiscal year 2004, the Company determined that it was more likely
than not that the benefits of the net operating loss carryforward totaling $10.6 million at January
31, 2004 would be realized based on first-half results for the current year and projected results
over the next three years. The Company had previously provided a 100% valuation allowance on this
NOL and based on the determination that the Company would be able to realize the NOL, reversed the
remaining valuation allowance during the second quarter of the fiscal year 2004, resulting in a
credit to income tax expense of approximately $3.7 million. The Company has utilized substantially
all of the NOL during the years 2004 and 2005. |
F-23
INDEX TO EXHIBITS
| |
|
|
|
|
|
|
| Exhibit |
|
|
|
|
| Number |
|
Description |
| |
3.1 |
(2) |
|
—
|
|
Restated Certificate of Incorporation of Dynamex Inc. |
| |
3.2 |
(3) |
|
—
|
|
Bylaws, as amended and restated, of Dynamex Inc. |
| |
4.1 |
(2) |
|
—
|
|
Rights Agreement between Dynamex Inc. and Harris Trust and Savings Bank,
dated July 5, 1996. |
| |
4.2 |
(5) |
|
—
|
|
Amendment No. 1 to Rights Agreement between Dynamex Inc. and ComputerShare Investor
Services, LLC (formerly Harris Trust and Savings Bank), dated January 11, 2001 |
| |
4.3 |
(5) |
|
—
|
|
Amendment No. 2 to Rights Agreement between Dynamex Inc. and ComputerShare Investor
Services, LLC (formerly Harris Trust and Savings Bank), dated October 4, 2001 |
| |
10.1 |
(4) |
|
—
|
|
Amendment No. 2 to Employment Agreement of Richard K. McClelland. |
| |
10.2 |
(3) |
|
—
|
|
Dynamex Inc. Amended and Restated 1996 Stock Option Plan. |
| |
10.3 |
(2) |
|
—
|
|
Marketing and Transportation Services Agreement, between Purolator
Courier Ltd. and Parcelway Courier Systems Canada Ltd., dated November
20, 1995. |
| |
10.4 |
(2) |
|
—
|
|
Form of Indemnity Agreements with Executive Officers and Directors. |
| |
10.10 |
(5) |
|
—
|
|
Third Amended and Restated Credit Agreement by and among the Company
and Bank of America, N.A., as administrative agent for the lenders
therein, dated November 9, 2001. |
| |
10.11 |
(6) |
|
—
|
|
First Amendment to Third Amended and Restated Credit Agreement by and among the
Company and Bank of America, N.A., as administrative agent for the lenders
therein, dated September 27, 2002. |
| |
10.12 |
(6) |
|
—
|
|
Second Amendment to Third Amended and Restated Credit Agreement by and among the
Company and Bank of America, N.A., as administrative agent for the lenders
therein, dated October 4, 2002. |
| |
10.13 |
(7) |
|
—
|
|
Third Amendment to Third Amended and Restated Credit Agreement by and among the
Company and Bank of America, N.A., as administrative agent for the lenders
therein, dated May 30, 2003. |
| |
10.14 |
(8) |
|
—
|
|
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 |
(9) |
|
—
|
|
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. |
| |
11.1 |
|
|
—
|
|
Statement regarding computation of earnings (loss) per share. All information required by
Exhibit 11.1 is presented in Note 2 of the Company’s Consolidated Financial
Statements in accordance with the provisions of SFAS No. 128 |
| |
21.1 |
(1) |
|
—
|
|
Subsidiaries of the Registrant. |
| |
23.1 |
(1) |
|
—
|
|
Consent of BDO Seidman, LLP. |
| |
31.1 |
(1) |
|
—
|
|
Certification of Chief Executive Officer of the Registrant, pursuant to 17 CFR 240.13a — 14(a)
Or 17 CFR 240.15d — 14(a) |
| |
31.2 |
(1) |
|
—
|
|
Certification of Chief Financial Officer of the Registrant, pursuant to 17 CFR 240.13a — 14(a)
Or 17 CFR 240.15d — 14(a) |
| |
32.1 |
(1) |
|
—
|
|
Certification of Chief Executive Officer of the Registrant, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
32.2 |
(1) |
|
—
|
|
Certification of Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
| (1) |
|
Filed herewith. |
| |
| (2) |
|
Filed as an exhibit to the registrant’s Registration Statement on Form S-1 (File No.
333-05293), and incorporated herein by reference. |
| |
| (3) |
|
Filed as an exhibit to the registrant’s annual report on Form 10-K for the fiscal year ended
July 31, 1997, and incorporated herein by reference. |
| |
| (4) |
|
Filed as an exhibit to Registration Statement on Form S-1 (File No. 333-49603), and
incorporated herein by reference. |
E-1
|
|
|
| (5) |
|
Filed as an exhibit to the registrant’s annual report on Form 10-K for the fiscal year ended
July 31, 2001, and incorporated herein by reference. |
| |
| (6) |
|
Filed as an exhibit to the registrant’s annual report on Form 10-K for the fiscal year ended
July 31, 2002, and incorporated herein by reference. |
| |
| (7) |
|
Filed as an exhibit to the registrant’s quarterly report on Form 10-Q for the quarterly
period ended April 30, 2003, and incorporated herein by reference. |
| |
| (8) |
|
Filed as an exhibit to the registrant’s quarterly report on Form 10-Q for the quarterly
period ended April 30, 2004, and incorporated herein by reference. |
| |
| (9) |
|
Filed as an exhibit to the registrant’s quarterly report on Form 10-Q for the quarterly
period ended April 30, 2005, and incorporated herein by reference. |
E-2