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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
20549
   FORM 10-K [X]
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended July 31, 2004 OR [  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 000-21057 DYNAMEX INC. (Exact name of registrant as specified in its charter)
 Delaware
(State of incorporation)
    
    86-0712225
(I.R.S. Employer Identification No.)1870 Crown Drive, Dallas, Texas
(Address of principal executive offices)
    
    75234
(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    [X]    No     [  ] 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. [X] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes    [X]    No     [  ] The aggregate market value of the voting stock held by non-affiliates of
the registrant on January 30, 2004 was approximately $137,487,000. The number of shares of the registrants common stock, $.01 par value,
outstanding as of September 27, 2004 was 11,434,497 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.




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TABLE OF CONTENTS  
 PagePART IITEM 1.
    
    BUSINESS
    
    
    2ITEM 2.
    
    PROPERTIES
    
    
    10ITEM 3.
    
    LEGAL PROCEEDINGS
    
    
    11ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    11PART IIITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    12ITEM 6.
    
    SELECTED FINANCIAL DATA
    
    
    13ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
    
    
    14ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    22ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    23ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    23ITEM 9A.
    
    CONTROLS AND PROCEDURES
    
    
    23ITEM 9B.
    
    OTHER INFORMATION
    
    
    23PART IIIITEM 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    24ITEM 11.
    
    EXECUTIVE COMPENSATION
    
    
    24ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
    
    
    24ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    24ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    24PART IVITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
    
    
    25Subsidiaries of the RegistrantConsent of BDO Seidman, LLPCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer
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PART I Statements and information presented within this Annual Report on Form
10-K for Dynamex Inc. (the Company and Dynamex) contain forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. These forward-looking statements can be identified by the
use of predictive, future tense or forward-looking terminology, such as
believes, anticipates, expects, estimates, may, will or similar
terms. Forward-looking statements also include projections of financial
performance, statements regarding managements plans and objectives and
statements concerning any assumptions relating to the foregoing. Certain
important factors which may cause actual results to vary materially from these
forward-looking statements accompany such statements and appear elsewhere in
this report, including without limitation, the factors disclosed under Risk
Factors. All subsequent written or oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified by these factors. 
 ITEM 1. BUSINESS General Dynamex is a leading provider of same-day delivery and logistics services
in the United States and Canada. The Company was organized under the laws of
Delaware in 1992 as Parcelway Systems Holding Corp. and changed its name to
Dynamex Inc. in 1995. Through its network of 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 scheduled 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. 2




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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 provides three primary services:
(i) same-day on-demand delivery services, (ii) same-day scheduled 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 scheduled distribution and fleet management. The delivery
transactions in a fleet management and scheduled 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, 2004, 2003 and 2002, approximately 41%, 46%, and 49%
respectively, of the Companys sales were generated from same-day on-demand
delivery services. Same-Day Scheduled Distribution. The Company provides same-day scheduled
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 facilities. In Ontario Canada, the Company
services the scheduled distribution requirements of a consortium of commercial 3




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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, 2004, 2003 and 2002,
approximately 28%, 26% and
25%, 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, 2004, 2003 and 2002,
approximately 31%, 28% and 26%, 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, two U.S. and one
Canadian, with each of the Companys approximately 44 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
either through communications systems linked to the Companys computers,
through pagers or by radio. 4




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Same-Day Scheduled 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 scheduled 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 Companys
national sales force, comprised of approximately 15 persons, focus on regional
and national customers who can utilize services on a multi-market basis.
Approximately 77 local employee sales representatives target business
opportunities from the branch offices and approximately 8 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. 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, 2004, no single customer accounted for more than 10% of the
Companys annual sales. A significant number of the Companys customers are
located in Canada. For the fiscal 5




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years ended July 31, 2004, 2003 and 2002, approximately 33%, 34% and 33%
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. 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 $20 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. 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. 6




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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, 2004, the Company had approximately 2,300 employees, of whom
approximately 870 primarily were employed in various management, supervisory,
sales, administrative, and other corporate positions and approximately 1,430
were employed as drivers, messengers and mailroom workers. Additionally at
July 31, 2004, the Company had contracts with approximately 3,500 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 4,400 drivers and messengers used by the Company as
of July 31, 2004, approximately 1,600 are located in Canada and approximately
2,800 are located in the U.S. Although the drivers and messengers located in
Canada are generally independent contractors, approximately 68% 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, 2004, the Company utilized the services of approximately
4,400 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 $20 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 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. 7




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Certain Tax Matters Related to Drivers Substantially all of the Companys drivers own their own vehicles and as
of July 31, 2004, approximately 92% 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 or provincial authorities 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. 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. Furthermore, delays
in obtaining approvals for the transfer or grant of certificates, permits or
licenses, or 8




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##### Table of Contents



failure to obtain such approvals, could impede the implementation of the
Companys acquisition program. 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 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. Additionally, the Company must
obtain the consent of its primary lenders to consummate significant
acquisitions. There can be no assurance that the Companys primary lenders
will consent to such acquisitions or that if additional financing is necessary,
it 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. 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 9




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##### Table of Contents



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 69 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 ofLocation
    
    Leased PropertiesCanadaAlberta
    
    
    4British Columbia
    
    
    3Manitoba
    
    
    2Newfoundland
    
    
    1Nova Scotia
    
    
    1Ontario
    
    
    9Quebec
    
    
    3Saskatchewan
    
    
    2Canadian Total
    
    
    25United StatesArizona
    
    
    1California
    
    
    9Colorado
    
    
    1Connecticut
    
    
    1Georgia
    
    
    1Illinois
    
    
    2Indiana
    
    
    2Kansas
    
    
    1Maryland
    
    
    1Massachusetts
    
    
    1Minnesota
    
    
    1Nevada
    
    
    1New Jersey
    
    
    1New York
    
    
    7Ohio
    
    
    1Pennsylvania
    
    
    2Tennessee
    
    
    1Texas
    
    
    5Virginia
    
    
    3Washington
    
    
    2United States Total
    
    
    44
 10




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##### Table of Contents



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, 2004, 2003 and 2002
was approximately $5.2 million, $4.8 million and $4.7 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 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. 11




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PART II 
  ITEM 5.
 
 MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES Market Information The Companys common stock is traded on the AMEX
under the symbol DDN. The following table summarizes the high and low sale
prices per share of common stock for the periods indicated, as reported on the
AMEX: BidHigh
    
    LowFiscal 2003First Quarter
    
    $
    2.98
    
    
    $
    2.06Second Quarter
    
    
    4.60
    
    
    
    2.80Third Quarter
    
    
    5.75
    
    
    
    3.69Fourth Quarter
    
    
    8.40
    
    
    
    5.00Fiscal 2004First Quarter
    
    $
    10.00
    
    
    $
    7.59Second Quarter
    
    
    13.10
    
    
    
    9.80Third Quarter
    
    
    14.99
    
    
    
    11.00Fourth Quarter
    
    
    15.85
    
    
    
    12.84
 Holders As of September 27, 2004, the approximate number of holders of
record of common stock was 310. Dividends The Company has not declared or paid any cash dividends on
its common stock since its inception. The Company intends to retain future
earnings to reduce outstanding debt and to finance the operation and expansion
of its business and does not anticipate paying any cash dividend in fiscal
2005. In addition, the Companys Credit Agreement restricts the payment of
dividends. See Managements Discussion and Analysis of Financial Condition
and Results of Operation  Liquidity and Capital Resources. Securities
Authorized for Issuance Under Equity Compensation Plans The
following table provides information regarding the Companys equity
compensation plan as of July 31, 2004. Number of securities to be issued upon
    
    
    
    
    
    Number of securities remainingexercise of outstanding options, warrants
    
    Weighted-average exercise price of
    
    available for future issuance underPlan category
    
    and rights
    
    outstanding options, warrants and rights
    
    equity compensation plansEquity compensation plans
approved by security holders
    
    
    799,080
    
    
    $
    7.23
    
    
    
    137,856Equity compensation plans not
approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    799,080
    
    
    $
    7.23
    
    
    
    137,856
 12




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA The following selected historical financial data for the three years ended
July 31, 2004 have been derived from the audited consolidated financial
statements of the Company appearing elsewhere herein. The following selected
historical financial data for the years ended July 31, 2001 and 2000 have been
derived from the consolidated financial statements of the Company not appearing
elsewhere herein. The net impact of $19.3 million related to the goodwill
impairment charge 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 31,2004
    
    2003
    
    2002
    
    2001
    
    2000(in thousands, except per share amounts)Statements of operations data:Sales
    
    $
    287,856
    
    
    $
    250,801
    
    
    $
    235,945
    
    
    $
    249,414
    
    
    $
    251,475Cost of sales
    
    
    206,487
    
    
    
    177,850
    
    
    
    165,919
    
    
    
    172,908
    
    
    
    171,675Gross profit
    
    
    81,369
    
    
    
    72,951
    
    
    
    70,026
    
    
    
    76,506
    
    
    
    79,800Selling, general and administrative expenses (1)
    
    
    64,026
    
    
    
    58,417
    
    
    
    56,944
    
    
    
    60,739
    
    
    
    64,483Depreciation and amortization
    
    
    1,890
    
    
    
    2,124
    
    
    
    2,957
    
    
    
    7,414
    
    
    
    8,931Provision (recovery) for loss on settlement of
shareholder class action lawsuit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (695
    )
    
    
    2,313(Gain) loss on disposal of property and equipment
    
    
    (41
    )
    
    
    19
    
    
    
    (21
    )
    
    
    (403
    )
    
    
    97Operating income
    
    
    15,494
    
    
    
    12,391
    
    
    
    10,146
    
    
    
    9,451
    
    
    
    3,976Interest expense, net
    
    
    1,406
    
    
    
    2,194
    
    
    
    3,065
    
    
    
    5,184
    
    
    
    5,860Other (income) expense, net
    
    
    (182
    )
    
    
    (340
    )
    
    
    414
    
    
    
    (219
    )
    
    
    (203
    )Income (loss) before income taxes
    
    
    14,270
    
    
    
    10,537
    
    
    
    6,667
    
    
    
    4,486
    
    
    
    (1,681
    )Income taxes
    
    
    1,437
    
    
    
    2,959
    
    
    
    3,658
    
    
    
    2,461
    
    
    
    1,718Income (loss) before accounting change
    
    $
    12,833
    
    
    $
    7,578
    
    
    $
    3,009
    
    
    $
    2,025
    
    
    $
    (3,399
    )Income (loss) per share before accounting changebasic
    
    $
    1.13
    
    
    $
    0.68
    
    
    $
    0.28
    
    
    $
    0.20
    
    
    $
    (0.33
    )diluted
    
    $
    1.11
    
    
    $
    0.67
    
    
    $
    0.28
    
    
    $
    0.20
    
    
    $
    (0.33
    )Weighted average common shares outstanding:basic
    
    
    11,314
    
    
    
    11,208
    
    
    
    10,614
    
    
    
    10,207
    
    
    
    10,207diluted
    
    
    11,532
    
    
    
    11,364
    
    
    
    10,651
    
    
    
    10,237
    
    
    
    10,207Other data:Earnings before interest, taxes, depreciation and
amortization (EBITDA) (2)Income (loss) per share before accounting change
    
    $
    12,833
    
    
    $
    7,578
    
    
    $
    3,009
    
    
    $
    2,025
    
    
    $
    (3,399
    )Adjustments:Income taxes
    
    
    1,437
    
    
    
    2,959
    
    
    
    3,658
    
    
    
    2,461
    
    
    
    1,718Interest expense, net
    
    
    1,406
    
    
    
    2,194
    
    
    
    3,065
    
    
    
    5,184
    
    
    
    5,860Depreciation and amortization
    
    
    1,890
    
    
    
    2,124
    
    
    
    2,957
    
    
    
    7,414
    
    
    
    8,931EBITDA
    
    $
    17,566
    
    
    $
    14,855
    
    
    $
    12,689
    
    
    $
    17,084
    
    
    $
    13,110
 July 31,2004
    
    2003
    
    2002
    
    2001
    
    2000(in thousands)Balance sheet data:Working capital
    
    $
    16,704
    
    
    $
    7,779
    
    
    $
    9,319
    
    
    $
    9,359
    
    
    $
    11,022Total assets
    
    
    102,072
    
    
    
    95,541
    
    
    
    93,870
    
    
    
    121,912
    
    
    
    126,524Long-term debt, excluding current portion
    
    
    10,000
    
    
    
    14,116
    
    
    
    25,531
    
    
    
    32,198
    
    
    
    40,928Stockholders
equity
    
    
    69,310
    
    
    
    54,328
    
    
    
    45,124
    
    
    
    59,990
    
    
    
    58,410
 13




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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 92% 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 scheduled 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 margins are dependent in part on the mix of business for a
particular period. 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 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. 14




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A significant portion of the Companys sales is generated in Canada. For
the fiscal years ended July 31, 2004, 2003 and 2002, approximately 33%, 34%,
and 33%, 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, 2004 compared to July 31, 2003 and increased
during the fiscal year ending July 31, 2003 compared to July 31, 2002. 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, 2004, 2003 and 2002 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 adverse 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 and 2004, 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
the carrying amount in both periods. Other intangible assets are being
amortized over periods ranging from 3 to 25 years. 15




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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. 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 has maintained the allowance at July 31, 2004 and
July 31, 2003 at approximately 2.7% of outstanding accounts receivable. 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, 2004, the Company had available U.S. federal and state net
operating loss carryforwards to offset future taxable income of $6.6 million.
In addition, the Company generated unused foreign tax credits related to its
Canadian operations and other tax credits of $1.6 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 net operating loss (NOL)
carryforward totaling $11,574,000 at July 31, 2003 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 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s current valuation allowances
primarily relate to a foreign tax credit carryforward of approximately $627,000
and a Workers Opportunity Tax Credit (WOTC) carryforward of approximately
$127,000. 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 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 16




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August 1, 1995. As discussed below, option expense in 2004 amounted to $318 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, 2004, the
anticipated effect on net income for fiscal 2005, net of taxes, will be
approximately $250,000. Foreign
currency translation  Assets and liabilities in foreign
currencies are translated into U.S. dollars at the rates in effect at the
balance sheet date. Revenues and expenses are translated at average rates
during the year. The net exchange differences resulting from these
translations are recorded in stockholders equity. Where amounts denominated
in a foreign currency are converted into U.S. dollars by remittance or
repayment, the realized exchange differences are included as other income
(expense) in the Consolidated Statement of Operations. 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: 2004
    
    2003
    
    2002Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales:Purchased transportation
    
    
    62.7
    %
    
    
    62.4
    %
    
    
    60.9
    %Other direct costs
    
    
    9.0
    %
    
    
    8.5
    %
    
    
    9.4
    %Cost of sales
    
    
    71.7
    %
    
    
    70.9
    %
    
    
    70.3
    %Gross profit
    
    
    28.3
    %
    
    
    29.1
    %
    
    
    29.7
    %Selling, general and administrative expenses:Salaries and employee benefits
    
    
    15.5
    %
    
    
    16.1
    %
    
    
    16.4
    %Other
    
    
    6.7
    %
    
    
    7.2
    %
    
    
    7.7
    %Selling, general and administrative expenses
    
    
    22.2
    %
    
    
    23.3
    %
    
    
    24.1
    %Depreciation and amortization
    
    
    0.7
    %
    
    
    0.8
    %
    
    
    1.3
    %(Gain) loss on disposal of property and equipment
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Operating income
    
    
    5.4
    %
    
    
    5.0
    %
    
    
    4.3
    %Interest expense
    
    
    0.5
    %
    
    
    0.9
    %
    
    
    1.3
    %Other (income) expense, net
    
    
    -0.1
    %
    
    
    -0.1
    %
    
    
    0.2
    %Income before income taxes
    
    
    5.0
    %
    
    
    4.2
    %
    
    
    2.8
    %Income taxes
    
    
    0.5
    %
    
    
    1.2
    %
    
    
    1.6
    %Income before cumulative effect of change in
accounting principle
    
    
    4.5
    %
    
    
    3.0
    %
    
    
    1.2
    %
 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 17




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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. 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 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. Year Ended July 31, 2003 Compared to Year Ended July 31, 2002 Net income for the year ended July 31, 2003 was $7.6 million compared to a
net loss of $16.3 million for the year ended July 31, 2002. The net loss for
2002 includes a non-cash after-tax adjustment of $19.3 million to adjust the
carrying value of goodwill to fair value in accordance with SFAS No. 142. The
following discussion and analysis excludes the goodwill impairment. Sales for the year ended July 31, 2003 were $251 million compared to $236
million in 2002, an increase of approximately 6.3%. The Companys investment
in a U.S. national sales organization beginning in January 2001 began to show a
return on this investment in the current fiscal year, as evidenced by new contracts signed with several large national accounts. Local and
national accounts teams are focused on demonstrating the value of our 18




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comprehensive menu of services, and during a soft economy clients are drawn to
the benefits of our scheduled, distribution and outsourcing services. Sales of
these services increased $15.4 million, or 12.9% over last year, while on-demand
sales declined .5%, or $.6 million. These changes result in part from
changes in sales volume and in part from the increase in the exchange rate
between the U.S. and Canadian dollar. The Canadian dollar was stronger
compared to the U.S. dollar in fiscal 2003, which had the effect of increasing
reported sales by approximately $4.3 million. Cost of sales increased $12 million (7.2%) to $178 million in 2003
compared to $166 million in the prior year. As a percentage of sales, cost of
sales increased from 70.3% in 2002 to 70.9% in 2003. This increase in cost as
a percentage of sales is primarily attributable to higher insurance costs and
bad debt expense and a change in the overall business mix of the Companys
sales. Scheduled, distribution and outsourcing sales were a larger percentage
of total sales, increasing from 50.9% in the prior year, to 52.5% in 2003.
Historically on-demand sales have lower cost of sales and higher SG & A
compared to scheduled, distribution and outsourcing sales. SG & A costs were $58 million for the year ended July 31, 2003 compared to
$57 million for the fiscal year ended July 31, 2002. The increase from 2002 to
2003 is attributable to a number of factors. The increase in the exchange rate
between the Canadian dollar and the U.S. dollar had the effect of increasing
reported SG & A costs by approximately $0.8 million. Compensation and employee
benefits costs were $1.6 million more than in 2002. Approximately one third of
the increase is due to the change in the exchange rate between the Canadian
dollar and the U.S. dollar. The remaining increase is due principally to
higher compensation and benefits associated with the lifting of the salary
freeze earlier this fiscal year, additional operating personnel to handle new
business, higher sales commissions related to new business, additional sales
personnel and higher unemployment taxes and medical insurance premiums. The
increase in compensation and employee benefits was partially offset by
reductions in communications costs ($0.4 million) and legal and professional
fees ($0.5 million). As a percentage of sales, SG & A expenses decreased from
24.1% in 2002 to 23.3% in 2003. Depreciation and amortization was $2.1 million in 2003 compared to $2.9
million in the prior year. This decrease is due to lower capital expenditures
in recent years. The Company purchased enterprise software several years ago,
which was fully amortized at the end of 2002. In 2003, the decision was made
to transition to two-way mobile data units to communicate with drivers, which
requires no initial capital expenditure. Interest expense was $2.2 million in 2003, a decrease of $0.9 million, or
28%, compared to 2002. This decrease is due to a lower level of debt in 2003
and lower interest rates compared to the prior year. Other income of $0.3 million in 2003 consists primarily of realized
foreign currency transaction gains of $0.2 million and interest income of $0.1
million. In the prior year, a foreign currency transaction loss of $0.7
million related to the Canadian tax restructuring was offset by interest income
totaling $0.3 million. The effective tax rate was 28% in 2003 compared to 55% in 2002. Taxable
income in the U.S. was offset by the utilization of net operating loss
carryforwards (NOL) generated in prior years. The deferred tax asset
resulting from these NOLs has been fully reserved for financial reporting
purposes, therefore there was no tax expense reported related to this income.
In March 2003, the Companys Canadian subsidiary paid a $2.5 million dividend
to the U.S. The payment of this dividend resulted in a foreign tax credit of
$0.4 million, which reduced tax expense in the U.S. In addition, the Canadian
statutory federal tax rate decreased marginally in 2003. The effective rate in
2002 was high due to a $0.2 million non-recurring tax expense and a $0.7
million foreign exchange loss not deductible for tax purposes related to the
tax reorganization of the Companys Canadian operations. Liquidity and Capital Resources In fiscal years ended July 31, 2004, 2003 and 2002, the Company used cash
generated from operations primarily for capital expenditures, working capital
needs and debt reduction. 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 19




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##### Table of Contents



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, 2004, the notional
amount was $6.125 million. The interest rate has been fixed at LIBOR plus a
margin of 1.49% (2.99% at July 31, 2004). This arrangement matures November
30, 2005. At July 31, 2004, unpaid settlements related to the interest rate
swap were not material. The fair value of the Companys interest rate
protection arrangement was an asset of approximately $30,000 at both July 31,
2004 and 2003. The counter party to this agreement is a major financial
institution with which the Company also has other financial relationships. The
Company believes that the risk of loss due to nonperformance by the counter
party to this agreement is remote and, in any event, the amount of such loss
would be immaterial to the Companys results of operations. At July 31, 2004
the weighted average interest rate for all outstanding borrowings was
approximately 4.85%. 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, 2004, 2003 and 2002, the Company
spent approximately $2.2 million, $1.7 million and $1.4 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. The Companys cash flow provided by operations for the fiscal years ended
July 31, 2004, 2003 and 2002 were $14.7 million, $12.5 million and $9.7
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, 2004 changes in working capital used
$.1 million of operating cash flow as compared to providing $0.9 million and
$1.2 million of operating cash flow in fiscal 2003 and 2002, respectively. Management expects internally generated cash flow will be sufficient to
support its future capital requirements and to retire outstanding debt. The
Company completed its last 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, 2004 for the periods indicated (in thousands): Less thanTotal
    
    1 year
    
    1 - 3 years
    
    3 - 5 years
    
    ThereafterLong-term debt
    
    $
    10,000
    
    
    $
    
    
    
    $
    
    
    
    $
    10,000
    
    
    $
    Operating leases
    
    
    18,160
    
    
    
    5,835
    
    
    
    8,007
    
    
    
    3,553
    
    
    
    765Total
    
    $
    28,160
    
    
    $
    5,835
    
    
    $
    8,007
    
    
    $
    13,553
    
    
    $
    765
 20




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##### Table of Contents



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 million and $3.5 million. As of July 31, 2004 the Company had outstanding
letters of credit totaling $4.1 million. Income Taxes The provision for income taxes was $1.4 million in fiscal 2004, compared
to $3 million and $3.7 million in the years ended July 31, 2003 and 2002,
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 other expenses that are non-deductible for tax purposes. As of July 31, 2004, the Company had available U.S. federal net operating
loss carryforwards to offset future taxable income of $6.6 million. In
addition, the Company generated unused foreign tax credits related to its
Canadian operations and other tax credits of $1.6 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 $10.3 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 provided a valuation allowance of
approximately $627,000 and $127,000 against a foreign tax credit carryforward
and 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. Inflation The Company does not believe that inflation has had a material effect on
the Companys results of operations nor does it believe it will do so in the
foreseeable future. However, there can be no assurance the Companys business
will not be affected by inflation in the future. 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 FASB Interpretation (FIN) No. 46, Consolidation of Variable Interest
Entities, and Interpretation of ARB No. 51 was issued in January 2003. In
December 2003, FIN No. 46R was issued, which replaced FIN No. 46 and clarified
ARB No. 51. This FIN requires the consolidation of variable interest entities
in which the Company is deemed to be the primary beneficiary, as defined. The
Company does not have an interest in any variable interest entities and
therefore adoption of Interpretation No. 46R did not have a material effect on
the financial condition, results of operations, or liquidity of the Company. Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition was
issued in December 2003 and supersedes SAB 101, Revenue Recognition in
Financial Statements. As a result of the issuance of EITF 00-21, Accounting
for Revenue Arrangements with Multiple Deliverables, the SEC issued SAB 104 primarily to rescind accounting guidance provided by SAB 101 relating
to multiple element revenue arrangements. SAB 104s accounting guidance for
multiple element revenue arrangements is the same as EITF 00-21, and the other
revenue recognition concepts contained in SAB 101 remain largely unchanged.
The adoption of SAB 104 did not have a material effect of the financial
condition, results of operations, or liquidity of the Company. 21




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##### Table of Contents



Safe Harbor Statement Under The Private Securities Litigation Reform Act: With the exception of historical information, the matters discussed in
this report are forward looking statements as that term is defined in Section
21E of the Securities Exchange Act of 1934. The risk factors described in this report could cause actual results to
differ materially from those predicted. By way of example:  
    
    The competitive nature of the same-day delivery business.
    
    The ability of the Company to attract and retain qualified courier
personnel as well as retain key management personnel.
    
    A change in the current tax status of courier drivers from
independent contractor drivers to employees or a change in the
treatment of the reimbursement of vehicle operating costs to employee
drivers.
    
    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 $9.5 million and a decrease in
net income of approximately $0.4 million over this period. There can be no
assurances that the above projected exchange rate decrease will materialize.
Fluctuations of exchange rates are beyond the control of the Companys
management. Interest Rate Exposure Effective June 20, 2003, the Company entered into an interest rate
protection arrangement. The interest rate has been fixed at the LIBOR margin
plus 1.49% (2.99% at July 31, 2004). This arrangement matures November 30, 2005. The Company does not hold or issue derivative
financial instruments for speculative or trading purposes. The sensitivity analysis model used by the Company for interest rate
exposure compares interest expense fluctuations over a one-year period based on
current debt levels and current interest rates versus current debt levels at
current interest rates with a 10% increase. Based on this model, a 10%
increase would result in an increase in interest expense of approximately
$11,000. There can be no assurances that the above projected interest rate
increase will materialize. Fluctuations of interest rates are beyond the
control of the Companys management. 22




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Item 15(a). 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE None. 
 ITEM 9A. CONTROLS AND PROCEDURES 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. 
 ITEM 9B. OTHER INFORMATION None. 23




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##### Table of Contents



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 2005 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 2005 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 2005 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 2005 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 2005 Annual Meeting of Stockholders is incorporated herein by
reference. 24




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##### Table of Contents



PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K  (a)
    
    (1) Financial StatementsSee Index to Consolidated Financial Statements on page F-1.(a)
    
    (2) Financial Statement SchedulesAll 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) ExhibitsReference 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-KReport on Form 8-K filed on June 3, 2004 concerning the June 2, 2004 press
release announcing third quarter fiscal year 2004 results. 25




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dynamex Inc.,
A Delaware corporation By: /s/ Ray E. SchmitzRay E. Schmitz, Vice-President and Chief Financial OfficerDated: October 14, 2004
 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, 2004. Name
    
    Title/s/ RICHARD K. McCLELLAND
    
    Chairman of the Board, Chief ExecutiveOfficer, President and DirectorRichard K. McClelland
    
    (Principal Executive Officer)/s/ RAY E. SCHMITZ
    
    Vice President, Chief Financial Officer(Principal Financial Officer)Ray E. Schmitz/s/ DAVID P. FORTUNE
    
    Corporate Controller(Principal Accounting Officer)David P. Fortune/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
 26




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageDynamex Inc.Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets, July 31, 2004 and 2003
    
    F-3Consolidated Statements of Operations for the fiscal years ended
July 31, 2004, 2003 and 2002
    
    F-4Consolidated Statements of Stockholders Equity for the fiscal years ended
July 31, 2004, 2003 and 2002
    
    F-5Consolidated Statements of Cash Flows for the fiscal years ended
July 31, 2004, 2003 and 2002
    
    F-6Notes to the Consolidated Financial Statements
    
    F-7
 F - 1




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##### Table of Contents



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, 2004 and 2003 and the related consolidated statements of
operations, stockholders equity and cash flows for each of the three years in
the period ended July 31, 2004. 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, 2004 and 2003 and the results of its operations and its cash flows for
each of the three years in the period ended July 31, 2004 in conformity with
accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, effective
August 1, 2003, Dynamex Inc. changed its method of accounting for stock-based
compensation. /s/ BDO Seidman, LLPBDO SEIDMAN, LLP
 Dallas, Texas
September 22, 2004 F - 2




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##### Table of Contents



DYNAMEX INC.
Consolidated Balance Sheets
July 31, 2004 and 2003
(in thousands, except per share data) 2004
    
    2003ASSETSCURRENTCash and cash equivalents
    
    $
    7,927
    
    
    $
    4,338Accounts receivable (net of allowance for doubtful accounts
of $751 and $721, respectively)
    
    
    27,355
    
    
    
    26,109Prepaid and other current assets
    
    
    1,825
    
    
    
    2,453Deferred income taxes
    
    
    2,359
    
    
    
    1,976Total current assets
    
    
    39,466
    
    
    
    34,876PROPERTY AND
EQUIPMENT - net
    
    
    4,731
    
    
    
    4,287GOODWILL
    
    
    45,271
    
    
    
    44,743INTANGIBLES - net
    
    
    475
    
    
    
    981DEFERRED INCOME TAXES
    
    
    10,910
    
    
    
    10,064OTHER
    
    
    1,219
    
    
    
    590Total assets
    
    $
    102,072
    
    
    $
    95,541LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable trade
    
    $
    5,216
    
    
    $
    6,564Accrued liabilities
    
    
    17,546
    
    
    
    14,805Current portion of long-term debt
    
    
    
    
    
    
    5,728Total current liabilities
    
    
    22,762
    
    
    
    27,097LONG-TERM DEBT
    
    
    10,000
    
    
    
    14,116Total liabilities
    
    
    32,762
    
    
    
    41,213COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITYPreferred stock; $0.01 par value, 10,000 shares authorized;
none outstanding
    
    
    
    
    
    
    Common stock; $0.01 par value, 50,000 shares authorized;
11,435 and 11,208 outstanding, respectively
    
    
    114
    
    
    
    112Additional paid-in capital
    
    
    75,309
    
    
    
    74,064Accumulated deficit
    
    
    (7,417
    )
    
    
    (20,250
    )Accumulated other comprehensive income:Cumulative translation adjustment
    
    
    1,304
    
    
    
    402Total stockholders equity
    
    
    69,310
    
    
    
    54,328Total liabilities and stockholders equity
    
    $
    102,072
    
    
    $
    95,541
 See accompanying notes to the consolidated financial statements. F - 3




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##### Table of Contents



DYNAMEX INC.
Consolidated Statements of Operations
Years ended July 31, 2004, 2003 and 2002
(in thousands, except per share data) 2004
    
    2003
    
    2002Sales
    
    $
    287,856
    
    
    $
    250,801
    
    
    $
    235,945Cost of sales:Purchased transportation
    
    
    180,509
    
    
    
    156,611
    
    
    
    143,760Other direct costs
    
    
    25,978
    
    
    
    21,239
    
    
    
    22,159Cost of sales
    
    
    206,487
    
    
    
    177,850
    
    
    
    165,919Gross profit
    
    
    81,369
    
    
    
    72,951
    
    
    
    70,026Selling, general and administrative expenses:Salaries and employee benefits
    
    
    44,632
    
    
    
    40,443
    
    
    
    38,836Other
    
    
    19,394
    
    
    
    17,974
    
    
    
    18,108Selling, general and administrative expenses
    
    
    64,026
    
    
    
    58,417
    
    
    
    56,944Depreciation and amortization
    
    
    1,890
    
    
    
    2,124
    
    
    
    2,957(Gain) loss on disposal of property and equipment
    
    
    (41
    )
    
    
    19
    
    
    
    (21
    )Operating income
    
    
    15,494
    
    
    
    12,391
    
    
    
    10,146Interest expense
    
    
    1,406
    
    
    
    2,194
    
    
    
    3,065Other (income) expense, net
    
    
    (182
    )
    
    
    (340
    )
    
    
    414Income before income taxes
    
    
    14,270
    
    
    
    10,537
    
    
    
    6,667Income taxes
    
    
    1,437
    
    
    
    2,959
    
    
    
    3,658Income before cumulative effect of change in
accounting principle
    
    
    12,833
    
    
    
    7,578
    
    
    
    3,009Cumulative effect of change in accounting for goodwill, net of
income taxes of $10,764
    
    
    
    
    
    
    
    
    
    
    (19,261
    )Net income (loss)
    
    $
    12,833
    
    
    $
    7,578
    
    
    $
    (16,252
    )Basic earnings (loss) per common share:Before cumulative effect of accounting change
    
    $
    1.13
    
    
    $
    0.68
    
    
    $
    0.28Accounting change
    
    
    
    
    
    
    
    
    
    
    (1.81
    )Basic earnings (loss) per common share
    
    $
    1.13
    
    
    $
    0.68
    
    
    $
    (1.53
    )Diluted earnings (loss) per common share:Before cumulative effect of accounting change
    
    $
    1.11
    
    
    $
    0.67
    
    
    $
    0.28Accounting change
    
    
    
    
    
    
    
    
    
    
    (1.81
    )Diluted earnings (loss) per common share
    
    $
    1.11
    
    
    $
    0.67
    
    
    $
    (1.53
    )Weighted average shares:Common shares outstanding
    
    
    11,314
    
    
    
    11,208
    
    
    
    10,614Adjusted common shares - assuming
exercise of stock options
    
    
    11,532
    
    
    
    11,364
    
    
    
    10,651
 See accompanying notes to the consolidated financial statements. F - 4




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##### Table of Contents



DYNAMEX INC.
Consolidated Statements of Stockholders Equity
Years ended July 31, 2004, 2003 and 2002
(in thousands) AccumulatedCommon Stock

    
    AdditionalPaid-in
    
    Accumulated
    
    OtherComprehensiveShares
    
    Amount
    
    Capital
    
    (Deficit)
    
    Income (Loss)
    
    TotalBALANCE AT JULY 31, 2001
    
    
    10,207
    
    
    $
    102
    
    
    $
    72,759
    
    
    $
    (11,576
    )
    
    $
    (1,295
    )
    
    $
    59,990Issuance of 1,000 shares in shareholder
class action lawsuit settlement
    
    
    1,000
    
    
    
    10
    
    
    
    1,303
    
    
    
    
    
    
    
    
    
    
    
    1,313Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,252
    )
    
    
    
    
    
    
    (16,252
    )Unrealized foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73
    
    
    
    73Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,179
    )BALANCE AT JULY 31, 2002
    
    
    11,207
    
    
    
    112
    
    
    
    74,062
    
    
    
    (27,828
    )
    
    
    (1,222
    )
    
    
    45,124Issuance of common stock
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,578
    
    
    
    
    
    
    
    7,578Unrealized foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,624
    
    
    
    1,624Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,202BALANCE AT JULY 31, 2003
    
    
    11,208
    
    
    
    112
    
    
    
    74,064
    
    
    
    (20,250
    )
    
    
    402
    
    
    
    54,328Issuance of common stock, including tax benefit of $164
    
    
    227
    
    
    
    2
    
    
    
    927
    
    
    
    
    
    
    
    
    
    
    
    929Stock option compensation
    
    
    
    
    
    
    
    
    
    
    318
    
    
    
    
    
    
    
    
    
    
    
    318Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,833
    
    
    
    
    
    
    
    12,833Unrealized foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    902
    
    
    
    902Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,735BALANCE AT JULY 31, 2004
    
    
    11,435
    
    
    $
    114
    
    
    $
    75,309
    
    
    $
    (7,417
    )
    
    $
    1,304
    
    
    $
    69,310
 See accompanying notes to the consolidated financial statements. F - 5




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##### Table of Contents



DYNAMEX INC.
Consolidated Statements of Cash Flows
Years ended July 31, 2004, 2003 and 2002
(in thousands) 2004
    
    2003
    
    2002OPERATING ACTIVITIESNet income (loss)
    
    $
    12,833
    
    
    $
    7,578
    
    
    $
    (16,252
    )Adjustments to reconcile net income (loss ) to net cash provided
by operating activities:Depreciation and amortization
    
    
    1,869
    
    
    
    2,091
    
    
    
    2,872Amortization and write down of goodwill and other intangibles
    
    
    21
    
    
    
    33
    
    
    
    30,109Provision for losses on accounts receivable
    
    
    919
    
    
    
    896
    
    
    
    623Stock option compensation
    
    
    318
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    (1,229
    )
    
    
    1,024
    
    
    
    (8,852
    )Tax benefit realized by exercise of stock options
    
    
    164
    
    
    
    
    
    
    
    (Gain) loss on disposal of property and equipment
    
    
    (41
    )
    
    
    19
    
    
    
    (21
    )Changes in current operating assets and liabilities:Accounts receivable
    
    
    (2,165
    )
    
    
    (3,840
    )
    
    
    1,177Prepaids and other current assets
    
    
    628
    
    
    
    770
    
    
    
    (61
    )Accounts payable and accrued liabilities
    
    
    1,393
    
    
    
    3,932
    
    
    
    92Net cash provided by operating activities
    
    
    14,710
    
    
    
    12,503
    
    
    
    9,687INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (2,243
    )
    
    
    (1,744
    )
    
    
    (1,362
    )Net proceeds from disposal of property and equipment
    
    
    12
    
    
    
    56
    
    
    
    12Net cash used in investing activities
    
    
    (2,231
    )
    
    
    (1,688
    )
    
    
    (1,350
    )FINANCING ACTIVITIESPrincipal
payments on long-term debt
    
    
    (2,979
    )
    
    
    (6,991
    )
    
    
    (11,255
    )Net payments under line of credit
    
    
    (6,866
    )
    
    
    (4,475
    )
    
    
    (700
    )Proceeds from stock option exercise
    
    
    765
    
    
    
    2
    
    
    
    Other assets and deferred financing fees
    
    
    (142
    )
    
    
    (169
    )
    
    
    (332
    )Net cash used in financing activities
    
    
    (9,222
    )
    
    
    (11,633
    )
    
    
    (12,287
    )EFFECT OF EXCHANGE RATES ON CASH
    
    
    332
    
    
    
    667
    
    
    
    373NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    3,589
    
    
    
    (151
    )
    
    
    (3,577
    )CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    4,338
    
    
    
    4,489
    
    
    
    8,066CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    7,927
    
    
    $
    4,338
    
    
    $
    4,489SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid for interest
    
    $
    734
    
    
    $
    1,767
    
    
    $
    2,508Cash paid for taxes
    
    $
    2,124
    
    
    $
    1,413
    
    
    $
    2,067SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIESIssuance of 1,000 shares in shareholder class action lawsuit settlement
    
    $
    
    
    
    $
    
    
    
    $
    1,313Issuance of note receivable to finance customer trade receivable
    
    
    
    
    
    
    
    
    
    
    166
 See accompanying notes to the consolidated financial statements. F - 6




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##### Table of Contents



DYNAMEX INC.
Notes to the Consolidated Financial Statements  1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESDescription 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 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
Software
Furniture
Vehicles
Leasehold Improvements
    
    3-7 years
3-5 years
7 years
5 years
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, 2004 and
2003, the net book value of capitalized software costs was $945 and $1,307,
respectively. Amortization expense related to capitalized software was $488,
$555 and $903 in fiscal years 2004, 2003 and 2002, 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 - 7




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##### Table of Contents



DYNAMEX INC.
Notes to the Consolidated Financial Statements 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. 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 2004. 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, 2004, 2003 and 2002 totaled $21, $33 and $85,
respectively. Estimated amortization expense for the succeeding five fiscal
years is approximately $20 per year. 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 has maintained the allowance at July 31, 2004
and July 31, 2003 at approximately 2.7% of outstanding accounts receivable. 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, 2003 and 2002,
the Company incurred $124, $878 and $909, 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 financings and are included in interest expense. The
amounts of amortization and the write-off of previous deferred financing
costs were $610 in 2004, $632 in 2003, and $587 in 2002. F - 8




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##### Table of Contents



DYNAMEX INC.
Notes to the Consolidated Financial Statement 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. 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 31,2004
    
    2003
    
    2002Net income (loss):
    
    $
    12,833
    
    
    $
    7,578
    
    
    $
    (16,252
    )As reportedDeduct: Total stock based compensation expense
determined under fair value based method for
all awards, net of related tax effects
    
    
    
    
    
    
    416
    
    
    
    601Pro forma
    
    $
    12,833
    
    
    $
    7,162
    
    
    $
    (16,853
    )Earnings
(loss) per share - assuming dilution:Basic - as reported
    
    $
    1.13
    
    
    $
    0.68
    
    
    $
    (1.53
    )Basic - pro forma
    
    
    1.13
    
    
    
    0.64
    
    
    
    (1.58
    )Diluted - as reported
    
    
    1.11
    
    
    
    0.67
    
    
    
    (1.53
    )Diluted - pro forma
    
    
    1.11
    
    
    
    0.63
    
    
    
    (1.58
    )
 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 2004, 2003, and 2002, respectively: dividend yield
of 0% for all years; expected volatility of 83%, 76% and 73%; risk-free interest
rate of 4.7%, 4.1% and 5.1%, and F - 9




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DYNAMEX INC.
Notes to the Consolidated Financial Statement expected lives of an average of 10 years for all years. The weighted
average fair value of options granted during 2004, 2003 and 2002 was $6.67, $3.13 and
$1.86, 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 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 2004 amounted to $318 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, 2004,
the anticipated effect on net income for fiscal 2005, net of taxes, will be
approximately $250. 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 580, 297 and 736 shares of common stock at July 31, 2004,
2003 and 2002, 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 FASB Interpretation (FIN) No. 46,
Consolidation of Variable Interest Entities, and Interpretation of ARB No.
51 was issued in January 2003. In December 2003, FIN No. 46R was issued,
which replaced FIN No. 46 and clarified ARB No. 51. This FIN requires the
consolidation of variable interest entities in which the Company is deemed to
be the primary beneficiary, as defined. The Company does not have an
interest in any variable interest entities and therefore adoption of
Interpretation No. 46R did not have a material effect on the financial
condition, results of operations, or liquidity of the Company. Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition was
issued in December 2003 and supersedes SAB 101, Revenue Recognition in
Financial Statements. As a result of the issuance of EITF 00-21,
Accounting for Revenue Arrangements with Multiple Deliverables, the SEC
issued SAB 104 primarily to rescind accounting guidance provided by SAB 101
relating to multiple element revenue arrangements. SAB 104s accounting
guidance for multiple element revenue arrangements is the same as EITF
00-21, and the other revenue recognition concepts contained in SAB 101
remain largely unchanged. The adoption of SAB 104 did not have a material
effect of the financial condition, results of operations, or liquidity of
the Company. Comprehensive income (loss) Comprehensive income (loss) consists of net
income (loss) and unrealized gains and losses on foreign currency
translation. Balance sheet accounts of foreign operations are translated
using the year-end exchange rate, and income statement accounts are
translated on a monthly basis using the average exchange rate for the period.
Unrealized gains and losses on foreign currency translation adjustments are
recorded in shareholders equity as other comprehensive income. Reclassification Certain reclassifications have been made to conform prior
year data to the current presentation. F - 10




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DYNAMEX INC.
Notes to the Consolidated Financial Statements  2.
    
    COMPUTATION OF EARNINGS PER SHAREThe following is a reconciliation of the numerators and denominators of the
basic and diluted earnings (loss) 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 (loss) per share calculation if their effect would be antidilutive
to earnings (loss) per share before effect of change in accounting principle. Years Ended July 31,2004
    
    2003
    
    2002Net income before cumulative effect of
change in accounting principle
    
    $
    12,833
    
    
    $
    7,578
    
    
    $
    3,009Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (19,261
    )Net income (loss)
    
    $
    12,833
    
    
    $
    7,578
    
    
    $
    (16,252
    )Weighted average common shares outstanding
    
    
    11,314
    
    
    
    11,208
    
    
    
    10,614Common share equivalents related to options
    
    
    218
    
    
    
    156
    
    
    
    37Common shares and common share equivalents
    
    
    11,532
    
    
    
    11,364
    
    
    
    10,651Basic earnings (loss) per common share:Before cumulative effect of accounting change
    
    $
    1.13
    
    
    $
    0.68
    
    
    $
    0.28Accounting change
    
    
    
    
    
    
    
    
    
    
    (1.81
    )Basic earnings (loss) per common share
    
    $
    1.13
    
    
    $
    0.68
    
    
    $
    (1.53
    )Diluted earnings (loss) per common share:Before cumulative effect of accounting change
    
    $
    1.11
    
    
    $
    0.67
    
    
    $
    0.28Accounting change
    
    
    
    
    
    
    
    
    
    
    (1.81
    )Diluted earnings (loss) per common share
    
    $
    1.11
    
    
    $
    0.67
    
    
    $
    (1.53
    )
  3.
    
    INTANGIBLESIntangibles consist of the following: July 31,2004
    
    2003Carrying amount:Deferred bank financing fees
    
    $
    124
    
    
    $
    920Trademarks
    
    
    470
    
    
    
    470594
    
    
    
    1,390Less accumulated amortization:Deferred bank financing fees
    
    
    (11
    )
    
    
    (321
    )Trademarks
    
    
    (108
    )
    
    
    (88
    )(119
    )
    
    
    (409
    )Intangibles - net
    
    $
    475
    
    
    $
    981
 F - 11




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##### Table of Contents



DYNAMEX INC.
Notes to the Consolidated Financial Statements  Effective August 1, 2001, the Company adopted SFAS No. 142. SFAS No. 142
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 and
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 method 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 and
2004, 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 the carrying amount in both periods.4.
    
    PROPERTY AND EQUIPMENTProperty and equipment consists of the following: July 31,2004
    
    2003Equipment
    
    $
    15,399
    
    
    $
    14,067Software
    
    
    5,036
    
    
    
    5,280Furniture
    
    
    1,949
    
    
    
    1,717Vehicles
    
    
    618
    
    
    
    782Leasehold improvements
    
    
    2,656
    
    
    
    2,267Other
    
    
    969
    
    
    
    20626,627
    
    
    
    24,319Less accumulated depreciation
    
    
    (21,896
    )
    
    
    (20,032
    )Property and equipment - net
    
    $
    4,731
    
    
    $
    4,287
 F - 12




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##### Table of Contents



DYNAMEX INC.
Notes to the Consolidated Financial Statements  5.
    
    ACCRUED LIABILITIESAccrued liabilities consist of the following: July 31,2004
    
    2003Salaries and wages
    
    $
    5,135
    
    
    $
    3,759Independent contractor settlements
    
    
    4,458
    
    
    
    3,882Workers compensation
    
    
    1,846
    
    
    
    1,958Vacation
    
    
    1,761
    
    
    
    2,148Interest
    
    
    51
    
    
    
    91Deferred Revenue
    
    
    919
    
    
    
    429Taxes - other
    
    
    1,036
    
    
    
    592Other
    
    
    2,340
    
    
    
    1,946Total accrue liabilities
    
    $
    17,546
    
    
    $
    14,805
  6.
    
    LONG-TERM DEBTLong-term debt consists of the following: July 31,2004
    
    2003Revolving credit facility (a)
    
    $
    10,000
    
    
    $
    Bank credit agreement (b)
    
    
    
    
    
    
    19,616Seller financing notes and other (c)
    
    
    
    
    
    
    22810,000
    
    
    
    19,844Less current portion
    
    
    
    
    
    
    (5,728
    )Long-term debt
    
    $
    10,000
    
    
    $
    14,116
  a)
    
    Revolving Credit Agreement  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, 2004, the
notional amount was $6.125 million. The interest rate has been fixed at
LIBOR plus a margin of 1.49% (2.99% at July 31, 2004). This arrangement
matures November 30, 2005. At July 31, 2004, unpaid settlements related to
the interest rate swap were not material. The fair value of the Companys
interest rate protection arrangement was an asset of approximately $30 at
both July 31, 2004 and 2003. The counter party to this agreement is a major
financial institution with which the Company also has other financial
relationships. The Company believes that the risk F - 13




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##### Table of Contents



DYNAMEX INC.
Notes to the Consolidated Financial Statements  of loss due to
nonperformance by the counter party to this agreement is remote and, in any
event, the amount of such loss would be immaterial to the Companys results
of operations. At July 31, 2004 the weighted average interest rate for all
outstanding borrowings was approximately 4.85%.  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)
    
    Seller Financing Notes and Other  In connection with various acquisitions the Company issued various notes to
the sellers of those businesses. In addition, during 2001, the Company
negotiated extended payment terms on contingent consideration due to former
owners pursuant to the various purchase agreements, and converted $1,240 of
the cash payments due into notes payable. These notes were paid in full
during August 2003.Scheduled principal payments in each of the next five years and thereafter
on long-term debt obligations are as follows: 2005
    
    $
    2006
    
    
    2007
    
    
    10,0002008
    
    
    2009
    
    
    Thereafter
    
    
    $
    10,000
  7.
    
    COMMITMENTS AND CONTINGENCIESCOMMITMENTSThe Company leases certain equipment and properties under non-cancelable
operating lease agreements, which expire at various dates.At July 31, 2004, minimum annual lease payments for such operating leases
are as follows: 2005
    
    $
    5,8352006
    
    
    4,7322007
    
    
    3,2752008
    
    
    2,1732009
    
    
    1,380Thereafter
    
    
    765$
    18,160
  Rent expense related to operating leases amounted to approximately $10,276,
$8,501, and $8,222 for the years ended July 31, 2004, 2003 and 2002,
respectively. F - 14




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DYNAMEX INC.
Notes to the Consolidated Financial Statements  CONTINGENCIESThe 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.8.
    
    INCOME TAXESThe United States and Canadian components of income before income taxes are
as follows: Years ended July 31,2004
    
    2003
    
    2002Canada
    
    $
    5,671
    
    
    $
    4,404
    
    
    $
    2,591United States
    
    
    8,599
    
    
    
    6,133
    
    
    
    4,076$
    14,270
    
    
    $
    10,537
    
    
    $
    6,667
 The provision for income tax before the deferred tax impact of the
cumulative effect of change in accounting principle consisted of the
following: Years ended July 31,2004
    
    2003
    
    2002Current tax expense:Canada
    
    $
    2,051
    
    
    $
    1,619
    
    
    $
    1,455United States - Federal
    
    
    89
    
    
    
    32
    
    
    
    2,164United States - States
    
    
    526
    
    
    
    284
    
    
    
    100Total current tax expense
    
    
    2,666
    
    
    
    1,935
    
    
    
    3,719Deferred tax expense (benefit):Canada
    
    
    27
    
    
    
    
    
    
    
    44United States - Federal
    
    
    (1,589
    )
    
    
    765
    
    
    
    503United States - States
    
    
    333
    
    
    
    259
    
    
    
    (608
    )Total deferred tax expense (benefit)
    
    
    (1,229
    )
    
    
    1,024
    
    
    
    (61
    )Total income tax provision
    
    $
    1,437
    
    
    $
    2,959
    
    
    $
    3,658
  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 - 15




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DYNAMEX INC.
Notes to the Consolidated Financial Statements July 31,2004
    
    2003Deferred tax asset:Allowance for doubtful accounts
    
    $
    206
    
    
    $
    187Fixed assets
    
    
    (311
    )
    
    
    (187
    )Amortization of intangibles
    
    
    7,413
    
    
    
    8,888Accrued vacation
    
    
    454
    
    
    
    537Accrued liabilities and other
    
    
    1,699
    
    
    
    1,254Stock option expense
    
    
    121
    
    
    
    Charitable contribution carryover
    
    
    
    
    
    
    24Foreign tax credit carryforward
    
    
    1,566
    
    
    
    939WOTC tax credit carryforward
    
    
    127
    
    
    
    127State net operating loss carryforward
    
    
    1,022
    
    
    
    1,147Federal net operating loss carryforward
    
    
    2,375
    
    
    
    4,150Alternative minimum tax credit
    
    
    127
    
    
    
    Total deferred tax benefits
    
    
    14,799
    
    
    
    17,066Less valuation allowance
    
    
    (754
    )
    
    
    (4,277
    )Net deferred tax asset
    
    
    14,045
    
    
    
    12,789Deferred tax liability:Fixed assets
    
    
    (776
    )
    
    
    (749
    )Total deferred tax liability
    
    
    (776
    )
    
    
    (749
    )Net deferred tax asset
    
    $
    13,269
    
    
    $
    12,040Financial statements:Current deferred tax asset
    
    $
    2,359
    
    
    $
    1,976Non-current deferred tax asset
    
    $
    10,910
    
    
    $
    10,064
  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 $10.3 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 provided a valuation allowance of approximately
$627 and $127 against a foreign tax credit carryforward and 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.  The Company has a federal net operating loss carryforward of $6.6 million as
of July 31, 2004. This carryforward is available to offset future United
States federal taxable income. The net operating losses expire as follows: F - 16




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##### Table of Contents



DYNAMEX INC.
Notes to the Consolidated Financial Statements Year ofExpiration
    
    Amount2020
    
    $
    2,3572021
    
    
    1,5072022
    
    
    2,734$
    6,598
  The Company has not provided for U.S. Federal and foreign withholding taxes
on the foreign subsidiaries undistributed earnings as of July 31, 2004.
Such earnings are intended to be reinvested indefinitely.  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 31,2004
    
    2003
    
    2002Income taxes at statutory rate
    
    $
    4,852
    
    
    $
    3,582
    
    
    $
    2,266Effect on taxes resulting from:State taxes
    
    
    859
    
    
    
    599
    
    
    
    467Foreign
    
    
    227
    
    
    
    1,265
    
    
    
    619Increase (decrease) in valuation allowance
    
    
    (3,523
    )
    
    
    (753
    )
    
    
    (950
    )Utilization of net operating losses as a
result of changes in the U.S. tax laws
    
    
    
    
    
    
    
    
    
    
    448Foreign previously taxed income
    
    
    
    
    
    
    (1,107
    )
    
    
    Other (including permanent differences)
    
    
    (978
    )
    
    
    (627
    )
    
    
    808$
    1,437
    
    
    $
    2,959
    
    
    $
    3,658
 
  9.
    
    RESERVE FOR DOUBTFUL ACCOUNTSThe changes in the reserve for doubtful accounts are summarized below: Balance at
    
    Additions Charged
    
    
    
    
    
    BalanceBeginning of
    
    to Costs and
    
    
    
    
    
    at End ofYear
    
    Expenses
    
    Deductions
    
    YearFiscal year ended:July 31, 2004
    
    $
    721
    
    
    $
    919
    
    
    $
    889
    
    
    $
    751July 31, 2003
    
    
    562
    
    
    
    896
    
    
    
    737
    
    
    
    721July 31, 2002
    
    
    772
    
    
    
    623
    
    
    
    833
    
    
    
    562
  10.
    
    STOCK OPTION PLANEffective 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 1,300,000 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 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. F - 17




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##### Table of Contents



DYNAMEX INC.
Notes to the Consolidated Financial Statements  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 year
ended July 31, 2004, the Company recognized $318 of stock based
compensation.  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 31,2004
    
    2003
    
    2002Net income (loss):
    
    $
    12,833
    
    
    $
    7,578
    
    
    $
    (16,252
    )As reportedDeduct: Total stock based compensation expense
determined under fair value based method for
all awards, net of related tax effects
    
    
    
    
    
    
    416
    
    
    
    601Pro forma
    
    $
    12,833
    
    
    $
    7,162
    
    
    $
    (16,853
    )Earnings (loss) per share - assuming dilution:Basic - as reported
    
    $
    1.13
    
    
    $
    0.68
    
    
    $
    (1.53
    )Basic - pro forma
    
    
    1.13
    
    
    
    0.64
    
    
    
    (1.58
    )Diluted - as reported
    
    
    1.11
    
    
    
    0.67
    
    
    
    (1.53
    )Diluted - pro forma
    
    
    1.11
    
    
    
    0.63
    
    
    
    (1.58
    )
 
  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 2004, 2003, and 2002, respectively: dividend yield
of 0% for all years; expected volatility of 83%, 76% and 73%; risk-free interest
rate of 4.7%, 4.1% and 5.1%, and expected lives of an average of 10 years for all
years. The weighted average fair value of options granted during 2004, 2003 and
2002 was $6.67, $3.13 and $1.86, respectively. F - 18




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##### Table of Contents



DYNAMEX INC.
Notes to the Consolidated Financial Statements  Stock option activity during the periods indicated is as follows: Years ended July 31,2004
    
    2003
    
    2002Number of shares under option:Outstanding at beginning of year
    
    
    861,180
    
    
    
    858,180
    
    
    
    677,780Granted
    
    
    181,000
    
    
    
    10,000
    
    
    
    208,000Exercised
    
    
    (226,480
    )
    
    
    (1,200
    )
    
    
    Canceled
    
    
    (16,620
    )
    
    
    (5,800
    )
    
    
    (27,600
    )Outstanding at end of year
    
    
    799,080
    
    
    
    861,180
    
    
    
    858,180Exercisable at end of year
    
    
    516,600
    
    
    
    639,530
    
    
    
    523,394Weighted average exercise price:Granted
    
    $
    13.89
    
    
    $
    3.83
    
    
    $
    2.29Exercised
    
    
    3.38
    
    
    
    2.25
    
    
    
    Canceled
    
    
    2.57
    
    
    
    9.25
    
    
    
    2.94Outstanding at end of year
    
    
    7.23
    
    
    
    4.73
    
    
    
    4.77Exercisable at end of year
    
    
    6.11
    
    
    
    5.61
    
    
    
    6.04
  The following table summarizes information about stock options outstanding
at July 31, 2004: Stock Options Outstanding
    
    Stock Options ExercisableWeighted
    
    Weighted
    
    
    
    
    
    WeightedRange of
    
    
    
    
    
    Average
    
    Average
    
    
    
    
    
    AverageExercise Prices
    
    Shares
    
    Remaining Life
    
    Exercise Price
    
    Shares
    
    Exercise Price$1.40
- 2.24
    
    
    103,200
    
    
    
    6.05
    
    
    $
    1.48
    
    
    
    84,560
    
    
    $
    1.49$2.25
- 3.00
    
    
    228,950
    
    
    
    6.90
    
    
    
    2.30
    
    
    
    135,110
    
    
    
    2.29$3.01
- 7.00
    
    
    7,500
    
    
    
    8.45
    
    
    
    3.83
    
    
    
    7,500
    
    
    
    3.83$7.01 - 10.00
    
    
    168,000
    
    
    
    2.07
    
    
    
    7.97
    
    
    
    168,000
    
    
    
    7.97$10.01 - 12.00
    
    
    111,430
    
    
    
    3.57
    
    
    
    11.05
    
    
    
    111,430
    
    
    
    11.05$12.01 - 14.00
    
    
    180,000
    
    
    
    9.87
    
    
    
    13.89
    
    
    
    10,000
    
    
    
    12.10799,080
    
    
    
    6.00
    
    
    $
    7.23
    
    
    
    516,600
    
    
    $
    6.11
  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, 2004, 2003 and
2002.  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 F - 19




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##### Table of Contents



DYNAMEX INC.
Notes to the Consolidated Financial Statements  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. The Company evaluates the performance of its geographic regions,
United States and Canada, based upon operating income before unusual and
non-recurring items. The following table summarizes selected financial
information for the United States and Canada for the years ended July 31,
2004, 2003 and 2002: UnitedStates
    
    Canada
    
    Total2004Sales
    
    
    
    
    
    $
    192,881
    
    
    $
    94,975
    
    
    $
    287,856Operating income
    
    
    
    
    
    
    8,544
    
    
    
    6,950
    
    
    
    15,494Identifiable assets
    
    
    
    
    
    
    74,771
    
    
    
    27,301
    
    
    
    102,072Goodwill, net
    
    
    
    
    
    
    36,111
    
    
    
    9,160
    
    
    
    45,271Capital expenditures
    
    
    
    
    
    
    2,058
    
    
    
    185
    
    
    
    2,243Depreciation and amortization
    
    
    
    
    
    
    1,583
    
    
    
    286
    
    
    
    1,869Amortization of intangibles
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    212003Sales
    
    
    
    
    
    $
    165,374
    
    
    $
    85,427
    
    
    $
    250,801Operating income
    
    
    
    
    
    
    6,767
    
    
    
    5,624
    
    
    
    12,391Identifiable assets
    
    
    
    
    
    
    72,776
    
    
    
    22,765
    
    
    
    95,541Goodwill, net
    
    
    
    
    
    
    36,111
    
    
    
    8,632
    
    
    
    44,743Capital expenditures
    
    
    
    
    
    
    1,454
    
    
    
    290
    
    
    
    1,744Depreciation and amortization
    
    
    
    
    
    
    1,712
    
    
    
    379
    
    
    
    2,091Amortization of intangibles
    
    
    
    
    
    
    21
    
    
    
    12
    
    
    
    332002Sales
    
    
    
    
    
    $
    157,834
    
    
    $
    78,111
    
    
    $
    235,945Operating income
    
    
    
    
    
    
    5,773
    
    
    
    4,373
    
    
    
    10,146Identifiable assets
    
    
    
    
    
    
    72,957
    
    
    
    20,913
    
    
    
    93,870Goodwill, net
    
    
    
    
    
    
    36,111
    
    
    
    7,628
    
    
    
    43,739Capital expenditures
    
    
    
    
    
    
    947
    
    
    
    415
    
    
    
    1,362Depreciation and amortization
    
    
    
    
    
    
    2,283
    
    
    
    589
    
    
    
    2,872Amortization of intangibles
    
    
    
    
    
    
    21
    
    
    
    64
    
    
    
    85
 F - 20




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##### Table of Contents



DYNAMEX INC.
Notes to the Consolidated Financial Statements 14. QUARTERLY DATA (Unaudited) Summarized quarterly financial data for 2004 and 2003 is as follows (in
thousands except per share amounts and business days): Quarter EndedOctober 31,
    
    January 31,
    
    April 30,
    
    July 31,2004Sales
    
    $
    70,073
    
    
    $
    69,375
    
    
    $
    74,016
    
    
    $
    74,392Gross profit
    
    
    19,623
    
    
    
    19,563
    
    
    
    20,926
    
    
    
    21,257Net income
    
    
    2,250
    
    
    
    5,219
    
    
    
    2,300
    
    
    
    3,064Net income per share:Basic
    
    
    0.20
    
    
    
    0.46
    
    
    
    0.20
    
    
    
    0.27Assuming dilution
    
    
    0.20
    
    
    
    0.45
    
    
    
    0.20
    
    
    
    0.26Average shares outstanding
    
    
    11,237
    
    
    
    11,271
    
    
    
    11,351
    
    
    
    11,396Number of business days
    
    
    64.3
    
    
    
    60.4
    
    
    
    63.8
    
    
    
    63.02003Sales
    
    $
    61,732
    
    
    $
    59,331
    
    
    $
    62,146
    
    
    $
    67,592Gross profit
    
    
    18,423
    
    
    
    17,334
    
    
    
    17,825
    
    
    
    19,369Net income
    
    
    1,968
    
    
    
    1,307
    
    
    
    2,098
    
    
    
    2,205Net income per share:Basic
    
    
    0.18
    
    
    
    0.12
    
    
    
    0.19
    
    
    
    0.20Assuming dilution
    
    
    0.17
    
    
    
    0.12
    
    
    
    0.18
    
    
    
    0.19Average shares outstanding
    
    
    11,207
    
    
    
    11,208
    
    
    
    11,208
    
    
    
    11,208Number of business days
    
    
    64.4
    
    
    
    61.4
    
    
    
    61.8
    
    
    
    64.0
 F - 21




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##### Table of Contents



INDEX TO EXHIBITS ExhibitNumber
    
    
    
    Description3.1(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, 20014.3(5)
    
    
    
    Amendment No. 2 to Rights Agreement between Dynamex Inc. and ComputerShare Investor
Services, LLC (formerly Harris Trust and Savings Bank), dated October 4, 200110.1(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, 2004.11.1
    
    
    
    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. 12821.1(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.(5)
    
    Filed as an exhibit to the registrants annual report on Form 10-K for
the fiscal year ended July 31, 2001, and E-1




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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. 
 E-2