##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended July 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 Commission file number: 000-21057
 DYNAMEX INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    86-0712225(State of incorporation)
    
    (I.R.S. Employer Identification No.)5429 LBJ Freeway, Suite 1000, Dallas, Texas
    
    75240(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code:
(214) 560-9000
 Securities registered pursuant to Section 12(b) of the Act:
None
 Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
  o þ
  o þ
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 þ
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##### Table of Contents



TABLE OF CONTENTS
 PagePART IITEM 1.
    
    BUSINESS
    
    
    2ITEM 1A.
    
    RISK FACTORS
    
    
    7ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
    
    
    10ITEM 2.
    
    PROPERTIES
    
    
    10ITEM 3.
    
    LEGAL PROCEEDINGS
    
    
    11ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    12PART IIITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    13ITEM 6.
    
    SELECTED FINANCIAL DATA
    
    
    15ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
    
    
    16ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    25ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    27ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
    
    
    27ITEM 9A.
    
    CONTROLS AND PROCEDURES
    
    
    27ITEM 9B.
    
    OTHER INFORMATION
    
    
    27PART IIIITEM 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    28ITEM 11.
    
    EXECUTIVE COMPENSATION
    
    
    28ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
    
    
    28ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    28ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    28PART IVITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
    
    
    29Credit AgreementSubsidiariesConsent of BDO Seidman, LLPCertification of CEOCertification of CFOCertification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
 1




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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
  Industry Overview
   2




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Business Strategy
  Focus on Primary Services
 Target National and Regional Accounts
 Create Strategic Alliances
 License Technology and Business Practices.
 Services
  Same-Day On-Demand Delivery
 Same-Day Local and Regional Distribution
 3




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Outsourcing Services.
    Operations
  Same-Day On-Demand Delivery.
 4




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Same-Day Local and Regional Distribution.
 Outsourcing Services.
   Sales and Marketing
    5




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Customers
   Competition
     Regulation
   6




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Safety
  Intellectual Property
  Employees
   Available Information
 HTTP://WWW.DYNAMEX.COM HTTP://WWW.SEC.GOV
 
 ITEM 1A. RISK FACTORS
 In addition to other information in this report, the following risk factors should be
considered carefully in evaluating the Company and its business. This report contains
forward-looking statements, which involve risks and uncertainties. The Companys actual results
could differ materially from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth in the following risk factors and elsewhere in this
report.
 Highly Competitive Industry
  7




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Claims Exposure
  Certain Tax Matters Related to Drivers
  Local Delivery Industry; General Economic Conditions
  Foreign Exchange
  8




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Permits and Licensing
  Dependence on Key Personnel
  Technological Advances
  Technology Infrastructure
  Dependence on Availability of Qualified Delivery Personnel
  Acquisition Strategy; Possible Need for Additional Financing
  9




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Volatility of Stock Price
  Fuel Costs
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  Number ofLocation
    
    Leased PropertiesCanadaAlberta
    
    
    4British Columbia
    
    
    5Manitoba
    
    
    2Newfoundland
    
    
    1Nova Scotia
    
    
    1Ontario
    
    
    10Quebec
    
    
    3Saskatchewan
    
    
    2Canadian Total
    
    
    28
 10




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Number ofLocation
    
    Leased PropertiesUnited StatesArizona
    
    
    1California
    
    
    11Colorado
    
    
    1Connecticut
    
    
    1Florida
    
    
    1Georgia
    
    
    1Illinois
    
    
    3Indiana
    
    
    2Kansas
    
    
    1Maryland
    
    
    1Massachusetts
    
    
    1Minnesota
    
    
    1Missouri
    
    
    2Nevada
    
    
    1New Jersey
    
    
    2New York
    
    
    7North Carolina
    
    
    2Ohio
    
    
    1Pennsylvania
    
    
    2Tennessee
    
    
    1Texas
    
    
    7Virginia
    
    
    4Washington
    
    
    3United States Total
    
    
    57
   
 ITEM 3. LEGAL PROCEEDINGS
    11




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  12




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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
 BidHigh
    
    LowFiscal 2006First Quarter
    
    $
    18.50
    
    
    $
    15.15Second Quarter
    
    
    21.06
    
    
    
    15.65Third Quarter
    
    
    20.94
    
    
    
    17.15Fourth Quarter
    
    
    22.25
    
    
    
    18.38
 High
    
    LowFiscal 2005First Quarter
    
    $
    21.40
    
    
    $
    12.74Second Quarter
    
    
    22.03
    
    
    
    16.81Third Quarter
    
    
    20.98
    
    
    
    15.00Fourth Quarter
    
    
    18.80
    
    
    
    15.50
 Holders
 Dividends
 Common Stock Repurchase
 Securities Authorized for Issuance Under Equity Compensation Plans
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Number of securities to be
    
    
    
    
    
    
    Number of securitiesissued upon exercise of
    
    
    Weighted-average exercise
    
    
    remaining available for futureoutstanding options,
    
    
    price of outstanding
    
    
    issuance under equityPlan category
    
    warrants and rights
    
    
    options, warrants and rights
    
    
    compensation plansEquity compensation plans
approved by security
holders
    
    
    472,850
    
    
    $
    11.16
    
    
    
    491,456Equity compensation plans
not approved by security
holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    472,850
    
    
    $
    11.16
    
    
    
    491,456
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ITEM 6.
    
    SELECTED FINANCIAL DATA
  Years ending July 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(in thousands, except per share amounts)Statements of operations data:Sales
    
    $
    358,374
    
    
    $
    321,103
    
    
    $
    287,856
    
    
    $
    250,801
    
    
    $
    235,945Cost of sales
    
    
    259,311
    
    
    
    232,023
    
    
    
    206,487
    
    
    
    177,850
    
    
    
    165,919Gross profit
    
    
    99,063
    
    
    
    89,080
    
    
    
    81,369
    
    
    
    72,951
    
    
    
    70,026Selling, general and administrative expenses (1)
    
    
    77,125
    
    
    
    69,049
    
    
    
    64,026
    
    
    
    58,417
    
    
    
    56,944Depreciation and amortization
    
    
    1,931
    
    
    
    1,648
    
    
    
    1,890
    
    
    
    2,124
    
    
    
    2,957(Gain) loss on disposal of property and equipment
    
    
    1
    
    
    
    (21
    )
    
    
    (41
    )
    
    
    19
    
    
    
    (21
    )Operating income
    
    
    20,006
    
    
    
    18,404
    
    
    
    15,494
    
    
    
    12,391
    
    
    
    10,146Interest expense, net
    
    
    295
    
    
    
    466
    
    
    
    1,406
    
    
    
    2,194
    
    
    
    3,065Other (income) expense, net
    
    
    (275
    )
    
    
    (226
    )
    
    
    (182
    )
    
    
    (340
    )
    
    
    414Income before income taxes
    
    
    19,986
    
    
    
    18,164
    
    
    
    14,270
    
    
    
    10,537
    
    
    
    6,667Income taxes
    
    
    7,594
    
    
    
    6,979
    
    
    
    1,437
    
    
    
    2,959
    
    
    
    3,658Income before accounting change
    
    $
    12,392
    
    
    $
    11,185
    
    
    $
    12,833
    
    
    $
    7,578
    
    
    $
    3,009Income per share before accounting changebasic
    
    $
    1.12
    
    
    $
    0.97
    
    
    $
    1.13
    
    
    $
    0.68
    
    
    $
    0.28diluted
    
    $
    1.11
    
    
    $
    0.95
    
    
    $
    1.11
    
    
    $
    0.67
    
    
    $
    0.28Weighted average common shares outstanding:basic
    
    
    11,057
    
    
    
    11,544
    
    
    
    11,314
    
    
    
    11,208
    
    
    
    10,614diluted
    
    
    11,197
    
    
    
    11,804
    
    
    
    11,532
    
    
    
    11,364
    
    
    
    10,651Other data:Earnings before interest, taxes, depreciation and
amortization (EBITDA) (2)Income before accounting change
    
    $
    12,392
    
    
    $
    11,185
    
    
    $
    12,833
    
    
    $
    7,578
    
    
    $
    3,009Adjustments:Income taxes
    
    
    7,594
    
    
    
    6,979
    
    
    
    1,437
    
    
    
    2,959
    
    
    
    3,658Interest expense, net
    
    
    295
    
    
    
    466
    
    
    
    1,406
    
    
    
    2,194
    
    
    
    3,065Depreciation and amortization
    
    
    1,931
    
    
    
    1,648
    
    
    
    1,890
    
    
    
    2,124
    
    
    
    2,957EBITDA
    
    $
    22,212
    
    
    $
    20,278
    
    
    $
    17,566
    
    
    $
    14,855
    
    
    $
    12,689
 July 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(in thousands)Balance sheet data:Working capital
    
    $
    18,889
    
    
    $
    22,917
    
    
    $
    16,704
    
    
    $
    7,779
    
    
    $
    9,319Total assets
    
    
    110,299
    
    
    
    109,475
    
    
    
    102,072
    
    
    
    95,541
    
    
    
    93,870Long-term debt, excluding current portion
    
    
    905
    
    
    
    8
    
    
    
    10,000
    
    
    
    14,116
    
    
    
    25,531Stockholders equity
    
    
    79,212
    
    
    
    83,896
    
    
    
    69,310
    
    
    
    54,328
    
    
    
    45,124
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1)
    
    Selling, general and administrative expenses include salaries, wages and employee benefits
as well as facility costs, communication, travel and entertainment, office supplies, equipment
rentals and general corporate expenses.2)
    
    EBITDA is defined as income excluding interest, taxes, depreciation and amortization (as
presented on the face of the income statement). EBITDA is supplementally presented because
management believes that it is a widely accepted and useful financial indicator regarding our
results of operations. Management believes EBITDA assists in analyzing and benchmarking the
performance and value of our business. Although our management uses EBITDA as a financial
measure to assess the performance of our business compared to that of others in our industry,
the use of EBITDA is limited because it does not include certain costs that are material in
amount, such as interest, taxes, depreciation and amortization, necessary to operate our
business. EBITDA is not a recognized term under generally accepted accounting principles and,
when analyzing our operating performance, investors should use EBITDA in addition to, not as
an alternative for, operating income, net income and cash flows from operating activities. 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
      16




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Critical Accounting Policies
  Use of estimates
 Revenue recognition 
 Intangibles 
 Other assets  Recoverable contract contingency costs
 Self-insured claims liability
 17




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Allowance for doubtful accounts
 Income taxes  .
  Stock-based compensation
  18




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Foreign currency translation  .
 Treasury stock acquired and retired 
 Results of Operations
  19




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Years Ended July 31,2006
    
    
    2005
    
    
    2004Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales:Purchased transportation
    
    
    65.0
    %
    
    
    64.3
    %
    
    
    62.7
    %Other
    
    
    7.3
    %
    
    
    8.0
    %
    
    
    9.0
    %Cost of sales
    
    
    72.3
    %
    
    
    72.3
    %
    
    
    71.7
    %Gross profit
    
    
    27.7
    %
    
    
    27.7
    %
    
    
    28.3
    %Selling, general and administrative:Salaries and employee benefits
    
    
    15.0
    %
    
    
    14.8
    %
    
    
    15.5
    %Other
    
    
    6.5
    %
    
    
    6.7
    %
    
    
    6.7
    %Selling, general and administrative
    
    
    21.5
    %
    
    
    21.5
    %
    
    
    22.2
    %Depreciation and amortization
    
    
    0.5
    %
    
    
    0.5
    %
    
    
    0.7
    %(Gain) loss on sale of property and equipment
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Operating income
    
    
    5.7
    %
    
    
    5.7
    %
    
    
    5.4
    %Interest expense
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    0.5
    %Other income
    
    
    -0.1
    %
    
    
    -0.1
    %
    
    
    -0.1
    %Income before income taxes
    
    
    5.7
    %
    
    
    5.7
    %
    
    
    5.0
    %Income taxes
    
    
    2.1
    %
    
    
    2.2
    %
    
    
    0.5
    %Net income
    
    
    3.6
    %
    
    
    3.5
    %
    
    
    4.5
    %
 Year Ended July 31, 2006 Compared to Year Ended July 31, 2005
   20




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Year Ended July 31, 2005 Compared to Year Ended July 31, 2004
   th
 21




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Liquidity and Capital Resources
    22




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Contractual Obligations
  Less thanTotal
    
    
    1 year
    
    
    1 - 3 years
    
    
    3 - 5 years
    
    
    ThereafterLong-term debt
    
    $
    900
    
    
    $
    
    
    
    $
    900
    
    
    $
    
    
    
    $
    Capital leases
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    Operating leases
    
    
    32,502
    
    
    
    9,346
    
    
    
    13,841
    
    
    
    6,779
    
    
    
    2,536Total
    
    $
    33,407
    
    
    $
    9,346
    
    
    $
    14,746
    
    
    $
    6,779
    
    
    $
    2,536
  Income Taxes
   23




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Inflation
  Financial Condition
  Recent Accounting Pronouncements
 Determining the Amortization Period for Leasehold
Improvements
 Accounting Changes and Error Corrections Accounting Changes Reporting Accounting Changes in Interim Financial Statements  An Amendment of APB Opinion
No. 28
  24




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Safe Harbor Statement Under The Private Securities Litigation Reform Act:
   
    
    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.
 
    
    A significant increase in the number of workers compensation or vehicle liability
claims such that the Companys self insurance expense would increase significantly.
 
    
    A significant reduction in the exchange rate between the Canadian dollar and the U.S.
dollar.
 
    
    Failure of the Company to maintain required certificates, permits or licenses, or to
comply with applicable laws, ordinances or regulations could result in substantial fines or
possible revocation of the Companys authority to conduct certain of its operations.
 
    
    The ability of the Company to obtain adequate financing.
 
    
    The ability of the Company to pass on fuel cost increases to customers to maintain
profit margins and the quality of driver pay.
 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Foreign Exchange Exposure
   25




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Interest Rate Exposure
  26




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
      
 ITEM 9B. OTHER INFORMATION
  27




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PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
   
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  28




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PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 Financial Statements
  Financial Statement Schedules
  Exhibits
  Reports on Form 8-K
  29




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SIGNATURES
  
 By:
    
    /s/ Ray E. SchmitzDated:
    
    Ray E. Schmitz, Vice-President and Chief Financial Officer
October 14, 2006
  Name
    
    Title/s/ Richard K. McClelland

Richard K. McClelland
    
    Chairman of the Board, Chief Executive
Officer, President and Director
(Principal Executive Officer)/s/ Ray E. Schmitz

Ray E. Schmitz
    
    Vice President, Chief Financial Officer
(Principal Financial Officer)/s/ Samuel T. Hicks

Samuel T. Hicks
    
    Corporate Controller
(Principal Accounting Officer)/s/ Wayne Kern
Wayne Kern
    
    Director/s/ Stephen P. Smiley

Stephen P. Smiley
    
    Director/s/ Brian J. Hughes

Brian J. Hughes
    
    Director/s/ Kenneth H. Bishop

Kenneth H. Bishop
    
    Director/s/ Bruce E. Ranck

Bruce E. Ranck
    
    Director
 30




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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageDynamex Inc.Managements Report on Internal Controls over Financial Reporting
    
    
    F-2Reports of Independent Registered Public Accounting Firm
    
    
    F-3Consolidated Balance Sheets, July 31, 2006 and 2005
    
    
    F-5Consolidated Statements of Operations for the fiscal years ended
July 31, 2006, 2005 and 2004
    
    
    F-6Consolidated Statements of Stockholders Equity for the fiscal years ended
July 31, 2006, 2005 and 2004
    
    
    F-7Consolidated Statements of Cash Flows for the fiscal years ended
July 31, 2006, 2005 and 2004
    
    
    F-8Notes to the Consolidated Financial Statements
    
    
    F-9
 F - 1




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MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
     /s/ Richard K. McClelland
    
    /s/ Ray E. SchmitzRichard K. McClelland
Chairman of the Board, Chief Executive
Officer, President and Director
(Principal Executive Officer)
    
    Ray E. Schmitz
Vice President, Chief Financial Officer
(Principal Financial Officer)
 F - 2




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     Internal Control  Integrated Framework
 
 
 F-3




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control  Integrated Framework
    Internal Control  Integrated Framework Internal Control 
Integrated Framework
  
 
 F-4




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DYNAMEX INC.
 2006
    
    
    2005ASSETSCURRENTCash and cash equivalents
    
    $
    6,058
    
    
    $
    11,678Accounts receivable (net of allowance for doubtful accounts
of $676 and $767, respectively)
    
    
    36,425
    
    
    
    31,703Income taxes receivable
    
    
    1,577
    
    
    
    Prepaid and other current assets
    
    
    2,689
    
    
    
    3,115Deferred income taxes
    
    
    2,322
    
    
    
    1,992Total current assets
    
    
    49,071
    
    
    
    48,488PROPERTY AND EQUIPMENT  net
    
    
    5,967
    
    
    
    5,597GOODWILL
    
    
    46,934
    
    
    
    46,088INTANGIBLES  net
    
    
    390
    
    
    
    463DEFERRED INCOME TAXES
    
    
    5,580
    
    
    
    7,625OTHER
    
    
    2,357
    
    
    
    1,214Total assets
    
    $
    110,299
    
    
    $
    109,475LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable trade
    
    $
    11,168
    
    
    $
    11,145Accrued liabilities
    
    
    19,014
    
    
    
    14,426Total current liabilities
    
    
    30,182
    
    
    
    25,571LONG-TERM DEBT
    
    
    905
    
    
    
    8Total liabilities
    
    
    31,087
    
    
    
    25,579COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITYPreferred stock; $0.01 par value, 10,000 shares authorized; none outstanding
    
    
    
    
    
    
    Common stock; $0.01 par value, 50,000 shares authorized; 10,638 and 11,612
outstanding, respectively
    
    
    106
    
    
    
    116Additional paid-in capital
    
    
    58,514
    
    
    
    77,196Retained earnings
    
    
    16,160
    
    
    
    3,768Accumulated other comprehensive income:Cumulative translation adjustment
    
    
    4,432
    
    
    
    2,816Total stockholders equity
    
    
    79,212
    
    
    
    83,896Total liabilities and stockholders equity
    
    $
    110,299
    
    
    $
    109,475
  F-5




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##### Table of Contents



DYNAMEX INC.
 2006
    
    
    2005
    
    
    2004Sales
    
    $
    358,374
    
    
    $
    321,103
    
    
    $
    287,856Cost of sales:Purchased transportation
    
    
    233,084
    
    
    
    206,316
    
    
    
    180,509Other direct costs
    
    
    26,227
    
    
    
    25,707
    
    
    
    25,978Cost of sales
    
    
    259,311
    
    
    
    232,023
    
    
    
    206,487Gross profit
    
    
    99,063
    
    
    
    89,080
    
    
    
    81,369Selling, general and administrative expenses:Salaries and employee benefits
    
    
    53,707
    
    
    
    47,606
    
    
    
    44,632Other
    
    
    23,418
    
    
    
    21,443
    
    
    
    19,394Selling, general and administrative expenses
    
    
    77,125
    
    
    
    69,049
    
    
    
    64,026Depreciation and amortization
    
    
    1,931
    
    
    
    1,648
    
    
    
    1,890(Gain) loss on disposal of property and equipment
    
    
    1
    
    
    
    (21
    )
    
    
    (41
    )Operating income
    
    
    20,006
    
    
    
    18,404
    
    
    
    15,494Interest expense
    
    
    295
    
    
    
    466
    
    
    
    1,406Other income, net
    
    
    275
    
    
    
    226
    
    
    
    182Income before income taxes
    
    
    19,986
    
    
    
    18,164
    
    
    
    14,270Income taxes
    
    
    7,594
    
    
    
    6,979
    
    
    
    1,437Net income
    
    $
    12,392
    
    
    $
    11,185
    
    
    $
    12,833Basic earnings per common share
    
    $
    1.12
    
    
    $
    0.97
    
    
    $
    1.13Diluted earnings per common share
    
    $
    1.11
    
    
    $
    0.95
    
    
    $
    1.11Weighted average shares:Common shares outstanding
    
    
    11,057
    
    
    
    11,544
    
    
    
    11,314Adjusted common shares  assuming exercise of
stock options
    
    
    11,197
    
    
    
    11,804
    
    
    
    11,532
  F-6




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##### Table of Contents



DYNAMEX INC.
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    (Deficit)
    
    
    Income (Loss)
    
    
    TotalBALANCE 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
    
    
    
    69,310Issuance of common stock,
including tax benefit of
$317
    
    
    177
    
    
    
    2
    
    
    
    1,428
    
    
    
    
    
    
    
    
    
    
    
    1,430Stock option compensation
    
    
    
    
    
    
    
    
    
    
    459
    
    
    
    
    
    
    
    
    
    
    
    459Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,185
    
    
    
    
    
    
    
    11,185Unrealized foreign
currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,512
    
    
    
    1,512Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,697BALANCE AT JULY 31, 2005
    
    
    11,612
    
    
    
    116
    
    
    
    77,196
    
    
    
    3,768
    
    
    
    2,816
    
    
    
    83,896Issuance of common stock,
including tax benefit of $1,044
    
    
    245
    
    
    
    3
    
    
    
    2,126
    
    
    
    
    
    
    
    
    
    
    
    2,129Stock option compensation
    
    
    
    
    
    
    
    
    
    
    717
    
    
    
    
    
    
    
    
    
    
    
    717Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,392
    
    
    
    
    
    
    
    12,392Treasury stock purchase
and retirement
    
    
    (1,219
    )
    
    
    (13
    )
    
    
    (21,525
    )
    
    
    
    
    
    
    
    
    
    
    (21,538
    )Unrealized foreign
currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,616
    
    
    
    1,616Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,008BALANCE AT JULY 31, 2006
    
    
    10,638
    
    
    $
    106
    
    
    $
    58,514
    
    
    $
    16,160
    
    
    $
    4,432
    
    
    $
    79,212
  F-7




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##### Table of Contents



DYNAMEX INC.
 2006
    
    
    2005
    
    
    2004OPERATING ACTIVITIESNet income
    
    $
    12,392
    
    
    $
    11,185
    
    
    $
    12,833Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    1,931
    
    
    
    1,648
    
    
    
    1,890Amortization of deferred bank financing fees
    
    
    24
    
    
    
    59
    
    
    
    610Provision for losses on accounts receivable
    
    
    695
    
    
    
    531
    
    
    
    919Stock option compensation
    
    
    717
    
    
    
    459
    
    
    
    318Deferred income taxes
    
    
    1,716
    
    
    
    3,652
    
    
    
    (1,229
    )(Gain) loss on disposal of property and equipment
    
    
    1
    
    
    
    (21
    )
    
    
    (41
    )Changes in current operating assets and liabilities:Accounts receivable
    
    
    (5,417
    )
    
    
    (4,879
    )
    
    
    (2,165
    )Prepaids and other current assets
    
    
    (1,151
    )
    
    
    (929
    )
    
    
    628Accounts payable and accrued liabilities
    
    
    4,611
    
    
    
    2,812
    
    
    
    1,393Net cash provided by operating activities
    
    
    15,519
    
    
    
    14,517
    
    
    
    15,156INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (2,193
    )
    
    
    (2,423
    )
    
    
    (2,243
    )Cash payment for acquisition
    
    
    
    
    
    
    (100
    )
    
    
    Net proceeds from disposal of property and equipment
    
    
    
    
    
    
    28
    
    
    
    12Purchase of investments
    
    
    (160
    )
    
    
    (358
    )
    
    
    Net cash used in investing activities
    
    
    (2,353
    )
    
    
    (2,853
    )
    
    
    (2,231
    )FINANCING ACTIVITIESPrincipal payments on long-term debt
    
    
    (3
    )
    
    
    (2
    )
    
    
    (2,979
    )Net receipts (payments) under line of credit
    
    
    900
    
    
    
    (10,000
    )
    
    
    (6,866
    )Proceeds from stock option exercise
    
    
    1,084
    
    
    
    1,113
    
    
    
    765Tax benefit realized by exercise of stock options
    
    
    1,044
    
    
    
    317
    
    
    
    164Purchase and retirement of treasury stock
    
    
    (21,538
    )
    
    
    
    
    
    
    Other assets
    
    
    (964
    )
    
    
    (2
    )
    
    
    (752
    )Net cash used in financing activities
    
    
    (19,477
    )
    
    
    (8,574
    )
    
    
    (9,668
    )EFFECT OF EXCHANGE RATES ON CASH
    
    
    691
    
    
    
    661
    
    
    
    332NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (5,620
    )
    
    
    3,751
    
    
    
    3,589CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    11,678
    
    
    
    7,927
    
    
    
    4,338CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    6,058
    
    
    $
    11,678
    
    
    $
    7,927SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid for interest
    
    $
    304
    
    
    $
    506
    
    
    $
    734Cash paid for taxes
    
    $
    6,910
    
    
    $
    2,872
    
    
    $
    2,124
  F-8




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##### Table of Contents



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Description
of business
  
    
    Dynamex Operations East Inc. (U.S.)
    
    Dynamex Operations West Inc. (U.S.)
    
    Dynamex Fleet Services, Inc. (U.S.)
    
    Dynamex Franchise Holdings, Inc. (U.S.)
    
    Dynamex Domestic Franchising, Inc. (U.S.)
    
    Dynamex Canada Corp. (Canada)
    
    Dynamex Canada Franchise Holdings, Inc. (Canada)
 Principles of consolidation
 Use of estimates
 Property and equipment
 Equipment
    
    37 yearsSoftware
    
    35 yearsFurniture
    
    7 yearsVehicles
    
    5 years
   Business and credit concentrations 
 F-9




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##### Table of Contents



Goodwill and intangibles 
 Revenue recognition
 Cash and cash equivalents
 Allowance for doubtful accounts
 Financial instruments
 F-10




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##### Table of Contents



Financing costs
 Other assets  Recoverable contract contingency costs
 Self-insured claims liability 
  Income taxes  .
 Stock-based compensation
   F-11




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##### Table of Contents



As discussed in Note 10 of Notes to the Consolidated Financial Statements, option expense
in 2006, 2005 and 2004 amounted to $717, $459 and $318, respectively, under the fair value
approach. Based on the outstanding and unvested awards as of July 31, 2006, the anticipated
effect on net income for fiscal 2007, net of taxes, will be approximately $450.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 20, 10 and 230 shares of common
stock at July 31, 2006, 2005 and 2004, 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.Treasury stock acquired and retired Treasury stock is recorded at cost. Delaware law
permits treasury shares to be retired when appropriately authorized by the Board of Directors,
and the Company has retired such shares by appropriate reductions in the value of common stock
and additional paid-in capital.New accounting pronouncements In June 2005, the Emerging Issues Task Force (EITF) of the
Financial Accounting Standards Board (FASB) reached a consensus on (EITF 05-6), Determining the
Amortization Period for Leasehold Improvements, which requires that leasehold improvements
acquired in a business combination or purchased subsequent to the inception of a lease be
amortized over the lesser of the useful life of the assets or a term that includes renewals that
are reasonably assured at the date of the business combination or purchase. EITF 05-6 is
effective for periods beginning after July 1, 2005. The Company does not expect the provisions
of this consensus to have any impact on its financial position, results of operations or cash
flows.In May 2005, the FASB issued SFAS No.154, Accounting Changes and Error Corrections (SFAS
154) which replaces Accounting Principles Board Opinions No. 20  Accounting Changes and SFAS
No. 3,  Reporting Accounting Changes in Interim Financial Statements  An Amendment of APB
Opinion No. 28. SFAS 154 provides guidance on the accounting for and reporting of accounting
changes and error corrections. It establishes retrospective application, for the latest
practicable date, as the required method for reporting a change in accounting principle and the
reporting of a correction of an error. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005. The Company does
not expect the adoption of SFAS 154 to have any impact on its financial position, results of
operations or cash flows.In February 2006, the FASB decided to move forward with the issuance of a final FASB Staff
Position (FSP) of SFAS 123R-4 Classification of Options and Similar Instruments Issued as
Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event.
The guidance in FSP SFAS 123R-4 amends paragraphs 32 and A229 of SFAS No. 123(R) to incorporate
the concept articulated in footnote 16 of SFAS 123(R). That is, a cash settlement feature that
can be exercised only upon the occurrence of a contingent event that is outside the employees
control does not meet the condition in paragraphs 32 and A229 until it becomes probable that the
event will occur. Originally under SFAS 123(R), a provision in a share-based payment plan that
required an entity to settle outstanding options in cash upon the occurrence of any contingent
event required classification and accounting for the share based payment as a liability. This
caused an issue under certain awards that require or permit, at the holders election, cash
settlement of the option or similar instrument upon (a) a change in control or other liquidity
event of the entity or (b) death or disability of the holder. With this new FSP, these types of
cash settlement features will not require liability accounting so long as the feature can be
exercised only upon the occurrence of a contingent event that is outside the employees control
(such as an initial public offering) until it becomes probable that the event will occur. The
guidance in this FSP shall be applied upon initial adoption of SFAS 123(R). An entity that
adopted SFAS 123(R) prior to the issuance of the FSP shall apply the guidance in the FSP in the
first reporting period beginning after February
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##### Table of Contents



2006. Early application of FSP FAS 123R-4 is permitted in periods for which financial statements
have not yet been issued. The Company does not expect that this new FSP will have any impact
upon its financial position, results of operations or cash flows.In June 2006, the FASB issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in
Income Taxes, (FIN 48) that provides guidance on the accounting for uncertainty in income taxes
recognized in financial statements. The Company will adopt FIN 48 on August 1, 2007. We are
currently evaluating the impact of adopting FIN 48; however, we do not expect the adoption of
this provision to have a material effect on our financial position, results of operations or
cash flows.On August 1, 2005, the Company adopted the provisions of SFAS 123(R) discussed elsewhere herein.Reclassification Certain reclassifications have been made to conform prior year data to the
current presentation.2.  
COMPUTATION OF EARNINGS PER SHAREThe following is a reconciliation of the numerators and denominators of the basic and diluted
earnings per share computation as required by Statement of Financial Accounting Standards No.
128, Earnings Per Share. Common stock equivalents related to stock options are excluded from
diluted earnings per share calculation if their effect would be antidilutive to earnings per
share.
 Years Ended July 31,2006
    
    
    2005
    
    
    2004Net income
    
    $
    12,392
    
    
    $
    11,185
    
    
    $
    12,833Weighted average common shares outstanding
    
    
    11,057
    
    
    
    11,544
    
    
    
    11,314Common share equivalents related to options
    
    
    140
    
    
    
    260
    
    
    
    218Common shares and common share equivalents
    
    
    11,197
    
    
    
    11,804
    
    
    
    11,532Basic earnings per common share
    
    $
    1.12
    
    
    $
    0.97
    
    
    $
    1.13Diluted earnings per common share
    
    $
    1.11
    
    
    $
    0.95
    
    
    $
    1.11
 3.
    
    INTANGIBLESIntangibles consist of the following:
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July 31,2006
    
    
    2005Carrying amount:Deferred bank financing fees
    
    $
    129
    
    
    $
    126Customer lists
    
    
    80
    
    
    
    80Trademarks
    
    
    470
    
    
    
    470679
    
    
    
    676Less accumulated amortization:Deferred bank financing fees
    
    
    (95
    )
    
    
    (70
    )Customer lists
    
    
    (45
    )
    
    
    (13
    )Trademarks
    
    
    (149
    )
    
    
    (130
    )(289
    )
    
    
    (213
    )Intangibles  net
    
    $
    390
    
    
    $
    463
 4.
    
    PROPERTY AND EQUIPMENTProperty and equipment consists of the following:
 July 31,2006
    
    
    2005Equipment
    
    $
    17,366
    
    
    $
    16,260Software
    
    
    7,680
    
    
    
    6,921Furniture
    
    
    2,433
    
    
    
    1,985Vehicles
    
    
    545
    
    
    
    564Leasehold improvements
    
    
    2,809
    
    
    
    2,596Other
    
    
    6
    
    
    
    230,839
    
    
    
    28,328Less accumulated depreciation
    
    
    (24,872
    )
    
    
    (22,731
    )Property and equipment  net
    
    $
    5,967
    
    
    $
    5,597
 Depreciation expense included in the accompanying consolidated statements of operations for the
years ended July 31, 2006, 2005 and 2004 was $1,879, $1,614 and $1,869, respectively.5.
    
    ACCRUED LIABILITIESAccrued liabilities consist of the following:
 July 31,2006
    
    
    2005Salaries and wages
    
    $
    4,626
    
    
    $
    2,967Independent contractor settlements
    
    
    4,695
    
    
    
    3,364Workers compensation estimated claims
    
    
    1,486
    
    
    
    1,951Auto liability estimated claims
    
    
    1,109
    
    
    
    Vacation
    
    
    2,058
    
    
    
    1,824Interest
    
    
    7
    
    
    
    34Deferred revenue
    
    
    235
    
    
    
    362Taxes  other
    
    
    704
    
    
    
    1,070Other
    
    
    4,094
    
    
    
    2,854Total accrued liabilities
    
    $
    19,014
    
    
    $
    14,426
 6.
    
    LONG-TERM DEBT
 F-14




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Long-term debt consists of the following:
 July 31,2006
    
    
    2005Revolving credit facility (a)
    
    $
    900
    
    
    $
    Capital leases (b)
    
    
    5
    
    
    
    8Total long-term debt
    
    $
    905
    
    
    $
    8
 a) Revolving Credit AgreementOn April 22, 2005, the Company entered into the First Amendment (the Amendment) to the March
2, 2004 $30 million Revolving Credit Facility (the Credit Facility) (together the Amended
Credit Facility). The Amendment decreased the facility from $30 million to $15 million, and
reduced the applicable margin on LIBOR contracts from a range of 1.25%  1.75% to 1.00%  1.50%,
based on the ratio of Funded Debt to EBITDA, as defined in the Credit Facility. The Amendment
also extended the maturity date to November 30, 2008 from November 30, 2007, eliminated the
financial ratio requiring a measurement of funded debt to eligible receivables, as defined and
reduced the restrictions on Permitted Acquisitions. The Amended Credit Facility has no
scheduled principal payments; however, the Company is required to maintain certain financial
ratios related to minimum amounts of stockholders equity, fixed charges to cash flow and funded
debt to cash flow, as defined. Amounts outstanding under the Amended Credit Facility are
secured by all of the Companys U.S. assets and 100% of the stock of its domestic subsidiaries.
The Credit Facility also contains restrictions on incurring additional debt and investments by
the Company.Effective October 31, 2005, the Revolving Credit Facility was amended to eliminate stock
acquisitions of up to $25 million from the fixed charge coverage ratio calculation. On November
10, 2005, the Revolving Credit Facility was increased from $15 million to $20 million to
accommodate temporary borrowings to fund the stock repurchase program. On July 21, 2006, the
Revolving Credit Facility was amended to extend the maturity date to July 31, 2009, to permit
aggregate treasury stock purchases up to $35 million, and to eliminate the requirement to
maintain a specified amount of minimum stockholders equity. At July 31, 2006, borrowings under
the credit agreement totaled $0.9 million and letters of credit totaling $4.7 million were
outstanding.b) Capital leasesIn connection with the acquisition of certain property the Company has capitalized certain
leases which are expected to be repaid by 2008.
 7.
    
    COMMITMENTS AND CONTINGENCIES
 COMMITMENTSThe Company leases certain equipment and properties under non-cancelable operating lease
agreements, which expire at various dates.At July 31, 2006, minimum annual lease payments for such operating leases are as follows:
 2007
    
    $
    9,3462008
    
    
    7,7142009
    
    
    6,1272010
    
    
    4,1792011
    
    
    2,600Thereafter
    
    
    2,536$
    32,502
 Rent expense related to operating leases amounted to approximately $14,350, $12,318, and $10,276
for the
 F-15




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##### Table of Contents



years ended July 31, 2006, 2005 and 2004, respectively.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 $400,000, 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 $3.0 million and $3.5 million.CONTINGENCIESOn April 15, 2005, a purported class action was filed against the Company by a former Company
driver in the Superior Court of California, Los Angeles County, alleging that the Company
unlawfully misclassified its California drivers as independent contractors, rather than
employees, and asserting, as a consequence, entitlement on behalf of the purported class
claimants to overtime compensation and other benefits under California wage and hour laws,
reimbursement of certain operating expenses, and various insurance and other benefits and the
obligation of the Company to pay employer payroll taxes under federal and state law.We believe that the Companys drivers are properly classified as independent contractors and
intend to vigorously defend this litigation. Given the nature and preliminary status of the
claims, however, we cannot yet determine the amount or a reasonable range of potential loss in
these matters, if any.The California Employment Development Department (the EDD) conducted an employment tax audit
of certain of the Companys operations in California for the period April 2003 through March
2005. As a result of the audit, the EDD concluded that certain independent contractors used by
the Company should be reclassified as employees. Based on such reclassification, the EDD made a
$345,000 assessment plus accrued interest against the Company, the bulk of which is for personal
income taxes. The Company has filed a request to extend the period to file a petition for
reassessment citing failure of proper notice. No hearing has been scheduled with regard to the
Companys request. The Company is in the process of providing further documentation to reduce
such assessment. The Company has established a reserve for the estimated liability associated
with the EDD assessment.On January 19, 2006, a purported class action was filed against the Company by a Company
employee in the United States District Court, Southern District of New York, alleging that the
Company unlawfully failed to pay wages for work performed, for which they received no
compensation as well as for overtime work for which they received no overtime pay to which the
employees were entitled under the Fair Labor Standards Act (FLSA) and the New York Labor Law and
the supporting New York State Department of Labor regulations (NYLL). The plaintiff seeks
recovery of unpaid wages, overtime compensation, liquidated damages, additional liquidated
damages for unreasonably delayed payment of wages, reasonable attorneys fees and costs under
the action.We believe the Companys employees referred to in the preceding paragraph were compensated
appropriately and intend to vigorously defend this litigation. We believe the outcome of this
action will not have a material adverse effect on the financial condition, results of
operations, or liquidity of the Company.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.8.
    
    INCOME TAXESThe United States and Canadian components of income before income taxes are as follows:
 F-16




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##### Table of Contents



Years ended July 31,2006
    
    
    2005
    
    
    2004Canada
    
    $
    7,857
    
    
    $
    6,135
    
    
    $
    5,671United States
    
    
    12,129
    
    
    
    12,029
    
    
    
    8,599$
    19,986
    
    
    $
    18,164
    
    
    $
    14,270
 The provision for income tax expense consisted of the following:
 Years ended July 31,2006
    
    
    2005
    
    
    2004Current tax expense:Canada
    
    $
    2,784
    
    
    $
    2,091
    
    
    $
    2,051United States  Federal
    
    
    2,578
    
    
    
    519
    
    
    
    89United States  States
    
    
    517
    
    
    
    717
    
    
    
    526Total current tax expense
    
    
    5,879
    
    
    
    3,327
    
    
    
    2,666Deferred tax expense (benefit):Canada
    
    
    14
    
    
    
    64
    
    
    
    27United States  Federal
    
    
    1,148
    
    
    
    3,426
    
    
    
    (1,589
    )United States  States
    
    
    553
    
    
    
    162
    
    
    
    333Total deferred tax expense (benefit)
    
    
    1,715
    
    
    
    3,652
    
    
    
    (1,229
    )Total income tax provision
    
    $
    7,594
    
    
    $
    6,979
    
    
    $
    1,437
 Differences between financial accounting principles and tax laws cause differences between the
bases of certain assets and liabilities for financial reporting purposes and tax purposes. The
tax effects of these differences, to the extent they are temporary, are recorded as deferred tax
assets and liabilities under Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes (SFAS No. 109) and consisted of the following components:
 F-17




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##### Table of Contents



July 31,2006
    
    
    2005Deferred tax asset:Allowance for doubtful accounts
    
    $
    197
    
    
    $
    252Fixed assets
    
    
    
    
    
    
    18Amortization of intangibles
    
    
    3,908
    
    
    
    6,090Accrued Vacation
    
    
    544
    
    
    
    488Accrued liabilities and other
    
    
    1,581
    
    
    
    1,252Stock option expense
    
    
    335
    
    
    
    182Deferred Compensation
    
    
    303
    
    
    
    247Charitable contribution carryover
    
    
    8
    
    
    
    Foreign tax credit carryforward
    
    
    3,608
    
    
    
    2,104WOTC tax credit carryforward
    
    
    
    
    
    
    127State net operating loss carryforward
    
    
    
    
    
    
    597Federal net operating loss carryforward
    
    
    
    
    
    
    157Alternative minimum tax credit
    
    
    
    
    
    
    237Total deferred tax benefits
    
    
    10,484
    
    
    
    11,751Less valuation allowance
    
    
    (1,724
    )
    
    
    (1,294
    )Net deferred tax asset
    
    
    8,760
    
    
    
    10,457Deferred tax liability:Fixed assets
    
    
    (858
    )
    
    
    (840
    )Total deferred tax liability
    
    
    (858
    )
    
    
    (840
    )Net deferred tax asset
    
    $
    7,902
    
    
    $
    9,617Financial statements:Current deferred tax asset
    
    $
    2,322
    
    
    $
    1,992Non-current deferred tax asset
    
    $
    5,580
    
    
    $
    7,625
 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 available U.S. net operating losses (NOL) totaling $10.6 million at
January 31, 2004 would be realized, and based on such determination, the Company 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 utilized substantially all of the
NOL during the 2004 and 2005 fiscal years.The Company continually reviews the adequacy of its valuation allowances and adjusts the
allowances for changes in expected realization.During the year ended July 31, 2006, the Company repatriated approximately $12.7 million from
its Canadian subsidiary. Except for certain applicable state income taxes, the Company was able
to offset the U.S. income tax liability arising from the dividends with foreign tax credits.
The Company has an estimated unused foreign tax credit carryforward of $3.6 million as of July
31, 2006. This carryforward is available to offset future United States federal income taxes on
foreign source income. At July 31, 2006 the Company established a valuation allowance of
approximately $1.7 million to reduce the value of its foreign tax credit carryforwards to
estimated realizable value. The foreign tax credits expire as follows:
 F-18




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##### Table of Contents



Year ofExpiration
    
    Amount2014
    
    $
    1,4342015
    
    
    6702016
    
    
    1,504$
    3,608
 The Company has not provided for U.S. Federal and foreign withholding taxes on the foreign
subsidiaries undistributed earnings as of July 31, 2006. Such earnings are intended to be
reinvested indefinitely.The Company has engaged professional tax advisors in Canada to assist in the ongoing discussions
with the Canadian Revenue Authority regarding issues surrounding transfer pricing. The Canadian
Revenue Authority is challenging specifically certain of the allocations of expenses between the
Canadian and United States operations for the 2002 and 2003 fiscal years. The Company does not
anticipate any significant adjustments relating to the challenges raised by the Canadian Revenue
Authority.The differences in income tax provided and the amounts determined by applying the statutory rate
to income before income taxes result from the following:
 Years ended July 31,2006
    
    
    2005
    
    
    2004Income taxes at statutory rate
    
    $
    6,995
    
    
    $
    6,176
    
    
    $
    4,852Effect on taxes resulting from:State taxes
    
    
    823
    
    
    
    879
    
    
    
    859Impact on NY State net operating loss
carryforward from merging subsidiary
    
    
    248
    
    
    
    
    
    
    
    Foreign taxes
    
    
    314
    
    
    
    245
    
    
    
    227(Increase) decrease in foreign tax credit
    
    
    (1,504
    )
    
    
    (538
    )
    
    
    (627
    )Increase (decrease) in valuation allowance
    
    
    430
    
    
    
    540
    
    
    
    (3,523
    )Other (including permanent differences)
    
    
    288
    
    
    
    (323
    )
    
    
    (351
    )$
    7,594
    
    
    $
    6,979
    
    
    $
    1,437
 9.
    
    RESERVE FOR DOUBTFUL ACCOUNTSThe changes in the reserve for doubtful accounts are summarized below:
 Balance at
    
    
    Additions Charges
    
    
    
    
    
    
    BalanceBeginning of
    
    
    to Costs and
    
    
    
    
    
    
    at End ofYear
    
    
    Expenses
    
    
    Deductions
    
    
    YearFiscal year ended:July 31, 2006
    
    $
    767
    
    
    $
    695
    
    
    $
    786
    
    
    $
    676July 31, 2005
    
    
    751
    
    
    
    531
    
    
    
    515
    
    
    
    767July 31, 2004
    
    
    721
    
    
    
    919
    
    
    
    889
    
    
    
    751
 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
1,750,000 shares. The Option Plan provides for the granting of both incentive stock options and
non-qualified stock options. In addition, the Option Plan provides for the granting of
restricted stock, which may include, without limitation, restrictions on the right to vote such
shares and restrictions on the right to receive dividends on such shares. The exercise price
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##### Table of Contents




    
    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.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. During the years ended July 31, 2006, 2005 and 2004, the Company recognized
$717, $459 and $318 of stock based compensation.Effective August 1, 2005, we adopted SFAS No. 123(R) (see Note 1 for a discussion of the limited
effects of such change, principally in the disclosure requirements).Stock option activity during the year ended July 31, 2006, is as follows:
 WeightedNumber of
    
    
    AverageShares
    
    
    Exercise PriceNumber of shares under option:Outstanding at beginning of year
    
    
    630,780
    
    
    $
    7.68Granted
    
    
    150,000
    
    
    
    17.10Exercised
    
    
    (244,830
    )
    
    
    4.43Forfeited
    
    
    (63,100
    )
    
    
    12.54Outstanding at end of year
    
    
    472,850
    
    
    
    11.16Exercisable at end of year
    
    
    257,550
    
    
    
    8.68
  Weighted Avg.Number of
    
    
    Grant Date FairShares
    
    
    ValueNumber of nonvested shares:Nonvested at beginning of year
    
    
    202,600
    
    
    $
    7.19Granted
    
    
    150,000
    
    
    
    8.82Vested
    
    
    (74,200
    )
    
    
    7.06Forfeited
    
    
    (63,100
    )
    
    
    7.85Nonvested at end of year
    
    
    215,300
    
    
    
    8.18
 The following table summarizes information about stock options outstanding at July 31, 2006:
 F-20




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##### Table of Contents



Stock Options Outstanding
    
    
    Stock Options ExercisableWeighted
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
   WeightedRange of
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
   
    AverageExercise Prices
    
    Shares
    
    
    Rem. Life (Yrs)
    
    
    Exercise Price
    
    
    Shares
    
    
    Rem. Life (Yrs)
    

    Exercise Price$1.40 - 2.24
    
    
    15,800
    
    
    
    4.10
    
    
    $
    1.51
    
    
    
    15,800
    
    
    
    4.10
    
    
    $
    1.51$2.25 - 3.00
    
    
    94,350
    
    
    
    5.26
    
    
    
    2.29
    
    
    
    69,550
    
    
    
    5.04
    
    
    
    2.29$3.01 - 7.00
    
    
    2,500
    
    
    
    6.45
    
    
    
    3.83
    
    
    
    2,500
    
    
    
    6.45
    
    
    
    3.83$10.01 - 12.00
    
    
    75,900
    
    
    
    1.63
    
    
    
    8.06
    
    
    
    75,900
    
    
    
    1.63
    
    
    
    8.06$12.01 - 14.00
    
    
    143,800
    
    
    
    7.89
    
    
    
    13.86
    
    
    
    68,800
    
    
    
    7.89
    
    
    
    13.72$14.01 - 19.00
    
    
    120,500
    
    
    
    9.17
    
    
    
    16.76
    
    
    
    10,000
    
    
    
    8.45
    
    
    
    18.16$19.01 - 21.00
    
    
    20,000
    
    
    
    9.55
    
    
    
    20.29
    
    
    
    15,000
    
    
    
    9.45
    
    
    
    20.40472,850
    
    
    
    6.62
    
    
    $
    11.16
    
    
    
    257,550
    
    
    
    5.14
    
    
    $
    8.68
 At July 31, 2006, the aggregate intrinsic value (i.e., the difference in market price of $20.94
and the exercise price to be paid by the optionee) of stock options outstanding was $4.4
million. The aggregate intrinsic value of exercisable stock options at that date was $2.9
million.At July 31, 2006, the total future compensation cost related to non-vested stock options not yet
recognized in the statement of income was $1.6 million and the weighted average period over
which these awards are expected to be recognized was 1.8 years. Of that total, $509, $460,
$438, $186 and $51 will be recognized in 2007, 2008, 2009, 2010 and 2011, respectively.The following table summarizes information about options granted, options exercised and options
becoming exercisable during the years shown:
 Years ended July 31,2006
    
    
    2005
    
    
    2004Weighted average grant date fair
value for options granted
    
    $
    8.82
    
    
    $
    10.02
    
    
    $
    9.84Total Intrinsic value of shares
underlying options:Options exercised
    
    $3.6 million
    
    $2.1 million
    
    $2.0 millionOptions becoming exercisable
    
    $0.8 million
    
    $1.0 million
    
    $1.2 million
 11.
    
    REPURCHASE OF EQUITY SECURITIESDuring fiscal year 2006, the Board of Directors authorized management to purchase up to $30
million of Dynamex Inc. common stock on the open market. Through July 31, 2006, the Company had
repurchased a total of 1,219 shares at an average price of $17.66 per share for a total dollar
cost of $21,538. Delaware law permits treasury shares to be retired when appropriately
authorized by the Board of Directors, and the Company has retired such shares by appropriate
reductions in the value of common stock and additional paid-in capital. The Company intends to
purchase additional common shares from time to time at prices acceptable to the Company.12.
    
    EMPLOYEES DEFINED CONTRIBUTION PLANThe 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, 2006, 2005 and 2004.
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13.
    
    SHAREHOLDER RIGHTS AGREEMENTIn June 1996, the Board of Directors of the Company approved a Rights Agreement which is
designed to protect stockholders should the Company become the target of coercive and unfair
takeover tactics. Pursuant to the Rights Agreement, the Board of Directors declared a dividend
of one preferred stock purchase right (a Right) for each outstanding share of Common Stock on
May 31, 1996. Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of the Series A Preferred Stock, at a price of $45.00 per one
one-hundredth of a share of Series A preferred Stock, subject to possible adjustment. The
Rights Agreement expired on May 31, 2006.14.
    
    GEOGRAPHIC AREA INFORMATIONDynamex Inc. operates in one reportable business segment, same-day delivery services, with three
primary service offerings: (i) same-day on-demand delivery services, (ii) same-day local and
regional distribution services and (iii) outsourcing services such as fleet management and
facilities management. The Company evaluates the performance of its geographic regions, United
States and Canada, based upon operating income before unusual and non-recurring items.The following table summarizes selected financial information for the United States and Canada
for the years ended July 31, 2006, 2005 and 2004:
 UnitedStates
    
    
    Canada
    
    
    Total2006Sales
    
    $
    230,768
    
    
    $
    127,606
    
    
    $
    358,374Operating income
    
    
    10,376
    
    
    
    9,630
    
    
    
    20,006Identifiable assets
    
    
    78,534
    
    
    
    31,765
    
    
    
    110,299Goodwill, net
    
    
    36,111
    
    
    
    10,823
    
    
    
    46,934Capital expenditures
    
    
    1,860
    
    
    
    333
    
    
    
    2,193Depreciation and amortization
    
    
    1,670
    
    
    
    261
    
    
    
    1,931Amortization of deferred bank
financing fees
    
    
    24
    
    
    
    
    
    
    
    242005Sales
    
    $
    213,718
    
    
    $
    107,385
    
    
    $
    321,103Operating income
    
    
    10,899
    
    
    
    7,505
    
    
    
    18,404Identifiable assets
    
    
    75,817
    
    
    
    33,658
    
    
    
    109,475Goodwill, net
    
    
    36,111
    
    
    
    9,977
    
    
    
    46,088Capital expenditures
    
    
    2,200
    
    
    
    223
    
    
    
    2,423Depreciation and amortization
    
    
    1,388
    
    
    
    260
    
    
    
    1,648Amortization of deferred bank
financing fees
    
    
    59
    
    
    
    
    
    
    
    592004Sales
    
    $
    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
    
    
    1,604
    
    
    
    286
    
    
    
    1,890Amortization of deferred bank
financing fees
    
    
    610
    
    
    
    
    
    
    
    610
 F-22




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##### Table of Contents



15.
    
    QUARTERLY DATA (Unaudited)Summarized quarterly financial data for 2006 and 2005 is as follows (in thousands except per
share amounts and business days):
 Quarter EndedOctober 31,
    
    
    January 31,
    
    
    April 30,
    
    
    July 31,2006Sales
    
    $
    90,569
    
    
    $
    86,346
    
    
    $
    86,916
    
    
    $
    94,543Gross proft
    
    
    24,392
    
    
    
    23,762
    
    
    
    24,466
    
    
    
    26,443Net income
    
    
    3,181
    
    
    
    2,686
    
    
    
    3,212
    
    
    
    3,312Net income per share:Basic
    
    
    0.28
    
    
    
    0.24
    
    
    
    0.29
    
    
    
    0.31Assuming dilution
    
    
    0.27
    
    
    
    0.24
    
    
    
    0.29
    
    
    
    0.31Average shares outstanding
    
    
    11,543
    
    
    
    11,108
    
    
    
    10,915
    
    
    
    10,657Number of business days
    
    
    64
    
    
    
    62
    
    
    
    62
    
    
    
    642005Sales
    
    $
    76,560
    
    
    $
    78,646
    
    
    $
    81,775
    
    
    $
    84,122Gross proft
    
    
    21,709
    
    
    
    21,784
    
    
    
    23,013
    
    
    
    22,574Net income
    
    
    3,173
    
    
    
    2,561
    
    
    
    2,730
    
    
    
    2,721Net income per share:Basic
    
    
    0.28
    
    
    
    0.22
    
    
    
    0.24
    
    
    
    0.23Assuming dilution
    
    
    0.27
    
    
    
    0.22
    
    
    
    0.23
    
    
    
    0.23Average shares outstanding
    
    
    11,445
    
    
    
    11,547
    
    
    
    11,586
    
    
    
    11,599Number of business days
    
    
    64
    
    
    
    62
    
    
    
    63
    
    
    
    63
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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.10.1(4)
    
    
    
    Amendment No. 2 to Employment Agreement of Richard K. McClelland.10.2(3)
    
    
    
    Dynamex Inc. Amended and Restated 1996 Stock Option Plan.10.3(2)
    
    
    
    Marketing and Transportation Services Agreement, between Purolator
Courier Ltd. and Parcelway Courier Systems Canada Ltd., dated November
20, 1995.10.4(2)
    
    
    
    Form of Indemnity Agreements with Executive Officers and Directors.10.14(5)
    
    
    
    Credit Agreement by and among the Company and Bank of America N.A., as administrative
agent for the lenders therein, dated March 2, 2004.10.14(6)
    
    
    
    First Amendment to the $30,000,000 Revolving Credit Facility by and among the Company
and Bank of America, N.A., as administrative agent and a lender, dated
April 22, 2005.10.14(7)
    
    
    
    Second Amendment to the $30,000,000 Revolving Credit Facility by and among the Company
and Bank of America, N.A., as administrative agent and a lender, dated
November 10, 2005.10.14(7)
    
    
    
    Third Amendment to the $30,000,000 Revolving Credit Facility by and among the Company
and Bank of America, N.A., as administrative agent and a lender, dated
December 23, 2005 (but effective as of October 31, 2005).10.14(1)
    
    
    
    Fourth Amendment to the $30,000,000 Revolving Credit Facility by and among the Company
and Bank of America, N.A., as administrative agent and a lender, dated
April 22, 2005.11.1
    
    
    
    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 quarterly report on Form 10-Q for the quarterly
period ended April 30, 2004, and incorporated herein by reference.(6)
    
    Filed as an exhibit to the registrants quarterly report on Form 10-Q for the quarterly
period ended April 30, 2005, and incorporated herein by reference.(7)
    
    Filed as an exhibit to the registrants quarterly report on Form 10-Q for the quarterly
period ended January 31, 2006, and incorporated herein by reference. E-1