##### 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, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 Commission file number: 000-21057
 DYNAMEX INC.
 (Exact name of registrant as specified in its charter)
 Delaware
(State of incorporation)
    
    86-0712225
(I.R.S. Employer Identification No.)5429 LBJ Freeway, Suite 1000, Dallas, Texas
    
    75240(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code:
(214) 560-9000
 Securities registered pursuant to Section 12 of the Act:
None
 Securities registered pursuant to Section 12 of the Act:
Common Stock, $.01 par value
 o þ
 o þ
 þ o
 þ
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TABLE OF CONTENTS
 PagePART IITEM 1.
    
    BUSINESS
    
    
    2ITEM 1A.
    
    RISK FACTORS
    
    
    7ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
    
    
    10ITEM 2.
    
    PROPERTIES
    
    
    10ITEM 3.
    
    LEGAL PROCEEDINGS
    
    
    12ITEM 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
    
    
    16ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
    
    
    17ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    26ITEM 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 AND FINANCIAL STATEMENT SCHEDULES
    
    
    29Offer of Employment Agreement to Maurice LevySixth Amendment to the $30,000,000 Revolving Credit FacilityConsent of BDO Seidman, LLPCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer
  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, Regional and Local 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.
 Competition May Adversely Affect Our Results
  7




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An Increase in Claims May Expose Us to Losses
  We Rely on Independent Contractor Owner-Operator Drivers to Make Deliveries for Our Customers
  We May Be Adversely Affected by Local Delivery Industry and General Economic Conditions
  Fluctuations of Foreign Exchange Rates May Adversely Affect Our Results
  Failure to Maintain Permits and Licensing May Adversely Affect Our Ability to Operate
  8




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##### Table of Contents



We Depend Upon Key Personnel for Our Continued Operations
  Technological Advances May Adversely Affect Our Business
  We Are Highly Dependent Upon Our Technology Infrastructure
  We Are Dependent on Availability of Qualified Delivery Personnel
  We May Need for Additional Financing to Pursue Our Acquisition Strategy
  Factors Beyond Our Control May Affect the Volatility of Our Stock Price
  9




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Escalating Fuel Costs May Adversely Affect Our Financial Condition and Results of Operations
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  Number ofLocation
    
    Leased PropertiesCanadaAlberta
    
    
    4British Columbia
    
    
    5Manitoba
    
    
    2Newfoundland
    
    
    1Nova Scotia
    
    
    1Ontario
    
    
    13Quebec
    
    
    4Saskatchewan
    
    
    2Canadian Total
    
    
    32
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Number ofLocation
    
    Leased PropertiesUnited StatesArizona
    
    
    1California
    
    
    11Colorado
    
    
    1Connecticut
    
    
    1Florida
    
    
    1Georgia
    
    
    1Illinois
    
    
    2Indiana
    
    
    1Kansas
    
    
    1Maryland
    
    
    1Massachusetts
    
    
    1Minnesota
    
    
    1Missouri
    
    
    1Nevada
    
    
    1New Jersey
    
    
    2New York
    
    
    5North Carolina
    
    
    2Ohio
    
    
    1Pennsylvania
    
    
    3Tennessee
    
    
    1Texas
    
    
    6Virginia
    
    
    4Washington
    
    
    2United States Total
    
    
    51
   11




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ITEM 3. LEGAL PROCEEDINGS
      
 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
 BidFiscal 2007
    
    High
    
    LowFirst Quarter
    
    $
    22.42
    
    
    $
    19.00Second Quarter
    
    
    24.86
    
    
    
    20.51Third Quarter
    
    
    27.39
    
    
    
    22.56Fourth Quarter
    
    
    29.00
    
    
    
    23.65
 Fiscal 2006
    
    High
    
    LowFirst Quarter
    
    $
    18.50
    
    
    $
    15.15Second Quarter
    
    
    21.06
    
    
    
    15.65Third Quarter
    
    
    20.94
    
    
    
    17.15Fourth Quarter
    
    
    22.25
    
    
    
    18.38
 Stock Price Performance
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COMPARATIVE CUMULATIVE TOTAL RETURN
AMONG DYNAMEX INC.,
NASDAQ COMPOSITE INDEX, AMEX COMPOSITE INDEX
AND RUSSELL 2000 INDEX
 
 
 
 **
    
    The Company transferred its listing to the Nasdaq Global Select Market from the AMEX on
March 14, 2005.***
    
    The Russell 2000 Stock Index represents companies with a market capitalization similar to
that of the Company. The Company does not believe it can reasonably identify a peer group
because it believes that there is only one public company engaged in lines of business
directly comparative to those of the Company. Holders
 Dividends
 Securities Authorized for Issuance Under Equity Compensation Plans
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##### Table of Contents



Number of securities to be
    
    
    Weighted-average exercise
    
    
    Number of securitiesissued upon exercise of
    
    
    price of outstanding
    
    
    remaining available foroutstanding options,
    
    
    options, warrants and
    
    
    future issuance under equityPlan category
    
    warrants and rights
    
    
    rights
    
    
    compensation plans (1)Equity compensation plans
approved by security holders
    
    
    485,050
    
    
    $
    15.47
    
    
    
    350,947Equity compensation plans
not approved by security
holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    485,050
    
    
    $
    15.47
    
    
    
    350,947
 Common Stock Repurchase
  Total number ofshares purchased asTotal number
    
    Average
    
    part of
    
    Approximate dollar valueof shares
    
    price paid
    
    a publicly
    
    of shares that may yet bePeriod
    
    purchased
    
    per share
    
    announced plan
    
    purchased under the planMay 1 to May 31,
2007
    
    
    47,900
    
    
    $
    26.03
    
    
    
    47,900
    
    
    $13.2 millionJune 1 to June 30,
2007
    
    
    40,240
    
    
    $
    25.69
    
    
    
    40,240
    
    
    $12.2 millionJuly 1 to July 31,
2007
    
    
    442,800
    
    
    $
    23.85
    
    
    
    442,800
    
    
    $1.6 million
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ITEM 6. SELECTED FINANCIAL DATA
  Years ending July 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(in thousands, except per share amounts)Statements of operations data:Sales
    
    $
    413,774
    
    
    $
    358,374
    
    
    $
    321,103
    
    
    $
    287,856
    
    
    $
    250,801Cost of sales
    
    
    304,339
    
    
    
    259,311
    
    
    
    232,023
    
    
    
    206,487
    
    
    
    177,850Gross profit
    
    
    109,435
    
    
    
    99,063
    
    
    
    89,080
    
    
    
    81,369
    
    
    
    72,951Selling, general and administrative expenses (1)
    
    
    85,341
    
    
    
    77,125
    
    
    
    69,049
    
    
    
    64,026
    
    
    
    58,417Depreciation and amortization
    
    
    2,357
    
    
    
    1,931
    
    
    
    1,648
    
    
    
    1,890
    
    
    
    2,124(Gain) loss on disposal of property and equipment
    
    
    (20
    )
    
    
    1
    
    
    
    (21
    )
    
    
    (41
    )
    
    
    19Operating income
    
    
    21,757
    
    
    
    20,006
    
    
    
    18,404
    
    
    
    15,494
    
    
    
    12,391Interest expense, net
    
    
    299
    
    
    
    295
    
    
    
    466
    
    
    
    1,406
    
    
    
    2,194Other (income) expense, net (2)
    
    
    (2,079
    )
    
    
    (275
    )
    
    
    (226
    )
    
    
    (182
    )
    
    
    (340
    )Income before income taxes
    
    
    23,537
    
    
    
    19,986
    
    
    
    18,164
    
    
    
    14,270
    
    
    
    10,537Income taxes (3)
    
    
    8,575
    
    
    
    7,594
    
    
    
    6,979
    
    
    
    1,437
    
    
    
    2,959Net income
    
    $
    14,962
    
    
    $
    12,392
    
    
    $
    11,185
    
    
    $
    12,833
    
    
    $
    7,578Earnings per share:basic
    
    $
    1.41
    
    
    $
    1.12
    
    
    $
    0.97
    
    
    $
    1.13
    
    
    $
    0.68diluted
    
    $
    1.39
    
    
    $
    1.11
    
    
    $
    0.95
    
    
    $
    1.11
    
    
    $
    0.67Weighted average common shares outstanding:basic
    
    
    10,612
    
    
    
    11,057
    
    
    
    11,544
    
    
    
    11,314
    
    
    
    11,208diluted
    
    
    10,738
    
    
    
    11,197
    
    
    
    11,804
    
    
    
    11,532
    
    
    
    11,364Other data:Earnings before interest, taxes, depreciation and
amortization (EBITDA) (4)Net income
    
    $
    14,962
    
    
    $
    12,392
    
    
    $
    11,185
    
    
    $
    12,833
    
    
    $
    7,578Adjustments:Income taxes
    
    
    8,575
    
    
    
    7,594
    
    
    
    6,979
    
    
    
    1,437
    
    
    
    2,959Interest expense, net
    
    
    299
    
    
    
    295
    
    
    
    466
    
    
    
    1,406
    
    
    
    2,194Depreciation and amortization
    
    
    2,357
    
    
    
    1,931
    
    
    
    1,648
    
    
    
    1,890
    
    
    
    2,124EBITDA
    
    $
    26,193
    
    
    $
    22,212
    
    
    $
    20,278
    
    
    $
    17,566
    
    
    $
    14,855
 July 31,2007
    
    2006
    
    2005
    
    2004
    
    2003(in thousands)Balance sheet data:Working capital
    
    $
    22,189
    
    
    $
    18,889
    
    
    $
    22,917
    
    
    $
    16,704
    
    
    $
    7,779Total assets
    
    
    121,040
    
    
    
    110,525
    
    
    
    109,475
    
    
    
    102,072
    
    
    
    95,541Long-term debt, excluding current portion
    
    
    
    
    
    
    905
    
    
    
    8
    
    
    
    10,000
    
    
    
    14,116Stockholders equity
    
    
    81,409
    
    
    
    79,212
    
    
    
    83,896
    
    
    
    69,310
    
    
    
    54,328
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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)
    
    The increase in other income in the year ended July 31, 2007, is principally attributable to
the resolution of inter-company, cross-border transfer pricing issues for fiscal years 2001
through 2005. As a result, the Company realized interest income of approximately $425,000
from the overpayment of prior year Canadian taxes without a corresponding increase in interest
expense from the U.S. as the Company had available U.S. net operating losses to offset the
additional income, and the realization of $937,000 in foreign currency transaction gains on
cash settlement of those inter-company charges. These inter-company charges were denominated
in Canadian dollars, the value of which increased in U.S. dollars from those prior year
levels. The result was to increase net income by $972,000, $0.09 per fully diluted share, for
the 2007 year. See Footnote 13 of Notes to the Consolidated Financial Statements for
additional information.3)
    
    Income tax expense for the year ended July 31, 2004, was reduced by $3.7 million as a result
of recognizing the tax benefit of U.S. net operating loss carryforwards of approximately $10.6
million that were not recognized in prior years due to uncertainty in those prior periods.
Accordingly, net income increased $3.7 million, $0.32 per fully diluted share for 2004.
Without the income tax adjustment, fully diluted earnings per share for the year ending July
31, 2004 would have been reported as $0.79.4)
    
    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
    17




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Critical Accounting Policies
  Use of estimates
 Revenue recognition 
 Intangibles 
 18




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Other assets  Recoverable contract contingency costs
 Self-insured claims liability
 Allowance for doubtful accounts
 Income taxes  .
  Stock-based compensation
  19




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Foreign currency translation  .
 Treasury stock acquired and retired 
 Other long-term liabilities 
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Results of Operations
  Years Ended July 31,2007
    
    2006
    
    2005Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales:Purchased transportation
    
    
    65.4
    %
    
    
    65.0
    %
    
    
    64.3
    %Other
    
    
    8.1
    %
    
    
    7.3
    %
    
    
    8.0
    %Cost of sales
    
    
    73.5
    %
    
    
    72.3
    %
    
    
    72.3
    %Gross profit
    
    
    26.5
    %
    
    
    27.7
    %
    
    
    27.7
    %Selling, general and administrative:Salaries and employee benefits
    
    
    14.1
    %
    
    
    15.0
    %
    
    
    14.8
    %Other
    
    
    6.5
    %
    
    
    6.5
    %
    
    
    6.7
    %Selling, general and administrative
    
    
    20.6
    %
    
    
    21.5
    %
    
    
    21.5
    %Depreciation and amortization
    
    
    0.6
    %
    
    
    0.5
    %
    
    
    0.5
    %(Gain) loss on sale of property and equipment
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Operating income
    
    
    5.3
    %
    
    
    5.7
    %
    
    
    5.7
    %Interest expense
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    0.1
    %Other income
    
    
    0.5
    %
    
    
    0.1
    %
    
    
    0.1
    %Income before income taxes
    
    
    5.7
    %
    
    
    5.7
    %
    
    
    5.7
    %Income taxes
    
    
    2.1
    %
    
    
    2.1
    %
    
    
    2.2
    %Net income
    
    
    3.6
    %
    
    
    3.6
    %
    
    
    3.5
    %
  Years Ended July 31,2007
    
    
    2006
    
    
    2005Sales by service type:On demand
    
    $
    137,418
    
    
    
    33.2
    %
    
    $
    134,179
    
    
    
    37.5
    %
    
    $
    124,206
    
    
    
    38.6
    %Scheduled/distribution
    
    
    144,708
    
    
    
    35.0
    %
    
    
    109,037
    
    
    
    30.4
    %
    
    
    97,464
    
    
    
    30.4
    %Outsourcing
    
    
    131,648
    
    
    
    31.8
    %
    
    
    115,158
    
    
    
    32.1
    %
    
    
    99,433
    
    
    
    31.0
    %Total sales
    
    $
    413,774
    
    
    
    100.0
    %
    
    $
    358,374
    
    
    
    100.0
    %
    
    $
    321,103
    
    
    
    100.0
    %Sales by country:United States
    
    $
    257,025
    
    
    
    62.1
    %
    
    $
    230,768
    
    
    
    64.4
    %
    
    $
    213,718
    
    
    
    66.6
    %Canada
    
    
    156,749
    
    
    
    37.9
    %
    
    
    127,606
    
    
    
    35.6
    %
    
    
    107,385
    
    
    
    33.4
    %Total sales
    
    $
    413,774
    
    
    
    100.0
    %
    
    $
    358,374
    
    
    
    100.0
    %
    
    $
    321,103
    
    
    
    100.0
    %
 Year Ended July 31, 2007 Compared to Year Ended July 31, 2006
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Year Ended July 31, 2006 Compared to Year Ended July 31, 2005
        Liquidity and Capital Resources
  23




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Compliance Area
    
    Covenant
    
    Level at July 31, 2007Ratio of funded debt to EBITDA
    
    Maximum of 2.00 to 1.00
    
    0.19 to 1.00Total indebtedness
    
    $20 million, including LOCs
    
    $5.2 millionLetters of credit sublimit
    
    $7.5 million
    
    $5.2 millionMaximum treasury stock
purchases in any one (1) year
    
    $20 million
    
    $14.9 millionFixed charge coverage ratio
    
    Equal to or greater than 1.50 to 1.00
    
    1.83 to 1.00
  Contractual Obligations
  Less thanTotal
    
    
    1 year
    
    
    1 - 3 years
    
    
    3 - 5 years
    
    
    ThereafterTotal
    
    $
    32,686
    
    
    $
    9,877
    
    
    $
    13,903
    
    
    $
    6,117
    
    
    $
    2,790
  24




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##### Table of Contents



Income Taxes
   Inflation
  Financial Condition
  Recent Accounting Pronouncements
     25




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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
   Interest Rate Exposure
  26




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##### Table of Contents



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
 (a). Evaluation of disclosure control and procedures
   (b). Managements report on internal control over financial reporting.
  
 ITEM 9B. OTHER INFORMATION
  27




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##### Table of Contents



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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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 Financial Statements
  Exhibits
  Financial Statement Schedules
  29




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##### Table of Contents



SIGNATURES
  Dynamex Inc.,
A Delaware corporationBy:
    /s/ Ray E. SchmitzRay E. Schmitz, Vice-President and Chief Financial OfficerDated: October 12, 2007  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/ Bruce E. Ranck

Bruce E. Ranck
    
    Director
 30




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##### Table of Contents



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, 2007 and 2006
    
    F-5Consolidated Statements of Operations for the fiscal years ended
July 31, 2007, 2006 and 2005
    
    F-6Consolidated Statements of Stockholders Equity for the fiscal years ended
July 31, 2007, 2006 and 2005
    
    F-7Consolidated Statements of Cash Flows for the fiscal years ended
July 31, 2007, 2006 and 2005
    
    F-8Notes to the Consolidated Financial Statements
    
    F-9
 F-1




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##### Table of Contents



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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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
 
 F-3




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##### Table of Contents



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




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##### Table of Contents



DYNAMEX INC.
 2007
    
    
    2006ASSETSCURRENTCash and cash equivalents
    
    $
    8,857
    
    
    $
    6,058Accounts receivable (net of allowance for doubtful accounts
of $866 and $676, respectively)
    
    
    42,649
    
    
    
    36,425Income taxes receivable
    
    
    1,092
    
    
    
    1,803Prepaid and other current assets
    
    
    3,559
    
    
    
    2,689Deferred income taxes
    
    
    3,136
    
    
    
    2,322Total current assets
    
    
    59,293
    
    
    
    49,297PROPERTY AND EQUIPMENT  net
    
    
    8,495
    
    
    
    5,967GOODWILL
    
    
    47,613
    
    
    
    46,934INTANGIBLES  net
    
    
    326
    
    
    
    390DEFERRED INCOME TAXES
    
    
    1,398
    
    
    
    5,580OTHER
    
    
    3,915
    
    
    
    2,357Total assets
    
    $
    121,040
    
    
    $
    110,525LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable trade
    
    $
    15,426
    
    
    $
    11,168Accrued liabilities
    
    
    21,679
    
    
    
    19,240Total current liabilities
    
    
    37,105
    
    
    
    30,408LONG-TERM DEBT
    
    
    
    
    
    
    905OTHER LONG-TERM LIABILITIES
    
    
    2,526
    
    
    
    Total liabilities
    
    
    39,631
    
    
    
    31,313COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITYPreferred stock; $0.01 par value, 10,000 shares authorized;
none outstanding
    
    
    
    
    
    
    Common stock; $0.01 par value, 50,000 shares authorized;
10,145 and 10,638 outstanding,
respectively
    
    
    101
    
    
    
    106Additional paid-in capital
    
    
    45,671
    
    
    
    58,514Retained earnings
    
    
    31,122
    
    
    
    16,160Accumulated other comprehensive income:Cumulative translation adjustment
    
    
    4,515
    
    
    
    4,432Total stockholders equity
    
    
    81,409
    
    
    
    79,212Total liabilities and stockholders
equity
    
    $
    121,040
    
    
    $
    110,525
  F-5




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##### Table of Contents



DYNAMEX INC.
 2007
    
    
    2006
    
    
    2005Sales
    
    $
    413,774
    
    
    $
    358,374
    
    
    $
    321,103Cost of sales:Purchased transportation
    
    
    270,804
    
    
    
    233,084
    
    
    
    206,316Other direct costs
    
    
    33,535
    
    
    
    26,227
    
    
    
    25,707Cost of sales
    
    
    304,339
    
    
    
    259,311
    
    
    
    232,023Gross profit
    
    
    109,435
    
    
    
    99,063
    
    
    
    89,080Selling, general and administrative expenses:Salaries and employee benefits
    
    
    58,420
    
    
    
    53,707
    
    
    
    47,606Other
    
    
    26,921
    
    
    
    23,418
    
    
    
    21,443Selling, general and administrative expenses
    
    
    85,341
    
    
    
    77,125
    
    
    
    69,049Depreciation and amortization
    
    
    2,357
    
    
    
    1,931
    
    
    
    1,648(Gain) loss on disposal of property and equipment
    
    
    (20
    )
    
    
    1
    
    
    
    (21
    )Operating income
    
    
    21,757
    
    
    
    20,006
    
    
    
    18,404Interest expense
    
    
    299
    
    
    
    295
    
    
    
    466Other income, net
    
    
    2,079
    
    
    
    275
    
    
    
    226Income before income taxes
    
    
    23,537
    
    
    
    19,986
    
    
    
    18,164Income taxes
    
    
    8,575
    
    
    
    7,594
    
    
    
    6,979Net income
    
    $
    14,962
    
    
    $
    12,392
    
    
    $
    11,185Basic earnings per common share
    
    $
    1.41
    
    
    $
    1.12
    
    
    $
    0.97Diluted earnings per common share
    
    $
    1.39
    
    
    $
    1.11
    
    
    $
    0.95Weighted average shares:Common shares outstanding
    
    
    10,612
    
    
    
    11,057
    
    
    
    11,544Adjusted common shares  assuming
exercise of stock options
    
    
    10,738
    
    
    
    11,197
    
    
    
    11,804
  F-6




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##### Table of Contents



AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    TotalBALANCE 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
    
    
    
    
    
    
    
    
    
    
    
    717Treasury stock purchase and
retirement
    
    
    (1,219
    )
    
    
    (13
    )
    
    
    (21,525
    )
    
    
    
    
    
    
    
    
    
    
    (21,538
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,392
    
    
    
    
    
    
    
    12,392Unrealized 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
    
    
    
    79,212Issuance of common stock, including
tax benefit of $142
    
    
    128
    
    
    
    1
    
    
    
    1,244
    
    
    
    
    
    
    
    
    
    
    
    1,245Stock option compensation
    
    
    
    
    
    
    
    
    
    
    771
    
    
    
    
    
    
    
    
    
    
    
    771Treasury stock purchase and
retirement
    
    
    (621
    )
    
    
    (6
    )
    
    
    (14,858
    )
    
    
    
    
    
    
    
    
    
    
    (14,864
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,962
    
    
    
    
    
    
    
    14,962Unrealized foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83
    
    
    
    83Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,045BALANCE AT JULY 31, 2007
    
    
    10,145
    
    
    $
    101
    
    
    $
    45,671
    
    
    $
    31,122
    
    
    $
    4,515
    
    
    $
    81,409
  F-7




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##### Table of Contents



DYNAMEX INC.
 2007
    
    
    2006
    
    
    2005OPERATING ACTIVITIESNet income
    
    $
    14,962
    
    
    $
    12,392
    
    
    $
    11,185Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    2,357
    
    
    
    1,931
    
    
    
    1,648Amortization of deferred bank financing fees
    
    
    28
    
    
    
    24
    
    
    
    59Provision for losses on accounts receivable
    
    
    499
    
    
    
    695
    
    
    
    531Stock option compensation
    
    
    771
    
    
    
    717
    
    
    
    459Deferred income taxes
    
    
    3,368
    
    
    
    1,716
    
    
    
    3,652Lessor financed leasehold improvements
    
    
    1,997
    
    
    
    
    
    
    
    Non-cash rent expense
    
    
    860
    
    
    
    
    
    
    
    (Gain) loss on disposal of property and equipment
    
    
    (19
    )
    
    
    1
    
    
    
    (21
    )Changes in current operating assets and liabilities:Accounts receivable
    
    
    (6,722
    )
    
    
    (5,417
    )
    
    
    (4,879
    )Prepaids and other current assets
    
    
    (105
    )
    
    
    (1,377
    )
    
    
    (929
    )Accounts payable and accrued liabilities
    
    
    6,589
    
    
    
    4,837
    
    
    
    2,812Net cash provided by operating activities
    
    
    24,585
    
    
    
    15,519
    
    
    
    14,517INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (4,961
    )
    
    
    (2,193
    )
    
    
    (2,423
    )Cash payment for acquisition
    
    
    
    
    
    
    
    
    
    
    (100
    )Net proceeds from disposal of property and equipment
    
    
    
    
    
    
    
    
    
    
    28Purchase of investments
    
    
    (278
    )
    
    
    (160
    )
    
    
    (358
    )Net cash used in investing activities
    
    
    (5,239
    )
    
    
    (2,353
    )
    
    
    (2,853
    )FINANCING ACTIVITIESPrincipal payments on long-term debt
    
    
    (5
    )
    
    
    (3
    )
    
    
    (2
    )Net (payments) receipts under line of credit
    
    
    (900
    )
    
    
    900
    
    
    
    (10,000
    )Proceeds from stock option exercise
    
    
    1,103
    
    
    
    1,084
    
    
    
    1,113Tax benefit realized from exercise of stock options
    
    
    142
    
    
    
    1,044
    
    
    
    317Purchase and retirement of treasury stock
    
    
    (14,864
    )
    
    
    (21,538
    )
    
    
    Other assets and deferred financing fees
    
    
    (1,212
    )
    
    
    (964
    )
    
    
    (2
    )Net cash used in financing activities
    
    
    (15,736
    )
    
    
    (19,477
    )
    
    
    (8,574
    )EFFECT OF EXCHANGE RATES ON CASH
    
    
    (811
    )
    
    
    691
    
    
    
    661NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    2,799
    
    
    
    (5,620
    )
    
    
    3,751CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    6,058
    
    
    
    11,678
    
    
    
    7,927CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    8,857
    
    
    $
    6,058
    
    
    $
    11,678SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid for interest
    
    $
    262
    
    
    $
    304
    
    
    $
    506Cash paid for taxes
    
    $
    5,226
    
    
    $
    6,910
    
    
    $
    2,872
  F-8




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##### Table of Contents



1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESDescription of business Dynamex Inc. and Subsidiaries (the Company or Dynamex) provide
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 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
 Other long-term liabilities
 Self-insured claims liability 
  Income taxes  .
 Stock-based compensation
  F-11




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##### Table of Contents



Net income per share
 Foreign currency translation  .
 Treasury stock acquired and retired 
 New accounting pronouncements
    F-12




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##### Table of Contents



Reclassification
 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 31,2007
    
    
    2006
    
    
    2005Net income
    
    $
    14,962
    
    
    $
    12,392
    
    
    $
    11,185Weighted average common shares outstanding
    
    
    10,612
    
    
    
    11,057
    
    
    
    11,544Common share equivalents related to options
    
    
    126
    
    
    
    140
    
    
    
    260Common shares and common share equivalents
    
    
    10,738
    
    
    
    11,197
    
    
    
    11,804Basic earnings per common share
    
    $
    1.41
    
    
    $
    1.12
    
    
    $
    0.97Diluted earnings per common share
    
    $
    1.39
    
    
    $
    1.11
    
    
    $
    0.95
 3.
    
    INTANGIBLESIntangibles consist of the following:
 July 31,2007
    
    
    2006Carrying amount:Deferred bank financing fees
    
    $
    132
    
    
    $
    129Customer lists
    
    
    92
    
    
    
    80Trademarks
    
    
    470
    
    
    
    470694
    
    
    
    679Less accumulated amortization:Deferred bank financing fees
    
    
    (123
    )
    
    
    (95
    )Customer lists
    
    
    (78
    )
    
    
    (45
    )Trademarks
    
    
    (167
    )
    
    
    (149
    )(368
    )
    
    
    (289
    )Intangibles  net
    
    $
    326
    
    
    $
    390
 F-13




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##### Table of Contents



4.
    
    PROPERTY AND EQUIPMENTProperty and equipment consists of the following:
 July 31,2007
    
    
    2006Equipment
    
    $
    18,621
    
    
    $
    17,366Software
    
    
    8,592
    
    
    
    7,680Furniture
    
    
    2,030
    
    
    
    2,433Vehicles
    
    
    567
    
    
    
    545Leasehold improvements
    
    
    4,948
    
    
    
    2,809Other
    
    
    1
    
    
    
    634,759
    
    
    
    30,839Less accumulated depreciation
    
    
    (26,264
    )
    
    
    (24,872
    )Property and equipment  net
    
    $
    8,495
    
    
    $
    5,967
  5.
    
    ACCRUED LIABILITIESAccrued liabilities consist of the following:
 July 31,2007
    
    
    2006Salaries and wages
    
    $
    3,816
    
    
    $
    4,626Independent contractor settlements
    
    
    5,870
    
    
    
    4,695Workers compensation estimated claims
    
    
    1,711
    
    
    
    1,486Auto liability estimated claims
    
    
    2,234
    
    
    
    1,109Vacation
    
    
    2,400
    
    
    
    2,058Interest
    
    
    
    
    
    
    7Deferred revenue
    
    
    177
    
    
    
    235Taxes  other
    
    
    1,100
    
    
    
    930Other
    
    
    4,371
    
    
    
    4,094Total accrued liabilities
    
    $
    21,679
    
    
    $
    19,240
 6.
    
    LONG-TERM DEBT AND OTHER LIABILITIESLong-term debt and other liabilities consist of the following:
 July 31,2007
    
    
    2006Revolving credit facility (a)
    
    $
    
    
    
    $
    900Other long-term liabilties (b)
    
    
    2,526
    
    
    
    5Total long-term debt
    
    $
    2,526
    
    
    $
    905
 F-14




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##### Table of Contents



a)
    
    Revolving Credit Agreement
 On 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. On October 5, 2006, the Revolving
Credit Facility was amended to change the sublimit of the authorized letters of credit from $5.5
million to $7.5 million. On July 31, 2007, the Revolving Credit Facility was amended to permit
treasury stock purchases not to exceed $20 million in aggregate amount during any fiscal year.
At July 31, 2007, there were no borrowings under the credit agreement; letters of credit
totaling $5.2 million were outstanding.
 b)
    
    Capital leases
 In connection with the acquisition of certain property the Company has capitalized certain
leases which were repaid in 2007. The Company recognizes a deferred rent liability for tenant
improvement allowances within other long-term liabilities and amortizes these amounts over the
term of the lease as a reduction of rent expense. For scheduled rent escalation clauses during
the lease term, the Company records rental expense on a straight-line basis over the term of the
lease.
 7.
    
    COMMITMENTS AND CONTINGENCIESCOMMITMENTSThe Company leases certain equipment and properties under non-cancelable operating lease
agreements, which expire at various dates.
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At July 31, 2007, minimum annual lease payments for such operating leases are as follows:
 2008
    
    $
    9,8772009
    
    
    7,8142010
    
    
    6,0882011
    
    
    3,9822012
    
    
    2,135Thereafter
    
    
    2,790$
    32,686
 Rent expense related to operating leases amounted to approximately $17,855, $14,350, and $12,318
for the years ended July 31, 2007, 2006 and 2005, 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, 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.CONTINGENCIESThe California Employment Development Department (the EDD), in 2005, 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 assessment plus accrued interest against the Company, the bulk of which is for
personal income taxes. The Company subsequently provided documentation to the EDD related to
the original assessment which resulted in a reduction in the assessment of approximately $100.
The assessment has been paid, and the Company has filed a Refund Claim.The California EDD conducted an employment tax audit of the Companys other California
operations in 2006. Based on its conclusion that certain independent contractors used by the
Company should be reclassified as employees, a Notice of Assessment was issued by the EDD in
April 2007 in the amount of $2.8 million, $2.0 of which the EDD claims represents personal
income tax of the reclassified individuals. The Company has filed a Petition for Reassessment
and intends to vigorously contest the assessment.On 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. The
plaintiff filed a Motion for Class Certification on November 2, 2006. The Company responded in
a Memorandum of Points and Authorities in Support of Defendants Opposition to Plaintiffs
Motion for Class Certification on November 29, 2006. A hearing was held on December 12, 2006,
and on December 14, 2006, the Plaintiffs Motion for Class Certification was denied. The
Plaintiff filed a Notice of Appeal on January 5, 2007. During the summer of 2007, Plaintiff
associated additional counsel for the Appeal. Plaintiff requested and was granted a 30 day
extension to August 27, 2007, in which to file his Opening Brief. An additional 30 day
extension was granted on August 27th, extending the time to September 26th. The Companys
answering brief will be due 30 days after the Opening brief is filed. Plaintiff will have 30
days following that in which to file a rebuttal brief. Thereafter the Court will schedule an
Oral hearing, most likely in the early months of 2008.We believe that the Companys independent contractor owner-operator 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.
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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:
 Years ended July 31,2007
    
    
    2006
    
    
    2005Canada
    
    $
    10,547
    
    
    $
    7,857
    
    
    $
    6,135United States
    
    
    12,990
    
    
    
    12,129
    
    
    
    12,029$
    23,537
    
    
    $
    19,986
    
    
    $
    18,164
 The provision for income tax expense consisted of the following:
 Years ended July 31,2007
    
    
    2006
    
    
    2005Current tax expense:Canada
    
    $
    1,641
    
    
    $
    2,784
    
    
    $
    2,091United States  Federal
    
    
    2,935
    
    
    
    2,578
    
    
    
    519United States  States
    
    
    631
    
    
    
    517
    
    
    
    717Total current tax expense
    
    
    5,207
    
    
    
    5,879
    
    
    
    3,327Deferred tax expense:Canada
    
    
    50
    
    
    
    14
    
    
    
    64United States  Federal
    
    
    3,021
    
    
    
    1,148
    
    
    
    3,426United States  States
    
    
    297
    
    
    
    553
    
    
    
    162Total deferred tax expense
    
    
    3,368
    
    
    
    1,715
    
    
    
    3,652Total income tax provision
    
    $
    8,575
    
    
    $
    7,594
    
    
    $
    6,979
 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 31,2007
    
    
    2006Deferred tax asset:Allowance for doubtful accounts
    
    $
    254
    
    
    $
    197Amortization of intangibles
    
    
    1,745
    
    
    
    3,908Accrued vacation
    
    
    637
    
    
    
    544Accrued liabilities and other
    
    
    2,120
    
    
    
    1,581Stock option expense
    
    
    396
    
    
    
    335Deferred compensation
    
    
    424
    
    
    
    303Charitable contribution carryover
    
    
    
    
    
    
    8Foreign tax credit carryforward
    
    
    
    
    
    
    3,608WOTC tax credit carryforward
    
    
    125
    
    
    
    Capitalized start-up costs
    
    
    35
    
    
    
    Total deferred tax benefits
    
    
    5,736
    
    
    
    10,484Less valuation allowance
    
    
    
    
    
    
    (1,724
    )Net deferred tax asset
    
    
    5,736
    
    
    
    8,760Deferred tax liability:Fixed assets
    
    
    (1,202
    )
    
    
    (858
    )Total deferred tax liability
    
    
    (1,202
    )
    
    
    (858
    )Net deferred tax asset
    
    $
    4,534
    
    
    $
    7,902Financial statements:Current deferred tax asset
    
    $
    3,136
    
    
    $
    2,322Non-current deferred tax asset
    
    $
    1,398
    
    
    $
    5,580
 The Company establishes valuation allowances in accordance with the provisions of SFAS No. 109.
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, 2007, the Company repatriated approximately $3.6 million from its
Canadian subsidiary. Except for certain applicable state income taxes, the Company was able to
offset substantially all the U.S. income tax liability arising from the dividends with foreign
tax credits. The Company had an estimated unused foreign tax credit carryforward of $3.6
million as of July 31, 2006. This carryforward was 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. At July 31, 2007 the Company has utilized all of
its foreign tax credit carryforwards.The Company has not provided for U.S. Federal and foreign withholding taxes on the foreign
subsidiaries undistributed earnings as of July 31, 2007. Such earnings are intended to be
reinvested indefinitely.Total income tax expense was $8.6 million, 36.4% of income before taxes in the current fiscal
year compared to $7.6 million, 38.0% of income before taxes in fiscal year 2006. Excluding the
impact of the one-time benefit from the resolution of prior year cross-border transfer pricing
issues as shown in Footnote 13 below, income tax expense would have been approximately $8.2
million, 36.9% of income before taxes. The current year tax rate includes the impact of the new
Texas margin tax, true-up of estimated state income taxes based on actual returns for tax year
2006 and a slightly lower effective income tax rate in Canada.The differences in income tax provided and the amounts determined by applying the statutory rate
to income before income taxes result from the following:
 F-18




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Years ended July 31,2007
    
    
    2006
    
    
    2005Income taxes at statutory rate
    
    $
    8,003
    
    
    $
    6,995
    
    
    $
    6,176Effect on taxes resulting from:State taxes
    
    
    928
    
    
    
    823
    
    
    
    879Impact on NY State net operating loss
carryforward from merging subsidiary
    
    
    
    
    
    
    248
    
    
    
    Foreign taxes (refunds)
    
    
    (1,971
    )
    
    
    314
    
    
    
    245(Increase) decrease in foreign tax credit
    
    
    3,608
    
    
    
    (1,504
    )
    
    
    (538
    )Increase (decrease) in valuation allowance
    
    
    (1,724
    )
    
    
    430
    
    
    
    540Other (including permanent differences)
    
    
    (269
    )
    
    
    288
    
    
    
    (323
    )$
    8,575
    
    
    $
    7,594
    
    
    $
    6,979
 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, 2007
    
    $
    676
    
    
    $
    499
    
    
    $
    309
    
    
    $
    866July 31, 2006
    
    
    767
    
    
    
    695
    
    
    
    786
    
    
    
    676July 31, 2005
    
    
    751
    
    
    
    531
    
    
    
    515
    
    
    
    767
 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 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, 2007, 2006 and 2005, the Company recognized
$771, $717 and $459 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).
 F-19




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WeightedNumber of
    
    AverageShares
    
    Exercise PriceNumber of shares under option:Outstanding at beginning of year
    
    
    472,850
    
    
    $
    8.68Granted
    
    
    163,500
    
    
    
    21.73Exercised
    
    
    (125,550
    )
    
    
    8.79Forfeited
    
    
    (25,750
    )
    
    
    18.54Outstanding at end of year
    
    
    485,050
    
    
    
    15.47Exercisable at end of year
    
    
    209,050
    
    
    
    11.09
  Weighted Avg.Number of
    
    Grant DateShares
    
    Fair ValueNumber of nonvested shares:Nonvested at beginning of year
    
    
    215,300
    
    
    $
    8.18Granted
    
    
    163,500
    
    
    
    11.97Vested
    
    
    (83,500
    )
    
    
    7.50Forfeited
    
    
    (19,300
    )
    
    
    9.81Nonvested at end of year
    
    
    276,000
    
    
    
    10.52
  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   - 10.00
    
    
    67,900
    
    
    
    4.62
    
    
    $
    2.31
    
    
    
    67,900
    
    
    
    4.62
    
    
    $
    2.31$10.01 - 12.00
    
    
    23,250
    
    
    
    0.62
    
    
    
    11.34
    
    
    
    23,250
    
    
    
    0.62
    
    
    
    11.34$12.01 - 14.00
    
    
    120,900
    
    
    
    6.87
    
    
    
    13.87
    
    
    
    70,900
    
    
    
    6.85
    
    
    
    13.79$14.01 - 19.00
    
    
    96,000
    
    
    
    8.17
    
    
    
    16.63
    
    
    
    22,000
    
    
    
    7.97
    
    
    
    17.07$19.01 -26.00
    
    
    177,000
    
    
    
    9.14
    
    
    
    21.51
    
    
    
    25,000
    
    
    
    8.93
    
    
    
    21.78485,050
    
    
    
    7.34
    
    
    $
    15.47
    
    
    
    209,050
    
    
    
    5.80
    
    
    $
    11.09
   F-20




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##### Table of Contents



Years ended July 31,2007
    
    
    2006
    
    
    2005Weighted average grant date fair
value for options granted
    
    $
    11.97
    
    
    $
    8.82
    
    
    $
    10.02Total Intrinsic value of shares
underlying options:Options exercised
    
    $
    1.9 million
    
    
    $
    3.6 million
    
    
    $
    2.1 millionOptions becoming exercisable
    
    $
    1.0 million
    
    
    $
    0.8 million
    
    
    $
    1.0 million
 11.
    
    REPURCHASE OF EQUITY SECURITIESDuring fiscal year 2006 and 2007, the Board of Directors authorized the Company to purchase up
to $38 million of Dynamex Inc. common stock on the open market. Through July 31, 2007, the
Company had repurchased a total of 1,841 shares at an average price of $19.77 per share for a
total dollar cost of $36,402. 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. On
September 19, 2007, the Board of Directors approved the addition of $20 million to the total
authorized repurchase amount. The Company intends to purchase additional common shares from
time to time using available cash or temporary borrowings from its revolving credit facility 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 made 401K matched contributions of
$138 for 2007. The Company did not make any discretionary contributions to the Plan during the
years ended July 31, 2006 and 2005.
 13.
    
    OTHER INCOMEIn December 2006 the Company reached agreement with Canadian taxing authorities on the valuation
of intercompany services performed by the U.S. on behalf of Dynamex Canada. The Canadian
Revenue Authority (CRA) specifically challenged certain allocations of expenses between the
Canadian and United States operations during audits of fiscal years 2001 and 2002. As a result
of the agreement, Canadian taxable income was reduced approximately $4 million with a
corresponding increase in U.S. taxable income. During the second quarter of fiscal 2007 Dynamex
Canada transferred cash to the U.S. in payment for services provided by the U.S. from 2001 to
2005 which resulted in a foreign currency transaction gain of approximately $937.In December 2006, Dynamex Canada received approximately $1.35 million Cdn from the CRA in income
tax refunds for tax years 2001 to 2003 and approximately $345 Cdn in interest on the overpayment
of such Canadian income taxes. The effects of the foreign currency transaction gain and the
total interest income of $425 are recorded in Other Income in the Condensed Statements of
Consolidated Operations.Management recorded the net effects of the above described items during the second quarter of
fiscal 2007. Since the challenge by the CRA and the resulting transfer pricing studies were
accounting estimates resolved during the second quarter, management considers it appropriate to
record the effects during the second quarter of fiscal 2007. The effect of this resolution was
an increase in net income of approximately $972 ($0.10 per basic share for the nine months ended
April 30, 2007, respectively, and $0.09 per fully diluted share for the nine
 F-21




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##### Table of Contents



months ended April 30, 2007). Excluding the impact of this transaction, fully diluted earnings
per common share for the nine months ended April 30, 2007, would have been $0.92 as shown in the
following table:
 Year endedJuly 31,2007
    
    
    2006Transfer pricing impact on the year ended:Income before income taxes  As reported
    
    $
    23,537
    
    
    $
    19,986Income from transfer pricing (foreign exchange
gain and interest income)
    
    
    1,362
    
    
    
    Income before income taxes  Excluding
transfer pricing effects
    
    $
    22,175
    
    
    $
    19,986Income taxes  As reported
    
    $
    8,575
    
    
    $
    7,594Income tax effects (foreign exchange
gain, interest income and intercompany services)
    
    
    390
    
    
    
    Income taxes  Excluding transfer pricing effects
    
    $
    8,185
    
    
    $
    7,594Net income  As reported
    
    $
    14,962
    
    
    $
    12,392Net income  Excluding transfer pricing effects
    
    $
    13,990
    
    
    $
    12,392Net income from the transfer pricing transactions
    
    $
    972
    
    
    $
    Earnings per share:Basic  As reported
    
    $
    1.41
    
    
    $
    1.12Transfer pricing adjustment
    
    
    0.09
    
    
    
    Basic  Excluding transfer pricing effects
    
    $
    1.32
    
    
    $
    1.12Fully diluted  As reported
    
    $
    1.39
    
    
    $
    1.11Transfer pricing adjustment
    
    
    0.09
    
    
    
    Basic  Excluding transfer pricing effects
    
    $
    1.30
    
    
    $
    1.11
 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.
 F-22




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The following table summarizes selected financial information for the United States and Canada
for the years ended July 31, 2007, 2006 and 2005:
 UnitedStates
    
    Canada
    
    Total2007Sales
    
    $
    257,025
    
    
    $
    156,749
    
    
    $
    413,774Operating income
    
    
    9,896
    
    
    
    11,861
    
    
    
    21,757Identifiable assets
    
    
    91,334
    
    
    
    29,706
    
    
    
    121,040Goodwill, net
    
    
    36,111
    
    
    
    11,502
    
    
    
    47,613Capital expenditures
    
    
    4,579
    
    
    
    382
    
    
    
    4,961Depreciation and amortization
    
    
    2,079
    
    
    
    278
    
    
    
    2,357Amortization of deferred bank
financing fees
    
    
    28
    
    
    
    
    
    
    
    282006Sales
    
    $
    230,768
    
    
    $
    127,606
    
    
    $
    358,374Operating income
    
    
    10,376
    
    
    
    9,630
    
    
    
    20,006Identifiable assets
    
    
    78,760
    
    
    
    31,765
    
    
    
    110,525Goodwill, 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
    
    
    
    
    
    
    
    59
 F-23




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##### Table of Contents



15.
    
    QUARTERLY DATA (Unaudited)
  Quarter EndedOctober 31,
    
    
    January 31,
    
    
    April 30,
    
    
    July 31,2007Sales
    
    $
    100,615
    
    
    $
    100,988
    
    
    $
    103,526
    
    
    $
    108,644Gross proft
    
    
    26,927
    
    
    
    26,175
    
    
    
    27,261
    
    
    
    29,071Net income
    
    
    3,649
    
    
    
    3,722
    (1)
    
    
    3,487
    
    
    
    4,105Net income per share:Basic
    
    
    0.34
    
    
    
    0.35
    (1)
    
    
    0.33
    
    
    
    0.39Assuming dilution
    
    
    0.34
    
    
    
    0.35
    (1)
    
    
    0.32
    
    
    
    0.38Average shares outstanding
    
    
    10,601
    
    
    
    10,602
    
    
    
    10,643
    
    
    
    10,605Number of business days
    
    
    64
    
    
    
    62
    
    
    
    62
    
    
    
    642006Sales
    
    $
    90,569
    
    
    $
    86,346
    
    
    $
    86,916
    
    
    $
    94,543Gross proft
    
    
    24,392
    
    
    
    23,762
    
    
    
    24,466
    
    
    
    26,443Net income
    
    
    3,181
    
    
    
    2,686
    
    
    
    3,212
    
    
    
    3,313Net 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
    
    
    
    64
 
 (1)
    
    Includes net income of $972, $0.09 per basic and fully diluted earnings per share, resulting
from resolution of cross-border transfer pricing issues, a foreign currency transaction gain and
interest income. See Note 13 of the Notes to Consolidated Financial Statements for additional
information. F-24




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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.10.1(1)
    
    
    
    Offer of Employment Agreement to Maurice Levy dated June 5, 2007, effective July 9, 2007.10.2(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(8)
    
    
    
    Fourth Amendment to the $30,000,000 Revolving Credit Facility by and among the Company
and Bank of America, N.A., as administrative agent and a lender, dated
April 22, 2005.10.14(9)
    
    
    
    Fifth Amendment to the $30,000,000 Revolving Credit Facility by and among the Company
and Bank of America, N.A., as administrative agent and a lender, dated October 5,
2006.10.14(1)
    
    
    
    Sixth Amendment to the $30,000,000 Revolving Credit Facility by and among the Company
and Bank of America, N.A., as administrative agent and a lender, dated July 31, 2007.11.1
    
    
    
    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(8)
    
    
    
    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. E-1




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##### Table of Contents



(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.(8)
    
    Filed as an exhibit to the registrants annual report on Form 10-K for the fiscal year ended
July 31, 2006, and incorporated herein by reference.(9)
    
    Filed as an exhibit to the registrants quarterly report on Form 10-Q for the quarterly
period ended October 31, 2006, and incorporated herein by reference. E-2