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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended October 31, 2003ORo
    
    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.)1870 Crown Drive
    
    75234Dallas, Texas
    
    (Zip Code)(Address of principal executive offices)


Registrants telephone number, including area code:
(214) 561-7500

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares of the registrants common stock, $.01 par value,
outstanding as of December 5, 2003 was 11,248,617 shares.



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TABLE OF CONTENTS



|                                                 |                                                                                               |                                                      |  |  |  |  |  | 
|------------------------------------------------ | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|                                                 |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                                 |                                                                                               | CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS     
|                                                 |                                                                                               | CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS     
|                                                 |                                                                                               | Notes to Condensed Consolidated Financial Statements
|                                                 | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                 | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                                 | Item 4. Controls and Procedures                                                              
|Part II. Other Information                      
|                                                 | Item 1. Legal Proceedings.                                                                   
|                                                 | Item 4. Submission of Matters to a Vote of Security Holders.                                 
|                                                 | Item 6. Exhibits and Reports on Form 8-K.                                                    
|SIGNATURE                                       
|EXHIBIT INDEX                                   
|EX-31.1 Certification of Chief Executive Officer
|EX-31.2 Certification of Chief Financial Officer
|EX-32.1 Certification of Chief Executive Officer
|EX-32.2 Certification of Chief Financial Officer



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DYNAMEX INC.



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INDEX

PagePart I
    
    Financial InformationItem 1.
    
    Financial Statements.Condensed Consolidated Balance Sheets
    
    
    2October 31, 2003 (Unaudited) and July 31, 2003Condensed Statements of Consolidated Operations (Unaudited)
    
    
    3Three months ended October 31, 2003 and 2002Condensed Statements of Consolidated Cash Flows (Unaudited)
    
    
    4Three months ended October 31, 2003 and 2002Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Management's Discussion and Analysis of Financial Condition
    
    
    7and Results of Operations.Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
    
    
    13Item 4.
    
    Controls and Procedures
    
    
    13Part II
    
    Other InformationItem 1.
    
    Legal Proceedings.
    
    
    14Item 4.
    
    Submission of Matters to a Vote of Security Holders.
    
    
    14Item 6.
    
    Exhibits and Reports on Form 8-K.
    
    
    14Signature
    
    
    
    
    
    15Exhibit Index
    
    
    
    
    E-1


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DYNAMEX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)




October 31,
    
    July 31,2003
    
    2003(Unaudited)ASSETSCURRENTCash and cash equivalents
    
    $
    3,235
    
    
    $
    4,338Accounts receivable (net of allowance for doubtful accounts
of $809 and $721, respectively)
    
    
    29,109
    
    
    
    26,109Prepaid and other current assets
    
    
    2,185
    
    
    
    2,453Deferred income tax
    
    
    1,984
    
    
    
    1,976Total current assets
    
    
    36,513
    
    
    
    34,876Property and equipment  net
    
    
    4,766
    
    
    
    4,287Goodwill
    
    
    45,348
    
    
    
    44,743Intangibles  net
    
    
    912
    
    
    
    981Deferred income taxes
    
    
    9,563
    
    
    
    10,064Other assets
    
    
    779
    
    
    
    590Total assets
    
    $
    97,881
    
    
    $
    95,541LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable trade
    
    $
    5,664
    
    
    $
    6,564Accrued liabilities
    
    
    15,217
    
    
    
    14,805Current portion of long-term debt
    
    
    5,499
    
    
    
    5,728Total current liabilities
    
    
    26,380
    
    
    
    27,097LONG-TERM DEBT
    
    
    13,741
    
    
    
    14,116Total liabilities
    
    
    40,121
    
    
    
    41,213COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITYPreferred stock; $0.01 par value, 10,000 shares authorized;
none outstanding
    
    
    
    
    
    
    Common stock; $0.01 par value, 50,000 shares authorized;
11,247 and 11,208 outstanding, respectively
    
    
    112
    
    
    
    112Additional paid-in capital
    
    
    74,220
    
    
    
    74,064Accumulated deficit
    
    
    (18,000
    )
    
    
    (20,250
    )Unrealized foreign currency translation adjustment
    
    
    1,428
    
    
    
    402Total stockholders equity
    
    
    57,760
    
    
    
    54,328Total liabilities and stockholders equity
    
    $
    97,881
    
    
    $
    95,541


See accompanying notes to condensed consolidated financial statements.

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DYNAMEX INC.
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(in thousands, except per share data)
(Unaudited)




Three months endedOctober 31,2003
    
    2002Sales
    
    $
    70,073
    
    
    $
    61,732Cost of sales
    
    
    50,450
    
    
    
    43,309Gross profit
    
    
    19,623
    
    
    
    18,423Selling, general and administrative expenses
    
    
    15,484
    
    
    
    14,341Depreciation and amortization
    
    
    512
    
    
    
    580(Gain) loss on disposal of property and equipment
    
    
    (19
    )
    
    
    32Operating income
    
    
    3,646
    
    
    
    3,470Interest expense
    
    
    332
    
    
    
    613Other income
    
    
    (88
    )
    
    
    (14
    )Income before taxes
    
    
    3,402
    
    
    
    2,871Income tax expense
    
    
    1,152
    
    
    
    903Net income
    
    $
    2,250
    
    
    $
    1,968Basic earnings per common share
    
    $
    0.20
    
    
    $
    0.18Diluted earnings per common share:
    
    $
    0.20
    
    
    $
    0.17Weighted average shares:Common shares outstanding
    
    
    11,237
    
    
    
    11,207Adjusted common shares  assuming
exercise of stock options
    
    
    11,515
    
    
    
    11,279


See accompanying notes to condensed consolidated financial statements.

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DYNAMEX INC.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(in thousands)
(Unaudited)




Three months endedOctober 31,2003
    
    2002OPERATING ACTIVITIESNet income
    
    $
    2,250
    
    
    $
    1,968Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    512
    
    
    
    580Provision for losses on accounts receivable
    
    
    203
    
    
    
    183Deferred income taxes
    
    
    493
    
    
    
    467Stock option compensation
    
    
    49
    
    
    
    (Gain) loss on disposal of property and equipment
    
    
    (19
    )
    
    
    32Changes in current operating assets and liabilities:Accounts receivable
    
    
    (3,203
    )
    
    
    (2,118
    )Prepaids and other assets
    
    
    268
    
    
    
    1,206Accounts payable and accrued liabilities
    
    
    (488
    )
    
    
    1,211Net cash provided by operating activities
    
    
    65
    
    
    
    3,529INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (928
    )
    
    
    (257
    )Net proceeds from disposal of property and equipment
    
    
    10
    
    
    
    15Net cash used in investing activities
    
    
    (918
    )
    
    
    (242
    )FINANCING ACTIVITIESPrincipal payments on long-term debt
    
    
    (1,604
    )
    
    
    (1,443
    )Net borrowings under line of credit
    
    
    1,000
    
    
    
    (1,400
    )Net proceeds from sale of common stock
    
    
    107
    
    
    
    Other assets and deferred financing fees
    
    
    (126
    )
    
    
    (257
    )Net cash used in financing activities
    
    
    (623
    )
    
    
    (3,100
    )EFFECT OF EXCHANGE RATES ON CASH
    
    
    373
    
    
    
    13NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (1,103
    )
    
    
    200CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    4,338
    
    
    
    4,489CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    3,235
    
    
    $
    4,689SUPPLEMENTAL DISCLOSURE ON NON-CASH INFORMATIONCash paid for interest
    
    $
    282
    
    
    $
    487Cash paid for (refunds of) taxes
    
    $
    462
    
    
    $
    (75
    )


See accompanying notes to condensed consolidated financial statements.

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DYNAMEX INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)




1. BASIS OF PRESENTATION

Dynamex Inc. (the Company and Dynamex) provides same-day delivery and
logistics services in the United States and Canada. The Companys primary
services are (i) same-day, on-demand delivery, (ii) scheduled distribution and
(iii) fleet management.

The consolidated financial statements include the accounts of Dynamex Inc. and
its wholly-owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated. All dollar amounts in the financial
statements and notes to the financial statements except per share data are
stated in thousands of dollars unless otherwise indicated. Except as otherwise
indicated, references to years mean our fiscal year ending July 31, 2004 or
ended July 31 of the year referenced, and comparisons are to the corresponding
period of the prior year.

The operating subsidiaries of the Company, with country of incorporation, are as follows:



| |  |  | Dynamex Operations East, Inc. (U.S.)
| | - |  | ------------------------------------



| |  |  | Dynamex Operations West, Inc. (U.S.)
| | - |  | ------------------------------------



| |  |  | Dynamex Dedicated Fleet Services, Inc. (U.S.)
| | - |  | ---------------------------------------------



| |  |  | Dynamex Canada Corp. (Canada)
| | - |  | -----------------------------



| |  |  | Alpine Enterprises Ltd. (Canada)
| | - |  | --------------------------------



| |  |  | Roadrunner Transportation, Inc. (U.S.)
| | - |  | --------------------------------------



| |  |  | New York Document Exchange Corp. (U.S.)
| | - |  | ---------------------------------------

The accompanying interim financial statements are unaudited. Certain
information and disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted, although the Company believes the disclosures included herein are
adequate to make the information presented not misleading. The results of the
interim periods presented are not necessarily indicative of results to be
expected for the full fiscal year, and should be read in conjunction with the
Companys audited financial statements for the fiscal year ended July 31, 2003.

The accompanying interim financial statements contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Companys financial position at October 31, 2003 and the
results of its operations and cash flows for the three-month periods ended
October 31, 2003 and 2002. The tax provisions for the three-month periods ended
October 31, 2003 and 2002 are based upon managements estimate of the Companys
annualized effective tax rate. Certain reclassifications have been made to
conform prior year data to the current presentation.

2. COMPREHENSIVE INCOME

Comprehensive income for the three months ended October 31, 2003 was $3,276
compared to $2,178 in the prior period. The two components of comprehensive
income are net income and foreign currency translation adjustments. The
changes in the exchange rate between the U.S. dollar and the Canadian dollar
resulted in a foreign currency translation gain of $1,026 and $210 for the
three months ended October 31, 2003 and 2002, respectively.

3. INTANGIBLES

At October 31, 2003, intangibles and related amortization expense for the three
months ended October 31, 2003 and 2002 consist of the following:

Amortization ExpenseThree Months Ended October 31,AccumulatedAsset
    
    Amortization
    
    Net
    
    2003
    
    2002Deferred bank financing fees
    
    $
    920
    
    
    $
    385
    
    
    $
    535
    
    
    $
    64
    
    
    $
    151Trademarks and other
    
    
    470
    
    
    
    93
    
    
    
    377
    
    
    
    5
    
    
    
    9Total
    
    $
    1,390
    
    
    $
    478
    
    
    $
    912
    
    
    $
    69
    
    
    $
    160


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DYNAMEX INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)




Amortization of deferred financing fees is classified as interest expense in
the consolidated statement of operations. Estimated amortization expense for
the succeeding five fiscal years, including deferred bank financing fees, is
$277 for 2004, $277 for 2005, $106 for 2006 and approximately $20 per year
thereafter.

4. COMPUTATION OF EARNINGS PER SHARE

The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computation as required by Statement of
Financial Accounting Standards No. 128, Earnings Per Share. Common stock
equivalents related to stock options are excluded from the diluted earnings per
share calculation if their effect would be anti-dilutive to earnings per share.

Three months endedOctober 31,2003
    
    2002Net income
    
    $
    2,250
    
    
    $
    1,968Weighted average common
shares outstanding
    
    
    11,237
    
    
    
    11,207Common share equivalents related
to options and warrants
    
    
    278
    
    
    
    72Common shares and common share
equivalents
    
    
    11,515
    
    
    
    11,279Net income per common share:Basic
    
    $
    0.20
    
    
    $
    0.18Diluted
    
    $
    0.20
    
    
    $
    0.17


5. STOCK OPTION PLAN

Effective August 1, 2003, the Company adopted the fair value recognition
provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123) for
stock-based employee compensation. Under the modified prospective method of
adoption selected by the Company under the provisions of Statement of Financial
Accounting Standards No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure, stock-based employee compensation cost recognized in
2004 is the same as that which would have been recognized had the fair value
recognition provisions of SFAS No. 123 been applied to all awards granted after
August 1, 1995. Results for prior periods have not been restated. During the
period ended October 31, 2003, the company recognized $49 related to stock
based compensation.

Prior to fiscal 2004, the Company applied APB Opinion No. 25 and related
interpretations in accounting for its stock options. The exercise price of
stock options granted is equal to the market price of the stock on the date of
grant; therefore, using the intrinsic value method to value the options, no
compensation cost was recognized for stock options in the financial statements.
The fair value of each grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2003: dividend yield of 0%; expected volatility
of 76%; risk-free interest rate of 4.10%; and expected lives of an average of
10 years. The weighted average fair value of options granted during 2003 was
$3.13. No options have been granted in fiscal 2004. Had the Company
determined compensation cost in the quarter ended October 31, 2002 based on the
fair value at the grant date for its stock options consistent with the method
set forth under SFAS No. 123, the Companys additional compensation expense net
of related taxes, pro forma net earnings, earnings per share  basic and
earnings per share  diluted would have been $107, $1,861, $0.17 and $0.16,
respectively.

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS




This discussion contains forward-looking statements, which involve
assumptions regarding Company operations and future prospects. Although the
Company believes its expectations are based on reasonable assumptions, such
statements are subject to risk and uncertainty, including, among other things,
competition, foreign exchange, and risks associated with the local delivery
industry. These and other risks are mentioned from time to time in the
Companys filings with the Securities and Exchange Commission. Caution should
be taken that these factors could cause the actual results to differ from those
stated or implied in this and other Company communications.

General

The Company is a leading provider of same-day delivery and logistics services
in the United States and Canada. Through internal growth and acquisitions, the
Company has built a national network of same-day delivery and logistics systems
in Canada and has established operations in 23 U.S. metropolitan areas.

A significant portion of the Companys sales is generated in Canada. For the
three month period ended October 31, 2003, Canadian sales accounted for
approximately 34.1% of total consolidated sales, compared to 33.5% for the same
period in 2002.

Results of Operations

The following table sets forth, for the periods indicated, certain items from
the Companys condensed statements of consolidated operations, expressed as a
percentage of sales.

Three months endedOctober 31,2003
    
    2002Sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    72.0
    %
    
    
    70.2
    %Gross profit
    
    
    28.0
    %
    
    
    29.8
    %Selling, general and administrative expenses
    
    
    22.1
    %
    
    
    23.2
    %Depreciation and amortization
    
    
    0.7
    %
    
    
    0.9
    %(Gain) loss on disposal of property and equipment
    
    
    0.0
    %
    
    
    0.1
    %Operating income
    
    
    5.2
    %
    
    
    5.6
    %Interest expense
    
    
    0.4
    %
    
    
    1.0
    %Other income
    
    
    -0.1
    %
    
    
    0.0
    %Income before taxes
    
    
    4.9
    %
    
    
    4.6
    %Income tax expense
    
    
    1.6
    %
    
    
    1.5
    %Net income
    
    
    3.3
    %
    
    
    3.1
    %


Three months ended October 31, 2003 compared to three months ended October 31, 2002.

Net income for the three months ended October 31, 2003 was $2.3 million ($0.20
fully diluted earnings per share) an increase of 14.3% compared to income of
$2.0 million ($0.17 fully diluted earnings per
share) for the three months ended October 31, 2002. Higher sales and the
associated increase in gross profit, lower interest expense and lower
depreciation expense, offset in part by higher selling, general and
administrative expense, were the primary drivers of the improved results for
the current year quarter.

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS




Sales for the three months ended October 31, 2003 were $70 million compared to
$62 million in the prior year quarter. The increase in the conversion rate
between the Canadian dollar and the U.S. dollar had the effect of increasing
sales for the three months ended October 31, 2003 by approximately $3.3 million
had the conversion rate been the same as the prior year period. Excluding the
impact of the change in the exchange rate, sales would have been approximately
8.2% higher in the current year quarter compared to the prior year. Scheduled,
distribution and outsourcing services increased $7.3 million (22.7%) compared
to the prior year while on-demand sales increased $1.1 million (3.6%), and as a
result, on-demand sales declined as a percentage of total sales. On-demand
sales were approximately 43.9% of total sales in the current year quarter
compared to 48.2% in the prior year.

Cost of sales for the three months ended October 31, 2003 increased $7.2
million, or 16.5%, to $50.5 million and as a percentage of sales from 70.2% to
72.0 % compared to the same period last year. Sales of scheduled, distribution
and outsourcing services have been, and are continuing, to increase at a much
faster rate than on-demand sales. On-demand sales generally produce a higher
gross margin primarily due to the smaller size of delivery vehicles compared to
other services, however, on-demand services are transaction intensive, require
higher levels of support than other services from customer service, dispatching
and billing and collection. Management expects on-demand sales to continue to
decline as a percentage of total sales. In addition to the change in business
mix, cost of sales increased approximately 0.5% due to higher insurance and
cargo claims ($338,000) this year compared to the prior year.

Selling, general and administrative (SG&A) expenses for the three months
ended October 31, 2003 increased $1.2 million, or 8.0%, to $15.5 million from
$14.3 million for the quarter ended October 31, 2002. Approximately 50% of the
increase is due to the change in the exchange rate between the Canadian dollar
and the U.S. dollar. The following analysis excludes the impact of the
exchange rate. Higher software maintenance fees ($55,000), expensing of stock
options ($49,000), one time costs to relocate the Chicago logistics center
($100,000) and higher compensation and benefits ($0.5 million) associated with
additional personnel required to manage and service significant new business
startups in a number of U.S. locations, an increase in the size of the sales
force, higher sales commissions, and increased medical insurance premiums
account for the remaining increase in SG&A compared to the prior year. Despite
the increase in absolute dollars, SG&A expenses, as a percentage of sales, were
22.1% for the three months ended October 31, 2003, compared to 23.2% for the
same period last year.

For the three months ended October 31, 2003, depreciation and amortization was
$0.5 million compared to $0.6 million for the same period ended in 2002. This
decrease is primarily attributable to the lower capital expenditures since
2001 compared to prior years.

Interest expense for the three months ended October 31, 2003 declined $0.3
million, or 46%, to $0.3 million from $0.6 million for the same period ended in
2002, and as a percentage of sales, to 0.4% from 1.0%. This decline results
from a lower interest rate, lower levels of debt and a reduced margin charged
by the Companys lenders on outstanding loans due to the Companys improved
EBITDA ratio. The
weighted average interest rate for all borrowings at October 31, 2003 was
4.76%, compared to 5.74% at October 31, 2002. The Company has also reduced its
debt since October 31, 2002 by over $9 million.

The effective income tax rate increased from 31% in the three-month period
ended October 31, 2002 to 34% in the current period. The primary reason for
this increase is the increase in U.S. taxable income and the resultant
utilization of certain deferred tax assets, which is substantially offset by a
lower tax rate in Canada in the current year period.

Liquidity and Capital Resources

Net cash provided by operating activities was $65,000 compared to $3.5 million
for the three months ended October 31, 2002. Net cash provided by operations,
prior to changes in current operating assets and liabilities and deferred
income taxes, was $3.0 million for the three months ended October 31, 2003
compared to $2.8 million for the three months ended October 31, 2002 due to the
higher net income.

Capital expenditures for the three months ended October 31, 2003 were
approximately $0.9 million. Management expects annual capital expenditures to
be in the $2.0 million range for the full fiscal year. The Company does not
have significant capital expenditure requirements to replace or expand the
number of vehicles used in its operations because substantially all of its
drivers are owner-operators who provide their own vehicles.

8



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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS




As of October 31, 2003, the Companys bank credit agreement (Credit Agreement)
consisted of an amortizing term loan of $10.3 million and a revolving credit
facility of $19.5 million due November 30, 2005. Amounts outstanding under the
revolving credit facility included borrowings of $9 million and outstanding
letters of credit totaling $3.9 million. Interest on outstanding borrowings is
payable monthly at prime plus a margin ranging from 0.5% to 0.0%, or LIBOR plus
a margin ranging from 3.5% to 2.0%, based on the ratio of Total Debt to EBITDA,
as defined. The Company has entered into an interest rate protection
arrangement on the amortizing term loan portion of the Credit Facility. The
interest rate has been fixed at the LIBOR margin plus 1.49% (4.99% at October
31, 2003). This arrangement matures November 30, 2005. Amounts outstanding
under the Credit Agreement are secured by all of the Companys U.S. assets and
100% of the stock of its principal Canadian subsidiaries. The Credit Agreement
also contains restrictions on the payment of dividends, incurring additional
debt, capital expenditures and investments by the Company as well as requiring
the Company to maintain certain financial ratios. Generally, the Company must
obtain the lenders consent to consummate any acquisition.

The Companys EBITDA (earnings before interest, taxes, depreciation and
amortization) was approximately $4.2 million (6.1% of sales) for the three
months ended October 31, 2003, compared to $4.1 million (6.6% of sales) in the
same period last year. The decrease as a percentage of sales is due to higher
insurance and claims expense ($338,000), the Chicago facility move ($100,000),
higher medical insurance premiums and state unemployment taxes ($125,000) and
stock option expense ($49,000). Management has included EBITDA in its
discussion herein as a measure of liquidity because it believes that it is a
widely accepted financial indicator of a companys ability to service and/or
incur indebtedness, maintain current operating levels of fixed assets and
acquire additional operations and businesses. EBITDA should not be considered
as a substitute for statement of operations or cash flow
data from the Companys financial statements, which have been prepared in
accordance with generally accepted accounting principles (GAAP). In addition,
the Companys definition of EBITDA may not be identical to similarly entitled
measures used by other companies. The following table reconciles net income
presented in accordance with GAAP to EBITDA, which is a non-GAAP financial
measure (in thousands):

Three months endedOctober 31,2003
    
    2002Net income
    
    $
    2,250
    
    
    $
    1,968Adjustments:Income tax expense
    
    
    1,152
    
    
    
    903Interest expense
    
    
    332
    
    
    
    613Depreciation and amortization
    
    
    512
    
    
    
    580EBITDA
    
    $
    4,246
    
    
    $
    4,064


The Companys cash flows from operations for the three months ended October 31,
2003 were approximately $65,000. During the quarter, the Company paid its
regularly scheduled quarterly term loan installment of $1.375 million, retired
the remaining balance of $248,000 in seller financing notes, and funded capital
expenditures of $0.9 million and an increase in working capital of
approximately $2.4 million through a combination of cash flow from operations,
inter-company cash received from Canada of $1.5 million for interest, royalties
and a cash dividend and $1.0 million in borrowings under the bank line of
credit. The current year quarter includes 7 bi-weekly payrolls (an additional
$2.1 million cash requirement) compared to 6 payrolls in the prior year.

Management expects that its future capital requirements will generally be met
from internally generated cash flow. The Companys access to other sources of
capital, such as additional bank borrowings and the issuance of debt
securities, is affected by, among other things, general market conditions
affecting the availability of such capital. The Company completed its last
acquisition in August 1998. Should the Company pursue acquisitions in the
future, the Company may be required to incur additional debt. There can be no
assurance that the Companys primary lenders will consent to such acquisitions
or that if additional financing is necessary, it can be obtained on terms the
Company deems acceptable.

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS




Deferred Taxes

During the three months ended October 31, 2003, U.S. tax deductions exceeded
financial statement deductions by approximately $1.4 million. As a result, net
deferred tax assets were reduced by approximately $0.5 million during this
quarter, with an offsetting charge to tax expense in the Condensed Statement of
Consolidated Operations. The Company has U.S. net operating losses totaling
approximately $10.2 million at October 31, 2003 and has established a 100%
valuation allowance in accordance with the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, (SFAS No. 109) for
U.S. operating losses not currently deductible. The Company continually reviews
the adequacy of the valuation allowance and releases the allowance when it is
determined that it is more likely than not that the benefits will be realized.
In the year ended July 31, 2003, the Company generated U.S. taxable income of
approximately $2.1 million, and expects to generate taxable income in 2004.
Management does not believe there is sufficient evidence at this time to
support a determination that it is more likely than not that the benefits will
be realized. However, at the end of the second quarter of fiscal 2004, assuming
results are in-line with managements expectations, we will determine the
amount of any net operating losses that are more likely than not to be used to
offset taxable U.S. income in the next three to five years. The after tax
benefit of these net operating losses, if any, will be recorded as a deferred
tax asset in the balance sheet with an offsetting reduction in income tax
expense in the income statement. The after-tax value of unused net operating
losses is approximately $3.7 million. The remaining deferred tax assets
represent deductions for financial statement purposes that will reduce future
taxable income.

Inflation

The Company does not believe that inflation has had a material effect on the
Companys results of operations nor does it believe it will do so in the
foreseeable future. However, there can be no assurance the Companys business
will not be affected by inflation in the future.

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.

Certain Tax Matters Related to Drivers

Substantially all of the Companys drivers supply their own vehicles and as of
October 31, 2003, approximately 90% of these owner-operators were independent
contractors as opposed to employees of the Company. The Company does not pay or
withhold any federal, state or provincial employment tax with respect to or on
behalf of independent contractors. From time to time, taxing authorities in the
U.S. and Canada have sought to assert that independent owner-operators in the
transportation industry, including those utilized by the Company, are
employees, rather than independent contractors. The Company believes that the
independent owner-operators utilized by the Company are not employees under
existing interpretations of federal (U.S. and Canadian), state and provincial
laws. However, there can be no assurance that federal (U.S. and Canadian),
state or provincial authorities will not challenge this position, or that other
laws or regulations, including tax laws, or interpretations thereof, will not
change. If, as a result of any of the foregoing, the Company were required to
pay withholding taxes and pay for and administer added employee benefits to
these drivers, the Companys operating costs would increase. Additionally, if
the Company is required to pay back-up withholding with respect to amounts
previously paid to such drivers, it may also be required to pay penalties or be
subject to other liabilities as a result of incorrect classification of such
drivers. Any of the foregoing circumstances could have a material adverse
impact on the Companys financial condition and results of operations, and/or
require the Company to restate financial information from prior periods.

In addition to the drivers that are independent contractors, certain of the
Companys drivers are employed by the Company and supply and operate their own
vehicles during the course of their employment. The Company reimburses these
employees for all or a portion of the operating costs of those vehicles. The
Company believes that these reimbursement arrangements do not represent
additional compensation to those employees. However, there can be no assurance
that federal (U.S. and Canadian), state or provincial taxing authorities will
not seek to recharacterize some or all of such payments as additional
compensation. If such amounts were so recharacterized, the Company would have
to pay additional employment related taxes

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS




on such amounts, and may also be
required to pay penalties, which could have an adverse impact on the Companys
financial condition and results of operations, and/or to restate financial
information from prior periods.

Claims Exposure

As of October 31, 2003, the Company utilized the services of approximately
4,400 drivers and messengers. From time to time such persons are involved in
accidents or other activities that may give rise to liability claims. The
Company currently carries liability insurance with a per occurrence and an
aggregate limit of $20 million. Owner-operators are required to maintain
liability insurance of at least the minimum amounts required by applicable
state or provincial law (generally such minimum requirements range from $35,000
to $75,000). The Company also has insurance policies covering property and
fiduciary trust liability, which coverage includes all drivers and messengers.
There can be no assurance that claims against the Company, whether under the
liability insurance or the surety bonds, will not exceed the applicable amount
of coverage, that the Companys insurer will be solvent at the time of
settlement of an insured claim, or that the Company will be able to obtain
insurance at acceptable levels and costs in the future. If the Company were to
experience a material increase in the frequency or severity of accidents,
liability claims, workers compensation claims or unfavorable resolutions of
claims, the Companys business, financial condition and results of operations
could be materially adversely affected. In addition, significant increases in
insurance costs could reduce the Companys profitability.

Highly Competitive Industry

The market for same-day delivery and logistics services has been and is
expected to remain highly competitive. Competition is often intense,
particularly for basic delivery services. High fragmentation and low barriers
to entry characterize the industry. Other companies in the industry compete
with the Company not only for provision of services but also for acquisition
candidates and qualified drivers. Some of these companies have longer operating
histories and greater financial and other resources than the Company.
Additionally, companies that do not currently operate delivery and logistics
businesses may enter the industry in the future.

Foreign Exchange

Significant portions of the Companys operations are conducted in Canada.
Exchange rate fluctuations between the U.S. and Canadian dollars result in
fluctuations in the amounts relating to the Canadian operations reported in the
Companys consolidated financial statements. The Canadian dollar is the
functional currency for the Companys Canadian operations; therefore, any
change in the exchange rate will affect the Companys reported sales for such
period. The Company historically has not entered into hedging transactions with
respect to its foreign currency exposure, but may do so in the future. There
can be no assurance that fluctuations in foreign currency exchange rates will
not have a material adverse effect on the Companys business, financial
condition or results of operations.

Permits and Licensing

The Companys delivery operations are subject to various federal (U.S. and
Canadian), state, provincial and local laws, ordinances and regulations that in
many instances require certificates, permits and licenses. Failure by the
Company to maintain required certificates, permits or licenses, or to comply
with applicable laws, ordinances or regulations could result in substantial
fines or possible revocation of the Companys authority to conduct certain of
its operations.

Dependence on Key Personnel

The Companys success is largely dependent on the skills, experience and
performance of certain key members of its management. The loss of the services
of any of these key employees could have a material adverse effect on the
Companys business, financial condition and results of operations. The
Companys future success and plans for growth also depend on its ability to
attract and retain skilled personnel in all areas of its business. There is
strong competition for skilled personnel in the same-day delivery and logistics
businesses.

Risks Associated with the Local Delivery Industry; General Economic Conditions

The Companys sales and earnings are especially sensitive to events that affect
the delivery services industry including

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS




extreme weather conditions, economic
factors affecting the Companys significant customers and shortages of or
disputes with labor, any of which could result in the Companys inability to
service its clients effectively or the inability of the Company to profitably
manage its operations. In addition, downturns in the level of general economic
activity and employment in the U.S. or Canada may negatively impact demand for
the Companys services.

Technological advances in the nature of facsimile and electronic mail have
affected the market for on-demand document delivery services. Although the
Company has shifted its focus to the distribution of non-faxable items and
logistics services, there can be no assurance that these or other technologies
will not have a material adverse effect on the Companys business, financial
condition and results of operations in the future.

Dependence on Availability of Qualified Courier Personnel

The Company is dependent upon its ability to attract and retain qualified
courier personnel who possess the skills and experience necessary to meet the
needs of its operations. The Company competes in markets in which unemployment
is relatively low and the competition for couriers and other employees is
intense. The Company must continually evaluate and upgrade its pool of
available couriers and support personnel to keep pace with demands for delivery
services. There can be no assurance that qualified courier personnel will
continue to be available in sufficient numbers and on terms acceptable to the
Company. The inability to attract and retain qualified courier personnel would
have a material adverse impact on the Companys business, financial condition
and results of operations.

Acquisition Strategy; Possible Need for Additional Financing

The Company completed its last acquisition in August 1998. Currently, there
are no pending acquisitions. Should the Company pursue acquisitions in the
future, the Company may be required to incur additional debt, issue additional
securities that may potentially result in dilution to current holders and also
may result in increased goodwill, intangible assets and amortization expense.
Additionally, the Company must obtain the consent of its primary lenders to
consummate any acquisition. There can be no assurance that the Companys
primary lenders will consent to such acquisitions or that if additional
financing is necessary, it can be obtained on terms the Company deems
acceptable.

Safe Harbor Statement Under The Private Securities Litigation Reform Act

With the exception of historical information, the matters discussed in this
report are forward looking statements as that term is defined in Section 21E
of the Securities Exchange Act of 1934.

Several important factors have been identified, which could cause actual
results to differ materially from those predicted. By way of example:



| |  |  | The competitive nature of the same-day delivery business.
| | - |  | ---------------------------------------------------------



| |  |  | The ability of the Company to attract and retain qualified courier personnel
as well as retain key management personnel.
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | A change in the current tax status of courier drivers from independent contractor drivers to employees or a change in the
treatment of the reimbursement of vehicle operating costs to employee drivers.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A significant reduction in the exchange rate between the Canadian dollar and the U.S. dollar.
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | Failure of the Company to maintain required certificates, permits or licenses, or to comply with applicable laws,
ordinances or regulations could result in substantial fines or possible revocation of the Companys authority to conduct
certain of its operations.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The ability of the Company to obtain adequate financing.
| | - |  | --------------------------------------------------------



| |  |  | The ability of the Company to retain independent contractor drivers may be impacted by our ability to pass on fuel cost
increases to customers to maintain profit margins and the quality of driver pay.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK










Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Exchange Exposure

Significant portions of the Companys operations are conducted in Canada.
Exchange rate fluctuations between the U.S. and Canadian dollar result in
fluctuations in the amounts relating to the Canadian operations reported in the
Companys consolidated financial statements. The Company historically has not
entered into hedging transactions with respect to its foreign currency
exposure, but may do so in the future.

The sensitivity analysis model used by the Company for foreign exchange
exposure compares the revenue and net income figures from Canadian operations,
at the actual exchange rate, to a 10% decrease in the exchange rate. Based on
this model, a 10% decrease would result in a decrease in quarterly revenue of
approximately $2.4 million and a decrease in quarterly net income of
approximately $0.1 million. There can be no assurances that the above
projected exchange rate decrease will materialize. Fluctuations of exchange
rates are beyond the control of the Companys management.

Interest Rate Exposure

The Company has entered into an interest rate protection arrangement on the
amortizing term loan portion of the Credit Facility. The interest rate has
been fixed at the LIBOR margin plus 1.49% (4.99% at October 31, 2003). This
hedging agreement expires on November 30, 2005. The Company does not hold or
issue derivative financial instruments for speculative or trading purposes.

The sensitivity analysis model used by the Company for interest rate exposure
compares interest expense fluctuations over a one-year period based on current
debt levels and current interest rates versus current debt levels at current
interest rates with a 10% increase. Based on this model, a 10% increase would
result in an increase in interest expense of less than $0.1 million. There can
be no assurances that the above projected interest rate increase will
materialize. Fluctuations of interest rates are beyond the control of the
Companys management.







Item 4. Controls and Procedures

The term disclosure controls and procedures is defined in Rules 13a-14(c) and
15d-14(c) of the Securities Exchange Act of 1934 (Exchange Act). These rules
refer to the controls and other procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports
that it files under the Exchange Act is recorded, processed, summarized and
reported within required time periods. The Companys Chief Executive and Chief
Financial Officer have evaluated the effectiveness of the Companys disclosure
controls and procedures and, based on such evaluation, have determined that
such disclosure controls and procedures were effective as of October 31, 2003
(the end of the period covered by this Quarterly Report on Form 10-Q).

The Company maintains a system of internal accounting controls that is designed
to provide reasonable assurance that the Companys books and records accurately
reflect its transactions and that the established policies and procedures are
followed. Subsequent to the date of our most recent evaluation, there were no
significant changes to internal controls or in other factors that could
significantly affect the Companys internal controls.

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PART II. OTHER INFORMATION



---







Part II. Other Information







Item 1. Legal Proceedings.

The Company is a party to various legal proceedings arising in the ordinary
course of its business. Management believes that the ultimate resolution of
these proceedings will not, in the aggregate, have a material adverse effect on
the financial condition, results of operations, or liquidity of the Company.







Item 4. Submission of Matters to a Vote of Security Holders.



None







Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits:

31.1
    
    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
    
    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
    
    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 200232.2
    
    Certification of Chief Financial Officer of the Registrant, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002


(b) Reports on Form 8-K:



| |  | Report on Form 8-K filed on October 3, 2003 concerning the
October 1, 2003 press release announcing fourth quarter and
fiscal year 2003 results.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

DYNAMEX
INC.Dated: December 9, 2003
    
    by
    
    /s/ Richard K. McClellandRichard K. McClellandPresident, Chief Executive Officer and
Chairman of the Board(Principal Executive Officer)Dated: December 9, 2003
    
    by
    
    /s/ Ray E. SchmitzRay E. SchmitzVice President  Chief Financial Officer(Principal Financial Officer)Dated: December 9, 2003
    
    by
    
    /s/ George S. StephensGeorge S. StephensCorporate Controller(Principal Accounting Officer)


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EXHIBIT INDEX

Exhibits31.1
    
    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
    
    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
    
    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 200232.2
    
    Certification of Chief Financial Officer of the Registrant, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002


E-1