Dynamex 10Q 2007 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2007


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

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. Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act.

Large accelerated filero Accelerated filerþ Non-accelerated filero

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

The number of shares of the registrant’s common stock, $.01 par value, outstanding as of November 30, 2007 was 10,226,241 shares.

INDEX


	Page
PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets October 31, 2007 (Unaudited) and July 31, 2007		2

Condensed Statements of Consolidated Operations (Unaudited) Three months ended October 31, 2007 and 2006		3

Condensed Statements of Consolidated Cash Flows (Unaudited) Three months ended October 31, 2007 and 2006		4

Notes to Condensed Consolidated Financial Statements (Unaudited)		5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		9

Item 3. Quantitative and Qualitative Disclosures About Market Risk		14

Item 4. Controls and Procedures		15

PART II OTHER INFORMATION

Item 1. Legal Proceedings		16

Item 1A. Risk Factors		16

Item 6. Exhibits		17

Signatures		18

Exhibit Index		E-1
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

DYNAMEX INC.

Condensed Consolidated Balance Sheets
(in thousands, except per share data)


	October 31,		July 31,
	2007		2007
	(Unaudited)
ASSETS
CURRENT
Cash and cash equivalents	$	4,999	$	8,857
Accounts receivable (net of allowance for doubtful accounts of $867 and $866, respectively)		51,099		42,649
Income taxes receivable		1,465		1,092
Prepaid and other current assets		2,546		3,559
Deferred income taxes		3,115		3,136

Total current assets		63,224		59,293

PROPERTY AND EQUIPMENT — net		8,789		8,495
GOODWILL		49,145		47,613
INTANGIBLES — net		705		326
DEFERRED INCOME TAXES		866		1,398
OTHER		4,534		3,915

Total assets	$	127,263	$	121,040


LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable trade	$	10,167	$	15,426
Accrued liabilities		25,032		21,679

Total current liabilities		35,199		37,105

LONG-TERM DEBT		—		—
OTHER LONG-TERM LIABILITIES		2,477		2,526

Total liabilities		37,676		39,631


COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY
Preferred stock; $0.01 par value, 10,000 shares authorized; none outstanding		—		—
Common stock; $0.01 par value, 50,000 shares authorized; 10,225 and 10,145 outstanding, respectively		102		101
Additional paid-in capital		46,679		45,671
Retained earnings		35,116		31,122
Accumulated other comprehensive income:
Cumulative translation adjustment		7,690		4,515

Total stockholders’ equity		89,587		81,409

Total liabilities and stockholders’ equity	$	127,263	$	121,040

See accompanying notes to the condensed consolidated financial statements.

DYNAMEX INC.

Condensed Statements of Consolidated Operations
(in thousands except per share data)
(Unaudited)


	Three months ended
	October 31,
	2007			2006
Sales	$	111,752		$	100,615

Cost of sales:
Purchased transportation		73,922			65,832
Other direct costs		8,125			7,856

Cost of sales		82,047			73,688


Gross profit		29,705			26,927

Selling, general and administrative expenses:
Salaries and employee benefits		16,073			14,081
Other		6,587			6,447

Selling, general and administrative expenses		22,660			20,528


Depreciation and amortization		671			592
(Gain) loss on disposal of property and equipment		(10	)		8


Operating income		6,384			5,799

Interest expense		79			111
Other income, net		(100	)		(92	)


Income before income taxes		6,405			5,780

Income taxes		2,411			2,131


Net income	$	3,994		$	3,649


Basic earnings per common share:	$	0.39		$	0.34


Diluted earnings per common share:	$	0.39		$	0.34


Weighted average shares:
Common shares outstanding		10,174			10,601
Adjusted common shares — assuming exercise of stock options		10,283			10,755

See accompanying notes to the condensed consolidated financial statements.

DYNAMEX INC.

Condensed Statements of Consolidated Cash Flows
(in thousands)
(Unaudited)


	Three months ended
	October 31,
	2007			2006
OPERATING ACTIVITIES
Net income	$	3,994		$	3,649
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		671			592
Amortization of deferred bank financing fees		8			6
Provision for losses on accounts receivable		151			156
Stock option compensation		175			149
Deferred income taxes		552			209
Lessor financed leasehold improvements		—			1,162
Non-cash rent expense		15			229
Loss on disposal of property and equipment		(9	)		8
Changes in current operating assets and liabilities:
Accounts receivable		(8,601	)		(6,319	)
Prepaids and other current assets		640			424
Accounts payable and accrued liabilities		(1,908	)		(432	)

Net cash used in operating activities		(4,312	)		(167	)


INVESTING ACTIVITIES
Purchase of property and equipment		(809	)		(1,579	)
Acquisition of customer lists		(415	)		—
Purchase of investments		(173	)		(166	)

Net cash used in investing activities		(1,397	)		(1,745	)


FINANCING ACTIVITIES
Principal payments on long-term debt		—			(1	)
Net borrowings under line of credit		—			2,900
Proceeds from stock option exercise		767			135
Tax benefit realized by exercise of stock options		67			39
Purchase and retirement of treasury stock		—			(1,094	)
Other assets and deferred financing fees		(353	)		(905	)

Net cash provided by financing activities		481			1,074


EFFECT OF EXCHANGE RATES ON CASH		1,370			134


NET DECREASE IN CASH AND CASH EQUIVALENTS		(3,858	)		(704	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		8,857			6,058

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	4,999		$	5,354


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	48		$	98

Cash paid for taxes	$	2,314		$	962

See accompanying notes to the consolidated financial statements.

DYNAMEX INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Summary of Significant Accounting Polices

Description of Business– Dynamex Inc. (the “Company” or “Dynamex”) provides same-day delivery and logistics services in the United States and Canada. The Company’s primary services are (i) same-day, on-demand delivery, (ii) scheduled and distribution and (iii) fleet outsourcing and facilities management.

Basis of presentation –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, 2007 or ended July 31 of the year referenced, and comparisons are to the corresponding period of the prior year.

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, 2007.

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, 2007, the results of its operations for the three month periods ended October 31, 2007 and 2006, and cash flows for the three month periods ended October 31, 2007 and 2006. The tax provisions for the three month periods ended October 31, 2007 and 2006 are based upon management’s estimates of the Company’s annualized effective tax rate.

Business and credit concentrations –The Company’s customers are not concentrated in any specific geographic region or industry. During the three months ended October 31, 2007 and 2006, sales to Office Depot, Inc. represented approximately 14.2% and 13.0%, respectively, of the Company’s revenue. Sales to the Company’s five largest customers, including Office Depot, represented approximately 25.6% and 25.4% of the Company’s consolidated sales for the three months ended October 31, 2007 and 2006, respectively.

A significant portion of the Company’s revenues are generated in Canada. For the three month period ended October 31, 2007, Canadian revenues accounted for approximately 37.8% of total consolidated revenue, compared to 36.4% for the same period in 2006. The exchange rate between the Canadian dollar and the U.S. dollar increased 10.2% in the three month period ended October 31, 2007 compared to the corresponding period in the prior year. Had the exchange rate been the same as in the prior period, Canadian sales for the three month period ended October 31, 2007 would have accounted for 35.6% of total sales.

Office Depot represented approximately 10.3% of the net accounts receivable at October 31, 2007. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

Other assets – Recoverable contract contingency costs– The Company has recorded as an Other Asset certain costs related to contractually reimbursable contingency costs incurred in connection with the launch of certain contracts in accordance with EITF 99-5, “Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements.” These costs will be recovered during the initial contract term, from a designated portion of the unit price specified in the contract. Should the contract be cancelled for any reason, the customer is obligated to reimburse the Company for any unamortized balance. Total recoverable contract contingency costs capitalized at October 31, 2007 amount to $1,361 compared to $1,381 at July 31, 2007.

Other long-term liabilities –During July 2006 the Company entered into a new lease for its U.S. corporate headquarters. This lease agreement contains tenant improvement allowances and rent escalation clauses. 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.

DYNAMEX INC.

Certain reclassifications have been made to conform prior period data to the current presentation.

2. Comprehensive Income

The three components of comprehensive income are net income, foreign currency translation gains and unrealized gains (losses) on investments. Investments consist of payroll withholdings from participants in the Company’s deferred compensation plan that are invested in funds designated by the individual participants. Comprehensive income for the three months ended October 31, 2007 and 2006 was as follows:


	Three months ended
	October 31,
	2007		2006
Net income	$	3,994	$	3,649

Unrealized gains (losses) on investments		92		(12	)
Foreign currency translation gains		3,083		127


Comprehensive income	$	7,169	$	3,764

3. Intangibles – net

At October 31, 2007, intangibles and related amortization expense for the three months ended October 31, 2007 and 2006 consisted of the following:


								Amortization Expense
			Accumulated					Three months ended October 31,
	Asset		Amortization			Net		2007		2006
Deferred bank financing fees	$	132	$	(130	)	$	2		8		6

Customer lists		507		(102	)		405		23		8

Trademarks and other		470		(172	)		298		5		5


Total	$	1,109	$	(404	)	$	705	$	36	$	19

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 diluted earnings per share calculation if their effect would be anti-dilutive to earnings per share.

DYNAMEX INC.


	Three months ended
	October 31,
	2007		2006
Net income	$	3,994	$	3,649


Weighted average common shares outstanding		10,174		10,601

Common share equivalents related to options		109		154


Common shares and common share equivalents		10,283		10,755


Net income per common share:
Basic	$	0.39	$	0.34

Diluted	$	0.39	$	0.34

5. Repurchase of Equity Securities

During fiscal years 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 October 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. During the three months ended October 31, 2007, the Company did not purchase any Dynamex Inc. common stock on the open market.

6. Contingencies

The 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 Company is pursuing an administrative appeal of the denial of its 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 various extensions in which to file his

DYNAMEX INC.

Opening Brief. The Brief was filed on October 18, 2007. A Stipulation between the parties has given Dynamex until January 11, 2008, to file its answering brief. Plaintiff will have 30 days following that in which to file a rebuttal brief. Thereafter the Court will schedule an Oral hearing.

On October 17, 2007, two former independent contractor drivers in New York filed a purported class action / collective action against the Company in the United States District Court in New York alleging that the Company had unlawfully misclassified its drivers in New York and in the United States as independent contractors rather than as employees, and the Company had unlawfully failed to comply with the “Truth In Truck Leasing” and “Leasing Regulations” under U.S. Transportation Statutes. The Complaint seeks relief under the New York Labor and Wage Statutes and the U.S. Fair Labor Standards Act including payment of wages for all hours worked plus overtime, as well as for reimbursement of business expenses and improper deductions made from driver wages. The truck leasing claims seek unspecified amounts by which plaintiffs were underpaid and amounts for which the Company had over deducted. Injunctive relief to prevent further violations is sought.

The Company believes that the independent contractor owner-operator drivers are properly classified as independent contractors and intends to vigorously defend this litigation. Given the nature and preliminary status of the claims, however, the Company cannot yet determine the amount or a reasonable range of potential loss in these matters, if any.

The Company is a party to various legal proceedings arising in the ordinary course of its business. The Company 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.

7. Income Taxes

In June 2006, the FASB issued FASB Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes,” (FIN 48) that provides guidance on the accounting for uncertainty in income taxes recognized in financial statements. The Company adopted FIN 48 on August 1, 2007. The adoption of the FIN 48 provision did not have a material effect on the Company’s financial position, results of operations or cash flows.

DYNAMEX INC.

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 same-day transportation 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, through its national network of same-day delivery and logistics operations, is the leading provider of such services in the United States and Canada.

Sales consist primarily of charges to customers for delivery services and weekly or monthly charges for recurring services, such as facilities management. Sales are recognized when the service is performed. The yield (value per transaction) for a particular service is dependent upon a number of factors including size and weight of articles transported, distance transported, special handling requirements, requested delivery time and local market conditions. Generally, articles of greater weight transported over longer distances and those that require special handling produce higher yields.

Cost of sales consists of costs relating directly to performance of services, including driver and messenger costs, third party delivery charges, warehousing and sorting expenses, bad debts, insurance and workers’ compensation costs. Substantially all of the drivers used by the Company provide their own vehicles, and more than 99% are independent contractors as opposed to employees of the Company. Drivers and messengers are generally compensated based on a percentage of the delivery charge. Consequently, the Company’s driver and messenger costs are variable in nature. To the extent that delivery personnel are employees of the Company, employee benefit costs related to them, such as payroll taxes and insurance, are also included in cost of sales.

Selling, general and administrative expenses (“SG & A”) include salaries and benefit costs incurred at the business center level related to taking orders and dispatching drivers and messengers, as well as administrative costs related to such functions. Also included in SG & A expenses are regional and corporate level marketing and administrative costs and occupancy costs related to business center and corporate locations.

Generally, the Company’s on-demand services provide higher gross profit margins than do local and regional distribution or fleet management services because driver payments for on-demand services are generally lower as a percentage of sales from such services due primarily to the smaller size of the vehicle required. However, scheduled distribution and fleet management services generally have fewer administrative requirements related to order taking, dispatching drivers and billing. As a result of these variances, the Company’s gross profit margin is dependent in part on the mix of business for a particular period.

During the three months ended October 31, 2007 and 2006, sales to Office Depot, Inc. represented approximately 14.2% and 13.0%, respectively, of the Company’s revenue. Sales to the Company’s five largest customers, including Office Depot, represented approximately 25.6% and 25.4% of the Company’s consolidated sales for the three months ended October 31, 2007 and 2006, respectively.

Critical Accounting Policies

The Company’s discussion and analysis of its financial condition and results of operations are based on the Company’s financial statements, which have been prepared in accordance with accounting policies generally

DYNAMEX INC.

accepted in the United States of America. The Company’s critical accounting policies are set forth in the Company’s Form 10-K for the year ended July 31, 2007. As of, and for the three month period ended October 31, 2007, there have been no material changes or updates to the Company’s critical accounting policies.

Recent Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157 (“SFAS 157”), “Fair Value Measurement,” This Statement establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. While SFAS 157 does not require any new value measurements, it may change the application of fair value measurements embodied in other accounting standards. SFAS 157 will be effective at the beginning of the Company’s 2009 fiscal year. The Company is currently assessing the effect of this pronouncement, but does not expect the impact on our consolidated financial statements to be material.

In February 2007, the FASB issued Statement No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No 115.” This Statement permits an entity to choose to measure many financial instruments and certain other items at fair value. A business entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings. The fair value option (a) may be applied instrument by instrument, (b) is irrevocable, and (c) is applied to entire instruments and not to portions of instruments. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company believes the adoption of SFAS No. 159 will have no material impact on its consolidated financial statements.

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:

DYNAMEX INC.


	Three months ended
	October 31,
	2007			2006
Sales		100.0	%		100.0	%
Cost of sales:
Purchased transportation		66.1	%		65.4	%
Other direct costs		7.3	%		7.8	%

Cost of sales		73.4	%		73.2	%


Gross profit		26.6	%		26.8	%

Selling, general and administrative expenses:
Salaries and employee benefits		14.4	%		14.0	%
Other		5.9	%		6.4	%

Selling, general and administrative expenses		20.3	%		20.4	%


Depreciation and amortization		0.6	%		0.6	%
Loss on disposal of property and equipment		0.0	%		0.0	%


Operating income		5.7	%		5.8	%

Interest expense		0.1	%		0.1	%
Other income, net		-0.1	%		-0.1	%


Income before income taxes		5.7	%		5.8	%

Income taxes		2.2	%		2.1	%


Net income		3.5	%		3.7	%

DYNAMEX INC.

The following tables sets forth for the periods indicated, the Company’s sales accumulated by service type and country:


	Three months ended
	October 31,
	2007				2006
Sales by service type:
On demand		37,261	33.3	%		36,525	36.3	%
Scheduled/distribution		36,493	32.7	%		31,657	31.5	%
Outsourcing		37,998	34.0	%		32,433	32.2	%

Total sales	$	111,752	100.0	%	$	100,615	100.0	%


Sales by country:
United States	$	69,483	62.2	%	$	63,962	63.6	%
Canada		42,269	37.8	%		36,653	36.4	%

Total sales	$	111,752	100.0	%	$	100,615	100.0	%

Three months ended October 31, 2007 compared to three months ended October 31, 2006

Net income for the three months ended October 31, 2007 was $4.0 million ($0.39 per fully diluted share) compared to $3.6 million ($0.34 per fully diluted share) for the three months ended October 31, 2006.

Sales for the three months ended October 31, 2007 were $112 million, an 11.1% increase over the same period in 2006. The average conversion rate between the Canadian dollar and the U.S. dollar increased 10.2% compared to the prior year quarter, which had the effect of increasing sales for the three months ended October 31, 2007 by approximately $3.9 million had the conversion rate been the same as the prior year period. Also, management estimates that approximately 0.4% of the year-over-year increase in sales is attributable to fuel surcharges. The core growth rate, the rate excluding changes in foreign exchange and fuel surcharges, was approximately 6.8% this quarter. U.S. sales increased approximately 8.6% and Canadian sales, in Canadian dollars, increased approximately 4.7% this quarter compared to last year.

Cost of sales for the three months ended October 31, 2007 increased $8.4 million, or 11.3%, to $82.0 million from $73.7 million for the same period in the prior year. Cost of sales, as a percentage of sales was 73.4% for the three months ended October 31, 2007, slightly higher than the 73.2% for the same period in the prior year. The increase is principally attributable to the continuing change in business mix as on-demand sales represented 33.3% of sales this year compared to 36.3% last year.

SG & A expenses for the three months ended October 31, 2007 increased $2.1 million, or 10.4%compared to the same quarter last year. As a percentage of sales, SG & A expenses were 20.3% in the current year compared to 20.4% in the prior year. Approximately $2.0 million of the dollar increase is attributable to the impact of additional personnel hired over the last twelve months to support not only the current level of business but also future sales growth, in addition to normal increases in compensation and higher premiums related to medical and dental coverage. As the core growth rate accelerates above the current level, management expects to realize additional leverage from its relatively fixed cost infrastructure.

For the three months ended October 31, 2007, depreciation and amortization was $671,000 compared to $592,000 for the same period in the prior year. The increase is primarily attributable to lessor financed leasehold improvements that occurred during fiscal year 2007. Management does not expect a significant change in the level of depreciation and amortization expense due to limited capital requirements associated with its non-asset based business.

Interest expense for the three months ended October 31, 2007 was $79,000, $32,000 below the prior year period. Lower interest expense compared to the prior year is primarily attributable to a lower average outstanding debt.

The effective income tax rate was 37.6% for the current quarter compared to 36.9% for the prior year. The prior year quarter includes an adjustment of approximately $100,000 to deferred income tax expense related to the

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reduction in future Canadian income tax rates. Management expects the effective income tax rate to be at or below 38% of pre-tax income for the remainder of this fiscal year.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flow generated from operations and our bank revolving credit facility. Net cash used in operating activities was $4.3 million for the three months ended October 31, 2007 compared to $167,000 for the same period in 2006. The additional requirement this year resulted from higher working capital requirements to fund the increase in accounts receivable and reductions in current liabilities and lessor financed leasehold improvements included in the prior year period. Of the $8.5 million increase in accounts receivable at October 31, 2007, compared to July 31, 2007, $3.1 million is attributable to the growth in sales, $2.4 million is due to difference in the conversion rate between the Canadian and U. S. dollars with the balance due to an increase in days sales outstanding. Management expects the increase in accounts receivable to be more in-line with the year-over-year growth in sales by the end of the second quarter of this fiscal year.

Net cash provided by operations, prior to changes in current operating assets and liabilities, was $5.6 million for the three months ended October, 2007 compared to $6.2 million for the three months ended October 31, 2006. Excluding the non-cash lessor financed leased hold improvement of $1.2 million from the prior year, net cash generated from operations before changes in current operating assets and liabilities increased 11.4% this quarter compared to the prior year quarter.

Capital expenditures for the three months ended October 31, 2007 were approximately $809,000 compared to $1.6 million in 2006. The 2006 expenditures include $1.2 million of lessor financed leasehold improvements. Management expects capital expenditures to be in the $2 million to $3 million range for the full fiscal year, excluding lessor financed leasehold improvements. Our cash flow from operations has been our primary source of liquidity, and we expect it to continue to be the primary source in the future.

Our revolving credit facility was initially established in 2005 and last amended in July 2007. The credit facility has a maturity date of July 31, 2009 and has no scheduled principal payments. The revolving credit facility is secured by all of the Company’s U.S. assets and 100% of the stock of its domestic subsidiaries.

The revolving credit facility requires us to satisfy certain financial and other covenants, including:


Compliance Area	Covenant	Level at October
		31, 2007

Ratio of funded debt to EBITDA	Maximum of 2.00 to 1.00	0.21
Total indebtedness	$20 million, including LOC’s	$5.8 million
Letters of credit sublimit	$7.5 million	$5.8 million
Maximum treasury stock	$20 million	$0
purchases in any fiscal year
Fixed charge coverage ratio	Equal to or greater than 1.50 to 1.00	1.73

The Company’s EBITDA (earnings before interest, taxes, depreciation and amortization) was approximately $7.2 million (6.4% of sales) for the three months ended October 31, 2007, compared to $6.5 million (6.4% of sales) in the same period last year. The increase in EBITDA, is primarily attributable to the 11.1% increase in sales. 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. The following table reconciles net income presented in accordance with generally accepted accounting principles (“GAAP”) to EBITDA, which is a non-GAAP financial measure:

DYNAMEX INC.


	Three months ended
	October 31,
	2007		2006
Net income	$	3,994	$	3,649
Adjustments:
Income tax expense		2,411		2,131
Interest expense		79		111
Depreciation and amortization		671		592

EBITDA	$	7,155	$	6,483

Management expects internally generated cash flow and temporary borrowings from its bank credit facility will be sufficient to fund its operations, capital requirements and common stock repurchases.

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.

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 $4.2 million and a decrease in quarterly net income of approximately $160,000 over this period. There can be no assurances that the above projected exchange rate decrease will materialize. Fluctuations of exchange rates are beyond the control of the Company’s management.

DYNAMEX INC.

Interest Rate Exposure

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 average interest rates versus current debt levels at current average interest rates with a 10% increase. Based on this model, a 10% increase would result in no material increase in interest expense. 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

An evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a - 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934) as of October 31, 2007 (the end of the period covered by this Quarterly Report on Form 10-Q). Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective.

There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

DYNAMEX INC.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

The 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 $345,000 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 $100,000. The Company is pursuing an administrative appeal of the denial of its Refund Claim.

Item 1A. Risk Factors.

No material changes have been made in the disclosure of risk factors from those set forth in the Company’s annual report on Form 10-K.

DYNAMEX INC.

Item 6. Exhibits


Exhibits:
31.1		Certification of Chief Executive Officer of the Registrant, pursuant to 17 CFR 240. 13a — 15(e) or 17 CFR 240. 15d – 15(e)

31.2		Certification of Chief Financial Officer of the Registrant, pursuant to 17 CFR 240. 13a — 15(e) or 17 CFR 240. 15d – 15(e)

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 2002

32.2		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

DYNAMEX INC.

SIGNATURES

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 7, 2007	by	/s/ Richard K. McClelland
		Richard K. McClelland
		President, Chief Executive Officer and
		Chairman of the Board
		(Principal Executive Officer)

Dated: December 7, 2007	by	/s/ Ray E. Schmitz

		Ray E. Schmitz
		Vice President – Chief Financial Officer
		(Principal Financial Officer)

Dated: December 7, 2007	by	/s/ Samuel T. Hicks

		Samuel T. Hicks
		Corporate Controller
		(Principal Accounting Officer)

EXHIBIT INDEX

Exhibits

31.1

Certification of Chief Executive Officer of the Registrant, pursuant to 17 CFR 240. 13a - 15(e) or 17 CFR 240. 15d – 15(e)

31.2

Certification of Chief Financial Officer of the Registrant, pursuant to 17 CFR 240. 13a - 15(e) or 17 CFR 240. 15d – 15(e)

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 2002

32.2

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

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Avg

Dynamex Inactive 10-Q2007 Q3 Quarterly report

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