<PAGE> 1
Rule 424(b)(3)
Registration No. 333-15911
PROSPECTUS SUPPLEMENT DATED FEBRUARY 7, 1997
(to prospectus dated November 14, 1996)
891,645 Shares
DYNAMEX INC.
COMMON STOCK
________
Up to a maximum of 891,645 shares of common stock, $.01 par value (the
"Common Stock") of Dynamex Inc., a Delaware corporation (the "Company" or
"Dynamex"), are being offered from time to time by certain of the Company's
stockholders named herein (the "Selling Stockholders") who have received shares
of Common Stock as full or partial consideration for acquisitions of delivery
businesses consummated by the Company. The Company will not receive any of the
proceeds from the sale of the shares of Common Stock by the Selling
Stockholders.
The Common Stock may be offered by the Selling Stockholders from time to
time in open market transactions (which may include block transactions),
through underwriting syndicates represented by one or more managing
underwriters or in private transactions, or a combination of such methods of
sale, at market prices prevailing at the time of sale, at prices relating to
prevailing market prices or at negotiated prices.
The costs, expenses and fees incurred in connection with the
registration of the Common Stock (excluding any selling commissions and
brokerage fees incurred by the Selling Stockholders) will be paid by the
Company, which has also agreed to indemnify the Selling Stockholders against
certain liabilities, including liabilities under the Securities Act of 1933
(the "Act").
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THE PROSPECTUS DATED NOVEMBER
14, 1996 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON STOCK OFFERED HEREBY.
The shares of Common Stock are traded on the Nasdaq National Market
under the symbol "DYMX." The last reported sale price of the Common Stock on
the Nasdaq National Market on February 4, 1997 was $10.50 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
The date of this Prospectus Supplement is February 7, 1997
<PAGE> 2
THE SECTION OF THE PROSPECTUS DATED NOVEMBER 14, 1996 ENTITLED "SELLING
STOCKHOLDERS" HAS BEEN RESTATED IN ITS ENTIRETY AS FOLLOWS:
SELLING STOCKHOLDERS
The table below sets forth the beneficial ownership of the Company's
Common Stock by the Selling Stockholders at February 5, 1997. Each of the
Selling Stockholders acquired the shares of Common Stock pursuant to the
acquisition by the Company of the Acquired Company with which such Selling
Stockholder was affiliated, respectively. Each of the Selling Stockholders
named below, other than Kenneth H. Bishop and Norman Koppel, currently manages
or is otherwise employed or engaged by the Company directly or, with respect to
Party Pilot, Inc., indirectly through its stockholder, in connection with the
operation of the business of the Acquired Company with which he or she was
previously affiliated. The Company is registering the shares of the Selling
Stockholders pursuant to registration rights granted to them under agreements
relating to the acquisition of their shares. Each of the persons named below
has sole voting and investment power with respect to the shares of Common Stock
beneficially owned by him or it, as the case may be, (other than Charles H.
McLean and Mary Regina McLean who own such shares jointly).
<TABLE>
<CAPTION>
Shares Owned Before Shares Owned After
Acquired the Offering Shares the Offering Lock-Up
Name and Company -------------------- Being ------------------ Expiration
Address Affiliation(1) Number Percent Offered(2) Number Percent(2) Date(3)
-------- ----------- ------ ------- ------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Kenneth H. Bishop(4) . . . Zipper 56,922 * 56,922 -- -- 2/9/97
Norman Koppel . . . . . . . Seko/Metro 66,250 * 66,250 -- -- 2/9/97
Joe Garcia . . . . . . . . Seko/Metro 3,750 * 3,750 -- -- 2/9/97
James Barsano . . . . . . . Seko/Metro 5,000 * 5,000 -- -- 2/9/97
Edward F. Seidel, Jr. . . . Seidel Del. 41,563 * 41,563 -- -- 2/9/97
Barry J. Steingard . . . . Express It 222,125 3.2 222,125 -- -- 2/9/97
William Castor. . . . . . . Express It 222,125 3.2 222,125 -- -- 2/9/97
John Groves . . . . . . . . Boogey 22,920 * 22,920 -- -- 6/2/97
Robert Dobrient . . . . . . Max America 33,500 * 33,500 -- -- 3/31/97
Party Pilot, Inc. . . . . . Priority Parcel 21,490 * 21,490 -- -- 6/30/97
Charles H. McLean and
Mary Regina McLean . . . One Hour 100,000 1.4 100,000 -- -- 7/31/97
Ransom N. Hundley . . . . . Eagle Courier 83,098 1.2 83,098 -- -- 7/31/97
Frank Vicario . . . . . . . Eagle Courier 10,032 * 10,032 -- -- 7/31/97
Eddie Hall . . . . . . . . Eagle Courier 2,870 * 2,870 -- -- 7/31/97
</TABLE>
_____________
* Indicates less than 1%.
(1) Selling Stockholder was a stockholder and, in certain cases, an
employee of the Acquired Company set forth next to his name
immediately prior to the Company's acquisition of such company.
(2) Because the Selling Stockholders may offer all or some of the shares
which they hold pursuant to this Prospectus and because there are
currently no agreements, arrangements or understandings with respect
to the sale of any shares, the amount of shares that will be held by
the Selling Stockholders after completion of any offering hereunder is
unknown. However, for the purposes of the above table, it is assumed
that all of the shares of Common Stock offered hereby are to be sold.
(3) Selling Stockholder has agreed not to sell any Common Stock or
securities exercisable for or convertible into Common Stock until the
date set forth in this column without the prior written consent of
William Blair & Company, L.L.C. (with respect to the shares locked up
until February 9, 1997) or the Company (with respect to the shares
locked up after February 9, 1997).
(4) Selling Stockholder is currently a director of the Company.
END OF RESTATEMENT OF THE SECTION OF THE PROSPECTUS
DATED NOVEMBER 14, 1996 ENTITLED "SELLING STOCKHOLDERS"
S-2
<PAGE> 3
RECENT DEVELOPMENTS
During the period commencing September 1996 through the beginning of
February 1997, the Company acquired the following same-day delivery businesses
(each an "Acquired Company"):
<TABLE>
<CAPTION>
Effective Date
Acquired Company Metropolitan Areas Served of Acquisition
---------------- ------------------------- --------------
<S> <C> <C>
Express It, Inc. New York, New York October 1, 1996
Dollar Courier San Diego, California October 18, 1996
Winged Foot Couriers, Inc. New York, New York December 1, 1996
Boogey Transportation Limited Saskatoon, Saskatchewan December 1, 1996
One Hour Delivery Services, Inc. Dallas, Texas January 1, 1997
Priority Parcel Express, Inc. Dallas, Texas January 1, 1997
Max America Holdings, Inc. Dallas, Texas January 1, 1997
Eagle Couriers, Inc. Richmond, Virginia February 1, 1997
</TABLE>
The consideration paid by the Company for the Acquired Companies was
determined through arms-length negotiations among the Company and the
representatives of the stockholders of the Acquired Companies. The factors
considered by the parties in determining the purchase price include, among
other things, the historical operating results and the future prospects of the
Acquired Companies.
The Company paid approximately $16.2 million as aggregate
consideration for these Acquired Companies, consisting of $8.0 million in cash,
$1.9 million of assumed indebtedness (which amount was subsequently repaid by
the Company) and 718,160 shares of Common Stock. In addition, in two instances,
additional cash consideration may be paid by the Company if such acquired
businesses obtain certain performance goals. Based on each of the Acquired
Company's most recent annual (or annualized, in certain instances) historical
operating results, and as adjusted for certain pro forma items such as changes
in owners' compensation, these eight acquired businesses have annual combined
revenues of approximately $24.0 million and earnings before interest, taxes,
depreciation and amortization of approximately $2.8 million.
Each of the above referenced acquisitions is being accounted for using
the purchase method of accounting. Accordingly, each Acquired Company is
included in the Company's consolidated results of operations from the date of
its respective acquisition.
The Company is currently integrating the Acquired Companies into the
Company's operating environment. Each Acquired Company has been assigned to the
appropriate regional division of the Company. A manager of each Acquired
Company has continued to manage such operations after the consummation of the
respective acquisition and has been appointed a branch manager. Management is
training the staff of the Acquired Companies so that each branch will be able
to provide and market the full range of Company services. As soon as
practicable and where appropriate, the Company will assimilate each Acquired
Company's accounting, payroll and cash management functions, standardize its
insurance coverage and employee benefits and supplement or replace the use of
the Acquired Company's trade name with "Dynamex."
S-3
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
information contained in the financial statements, including the notes thereto,
and the other financial information appearing elsewhere in this Prospectus
Supplement and in the Prospectus dated November 14, 1996. The following
discussion specifically relates to the three- month period ended October
31,1996. Management's Discussion and Analysis of Financial Conditions and
Results of Operations for the fiscal years ended July 31, 1996, 1995 and 1994
appears in the Prospectus dated November 14, 1996.
A. MATERIAL CHANGES IN FINANCIAL CONDITION
For the three months ended October 31, 1996 the Company's earnings
before interest, taxes, depreciation and amortization ("EBITDA") was $1,981,000
compared to $392,000 for the same period one year earlier. This increase
reflects the additional cash flow resulting from the acquisitions made during
the twelve months ended October 31, 1996.
Net proceeds of the Company's initial public offering (the "IPO") of
its Common Stock, which was consummated in August 1996, were approximately
$21.4 million. Approximately $8.4 million of this amount was utilized to
consummate certain acquisitions at the time of the IPO and the balance was
utilized to reduce long-term debt.
Subsequent to the IPO, the Company has completed eight acquisitions
with total consideration of approximately $16.2 million, consisting of
approximately $8.0 million in cash, assumption of approximately $1.9 million of
indebtedness (which was subsequently paid by the Company) and 718,160 shares of
Common Stock. Aggregate annual revenues for these acquired businesses, based on
the most recent annual (or annualized, in certain instances) historical results
for such companies, and as adjusted for certain pro forma items such as changes
in owners' compensation) is approximately $24.0 million.
As of February 1, 1997, amounts outstanding under the Company's $40
million revolving credit facility amount to approximately $ 17.5 million.
The Company anticipates utilizing its cash flow from operations,
proceeds from its revolving credit facility and the issuance of additional
shares of its common stock to complete additional acquisitions in the coming
months. The Company anticipates that these sources of capital will be
sufficient to fund its acquisition program for the next 15 to 21 months. Should
the size and number of such acquisitions exceed anticipated levels, or should
sellers be unwilling to accept the Company's common stock as partial
consideration, the Company may be forced to seek additional sources of capital
such as the issuance of debt or equity securities or additional bank
borrowings. There is no assurance that such sources of capital will be
available to the Company or that they will be available on terms acceptable to
the Company. Accordingly, the Company's acquisition and expansion program
could be negatively affected by these factors.
B. MATERIAL CHANGES IN RESULTS OF OPERATIONS
In December 1995, the Company acquired the ground courier operations
of Mayne Nickless which resulted in the Company gaining operations in San
Diego, Los Angeles, San Francisco, Seattle, Vancouver, Pittsburgh, Boston,
Washington, D.C., and Baltimore. In August 1996, concurrently with the closing
of its IPO, the Company completed five acquisitions with operations in
Winnipeg, Halifax, Chicago, Columbus, Ohio, and New York. All of these
acquisitions have been accounted for using the purchase method of accounting.
Therefore, the results of operations of the acquired companies are included
with those of the Company as of the date of the acquisition.
S-4
<PAGE> 5
The pro forma results of operations present the results of operations
of the Company as if the IPO acquisitions had occurred as of the beginning of
the period presented and as if the IPO had occurred as of July 31, 1996.
The following table sets forth certain items from the Company's
consolidated statements of operations expressed as a percentage of sales:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
October 31, October 31,
1995 1996 1995 1996
----------- ----------- ----------- -----------
Pro Forma
<S> <C> <C> <C> <C>
Sales 100% 100% 100% 100%
Cost of sales 71.5 66.9 65.3 66.7
----- ---- ---- ----
Gross profit 28.5 33.1 34.7 33.3
Selling, general and
administrative expenses 25.6 25.8 29.3 25.9
Depreciation and amortization 2.0 2.5 2.6 2.5
Operating profit 0.9 4.8 2.8 4.8
----- ---- ---- ----
Interest expense 1.3 1.0 2.0 0.7
----- ---- ---- ----
Income (loss) before taxes
and extraordinary item (0.4)% 3.8% 0.8% 4.1%
===== ==== ==== ====
</TABLE>
Three months ended October 31, 1995 vs. three months ended October 31, 1996.
Sales increased $13,495,000 (100.6%) due primarily to the acquisition
of the Mayne Nickless operations which occurred in December 1995 and the
acquisitions made at the time of the IPO in August 1996. Sales from these
acquisitions accounted for approximately $12,500,000 of the increase. Sales
from acquisitions completed subsequent to the IPO were approximately $280,000
during the 1996 period.
Cost of sales increased $8,407,000 (87.7%), reflecting the
acquisitions described above. As a percentage of sales, such amounts decreased
from 71.5% to 66.9%. This change reflects the higher gross profit of Mayne
Nickless and the IPO acquisition companies. The business of those operations
consisted almost entirely of "on-demand" services. These services generally
have a higher gross margin than the "scheduled" or "fleet management" services
which comprised a larger portion of the business mix for the historical
operations of the Company.
Selling, general and administrative expenses increased $3,499,000
(102.1%) due to costs associated with the Mayne Nickless and IPO acquisitions.
As a percentage of sales, these expenses increased slightly from 25.6% to
25.8%. This reflects the higher administrative costs associated with
"on-demand" services. This increase was offset by the elimination of certain
administrative costs associated with revenue from certain unprofitable business
in Western Canada and Arizona which was discontinued. In addition, other costs
were eliminated through the consolidation of administrative and support
functions in certain branches.
Depreciation and amortization increased both in absolute terms,
$416,000 (155.2%), and as a percentage of sales, 2.0% to 2.5%. These increases
result from depreciation of assets acquired with the acquisitions discussed
above, including intangible assets such as goodwill.
S-5
<PAGE> 6
Interest expense increased $88,000 (48.1%) due to the debt incurred to
finance the acquisition of the Mayne Nickless operations. A portion of this
debt was retired in August 1996 with proceeds of the IPO and the balance of the
debt was refinanced at a lower interest rate. Therefore, as percentage of
sales, interest expense decreased from 1.3% to 1.0%.
Results of operations for the three months ended October 31, 1996
include an extraordinary charge of $335,000, net of income taxes, resulting
from the early retirement of the Company's Junior Subordinated Debentures
concurrently with the IPO.
Pro forma three months ended October 1995 to pro forma three months ended
October 31, 1996.
Sales increased $2,637,000 (10.5%) due primarily to increased sales to
regional and national accounts in Canada. The increase from these additional
sales was affected by a decline in revenues of approximately $1,000,000 in
Western Canada and Arizona due to the discontinuation of certain unprofitable
business in these areas.
Cost of sales increased $2,109,000 (12.9%) due primarily to the above
increase in sales. As a percentage of sales, cost of sales increased from 65.3%
to 66.7%. This increase results primarily from the discontinued business
discussed above. This discontinued business was primarily "scheduled" service
which has a generally lower gross margin.
Selling, general and administrative expenses decreased $166,000
(2.3%), despite increased costs in the 1996 quarter related to the Company's
reporting and other obligations as a new public company. The decrease resulted
from offset by the elimination of certain administrative costs associated with
the discontinued revenue in Western Canada and Arizona. In addition, other
costs were eliminated through the consolidation of administrative and support
functions in certain branches.
Depreciation and amortization increased $62,000 (9.7%) due to
additions to fixed assets such as computer hardware and software. As a
percentage of sales, depreciation and amortization was essentially unchanged
between the periods.
Interest expense decreased in absolute terms by $322,000 (63.0%) and
as a percentage of sales, 2.0% to 0.7%. This decrease results from the
reduction of outstanding debt with a portion of the proceeds of the IPO and
from lower interest rates associated with the Company's amended bank credit
facility.
S-6
<PAGE> 7
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DYNAMEX INC. AND SUBSIDIARIES
<S> <C>
Condensed Consolidated Balance Sheets, July 31, 1996 and October 31, 1996 (Unaudited) . . . SF-2
Condensed Consolidated Statements of Operations (Unaudited) for the three-month period
ended October 31, 1996 and Pro Forma . . . . . . . . . . . . . . . . . . . . . . . . . . SF-3
Condensed Consolidated Statements of Cash Flows (Unaudited) for the three-month period
ended October 31, 1996 and Pro Forma . . . . . . . . . . . . . . . . . . . . . . . . . . SF-4
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . SF-5
</TABLE>
SF-1
<PAGE> 8
DYNAMEX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
July 31, October 31,
1996 1996
------------------- --------------------
<S> <C> <C>
ASSETS (Unaudited)
CURRENT
Cash and cash equivalents $ 894 $ 1,372
Accounts receivable - net 11,141 14,837
Prepaid and other current assets 856 1,745
------------------- --------------------
12,891 17,954
PROPERTY AND EQUIPMENT - net 2,047 3,300
INTANGIBLES - net 18,196 28,791
DEFERRED OFFERING EXPENSES 763 -
OTHER ASSETS 1,102 1,312
------------------ -------------------
$ 34,999 $ 51,357
=================== ====================
LIABILITIES
CURRENT
Accounts payable $ 1,088 $ 1,150
Accrued liabilities 5,446 8,149
Current portion of long-term debt 2,271 378
------------------ -------------------
8,805 9,677
LONG-TERM DEBT 20,036 9,090
------------------ -------------------
28,841 18,767
------------------ -------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock; 10,000,000 shares authorized;
none outstanding - -
Common stock 50,000,000 shares authorized;
2,543,460 and 6,691,195 shares outstanding 25 67
Stock warrants 624 -
Additional paid-in capital 8,756 35,438
Accumulated deficit (3,262) (3,181)
Unrealized foreign currency translation adjustment 15 266
------------------ -------------------
6,158 32,590
------------------ -------------------
$ 34,999 $ 51,357
================== ====================
</TABLE>
See accompanying notes to consolidated financial statements
SF-2
<PAGE> 9
DYNAMEX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
October 31, October 31,
------------------------------- ------------------------------
Pro Forma
1995 1996 1995 1996
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
SALES $ 13,405 $ 26,900 $ 25,018 $ 27,655
COST OF SALES 9,587 17,994 16,344 18,453
-------------- -------------- -------------- -------------
GROSS PROFIT 3,818 8,906 8,674 9,202
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,426 6,925 7,328 7,162
DEPRECIATION AND AMORTIZATION 268 684 638 700
-------------- -------------- -------------- -------------
OPERATING INCOME 124 1,297 708 1,340
INTEREST EXPENSE 183 271 511 189
-------------- -------------- -------------- -------------
INCOME (LOSS) BEFORE TAXES (59) 1,026 197 1,150
INCOME TAXES 4 408 88 458
-------------- -------------- -------------- -------------
INCOME BEFORE EXTRAORDINARY ITEM (63) 618 109 692
EXTRAORDINARY ITEM - Loss on repayment
of Junior Subordinated Debentures (less applicable
income taxes of $223) - (335) - -
-------------- -------------- -------------- -------------
NET INCOME (LOSS) $ (63) $ 283 $ 109 $ 692
============== ============== ============== =============
NET INCOME (LOSS) PER COMMON SHARE
Income (loss) before extraordinary item $ (0.02) $ 0.10 $ 0.02 $ 0.11
Extraordinary item - (0.05) - -
-------------- -------------- -------------- -------------
Net income (loss) per common share $ (0.02) $ 0.05 $ 0.02 $ 0.11
============== ============== ============== =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,732 5,953 6,895 6,584
============== ============== ============== =============
</TABLE>
See accompanying notes to the consolidated financial statements
SF-3
<PAGE> 10
DYNAMEX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
October 31, October 31,
---------------------------- -------------------------
Pro Forma
1995 1996 1995 1996
------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (63) $ 283 $ 109 $ 692
Adjustment to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 268 684 638 700
Loss on disposition stock warrant - 558 - -
Unrealized foreign currency adjustment 27 251 27 251
Changes in current assets and current liabilities:
Accounts receivable (165) (1,905) (214) (1,905)
Prepaids and other assets 45 (389) 307 (389)
Accounts payable and accrued expenses 116 1,669 (454) 1,617
------------ ------------- ----------- -----------
Net cash provided by operating activities 228 1,151 413 966
------------ ------------- ----------- -----------
INVESTING ACTIVITIES
Payment for Acquisitions - (6,849) - -
Purchase of furniture, fixtures and equipment (79) (444) (158) (372)
------------ ------------- ----------- -----------
Net cash used by financing activities (79) (7,293) (158) (372)
------------ ------------- ----------- -----------
FINANCING ACTIVITIES
Principal payment on long-term debt 21 (14,372) 94 26
Net borrowing under line of credit 133 - 63 -
Net proceeds from sale of common stock - 21,148 - -
Other assets, deferred offering expenses and intangibles (286) (156) (357) (291)
------------ ------------- ----------- -----------
Net cash provided (used) by financing activities (132) 6,620 (200) (265)
------------ ------------- ----------- -----------
NET INCREASE IN CASH 17 478 55 329
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 506 894 2,354 1,043
------------ ------------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 523 $ 1,372 $ 2,409 $ 1,372
============ ============= =========== ===========
SUPPLEMENTAL DISCLOSURE ON NON-CASH
INFORMATION
Cash paid for interest $ 132 $ 291 $ - $ -
============ ============= =========== ===========
</TABLE>
SF-4
<PAGE> 11
<TABLE>
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Capital lease obligation $ 53 $ (15) $ 53 $ (15)
============ ============= ========== ===========
In conjunction with the acquisition described, liabilities
were assumed as follows:
Fair value of assets acquired $ - $ 8,719 $ - $ -
============ ============= ========== ===========
Cash paid - (6,849) - -
============ ============= ========== ===========
Liabilities assumed and incurred $ - $ 1,870 $ - $ -
============ ============= ========== ===========
</TABLE>
SF-5
<PAGE> 12
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1996
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated interim financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and thus do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
The accompanying Unaudited Pro Forma Condensed Consolidated Statement
of Operations presents the comparative results of operations for the three
months ended October 31, 1996 as if the IPO and five acquisitions closed
concurrently with the IPO ("IPO Acquisitions") had occurred as of the beginning
of that period. These transactions included the issuance of 173,485 shares of
common stock as partial consideration for the IPO Acquisitions and the issuance
of 2,990,000 shares of common stock pursuant to the IPO. The accompanying
Unaudited Pro Forma Condensed Statement of Operations presents the comparative
results of operations for the three months ended October 31, 1995 as if the
acquisition of Mayne Nickless and the IPO Acquisitions had occurred as of the
beginning of that period. These transactions include the issuance of 173,485
shares of common stock and the issuance of 1,134,000 shares of common stock
pursuant to the IPO, the proceeds from such shares being used to finance the
cash portion of the IPO Acquisitions. In addition, the Pro Forma results of
operations have been adjusted to reflect the effect of changes to certain
components of costs and expenses. These items include adjustments to
compensation to owners and managers of the IPO Acquired Companies to reflect
agreed upon compensation levels subsequent to the acquisition by the Company,
adjustments to rental expense to reflect agreed upon modifications to lease
agreements to be effective subsequent to the acquisition by the Company and
adjustments to certain corporate overhead, other costs and expenses which are
not ongoing costs of the businesses acquired and would not have been incurred
had the IPO Acquisitions by the Company occurred at the beginning of the
period. Each of these acquisitions has been accounted for under the purchase
method of accounting. Accordingly, the total purchase price, including
transaction costs, has been allocated to the assets and liabilities of the
acquired businesses based on their estimated fair value.
The unaudited Pro Forma Condensed Consolidated Statement of Cash Flows
gives additional effect to the issuance of the balance of shares of common
stock being used in connection with the IPO, the application of the proceeds
thereof and the mandatory exercise of the bridge warrants to purchase 540,000
shares of Common Stock at $0.025 per share simultaneously therewith.
The pro forma results are not necessarily indicative of actual results
which might have occurred had the operations of the Company and the acquired
businesses been combined at the beginning of the periods presented.
The Condensed Consolidated Balance Sheet at July 31, 1996 has been
derived from the Company's Form 10-K for the year ended July 31, 1996. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
SF-6
<PAGE> 13
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
(Unaudited)
2. CAPITAL STOCK
In August 1996, the Company completed the IPO. Pursuant to the IPO the
Company issued 2,600,000 shares of its $.01 par value common stock at the
offering price of $8.00 per share, less underwriters discount and offering
costs. In September 1996, the Underwriters exercised their over-allotment
option pursuant to which the Company issued an additional 390,000 shares of
common stock, also at the offering price of $8.00 per share, less underwriters
discount.
Concurrently with the closing of the IPO, the Company issued options
to purchase 257,000 shares of common stock pursuant to the 1996 Stock Option
Plan. All of the options are exercisable at $8.00 per share, the IPO price.
3. BUSINESS COMBINATIONS
In October 1996, the Company acquired the same-day delivery business
of Express It (New York, New York) for 444,250 shares of Common Stock and
acquired substantially all of the assets of Dollar Courier (San Diego,
California) for total consideration of approximately of approximately $330,000,
payable over approximately two years. In December 1996, the Company acquired
Boogey Transportation Ltd. (Saskatoon, Saskatchewan) for approximately $471,000
in cash and 22,920 shares of common stock and certain of the assets of Winged
Foot Couriers, Inc. (New York, New York) for approximately $675,000 in cash.
SF-7
<PAGE> 14
PROSPECTUS
1,173,485 SHARES
[DYNAMEX LOGO]
COMMON STOCK
---------------------
Up to a maximum of 617,735 shares of common stock, $.01 par value (the
"Common Stock") of Dynamex Inc., a Delaware corporation (the "Company" or
"Dynamex"), are being offered from time to time by certain of the Company's
stockholders named herein (the "Named Selling Stockholders") and up to a maximum
of 555,750 shares of Common Stock are being offered from time to time by certain
of the Company's stockholders (the "Future Selling Stockholders, and together
with the Named Selling Stockholders, the "Selling Stockholders") who shall
receive shares of Common Stock as full or partial consideration for future
acquisitions of delivery businesses consummated by the Company. When a
particular offering of shares of Common Stock by the Future Selling Stockholders
is proposed, a supplement to this Prospectus (the "Prospectus Supplement") will
be delivered with this Prospectus setting forth with respect to such offering
the amount of Common Stock offered and the name(s) of and other information
relating to the Future Selling Stockholders. The Company will not receive any of
the proceeds from the sale of the shares of Common Stock by the Selling
Stockholders.
The Common Stock may be offered by the Selling Stockholders from time to
time in open market transactions (which may include block transactions), through
underwriting syndicates represented by one or more managing underwriters or in
private transactions, or a combination of such methods of sale, at market prices
prevailing at the time of sale, at prices relating to prevailing market prices
or at negotiated prices.
The costs, expenses and fees incurred in connection with the registration
of the Common Stock (excluding any selling commissions and brokerage fees
incurred by the Selling Stockholders) will be paid by the Company, which has
also agreed to indemnify the Selling Stockholders against certain liabilities,
including liabilities under the Securities Act of 1933 (the "Act").
SEE "RISK FACTORS" BEGINNING ON PAGE 6 HEREOF FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF
COMMON STOCK OFFERED HEREBY.
The shares of Common Stock are traded on the Nasdaq National Market under
the symbol "DYMX." The last reported sale price of the Common Stock on the
Nasdaq National Market on November 7, 1996 was $10.00 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is November 14, 1996
<PAGE> 15
---------------------
The Company intends to distribute to its stockholders annual reports
containing consolidated financial statements audited by an independent public
accounting firm and quarterly reports containing unaudited consolidated
financial information for each of the first three quarters of each fiscal year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS, IF ANY, MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMPANY'S COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL
MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 16
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information herein
has been adjusted to give effect to the 4 for 1 split of Common Stock, par value
$.01 per share (including the associated preferred stock purchase rights, the
"Common Stock") effected on June 3, 1996. See "Description of Capital Stock" and
"Underwriting." References herein to the "Company" or "Dynamex" mean Dynamex
Inc., a Delaware corporation and its subsidiaries unless the context otherwise
requires. References herein to "Dynamex Express" mean the ground courier
operations of Air Canada purchased by the Company in May 1995. References herein
to "Mayne Nickless" mean the on-demand ground courier operations of Mayne
Nickless Incorporated and Mayne Nickless Canada Inc. purchased by the Company in
December 1995.
THE COMPANY
The Company is a leading provider of same-day delivery and logistics
services in the U.S. and Canada. Through internal growth and acquisitions, the
Company has built the only national network of same-day delivery and logistics
systems in Canada and has established operations in 12 U.S. metropolitan areas
from which it intends to build a national network in the U.S. The Company
capitalizes on its routing, dispatch and vehicle management expertise developed
in the ground courier business to provide its customers with a broad range of
value added, same-day distribution and logistics services.
Through its network of branch offices, the Company provides same-day,
door-to-door delivery services utilizing ground couriers for intra-city
deliveries and third party air transportation providers in conjunction with
ground couriers for inter-city deliveries. The Company's same-day delivery
services include both on-demand and scheduled deliveries. On-demand services are
typically unscheduled deliveries of time-sensitive materials and include
deliveries of inventory made on a just-in-time basis from strategic stocking
locations managed by Company personnel. Scheduled distribution services
encompass recurring, often daily, deliveries provided on a point-to-point basis
or deliveries that require intermediate handling, routing or sorting of items to
be delivered to multiple locations. The Company also offers fleet management
services, whereby the Company assumes complete responsibility for providing and
managing a fleet of dedicated vehicles at a customer site. The Company's
on-demand delivery capabilities are available to supplement the scheduled
distribution and dedicated fleets as necessary.
The Company believes that certain industry trends have created significant
growth opportunities for the Company. While historically same-day delivery
service primarily related to downtown document deliveries, technological
developments such as facsimile and electronic mail have increased time
sensitivity in a variety of business transactions, thereby increasing the demand
for the same-day delivery of non-faxable items. Additionally, in an effort to
control costs and focus on primary competencies, many businesses are seeking to
reduce their reliance on in-house transportation departments by turning to third
party experts to provide transportation logistics services. To date, the
same-day delivery and logistics industry has been highly fragmented, and
services have been available primarily on a local basis. The Company believes
that this market fragmentation creates substantial consolidation opportunities
for same-day delivery and logistics companies with national marketing efforts
and operations.
The Company intends to expand its operations in the U.S. and Canada in
order to capitalize on the demand of local, regional and national businesses for
innovative same-day distribution solutions. The key elements of the Company's
business strategy are as follows: (i) increase customer utilization of primary
services at each location, (ii) target national and regional accounts, (iii)
create alliances with strategic partners and (iv) pursue acquisitions of high
quality same-day delivery companies.
3
<PAGE> 17
The Company was founded in 1992 as Parcelway Systems Holding Corp. In May
1995, the Company acquired Dynamex Express, the ground courier operations of Air
Canada, which was led by Richard K. McClelland, the Company's Chief Executive
Officer. In July 1995, the Company changed its name to Dynamex Inc. At the time
of its acquisition by the Company, Dynamex Express had developed a national
network of 20 locations across Canada and offered an array of services on a
national, multi-city and local basis. The Company seeks to expand its operations
by implementing and expanding upon the business strategy utilized by Dynamex
Express. In December 1995, the Company acquired the ground courier operations of
Mayne Nickless which had operations in eight U.S. cities and two Canadian
cities. In August 1996, using a portion of the proceeds from the initial public
offering of the Company's Common Stock (the "IPO") and by issuing additional
shares of Common Stock, the Company purchased same-day delivery businesses in
New York, New York; Columbus, Ohio; Chicago, Illinois; Halifax, Nova Scotia; and
Winnipeg, Manitoba (collectively, the "IPO Acquisitions"). In October 1996, the
Company purchased additional same-day delivery businesses in New York, New York
and in San Diego, California (together the "Other Acquisitions; and collectively
with the IPO Acquisitions, the "Acquisitions"). See "Business -- Recent
Acquisitions."
4
<PAGE> 18
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------------------
PRO FORMA
1994 1995(1) 1996(1) 1996(2)
------- ------- ------- ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales $ 7,023 $21,032 $71,812 $104,098
Gross profit................................ 1,811 6,696 21,794 34,508
Operating income (loss)..................... (960) (1,062) 2,707 4,800
Interest expense............................ 157 403 1,655 2,249
Income (loss) before taxes.................. (1,065) (1,622) 1,052 2,704
Income taxes................................ -- 3 176 1,190
Net income (loss)........................... (1,065) (1,625) 876 1,514
Net income (loss) per common
share(3)................................. $ (0.63) $ (0.81) $ 0.23 $ 0.34
Weighted average common shares
outstanding.............................. 1,691 2,018 3,732 4,500
OTHER DATA:
Earnings (loss) before interest, taxes,
depreciation and amortization(4)......... $ (586) $ (529) $ 4,249 $ 7,330
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1996,
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED(5)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................................ $ 4,086 $ 7,591
Total assets........................................................................... 34,999 44,480
Long-term debt, excluding current portion.............................................. 20,036 9,181
Shareholders' equity................................................................... 6,158 28,448
</TABLE>
- ---------------
(1) The historical statement of operations data for the years ended July 31,
1995 and 1996 include data for (i) Dynamex Express after May 31, 1995, the
effective date of its acquisition by the Company and (ii) Mayne Nickless
after December 28, 1995, the effective date of its acquisition by the
Company.
(2) The pro forma statement of operations data for the year ended July 31, 1996
have been prepared as if the acquisition of Mayne Nickless and the IPO
Acquisitions occurred at the beginning of that period.
(3) See Note 1 of Notes to the Consolidated Financial Statements.
(4) EBITDA is defined as income excluding interest, taxes, depreciation and
amortization of goodwill and other intangible assets (as presented on the
face of the income statement). EBITDA is supplementally presented because
management believes that it is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness, maintain current
operating levels of fixed assets and acquire additional operations and
businesses. EBITDA should not be considered as a substitute for the
statement of operations or cash flow data from the Company's financial
statements, which have been prepared in accordance with generally accepted
accounting principles. Cash flows provided by (used in) operating
activities for the three years ended July 31, 1996 were ($980), ($944) and
$2,380, respectively. Cash flows used in investing activities for the three
years ended July 31, 1996 were $2,251, $7,995 and $13,192, respectively.
Cash flows provided by financing activities for the three years ended July
31, 1996 were $3,964, $8,580 and $11,200, respectively.
(5) The pro forma as adjusted balance sheet data have been prepared as if the
IPO Acquisitions and the IPO had occurred as of July 31, 1996 and reflect
the issuance of the shares offered by the Company in the IPO, the
application by the Company of the net proceeds therefrom, the issuance of
shares in connection with the IPO Acquisitions and the mandatory exercise
of the warrants (the "Bridge Warrants") to purchase 540,000 shares of
Common Stock at $0.025 per share at the time of the IPO. No adjustment has
been made to reflect the shares offered by the Selling Stockholders hereby
as the Company will not receive any of the proceeds from such offering. See
"Use of Proceeds."
The principal executive offices of the Company are located at 2630 Skymark
Avenue, Suite 610, Mississauga, Ontario L4W 5A4 and its telephone number is
(905) 238-6414. The Company intends to move its principal executive offices to
Dallas, Texas within the next 18 months.
5
<PAGE> 19
RISK FACTORS
Prospective investors should carefully review the following risk factors
together with the other information in this Prospectus in evaluating the Company
and its business prior to purchasing the Common Stock offered by this
Prospectus.
ACQUISITION STRATEGY; POSSIBLE NEED FOR ADDITIONAL FINANCING
In order to expand its network of facilities, the Company plans to acquire
local delivery businesses in new geographic regions and in the metropolitan
areas where the Company currently operates. Due to consolidation within the
same-day delivery and logistics industry, there is significant competition in
acquiring such businesses. There can be no assurance that the Company will be
able to acquire or profitably manage additional companies or successfully
integrate their operations into the Company. In addition, there can be no
assurance that companies acquired in the future either will be beneficial to the
successful implementation of the Company's overall strategy or will ultimately
produce returns that justify the investment therein, or that the Company will be
successful in achieving meaningful economies of scale through the acquisition
thereof. See "Business -- Business Strategy" and "-- Recent Acquisitions."
The Company's acquisition strategy may require the Company to incur
additional debt in the future, may result in potentially dilutive issuances of
securities and may result in increased goodwill, intangible assets and
amortization expense. There can be no assurance that the Company's primary
lender will consent to acquisitions above a certain annual dollar threshold set
forth in the Company's credit facility or that, if additional financing is
necessary, it can be obtained on terms the Company deems acceptable. As a
result, the Company might be unable to successfully implement its acquisition
strategy. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
LIMITED COMBINED OPERATING HISTORY; HISTORY OF LOSSES
Recent acquisitions have greatly expanded the size and scope of the
operations of the Company. The process of integrating acquired businesses often
involves unforeseen difficulties and may require a disproportionate amount of
the Company's financial and other resources, including management time. There
can be no assurance that the Company will be able to profitably manage recently
acquired companies or successfully integrate their operations into the Company.
For the years ended July 31, 1994 and 1995, the Company incurred actual net
losses of approximately $1.1 million and $1.6 million, respectively. For the
year ended July 31, 1996, the Company reported net income of approximately
$876,000 and as of such date the Company had an accumulated deficit of
approximately $3.3 million. No assurances can be given that the Company will
operate profitably in the future. See "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
COMPETITION
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. The industry is highly fragmented with
low barriers to entry, and there is a recent trend toward consolidation. Other
companies in the industry compete with the Company not only for provision of
services but also for acquisition candidates. Some of these companies have
longer operating histories and greater financial and other resources than the
Company. Additionally, companies that do not currently operate delivery and
logistics businesses may enter the industry in the future. See
"Business -- Competition."
CLAIMS EXPOSURE
The Company utilizes the services of approximately 2,900 drivers, and from
time to time such drivers are involved in accidents or other activities that may
give rise to liability claims. The Company currently carries liability insurance
with an aggregate limit of $15.0 million, and independent owner/operators are
required to maintain liability insurance of at least the minimum amounts
required by applicable state or provincial law. The Company also has insurance
policies covering property and fiduciary trust liability, which coverage
6
<PAGE> 20
includes all drivers. 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. In addition, the
Company's increased visibility and financial strength as a public company may
create additional claims exposure. 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 and
adversely affected. In addition, significant increases in insurance costs could
adversely affect the Company's profitability. See "Business -- Safety."
CERTAIN TAX MATTERS RELATED TO DRIVERS
The Company uses independent owner/operators as drivers in a significant
portion of its operations. As of September 30, 1996, approximately 87% of the
Company's drivers were independent owner/operators. 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, 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 is required to pay for and
administer added benefits to independent owner/operators, 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 persons, it
may be required to pay penalties which could have a material adverse impact on
the Company's financial condition and results of operations. See
"Business -- Services" and "-- Employees."
In addition, certain of the Company's drivers are employed by the Company
and own and operate the vehicles used 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 on such amounts.
FOREIGN EXCHANGE
A significant portion 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.
There can be no assurance that fluctuations in foreign currency exchange rates
will not have a material adverse effect on the Company's business, financial
condition or results of operations. See Note 9 of Notes to the Consolidated
Financial Statements.
PERMITS AND LICENSING
Although recent legislation has significantly deregulated certain aspects
of the transportation industry, the Company's delivery operations are still
subject to various federal, 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. Delays in obtaining approvals for the transfer or
grant of certificates, permits or licenses, or failure to obtain same, could
impede the implementation of the Company's acquisition program. See "Business --
Regulation."
7
<PAGE> 21
DEPENDENCE ON KEY PERSONNEL
The Company's success is largely dependent on the skills, experience and
performance of certain key members of its management, including particularly
Richard K. McClelland, the Company's Chief Executive Officer. 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 has entered into an employment contract with Mr. McClelland. The
Company's future success and plans for growth also depend on its ability to
attract, train and retain skilled personnel in all areas of its business. There
is strong competition for skilled personnel in the same-day delivery and
logistics business. See "Management."
EFFECTIVE CONTROL BY CYPRESS CAPITAL PARTNERS I, L.P. AND AFFILIATES
Cypress Capital Partners I, L.P., a Dallas-based private investment
partnership ("Cypress"), and certain of its affiliates, including James M. Hoak,
the sole stockholder of the general partner of Cypress, directly and indirectly
own an aggregate of 2,353,752 shares of Common Stock, or approximately 35% of
the total voting power of the Company. Accordingly, Cypress and its affiliates
are in a position to exercise substantial influence over actions that require
consent of stockholders, including decisions relating to the election of
directors of the Company, mergers and consolidations. See "Principal
Stockholders," and "Certain Transactions."
TECHNOLOGY
Technological advances in the nature of facsimile and electronic mail have
affected the market for on-demand document delivery services. While these
technological developments have not had a significant adverse impact on the
Company's business to date, and 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.
POSSIBLE VOLATILITY OF STOCK PRICE
Prices for the Common Stock will be determined in the marketplace and may
be influenced by many factors, including the depth and liquidity of the market
for the Common Stock, investor perception of the Company, and general economic
and market conditions. Variations in the Company's operating results, general
trends in the industry and other factors could cause the market price of the
Common Stock to fluctuate significantly. In addition, general trends and
developments in the industry, government regulation and other factors could have
a significant impact on the price of the Common Stock. The stock market has, on
occasion, experienced extreme price and volume fluctuations that have often
particularly affected market prices for smaller companies and that often have
been unrelated or disproportionate to the operating performance of the affected
companies, and the price of the Common Stock could be affected by such
fluctuations.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
(the "Restated Certificate of Incorporation"), the Company's Bylaws (the
"Bylaws") and the Rights Agreement between the Company and Harris Trust and
Savings Bank (the "Rights Agreement") may delay, defer, discourage or prevent a
merger, proxy contest, tender offer or takeover attempt that a stockholder might
consider to be in such stockholder's best interest, including attempts that
might result in a premium over the market price for the shares held by
stockholders.
The Bylaws provide that the number of directors shall be fixed, from time
to time, by resolution of the Board of Directors of the Company. Neither the
Bylaws nor the Restated Certificate of Incorporation permit stockholders to call
special meetings or to take actions by written consent in lieu of a meeting,
unless such action and the taking of such action by written consent have been
approved in advance by the Board of Directors. The Restated Certificate of
Incorporation provides that the Board of Directors may amend the Bylaws, subject
to the rights of the stockholders to amend such Bylaws. An amendment to the
provision of the
8
<PAGE> 22
Restated Certificate of Incorporation which prohibits action by stockholders by
written consent in lieu of a meeting requires the affirmative vote of two-thirds
of the Company's capital stock then outstanding. Pursuant to the Restated
Certificate of Incorporation, additional shares of Common Stock may be issued in
the future without further stockholder approval. Furthermore, the Restated
Certificate of Incorporation permits the Board of Directors to establish by
resolution one or more series of preferred stock ("Preferred Stock") and to
establish the powers, designations, preferences and relative, participating,
optional or other special rights of each series of Preferred Stock. The
Preferred Stock could be issued on terms that are unfavorable to the holders of
Common Stock or that could make a takeover or change in control of the Company
more difficult.
In June 1996, the Board of Directors of the Company approved the Rights
Agreement which is designed to protect stockholders should the Company become a
target of coercive and unfair takeover tactics but may discourage takeover
attempts that are not approved by the Board of Directors. The Rights could cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on redemption of the Rights or on substantially
all of the Rights also being acquired. In addition, immediately following the
Offering, the Company will be subject to Section 203 of the Delaware General
Corporation Law, which places restrictions on certain business combinations with
certain stockholders that could render more difficult a change in control of the
Company. See "Description of Capital Stock."
NO DIVIDENDS
The Company has not declared or paid any cash dividends on its Common Stock
since its inception. The Company currently intends to retain all earnings for
the operation and expansion of its business and does not anticipate paying any
dividends in the foreseeable future. In addition, the Credit Agreement restricts
the payment of dividends. See "Dividend Policy" and Note 6 of Notes to the
Consolidated Financial Statements.
9
<PAGE> 23
THE COMPANY
History. The Company was founded in 1992 as Parcelway Systems Holding Corp.
In November 1993, Cypress acquired a controlling interest in the Company with
the purpose of building a national same-day delivery and logistics company.
During 1993 and 1994, the Company completed acquisitions of same-day delivery
companies with operations in Phoenix, Arizona; Chicago, Illinois; Los Angeles,
California; and Western Canada. In May 1995, the Company acquired Dynamex
Express and subsequently changed the Company's name to Dynamex Inc. At the time
of its acquisition, Dynamex Express had developed a national network of same-day
delivery and logistics services in Canada and had operations in 20 Canadian
cities. In December 1995, the Company significantly expanded the scope of its
U.S. operations by acquiring the same-day, on-demand delivery business of Mayne
Nickless which had facilities in eight major metropolitan areas in the U.S. and
two metropolitan areas in Canada.
IPO Acquisitions. In August 1996, using a portion of the IPO proceeds and
by issuing additional shares of Common Stock, the Company purchased the same-day
delivery businesses of (i) Action Delivery and Messenger Service Limited
("Action Delivery"), (ii) Seidel Enterprises, Inc. and a related company
(together, "Seidel Delivery"), (iii) Seko Enterprises, Inc. and related
companies (together, "Seko/Metro"), (iv) Southbank Courier, Inc. ("Southbank")
and (v) Zipper Transportation Services, Ltd. ("Zipper"; and collectively with
Action Delivery, Seidel Delivery, Seko/Metro and Southbank, the "IPO Acquired
Companies.")
Other Acquisitions. In October 1996, the Company acquired the same-day
delivery businesses of Express It, Inc. ("Express It") and Dollar Courier
("Dollar Courier"). Express It, Dollar Courier and the IPO Acquired Companies
shall be referred to herein collectively as the "Acquired Companies."
Certain information regarding each of the Acquired Companies is summarized
below:
<TABLE>
<CAPTION>
YEAR METROPOLITAN
ACQUIRED COMPANY ESTABLISHED AREAS SERVED
- ---------------- ----------- -------------------
<S> <C> <C>
Action Delivery 1973 Halifax, Nova Scotia
Seidel Delivery 1988 Columbus, Ohio
Seko/Metro 1954 Chicago, Illinois
Southbank 1992 New York, New York
Zipper 1974 Winnipeg, Manitoba
Express It 1992 New York, New York
Dollar Courier 1992 San Diego, California
</TABLE>
USE OF PROCEEDS
This Prospectus relates solely to shares being issued for the accounts of
Selling Stockholders. The Company will not receive any proceeds from the sale of
such shares. See "Selling Stockholders".
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common Stock
since its inception. The Company currently intends to retain all earnings for
the operation and expansion of its business and does not anticipate paying any
dividends in the foreseeable future. In addition, the Credit Agreement restricts
the payment of dividends. See Note 6 of Notes to the Consolidated Financial
Statements.
10
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected historical financial data for the three years ended
July 31, 1996 have been derived from the audited consolidated financial
statements of the Company appearing elsewhere herein. The following selected
historical financial data for the years ended July 31, 1992 and 1993 have been
derived from the consolidated financial statements of the Company not appearing
elsewhere herein. The following selected pro forma financial data for the year
ended July 31, 1996 and as adjusted as of July 31, 1996 have been derived from
the unaudited pro forma financial information appearing elsewhere herein. The
selected financial data are qualified in their entirety, and should be read in
conjunction with, the Company's financial statements, including the notes
thereto, "Pro Forma Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
herein.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------------
PRO FORMA
1992(1) 1993 1994 1995(2) 1996(2) 1996(3)
------- ------ ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales................................................. $ 219 $ 728 $ 7,023 $21,032 $71,812 $104,098
Cost of sales......................................... 148 419 5,212 14,336 50,018 69,590
------ ------ ------- ------- -------
Gross profit........................................ 71 309 1,811 6,696 21,794 34,508
Selling, general and administrative expenses.......... 226 752 2,449 7,068 17,545 27,331
Depreciation and amortization......................... 25 54 322 690 1,542 2,377
------ ------ ------- ------- -------
Operating income (loss)............................. (180) (497) (960) (1,062 ) 2,707 4,800
Interest expense...................................... 16 25 157 403 1,655 2,249
Other (income) expense................................ (5) (14) (52) 157 -- (153 )
------ ------ ------- ------- -------
Income (loss) before taxes.......................... (191) (508) (1,065) (1,622 ) 1,052 2,704
Income taxes.......................................... -- -- -- 3 176 1,190
------ ------ ------- ------- -------
Net income (loss)................................... $ (191) $ (508) $(1,065) $(1,625) $ 876 $ 1,514
====== ====== ======= ======= =======
Net income (loss) per common share(4)................. $(0.12) $(0.33) $ (0.63) $(0.81 ) $ 0.23 $ 0.34
====== ====== ======= ======= =======
Weighted average common shares outstanding............ 1,556 1,556 1,691 2,018 3,732 4,500
====== ====== ======= ======= =======
OTHER DATA:
Earnings (loss) before interest, taxes, depreciation
and amortization(5)................................. $ (150) $ (429) $ (586) $ (529 ) $ 4,249 $ 7,330
</TABLE>
<TABLE>
<CAPTION>
JULY 31,
----------------------------------------------------------------
PRO FORMA
1992 1993 1994 1995 1996 AS ADJUSTED(6)
---- ------ ------ ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................................... $380 $ 36 $ 638 $ 1,484 $ 4,086 $ 7,591
Total assets.......................................... 599 1,286 8,134 17,194 34,999 44,480
Long-term debt, excluding current portion............. -- 1,037 1,999 5,924 20,036 9,181
Shareholders' equity (deficit)........................ 410 (106) 3,389 4,650 6,158 28,448
</TABLE>
- ---------------
(1) Represents results for the fourteen months ended July 31, 1992. The
Company's predecessors began operations in June 1991.
(2) The historical statement of operations data for the years ended July 31,
1995 and 1996 include data for (i) Dynamex Express after May 31, 1995, the
effective date of its acquisition by the Company and (ii) Mayne Nickless
after December 28, 1995, the effective date of its acquisition by the
Company.
(3) The pro forma statement of operations data for the year ended July 31, 1996
have been prepared as if the acquisition of Mayne Nickless and the IPO
Acquisitions occurred at the beginning of that period.
(4) See Note 1 of Notes to the Consolidated Financial Statements.
(5) EBITDA is defined as income excluding interest, taxes, depreciation and
amortization of goodwill and other assets (as presented on the face of the
income statement). EBITDA is supplementally presented because management
believes that it is a widely accepted financial indicator of a company's
ability to service and/or incur indebtedness, maintain current operating
levels of fixed assets and acquire additional operations and businesses.
EBITDA should not be considered as a substitute for statement of operations
or cash flow data from the Company's financial statements, which have been
prepared in accordance with generally accepted accounting principles. Cash
flows provided by (used in) operating activities for the three years ended
July 31, 1996 were ($980), ($944) and $2,380, respectively. Cash flows used
in investing activities for the three years ended July 31, 1996 were $2,251,
$7,995 and $13,192, respectively. Cash flows provided by financing
activities for the three years ended July 31, 1996 were $3,964, $8,580 and
$11,200, respectively.
(6) The pro forma as adjusted balance sheet data have been prepared as if the
IPO Acquisitions and the IPO had occurred as of July 31, 1996 and reflect
the issuance of the shares offered by the Company in the IPO, the
application by the Company of the net proceeds therefrom, the issuance of
shares in connection with the IPO Acquisitions and the mandatory exercise of
the Bridge Warrants at the time of the IPO. No adjustment has been made for
the shares of Common Stock offered by the Selling Stockholders hereby as the
Company will not receive any of the proceeds from such offering. See "Use of
Proceeds".
11
<PAGE> 25
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated condensed financial
information consists of an Unaudited Pro Forma Consolidated Condensed Balance
Sheet as of July 31, 1996 and the Unaudited Pro Forma Consolidated Condensed
Statement of Operations for the year ended July 31, 1996 (collectively the "Pro
Forma Statements"). The Unaudited Pro Forma Consolidated Condensed Balance Sheet
as of July 31, 1996 gives effect to the IPO Acquisitions as if they had occurred
on July 31, 1996, including the issuance of 173,485 shares of Common Stock to
the previous owners of the IPO Acquired Companies and the issuance of 1,134,000
shares of Common Stock pursuant to the IPO (which amount was sufficient to fund
the cash portion of the purchase price of the IPO Acquired Companies, including
costs related thereto, of $8.4 million). The Unaudited Pro Forma As Adjusted
Consolidated Condensed Balance Sheet as of July 31, 1996 gives additional effect
to the issuance of the balance of shares of Common Stock being issued in
connection with the IPO, the application of the proceeds thereof and the
mandatory exercise of the Bridge Warrants simultaneously therewith. The
Unaudited Pro Forma Consolidated Condensed Statement of Operations give effect
to the acquisitions of Dynamex Express, Mayne Nickless and the IPO Acquired
Companies, including the issuance of 173,485 and 1,134,000 shares of Common
Stock as described above, as if all such acquisitions had occurred as of the
beginning of that period.
Each of the IPO Acquisitions was accounted for utilizing the purchase
method of accounting. The purchase price has been allocated in the Pro Forma
Statements to the assets to be acquired and the liabilities to be assumed on a
preliminary basis based on the Company's estimates of their fair values.
Unaudited pro forma adjustments are based upon historical information,
preliminary estimates and certain assumptions that the Company deems
appropriate. The unaudited pro forma condensed financial information presented
herein is not necessarily indicative of the results of the Company that would
have been obtained had such events occurred at the beginning of the period, as
assumed, or of the future results of the Company. The Pro Forma Statements
should be read in conjunction with the other financial statements and notes
thereto appearing elsewhere in this Prospectus.
12
<PAGE> 26
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JULY 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
IPO
ACQUIRED
COMPANIES THE COMPANY
PRO FORMA THE COMPANY PRO FORMA
THE COMPANY COMBINED PRO FORMA PRO FORMA IPO AS ADJUSTED
JULY 31, 1996 JUNE 30, 1996 ADJUSTMENTS JULY 31, 1996 ADJUSTMENTS JULY 31, 1996
------------- ------------- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Cash and temporary
investments................... $ 894 $ (25) $ (7,778)(a) $ 869 $ 13,144(e) $ 883
9,065(c) (13,144)(f)
(1,287)(d) 14(g)
Accounts receivable............. 11,141 1,266 -- 12,407 -- 12,407
Other current assets............ 856 296 -- 1,152 -- 1,152
------- ------ ------- ------- -------- -------
12,891 1,537 -- 14,428 14 14,442
Furniture, fixtures and
equipment, net................ 2,047 1,561 -- 3,608 -- 3,608
Intangible assets............... 18,196 -- 7,035(b) 25,231 -- 25,231
Other assets.................... 1,865 97 -- 1,962 (763)(e) 1,199
------- ------ ------- ------- -------- -------
$34,999 $ 3,195 $ 7,035 $45,229 $ (749) $ 44,480
======= ====== ======= ======= ======== =======
Current liabilities............. $ 8,805 $ 1,026 (1,080)(d) $ 8,751 $ (1,900)(f) $ 6,851
Long-term debt.................. 20,036 38 (207)(d) 19,867 (10,686)(f) 9,181
Shareholders' equity............ 6,158 2,131 9,166(a) 16,611 12,381(e) 28,448
(2,131)(b) (558)(f)
1,287(c) 14(g)
------- ------ ------- ------- -------- -------
$34,999 $ 3,195 $ 7,035 $45,229 $ (749) $ 44,480
======= ====== ======= ======= ======== =======
</TABLE>
The accompanying Notes to Unaudited Pro Forma Consolidated Condensed Financial
Statements
are an integral part of these statements.
13
<PAGE> 27
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
IPO
ACQUIRED
COMPANIES
MAYNE PRO FORMA THE COMPANY
NICKLESS COMBINED PRO FORMA
THE COMPANY SIX MONTHS ------------- YEAR
YEAR ENDED ENDED YEAR ENDED PRO FORMA ENDED
JULY 31, 1996 DECEMBER 28, 1995 JUNE 30, 1996 ADJUSTMENTS JULY 31, 1996
------------- ----------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Sales.......................................... $71,812 $14,008 $20,345 $(2,067)(k) $104,098
Cost of sales.................................. 50,018 7,985 12,581 (994)(k) 69,590
------- ------- ------- ------- --------
Gross profit................................. 21,794 6,023 7,764 (1,073) 34,508
Selling, general and administrative expenses... 17,545 4,924 6,038 (993)(k) 27,331
(183)(i)
Depreciation and amortization.................. 1,542 312 287 236(h) 2,377
------- ------- ------- ------- --------
Operating income (loss)...................... 2,707 787 1,439 (133) 4,800
Interest expense............................... 1,655 36 76 482(j) 2,249
Other (income)................................. -- -- (153) -- (153)
------- ------- ------- ------- --------
Income (loss) before income taxes............ 1,052 751 1,516 (615) 2,704
Income taxes................................... 176 -- 45 969(l) 1,190
------- ------- ------- ------- --------
Net income (loss)............................ $ 876 $ 751 $ 1,471 $(1,584) $ 1,514
======= ======= ======= ======= ========
Net income per common share.................... $ 0.23 $ 0.34
======= ========
Weighted average common shares outstanding..... 3,732 4,500
======= ========
</TABLE>
The accompanying Notes to Unaudited Pro Forma Consolidated Condensed Financial
Statements
are an integral part of these statements.
14
<PAGE> 28
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
BASIS OF PRESENTATION -- The accompanying Unaudited Pro Forma Consolidated
Condensed Balance Sheet presents the financial condition of the Company as if
the IPO Acquisitions had occurred as of July 31, 1996. The Unaudited Pro Forma
As Adjusted Consolidated Condensed Balance Sheet presents the financial
condition of the Company as if the IPO Acquisitions, the IPO, including the
application of proceeds thereof, and the exercise of the Bridge Warrants
simultaneously therewith had occurred as of July 31, 1996. The Pro Forma
Consolidated Condensed Statement of Operations presents the results of
operations for the year ended July 31, 1996 as if the IPO Acquisitions and the
acquisition of Mayne Nickless had occurred at the beginning of that period. Each
of these acquisitions has been accounted for under the purchase method of
accounting. Accordingly, the total purchase price, including transaction costs,
has been allocated to the assets and liabilities of the acquired businesses
based on their estimated fair value.
The IPO Acquisitions were financed by the issuance of Common Stock to the
sellers and from a portion of the cash proceeds of the IPO. Accordingly, the pro
forma condensed financial statements give effect to the issuance of 173,485
shares of Common Stock to the sellers of the IPO Acquired Companies and
1,134,000 shares of Common Stock pursuant to the IPO. The sale of these shares
resulted in net proceeds to the Company of approximately $8.4 million, net of
underwriting discount and estimated offering expenses, which amount equals the
sum of (i) the cash portion of the aggregate purchase price of the IPO
Acquisitions, (ii) the aggregate indebtedness of the IPO Acquired Companies
which was repaid by the Company upon the closing of the IPO Acquisitions and
(iii) estimated transaction costs related to the IPO Acquisitions. The IPO
resulted in the issuance of 2,990,000 shares of Common Stock, including the
1,134,000 shares issued to finance the cash portion of the IPO Acquisitions.
This resulted in net proceeds to the Company of approximately $21.4 million,
after deducting the underwriting discount and estimated offering expenses. These
proceeds were used to fund the cash portion of the IPO Acquisitions, as
described above, and to repay indebtedness of approximately $13.0 million.
AMORTIZATION OF INTANGIBLE ASSETS -- Intangible assets, including goodwill,
are amortized over periods ranging from 5 to 25 years. The weighted average
amortization period for all intangible assets is approximately 20 years.
Adjustments to Pro Forma Condensed Balance Sheet:
(a) To reflect purchase of IPO Acquired Companies.
The Purchase price is comprised of:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Cash (including transaction costs of $400,000)................. $7,778
Common Stock................................................... 1,388
------
Purchase price................................................. $9,166
======
</TABLE>
(b) To reflect the IPO Acquisitions and to adjust the assets and
liabilities of the IPO Acquired Companies to fair value. The purchase price of
the IPO Acquired Companies is allocated as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Purchase price................................................. $9,166
Net book value of IPO Acquired Companies....................... (2,897)
------
Excess of purchase price over net book value of assets
acquired..................................................... $7,035
======
</TABLE>
The assets and liabilities of the IPO Acquired Companies have been recorded
at net book value which is estimated to equal fair value. The excess of the
purchase price over this estimated fair value has been allocated to the
intangible assets acquired, including goodwill (approximately $6,635,000) and
tradenames, agreements not to compete and customer lists (aggregating
approximately $400,000).
15
<PAGE> 29
(c) To reflect issuance of a portion of 1,128,000 shares of Common Stock in
the IPO, which amount resulted in net proceeds to the Company of approximately
$9.1 million. A portion of the proceeds of the IPO was used for the cash and
transaction cost components of the IPO Acquisition purchase price and to repay
indebtedness of the IPO Acquired Companies (approximately $1,287,000) in
connection with the IPO Acquisitions, which amounts aggregate $9.1 million.
(d) To reflect repayment of approximately $1,287,000 of aggregate
indebtedness ($1,080,000 current portion of long-term and $207,000 long-term) of
the IPO Acquired Companies in connection with the IPO Acquisitions.
Adjustments to Pro Forma As Adjusted Condensed Balance Sheet:
(e) To reflect issuance of the balance of the shares of Common Stock
pursuant to the IPO (1,772,000 shares).
(f) To reflect repayment of outstanding debt with principal balance of
approximately $13.0 million (and a carrying value of approximately $12.4 million
which includes approximately $1.9 million current portion of long-term and
approximately $10.5 million long-term) with proceeds from the IPO. The early
retirement of the junior subordinated debentures (the "Bridge Notes") due June
28, 2001, bearing interest at an annual rate of 12%, which has a principal
balance of $4.8 million and a carrying value of approximately $4.2 million, will
result in an extraordinary loss of $558,000 in the first quarter of fiscal 1997.
(g) To reflect exercise of Bridge Warrants, including receipt of aggregate
exercise price of $13,500.
Adjustments to Pro Forma Condensed Statements of Operations:
(h) To reflect adjustment to depreciation and amortization based upon the
effects of the purchase price allocation as if the acquisitions of Dynamex
Express and Mayne Nickless and the IPO Acquisitions had occurred at the
beginning of the period presented.
(i) To eliminate corporate overhead charges to Mayne Nickless for those
periods prior to its acquisition by the Company. These charges represent an
allocation of general corporate overhead from the former parent of Mayne
Nickless made to allocate all corporate costs to its various operating units.
These charges, which the Company will not incur, were in addition to charges for
specific services and functions provided by the former parent.
(j) To reflect net increase in interest expense as a result of debt
incurred to acquire Dynamex Express and Mayne Nickless.
(k) To eliminate operating results of Mayne Nickless for the month of July
1995. By combining the results of operations of the Company for the year ended
July 31, 1996 (which includes the operations of Mayne Nickless for seven months)
and the results of operations of Mayne Nickless for the six months ended
December 31, 1995, the combined results of operations for the year ended July
31, 1996 contain the results of Mayne Nickless for 13 months.
(l) To reflect adjustment to provision for income taxes.
16
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information
contained in the financial statements, including the notes thereto, and the
other financial information appearing elsewhere in this Prospectus.
GENERAL
The Company had no significant operations prior to the year ended July 31,
1992. Since that date, the Company has completed 17 acquisitions of same-day
courier operations in the U.S. and Canada. Each of these acquisitions has been
accounted for using the purchase method of accounting. Accordingly, the
Company's historical results of operations reflect the results of acquired
operations as of the date of acquisition. The most significant of these
transactions in the three years ended July 31, 1996 were (i) the acquisition of
Dynamex Express in May 1995, pursuant to which the Company acquired the majority
of its Canadian operations and employed its Chief Executive Officer and certain
other key employees, and (ii) the acquisition of Mayne Nickless in December
1995. The operating results attributable to the operations of Dynamex Express
are included in the Company's historical results after May 31, 1995, and the
operations of Mayne Nickless are included in the Company's historical results
after December 28, 1995. Consequently, the year ended July 31, 1995 includes
Dynamex Express operations for two months and does not include any operations of
Mayne Nickless and the year ended July 31, 1996 includes twelve months of
Dynamex Express operations and seven months of Mayne Nickless operations. As a
result, the historical operating results of the Company for a given period are
not necessarily comparable to prior or subsequent periods, and in particular,
the periods prior to the Company's acquisition of Dynamex Express are not
necessarily comparable to the periods subsequent to such acquisition.
Sales consist primarily of charges to customers for individual delivery
services and weekly or monthly charges for recurring services, such as fleet
management. Sales are recognized when the service is performed. The amount of
yield (revenue 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 and third party delivery charges,
if any. The Company almost exclusively utilizes drivers who own their own
vehicles, and approximately 87% of these owner/operators are independent
contractors as opposed to employees of the Company. Drivers and messengers are
generally compensated based on a percentage of the charge for a delivery.
Consequently, the Company's costs directly associated with providing these
services are variable in nature. To the extent that the drivers and messengers
are employees of the Company, employee benefit costs related to them, such as
payroll taxes and insurance, are also included in cost of sales.
Selling, general and administrative expenses include costs incurred at the
branch level related to taking orders, dispatching drivers and messengers, as
well as administrative costs related to such functions. Also included in
selling, general and administrative expenses are regional and corporate level
marketing and administrative costs and occupancy costs related to branch and
corporate locations.
Generally, the Company's on-demand services provide higher gross profit
margins than do scheduled distribution or fleet management services because
driver compensation for on-demand services is generally lower as a percentage of
sales from such service. However, scheduled distribution and fleet management
services generally have fewer administrative requirements related to order
taking, dispatching drivers and billing. As a result of these variances, the
Company's margins are dependent in part on the mix of business for a particular
period.
As the Company has no significant investment in transportation equipment,
depreciation and amortization expense relates to depreciation of office,
communication and computer equipment and the amortization of intangible assets
acquired in the Company's various acquisitions, each of which has been accounted
for using the purchase method of accounting. The Company expects to continue to
make acquisitions and anticipates
17
<PAGE> 31
that such acquisitions will be accounted for using the purchase method of
accounting. As a consequence, it is likely that in the future the Company will
incur additional expense from amortization of acquired intangible assets,
including goodwill.
The Company utilized approximately $4.8 million of the net proceeds from
the IPO to redeem the Bridge Notes. The carrying value of the Bridge Notes,
approximately $4.2 million, is the estimated fair value of such facility at the
date of its issuance plus capitalization of interest and the amortization of the
difference between such estimated fair value and the principal amount through
July 31, 1996. Consequently, in the first quarter of fiscal year 1997, the
Company will incur an extraordinary loss in the amount of this difference,
approximately $558,000, in connection with the redemption of the Bridge Notes
upon the closing of the IPO.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain items
from the Company's consolidated statement of operations, expressed as a
percentage of sales:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Sales............................................................. 100.0% 100.0% 100.0%
Cost of sales..................................................... 74.2 68.2 69.7
----- ----- -----
Gross profit.................................................... 25.8 31.8 30.3
Selling, general and administrative expenses...................... 34.9 33.6 24.4
Depreciation and amortization..................................... 4.6 3.3 2.1
----- ----- -----
Operating income................................................ (13.7) (5.1) 3.8
Interest expense.................................................. 2.2 1.9 2.3
Other (income) expense............................................ (0.7) 0.7 --
----- ----- -----
Income (loss) before taxes...................................... (15.2)% (7.7)% 1.5%
===== ===== =====
</TABLE>
YEAR ENDED JULY 31, 1996 COMPARED TO YEAR ENDED JULY 31, 1995
The year ended July 31, 1996 includes the results of Dynamex Express which
was acquired by the Company on May 31, 1995. In addition the results for that
period include the results from the operations acquired from Mayne Nickless on
December 29, 1995 for the period January through July 31, 1996. As a result of
the Mayne Nickless acquisition, the Company obtained additional operations in
Los Angeles, San Diego, San Francisco, Seattle, Pittsburgh, Boston, Washington
D.C., Baltimore and Vancouver and Victoria, British Columbia.
Sales increased $50.8 million, or 242%, from $21.0 million for the year
ended July 31, 1995 to $71.8 million for the year ended July 31, 1996.
Approximately $37.4 million of this increase is attributable to the acquired
operations of Dynamex Express and approximately $14.6 million is attributable to
the inclusion of the operations of Mayne Nickless. Sales attributable to the
previously existing operations of the Company declined by approximately $1.2
million from the year ended July 31, 1995 to the year ended July 31, 1996
primarily due to a decline in sales in Arizona that was partially offset by
increases in sales in Western Canada. In January and February 1996, severe
winter storms in the Eastern United States resulted in a general disruption of
commerce and therefore a decline in sales for the Company's operations in those
areas.
Cost of sales increased by $35.7 million, or 249%, from $14.3 million for
the year ended July 31, 1995 to $50.0 million for the year ended July 31, 1996.
Approximately $27.2 million of this increase is attributable to the operations
of Dynamex Express and approximately $9.3 million is attributable to the
operations of Mayne Nickless. This increase was partially offset by a decrease
in the cost of sales from the existing operations of the Company. The Company's
gross profit margin declined from 31.8% in the year ended July 31, 1995 to 30.3%
in the year ended July 31, 1996. The decrease was primarily caused by two
factors (i) the higher proportion of lower margin scheduled distribution and
fleet management business arising from the inclusion of Dynamex Express
operations in fiscal year 1996 (which decrease was partially offset by the
additional higher margin on-
18
<PAGE> 32
demand business arising from the inclusion of Mayne Nickless operations during
seven months of such period) and (ii) the decline in gross margin attributable
to the Company's operations in Western Canada and Arizona due to competitive
pressures and certain unprofitable business. To a lesser extent, the increased
cost of providing service during the winter storms which occurred during the
year ended July 31, 1996 had a negative impact on the Company's gross profit
margin during such period.
Selling, general and administrative expenses increased $10.5 million, or
148%, from $7.1 million for the year ended July 31, 1995 to $17.5 million for
the year ended July 31, 1996, primarily because the 1996 period includes costs
related to Dynamex Express operations and, to a lesser extent, costs related to
Mayne Nickless operations. As a percentage of sales, selling, general and
administrative expenses decreased from 33.6% for the year ended July 31, 1995 to
24.4% for the year ended July 31, 1996. This decrease resulted from a larger
revenue base which enabled the Company to spread such costs over more sales, and
the absence of certain revisions to accounting estimates made in the 1995
period. Despite this decrease, the Company has continued to invest in and to
incur significant costs related to its national and regional marketing program.
During the year ended July 31, 1995 the Company also revised its estimates of
uncollectible accounts, accrued insurance costs and other accrued liabilities.
As a result of these revisions, the Company recognized additional selling,
general and administrative expenses of approximately $715,000.
Depreciation and amortization expense for the year ended July 31, 1996
increased by $850,000, or 123% from $690,000 for the year ended July 31, 1995 to
$1.5 million for the year ended July 31, 1996. Of this increase, approximately
$461,000 relates to depreciation and amortization of assets related to Dynamex
Express and approximately $389,000 relates to depreciation and amortization of
assets related to Mayne Nickless.
Interest expense increased $1.3 million, or 311%, from $403,000 for the
year ended July 31, 1995 to $1.7 million for the year ended July 31, 1996.
Increased debt of approximately $4.7 million incurred in connection with the
acquisition of Dynamex Express created approximately $471,000 of this increase
while additional debt of $12.3 million incurred in connection with the
acquisition of Mayne Nickless resulted in increased interest expense of
approximately $869,000. These increases were partially offset by lower average
balances of other debt and reduced interest rates on certain debt refinanced at
the time of the Mayne Nickless acquisition.
YEAR ENDED JULY 31, 1995 COMPARED TO YEAR ENDED JULY 31, 1994
Effective May 31, 1995, the Company acquired Dynamex Express. As a result,
the Company's operating results for the year ended July 31, 1995 include the
results of Dynamex Express for the months of June and July. Sales increased by
approximately $14.0 million, or 199%, from $7.0 million for fiscal year 1994 to
$21.0 million for fiscal year 1995. Approximately $5.9 million of this increase
relates to the inclusion of Dynamex Express for two months in fiscal year 1995.
The balance of the increase results primarily from the inclusion of a full year
of results from acquisitions made by the Company during fiscal year 1994.
Cost of sales for fiscal 1995 increased approximately $9.1 million, or
175%, from $5.2 million in fiscal year 1994 to $14.3 million in fiscal year
1995, as a result of the increase in sales discussed above. Approximately $4.2
million of this increase is attributable to the inclusion of the operations of
Dynamex Express in 1995. The Company's gross profit margin increased to 31.8% in
fiscal 1995 as compared to 25.8% in fiscal 1994. This increase resulted
primarily from the change in business mix resulting from the acquired
businesses, including Dynamex Express. The businesses acquired by the Company
during fiscal 1994 had generally higher gross profit margins than the Company's
previously existing operations due to a higher proportion of on-demand business,
and as a consequence, the Company's average gross profit margin increased during
fiscal 1995. The operations of Dynamex Express historically had a lower gross
profit margin than the businesses acquired by the Company during 1994, but a
higher gross profit margin than the Company's previously existing operations.
Selling, general and administrative expenses increased approximately $4.7
million, or 189%, from $2.4 million in fiscal 1994 to $7.1 million in fiscal
1995, due in part to the increased administrative activities associated with the
growth in revenues and the additional locations of the businesses acquired in
fiscal 1995 and 1994. As a percentage of sales, selling, general and
administrative expenses decreased in fiscal 1995 to 33.6% compared to 34.9% in
fiscal 1994.
19
<PAGE> 33
Depreciation and amortization expense increased by $368,000, or 114%, from
$322,000 in fiscal 1994 to $690,000 in fiscal 1995. Of this increase,
approximately $76,000 relates to depreciation and amortization of assets related
to Dynamex Express with the balance relating to amortization of costs
attributable to acquisitions made during fiscal 1994.
Interest expense increased by $246,000, or 157%, from $157,000 in fiscal
1994 to $403,000 in fiscal 1995, as a result of debt incurred or assumed in
connection with these acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements relate to its acquisition
strategy and, to a lesser extent, working capital and capital expenditures.
Since July 31, 1992, the Company has completed 17 acquisitions of same-day
courier companies with consideration therefor, including transaction costs,
aggregating approximately $42.1 million (of which approximately $26.8 million
was paid in cash). For the years ended July 31, 1996 and 1995, capital
expenditures were approximately $579,000 and $213,000, respectively. As of July
31, 1996, the Company's working capital was approximately $4.1 million. Prior to
the year ended July 31, 1996, the Company's operations did not produce positive
cash flow from operations, and the Company's capital needs during these periods
were supplied from bank borrowings, seller financing and the private placement
of debt and equity securities. In December 1995, the Company entered into a bank
credit facility to provide funds for the acquisition of Mayne Nickless and to
refinance a significant portion of the seller financing that had been incurred
in connection with prior acquisitions. Effective August 16, 1996 the Company
amended and restated this credit facility (the "Credit Agreement") to provide
for a $40.0 million revolving credit facility. As of September 30, 1996,
approximately $8.3 million was outstanding under this agreement.
An integral part of the Company's business strategy is to pursue
acquisitions. Therefore, the Company's need for capital related to acquisitions
is expected to be significant in the future. As a result of increasing sales
arising from new acquisitions as well as internal growth, the Company also
anticipates that it will need additional working capital from time to time to
finance the resulting increase in accounts receivable in relation to accounts
payable. Capital expenditures, other than for acquisitions, are not expected to
increase materially in relation to total capital needs in the foreseeable
future.
Management expects to fund the capital requirements discussed above
primarily from three sources: (i) the issuance of additional common equity in
connection with future acquisitions; (ii) cash flow from operations; and (iii)
additional borrowings from banks. See "Use of Proceeds" and "Business -- Recent
Acquisitions."
The Company's credit facility under the Credit Agreement consists of a
revolving note of up to $40.0 million with interest payable quarterly at the
prime rate, or certain other rate options based on certain financial ratios of
the Company. Any amounts outstanding under the revolving note on May 31, 1998
will be converted to a term facility which will be repayable in nineteen equal
quarterly installments of principal over a five year period. Interest on the
term facility is payable quarterly at the prime rate, or certain other rate
options based on certain financial ratios of the Company.
Amounts outstanding under the Credit Agreement are secured by essentially
all of the assets of the Company and its 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. See Note 6 of Notes to the
Consolidated Financial Statements.
Management believes that sources of capital discussed above, namely cash
flow from operations and the Company's credit facility will be sufficient to
allow the Company to successfully pursue its business strategy over the next 18
to 24 months. It is anticipated that future acquisitions will be structured with
a combination of cash and the Company's Common Stock being used as
consideration. The amount of capital available for future acquisitions will
depend in part on the willingness of sellers to accept the Company's Common
Stock as partial consideration. This in turn will be dependent in part on the
financial performance and condition of the Company as well as general market
conditions. If unable to utilize its Common Stock to finance such acquisitions,
or if the size and number of acquisitions utilizes its available resources or
exceeds the threshold
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<PAGE> 34
above which lender approval is required under the Credit Agreement and such
approval is not obtained, the Company may be forced to seek other sources of
capital such as additional debt or equity financing. There can be no assurance
that such additional sources of capital will be available or that they will be
available on terms which are acceptable to the Company. These factors could
serve to negatively affect the Company's ability to implement its business
strategy in the manner, or within the time frame, anticipated by management.
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.
ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 establishes a fair value based method of
accounting for stock-based employee compensation plans; however, it also allows
companies to continue to measure cost for such plans using the method of
accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25). Companies that elect to continue with
the accounting under APB 25 must provide certain pro forma disclosures of net
income, as if SFAS 123 had been applied. The accounting and disclosure
requirements of SFAS 123 are effective for the Company for transactions entered
into in fiscal 1997. The Company is currently evaluating its alternatives under
SFAS 123, and its impact on operating results, when adopted by the Company, is
not presently known.
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<PAGE> 35
BUSINESS
GENERAL
The Company is a leading provider of same-day delivery and logistics
services in the U.S. and Canada. Through internal growth and acquisitions, the
Company has built the only national network of same-day delivery and logistics
systems in Canada and has established operations in 12 U.S. metropolitan areas
from which it intends to build a national network in the U.S. The Company
capitalizes on its routing, dispatch and vehicle management expertise developed
in the ground courier business to provide its customers with a broad range of
value added, same-day distribution and logistics services.
Through its network of branch offices, the Company provides same-day,
door-to-door delivery services utilizing ground couriers for intra-city
deliveries and third party air transportation providers in conjunction with
ground couriers for inter-city deliveries. The Company's same-day delivery
services include both on-demand and scheduled deliveries. On-demand services are
typically unscheduled deliveries of time-sensitive materials and include
deliveries of inventory made on a just-in-time basis from strategic stocking
locations managed by Company personnel. Scheduled distribution services
encompass recurring, often daily, deliveries provided on a point-to-point basis
or deliveries that require intermediate handling, routing or sorting of items to
be delivered to multiple locations. With its fleet management services, the
Company assumes complete responsibility for providing and managing a fleet of
dedicated vehicles at a customer site. The Company's on-demand delivery
capabilities are available to supplement the scheduled distribution and
dedicated fleets as necessary.
The Company intends to expand its operations in the U.S. and Canada by (i)
increasing customer utilization of its primary services at each location, (ii)
targeting national and regional accounts, (iii) creating alliances with
strategic partners, and (iv) pursuing acquisitions of high quality same-day
delivery companies.
INDUSTRY OVERVIEW
The delivery and logistics industry is large, highly fragmented and
growing. The industry is composed primarily of same-day, next-day and second-day
service providers. The Company primarily services the same-day, intra-city
delivery market. Historically, same-day delivery service primarily related to
downtown document deliveries. Over time, technological developments such as
facsimile and electronic mail have increased time sensitivity in a variety of
business transactions, thereby increasing demand for the same-day delivery of
non-faxable items. The category of non-faxable items that require time sensitive
delivery is vast and includes items such as voluminous or confidential
documents, critical manufacturing parts, medical devices and replacement
computer parts.
The Company believes that the same-day delivery and logistics industry
offers substantial consolidation opportunities as a result of industry
fragmentation and the benefits of large scale operations. The same-day delivery
and logistics industry in the U.S. and Canada is highly fragmented and primarily
consists of several thousand small, independent businesses serving local markets
and a small number of multi-location regional or national operators. Relative to
smaller companies, the Company believes that national operators such as the
Company benefit from several competitive advantages including: national brand
identity, professional management, the ability to service national accounts and
centralized administrative and management information systems.
In an effort to control costs and focus on primary competencies, many
businesses are seeking to reduce their reliance on in-house transportation
departments by turning to third party experts to provide transportation
logistics services. These logistics services include designing and managing
systems created to maximize efficiencies in transporting, warehousing, sorting
and delivering products. Many businesses that outsource their distribution
requirements prefer to purchase such services from one source that can service
multiple cities, thereby decreasing the number of vendors from whom they
purchase services.
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<PAGE> 36
THE DYNAMEX EXPRESS BUSINESS MODEL
The Company was founded in 1992 as Parcelway Systems Holding Corp. In May
1995, the Company acquired Dynamex Express, the ground courier operations of Air
Canada, which was led by Richard K. McClelland, the Company's Chief Executive
Officer. At the time of its acquisition by the Company, Dynamex Express had
developed an integrated network of locations across Canada and offered an array
of delivery and logistics services on a national, multi-city and local basis.
The Company seeks to expand its operations by implementing and expanding upon
the business strategy utilized by Dynamex Express.
Prior to 1989, Dynamex Express concentrated on same-day document delivery
in the central business districts of the major metropolitan cities of Canada.
Recognizing that an increasing variety of business transactions were becoming
more time sensitive and in order to offset declining volumes in same-day
document delivery, Dynamex Express expanded its customer base to include
manufacturing companies, pharmaceutical companies, auto parts distributors,
governmental agencies and other businesses that require same-day delivery of
non-faxable items. Dynamex Express further responded to shifting market
conditions by leveraging its ability to efficiently provide same-day delivery of
small to mid-size items in metropolitan areas to provide value added services
such as fleet management and strategic stocking.
Dynamex Express also expanded its business by acquiring other same-day,
intra-city courier companies within Canada. By May 1995, Dynamex Express had
acquired a regional and several single-site courier companies across Canada and
had locations in 20 Canadian cities. Dynamex Express expanded the service
offerings of these acquired companies to include fleet management and strategic
stocking and standardized the operating policies and procedures at each
location. At the time of the Company's acquisition of Dynamex Express in May
1995, approximately 46% of Dynamex Express revenues were generated from same-day
on-demand delivery, 30% from fleet management and 24% from same-day scheduled
distribution services. Approximately 48% of these revenues were generated from
services provided to customers on a national or multi-city basis.
BUSINESS STRATEGY
The Company intends to implement and expand upon the Dynamex Express
business model in the U.S. and Canadian markets in order to capitalize on the
demand of local, regional and national businesses for innovative same-day
distribution solutions. The key elements of the Company's business strategy are
as follows:
-FOCUS ON PRIMARY SERVICES. The Company provides three primary services:
(i) same-day on-demand delivery, (ii) same-day scheduled distribution and
(iii) fleet management. To raise the yield per delivery, the Company will
continue to focus its same-day on-demand delivery business on non-faxable,
time sensitive items that are transported throughout major metropolitan
areas and to offer value added on-demand services such as strategic
stocking. By concentrating its logistics services in fleet management and
same-day scheduled distribution, the Company intends to capitalize on the
market trend towards outsourcing transportation requirements. The delivery
transactions in a fleet management, scheduled distribution or strategic
stocking program are recurring in nature, thus creating the potential for
long term customer relationships. Additionally, these services are
generally less vulnerable to price competition than traditional delivery
services.
-TARGET NATIONAL AND REGIONAL ACCOUNTS. The Company's sales force focuses
on pursuing and maintaining national and regional accounts. The Company
anticipates that its (i) existing multi-city network of locations combined
with new locations to be acquired, (ii) ability to offer value added
services such as strategic stocking and fleet management to complement its
basic same-day delivery services and (iii) experienced management team
will create further opportunities with many of its existing customers and
attract new national and regional accounts.
-CREATE STRATEGIC ALLIANCES. By forming alliances with strategic partners
that offer compatible services or have complex distribution needs, the
Company and its partner can jointly market their services, thereby
accessing one another's customer base and providing such customers with a
broader range of
23
<PAGE> 37
services. Pursuant to its strategic alliance with Purolator Courier Ltd.
("Purolator"), the largest Canadian overnight courier company, the Company
and Purolator have agreed to provide one another with wholesale courier
services and to market the other partner's delivery services to its
customers. See "Sales and Marketing."
-PURSUE ACQUISITIONS. The Company believes that the highly fragmented
nature of the delivery and logistics industry creates significant
opportunities for same-day delivery and logistics companies with national
marketing efforts and operations. Having substantially completed its
Canadian network, the Company will focus its acquisition program on
further penetrating the U.S. market.
The Company will seek to acquire high quality same-day delivery businesses
in new cities as well as in markets where it has already established a
presence. The Company plans to augment the service offerings of its
acquired companies with additional services such as fleet management and
strategic stocking and to integrate the acquired operations into the
Company's operating environment. Acquisitions in existing markets are
expected to give the Company access to an acquired company's customer base
while creating operating efficiencies within these markets. The Company
believes that its management team's operating and acquisition experience
will allow it to remain competitive in the acquisition market.
SERVICES
The Company capitalizes on its routing, dispatch and vehicle management
expertise developed in the ground courier business to provide its customers with
a broad range of value added, same-day delivery and logistics services. By
creating innovative applications of its core services, the Company intends to
expand the market for its distribution solutions and increase the yield per
service provided.
Same-Day On-Demand Delivery
The Company provides local same-day on-demand delivery services, whereby
Company messengers or drivers respond to a customer's request for immediate
pick-up and delivery. The Company augments its same-day on-demand services by
offering inter-city ground and air transportation and next-flight-out services
provided by third party air transportation operators. The Company focuses on the
delivery of non-faxable, time sensitive items throughout major metropolitan
areas rather than traditional downtown document delivery. By delivering items of
greater weight over longer distances and providing value added on-demand
services such as strategic stocking, the Company expects to continue to raise
the yield per delivery relative to the yield generated from downtown document
deliveries.
The Company's on-demand services include the delivery of a customer's
inventory on a just-in-time basis from strategic stocking locations managed by
Company personnel. Strategic stocking locates the customer's inventory closer to
its ultimate destination, thereby improving the customer's ability to service
its own customers. The Company does not take ownership of or title to the
inventory but provides the warehouse space or utilizes space provided by its
customer to establish and manage a customized, multi-site strategic stocking
program. Furthermore, the Company can bundle services such as same-day ground,
same-day air and next-day air delivery to replenish stocking locations.
The benefits of strategic stocking to the customer include (i) faster
response time due to broader distribution of inventory locations and emergency
transportation capabilities, (ii) decreased lease and employee costs associated
with warehouse functions resulting from the Company's ability to consolidate
warehouse space and administrative costs for multiple strategic stocking
customers and (iii) improved inventory control through improved information
systems. For example, when a computer parts and services distributor must
quickly replace defective or worn out computer parts, the potential loss to the
distributor's customer increases with the length of time it takes the
distributor to deliver and install the replacement part. By storing computer
parts in the Company's network of strategic stocking locations, the distributor
can contact the Company and have the replacement part delivered to its customer
within hours instead of days. The Company has targeted the computer and
telecommunications industries as primary markets for strategic stocking services
and has established a network of parts banks across Canada to serve such
markets.
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<PAGE> 38
Additionally, the Company has introduced a service enhancement, whereby
straightforward repairs, such as replacement of a defective keyboard, are
performed by Company drivers, thus eliminating the need to dispatch a
technician.
While strategic stocking currently comprises only a small portion of the
Company's same-day on-demand business, the Company intends to expand its
strategic stocking program and has recently purchased strategic stocking
software, hardware and certain other related assets from an experienced
strategic stocking operator whom the Company now employs. The Company intends to
expand the network of parts banks and courier alliances established by this
operator by utilizing its own courier network in the U.S. and Canada and intends
to utilize the additional courier alliances to increase its next-flight-out
capability.
For the year ended July 31, 1996, approximately 62% of the Company's
revenues were generated from on-demand same-day delivery services, including
strategic stocking services.
Same-Day Scheduled Distribution
The Company provides same-day scheduled distribution services for
time-sensitive local deliveries that, by their nature, are recurring. Scheduled
distribution services include regularly scheduled deliveries made on a
point-to-point basis or deliveries that require intermediate handling, routing
or sorting of items to be delivered to multiple locations. A bulk shipment may
be received at the Company's warehouse where it is sub-divided into smaller
bundles and sorted for delivery to specified locations. Same-day scheduled
distribution services are provided on both a local and multi-city basis. The
Company's on-demand delivery capabilities are available to supplement the
scheduled drivers as needed. In the suburban Washington, D.C./Baltimore area,
the Company provides scheduled, as well as on-demand, delivery services for a
group of local hospitals and medical laboratories, transferring samples between
these facilities. In Ontario, Canada, the Company services the scheduled
distribution requirements of a consortium of commercial banks. These banks
require regular pick-up of non-negotiable materials that are then delivered by
the Company on an intra and inter-city basis. For the year ended July 31, 1996,
approximately 17% of the Company's revenues were generated from same-day
scheduled distribution services.
Fleet Management
With its fleet management service, the Company provides transportation
services for customers that previously managed such operations in-house. The
Company assumes complete responsibility for providing and managing a fleet of
dedicated vehicles at the customer's site. This service is generally provided
with a fleet of dedicated vehicles that can range from passenger cars to tractor
trailers (or any combination) which may display the customer's logo and colors.
In addition, the Company's on-demand delivery capability may supplement the
dedicated fleet as necessary, thereby allowing a smaller dedicated fleet to be
maintained on average. The Company's fleet management services include designing
and managing systems created to maximize efficiencies in transporting, sorting
and delivering customer's products on a local and multi-city basis. Because the
Company generally does not own vehicles but instead hires drivers who do, the
Company's fleet management solutions are not limited by the Company's need to
utilize its own fleet.
By outsourcing its fleet management the Company's customer (i) is able to
utilize the Company's distribution and route optimization experience to deliver
its products more efficiently, (ii) gains the flexibility to expand or contract
fleet size as necessary, and (iii) reduces the costs and administrative burden
associated with owning or leasing vehicles and hiring and managing
transportation employees. For example, the Company recently configured and now
manages a distribution fleet for one of the largest distributors to drug stores
in Canada. For the year ended July 31, 1996, approximately 21% of the Company's
revenues were generated from fleet management services.
While the volume of each service provided and the profitability thereof
varies significantly from branch office to branch office, each of the Company's
branch offices generally offers the same core services. Factors which impact the
business mix per branch include customer base, competition, geographic
characteristics, available labor and general economic environment. The Company
can bundle its various delivery and logistics
25
<PAGE> 39
services to create customized distribution solutions and to become the
single-source for its customers' distribution needs.
OPERATIONS
The Company's operations are divided into two U.S. regions and two Canadian
regions, with each of the Company's 31 branches reporting to a regional office.
Branch operations are locally managed with regional and national oversight and
support provided as necessary. A branch manager is assigned to each branch
office and is accountable for all aspects of branch operations including
profitability. Each branch manager reports to a regional manager with similar
responsibilities for all branches within his or her region. Certain
administrative and marketing functions may be centralized for multiple branches
in a given city or region. Prices for the Company's services are determined at
the branch level based on the distance, weight and time-sensitivity of a
particular delivery.
Same-Day On-Demand Delivery
Most locations have operations centers staffed by dispatchers, as well as
customer service representatives and operations personnel. Incoming calls are
received by trained customer service representatives who use PC-based
communications software to instantly provide the customer with a job-specific
price quote and to transmit the order to the appropriate dispatch location.
Certain of the Company's larger clients can access such software through
electronic data interface to enter dispatch requirements, page specific drivers,
make inquiries, and receive billing information. A dispatcher coordinates
shipments for delivery within a specific time frame. Shipments are routed
according to the type and weight of the shipment, the geographic distance
between the origin and destination and the time allotted for the delivery.
Coordination and deployment of delivery personnel for on-demand deliveries is
accomplished either through communications systems linked to the Company's
computers, through pagers or by radio. The Company is in the process of
integrating the software system utilized by Dynamex Express into each of its
branches in order to standardize the reporting, tracking and billing of
transactions. To enhance the Company's 24-hour delivery services at all
locations, the Company is currently implementing a company-wide centralized
answering service to transmit delivery requests made after normal business hours
to the appropriate local operations team.
Same-Day Scheduled Distribution
A dispatcher coordinates and assigns scheduled deliveries to the drivers
and manages the delivery flow. In many cases, certain drivers will handle a
designated group of scheduled routes on a recurring basis. Any intermediate
handling required for a scheduled distribution is conducted at the Company's
warehouse or at a third party facility such as the airport.
Fleet Management
Fleet management services are coordinated by the Company's logistics
specialists who have experience in designing, implementing and managing
integrated networks for transportation services. Based upon the logistics
specialist's analysis of a customer's fleet and distribution requirements, the
Company develops a plan to optimize fleet configuration and route design. The
Company provides the vehicles and drivers necessary to implement the fleet
management plan. Such vehicles and drivers are generally dedicated to a
particular customer, and the vehicles may display the customer's name and logo.
The Company can supplement these dedicated vehicles and drivers with its
on-demand capability as necessary.
SALES AND MARKETING
The Company conducts a comprehensive marketing program involving direct
sales and customer service to maintain and increase its customer base.
Approximately 50 local employee sales representatives target small and mid-sized
businesses while the Company's eight regional and national marketing executives
focus on larger accounts and businesses with multi-city requirements. The
Company's sales force includes product specialists dedicated to fleet management
and strategic stocking, some of whom have developed expertise in
26
<PAGE> 40
servicing certain industries such as banks and telecommunications companies. The
Company's product specialists seek new applications of the Company's primary
services in an effort to expand the demand for such services.
The Company's marketing representatives make regular calls on existing and
potential customers to identify such customers' delivery and logistics needs.
Customer service representatives on the local and national levels regularly
communicate with customers to monitor the quality of services and to quickly
respond to customer concerns. Through its telemarketing program, the Company
maintains a database of its customers' service utilization patterns and
satisfaction level. The telemarketing database is used by the sales force to
analyze opportunities and conduct performance audits. The telemarketing group
seeks to contact most of the Company's recurring customers approximately every
90 days.
Fostering strategic alliances with customers who offer compatible services
or have complex distribution needs is an important component of the Company's
marketing strategy. For example, pursuant to a Marketing and Transportation
Services Agreement, dated November 20, 1995 between the Company and Purolator,
the Company has agreed to provide same-day delivery services to Purolator
customers and Purolator has agreed to provide overnight courier services to the
Company's customers. Pursuant to this agreement, in June 1996, Purolator began
to market and the Company began to offer the following services to Purolator
customers: (i) same-day local ground courier services; (ii) same-day inter-city
ground courier services; and (iii) next-flight-out service between major cities
in Canada and the U.S. When a Purolator customer requests any of these services,
Purolator transfers such request to one of the Company's customer service
representatives. The Company then dispatches the delivery order and bills
Purolator at a discounted rate. Purolator in turn bills the customer at its own
rate.
The Marketing and Transportation Services Agreement is generally terminable
upon two years notice but may be terminated upon a breach of the agreement or
certain other events of default as set forth therein. The relationship between
the Company and Purolator consists of the rights and obligations described in
the aforementioned agreement and is not a joint venture or partnership. The
Company also provides Purolator with local and inter-city same-day ground
courier service for misdirected Purolator shipments. Purolator is the largest
overnight courier in Canada with approximately 9,000 employees who handle
approximately 300,000 packages daily. The Company believes that the increased
transaction volume and marketing efforts contemplated by the Purolator alliance
could significantly increase the Company's business in Canada.
The Company generally enters into customer contracts for scheduled
distribution, fleet management and strategic stocking services which are
terminable (in selected cases with cancellation penalties) by such customer upon
notice generally ranging from 30 to 90 days. The Company does not typically
enter into contracts with its customers for on-demand delivery services other
than strategic stocking services.
CUSTOMERS
As of September 30, 1996, the Company had a diversified customer base of
approximately 30,000 active customers across the U.S. and Canada. The Company's
target customer is a business that distributes time-sensitive, non-faxable items
that weigh from one to 70 pounds to multiple locations. The primary industries
served by the Company include financial services, pharmaceuticals, medical
laboratories and hospitals, auto parts, legal services and Canadian governmental
agencies. Management believes that as of September 30, 1996, no single industry
accounted for more than 10% of the Company's annual revenues. A significant
number of the Company's customers are located in Canada. Approximately 73% of
the Company's revenues for the year ended July 31, 1996 were generated in
Canada. See Note 9 of Notes to the Consolidated Financial Statements.
COMPETITION
The market for same-day delivery and logistics services has been and is
expected to remain highly competitive. The Company believes that the principal
competitive factors in the markets in which it competes are reliability,
quality, breadth of service and price. Price competition for basic delivery
services is particularly intense.
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<PAGE> 41
Most of the Company's competitors in the same-day intra-city delivery
market are privately held companies that operate in only one location, with no
one competitor dominating the market. However, there is a trend toward industry
consolidation and companies with greater financial and other resources than the
Company that may not currently operate in the delivery and logistics business
may enter the industry to capitalize on such trend.
The market for the Company's logistics services is also highly competitive,
and can be expected to become more competitive as additional companies seek to
capitalize on the growth in the industry. The Company's principal competitors
for such services are other delivery companies and in-house transportation
departments. The Company generally competes on the basis of its ability to
provide customized service regionally and nationally, which it believes is an
important advantage in this highly fragmented industry, and on the basis of
price.
The Company competes for acquisition candidates with other companies in the
industry and companies that may not currently operate in the industry but may
acquire and consolidate local courier businesses. Management believes that its
operating experience and its strategy to fully integrate each acquired company
by adding its core services and introducing national marketing will allow it to
remain competitive in the acquisition market.
RECENT ACQUISITIONS
IPO Acquisitions. In August 1996, the Company consummated the IPO
Acquisitions. The aggregate consideration paid by the Company in the IPO
Acquisitions was approximately $7.4 million in cash and 173,485 shares of Common
Stock and the Company repaid an aggregate of approximately $1.3 million of the
IPO Acquired Companies' indebtedness.
Other Acquisitions. In October 1996, the Company purchased all of the
outstanding capital stock of Express It and issued an aggregate of 444,250
shares of common stock to the stockholders of such company as total
consideration for such acquisition. In June 1996, the Company and Express It
entered into an Agency and Support Agreement, pursuant to which (i) each company
agreed to provide joint marketing services to one another, (ii) each company
agreed to use the other's delivery services outside of such company's service
area and (iii) the Company agreed to act as a consultant to Express It with
respect to the operating, marketing and administrative proceedings of Express It
in exchange for a monthly fee equal based on a percentage of Express It's
operating profits. This Agency and Support Agreement was terminated upon the
consummation of the acquisition of Express It. In October 1996, the Company
acquired substantially all of the assets of Dollar Courier and agreed to pay an
aggregate of approximately $340,000 in cash over a period of two years and six
months as consideration therefor.
The Company is currently integrating the Acquired Companies into the
Company's operating environment. Each Acquired Company has been assigned to the
appropriate regional division of the Company. A manager of each Acquired Company
has agreed to continue to manage such operation after the consummation of the
respective Acquisition and has been appointed branch manager at such operation.
Management is training the staff of the Acquired Companies so that each branch
will be able to provide and market the full range of Company services. As soon
as practicable and where appropriate, the Company will assimilate each Acquired
Company's accounting, payroll and cash management functions, standardize its
insurance coverage and employee benefits and supplement or replace the use of
the Acquired Company's tradename with "Dynamex."
REGULATION
As of January 1, 1995, the U.S. Federal Aviation Administration
Authorization Act of 1994 became effective, abolishing all intrastate regulatory
control over prices, routes and services to which the Company had previously
been subject. This legislation has increased the ability of the Company to
expand into new states and to expand its presence in its existing areas of
service. The Company holds nationwide general commodities authority from the
Interstate Commerce Commission and/or the Federal Highway Administration of the
U.S. Department of Transportation to transport certain property as a motor
carrier on an interstate basis within the contiguous 48 states. The Trucking
Industry Regulatory Reform Act of 1994 further deregulated certain
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<PAGE> 42
aspects of the transportation industry, so that the Company will no longer be
required to file tariffs setting forth its interstate rates. The Company holds
permanent extra-provincial (and where required, intra-provincial) operating
authority in all Canadian provinces where the Company does business.
In connection with the operation of certain motor vehicles and the handling
of hazardous materials in its courier operations, the Company is subject to
regulation by the United States Department of Transportation and the states and
by the appropriate Canadian federal and provincial regulations. The Company is
also subject to regulation by the Occupational Health and Safety Administration,
provincial occupational health and safety legislation and federal and provincial
employment laws respecting such matters as hours of work, driver logbooks and
workers' compensation. To the extent the Company holds licenses to operate
two-way radios to communicate with its fleet, the Company is regulated by the
Federal Communications Commission. The Company believes that it is in
substantial compliance with all of these regulations.
SAFETY
From time to time, the Company's drivers are involved in accidents or other
activities that may give rise to liability claims. The Company currently carries
liability insurance with an aggregate limit of $15.0 million, and independent
owner/operators are required to maintain liability insurance of at least the
minimum amounts required by applicable state or provincial law. The Company also
has insurance policies covering property and fiduciary trust liability, which
coverage includes all drivers. The Company reviews prospective drivers to ensure
that they have acceptable driving records. In addition, where required by
applicable law, the Company requires prospective drivers to take a physical
examination and to pass a drug test.
PROPERTIES
The Company operates its facilities in 48 locations, all of which are
leased. These facilities are principally used for operations, general and
administrative functions and training. Several of these facilities are primarily
used as storage and warehouse space for strategic stocking. The chart below
summarizes the locations of facilities which the Company leases as of September
30, 1996:
<TABLE>
<CAPTION>
NUMBER OF
LOCATION LEASED PROPERTIES
--------------------------------------------- -----------------
<S> <C>
CANADA
Alberta...................................... 6
British Columbia............................. 6
Manitoba..................................... 3
Nova Scotia.................................. 1
Ontario...................................... 10
Quebec....................................... 3
Saskatchewan................................. 3
---
Total.............................. 32
===
U.S.
Arizona...................................... 1
California................................... 4
District of Columbia......................... 1
Illinois..................................... 2
Maryland..................................... 1
Massachusetts................................ 1
New York..................................... 2
Ohio......................................... 1
Pennsylvania................................. 1
Texas........................................ 1
Washington................................... 1
---
Total.............................. 16
===
</TABLE>
The Company believes that its properties are well maintained, in good
condition and adequate for its present needs. The Company anticipates that
suitable additional or replacement space will be available when required. The
Company's facilities rental expense for the fiscal years ended July 31, 1995 and
1996 was
29
<PAGE> 43
approximately $458,000 and $1,177,000, respectively. The Company's principal
executive offices are currently located in Mississauga, Ontario, although the
Company anticipates that it will move such offices to Dallas, Texas within the
next 18 months. See Note 6 of Notes to the Consolidated Financial Statements.
INTELLECTUAL PROPERTY
The Company has registered "Dynamex" and Dynamex Express" as federal trade
marks in Canada and has filed applications in the U.S. for federal trade mark
registration of such names. No assurance can be given that any such registration
will be granted or that if granted, such registration will be effective to
prevent others from using the trade mark concurrently or preventing the Company
from using the trade mark in certain locations.
EMPLOYEES
At September 30, 1996, the Company had approximately 1,280 employees, of
which approximately 880 were employed full-time primarily in various management,
supervisory, administrative, and corporate positions, approximately 360 were
employed full-time as drivers and approximately 40 were employed part-time,
primarily as drivers. Additionally at October, 1996, the Company had contracts
with approximately 2,500 independent owner/operators. Management believes that
the Company's relationship with such employees and independent owner/operators
is good. See "Risk Factors -- Certain Tax Matters Related to Drivers."
In Canada, approximately 48% of the Company's drivers are represented by
major international labor unions. Management believes that the Company's
relationship with such unions is good. None of the Company's U.S. employees or
drivers are represented by unions.
LEGAL PROCEEDINGS
There are no pending legal proceedings involving the Company other than
routine litigation incidental to the Company's business, including numerous
motor vehicle-related accident claims. In the opinion of the Company's
management, such proceedings should not, individually or in the aggregate, have
a material adverse effect on the Company's business, financial condition or
results of operations.
30
<PAGE> 44
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information concerning each of the
persons who are (i) executive officers, (ii) key employees or (iii) directors.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ----------------------------------- --- --------------------------------------------
<S> <C> <C>
Richard K. McClelland.............. 44 Chairman of the Board, President, Chief
Executive Officer and Director
Robert P. Capps.................... 42 Vice President-Finance and Corporate
Development, Treasurer and Assistant
Secretary
Martin A. Piccolo.................. 40 Vice President, Controller and Secretary
James R. Aitken.................... 36 General Manager -- Eastern Canada
Catherine J. Taylor................ 41 General Manager -- Midwestern Canada
Ralph Embree....................... 46 General Manager -- Eastern U.S.
Thomas R. Stotler.................. 55 General Manager -- Western U.S.
James M. Hoak...................... 52 Director
Stephen P. Smiley.................. 47 Director(2)
Wayne Kern......................... 63 Director
Brian J. Hughes.................... 35 Director(1)(2)
Kenneth H. Bishop.................. 59 Director(1)(2)
E. T. Whalen....................... 63 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Richard K. McClelland became the President and Chief Executive Officer of
the Company in May 1995 upon the closing of the Company's acquisition of Dynamex
Express, where he also served as President since 1988. He was elected as
Chairman of the Board of the Company in February 1996. Prior to joining Dynamex
Express in 1986, Mr. McClelland held a number of advisory and management
positions with the Irving Group, Purolator Courier Ltd. and Sunbury Transport
Ltd., where he was engaged in the domestic and international same-day air,
overnight air, and trucking businesses.
Robert P. Capps has served as Vice President of Finance and Corporate
Development, Treasurer and Assistant Secretary of the Company since February
1996. Mr. Capps served in various financial management capacities with Hadson
Corporation (an energy company) from February 1986 through June 1995 and was
Executive Vice President and Chief Financial Officer from May 1991 through June
1995. In October 1992, Hadson Corporation filed for protection under Chapter 11
of the Federal Bankruptcy Code. Hadson Corporation's plan of reorganization was
confirmed in November 1992. Mr. Capps is a certified public accountant.
Martin A. Piccolo became the Controller of the Company in May 1995 upon the
closing of the Company's acquisition of Dynamex Express, where he also served in
such capacity. He was elected as Secretary of the Company in September 1995 and
also served as its Treasurer from September 1995 through January 1996. Mr.
Piccolo joined Dynamex Express in January 1989 and has over 15 years experience
in the courier industry.
James R. Aitken has served as the General Manager -- Eastern Canada since
February 1996. He joined the Company in May 1995 in conjunction with the
Company's acquisition of Dynamex Express. Prior to
31
<PAGE> 45
joining the Company, Mr. Aitken was the Director of Sales and Marketing with
Dynamex Express, where he was employed from 1988 to May 1995. During his
employment with Dynamex Express, Mr. Aitken worked in sales and marketing,
regional and branch management and client development. Mr. Aitken has over 17
years of experience in the courier industry.
Catherine J. Taylor has served as the General Manager -- Midwestern Canada
since May 1996. She joined the Company in August 1995 as Sales
Manager -- Eastern Canada. Prior to joining the Company, Mrs. Taylor was
employed by The Swift Transportation Group from 1982 where she held various
management and supervisory positions. Ms. Taylor has over 14 years of experience
in the courier industry.
Ralph Embree has served as the General Manager -- Eastern U.S. since
February 1996. He joined the Company in December 1995 in conjunction with the
Company's acquisition of Mayne Nickless. Prior to joining the Company, Mr.
Embree held a variety of operations, sales and management positions with Mayne
Nickless where he was employed for seven years. Mr. Embree has over 17 years of
experience in the courier industry.
Thomas R. Stotler has served as the General Manager -- Western U.S. since
February 1996. He joined the Company in December 1995 in conjunction with the
Company's acquisition of Mayne Nickless. Prior to joining the Company, Mr.
Stotler was employed by Mayne Nickless for over eight years as a branch manager
and regional operations manager. Mr. Stotler has over 18 years of experience in
the courier industry.
James M. Hoak has served as a director of the Company since February 1996.
Mr. Hoak founded Heritage Communications, Inc. (a diversified communications
company) in 1971 and served as its Chief Executive Officer until 1991. From 1991
to 1995, Mr. Hoak served as Chairman and Chief Executive Officer of Crown Media,
Inc. (a cable television company). Mr. Hoak has served as Chairman of the Board
of Heritage Media Corporation (a company engaged in targeted marketing services
and broadcasting) since its inception in 1987. Mr. Hoak has served as the
Chairman of the general partner of Cypress from its inception in 1992 and as the
Chairman of Hoak Capital Corporation (a private investment company) since its
inception in 1991. Since July 1996, Mr. Hoak has served as the Chairman and a
director of Hoak Breedlove Wesneski & Co. (an investment banker, securities
broker-dealer and one of the representatives of the underwriters in the IPO).
Mr. Hoak is a director of Airgas, Inc., MidAmerican Energy Company, Pier 1
Imports, Inc. and Texas Industries, Inc. See "Certain Transactions" and
"Underwriting."
Stephen P. Smiley has served as a director of the Company since 1993 and
was a Vice President of the Company from December 1995 through February 1996.
Mr. Smiley was President of Hoak Capital Corporation from 1991 through February
1996 and served as President of the general partner of Cypress from its
inception in 1992 through January 1996. Mr. Smiley has been Executive Vice
President of Hunt Financial Corp. (a private investment company) since February
1996. Mr. Smiley is also a director of Sun Coast Industries, Inc. (a plastics
manufacturer).
Wayne Kern has served as a director of the Company since February 1996. Mr.
Kern has served as Senior Vice President and Secretary of Heritage Media
Corporation since 1987. From 1991 to 1995, Mr. Kern also served as Executive
Vice President of Crown Media, Inc. From 1979 to 1991, Mr. Kern served as the
Executive or Senior Vice President, General Counsel and Secretary of Heritage
Communications, Inc.
Brian J. Hughes has served as a director of the Company since May 1995. Mr.
Hughes has served as the Vice President -- Investments of both Preferred Risk
Life Insurance Company and Preferred Risk Mutual Insurance Company since
September 1992. Mr. Hughes has been a member of the Advisory Board of Cypress
since March 1993. From 1986 to 1992, Mr. Hughes served as Assistant Vice
President -- Investments at Boatmen's National Bank.
Kenneth H. Bishop has served as a director of the Company since August
1996. From 1974 to August 1996, Mr. Bishop was President and General Manager of
Zipper Transportation Services, Ltd. and a related company which operated a
same-day delivery business in Winnipeg, Manitoba. Zipper was acquired by the
Company in August 1996. See "Business -- Recent Acquisitions."
32
<PAGE> 46
E. T. Whalen has served as a director of the Company since August 1996. Mr.
Whalen is currently a consultant to Gateway Freight Services, an entity
providing freight forwarding services to major international airlines. From 1965
until January 1996 Mr. Whalen was employed by Japan Airlines in various
management positions, including Staff Vice President-Cargo from October 1986.
BOARD OF DIRECTORS
The Board of Directors of the Company consists of seven members. Each
director will hold office until the annual meeting of the stockholders of the
Company next following his election, and until his successor is elected and
qualified. The holders of a majority of the outstanding shares of Common Stock
present and entitled to vote at a meeting of stockholders are entitled to elect
all of the directors.
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company will receive an annual fee of $6,000 as compensation for his or her
services as a member of the Board of Directors. Non-employee directors will
receive an additional fee of $500 for each meeting of the Board of Directors
attended in person by such director and $250 for each telephonic meeting in
which such director participates. Non-employee directors who serve on a
committee of the Board of Directors will receive $500 for each committee meeting
attended in person and $250 for each telephonic committee meeting in which such
director participates. All directors of the Company are reimbursed for
out-of-pocket expenses incurred in attending meetings of the Board of Directors
or committees thereof, and for other expenses incurred in their capacities as
directors of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established two committees: a Compensation
Committee and an Audit Committee. Each of these committees has two or more
members who serve at the discretion of the Board of Directors. The Compensation
Committee is responsible for reviewing and making recommendations to the Board
of Directors with respect to compensation of executive officers, other
compensation matters and awards under the Company's stock option plan. The Audit
Committee is responsible for reviewing the Company's financial statements, audit
reports, internal financial controls and the services performed by the Company's
independent public accountants, and for making recommendations with respect to
those matters to the Board of Directors.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the total annual
compensation paid or accrued by the Company to or for the account of the Chief
Executive Officer and the other executive officer of the Company whose total
cash compensation for the fiscal year ended July 31, 1996 exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL -------------
COMPENSATION SECURITIES
----------------- UNDERLYING
NAME AND FISCAL SALARY BONUS OPTIONS
PRINCIPAL POSITION YEAR ($) ($) (#)
- ----------------------------------------------------- ------ ------- ------ -------------
<S> <C> <C> <C> <C>
Richard K. McClelland
President and Chief Executive Officer.............. 1996 194,467 50,790 --
1995(1) 22,050 -- 103,000
</TABLE>
- ---------------
(1) Mr. McClelland was employed by the Company as of May 31, 1995, the date of
the Company's acquisition of Dynamex Express. Consequently, Mr. McClelland's
salary for fiscal year 1995 as set forth above represents only two months of
his annual salary. Had Mr. McClelland been employed for the entire twelve
months of fiscal year 1995, his salary for such year would have been
approximately $132,300.
33
<PAGE> 47
EMPLOYMENT AGREEMENT
The Company has entered into an employment agreement with Mr. McClelland.
Such agreement provides for the payment of a base salary in the annual amount of
$200,000, participation in an executive bonus plan, an auto allowance of
approximately Cdn $900 per month and participation in other employee benefit
plans. The agreement also provides that upon Mr. McClelland's exercise of
certain stock options to purchase 48,000 shares of Common Stock, the Company
shall pay Mr. McClelland a bonus equal to the exercise price multiplied by the
number of shares to be purchased by virtue of such exercise. Unless terminated
earlier, the employment agreement shall continue until May 31, 2000, upon which
date, such agreement will be automatically extended for successive one-year
renewal terms unless the Company gives Mr. McClelland notice upon the terms
provided in such agreement. Additionally, upon a sale or transfer of
substantially all of the assets of the Company or certain other events that
constitute a change of control of the Company, including the acquisition by a
stockholder other than certain named stockholders of securities representing 15%
of the votes that may be cast for director elections, the Company or its
successor, as the case may be, shall continue to pay Mr. McClelland the
compensation set forth in such agreement for the greater of two years from the
date of such change of control or the remainder of the term of the agreement.
STOCK OPTION PLAN
The Company maintains the Dynamex Inc. 1996 Stock Option Plan (the "Option
Plan") which provides for the grant of options to eligible employees and
directors for the purchase of Common Stock of the Company. The Option Plan
covers, in the aggregate, a maximum of 630,000 shares of Common Stock. The
Option Plan provides for the granting of both incentive stock options (as
defined in Section 422A of the Internal Revenue Code of 1986) and nonqualified
stock options (options which do not meet the requirements of Section 422A). In
addition, the Option Plan provides for the granting of restricted stock, which
may include, without limitation, restrictions on the right to vote such shares
and restrictions on the right to receive dividends on such shares. The grant of
options to purchase such restricted stock may be based upon the attainment of
performance goals prescribed by the Compensation Committee of the Board of
Directors (the "Committee"). Under the Option Plan, the exercise price may not
be less than the fair market value of the Common Stock on the date of the grant
of the option.
The Committee administers and interprets the Option Plan and is authorized
to grant options thereunder to all eligible employees of the Company, including
officers. The Committee designates the optionees, the number of shares subject
to the options and the terms and conditions of each option. Options under the
Option Plan generally vest over a five year period. Certain changes in control
of the Company will cause the options to vest immediately. Each option granted
under the Option Plan must be exercised, if at all, during a period established
in the grant which may not exceed 10 years from the date of grant. An optionee
may not transfer or assign any option granted and may not exercise any options
after a specified period subsequent to the termination of the optionee's
employment with the Company.
Non-employee members of the Board of Directors will receive annual grants
of options under the Option Plan. The initial grant to such directors shall
consist of options to purchase 2,000 shares of Common Stock at fair market value
and shall be granted upon the later of (i) the closing of the IPO or (ii) the
date such director is initially elected. Thereafter, on the anniversary of the
initial grant, options to purchase 2,000 shares of Common Stock at the then fair
market value will be automatically granted to each director then serving. Such
options will be immediately vested in full. Each option granted to directors
under the Option Plan must be exercised, if at all, during a period established
in the grant, which may not exceed 10 years from the date of grant. An optionee
may not transfer or assign any options granted and may not exercise any options
after a specified period subsequent to the termination of the optionee's service
on the Board of Directors. Any options granted to an optionee will immediately
terminate upon removal of such optionee from the Board of Directors for cause.
As of September 30, 1996, options to purchase 471,384 shares are
outstanding and (i) 214,384 of these options have a weighted average exercise
price of $3.84 per share and expire between November 2003 and July 2005 and (ii)
257,000 of these options (99,000 of which were granted to Mr. McClelland) have
an
34
<PAGE> 48
exercise price of $8.00 per share and will expire in August 2006. A total of
158,616 shares remained available for future grants under the Option Plan. The
Company did not grant any options to purchase Common Stock under the Option Plan
in fiscal year 1996.
FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the unexercised
options to purchase shares of the Company's Common Stock granted under the
Option Plan to the executive officers named in the Summary Compensation Table
and held by them at July 31, 1996.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
AS OF JULY 31, 1996
---------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard K. McClelland....................... 59,000 44,000 $ 221,250(2) $ 165,000
</TABLE>
- ---------------
(1) Based on the IPO price of $8.00 per share less the exercise price payable
for such shares.
(2) Does not give effect to the Company's agreement to pay a cash bonus to Mr.
McClelland upon his exercise of his option to purchase all or any of these
48,000 shares of Common Stock equal to the exercise price multiplied by the
number of shares to be purchased by virtue of such exercise.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1996, the Compensation Committee of the Company's Board
of Directors consisted of two members, Messrs. Smiley and Hughes. Mr. Smiley was
a Vice President of the Company from December 1995 through February 1996,
although he received no compensation for the services rendered to the Company in
such capacity. Mr. Bishop became a member of the Compensation Committee
concurrently with his election to the Board of Directors in August 1996. No
executive officer of the Company serves as a member of the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Certificate of Incorporation limits the liability of
directors of the Company to the Company or its stockholders to the fullest
extent permitted by Delaware General Corporation Law (the "DGCL"). Accordingly,
pursuant to the terms of the DGCL presently in effect, the Company's directors
will not be liable to the Company or its stockholders for monetary damages for
breach of the directors' fiduciary duty as a director, except for liability (i)
for any breach of the directors' duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases or (iv)
for any transaction from which the director derived an improper personal
benefit. The effect of these provisions will be to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
fiduciary duty as a director (including breaches resulting from grossly
negligent behavior), except in the situations described above. These provisions
will not limit the liability of directors under federal securities laws. Such
limitation of liability does not affect the availability of equitable remedies
such as injunctive relief or rescission.
The Company's Bylaws provide that the Company shall indemnify each of its
directors and officers, acting in such capacity, so long as such person acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the Company. Such indemnification may be made only upon
a determination by the Board of Directors that such indemnification is proper in
the circumstances because the person to be indemnified has met the applicable
standard of conduct to permit indemnification under the law. The Company is also
required to advance to such persons payment for their expenses incurred in
defending a proceeding to which indemnification might apply, provided the
recipient provides an
35
<PAGE> 49
undertaking agreeing to repay all such advanced amounts if it is ultimately
determined that he is not entitled to be indemnified.
The Company has also entered into indemnification agreements with each of
its directors and certain of its executive officers. Pursuant to these
agreements, the Company is obligated, to the extent permitted by law, to
indemnify these persons against all expenses, judgments, fines and penalties
incurred in connection with the defense or settlement of any actions brought
against them by reason of the fact that they are or were directors or officers
of the Company or that they are or were serving at the request of the Company as
an officer or director of another corporation or enterprise, except that if the
acts of such an indemnitee are found by a court of proper jurisdiction to be
intentional or willful, the Company will not be liable to indemnify such
indemnitee.
As of this date hereof, there is no pending litigation or proceeding
involving a director, officer, employee or agent of the Company where
indemnification will be required or permitted, and the Company is not aware of
any threatened litigation or proceeding which may result in a claim for such
indemnification.
CERTAIN TRANSACTIONS
In private placements of the Company's securities conducted from November
16, 1993 through May 31, 1995, Cypress, which was not affiliated with the
Company prior to its initial investment in November 1993, acquired an aggregate
of 2,021,752 shares of Common Stock (after giving effect to the May 1995
conversion of the Company's convertible preferred stock held by Cypress) for
aggregate consideration of approximately $7.0 million, including interest and
dividends accrued on such preferred stock. James M. Hoak, a director of the
Company, is the Chairman and sole stockholder of the general partner of Cypress
and such general partner owns a 5% partnership interest in Cypress.
Additionally, Mr. Hoak is a limited partner owning a 45% interest in Cypress.
In December 1995, in connection with the acquisition of Mayne Nickless, the
Company issued $4.5 million of Bridge Notes including (i) $1.0 million to
Cypress, (ii) an aggregate of approximately $1.8 million to various limited
partners of Cypress (including Preferred Risk Mutual Insurance Company and
Preferred Risk Life Insurance Company (each a stockholder of the Company and an
employer of Brian J. Hughes, a director of the Company) and Stephen P. Smiley (a
director of the Company)) and certain affiliates of Cypress' general partner and
(iii) an aggregate of approximately $1.8 million to James M. Hoak and the
general partner of Cypress. The holders of Bridge Notes received the Bridge
Warrants, which enabled the holders upon exercise of such warrants to purchase
an aggregate of 540,000 shares of Common Stock at a price of $0.025 per share.
In August 1996, the Company redeemed the Bridge Notes with a portion of the IPO
proceeds and the Bridge Warrants were exercised by the holders thereof. See "Use
of Proceeds", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Principal Stockholders."
The Company paid Hoak Capital Corporation fees in the aggregate amount of
approximately $146,000 in fiscal 1995 for advisory services rendered in
connection with certain acquisitions and financing arrangements. In January
1996, the Company paid HSC Investments Corp. a fee of $70,000 for investment
banking services rendered in connection with the Company's acquisition of Mayne
Nickless and $165,000 for the arrangement of bank financing related to that
acquisition. In August 1996, the Company paid Hoak Breedlove Wesneski & Co.
usual and customary fees related to investment banking services rendered in such
firm's capacity as a co-manager of the IPO. James M. Hoak is the chairman and
principal shareholder of Hoak Capital Corporation. Mr. Hoak is the Chairman and
principal shareholder of HSC Investments Corp., substantially all the assets of
which were sold to Hoak Breedlove Wesneski & Co., (one of the underwriters'
representatives in the IPO) in July 1996. Mr. Hoak is the Chairman and a
director of Hoak Breedlove Wesneski & Co. In addition, Mr. Hoak is a principal
stockholder of Hoak Breedlove Wesneski & Co.'s parent corporation and Wayne
Kern, a director of the Company, is the Secretary of such corporation.
In May 1995, the Company purchased Dynamex Express from Air Canada for
approximately Cdn $10.5 million. Richard K. McClelland, who was the chief
executive officer of Dynamex Express and unaffiliated with the Company at the
time of such transaction, became the chief executive officer and a director of
the Company upon consummation of such transaction.
36
<PAGE> 50
In August 1996, the Company purchased from Kenneth Bishop, now a director
of the Company, all of the outstanding stock of Zipper for an aggregate purchase
price of approximately Cdn $2.5 million (approximately $1.8 million, as
converted using an exchange rate of 0.73 U.S. dollars to 1.00 Canadian dollars)
in cash and 56,922 shares of Common Stock. In addition, simultaneously with the
closing of such Acquisition, the Company repaid Zipper's bank indebtedness of
approximately Cdn $445,000 (approximately $325,000, as converted using an
exchange rate of 0.73 U.S. dollars to 1.00 Canadian dollars). Mr. Bishop became
a director of the Company upon consummation of such acquisition. See
"Business -- Recent Acquisitions."
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders and affiliates,
will be approved by a majority of the Board of Directors, including a majority
of the independent and disinterested outside directors, and have been and will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
37
<PAGE> 51
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of November 4, 1996 for (i) each
person known by the Company to own beneficially more than 5% of the Common
Stock, (ii) each director and each executive officer of the Company named in the
Summary Compensation Table and (iii) all directors and executive officers of the
Company as a group. Except pursuant to applicable community property laws and
except as otherwise indicated, each stockholder identified in the table
possesses sole voting and investment power with respect to its or his shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
---------------------
NAME NUMBER(1) PERCENT
- ------------------------------------------------------------------------- --------- -------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Richard K. McClelland.................................................... 59,000 *
James M. Hoak(2)(3)...................................................... 2,353,752 35.2%
Stephen P. Smiley........................................................ 4,160 *
Wayne Kern............................................................... 4,640 *
Brian J. Hughes(4)....................................................... -- --
Kenneth H. Bishop........................................................ 58,922 *
E. T. Whalen............................................................. 2,000 *
All directors and executive officers as a group (9 individuals).......... 2,486,874 36.7
OTHER 5% STOCKHOLDERS:
Cypress Capital Partners I, L.P.(3)...................................... 2,141,752 32.0
One Galleria Tower,
Suite 1650, 13355 Noel Road,
Dallas, Texas 75240
Preferred Risk Mutual Insurance Company(5)............................... 336,116 5.0
111 Ashworth Road
West Des Moines, Iowa 50265
</TABLE>
- ---------------
* Indicates less than 1%
(1) Includes shares issuable upon the exercise of stock options outstanding and
fully vested as of November 4, 1996.
(2) Mr. Hoak's address is One Galleria Tower, Suite 1650, 13355 Noel Road,
Dallas, Texas 75240. Includes 2,141,752 shares owned by Cypress, of which
Mr. Hoak is the Chairman and sole shareholder of its 5% general partner and
a 45% limited partner. Excludes 4,800 shares owned by Mr. Hoak's wife, as
to which shares Mr. Hoak disclaims beneficial ownership.
(3) Includes 2,141,752 shares beneficially owned by James M. Hoak in his
capacity as the Chairman and sole shareholder of the general partner of
Cypress.
(4) Excludes 336,116 shares beneficially owned by Preferred Risk Life Insurance
Company and Preferred Risk Mutual Insurance Company, each of which employs
Mr. Hughes as Vice President- Investments. Mr. Hughes disclaims beneficial
ownership of such shares.
(5) Includes 168,056 shares beneficially owned by its affiliate Preferred Risk
Life Insurance Company.
38
<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 60,000,000 shares of
capital stock, par value $.01 per share, of which 50,000,000 are Common Stock
and 10,000,000 are Preferred Stock. A total of 500,000 shares of Preferred Stock
have been designated as Series A Junior Participating Preferred Stock (the
"Series A Preferred Stock") by the Board of Directors in connection with the
Rights Agreement discussed below. As of November 4, 1996, there were
approximately 62 holders of Common Stock outstanding, 6,691,195 shares of Common
Stock outstanding, and no shares of Preferred Stock outstanding.
The following description of the Company's capital stock does not purport
to be complete and is subject in all respects to applicable Delaware law and to
the provisions of the Company's Restated Certificate of Incorporation, Bylaws
and Rights Agreement, in each case as amended to date.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders, including the election of
directors. The Common Stock does not have cumulative voting rights, which means
that the holders of a majority of the shares voting for election of directors
can elect all members of the Board of Directors. Dividends may be paid ratably
to holders of Common Stock when and if declared by the Board of Directors out of
funds legally available therefor. Upon liquidation or dissolution of the
Company, the holders of Common Stock will be entitled to share ratably in the
assets of the Company legally available for distribution to stockholders after
payment of all liabilities and the liquidation preferences of any outstanding
Preferred Stock.
The holders of Common Stock have no preemptive or conversion rights or
other subscription rights and are not subject to redemption or sinking fund
provisions or to calls or assessments by the Company. The shares of Common Stock
offered hereby are fully paid and not liable for call or assessment. The Common
Stock offered hereby has been approved for quotation and trading on the Nasdaq
National Market. The last reported sales price of the Common Stock on Nasdaq on
November 4, 1996 was $11.00 per share.
PREFERRED STOCK
Under governing Delaware law and the Company's Restated Certificate of
Incorporation, no action by the Company's stockholders is necessary, and only
action of the Board of Directors is required, to authorize the issuance of any
of the Preferred Stock. The Board of Directors is empowered to establish, and to
designate the name of, each class or series of the Preferred Stock.
Shares of Series A Preferred Stock purchasable upon exercise of the Rights
will not be redeemable. Each share of Series A Preferred Stock will be entitled
to a minimum preferential quarterly dividend payment of $0.25 per share but will
be entitled to an aggregate dividend of 100 times the dividend declared per
share of Common Stock. In the event of liquidation, the holders of the shares of
Series A Preferred Stock will be entitled to a minimum preferential liquidation
payment of $1 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of the shares of Series A Preferred Stock shall be
entitled to an aggregate payment of 100 times the payment made per share of
Common Stock, as adjusted to reflect any dividend on the Common Stock payable in
shares of Common Stock or any subdivision, combination or reclassification of
the Common Stock. Each share of Series A Preferred Stock will have 100 votes,
voting together with the Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of Common Stock are
exchanged, each share of Series A Preferred Stock will be entitled to receive
100 times the amount received per share of Common Stock. These rights are
protected by customary antidilution provisions.
Although the Company has no present plans to issue additional series of
Preferred Stock (other than shares which may be issued in connection with the
Rights Agreement), such shares may be issued from time to time in one or more
classes or series with such designations, powers, preferences, rights,
qualifications, limitations and restrictions as may be fixed by the Company's
Board of Directors. The Board of Directors, without obtaining stockholder
approval, may issue such shares with voting or conversion rights or both and
39
<PAGE> 53
thereby dilute the voting power and equity of the holders of Common Stock and
adversely affect the market price of such stock.
The existence of authorized Preferred Stock may have the effect of
discouraging an attempt, through acquisition of a substantial number of shares
of Common Stock, to acquire control of the Company with a view to effecting a
change in control of the Company, a merger, sale or exchange of assets or a
similar transaction. The anti-takeover effects of authorized Preferred Stock may
deny stockholders the receipt of a premium on their Common Stock and may also
have a depressive effect on the market price of the Common Stock.
RIGHTS AGREEMENT
In June 1996, the Board of Directors of the Company approved a Rights
Agreement which is designed to protect stockholders should the Company become
the target of coercive and unfair takeover tactics. Pursuant to the Rights
Agreement, the Board of Directors declared a dividend of one preferred stock
purchase right (a "Right") for each outstanding share of Common Stock on May 31,
1996. Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of the Series A Preferred Stock, at a price of $45.00
per one one-hundredth of a share of Series A Preferred Stock, subject to
possible adjustment.
Initially, the Rights are attached to all Common Stock certificates and no
separate Rights certificates exist. Until the Rights become separable as
described below, an additional Right will be issued with every share of newly
issued Common Stock, including the shares of Common Stock offered hereby. Until
a Right is exercised, the holder of a Right will have no rights as a stockholder
of the Company, including the right to vote or to receive dividends. The Rights
will expire on May 31, 2006 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case as described below.
The Rights will become exercisable and separable from shares of Common
Stock upon the earlier to occur of (i) 10 days after the first public
announcement that a person or group (an "Acquiring Person"), other than the
Company, any subsidiary of the Company or any employee benefit plan of the
Company or Cypress, James M. Hoak (or any affiliates thereof), has become the
beneficial owner of 15% or more of the outstanding shares of Common Stock or
(ii) 10 business days (or such later date as may be determined by action of the
Board of Directors prior to the time any person or group becomes an Acquiring
Person) after the commencement of, or the announcement of an intention to
commence, a tender or exchange offer the consummation of which would result in
any person or group (other than the Company, any subsidiary of the Company or
any employee benefit plan of the Company) becoming the beneficial owner of 15%
or more of such outstanding shares of Common Stock.
In the event that any person or group becomes the beneficial owner of 15%
or more of the shares of Common Stock then outstanding, each registered holder
of a Right will have the right to receive upon exercise of Right at the then
current purchase price of the Right that number of shares of Common Stock of the
Company having a market value of two times such purchase price. Notwithstanding
the foregoing, after the occurrence of the event described in this paragraph,
all Rights which are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by an Acquiring Person will be void. Under
no circumstances may a Right be exercised following the occurrence of a
transaction described in this paragraph prior to the expiration of the Company's
right of redemption.
In the event that, on or after the first public announcement by the Company
or an Acquiring Person that an Acquiring Person has become such (the "Share
Acquisition Date"), the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold or transferred (in one transaction or a series of transactions
other than in the ordinary course of business), each registered holder of a
Right (except Rights which have become void as specified above) will thereafter
have the right to receive, upon the exercise thereof at the then current
purchase price of the Right, the number of shares of common stock of the
acquiring company (or of another person or group affiliated with the Acquiring
Person as provided in the Rights Agreement) which at the time of such
transaction will have a market value of two times such purchase price.
40
<PAGE> 54
At any time after any person becomes an Acquiring Person and prior to the
time such person or group becomes the beneficial owner of 50% or more of the
outstanding shares of Common Stock, the Board of Directors of the Company may
exchange the Rights (other than Rights which have become void), in whole or in
part, at the exchange rate of one share of Common Stock, or one one-hundredth of
a share of Series A Preferred Stock (or of a share of a class or series of the
Company's preferred stock having equivalent rights, preferences and privileges),
per Right, subject to adjustment as provided in the Rights Agreement.
At any time prior to the earlier of (i) the 10th business day after the
Share Acquisition Date, subject to one or more extensions by a majority of the
Disinterested Directors (as defined) and (ii) the Final Expiration Date, the
Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a redemption price of $.01 per Right, appropriately adjusted to reflect
any stock split, stock dividend, subdivision or combination or any similar
transaction occurring after the date of the Rights Agreement (the "Redemption
Price"); provided, however, that, under certain circumstances specified in the
Rights Agreement, the Rights may not be redeemed unless there are Disinterested
Directors in office and such redemption is approved by a majority of such
Disinterested Directors. The redemption of the Rights may be made effective at
such time, on such basis and with such conditions as the Board of Directors in
its sole discretion shall establish. After the redemption period has expired,
the Company's right of redemption may be reinstated, under the circumstances
specified in the Rights Agreement, which include the concurrence of a majority
of the Disinterested Directors, if an Acquiring Person shall have reduced to 10%
or less the number of outstanding shares of Common Stock beneficially owned in a
transaction or series of transactions not involving the Company and not
constituting specified transactions which result in a discounted purchase price
under the Rights Agreement. Immediately after any action by the Board of
Directors directing the redemption of the Rights, the right to exercise the
Rights shall terminate and thereafter the registered holders of the Rights shall
be entitled to receive only the Redemption Price per Right.
The term "Disinterested Director" means any member of the Company's Board
of Directors who is unaffiliated with an Acquiring Person and was a member of
the Company's Board of Directors prior to the time that an Acquiring Person
became such and any successor of a Disinterested Director who is unaffiliated
with an Acquiring Person and is recommended to succeed a Disinterested Director
by a majority of Disinterested Directors then on the Company's Board of
Directors.
The Rights have certain anti-takeover effects. The Rights could cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on redemption of the Rights or on substantially
all of the Rights also being acquired. The Rights should not, however, interfere
with any merger or other business combination approved by the Board of Directors
of the Company since the Rights may be redeemed or amended by the Company as
described above.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is a Delaware corporation and is subject to the provisions of
Section 203 of the Delaware General Corporation Law. In general, Section 203
provides that a Delaware corporation may not engage in any of a broad range of
business combinations with a person or affiliate or associate of such person who
is an "interested stockholder" (defined generally as a person who together with
affiliates and associates, own (or within three years, did own) 15% or more of a
corporation's outstanding voting stock) unless: (a) the transaction resulting in
a person's becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person becomes
an interested stockholder; (b) the interested stockholder acquires 85% or more
of the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder; or (c) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is Harris
Trust and Savings Bank.
41
<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
As of November 4, 1996, the Company had outstanding 6,691,195 shares of
Common Stock. In addition, the Company has 471,384 shares reserved for issuance
upon exercise of options granted under the Company's Stock Option Plan, 108,754
of which are immediately exercisable (subject to the lockup period described
below which affects 103,954 of such shares). Of the 6,691,195 shares
outstanding, 2,990,000 shares sold to the public in the IPO are and the 617,735
shares offered by the Selling Stockholders hereby will be freely tradeable
without restrictions or registration under the Securities Act, except that any
shares purchased by "affiliates" of the Company, as that term is defined in Rule
144 ("Rule 144") under the Securities Act ("Affiliates") may generally only be
sold in compliance with the limitations of Rule 144 described below and the
617,735 shares are subject to the lockup agreement described below. The
remaining 3,083,460 shares were issued and sold by the Company in private
transactions in reliance upon exemptions from registration under the Securities
Act and are, therefore deemed "restricted securities" under Rule 144 which may
not be sold publicly unless the shares are registered under the Securities Act
or are sold under Rule 144 or another similar exemption. Under Rule 144,
substantially all of the remaining restricted securities will become eligible
for resale in accordance with the terms of Rule 144 90 days after the date the
Company becomes subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
In general, under Rule 144 a person (or persons whose sales are aggregated)
who beneficially owns restricted securities for at least two years and any
Affiliate who beneficially owns restricted securities for at least two years or
any other shares not constituting restricted securities without regard to such
two-year holding period, is entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of the Company's Common Stock or the average weekly trading volume in the
Company's Common Stock during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about the
Company. A person who has not been an affiliate of the Company at any time
during the three months preceding a sale, and who beneficially owns shares last
acquired from the Company or an affiliate of the Company at least three years
previously is entitled to sell all such shares under Rule 144 without regard to
any of the limitations of the Rule.
Under the terms of agreements between the Company and its principal
stockholders entered into in connection with the issuance of the Company's
equity securities, if the Company proposes to register any of its securities
under the Securities Act for its own account, such holders are entitled to
notice of such registration and are entitled to include certain shares of Common
Stock therein. In addition, Cypress may require the Company on a date after the
sixth month anniversary of the IPO to file a registration statement under the
Securities Act at the Company's expense with respect to the resale from time to
time of its shares of Common Stock. If Cypress exercises this right, the Company
would be required to use its best efforts to effect such registration, subject
to certain conditions and limitations. These rights are subject to certain
conditions and limitations, among them the right of the underwriters of an
offering to limit the number of shares included in any such registration.
The Company, the Company's executive officers and directors, the Selling
Stockholders, and stockholders of the Company that owned 1% or more of the
Common Stock outstanding immediately prior to the IPO have agreed not to offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock or any
securities exercisable for or convertible into Common Stock for a period of 180
days after August 13, 1996 without the prior written consent of William Blair &
Company, L.L.C.
The Company cannot predict the effect, if any, that sales of restricted
securities or the availability of such securities for sale could have on the
market price, if any, prevailing from time to time. Nevertheless, sales of
substantial amounts of the Company's securities, including the securities
offered hereby, could adversely affect prevailing market prices of the Company's
securities and the Company's ability to raise additional capital by occurring at
a time when it would be beneficial for the Company to sell securities.
Upon the expiration of the 180-day period described above, certain shares
issued or issuable upon the exercise of options granted prior to August 13, 1996
also may be issuable for sale in the public market pursuant to Rule 701 under
the Securities Act. In general, Rule 701 permits resales of shares issued
pursuant
42
<PAGE> 56
to certain compensatory benefit plans and contracts commencing at the end of the
90 day period after the Company becomes subject to the reporting requirements of
the Exchange Act. If all of the requirements of Rule 701 are satisfied, and upon
completion of the 180-day period, an additional 103,924 shares of Common Stock
issuable upon the exercise of currently outstanding options will be eligible for
sale.
The Company intends to file a registration statement under the Securities
Act to register all shares of Common Stock issuable pursuant to the Option Plan.
See "Management -- Stock Option Plan." Subject to the completion of the 180-day
period described above, shares of Common Stock issued after the effective date
of such registration statement upon the exercise of awards issued under such
plan generally will be eligible for sale in the public market.
43
<PAGE> 57
SELLING STOCKHOLDERS
The table below sets forth the beneficial ownership of the Company's Common
Stock by the Selling Stockholders at November 4, 1996. Each of the Selling
Stockholders acquired the shares of Common Stock owned by him pursuant to the
acquisition by the Company of the Acquired Company with which such Selling
Stockholder was affiliated, respectively. Kenneth Bishop was the stockholder and
an executive officer of Zipper and upon consummation of the Zipper Acquisition
in August 1996 became a director of the Company. Norman Koppel and Joe Garcia
were stockholders and executive officers of and James Barsano was a key employee
of Seko/Metro. Messrs. Garcia and Barsano are currently branch managers in one
of the Company's Chicago offices. Edward F. Seidel was the stockholder and
executive officer of Seidel Delivery and is currently employed by the Company as
a branch manager in Columbus, Ohio. Barry Steingard and William Castor were
stockholders and executive officers of Express It and are currently employed by
the Company as branch managers in New York City. Each of the persons named below
has sole voting and investment power with respect to the shares of Common Stock
beneficially owned by him.
<TABLE>
<CAPTION>
SHARES OWNED SHARES OWNED
BEFORE AFTER
THE OFFERING THE OFFERING
NAME AND ------------------ SHARES BEING -----------------
ADDRESS NUMBER PERCENT OFFERED(1) NUMBER PERCENT(1)
-------------------------------------- ------- ------- ------------ ------ -------
<S> <C> <C> <C> <C> <C>
Kenneth H. Bishop..................... 56,922 * 56,922 -- --
Norman Koppel......................... 66,250 * 66,250 -- --
Joe Garcia............................ 3,750 * 3,750 -- --
James Barsano......................... 5,000 * 5,000 -- --
Edward F. Seidel, Jr. ................ 41,563 * 41,563 -- --
Barry J. Steingard.................... 222,125 3.3 222,125 -- --
William Castor........................ 222,125 3.3 222,125 -- --
</TABLE>
- ---------------
* Indicates less than 1%.
(1) Because the Selling Stockholders may offer all or some of the shares which
they hold pursuant to this Prospectus and because there are currently no
agreements, arrangements or understandings with respect to the sale of any
shares, the amount of shares that will be held by the Selling Stockholders
after completion of any offering hereunder is unknown. However, for the
purposes of the above table, it its assumed that all of the shares of
Common Stock offered hereby are to be sold.
The Company is registering the Shares of the Selling Stockholders pursuant
to registration rights granted to them under agreements relating to the
acquisition of their shares. In connection with the Company's acquisition of the
Acquired Companies, the Selling Stockholders agreed not to sell any Common Stock
or securities exercisable for or convertible into Common Stock for a period of
180 days after August 13, 1996 without the prior written consent of William
Blair & Company, L.L.C.
44
<PAGE> 58
PLAN OF DISTRIBUTION
The Common Stock may be offered by the Selling Stockholders from time to
time in open market transactions (which may include block transactions), through
underwriting syndicates represented by one or more managing underwriters, or
otherwise in the over-the-counter market through the Nasdaq National Market or
in private transactions at prices relating to prevailing market prices or at
negotiated prices. The Selling Stockholders may effect such transactions by
selling the Common Stock to or through broker-dealers, and such broker-dealers
may receive compensation in the form of discounts, concessions or commissions
from the Selling Stockholders and/or purchasers of the Common Stock for whom
such broker-dealers may act as agent or to whom they sell as principal or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). The Selling Stockholders and any broker-dealer acting in
connection with the sale of the Common Stock offered hereby may be deemed to be
"underwriters" within the meaning of the Act, in which event any discounts,
concessions or commissions received by them, which are not expected to exceed
those customary in the types of transactions involved, or any profit on resales
of the Common Stock by them, may be deemed to be underwriting commissions or
discounts under the Act. The offering contemplated hereby will terminate as to
the Common Stock pursuant to certain agreements to which the Company and each of
the Selling Stockholders are parties. See "Selling Stockholders."
The Company has agreed to indemnify the Selling Stockholders against
certain liabilities, including liabilities under the Act.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Crouch & Hallett, L.L.P., Dallas, Texas. Bruce H. Hallett, a partner
of Crouch & Hallett, L.L.P., is a limited partner in Cypress and beneficially
owns less than 1% of the Common Stock of the Company.
EXPERTS
The (i) consolidated financial statements of Dynamex Inc. and subsidiaries
as of July 31, 1995 and 1996 and for each of the years in the three-year period
ended July 31, 1996, (ii) the financial statements of each of K.H.B. &
Associates Ltd., Action Delivery and Messenger Service Limited, Southbank
Courier, Inc. and Seko Enterprises, Inc. and Related Companies as of December
31, 1994 and 1995 and for each of the years in the two year period ended
December 31, 1995 have been audited by Deloitte & Touche, independent auditors,
as stated in their reports appearing herein and elsewhere in this Registration
Statement. Such financial statements are included herein in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The (i) combined financial statements of Seidel Delivery as of December 31,
1994 and 1995 and for the years then ended and (ii) the combined statements of
operations and cash flows of Mayne Nickless Courier (a wholly owned business of
Mayne Nickless Transport, North America until December 28, 1995) for the six
months ended December 28, 1995 and each of the three fiscal years in the period
ended July 2, 1995 included in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports herein (which
report on the combined statements of operations and cash flows of Mayne Nickless
Courier expresses an unqualified opinion and includes an explanatory paragraph
referring to Mayne Nickless Courier's basis of presentation), and have been so
included in reliance upon the reports of such firm given upon their authority as
experts on accounting and auditing.
45
<PAGE> 59
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement under the Securities Act with respect to the Common Stock
offered hereby. This Prospectus, which is a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. For further information with respect to
the Company and the Common Stock, reference is hereby made to such Registration
Statement and the exhibits and schedules thereto, copies of which may be
inspected without charge at the public reference facilities maintained by the
Securities and Exchange Commission at Judiciary Plaza, Room 1024, 450 Fifth
Street N.W., Washington, D.C. 20549, and at its regional offices at 7 World
Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661-2551. Copies of such materials may also
be obtained from the Public Reference Section of the Securities and Exchange
Commission, Washington, D.C. 20549, upon payment of the fees prescribed by the
Securities and Exchange Commission. The summaries in this Prospectus of
additional information included in the Registration Statement or any exhibit
thereto are qualified in their entirety by reference to such information or
exhibit.
46
<PAGE> 60
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DYNAMEX INC. AND SUBSIDIARIES
Independent Auditors' Report........................................................ F-3
Consolidated Balance Sheets, July 31, 1995 and 1996................................. F-4
Consolidated Statements of Operations for each of the years in the three-year period
ended July 31, 1996.............................................................. F-5
Consolidated Statements of Shareholders' Equity for the three years ended July 31,
1996............................................................................. F-6
Consolidated Statements of Cash Flows for each of the years in the three-year period
ended July 31, 1996.............................................................. F-7
Notes to the Consolidated Financial Statements...................................... F-8
MAYNE NICKLESS COURIER
Independent Auditors' Report........................................................ F-17
Combined Statements of Operations for each of the fiscal years in the three-year
period ended July 2, 1995 and for the six months ended December 31, 1994
(unaudited) and December 28, 1995................................................ F-18
Combined Statements of Cash Flows for each of the fiscal years in the three-year
period ended July 2, 1995 and for the six months ended December 31, 1994
(unaudited) and December 28, 1995................................................ F-19
Notes to the Combined Financial Statements.......................................... F-20
IPO ACQUIRED COMPANIES
Introduction to Pro Forma Combined Financial Statements............................. F-23
Pro Forma Combined Balance Sheet, June 30, 1996 (unaudited)......................... F-24
Pro Forma Combined Statement of Operations for the year ended June 30, 1996
(unaudited)...................................................................... F-25
Pro Forma Combined Statement of Operations for the year ended December 31, 1995
(unaudited)...................................................................... F-26
Pro Forma Combined Statement of Operations for the six months ended June 30, 1996
(unaudited)...................................................................... F-27
Pro Forma Combined Statement of Operations for the six months ended June 30, 1995
(unaudited)...................................................................... F-28
Notes to the Pro Forma Combined Financial Statements (unaudited).................... F-29
K.H.B. & ASSOCIATES LTD. (A.K.A. ZIPPER TRANSPORTATION SERVICES LTD.)
Independent Auditors' Report........................................................ F-30
Consolidated Balance Sheets, December 31, 1994 and 1995 and June 30, 1996
(unaudited)...................................................................... F-31
Consolidated Statements of Operations and Retained Earnings for the years ended
December 31, 1994 and 1995 and for the six months ended June 30, 1995 (unaudited)
and 1996 (unaudited)............................................................. F-32
Consolidated Statements of Changes in Financial Position for the years ended
December 31, 1994 and 1995 and for the six months ended June 30, 1995 (unaudited)
and 1996 (unaudited)............................................................. F-33
Notes to the Consolidated Financial Statements...................................... F-34
ACTION DELIVERY AND MESSENGER SERVICE LIMITED
Independent Auditors' Report........................................................ F-38
Consolidated Balance Sheets, December 31, 1994 and 1995 and June 30, 1996
(unaudited)...................................................................... F-39
Consolidated Statements of Operations and Retained Earnings for the years ended
December 31, 1994 and 1995 and for the six months ended June 30, 1995 (unaudited)
and 1996 (unaudited)............................................................. F-40
Consolidated Statements of Changes in Financial Position for the years ended
December 31, 1994 and 1995 and for the six months ended June 30, 1995 (unaudited)
and 1996 (unaudited)............................................................. F-41
Notes to the Consolidated Financial Statements...................................... F-42
SOUTHBANK COURIER, INC.
Independent Auditors' Report........................................................ F-45
Consolidated Balance Sheets, December 31, 1994 and 1995 and June 30, 1996
(unaudited)...................................................................... F-46
Consolidated Statements of Operations and Retained Earnings for the years ended
December 31, 1994 and 1995 and for the six months ended June 30, 1995 (unaudited)
and 1996 (unaudited)............................................................. F-47
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1995
and for the six months ended June 30, 1995 (unaudited) and 1996 (unaudited)...... F-48
Notes to the Consolidated Financial Statements...................................... F-49
</TABLE>
F-1
<PAGE> 61
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SEKO ENTERPRISES, INC. AND RELATED COMPANIES
Independent Auditors' Report........................................................ F-51
Combined Balance Sheets, December 31, 1994 and 1995 and June 30, 1996 (unaudited)... F-52
Combined Statements of Income and Retained Earnings for the years ended December 31,
1994 and 1995 and for the six months ended June 30, 1995 (unaudited) and 1996
(unaudited)...................................................................... F-53
Combined Statements of Cash Flows for the years ended December 31, 1994 and 1995 and
for the six months ended June 30, 1995 (unaudited) and 1996 (unaudited).......... F-54
Notes to the Combined Financial Statements.......................................... F-55
SEIDEL DELIVERY
Independent Auditors' Report........................................................ F-60
Combined Balance Sheets, December 31, 1994 and 1995 and June 30, 1996 (unaudited)... F-61
Combined Statements of Income and Retained Earnings for the years ended December 31,
1994 and 1995 and for the six months ended June 30, 1995 (unaudited) and 1996
(unaudited)...................................................................... F-62
Combined Statements of Cash Flows for the years ended December 31, 1994 and 1995 and
for the six months ended June 30, 1995 (unaudited) and 1996 (unaudited).......... F-63
Notes to the Combined Financial Statements.......................................... F-64
</TABLE>
F-2
<PAGE> 62
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Dynamex Inc.
We have audited the accompanying consolidated balance sheets of Dynamex
Inc. and subsidiaries as of July 31, 1995 and 1996 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three year period ended July 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Dynamex Inc. and subsidiaries
as of July 31, 1995 and 1996 and the results of their operations and their cash
flows for each of the years in the three year period ended July 31, 1996 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
Toronto, Canada
September 20, 1996, except for Note 3(b)(ii)
which is as of October 1, 1996
F-3
<PAGE> 63
DYNAMEX INC. AND SUBSIDIARIES
(FORMERLY PARCELWAY SYSTEMS HOLDING CORP.)
CONSOLIDATED BALANCE SHEETS
JULY 31, 1995 AND 1996
(IN THOUSANDS EXCEPT STOCK DATA)
ASSETS
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
CURRENT
Cash and cash equivalents.............................................. $ 506 $ 894
Accounts receivable (net of allowance for doubtful accounts of $122 and
$281 at July 31, 1995 and 1996, respectively)....................... 7,208 11,141
Prepaid and other current assets....................................... 390 856
------- -------
8,104 12,891
PROPERTY AND EQUIPMENT -- net (Note 5)................................... 1,519 2,047
INTANGIBLES -- net (Note 4).............................................. 7,194 18,196
DEFERRED OFFERING EXPENSES............................................... -- 763
OTHER ASSETS............................................................. 377 1,102
------- -------
$17,194 $34,999
======= =======
LIABILITIES
CURRENT
Line of credit......................................................... $ 2,686 $ --
Accounts payable trade................................................. 481 1,088
Accrued liabilities
Broker commissions.................................................. 808 1,348
Wages............................................................... 177 667
Outside transportation.............................................. 85 129
Other............................................................... 1,859 3,302
Current portion of long-term debt (Note 6)............................. 524 2,271
------- -------
6,620 8,805
LONG-TERM DEBT (Note 6).................................................. 5,924 20,036
------- -------
12,544 28,841
------- -------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY
Preferred stock; 10,000,000 shares authorized; none outstanding........ -- --
Common stock; 50,000,000 shares authorized; 2,543,460 shares
outstanding......................................................... 25 25
Stock warrants (Note 6).................................................. -- 624
Additional paid-in capital............................................. 8,756 8,756
Accumulated deficit.................................................... (4,138) (3,262)
Unrealized foreign currency translation adjustment..................... 7 15
------- -------
4,650 6,158
------- -------
$17,194 $34,999
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements
F-4
<PAGE> 64
DYNAMEX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 1994, 1995 AND 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
SALES......................................................... $ 7,023 $21,032 $71,812
COST OF SALES................................................. 5,212 14,336 50,018
------- ------- -------
GROSS PROFIT.................................................. 1,811 6,696 21,794
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................. 2,449 7,068 17,545
DEPRECIATION AND AMORTIZATION................................. 322 690 1,542
------- ------- -------
OPERATING INCOME (LOSS)....................................... (960) (1,062) 2,707
INTEREST EXPENSE.............................................. 157 403 1,655
OTHER (INCOME) EXPENSE........................................ (52) 157 --
------- ------- -------
INCOME (LOSS) BEFORE TAXES.................................... (1,065) (1,622) 1,052
INCOME TAXES.................................................. -- 3 176
------- ------- -------
NET INCOME (LOSS)............................................. $(1,065) $(1,625) $ 876
======= ======= =======
Net income (loss) per common share............................ $ (0.63) $ (0.81) $ 0.23
Weighted average common shares outstanding.................. 1,691 2,018 3,732
======= ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements
F-5
<PAGE> 65
DYNAMEX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JULY 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
REDEEMABLE FOREIGN
COMMON STOCK PREFERRED STOCK ADDITIONAL CURRENCY
------------------ ------------------ PAID-IN ACCUMULATED TRANSLATION
SHARES PAR VALUE SHARES PAR VALUE WARRANTS CAPITAL DEFICIT ADJUSTMENT TOTAL
------ --------- ------ --------- -------- ---------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 1, 1993... 17 $-- 2 $ 150 $ -- $ 451 $ (708) $-- $ (107)
Stock dividend.......... 296 3 -- -- -- (3) -- -- --
Purchase of redeemable
preferred stock....... -- -- (2) (150) -- (75) -- -- (75)
Sale of common stock.... 345 3 -- -- -- 1,114 -- -- 1,117
Sale of redeemable
preferred stock....... -- -- 309 3 -- 3,815 -- -- 3,818
Dividends on convertible
deemable preferred
stock................. -- -- -- -- -- -- (299) -- (299)
Escrow shares
surrendered........... (142 ) (1) -- -- -- 1 -- -- --
Net loss................ -- -- -- -- -- -- (1,065) -- (1,065)
----- --- ---- ----- ---- ------ ------- --- -------
BALANCE, JULY 31, 1994.... 516 5 309 3 -- 5,453 (2,072) -- 3,389
Sale of common stock.... 608 6 -- -- -- 2,539 -- -- 2,545
Conversion of redeemable
preferred stock to
common stock.......... 1,236 12 (309) (3) -- (9) -- -- --
Dividend on redeemable
preferred stock....... -- -- -- -- -- -- (441) -- (441)
Dividend and interest
expense converted to
common stock.......... 183 2 -- -- -- 773 -- -- 775
Unrealized foreign
currency translation
adjustment............ -- -- -- -- -- -- -- 7 7
Net loss................ -- -- -- -- -- -- (1,625) -- (1,625)
----- --- ---- ----- ---- ------ ------- --- -------
BALANCE, JULY 31, 1995.... 2,543 25 -- -- -- 8,756 (4,138) 7 4,650
Sale of stock
warrants.............. -- -- -- -- 624 -- -- -- 624
Unrealized foreign
currency translation
adjustment............ -- -- -- -- -- -- -- 8 8
Net income.............. -- -- -- -- -- -- 876 -- 876
----- --- ---- ----- ---- ------ ------- --- -------
BALANCE, JULY 31, 1996.... 2,543 $25 -- $ -- $624 $8,756 $(3,262) $15 $ 6,158
===== === ==== ===== ==== ====== ======= === =======
</TABLE>
See accompanying notes to the consolidated financial statements
F-6
<PAGE> 66
DYNAMEX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1994, 1995 AND 1996
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................................ $(1,065) $(1,625) $ 876
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 321 678 1,542
Loss on disposal of property and equipment................ 1 12
Loss on disposal Tuscon division.......................... -- 18 --
Unrealized foreign currency adjustment.................... -- 7 8
Dividend and interest expense converted to common stock... -- 57 --
Changes in assets and liabilities:
Cash restricted for acquisition of businesses or payment
of debt from acquisition of businesses.................. 77 (18) --
Accounts receivable....................................... (611) (6) (627)
Prepaids and other assets................................. (89) 172 (341)
Accounts payable and accrued liabilities.................. 386 (239) 922
------- ------- --------
Net cash provided by (used in) operating activities.......... (980) (944) 2,380
------- ------- --------
INVESTING ACTIVITIES
Payments for acquisitions.................................... (2,185) (7,794) (12,613)
Purchase of property and equipment........................... (66) (213) (579)
Proceeds from sale of property and equipment................. -- 12 --
------- ------- --------
Net cash used in investing activities........................ (2,251) (7,995) (13,192)
------- ------- --------
FINANCING ACTIVITIES
Principal payment on long term debt.......................... (1,361) (1,110) (5,064)
Net borrowings under line of credit.......................... 522 2,797 (2,686)
Proceeds from issuance of long term debt..................... -- 4,709 20,470
Proceeds from issuance of stock warrants..................... -- -- 624
Purchase of redeemable preferred stock....................... (75) -- --
Net proceeds from sale of common stock....................... 4,934 2,460 --
Dividends paid............................................... (9) (21) --
Other assets, deferred offering expenses and intangibles..... (47) (255) (2,144)
------- ------- --------
Net cash provided by financing activities.................... 3,964 8,580 11,200
------- ------- --------
NET INCREASE (DECREASE) IN CASH................................ 733 (359) 388
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................... 132 865 506
------- ------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR......................... $ 865 $ 506 $ 894
======= ======= ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
Cash paid for interest....................................... $ 181 $ 403 $ 1,114
======= ======= ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Capital lease obligation..................................... $ 84 $ -- $ 43
------- ------- --------
Note issued for sale of 30,912 shares of common stock........ $ 100 $ -- $ --
------- ------- --------
In conjunction with the acquisitions described in Note 3,
liabilities were assumed as follows:
Fair value of assets acquired............................. $ 5,629 $10,188 $ 15,243
Cash paid................................................. (2,184) (2,920) (12,613)
------- ------- --------
Liabilities assumed and incurred and issuance of notes
payable................................................... $ 3,445 $ 7,268 $ 2,630
======= ======= ========
</TABLE>
See accompanying notes to the consolidated financial statements
F-7
<PAGE> 67
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Dynamex Inc. (formerly Parcelway Systems Holding Corp.) (the "Company")
provides same-day delivery and logistics services in the U.S. and Canada. The
Company's primary services are (i) same-day, on-demand delivery (ii) scheduled
distribution and (iii) fleet management. The Company intends to continue to
expand its business through acquiring or developing businesses in additional
areas of the U.S. and Canada and in areas of its existing operations.
Principles of consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries: Dynamex
Operations East, Inc., Dynamex Operations West, Inc., Parcelway Courier Systems
Canada Ltd., and Action Delivery and Messenger Services Limited. All significant
intercompany balances and transactions are eliminated on consolidation.
The accounts of Parcelway Courier Systems Canada Ltd. and Action Delivery
and Messenger Service Limited have been translated into United States dollars
under the provision of Statement of Financial Accounting Standards No. 52 with
the Canadian dollar as the functional currency. Translation adjustments arising
from the translation of Canada's financial statements into United States dollars
are reported as a separate component of equity.
Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the balance
sheet dates and the reported amounts of revenues and expenses for the periods
presented. Actual results may differ from such estimates.
Property and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives or the term of the lease,
whichever is shorter, as follows:
<TABLE>
<S> <C>
Equipment................................................ 5 years
Furniture................................................ 5 years
Vehicles................................................. 7-10 years
Other.................................................... 4 years
</TABLE>
Intangibles arise from the acquisition of operations and include the excess
purchase price over net assets acquired, covenants not-to-compete and other
intangible costs. The excess purchase price over net assets acquired is being
amortized over periods from 5 to 25 years. The Company reviews the value
assigned to the excess purchase price over net assets acquired to determine if
it has been impaired by adverse conditions affecting the Company. Management is
of the opinion that there has been no diminution in the value assigned to the
assigned value Covenants not-to-compete, trademarks and other intangibles are
being amortized over their estimated effective lives, generally, five years.
Total amortization expense was $252,000, $450,000 and $944,000 for the years
ended July 31, 1994, 1995 and 1996, respectively.
Other assets consist of financing fees incurred. These costs are being
amortized on a straight-line basis over the term of the related financing,
approximately five years.
Revenue recognition -- Revenue and direct expenses are recognized when
services are rendered to customers.
Cash and cash equivalents -- The Company considers all highly liquid
investments with a maturity of three months or less to be cash equivalents. Cash
equivalents are carried at cost, which approximates market value.
Net income (loss) per common share -- Common share equivalents are
considered in the computation of weighted average number of shares and earnings
per share for a profitable period, by dividing net income by
F-8
<PAGE> 68
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the average number of common shares and common share equivalents that represent
dilutive effects of the assumed exercise of outstanding stock options and
warrants using the treasury stock method.
New accounting standard -- In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123 establishes a
fair value based method of accounting for stock-based employee compensation
plans; however, it also allows companies to continue to measure cost for such
plans using the method of accounting prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). Companies
that elect to continue with the accounting under APB 25 must provide certain pro
forma disclosures of net income, as if SFAS 123 had been applied. The accounting
and disclosure requirements of SFAS 123 are effective for the Company for
transactions entered into in fiscal 1997. The Company is currently evaluating
its alternatives under SFAS 123, and its impact on operating results, when
initially adopted by the Company, is not presently known.
Stock split -- On June 3, 1996, the Company declared a 4 for 1 stock split
(Note 11(a)). The effect of such stock split has been retroactively reflected in
the accompanying financial statements.
Reclassifications -- Certain reclassifications of prior year amounts have
been made to conform to the current year financial statement reporting format.
2. INITIAL PUBLIC OFFERING
On August 16, 1996, the Company completed an initial public offering (the
"Offering") whereby the Company sold 2,600,000 shares of Common Stock at $8.00
per share. On September 10, 1996, the Underwriters exercised their
over-allotment option to purchase an additional 390,000 shares of Common Stock
at the Offering price. The net proceeds received by the Company from the
Offering of approximately $21.4 million where applied as follows: (i)
approximately $7.8 million to pay the cash portion of the consideration payable
in connection with the Acquisitions, including repayment of assumed debt of
approximately $325,000 and the estimated transaction costs to effect the
transactions of approximately $400,000, (ii) approximately $2.4 million to repay
the note payable in connection with the acquisition of Dynamex Express, (iii)
the early retirement of the Junior Subordinated Debentures of approximately $4.8
million (will result in an extraordinary loss of approximately $558,000), and
(iv) the balance to repay a portion of the indebtedness under the Bank Credit
Agreement.
3. ACQUISITIONS
a) During 1994, the Company acquired certain assets of four on-demand
courier companies, located in Phoenix, Chicago, Los Angeles and in Canada for
cash of $2,184,422, notes of $2,588,780, a $300,000 draw on the line of credit
and the assumption of $555,990 in liabilities.
On May 31, 1995, the Company acquired certain assets of Dynamex Express
Inc., the ground courier operations of Air Canada, for cash of $2,920,400 (plus
expenses of $164,336), a $4,709,145 note and the assumption of $2,558,047 in
liabilities.
On December 29, 1995, the Company acquired certain assets of Mayne Nickless
Courier Systems, Inc., Mayne Nickless Messenger Services, Inc. and Mayne
Nickless Canada Inc. (collectively "Mayne Nickless"), a same-day intracity on
demand ground courier service operating in various cities in the U.S. and
Canada, for cash of $11,868,000 (plus expenses of $399,000) and the assumption
of $2,058,418 in liabilities.
On June 30, 1996, the Company acquired the shares of Action Delivery and
Messenger Service Limited, a same-day on demand ground courier service operating
in Halifax, Nova Scotia, for cash of $147,000 (plus expenses of $22,000).
F-9
<PAGE> 69
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Each of these acquisitions has been accounted for using the purchase method
of accounting and the results of operations of these companies have been
included in these financial statements from the date of acquisition. The
following unaudited pro forma combined results of operations for the year ended
July 31, 1995 and 1996 are presented as if the acquisitions occurred August 1,
1994.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
-----------------------
1995 1996
--------- ---------
PRO FORMA PRO FORMA
--------- ---------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Sales.......................................................... $81,045 $86,899
Net income..................................................... 21 1,135
======== ========
Per share:
Net income................................................... $ 0.01 $ 0.30
======== ========
</TABLE>
The Company has recorded the assets acquired as shown below (in thousands):
<TABLE>
<CAPTION>
JULY 31
-----------------------
1995 1996
--------- ---------
<S> <C> <C>
Accounts receivable............................................ $ 4,883 $ 3,413
Property and equipment......................................... 737 546
Other assets................................................... 976 --
Intangibles.................................................... 3,756 11,292
--------- ---------
Assets acquired................................................ $10,352 $15,251
======== ========
</TABLE>
Consideration for these transactions consisted of the following (in
thousands):
<TABLE>
<CAPTION>
JULY 31
-------------------
1995 1996
------- -------
<S> <C> <C>
Cash............................................................. $ 3,085 $12,614
Long-term debt................................................... 4,709 453
Liabilities assumed.............................................. 2,558 2,184
------- -------
$10,352 $15,251
======= =======
</TABLE>
b) Acquisitions Subsequent to Year End
i) Simultaneously with the closing of the Offering, on August 16, 1996, the
Company purchased the same-day delivery businesses of (i) Seidel Enterprises,
Inc. and a related company (Columbus, Ohio), (ii) Seko Enterprises, Inc. and
related companies (Chicago, Illinois), (iii) Southbank Courier, Inc. (New York,
New York), and K.H.B. & Associates Ltd. (Winnipeg, Manitoba). As consideration
for the stock of the Acquired Companies, the stockholders of the Acquired
Companies will received an aggregate of approximately $7.1 million cash and
approximately 173,485 shares of Common Stock and the Company paid an aggregate
amount of approximately $325,000 of the Acquired Companies' indebtedness.
ii) On October 1, 1996, the Company acquired the same-day delivery business
of Express-It (New York, New York) for 444,250 shares of Common Stock.
F-10
<PAGE> 70
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INTANGIBLES
Intangibles from the Company's various acquisitions consist of the
following (in thousands):
<TABLE>
<CAPTION>
JULY 31
------------------
1995 1996
------ -------
<S> <C> <C>
Excess of purchase price over net assets acquired................. $6,530 $17,875
Covenants not to compete.......................................... 1,206 1,206
Other............................................................. 183 602
------ -------
7,919 19,683
Less accumulated amortization..................................... (725) (1,487)
------ -------
Intangibles -- net................................................ $7,194 $18,196
====== =======
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
JULY 31
------------------
1995 1996
------ -------
<S> <C> <C>
Equipment......................................................... $ 506 $ 2,024
Furniture......................................................... 540 186
Vehicles.......................................................... 254 267
Other............................................................. 517 655
------ -------
1,817 3,132
Less accumulated depreciation..................................... (298) (1,085)
------ -------
Property and equipment -- net..................................... $1,519 $ 2,047
====== =======
</TABLE>
Leased equipment under capital leases, included in property and equipment
total $76,000 (net of accumulated depreciation of $57,000) as of July 31, 1996.
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
JULY 31
------------------
1995 1996
------ -------
<S> <C> <C>
Bank credit agreement (a)......................................... $ -- $15,012
Junior subordinated debentures (b)................................ -- 4,212
Note payable (c).................................................. 4,709 2,378
Seller financing notes and other (d).............................. 1,660 629
Capital lease obligations (Note 6)................................ 79 76
------ -------
6,448 22,307
Less current portion.............................................. 524 2,271
------ -------
$5,924 $20,036
====== =======
</TABLE>
F-11
<PAGE> 71
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a) Bank Credit Agreement
In connection with the acquisition of Mayne Nickless (see Note 3) the
Company entered into a credit agreement with a bank. Proceeds of the facility
were used to fund the acquisition of Mayne Nickless, to refinance certain
existing debt, and for working capital. The facility consists of a revolving
note of up to $2,500,000, a $6,000,000 term facility with the Company's Canadian
subsidiary, and a $8,000,000 term facility with the Company and its U.S.
subsidiaries. The amount available under the revolving note is subject to a
borrowing base formula. At July 31, 1996 $2,500,000 was available under the
revolving note of which $1,943,000 was outstanding. Any amounts outstanding
under the revolving facility are due May 30, 1997 with interest payable
quarterly at prime, or certain other rate options, plus a premium based on
certain financial ratios of the Company. At July 31, 1996 such rate was prime
plus 1% or 9.25%.
The U.S. and Canadian term facilities are repayable in quarterly
installments of $400,000 and $75,000, respectively, with any outstanding
balances due at December 31, 2000 and March 31, 2001, respectively. Interest is
payable quarterly based on prime, or certain other rate options, plus a premium
based on certain financial ratios of the Company. At July 31, 1996 such rate was
prime plus 1.25% or 9.50%. By June 28, 1996, or sooner under certain
circumstances, the Company is required to enter into interest rate hedging
arrangements so as to effectively fix the rate of interest on a portion of the
outstanding loans. In addition, the Company is required to prepay the term
facilities with any "Excess Cash Flow", as defined, as well as with certain
proceeds of asset sales, insurance recoveries and the sale of capital stock.
Amounts outstanding under the credit agreement are secured by essentially
all of the assets of the Company and its subsidiaries and by the common stock of
the Company owned by a major shareholder. The 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.
Effective August 16, 1996, concurrently with the closing of the Company's
initial public offering (see Note 2), this credit agreement was amended and
restated. The revised terms of the agreement provide for credit of up to $40
million on a revolving basis through May 31, 1998. On August 16, 1996, the
Company had outstanding approximately $11.1 million on the credit agreement
(which was reduced to approximately $8.2 million upon the exercise of the
Underwriters over-allotment option (see Note 2)). Any amounts outstanding as of
May 31, 1998 will be repayable in nineteen equal quarterly installments over a
five year period.
b) Junior Subordinated Debentures
In connection with the acquisition of Mayne Nickless the Company issued
$4,500,000 face value of Junior Subordinated Debentures "Debentures" to certain
stockholders of the Company. The Debentures are subordinated to all other debt
for borrowed money and have been recorded at their estimated fair value as of
the date of issue of $3,876,000. Interest is payable semi-annually and accrues
at 12% through December 28, 1996 and at 18% thereafter. The Company may elect to
pay interest in additional Debentures through December 31, 1998. On June 28,
1996, the Company elected to pay $270,000 of interest in additional debentures.
The principal amount of the Debentures is due June 28, 2001. The Debentures
are redeemable at any time at 100% of face value plus accrued and unpaid
interest and must be redeemed with the proceeds of an initial public offering of
the Company's common stock, subject to their subordination provisions. The
purchasers of the Debentures were also issued warrants to purchase an aggregate
of 1,080,000 shares of the Company's common stock at a price of $0.025 per
share; however, the number of shares which may be purchased will be reduced to
540,000 if the Debentures are redeemed by June 30, 1996 or by December 31, 1996
if the Company is actively pursuing a public offering of its common stock on
June 30, 1996. The warrants have been recorded at their estimated fair value of
as of the date of issue of $624,000 and are being amortized over the term of the
Debentures.
F-12
<PAGE> 72
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Debentures were redeemed in full on August 16, 1996 with a portion of
the proceeds from the Company's initial public offering (see Note 2).
c) Note Payable
In connection with the acquisition of Dynamex Express, the Company issued
to the seller a note payable in the principal amount of $4,709,000 (Cdn
$6,450,000). Upon the acquisition of Mayne Nickless this note was repaid and
replaced with a new note in the principal amount of $2,369,000 (Cdn $3,225,000).
The new note is subordinated to the Company's bank credit agreement above. The
note bears interest at 10% which is payable quarterly. The principal amount of
the note is due March 28, 2002. The note contains covenants identical to those
of the bank credit agreement, subject to amendment under certain conditions.
The note was repaid in full on August 16, 1996 with a portion of the
proceeds from the Company's initial public offering (see Note 2).
d) Seller Financing Notes and Other
In connection with various acquisitions (see Note 3) the Company issued
various notes to the sellers of those businesses. These notes bore interest at
varying rates based primarily on prime. In connection with the acquisition of
Mayne Nickless these notes were repaid.
Scheduled principal payments in each of the next five years for the notes
payable are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................ $2,271
1998................................................ 4,051
1999................................................ 1,987
2000................................................ 1,942
2001................................................ 5,472
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment under properties and non-cancellable
lease agreements which expire at various dates.
At July 31, 1996, minimum annual lease payments for such leases are as
follows (in thousands): Capital Operating Leases Leases
<TABLE>
<S> <C> <C>
1997......................................................... $35 $1,076
1998......................................................... 22 875
1999......................................................... 18 681
2000......................................................... 4 457
2001......................................................... 3 226
THEREAFTER................................................... -- 435
--- ------
82 $3,750
======
LESS AMOUNT REPRESENTING INTEREST............................ 6
---
NET PRESENT VALUE OF FUTURE MINIMUM
LEASE PAYMENTS............................................. $76
===
</TABLE>
Rent expense related to the operating leases amounted to approximately
$168,000, $458,000 and $1,177,000 for the years ended July 31, 1994, 1995 and
1996, respectively.
F-13
<PAGE> 73
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
As of August 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes, which requires
an asset and liability approach for financial accounting and reporting for
income taxes. SFAS No. 109 allows the income tax consequences resulting from
utilization of net operating loss carryforwards to be recorded. For purposes of
reporting the Company's deferred tax items under the provisions of SFAS No. 109,
the deferred tax asset of approximately $640,000 as of July 31, 1996 (1995 -
$865,000), arising principally from the available net operating loss
carryforward, has not been reported as an asset due to a valuation allowance.
The Company has U.S. federal net operating loss carryforwards of
approximately $1,600,000 as of July 31, 1996. These net operating loss
carryforwards expire as follows: $216,000 (2008), $665,000 (2009) and $719,000
(2010). The Company also has state net operating loss carryforwards in certain
states. The utilization of the Company's net operating loss carryforwards is
subject to annual limitations under Internal Revenue Code ss.382, due to a
previous change in ownership of the Company and a change in its year-end in
prior years.
The differences in income tax provided and the amounts determined by
applying the combined statutory tax rate to income before income taxes result
from the following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Canadian federal and provincial tax rate................... 45% 45% 45%
United States federal and state tax rate................... 40 40 40
----- ----- -----
Combined statutory tax rate................................ 42% 44% 44%
===== ===== =====
Income tax based on combined statutory rate................ $(447) $(714) $ 463
Add (deduct) the effect of:
Benefit of net operating losses.......................... -- (186) (470)
Non-deductible expenses and other -- net................. 162 189 183
Valuation allowance...................................... 285 714 --
----- ----- -----
$ -- $ 3 $ 176
===== ===== =====
</TABLE>
9. FOREIGN OPERATIONS
Amounts included in the consolidated financial statements applicable to
Canada were as follows (in thousands):
<TABLE>
<CAPTION>
JULY 31
------------------------------
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Revenues............................................... $2,436 $15,094 $52,249
Operating income (loss)................................ 24 (78) 7,759
Identifiable assets.................................... 3,528 13,324 17,274
</TABLE>
10. RELATED PARTY TRANSACTIONS
During the year ended July 31, 1995, the Company paid approximately
$146,000 to a related party for consulting services in connection with
acquisition of Dynamex Express Inc. and other advisory services.
During the year ended July 31, 1996 the Company paid a related party
$70,000 for investment banking services rendered in connection with the
Company's acquisition of Mayne Nickless and $165,000 for the arrangement of bank
financing related to that acquisition.
F-14
<PAGE> 74
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SHARE CAPITAL
a) In May 1995, in order to provide financing related to the acquisition of
Dynamex Express Inc. (Note 3), the Company had the following capital stock
transactions:
- 608,228 shares of common stock were issued for a cash consideration of
$2,545,000;
- 182,516 shares of common stock were issued as payment for interest
expense and outstanding dividends; and
- 1,236,096 shares of common stock were issued upon the conversion of
309,204 shares of preferred stock to common stock.
On December 20, 1995, the Company restated its articles of incorporation to
change its name from Parcelway Systems Holding Corp. to Dynamex Inc. The
articles of incorporation were also restated to increase the authorized capital
stock to 10,000,000 shares of $0.01 par value common stock and to 3,000,000
shares of $0.01 par value preferred stock.
On June 3, 1996, the Company restated its articles of incorporation to
increase the authorized capital stock to 50,000,000 shares of $0.01 par value
common stock and to 10,000,000 shares of $0.01 par value preferred stock. The
Company then effected a common stock split in the form of a dividend where it
distributed three shares of common stock for every common share outstanding. The
effect of the dividend was to increase the number of common shares outstanding
from 635,865 to 2,543,460.
b) Rights Agreement
In June 1996, the Board of Directors of the Company approved a Rights
Agreement which is designed to protect stockholders should the Company become
the target of coercive and unfair takeover tactics. Pursuant to the Rights
Agreement, the Board of Directors declared a dividend of one preferred stock
purchase right (a "Right") for each outstanding share of Common Stock on May 31,
1996. Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of the Series A Preferred Stock, at a price of $45.00
per one one-hundredth of a share of Series A Preferred Stock, subject to
possible adjustment.
12. STOCK OPTION PLAN
Effective June 5, 1996, the Company's stockholders approved the 1996 Stock
Option Plan (the "Option Plan"). The maximum aggregate amount of Common Stock
with respect to which options may be granted is 630,000. The Option Plan
provides for the granting of both incentive stock options and nonqualified stock
options. In addition, the Option Plan provides for the granting of restricted
stock, which may include, without limitation, restrictions on the right to vote
such shares and restrictions on the right to receive dividends on such shares.
The exercise price of all options granted under the Option Plan may not be less
than the fair market value of the underlying Common Stock on the date of grant
option.
Options to purchase 471,384 shares are outstanding and (i) 214,384 of these
options have a weighted average exercise price of $3.84 per share and expire
between November 2003 and July 2005 and (ii) 257,000 of these options (which
were granted in connection with the Offering and are exercisable at $8.00 per
share) expire in July 2006. A total of 158,616 shares remained available for
future grants under the Option Plan.
F-15
<PAGE> 75
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SELLING, GENERAL AND ADMINISTRATIVE
Included in selling, general and administrative expenses are bad debt
expenses as follows (in thousands):
<TABLE>
<S> <C>
For the year ended July 31, 1994...................................... $ 61
For the year ended July 31, 1995...................................... 155
For the year ended July 31, 1996...................................... 462
</TABLE>
F-16
<PAGE> 76
INDEPENDENT AUDITORS' REPORT
Mayne Nickless Courier:
We have audited the accompanying combined statements of operations and cash
flows of Mayne Nickless Courier (a wholly owned business of Mayne Nickless
Transport, North America until December 28, 1995) for the six months ended
December 28, 1995 and each of the three fiscal years in the period ended July 2,
1995. These financial statements are the responsibility of Mayne Nickless
Courier's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the results of operations and cash flows of Mayne Nickless
Courier for the six months ended December 28, 1995 and each of the three fiscal
years in the period ended July 2, 1995, in conformity with generally accepted
accounting principles.
The accompanying combined financial statements have been prepared from the
separate records maintained by Mayne Nickless Courier and may not be indicative
of the conditions that would have existed or the results of operations if Mayne
Nickless Courier had been operated as an unaffiliated company. As discussed in
Note 2, Statement of Financial Accounting Standards No. 109 requires that the
consolidated amount of current and deferred tax expenses for a group that files
a consolidated tax return be allocated among members of the group when those
members issue separate financial statements. On the basis that Mayne Nickless
Courier is a business and not a separate subsidiary, current and deferred income
taxes have not been provided for in the accompanying combined financial
statements.
DELOITTE & TOUCHE LLP
San Francisco, California
April 19, 1996
F-17
<PAGE> 77
MAYNE NICKLESS COURIER
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
----------------------------- --------------------------
JULY 4 JULY 3 JULY 2 DECEMBER 31 DECEMBER 28
1993 1994 1995 1994 1995
------- ------- ------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES................................... $28,858 $28,149 $27,922 $13,904 $14,008
COST OF SALES........................... 17,152 16,808 16,433 8,179 7,985
------- ------- ------- ------- -------
GROSS PROFIT............................ 11,706 11,341 11,489 5,725 6,023
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE............................... 9,546 9,272 8,946 4,873 4,924
DEPRECIATION AND
AMORTIZATION.......................... 1,410 875 666 331 312
------- ------- ------- ------- -------
OPERATING INCOME........................ 750 1,194 1,877 521 787
INTEREST EXPENSE -- Parent.............. 390 111 74 30 36
------- ------- ------- ------- -------
NET INCOME.............................. $ 360 $ 1,083 $ 1,803 $ 491 $ 751
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to the combined financial statements
F-18
<PAGE> 78
MAYNE NICKLESS COURIER
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
----------------------------- --------------------------
JULY 4 JULY 3 JULY 2 DECEMBER 31 DECEMBER 28
1993 1994 1995 1994 1995
------- ------- ------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................ $ 360 $ 1,083 $ 1,803 $ 491 $ 751
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation and amortization...... 1,410 875 666 331 312
(Gain) loss on disposal of fixed
assets........................... 6 -- (127) -- --
Changes in assets and liabilities
Accounts receivable................ 156 (491) 35 (22) (279)
Prepaid expenses................... (60) 120 63 40 3
Accounts payable and accrued
liabilities...................... 365 664 (56) 412 346
Other.............................. (60) 351 149 (47) (6)
------- ------- ------- ------- -------
Net cash provided by operating
activities............................ 2,177 2,602 2,533 1,205 1,127
------- ------- ------- ------- -------
INVESTING ACTIVITIES
Proceeds from sale of property and
equipment.......................... 151 -- 90 -- --
Purchase of property and equipment.... (461) (334) (263) (130) (77)
------- ------- ------- ------- -------
Net cash used in investing activities... (310) (334) (173) (130) (77)
------- ------- ------- ------- -------
FINANCING ACTIVITIES
Distributions to Parent............... (1,946) (3,065) (1,783) (835) (1,144)
------- ------- ------- ------- -------
INCREASE (DECREASE) IN CASH
EQUIVALENTS........................... (79) (797) 577 240 (94)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................ 887 808 11 11 588
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................ $ 808 $ 11 $ 588 $ 251 $ 494
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to the combined financial statements
F-19
<PAGE> 79
MAYNE NICKLESS COURIER
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
Mayne Nickless Courier provides on-demand delivery, transportation, fleet
management and distribution services. Mayne Nickless Courier is a deliverer of
intracity small parcel same-day shipments for medium to large customers
principally in Southern California, the San Francisco Bay Area, Seattle,
Pittsburgh, Washington D.C., Boston and Vancouver and Victoria, British
Columbia.
Effective December 29, 1995, pursuant to an Asset Purchase Agreement,
Dynamex, Inc. acquired certain assets and assumed certain liabilities of the
same-day courier business of Mayne Nickless Courier Systems Inc., Mayne Nickless
Messenger Service, Inc. and the Canadian same day courier business of Mayne
Nickless North America Inc. (collectively, "Mayne Nickless Courier") from Mayne
Nickless Transport, North America ("Parent") for approximately $12,200 in cash,
including transaction costs and assumption of approximately $2,100 in
liabilities.
The accompanying combined financial statements present operations and cash
flows of Mayne Nickless Courier on an historical basis. The accompanying
combined financial statements have been prepared from the separate records
maintained by Mayne Nickless Courier and may not be indicative of the conditions
that would have existed or the results of operations if Mayne Nickless Courier
had been operated as an unaffiliated company. All significant intercompany
balances and transactions have been eliminated.
2. SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year ends on the Sunday nearest June 30. The last
three fiscal years consist of the 52-week periods ended July 2, 1995, July 3,
1994, and July 4, 1993. The audited combined financial statements for the six
months ended December 28, 1995 (the date of acquisition by Dynamex) are included
herein. The combined statements of operations and cash flows for the six months
ended December 31, 1994 are unaudited, but in the opinion of the Company's
management, contain all adjustments (consisting only of normal recurring items)
necessary for a fair presentation of results of operations and cash flows.
Use of Estimates
The preparation of Mayne Nickless Courier's combined financial statements
in conformity with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the balance sheet dates and the reported amounts of revenues and expenses for
the periods presented. Actual results may differ from such estimates.
Cash and Cash Equivalents
For purposes of the combined statements of cash flows, Mayne Nickless
Courier considers all highly liquid investments with a maturity of three months
or less to be cash equivalents.
Depreciation
Depreciation is calculated using the straight-line method over the
estimated useful life of the asset, typically ranging from three to five years
for furniture, fixtures and equipment. The cost of leasehold improvements is
amortized over the useful life of the asset or the applicable lease term
whichever is shorter.
F-20
<PAGE> 80
MAYNE NICKLESS COURIER
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Intangibles
Intangibles arise from the acquisition of operations and include the excess
of the purchase price over net assets acquired, and covenants not-to-compete.
Such excess is being amortized over fifteen years. Covenants not-to-compete are
being amortized over the life of those agreements, generally, two or five years.
Amortization expense for the six months ended December 28, 1995, for the six
months ended December 31, 1994 and the fiscal years ended July 2, 1995, July 3,
1994 and July 4, 1993 was $202, $225 (unaudited), $447, $627, and $1,020,
respectively.
Insurance
Mayne Nickless Courier participates in the Parent's consolidated insurance
program. The Parent is primarily self-insured for workers' compensation,
automobile and general liability costs. The estimated self-insurance liability
is determined based on claims filed and an estimate of claims incurred but not
yet reported. The Parent charges Mayne Nickless Courier for those expenses which
it believes is a reasonable estimate of what Mayne Nickless Courier would incur
if they did not participate in the Parent's consolidated insurance program.
Insurance expense for the six months ended December 28, 1995, for the six months
ended December 31, 1994 and the fiscal years ended July 2, 1995, July 3, 1994
and July 4, 1993 was $476, $463 (unaudited), $925, $1,227, and $1,241,
respectively.
Revenue Recognition
Revenue is recognized when the services are rendered to customers.
Income Taxes
The Company has been included in the Parent's consolidated Canadian, United
States Federal and state income tax returns. The Parent, on a consolidated
basis, has been in a net loss position for income tax purposes for the six
months ended December 31, 1994, and for the fiscal years ended July 2, 1995,
July 3, 1994 and July 4, 1993. Statement of Financial Accounting Standards No.
109 requires that the consolidated amount of current and deferred tax expenses
for a group that files a consolidated tax return be allocated among members of
the group when those members issue separate financial statements. On the basis
that Mayne Nickless Courier is a business and not a separate subsidiary, current
and deferred income taxes have not been provided in the accompanying combined
financial statements.
Translation of Foreign Currencies
Assets and liabilities of the Company's Canadian operations are translated
into U.S. dollars at year-end rates of exchange, and income and expenses are
translated at average rates during the year. Adjustments resulting from
translating financial statements into U.S. dollars were not material in any of
the periods presented.
Unaudited Financial Information
In the opinion of management, the accompanying unaudited financial
information includes all adjustments consisting of normal and recurring items,
necessary for a fair presentation.
F-21
<PAGE> 81
MAYNE NICKLESS COURIER
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
3. NET CAPITAL INVESTED BY PARENT
The following is a reconciliation of the net capital invested by the
Parent:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SIX MONTHS ENDED
----------------------------- --------------------------
JULY 4 JULY 3 JULY 2 DECEMBER 31 DECEMBER 28
1993 1994 1995 1994 1995
------- ------- ------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net invested capital, beginning of
period................................ $ 7,200 $ 5,614 $ 3,632 $ 3,632 $ 3,652
Net income for the period............... 360 1,083 1,803 491 751
Distributions to the Parent............. (1,946) (3,065) (1,783) (835) (1,144)
------- ------- ------- ----------- -----------
Net invested capital, end of year....... $ 5,614 $ 3,632 $ 3,652 $ 3,288 $ 3,259
======= ======= ======= ========= =========
</TABLE>
4. RELATED-PARTY TRANSACTIONS
The Company uses certain resources and administrative staff of the Parent,
including certain finance, legal and office services which are charged to Mayne
Nickless Courier. In connection with these services, the amounts Parent charged
Mayne Nickless Courier for the six months ended December 28, 1995, for the six
months ended December 31, 1994 and the fiscal years ended July 2, 1995, July 3,
1994 and July 4, 1993 was $183, $171 (unaudited), $342, $598, and $841,
respectively. Such amounts are included in selling, general and administrative
expense.
In addition, Mayne Nickless Courier is charged interest by the Parent based
upon the amount of advances made by the Parent. Such amounts are included in the
accompanying combined statements of operations as Interest expense -- Parent.
5. LEASES
The Company leases certain equipment and office space under operating lease
agreements which expire at various dates through June 1998.
At December 28, 1995, future minimum lease payments for such leases are as
follows:
<TABLE>
<S> <C>
1996................................................ $156
1997................................................ 160
1998................................................ 25
----
$341
====
</TABLE>
Rent expense for the for the six months ended December 31, 1995, for the
six months ended December 31, 1994 and the fiscal years ended July 2, 1995, July
3, 1994 and July 4, 1993 was $163, $199 (unaudited), $466, $401, and $393,
respectively.
In the fiscal year ended July 2, 1995, the Company recorded a gain of $127
relating to the sale of the rights to certain radio frequencies, which was
included as a reduction in selling, general and administrative expense.
6. CONTINGENT LIABILITIES
Mayne Nickless Courier is subject to various lawsuits and claims arising
out of its businesses. The Asset Purchase Agreement specifies that the Parent
will retain responsibility for any such liabilities arising from events prior to
December 29, 1995. In the opinion of management of Mayne Nickless Courier, the
ultimate resolution of these matters will not have a material adverse effect on
Mayne Nickless Courier's combined financial statements taken as a whole.
F-22
<PAGE> 82
IPO ACQUIRED COMPANIES
INTRODUCTION TO PRO FORMA COMBINED FINANCIAL STATEMENTS
The accompanying unaudited pro forma combined financial statements present
the combined financial position of the IPO Acquired Companies as of June 30,
1996 and the combined results of operations of the Acquired Companies for the
year then ended. The combined financial statements have been adjusted, on a pro
forma basis, to remove the effect of certain assets and liabilities which will
not be included in the assets and liabilities of the IPO Acquired Companies upon
their acquisition by the Company. In addition, the combined results of
operations have been adjusted on a pro forma basis to reflect the effect of
changes to certain components of costs and expenses. These items include
adjustments to compensation to owners and managers of the IPO Acquired Companies
to reflect agreed upon compensation levels subsequent to the acquisition by the
Company, adjustments to rental expense to reflect agreed upon modifications to
lease agreements to be effective subsequent to the acquisition by the Company
and adjustments to certain other costs and expenses which are not ongoing costs
of the businesses acquired and would not have been incurred had the Acquisitions
by the Company occurred at the beginning of the period presented.
F-23
<PAGE> 83
IPO ACQUIRED COMPANIES
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS OF CANADIAN DOLLARS) (IN THOUSANDS)
-------------------------------------- -------------------------------
ACTION
DELIVERY
AND SEKO
K.H.B. & MESSENGER EX- ENTERPRISES
ASSOCIATES SERVICE COM- CHANGE COM- SEIDEL AND RELATED
LTD. LIMITED BINED RATE BINED DELIVERY COMPANIES
---------- --------- ------ ------ ------ -------- -----------
(1)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents..................... $ -- $ -- $ -- 0.73 $ -- $ 49 $ --
Accounts receivable -- net.................... 934 -- 934 0.73 685 211 846
Other current assets.......................... 228 -- 228 0.73 167 29 218
------ ------ ------ ------ ---- ------
1,162 -- 1,162 852 289 1,064
PROPERTY AND EQUIPMENT -- net................... 389 -- 389 0.73 285 42 1,763
INTANGIBLES -- net.............................. -- -- -- 0.73 -- -- 144
OTHER ASSETS -- net............................. 132 -- 132 0.73 97 -- --
------ ------ ------ ------ ---- ------
$1,683 $ -- $1,683 $1,234 $331 $ 2,971
====== ====== ====== ====== ==== ======
LIABILITIES
CURRENT LIABILITIES............................. $1,330 $ -- $1,330 0.73 $ 976 $ 40 $ 910
LONG-TERM DEBT AND OTHER........................ 51 -- 51 0.73 38 -- 1,169
------ ------ ------ ------ ---- ------
1,381 -- 1,381 1,014 40 2,079
SHAREHOLDERS' EQUITY............................ 302 -- 302 0.73 220 291 892
------ ------ ------ ------ ---- ------
$1,683 $ -- $1,683 $1,234 $331 $ 2,971
====== ====== ====== ====== ==== ======
<CAPTION>
(IN THOUSANDS)
------------------------------------
SOUTHBANK
COURIER, ADJUST- COM-
INC. MENTS NOTES BINED
--------- ------- ----- ------
<S> <C> <C> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents..................... $ 15 $ (89) 3(b) $ (25)
Accounts receivable -- net.................... 370 (846) 3(a) 1,266
Other current assets.......................... 100 (218) 3(a) 296
---- ------- ------
485 (1,153) 1,537
PROPERTY AND EQUIPMENT -- net................... 23 (552) 3(a) 1,561
INTANGIBLES -- net.............................. -- (144) 3(a) --
OTHER ASSETS -- net............................. -- -- 97
---- ------- ------
$ 508 $(1,849) $3,195
==== ======= ======
LIABILITIES
CURRENT LIABILITIES............................. $ 10 $ (910) 3(a) $1,026
LONG-TERM DEBT AND OTHER........................ -- (1,169) 3(a) 38
---- ------- ------
10 (2,079) 1,064
SHAREHOLDERS' EQUITY............................ 498 230 3(a) 2,131
---- ------- ------
$ 508 $(1,849) $3,195
==== ======= ======
</TABLE>
- ---------------
(1) The balance sheet for Action Delivery and Messenger Service Limited has not
been included as it is included in the July 31, 1996 consolidated balance
sheet of Dynamex Inc.
See accompanying notes to the pro forma combined financial statements
F-24
<PAGE> 84
IPO ACQUIRED COMPANIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE ADD LESS
MONTHS SIX MONTHS SIX MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
1995 1996 1995 ADJUSTMENTS NOTE 1996
------------ ---------- ---------- ----------- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
SALES............................ $ 20,836 $ 10,318 $ 10,809 $ -- $20,345
COST OF SALES.................... 13,199 6,390 7,008 -- 12,581
------- ------ ------- ----- -------
GROSS PROFIT..................... 7,637 3,928 3,801 -- 7,764
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES....................... 7,042 3,356 3,389 (971) 4(b) 6,038
DEPRECIATION AND AMORTIZATION.... 368 164 185 (60) 4(a) 287
------- ------ ------- ----- -------
OPERATING INCOME................. 227 408 227 1,031 1,439
INTEREST EXPENSE................. 262 128 131 (183) 4(a) 76
OTHER INCOME..................... 160 70 84 7 153
------- ------ ------- ----- -------
INCOME BEFORE TAXES.............. 125 350 180 1,221 1,516
INCOME TAXES..................... 45 27 29 2 45
------- ------ ------- ----- -------
NET INCOME....................... $ 80 $ 323 $ 151 $ 1,219 $ 1,471
======= ====== ======= ===== =======
</TABLE>
See accompanying notes to the pro forma combined financial statements
F-25
<PAGE> 85
IPO ACQUIRED COMPANIES
SCHEDULE TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS OF CANADIAN DOLLARS) (IN THOUSANDS)
----------------------------------- -------------------
ACTION
DELIVERY
K.H.B. & AND
ASSOCIATES MESSENGER EXCHANGE SEIDEL
LTD. SERVICE COMBINED RATE COMBINED DELIVERY
---------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SALES................................................... $8,615 $ 3,118 $11,733 0.73 $8,565 $1,776
COST OF SALES........................................... 6,504 2,681 9,185 0.73 6,705 1,116
------ ------ ------- ------ ------
GROSS PROFIT............................................ 2,111 437 2,548 1,860 660
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................................... 1,819 272 2,091 0.73 1,526 628
DEPRECIATION AND AMORTIZATION........................... 146 63 209 0.73 153 19
------ ------ ------- ------ ------
OPERATING INCOME........................................ 146 102 248 181 13
INTEREST EXPENSE........................................ 80 102 182 0.73 133 --
OTHER INCOME............................................ 37 9 46 0.73 34 21
------ ------ ------- ------ ------
INCOME BEFORE TAXES..................................... 103 9 112 82 34
INCOME TAXES............................................ 20 2 22 0.73 16 7
------ ------ ------- ------ ------
NET INCOME.............................................. $ 83 $ 7 $ 90 $ 66 $ 27
====== ====== ======= ====== ======
<CAPTION>
(IN THOUSANDS)
---------------------------------------
SEKO
ENTERPRISES
AND RELATED SOUTHBANK
COMPANIES COURIER, INC. COMBINED
------------ ------------- --------
<S> <C> <C> <C>
SALES................................................... $8,489 $ 2,006 $20,836
COST OF SALES........................................... 4,421 957 13,199
------ ------ -------
GROSS PROFIT............................................ 4,068 1,049 7,637
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................................... 3,886 1,002 7,042
DEPRECIATION AND AMORTIZATION........................... 174 22 368
------ ------ -------
OPERATING INCOME........................................ 8 25 227
INTEREST EXPENSE........................................ 129 -- 262
OTHER INCOME............................................ 105 -- 160
------ ------ -------
INCOME BEFORE TAXES..................................... (16) 25 125
INCOME TAXES............................................ 11 11 45
------ ------ -------
NET INCOME.............................................. $ (27) $ 14 $ 80
====== ====== =======
</TABLE>
See accompanying notes to the pro forma combined financial statements
F-26
<PAGE> 86
IPO ACQUIRED COMPANIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS OF CANADIAN
DOLLARS)
--------------------------------- (IN THOUSANDS)
ACTION ----------------------------------------------------
DELIVERY SEKO
AND ENTERPRISES
K.H.B. & MESSENGER AND SOUTHBANK
ASSOCIATES SERVICE EXCHANGE SEIDEL RELATED COURIER,
LTD. LIMITED COMBINED RATE COMBINED DELIVERY COMPANIES INC. COMBINED
---------- --------- -------- -------- -------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SALES........................... $4,335 $ 1,376 $5,711 0.73 $4,170 $887 $ 4,075 $ 1,186 $10,318
COST OF SALES................... 3,225 1,037 4,262 0.73 3,112 562 2,145 571 6,390
------ ------ ------ ------ ---- ------ ------ -------
GROSS PROFIT.................... 1,110 339 1,449 1,058 325 1,930 615 3,928
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES....... 878 216 1,094 0.73 799 263 1,860 434 3,356
DEPRECIATION AND AMORTIZATION... 79 27 106 0.73 77 9 77 1 164
------ ------ ------ ------ ---- ------ ------ -------
OPERATING INCOME................ 153 96 249 182 53 (7) 180 408
INTEREST EXPENSE................ 38 43 81 0.73 59 -- 69 -- 128
OTHER INCOME.................... 8 3 11 0.73 8 1 61 -- 70
------ ------ ------ ------ ---- ------ ------ -------
INCOME BEFORE TAXES............. 123 56 179 131 54 (15) 180 350
INCOME TAXES.................... 29 -- 29 0.73 21 -- -- 6 27
------ ------ ------ ------ ---- ------ ------ -------
NET INCOME...................... 94 56 150 110 54 (15) 174 323
====== ====== ====== ====== ==== ====== ====== =======
</TABLE>
See accompanying notes to the pro forma combined financial statements
F-27
<PAGE> 87
IPO ACQUIRED COMPANIES
SCHEDULE TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS OF CANADIAN DOLLARS) (IN THOUSANDS)
------------------------------------ ------------------------------------------------------------
ACTION SEKO
K.H.B. & DELIVERY AND ENTERPRISES
ASSOCIATES MESSENGER EXCHANGE SEIDEL AND RELATED SOUTHBANK
LTD. SERVICE COMBINED RATE COMBINED DELIVERY COMPANIES COURIER, INC. COMBINED
---------- ------------ -------- -------- -------- -------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SALES............. $4,209 $1,587 $5,796 0.72 $4,172 $919 $ 4,223 $ 1,495 $10,809
COST OF SALES..... 3,157 1,347 4,504 0.72 3,242 572 2,206 988 7,008
------ ------ ------ ------ ---- ------ ------ -------
GROSS PROFIT...... 1,052 240 1,292 930 347 2,017 507 3,801
SELLING, GENERAL
AND
ADMINISTRATIVE
EXPENSES........ 949 129 1,078 0.72 776 315 1,861 437 3,389
DEPRECIATION AND
AMORTIZATION.... 84 38 122 0.72 88 10 76 11 185
------ ------ ------ ------ ---- ------ ------ -------
OPERATING INCOME
(LOSS).......... 19 73 92 66 22 80 59 227
INTEREST
EXPENSE......... 32 59 91 0.72 66 -- 65 -- 131
OTHER INCOME...... 21 3 24 0.72 17 9 58 -- 84
------ ------ ------ ------ ---- ------ ------ -------
INCOME (LOSS)
BEFORE TAXES.... 8 17 25 17 31 73 59 180
INCOME TAXES...... 2 -- 2 0.72 1 6 11 11 29
------ ------ ------ ------ ---- ------ ------ -------
NET INCOME........ $ 6 $ 17 $ 23 $ 16 $ 25 $ 62 $ 48 $ 151
====== ====== ====== ====== ==== ====== ====== =======
</TABLE>
See accompanying notes to the pro forma combined financial statements
F-28
<PAGE> 88
IPO ACQUIRED COMPANIES
NOTES TO THE PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying pro forma combined financial statement present the
combined financial position of the IPO Acquired Companies as of June 30, 1996
and the combined results of operations of the IPO Acquired companies for the
year then ended. The combined financial statements have been adjusted, on a pro
forma basis, to remove the effect of certain assets and liabilities which will
not be included in the assets and liabilities of the IPO Acquired Companies upon
their acquisition by the Company. In addition, the combined results of
operations have been adjusted on a pro forma basis to reflect the effect of
changes to certain components of costs and expenses. These items include
adjustments to compensation to owners and managers of the IPO Acquired Companies
to reflect agreed upon compensation levels subsequent to the acquisition by the
Company, adjustments to rental expense to reflect agreed upon modifications to
lease agreements to be effective subsequent to the acquisition by the Company
and adjustments to certain other costs and expenses which are not ongoing costs
of the businesses acquired and would not have been incurred had the Acquisition
by the Company occurred at the beginning of the period presented.
2. CURRENCY CONVERSION
The financial statements of those IPO Acquired Companies, for whom the
Canadian dollar is the functional currency, have been translated into U.S.
dollars at the conversion rate then in effect in the case of the balance sheets
and at the average conversion rate for the period in the case of the statements
of operations.
3. PRO FORMA ADJUSTMENTS TO COMBINED BALANCE SHEET
(a) Eliminates certain assets and related debt which will not be assets and
liabilities of the IPO Acquired Companies upon the acquisition by the
Company.
(b) Adjusts working capital to reflect pro forma adjustment to aggregate
purchase price arising from working capital and funded debt provisions
of purchase agreements.
4. PRO FORMA ADJUSTMENT TO COMBINED STATEMENT OF OPERATIONS
(a) Eliminates interest expense and depreciation related to assets and
liabilities eliminated from combined balance sheet.
(b) Adjusts costs and expenses for items which are not ongoing costs of the
business and which would not have been incurred had the IPO Acquired
Companies been owned by the Company as of the beginning of the period
presented:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
JUNE 30, 1996
-------------------
(IN THOUSANDS)
<S> <C>
Compensation expense..................................... $ 865
Facilities rent.......................................... (35)
Other.................................................... 141
------
$ 971
===============
</TABLE>
The above costs represent the difference between historical compensation
expense paid to the owners of the IPO Acquired Companies and the compensation to
be paid under contractual arrangements which become effective upon the Closing,
adjustments to facilities rent pursuant to revised lease agreements which become
effective upon the Closing and the elimination of other benefits and perquisites
historically received by the owners of the IPO Acquired Companies and which by
contractual arrangement will not be available subsequent to the Closing.
F-29
<PAGE> 89
INDEPENDENT AUDITORS' REPORT
To the Shareholder of
K.H.B. & Associates Ltd.
We have audited the consolidated balance sheets of K. H. B. & Associates
Ltd. as at December 31, 1994 and 1995 and the consolidated statements of
operations and retained earnings and changes in financial position for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Canada. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1994 and 1995 and the results of its operations and the changes in its financial
position for the years then ended in accordance with accounting principles
generally accepted in Canada.
DELOITTE & TOUCHE
Winnipeg, Manitoba
March 8, 1996
F-30
<PAGE> 90
K.H.B. & ASSOCIATES LTD.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31
----------------- JUNE 30
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT
Accounts receivable (Note 2)................................ $1,313 $1,343 $ 934
Prepaid and other current assets (Note 3)................... 127 147 212
Income taxes recoverable.................................... -- -- 16
Current portion of employee housing loan.................... 8 8 --
------ ------ ------
1,448 1,498 1,162
PROPERTY AND EQUIPMENT -- net (Note 4)........................ 550 570 389
OTHER ASSETS -- net (Note 5).................................. 441 361 132
------ ------ ------
$2,439 $2,429 $ 1,683
====== ====== ======
LIABILITIES
CURRENT
Bank indebtedness........................................... $ 727 $ 934 $ 991
Commissions payable......................................... 124 114 145
Accounts payable............................................ 402 284 70
Accrued liabilities......................................... 105 90 79
Income taxes payable........................................ 59 16 --
Current portion of long-term debt (Note 6).................. 63 68 45
------ ------ ------
1,480 1,506 1,330
LONG-TERM DEBT (Note 6)....................................... 59 85 51
------ ------ ------
1,539 1,591 1,381
------ ------ ------
NON-CONTROLLING INTEREST (Note 7)............................. 124 124 124
------ ------ ------
COMMITMENTS AND CONTINGENT LIABILITY (Note 8)
SHAREHOLDER'S EQUITY
Share capital
Authorized
Unlimited number of
1% to 12% non-cumulative, voting Class A preference
shares redeemable at $1 per share
1% to 6% non-cumulative, non-voting Class B
preference shares redeemable at $1.00 per share
Common shares
Issued
815,750 Class B preference shares...................... -- -- --
484,250 Class A preference shares...................... -- -- --
1,000,000 common shares.................................. -- -- --
Retained earnings........................................... 776 714 178
------ ------ ------
776 714 178
------ ------ ------
$2,439 $2,429 $ 1,683
====== ====== ======
</TABLE>
See accompanying notes to the consolidated financial statements
F-31
<PAGE> 91
K.H.B. & ASSOCIATES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31 JUNE 30
---------------- ----------------
1994 1995 1995 1996
------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE.................................................... $8,502 $8,615 $4,209 $4,335
COST OF SALES.............................................. 6,394 6,504 3,157 3,225
------ ------ ------ ------
GROSS PROFIT............................................... 2,108 2,111 1,052 1,110
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................................. 1,761 1,819 949 878
DEPRECIATION AND AMORTIZATION.............................. 121 146 84 79
------ ------ ------ ------
OPERATING INCOME........................................... 226 146 19 153
INTEREST EXPENSE........................................... 55 80 32 38
OTHER INCOME............................................... (37) (37) (21) (8)
------ ------ ------ ------
INCOME BEFORE INCOME TAXES................................. 208 103 8 123
INCOME TAXES............................................... 67 20 2 29
------ ------ ------ ------
NET INCOME................................................. 141 83 6 94
RETAINED EARNINGS, BEGINNING OF PERIOD..................... 635 776 776 714
------ ------ ------ ------
776 859 782 808
DIVIDENDS PAID............................................. -- 145 145 630
------ ------ ------ ------
RETAINED EARNINGS, END OF PERIOD........................... $ 776 $ 714 $ 637 $ 178
====== ====== ====== ======
</TABLE>
See accompanying notes to the consolidated financial statements
F-32
<PAGE> 92
K.H.B. & ASSOCIATES LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31 ENDED JUNE 30
-------------- --------------
1994 1995 1995 1996
----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING
ACTIVITIES
OPERATING
Net income for the period.................................. $ 141 $ 83 $ 6 $ 94
Items not affecting cash
Depreciation and amortization........................... 121 146 84 79
Deferred income taxes................................... 2 1 -- --
Loss on disposal of fixed assets........................ 30 3 -- --
----- ----- ----- -----
294 233 90 173
Changes in non-cash working capital balances
Accounts receivable..................................... (337) (30) 289 409
Prepaid expenses and supplies........................... 46 (20) (79) (65)
Accounts payable and accrued liabilities................ 238 (143) (235) (194)
Income taxes payable.................................... 23 (43) (73) (32)
Dividends paid.......................................... -- (145) (145) (630)
----- ----- ----- -----
264 (148) (153) (339)
----- ----- ----- -----
FINANCING
Net (decrease) increase in long-term debt.................. (56) 32 (93) (57)
----- ----- ----- -----
INVESTING
Property and equipment..................................... (103) (164) -- --
Proceeds on disposal of property and equipment............. -- 6 52 102
Other assets............................................... (251) 67 105 237
----- ----- ----- -----
(354) (91) 157 339
----- ----- ----- -----
NET CASH INFLOW (OUTFLOW).................................... (146) (207) (89) (57)
BANK INDEBTEDNESS, BEGINNING OF PERIOD....................... (581) (727) (727) (934)
----- ----- ----- -----
BANK INDEBTEDNESS, END OF PERIOD............................. $(727) $(934) $(816) $(991)
===== ===== ===== =====
</TABLE>
See accompanying notes to the consolidated financial statements
F-33
<PAGE> 93
K.H.B. & ASSOCIATES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF CANADIAN DOLLARS)
1. ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada and conform in all material
respects with those of the United States. The Company's significant accounting
policies are as follows:
Basis of presentation
These consolidated financial statements include the accounts of the Company
and its subsidiary Zipper Transportation Services Ltd./Services de Transport
Zipper Ltee.
Inventory
Supplies and uniforms on hand are recorded at the lower cost and net
realizable value.
Property and equipment
Fixed assets are recorded at cost and depreciation is provided at the
following rates:
<TABLE>
<S> <C>
Vehicles........................................ 30% diminishing-balance basis
Furniture, fixtures and equipment............... 20% diminishing-balance basis
Radio equipment................................. 10% straight-line basis
Computer and telephone equipment................ 20% straight-line basis
Leasehold improvements.......................... Over the term of the lease;
minimum 5 years
</TABLE>
Capital leases
Lease agreements which transfer the risks and rewards of ownership of the
leased assets are accounted for as capital leases, whereby the fair market value
of the leased asset is capitalized and amortized over its useful life to the
company. A corresponding obligation under capital lease is recorded and reduced
by the lease payments, based on the interest rate implicit in the lease.
Goodwill
Goodwill consists of the excess of cost over the fair value of net assets
acquired and is amortized on a straight-line basis over twenty years. Annually,
the Company evaluates the net carrying value of goodwill to determine if there
has been any impairment in value. This determination is made by reviewing
projections of future cash flow to be generated by the acquired business.
Deferred income taxes
Deferred income taxes arise primarily as a result of the excess of
depreciation recorded for book purposes in excess of capital cost allowance
claimed for tax purposes.
Unaudited Financial Information
In the opinion of management, the accompanying unaudited financial
information includes all adjustments consisting of normal and recurring items,
necessary for a fair presentation.
F-34
<PAGE> 94
K.H.B. & ASSOCIATES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF CANADIAN DOLLARS)
2. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31
---------------- JUNE 30
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Trade................................................... $1,069 $ 986 $ 934
Drivers and sundry...................................... 21 33 --
Staff advances.......................................... 2 3 --
Due from Alcrest Holdings Ltd. ......................... 55 66 --
Due from shareholder.................................... 166 255 --
------ ------ ------
$1,313 $1,343 $ 934
====== ====== ======
</TABLE>
The amounts due from Alcrest Holdings Ltd., a related party, and from
shareholder are non-interest bearing with no fixed terms of repayment.
3. PREPAID EXPENSES AND SUPPLIES
<TABLE>
<CAPTION>
DECEMBER 31
---------------- JUNE 30
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Supplies................................................ $ 107 $ 107 $ 169
Uniforms................................................ 11 13 2
Other................................................... 9 27 47
------ ------ ------
$ 127 $ 147 $ 212
====== ====== ======
</TABLE>
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31
---------------- JUNE 30
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Vehicles................................................ $ 114 $ 96 $ 96
Radio equipment......................................... 277 277 277
Furniture, fixtures and equipment....................... 326 367 332
Computer equipment...................................... 220 249 250
Leasehold improvements.................................. 142 199 212
Radio equipment under capital lease..................... 227 227 34
------ ------ ------
1,306 1,415 1,201
Less: Accumulated depreciation.......................... 756 845 812
------ ------ ------
$ 550 $ 570 $ 389
====== ====== ======
</TABLE>
F-35
<PAGE> 95
K.H.B. & ASSOCIATES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF CANADIAN DOLLARS)
5. OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------- JUNE 30
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Employee housing loan................................... $ 251 $ 192 $ --
Security deposits....................................... 32 23 --
Deferred income taxes................................... 17 16 --
Goodwill (net of amortization of $82 in 1994; $93 in
1995; $99 in 1996).................................... 149 138 132
------ ------ ------
449 369 132
Less: Current portion of employee housing loan.......... 8 8 --
------ ------ ------
$ 441 $ 361 $ 132
====== ====== ======
</TABLE>
The employee housing loan is non-interest bearing and is secured by a
second mortgage on the employees residence. The loan is repayable in annual
installments of $8.
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31
---------------- JUNE 30
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Bank loan, repayable in monthly principal installments
of $1 plus interest at the bank's prime rate plus
1.25%................................................. $ 35 $ -- $ --
Bank loan, repayable in monthly principal installments
of $3 plus interest at the bank's prime rate plus
1.50%................................................. -- 90 72
Bank loan, repayable in blended, monthly installments of
$1, bearing interest at 9.90%......................... -- 29 24
Obligation under capital lease.......................... 87 34 --
------ ------ ------
122 153 96
Current portion......................................... 63 68 45
------ ------ ------
$ 59 $ 85 $ 51
====== ====== ======
</TABLE>
a) The bank loans and bank indebtedness are secured by the following:
- registered general assignment of book debts and covering all assets;
- assignment of insurance proceeds on all assets;
- keyman life insurance in the amount of $400;
- unlimited guarantee of the shareholder and an associated company;
- assignment of the second mortgage on the home of the shareholder.
(b) Expected principal repayments over the next 5 years are as follows:
<TABLE>
<S> <C>
1996................................................... $63
1997................................................... 40
1998................................................... 41
1999................................................... 4
</TABLE>
F-36
<PAGE> 96
K.H.B. & ASSOCIATES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF CANADIAN DOLLARS)
(c) Interest expense on long-term debt during the year ended December 31,
1994 and 1995 and during the six months ended June 30, 1995 and 1996
amounted to $18, $14, $8 (unaudited) and $8 (unaudited), respectively.
(d) The obligation under capital lease is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------- JUNE 30
1994 1995 1996
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Minimum lease payments in:
1995............................................. $61 $-- $--
1996............................................. 36 36 --
---- ---- ---
97 36 --
Less amounts representing interest................. (10 ) (2 ) --
--- --- ---
$87 $34 $--
=== === ===
</TABLE>
7. NON-CONTROLLING INTEREST
The non-controlling interest is comprised of 119,000 Class C preference
shares issued by the Company's subsidiary. These shares which carry
non-cumulative dividend entitlements of 1% to 12%, may be redeemed for $124 at
the option of the subsidiary or the holder. The holder is related to the
shareholder of the Company.
8. COMMITMENTS AND CONTINGENT LIABILITY
(a) The Company has entered into various lease agreements for premises,
vehicles and equipment with expiry dates to 1998. Minimum annual rents,
net of anticipated recovery of rental charges for leased vehicles and
premises, for each of the next three years is as follows:
<TABLE>
<S> <C>
1996................................................... $62
1997................................................... 21
1998................................................... 12
</TABLE>
(b) The Company has provided guarantees and postponements of claim of the
debts of an affiliated corporation, Alcrest Holdings Ltd. As at March
31, 1996, these debts amounted to $776 (unaudited).
9. RELATED PARTY TRANSACTIONS
The financial statements include rent paid to Alcrest Holdings Ltd., a
company affiliated by common control, in the amount of $204, $204, $102
(unaudited) and $102 (unaudited) for the year ended December 31, 1994 and 1995
and the six months ended June 30, 1995 and 1996, respectively.
F-37
<PAGE> 97
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Action Delivery and Messenger Service Limited
We have audited the consolidated balance sheets of Action Delivery and
Messenger Service Limited as at December 31, 1994 and 1995 and the consolidated
statements of operations and retained earnings and changes in financial position
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Canada. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1994 and 1995, and the results of its operations and the changes in its
financial position for the years then ended, in accordance with accounting
principles generally accepted in Canada.
DELOITTE & TOUCHE
Halifax, Nova Scotia
March 29, 1996
F-38
<PAGE> 98
ACTION DELIVERY AND MESSENGER SERVICE LIMITED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------- JUNE 30
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT
Accounts receivable (net of allowance for doubtful accounts of
$12, $15 and $15 (unaudited) at December 31, 1994 and 1995
and June 30, 1996, respectively)........................... $ 437 $ 425 $ 430
Due from parent company....................................... 31 94 128
Income taxes recoverable...................................... 3 -- --
Inventories................................................... 18 15 13
Prepaid expenses.............................................. 12 8 38
Current portion of term loans receivable (Note 4)............. 20 14 --
------ ------ ------
521 556 609
PROPERTY AND EQUIPMENT -- net (Note 3).......................... 784 725 705
TERM LOANS RECEIVABLE (Note 4).................................. 15 -- --
------ ------ ------
$1,320 $1,281 $ 1,314
====== ====== ======
LIABILITIES
CURRENT
Bank indebtedness (Note 5).................................... $ 330 $ 313 $ 322
Accounts payable.............................................. 62 73 48
Accrued liabilities........................................... 19 -- 46
Accrued driver wages.......................................... 64 75 50
Income tax payable............................................ -- 2 4
Current portion of long-term debt............................. 43 44 44
------ ------ ------
518 507 514
DEFERRED INCOME TAXES........................................... 3 3 4
LONG-TERM DEBT (Note 6)......................................... 542 507 476
------ ------ ------
1,063 1,017 994
------ ------ ------
COMMITMENTS AND CONTINGENT LIABILITY (Notes 8 and 9)
SHAREHOLDERS' EQUITY
Share capital
Authorized
1,000 4% non-cumulative, non-voting, redeemable,
retractible preference shares with a redemption value
of $1 each
4,000 common shares
Issued
500 preferred shares..................................... 1 1 1
100 common shares........................................ -- -- --
------ ------ ------
1 1 1
Retained earnings............................................... 256 263 319
------ ------ ------
257 264 320
------ ------ ------
$1,320 $1,281 $ 1,314
====== ====== ======
</TABLE>
See accompanying notes to the consolidated financial statements
F-39
<PAGE> 99
ACTION DELIVERY AND MESSENGER SERVICE LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31 JUNE 30
---------------- ----------------
1994 1995 1995 1996
------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
SALES...................................................... $3,100 $3,118 $1,587 $1,376
COST OF SALES.............................................. 2,728 2,681 1,347 1,037
------ ------ ------ ------
GROSS PROFIT............................................... 372 437 240 339
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............... 244 272 129 216
------ ------ ------ ------
128 165 121 123
DEPRECIATION............................................... 55 63 38 27
------ ------ ------ ------
OPERATING INCOME........................................... 73 102 73 96
OTHER (INCOME) EXPENSES
Interest................................................. 109 102 59 43
Other.................................................... (20) (9) (3) (3)
------ ------ ------ ------
INCOME (LOSS) BEFORE INCOME TAXES.......................... (16) 9 17 56
INCOME TAXES (RECOVERY OF) PROVISION FOR................... (3) 2 -- --
------ ------ ------ ------
NET INCOME (LOSS).......................................... (13) 7 17 56
RETAINED EARNINGS, BEGINNING OF PERIOD..................... 307 256 256 263
------ ------ ------ ------
294 263 273 319
DIVIDENDS.................................................. 38 -- -- --
------ ------ ------ ------
RETAINED EARNINGS, END OF PERIOD........................... $ 256 $ 263 $ 273 $ 319
====== ====== ====== ======
</TABLE>
See accompanying notes to the consolidated financial statements
F-40
<PAGE> 100
ACTION DELIVERY AND MESSENGER SERVICE LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31 ENDED JUNE 30
-------------- --------------
1994 1995 1995 1996
----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING
ACTIVITIES
OPERATING
Net income (loss).......................................... $ (13) $ 7 $ 17 $ 56
Items not affecting cash
Depreciation............................................ 55 63 38 27
Loss on disposal of property and equipment.............. -- (3) -- --
----- ----- ----- -----
42 67 55 83
Changes in non-cash operating working capital items........ (19) (35) (76) (64)
----- ----- ----- -----
23 32 (21) 19
----- ----- ----- -----
FINANCING
Issue of share capital..................................... 1 -- -- --
Reduction in term loans receivable......................... 4 20 15 10
Issue of long-term debt.................................... 93 14 -- --
Repayment of long-term debt................................ (56) (48) (39) (31)
Dividends paid............................................. (38) -- -- --
----- ----- ----- -----
4 (14) (24) (21)
----- ----- ----- -----
INVESTING
Acquisition of property and equipment...................... (132) (9) (8) (7)
Proceeds on disposal of property and equipment............. 13 8 -- --
----- ----- ----- -----
(119) (1) (8) (7)
----- ----- ----- -----
NET CASH INFLOW (OUTFLOW).................................... (92) 17 (53) (9)
BANK INDEBTEDNESS, BEGINNING OF PERIOD....................... (238) (330) (330) (313)
----- ----- ----- -----
BANK INDEBTEDNESS, END OF PERIOD............................. $(330) $(313) $(383) $(322)
===== ===== ===== =====
</TABLE>
See accompanying notes to the consolidated financial statements
F-41
<PAGE> 101
ACTION DELIVERY AND MESSENGER SERVICE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF CANADIAN DOLLARS)
1. DESCRIPTION OF BUSINESS
Action Delivery and Messenger Service Limited is incorporated under the
laws of the Province of Nova Scotia, and is primarily involved in the provision
of same-day delivery service in the metropolitan Halifax area.
2. ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada and conform in all material
respects, with those of the United States, and include the following significant
accounting policies:
Consolidation
The financial statements include the accounts of Action Delivery and
Messenger Service Limited and its wholly owned subsidiaries, Atlantic Medical
Transportation Services Limited and Atlantic Bonded Courier Services Limited.
Inventories
Inventory is valued at lower of cost and replacement cost.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using
the declining-balance method at the following annual rates:
<TABLE>
<S> <C>
Building.............................................. 4%
Furniture and equipment............................... 20%
Radios................................................ 20%
Computer equipment.................................... 30%
Vehicles.............................................. 30%
</TABLE>
Unaudited Financial Information
In the opinion of management, the accompanying unaudited financial
information includes all adjustments consisting of normal and recurring items,
necessary for a fair presentation.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Land and land improvements............................ $ 111 $ 111 $ 111
Building.............................................. 618 618 629
Furniture and equipment............................... 83 84 85
Radios................................................ 122 122 122
Computer equipment.................................... 106 114 117
Vehicles.............................................. 94 30 30
------ ------ ------
1,134 1,079 1,094
Less: Accumulated depreciation........................ 350 354 389
------ ------ ------
$ 784 $ 725 $ 705
====== ====== ======
</TABLE>
F-42
<PAGE> 102
ACTION DELIVERY AND MESSENGER SERVICE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF CANADIAN DOLLARS)
4. TERM LOANS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31
------------ JUNE 30
1994 1995 1996
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
11.50% term loan receivable, repayable in monthly
installments of $0.5, principal and interest, until
November, 1996............................................. $ 9 $ 4 $--
11.50% term loan receivable, repayable in monthly
installments of $0.4, principal and interest, until July,
1997....................................................... 10 5 --
11.50% term loan receivable, repayable in monthly
installments of $0.5, principal and interest, until
October, 1996.............................................. 10 5 --
11.50% term loan receivable, repayable in monthly
installments of $0.5, principal and interest, until
October, 1995.............................................. 6 -- --
--- --- ---
35 14 --
Less: Current portion........................................ 20 14 --
--- --- ---
$15 $-- $--
=== === ===
</TABLE>
5. BANK INDEBTEDNESS
The company's bank indebtedness is secured by a pledge of its accounts
receivable and debentures in the amount of $750 providing first fixed and
floating charges on all of the company's assets. Bank indebtedness includes the
following amounts:
<TABLE>
<CAPTION>
DECEMBER 31
------------ JUNE 30,
1994 1995 1996
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Demand loan, bearing interest at prime plus 1.5%........... $300 $235 $ 287
Demand loan, bearing interest at prime plus 2%............. -- 70 --
Cheques issued in excess of funds on deposit............... 30 8 35
---- ---- ----
$330 $313 $ 322
==== ==== ====
</TABLE>
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
------------ JUNE 30,
1994 1995 1996
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
8.5% mortgage, payable in monthly installments of $5
including principal and interest. The mortgage is secured
by land and building having a carrying value of $596..... $474 $466 $ 460
Term bank loan, bearing interest at prime plus 1.75%,
payable in monthly installments of $2 including principal
and interest, maturing September, 1999, secured by
specific equipment....................................... 69 67 60
Term bank loan, bearing interest at prime plus 2%, payable
in monthly installments of $0.4 including principal and
interest, maturing June, 1997, secured by a specific
vehicle.................................................. 10 6 --
</TABLE>
F-43
<PAGE> 103
ACTION DELIVERY AND MESSENGER SERVICE LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995 1996
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Term bank loan, bearing interest at prime plus 2%, payable
in monthly installments of $0.4 including principal and
interest, maturing December, 1996, secured by a specific
vehicle.................................................. 10 5 --
Term bank loan, bearing interest at prime plus 2%, payable
in monthly installments of $0.4 including principal and
interest, maturing August, 1996, secured by a specific
vehicle.................................................. 8 4 --
Term bank loan, bearing interest at prime plus 2%, payable
in monthly installments of $0.4 including principal and
interest, maturing October, 1996, secured by a specific
vehicle.................................................. 7 3 --
Term bank loan, bearing interest at prime plus 2%, payable
in monthly installments of $3 including principal and
interest, matured February, 1995, secured by a specific
vehicle.................................................. 7 -- --
---- ---- ----
585 551 520
Less: Current portion...................................... 43 44 44
---- ---- ----
$542 $507 $ 476
==== ==== ====
</TABLE>
The principal due within each of the next five years on long-term debt,
assuming financing of the mortgage under similar terms, is approximately as
follows:
<TABLE>
<S> <C>
1996................................................... $44
1997................................................... 33
1998................................................... 33
1999................................................... 24
2000................................................... 15
</TABLE>
7. RELATED PARTY TRANSACTIONS
Management fees paid to an associated company for the years ended December
31, 1994 and 1995 and for the six months ended June 30, 1995 and 1996 were $18,
$36, $16 (unaudited) and $16 (unaudited), respectively.
8. CONTINGENT LIABILITY
The company has outstanding letters of credit to I/F/O Canada Post
totalling $40 which are due February 29, 1997.
9. COMMITMENT
The company is renting office equipment and a truck under long-term leases
expiring in 2000 and 2002, respectively. The annual rent is approximately $15.
F-44
<PAGE> 104
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Southbank Courier, Inc.
We have audited the accompanying consolidated balance sheets of Southbank
Courier, Inc. as at December 31, 1994 and 1995, and the related consolidated
statements of operations and retained earnings and of cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Southbank Courier, Inc. as
of December 31, 1994 and 1995, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE
Toronto, Ontario
May 22, 1996
F-45
<PAGE> 105
SOUTHBANK COURIER, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
------------- JUNE 30
1994 1995 1996
---- ---- -----------
ASSETS (UNAUDITED)
<S> <C> <C> <C>
CURRENT
Cash........................................................... $ 45 $ -- $ 15
Account receivable (net of allowance for doubtful accounts of
$45, $45 and $26 (unaudited) at December 31, 1994 and 1995
and June 30, 1996, respectively)............................ 260 298 370
Other current assets (Note 2).................................. 17 21 100
---- ---- ----
322 319 485
PROPERTY AND EQUIPMENT -- net (Note 3)........................... 19 24 23
---- ---- ----
$341 $343 $ 508
==== ==== ====
LIABILITIES
CURRENT
Bank indebtedness.............................................. $ -- $ 6 $ --
Accounts payable............................................... 18 10 10
Accrued liabilities............................................ 7 3 --
Income taxes payable........................................... 6 -- --
---- ---- ----
31 19 10
---- ---- ----
COMMITMENTS (Note 5)
SHAREHOLDERS' EQUITY
Common stock; 200 shares authorized, 200 shares outstanding
(Note 4).................................................... 374 374 374
Retained earnings (deficit).................................... (64) (50) 124
---- ---- ----
310 324 498
---- ---- ----
$341 $343 $ 508
==== ==== ====
</TABLE>
See accompanying notes to the consolidated financial statements
F-46
<PAGE> 106
SOUTHBANK COURIER, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31 JUNE 30
----------------- -----------------
1994 1995 1995 1996
------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
SALES................................................... $1,597 $2,006 $1,495 $1,186
COST OF SALES........................................... 739 957 988 571
------ ------ ------ ------
GROSS PROFIT............................................ 858 1,049 507 615
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................................. 759 1,002 437 434
DEPRECIATION AND AMORTIZATION........................... 8 22 11 1
------ ------ ------ ------
OPERATING INCOME........................................ 91 25 59 180
INTEREST EXPENSE........................................ 13 -- -- --
------ ------ ------ ------
INCOME BEFORE INCOME TAXES.............................. 78 25 59 180
PROVISION FOR INCOME TAXES.............................. 14 11 11 6
------ ------ ------ ------
NET INCOME.............................................. 64 14 48 174
(DEFICIT), BEGINNING OF PERIOD.......................... (128) (64) (64) (50)
------ ------ ------ ------
RETAINED EARNINGS (DEFICIT), END OF PERIOD.............. $ (64) $ (50) $ (16) $ 124
====== ====== ====== ======
</TABLE>
See accompanying notes to the consolidated financial statements
F-47
<PAGE> 107
SOUTHBANK COURIER, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31 JUNE 30
------------- -------------
1994 1995 1995 1996
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income for the period................................... $ 64 $ 14 $ 48 $174
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 8 22 11 1
Interest expense converted to common stock............... 13 -- -- --
Loss (gain) on disposal of fixed assets.................. 11 (1) -- --
---- ---- ---- ----
96 35 59 175
Changes non-cash working capital balances
Account receivable -- net................................ (59) (38) (60) (72)
Other current assets..................................... (3) (4) (17) (79)
Accounts payable and accrued liabilities................. (23) (12) 45 (3)
Income taxes payable..................................... (2) (6) (6) --
---- ---- ---- ----
9 (25) (38) 21
---- ---- ---- ----
FINANCING ACTIVITIES
Long-term debt.............................................. 18 -- -- --
---- ---- ---- ----
INVESTING ACTIVITIES
Acquisition of property and equipment....................... (13) (29) (14) --
Proceeds on disposal of property and equipment.............. -- 3 -- --
---- ---- ---- ----
(13) (26) (14) --
---- ---- ---- ----
INCREASE (DECREASE) IN CASH POSITION.......................... 14 (51) 7 21
CASH POSITION, BEGINNING OF PERIOD............................ 31 45 45 (6)
---- ---- ---- ----
CASH POSITION, END OF PERIOD.................................. $ 45 $ (6) $ 52 $ 15
==== ==== ==== ====
CASH POSITION IS COMPRISED OF:
Cash........................................................ $ 45 $ -- $ 52 $ 15
Bank indebtedness........................................... -- (6) -- --
---- ---- ---- ----
$ 45 $ (6) $ 52 $ 15
==== ==== ==== ====
</TABLE>
See accompanying notes to the consolidated financial statements
F-48
<PAGE> 108
SOUTHBANK COURIER, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Southbank Courier, Inc. include
the accounts of the Company and its wholly-owned subsidiaries Van Man, Inc. and
Flying Pigs, Inc.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
is provided at the following rates:
<TABLE>
<S> <C>
Vehicles......................................... 20% diminishing-balance basis
Computers........................................ 20% diminishing-balance basis
Radio equipment.................................. 14% diminishing-balance basis
Furniture & fixtures............................. 14% - 20% diminishing-balance basis
Leasehold Improvements........................... term of lease, straight-line
</TABLE>
Revenue Recognition
Revenue is recognized when the services are rendered to customers.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Unaudited Financial Information
In the opinion of management, the accompanying unaudited financial
information includes all adjustments consisting of normal and recurring items,
necessary for a fair presentation.
2. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
------------- JUNE 30
1994 1995 1996
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Due from employees......................................... $ 4 $10 $ 1
Security deposits.......................................... 8 8 8
Other...................................................... 5 3 3
Due from affiliate......................................... -- -- 88
---- ---- -----------
$17 $21 $ 100
==== ==== =========
</TABLE>
F-49
<PAGE> 109
SOUTHBANK COURIER, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31
------------- JUNE 30
1994 1995 1996
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Vehicles................................................... $ 4 $-- $--
Furniture & fixtures....................................... 3 3 3
Radio equipment............................................ 29 33 35
Computer equipment......................................... 5 27 27
Leasehold improvements..................................... 11 11 11
--- --- ---
52 74 76
Less: Accumulated depreciation and amortization............ 33 50 53
--- --- ---
$19 $24 $23
=== === ===
</TABLE>
4. RELATED PARTY TRANSACTIONS
The companies paid management fees totalling $70, $172, $70 (unaudited),
and $8 (unaudited) to a shareholder during the years ended December 31, 1994 and
1995 and the six months ended June 30, 1995 and 1996, respectively.
5. COMMITMENTS
The Company leases office space under operating lease agreements which
expire in September 1997.
At December 31, 1995, future minimum lease payments for such leases are as
follows:
<TABLE>
<S> <C>
1996................................................... $22
1997................................................... 16
---
$38
===
</TABLE>
Rent expense for the years ended December 31, 1994 and 1995 and for the
three months ended June 30, 1995 and 1996 was $58, $64, $32 (unaudited) and $40
(unaudited), respectively.
F-50
<PAGE> 110
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Seko Enterprises, Inc. and Related Companies
We have audited the combined balance sheets of Seko Enterprises, Inc. and
Related Companies as at December 31, 1994 and 1995 and the combined statements
of income and retained earnings and cash flows for the years then ended. These
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of Seko Enterprises, Inc. and Related
Companies as at December 31, 1994 and 1995 and the results of their operations
and the changes in their cash flows for the years then ended in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE
Toronto, Ontario
April 5, 1996
F-51
<PAGE> 111
SEKO ENTERPRISES, INC. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
----------------- JUNE 30
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT
Accounts receivable (net of allowance for doubtful accounts
of $79; $72; $25 (unaudited) at December 31, 1994 and
1995 and June 30, 1996, respectively).................... $1,018 $ 981 $ 846
Prepaid and other assets (Note 4)........................... 354 387 218
------ ------ ------
1,372 1,368 1,064
PROPERTY AND EQUIPMENT -- net (Note 5)........................ 1,791 1,785 1,763
INTANGIBLES -- net (Note 6)................................... 84 311 144
OTHER ASSETS (Note 7)......................................... 13 17 --
------ ------ ------
$3,260 $3,481 $ 2,971
====== ====== ======
LIABILITIES
CURRENT
Bank indebtedness........................................... $ 3 $ 34 $ 157
Accounts payable and accrued liabilities (Note 8)........... 392 418 344
Due to stockholders......................................... 579 845 327
Current portion of notes payable (Note 9)................... -- 70 70
Current portion of long-term debt (Note 10)................. 9 12 12
------ ------ ------
983 1,379 910
NOTES PAYABLE (Note 10)....................................... -- 93 88
LONG-TERM DEBT (Notes 11)..................................... 1,093 1,082 1,081
------ ------ ------
2,076 2,554 2,079
------ ------ ------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 11)
SHAREHOLDERS' EQUITY
Common stock
Seko -- (No par value; authorized 1,000 shares; issued 200
shares)
Metro -- (No par value; authorized 1,000 shares; issued 100
shares)
Attention -- (No par value; authorized 1,000 shares; issued
100 shares)
National -- (No par value; authorized 1,000 shares; issued
100 shares).............................................. 10 10 10
Additional paid-in capital.................................... 50 70 50
Retained earnings............................................. 1,124 847 832
------ ------ ------
1,184 927 892
------ ------ ------
$3,260 $3,481 $ 2,971
====== ====== ======
</TABLE>
See accompanying notes to the combined financial statements
F-52
<PAGE> 112
SEKO ENTERPRISES, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31 JUNE 30
---------------- ----------------
1994 1995 1995 1996
------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
SALES...................................................... $9,053 $8,489 $4,223 $4,075
COST OF SALES.............................................. 4,838 4,421 2,206 2,145
------ ------ ------ ------
GROSS PROFIT............................................... 4,215 4,068 2,017 1,930
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................................. 3,825 3,886 1,861 1,860
DEPRECIATION AND AMORTIZATION.............................. 196 174 76 77
------ ------ ------ ------
OPERATING INCOME (LOSS).................................... 194 8 80 (7)
------ ------ ------ ------
OTHER (INCOME) EXPENSE
Interest................................................. 129 129 65 69
Other.................................................... (113) (105) (58) (61)
------ ------ ------ ------
16 24 -- 8
------ ------ ------ ------
INCOME (LOSS) BEFORE TAXES................................. 178 (16) 73 (15)
INCOME TAXES............................................... 3 11 11 --
------ ------ ------ ------
NET INCOME (LOSS).......................................... 175 (27) 62 (15)
RETAINED EARNINGS, BEGINNING OF PERIOD..................... 949 1,124 1,124 847
DIVIDENDS.................................................. -- 250 250 --
------ ------ ------ ------
RETAINED EARNINGS, END OF PERIOD........................... $1,124 $ 847 $ 936 $ 832
====== ====== ====== ======
</TABLE>
See accompanying notes to the combined financial statements
F-53
<PAGE> 113
SEKO ENTERPRISES, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31 JUNE 30
-------------- --------------
1994 1995 1995 1996
----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).......................................... $ 175 $ (27) $ 62 $ (15)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization........................... 196 174 76 77
Decrease (increase) in cash value of life insurance..... (2) (4) (2) 17
Changes in operating assets and liabilities
Accounts receivable, net.............................. (156) 37 66 135
Prepaid and other current assets...................... (12) (33) (83) 169
Accounts payable and accrued liabilities.............. (242) 26 161 (74)
Due to stockholders................................... 336 266 11 (518)
----- ----- ----- -----
Net cash provided by (used in) operating activities........ 295 439 (291) (209)
----- ----- ----- -----
INVESTING ACTIVITIES
Additions to property and equipment, net................... (86) (158) (45) (50)
Additions to intangibles, net.............................. (35) (237) (62) 162
----- ----- ----- -----
Net cash used in investing activities...................... (121) (395) (107) 112
----- ----- ----- -----
FINANCING ACTIVITIES
Principal payments on long-term debt....................... 3 (8) (4) (1)
(Redemption) issuance of common stock...................... (1) 20 -- --
Notes payable.............................................. -- 163 -- (5)
Payment of dividends and return of capital................. (49) (250) (250) (20)
----- ----- ----- -----
Net cash provided by (used in) financing activities........ (47) (75) (254) (26)
----- ----- ----- -----
NET DECREASE (INCREASE) IN BANK INDEBTEDNESS................. 127 (31) (70) (123)
BANK INDEBTEDNESS, BEGINNING OF PERIOD....................... (130) (3) (3) (34)
----- ----- ----- -----
BANK INDEBTEDNESS, END OF PERIOD............................. $ (3) $ (34) $ (73) $(157)
===== ===== ===== =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for
Interest................................................ $ 129 $ 129 $ 36 $ 69
Income taxes............................................ 2 -- -- --
----- ----- ----- -----
$ 131 $ 129 $ 36 $ 69
===== ===== ===== =====
</TABLE>
See accompanying notes to the combined financial statements
F-54
<PAGE> 114
SEKO ENTERPRISES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BUSINESS AND ORGANIZATION
Seko Enterprises, Inc., Metro Messenger, Inc., Attention Messenger, Inc.
and National Messenger System, Inc. (collectively the "Companies") are engaged
in the courier business primarily in the Chicago metropolitan area. The
Companies provide courier services through the use of independent contractors.
2. PRINCIPLES OF COMBINATION
The Companies are under common control of a single shareholder either
directly or through wholly-owned companies and have been combined due to their
interdependence and form of operations. The combined financial statements
include the accounts of Seko Enterprises, Inc., Metro Messenger, Inc., Attention
Messenger, Inc. and National Messenger System, Inc. after all intercompany
balances have been eliminated.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed over the estimated useful lives of the assets as
indicated in the following table by use of the straight-line and the accelerated
methods used for tax purposes.
<TABLE>
<CAPTION>
YEARS METHOD
------ -------------------------------
<S> <C> <C>
Buildings and improvements................. 31.5 MACRS
Leasehold improvements..................... 5 Straight-line
Computers and programs..................... 5 Straight-line, ACRS, and MACRS
Equipment and fixtures..................... 5-7 Straight-line, ACRS, and MACRS
Vehicles................................... 5 ACRS and MACRS
</TABLE>
Intangibles
Customer lists and covenants not to compete are amortized over 15 years
under the straight-line method.
Income Taxes
Certain of the Companies are S Corporations for income tax purposes and,
accordingly, any income tax liabilities are the responsibility of the respective
stockholders. The Companies have elected to have its stockholders taxed directly
on all income pursuant to Section 1377 of the Internal Revenue Code.
Accordingly, these combined financial statements, do not reflect income taxes
for these S Corporations. Federal and state income taxes have been provided for
C Corporations.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Unaudited Financial Information
In the opinion of management, the accompanying unaudited financial
information includes all adjustments consisting of normal and recurring items,
necessary for a fair presentation.
F-55
<PAGE> 115
SEKO ENTERPRISES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
4. PREPAID AND OTHER CURRENT ASSETS
Prepaid and other current assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------- JUNE 30
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Prepaid insurance................................... $ 46 $ 65 $ 40
Prepaid expenses.................................... 31 49 57
Employee receivables................................ 12 19 11
Deposits............................................ 5 25 --
Income taxes recoverable............................ -- 41 6
Due from shareholder................................ 85 83 56
Other............................................... 175 105 48
------- ------- -----------
$ 354 $ 387 $ 218
======= ======= =========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------- JUNE 30
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land................................................ $ 343 $ 343 $ 343
Buildings and improvements.......................... 1,459 1,459 1,459
Leasehold improvements.............................. 17 17 17
Computers and programs.............................. 829 875 867
Equipment and fixtures.............................. 1,036 1,081 1,103
Vehicles............................................ 278 320 337
------- ------- -----------
3,962 4,095 4,126
Less accumulated depreciation....................... (2,171) (2,310) (2,363)
------- ------- -----------
$ 1,791 $ 1,785 $ 1,763
======= ======= =========
</TABLE>
6. INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------- JUNE 30
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill............................................ $ 41 $ 16 $ 34
Customer lists...................................... 98 240 160
Covenants not to compete............................ 117 130 30
------- ------- -----------
256 386 224
Less accumulated amortization....................... (172) (75) (80)
------- ------- -----------
$ 84 $ 311 $ 144
======= ======= =========
</TABLE>
F-56
<PAGE> 116
SEKO ENTERPRISES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
7. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------- JUNE 30
1994 1995 1996
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash surrender value of life insurance policy............. $ 13 $ 17 $ --
=== === ===
</TABLE>
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------- JUNE 30
1994 1995 1996
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts payable.......................................... $128 $145 $ 120
Accrued payroll and related benefits and commissions...... 214 167 121
Income taxes payable...................................... 2 -- --
Other accrued liabilities................................. 48 106 103
---- ---- ----
$392 $418 $ 344
==== ==== ====
</TABLE>
9. NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------- JUNE 30
1994 1995 1996
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable to competitors.............................. $ -- $163 $ 158
Less current portion...................................... -- 70 70
--- ---- ----
$ -- $ 93 $ 88
=== ==== ====
</TABLE>
Certain of the Companies have acquired customer lists from competitors. As
part of the consideration for the acquisition of these assets, the Companies are
committed to pay a percentage of the gross sales derived from these customers of
5.83% to 10%, for terms of 36 months.
F-57
<PAGE> 117
SEKO ENTERPRISES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
10. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------- JUNE 30
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Mortgage payable to NSK Enterprises, Inc.
No set maturity, interest at 12% monthly payments of
interest only secured by a first charge on
9250 Ivanhoe Street property......................... $ 537 $ 537 $ 537
Mortgage payable,
Maturing June 1, 1995, interest at 10.5%, monthly
payments of principal and interest, secured by a
first charge on
939 W. Lake Street property.......................... 559 -- --
Mortgage payable,
Maturing August 1, 2005, interest at 9%, monthly
payments of principal and interest, secured by a
first charge on
939 W. Lake Street property.......................... -- 555 556
Loan payable,
Maturing May 1, 1996, interest at 3.9%, monthly
payments of principal and interest, secured by
automobile........................................... 6 2 --
------ ------ ------
1,102 1,094 1,093
Less current portion................................... 9 12 12
------ ------ ------
$1,093 $1,082 $ 1,081
====== ====== ======
</TABLE>
At June 30, 1996, the aggregate amounts of principal maturities of
long-term obligations are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
1996............................................................. $ 12
1997............................................................. 8
1998............................................................. 9
1999............................................................. 10
2000............................................................. 10
Thereafter....................................................... 1,044
---------
Total............................................................ $ 1,093
=========
</TABLE>
11. COMMITMENTS AND CONTINGENT LIABILITIES
Litigation
The Companies are, from time to time, a party to litigation arising in the
normal course of its business, most of which involve claims for personal injury
and property damage incurred in connection with its operations. Management
believes that none of these actions will have a material adverse effect on the
financial position or results of operations of the Companies.
F-58
<PAGE> 118
SEKO ENTERPRISES, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
12. PENSION PLAN
The pension plan covers employees of all of the Companies. Through 1994,
the plan provided pension benefits based on years of service and the employee's
compensation during the five highest consecutive years of participation. The
pension plan benefit formula was amended effective April 1, 1989 to reflect new
provisions of the Tax Reform Act of 1986. These amendments resulted in a
decrease in the future benefits provided. The benefits earned as of April 1,
1989 by existing participants were not reduced; however, in many cases, these
benefits exceed projected benefits under the amended formula. During 1995, the
plan was amended to change the method by which participant benefits are
calculated effective March 31, 1994, with benefits earned subsequently using the
amended formula. The projected benefit obligation correspondingly decreased by
approximately $223 and is being amortized over 19 years. The Companies' funding
policy is to contribute annually an amount greater than the minimum or up to the
maximum amount that can be deducted for federal income tax purposes.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future. The
plans assets consist principally of mutual funds.
The following table sets forth the plan's funded status and amounts
recognized in the Companies' balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1994 1995
------ ------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits of $775
and $26, respectively............................................ $ 793 $ 26
====== ======
Projected benefit obligations for service rendered to date......... $1,027 $ 68
Plan assets at fair value.......................................... 1,127 519
------ ------
Plan assets in excess of projected benefit obligation.............. 100 450
Unrecognized net loss from past experience different that
assumed.......................................................... 231 89
Unrecognized prior service cost.................................... -- (212)
Unrecognized net asset as of April 1, 1989, being recognized over
19 years......................................................... (260) (242)
------ ------
Prepaid pension cost included in prepaid and other current
assets........................................................... $ 71 $ 85
====== ======
</TABLE>
Net pension (benefit) cost for the years ended December 31, 1994 and 1995
include the following components:
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Service cost -- benefits earned during the year.................... $ 53 $ 56
Interest cost on projected benefit obligation...................... 72 1
Plan assets at fair value.......................................... 7 (29)
Plan assets in excess of projected benefit obligation.............. (117) (42)
------ ------
Net periodic pension (benefit)..................................... $ 15 $ (14)
====== ======
</TABLE>
Assumptions used in the above calculations are as follows:
<TABLE>
<CAPTION>
AS OF MARCH 31,
1995 AND 1996
---------------
<S> <C>
Discount rates................................................ 8.0%
Rates of increase in compensation levels...................... 5.0
Expected long-term rate of return on assets................... 8.0
</TABLE>
The 1994 and 1995 figures include benefits for 19 employees of Metro
Messenger, Inc. and 9 employees of National Messenger System, Inc., whose
employees are covered under the same plan (83 in 1994; 82 in 1995 in total).
F-59
<PAGE> 119
INDEPENDENT AUDITORS' REPORT
To the Shareholder of Seidel Delivery
We have audited the accompanying combined balance sheets of Seidel Delivery
as of December 31, 1994 and 1995, and the related combined statements of income
and retained earnings and of cash flows for the years then ended. The combined
financial statements include the accounts of Seidel Enterprises, Inc. and NOW
Courier, Inc. (collectively "the Companies"), which do business as Seidel
Delivery and are under common ownership by an individual shareholder. These
financial statements are the responsibility of the Companies management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the combined financial position of Seidel Delivery as of
December 31, 1994 and 1995, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Columbus, Ohio
March 22, 1996
F-60
<PAGE> 120
SEIDEL DELIVERY
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
----------- JUNE 30
1994 1995 1996
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents.......................................... $ 18 $ 40 $ 49
Accounts receivable................................................ 196 181 211
Prepaid expenses and other......................................... 41 53 29
---- ---- -----
255 274 289
PROPERTY AND EQUIPMENT -- net (Note 3)............................... 62 50 42
---- ---- -----
$317 $324 $ 331
==== ==== =====
LIABILITIES
CURRENT
Accounts payable
Trade........................................................... $ 28 $ 31 $ 3
Affiliate....................................................... 30 -- --
Shareholder..................................................... -- 5 --
Accrued expenses
Payroll and related expenses.................................... 30 33 37
Other........................................................... 19 18 --
---- ---- -----
107 87 40
---- ---- -----
SHAREHOLDER'S EQUITY
Common stock:
Seidel -- 3,000 shares authorized, 1,660 shares issued and
outstanding, no par value
NOW -- 500 shares authorized, 50 shares issued and outstanding,
no par value................................................... 12 12 12
Retained earnings.................................................. 198 225 279
---- ---- -----
210 237 291
---- ---- -----
$317 $324 $ 331
==== ==== =====
</TABLE>
See accompanying notes to the combined financial statements
F-61
<PAGE> 121
SEIDEL DELIVERY
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31 JUNE 30
----------------- -------------
1994 1995 1995 1996
------ ------ ---- ----
<S> <C> <C> <C> <C>
(UNAUDITED)
SALES...................................................... $1,929 $1,776 $919 $887
COST OF SALES.............................................. 1,184 1,116 572 562
------ ------ ---- ----
GROSS PROFIT............................................... 745 660 347 325
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............... 701 628 315 263
DEPRECIATION AND AMORTIZATION.............................. 20 19 10 9
------ ------ ---- ----
OPERATING INCOME........................................... 24 13 22 53
OTHER INCOME............................................... 3 21 9 1
------ ------ ---- ----
INCOME BEFORE PROVISION FOR INCOME TAXES................... 27 34 31 54
PROVISION FOR INCOME TAXES................................. 2 7 6 --
------ ------ ---- ----
NET INCOME................................................. 25 27 25 54
RETAINED EARNINGS, BEGINNING OF PERIOD..................... 173 198 198 225
------ ------ ---- ----
RETAINED EARNINGS, END OF PERIOD........................... $ 198 $ 225 $223 $279
====== ====== ==== ====
</TABLE>
See accompanying notes to the combined financial statements
F-62
<PAGE> 122
SEIDEL DELIVERY
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31 JUNE 30
------------- -------------
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
(UNAUDITED)
OPERATING ACTIVITIES
Net income.................................................. $ 25 $ 27 $ 25 $ 54
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 20 19 10 9
Loss on disposal of property and equipment............... 3 -- -- --
Change in operating assets and liabilities:
Accounts receivable.................................... 23 15 10 (30)
Prepaid expenses and other............................. (7) (12) 27 24
Accounts payable and accrued expenses.................. (44) (20) (51) (47)
---- ---- ---- ----
Net cash provided by operating activities................... 20 29 21 10
INVESTING ACTIVITIES
Capital expenditures for property and equipment............. (9) (7) (3) (1)
---- ---- ---- ----
NET INCREASE IN CASH AND CASH EQUIVALENTS..................... 11 22 18 9
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................ 7 18 18 40
---- ---- ---- ----
CASH AND CASH EQUIVALENTS, END OF PERIOD...................... $ 18 $ 40 $ 36 $ 49
==== ==== ==== ====
SUPPLEMENTAL INFORMATION
Cash paid during the period for income taxes................ $ 3 $ 7 $ 5 $ 7
==== ==== ==== ====
</TABLE>
See accompanying notes to the combined financial statements
F-63
<PAGE> 123
SEIDEL DELIVERY
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The combined financial statements of Seidel Delivery (collectively the
"Companies") include the accounts of Seidel Enterprises, Inc. ("Seidel") and NOW
Courier, Inc. ("NOW") and is engaged in the courier business primarily in
central Ohio, and provide services through the use of independent contractors.
Revenue Recognition -- Revenues are recorded when deliveries are complete.
Nature of Combination -- The Companies are under the common control of a
single shareholder and have been combined due to their interdependence and form
of operations. Seidel is a management company with the sole purpose of providing
management and administrative support to NOW, the operating company. NOW has no
employees and relies on sub-contractors for all labor needs. For combined
financial reporting purposes, all intercompany balances have been eliminated.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives of the related assets as follows:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Vehicles............................................ 5
Radio Equipment..................................... 5 - 10
Office furniture and equipment...................... 5
</TABLE>
Income Taxes -- Deferred tax assets and liabilities, if any, are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases using the liability method. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The Companies had no deferred tax assets or liabilities at
December 31, 1994 and 1995 and June 30, 1996.
Cash and Cash Equivalents -- The Company considers all highly liquid debt
instruments with a maturity of three months or less when purchased to be cash
equivalents.
Accounting Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Unaudited Financial Information
In the opinion of management, the accompanying unaudited financial
information includes all adjustments consisting of normal and recurring items,
necessary for a fair presentation.
2. REVENUES FROM SIGNIFICANT CUSTOMERS
Revenues from five customers accounted for approximately 20% of the
Companies' revenues for the years ended December 31, 1994 and 1995 and for the
six months ended June 30, 1995 and 1996.
F-64
<PAGE> 124
SEIDEL DELIVERY
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31
------------- JUNE 30
1994 1995 1996
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Vehicles................................................. $ 29 $ 29 $ 14
Radio equipment.......................................... 55 57 61
Office furniture and equipment........................... 72 69 72
---- ---- -----
156 155 147
Less: Accumulated depreciation........................... 94 105 105
---- ---- -----
$ 62 $ 50 $ 42
==== ==== =====
</TABLE>
4. RELATED PARTY TRANSACTIONS
The Companies paid building rent to their shareholder during the years
ended December 31, 1994 and 1995 and the six months ended June 30, 1995 and
1996, totalling $42,000, $37,800, $21,000 (unaudited), and $21,500 (unaudited),
respectively.
The Companies paid certain license rental fees totaling $4,000 to a company
wholly-owned by their shareholder during 1994.
5. PENDING TRANSACTION
In March 1996, the shareholder entered into an agreement of intent for the
sale of 100% of the Companies common stock to an unrelated third party.
F-65
<PAGE> 125
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER
OR BY ANY OTHER PERSON. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO
BUY COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE OF THIS PROSPECTUS
SUPPLEMENT.
---------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Selling Stockholders.................. S-2
Recent Developments................... S-3
Management's Discussion and Analysis
of Financial Conditions............. S-4
Index to Financial Statements......... SF-1
PROSPECTUS
Prospectus Summary.................... 3
Risk Factors.......................... 6
The Company........................... 10
Use of Proceeds....................... 10
Dividend Policy....................... 10
Selected Consolidated Financial
Data................................ 11
Pro Forma Financial Information....... 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 22
Management............................ 31
Certain Transactions.................. 36
Principal Stockholders................ 38
Description of Capital Stock.......... 39
Shares Eligible For Future Sale....... 42
Selling Stockholders.................. 44
Plan of Distribution.................. 45
Legal Matters......................... 45
Experts............................... 45
Additional Information................ 46
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
891,645 SHARES
[DYNAMEX LOGO]
COMMON STOCK
------------------------------
PROSPECTUS SUPPLEMENT
FEBRUARY 7, 1997
------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
