<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 000-21057
DYNAMEX INC.
(Exact name of registrant as specified in its charter)
Delaware 86-0712225
(State of incorporation) (I.R.S. Employer Identification No.)
1431 Greenway Drive 75038
Suite 345 (Zip Code)
Irving, Texas
(Address of principal executive offices)
Registrant's telephone number, including area code:
(972) 756-8180
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
The number of shares of the registrant's common stock, $.01 par value,
outstanding as of March 15, 1999 was 10,086,967 shares.
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<PAGE> 2
DYNAMEX INC. AND SUBSIDIARIES
===============================================================================
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets 2
January 31, 1999 (Unaudited) and July 31, 1998
Condensed Statements of Consolidated Operations (Unaudited) 3
Three and Six Months ended January 31, 1999 and 1998
Condensed Statements of Consolidated Cash Flows (Unaudited) 4
Six Months ended January 31, 1999 and 1998
Notes to Condensed Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 16
Item 6. Exhibits and Reports on Form 8-K. 16
</TABLE>
1
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DYNAMEX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)
===============================================================================
<TABLE>
<CAPTION>
January 31, July 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 1,476 $ 1,361
Accounts receivable (net of allowance for doubtful accounts
of $1,199 and $967, respectively) 29,414 27,171
Prepaid and other current assets 7,764 5,932
Deferred income taxes 1,298 888
------------ ------------
TOTAL CURRENT ASSETS 39,952 35,352
Property and equipment - net 11,372 9,890
Intangibles - net 91,117 81,955
Deferred income taxes 206 670
Other assets 385 687
------------ ------------
TOTAL ASSETS $ 143,032 $ 128,554
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT
Accounts payable trade $ 6,336 $ 4,294
Accrued liabilities 12,995 12,254
Current portion of long-term debt 452 777
------------ ------------
TOTAL CURRENT LIABILITIES 19,783 17,325
Long-term debt 49,382 36,287
------------ ------------
TOTAL LIABILITIES 69,165 53,612
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock; $0.01 par value, 10,000 shares authorized;
none outstanding -- --
Common stock; $0.01 par value, 50,000 shares authorized;
10,069 and 10,069 outstanding, respectively 101 101
Receivable from stockholder (153) (204)
Additional paid-in capital 72,307 72,307
Retained earnings 2,274 3,628
Unrealized foreign currency translation adjustment (662) (890)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 73,867 74,942
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 143,032 $ 128,554
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 4
DYNAMEX INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(In thousands, except per share data)
(Unaudited)
===============================================================================
<TABLE>
<CAPTION>
Three months ended Six months ended
January 31, January 31,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 57,760 $ 48,712 $ 117,228 $ 95,262
Cost of sales 39,746 32,623 79,575 64,137
---------- ---------- ---------- ----------
Gross profit 18,014 16,089 37,653 31,125
Selling, general and administrative expenses 17,067 11,773 32,306 22,887
Unusual items 1,733 -- 1,733 --
Depreciation and amortization 1,863 1,453 3,694 2,857
---------- ---------- ---------- ----------
Operating income (loss) (2,649) 2,863 (80) 5,381
Interest expense 1,232 1,071 2,175 1,899
---------- ---------- ---------- ----------
Income (loss) before taxes (3,881) 1,792 (2,255) 3,482
Income tax expense (benefit) (1,580) 753 (901) 1,475
---------- ---------- ---------- ----------
Net income (loss) $ (2,301) $ 1,039 $ (1,354) $ 2,007
========== ========== ========== ==========
Earnings (loss) per common share - basic: $ (0.23) $ 0.14 $ (0.13) $ 0.27
========== ========== ========== ==========
Earnings (loss) per common share - assuming dilution: $ (0.23) $ 0.14 $ (0.13) $ 0.27
========== ========== ========== ==========
Weighted average shares:
Common shares outstanding 10,069 7,412 10,069 7,387
Adjusted common shares - assuming
exercise of stock options 10,069 7,616 10,069 7,558
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 5
DYNAMEX INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands)
(Unaudited)
===============================================================================
<TABLE>
<CAPTION>
Six months ended
January 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (1,354) $ 2,007
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 3,899 2,857
Deferred income taxes 54 --
Write-down of deferred banking fees 207 --
Changes in current operating assets and liabilities:
Accounts receivable (1,670) (2,026)
Prepaids and other assets (1,804) 122
Accounts payable and accrued liabilities 2,419 (3,474)
---------- ----------
Net cash provided by (used in) operating activities 1,751 (514)
---------- ----------
INVESTING ACTIVITIES
Payments for acquisitions (11,496) (18,963)
Purchase of property and equipment (2,851) (1,857)
---------- ----------
Net cash used in investing activities (14,347) (20,820)
---------- ----------
FINANCING ACTIVITIES
Principal payments on long-term debt (229) --
Net borrowings under line of credit 13,000 22,004
Proceeds from shareholder's note 51 --
Other assets and deferred offering costs (111) (513)
---------- ----------
Net cash provided by financing activities 12,711 21,491
---------- ----------
NET INCREASE IN CASH 115 157
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,361 1,326
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,476 $ 1,483
========== ==========
SUPPLEMENTAL DISCLOSURE ON NON-CASH INFORMATION
Cash paid for interest $ 1,766 $ 1,636
========== ==========
Cash paid for taxes $ 1,953 $ 3,716
========== ==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
In conjunction with the acquisitions described, liabilities were assumed as
follows:
Fair value of assets acquired $ 11,577 $ 20,809
Cash paid (11,496) (18,963)
---------- ----------
Liabilities assumed and incurred $ 81 $ 1,846
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 6
DYNAMEX INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
===============================================================================
1. BASIS OF PRESENTATION
Dynamex Inc. (the "Company" and "Dynamex") provides same-day delivery
and logistics services in the United States and Canada. The Company's primary
services are (i) same-day, on-demand delivery, (ii) scheduled distribution and
(iii) fleet management.
The financial statements of the Company include the accounts of the
Company and its wholly-owned subsidiaries: Dynamex Operations East, Inc.,
Dynamex Operations West, Inc., Dynamex Dedicated Fleet Services, Inc., Dynamex
Canada Inc. (formerly Parcelway Courier Systems Canada Ltd.), Alpine Enterprises
Ltd., Road Runner Transportation, Inc., New York Document Exchange Corp., U.S.C.
Management Systems, Inc., Cannonball, Inc., and Facilities Management &
Consulting, Inc. All significant intercompany balances and transactions are
eliminated in consolidation. The accounts of Dynamex Canada Inc. are translated
into United States dollars with the Canadian dollar as the functional currency.
The accompanying interim financial statements are unaudited. Certain
information and disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted, although the Company believes the disclosures included herein are
adequate to make the information presented not misleading. These interim
financial statements should be read in conjunction with the Company's financial
statements for the fiscal year ended July 31, 1998. Certain prior period amounts
have been reclassified for comparative purposes.
The accompanying interim financial statements contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's financial position at January 31, 1999, and the
results of its operations for the three and six month periods ended January 31,
1999 and 1998 and its cash flows for the six month periods ended January 31,
1999 and 1998. The results of the interim periods presented are not necessarily
indicative of results to be expected for the full fiscal year.
2. ACQUISITIONS
During the six months ended January 31, 1999, the Company acquired two
same-day delivery businesses operating in two U.S. cities. The aggregate
consideration for these acquisitions was approximately $1.8 million in cash.
In connection with certain acquisitions, the Company agreed to pay the
sellers additional consideration if the acquired operations meet certain
performance goals. In the first six months of 1999, the Company paid $9.7
million of such additional consideration.
For certain acquisitions, the allocation of the purchase consideration
to net assets is preliminary as of January 31, 1999 and will be finalized as
additional information becomes available regarding the fair value of assets
acquired and liabilities assumed.
On January 14, 1999, the Company announced that the proposed
acquisition of Q International Courier, Inc. ("Quick"), that does business as
Quick International Courier, had been terminated. Costs associated with the
termination of the Quick acquisition, including a termination penalty and due
diligence costs in the aggregate of $1.1 million, were expensed during the three
months ended January 31, 1999 and are included in the unusual item caption on
the Condensed Statements of Consolidated Operations.
3. BANK CREDIT AGREEMENT
Effective as of January 31, 1999, the Company amended its bank credit
agreement. Under the terms of the amended agreement, the Company may borrow up
to $65 million (formerly $115 million) on a revolving basis through May 1, 2001,
at which time any amounts outstanding under the facility are due. Interest on
outstanding borrowings is payable quarterly at prime plus .50% or various other
interest rate elections based on LIBOR plus an applicable margin. The applicable
margins range from 1.50% to 3.25% and are based on the ratio of the Company's
funded debt to cash flow, both as defined in the agreement.
Borrowings under the agreement are secured by all of the Company's
assets in the United States and by 65% of the stock of the Company's Canadian
subsidiary. The agreement contains restrictions on the payment of dividends,
incurring additional debt, capital expenditures and investments by the Company.
In addition, the Company is required to maintain certain financial ratios
related to minimum amounts of stockholder's equity, fixed charges to cash flow
and funded debt to
5
<PAGE> 7
DYNAMEX INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
================================================================================
cash flow, all as defined in the agreement. The agreement also requires the
Company, in certain instances, to obtain the consent of the lender for
additional acquisitions.
A portion of unamortized deferred banking fees associated with the bank
credit agreement totaling $.2 million (43.5% of unamortized deferred banking
fees) has been charged against current earnings and included in interest
expense.
4. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) for the three and six months ended January
31, 1999 were $(1.9) million and $(1.1) million respectively, compared to $.2
million and $1.0 million for the same periods ended January 31, 1998. The two
components of comprehensive income are net income (loss) and foreign currency
translation adjustments.
5. UNUSUAL ITEMS
Unusual items in the second quarter of 1999 include $1.1 million for
the write-off of acquisition costs associated with the Quick acquisition and $.6
million for severance and other related costs.
6. CONTINGENCIES
In November and December 1998, two class action lawsuits were filed in
the United States District Court for the Northern District of Texas, naming the
Company and certain of its current and former executive officers as defendants.
The lawsuits arise from the Company's November 2, 1998 announcement that it was
(i) revising its results of operations for the year ended July 31, 1998 from
that which had been previously announced on September 16, 1998 and (ii)
restating its results of operations for the third quarter of fiscal 1998 from
that which had been previously reported. The complaints allege the defendants
issued a series of materially false and misleading statements and omitted
material facts concerning the Company's financial condition and business
operations. The lawsuits allege violations of the Securities Act of 1933 and
Securities Exchange Act of 1934. The plaintiffs seek unspecified damages on
behalf of all other purchasers of the Company's common stock during the period
of December 3, 1997 through and including October 30, 1998.
On February 5, 1999, the Court entered an Order consolidating the
actions and approved the selection of three law firms as co-lead counsel.
Pursuant to an agreed upon schedule, a consolidated and amended complaint will
be filed on March 22, 1999. At this date, no class has been certified nor has
any discovery commenced. The Company is unable to determine the likely outcome
of this matter or to estimate the amounts or potential range of loss with
respect to these matters.
6
<PAGE> 8
ITEM 2. 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 Company's consolidated financial statements,
including the notes thereto, and the other financial information appearing
elsewhere in this report. Statements regarding future economic performance,
management's plans and objectives, and any statements concerning its assumptions
related to the foregoing contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations constitute forward-looking
statements. Certain factors which may cause actual results to vary materially
from these forward-looking statements accompany such statements or are listed in
"Risk Factors".
GENERAL
The Company is a leading provider of same-day delivery and logistics
services in the United States and Canada. Through internal growth and
acquisitions, the Company has built a national network of same-day delivery and
logistics systems in Canada and has established operations in 21 U.S.
metropolitan areas. The Company completed its initial public offering ("IPO") in
August 1996 and concurrently completed the acquisition of five same-day
transportation companies. Subsequent to the IPO and through January 31, 1999,
the Company completed 22 acquisitions at various dates. All of these
acquisitions have been accounted for using the purchase method of accounting.
Accordingly, the results of the acquired operations are included in the
Company's consolidated results of operations from the date of acquisition. As a
result of the effect of these various acquisitions, the historical operating
results of the Company for a given period are not necessarily comparable to
prior or subsequent periods.
A significant portion of the Company's revenues are generated in
Canada. For the three and six month periods ended January 31, 1999, Canadian
revenues accounted for approximately 32.2% and 31.8%, respectively, of total
consolidated revenue, compared to 38.4% and 39.1%, respectively, for the same
periods in 1998. This reduction results from recent acquisitions being made
primarily in the United States. Before consideration of corporate costs, the
majority of which is incurred in the United States, the cost structure of the
Company's operations in the United States and in Canada are very similar.
Therefore, operating profit, expressed as a percentage of sales, generated in
each country is not materially different.
The conversion rate between the Canadian dollar and the U.S. dollar has
declined significantly during the three and six month periods ended January 31,
1999 as compared to the same periods in 1998. As the Canadian dollar is the
functional currency for the Company's Canadian operations, this decline has had
a negative impact on the Company's reported revenues and results of operations
for the three and six month periods ended January 31, 1999. Although the effect
was not material, there can be no assurance that future fluctuations in the
currency exchange rate will not have a material adverse effect on the Company's
results of operations.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
===============================================================================
RESULTS OF OPERATIONS
Dynamex reported a net loss for the three months and six months ended
January 31, 1999 of $2.3 million and $1.4 million, respectively, compared to net
income of $1.0 million and $2.0 million, respectively, for the same periods in
1998. Results for 1999 were negatively impacted by second quarter unusual items.
Unusual items include $1.1 million for the write-off of costs associated with
the termination of the Quick acquisition and $.6 million, primarily for
severance costs. Also in 1999, cost of sales includes an additional adjustment
for bad debts of $.4 million; selling, general and administrative costs include
a charge of $.7 million, primarily for professional fees and $.2 million of
foreign currency losses related to inter-company debt transactions. Interest
expense includes a charge of $.2 million related to debt costs written off in
association with the amendment of the bank credit agreement (see Note 3 of Notes
to Condensed Consolidated Financial Statements).
Results for the latest quarter were disappointing but in management's
view, are not indicative of the long-term potential of the Company. Management
has begun an in-depth review of all regional, branch and corporate costs with
the express goal of streamlining operations and reducing costs in order to
achieve a gross profit percentage of at least 33.0% of sales based on the
current product mix and EBITDA of at least 10.0% of sales. EBITDA is defined as
income excluding interest, taxes, depreciation and amortization of goodwill and
other intangible assets. The Company has already identified over $1 million in
administrative costs which will be phased out in the third and fourth quarters
of this fiscal year. Future cost reduction initiatives may result in additional
severance and other related costs.
The Company has also initiated a review and analysis of its billing and
collection processes. Additional resources have been employed in the collection
process to reduce bad debts as well as days sales outstanding ("DSO"). The
Company's goal is to reduce DSO from its present level of 46 days to less than
40 days.
The following table sets forth for the periods indicated, certain items
from the Company's condensed statements of consolidated operations, expressed as
a percentage of sales:
<TABLE>
<CAPTION>
Three months ended Six months ended
January 31, January 31,
------------------- -------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 68.8% 67.0% 67.9% 67.3%
------ ------ ------ ------
Gross profit 31.2% 33.0% 32.1% 32.7%
Selling, general and
administrative expenses 29.5% 24.2% 27.6% 24.0%
Unusual items 3.0% 1.5%
Depreciation and amortization 3.2% 3.0% 3.2% 3.0%
------ ------ ------ ------
Operating income (loss) (4.5)% 5.8% (0.2)% 5.7%
Interest expense 2.1% 2.2% 1.9% 2.0%
------ ------ ------ ------
Income (loss) before taxes (6.6)% 3.6% (2.1)% 3.7%
====== ====== ====== ======
</TABLE>
Excluding unusual items and the adjustments and charges described
above, gross profit, selling, general and administrative expenses and operating
income percentages for the three and six months periods ended January 31, 1999
are 31.9%, 28.1%, .7% and 32.5%, 26.8%, 2.5%, respectively.
8
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
===============================================================================
In the following comparisons of results of operations, results for the
three and six months ended January 31, 1999 have been adjusted to exclude the
unusual items described above.
THREE MONTHS ENDED JANUARY 31, 1999 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1998.
Sales in 1999 increased $9.1 million, or 18.6%, to $57.8 million from
$48.7 million in 1998. Of this increase, $7.9 million was due to acquisitions
that occurred at various dates since January 31, 1998, including U.S.
acquisitions that generated $7.2 million and Canadian acquisitions that
generated $.7 million in additional revenue. Revenue from the Company's same
branch operations increased by $1.2 million; a $2.0 million increase from U.S.
operations and a $.8 million decrease from Canadian operations (due entirely to
a decline in the conversion rate between the U.S. and Canadian dollars). On a
functional currency basis, Canadian same branch revenues increased 3.0% or $.8
million.
Cost of sales in 1999 increased $7.1 million, or 21.8%, to $39.7
million from $32.6 million in 1998. Of this increase, $.4 million was for an
additional bad debt reserve and $4.9 million was due to acquisitions; $4.4
million from U.S. and $.5 million from Canadian acquisitions. Cost of sales from
same branch operations increased $1.8 million; a $2.0 million increase from U.S.
and a $.2 million decrease from Canadian operations (due entirely to a decline
in the conversion rate between the U.S. and Canadian dollars). On a functional
currency basis, Canadian same branch cost of sales increased 5.8% or $1.1
million. Excluding the additional bad debt reserve, cost of sales, as a
percentage of sales, increased to 68.1% from 67.0% in 1998.
Selling, general and administrative ("SG & A") expenses in 1999
increased $5.3 million, or 45.0%, to $17.1 million from $11.8 million in 1998.
This increase is primarily the result of expenses of acquired operations,
increased spending for technology, accounting, administrative support and
marketing and a charge for additional professional fees of $.7 million. As a
percentage of sales, SG & A expenses, excluding the additional professional
fees, increased to 28.3% in 1999 compared to 24.2% in 1998.
Depreciation and amortization in 1999 increased $.4 million, or 28.2%,
to $1.9 million from $1.5 million in 1998 and, as a percentage of sales, to 3.2%
from 3.0%. This increase results from depreciation and amortization of assets
acquired, including the intangible assets associated with the acquisitions
discussed above and additional consideration paid to former owners of previously
acquired companies.
Interest expense increased $.2 million in 1999 compared to 1998 due to
the write-down of existing bank fees as a result of the amendment of the bank
credit agreement. Based on current levels of debt and current interest rates,
the Company expects interest expense to increase approximately 18.0% due to the
changes incorporated in the amended banking agreement.
SIX MONTHS ENDED JANUARY 31, 1999 COMPARED TO SIX MONTHS ENDED JANUARY 31, 1998.
Sales in 1999 increased $21.9 million, or 23.1%, to $117.2 million from
$95.3 million in 1998. Of this increase, $20.5 million was due to acquisitions
that occurred at various dates since January 31, 1998 including U.S.
acquisitions that generated $18.9 million and Canadian acquisitions that
generated $1.6 million in additional revenue. Revenue from the Company's same
branch operations increased by $1.4 million; a $3.0 million increase from U.S.
operations and a $1.6 million decrease from Canadian operations (due entirely to
a decline in the conversion rate between the U.S. and Canadian dollars). On a
functional currency basis, Canadian same branch revenue increased 4.4% or $2.3
million.
Cost of sales in 1999 increased $15.5 million, or 24.1%, to $79.6
million from $64.1 million in 1998. Of this increase, $.4 million was for an
additional bad debt reserve and $13.0 million was due to acquisitions; $11.9
million from U.S. acquisitions with the remainder from Canadian acquisitions.
Cost of sales from same branch operations increased $2.1 million; a $2.9 million
increase from U.S. operations and a $.8 million decrease from Canadian
operations (due entirely to a decline in the conversion rate between the U.S.
and Canadian dollars). On a functional currency basis, Canadian same branch cost
of sales increased 5.7% or $2.1 million. Excluding the additional bad debt
reserve, cost of sales, as a percentage of sales, increased to 67.5% in 1999 as
compared to 67.3% in 1998.
Selling, general and administrative expenses in 1999 increased $9.4
million, or 41.2%, to $32.3 million from $22.9 million in 1998. This increase is
primarily the result of expenses of acquired operations, increased spending for
technology, accounting, administrative support and marketing and a charge for
additional professional fees of $.7 million. As a percentage of sales, SG & A
expenses, excluding the charge for additional professional fees, increased to
27.0% in 1999 as compared to 24.0% in 1998.
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
===============================================================================
Depreciation and amortization in 1999 increased $.8 million, or 29.3%,
to $3.7 million from $2.9 million for 1998 and, as a percentage of sales, to
3.2% from 3.0%. This increase results from depreciation and amortization of
assets acquired, including the intangible assets associated with the
acquisitions and additional consideration to former owners of previously
acquired companies discussed above.
Interest expense increased $.2 million in 1999 compared to 1998 due to
the write-down of existing bank fees as a result of the amendment of the bank
credit agreement.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $1.8 million in 1999
versus $.5 million used in operating activities in 1998. The increase is
primarily due to the net changes in current operating assets and liabilities.
Net cash provided by operations prior to changes in current operating assets and
liabilities was $2.8 million in 1999 compared to $4.9 million in 1998. The
reduction is a direct result of the unusual items, adjustments and charges in
the second quarter of 1999.
The Company's capital needs arise primarily from its acquisition
program and the pay out of contingent consideration for past acquisitions, as
well as, capital expenditures and working capital needs. During the six months
ended January 31, 1999, the Company completed two acquisitions for aggregate
consideration of approximately $1.8 million. In connection with certain
acquisitions, the Company agreed to pay the sellers additional consideration if
the acquired operations meet certain performance goals. The Company paid
approximately $9.7 million to former owners of previously acquired companies as
additional purchase consideration during such period. In February 1999 the
Company paid an additional $.6 million of purchase consideration to a former
owner of a previously acquired company.
At January 31, 1999 the maximum amount of additional consideration
payable, if all performance goals are met, is approximately $10.2 million, of
which $9.3 million is payable in cash and $.9 million is payable in shares of
the Company's common stock. These payments of additional consideration are to be
made on specified dates through October 2000. Management intends to fund the
cash portion of this additional consideration with internally generated cash
flow and, to the extent necessary, with borrowings under the credit facility.
Capital expenditures for the six months ended January 31, 1999 were
approximately $2.9 million. Management is evaluating the Company's capital
expenditure program, which consists primarily of improvements to facilities and
technologies. As installation of the Company's technological infrastructure has
been substantially completed, management anticipates future capital expenditures
will not exceed $3.0 million per year. The Company does not have significant
capital expenditure requirements to replace or expand the number of vehicles
used in its operations because substantially all of its drivers are
owner-operators who provide their own vehicles. Additionally, the Company
intends to limit its acquisition program for the remainder of this year.
Effective as of January 31, 1999, the Company amended its bank credit
agreement. Under the terms of the amended agreement, the Company may borrow up
to $65 million (formerly $115 million) on a revolving basis through May 1, 2001,
at which time any amounts outstanding under the facility are due. Interest on
outstanding borrowings is payable quarterly at prime plus .50% or various other
interest rate elections based on LIBOR plus an applicable margin. The applicable
margins range from 1.50% to 3.25% and are based on the ratio of the Company's
funded debt to cash flow, both as defined in the agreement.
The Company has entered into interest rate protection arrangements with
its agent bank on a portion of the borrowings under the credit facility. The
interest rate on $15.0 million of outstanding debt has been fixed at 6.26%, plus
the applicable margin, and a collar of between 5.50% and 6.50%, plus the
applicable margin, has been placed on $9.0 million of outstanding debt. These
hedging arrangements mature on August 31, 2000. Amounts outstanding under the
credit facility are secured by all of the Company's U.S. assets and 65% of the
stock of its Canadian subsidiary. The credit facility 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. Under certain circumstances, the Company must obtain the
lender's consent to consummate acquisitions.
The Company's EBITDA decreased to approximately $3.6 million for the
six months ended January 31, 1999 from approximately $8.2 million for the six
months ended January 31, 1998. Over $3.0 million of the decrease resulted from
the unusual items, adjustments and charges in the second quarter 1999.
Management has included EBITDA in its discussion herein as a measure of
liquidity because it believes that it is a widely accepted financial indicator
of a company's ability to service and/or incur indebtedness, maintain current
operating levels of fixed assets and acquire additional operations and
businesses. EBITDA should not be considered as a substitute for statement of
operations or cash flow data from the
10
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
===============================================================================
Company's financial statements, which have been prepared in accordance with
generally accepted accounting principles. In addition, the Company's working
capital as of January 31, 1999 increased to approximately $20.2 million from
approximately $18.0 million as of July 31, 1998. These increases in liquidity
are due in part to the increased level of operations arising from acquired
businesses and internal sales growth.
Management expects that the Company's capital requirements, other than
to fund acquisitions and contingent consideration payments, will be met from
internally generated cash flow. Management expects to continue to meet the
capital requirements of its acquisition program and contingent consideration
payments from the following sources: (i) internally generated cash flow, (ii)
proceeds from borrowings under its revolving credit facility and (iii) the
issuance of its common stock to the sellers of acquired businesses. However, the
portion of future acquisition costs, which will be funded with such common
stock, is dependent upon the sellers' willingness to accept the stock as partial
consideration and the Company's willingness to issue such stock based on the
market price of the stock.
The extent to which these existing sources of capital will be adequate
to fund the Company's acquisition program is dependent upon the number of
economically and strategically attractive acquisitions available to the Company,
the size of the acquisitions and the amount of internally generated cash flow.
Should these factors be such that currently available capital resources are
inadequate, the Company may seek additional sources of capital. Such sources
could include additional bank borrowings or the issuance of debt or equity
securities. Should these additional sources of capital not be available or be
available only on terms that the Company does not find attractive, the Company
may be forced to reduce its acquisition activity. This in turn could negatively
affect the Company's ability to implement its business strategy in the manner,
or in the time frame, anticipated by management.
In November and December 1998 two class action lawsuits were filed by
shareholders against the Company and certain officers. At this time the Company
is unable to determine the likely outcome of this matter or the amount of any
potential liability related to these claims.
YEAR 2000 COMPLIANCE
Currently, there is significant uncertainty among software users
regarding the impact of the year 2000 on installed software. To address this
issue, the Company has formed a year 2000 compliance team to determine the
Company's readiness and to prepare for the year 2000, and the readiness of third
parties with whom the Company has material relationships. The Company has
determined the following phases for the year 2000 project and the percentage
completed of each phase.
<TABLE>
<CAPTION>
Phase Brief description of phase Percent complete
<S> <C> <C>
Awareness Generate awareness of year 2000 problem 100%
throughout the organization.
Inventory Create a list of all relevant items to be 100%
included in the project.
Assessment Prioritize the inventory and determine 100%
the scope of the remediation and
testing effort.
Conversion Make all necessary changes to the 100%
inventory items to attain compliance.
Testing Verify through a structured testing 100%
process that all inventory is compliant.
Implementation Deploy the inventory items back into 98%
production after testing is complete.
</TABLE>
11
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
===============================================================================
The Company anticipates spending approximately $10,000 to address the
year 2000 problem in certain of the Company's telephone systems used in
dispatch. As the testing and implementation phases near completion, the need to
develop contingency plans for any unresolved issues will be considered.
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.
RISK FACTORS
In addition to other information in this report, the following risk
factors should be considered carefully in evaluating the Company and its
business. This report contains forward-looking statements, which involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this report.
ACQUISITION STRATEGY; POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company intends to limit its acquisition activity for the remainder
of 1999, however, in order to expand its network of facilities, the Company
plans to acquire local delivery businesses in new geographic regions as well as
in the metropolitan areas in which the Company currently operates. Due to
ongoing 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 such additional companies into
the Company's existing operations. In addition, there can be no assurance that
businesses 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.
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. Additionally, the Company must obtain the consent of its
primary lenders to consummate any acquisition in which the pro forma results of
operations would produce a debt to EBITDA ratio in excess of 3.00:1.00. There
can be no assurance that the Company's primary lenders will consent to such
acquisitions or that if additional financing is necessary, it can be obtained on
terms the Company deems acceptable. As a result, the Company might be unable to
implement successfully its acquisition strategy.
LIMITED COMBINED OPERATING HISTORY
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.
HIGHLY COMPETITIVE INDUSTRY
The market for same-day delivery and logistics services has been and is
expected to remain highly competitive. Competition is often intense,
particularly for basic delivery services. High fragmentation and low barriers to
entry characterize the industry 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 and qualified
drivers. Some of these companies have longer operating histories and greater
financial and other resources than the Company. Additionally, companies that do
not currently operate delivery and logistics businesses may enter the industry
in the future to capitalize on the consolidation trend.
CLAIMS EXPOSURE
As of March 15, 1999, the Company utilized the services of over 4,500
drivers and messengers. From time to time such persons are involved in accidents
or other activities that may give rise to liability claims. The Company
currently
12
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
===============================================================================
carries liability insurance with a per claim and an aggregate limit of $15.0
million. Owner-operators are required to maintain liability insurance of at
least the minimum amounts required by applicable state or provincial law
(generally such minimum requirements range from $35,000 to $75,000). The Company
also has insurance policies covering property and fiduciary trust liability,
which coverage includes all drivers and messengers. There can be no assurance
that claims against the Company, whether under the liability insurance or the
surety bonds, will not exceed the applicable amount of coverage, that the
Company's insurer will be solvent at the time of settlement of an insured claim,
or that the Company will be able to obtain insurance at acceptable levels and
costs in the future. If the Company were to experience a material increase in
the frequency or severity of accidents, liability claims, workers' compensation
claims or unfavorable resolutions of claims, the Company's business, financial
condition and results of operations could be materially adversely affected. In
addition, significant increases in insurance costs could reduce the Company's
results of operations.
CERTAIN TAX MATTERS RELATED TO DRIVERS
Substantially all of the Company's drivers own their own vehicles and
as of March 15, 1999, approximately 90% of these owner-operators were
independent contractors as opposed to employees of the Company. The Company does
not pay or withhold any federal, state or provincial employment tax with respect
to or on behalf of independent contractors. From time to time, taxing
authorities in the U.S. and Canada have sought to assert that independent
owner-operators in the transportation industry, including those utilized by the
Company, are employees, rather than independent contractors. The Company
believes that the independent owner-operators utilized by the Company are not
employees under existing interpretations of federal (U.S. and Canadian), state
and provincial laws. However, there can be no assurance that federal (U.S. and
Canadian), state or provincial authorities will not challenge this position, or
that other laws or regulations, including tax laws, or interpretations thereof,
will not change. If, as a result of any of the foregoing, the Company is
required to pay withholding taxes and pay for and administer added employee
benefits to these drivers, the Company's operating costs would increase.
Additionally, if the Company is required to pay back-up withholding with respect
to amounts previously paid to such drivers, it may also be required to pay
penalties or be subject to other liabilities as a result of incorrect
classification of such drivers. If the drivers are deemed to be employees rather
than independent contractors, then the Company may be required to increase their
compensation since they will no longer be receiving commission-based
compensation. Any of the foregoing circumstances could have a material adverse
impact on the Company's financial condition and results of operations, and/or to
restate financial information from prior periods.
In addition to the drivers that are independent contractors, certain of
the Company's drivers are employed by the Company and own and operate their own
vehicles during the course of their employment. The Company reimburses these
employees for all or a portion of the operating costs of those vehicles. The
Company believes that these reimbursement arrangements do not represent
additional compensation to those employees. However, there can be no assurance
that federal (U.S. and Canadian), state or provincial taxing authorities will
not seek to recharacterize some or all of such payments as additional
compensation. If such amounts were so recharacterized, the Company would have to
pay additional employment related taxes on such amounts, and may also be
required to pay penalties, which could have an adverse impact on the Company's
financial condition and results of operations, and/or to restate financial
information from prior periods.
FOREIGN EXCHANGE
Significant portions of the Company's operations are conducted in
Canada. Exchange rate fluctuations between the U.S. and Canadian dollar result
in fluctuations in the amounts relating to the Canadian operations reported in
the Company's consolidated financial statements. The conversion rate between the
U.S. dollar and the Canadian dollar has declined significantly during the first
two quarters of fiscal year 1999 as compared to the first two quarters of fiscal
year 1998. As the Canadian dollar is the functional currency for the Company's
Canadian operations, this decline has had a negative effect on the Company's
reported revenues for such period. The Company historically has not entered into
hedging transactions with respect to its foreign currency exposure, but may do
so in the future. There can be no assurance that fluctuations in foreign
currency exchange rates will not have a material adverse effect on the Company's
business, financial condition or results of operations.
PERMITS AND LICENSING
Although recent legislation has significantly deregulated certain
aspects of the transportation industry, the Company's delivery operations are
still subject to various federal (U.S. and Canadian), state, provincial and
local laws, ordinances and regulations that in many instances require
certificates, permits and licenses. Failure by the Company to maintain required
certificates, permits or licenses, or to comply with applicable laws, ordinances
or regulations could result in substantial fines or possible revocation of the
Company's authority to conduct certain of its operations. Furthermore, delays
13
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
===============================================================================
in obtaining approvals for the transfer or grant of certificates, permits or
licenses, or failure to obtain such approvals, could impede the implementation
of the Company's acquisition program.
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 Richard K.
McClelland, the Company's Chairman of the Board, President and 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'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 businesses.
RISKS ASSOCIATED WITH THE LOCAL DELIVERY INDUSTRY; GENERAL ECONOMIC CONDITIONS
The Company's revenues and earnings are especially sensitive to events
that affect the delivery services industry, including extreme weather
conditions, economic factors affecting the Company's significant customers and
shortages of or disputes with labor, any of which could result in the Company's
inability to service its clients effectively or the inability of the Company to
profitably manage its operations. In addition, downturns in the level of general
economic activity and employment in the U.S. or Canada may negatively impact
demand for the Company's services.
Technological advances in the nature of facsimile and electronic mail
have affected the market for on-demand document delivery services. Although the
Company has shifted its focus to the distribution of non-faxable items and
logistics services, there can be no assurance that these or other technologies
will not have a material adverse effect on the Company's business, financial
condition and results of operations in the future.
DEPENDENCE ON AVAILABILITY OF QUALIFIED COURIER PERSONNEL
The Company is dependent upon its ability to attract, train and retain,
as employees or through independent contractor or other arrangements, qualified
courier personnel who possess the skills and experience necessary to meet the
needs of its operations. The Company competes in markets in which unemployment
is relatively low and the competition for couriers and other employees is
intense. The Company must continually evaluate, train and upgrade its pool of
available couriers to keep pace with demands for delivery services. There can be
no assurance that qualified courier personnel will continue to be available in
sufficient numbers and on terms acceptable to the Company. The inability to
attract and retain qualified courier personnel would have a material adverse
impact on the Company's business, financial condition and results of operations.
VOLATILITY OF STOCK PRICE
Prices for the Company's 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.
14
<PAGE> 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
===============================================================================
FOREIGN EXCHANGE EXPOSURE
Significant portions of the Company's operations are conducted in
Canada. Exchange rate fluctuations between the U.S. and Canadian dollar result
in fluctuations in the amounts relating to the Canadian operations reported in
the Company's consolidated financial statements. The Company historically has
not entered into hedging transactions with respect to its foreign currency
exposure, but may do so in the future.
The sensitivity analysis model used by the Company for foreign exchange
exposure compares the revenue and net income figures from Canadian operations
over the previous four quarters at the actual exchange rate versus a 10%
decrease in the exchange rate. Based on this model, a 10% decrease would result
in a decrease in revenue of $7.6 million and a decrease in net income of $.2
million over this period. There can be no assurances that the above projected
exchange rate decrease will materialize. Fluctuations of exchange rates are
beyond the control of the Company's management.
INTEREST RATE EXPOSURE
The Company has entered into interest rate protection agreements on a
portion of the borrowings under its revolving credit facility. Through an
interest rate swap, the interest rate on $15.0 million of outstanding debt has
been fixed at 6.26%, plus the applicable margin, and a collar of between 5.50%
and 6.50%, plus applicable margin, has been placed on $9.0 million of
outstanding debt. Both of these hedging agreements have three-year terms and
expire on August 31, 2000. The Company does not hold or issue derivative
financial instruments for speculative or trading purposes.
The sensitivity analysis model used by the Company for interest rate
exposure compares interest expense fluctuations over a one-year period based on
current debt levels and current interest rates versus current debt levels at
current interest rates with a 10% increase. Based on this model, a 10% increase
would result in an increase in interest expense of $.2 million. There can be no
assurances that the above projected interest rate increase will materialize.
Fluctuations of interest rates are beyond the control of the Company's
management.
15
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In November and December 1998, two class action lawsuits were filed in
the United States District Court for the Northern District of Texas, naming the
Company and certain of its current and former executive officers as defendants.
The lawsuits arise from the Company's November 2, 1998 announcement that it was
(i) revising its results of operations for the year ended July 31, 1998 from
that which had been previously announced on September 16, 1998 and (ii)
restating its results of operations for the third quarter of fiscal 1998 from
that which had been previously reported. The complaints allege the defendants
issued a series of materially false and misleading statements and omitted
material facts concerning the Company's financial condition and business
operations. The lawsuits allege violations of the Securities Act of 1933 and
Securities Exchange Act of 1934. The plaintiffs seek unspecified damages on
behalf of all other purchasers of the Company's common stock during the period
of December 3, 1997 through and including October 30, 1998.
On February 5, 1999, the Court entered an Order consolidating the
actions and approved the selection of three law firms as co-lead counsel.
Pursuant to an agreed upon schedule, a consolidated and amended complaint will
be filed on March 22, 1999. At this date, no class has been certified nor has
any discovery commenced. The Company is unable to determine the likely outcome
of this matter or to estimate the amounts or potential range of loss with
respect to these matters.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1 Second Amendment to the Second Amended and
Restated Credit Agreement
11.1 Calculation of Net Income Per Common Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
January 31, 1999.
16
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYNAMEX INC.
Dated: March 17, 1999 by /s/ Richard K. McClelland
-----------------------------------------
Richard K. McClelland
President, Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
Dated: March 17, 1999 by /s/ Ray E. Schmitz
-----------------------------------------
Ray E. Schmitz
Vice President - Controller
(Principal Accounting Officer)
17
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.1 Second Amendment to the Second Amended and Restated Credit
Agreement
11.1 Calculation of Net Income Per Common Share
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 10.1
SECOND AMENDMENT TO SECOND AMENDED
AND RESTATED CREDIT AGREEMENT
This SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment") is made and entered into effective as of January 31, 1999, by
and among DYNAMEX INC. (the "Borrower"), a Delaware corporation, DYNAMEX CANADA
INC. ("Dynamex Canada"), a federal Canadian corporation, DYNAMEX OPERATIONS
EAST, INC. ("Dynamex East"), a Delaware corporation, DYNAMEX OPERATIONS WEST,
INC. ("Dynamex West"), a Delaware corporation, ROAD RUNNER TRANSPORTATION, INC.
("Road Runner"), a Minnesota corporation, NEW YORK DOCUMENT EXCHANGE CORPORATION
("NYDEX"), a New York corporation, U.S.C. MANAGEMENT SYSTEMS, INC. ("USC"), a
New York corporation, DYNAMEX DEDICATED FLEET SERVICES, INC. ("Fleet Services"),
a Delaware corporation, CANNONBALL, INC. ("Cannonball"), an Illinois
corporation, NATIONSBANK, N.A. ("NationsBank"), a national banking association,
BANKBOSTON, N.A. ("BankBoston"), a national banking association, BANK AUSTRIA
CREDITANSTALT CORPORATE FINANCE, INC. (formerly Creditanstalt Corporate Finance,
Inc.) ("Creditanstalt"), a Delaware corporation, THE BANK OF NOVA SCOTIA
("Scotia Bank"), a Canadian banking association, BANK ONE, TEXAS, N.A. ("Bank
One"), a national banking association, NATIONSBANK, N.A. (formerly NationsBank
of Texas, N.A.), as agent for itself and the other Lenders (in such capacity,
together with its successors in such capacity, the "Agent") and BANKBOSTON, N.A.
and BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC. (formerly Creditanstalt
Corporate Finance, Inc.), as co-agents (the "Co-Agents").
RECITALS:
A. Pursuant to that certain Second Amended and Restated Credit
Agreement dated as of August 26, 1997, by and among the Borrower, Dynamex
Canada, Dynamex East, Dynamex West, Parcelway Courier Systems (B.C.) Ltd. (a
British Columbia corporation that has now been dissolved), Road Runner,
NationsBank, BankBoston, Creditanstalt-Bankverein, Scotia Bank, the Agent and
BankBoston and Creditanstalt-Bankverein as co-agents (as the same may be
amended, renewed, extended, restated or otherwise modified from time to time,
the "Credit Agreement"), the Lenders agreed to provide to the Borrower a senior
secured revolving credit and letter of credit facility (the "Credit Facility")
in the maximum aggregate principal amount of $75,000,000.
B. Pursuant to that certain First Amendment to Second Amended and
Restated Credit Agreement dated as of May 5, 1998, the parties to the Credit
Agreement amended the Credit Agreement to increase the aggregate amount of the
Credit Facility to $115,000,000 and in certain other respects.
C. The Borrower and its Subsidiaries, the Agent and the Lenders have
agreed, subject to the terms and conditions of this Amendment, to amend the
Credit Agreement to decrease the aggregate amount of the Credit Facility to
$65,000,000 and to amend the Credit Agreement in certain other respects.
<PAGE> 2
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Terms Defined. Unless otherwise defined or stated in this Amendment,
each capitalized term used in this Amendment has the meaning given to such term
in the Credit Agreement (as amended by this Amendment).
2. Amendments to Certain Definitions.
(a) The following terms and definitions thereof set forth in
Section 1.1 of the Credit Agreement are hereby amended and restated to read in
their entirety as follows:
"'Applicable Commitment Fee Rate' means, for the period
commencing with the Closing Date and thereafter, the rate per annum set
forth in the table below that corresponds to the ratio of (i) Funded
Debt as of the date of the relevant financial statements referred to
below to (ii) EBITDA for the four fiscal quarters of the Borrower and
its Subsidiaries then most recently ended as of the date of such
financial statements, calculated in accordance with Section 1.4:
<TABLE>
<CAPTION>
---------------------------------------- ------------------------------------
Ratio of Applicable
Funded Debt to EBITDA Commitment Fee Rate
---------------------------------------- ------------------------------------
<S> <C>
Less than 1.50 to 1.00 0.25%
---------------------------------------- ------------------------------------
Less than 2.00 to 1.00 but greater
than or equal to 1.50 to 1.00 0.25%
---------------------------------------- ------------------------------------
Less than 2.75 to 1.00 but greater
than or equal to 2.00 to 1.00 0.25%
---------------------------------------- ------------------------------------
Less than 3.00 to 1.00 but greater 0.25%
than or equal to 2.75 to 1.00
---------------------------------------- ------------------------------------
Greater than or equal to 3.00 to 1.00 0.375%
---------------------------------------- ------------------------------------
</TABLE>
For purposes hereof and notwithstanding the preceding sentence, the
Applicable Commitment Fee Rate for the period from the Closing Date to
the first Calculation Date shall be deemed to be 0.25% and shall
thereafter be calculated on each Calculation Date based upon the
preceding table and the financial statements delivered by the Borrower
pursuant to Section 8.1(b) and the certificate delivered by the
Borrower pursuant to Section 8.1(d); provided, that the Applicable
Commitment Fee Rate for the period from the Second Amendment Effective
Date to the first Calculation Date thereafter shall be deemed to be
0.375%; provided further that if the Borrower fails to deliver to the
Agent such financial statements or certificate on or before the
relevant Calculation Date, the Applicable Commitment Fee Rate shall be
deemed to be the percentage reflected in the preceding table as if the
ratio of Funded Debt to EBITDA were greater than 3.00 to 1.00 until the
date such statements and
<PAGE> 3
certificate are received by the Agent, after which the Applicable
Commitment Fee Rate shall be determined as otherwise provided herein."
"'Applicable Margin' means, for the period commencing with the
Closing Date and thereafter, the rate per annum set forth in the table
below that corresponds to the ratio of (i) Funded Debt as of the date
of the relevant financial statements referred to below to (ii) EBITDA
for the four fiscal quarters of the Borrower and its Subsidiaries then
most recently ended as of the date of such financial statements,
calculated in accordance with Section 1.4:
<TABLE>
<CAPTION>
- -------------------------------------- ----------------------------------------
Applicable Margins for
- -------------------------------------- ----------------------------------------
Ratio of
Funded Debt to EBITDA ABR Loans Eurodollar Loans
- -------------------------------------- ---------------- -----------------------
<S> <C> <C>
Less than 1.50 to 1.00 0% 1.50%
- -------------------------------------- ---------------- -----------------------
Less than 2.00 to 1.00 but greater
than or equal to 1.50 to 1.00 0% 2.00%
- -------------------------------------- ---------------- -----------------------
Less than 2.75 to 1.00 but greater
than or equal to 2.00 to 1.00 0.25% 2.50%
- -------------------------------------- ---------------- -----------------------
Less than 3.00 to 1.00 but greater
than or equal to 2.75 to 1.00 0.25% 2.75%
- -------------------------------------- ---------------- -----------------------
Greater than or equal to 3.00 to 1.00 0.50% 3.25%
- -------------------------------------- ---------------- -----------------------
</TABLE>
For purposes hereof and notwithstanding the preceding sentence, the
Applicable Margin for the period from the Closing Date to the first
Calculation Date shall be deemed to be 0% for ABR Loans and 1.75% for
Eurodollar Loans and shall thereafter be calculated on each Calculation
Date based upon the preceding table and the financial statements
delivered by the Borrower pursuant to Section 8.1(b) and the
certificate delivered by the Borrower pursuant to Section 8.1(d);
provided, that the Applicable Margin for the period from the Second
Amendment Effective Date to the first Calculation Date thereafter shall
be deemed to be 0.50% for ABR Loans and 3.25% for Eurodollar Loans;
provided further that if the Borrower fails to deliver to the Agent
such financial statements or certificate on or before the relevant
Calculation Date, the Applicable Margin shall be deemed to be the
percentage reflected in the preceding table as if the ratio of Funded
Debt to EBITDA were greater than 3.00 to 1.00 until the date such
statements and certificate are received by the Agent, after which the
Applicable Margin shall be determined as otherwise provided herein."
"'Commitment' means, as to any Lender, the obligation of such
Lender to make or continue Loans and incur or participate in Letter of
Credit Liabilities hereunder in an aggregate principal amount at any
one time outstanding up to but not exceeding the amount set forth
opposite the name of such Lender on the signature pages hereto (or any
amendment hereto) under the heading "Commitment" or, if such Lender is
a party to an Assignment and Acceptance, the amount of the
<PAGE> 4
"Commitment" set forth in the most recent Assignment and Acceptance of
such Lender, as the same may be reduced or terminated pursuant to
Section 2.12 or 11.2, and "Commitments" means such obligations of all
Lenders. As of the Second Amendment Effective Date, the aggregate
principal amount of the Commitments is $65,000,000."
"'EBITDA' means, for any period, without duplication, the sum
of the following for the Borrower and its Subsidiaries (or other
applicable Person) for such period determined on a consolidated basis
in accordance with GAAP: (a) Net Income, plus (b) Interest Expense,
plus (c) income and franchise taxes to the extent deducted in
determining Net Income, plus (d) depreciation and amortization expense,
plus (e) other non-cash items to the extent deducted in determining Net
Income, including, for any calculations that include the fiscal quarter
ended July 31, 1998, $1,573,000, and including, for any calculations
that include the fiscal quarter ended January 31, 1999, $594,000, minus
(f) non-cash income to the extent included in determining Net Income,
plus (g) for any calculations that include the fiscal quarter ended
January 31, 1999, $1,733,000."
"'Lease Expense' means, for any period, the lease expense of
the Borrower and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP, and includes, without
limitation, expenses under Operating Leases."
(b) Section 1.1 of the Credit Agreement is hereby amended to
add the following new term and definition thereof, which term shall appear in
alphabetical order in such Section 1.1:
"'Second Amendment Effective Date' means January 31, 1999."
3. Amendment to Section 2.13. The first sentence of subsection (c) of
Section 2.13 of the Credit Agreement is hereby amended and restated to read in
its entirety as follows:
"(c) The Borrower agrees to pay to the Agent for the account
of each Lender, concurrently with the issuance of such Letter of Credit
and on each Quarterly Date thereafter, a nonrefundable letter of credit
fee with respect to each Letter of Credit issued in an amount equal to
(i) the Applicable Margin for Eurodollar Loans, calculated in
accordance with the definition of "Applicable Margin" contained herein,
multiplied by (ii) the face amount of the Letter of Credit then in
effect; provided, that the Applicable Margin for Eurodollar Loans for
the period from the Second Amendment Effective Date to the first
Calculation Date thereafter shall be deemed to be 3.25%."
4. Amendment to Section 8.6. Section 8.6 of the Credit Agreement is
hereby amended to include a new fourth sentence, which sentence shall read in
its entirety as follows:
<PAGE> 5
"Without limiting the generality of the foregoing, and notwithstanding
anything to the contrary contained in this Section 8.6, the Agent or
its representatives may, at the Borrower's expense, conduct a field
exam during the period commencing with the Second Amendment Effective
Date and ending on June 15, 1999."
5. Addition of Section 8.18. The Credit Agreement is hereby amended to
include a new Section 8.18, which Section 8.18 shall read in its entirety as
follows:
"Section 8.18 Limitation on Value of Alpine Enterprises, Ltd.
The Borrower will ensure that Alpine Enterprises, Ltd. does not have
assets valued at or exceeding Cdn.$1,500,000 at any time.
6. Amendment to Section 9.3. The proviso at the end of Section 9.3 of
the Credit Agreement is hereby amended and restated to read in its entirety as
follows:
"provided, however, that no Permitted Acquisitions may be made if (1) a
Default exists at the time of such Permitted Acquisition or would
result therefrom, or (2) the ratio of Total Debt to EBITDA for the most
recent four fiscal quarters of the Borrower then ended, calculated in
accordance with Section 10.1, is greater than 3.00 to 1.00 unless such
Permitted Acquisition has been approved in writing by the Required
Lenders."
7. Amendment to Section 9.5. The proviso at the end of Section 9.5 of
the Credit Agreement is hereby amended and restated to read in its entirety as
follows:
"provided, however, that (A) no Investments may be made by any Loan
Party pursuant to clauses (g), (h), (i) or (j) preceding if a Default
exists at the time of such Investment or would result therefrom and (B)
no Investments in Alpine Enterprises, Ltd., other than amounts not to
exceed Cdn.$250,000 in aggregate principal amount at any time
outstanding loaned by Dynamex Canada to Alpine Enterprises, Ltd.
pursuant to one or more intercompany notes, may be made by any Loan
Party after the Second Amendment Effective Date."
8. Amendment to Section 10.1. Section 10.1 of the Credit Agreement is
hereby amended and restated to read in its entirety as follows:
"Section 10.1 Maximum Ratio of Total Debt to EBITDA. The
Borrower and its consolidated Subsidiaries will not permit the ratio,
calculated as of the end of each fiscal quarter of the Borrower
commencing with the fiscal quarter ended April 30, 1997, and in
accordance with Section 1.4, of (i) Total Debt to (ii) EBITDA for the
four fiscal quarters of the Borrower then ended to be greater than the
ratio set forth below for the applicable fiscal quarter end:
<PAGE> 6
<TABLE>
<CAPTION>
Fiscal Quarter Ended Maximum Ratio
- ---------------------------------------------------- ----------------------
<S> <C>
April 30, 1997, July 31, 1997, October 31, 1997,
January 31, 1998 and April 30, 1998 3.25 to 1.00
July 31, 1998 and October 31, 1998 3.00 to 1.00
January 31, 1999 3.25 to 1.00
April 30, 1999 3.50 to 1.00
July 31, 1999 3.75 to 1.00
October 31, 1999 3.60 to 1.00
January 31, 2000 3.10 to 1.00
April 30, 2000 and each fiscal quarter end 3.00 to 1.00
thereafter
</TABLE>
9. Amendment to Section 10.3. Section 10.3 of the Credit Agreement is
hereby amended and restated to read in its entirety as follows:
"Section 10.3 Minimum Fixed Charge Coverage Ratio. The
Borrower and its consolidated Subsidiaries will not permit the Fixed
Charge Coverage Ratio, calculated as of the end of each fiscal quarter
of the Borrower commencing with the fiscal quarter ended April 30,
1997, and in accordance with Section 1.4, for the four fiscal quarters
of the Borrower then ended to be less than the ratio set forth below
for the applicable fiscal quarter end:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Minimum Ratio
- ------------------------------ ---------------------------------------
<S> <C>
April 30, 1997, July 31,
1997, October 31, 1997,
January 31, 1998 and
April 30, 1998 1.50 to 1.00
July 31, 1998, and October
31, 1998 1.65 to 1.00
January 31, 1999 and April
30, 1999 1.00 to 1.00
July 31, 1999 1.25 to 1.00
October 31, 1999 and
each fiscal quarter end
thereafter 1.50 to 1.00
</TABLE>
10. Amendment to Section 10.4. Section 10.4 of the Credit Agreement is
hereby amended and restated to read in its entirety as follows:
<PAGE> 7
"Section 10.4 Capital Expenditures. The Borrower and its
Subsidiaries (a) will not permit the aggregate Capital Expenditures of
the Borrower and its Subsidiaries during the period from February 1,
1999 through and including January 31, 2000 (exclusive of any purchase
or acquisition of Capital Stock or assets permitted by clause (ii) of
Section 9.3) to exceed $3,500,000, and (b) will not permit the
aggregate Capital Expenditures of the Borrower and its Subsidiaries
during any period of four consecutive fiscal quarters (exclusive of any
purchase or acquisition of Capital Stock or assets permitted by clause
(ii) of Section 9.3) to exceed $3,500,000, provided, however, that the
initial calculation with respect to this clause (b) shall be made as of
April 30, 2000."
11. Conditions Precedent. The effectiveness of this Amendment is
subject to the satisfaction of each of the following conditions precedent, all
of which conditions precedent must be satisfied on or before March 31, 1999:
(a) The Agent shall have received all of the following, each
dated (where applicable and unless otherwise indicated) the date of this
Amendment, in form and substance satisfactory to the Agent:
(i) Amendment Documents. This Amendment as executed
by the parties hereto and any other agreement, document, instrument or
certificate reasonably required by the Agent or the Lenders to be
executed or delivered by the Borrower or any other Loan Party in
connection with this Amendment, each duly executed by each of the
parties thereto (collectively, the "Amendment Documents");
(ii) Resolutions. Resolutions of the Board of
Directors of the Borrower and the other Loan Parties certified by its
Secretary or an Assistant Secretary which authorize the execution,
delivery and performance by the Borrower and the other Loan Parties of
this Amendment and the other Amendment Documents to which the Borrower
or such Loan Party is or is to be a party;
(iii) Legal Opinions. Legal opinions from Texas and
Ontario counsel to the Borrower and its Subsidiaries;
(iv) Amendment Fee. The amendment fee referred to in
Paragraph 22 of this Amendment;
(v) Fees, Costs and Expenses. All fees, costs and
expenses (including, without limitation, attorneys' fees and expenses)
incurred by the Agent incident to this Amendment or required to be paid
in accordance with Section 13.1 of the Credit Agreement, to the extent
incurred and submitted to the Borrower, shall have been paid in full by
the Borrower; and
<PAGE> 8
(vi) Additional Information. The Agent shall have
received such additional agreements, documents, instruments and
information as the Agent or its legal counsel, Jenkens & Gilchrist, a
Professional Corporation, may reasonably request to effect the
transactions contemplated hereby;
(b) The representations and warranties contained herein and in
all other Loan Documents, as amended hereby, shall be true and correct as of the
date hereof as if made again on and as of the date hereof (except if and to the
extent that such representations and warranties are or were expressly made only
as of another specific date);
(c) All corporate proceedings taken in connection with this
Amendment and the other Amendment Documents, and all legal matters incident
thereto, shall be reasonably satisfactory to the Agent and its legal counsel,
Jenkens & Gilchrist, a Professional Corporation; and
(d) No Default or Event of Default shall have occurred and be
continuing.
The Agent shall, promptly after all of the conditions precedent set forth in
this Paragraph 11 have been satisfied, so notify the Borrower and the Lenders in
writing. In the event that each of the aforesaid conditions precedent set forth
in this Paragraph 11 has not been satisfied on or before March 31, 1999, this
Amendment shall be of no force or effect.
12. Representations and Warranties. Each of the Borrower and the other
Loan Parties hereby jointly and severally represent and warrant to, and agrees
with, the Agent and the Lenders that, as of the date of and after giving effect
to this Amendment, (a) the Subsidiaries of the Borrower identified on Schedule 1
hereto are the only Subsidiaries of the Borrower, and, with respect to each of
the Subsidiaries of the Borrower, the authorized Capital Stock, the par value
per share, the number of shares issued and outstanding and the owner(s) of such
issued and outstanding shares are as specified on such Schedule 1; (b) each
material action, suit, investigation or proceeding before or by any Governmental
Authority or arbitrator pending or, to the knowledge of any Loan Party,
threatened against or affecting any Loan Party or any Subsidiary of the Borrower
as of March 15, 1999, is disclosed on Schedule 2 hereto, and none of such
actions, suits, investigations or proceedings could, if adversely determined,
have a Material Adverse Effect or could adversely affect the ability of the
Borrower and the other Loan Parties to pay or perform their indebtedness,
liabilities or obligations under the Credit Agreement or the other Loan
Documents; (c) the execution, delivery and performance of this Amendment and any
and all other Amendment Documents executed and/or delivered in connection
herewith have been authorized by all requisite corporate action on the part of
the Borrower and the other Loan Parties and will not violate the Borrower's or
any Loan Party's corporate charter or bylaws; (d) the term Loan Documents as
defined in the Credit Agreement and as used in any of the Loan Documents
includes, without limitation, the Amendment Documents; (e) all representations
and warranties set forth in the Credit Agreement and in the Security Documents
are true and correct as if made again on and as of such date (except if and to
the extent that such representations and warranties were expressly made only as
of another specific date); (f) no Default or Event of Default has occurred and
is continuing; (g) Alpine Enterprises, Ltd. does not have assets valued at or
exceeding Cdn.$1,500,000 as of the Second Amendment Effective Date; and
<PAGE> 9
(h) the Credit Agreement, the Notes, the Guaranties, the Security Documents and
the other Loan Documents (as amended by this Amendment) are and remain legal,
valid, binding and enforceable obligations of the Borrower and the other Loan
Parties (as applicable) which are parties thereto in accordance with their
terms.
13. Governing Law. THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS
(WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES) AND APPLICABLE LAWS OF THE U.S.
14. Counterparts. This Amendment may be executed in any number of
counterparts, all of which when taken together shall constitute one agreement,
and any of the parties hereto may execute this Amendment by signing any such
counterpart.
15. No Oral Agreements. THIS AMENDMENT, TOGETHER WITH THE CREDIT
AGREEMENT AND THE OTHER LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL
AGREEMENTS BETWEEN AND AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN (A) THE BORROWER OR ANY OTHER
LOAN PARTY AND (B) THE AGENT OR ANY LENDER.
16. Agreement Remains in Effect; No Waiver. Except as expressly
provided herein, all terms and provisions of the Credit Agreement and the other
the Loan Documents shall remain unchanged and in full force and effect and are
hereby ratified and confirmed. No waiver by the Agent or any Lender of any
Default or Event of Default shall be deemed to be a waiver of any other Default
or Event of Default. No delay or omission by the Agent or any Lender in
exercising any power, right or remedy shall impair such power, right or remedy
or be construed as a waiver thereof or an acquiescence therein, and no single or
partial exercise of any such power, right or remedy shall preclude other or
further exercise thereof or the exercise of any other power, right or remedy
under the Agreement, the Loan Documents or otherwise.
17. Survival of Representations and Warranties. All representations and
warranties made in this Amendment or any other Loan Document shall survive the
execution and delivery of this Amendment and the other Loan Documents, and no
investigation by the Agent or any Lender or any closing shall affect the
representations and warranties or the right of the Agent and the Lenders to rely
upon such representations and warranties.
18. Reference to Credit Agreement. This Amendment shall constitute a
Loan Document. Each of the Loan Documents, including the Credit Agreement, the
Amendment Documents and any and all other agreements, documents or instruments
now or hereafter executed and/or delivered pursuant to the terms hereof or
pursuant to the terms of the Credit Agreement as amended hereby, are (if and to
the extent necessary) hereby amended so that any reference in such Loan
Documents to the Credit Agreement shall mean a reference to the Credit Agreement
as amended hereby.
<PAGE> 10
19. Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
20. Successors and Assigns. This Amendment is binding upon and shall
inure to the benefit of the Agent, the Lenders, the Borrower and the other Loan
Parties and their respective successors and assigns; provided, however, that
neither the Borrower nor any of the other Loan Parties may assign or transfer
any of its rights or obligations hereunder without the prior written consent of
the Lenders.
21. Headings. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
22. Amendment Fee. The Borrower shall pay to the Agent, on or before
the date of this Amendment, an amendment fee in the amount of $325,000.00, which
amendment fee shall be divided pro rata amongst the Lenders based upon their
respective Commitments.
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized officers effective as of the day
and year first above written.
THE BORROWER AND ITS SUBSIDIARIES:
DYNAMEX INC.
DYNAMEX OPERATIONS EAST, INC.
DYNAMEX OPERATIONS WEST, INC.
ROAD RUNNER TRANSPORTATION, INC.
NEW YORK DOCUMENT
EXCHANGE CORPORATION
U.S.C. MANAGEMENT SYSTEMS, INC.
DYNAMEX DEDICATED FLEET
SERVICES, INC.
and
CANNONBALL, INC.
By:
------------------------------------
Name: Jeffrey N. MacDowell
Title: Vice President
DYNAMEX CANADA INC.
By:
------------------------------------
Name: Jeffrey N. MacDowell
Title: Vice President
<PAGE> 12
THE AGENT AND A LENDER:
Commitment: $25,435,000 NATIONSBANK, N.A.,
individually and as the Agent
By:
------------------------------------
Name: Frank Izzo
Title: Senior Vice President
<PAGE> 13
THE CO-AGENTS AND LENDERS:
Commitment: $14,130,000 BANKBOSTON, N.A.,
individually and as a Co-Agent
By:
------------------------------------
Name: Tony Zhang
Title: Vice President
<PAGE> 14
Commitment: $8,478,000 BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC. FKA
CREDITANSTALT CORPORATE FINANCE, INC.,
individually and as a Co-Agent
By:
------------------------------------
Name: Robert M. Biringer
----------------------------------
Title: Executive Vice President
---------------------------------
By:
------------------------------------
Name: John G. Taylor
----------------------------------
Title: Senior Associate
---------------------------------
<PAGE> 15
ADDITIONAL LENDERS:
Commitment: $8,478,000 THE BANK OF NOVA SCOTIA
By:
-------------------------------------
Name: F.C.H. Ashby
-----------------------------------
Title: Senior Manager - Loan Operations
----------------------------------
<PAGE> 16
Commitment: $8,478,000 BANK ONE, TEXAS, N.A.
By:
------------------------------------
Name: Mark B. Wade
----------------------------------
Title: Vice President
---------------------------------
<PAGE> 17
SCHEDULE 1
SUBSIDIARIES OF THE BORROWER, ETC.
<TABLE>
<CAPTION>
- ------------------------- ------------------------------ ------------------------ ----------------------- -------------------------
Shares Issued and Owner(s)
Subsidiary Capital Stock Shares Authorized Outstanding of Shares
- ------------------------- ------------------------------ ------------------------ ----------------------- -------------------------
<S> <C> <C> <C> <C>
Dynamex Canada Inc. Common; Unlimited Common; 100 Common; The Borrower owns 100% of
Preferred Unlimited Preferred 3,750,000 Preferred the Common and Preferred
Shares.
- ------------------------- ------------------------------ ------------------------ ----------------------- -------------------------
Dynamex Operations Common 10,000 Common 1,000 Common The Borrower owns 100% of
East, Inc. the Common Shares.
- ------------------------- ------------------------------ ------------------------ ----------------------- -------------------------
Dynamex Operations Common 10,000 Common 1,000 Common The Borrower owns 100% of
West, Inc. the Common Shares.
- ------------------------- ------------------------------ ------------------------ ----------------------- -------------------------
Road Runner Common (Voting; 25,000 Common 6,545 Voting Common; The Borrower owns 100% of
Transportation, Inc. Non-Voting; Undesignated) (7,000 Voting; 4,363.9998 Non- the Voting Common and
5,000 Non-Voting; Voting Common Non-Voting Common Shares.
13,000 Undesignated)
- ------------------------- ------------------------------ ------------------------ ----------------------- -------------------------
New York Document Common 200 Common 150 Common The Borrower owns 100% of
Exchange Corporation the Common Shares.
- ------------------------- ------------------------------ ------------------------ ----------------------- -------------------------
U.S.C. Management Common 200,000 Common 91.33 Common The Borrower owns 100% of
Systems, Inc. the Common Shares.
- ------------------------- ------------------------------ ------------------------ ----------------------- -------------------------
Alpine Enterprises, Ltd. Class A Voting Common Unlimited of 290 Class A Dynamex Canada Inc. owns
Class B Voting Common each class Voting Common 100% of the Class A
Class C Voting Common Voting Common Shares.
Class D Voting Common
Class A Non-Voting Common
Class B Non-Voting Common
Class C Non-Voting Common
Class D Non-Voting Common
Preference Shares
- ------------------------- ------------------------------ ------------------------ ----------------------- -------------------------
Dynamex Dedicated Fleet Common 10,000 1,000 Common The Borrower owns 100% of
Services, Inc. the Common Shares.
- ------------------------- ------------------------------ ------------------------ ----------------------- -------------------------
Cannonball, Inc. Common 71,450 69,350 The Borrower owns 100% of
the Common Shares.
- ------------------------- ------------------------------ ------------------------ ----------------------- -------------------------
</TABLE>
<PAGE> 18
SCHEDULE 2
LITIGATION, ETC.
1. The information set forth on Schedule 7.6 to the Credit Agreement is
incorporated herein by reference.
2. In November and December 1998, two class action lawsuits were filed in
the United States District Court for the Northern District of Texas,
naming the Company and certain of its current and former executive
officers as defendants. The lawsuits arise from the Company's November
2, 1998 announcement that it was (i) revising its results of operations
for the year ended July 31, 1998 from that which had been previously
announced on September 16, 1998 and (ii) restating its results of
operations for the third quarter of fiscal 1998 from that which had
been previously reported. The complaints allege the defendants issued a
series of materially false and misleading statements and omitted
material facts concerning the Company's financial condition and
business operations. The lawsuits allege violations of the Securities
Act of 1933 and Securities Exchange Act of 1934. The plaintiffs seek
unspecified damages on behalf of all other purchasers of the Company's
common stock during the period of December 3, 1997 through and
including October 30, 1998.
On February 5, 1999, the Court entered an Order consolidating the
actions and approved the selection of three law firms as co-lead
counsel. Pursuant to an agreed upon schedule, a consolidated and
amended complaint will be filed on March 22, 1999. At this date, no
class has been certified nor has any discovery commenced. The Company
is unable to determine the likely outcome of this matter or estimate
the amount, or potential range of, loss with respect to this matter.
<PAGE> 1
EXHIBIT 11.1
DYNAMEX INC. AND SUBSIDIARIES
CALCULATION OF NET INCOME PER COMMON SHARE
(in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
January 31, January 31,
--------------------- --------------------
1999 1998 1999 1998
------- ------- ------- ------
<S> <C> <C> <C> <C>
Net income (loss) $(2,301) $1,039 $(1,354) $2,007
======= ======= ======= ======
Weighted average common
shares outstanding 10,069 7,412 10,069 7,387
Common share equivalents related
to options and warrants -- 204 -- 171
-------- ------- -------- -------
Common shares and common share
equivalents 10,069 7,616 10,069 7,558
======== ======= ======== ======
Common stock price used under
treasury stock method $ -- $10.56 $ -- $ 9.50
======== ======= ======== ======
Net income (loss) per common share:
Basic $ (0.23) $ 0.14 $ (0.13) $ 0.27
======== ======= ======== ======
Diluted $ (0.23) $ 0.14 $ (0.13) $ 0.27
======== ======= ======== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> JUL-31-1999 JUL-31-1999
<PERIOD-START> AUG-01-1998 NOV-01-1998
<PERIOD-END> JAN-31-1999 JAN-31-1999
<CASH> 1,476 1,476
<SECURITIES> 0 0
<RECEIVABLES> 30,613 30,613
<ALLOWANCES> 1,199 1,199
<INVENTORY> 0 0
<CURRENT-ASSETS> 39,952 39,952
<PP&E> 18,905 18,905
<DEPRECIATION> 7,533 7,533
<TOTAL-ASSETS> 143,032 143,032
<CURRENT-LIABILITIES> 19,783 19,783
<BONDS> 49,382 49,382
0 0
0 0
<COMMON> 101 101
<OTHER-SE> 73,766 73,766
<TOTAL-LIABILITY-AND-EQUITY> 143,032 143,032
<SALES> 117,228 57,760
<TOTAL-REVENUES> 117,228 57,760
<CGS> 0 0
<TOTAL-COSTS> 79,575 39,746
<OTHER-EXPENSES> 37,733 20,663
<LOSS-PROVISION> 698 663
<INTEREST-EXPENSE> 2,175 1,232
<INCOME-PRETAX> (2,255) (3,881)
<INCOME-TAX> (901) (1,580)
<INCOME-CONTINUING> (1,354) (2,301)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,354) (2,301)
<EPS-PRIMARY> (.13) (.23)
<EPS-DILUTED> (.13) (.23)
</TABLE>
