UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

DYNAMEX INC.

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

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

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

     The number of shares of the registrant’s common stock, $.01 par value, outstanding as of June 4, 2004 was 11,357,497 shares.

DYNAMEX INC.

INDEX

1

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

See accompanying notes to condensed consolidated financial statements.

2

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

See accompanying notes to condensed consolidated financial statements.

3

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

See accompanying notes to condensed consolidated financial statements.

4

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

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business — 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 operating subsidiaries of the Company, with country of incorporation, are as follows:

	•		Dynamex Operations East, Inc. (U.S.)
	•		Dynamex Operations West, Inc. (U.S.)
	•		Dynamex Dedicated Fleet Services, Inc. (U.S.)
	•		Dynamex Canada Corp. (Canada)
	•		Alpine Enterprises Ltd. (Canada)
	•		Roadrunner Transportation, Inc. (U.S.)
	•		New York Document Exchange Corp. (U.S.)

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

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

The accompanying interim financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position at April 30, 2004, the results of its operations for the three and nine month periods ended April 30, 2004 and 2003, and cash flows for the nine month periods ended April 30, 2004 and 2003. The tax provision for the three and nine month periods ended April 30, 2004 and 2003 are based upon management’s estimate of the Company’s annualized effective tax rate.

2. COMPREHENSIVE INCOME

The two components of comprehensive income are net income and foreign currency translation adjustments. Comprehensive income for the three and nine months ended April 30, 2004 was as follows:

3. INTANGIBLES

5

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

At April 30, 2004, intangibles and related amortization expense for the three and nine months ended April 30, 2004 and 2003 consist of the following:

Amortization of deferred financing fees is classified as interest expense in the consolidated statement of operations. Estimated amortization expense for the succeeding five fiscal years, including deferred bank financing fees, is $631 for 2004, $54 for 2005 through 2007 and approximately $29 in 2008. During the third quarter of fiscal 2004, in connection with the refinancing of the Company’s credit facility, the Company wrote off $450 of deferred bank financing costs.

4. COMPUTATION OF EARNINGS PER SHARE

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

5. STOCK OPTION PLAN

Effective August 1, 2003, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123) for stock-based employee compensation. Under the modified prospective method of adoption selected by the Company under the provisions of Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, stock-based employee compensation cost recognized in 2004 is the same as that which would have been recognized had the fair value

6

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

recognition provisions of SFAS No. 123 been applied to all awards granted after August 1, 1995. Results for prior periods have not been restated. During the three and nine month periods ended April 30, 2004, the company recognized $49 and $251, respectively, related to stock based compensation.

Prior to fiscal 2004, the Company applied APB Opinion No. 25 and related interpretations in accounting for its stock options. The exercise price of stock options granted was equal to the market price of the stock on the date of grant; therefore, using the intrinsic value method to value the options, no compensation cost had been recognized for stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options consistent with the method set forth under SFAS No. 123, the Company’s net earnings would have been reduced to the pro forma amounts indicated below:

The fair value of each grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2004 and 2003, respectively: dividend yield of 0% for all years; expected volatility of 86% and 76%; risk-free interest rate of 4.11% and 4.10%; and expected lives of an average of 10 years for all years. The weighted average fair value of options granted during 2004 and 2003 was $10.40 and $3.13, respectively.

7

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

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

General

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

A significant portion of the Company’s revenues is generated in Canada. For the three and nine month periods ended April 30, 2004, Canadian revenues accounted for approximately 32.3% and 33.4%, respectively of total consolidated revenue, compared to 34.3% and 33.8% the same periods during 2003. The exchange rate translating the Canadian dollar to the U.S. dollar increased 11.1% and 15.3%, respectively, in the three and nine month periods ended April 30, 2004 compared to the corresponding periods in the prior year. Had the exchange rate been the same as in those prior periods, Canadian sales for the three and nine month periods ended April 30, 2004 would have accounted for 30.0% and 30.3%, respectively, of total sales.

Critical Accounting Policies

The Company’s discussion and analysis of its financial condition and results of operations are based on the Company’s financial statements, which have been prepared in accordance with accounting policies generally accepted in the United States of America. The Company believes certain critical accounting policies affect its more significant judgments and estimates used in the preparation of financial statements. A description of the Company’s critical accounting policies is set forth in the Company’s Form 10-K for the year ended July 31, 2003. As of, and for the three and nine month periods ended April 30, 2004, there have been no material changes or updates to the Company’s critical accounting policies except for the adoption of the fair value recognition provisions of SFAS No. 123 for stock-based employee compensation (see Note 5).

Results of Operations

8

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

Three months ended April 30, 2004 compared to three months ended April 30, 2003

Net income for the three months ended April 30, 2004 was $2.3 million ($0.20 per fully diluted share) compared to $2.1 million ($0.18 per fully diluted share) for the three months ended April 30, 2003. The increase was attributable to increased sales volume and the associated increase in gross profit, which were offset in part by higher selling, general and administrative expenses (“SG & A”) and income taxes.

Sales for the three months ended April 30, 2004 were $74 million, a 19.1% increase over the sales in the same period in 2003 of $62 million. Sales in the U.S. increased $9.3 million, or 22.7%, virtually all of which came from our scheduled, distribution and outsourcing services. The average conversion rate between the Canadian dollar and the U.S. dollar increased 11.1% over the prior year quarter, which had the effect of increasing sales for the three months ended April 30, 2004 by approximately $2.4 million had the conversion rate been the same as the prior year period. Excluding the effect of this increase, sales would have been approximately 15.3% higher in the current quarter compared to the prior year. If the exchange rate had been the same in 2004 as it was in 2003, on-demand sales would have increased approximately $0.3 million, or 1.2%, in the current period and scheduled, distribution and outsourcing services would have shown an increase of $9.2 million, or 26.8%.

Cost of sales for the three months ended April 30, 2004 increased $8.8 million, or 19.8%, to $53.1 million from $44.3 million for the same period in 2003. Cost of sales, as a percentage of sales, increased to 71.7% for the three months ended April 30, 2004 from 71.3% for the same period ended in 2003. The primary reason for the increase in cost of sales percentage is the change in business mix. Sales of scheduled, distribution and outsourcing services continue to grow faster than on-demand sales. On-demand sales generally produce a higher gross margin primarily due to the smaller size of delivery vehicles compared to other services; however, on-demand services are transaction intensive, requiring higher SG & A costs compared to other services. While on-demand sales will continue to be a major component of our comprehensive service menu, management expects on-demand sales will comprise a smaller portion of anticipated sales growth, while scheduled, distribution and outsourcing services likely will account for most of the projected growth. On-demand sales were approximately 40% of total sales in the current year quarter compared to 45% in the prior year.

SG & A expenses for the three months ended April 30, 2004 increased $1.8 million, or 12.4%, to $16.2 million from $14.4 million for the same period in 2003. Approximately $0.5 million of this increase is due to the increase in the exchange rate between the Canadian dollar and the U.S. dollar. Excluding the impact of the exchange rate, the largest increase in SG & A was salaries and benefits ($1.0 million). This increase is primarily attributable to additional personnel necessary to manage the new business and pay commissions on those sales. The improved operating performance during the current quarter also led to higher bonuses earned by management and operating personnel. The Company also incurred the following additional SG & A expenses in this quarter compared to the same quarter in the prior year: higher medical and state unemployment insurance premiums ($125,000), stock options expense ($49,000) and software maintenance costs ($75,000). As a percentage of sales, SG & A expenses were 21.9% for the three months ended April 30, 2004, compared to 23.2% in the same period last year.

For the three months ended April 30, 2004, depreciation and amortization was slightly lower ($44,000) than for the same period in 2003. Management expects that this expense will remain relatively flat over the next several quarters.

Interest expense for the three months ended April 30, 2004 was $0.6 million, an increase of $43,000 over the prior year. During this quarter, the Company replaced its existing credit agreement with a new $30,000,000 Senior Secured Revolving Credit Facility (“Credit Facility”) that matures on November 30, 2007. As a result of this transaction, in accordance with generally accepted accounting principles, the Company wrote off $0.4 million in unamortized deferred financing costs on the old credit agreement. Excluding this write-off, interest expense was down 71% compared to the prior year. This decrease is attributable to lower outstanding debt, a reduced margin charged by the Company’s lenders and lower amortization of deferred financing costs. The weighted average interest rate on the Company’s outstanding debt at April 30, 2004 was 2.9%, compared to 4.9% at April 30, 2003. The rate is lower in the current quarter because of the reduced margin on the Company’s debt due to the Company’s improved EBITDA ratio, and the lower interest provided for in the new Credit Facility.

The effective income tax rate was 37% in the current quarter compared to 10% in the prior year quarter. Income tax expense in 2003 was reduced by approximately $425,000 associated with a foreign tax credit created by Dynamex Canada Corp.’s

9

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

payment of a $2.5 million cash dividend to Dynamex Inc. Excluding the tax benefit of this transaction, the effective income tax rate in the quarter ended April 30, 2003 would have been 33%.

Nine months ended April 30, 2004 compared to nine months ended April 30, 2003

Net income for the nine months ended April 30, 2004 was $9.8 million ($0.85 per fully diluted share). During the quarter ended January 31, 2004, the Company determined that it is more likely than not that the benefits of the net operating loss (NOL) carryforward totaling $10.6 million will be realized. The Company had provided a 100% valuation allowance on this NOL and based on the determination that the Company would be able to realize the NOL, reversed the valuation allowance during its second fiscal quarter, resulting in a credit to income tax expense of approximately $3.7 million. Excluding the effects of this adjustment, net income for the nine months ended April 30, 2004 was $6.1 million ($0.53 per fully diluted share) compared to net income of $5.4 million ($0.48 per fully diluted share) for the same period in 2003. This improvement results from higher gross profit associated with increased sales, lower interest, and lower depreciation and amortization expense, partially offset by increased SG & A expenses and higher income tax expense.

Sales for the nine months ended April 30, 2004 increased $30 million, or 16.5%, to $213 million from $183 million for the same period in 2003. Scheduled, distribution and outsourcing services increased $27.8 million (28.5%) compared to the prior year while on-demand sales increased $2.4 million (2.8%). The average conversion rate between the Canadian dollar and the U.S. dollar increased 15.3% over the prior year period, which had the effect of increasing sales for the nine months ended April 30, 2004 by approximately $9.4 million had the conversion rate been the same as the prior year period. Excluding the effect of this increase, sales would have been approximately 11.4% higher in the nine months ended April 30, 2004 compared to the prior year. If the exchange rate had been the same in 2004 as it was in 2003, on-demand sales would have decreased approximately $2 million, or 2.3%, in the current period and scheduled, distribution and outsourcing services would have shown an increase of $22.8 million, or 23.3%.

Cost of sales for the nine months ended April 30, 2004 increased $23.7 million, or 18.3%, to $153 million and as a percentage of sales from 70.8% to 71.8% compared to the same period last year. The primary reason for the increase in cost of sales percentage continues to be the change in business mix. As noted above, on-demand sales generally produce a higher gross margin than scheduled, distribution and outsourcing services; however, on-demand sales also require higher SG & A costs than other services. Sales of scheduled, distribution and outsourcing services comprised approximately 59% and 53% of total sales in the nine months ended April 30, 2004 and 2003, respectively. On-demand sales were approximately 41% of total sales in the current year period compared to 47% in the prior year.

SG & A expenses for the nine months ended April 30, 2004 increased $5.3 million, or 12.2%, to $48.1 million from $42.8 million for the same period in 2003. Approximately $1.8 million of this increase is due to the increase in the exchange rate between the Canadian dollar and the U.S. dollar. Excluding the impact of the exchange rate, the largest increase in SG & A was salaries and wages ($2 million). The Company hired additional personnel to manage and service the significant new business startups and paid sales commissions on the new business generated. The improved operating performance during fiscal 2004 also led to higher bonuses earned by management and operating personnel. In addition, the Company incurred the following increases in costs in this period compared to the same period in the prior year: stock options expense ($251,000), software maintenance ($200,000), higher medical and state unemployment insurance premiums ($385,000), and investment in a customer relationship management system and training for our sales force ($190,000). Other increases include facilities and communications costs, travel costs and other costs related to new business start-ups, one-time costs related to relocation of the Chicago logistics center ($120,000), and additional professional fees incurred in connection with the Sarbanes-Oxley mandated reporting ($100,000). As a percentage of sales, SG & A expenses were 22.5% for the nine months ended April 30, 2004, compared to 23.4% in the same period last year.

Depreciation and amortization for the nine months ended April 30, 2004 was $1.5 million compared to $1.6 million for the same period in 2003. Management does not expect a significant change in the level of depreciation and amortization expense in the near future.

Interest expense was $1.3 million, a decrease of $0.5 million or 29% for the nine months ended April 30, 2004 compared to same period in 2003. Interest expense in the current period included the write-off of $0.4 million in unamortized deferred financing costs necessitated by the refinancing of the Company’s Credit Facility. Excluding this charge, interest expense as a percentage of sales was 0.4% compared to 0.9% in the same period last year. This decrease is attributable to lower outstanding debt, a reduced margin charged by the Company’s lenders and lower amortization of deferred financing costs.

10

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

The effective income tax rate, before the reversal of the valuation allowance on the Company’s net operating loss carryforward in the current period and the $0.4 million impact of the foreign tax credit in the prior year, increased from 34% in the nine month period ended April 30, 2003 to 36% in the current period. The increase in the current year is generally due to higher levels of taxable income resulting from lower permanent differences, which were partially offset by the recognition of a foreign tax credit of $174,000 related to an $0.8 million dividend the Company’s Canadian subsidiary paid to the U.S. in October 2003.

Liquidity and Capital Resources

Net cash provided by operating activities was $4.2 million for the nine months ended April 30, 2004 compared to $8.0 million for the same period in 2003. Net cash provided by operations, prior to changes in current operating assets and liabilities and deferred income taxes, was $12.1 million for the nine months ended April 30, 2004 compared to $7.7 million for the nine months ended April 30, 2003 due primarily to higher net income. The large increase in accounts receivable in the nine months ended April 30, 2004 is due primarily to the increase in sales during that period.

Capital expenditures for the nine months ended April 30, 2004 were approximately $1.5 million. Management expects capital expenditures to be in the $2.0 million range for the full fiscal year. The Company does not have significant capital expenditure requirements to replace or expand the number of vehicles used in its operations because substantially all of its drivers are owner-operators who provide their own vehicles.

On March 2, 2004, the Company replaced its existing bank credit agreement with a new $30,000,000 Senior Secured, Revolving Credit Facility that matures on November 30, 2007. Under the terms of the new facility, interest is payable quarterly at prime, or LIBOR plus a margin ranging from 1.25% to 1.75% (1.5% at April 30, 2004), based on the ratio of Funded Debt to EBITDA, as defined in the Credit Facility. There are no scheduled principal payments; however, the Company is required to maintain certain financial ratios related to minimum amounts of stockholder’s equity, fixed charges to cash flow, funded debt to cash flow and funded debt to eligible receivables, as defined. Amounts outstanding under the Credit Facility are secured by all of the Company’s U.S. assets and 100% of the stock of its domestic subsidiaries. The Credit Facility also contains restrictions on incurring additional debt and investments by the Company as well as requiring the Company to maintain certain financial ratios.

Amounts outstanding under the Credit Facility included borrowings of $15.8 million and outstanding letters of credit totaling $3.9 million. The Company has entered into an interest rate protection arrangement on a portion of the Credit Facility ($7.5 million at April 30, 2004). The interest rate has been fixed at the LIBOR margin plus 1.49% (2.99% at April 30, 2004). The portion of the Credit Facility subject to this interest rate protection agreement is reduced by $1.375 million per quarter until maturity. This arrangement matures November 30, 2005.

The Company’s EBITDA (earnings before interest, taxes, depreciation and amortization) was approximately $12.2 million (5.7% of sales) for the nine months ended April 30, 2004, compared to $10.8 million (5.9% of sales) in the same period last year. The decrease as a percentage of sales is due to the lower gross margin, and the increased SG & A costs mentioned above including salaries and wages, stock options expense, the customer relationship management system implementation and training costs, software maintenance, and medical insurance premiums, among others. Management has included EBITDA in its discussion herein as a measure of liquidity because it believes that it is a widely accepted financial indicator of a company’s ability to service and/or incur indebtedness, maintain current operating levels of fixed assets and acquire additional operations and businesses. EBITDA should not be considered as a substitute for statement of operations or cash flow data from the Company’s financial statements, which have been prepared in accordance with generally accepted accounting principles. In addition, the Company’s definition of EBITDA may not be identical to similarly entitled measures used by other companies. The following table reconciles net income presented in accordance with generally accepted accounting principles (GAAP) to EBITDA, which is a non-GAAP financial measure (in thousands):

11

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