Dynamex Announces Second Quarter FY2002 Results.

Business Editors

DALLAS--(BUSINESS WIRE)--March 18, 2002

Long-Term Debt Reduced $6.5 Million

Dynamex Inc. (AMEX:DDN), a leading provider of same-day delivery and logistics services in the United States and Canada, today announced a net loss of $450,000 or $0.04 per share for the second quarter of fiscal year 2002 versus net income of $59,000 or $0.01 per share in the prior year period.

Results for the current quarter include one-time charges totaling $1.1 million associated with restructuring Canadian operations that allowed the Company to repatriate excess Canadian cash and pay down long-term debt by $5 million. These charges include a non-cash foreign currency translation adjustment of $714,000, Canadian taxes of $226,000 and professional fees of approximately $200,000. Excluding those one-time charges, net income for the second quarter was $690,000 or $0.07 per share.

The Company benefited in the current quarter from the early adoption of FASB Statement 142, "Goodwill and Other Intangible Assets", whereby the Company no longer amortizes goodwill. The Company recorded goodwill amortization of approximately $900,000 in the second quarter of last year.

Second quarter sales decreased 8.7% from the prior year period to $57.1 million. EBITDA in the second quarter 2002 decreased to 5.1% of sales or $2.9 million compared to 6.5% of sales or $4.0 million in the prior year. The reductions in revenue and EBITDA are primarily attributable to lower on-demand sales and a resulting shift in business mix, both an effect of the current economic environment. SG&A expenses decreased 6.1% from the prior year period to $14.3 million principally as a result of certain cost reduction initiatives the Company has instituted.

Fiscal Year 2002 Second Quarter Highlights

Chairman and CEO, Rick McClelland commented, "I think Dynamex performed strongly during this period by posting financial results that held up very well versus our peers and direct competitors. At the same time we made important progress related to the continuing development of the sales organization. We now have more than 120 sales professionals across North America dedicated to growing the top line. Driver availability has improved and we have continued to maintain high levels of service quality.

"The current economy continues to put pressure on revenue growth, as well as yields. Our higher yield premium services (on-demand, point-to-point, one-hour) have continued to contract as the economy has contracted. The expansion in our outsourcing and distribution services was able to offset that contraction to some extent. It should be noted, that management has long anticipated the shift in business mix from on-demand to outsourcing and distribution. The tightening economy has simply accelerated this shift, but if current positive economic indicators are sustained then we have reason to believe the on-demand contraction has bottomed out.

"Despite this challenging environment, the Company has continued to operate profitably and successfully. We have implemented three important action plans to jump start growth. First, we have taken an aggressive position in the on-demand market as it relates to pricing and service capability. Secondly, we continue to place a strong focus on the national accounts strategy and are very encouraged by the success of that approach. Lastly, our branch locations are more focused on opportunities relating to vehicle outsourcing and local distribution. These are significant markets where opportunities are stronger during difficult economic times.

"On the other side of the coin, the cost controls that were implemented have been effective in providing relief to the bottom line. We continue to be diligent in the identification and implementation of cost saving measures and anticipate even more cost reductions as a result. Our focus on debt repayment as well as lower interest rates has resulted in a reduction in interest expense of approximately 40% year over year.

"Our ability to overcome hardships and the adversity that hindered the North American economy during the past year is testament to the strength of our people and our cost structure. When compared with 2001, some might consider our top and bottom line results to be less than stellar. However there is absolutely no comparison in terms of the operating environment. Fiscal year 2001 was a time of more favorable economic conditions. In fiscal year 2002, Dynamex has performed well as indicated by our positive cash flow and EBITDA, our ability to fund capital expenditure requirements, and reduce debt during a very challenging period.

"That said, we remain very focused on improvement, growth and value."

Debt Reduction

The Company restructured its Canadian operations in the current period allowing it to repatriate approximately $5.0 million in excess cash that was used to pay down the Company's term note. In addition, the Company paid its quarterly amortization installment of $1.375 million and also approximately $150,000 in notes payable to former owners, for a total of $6.5 million in long-term debt reduction in the current quarter.

Sales Per Day

Sales Per Day in the second quarter was impacted by the continuing softness in the economy as well as the decline in the exchange rate between the Canadian dollar and the U.S. dollar. Excluding the effect of the exchange rate, Sales Per Day decreased 7.4% in the second quarter. Management expects Sales Per Day growth for the second half of Fiscal Year 2002 compared to the current quarter. This expectation is based on (a) a stabilizing economy, (b) new business signed in the previous 120 days and (c) continued success of the sales force both in the U.S. and Canada.

Margins and Operating Expenses 

Gross margins were constant in the second quarter 2002 versus the first quarter 2002, but declined slightly from the prior year due to the continuing shift in business mix from on-demand to other services as a result of (1) sales focus toward regional and national accounts and (2) the continued weakness in the economy. In contrast, the change in business mix combined with the cost reduction initiatives resulted in lower SG&A expenses in the second quarter 2002 versus the prior year period, although SG&A as a percent of sales was marginally higher due to the reduction in sales per day. SG&A expenses were lower in the second quarter 2002 versus the first quarter 2002, but higher as a percent of sales resulting from 2.25 fewer business days in the second quarter.

Depreciation and Amortization

Depreciation and amortization in the second quarter 2002 decreased to $736,000 from $2.0 million in the second quarter of 2001. As a percent of sales D&A decreased to 1.3% from 3.1%. This decrease is attributable to the early adoption of FASB Statement 142, whereby the Company no longer amortizes goodwill. The new accounting standard will benefit fiscal year 2002 earnings by approximately $3.6 million in reduced amortization of goodwill.

Interest Expense

Interest expense for the three months ended January 31, 2002 was $766,000, down 16% from the first quarter of fiscal year 2002 and down 44% from the prior year period. This decrease is attributable to lower outstanding debt and to a lower prime rate during the current quarter. The prime rate charged by the Company's banks was lowered 0.75% to 4.75% during the quarter ended January 31, 2002. The effect of lower interest rates is slightly offset by the Company's interest rate swap, required by its credit agreement, that effectively fixed the rate at 6.14% on $13 million of debt. As a result of the reduction in the prime rate this quarter, the Company recorded approximately $20,000 to mark-to-market the interest rate swap.

Income Taxes

The Company's acquisition program was targeted primarily to U.S. entities, and therefore goodwill amortization and interest expense associated with acquisition debt are primarily attributable to U.S. operations. The Company's U.S. operations incurred a net operating loss ("NOLs") for tax purposes primarily due to amortization of goodwill, interest expense and corporate expenses in excess of the income generated by operations. Because the Company has a history of NOLs, it must provide a 100% valuation allowance to offset the tax benefits of U.S. NOLs that it cannot use currently.

The Company incurred NOLs for U.S. income tax purposes for the three and six months ended January 31, 2002 and 2001 while generating taxable income in Canada. For the Fiscal Year 2002 periods presented, U.S. NOLs exceeded U.S. book income, resulting in an increase in income tax expense. Consequently, the Company's effective tax rate for the three and six month periods ended January 31, 2002 and 2001 is substantially higher than current U.S. or Canadian statutory tax rates. If the Company generates positive U.S. taxable income in future periods, the effective tax rate will be substantially less than the current rate.

Change in Accounting Principle

As previously announced, the Company will record a non-cash, after-tax goodwill impairment charge of between $16 and $20 million due to the impact of FASB Statement 142. Per the statement, amortization of goodwill is eliminated and the method by which goodwill impairment is measured changes from an undiscounted cash flow method to a fair value method.

Investor Call

The Company will host an investor conference call on Wednesday, March 20, 2002 at 2:00 p.m. Central Standard Time at [phone]. A participant will need the following information to access the call: Company name - "Dynamex", Leader's name - "Rick McClelland". A telephone replay of the conference call will be available through March 27, 2002 at [phone], Conference ID 3592459.

The conference call also will be available on the Internet through World Investor Links' Vcall website, located at www.vcall.com and the Company's website at www.dynamex.com. To listen to the live call, please go to the website at least fifteen minutes early to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, an Internet replay will be available shortly after the call for 30 days.

Dynamex is a leading provider of same-day delivery and logistics services in the United States and Canada. Additional press releases and investor relations information as well as the Company's Internet e-commerce services package, dxNow(TM), is available at www.dynamex.com and www.dxnow.com.

This release contains forward-looking statements that 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, the effect of changing economic conditions, acquisition strategy, competition, foreign exchange, the ability to meet the terms of current borrowing arrangements, and risks associated with the local delivery industry. These and other risks are mentioned from time to time in the Company's filings with the Securities and Exchange Commission. In light of such risks and uncertainties, the Company's actual results could differ materially from such forward-looking statements. The Company does not undertake any obligation to publicly release any revision to any forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. 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.