Better by every measure.
Final 2013 Annual Report.indd 1
7/19/13 3:13 PM
2013 ANNUAL REPORT
Company Profile
Transcat, Inc. (NASDAQ: TRNS) is a leading provider of
accredited calibration, repair, inspection and compliance
services,
instrument qualifications,
equipment and process validation and protocol development.
including analytical
Targeted industries include life science, biotechnology,
medical device, pharmaceutical and other FDA-regulated
industries, industrial manufacturing, energy and utilities,
chemical manufacturing and other industries.
Throughout 18 strategically located centers of excellence in
the United States, Canada and Puerto Rico, Transcat performs
over 200,000 precise service events with comprehensive
data and reliable turn-around times. The breadth and depth
of measurement parameters addressed by Transcat’s ISO/
IEC 17025 scopes of accreditation are believed to be the
best in the industry. To ensure the highest level of quality,
Transcat laboratories are accredited by NVLAP (administered
by the National Institute of Standards and Technology - NIST).
In addition, Transcat operates as a leading distributor of
professional grade handheld test, measurement and control
instrumentation. In particular, Transcat is renowned for its
expertise in and selection of process calibration instruments.
FY2012
FY2011
FY2010
FY2009
$ 36,406
$ 31,324
$ 27,918
$ 23,939
73,614
110,020
27,124
24.7%
21,696
4.9%
3,302
$ 0.43
7,651
$ 8,276
59,862
91,186
23,298
25.5%
18,711
5.0%
2,788
$ 0.37
7,521
$ 6,848
53,143
81,061
19,294
23.8%
16,913
2.9%
1,451
$ 0.19
7,549
$ 4,426
51,480
75,419
18,748
24.9%
16,062
3.6%
1,556
$ 0.21
7,469
$ 4,516
$ 44,977
27,378
$ 3.58
$ 41,360
23,329
$ 3.10
$ 35,713
20,257
$ 2.68
$ 29,391
18,619
$ 2.49
Our Strategy
Transcat will continue to grow both our
Service Segment as well as our Distribution
Segment by executing a plan comprised
of a combination of acquisition activities
blended with a robust organic sales
effort. We will target regulated industries
with a highlighted focus on Process and
Energy companies as well as Life Science
industries which include companies in the
Pharmaceutical, Medical Device and Bio
Science space. We will continue to expand
our suite of services which today include
Traditional Calibration, Process Calibration,
Validation, Analytical, Consulting and
Remediation services as well as CGMP, GLP
and GXP compliant services.
FIVE-YEAR PERFORMANCE HIGHLIGHTS
(in thousands, except per share data)
FY2013
Service segment revenue
Distribution segment revenue
Total revenue
Gross Profit
Gross margin
Total operating expenses
Operating margin
Net Income
Earnings per share – diluted
Weighted average shares – diluted
$ 40,655
71,641
112,296
27,404
24.4%
21,458
5.3%
3,704
$ 0.49
7,592
EBITDA*
YEAR END FINANCIAL POSITION
Total assets
$ 55,047
$ 8,537
Shareholders’ equity
Book value per share
31,650
$ 4.17
* See EBITDA disclosure and reconciliation in shareholder letter.
Final 2013 Annual Report.indd 2
7/19/13 3:13 PM
Dear Shareholders,
Fiscal 2013 was our ninth consecutive year of revenue growth with
record annual revenue of $112.3 million, record net income of $3.7
million and record EBITDA* of $8.5 million. Our Service segment
revenue grew nearly 12 percent primarily due to recent acquisitions
and we are well positioned to achieve increased levels of organic
growth as a result of the successful execution of our plan to acquire
the industry’s top business development talent. We continue to
focus our efforts to extend Transcat’s brand, which now reaches
further than ever into our targeted life science and energy markets,
and we are excited by the extent of our leadership position in the
marketplace. The Distribution business was down three percent in
fiscal 2013, but performed relatively well in a sluggish economy and in a year that contained eight less
selling days than the prior year. Importantly, average sales per day for the Distribution segment held
steady to last year which we believe is a testament to our strong market position in the distribution of test,
measurement and control instrumentation.
Delivering on Our Strategy: Growing the Service Segment
A major component of our strategic plan is to continue double digit revenue growth in our Service segment.
In fiscal 2013, we achieved that goal by completing two acquisitions which drove our top-line performance
and improved operating leverage. Anacor Compliance Services, Inc. vertically integrated Transcat further
into the life science space through the delivery of a new suite of compliance services including analytical
qualifications and preventative maintenance, process and instrument validations and calibration
remediation and risk assessment services. The second of our two acquisitions was Cal Matrix Metrology
Inc. which fortified our position in the Canadian market adding significant capability and capacity in Toronto
and a new service lab in Montreal. Combined with our Ottawa Lab, we believe we now are the market
leader in providing third party calibration services in Canada.
$8.3
$8.5
Revenue ($ in millions)
$75.4
$81.1
$91.2
$110.0
$112.3
EBITDA* ($ in millions)
$6.9
$4.5
$4.4
Extending our Brand and Capitalizing on our Quality-Oriented Infrastructure
We are capitalizing on years of service process improvement, quality-driven infrastructure investments and
consistent delivery of precise services that have reached the highest industry standards. From a
geographic perspective, our 18 “Service Centers of Excellence” throughout the United States, Puerto Rico
and Canada give us extensive coverage and provide the broadest scope of accreditation in our industry.
From a capability perspective, we now offer a more vertically integrated, comprehensive suite of services
than at any time in our Company’s history. In aggregate, our current service infrastructure, geographic
footprint, and unrelenting focus on quality create an ideal opportunity to achieve our goal of developing a
portfolio of clients consisting of more integrated relationships with larger, enterprise accounts.
Leveraging the Distribution and Service Businesses
A key component of our fiscal 2014 operating plan is to continue to maximize the leverage between our
two business segments. Put simply: we aim to sell more services to our distribution customers and sell
more distribution products to service customers. Transcat is uniquely positioned to capitalize on the
inherent leverage that exists between our Distribution and Service segments and we believe the value
created resonates with our target markets.
Outlook
While we anticipate little if any improvement in the current economic climate, we are confident that the
strong business fundamentals that exist within Transcat will continue to provide opportunities for growth
and increased profitability in the year ahead. We will continue to look to acquire businesses that fit
strategically and culturally as well as maintain a strong balance sheet that affords us an opportunity to
invest in our future. We will also continue to hold our employees in the highest regard and look to acquire
additional talent as necessary to accomplish our goals.
Charlie Hadeed, who has been with Transcat since 2002, has assumed the role of Executive Chairman,
and I was appointed Chief Executive Officer effective July 1, 2013. Charlie established a solid foundation
upon which we can continue to grow and I want to thank him for his vision and excellent leadership.
On behalf of our Board and employees, thank you for your continued interest and investment in our great
company.
Sincerely,
Lee D. Rudow
President and Chief Executive Officer
July 19, 2013
*The Company believes that when used in conjunction with GAAP measures, EBITDA, or earnings before interest, taxes, depreciation and
amortization, which is a non-GAAP measure, allows investors to view its performance in a manner similar to the methods used by
management and provides additional insight into its operating results.
.
EBITDA Reconciliation ($ millions)
2009
2010
2011
2012
2013
Net Income
+ Interest Expense
+ Income Tax Provision
+ Depreciation & Amortization
$1.56
$0.10
$0.96
$1.90
$1.45
$0.06
$0.83
$2.08
$2.79
$0.07
$1.69
$2.29
$3.30
$0.13
$1.94
$2.90
$3.70
$0.12
$2.01
$2.70
EBITDA*
$4.52
$4.43
$6.85
$8.28
$8.53
CORPORATE INFORMATION
Stock Exchange Listing
NasdaqGM: TRNS
Investor Relations
Investors, stockbrokers, security analysts and others
seeking information about us should contact:
2013 Annual Meeting
The 2013 Annual Meeting of Shareholders will be
held on Tuesday, September 10, 2013 at 12:00 Noon,
Eastern Time, at our corporate headquarters, which
are located at:
35 Vantage Point Drive
Rochester, New York 14624
Transfer Agent and Registrar
For services such as change of address, replacement
of lost certificates and changes in registered
ownership, or for inquiries about your account,
contact:
Computershare
250 Royall Street
Canton, Massachusetts 02021
Shareholder Services: (800) 622-6757
computershare.com/investor
John J. Zimmer, Chief Financial Officer
Phone: (585) 352-7777
Email: jzimmer@transcat.com
Additional information about us is available on our
website at: transcat.com
Information on our website is not a part of this Annual Report.
Independent Registered Public Accounting Firm
Freed Maxick CPAs, P.C.
Buffalo, New York
Corporate Counsel
Harter Secrest & Emery LLP
Rochester, New York
BOARD OF DIRECTORS AND EXECUTIVE MANAGEMENT
Board of Directors
Executive Management
Charles P. Hadeed, Executive Chairman
Retired Chief Executive Officer, Transcat, Inc.
Lee D. Rudow
President and Chief Executive Officer
John J. Zimmer
Senior Vice President of Finance and
Chief Financial Officer
Michael P. Craig
Vice President of Human Resources
John P. Hennessy
Vice President of Sales and Marketing
Rainer Stellrecht
Vice President of Laboratory Operations
Scott D. Sutter
Vice President of Strategic Business
Development
Jay F. Woychick
Vice President of Special Markets
Francis R. Bradley 1
Retired, Founding Global Business Manager,
E.I. DuPont de Nemours & Co., Inc.
Richard J. Harrison 1*
Executive Vice President and Chief Operating Officer
Five Star Bank
Paul D. Moore 1
Senior Vice President, M&T Bank Corporation
Harvey J. Palmer, Ph.D. 1, 3
Dean, Kate Gleason College of Engineering
Rochester Institute of Technology
Alan H. Resnick 2, 3*
President, Janal Capital Management LLC
Carl E. Sassano
Retired Chief Executive Officer, Transcat, Inc.
John T. Smith 2*, 3
Chairman and Chief Executive Officer,
Brite Computers, Inc.
1- Audit Committee
2- Corporate Governance and Nominating Committee
3- Compensation Committee
* Committee Chair
SEC FORM 10-K
Better by every measure.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-K
(Mark one)
[√] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: March 30, 2013
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 000-03905
TRANSCAT, INC.
(Exact name of registrant as specified in its charter)
Ohio
(State or other jurisdiction of incorporation or organization)
16-0874418
(I.R.S. Employer Identification No.)
35 Vantage Point Drive, Rochester, New York 14624
(Address of principal executive offices) (Zip Code)
(585) 352-7777
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.50 par value
Name of each exchange on which registered
NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [√]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [√]
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 [√] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes [√] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Accelerated filer [ ]
Smaller reporting company [√]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [√]
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on September 29, 2012 (the last
business day of the registrant’s most recently completed second fiscal quarter) was approximately $36 million. The market value calculation was
determined using the closing sale price of the registrant’s common stock on September 29, 2012, as reported on the NASDAQ Global Market.
The number of shares of common stock of the registrant outstanding as of June 17, 2013 was 7,458,981.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement relating to the Annual Meeting of Shareholders to be held on September 10, 2013 have been
incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this report.
TABLE OF CONTENTS
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Business ......................................................................................................................................................
Risk Factors ................................................................................................................................................
Unresolved Staff Comments .......................................................................................................................
Properties ....................................................................................................................................................
Legal Proceedings .......................................................................................................................................
Mine Safety Disclosures .............................................................................................................................
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ....................................................................................................................................................
Selected Financial Data ..............................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations .....................
Quantitative and Qualitative Disclosures about Market Risk .....................................................................
Financial Statements and Supplementary Data ...........................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .....................
Controls and Procedures .............................................................................................................................
Other Information .......................................................................................................................................
Directors, Executive Officers and Corporate Governance ..........................................................................
Executive Compensation ............................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...
Certain Relationships and Related Transactions, and Director Independence ............................................
Principal Accountant Fees and Services .....................................................................................................
Page(s)
1-11
12-15
15
15
15
15
16
16
17-25
25
26-45
46
46
46
47
47
47
47
47
Part IV
Item 15.
Exhibits and Financial Statement Schedules ..............................................................................................
Signatures .........................................................................................................................................................................
Index to Exhibits ..............................................................................................................................................................
48
49
50-52
PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
This report and, in particular, the Management’s Discussion and Analysis of Financial Condition and Results of Operations
section of this report, contains forward-looking statements as defined by the Private Securities Litigation Reform Act of
1995. These include statements concerning expectations, estimates, and projections about the industry, management beliefs
and assumptions of Transcat, Inc. (“Transcat”, “we”, “us”, or “our”). Words such as “anticipates”, “expects”, “intends”,
“plans”, “believes”, “seeks”, “estimates”, and variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks,
uncertainties and assumptions that are difficult to forecast, including, among other things, the risks and uncertainties identified
by us below under “Risk Factors” in Item IA of Part I of this report. Therefore, our actual results and outcomes may
materially differ from those expressed or forecast in any such forward-looking statements. Except as required by law, we
undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future
events or otherwise.
BUSINESS OVERVIEW
Transcat is a leading provider of accredited calibration, repair, inspection and compliance services and distributor of
professional grade handheld test, measurement and control instrumentation. We are primarily focused on providing our
products and services to the following:
The pharmaceutical
manufacturing);
industry and FDA-regulated businesses (such as biotechnology and medical device
Industrial manufacturing companies;
The energy industry and power, natural gas and water utility companies;
The chemical process industry; and
Other industries which require accuracy in their processes and confirmation of the capabilities of their equipment.
We conduct our business through two segments: service (“Service”) and distribution (“Distribution”).
Through our Service segment, we deliver precise, reliable, fast calibration and repair services. As of our fiscal year ended
March 30, 2013 (“fiscal year 2013”), we operated eighteen calibration service centers (“Calibration Centers of Excellence”)
strategically located across the United States, Puerto Rico, and Canada, that collectively service over 12,000 customers. All of
our Calibration Centers of Excellence are covered by ISO/IEC 17025 scopes of accreditation which are believed to be among
the best in the industry. Our accreditation meets many international levels of quality, consistency and reliability. See “Service
Segment – Quality” below in this Item 1 for more information.
Our Service segment also offers compliance services which include remediation, validation and analytical services primarily to
pharmaceutical and FDA-regulated customers. These service offerings are driven by our customers’ needs to either maintain
compliance with regulations and quality standards or, in the case of remediation, to regain compliance with regulations.
CalTrak® is our proprietary documentation and asset management system which is used to manage both the workflow of our
Calibration Centers of Excellence and our customers’ assets. With CalTrak®, we are able to provide our customers with
timely calibration service while optimizing our own efficiencies. Additionally, CalTrak-Online provides our customers direct
access to certificates, data, and other key documents required in the calibration process. CalTrak® has been validated to U.S
federal regulations 21CFR 820.75 and 21CFR 11, which is important to the pharmaceutical and FDA-regulated industries
where federal regulations can be particularly stringent. See Service Segment - CalTrak® below in this Item 1 for more
information.
Through our Distribution segment, we market and sell national and proprietary brand instruments to approximately 15,000
customers. Our product catalog (“Master Catalog”) and website offer access to more than 38,000 test, measurement and
control instruments, including products from approximately 120 of the industry’s leading manufacturers including Fluke, GE,
Emerson, Agilent, FLIR and Rosemount. In addition, we are the exclusive worldwide distributor for Transmation and Altek
1
products. The majority of the instruments we sell require expert calibration service to ensure that they maintain the most
precise measurements.
Our commitment to quality goes beyond the service and products we deliver. Our sales, customer service and support teams
stand ready to provide expert advice, application assistance and technical support wherever and whenever our customers need
it. Since calibration is an intangible service, our customers rely on us to uphold high standards and trust in the integrity of our
people and processes.
Among our customers, and representing 26% of our consolidated revenue, are Fortune 500/Global 500 companies. Transcat
has focused on the pharmaceutical and FDA-regulated industries, industrial manufacturing, energy and utility, chemical
process and other industries since our founding in 1964. We are a leading supplier of test, measurement and control
instrumentation in the markets we serve. We believe our customers do business with us because of our integrity and
commitment to quality service, our broad range of product and service offerings, and our asset management system, CalTrak®.
Transcat was incorporated in Ohio in 1964. We are headquartered in Rochester, New York and employ more than 400
people. Our executive offices are located at 35 Vantage Point Drive, Rochester, New York 14624. Our telephone number is
585-352-7777.
OUR STRATEGY
Our objective is to continue to grow our Service and Distribution segments through organic revenue growth and acquisitions.
Within the Service segment, our strategy is to focus on customers that rely on accredited calibration services and/or compliance
services and value superior quality to maintain the integrity of their processes and/or meet the demands of regulated business
environments. We focus on customers that require precise measurement capability for their manufacturing and testing
processes to minimize risk, waste and defects. We leverage these strategies based on our multiple locations, highly qualified
technicians and breadth of capabilities.
As part of our growth strategy, we have engaged in a number of business acquisitions. During fiscal year 2013 and the fiscal
year ended March 31, 2012 (“fiscal year 2012”), we completed the following acquisitions:
On January 25, 2013, we acquired 7506155 Canada Inc. and its operating subsidiary, Cal-Matrix Metrology Inc.
(collectively “Cal-Matrix”). Cal-Matrix is a provider of commercial and accredited calibration and coordinate
measurement inspection services to customers throughout Canada and has locations in Burlington, Ontario and
Montreal, Quebec.
On July 16, 2012, we acquired substantially all of the assets of Anacor Compliance Services, Inc. (“Anacor”), a
nationally recognized provider of specialized analytical, calibration, validation and remediation services to the
life science sector.
On September 8, 2011, we acquired the calibration services division of Newark Corporation (“Newark”), a
provider of calibration and repair services to customers located primarily in Arizona, Colorado and Tennessee.
On April 5, 2011, we acquired substantially all of the assets of CMC Instrument Services, Inc. (“CMC”), a
Rochester, New York-based provider of dimensional calibration and repair services.
Our acquisition strategy primarily targets service businesses that expand our geographic reach and leverage our infrastructure
while also increasing the depth and/or breadth of our service capabilities. Our acquisition strategy is focused on service
businesses, and we expect that the growth rate of our Service segment should exceed that of our Distribution segment over the
long term.
Our Distribution segment growth strategy is to be the premier distributor of leading hand-held test and measurement
equipment. In support of this strategy, we continuously add new vendors and products to ensure a market leadership
position. We have access to over 38,000 products through our vendor relationships with the goal to service all of our
customers’ test and measurement instrumentation needs.
2
We believe our combined Distribution and Service segment offerings, experience, technical expertise and integrity create a
unique and compelling value proposition for our customers. We strive to differentiate ourselves and build barriers to
competitive entry by offering the best products and services, and integrating those products and services to benefit our
customers’ operations and lower their costs.
Through our acquisition of Anacor, we have expanded our service offerings and are now able to provide a more complete suite
of services to pharmaceutical and FDA-regulated customers. By adding analytical, validation and remediation services to our
service offerings, we are able to further integrate into our customers’ processes.
SEGMENTS
We service our customers through two business segments: Service and Distribution. See note 7 of our Consolidated Financial
Statements in this report for financial information for these segments. We serve approximately 12,000 and 15,000 customers
through our Service and Distribution segments, respectively. While some customers are served by both of our business
segments, no customer or controlled group of customers accounted for 10% or more of our total consolidated revenue in either
fiscal year 2013 or 2012. The loss of any single customer would not have a material adverse effect on our business, cash flows,
balance sheet, or results of operations.
We concentrate on attracting new customers and also on cross-selling to existing customers to increase our total revenue. Our
revenue from customers in the following geographic areas during the periods indicated, expressed as a percentage of total
revenue, is as follows:
United States ......................................................................................................................................
Canada ................................................................................................................................................
Other International .............................................................................................................................
Total ........................................................................................................................................
FY 2013
FY 2012
91%
7%
2%
100%
91%
7%
2%
100%
SERVICE SEGMENT
Calibration. Calibration is the act of comparing a unit or instrument of unknown value to a standard of known value and
reporting the result in some rigorously defined form. After the calibration has been completed, a decision is made, based on
rigorously defined parameters, regarding what, if anything, should be done to the unit to conform to the required standards or
specifications. The decision may be to adjust, optimize or repair a unit; limit the use, range or rating of a unit; scrap the unit; or
leave the unit as is. The purpose of calibration is to significantly reduce the risk of product or process failures caused by
inaccurate measurements.
Calibration improves an operation’s maximum productivity and efficiency by assuring accurate, reliable instruments and
processes. Through our Service segment, we perform periodic calibrations (typically ranging from three month to twenty-four
month intervals) on new and used instruments as well as repair services for our customers.
Within the calibration industry, there is a broad array of measurement disciplines making it costly and inefficient for any one
provider to invest the needed capital for facilities, equipment and uniquely trained personnel necessary to address all
measurement disciplines with in-house calibration capabilities. We can address approximately 90% to 95% of the items
requested to be calibrated with our in-house capabilities. For customers’ calibration needs in less common and highly technical
disciplines, we have historically subcontracted to third party vendors that have unique or proprietary capabilities. While
typically representing less than 20% of our Service segment revenue, the management of these vendors is highly valued by our
customers and our relationships have enabled us to continue our pursuit of having the broadest calibration offerings to these
targeted markets.
Compliance. Our compliance services include analytical qualification, validation and remediation services. Analytical and
validation services provide a comprehensive and highly specialized service offering focused on the pharmaceutical and FDA-
regulated industries. Our goal is to deliver specialized technical services with a quality assurance approach, which maximizes
document accuracy and on-time job delivery. These industries demand knowledgeable contract services and Transcat meets
these demands with GMP, GLP and GxP compliant services. Companies within these innovative and cutting-edge industries
need a reliable alternative to the original equipment manufacturers (“OEMs”) and the “generalist” service providers who
3
cannot meet their industry-specific needs. Remediation services are focused on assisting our customers with efforts to get back
into compliance with regulations after the FDA or other government authority has taken action with respect to the customer’s
operations.
Analytical services are typically based on service agreements for testing, preventative maintenance and repair and tend to
generate recurring revenue. Validation services are based on certain customer processes. While specific validation services
may not be repeated, we develop relationships with customers who may engage us for multiple unique validation
services. Remediation services are based on specific regulatory actions and are generally required by a customer for a finite
period of time. This revenue is not recurring by its nature.
Other Services. We provide other services to our customers such as repair, inspection and consulting services. These services
allow us to provide “one-stop shopping” for our customers.
Strategy. Our Service segment provides periodic calibration services for our customers’
test and measurement
instruments. We specifically target industries where quality calibrations are a critical operational component and believe
calibration sourcing decisions are based on accreditation, reliability, trust, customer service, turn-around time, location,
documentation, price and a one-source solution. Our success with customers is based on the trust they have in the integrity of
our people and processes.
Transcat’s calibration services strategy encompasses two methods to manage a customer’s calibration and repair needs:
1) If a company wishes to outsource its calibration needs, we offer an “Integrated Calibration Services Solution” that
provides a complete wrap-around service which includes:
program management;
calibration;
logistics; and
consultation services.
2) If a company has an in-house calibration operation, we can provide:
calibration of primary standards;
overflow capability either on-site or at one of our Calibration Centers of Excellence during periods of high
demand; and
consultation and training services.
In both cases, we strive to have the broadest accredited calibration offering to our targeted markets, which includes certification
of our technicians pursuant to the American Society for Quality standards, complete calibration management encompassing the
entire metrology function, and access to our service offerings. We believe our calibration services are of the highest technical
and quality levels, with broad ranges of accreditation. Our quality systems are further detailed in the section entitled “Quality”
below.
Our compliance services strategy is to identify and establish long-term relationships with customers who require analytical,
validation, and/or remediation services. In most cases, these customers are life science companies, including pharmaceutical
companies and medical device manufacturers, and are subject to extensive government regulation.
The compliance services that we provide to these regulated customers are typically a critical component of the customer’s
overall compliance program. Due to the fact that many compliance service customers operate in regulated industries, these
same customers typically also require accredited calibration services. This requirement allows a natural synergy among our
compliance and calibration services. Our strategy includes cross-selling our services within our customer accounts to
maximize our revenue opportunities with each customer.
The vast majority of our compliance services are provided at the customers’ locations by our staff of highly-trained
technicians. We believe we have developed a reputation with our customers that is highly regarded and based on our technical
competency and integrity.
4
CalTrak®. CalTrak® and CalTrak-Online are our proprietary metrology management systems that provide a comprehensive
calibration quality program. Many of our customers have unique calibration service requirements to which we have tailored
specific services. CalTrak-Online allows our customers to track calibration data online and provides the customer with a safe
and secure off-site archive of calibration records that can be accessed 24 hours a day. Access to records data is managed
through our secure password-protected website. Calibration assets are tracked with records that are automatically cross-
referenced to the equipment that was used to calibrate. CalTrak® has also been validated to meet the most stringent
requirements within the industry.
We perform approximately 200,000 calibrations annually. These are performed at our Calibration Centers of Excellence or at
the customer’s location. During fiscal year 2013, services completed by our Calibration Centers of Excellence represented
82% of our Service revenue while approximately 16% of our Service revenue was derived from services that were
subcontracted to third party vendors, and the remaining 2% was associated with other billings. Our Service segment accounted
for 36% of our total consolidated revenue in fiscal year 2013.
Marketing and Sales. We have sales teams that seek to acquire new customers in our targeted markets and account
management teams to ensure continued relationships with existing customers. In addition, we employ our Master Catalog,
supplements, mailings, journal advertising, trade shows, and the Internet to market our services to customers and prospective
customers with a strategic focus in the highly regulated industries including pharmaceutical, FDA-regulated, energy and
utilities, and chemical processing. We also target industrial manufacturing and other industries that appreciate the value of
quality calibrations. Our quality process and standards are designed to meet the needs of companies that must address
regulatory requirements and/or have a strong commitment to quality and a comprehensive calibration and compliance program.
The approximate percentage of our Service revenue by industry type for the periods indicated are as follows:
Pharmaceutical/FDA-Regulated ...............................................................................................................
Industrial Manufacturing ..........................................................................................................................
Energy/Utilities ........................................................................................................................................
Chemical Manufacturing ..........................................................................................................................
Other ........................................................................................................................................................
Total ....................................................................................................................................................
34%
22%
11%
7%
26%
100%
34%
21%
16%
8%
21%
100%
FY 2013
FY 2012
Competition. The calibration industry is highly fragmented and is composed of companies ranging from internationally
recognized and accredited corporations, such as Transcat, to non-accredited, sole proprietors as well as companies that perform
their own calibrations in-house, resulting in a tremendous range of service levels and capabilities. A large percentage of
calibration companies are small businesses that may not have a range of capabilities as broad as ours. There are also several
companies with whom we compete who have national or regional operations. Certain of these competitors may have greater
resources than us and some of them have accreditations that are similar to ours. We differentiate ourselves from our
competitors by demonstrating our commitment to quality and by having a wide range of capabilities that are tailored to the
markets we serve. Customers see the value in using our unique CalTrak-Online asset and data management program to
monitor their instrument’s status, history and performance data. We are fundamentally different from most of our competitors
because we have the ability to bundle product, calibration, compliance and other services as a single source for our customers.
Competition for compliance services is comprised of both small local and regional service providers and large multi-national
companies who are also OEMs. While we are larger and financially stronger than many of the small local and regional
competitors, the large OEMs are generally much larger than we are and have significantly more resources. Our competitive
advantages are our flexibility and our turn-around time. We believe we can react to customers’ needs more quickly and
effectively than our competitors.
Quality. The accreditation process is the only system currently in existence that validates measurement competence. To ensure
that the quality and consistency of our customer calibrations are consistent with the global metrology network, designed to
standardize measurements worldwide, we have sought and achieved international levels of quality and accreditation. Our
Calibration Centers of Excellence are accredited to ISO/IEC 17025:2005 and ANSI/NCSL Z540-1-1994 using accrediting
bodies in the United States that are signatories to the International Laboratory Accreditation Cooperation (“ILAC”). These
accrediting bodies, which are proficient in the technical aspects of the chemistry and physics that underlie metrology, provide
an objective, third party, internationally accepted evaluation of the quality, consistency, and competency of our calibration
processes. Accreditation also requires that all measurement standards used for accredited measurements have a fully
5
documented path, known as Metrological Traceability, through the National Institute of Standards and Technology or the
National Research Council, (these are the National Measurement Institutes for the United States and Canada, respectively), or
to other national or international standards bodies, or to measurable conditions created in our calibration service center, or
accepted fundamental and/or natural physical constants, ratio type of calibration, or by comparison to consensus standards, all
inclusive of measurement uncertainties.
The importance of this international oversight to our customers is the assurance that our documents will be accepted
worldwide, removing one of the barriers to trade that they may experience if using a non-ILAC traceable calibration service
provider. To provide the widest range of service to our customers in our target markets, our ISO/IEC 17025:2005
accreditations extend across many technical disciplines. We believe our scope of accreditation to ISO/IEC 17025 to be the
broadest for the industries we serve. Unless otherwise noted below, our calibration service centers are accredited by the
National Voluntary Laboratory Accreditation Program (NVLAP). The following table represents our capabilities for each of
our Calibration Centers of Excellence as of March 30, 2013 (A=Accredited; N=Non-accredited):
Dimensional Metrology Disciplines
Parts
Inspection
(Geometric
Dimensioning
&
Tolerancing/
Length
Optics Metrology)
3-D
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
WORKING-LEVEL CAPABILITIES:
Electrical Metrology Disciplines
Direct
Current/
Alternating Frequency/
High
Current
- Low
Ultra
- High
Frequency/ Luminance/
Frequency Frequency Microwave Illuminance
Radio
Anaheim ...........
Boston ..............
Burlington1 .......
Charlotte ..........
Cherry Hill .......
Dayton ..............
Denver ..............
Houston ............
Lincoln .............
Montreal1 .........
Nashville ..........
Ottawa/Toronto
Phoenix ............
Portland ............
Rochester .........
San Juan ...........
St. Louis ...........
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
6
Physical Metrology Disciplines
Gas
Flow
Particle
Counters
A
N
Anaheim ..........
Boston .............
Burlington1 ......
Charlotte ..........
Cherry Hill ......
Dayton .............
Denver .............
Houston ...........
Lincoln ............
Milwaukee2 .....
Nashville .........
Ottawa/Toronto
Phoenix ............
Portland ...........
Rochester .........
San Juan ..........
St. Louis ..........
Analysis
Force
A
A
N
N
N
A
A
A
A
A
A
A
A
A
A
A
A
A
Relative
Humidity
A
A
N
A
A
A
A
A
A
A
A
A
Mass
Weight
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
Pressure,
Vacuum
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
Physical Metrology Disciplines (continued)
Life Science Disciplines
Torque
Anaheim ...........
Boston ..............
Burlington1 .......
Charlotte ..........
Cherry Hill .......
Dayton ..............
Denver ..............
Houston ............
Lincoln .............
Nashville ..........
Ottawa/Toronto
Phoenix ............
Portland ............
Rochester .........
San Juan ...........
St. Louis ...........
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
Temperature
A
A
N
A
A
A
A
A
A
A
A
A
A
A
A
A
REFERENCE-LEVEL CAPABILITIES:
Revolutions
Per
Minute,
Speed
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
Vibration,
Acceleration Biomedical Biological Pharmaceutical
Chemical/
A
A
N
N
N
N
N
N
N
N
A
N
N
N
N
N
N
N
N
N
N
N
N
Electrical
Standards
Humidity
Standards
Mass
Vacuum Temperature
Standards Standards
Dimensional
Standards
A
A
A
A
A
Burlington1 ...
Charlotte .......
Cherry Hill ....
Dayton ..........
Houston ........
Portland ........
Rochester ......
San Juan ........
A
A
A
A
A
A
A
A
A
A
Standards
A
A
(1) These two locations are accredited to ISO/IEC 17025 through the Standards Council of Canada-Calibration Laboratory
Assessment Service (SCC-CLAS).
7
(2) Wisconsin operations regionally headquartered in Milwaukee, with locations in Madison and Green Bay, includes
calibration of legal for trade (NIST Handbook 44) and industrial scales (heavy capacity, medium capacity, small capacity,
vehicle, livestock, hopper, belt, platform, bench, counting, laboratory balances, etc.). These three locations are ISO/IEC 17025
accredited through ANAB/ACLASS.
DISTRIBUTION SEGMENT
Summary. Our customers use test and measurement instruments to ensure that their processes, and ultimately their end
products, are within specification. Utilization of such diagnostic instrumentation also allows for continuous improvement
processes to be in place, increasing the accuracies of their measurements. The industrial test and measurement instrumentation
market, in those geographic areas where we predominately operate, is serviced by broad-based national distributors and niche
or specialty-focused organizations such as Transcat.
Most industrial customers find that maintaining an in-house inventory of back-up test and measurement instruments is cost
prohibitive. As a result, the distribution of test and measurement instrumentation has traditionally been characterized by
frequent, small quantity orders combined with a need for rapid, reliable, and complete order fulfillment. The decision to buy is
generally made by plant engineers, quality managers, or their purchasing personnel and products are typically obtained from
one or more distributors. Our catalog, website and sales activities are designed to maintain a constant presence in front of our
customers to ensure we receive the order when they are ready to purchase.
The majority of the products we distribute are not consumables, but are purchased as replacements, upgrades, or for expansion
of manufacturing and research and development facilities. As a result, we evaluate Distribution sales trends over a twelve-
month period as any individual month’s or quarter’s sales can be impacted by numerous factors, many of which are
unpredictable and potentially non-recurring.
We believe that a customer chooses a distributor based on a number of different criteria including the timely delivery and
accuracy of orders, consistent product quality, the technical competence of the representative serving them, value added
services, as well as price. Value added services include providing technical support to insure our customer receives the right
product for their specific need through application knowledge and product compatibility. We also provide calibration of
product purchases, online procurement, same day shipment of in-stock items, a variety of custom product offerings and training
programs. Because of the breadth of products we offer and the services we provide, we are often a “one-stop shop” for our
customers who gain the operational efficiency of dealing with just one distributor for most or all of their test and measurement
instrumentation needs.
Our Distribution segment accounted for 64% of our total consolidated revenue in fiscal year 2013. Within the Distribution
segment, our routine business is comprised of customers who place orders to acquire new instrumentation or to upgrade or
replace old instrumentation. Our average Distribution order is approximately $1,800. Items are regularly added to and deleted
from our product offerings on the basis of customer demand, recommendations of suppliers, sales volumes and other factors.
Marketing and Sales. We market and sell to our customers through multiple sales channels consisting of direct catalog
marketing, our website, proactive outbound sales, and an inbound call center. Our outbound and inbound sales teams are
staffed with technically trained personnel.
Through our comprehensive Master Catalog, supplemental catalogs, website, e-newsletters, and other direct sales and
marketing programs, we offer our customers a broad selection of highly recognized branded products at competitive
prices. The instruments typically range in price from $100 to over $25,000.
During fiscal year 2013, we circulated over 1.1 million pieces of direct marketing materials including catalogs, brochures,
supplements and other promotional materials, of which approximately 470,000 were sent to customer contacts and
approximately 660,000 were sent to potential customer contacts. We also disseminated approximately 1.5 million e-
newsletters to our list of customers and prospective customers. Some of the key factors that determine the number of catalogs
and other direct marketing materials sent to each customer include new product introductions, their market segments and the
timing, frequency and monetary value of past purchases.
We use smaller catalog supplements that feature new products, promotions, or specific product categories to target existing
customers and acquire new customers. The catalog supplements are launched at varying periods throughout the year.
8
Customers can also purchase products online at transcat.com. Our website serves as a growing sales channel for our products
and services and provides product availability, detailed product information and advanced features such as product category
search, demo videos and downloadable product specification sheets. We have optimized the website’s search engine,
streamlined order entry and have the unique ability to supplement an order with an accredited calibration. Distribution sales
via our website grew approximately 24% from fiscal year 2012 and represented 12% of our Distribution sales in fiscal year
2013.
Competition. The distribution market for industrial test and measurement instrumentation is quite fragmented and highly
competitive. Our competitors in this market range from large national distributors and manufacturers that sell directly to
customers to small local distributors. In addition, web-based distributers have become more prevalent in recent years and are
increasing their market share. Key competitive factors typically include customer service and support, quality, turnaround
time, inventory availability, brand recognition and price. To address our customers’ needs for technical support and product
application assistance, and to differentiate ourselves from competitors, we employ a staff of highly-trained technical sales
specialists. In order to maintain this competitive advantage, technical training is an integral part of developing our sales staff.
Suppliers and Purchasing. We believe that effective purchasing is a key element to maintaining and enhancing our position as
a provider of high quality test and measurement instruments. We frequently evaluate our purchase requirements and suppliers’
offerings to obtain products at the best possible cost. We obtain our products from approximately 550 suppliers of brand name
and private-labeled equipment. In fiscal year 2013, our top 10 vendors accounted for approximately 65% of our aggregate
Distribution business. Approximately 30% of our product purchases on an annual basis are from Fluke Electronics
Corporation (“Fluke”), which we believe to be consistent with Fluke’s share of the markets we service.
We plan our product mix and inventory stock to best serve the anticipated needs of our customers whose individual purchases
vary in size. We can usually ship to our customers our top selling products the same day they are ordered.
Operations. Our distribution operations primarily take place within an approximate 37,250 square-foot facility in Rochester,
New York and a 12,600 square-foot facility in Portland, Oregon. The Rochester location also serves as our corporate
headquarters; houses our customer service, sales and administrative functions; and has a calibration service center. The
Portland location also serves as a calibration service center. In fiscal year 2013, we shipped over 37,000 product orders in the
aggregate from both locations. In addition, we have two warehouse facilities in Wisconsin that fulfill orders for scales.
Distribution. We distribute our products throughout North America and internationally from our distribution centers. We
maintain appropriate inventory levels in order to satisfy anticipated customer demand for prompt delivery and complete order
fulfillment of their product needs. These inventory levels are managed on a daily basis with the aid of our sophisticated
purchasing and stock management information system. Our automated laser bar code scanning facilitates prompt and accurate
order fulfillment and freight manifesting.
Backlog. Distribution orders include orders for instruments that we routinely stock in our inventory, customized products, and
other products ordered less frequently, which we do not stock. Pending product shipments are primarily backorders, but also
include products that are requested to be calibrated in our laboratories prior to shipment, orders required to be shipped
complete or at a future date, and other orders awaiting final credit or management review prior to shipment.
9
The following graph shows the quarter-end trend of pending product shipments and backorders for fiscal years 2012 and 2013:
CUSTOMER SERVICE AND SUPPORT
Our breadth of products and services along with our strong commitment to customer service and support enable us to satisfy
our customers’ needs through convenient selection and ordering; rapid, accurate, and complete order fulfillment; and on-time
delivery.
Key elements of our customer service approach are our field sales team, outbound sales team, account management team,
inbound sales and customer service organization. Most customer orders are placed through our customer service
organization. To ensure the quality of service provided, we frequently monitor our customer service through customer surveys,
call monitoring and daily statistical reports.
Customers may place orders via:
Mail to Transcat, Inc., 35 Vantage Point Drive, Rochester, NY 14624;
Fax at 1-800-395-0543;
Telephone at 1-800-828-1470;
Email at sales@transcat.com; or
Online at transcat.com.
INFORMATION REGARDING EXPORT SALES
In each of the fiscal years 2013 and 2012, approximately 9% of our total revenue resulted from sales to customers outside the
United States. Of those sales in fiscal year 2013, approximately 31% were denominated in U.S. dollars and the remaining 69%
were in Canadian dollars. Our revenue is subject to the customary risks of operating in an international environment, including
the potential imposition of trade or foreign exchange restrictions, tariff and other tax increases, fluctuations in exchange rates
and unstable political situations, any one or more of which could have a material adverse effect on our business, cash flows,
balance sheet or results of operations. See “Foreign Currency” in Item 7A of Part II of this report for further details.
INFORMATION SYSTEMS
We utilize a turnkey enterprise software solution from Infor called Application Plus to manage our business and operations
segments. This software includes a suite of fully integrated modules to manage our business functions, including customer
service, warehouse management, inventory management, financial management, customer relations management and business
intelligence. This solution is a fully mature business package and has been subject to more than 20 years of
refinement. During fiscal year 2013, we completed implementation of customer relationship management (“CRM”) software
offered by SalesForce.com. SalesForce.com is strategically partnered with Infor, which allowed us to fully integrate the CRM
software with our Infor enterprise software.
10
We also utilize CalTrak®, our proprietary document and asset management system, to manage documentation, workflow and
customers’ assets within and amongst our calibration service centers. In addition to functioning as an internal documentation,
workflow, and asset management system, CalTrak®, through CalTrak-Online, provides customers with web-based calibration
cycle management service and access to documentation relating to services completed by Transcat.
SEASONALITY
We believe that our business has certain historical seasonal factors. Historically, our fiscal first and second quarters have been
generally weaker and our fiscal third and fourth quarters have been stronger due to industrial operating cycles.
ENVIRONMENTAL MATTERS
We believe that compliance with federal, state, or local provisions relating to the protection of the environment will not have
any material effect on our capital expenditures, earnings, or competitive position.
EMPLOYEES
At the end of fiscal year 2013, we had 412 employees, compared with 338 at the end of fiscal year 2012.
EXECUTIVE OFFICERS
The following table presents certain information regarding our executive officers and certain key employees as of March 30,
2013:
Name
Charles P. Hadeed ...............
Lee D. Rudow .....................
John J. Zimmer ....................
Michael P. Craig..................
John P. Hennessy ................
Rainer Stellrecht ..................
Jay F. Woychick ..................
Scott D. Sutter .....................
Derek C. Hurlburt ................
Age
Position
63 Chief Executive Officer
48 President and Chief Operating Officer
54 Senior Vice President of Finance and Chief Financial Officer
59 Vice President of Human Resources
64 Vice President of Sales and Marketing
62 Vice President of Laboratory Operations
56 Vice President of Special Markets Sales and Business Development Managers
42 Vice President of Strategic Business Development
44 Corporate Controller
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and, therefore, we file
periodic reports, proxy statements and other information with the United States Securities and Exchange Commission
(“SEC”). Such reports may be read and copied at the Public Reference Room of the SEC at 100 F Street NE, Washington,
D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at (800) SEC-
0330. Additionally, the SEC maintains a website (sec.gov) that contains reports, proxy statements and other information for
registrants that file electronically.
We maintain a website at transcat.com. We make available, free of charge, in the Investor Relations section of our website,
documents we file with or furnish to the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and any amendments to those reports. We make this information available as soon as reasonably
practicable after we electronically file such materials with, or furnish such information to, the SEC. The other information
found on our website is not part of this or any other report we file with, or furnish to, the SEC.
We also post on our website our board of directors’ committee charters (audit committee, compensation committee and
corporate governance and nominating committee), and Code of Ethics. Copies of such documents are available in print at no
charge to any shareholder who makes a request. Such requests should be made to our corporate secretary at our corporate
headquarters, 35 Vantage Point Drive, Rochester, New York 14624.
11
ITEM 1A. RISK FACTORS
You should consider carefully the following risks and all other information included in this report. The risks and uncertainties
described below and elsewhere in this report are not the only ones facing our business. If any of the following risks were to
actually occur, our business, financial condition or results of operations would likely suffer. In that case, the trading price of
our common stock could fall and you could lose all or part of your investment.
We depend on manufacturers to supply our inventory and rely on one vendor to supply a significant amount of our
inventory purchases. If our vendor fails to provide desired products to us, increases prices, or fails to timely deliver
products, our revenue and gross profit could suffer. A significant amount of our inventory purchases are made from one
vendor, Fluke. Our reliance on this vendor leaves us vulnerable to having an inadequate supply of required products, price
increases, late deliveries, and poor product quality. Like other distributors in our industry, we occasionally experience supplier
shortages and are unable to purchase our desired volume of products. If we are unable to enter into and maintain satisfactory
distribution arrangements with leading manufacturers, if we are unable to maintain an adequate supply of products, or if
manufacturers do not regularly invest in, introduce to us, and/or make new products available to us for distribution, our sales
could suffer considerably. Finally, we cannot provide any assurance that particular products, or product lines, will be available
to us, or available in quantities sufficient to meet customer demand. This is of particular significance to our business because
the products we sell are often only available from one source. Any limits to product access could materially and adversely
affect our business.
Our future success may be affected by future indebtedness. Under our revolving credit facility, as of March 30, 2013, we
owed $8.0 million to our secured creditor. We may borrow additional funds in the future to support our growth and working
capital needs. We are required to meet financial tests on a quarterly basis and comply with other covenants customary in
secured financings. Although we believe that we will continue to comply with such covenants, if we do not remain in
compliance with such covenants, our lender may demand immediate repayment of amounts outstanding. Changes in interest
rates may have a significant effect on our payment obligations and operating results. Furthermore, we are dependent on credit
from manufacturers of our products to fund our inventory purchases. If our debt burden increases to high levels, such
manufacturers may restrict our credit. Our cash requirements will depend on numerous factors, including the rate of growth of
our revenues, the timing and levels of products purchased, payment terms, and credit limits from manufacturers, the timing and
level of our accounts receivable collections and our ability to manage our business profitably. Our ability to satisfy our
existing obligations, whether or not under our secured credit facility, will depend upon our future operating performance,
which may be impacted by prevailing economic conditions and financial, business, and other factors described in this report,
many of which are beyond our control.
The relatively low trading volume of our common stock may limit your ability to sell your shares. Although our shares of
common stock are listed on the NASDAQ Global Market, we have historically experienced a relatively low trading volume. If
our low trading volume continues in the future, holders of our shares may have difficulty selling a large number of shares of
our common stock in the manner or at a price that might otherwise be attainable.
If significant existing shareholders sell large numbers of shares of our common stock, our stock price could decline. The
market price of our common stock could decline if a large number of our shares are sold in the public market by our existing
shareholders or holders of stock options or as a result of the perception that these sales could occur. Due to the low trading
volume of our common stock, the sale of a large number of shares of our common stock may significantly depress the price of
our common stock. During the first quarter of fiscal year 2013, certain shareholders who are advised by NSB Advisors LLC
(“NSB”) sold a significant amount of our common stock, which reduced the price of our common stock. According to an
amendment to Schedule 13G filed by NSB dated February 11, 2013, clients of NSB held 28.4% of our common stock. If
clients of NSB or any of our other significant shareholders sell large amounts of our common stock, the price of our common
stock may decline.
Our acquisitions or future acquisition efforts, which are important to our growth, may not be successful, which may limit
our growth or adversely affect our results of operations and financial condition. Acquisitions have been an important part
of our development to date. As part of our business strategy, we may make additional acquisitions of companies that could
complement or expand our business, augment our market coverage, provide us with important relationships or otherwise offer
us growth opportunities. If we identify an appropriate acquisition candidate, we may not be able to negotiate successfully the
terms of or finance the acquisition. In addition, we cannot assure you that we will be able to integrate the operations of our
acquisitions without encountering difficulties, including unanticipated costs, possible difficulty in retaining customers and
supplier or manufacturing relationships, failure to retain key employees, the diversion of our management’s attention or failure
12
to integrate our information and accounting systems. We may not realize the revenues and cost savings that we expect to
achieve or that would justify the investments, and we may incur costs in excess of what we anticipate. To effectively manage
our expected future growth, we must continue to successfully manage our integration of the companies that we acquire and
continue to improve our operational systems, internal procedures, accounts receivable and management, financial and
operational controls. If we fail in any of these areas, our business growth and results of operations could be adversely affected.
Any impairment of goodwill or other intangible assets could negatively impact our results of operations. Our goodwill and
other intangible assets are subject to an impairment test on an annual basis and are also tested whenever events and
circumstances indicate that goodwill and/or intangible assets may be impaired. Any excess goodwill and/or indefinite-lived
intangible assets value resulting from the impairment test must be written off in the period of determination. Intangible assets
(other than goodwill and indefinite-lived intangible assets) are generally amortized over the useful life of such assets. In
addition, from time to time, we may acquire or make an investment in a business that will require us to record goodwill based
on the purchase price and the value of the acquired tangible and intangible assets. We may subsequently experience
unforeseen issues with the businesses we acquire, which may adversely affect the anticipated returns of the business or value of
the intangible assets and trigger an evaluation of the recoverability of the recorded goodwill and intangible assets for such
business. Future determinations of significant write-offs of goodwill or intangible assets because of an impairment test or any
accelerated amortization of other intangible assets could have a material negative impact on our results of operations and
financial condition. We have completed our annual impairment analysis for goodwill and indefinite-lived intangible assets, in
accordance with the applicable accounting guidance, and have concluded that we do not have any impairment of goodwill or
other intangible assets as of March 30, 2013.
The financing of any future acquisitions we make may result in dilution to your stock ownership and/or could increase our
leverage and our risk of defaulting on our bank debt. Our business strategy includes expansion into new markets and
enhancement of our position in existing markets, including through acquisitions. In order to successfully complete targeted
acquisitions we may issue additional equity securities that could dilute your stock ownership. We may also incur additional
debt if we acquire another company, which could significantly increase our leverage and our risk of default under our existing
credit facility.
Adverse changes in general economic conditions or uncertainty about future economic conditions could adversely affect
us. We are subject to the risks arising from adverse changes in general economic market conditions. The U.S. economy
remains sluggish as it seeks to recover from a severe recession and unprecedented turmoil. The U.S. economy continues to
suffer from market volatility, reduced government spending, tight credit markets, concerns of inflation, historically high
unemployment, and continuing economic uncertainties. The uncertainty about future economic conditions could negatively
affect our current and prospective customers causing them to delay the purchase of necessary services or test and measurement
instruments. Poor economic conditions could harm our business, financial condition, operating results and cash flow.
The distribution industry is highly competitive, and we may not be able to compete successfully. We compete with
numerous companies, including several major manufacturers and distributors. Some of our competitors have greater financial
and other resources than we do, which could allow them to compete more successfully. Most of our products are available
from several sources and our customers tend to have relationships with several distributors. Competitors could obtain
exclusive rights to market particular products, which we would then be unable to market. Manufacturers could also increase
their efforts to sell directly to end-users and bypass distributors like us. Industry consolidation among distributors, the
unavailability of products, whether due to our inability to gain access to products or interruptions in supply from
manufacturers, or the emergence of new competitors could also increase competition and adversely affect our business or
results of operations. In the future, we may be unable to compete successfully and competitive pressures may reduce our sales.
We rely on our CalTrak®, Application Plus and other management information systems for inventory management,
distribution, workflow, accounting and other functions. If our CalTrak®, Application Plus and other information systems
fail to adequately perform these functions or if we experience an interruption in their operation, our business and results of
operations could be adversely affected. The efficient operation of our business depends on our management information
systems. We rely on our CalTrak®, Application Plus and other management information systems to effectively manage
accounting and financial functions, customer service, warehouse management, order entry, order fulfillment, inventory
replenishment, documentation, asset management, and workflow. The failure of our management information systems to
perform could disrupt our business and could result in decreased revenues, increased overhead costs, excess inventory and
product shortages, causing our business and results of operations to suffer. In addition, our management information systems
are vulnerable to damage or interruption from computer viruses or hackers, natural or man-made disasters, terrorist attacks,
power loss, or other computer systems, internet, telecommunications or data network failures. Any such interruption could
adversely affect our business and results of operations.
13
If we fail to attract qualified personnel, we may not be able to achieve our stated corporate objectives. Our ability to
manage our anticipated growth, if realized, effectively depends on our ability to attract and retain highly qualified executive
officers and technical personnel. If we fail to attract and retain qualified individuals, we will not be able to achieve our stated
corporate objectives.
Our revenue depends on retaining capable sales personnel as well as our relationships with key customers, key vendors and
manufacturers of the products that we distribute. Our future operating results depend on our ability to maintain satisfactory
relationships with qualified sales personnel as well as key customers, vendors and manufacturers who appreciate the value of
our services. If we fail to maintain our existing relationships with such persons or fail to acquire relationships with such key
persons in the future, our business and results of operations may be adversely affected.
Our future success is substantially dependent upon our senior management. Our future success is substantially dependent
upon the efforts and abilities of members of our existing senior management. Competition for senior management is intense,
and we may not be successful in attracting and retaining key personnel, the inability of which could have an adverse effect on
our business and results of operations.
Tax legislation initiatives could adversely affect the Company’s net earnings and tax liabilities. We are subject to the tax
laws and regulations of the United States federal, state and local governments, as well as foreign jurisdictions. From time to
time, various legislative initiatives may be proposed that could adversely affect our tax positions. There can be no assurance
that our effective tax rate will not be adversely affected by these initiatives. In addition, tax laws and regulations are extremely
complex and subject to varying interpretations. Although we believe that our historical tax positions are sound and consistent
with applicable laws, regulations and existing precedent, there can be no assurance that our tax positions will not be challenged
by relevant tax authorities or that we would be successful in any such challenge.
We expect that our quarterly results of operations will fluctuate. Such fluctuation could cause our stock price to decline. A
large portion of our expenses for our Service segment, including expenses for facilities, equipment and personnel are relatively
fixed. Accordingly, if revenues decline or do not grow as we anticipate, we may not be able to correspondingly reduce our
operating expenses in any particular quarter. Our quarterly revenues and operating results have fluctuated in the past and are
likely to do so in the future. Factors such as fluctuations in industrial demand for products we sell, services we provide, and in
which we operate, could cause our revenues and operating results to fluctuate. If our operating results in some quarters fail to
meet the expectations of stock market analysts and investors, our stock price would likely decline.
Changes in accounting standards, legal requirements and the NASDAQ stock market listing standards, or our ability to
comply with any existing requirements or standards, could adversely affect our operating results. Extensive reforms
relating to public company financial reporting, corporate governance and ethics, The NASDAQ Stock Market listing standards
and oversight of the accounting profession have been implemented over the past several years and continue to
evolve. Compliance with these rules, regulations and standards that have resulted from such reforms has increased our
accounting and legal costs and has required significant management time and attention. In the event that additional rules,
regulations or standards are implemented or any of the existing rules, regulations or standards to which we are subject
undergoes additional material modification, we could be forced to spend significant financial and management resources to
ensure our continued compliance, which could have an adverse effect on our results of operations. In addition, although we
believe we are in full compliance with all such existing rules, regulations and standards, should we be or become unable to
comply with any of such rules, regulations and standards, as they presently exist or as they may exist in the future, our results
of operations could be adversely effected and the market price of our common stock could decline.
Our stock price may be volatile. The stock market, from time to time, has experienced significant price and volume
fluctuations that are both related and unrelated to the operating performance of companies. As our stock may be affected by
market volatility, and by our own performance, the following factors, among others, may have a significant effect on the
market price of our common stock:
Developments in our relationships with current or future manufacturers of products we distribute;
Announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital
commitments;
Litigation or governmental proceedings or announcements involving us or our industry;
Economic and other external factors, such as disasters or other crises;
Sales of our common stock or other securities in the open market;
14
Period-to-period fluctuations in our operating results; and
Our ability to satisfy our debt obligations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
The following table presents our leased properties as of March 30, 2013:
Property
Location
Corporate Headquarters, Distribution Center and Calibration Service Center ........ Rochester, NY
Calibration Service Center ...................................................................................... Anaheim, CA
Calibration Service Center ...................................................................................... Boston, MA
Calibration Service Center ...................................................................................... Burlington, ON
Calibration Service Center ...................................................................................... Charlotte, NC
Calibration Service Center ...................................................................................... Cherry Hill, NJ
Calibration Service Center ...................................................................................... Dayton, OH
Calibration Service Center ...................................................................................... Denver, CO
Calibration Service Center ...................................................................................... Houston, TX
Calibration Service Center and Warehouse (1) ....................................................... Lincoln, MT
Calibration Service Center ...................................................................................... Montreal, QC
Calibration Service Center ...................................................................................... Nashville, TN
Calibration Service Center ...................................................................................... Ottawa, ON
Calibration Service Center ...................................................................................... Phoenix, AZ
Calibration Service Center and Distribution Center ................................................ Portland, OR
Calibration Service Center ...................................................................................... San Juan, PR
Calibration Service Center ...................................................................................... St. Louis, MO
Calibration Service Center ...................................................................................... Toronto, ON
Compliance Services:
Service Center ....................................................................................................... Furlong, PA
Service Center ....................................................................................................... Golden, CO
United Scale & Engineering:
Service Center ....................................................................................................... Green Bay, WI
Service Center and Warehouse ............................................................................. Madison, WI
Service Center and Warehouse ............................................................................. Milwaukee, WI
Approximate
Square Footage
37,250
4,000
4,000
14,152
4,860
8,550
9,000
19,441
10,333
11,406
1,443
6,000
3,990
4,000
12,600
1,560
4,400
2,070
1,740
2,000
3,320
6,000
16,000
(1) Properties owned by the Company
We believe that our properties are in good condition, are well maintained, and are generally suitable and adequate to carry on
our business in its current form.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
15
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Global Market under the symbol “TRNS.” As of June 17, 2013, we had
approximately 534 shareholders of record.
PRICE RANGE OF COMMON STOCK
The following table presents, on a per share basis, for the periods indicated, the high and low reported sales prices of our
common stock as reported on the NASDAQ Global Market for each quarterly period in fiscal years 2013 and 2012:
First
Second Third Fourth
Quarter Quarter Quarter Quarter
Fiscal Year 2013:
High ......................................................................................................... $
Low .......................................................................................................... $
13.40 $
6.23 $
Fiscal Year 2012:
High ......................................................................................................... $
Low .......................................................................................................... $
10.98 $
8.01 $
7.00 $
5.30 $
7.70 $
5.12 $
7.10
5.73
12.17 $
9.33 $
12.95 $
10.92 $
13.11
11.00
DIVIDENDS
We have not declared any cash dividends since our inception and have no current plans to pay any dividends in the foreseeable
future.
ITEM 6. SELECTED FINANCIAL DATA
The following table provides selected financial data for fiscal year 2013 and the previous four fiscal years (in thousands, except
per share data). Certain reclassifications of financial information for prior fiscal years have been made to conform to the
presentation for the current fiscal year.
FY 2013 FY 2012 FY 2011 FY 2010 FY 2009
Statements of Operations Data:
Total Revenue ................................................................... $ 112,296 $ 110,020 $ 91,186 $ 81,061 $ 75,419
56,671
Total Cost of Revenue ......................................................
18,748
Gross Profit.......................................................................
16,062
Operating Expenses ..........................................................
2,686
Operating Income .............................................................
167
Interest and Other Expense, net ........................................
2,519
Income Before Income Taxes ...........................................
963
Provision for Income Taxes ..............................................
1,556
Net Income ....................................................................... $
67,888 61,767
23,298 19,294
18,711 16,913
4,587
2,381
105
98
4,482
2,283
1,694
832
2,788 $
1,451 $
82,896
27,124
21,696
5,428
182
5,246
1,944
3,302 $
84,892
27,404
21,458
5,946
228
5,718
2,014
3,704 $
Share Data:
Basic Earnings Per Share .................................................. $
Basic Average Shares Outstanding ...................................
Diluted Earnings Per Share .............................................. $
Diluted Average Shares Outstanding ...............................
Closing Price Per Share .................................................... $
0.50 $
7,404
0.49 $
7,592
6.36 $
0.45 $
7,309
0.43 $
7,651
13.11 $
0.38 $
7,290
0.37 $
7,521
8.00 $
0.20 $
7,352
0.19 $
7,549
7.14 $
0.21
7,304
0.21
7,469
4.90
March 30,
2013
As of or for the Fiscal Years Ended
March 26,
March 31,
March 28,
2011
2012
2010
March 29,
2009
16
Balance Sheets and Working Capital Data:
Inventory, net ....................................................................... $
Property and Equipment, net ................................................
Goodwill and Intangible Assets, net ....................................
Total Assets ..........................................................................
Depreciation and Amortization ............................................
Capital Expenditures ............................................................
Long-Term Debt ..................................................................
Shareholders' Equity ............................................................
6,803 $
6,885
21,283
55,047
2,702
2,657
8,017
31,650
6,396 $
5,306
15,839
44,977
2,896
1,391
3,365
27,378
7,571 $
5,253
13,648
41,360
2,293
1,647
5,253
23,329
5,906 $
4,163
11,272
35,713
2,080
1,128
2,532
20,257
4,887
4,174
9,014
29,391
1,897
1,775
3,559
18,619
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Operational Overview. We are a leading provider of accredited calibration, repair, inspection and compliance services and a
distributor of professional grade handheld test, measurement and control instrumentation.
We operate our business through two reportable business segments, Service and Distribution, which offer a range of services
and products to the same customer base.
Our strength in our Service segment is based upon our wide range of disciplines and our investment in the quality systems that
are required in our targeted market segments. Our services range from the calibration and repair of a single unit to managing a
customer’s entire calibration program. We believe our Service segment offers an opportunity for long-term growth and the
potential for continuing revenue from established customers with regular calibration cycles and recurring compliance services
requirements.
In our Distribution segment, our Master Catalog is widely recognized by both original equipment manufacturers and customers
as the ultimate source for test and measurement instruments. Additionally, because we specialize in handheld test and
measurement instruments, as opposed to a wide array of industrial products, our sales and customer service personnel can
provide value-added technical assistance to our customers to aid them in determining what product best meets their particular
application requirements.
Sales in our Distribution segment can be heavily impacted by changes in the economic environment. As customers increase or
decrease capital and discretionary spending, our Distribution sales will typically be directly impacted. The majority of our
products are not consumables, but are purchased as replacements, upgrades, or for expansion of manufacturing and research
and development facilities. Year-over-year sales growth in any one quarter can be impacted by a number of factors including
the addition of new product offerings or channels of distribution.
We evaluate revenue growth in both of our business segments against a trailing twelve month trend, and not by analyzing any
single quarter.
Financial Overview. In evaluating our results for fiscal year 2013, the following factors should be taken into account:
Fiscal year 2013 and the fourth quarter of fiscal year 2013 operating results include 52 weeks and 13 weeks,
respectively, compared to 53 weeks and 14 weeks for the corresponding periods for fiscal year 2012.
Fiscal year 2013 operating results include a full year of operations from CMC and Newark, whereas, fiscal year 2012
operating results included such operations from their dates of acquisition on April 5, 2011 and September 8, 2011,
respectively.
Fiscal year 2013 operating results include those of Anacor and Cal-Matrix from their dates of acquisition on July 16,
2012 and January 25, 2013, respectively.
Total revenue for fiscal year 2013 was $112.3 million, a 2.1% increase compared with total revenue of $110.0 million for fiscal
year 2012. Service revenue increased 11.7% to $40.7 million, or 36.2% of total revenue, in fiscal year 2013. Of our Service
revenue in fiscal year 2013, 82.1% was generated by our Calibration Centers of Excellence while 15.5% was generated through
subcontracted third party vendors, compared with 78.9% and 18.6%, respectively, in fiscal year 2012. The balance of Service
revenue was associated with other charges.
17
Distribution sales decreased 2.7% to $71.6 million, or 63.8% of total revenue, in fiscal year 2013. Sales to domestic customers
comprised 89.1% of total Distribution sales in fiscal year 2013, while 7.5% were to Canadian customers and 3.4% were to
customers in other international markets.
Gross margin for fiscal year 2013 was 24.4%, a 30 basis point decrease compared with gross margin of 24.7% in fiscal year
2012. Service gross margin increased to 25.3% in fiscal year 2013 compared with 23.7% in fiscal year 2012, while
Distribution gross margin was 23.9% in fiscal year 2013 compared with 25.1% in fiscal year 2012.
Operating expenses were $21.5 million, or 19.1% of total revenue, in fiscal year 2013 compared with $21.7 million, or 19.8%
of total revenue, in fiscal year 2012. Operating income was $5.9 million in fiscal year 2013 compared with $5.4 million in
fiscal year 2012.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following is a summary of our most critical accounting policies. See Note 1 of our Consolidated Financial Statements for
a complete discussion of the significant accounting policies and methods used in the preparation of our Consolidated Financial
Statements.
Use of Estimates. The preparation of our Consolidated Financial Statements in accordance with accounting principles
generally accepted in the United States requires that we make estimates and assumptions that affect the reported amounts of
assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are used for,
but not limited to, allowance for doubtful accounts and returns, inventory reserves, probability of achievement for
performance-based restricted stock units, depreciable lives of fixed assets and estimated lives of our major catalogs and
intangible assets. Future events and their effects cannot be predicted with certainty; accordingly, our accounting estimates
require the exercise of judgment. The accounting estimates used in the preparation of our Consolidated Financial Statements
will change as new events occur, as more experience is acquired, as additional information is obtained, and as our operating
environment changes. Actual results could differ from those estimates. Such changes and refinements in estimation
methodologies are reflected in reported results of operations in the period in which the changes are made and, if material, their
effects are disclosed in the Notes to our Consolidated Financial Statements.
Accounts Receivable. Accounts receivable represent amounts due from customers in the ordinary course of business. These
amounts are recorded net of the allowance for doubtful accounts and returns in the Consolidated Balance Sheets. The
allowance for doubtful accounts is based upon the expected collectability of accounts receivable. We apply a specific formula
to our accounts receivable aging, which may be adjusted on a specific account basis where the formula may not appropriately
reserve for loss exposure. After all attempts to collect a receivable have failed, the receivable is written-off against the
allowance for doubtful accounts. The returns reserve is calculated based upon the historical rate of returns applied to revenues
over a specific timeframe. The returns reserve will increase or decrease as a result of changes in the level of revenues and/or
the historical rate of returns.
Inventory. Inventory consists of products purchased for resale and is valued at the lower of cost or market. Costs are
determined using the average cost method of inventory valuation. Inventory is reduced by a reserve for items not saleable at or
above cost by applying a specific loss factor, based on historical experience, to specific categories of our inventory. We
evaluate the adequacy of the reserve on a quarterly basis. At March 30, 2013 and March 31, 2012, we had reserves for
inventory losses totaling $0.5 million and $0.7 million, respectively.
Property and Equipment, Depreciation and Amortization. Property and equipment are stated at cost. Depreciation and
amortization are computed primarily under the straight-line method over the following estimated useful lives:
Years
Machinery, Equipment, and Software ............................................................................... 2 – 15
Furniture and Fixtures ....................................................................................................... 3 – 10
Leasehold Improvements .................................................................................................. 2 – 10
Buildings ...........................................................................................................................
39
18
Property and equipment determined to have no value are written off at their then remaining net book value. We capitalize
certain costs incurred in the procurement and development of computer software used for internal purposes. Leasehold
improvements are amortized under the straight-line method over the estimated useful life or the lease term, whichever is
shorter. Maintenance and repairs are expensed as incurred. See Note 2 of our Consolidated Financial Statements for further
information.
Goodwill and Intangible Assets. Goodwill represents costs in excess of fair values assigned to the underlying net assets of an
acquired business. Other intangible assets, namely customer base and covenants not to compete, represent an allocation of
purchase price to identifiable intangible assets of an acquired business. We estimate the fair value of our reporting units using
the fair market value measurement requirement.
We test goodwill for impairment on an annual basis, or immediately if conditions indicate that such impairment could
exist. Other intangible assets are evaluated for impairment when events or changes in business circumstances indicate that the
carrying amount of the assets may not be fully recoverable. We have determined that no impairment was indicated as of March
30, 2013 and March 30, 2012.
Catalog Costs. We capitalize the cost of each Master Catalog mailed and amortize the cost over the respective catalog’s
estimated productive life. We review response results from catalog mailings on a continuous basis; and if warranted, modify
the period over which costs are recognized. We amortize the cost of each Master Catalog over an eighteen month period and
amortize the cost of each catalog supplement over a three month period. Total unamortized catalog costs, included as a
component of prepaid expenses and other current assets on the Consolidated Balance Sheets, were $0.3 million as of March 30,
2013 and $0.4 million as of March 31, 2012.
Deferred Taxes. We account for certain income and expense items differently for financial reporting purposes than for income
tax reporting purposes. Deferred taxes are provided in recognition of these temporary differences. If necessary, a valuation
allowance on deferred tax assets is provided for items for which it is more likely than not that the benefit of such items will not
be realized based on an assessment of both positive and negative evidence. See “Taxes” below and Note 4 of our Consolidated
Financial Statements for further details.
Stock-Based Compensation. We measure the cost of services received in exchange for all equity awards granted, including
stock options, warrants and restricted stock units, based on the fair market value of the award as of the grant date. We record
compensation cost related to unvested equity awards by recognizing, on a straight line basis, the unamortized grant date fair
value over the remaining service period of each award. Excess tax benefits from the exercise of equity awards are presented in
the Consolidated Statements of Cash Flows as a financing activity. Excess tax benefits are realized benefits from tax
deductions for exercised awards in excess of the deferred tax asset attributable to stock-based compensation costs for such
awards. We did not capitalize any stock-based compensation costs as part of an asset. We estimate forfeiture rates based on
our historical experience.
We grant performance-based restricted stock units as a primary component of executive compensation. The units generally
vest following the third fiscal year from the date of grant subject to certain cumulative diluted earnings per share growth targets
over the eligible period. Compensation cost ultimately recognized for these performance-based restricted stock units will equal
the grant-date fair market value of the unit that coincides with the actual outcome of the performance conditions. On an
interim basis, we record compensation cost based on an assessment of the probability of achieving the performance
conditions. We achieved 75% of the target level for the performance-based restricted stock units granted in the fiscal year
ended March 27, 2010 and as a result, issued 52 thousand shares of common stock to executive officers and certain key
employees during the first quarter of fiscal year 2013. At March 30, 2013, we achieved 75% of the target level for the
performance-based restricted stock units granted in the fiscal year ended March 26, 2011, and we estimated the probability of
achievement for the performance-based restricted stock units granted in fiscal years 2013 and 2012 to be 100% and 125% of
the target levels, respectively.
See Note 6 of our Consolidated Financial Statements for further disclosure regarding our stock-based compensation.
Revenue Recognition. Distribution sales are recorded when an order’s title and risk of loss transfers to the customer. We
recognize the majority of our Service revenue based upon when the calibration or other activity is performed and then shipped
and/or delivered to the customer. Some of our Service revenue is generated from managing customers’ calibration programs in
which we recognize revenue in equal amounts at fixed intervals. We generally invoice our customers for freight, shipping, and
19
handling charges. Provisions for customer returns are provided for in the period the related revenues are recorded based upon
historical data.
Off-Balance Sheet Arrangements. We do not maintain any off-balance sheet arrangements.
Reclassification of Amounts. Certain reclassifications of financial information for prior fiscal years have been made to
conform to the presentation for the current fiscal year. In addition, certain reclassifications of financial information for prior
fiscal quarters have been made to conform to the presentation for the current fiscal quarters.
RESULTS OF OPERATIONS
The following table sets forth, for fiscal years 2013 and 2012, the components of our Consolidated Statements of Operations.
Gross Profit Percentage:
Distribution Gross Profit ...................................................................................................................
Service Gross Profit ..........................................................................................................................
Total Gross Profit ..............................................................................................................................
As a Percentage of Total Revenue:
Distribution Sales ..............................................................................................................................
Service Revenue ................................................................................................................................
Total Revenue ................................................................................................................................
23.9%
25.3%
24.4%
25.1%
23.7%
24.7%
63.8%
36.2%
100.0%
66.9%
33.1%
100.0%
FY 2013
FY 2012
Selling, Marketing and Warehouse Expenses ...................................................................................
Administrative Expenses ...................................................................................................................
Total Operating Expenses ..............................................................................................................
11.6%
7.5%
19.1%
12.5%
7.3%
19.8%
Operating Income ..............................................................................................................................
5.3%
4.9%
Interest and Other Expense, net ........................................................................................................
0.2%
0.1%
Income Before Income Taxes ...........................................................................................................
Provision for Income Taxes ..............................................................................................................
Net Income ........................................................................................................................................
5.1%
1.8%
3.3%
4.8%
1.8%
3.0%
FISCAL YEAR ENDED MARCH 30, 2013 COMPARED TO FISCAL YEAR ENDED MARCH 31, 2012 (dollars in
thousands):
Revenue:
For the Years Ended
March 30, March 31,
2013
2012
Revenue:
Distribution .......................................................................................................................................... $ 71,641 $
Service .................................................................................................................................................
40,655
73,614
36,406
Total .............................................................................................................................................. $ 112,296 $ 110,020
Total revenue increased $2.3 million, or 2.1%, from fiscal year 2012 to fiscal year 2013.
Service revenue, which accounted for 36.2% and 33.1% of our total revenue in fiscal years 2013 and 2012, respectively,
increased 11.7% from fiscal year 2012 to fiscal year 2013. This growth was primarily due to business acquisitions.
20
Within any year, while we add new customers, we also have customers from the prior year whose calibrations may not repeat
for any number of factors. Among those factors are the variations in the timing of customer periodic calibrations on
instruments and other services, customer capital expenditures and customer outsourcing decisions. Because the timing of
service orders and segment expenses can vary on a quarter-to-quarter basis, we believe a trailing twelve month trend provides a
better indication of the progress of this segment. Our fiscal years 2013 and 2012 Service revenue growth in relation to prior
fiscal year quarter comparisons, were as follows:
Service Revenue Growth ................. 14.1% 8.9%
Q4
Q3
Q2
19.8%
Q1
3.7%
Q4
20.1%
FY 2013
FY 2012
Q3
Q2
24.0% 10.3%
Q1
10.1%
Within the calibration industry, there is a broad array of measurement disciplines making it costly and inefficient for any one
provider to invest the needed capital for facilities, equipment and uniquely trained personnel necessary to address all
measurement disciplines with in-house calibration capabilities. Our strategy has been to focus our investments in the core
electrical, temperature, pressure and dimensional disciplines. Accordingly, over the long-term, we expect to outsource 15% to
20% of Service revenue to third party vendors for calibration beyond our chosen scope of capabilities. During any individual
quarter, we could fluctuate beyond these percentages. We will continue to evaluate the need for capital investments that could
provide more in-house capabilities for our staff of technicians and reduce the need for third party vendors in certain
instances. The following table presents the source of our Service revenue and the percent of Service revenue for each quarter
during fiscal years 2013 and 2012:
Q4 Q3
Q2
Q1
Q4
FY 2013
FY 2012
Q3 Q2
Q1
Percent of Service Revenue:
Depot/Onsite ........................
Outsourced...........................
Freight Billed to Customers .
83.7%
14.1%
2.2%
79.1%
18.3%
2.6%
100.0% 100.0% 100.0% 100.0%
82.3%
15.3%
2.4%
82.6%
14.9%
2.5%
80.5%
16.7%
2.8%
77.7%
19.8%
2.5%
100.0% 100.0% 100.0% 100.0%
79.0%
18.5%
2.5%
77.9%
19.7%
2.4%
Our Distribution sales accounted for 63.8% and 66.9% of our total revenue in fiscal years 2013 and 2012, respectively. Year-
over-year Distribution sales decreased $2.0 million, or 2.7%. Both the economic environment and eight fewer business days in
fiscal year 2013 versus fiscal year 2012 contributed to this decline. Our fiscal years 2013 and 2012 Distribution sales (decline)
growth in relation to prior fiscal year quarter comparisons were as follows:
Distribution Sales (Decline)
Growth ............................................ (5.9%)
0.3%
(0.1%)
(4.8%)
19.2%
17.0%
26.0%
32.4%
FY 2013
FY 2012
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Although Distribution sales declined in fiscal year 2013, Distribution sales per business day increased to $287 thousand in
fiscal year 2013, compared with $285 thousand in fiscal year 2012. Our Distribution sales per business day for each fiscal
quarter during the fiscal years 2013 and 2012 are as follows:
Distribution Sales Per Business
Day .................................................. $300
$319
$269
$260
$295
$308
$269
$268
FY 2013
Q4
Q3
Q2
Q1
Q4
FY 2012
Q3
Q2
Q1
Distribution orders include orders for instruments that we routinely stock in our inventory, customized products, and other
products ordered less frequently, which we do not stock. Pending product shipments are primarily backorders, but also include
products that are requested to be calibrated in our service centers prior to shipment, orders required to be shipped complete or
at a future date, and other orders awaiting final credit or management review prior to shipment. Our total pending product
shipments increased $0.3 million, or 11.2%, at the end of fiscal year 2013 compared to the balance at the end of fiscal year
2012. Increased backorders and orders awaiting credit approval were the primary drivers for this year-over-year
increase. Variations in pending product shipments can be impacted by several factors, including the timing product orders are
placed in relation to the end of the fiscal period, specialized product orders that are not stocked, or production issues
21
experienced by manufacturers. The following table presents the percentage of total pending product shipments that were
backorders at the end of each quarter in fiscal years 2013 and 2012 and our historical trend of total pending product shipments:
Q4 Q3
Q2
Q1
Q4
FY 2013
FY 2012
Q3 Q2
Q1
Total Pending Product
Shipments ...................................... $ 2,968 $ 2,826
$ 2,365
$ 2,806
$ 2,670
$ 3,572 $ 3,368
$ 3,002
% of Pending Product
Shipments that are
Backorders ....................................
Gross Profit:
71.9%
69.6%
68.6%
68.8%
70.9%
65.6%
73.6%
67.9%
For the Years Ended
March 30, March 31,
2013
2012
Gross Profit:
Distribution ....................................................................................................................................... $ 17,102 $
Service ..............................................................................................................................................
10,302
Total ........................................................................................................................................... $ 27,404 $
18,504
8,620
27,124
Total gross profit in fiscal year 2013 increased by $0.3 million, or 1.0%, from fiscal year 2012. As a percentage of total
revenue, total gross margin declined 30 basis points over the same time period.
Service gross profit increased $1.7 million, or 19.5%, from fiscal year 2012 to fiscal year 2013. Service gross margin
increased 160 basis points from fiscal year 2012 to fiscal year 2013, primarily due to increased revenue combined with
continued cost control. Our annual and quarterly Service gross margins are a function of several factors. Our organic Service
revenue growth provides incremental gross margin growth by leveraging the relatively fixed cost structure of this
segment. Service revenue growth from our recent business acquisitions, while providing a base for future organic revenue
growth, may moderate or reduce our gross margins as we acquire additional fixed costs. The following table presents the
quarterly historical trend of our Service gross margin as a percent of Service revenue:
Service Gross Margin .............. 31.3%
Q4
Q3
Q2
21.5% 23.9% 22.9%
Q1
FY 2013
FY 2012
Q4
Q3
Q2
Q1
27.3% 20.1%
22.4% 24.1%
We evaluate Distribution gross profit from two perspectives. Channel gross profit includes net sales less the direct cost of
inventory sold. Our Distribution gross profit includes channel gross profit as well as the impact of vendor rebates, cooperative
advertising income, freight billed to customers, freight expenses and direct shipping costs. In general, our Distribution gross
margin can vary based upon the mix of products sold, price discounting, and the timing of periodic vendor rebates and
cooperative advertising income received from suppliers.
Total Distribution gross margin in fiscal year 2013 was 23.9%, a decrease of 120 basis points when compared with 25.1% in
fiscal year 2012. Distribution gross profit decreased $1.4 million in fiscal year 2013 compared to fiscal year 2012, primarily a
result of increased price discounts extended to customers and lower vendor rebates, partially offset by increased cooperative
advertising income. The following table presents the quarterly historical trend of our Distribution gross profit as a percent of
Distribution sales:
Channel Gross Margin (1) .............
Total Distribution Gross Margin
(2) ..................................................
FY 2013
Q4 Q3
20.8%
21.2%
Q2
21.5%
Q1
22.7%
FY 2012
Q3 Q2
22.5%
23.1%
Q4
23.3%
Q1
23.0%
24.7%
23.2%
22.0%
25.7%
24.7%
25.6%
25.4%
24.8%
(1) Channel gross margin is calculated as net sales less purchase costs divided by net sales.
22
(2) Includes vendor rebates, cooperative advertising income, freight billed to customers, freight expenses, and direct shipping
costs.
Operating Expenses:
For the Years Ended
March 30, March 31,
2013
2012
Operating Expenses:
Selling, Marketing and Warehouse ................................................................................................... $ 13,001 $
Administrative ..................................................................................................................................
8,457
Total ........................................................................................................................................... $ 21,458 $
13,751
7,945
21,696
Operating expenses decreased $0.2 million, or 1.1%, from fiscal year 2012 to fiscal year 2013. As a percentage of total
revenue, operating expenses in fiscal year 2013 improved to 19.1% from 19.8% in fiscal year 2012 reflecting lower
performance-based compensation, partially offset by one-time sales organization restructuring charges, implementation costs of
our customer relationship management software and additional direct marketing expenses.
Taxes:
For the Years Ended
March 30, March 31,
2013
2012
Provision for Income Taxes ..................................................................................................................... $
2,014 $
1,944
Our effective tax rates for fiscal years 2013 and 2012 were 35.2% and 37.1%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
We believe that amounts available under our current credit facility and our cash on hand are sufficient to satisfy our expected
working capital and capital expenditure needs as well as our lease commitments for the foreseeable future. See Note 3 to our
Consolidated Financial Statements for further discussion about our credit facility.
Cash Flows. The following table is a summary of our Consolidated Statements of Cash Flows (dollars in thousands):
For the Years Ended
March 30, March 31,
2013
2012
Cash Provided by (Used in):
Operating Activities ................................................................................................................ $
Investing Activities .................................................................................................................
Financing Activities ................................................................................................................
5,241 $
(9,686)
4,772
6,259
(4,513)
(1,751)
Operating Activities: Cash provided by operating activities for fiscal year 2013 was $5.2 million compared to $6.3 million in
fiscal year 2012. Significant working capital fluctuations were as follows:
Inventory/Accounts Payable: Inventory balance at March 30, 2013 was $6.8 million, an increase of $0.4 million when
compared to $6.4 million on-hand at March 31, 2012. Our inventory strategy includes making appropriate larger
quantity, higher dollar based purchases with key manufacturers for various reasons, including maximizing on-hand
availability of key products, reducing backorders for those products with long lead times and optimizing vendor
volume discounts. As a result, inventory levels from quarter-to-quarter will vary based on the timing of these larger
orders in relation to the quarter-end. In general, our accounts payable balance increases or decreases as a result of
timing of vendor payments for inventory receipts. However, this correlation may vary at a quarter-end due to the
timing of vendor payments for inventory receipts and inventory shipped directly to customers, as well as the timing of
Distribution sales.
23
Receivables: We continue to generate positive operating cash flows and maintain strong collections on our accounts
receivable. The following table illustrates our days sales outstanding from fiscal year 2012 to fiscal year 2013:
Net Sales, for the last two fiscal months ............................................................................... $ 22,984 $
Accounts Receivable, net ...................................................................................................... $ 15,411 $
Days Sales Outstanding .........................................................................................................
40
March 30,
2013
March 31,
2012
23,820
13,800
38
Investing Activities: In fiscal year 2013, we invested $9.7 million in cash, of which $7.0 million was used for business
acquisitions and $2.7 million was used to purchase property and equipment, primarily to support Service segment growth. In
fiscal year 2012, we used $4.5 million of cash in investing activities, including $3.1 million for business acquisitions and $1.4
million to purchase property and equipment primarily for additional service capabilities and infrastructure projects.
Financing Activities: During fiscal year 2013, we received $4.8 million in cash from financing activities, including $4.7
million from our revolving line of credit and $0.2 million from the issuance of common stock through the exercise of stock
options. We used $1.8 million in cash for financing activities in fiscal year 2012, including $1.9 million to reduce our
revolving line of credit and $0.2 million to repurchase shares of common stock. In addition, we received $0.4 million of cash in
fiscal year 2012 from the issuance of common stock through the exercise of stock options and warrants.
Contractual Obligations and Commercial Commitments. The table below contains aggregated information about future
payments related to contractual obligations and commercial commitments such as debt and lease agreements (in millions):
Payments Due By Period
Less Than
1 Year Years Years 5 Years Total
More than
3-5
1-3
Revolving Line of Credit (1) ........................................................ $
Operating Leases ..........................................................................
Total Contractual Cash Obligations ...................................... $
- $
1.6
1.6 $
8.0 $
2.4
10.4 $
- $
1.5
1.5 $
- $
0.9
0.9 $
8.0
6.4
14.4
(1) Due to the uncertainty of forecasting expected variable rate interest payments, this amount excludes the interest portion of
the debt obligation.
OUTLOOK
The deepening of our geographic reach and expansion of our capabilities in our Services segment should continue to drive
growth, margin expansion and cash flow generation in fiscal year 2014. In addition, we expect to realize the full year impact
of our fiscal year 2013 acquisitions, our expanded focus on strategic business development and the benefit of investments made
in our sales organization. We expect this will more than offset an increasingly price competitive marketplace for our
Distribution segment and a stagnant economy. We expect that we will experience disproportionately higher year-over-year
operating income growth in our second and third quarters of fiscal year 2014.
The successful implementation of our strategies has resulted in revenue growth of nearly 60% and earnings per share growth of
over 50% in the last five years. While maintaining our position as the premier source for the highest quality test and
measurement instruments, we believe we are making measureable headway in capturing a greater share of the calibration
services market. Looking ahead, we believe we can continue to grow our top line, leverage our infrastructure and further
strengthen our earnings power.
24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATES
Our exposure to changes in interest rates results from our borrowing activities. In the event interest rates were to move by 1%,
our yearly interest expense would increase or decrease by less than $0.1 million assuming our average borrowing levels
remained constant. As of March 30, 2013, $20.0 million was available under our credit facility, of which $8.0 million was
outstanding and included in long-term debt on the Consolidated Balance Sheet.
We mitigate our interest rate risk by electing to borrow from our credit facility at the one-month LIBOR, adjusting daily, or a
fixed rate for a designated period at the LIBOR corresponding to such period, in each case, plus a margin. Our interest rate
margin is determined on a quarterly basis based upon our calculated leverage ratio. As of March 30, 2013, the one-month
LIBOR was 0.2%. Our interest rate for fiscal year 2013 ranged from 1.1% to 2.8%. On March 30, 2013, we had no hedging
arrangements in place to limit our exposure to upward movements in interest rates.
FOREIGN CURRENCY
Over 90% of our revenues for fiscal years 2013 and 2012 were denominated in U.S. dollars, with the remainder denominated in
Canadian dollars. A 10% change in the value of the Canadian dollar to the U.S. dollar would impact our revenue by less than
1%. We monitor the relationship between the U.S. and Canadian currencies on a monthly basis and adjust sales prices for
products and services sold in Canadian dollars as we believe to be appropriate.
We utilize foreign exchange forward contracts to reduce the risk that future earnings would be adversely affected by changes in
currency exchange rates. We do not apply hedge accounting and therefore, the change in the fair value of the contracts, which
totaled less than $0.1 million in each of fiscal years 2013 and 2012, was recognized as a component of other expense in the
Consolidated Statements of Operations. The change in the fair value of the contracts is offset by the change in fair value on the
underlying receivables denominated in Canadian dollars being hedged. On March 30, 2013, we had two foreign exchange
contracts, which mature in April 2013 and January 2014, outstanding in the notional amounts of $4.1 million and $2.0 million,
respectively. We do not use hedging arrangements for speculative purposes.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Report of Independent Registered Public Accounting Firm.............................................................................................
Consolidated Financial Statements:
Statements of Operations for the Years Ended March 30, 2013 and March 31, 2012 ...........................................
Statements of Comprehensive Income for the Years Ended March 30, 2013 and March 31, 2012 ........................
Balance Sheets as of March 30, 2013 and March 31, 2012 ....................................................................................
Statements of Cash Flows for the Years Ended March 30, 2013 and March 31, 2012 ...........................................
Statements of Shareholders’ Equity for the Years Ended March 30, 2013 and March 31, 2012 ............................
Page(s)
27
28
29
30
31
32
Notes to Consolidated Financial Statements ...........................................................................................................
33-45
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Transcat, Inc.
Rochester, New York
We have audited the accompanying consolidated balance sheets of Transcat, Inc. and its subsidiaries (“the Company”) as of
March 30, 2013 and March 31, 2012 and the related consolidated statements of operations, comprehensive income,
shareholders’ equity and cash flows for the fiscal years then ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Transcat, Inc. and its subsidiaries as of March 30, 2013 and March 31, 2012, and the results of their operations and
their cash flows for the fiscal years then ended, in conformity with accounting principles generally accepted in the United
States.
/s/ Freed Maxick CPAs, P.C.
Freed Maxick CPAs, P.C.
Buffalo, New York
June 26, 2013
27
TRANSCAT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
For the Years Ended
March 31,
March 30,
2012
2013
Distribution Sales ..................................................................................................................................... $ 71,641 $
Service Revenue .......................................................................................................................................
40,655
73,614
36,406
Total Revenue ..................................................................................................................................... 112,296 110,020
Cost of Distribution Sales ........................................................................................................................
Cost of Services Sold ...............................................................................................................................
Total Cost of Revenue .........................................................................................................................
54,539
30,353
84,892
55,110
27,786
82,896
Gross Profit ..............................................................................................................................................
27,404
27,124
Selling, Marketing and Warehouse Expenses ..........................................................................................
Administrative Expenses ..........................................................................................................................
Total Operating Expenses ...................................................................................................................
13,001
8,457
21,458
13,751
7,945
21,696
Operating Income .....................................................................................................................................
5,946
5,428
Interest and Other Expense, net ................................................................................................................
228
182
Income Before Income Taxes ..................................................................................................................
Provision for Income Taxes .....................................................................................................................
5,718
2,014
5,246
1,944
Net Income ............................................................................................................................................... $
3,704 $
3,302
Basic Earnings Per Share ......................................................................................................................... $
Average Shares Outstanding ....................................................................................................................
0.50 $
7,404
Diluted Earnings Per Share ...................................................................................................................... $
Average Shares Outstanding ....................................................................................................................
0.49 $
7,592
0.45
7,309
0.43
7,651
See accompanying notes to consolidated financial statements.
28
TRANSCAT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
For the Years Ended
March 31,
March 30,
2012
2013
Net Income ............................................................................................................................................... $
3,704 $
3,302
Other Comprehensive Income (Loss):
Currency Translation Adjustment .......................................................................................................
Unrecognized Prior Service Cost, net of tax .......................................................................................
Unrealized Gain on Other Asset, net of tax .........................................................................................
2
1
30
33
(9)
(32)
4
(37)
Comprehensive Income ............................................................................................................................ $
3,737 $
3,265
See accompanying notes to consolidated financial statements.
29
TRANSCAT, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)
March 30,
2013
March 31,
2012
ASSETS
Current Assets:
Cash .................................................................................................................................................. $
Accounts Receivable, less allowance for doubtful accounts of $118 and $99 as of March 30,
406 $
32
2013 and March 31, 2012, respectively .........................................................................................
Other Receivables .............................................................................................................................
Inventory, net ....................................................................................................................................
Prepaid Expenses and Other Current Assets .....................................................................................
Deferred Tax Asset ...........................................................................................................................
Total Current Assets ..................................................................................................................
Property and Equipment, net ....................................................................................................................
Goodwill...................................................................................................................................................
Intangible Assets, net ...............................................................................................................................
Other Assets .............................................................................................................................................
15,411
977
6,803
1,134
1,087
25,818
6,885
17,592
3,691
1,061
Total Assets ................................................................................................................................... $ 55,047 $
13,800
845
6,396
1,064
1,041
23,178
5,306
13,390
2,449
654
44,977
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable .............................................................................................................................. $
Accrued Compensation and Other Liabilities ...................................................................................
Income Taxes Payable ......................................................................................................................
Total Current Liabilities .............................................................................................................
Long-Term Debt.......................................................................................................................................
Deferred Tax Liability ..............................................................................................................................
Other Liabilities .......................................................................................................................................
Total Liabilities .............................................................................................................................
8,883 $
3,979
465
13,327
8,017
551
1,502
23,397
7,516
5,171
366
13,053
3,365
139
1,042
17,599
Shareholders' Equity:
Common Stock, par value $0.50 per share, 30,000,000 shares authorized; 7,423,507 and
7,840,994 shares issued as of March 30, 2013 and March 31, 2012, respectively; 7,423,507
and 7,341,007 shares outstanding as of March 30, 2013 and March 31, 2012, respectively .........
3,712
Capital in Excess of Par Value ..........................................................................................................
10,616
Accumulated Other Comprehensive Income ....................................................................................
481
Retained Earnings .............................................................................................................................
16,841
Less: Treasury Stock, at cost, 498,782 shares as of March 31, 2012 ...............................................
-
Total Shareholders' Equity .........................................................................................................
31,650
Total Liabilities and Shareholders' Equity ................................................................................. $ 55,047 $
3,920
10,810
448
14,394
(2,194)
27,378
44,977
See accompanying notes to consolidated financial statements.
30
TRANSCAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For the Years Ended
March 31,
March 30,
2012
2013
Cash Flows from Operating Activities:
Net Income ........................................................................................................................................ $
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Deferred Income Taxes .................................................................................................................
Depreciation and Amortization .....................................................................................................
Provision for Accounts Receivable and Inventory Reserves .........................................................
Stock-Based Compensation Expense ............................................................................................
Change in Contingent Consideration .............................................................................................
Changes in Assets and Liabilities, net of acquisitions:
Accounts Receivable and Other Receivables ....................................................................................
Inventory ...........................................................................................................................................
Prepaid Expenses and Other Assets ..................................................................................................
Accounts Payable ..............................................................................................................................
Accrued Compensation and Other Liabilities ...................................................................................
Income Taxes Payable ......................................................................................................................
Net Cash Provided by Operating Activities ...............................................................................
Cash Flows from Investing Activities:
Purchase of Property and Equipment ....................................................................................................
Business Acquisitions, net of cash acquired .........................................................................................
Net Cash Used in Investing Activities .......................................................................................
Cash Flows from Financing Activities:
Proceeds from (Repayment of) Revolving Line of Credit, net .............................................................
Payment of Contingent Consideration ..................................................................................................
Issuance of Common Stock ..................................................................................................................
Repurchase of Common Stock .............................................................................................................
Excess Tax Benefits Related to Stock-Based Compensation ...............................................................
Net Cash Provided by (Used in) Financing Activities ...............................................................
3,704 $
3,302
43
2,702
162
343
-
(842)
(294)
(914)
1,389
(1,070)
18
5,241
91
2,896
76
553
(50)
(1,981)
989
(863)
(681)
1,811
116
6,259
(2,657)
(7,029)
(9,686)
(1,391)
(3,122)
(4,513)
4,652
(72)
239
(110)
63
4,772
(1,888)
(94)
436
(247)
42
(1,751)
Effect of Exchange Rate Changes on Cash ..............................................................................................
47
Net Increase in Cash .................................................................................................................................
Cash at Beginning of Fiscal Year .............................................................................................................
Cash at End of Fiscal Year ....................................................................................................................... $
374
32
406 $
5
-
32
32
Supplemental Disclosures of Cash Flow Activity:
Cash paid during the fiscal year for:
Interest .............................................................................................................................................. $
Income Taxes, net ............................................................................................................................. $
118 $
1,890 $
131
1,693
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Contingent Consideration Related to Business Acquisition ................................................................. $
- $
100
See accompanying notes to consolidated financial statements.
31
TRANSCAT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In Thousands)
Common Stock
Issued
$0.50 Par Value
Capital
In
Excess
of Par
Accum-
ulated
Other
Compre-
hensive Retained
Treasury Stock
Outstanding
at Cost
Shares Amount Value Income Earnings Shares Amount Total
84
(21)
Balance as of March 26, 2011 ......... 7,759 $ 3,880 $ 10,066 $
Issuance of Common Stock .............
394
Repurchase of Common Stock ........
(236)
Stock-Based Compensation .............
408
Restricted Stock ..............................
136
Tax Benefit from Stock-Based
Compensation ................................
Other Comprehensive Loss .............
Net Income ......................................
42
(11)
18
42
9
Balance as of March 31, 2012 ......... 7,840
46
Issuance of Common Stock .............
(498)
Retirement of Treasury Stock .........
(16)
Repurchase of Common Stock ........
Stock-Based Compensation .............
52
Tax Benefit from Stock-Based
Compensation ................................
Other Comprehensive Gain .............
Net Income ......................................
3,920 10,810
216
(763)
(27)
317
23
(249)
(8)
26
63
485 $ 11,092
(37)
3,302
448 14,394
(1,182)
(75)
33
3,704
499 $ (2,194) $ 23,329
436
(247)
408
145
42
(37)
3,302
(499 ) 2,194
499 (2,194) 27,378
239
-
(110)
343
63
33
3,704
Balance as of March 30, 2013 ......... 7,424 $ 3,712 $ 10,616 $
481 $ 16,841
- $
- $ 31,650
See accompanying notes to consolidated financial statements.
32
TRANSCAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
NOTE 1 – GENERAL
Description of Business: Transcat, Inc. (“Transcat” or the “Company”) is a leading provider of accredited calibration, repair,
inspection and compliance services and distributor of professional grade handheld test, measurement and control
instrumentation primarily for pharmaceutical and FDA-regulated, industrial manufacturing, energy and utilities, chemical
process, and other industries.
Principles of Consolidation: The Consolidated Financial Statements of Transcat include the accounts of Transcat, Inc. and
the Company’s wholly-owned subsidiaries, Transmation (Canada) Inc., United Scale & Engineering Corporation, WTT Real
Estate Acquisition, LLC and Anacor Acquisition, LLC (“Anacor Acquisition”). All intercompany balances and transactions
have been eliminated in consolidation.
Use of Estimates: The preparation of Transcat’s Consolidated Financial Statements in accordance with accounting principles
generally accepted in the United States (“GAAP”) requires that the Company make estimates and assumptions that affect the
reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and
assumptions are used for, but not limited to, allowance for doubtful accounts and returns, inventory reserves, probability of
achievement for performance-based restricted stock units, depreciable lives of fixed assets and estimated lives of major
catalogs and intangible assets. Future events and their effects cannot be predicted with certainty; accordingly, accounting
estimates require the exercise of judgment. The accounting estimates used in the preparation of the Consolidated Financial
Statements will change as new events occur, as more experience is acquired, as additional information is obtained, and as the
operating environment changes. Actual results could differ from those estimates. Such changes and refinements in estimation
methodologies are reflected in reported results of operations in the period in which the changes are made and, if material, their
effects are disclosed in the Notes to the Consolidated Financial Statements.
Fiscal Year: Transcat operates on a 52/53 week fiscal year, ending the last Saturday in March. In a 52-week fiscal year, each
of the four quarters is a 13-week period. In a 53-week fiscal year, the last quarter is a 14-week period. The fiscal year ended
March 30, 2013 (“fiscal year 2013”) consisted of 52 weeks. The fiscal year ended March 31, 2012 (“fiscal year 2012”)
consisted of 53 weeks.
Accounts Receivable: Accounts receivable represent amounts due from customers in the ordinary course of business. These
amounts are recorded net of the allowance for doubtful accounts and returns in the Consolidated Balance Sheets. The
allowance for doubtful accounts is based upon the expected collectability of accounts receivable. Transcat applies a specific
formula to its accounts receivable aging, which may be adjusted on a specific account basis where the formula may not
appropriately reserve for loss exposure. After all attempts to collect a receivable have failed, the receivable is written-off
against the allowance for doubtful accounts. The returns reserve is calculated based upon the historical rate of returns applied
to revenues over a specific timeframe. The returns reserve will increase or decrease as a result of changes in the level of
revenue and/or the historical rate of returns.
Inventory: Inventory consists of products purchased for resale and is valued at the lower of cost or market. Costs are
determined using the average cost method of inventory valuation. Inventory is reduced by a reserve for items not saleable at or
above cost by applying a specific loss factor, based on historical experience, to specific categories of inventory. The Company
evaluates the adequacy of the reserve on a quarterly basis. At March 30, 2013 and March 31, 2012, the Company had reserves
for inventory losses totaling $0.5 million and $0.7 million, respectively.
Property and Equipment, Depreciation and Amortization: Property and equipment are stated at cost. Depreciation and
amortization are computed primarily under the straight-line method over the following estimated useful lives:
Years
Machinery, Equipment and Software ................................................................................................................................ 2 – 15
Furniture and Fixtures ....................................................................................................................................................... 3 – 10
Leasehold Improvements .................................................................................................................................................. 2 – 10
39
Buildings ...........................................................................................................................................................................
33
Property and equipment determined to have no value are written off at their then remaining net book value. Transcat
capitalizes certain costs incurred in the procurement and development of computer software used for internal
purposes. Leasehold improvements are amortized under the straight-line method over the estimated useful life or the lease
term, whichever is shorter. Maintenance and repairs are expensed as incurred. See Note 2 for further information on property
and equipment.
Goodwill and Intangible Assets: Goodwill represents costs in excess of fair values assigned to the underlying net assets of an
acquired business. Other intangible assets, namely customer base and covenants not to compete, represent an allocation of
purchase price to identifiable intangible assets of an acquired business. The Company estimates the fair value of its reporting
units using the fair market value measurement requirement.
During fiscal year 2012, the Company implemented Accounting Standards Update (“ASU”) No. 2011-08, Intangibles-
Goodwill and Other (“ASU 2011-08”). This standard simplified how an entity is required to test goodwill for impairment and
allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative
goodwill impairment test. Under ASU 2011-08, an entity is not required to calculate the fair value of a reporting unit unless
the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying
amount.
The Company tests goodwill for impairment on an annual basis, or immediately if conditions indicate that such impairment
could exist. Other intangible assets are evaluated for impairment when events or changes in business circumstances indicate
that the carrying amount of the assets may not be fully recoverable. The Company determined that no impairment was
indicated as of March 30, 2013 and March 31, 2012.
A summary of changes in the Company’s goodwill and intangible assets is as follows:
Goodwill
Intangible Assets
Distribution Service Total
Distribution Service Total
Net Book Value as of March 26, 2011 .................... $
Additions (see Note 9)..........................................
Amortization ........................................................
Currency Translation Adjustment ........................
Net Book Value as of March 31, 2012 ....................
Additions (see Note 9)..........................................
Amortization ........................................................
Currency Translation Adjustment ........................
Net Book Value as of March 30, 2013 .................... $
8,031 $
-
-
-
8,031
-
-
-
8,031 $
3,635 $ 11,666 $
1,728
1,728
-
-
(4)
(4)
5,359 13,390
4,234
4,234
-
-
(32)
(32)
9,561 $ 17,592 $
1,069 $
-
(345)
913 $
1,206
(392)
(2)
1,725
2,062
(563)
(18)
485 $ 3,206
724
-
(239)
-
1,982
1,206
(737)
(2)
2,449
2,062
(802)
(18)
3,691
The intangible assets are being amortized on an accelerated basis over their estimated useful life of up to 10
years. Amortization expense relating to intangible assets is expected to be $1.0 million in the fiscal year ending March 29,
2014 (“fiscal year 2014”), $0.8 million in fiscal year 2015, $0.6 million in fiscal year 2016, $0.5 million in fiscal year 2017 and
$0.3 million in fiscal year 2018.
Catalog Costs: Transcat capitalizes the cost of each Master Catalog mailed and amortizes the cost over the respective
catalog’s estimated productive life. The Company reviews response results from catalog mailings on a continuous basis, and if
warranted, modifies the period over which costs are recognized. The Company amortizes the cost of each Master Catalog over
an eighteen month period and amortizes the cost of each catalog supplement over a three month period. Total unamortized
catalog costs, included as a component of prepaid expenses and other current assets on the Consolidated Balance Sheets, were
$0.3 million as of March 30, 2013 and $0.4 million as of March 31, 2012.
Deferred Taxes: Transcat accounts for certain income and expense items differently for financial reporting purposes than for
income tax reporting purposes. Deferred taxes are provided in recognition of these temporary differences. If necessary, a
valuation allowance on net deferred tax assets is provided for items for which it is more likely than not that the benefit of such
items will not be realized based on an assessment of both positive and negative evidence. See Note 4 for further discussion on
income taxes.
34
Fair Value of Financial Instruments: Transcat has determined the fair value of debt and other financial instruments using a
valuation hierarchy. The hierarchy, which prioritizes the inputs used in measuring fair value, consists of three levels. Level 1
uses observable inputs such as quoted prices in active markets; Level 2 uses inputs other than quoted prices in active markets
that are either directly or indirectly observable; and Level 3, which is defined as unobservable inputs in which little or no
market data exists, requires the Company to develop its own assumptions. The carrying amount of debt on the Consolidated
Balance Sheets approximates fair value due to variable interest rate pricing, and the carrying amounts for cash, accounts
receivable and accounts payable approximate fair value due to their short-term nature. Investment assets, which fund the
Company’s non-qualified deferred compensation plan, consist of mutual funds and are valued based on Level 1 inputs. At
March 30, 2013 and March 31, 2012, investment assets totaled $0.6 million and $0.2 million, respectively, and are included as
a component of other assets (non-current) on the Consolidated Balance Sheets.
Stock-Based Compensation: The Company measures the cost of services received in exchange for all equity awards granted,
including stock options, warrants and restricted stock units, based on the fair market value of the award as of the grant
date. The Company records compensation cost related to unvested equity awards by recognizing, on a straight line basis, the
unamortized grant date fair value over the remaining service period of each award. Excess tax benefits from the exercise of
equity awards are presented in the Consolidated Statements of Cash Flows as a financing activity. Excess tax benefits are
realized benefits from tax deductions for exercised awards in excess of the deferred tax asset attributable to stock-based
compensation costs for such awards. The Company did not capitalize any stock-based compensation costs as part of an
asset. The Company estimates forfeiture rates based on its historical experience. During fiscal years 2013 and 2012, the
Company recorded non-cash stock-based compensation cost in the amount of $0.3 million and $0.6 million, respectively, in the
Consolidated Statements of Operations.
Revenue Recognition: Distribution sales are recorded when an order’s title and risk of loss transfers to the customer. The
Company recognizes the majority of its service revenue based upon when the calibration or other activity is performed and
then shipped and/or delivered to the customer. Some service revenue is generated from managing customers’ calibration
programs in which the Company recognizes revenue in equal amounts at fixed intervals. The Company generally invoices its
customers for freight, shipping, and handling charges. Provisions for customer returns are provided for in the period the related
revenue is recorded based upon historical data.
Vendor Rebates: Vendor rebates are based on a specified cumulative level of purchases and incremental distribution sales
and are recorded as a reduction of cost of distribution sales. Purchase rebates are calculated and recorded quarterly based upon
our volume of purchases with specific vendors during the quarter. Point of sale rebate programs are based upon annual year-
over-year sales performance on a calendar year basis and are recorded as earned, on a quarterly basis, based upon the expected
level of annual achievement.
Cooperative Advertising Income: Transcat records cash consideration received from a vendor for advertising as a reduction
of cost of distribution sales as the related inventory is sold. The Company recorded, as a reduction of cost of distribution sales,
consideration in the amount of $1.8 million and $1.4 million in fiscal years 2013 and 2012, respectively.
Shipping and Handling Costs: Freight expense and direct shipping costs are included in the cost of revenue. These costs
were approximately $1.8 million and $1.9 million for fiscal years 2013 and 2012, respectively. Direct handling costs, the
majority of which represent direct compensation of employees who pick, pack, and otherwise prepare, if necessary,
merchandise for shipment to customers, are reflected in selling, marketing and warehouse expenses. These costs were $0.8
million in each of the fiscal years ended 2013 and 2012.
Foreign Currency Translation and Transactions: The accounts of Transmation (Canada) Inc.ears 2004 and 2005evedative
level of purchases andual amounts at fixed intervals. activity is performed the shipped and are maintained in the local
currency and have been translated to U.S. dollars. Accordingly, the amounts representing assets and liabilities, have been
translated at the period-end rates of exchange and related revenue and expense accounts have been translated at an average rate
of exchange during the period. Gains and losses arising from translation of Transmation (Canada) Inc.’s balance sheets into
U.S. dollars are recorded directly to the accumulated other comprehensive income component of shareholders’ equity.
Transcat records foreign currency gains and losses on Canadian business transactions. The net foreign currency loss was less
than $0.1 million for each of the fiscal years 2013 and 2012. The Company utilizes foreign exchange forward contracts to
reduce the risk that its earnings would be adversely affected by changes in currency exchange rates. The Company does not
apply hedge accounting and therefore, the change in the fair value of the contracts, which totaled less than $0.1 million in each
of the fiscal years 2013 and 2012, was recognized as a component of other expense in the Consolidated Statements of
35
Operations. The change in the fair value of the contracts is offset by the change in fair value on the underlying accounts
receivables denominated in Canadian dollars being hedged. On March 30, 2013, the Company had two foreign exchange
contracts, which mature in April 2013 and January 2014, outstanding in the notional amounts of $4.1 million and $2.0 million,
respectively. The Company does not use hedging arrangements for speculative purposes.
Comprehensive Income: Other comprehensive income is comprised of net income, currency translation adjustments,
unrecognized prior service costs, net of tax and unrealized gains on other assets, net of tax. At March 30, 2013, accumulated
other comprehensive income consisted of cumulative currency translation gains of $0.6 million, unrecognized prior service
costs, net of tax, of $0.2 million and an unrealized gain on other assets, net of tax, of less than $0.1 million. At March 31,
2012, accumulated other comprehensive income consisted of cumulative currency translation gains of $0.6 million,
unrecognized prior service costs, net of tax, of $0.2 million and an unrealized gain on other assets, net of tax, of less than $0.1
million.
In February 2013, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2013-02, Comprehensive Income:
Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income (“ASU 2013-02”). This standard
requires entities to report the effect of significant reclassifications out of accumulated other comprehensive income on the
respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety.
For other amounts that are not required under GAAP to be reclassified in their entirety, an entity is required to cross-reference
other disclosures required under GAAP that provide additional detail about those amounts. The Company implemented ASU
2013-02 effective December 29, 2012 and there was no impact on its Consolidated Financial Statements.
Earnings Per Share: Basic earnings per share of common stock are computed based on the weighted average number of
shares of common stock outstanding during the period. Diluted earnings per share of common stock reflect the assumed
conversion of stock options, warrants, and unvested restricted stock units using the treasury stock method in periods in which
they have a dilutive effect. In computing the per share effect of assumed conversion, funds which would have been received
from the exercise of options, warrants, and unvested restricted stock units and the related tax benefits are considered to have
been used to purchase shares of common stock at the average market prices during the period, and the resulting net additional
shares of common stock are included in the calculation of average shares of common stock outstanding.
For fiscal years 2013 and 2012, the net additional common stock equivalents had a $.01 and $.02 per share effect, respectively,
on the calculation of dilutive earnings per share. The average shares outstanding used to compute basic and diluted earnings
per share are as follows:
Average Shares Outstanding – Basic .....................................................................................................
Effect of Dilutive Common Stock Equivalents ......................................................................................
Average Shares Outstanding – Diluted ..................................................................................................
Anti-dilutive Common Stock Equivalents .............................................................................................
7,404
188
7,592
464
7,309
342
7,651
398
Reclassification of Amounts: Certain reclassifications of financial information for prior fiscal years have been made to
conform to the presentation for the current fiscal year.
For the Years Ended
March 31,
March 30,
2012
2013
36
NOTE 2 – PROPERTY AND EQUIPMENT
Property and equipment consist of:
March 30,
2013
Machinery, Equipment and Software ....................................................................................................... $ 21,661 $
Furniture and Fixtures ..............................................................................................................................
2,065
Leasehold Improvements .........................................................................................................................
1,544
Buildings and Land ..................................................................................................................................
675
Total Property and Equipment ............................................................................................................
25,945
Less: Accumulated Depreciation and Amortization ................................................................................
(19,060)
Total Property and Equipment, net ...................................................................................................... $
6,885 $
March 31,
2012
19,199
1,989
1,333
675
23,196
(17,890)
5,306
Total depreciation and amortization expense amounted to $1.4 million in fiscal year 2013 and $1.6 million in fiscal year 2012.
NOTE 3 – DEBT
Description. On September 20, 2012, Transcat entered into a credit agreement with Manufacturers and Traders Trust
Company (the “M&T Credit Agreement”). The M&T Credit Agreement provides for a three-year revolving credit facility in
the amount of $20.0 million (the “M&T Revolving Credit Facility”) and replaced the credit agreement dated as of November
20, 2006, as amended, with JP Morgan Chase Bank, N.A. (the “Chase Credit Agreement”). As of March 30, 2013, $8.0 million
was outstanding under the M&T Revolving Credit Facility and is included in long-term debt on the Consolidated Balance
Sheet.
Interest and Other Costs. Interest on the M&T Revolving Credit Facility accrues, at Transcat’s election, at either the one-
month London Interbank Offered Rate (“LIBOR”), adjusting daily, or a fixed rate for a designated period at the LIBOR
corresponding to such period, in each case, plus a margin. Commitment fees accrue based on the average daily amount of
unused credit available on the M&T Revolving Credit Facility. Commitment fees and interest rate margins are determined on a
quarterly basis based upon the Company’s calculated leverage ratio, as defined in the M&T Credit Agreement. The one-month
LIBOR as of March 30, 2013 was 0.2%. The Company’s interest rate for fiscal year 2013, including interest associated with
the Chase Credit Agreement, ranged from 1.1% to 2.8%.
Covenants. The M&T Credit Agreement has certain covenants with which the Company has to comply, including a fixed
charge ratio covenant and a leverage ratio covenant. The Company was in compliance with all loan covenants and
requirements, including those associated with the Chase Credit Agreement, throughout fiscal year 2013.
Loan Costs. Costs associated with the M&T Credit Agreement, totaling less than $0.1 million, are being amortized over the
term of the agreement. On September 20, 2012, unamortized costs associated with the Chase Credit Agreement totaling less
than $0.1 million were written off and recorded as interest expense in the Consolidated Statement of Operations.
Other Terms. The Company has pledged all of its U.S. tangible and intangible personal property, the equity interests of its
U.S.-based subsidiaries, and a majority of the common stock of Transmation (Canada) Inc. as collateral security for the loans
made under the M&T Revolving Credit Facility.
NOTE 4 – INCOME TAXES
Transcat’s net income before income taxes on the Consolidated Statements of Operations is as follows:
United States ............................................................................................................................................. $
Foreign ......................................................................................................................................................
Total ..................................................................................................................................................... $
FY 2013 FY 2012
5,679
(433)
5,246
6,188 $
(470)
5,718 $
37
The net provision for income taxes for fiscal years 2013 and 2012 is as follows:
Current Tax Provision:
Federal .................................................................................................................................................. $
State ......................................................................................................................................................
Deferred Tax Provision (Benefit):
Federal ..................................................................................................................................................
State ......................................................................................................................................................
Provision for Income Taxes ...................................................................................................................... $
1,701 $
270
1,971
113
(70)
43
2,014 $
1,685
168
1,853
117
(26)
91
1,944
FY 2013 FY 2012
A reconciliation of the income tax provision computed by applying the statutory United States federal income tax rate and the
income tax provision reflected in the Consolidated Statements of Operations is as follows:
Federal Income Tax at Statutory Rate .................................................................................................... $ 1,944 $
State Income Taxes, net of Federal benefit ............................................................................................
229
Other, net ................................................................................................................................................
(159)
Total ............................................................................................................................................ $ 2,014 $
FY 2013 FY 2012
1,784
210
(50)
1,944
The components of the net deferred tax assets (liabilities) are as follows:
March 30,
2013
March 31,
2012
Current Deferred Tax Assets:
Accrued Liabilities .............................................................................................................................. $
Performance-Based Grants ..................................................................................................................
Other ....................................................................................................................................................
Total Current Deferred Tax Assets .................................................................................................
Non-Current Deferred Tax Assets (Liabilities):
Goodwill and Intangible Assets...........................................................................................................
Depreciation ........................................................................................................................................
Stock-Based Compensation .................................................................................................................
Other Liabilities ...................................................................................................................................
Foreign Tax Credits .............................................................................................................................
Other ....................................................................................................................................................
Total Non-Current Deferred Tax Liabilities ...................................................................................
333 $
483
271
1,087
306
476
259
1,041
(1,449)
(777)
780
556
-
339
(551)
(1,129)
(475)
794
377
36
258
(139)
Net Deferred Tax Assets ................................................................................................................ $
536 $
902
Deferred U.S. income taxes have not been recorded for basis differences related to the investments in the Company’s foreign
subsidiary. The Company considers undistributed earnings, if any, as permanently reinvested in the subsidiary. Therefore, the
determination of a deferred tax liability on unremitted earnings would not be practicable because such liability, if any, would
depend on circumstances existing if and when remittance occurs. At March 30, 2013, there were no undistributed earnings. As
of March 30, 2013, the Company has net operating loss carry forwards, relating to its foreign subsidiary, of $0.9 million, which
are available to offset future taxable income of the subsidiary through March 2033.
The Company files income tax returns in the U.S. federal jurisdiction, various states and Canada. The Company is no longer
subject to examination by U.S. federal income tax authorities for the fiscal years 2009 and prior, by state tax authorities for the
fiscal years 2007 and prior, and by Canadian tax authorities for the fiscal years 2005 and prior. There are no tax years
currently under examination by U.S. federal, state or Canadian tax authorities.
38
During fiscal years 2013 and 2012, there were no uncertain tax positions, and the Company expects no material uncertain tax
positions within the next twelve months. The Company recognizes interest and penalties, if any, related to uncertain tax
positions in the provision for income taxes. No interest or penalties related to uncertain tax positions were recognized in fiscal
years 2013 and 2012 or were accrued at March 30, 2013 and March 31, 2012.
NOTE 5 – EMPLOYEE BENEFIT PLANS
Defined Contribution Plan. All of Transcat’s U.S. based employees are eligible to participate in a defined contribution plan,
the Long-Term Savings and Deferred Profit Sharing Plan (the “Plan”), provided certain qualifications are met.
In the long-term savings portion of the Plan (the “401K Plan”), plan participants are entitled to a distribution of their vested
account balance upon termination of employment or retirement. Plan participants are fully vested in their contributions while
Company contributions are fully vested after three years of service. The Company’s matching contributions to the 401K Plan
were $0.5 million in fiscal year 2013 and $0.4 million in fiscal year 2012.
In the deferred profit sharing portion of the Plan, Company contributions are made at the discretion of the Board of
Directors. The Company made no profit sharing contributions in fiscal years 2013 and 2012.
Non-Qualified Deferred Compensation Plan. The Company has available a non-qualified deferred compensation plan (the
“NQDC Plan”) for directors and officers. Participants are fully vested in their contributions. At its discretion, the Company
may elect to match employee contributions, subject to legal limitations in conjunction with the 401K Plan, which fully vest
after three years of service. During each of the fiscal years 2013 and 2012, the Company made matching contributions of less
than $0.1 million. Participant accounts are adjusted to reflect performance, whether positive or negative, of selected
investment options chosen by each participant during the deferral period. In the event of bankruptcy, the assets of the NQDC
Plan are available to satisfy the claims of general creditors. The liability for compensation deferred under the NQDC Plan was
$0.6 million as of March 30, 2013 and $0.2 million as of March 31, 2012 and is included as a component of other liabilities
(non-current) on the Consolidated Balance Sheets.
Postretirement Health Care Plans. The Company has a defined benefit postretirement health care plan which provides long-
term care insurance benefits, medical and dental insurance benefits and medical premium reimbursement benefits to eligible
retired corporate officers and their eligible spouses (the “Officer Plan”). The Company also had a defined benefit
postretirement health care plan which provided limited reimbursement to eligible non-officer participants for the cost of
individual medical insurance coverage (the “Non-Officer Plan”). During fiscal year 2012, the Non-Officer Plan was
discontinued with benefits accrued only for employees who had met the plan’s eligibility requirements on or before March 31,
2012. The Company satisfied its obligation under the Non-Officer Plan by paying all remaining benefits, totaling less than
$0.1 million, during fiscal year 2013.
The change in the postretirement benefit obligation is as follows:
Postretirement benefit obligation, at beginning of fiscal year .................................................................. $
Service cost ..............................................................................................................................................
Interest cost ..............................................................................................................................................
Benefits paid ............................................................................................................................................
Actuarial loss ............................................................................................................................................
Curtailment gain .......................................................................................................................................
Postretirement benefit obligation, at end of fiscal year ............................................................................
Fair value of plan assets, at end of fiscal year ..........................................................................................
Funded status, at end of year .................................................................................................................... $
FY 2013 FY 2012
706
780 $
127
59
40
41
(12)
(68)
71
75
(152)
-
780
887
-
-
(780)
(887) $
Accumulated postretirement benefit obligation, at end of fiscal year
$
887 $
780
39
The accumulated postretirement benefit obligation is included as a component of other liabilities (non-current) in the
Consolidated Balance Sheets. The components of net periodic postretirement benefit cost and other amounts recognized in
other comprehensive income are as follows:
Net periodic postretirement benefit cost:
Service cost ............................................................................................................................................. $
Interest cost .............................................................................................................................................
Amortization of prior service cost ...........................................................................................................
Benefit obligations recognized in other comprehensive income:
Amortization of prior service cost ...........................................................................................................
Net loss ....................................................................................................................................................
Total recognized in net periodic benefit cost and other comprehensive income ....................................... $
59 $
41
58
158
(58)
58
-
158 $
127
40
13
180
(13)
65
52
232
FY 2013 FY 2012
Amount recognized in accumulated other comprehensive income, at end of fiscal year:
Unrecognized prior service cost ............................................................................................................ $
258 $
258
The prior service cost is amortized over the average remaining life expectancy of active participants for the Officer Plan. The
estimated prior service cost that will be amortized from accumulated other comprehensive gain into net periodic postretirement
benefit cost during fiscal year 2014 is less than $0.1 million.
The postretirement benefit obligation was computed by an independent third party actuary. Assumptions used to determine the
postretirement benefit obligation and the net periodic benefit cost were as follows:
March 30,
2013
March 31,
2012
Weighted average discount rate .............................................................................................................
4.5%
4.7%
Medical care cost trend rate:
Trend rate assumed for next year .........................................................................................................
Ultimate trend rate ................................................................................................................................
Year that rate reaches ultimate trend rate .............................................................................................
8.0%
5.0%
2021
8.5%
5.0%
2020
Dental care cost trend rate:
Trend rate assumed for next year and remaining at that level thereafter ..............................................
5.0%
5.0%
Benefit payments are funded by the Company as needed. Payments toward the cost of a retiree’s medical and dental coverage
are initially determined as a percentage of a base coverage plan in the year of retirement and are limited to increase at a rate of
no more than 50% of the annual increase in medical and dental costs, as defined in the plan document. The following benefit
payments, which reflect expected future service, as appropriate, are expected to be paid as follows:
Fiscal Year
2014 ................................................................................................................................ $
2015 ................................................................................................................................
2016 ................................................................................................................................
2017 ................................................................................................................................
2018 ................................................................................................................................
Thereafter ........................................................................................................................
Amount
51
57
62
62
56
599
Increasing the assumed health care cost trend rate by one percentage point would increase the accumulated postretirement
benefit obligation and the annual net periodic cost by $0.1 million. A one percentage point decrease in the healthcare cost
trend would decrease the accumulated postretirement benefit obligation and the annual net periodic cost by $0.1 million.
40
NOTE 6 – STOCK-BASED COMPENSATION
The Transcat, Inc. 2003 Incentive Plan, as Amended and Restated (the “2003 Plan”), provides for, among other awards, grants
of restricted stock units and stock options to directors, officers and key employees at the fair market value at the date of grant.
At March 30, 2013, the number of shares available for future grant under the 2003 Plan totaled 0.2 million.
Restricted Stock: The Company grants performance-based restricted stock units as a primary component of executive
compensation. The units generally vest following the third fiscal year from the date of grant subject to certain cumulative
diluted earnings per share growth targets over the eligible period.
Compensation cost ultimately recognized for performance-based restricted stock units will equal the grant date fair market
value of the unit that coincides with the actual outcome of the performance conditions. On an interim basis, the Company
records compensation cost based on an assessment of the probability of achieving the performance conditions. The Company
achieved 75% of the target level for the performance-based restricted stock units granted in the fiscal year ended March 27,
2010 and as a result, issued 52 thousand shares of common stock to executive officers and certain key employees during the
first quarter of fiscal year 2013. At March 30, 2013, the Company achieved 75% of the target level for the performance-based
restricted stock units granted in the fiscal year ended March 26, 2011 and estimated the probability of achievement for the
performance-based restricted stock units granted in fiscal years 2013 and 2012 to be 100% and 125% of the target levels,
respectively. Total expense relating to performance-based restricted stock units, based on grant date fair value and the
achievement criteria, was $0.3 million in each of the fiscal years 2013 and 2012. Unearned compensation totaled $0.4 million
as of March 30, 2013.
Stock Options: Options generally vest over a period of up to four years, using either a graded schedule or on a straight-line
basis, and expire ten years from the date of grant. The expense relating to options is recognized on a straight-line basis over
the requisite service period for the entire award.
The following table summarizes the Company’s options for fiscal years 2013 and 2012:
Outstanding as of March 26, 2011 ..................................................................
Exercised ..............................................................................................
Outstanding as of March 31, 2012 ..................................................................
Exercised ..............................................................................................
Forfeited ...............................................................................................
Outstanding as of March 30, 2013 ..................................................................
Exercisable as of March 30, 2013 ...................................................................
Number
Of
Shares
Weighted
Average
Exercise
Price Per
Share
5.77
3.98
5.94
3.08
6.57
6.02
6.02
654 $
(57)
597
(21)
(22)
554
548
Weighted
Average
Remaining
Contractual
Term (in Years)
Aggregate
Intrinsic
Value
4 $
4
505
505
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the
Company’s closing stock price on the last trading day of fiscal year 2013 and the exercise price, multiplied by the number of
in-the-money stock options) that would have been received by the option holders had all holders exercised their options on
March 30, 2013. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s stock.
Total unrecognized compensation cost related to non-vested stock options as of March 30, 2013 was less than $0.1 million,
which is expected to be recognized in less than one year. The aggregate intrinsic value of stock options exercised in fiscal
years 2013 and 2012 was less than $0.1 million and $0.5 million, respectively. Cash received from the exercise of options was
less than $0.1 million in fiscal year 2013 and $0.2 million in fiscal year 2012.
Warrants: Transcat maintained a warrant plan for directors (the “Directors’ Warrant Plan”). Under the Directors’ Warrant
Plan, as amended, warrants were granted to non-employee directors to purchase common stock at the fair market value at the
date of grant. All warrants authorized for issuance pursuant to the Directors’ Warrant Plan had been granted as of August 16,
2006.
41
The following table summarizes the Company’s warrants:
Number
Of
Shares
Outstanding as of March 26, 2011 ...........................................................................................................
Exercised ...........................................................................................................................................
Outstanding as of March 31, 2012 ...........................................................................................................
17
(17)
-
Weighted
Average
Exercise
Price Per
Share
5.80
5.80
-
The aggregate intrinsic value of warrants exercised in fiscal year 2012 was $0.1 million. Cash received from the exercise of
warrants was less than $0.1 million in fiscal year 2012.
NOTE 7 – SEGMENT AND GEOGRAPHIC DATA
Transcat has two reportable segments: Distribution and Service. The accounting policies of the reportable segments are the
same as those described above in Note 1 of the Consolidated Financial Statements. The Company has no inter-segment
sales. The following table presents segment and geographic data for fiscal years 2013 and 2012:
Revenue:
Distribution ......................................................................................................................................... $ 71,641 $ 73,614
Service ................................................................................................................................................ 40,655 36,406
Total ................................................................................................................................................ 112,296 110,020
FY 2013 FY 2012
Gross Profit:
Distribution ......................................................................................................................................... 17,102 18,504
Service ................................................................................................................................................ 10,302
8,620
Total ................................................................................................................................................ 27,404 27,124
Operating Expenses:
Distribution (1) .................................................................................................................................... 12,467 12,901
Service (1) ...........................................................................................................................................
8,795
Total ................................................................................................................................................ 21,458 21,696
8,991
Operating Income (Loss):
Distribution (1) ....................................................................................................................................
Service (1) ...........................................................................................................................................
Total ................................................................................................................................................
Unallocated Amounts:
Interest and Other Expense, net ..........................................................................................................
Provision for Income Taxes ................................................................................................................
Total ................................................................................................................................................
4,635
1,311
5,946
5,603
(175)
5,428
228
2,014
2,242
182
1,944
2,126
Net Income ................................................................................................................................................. $
3,704 $
3,302
42
Total Assets:
Distribution .....................................................................................................................................
Service ............................................................................................................................................
Unallocated .....................................................................................................................................
Total ............................................................................................................................................
Depreciation and Amortization (2):
Distribution ....................................................................................................................................
Service ...........................................................................................................................................
Total ..........................................................................................................................................
Capital Expenditures:
Distribution ....................................................................................................................................
Service ...........................................................................................................................................
Total ..........................................................................................................................................
Geographic Data:
Revenues to Unaffiliated Customers (3):
United States (4) ........................................................................................................................
Canada .......................................................................................................................................
Other International.....................................................................................................................
Total .........................................................................................................................................
Long-Lived Assets:
United States (4) .............................................................................................................................
Canada ............................................................................................................................................
Total ...........................................................................................................................................
FY 2013 FY 2012
$ 25,932 $ 25,531
24,785 16,428
3,018
$ 55,047 $ 44,977
4,330
$
$
$
$
962 $
1,740
2,702 $
937
1,959
2,896
193 $
2,464
2,657 $
248
1,143
1,391
$101,850 $ 99,848
7,324
2,848
$112,296 $110,020
7,873
2,573
$
$
6,400 $
485
6,885 $
5,081
225
5,306
(1) Operating expense allocations between segments were based on actual amounts, a percentage of revenues,
headcount, and management’s estimates.
(2) Including amortization of catalog costs.
(3) Revenues are attributed to the countries based on the destination of a product shipment or the location where
service is rendered.
(4) United States includes Puerto Rico.
NOTE 8 – COMMITMENTS
Leases: Transcat leases facilities, equipment, and vehicles under non-cancelable operating leases. Total rental expense was
approximately $1.8 million in fiscal year 2013 and $1.6 million in fiscal year 2012. The minimum future annual rental
payments under the non-cancelable leases at March 30, 2013 are as follows (in millions):
Fiscal Year
2014 ............................................................................................................................................................................... $
2015 ...............................................................................................................................................................................
2016 ...............................................................................................................................................................................
2017 ...............................................................................................................................................................................
2018 ...............................................................................................................................................................................
Thereafter ......................................................................................................................................................................
Total minimum lease payments ..................................................................................................................................... $
1.6
1.3
1.1
0.9
0.6
0.9
6.4
43
NOTE 9 – BUSINESS ACQUISITIONS
The Company has engaged in a number of business acquisitions. During fiscal years 2013 and 2012, Transcat completed the
following:
On January 25, 2013, the Company, through Transmation (Canada) Inc., acquired 7506155 Canada Inc. and its
operating subsidiary, Cal-Matrix Metrology Inc. (collectively “Cal-Matrix”). Cal-Matrix is a provider of
commercial and accredited calibration and coordinate measurement inspection services to customers throughout
Canada and has locations in Burlington, Ontario and Montreal, Quebec.
On July 16, 2012, the Company, through Anacor Acquisition, acquired substantially all of the assets of Anacor
Compliance Services, Inc. (“Anacor”), a nationally recognized provider of specialized analytical, calibration,
validation and remediation services to the life science sector.
On September 8, 2011, the Company acquired the calibration services division of Newark Corporation
(“Newark”), a provider of calibration and repair services to customers located primarily in Arizona, Colorado and
Tennessee.
On April 5, 2011, the Company acquired substantially all of the assets of CMC Instrument Services, Inc.
(“CMC”), a Rochester, New York-based provider of dimensional calibration and repair services.
These transactions align with the Company’s acquisition strategy of targeting service businesses that expand the Company’s
geographic reach and leverage its infrastructure while also increasing the depth and breadth of the Company’s service
capabilities.
The acquisitions were accounted for using the acquisition method of accounting. Goodwill represents the excess of the
purchase price paid over the fair value of the underlying net assets of the businesses acquired. Other intangible assets, namely
customer base and covenants not to compete, represent an allocation of a portion of the purchase price to identifiable intangible
assets of the acquired businesses. Intangible assets are being amortized for financial reporting purposes on an accelerated basis
over the estimated useful life of up to 10 years. Goodwill and the intangible assets relating to the Anacor, Newark and CMC
acquisitions are deductible for tax purposes. Goodwill and the intangible assets relating to the Cal-Matrix acquisition are not
deductible for tax purposes.
The total purchase price paid for the businesses acquired in fiscal year 2013 was approximately $7.0 million. The following is
a summary of the purchase price allocation, in the aggregate, for the businesses acquired in fiscal year 2013:
Allocation of Purchase Price:
Goodwill.......................................................................................................................................................................... $
Intangible Assets – Customer Base ..........................................................................................................................
Intangible Assets – Covenants Not to Compete .......................................................................................................
Deferred Tax Liability .............................................................................................................................................
Plus: Current Assets ...............................................................................................................................................
Non-Current Assets ......................................................................................................................................
Less: Current Liabilities .........................................................................................................................................
Total Purchase Price ........................................................................................................................................................ $
4,234
1,493
569
(375)
5,921
1,184
331
(407)
7,029
The total purchase price paid for the businesses acquired in fiscal year 2012 was approximately $3.1 million, with $1.7 million
and $1.2 million allocated to goodwill and intangible assets, respectively. Acquisition costs of $0.4 million in fiscal year 2013
and $0.2 million in fiscal year 2012 were recorded as incurred as an administrative expense in the Consolidated Statement of
Operations.
The results of operations of the acquired businesses are included in Transcat’s consolidated operating results as of the date the
businesses were acquired. The following unaudited pro forma information presents the Company’s results of operations as if
the business acquisitions completed in fiscal year 2013 had occurred at the beginning of each period presented. The unaudited
pro forma information does not include the business acquisitions completed in fiscal year 2012 as the impact of those
44
acquisitions was not considered significant. The pro forma results do not purport to represent what the Company’s results of
operations actually would have been if the transactions set forth had occurred on the date indicated or what the Company’s
results of operations will be in future periods.
(Unaudited)
FY 2013 FY 2012
Total Revenue ....................................................................................................................................... $ 115,708 $ 115,783
Net Income ............................................................................................................................................ $
3,996
Basic Earnings Per Share ...................................................................................................................... $
0.55
Diluted Earnings Per Share ................................................................................................................... $
0.52
4,382 $
0.59 $
0.58 $
In connection with certain business acquisitions consummated prior to fiscal year 2012, the Company entered into earn out
agreements with the former owners of the acquired businesses. These agreements entitled the former owners to receive earn
out payments subject
the
agreements. Payments earned and recorded as compensation expense in the Consolidated Statements of Operations totaled
$0.1 million in fiscal year 2013 and $0.2 million in fiscal year 2012. There was no unpaid earn out consideration as of March
30, 2013.
to continued employment and certain post-closing financial
targets, as defined
in
Certain of the Company’s business acquisitions contain holdback provisions, as defined in the respective purchase
agreements. The Company accrues contingent consideration relating to the holdback provisions based on their estimated fair
value as of the date of acquisition. The Company paid less than $0.1 million in contingent consideration in each of the fiscal
years 2013 and 2012. There was no unpaid contingent consideration as of March 30, 2013.
NOTE 10 – QUARTERLY DATA (Unaudited)
The following table presents a summary of certain unaudited quarterly financial data for fiscal years 2013 and 2012:
Total
Revenues
Gross
Profit
Net
Income
Basic
Earnings
Per Share (a)
Diluted
Earnings
Per Share (a)
FY 2013:
Fourth Quarter ...................................................................... $ 31,087 $ 8,489 $ 1,816 $
782
Third Quarter .......................................................................
745
Second Quarter .....................................................................
361
First Quarter .........................................................................
29,324
26,788
25,097
6,630
6,078
6,207
FY 2012:
Fourth Quarter ...................................................................... $ 30,772 $ 7,885 $ 1 ,207 $
1,024
Third Quarter .......................................................................
746
Second Quarter .....................................................................
325
First Quarter .........................................................................
28,460
25,183
25,605
6,788
6,153
6,298
0.24 $
0.11
0.10
0.05
0.16 $
0.14
0.10
0.04
0.24
0.10
0.10
0.05
0.16
0.13
0.10
0.04
(a) Earnings per share calculations for each quarter include the weighted average effect of stock issuances and common stock
equivalents for the quarter; therefore, the sum of quarterly earnings per share amounts may not equal full-year earnings per
share amounts, which reflect the weighted average effect on an annual basis. Diluted earnings per share calculations for
each quarter include the effect of stock options, warrants and non-vested restricted stock units, when dilutive to the quarter.
In addition, basic earnings per share and diluted earnings per share may not add due to rounding.
45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. Our principal executive officer and
our principal financial officer evaluated our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) as of the end of the period covered by this annual report. Disclosure controls and procedures are designed to
ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s
rules and forms and that such information is accumulated and communicated to our principal executive officer and principal
financial officer to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive
officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of such date.
(b) Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for
establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles in the United States of America. In designing
and evaluating our internal control system, we recognize that any controls and procedures, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives and that the
effectiveness of any system has inherent limitations including, but not limited to, the possibility of human error and the
circumvention or overriding of controls and procedures. Management, including the principal executive officer and the
principal financial officer, is required to apply judgment in evaluating the cost-benefit relationship of possible controls and
procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected in a timely manner.
An evaluation was performed under the supervision and with the participation of our management, including the principal
executive officer and the principal financial officer, of the effectiveness of the design and operation of our procedures and
internal control over financial reporting using the framework and criteria established by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, our management, including the principal executive
officer and the principal financial officer, concluded that our internal control over financial reporting was effective in providing
reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external
purposes in accordance with generally accepted accounting principles as of March 30, 2013.
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal
control over financial reporting. Management’s report on internal control over financial reporting was not subject to attestation
by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit
us to provide only management’s report in this annual report.
(c) Changes in Internal Controls over Financial Reporting. There has been no change in our internal control over financial
reporting that occurred during the last fiscal quarter covered by this annual report (our fourth fiscal quarter) that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
46
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item 10 is incorporated herein by reference from our proxy statement for our 2013 Annual
Meeting of Shareholders under the headings “Election of Directors,” “Corporate Governance,” “Executive Officers” and
“Section 16(a) Beneficial Ownership Reporting Compliance,” which proxy statement will be filed pursuant to Regulation 14A
within 120 days after the March 30, 2013 fiscal year end.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated herein by reference from our proxy statement for our 2013 Annual
Meeting of Shareholders under the headings “Executive Compensation” and “Director Compensation,” which proxy statement
will be filed pursuant to Regulation 14A within 120 days after the March 30, 2013 fiscal year end.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
With the exception of the information presented in the table below, the information required by this Item 12 is incorporated
herein by reference from our proxy statement for our 2013 Annual Meeting of Shareholders under the headings “Security
Ownership of Certain Beneficial Owners” and “Security Ownership of Management,” which proxy statement will be filed
pursuant to Regulation 14A within 120 days after the March 30, 2013 fiscal year end.
Securities Authorized for Issuance Under Equity Compensation Plans as of March 30, 2013:
Equity Compensation Plan Information
(In Thousands, Except Per Share Amounts)
Plan category
Number of securities
remaining available
Number of securities
to be issued
Weighted average for future issuance under
equity compensation plans
(excluding securities
exercise price of
upon exercise of
outstanding options,
outstanding options,
warrants and rights warrants and rights reflected in column (a))
(b)
(c)
(a)
Equity compensation plans approved by security
holders ...........................................................
Equity compensation plans not approved by
security holders ..............................................
Total .......................................................
652(1) $
-
652
$
5.12
-
5.12
175
-
175
(1)
Includes performance-based restricted stock units granted to officers and key employees pursuant to our 2003 Incentive
Plan. See Note 6 of our Consolidated Financial Statements in Item 8 of Part II.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 is incorporated herein by reference from our proxy statement for our 2013 Annual
Meeting of Shareholders under the headings “Corporate Governance” and “Certain Relationships and Related Transactions,”
which proxy statement will be filed pursuant to Regulation 14A within 120 days after the March 30, 2013 fiscal year end.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 is incorporated herein by reference from our proxy statement for our 2013 Annual
Meeting of Shareholders under the heading “Ratification of Selection of Independent Registered Public Accounting Firm,”
which proxy statement will be filed pursuant to Regulation 14A within 120 days after the March 30, 2013 fiscal year end.
47
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) See Index to Financial Statements included in Item 8 of this report.
(b) Exhibits.
See Index to Exhibits contained in this report.
48
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date: June 26, 2013
TRANSCAT, INC.
/s/ Charles P. Hadeed
By: Charles P. Hadeed
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Date
June 26, 2013
June 26, 2013
June 26, 2013
June 26, 2013
June 26, 2013
June 26, 2013
June 26, 2013
June 26, 2013
June 26, 2013
June 26, 2013
Signature
/s/ Charles P. Hadeed
Charles P. Hadeed
/s/ John J. Zimmer
John J. Zimmer
/s/ Carl E. Sassano
Carl E. Sassano
/s/ Francis R. Bradley
Francis R. Bradley
/s/ Richard J. Harrison
Richard J. Harrison
/s/ Nancy D. Hessler
Nancy D. Hessler
/s/ Paul D. Moore
Paul D. Moore
/s/ Harvey J. Palmer
Harvey J. Palmer
/s/ Alan H. Resnick
Alan H. Resnick
/s/ John T. Smith
John T. Smith
Title
Director, Chief Executive Officer
(Principal Executive Officer)
Senior Vice President of Finance and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Chairman of the Board of Directors
Director
Director
Director
Director
Director
Director
Director
49
(3)
Articles of Incorporation and Bylaws
INDEX TO EXHIBITS
3.1
3.1
3.2
The Articles of Incorporation, as amended, are incorporated herein by reference from Exhibit 4(a) to the
Company’s Registration Statement on Form S-8 (Registration No. 33-61665) filed on August 8, 1995 and
from Exhibit 3(i) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30,
1999.
Certificate of Amendment to Articles is incorporated herein by reference from Exhibit 3.1 to the Company’s
Annual Report on Form 10-K for the year ended March 31, 2012.
Code of Regulations, as amended through October 26, 2009, are incorporated herein by reference from
Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 29, 2009.
(10)
Material contracts
#10.1 Transcat, Inc. 2003 Incentive Plan, as amended, is incorporated herein by reference from Appendix D to the
Company’s definitive proxy statement filed on July 10, 2006 in connection with the 2006 Annual Meeting
of Shareholders.
#10.2 Transcat, Inc. 2003 Incentive Plan, as Amended and Restated, is incorporated herein by reference from
Appendix A to the Company’s definitive proxy statement filed on July 22, 2011 in connection with the 2011
Annual Meeting of Shareholders.
#10.3 Form of Award Notice for Incentive Stock Options granted under the Transcat, Inc. 2003 Incentive Plan is
incorporated herein by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended December 25, 2004.
#10.4 Form of Award Notice for Restricted Stock granted under the Transcat, Inc. 2003 Incentive Plan is
incorporated herein by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended December 25, 2004.
#10.5 Form of Award Notice for Non-Qualified Stock Options granted under the Transcat, Inc. 2003 Incentive
Plan is incorporated herein by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-
Q for the quarter ended September 24, 2005.
#10.6 Form of Award Notice for Performance-Based Restricted Stock granted under the Transcat, Inc. 2003
Incentive Plan, as amended, is incorporated herein by reference from Exhibit 10.27 to the Company’s
Annual Report on Form 10-K for the fiscal year ended March 28, 2009.
*#10.7 Form of Performance-Based Restricted Stock Unit Award Notice granted under the Transcat, Inc. 2003
Incentive Plan, as Amended and Restated.
10.8 Credit Agreement dated as of November 21, 2006 by and between Transcat, Inc. and JPMorgan Chase
Bank, N.A. is incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form
8-K filed on November 28, 2006.
10.9 Amendment Number One to Credit Agreement dated as of August 14, 2008 between Transcat, Inc. and
JPMorgan Chase Bank, N.A. is incorporated herein by reference from Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 27, 2008.
10.10 Amendment No. 2 to Credit Agreement dated February 26, 2010 between Transcat, Inc. and JPMorgan
Chase Bank, N.A. is incorporated herein by reference from Exhibit 10.26 to the Company’s Annual Report
on Form 10-K for the year ended March 27, 2010.
50
10.11 Amendment Number Three to Credit Agreement dated as of January 15, 2011 between Transcat, Inc. and
JPMorgan Chase Bank, N.A. is incorporated herein by reference from Exhibit 10.22 to the Company’s
Annual Report on Form 10-K for the year ended March 26, 2011.
10.12 Credit Facility Agreement dated as of September 20, 2012 by and between Transcat, Inc. and Manufacturers
and Traders Trust Company is incorporated herein by reference from Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 29, 2012.
10.13 Master Security Agreement dated September 20, 2012 by and between Transcat, Inc., United Scale &
Engineering Corporation, WTT Real Estate Acquisition, LLC, Anacor Acquisition, LLC and Manufacturers
and Traders Trust Company is incorporated herein by reference from Exhibit 10.2 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 29, 2012.
10.14 Lease Addendum between Gallina Development Corporation and Transcat, Inc. dated June 2, 2008 is
incorporated herein by reference from Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended September 27, 2008.
#10.15 Transcat, Inc. Post-Retirement Benefit Plan for Officers (Amended and Restated Effective April 2, 2012) is
incorporated herein by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2012.
#10.16 Certain compensation information for Lee D. Rudow, Chief Operating Officer of the Company, is
incorporated herein by reference from the Company’s Current Report on Form 8-K filed on November 4,
2011.
#10.17 Certain compensation information for Lee D. Rudow, President and Chief Operating Officer of the
Company, is incorporated herein by reference from the Company’s Current Report on Form 8-K filed on
September 13, 2012.
10.18 Transcat, Inc. Executive Officer and Director Share Repurchase Plan is incorporated herein by reference
from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 4, 2011.
10.19 Transcat, Inc. 2009 Insider Stock Sales Plan, as amended is incorporated herein by reference from Exhibit
10.17 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2012.
#10.20 Agreement for Severance Upon Change in Control between Transcat, Inc. and Lee D. Rudow dated as of
May 7, 2012 is incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on May 11, 2012.
#10.21 Agreement for Severance Upon Change in Control between Transcat, Inc. and Charles P. Hadeed, as
amended and restated, dated as of May 7, 2012 is incorporated herein by reference from Exhibit 10.18 to the
Company’s Annual Report on Form 10-K for the year ended March 31, 2012.
*#10.22 Employment Agreement between the Company and Charles P. Hadeed dated as of April 1, 2013.
(11)
Statement re computation of per share earnings
Computation can be clearly determined from
Comprehensive Income included in this Form 10-K under Item 8.
the Consolidated Statements of Operations and
(16)
Letter re change in certifying accountant
16.1 Letter from BDO USA, LLP to the Securities and Exchange Commission dated September 19, 2011 is
incorporated herein by reference from the Company’s Current Report on Form 8-K filed on September 21,
2011.
(21)
Subsidiaries of the registrant
*21.1 Subsidiaries
51
(23)
Consents of experts and counsel
*23.1 Consent of Freed Maxick CPAs, P.C.
(31)
Rule 13a-14(a)/15d-14(a) Certifications
*31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32)
Section 1350 Certifications
*32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(101)
Interactive Data File
**101.INS XBRL Instance Document
**101.SCH XBRL Taxonomy Extension Schema Document
**101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
**101.DEF XBRL Taxonomy Extension Definition Linkbase Document
**101.LAB XBRL Taxonomy Extension Label Linkbase Document
**101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
_____________________________________
* Exhibit filed with this report.
# Management contract or compensatory plan or arrangement.
** Pursuant to Rule 406T of Regulation S-T, the information in this exhibit is deemed not filed or part of a
registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is
deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and
otherwise is not subject to liability under these sections.
52
Better by every measure.
Calibration
An industry recognized leader in providing quality, NVLAP Accredited calibration services. Operating over
18 locations across North America, Transcat delivers accurate and consistent calibrations from one of
our centers of excellence or at our client’s location.
Validation
Transcat instrument compliance experts help Life Science companies assess, develop and implement
validation protocols for laboratory and storage equipment. We work closely with clients of all sizes to
develop tailored qualification and validation protocols (IQ, OQ, PQ) for autoclaves, stability chambers,
ovens, refrigerators and other equipment.
Analytical
Transcat Analytical Services support a broad range of analytical instruments including HPLCs, UPLCs, GCs,
Dissolution and other laboratory equipment from the world’s leading manufacturers. Transcat provides
equipment qualification plans, tailored equipment qualification reports, summary reports, protocols and
flexible test specifications to accommodate standard operating procedures.
Risk Assessment & Remediation Consulting
Transcat Consulting and Remediation service restores compliance to manufacturing processes with a goal
of optimizing instrumentation and selection, calibration intervals, and service processes and procedures.
Critical analysis includes Out Of Tolerance (OOT) non-conformances, risk/measurement assurance, instrument
suitability and various elements relating to how calibration impacts the manufacturing process.
Instrument Distribution
Transcat offers a unique approach to their position as a leading distributor of Test, Measurement and Controls
Instruments by servicing the majority of products we distribute, including the ability to calibrate and test
instruments at the point of purchase. This gives Transcat an unparalleled understanding of the performance of
the instruments we sell, and the ability to detect problems before instruments reach our customers’ hands.
Final 2013 Annual Report.indd 3
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Better by every measure.
35 Vantage Point Drive, Rochester NY 14624
585-352-7777 • 800-828-1470 • Transcat.com
Boston, MA Charlotte, NC Dayton, OH Denver, CO Houston, TX Lincoln, MT Los Angeles, CA Nashville, TN
New Berlin, WI Philadelphia, PA Phoenix, AZ Portland, OR Rochester, NY San Juan, PR St. Louis, MO
Canada Locations: Ottawa Montreal Toronto
Final 2013 Annual Report.indd 4
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