2014 ANNUAL REPORT
Our Strategy
Transcat’s growth strategy is to leverage its
leading North American position in calibration
services and as a distributor of electronic
test and measurement equipment to capture
greater market share and consolidate the
highly fragmented calibration industry.
We are focused on providing our best in class
calibration capabilities to highly regulated
industries, particularly Life Science, which
in pharmaceuticals,
includes companies
medical devices and bioscience.
We also capitalize on our extensive product
offering and channels to market through our
Distribution segment to win new customer
opportunities.
Company Profile
Transcat, Inc. (NASDAQ: TRNS) is a leading provider of accredited
calibration, repair, inspection and compliance services, including
analytical instrument qualifications, equipment and process
validation and protocol development.
Targeted industries include life science, biotechnology, medical
device manufacturing, pharmaceutical and other FDA-regulated
industries, industrial manufacturing, energy and utilities, chemical
manufacturing and other industries that require accuracy in their
processes and confirmation of the capabilities of their equipment.
Throughout 18 strategically located centers of excellence in
the United States, Canada and Puerto Rico, Transcat performs
over 200,000 precise service events providing 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.
FIVE-YEAR PERFORMANCE HIGHLIGHTS
(in thousands, except per share data)
FY2014
Service segment
Distribution segment
Total revenue
Gross profit
Gross margin
Total operating expenses
Operating margin
Net income
Earnings per share – diluted
Weighted average shares – diluted
$ 48,184
70,324
118,508
29,790
25.1%
23,085
5.7%
3,984
$0.54
7,357
FY2013
$ 40,655
71,641
112,296
27,404
24.4%
21,458
5.3%
3,704
$0.49
7,592
FY2012
$ 36,406
73,614
110,020
27,124
24.7%
21,696
4.9%
3,302
$0.43
7,651
FY2011
$ 31,324
FY2010
$ 27,918
59,862
91,186
23,298
25.5%
18,711
5.0%
2,788
$0.37
7,521
53,143
81,061
19,294
23.8%
16,913
2.9%
1,451
$0.19
7,549
Adjusted EBITDA*
YEAR-END FINANCIAL POSITION
Total assets
$ 10,048
$ 53,874
Shareholders’ equity
Book value per share
30,083
$ 4.09
$ 8,880
$ 8,829
$ 7,083
$ 4,838
$ 55,047
31,650
$ 4.17
$ 44,977
27,378
$ 3.58
$ 41,360
23,329
$ 3.10
$ 35,713
20,257
$ 2.68
*See Adjusted EBITDA disclosure and reconciliation on corporate information page.
Dear Shareholders,
Energy and focus would be two words to describe fiscal 2014
for Transcat. We not only achieved our tenth consecutive year
of revenue growth, which expanded 5.5% to $118.5 million, we
invested in growing our Service segment by adding new sales
talent, broadening our addressable market and leveraging our
acquisitions. Service segment revenue continued to grow at
a double-digit rate, increasing nearly 19% during the year,
driven by a combination of organic and acquisition-related
growth. We had solid financial performance as well:
• Record operating and net income of $6.7 million and
$4.0 million, respectively
• Record adjusted EBITDA* of $10.0 million, up 13% from the prior year
• Strong cash generated from operations of $7.6 million
• Used available cash to repurchase approximately 800 thousand shares of
common stock in privately-negotiated transactions
Achieved
record
operating
income of
$6.7 Million
The year was not without its challenges, nonetheless. We were faced
with severe winter weather which affected both business segments.
We also dealt with softness in our alternative energy markets
throughout the year. This had an effect on our Distribution business,
which declined 1.8% to $70.3 million in fiscal 2014.
During the past fiscal year, we capitalized on the opportunity to
strengthen our sales leadership team, which was a critical undertaking
as we look to foster solid performance into the future. By leveraging
our most recent acquisitions, we have developed a strong organic
pipeline, and have advanced our position as the leading calibration
services provider in Canada. Our new field sales organization continues to focus on larger, enterprise
opportunities. Although these larger opportunities have extended sales cycles that can take years to
develop, we like the position we’re in as we enter fiscal 2015.
Growth Strategy Moves Service Segment Beyond Inflection Point
We continued to execute our strategic plan, a major component of
which calls for an acceleration of growth in our Service segment in
order to fully realize the inherent leverage in the business. In fiscal
2014, we achieved gross margin expansion of 130 basis points
in our Service segment as we moved beyond the inflection point
and segment operating income improved by 81.5% on 18.5%
revenue growth.
80+%
Service segment
operating
income
growth
*See Adjusted EBITDA disclosure and reconciliation on corporate information page.
Investments to Grow our Company
We are launching a brand new, state-of-the-art website that will
support both the Distribution and Service businesses. In addition,
we have rolled out a new and innovative online service interface
that manages our customers’ costs, controls and compliance
data. We have branded this service C3™, A Transcat Asset
Management Software interface. We have already begun
to gain customer confidence with the system and are winning
additional customers because of the value it provides for them.
C3™ Asset Management Software strengthens our value
proposition and, as it advances, will streamline our process for
servicing smaller, highly profitable transactional business.
10
consecutive
years of
revenue
growth
footprint, and unrelenting focus on quality create an ideal opportunity to achieve our goal of developing a
We plan to further allocate capital resources towards acquisitions. Although we did not complete any
portfolio of clients consisting of more integrated relationships with larger, enterprise accounts.
acquisitions during the past fiscal year, we have fully integrated our last two acquisitions. We expect to
be active again on the acquisition front as we look to strengthen our competitive position and grow the
business.
Leveraging the Distribution and Service Businesses
Outlook
We
continue
to build
momentum
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
We continue to believe double-digit growth in our Service segment
is attainable as we expand our addressable markets and achieve
strong organic sales growth. Additionally, as we move further
beyond the inflection point in our Service business, we expect
margins to expand and operating earnings to increase at a faster
While we anticipate little if any improvement in the current economic climate, we are confident that the
rate than revenue. Our more mature Distribution segment should
strong business fundamentals that exist within Transcat will continue to provide opportunities for growth
continue to provide solid cash flow, but market opportunities and
and increased profitability in the year ahead. We will continue to look to acquire businesses that fit
margin improvements are limited.
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.
We are especially excited about the Life Science industry, the prospects it presents for us and our ability to
move with agility and speed to gain market share. Overall, we are executing our plan and continue to build
momentum and position our Company to deliver strong results into the future.
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 Transcat.
On behalf of our Board and employees, thank you for your continued interest and investment in our great
company.
Sincerely,
Sincerely,
Lee D. Rudow
Lee D. Rudow
President and Chief Executive Officer
President and Chief Executive Officer
July 19, 2013
July 25, 2014
*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
Net Income
+ Interest Expense
+ Income Tax Provision
+ Depreciation & Amortization
$1.56
$0.10
$0.96
$1.90
2010
$1.45
$0.06
$0.83
$2.08
2011
2012
2013
$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
SEC FORM 10-K
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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 29, 2014
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 27, 2013 (the
last business day of the registrant’s most recently completed second fiscal quarter) was approximately $52 million. The market value
calculation was determined using the closing sale price of the registrant’s common stock on September 27, 2013, as reported on the
NASDAQ Global Market.
The number of shares of common stock of the registrant outstanding as of June 23, 2014 was 6,779,708.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement relating to the Annual Meeting of Shareholders to be held on September 9, 2014 have
been incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this report.
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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)
1-9
10-13
13
13
14
14
14
15
15-23
23-24
25-43
44
44
44
45
45
45
45
45
Part IV
Item 15.
Exhibits and Financial Statement Schedules .........................................................................................
Signatures ...............................................................................................................................................................
Index to Exhibits .........................................................................................................................................................
46
47
48-50
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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.
PART I
ITEM 1. BUSINESS
BUSINESS OVERVIEW
Transcat is a leading provider of accredited calibration and compliance services and distributor of professional grade handheld
test, measurement and control instrumentation. We are primarily focused on providing our services and products to the
following industries:
FDA-regulated (such as life-science, pharmaceutical, biotechnology and medical device manufacturing);
Industrial manufacturing;
Energy;
Chemical manufacturing; 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”). See Note 7 of our
Consolidated Financial Statements in this report for financial information for these segments. We concentrate on attracting
new customers in each segment and on cross-selling to existing customers to increase our total revenue. We serve
approximately 17,000 and 23,000 customers through our Service and Distribution segments, respectively, with over 25% of
those customers transacting with us through both of our business segments.
Through our Service segment, we offer calibration, compliance and other complimentary services. As of our fiscal year ended
March 29, 2014 (“fiscal year 2014”), we operated eighteen calibration service centers (“Calibration Centers of Excellence”)
strategically located across the United States, Puerto Rico, and Canada. All of our Calibration Centers of Excellence have
obtained ISO/IEC 17025 scopes of accreditation which are believed to be among the best in the industry. Our accreditations
are the cornerstone of our quality program, which we believe to be unequaled in the industry. Our dedication to quality is
highly valued by businesses that operate in the industries we serve, particularly those in FDA-regulated industries, and our
accreditations provide our customers with confidence that they will receive a consistent and uniform service regardless of
which of our eighteen Calibration Centers of Excellence completes the service.
Through our Distribution segment, we market and sell national and proprietary brand instruments to customers globally. Our
product catalog (“Master Catalog”) and website offer access to more than 100,000 test, measurement and control instruments,
including products from approximately 120 of the industry’s leading manufacturers including Fluke, Megger, GE, Emerson,
Agilent, FLIR and Rosemount. In addition, we are the exclusive worldwide distributor for Transmation and Altek
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 services 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 are many Fortune 500/Global 500 companies. Transcat has focused on serving the pharmaceutical and
other FDA-regulated industries, industrial manufacturing, energy and utility, chemical manufacturing and other industries since
our founding in 1964. We are a leading supplier of test, measurement and control instrumentation in the markets we
1
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®. In fiscal years 2012 through 2014, no
customer or controlled group of customers accounted for 10% or more of our total revenue. The loss of any single customer
would not have a material adverse effect on our business, cash flows, balance sheet, or results of operations.
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 primarily 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 execute this strategy by leveraging 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 our fiscal years ended March
30, 2013 (“fiscal year 2013”) and 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.
We completed no business acquisitions in fiscal year 2014.
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. Because our acquisition strategy is focused on
service businesses, and we expect the growth rate of our Service segment will 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 in-demand vendors and products and market them to our
existing and prospective customers. We have access to over 100,000 products through our vendor relationships with the goal
of servicing all of our customers’ test and measurement instrumentation needs.
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 a broad range of the best products and services, and integrating those products and services to
benefit our customers’ operations and lower their costs.
SEGMENTS
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 specifically 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
2
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 productivity and efficiency to optimal levels 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 perform approximately 200,000 calibrations annually and
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 other
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 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 project-based and 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.
During fiscal year 2014, services completed by our staff of highly-trained technicians represented 83% of our Service revenue
while approximately 15% 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 41% of our total revenue in fiscal
year 2014.
Strategy. Our Service segment provides periodic calibration services for our customers’ test and measurement
instruments. We specifically target companies and industries where quality calibrations are a critical operational component
and 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 multiple ways to manage a customer’s calibration and repair needs:
1)
2)
If a company wishes to outsource its calibration needs, we offer an “Integrated Calibration Services Solution” that
provides a complete wrap-around service, which can be delivered in the following ways:
permanent on-site - Transcat establishes and manages a calibration service program within a customer’s
facility;
depot services - services are performed in-house at one of our Calibration Centers of Excellence; and
scheduled on-site services - Transcat technicians travel to a customer’s location and provide bench-top or
in-line calibration services on predetermined service cycles.
If a company has an in-house calibration operation, we can provide:
calibration of primary standards; and
overflow capability, either on-site or at one of our Calibration Centers of Excellence, during periods of
high demand.
3
Inclusive with all these services, we provide total program management including logistical and consultation services when
needed.
We strive to provide 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.
CalTrak®. 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 and consistent calibration service while optimizing our own efficiencies. CalTrak® has been validated
to U.S. federal regulations 21 CFR 820.75 and 21 CFR 11, as applicable. This validation is important to the pharmaceutical and
other FDA-regulated industries where federal regulations can be particularly stringent.
Additionally, CalTrak® Online provides our customers with web-based asset management capability and a safe and secure off-
site archive of calibration and other service records that can be accessed 24 hours a day through our secure password-protected
website. Through CalTrak® and CalTrak® Online, each customer calibration is tracked and automatically cross-referenced to
the assets used to perform the calibration, providing traceability.
During fiscal year 2014, we made a significant capital investment in upgrading and redefining CalTrak® Online, focusing on
enhancing ease of use and customer self-serve ability. We expect the upgraded and redefined CalTrak® Online to further our
integration into our customers’ day-to-day work flow, specifically with enterprise customers, who generally have unique asset
management and/or service requirements. This new, mobile device compatible, version of CalTrak® Online will be branded as
Cost, Control and Compliance Management by Transcat (“C3”) and is expected to be launched in the second quarter of our
fiscal year ending March 28, 2015 (“fiscal year 2015”).
Marketing and Sales. Under our integrated sales model, we have both inside and outside sales teams that seek to acquire new
customers in our targeted markets. We also have a team of account managers, focused on servicing the needs of our 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 and other FDA-regulated industries, energy and utilities, and chemical manufacturing. 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
FY 2013
34%
28%
8%
7%
23%
100%
FY 2012
31%
27%
12%
8%
22%
100%
FY 2014
34%
29%
8%
7%
22%
100%
4
Competition. The calibration services 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 that have national or regional operations. 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 financially strong and larger than many of the small local and regional
competitors, the large OEMs are generally much larger than we are and may have 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
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 services to our customers in our target markets, our ISO/IEC 17025:2005
accreditations extend across many technical disciplines, including working-level and reference-level capabilities. We believe
our scope of accreditation to ISO/IEC 17025 to be the broadest for the industries we serve.
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 equipment 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 Master Catalog, supplemental catalogs, website, e-newsletters, and other sales and marketing
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.
5
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. We provide our customers with value added services including technical support, to insure our
customer receives the right product for their specific need through application knowledge and product compatibility, and the
option to have calibration service performed on their new product purchases prior to shipment. We also offer online
procurement, same day shipment of in-stock items, a variety of custom product offerings and training programs. Because of
the breadth of our product and service offerings, we are often a “one-stop shop” for our customers who gain operational
efficiency by dealing with just one distributor for most or all of their test and measurement instrumentation needs.
Our Distribution segment accounted for 59% of our total revenue in fiscal year 2014. 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 $1,900. 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 and other web-based advertising, proactive outbound sales, and an inbound call center. Our outbound
and inbound sales teams are staffed with technically trained personnel who are available to help guide product selection.
Alternately, customers may purchase products through our website at transcat.com. Our website serves as a sales channel for
our services and products, and provides product availability, detailed product information, ability to search products, demo
videos and downloadable product specification sheets.
Through our annual Master Catalog, periodic 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 2014, we circulated over 1.1 million pieces of direct marketing materials including catalogs, brochures,
supplements and other promotional materials. We also disseminated approximately 2.5 million e-newsletters to our existing
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.
As a result of strong relationships with our product vendors and our historical performance of effectively marketing, we have
the opportunity to carry out co-branded marketing initiatives, aimed at our existing customers and our prospective customer
base, for which we receive cooperative advertising income. These co-branded marketing initiatives typically feature specific
vendors, new products or targeted product categories and take the form of direct mailers, web-based initiatives or outbound
sales efforts.
Competition. The distribution market for industrial test and measurement instrumentation is quite fragmented and highly
competitive. Our competitors range from large national distributors and manufacturers that sell directly to customers to small
local distributors. In addition, web-based distributors 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.
In acknowledgement of growing competition from web-based distributors and the overall general trend of increased use of e-
commerce, we began a significant overhaul and redesign of our website in fiscal year 2014. Improvements made to our
website are focused around enhancing customer experience through ease of use, better browsing and search functions,
increased content capabilities and recommendations for complimentary products and services. Additionally, we are
redesigning our website to allow us greater flexibility and scalability and to enhance our ability to react quickly to changes in
the marketplace. We expect to launch our redesigned website during the second quarter of fiscal year 2015.
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 450 suppliers of brand name
and private-labeled equipment. In fiscal year 2014, our top 10 vendors accounted for approximately 66% of our aggregate
Distribution business. Approximately one-third 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 serve.
6
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.
Vendor Rebates. We have agreements with certain product vendors that allow for rebates based on meeting a specified
cumulative level of purchases and/or incremental distribution sales. These rebates 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.
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 2014, we shipped approximately 36,000 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 one of our Calibration Centers of Excellence 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.
The following graph shows the quarter-end trend of pending product shipments and backorders for fiscal years 2012 through
2014:
7
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;
Online at transcat.com.
Fax at 1-800-395-0543;
Telephone at 1-800-828-1470;
Email at sales@transcat.com; or
INFORMATION REGARDING EXPORT SALES
In fiscal years 2012 through 2014, approximately 10% of our total revenue resulted from sales to customers outside the United
States. Of those sales in fiscal year 2014, approximately 20% were denominated in U.S. dollars and the remaining 80% 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 and Note 7 of our Consolidated Financial
Statements in this report for further details.
INFORMATION SYSTEMS
We utilize a turnkey enterprise software solution from Infor, Inc. 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, Inc. SalesForce.com, Inc. is strategically partnered with Infor, Inc., which allowed us to fully
integrate the CRM software with our Infor enterprise software.
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.
INTELLECTUAL PROPERTY
We have federally registered trademarks for Transcat® and CalTrak®, which we consider to be of material importance to our
business. The registrations for these trademarks encompass multiple classes, and the registrations are in good standing with the
U.S. Patent & Trademark Office. Our CalTrak® trademark is also registered in Canada for one class with the Canada
Intellectual Property Office. Our trademark registrations must be renewed at various times and we intend to renew our
trademarks, as necessary, for the foreseeable future.
In addition, we own www.transcat.com. As with phone numbers, we do not have and cannot acquire any property rights to an
Internet address. The regulation of domain names in the United States and in other countries is also subject to change.
Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the
requirements for holding domain names. As a result, we might not be able to maintain our domain names or obtain comparable
domain names, which could harm our business.
8
SEASONALITY
We believe that our business has certain historical seasonal factors. Historically, our fiscal third and fourth quarters have been
stronger than our fiscal first and second quarters 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 2014, we had 407 employees, including 6 part-time employees, compared with 412 employees,
including 10 part-time employees, at the end of fiscal year 2013.
MANAGEMENT TEAM
The following table presents certain information regarding our management team, including our executive officers and certain
key employees as of March 29, 2014:
Name
Lee D. Rudow
John J. Zimmer
Charles P. Hadeed
Michael P. Craig
John P. Hennessy
Rainer Stellrecht
Jay F. Woychick
Scott D. Sutter
Robert A. Flack
Derek C. Hurlburt
Age
Position
49 President and Chief Executive Officer
55 Senior Vice President of Finance and Chief Financial Officer
64 Executive Chairman of the Board of Directors
60 Vice President of Human Resources
65 Vice President of Marketing
63 Vice President of Laboratory Operations
57 Vice President of Inside Sales
43 Vice President of Sales
44 Vice President of Business Development
45 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.
9
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 inventory to our Distribution segment 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
Distribution segment 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 Distribution segment business because the products we sell are often only available from one source. Any
limits to product access could materially and adversely affect our Distribution segment business.
Our future success may be affected by future indebtedness. Under our revolving credit facility, as of March 29, 2014, we
owed $7.6 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.
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 growth 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
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.
10
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 29, 2014.
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. 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 industries in which we compete are highly competitive, and we may not be able to compete successfully. Within our
Service segment, we provide calibration services and compete in an industry that is highly fragmented and is composed of
companies ranging from internationally recognized and accredited corporations to non-accredited, sole proprietors, resulting in
a tremendous range of service levels and capabilities. Also, within our Service segment, we provide compliance services and
compete in an industry that is comprised of both small local and regional service providers and large multi-national companies
who are also OEMs. Within our Service segment, some of our larger competitors may have broader service capabilities and
may have greater name recognition than us. Some manufacturers of the products we sell may also offer calibration and
compliance services for their products.
Within our Distribution segment, we compete with numerous companies, including several major manufacturers and
distributors. Most of our products are available from several sources and our customers tend to have relationships with several
distributors. Competitors in the distribution industry could also 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 each of the industries in which we compete, some of our competitors have greater financial and other resources than we do,
which could allow them to compete more successfully. In the future, we may be unable to compete successfully and
competitive pressures may reduce our sales.
Our Service segment has a high concentration of customers in the Pharmaceutical and other FDA-regulated and Industrial
Manufacturing Industries. Most of our Service segment customers operate in the pharmaceutical and other FDA-regulated or
industrial manufacturing industries. This concentration of our customer base affects our overall risk profile, since a significant
portion of our customers will be similarly affected by changes in economic, political, regulatory, and other industry conditions.
We anticipate that our Service segment will continue to grow and comprise a greater percentage of our total revenue, which
will increase our exposure to fluctuations in the pharmaceutical and other FDA-regulated or industrial manufacturing
industries. An abrupt or unforeseen change in conditions in these industries could adversely affect customer demand for our
services, which could have a material adverse affect on our financial results.
11
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 management
information systems fail to adequately perform these functions, experience an interruption in their operation or a security
breach, 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. Our management information systems
are vulnerable to damage or interruption from computer viruses or hackers, natural or man-made disasters, vandalism, terrorist
attacks, power loss, or other computer systems, internet, telecommunications or data network failures. Any such interruptions
to our management information systems 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 security breaches. Our security measures or those of our third-party service
providers may fail to detect or prevent such security breaches. Security breaches could result in the unauthorized publication
of our confidential business or proprietary information, the unauthorized release of customer, vendor, or employee data and
payment information, the violation of privacy or other laws, and the exposure to litigation, any of which could harm our
business and results of operations.
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 and highly-skilled service technicians as well as maintaining
existing 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 and skilled service
technicians 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.
As a "smaller reporting company" we are not required to comply with the auditor attestation requirement under Section
404(b) of the Sarbanes-Oxley Act, which may cause investors to have less confidence in our internal control over financial
reporting. The auditor attestation requirement under Section 404(b) of the Sarbanes-Oxley Act provides that a public
company's independent auditor must attest to and report on management's internal control over financial reporting. Because
we qualify as a "smaller reporting company" under the applicable SEC regulation, we are not required to comply with the
auditor attestation requirement. The lack of an auditor attestation concerning management's internal control over financial
reporting may cause investors to have less confidence in our internal control over financial reporting and increases the risk that
any material weakness or other deficiencies in our internal controls will not be detected.
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 may decline.
12
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;
Repurchases of our common stock on the open market or in privately-negotiated transactions;
Our ability to satisfy our debt obligations.
Period-to-period fluctuations in our operating results; and
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
The following table presents our leased properties as of March 29, 2014:
Property
Location
Corporate Headquarters, Distribution Center and Calibration Service Center
Calibration Service Center
Calibration Service Center
Calibration Service Center
Calibration Service Center
Calibration Service Center
Calibration Service Center
Calibration Service Center
Calibration Service Center
Calibration Service Center (1)
Calibration Service Center
Calibration Service Center
Calibration Service Center
Calibration Service Center
Calibration Service Center and Distribution Center
Calibration Service Center
Calibration Service Center
United Scale & Engineering:
Service Center
Service Center and Warehouse
Service Center and Warehouse
(1)
Property owned by the Company
Approximate
Square Footage
37,250
4,000
4,000
14,152
4,860
10,800
9,000
19,441
10,333
5,406
1,443
6,000
3,990
4,169
12,600
1,560
4,400
Rochester, NY
Anaheim, CA
Boston, MA
Burlington, ON
Charlotte, NC
Cherry Hill, NJ
Dayton, OH
Denver, CO
Houston, TX
Lincoln, MT
Montreal, QC
Nashville, TN
Ottawa, ON
Tempe, AZ
Portland, OR
San Juan, PR
St. Louis, MO
Green Bay, WI
Madison, WI
Milwaukee, WI
3,320
6,000
16,000
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.
13
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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 23, 2014, we had
approximately 541 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 2014 and 2013:
Second Third Fourth
First
Quarter Quarter Quarter Quarter
Fiscal Year 2014:
High
Low
Fiscal Year 2013:
High
Low
$
$
$
$
7.60 $
5.73 $
8.81 $
6.41 $
8.96 $
7.48 $
9.85
7.65
13.40 $
6.23 $
7.00 $
5.30 $
7.70 $
5.12 $
7.10
5.73
DIVIDENDS
We have not declared any cash dividends since our inception and have no current plans to pay any dividends in the foreseeable
future.
ISSUER PURCHASES OF EQUITY SECURITIES
(a)
(b)
Total
Number
of Shares
Purchased
Price Paid
per Share
(c)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (1)
(d)
Maximum Number (or
Approximate Dollar Value)
of Shares that May Yet Be
Purchased Under the Plans
or Programs (1)
Date
February 17, 2014
6,283 (2)
$9.20 (2)
-
-
(1)
(2)
We have an Executive Officer and Director Share Repurchase Plan (the “Plan”), which allows us to repurchase shares
of our common stock from certain of our executive officers and directors, subject to certain conditions and limitations.
The purchase price is determined by the weighted average closing price per share of our common stock on the
NASDAQ Global Market over the twenty (20) trading days following our acceptance of the repurchase request and
may not be more than 15% higher than the closing price on the last day of the twenty (20) trading day period. We may
purchase shares of our common stock pursuant to the Plan on a continuous basis, but we may not expend more than
$1.0 million in any fiscal year to repurchase the shares. Our board of directors may terminate the Plan at any time. No
shares were repurchased under the Plan in the fourth quarter of fiscal year 2014.
These shares were repurchased from a director of the Company in accordance with the Transcat, Inc. 2003 Incentive
Plan and in connection with the exercise of an option where the exercise price was paid with common stock that the
director otherwise owned.
14
ITEM 6. SELECTED FINANCIAL DATA
The following table provides selected financial data for fiscal year 2014 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.
March 29,
2014
For the Fiscal Years Ended
March 31,
2012
March 26,
2011
March 30,
2013
March 28,
2010
Statements of Income Data:
Total Revenue
Total Cost of Revenue
Gross Profit
Operating Expenses
Operating Income
Interest and Other Expense, net
Income Before Income Taxes
Provision for Income Taxes
Net Income
Share Data:
Basic Earnings Per Share
Basic Average Shares Outstanding
Diluted Earnings Per Share
Diluted Average Shares Outstanding
Closing Price Per Share
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
$ 118,508 $ 112,296 $ 110,020 $ 91,186 $
67,888
23,298
18,711
4,587
105
4,482
1,694
2,788 $
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 $
88,718
29,790
23,085
6,705
259
6,446
2,462
3,984 $
$
81,061
61,767
19,294
16,913
2,381
98
2,283
832
1,451
$
$
$
0.56 $
7,080
0.54 $
7,357
9.28 $
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
March 29,
2014
As of or for the Fiscal Years Ended
March 26,
March 31,
March 30,
2011
2012
2013
March 28,
2010
$
6,181 $
7,089
20,035
53,874
2,945
1,961
7,593
30,083
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
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 the wide range of disciplines and the investment in 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.
15
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 professional grade
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 our performance 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 2014, the following factors should be taken into account:
Fiscal year 2014 operating results include a full year of operations from Anacor and Cal-Matrix.
Fiscal year 2013 operating results included 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 2014 was $118.5 million, a 5.5% increase compared with total revenue of $112.3 million for fiscal
year 2013. Service revenue increased 18.5% to $48.2 million, or 40.7% of total revenue, in fiscal year 2014. Of our Service
revenue in fiscal year 2014, 83.0% was generated by our Calibration Centers of Excellence while 14.9% was generated through
subcontracted third party vendors, compared with 82.1.% and 15.5%, respectively, in fiscal year 2013. The balance of Service
revenue was associated with other charges.
Distribution sales decreased 1.8% to $70.3 million, or 59.3% of total revenue, in fiscal year 2014. Sales to domestic customers
comprised 91.0% of total Distribution sales in fiscal year 2014, while 6.0% were to Canadian customers and 3.0% were to
customers in other international markets.
Gross margin for fiscal year 2014 was 25.1%, a 70 basis point increase compared with gross margin of 24.4% in fiscal year
2013. Service gross margin increased to 26.6% in fiscal year 2014 compared with 25.3% in fiscal year 2013, while Distribution
gross margin increased to 24.1% in fiscal year 2014 compared with 23.9% in fiscal year 2013.
Operating expenses were $23.1 million, or 19.4% of total revenue, in fiscal year 2014 compared with $21.5 million, or 19.1%
of total revenue, in fiscal year 2013. Operating income was $6.7 million in fiscal year 2014 compared with $5.9 million in
fiscal year 2013.
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, fair value of stock options, 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.
16
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.
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:
Machinery, Equipment, and Software
Furniture and Fixtures
Leasehold Improvements
Buildings
Years
2 – 15
3 – 10
2 – 10
39
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
29, 2014 and March 30, 2013.
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.
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 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.
17
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.
Stock 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.
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
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 2014 and 2013, the components of our Consolidated Statements of Income.
Gross Profit Percentage:
Distribution Gross Profit
Service Gross Profit
Total Gross Profit
As a Percentage of Total Revenue:
Distribution Sales
Service Revenue
Total Revenue
Selling, Marketing and Warehouse Expenses
Administrative Expenses
Total Operating Expenses
Operating Income
Interest and Other Expense, net
Income Before Income Taxes
Provision for Income Taxes
Net Income
FY 2014
FY 2013
24.1%
26.6%
25.1%
23.9%
25.3%
24.4%
59.3%
40.7%
100.0%
63.8%
36.2%
100.0%
11.8%
7.6%
19.4%
11.6%
7.5%
19.1%
5.7%
5.3%
0.2%
0.2%
5.5%
2.1%
3.4%
5.1%
1.8%
3.3%
18
FISCAL YEAR ENDED MARCH 29, 2014 COMPARED TO FISCAL YEAR ENDED MARCH 30, 2013 (dollars in
thousands):
Revenue:
For the Years Ended
March 29, March 30,
Change
2014
2013
$
%
Revenue:
Distribution
Service
Total
$
70,324 $
48,184
71,641 $ (1,317)
7,529
40,655
6,212
$ 118,508 $ 112,296 $
(1.8%)
18.5%
5.5%
Total revenue increased $6.2 million, or 5.5%, from fiscal year 2013 to fiscal year 2014.
Service revenue, which accounted for 40.7% and 36.2% of our total revenue in fiscal years 2014 and 2013, respectively,
increased 18.5% from fiscal year 2013 to fiscal year 2014. This increase was due to business acquisitions and organic growth.
Organic revenue growth was experienced across all the key industries that we serve and was driven by strong retention of
existing customers as well as the expansion of our customer base resulting from business development activities.
Our fiscal years 2014 and 2013 Service revenue growth in relation to prior fiscal year quarter comparisons, were as follows:
Service Revenue Growth
10.3 %
16.5%
16.6%
34.4%
14.1%
8.9%
19.8%
3.7%
FY 2014
FY 2013
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Within any year, while we add new customers, we also have customers from the prior year whose service orders may not
repeat for any number of factors. Among those factors are variations in the timing of periodic calibrations and other services,
customer capital expenditures and customer outsourcing decisions. Because the timing of Service segment orders 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. The following table presents the Service revenue for the trailing twelve months for each quarter in fiscal years 2014
and 2013:
FY 2014
FY 2013
Q4
Q3 Q2 Q1 Q4 Q3
Q2 Q1
Service Revenue for
Trailing Twelve Months
$ 48,184 $ 46,926
$ 45,294 $ 43,662 $ 40,655 $ 39,147 $ 38,341
$ 36,715
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 continually evaluate our outsourcing needs and make capital
investments, as deemed necessary, to add more in-house capabilities and reduce the need for third party vendors. The
following table presents the source of our Service revenue and the percentage of Service revenue derived from each source for
each quarter during fiscal years 2014 and 2013:
Percent of Service Revenue:
Depot/Onsite
Outsourced
Freight Billed to
Customers
FY 2014
FY 2013
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
83.4 %
14.5 %
82.7%
15.3%
81.9%
15.9%
83.7%
14.2%
83.7%
14.1%
82.3%
15.3%
82.6%
14.9%
79.1%
18.3%
2.1 %
2.6%
100.0 % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
2.1%
2.2%
2.4%
2.5%
2.2%
2.0%
19
Our Distribution sales accounted for 59.3% and 63.8% of our total revenue in fiscal years 2014 and 2013, respectively. Year-
over-year, Distribution sales decreased $1.3 million, or 1.8%. This decline was primarily due to reduced sales to the
challenged wind energy industry. Our fiscal years 2014 and 2013 Distribution sales (decline) growth in relation to prior fiscal
year quarter comparisons were as follows:
FY 2014
FY 2013
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Distribution Sales (Decline)
Growth
(10.3 %)
(2.3%)
2.7%
3.7%
(5.9%)
0.3%
(0.1%)
(4.8%)
Distribution sales per business day decreased slightly to $280 thousand in fiscal year 2014, compared with $287 thousand in
fiscal year 2013. Our Distribution sales per business day for each fiscal quarter during the fiscal years 2014 and 2013 are as
follows:
FY 2014
FY 2013
Q4
Q3 Q2 Q1 Q4 Q3
Q2 Q1
Distribution Sales Per
Business Day
$
265 $
311 $
281 $
265 $
300 $
319 $
269 $
260
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 decreased $0.5 million, or 17.3%, at the end of fiscal year 2014 compared to the balance at the end of fiscal year
2013. Reduced backorders was the primary driver of this year-over-year decrease. 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 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 2014
and 2013 and our historical trend of total pending product shipments:
FY 2014
FY 2013
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
$ 2,455 $ 2,861 $ 3,438 $ 3,433 $ 2,968 $ 2,826 $ 2,365 $ 2,806
69.1%
71.2%
63.8%
68.7% 71.9%
69.6%
68.6%
68.8%
Total Pending Product
Shipments
% of Pending Product Shipments
that are Backorders
Gross Profit:
For the Years Ended
March 29, March 30,
Change
2014
2013
$
%
$
$
12,825 $
16,965
29,790 $
10,302 $
17,102
27,404 $
2,523
(137)
2,386
24.5%
(0.8%)
8.7%
Gross Profit:
Service
Distribution
Total
Total gross profit in fiscal year 2014 increased by $2.4 million, or 8.7%, from fiscal year 2013. As a percentage of total
revenue, total gross margin increased 70 basis points over the same time period.
20
Service gross profit increased $2.5 million, or 24.5%, from fiscal year 2013 to fiscal year 2014. Service gross margin
increased 130 basis points from fiscal year 2013 to fiscal year 2014, 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
31.4 %
23.4%
23.6%
27.2%
31.3%
21.5%
23.9%
22.9%
FY 2014
FY 2013
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
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 2014 was 24.1%, a 20 basis point improvement when compared with 23.9% in
fiscal year 2013. Distribution gross profit decreased $0.1 million in fiscal year 2014 compared to fiscal year 2013. The
decrease resulted from lower sales volume and increased price discounts extended to customers, partially offset by increases in
vendor rebates and 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 2014
FY 2013
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
20.4 %
19.7%
20.2%
20.5%
20.8%
21.2%
21.5%
22.7%
25.9 %
23.4%
23.6%
23.7%
24.7%
23.2%
22.0%
25.7%
(1)
(2)
Channel gross margin is calculated as net sales less purchase costs divided by net sales.
Includes vendor rebates, cooperative advertising income, freight billed to customers, freight expenses, and direct
shipping costs.
Operating Expenses:
For the Years Ended
March 29, March 30,
Change
2014
2013
$
%
Operating Expenses:
Selling, Marketing and Warehouse
Administrative
Total
$
$
14,039 $
9,046
23,085 $
13,001 $
8,457
21,458 $
1,038
589
1,627
8.0%
7.0%
7.6%
Operating expenses increased $1.6 million, or 7.6%, from fiscal year 2013 to fiscal year 2014. As a percentage of total
revenue, operating expenses increased from 19.1% in fiscal year 2013 to 19.4% in fiscal year 2014, reflecting business
development investments to drive organic growth within our Service segment and increased performance based compensation.
Taxes:
For the Years Ended
March 29, March 30,
Change
2014
2013
$
%
Provision for Income Taxes
$
2,462 $
2,014 $
448
22.2%
Our effective tax rates for fiscal years 2014 and 2013 were 38.2% and 35.2%, respectively. The increase largely reflects a
change in the mix of taxable income between the U.S. and Canada.
21
LIQUIDITY AND CAPITAL RESOURCES
Through our credit agreement (the “Credit Agreement”), which matures in September 2015, we have a revolving credit facility
in the amount of $20.0 million (the “Revolving Credit Facility”). As of March 29, 2014, $7.6 million was outstanding under
the Revolving Credit Facility and included in long-term debt on the Consolidated Balance Sheet.
The Credit Agreement has certain covenants with which we have to comply, including a fixed charge ratio covenant and a
leverage ratio covenant. On October 4, 2013, we repurchased 0.7 million shares of our common stock for $5.6 million. This
repurchase was funded by a borrowing from our Revolving Credit Facility. In conjunction with this borrowing, we obtained
from our bank a letter allowing the repurchase to be excluded from certain financial covenant provisions under the Credit
Agreement. As a result, we were in compliance with all loan covenants and requirements throughout fiscal year 2014.
We believe that amounts available under our Revolving 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.
Cash Flows. The following table is a summary of our Consolidated Statements of Cash Flows (dollars in thousands):
Cash Provided by (Used in):
Operating Activities
Investing Activities
Financing Activities
For the Years Ended
March 29, March 30,
2014
2013
$
7,612 $
(1,712)
(6,588)
5,241
(9,686)
4,772
Operating Activities: Cash provided by operating activities for fiscal year 2014 was $7.6 million compared to $5.2 million in
fiscal year 2013. Significant working capital fluctuations were as follows:
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 2013 to fiscal year 2014:
Net Sales, for the last two fiscal months
Accounts Receivable, net
Days Sales Outstanding
March 29,
2014
22,831 $
15,663 $
41
March 30,
2013
22,984
15,411
40
$
$
Inventory/Accounts Payable: Our inventory balance at March 29, 2014 was $6.2 million, a decrease of $0.6 million
when compared to $6.8 million on-hand at March 30, 2013. Our inventory strategy includes making appropriate
larger quantity, high dollar purchases from 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.
Accrued Compensation and Other Liabilities: Accrued Compensation and Other Liabilities include, among other
things, amounts to be paid to employees for profit sharing and performance-based management bonuses. At the end
of any particular period, the amounts accrued for profit sharing and performance-based management bonuses may
vary due to many factors including, but not limited to, changes in expected performance levels, the performance
measurement period, and timing of payments to employees. During fiscal year 2013, $1.3 million was paid for
performance-based management bonuses and $0.6 was paid for profit sharing, compared with $0.5 million paid for
performance-based management bonuses and no payments for profit sharing in fiscal year 2014.
Investing Activities: During fiscal year 2014, we invested $2.0 million in capital expenditures, compared with $2.7 million in
fiscal year 2013, primarily on additional Service segment capabilities and development of customer facing software. In
addition, during fiscal year 2014, we received $0.2 million from the sale of property and equipment. During fiscal year 2013,
we invested $7.0 million in business acquisitions.
22
Financing Activities: During fiscal year 2014, we used $6.6 million for financing activities, including $6.5 million to
repurchase shares of common stock. 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 $0.1 million from the net issuance of common stock.
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
Revolving Line of Credit (1)
Operating Leases
$
Total Contractual Cash Obligations
$
- $
1.6
1.6 $
7.6 $
2.5
10.1 $
- $
1.8
1.8 $
Total
- $
0.6
0.6 $
7.6
6.5
14.1
Less Than
1-3
3-5
1 Year
Years
Years
More Than
5 Years
(1) Due to the uncertainty of forecasting expected variable rate interest payments, this amount excludes the
interest portion of our debt obligation.
OUTLOOK
Fiscal year 2014 revenue and gross margin continued to expand as a result of the strong execution of our strategic operating
plan. We expect to continue to grow our Service segment revenue at a double digit rate, driven by our expanded addressable
market and strong organic sales growth.
On the capital allocation front, strategic acquisitions will play an important role as we look to further our competitive
position. In addition, we expect to spend between $3.0 million and $3.5 million on capital expenditures in fiscal year 2015 to
support our online initiatives and to expand Service segment capacity and capabilities.
Our Distribution business is expected to continue to face challenges in the year ahead, including likely reductions in rebate
incentives, but we expect a rebound in alternative energy markets in fiscal year 2015.
Having surpassed the inflection point in our Service segment, we expect Service segment operating income to grow at a faster
rate than Service revenue, further demonstrating the inherent leverage of our business model. As we continue to grow this
segment, we expect Service segment operating revenue to become a larger contributor to our overall financial performance,
which we believe will more than offset the potential impact of the challenges faced in the Distribution segment on our
consolidated financial results.
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 29, 2014, $20.0 million was available under our credit facility, of which $7.6 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 at 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 29, 2014, the one-month
LIBOR was 0.2%. Our interest rate for fiscal year 2014 ranged from 1.1% to 1.7%. On March 29, 2014, we had no hedging
arrangements in place to limit our exposure to upward movements in interest rates.
FOREIGN CURRENCY
Over 90% of our total revenues for fiscal years 2014 and 2013 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.
23
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 net change in the fair value of the contracts,
which totaled a gain of $0.4 million in fiscal year 2014 and a gain of less than $0.1 in fiscal year 2013, was recognized as a
component of other expense in the Consolidated Statements of Income. 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 29, 2014,
we had a foreign exchange contract, which matured in April 2014, outstanding in the notional amount of $4.8 million. We do
not use hedging arrangements for speculative purposes.
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Page(s)
Report of Independent Registered Public Accounting Firm...............................................................................................
26
Consolidated Financial Statements:
Statements of Income for the Years Ended March 29, 2014 and March 30, 2013 ...................................................
Statements of Comprehensive Income for the Years Ended March 29, 2014 and March 30, 2013 .........................
Balance Sheets as of March 29, 2014 and March 30, 2013 .....................................................................................
Statements of Cash Flows for the Years Ended March 29, 2014 and March 30, 2013 ............................................
Statements of Shareholders’ Equity for the Years Ended March 29, 2014 and March 30, 2013 .............................
27
28
29
30
31
Notes to Consolidated Financial Statements ............................................................................................................
32-43
25
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 29, 2014 and March 30, 2013 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 29, 2014 and March 30, 2013, 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, 2014
26
TRANSCAT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
Distribution Sales
Service Revenue
Total Revenue
Cost of Distribution Sales
Cost of Services Sold
Total Cost of Revenue
Gross Profit
Selling, Marketing and Warehouse Expenses
Administrative Expenses
Total Operating Expenses
Operating Income
Interest and Other Expense, net
Income Before Income Taxes
Provision for Income Taxes
Net Income
Basic Earnings Per Share
Average Shares Outstanding
Diluted Earnings Per Share
Average Shares Outstanding
For the Years Ended
March 29,
2014
March 30,
2013
70,324 $
48,184
118,508
53,359
35,359
88,718
71,641
40,655
112,296
54,539
30,353
84,892
29,790
27,404
14,039
9,046
23,085
13,001
8,457
21,458
6,705
5,946
259
6,446
2,462
3,984 $
0.56 $
7,080
0.54 $
7,357
228
5,718
2,014
3,704
0.50
7,404
0.49
7,592
$
$
$
$
See accompanying notes to consolidated financial statements.
27
TRANSCAT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
For the Years Ended
March 29,
2014
March 30,
2013
Net Income
$
3,984 $
3,704
Other Comprehensive Income (Loss):
Currency Translation Adjustment
Unrecognized Prior Service Cost, net of tax
Unrealized Gain on Other Asset, net of tax
(6)
64
28
86
2
1
30
33
Comprehensive Income
$
4,070 $
3,737
See accompanying notes to consolidated financial statements.
28
TRANSCAT, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)
ASSETS
Current Assets:
Cash
Accounts Receivable, less allowance for doubtful accounts of $82 and $118 as of March 29,
2014 and March 30, 2013, 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
Total Assets
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
Shareholders' Equity:
Common Stock, par value $0.50 per share, 30,000,000 shares authorized; 6,716,350 and
7,423,507 shares issued and outstanding as of March 29, 2014 and March 30, 2013,
respectively
Capital in Excess of Par Value
Accumulated Other Comprehensive Income
Retained Earnings
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
See accompanying notes to consolidated financial statements.
March 29,
2014
March 30,
2013
$
23 $
406
15,663
1,088
6,181
1,180
1,396
25,531
7,089
17,384
2,651
1,219
$ 53,874 $
15,411
977
6,803
1,134
1,087
25,818
6,885
17,592
3,691
1,061
55,047
$
7,132 $
5,690
1,035
13,857
7,593
607
1,734
23,791
8,883
3,979
465
13,327
8,017
551
1,502
23,397
3,358
11,387
567
14,771
30,083
$ 53,874 $
3,712
10,616
481
16,841
31,650
55,047
29
TRANSCAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Cash Flows from Operating Activities:
Net Income
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Gain on Disposal of Property and Equipment
Deferred Income Taxes
Depreciation and Amortization
Provision for Accounts Receivable and Inventory Reserves
Stock-Based Compensation Expense
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
Proceeds from Sale of Property and Equipment
Business Acquisitions, net of cash acquired
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
(Repayment of) Proceeds from 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 (Used in) Provided by Financing Activities
Effect of Exchange Rate Changes on Cash
Net (Decrease) Increase in Cash
Cash at Beginning of Fiscal Year
Cash at End of Fiscal Year
Supplemental Disclosures of Cash Flow Activity:
Cash paid during the fiscal year for:
Interest
Income Taxes, net
For the Years Ended
March 30,
March 29,
2013
2014
$
3,984 $
3,704
(34)
(310)
2,945
1
527
(424)
681
(623)
(1,751)
2,047
569
7,612
-
43
2,702
162
343
(842)
(294)
(914)
1,389
(1,070)
18
5,241
(1,961)
249
-
(1,712)
(2,657)
-
(7,029)
(9,686)
(424)
-
317
(6,482)
1
(6,588)
305
(383)
406
23 $
4,652
(72)
239
(110)
63
4,772
47
374
32
406
$
$
$
121 $
2,189 $
118
1,890
See accompanying notes to consolidated financial statements.
30
TRANSCAT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In Thousands)
Common Stock
Issued
Accum-
Capital ulated
Other
Excess Compre-
In
$0.50 Par Value of Par hensive Retained
Shares Amount Value Income Earnings Shares Amount Total
Treasury Stock
Outstanding
at Cost
Balance as of March 31, 2012
Issuance of Common Stock
Retirement of Treasury Stock
Repurchase of Common Stock
Stock-Based Compensation
Tax Benefit from Stock-Based
Compensation
Other Comprehensive Gain
Net Income
Balance as of March 30, 2013
Issuance of Common Stock
Repurchase of Common Stock
Stock-Based Compensation
Tax Benefit from Stock-Based
Compensation
Other Comprehensive Gain
Net Income
7,840 $ 3,920 $ 10,810 $
216
(763)
(27)
317
23
(249)
(8)
26
46
(498)
(16)
52
448 $ 14,394
(1,182)
(75)
(499) 2,194
499 $ (2,194) $ 27,378
239
-
(110)
343
63
33
3,704
7,424
72
(810)
30
3,712 10,616
281
(23)
512
36
(405)
15
481 16,841
-
(6,054)
1
86
3,984
63
33
3,704
- 31,650
317
(6,482)
527
1
86
3,984
Balance as of March 29, 2014
6,716 $ 3,358 $ 11,387 $
567 $ 14,771
- $
- $ 30,083
See accompanying notes to consolidated financial statements.
31
TRANSCAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share and Per Unit 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 the life science, biotechnology, medical device, pharmaceutical and other FDA-regulated
industries, industrial manufacturing, energy and utilities, chemical manufacturing, 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, fair value of stock options, 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 years ended
March 29, 2014 (“fiscal year 2014”) and March 30, 2013 (“fiscal year 2013”) consisted of 52 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 29, 2014 and March 30, 2013, the Company had reserves
for inventory losses totaling $0.4 million and $0.5 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:
Machinery, Equipment and Software
Furniture and Fixtures
Leasehold Improvements
Buildings
Years
2 – 15
3 – 10
2 – 10
39
32
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.
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 29, 2014 and March 30, 2013. A summary of changes in the Company’s goodwill and intangible assets
is as follows:
Goodwill
Intangible Assets
Net Book Value as of March 31, 2012
Additions (see Note 9)
Amortization
Currency Translation Adjustment
Net Book Value as of March 30, 2013
Amortization
Currency Translation Adjustment
Net Book Value as of March 29, 2014
$
Distribution Service Total
$
8,031 $
-
-
-
8,031
-
-
8,031 $
5,359 $ 13,390 $
4,234
4,234
-
-
(32)
(32)
9,561 17,592
-
-
(208)
(208)
9,353 $ 17,384 $
Distribution Service Total
-
(239)
-
485
(167)
-
724 $ 1,725 $
2,062
(563)
(18)
3,206
(743)
(130)
318 $ 2,333 $
2,449
2,062
(802)
(18)
3,691
(910)
(130)
2,651
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 $0.7 million in the fiscal year ending March 28, 2015
(“fiscal year 2015”), $0.6 million in fiscal year 2016, $0.5 million in fiscal year 2017, $0.3 million in fiscal year 2018 and $0.2
million in fiscal year 2019.
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 29, 2014 and March 30, 2013.
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.
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 29, 2014 and March 30, 2013, investment assets totaled $0.8 million and $0.6 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 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
33
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 2014 and 2013, the Company recorded non-cash stock-
based compensation cost in the amount of $0.5 million and $0.3 million, respectively, in the Consolidated Statements of
Income.
The estimated fair value of options granted in fiscal year 2014 were calculated using the Black-Scholes-Merton pricing model
(“Black-Scholes”), which produced a weighted average fair value of $4.05 per share. During fiscal year 2013, the Company
did not grant any stock options.
The following are the weighted average assumptions used in the Black-Scholes model:
Expected term (years)
Annualized volatility rate
Risk-free rate of return
Dividend rate
FY 2014
6
57.6%
1.6%
0.0%
The Black-Scholes model incorporates assumptions to value stock-based awards. The risk-free rate of return for periods within
the contractual life of the award was based on a zero-coupon U.S. government instrument over the contractual term of the
equity instrument. Expected volatility was based on historical volatility of the Company’s stock. The expected option term
represented the period that stock-based awards are expected to be outstanding based on the simplified method, which averages
an award's weighted-average vesting period and expected term for "plain vanilla" share options. Options are considered to be
"plain vanilla" if they have the following basic characteristics: granted "at-the-money"; exercisability is conditioned upon
service through the vesting date; termination of service prior to vesting results in forfeiture; limited exercise period following
termination of service; and options are non-transferable and non-hedgeable. The Company will continue to use the simplified
method until it has the historical data necessary to provide a reasonable estimate of expected life.
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 generally based on specified cumulative level of purchases and/or 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. The Company recorded vendor rebates of $2.1 million and $1.3 million
in fiscal years 2014 and 2013, respectively.
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 consideration in the amount of $1.9 million
and $1.8 million in fiscal years 2014 and 2013, respectively.
Shipping and Handling Costs: Freight expense and direct shipping costs are included in the cost of revenue. These costs
totaled approximately $1.8 million in each of the fiscal years 2014 and 2013. 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. Direct handling costs were $0.8 million in each of the
fiscal years ended March 29, 2014 and March 30, 2013.
Foreign Currency Translation and Transactions: The accounts of Transmation (Canada) Inc. 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.
34
Transcat records foreign currency gains and losses on Canadian business transactions. The net foreign currency loss was $0.1
million for fiscal year 2014 and less than $0.1 million for fiscal year 2013. 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 net change in the fair value of the contracts, which totaled a gain of $0.4
million in fiscal year 2014 and a gain of less than $0.1 million in fiscal year 2013, was recognized as a component of other
expense in the Consolidated Statements of Income. 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 29, 2014, the
Company had a foreign exchange contract, which matured in April 2014, outstanding in the notional amount of $4.8
million. 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 29, 2014, accumulated
other comprehensive income consisted of cumulative currency translation gains of $0.6 million, unrecognized prior service
costs, net of tax, of $0.1 million and an unrealized gain on other assets, net of tax, of $0.1 million. 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.
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 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 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 2014 and 2013, the net additional common stock equivalents had a $.02 and $.01 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
For the Years Ended
March 30,
March 29,
2013
2014
7,080
277
7,357
10
7,404
188
7,592
464
Shareholders’ Equity: During fiscal year 2014, the Company repurchased and subsequently retired 0.8 million shares of its
common stock, including 0.7 million shares purchased from an unaffiliated shareholder in a privately-negotiated transaction for
$5.6 million.
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.
NOTE 2 – PROPERTY AND EQUIPMENT
Property and equipment consist of:
Machinery, Equipment and Software
Furniture and Fixtures
Leasehold Improvements
Buildings and Land
Total Property and Equipment
Less: Accumulated Depreciation and Amortization
Total Property and Equipment, net
$
March 29,
2014
23,226 $
2,096
1,689
500
27,511
(20,422)
7,089 $
March 30,
2013
21,661
2,065
1,544
675
25,945
(19,060)
6,885
$
Total depreciation and amortization expense relating to property and equipment amounted to $1.5 million in fiscal year 2014
and $1.4 million in fiscal year 2013.
35
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. As of March 29, 2014, $7.6 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 29, 2014 was 0.2%. The Company’s interest rate for fiscal year 2014 ranged from 1.1% to 1.7%.
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 throughout fiscal year 2014.
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 Income is as follows:
United States
Foreign
Total
The net provision for income taxes for fiscal years 2014 and 2013 is as follows:
FY 2014 FY 2013
6,188
$
(470)
5,718
6,642 $
(196)
6,446 $
$
Current Tax Provision:
Federal
State
Deferred Tax (Benefit) Provision:
Federal
State
Provision for Income Taxes
FY 2014 FY 2013
$
2,415 $
357
2,772
1,701
270
1,971
(277)
(33)
(310)
2,462 $
113
(70)
43
2,014
$
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 Income is as follows:
FY 2014 FY 2013
1,944
$
229
(159)
2,014
2,192 $
258
12
2,462 $
$
Federal Income Tax at Statutory Rate
State Income Taxes, net of Federal benefit
Other, net
Total
36
The components of the net deferred tax assets (liabilities) are as follows:
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
Other
Total Non-Current Deferred Tax Liabilities
March 29,
2014
March 30,
2013
$
366 $
809
221
1,396
333
483
271
1,087
(1,334)
(971)
816
630
252
(607)
(1,449)
(777)
780
556
339
(551)
Net Deferred Tax Assets
$
789 $
536
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. As of March 29, 2014, the Company has net operating loss
carry forwards, relating to its foreign subsidiary, of $0.7 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 2010 and prior, state tax authorities for the
fiscal years 2008 and prior, and by Canadian tax authorities for the fiscal years 2006 and prior. During the first quarter of
fiscal year 2015, the Internal Revenue Service (the “IRS”) notified the Company that it will be examining the Company’s U.S.
federal income tax return for the tax year ended March 30, 2013. To date, the IRS has not proposed any adjustments to the tax
return under examination. There are no tax years currently under examination by state or Canadian tax authorities.
During fiscal years 2014 and 2013, 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 2014 and 2013 or were accrued at March 29, 2014 and March 30, 2013.
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 $0.4 million and $0.5 million in fiscal years 2014 and 2013, respectively.
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 2014 and 2013.
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 fiscal year 2014, the Company did not match any employee contributions, and in fiscal
year 2013, 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
37
liability for compensation deferred under the NQDC Plan was $0.8 million as of March 29, 2014 and $0.6 million as of March
30, 2013 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 change in the postretirement benefit obligation is as follows:
Postretirement benefit obligation, at beginning of fiscal year
Service cost
Interest cost
Benefits paid
Actuarial (gain) loss
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 2014 FY 2013
780
887 $
$
59
32
41
38
(68)
(29)
75
(46)
887
882
-
-
(887)
(882) $
$
Accumulated postretirement benefit obligation, at end of fiscal year
$
882 $
887
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:
FY 2014 FY 2013
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
$
32 $
38
58
128
(58)
(46)
(104)
24 $
59
41
58
158
(58)
58
-
158
Amount recognized in accumulated other comprehensive income, at end of fiscal year:
Unrecognized prior service cost
$
154 $
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 2015 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 postretirement benefit cost were as follows:
Weighted average discount rate
Medical care cost trend rate:
Trend rate assumed for next year
Ultimate trend rate
Year that rate reaches ultimate trend rate
Dental care cost trend rate:
March 29,
2014
4.5%
March 30,
2013
4.5%
8.0%
5.0%
2022
8.0%
5.0%
2021
Trend rate assumed for next year and remaining at that level thereafter
5.0%
5.0%
38
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
2015
2016
2017
2018
2019
Thereafter
Amount
$
39
68
54
47
64
610
Increasing the assumed health care cost trend rate by one percentage point would increase the accumulated postretirement
benefit obligation and the annual net periodic postretirement benefit 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
postretirement benefit cost by $0.1 million.
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 29, 2014, the number of shares available for future grant under the 2003 Plan totaled 1.5 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 following table summarizes the performance-based restricted stock units vested and shares issued during fiscal years 2013
and 2014:
Date
Granted
April 2009
April 2010
Measurement
Period
April 2009 - March 2012
April 2010 - March 2013
Total
Number
of Units
Granted
70
37
$
$
Grant Date
Fair
Value
Per Unit
5.00
7.00
Target
Level
Achieved
75%
75%
Number
of
Shares
Issued
52
28
Date
Shares
Issued
May 2012
May 2013
The following table summarizes the non-vested performance-based restricted stock units outstanding as of March 29, 2014:
Date
Granted
April 2011
April 2012
April 2013
Measurement
Period
April 2011 - March 2014 (1)
April 2012 - March 2015
April 2013 - March 2016
Total
Number
of Units
Granted
37
24
102
$
$
$
Grant Date
Fair
Value
Per Unit
8.44
13.11
6.17
Estimated
Probability of
Achievement at
March 29, 2014
114% of target level
100% of target level
100% of target level
(1)
Transcat achieved 114% of the target level. As a result, 42 shares were issued in May 2014.
Total expense relating to performance-based restricted stock units, based on grant date fair value and the achievement criteria,
was $0.4 million in fiscal year 2014 and $0.3 million in fiscal year 2013. Unearned compensation totaled $0.5 million as of
March 29, 2014.
39
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 2014 and 2013:
Number
of
Shares
Weighted
Average
Exercise
Price Per
Share
5.94
3.08
6.57
6.02
7.64
3.04
4.93
6.58
6.38
Weighted
Average
Remaining
Contractual
Term (in Years)
Aggregate
Intrinsic
Value
4
3
$
1,645
1,474
597 $
(21)
(22)
554
110
(52)
(3)
609
509
Outstanding as of March 31, 2012
Exercised
Forfeited
Outstanding as of March 30, 2013
Granted
Exercised
Forfeited
Outstanding as of March 29, 2014
Exercisable as of March 29, 2014
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 2014 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 29, 2014. 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 29, 2014 was $0.4 million, which is
expected to be recognized over a weighted average period of two years. The aggregate intrinsic value of stock options
exercised in fiscal years 2014 and 2013 was $0.3 million and less than $0.1 million, respectively. Cash received from the
exercise of options in fiscal year 2014 was $0.2 million and was less than $0.1 million in fiscal year 2013.
40
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 2014 and 2013:
Revenue:
Distribution
Service
Total
Gross Profit:
Distribution
Service
Total
Operating Expenses:
Distribution (1)
Service (1)
Total
Operating Income:
Distribution
Service
Total
Unallocated Amounts:
Interest and Other Expense, net
Provision for Income Taxes
Total
Net Income
Total Assets:
Distribution
Service
Unallocated
Total
Depreciation and Amortization (2):
Distribution
Service
Total
Capital Expenditures:
Distribution
Service
Total
FY 2014 FY 2013
$ 70,324 $ 71,641
40,655
118,508 112,296
48,184
16,965
12,825
29,790
17,102
10,302
27,404
12,639
10,446
23,085
12,467
8,991
21,458
4,326
2,379
6,705
4,635
1,311
5,946
259
2,462
2,721
228
2,014
2,242
$
3,984 $
3,704
$ 24,715
24,902
4,257
$ 53,874
$ 25,932
24,785
4,330
$ 55,047
$
$
$
$
801
2,144
2,945
$
$
962
1,740
2,702
441
1,520
1,961
$
$
193
2,464
2,657
41
Geographic Data:
Revenues to Unaffiliated Customers (3):
FY 2014 FY 2013
United States (4)
Canada
Other International
Total
Long-Lived Assets:
United States (4)
Canada
Total
$ 107,007
9,235
2,266
$ 118,508
$ 101,850
7,873
2,573
$ 112,296
$
$
6,635
454
7,089
$
$
6,400
485
6,885
(1)
(2)
(3)
(4)
Operating expense allocations between segments were based on actual amounts, a percentage of revenues, headcount,
and management’s estimates.
Including amortization of catalog costs.
Revenues are attributed to the countries based on the destination of a product shipment or the location where service is
rendered.
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 $2.0 million in fiscal year 2014 and $1.8 million in fiscal year 2013. The minimum future annual rental
payments under the non-cancelable leases at March 29, 2014 are as follows (in millions):
Fiscal Year
2015
2016
2017
2018
2019
Thereafter
Total minimum lease payments
$
$
1.6
1.4
1.1
1.0
0.8
0.6
6.5
NOTE 9 – BUSINESS ACQUISITIONS
The Company has engaged in a number of business acquisitions. During fiscal year 2013, 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.
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 acquisition are
deductible for tax purposes. Goodwill and the intangible assets relating to the Cal-Matrix acquisition are not deductible for tax
purposes.
42
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
Acquisition costs of $0.4 million in fiscal year 2013 were recorded as incurred as an administrative expense in the
Consolidated Statement of Income.
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 the fiscal year.
Total Revenue
Net Income
Basic Earnings Per Share
Diluted Earnings Per Share
(Unaudited)
FY 2013
$
$
$
$
115,708
4,382
0.59
0.58
NOTE 10 – QUARTERLY DATA (Unaudited)
The following table presents a summary of certain unaudited quarterly financial data for fiscal years 2014 and 2013:
Total
Revenues
Gross
Profit
Net
Income
Basic
Earnings
Per Share (a)
Diluted
Earnings
Per Share (a)
FY 2014:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
$ 30,403 $ 8,617 $ 1,704 $
788
30,513
771
28,882
721
28,710
7,138
6,821
7,214
FY 2013:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
$ 31,087 $ 8,489 $ 1,816 $
782
29,324
745
26,788
361
25,097
6,630
6,078
6,207
0.25 $
0.11
0.10
0.10
0.24 $
0.11
0.10
0.05
0.24
0.11
0.10
0.09
0.24
0.10
0.10
0.05
(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 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.
43
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 our principal
executive officer and our 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 in 1992. Based on this evaluation, our management, including our principal
executive officer and our 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 29, 2014.
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 for smaller
reporting companies that permit us to provide only management’s report in this annual report.
(c) Changes in Internal Control 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.
44
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 2014 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 29, 2014 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 2014 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 29, 2014 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 2014 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 29, 2014 fiscal year end.
Securities Authorized for Issuance Under Equity Compensation Plans as of March 29, 2014:
Equity Compensation Plan Information
(In Thousands, Except Per Share Amounts)
Number of securities
to be issued
upon exercise of
outstanding options,
warrants and rights
(a)
Weighted average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
remaining available
for future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
771(1) $
-
771
$
6.58 (2)
-
6.58
1,473
-
1,473
Plan category
Equity compensation plans
approved by security holders
Equity compensation plans
not approved by security holders
Total
(1)
(2)
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.
Does not include restricted stock units.
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 2014 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 29, 2014 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 2014 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 29, 2014 fiscal year end.
45
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
(b)
See Index to Financial Statements included in Item 8 of Part II of this report.
Exhibits.
See Index to Exhibits contained in this report.
46
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, 2014
TRANSCAT, INC.
/s/ Lee D. Rudow
By: Lee D. Rudow
President and 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
Signature
Title
President and Chief Executive Officer
(Principal Executive Officer)
Senior Vice President of Finance and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Executive Chairman of the Board of Directors
Director
Director
Director
Director
Director
Director
Director
Director
June 26, 2014
June 26, 2014
June 26, 2014
June 26, 2014
June 26, 2014
June 26, 2014
June 26, 2014
June 26, 2014
June 26, 2014
June 26, 2014
June 26, 2014
/s/ Lee D. Rudow
Lee D. Rudow
/s/ John J. Zimmer
John J. Zimmer
/s/ Charles P. Hadeed
Charles P. Hadeed
/s/ Francis R. Bradley
Francis R. Bradley
/s/ Richard J. Harrison
Richard J. Harrison
/s/ Paul D. Moore
Paul D. Moore
/s/ Harvey J. Palmer
Harvey J. Palmer
/s/ Angela J. Panzarella
Angela J. Panzarella
/s/ Alan H. Resnick
Alan H. Resnick
/s/ Carl E. Sassano
Carl E. Sassano
/s/ John T. Smith
John T. Smith
47
(3) Articles of Incorporation and Bylaws
INDEX TO EXHIBITS
3.1
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.
3.1
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.
3.2
Code of Regulations, as amended through May 5, 2014, are incorporated herein by reference from Exhibit 3.1 to
the Company’s Current Report on Form 8-K filed on May 5, 2014.
(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
Amendment No. 1 to the Transcat, Inc. 2003 Incentive Plan, as Amended and Restated, is incorporated herein by
reference from Appendix B to the Company's definitive proxy statement filed on July 26, 2013 in connection
with the 2013 Annual Meeting of Shareholders.
#10.4
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.
#10.5
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.
#10.6
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.
#10.7
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 year ended March 28, 2009.
#10.8
Form of Performance-Based Restricted Stock Unit Award Notice granted under the Transcat, Inc. 2003 Incentive
Plan, as Amended and Restated is incorporated by reference from Exhibit 10.7 to the Company’s Annual Report
on Form 10-K for the year ended March 30, 2013.
10.9
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.
10.10 Letter from Manufacturers and Traders Trust Company to the Company, dated October 7, 2013, regarding the
exclusion of payments made to repurchase stock from certain financial covenant provisions under the Credit
Facility Agreement with the Company dated as of September 20, 2012 is incorporated herein by reference from
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 28, 2013.
48
10.11 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.
10.12 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.
#10.13 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.
#10.14 Certain compensation information for Lee D. Rudow, President and Chief Executive Officer of the Company, is
incorporated herein by reference from the Company’s Current Report on Form 8-K filed on April 5, 2013.
#10.15 Certain compensation information for Lee D. Rudow, President and Chief Executive Officer of the Company, is
incorporated herein by reference from the Company's Current Report on Form 8-K filed on September 13, 2013.
10.16 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.
10.17 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.
#10.18 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.
#10.19 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.
#10.20 Employment Agreement between the Company and Charles P. Hadeed dated as of April 1, 2013 is incorporated
by reference from Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the year ended March 30,
2013.
(11) Statement re computation of per share earnings
Computation can be clearly determined from the Consolidated Statements of Income and Comprehensive Income
included in this Form 10-K under Part II, Item 8.
(21) Subsidiaries of the registrant
*21.1
Subsidiaries
(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
49
(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.
50
Corporate Information
Stock Exchange Listing
NasdaqGM: TRNS
2014 Annual Meeting
The 2014 Annual Meeting of Shareholders will be
held on Tuesday, September 9, 2014 at 12:00 Noon,
Eastern Time, at our corporate headquarters, which
are located at:
35 Vantage Point Drive
Rochester, New York 14624
Investor Relations
John J. Zimmer, Chief Financial Officer
(585) 352-7777
jzimmer@transcat.com
Deborah K. Pawlowski
Kei Advisors LLC
(716) 843-3908
dpawlowski@keiadvisors.com
Transfer Agent
Computershare
Additional information about us is available on our
website at: Transcat.com
Information on our website is not a part of this Annual Report.
First Class/Registered/Certified Mail:
P.O. Box 30170
College Station, TX 77842-3170
Independent Registered Public Accounting Firm
Freed Maxick CPAs, P.C.
Buffalo, New York
Courier Services:
211 Quality Circle, Suite 210
College Station, TX 77845
Corporate Counsel
Harter Secrest & Emery LLP
Rochester, New York
Shareholder Services:
(800) 622-6757 (US, Canada, Puerto Rico)
(781) 575-4735 (non-US)
computershare.com/investor
Adjusted EBITDA*
Service Operating Income
+Depreciation & Amortization
+Other (Expense) / Income
+Noncash Stock Compensation
Adjusted Service EBITDA
$94
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
$2,379
($175)
$2,144
$1,959
($141)
($37)
$230
$263
$4,612
$2,010
$192
$1,136 $1,377
-
$202
$1,486 $1,771
$1,311
$1,740
($84)
$150
$3,117
-
$256
Distribution Operating Income
+Depreciation & Amortization
+Other (Expense) / Income
+Noncash Stock Compensation
Adjusted Distribution EBITDA
$2,287 $4,395
$673
-
$226
$3,352 $5,312
$742
-
$323
$5,603
$937
($11)
$290
$6,819
$4,635
$962
($27)
$193
$5,763
$4,326
$801
$12
$297
$5,436
Service
Distribution
Total Adjusted EBITDA
$1,486 $1,771
$3,352 $5,312
$4,838 $7,083
$2,010
$6,819
$8,829
$3,117
$4,612
$5,436
$5,763
$8,880 $10,048
*The Company believes that when used in conjunction with GAAP
measures, Adjusted EBITDA, or earnings before interest, income taxes
and depreciation and amortization, and non-cash stock compensation
expense, 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.
Adjusted EBITDA is not calculated through the application of GAAP
and is not the required form of disclosure by the Securities and
Exchange Commission. As such, it should not be considered as a
substitute for the GAAP measure of net income and, therefore, should
not be used in isolation of, but in conjunction with, the GAAP measure.
The use of any non-GAAP measure may produce results that vary
from the GAAP measure and may not be comparable to a similarly
defined non-GAAP measure used by other companies. The Adjusted
EBITDA chart excludes unallocated amounts of $0.2 million for
FY 2010 and $0.2 million for FY 2011. These amounts include
previously unallocated administrative-related depreciation,
amortization and other non-operating expense. These items
have been allocated by segment beginning in FY 2012.
Board of
Directors
Charles P. Hadeed
Chairman of the Board
Retired Chief Executive Officer, Transcat, Inc.
Francis R. Bradley 3
Retired, Founding Global Business Manager,
E.I. DuPont de Nemours & Co., Inc.
Richard J. Harrison 1*, 2
Executive Vice President and Chief Operating Officer
Five Star Bank
Paul D. Moore 1
Retired Senior Vice President, M&T Bank Corporation
Harvey J. Palmer, Ph.D 1
Dean, Kate Gleason College of Engineering
Rochester Institute of Technology
Executive
Management
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
Robert A. Flack
Vice President of Business Development
John P. Hennessy
Vice President of Marketing
Rainer Stellrecht
Vice President of Laboratory Operations
Angela J. Panzarella 3
President, ACM Medical Laboratory, Inc.
Scott D. Sutter
Vice President of Sales
Alan H. Resnick 2, 3
President, Janal Capital Management LLC
Jay F. Woychick
Vice President of Inside Sales
Carl E. Sassano 2*, 3*
Retired Chief Executive Officer, Transcat, Inc.
John T. Smith 1
Chairman and Chief Executive Officer,
Brite Computers, Inc.
1 - Audit Committee
2 - Corporate Governance and Nominating Committee
3 - Compensation Committee
*Committee Chair
For over 50 years Transcat has dedicated itself to
the science of accuracy and risk mitigation.
CALIBRATION
An industry recognized leader in providing quality, NVLAP Accredited
calibration services. Operating laboratory locations across North America,
Transcat delivers accurate and consistent calibrations from any of our
centers of excellence or at a client’s location.
VALIDATION & ANALYTICAL SERVICES
Transcat Instrument Compliance experts help Life Science companies
assess, develop and implement validation protocols for laboratory and
storage equipment. Transcat Analytical Qualification Services support
a broad range of analytical instruments.
CONSULTATION & REMEDIATION
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.
INSTRUMENT DISTRIBUTION
Transcat offers a unique approach to our position as a leading distributor
of test, measurement and control instruments by supporting inventoried
lines with the ability to calibrate and test instruments at the point of sale
while offering repair and rental services for these products.
Financial Performance
e
u
n
e
v
e
R
Revenue ($ in millions)
$91.2
$31.3
$81.0
$27.9
$53.1
$59.9
$110.0
$112.3
$118.5
$36.4
$40.7
$48.2
$73.6
$71.6
$70.3
Adjusted EBITDA* ($ in millions)
$8.8
$2.0
$6.8
$7.1
$1.8
$5.3
$4.9
$1.5
$3.4
E
B
I
T
D
A
$10.0
$4.6
$8.9
$3.1
$5.8
$5.4
FY 2010
FY 2011
FY 2012
FY 2013
FY 2014
FY 2010
FY 2011
FY 2012
FY 2013
FY 2014
Distribution
Service
Distribution
Service
*See Adjusted EBITDA disclosure and reconciliation on corporate information page.
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