TRANSCAT INC
10-Ks and 10-Qs
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-K
| (Mark one) | ||||
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
|
For the fiscal year
ended: March 27,
2010
|
||||
|
or
|
||||
| o | 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 | 16-0874418 | |
|
(State or other jurisdiction of
incorporation or organization) |
(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 | Name of each exchange on which registered | |
| Common Stock, $0.50 par value | NASDAQ Capital Market |
Securities
registered pursuant to section 12(g) of the Act:
None
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
o
No
þ
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
o
No
þ
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
þ
No
o
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
o
No
o
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.
o
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. (Check one):
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes
o
No
þ
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant on
September 25, 2009 (the last business day of the
registrant’s most recently completed second fiscal quarter)
was approximately $38 million. The market value calculation
was determined using the closing sale price of the
registrant’s Common Stock on September 25, 2009, as
reported on the NASDAQ Capital Market.
The number of shares of Common Stock of the registrant
outstanding as of June 16, 2010 was 7,290,108.
DOCUMENTS
INCORPORATED BY REFERENCE
The information required by Part III, Items 10, 11,
12, 13 and 14 of this report, to the extent not set forth
herein, is incorporated herein by reference from the
registrant’s definitive proxy statement relating to the
Annual Meeting of Shareholders to be held on September 14,
2010, which definitive proxy statement will be filed with the
Securities and Exchange Commission within 120 days of the
end of the fiscal year to which this report relates.
TABLE OF
CONTENTS
Table of Contents
| ITEM 1. | BUSINESS |
FORWARD-LOOKING
STATEMENTS
This report and, in particular, the Management’s
Discussion and Analysis of Financial Condition and Results of
Operations section of this report, contains forward-looking
statements as defined by the Private Securities Litigation
Reform Act of 1995. These include statements concerning
expectations, estimates, and projections about the industry,
management beliefs and assumptions of Transcat, Inc.
(“Transcat”, “we”, “us”, or
“our”). Words such as “anticipates”,
“expects”, “intends”, “plans”,
“believes”, “seeks”, “estimates”,
and variations of such words and similar expressions are
intended to identify such forward-looking statements. These
statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are
difficult to forecast, including, among other things, the risks
and uncertainties identified by us below under “Risk
Factors” in Item IA of Part I of this report.
Therefore, our actual results and outcomes may materially differ
from those expressed or forecast in any such forward-looking
statements. We undertake no obligation to publicly update any
forward-looking statements, whether as a result of new
information, future events or otherwise.
BUSINESS
OVERVIEW
Transcat is a leading global distributor of professional grade
handheld test and measurement instruments and accredited
provider of calibration, repair and weighing system services. We
are primarily focused on providing our products and services to
the following markets:
| • | The pharmaceutical industry and FDA-regulated (such as food and beverage) businesses; | |
| • | Industrial manufacturing companies; | |
| • | The energy industry and power, natural gas and water utility companies; | |
| • | The chemical process industry; and | |
| • | Other industries which require accuracy in their processes and confirmation of the capabilities of their equipment. |
We conduct our business through two segments: distribution
products (“distribution products” or
“Product”) and calibration services (“calibration
services” or “Service”).
Through our distribution products segment, we market and
distribute national and proprietary brand instruments to
approximately 14,000 global customers. Our product catalog
(“Master Catalog”) offers access to more than 25,000
test and measurement instruments, including calibrators,
insulation testers, multimeters, pressure and temperature
devices, oscilloscopes, recorders and related accessories. These
products are available from over 300 of the industry’s
leading manufacturers including Fluke, GE, Emerson, and Hart
Scientific. In addition, we are the exclusive worldwide
distributor for Transmation and Altek products. The majority of
the instrumentation we sell requires expert calibration service
to ensure that it maintains the most precise measurements.
Through our accredited calibration services segment, we offer
precise, reliable, fast calibration, repair and weighting system
services. As of our fiscal year ended March 27, 2010
(“fiscal year 2010”), we operated twelve calibration
laboratories (“Calibration Centers of Excellence”)
strategically located across the United States, Puerto Rico, and
Canada servicing approximately 9,200 customers. In addition, our
recent acquisition of United Scale & Engineering
Corporation has also provided entry into both the distribution
and service segments of the industrial scales and weighing
systems marketplace in the Wisconsin, Northern Illinois and
Upper Michigan areas. Each of our Calibration Centers of
Excellence is ISO-9001:2000 registered and our scope of
accreditation to ISO/IEC 17025 is believed to be one of the
broadest in the industry. Our accreditation meets many
international levels of quality, consistency and reliability.
See “Calibration Services Segment — Quality”
below in this Item 1 for more information.
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Table of Contents
CalTrak
®
is our proprietary documentation and asset management system
which is used to manage both the workflow at our Calibration
Centers of Excellence and our clients’ assets. With
CalTrak
®
,
we are able to provide our customers with timely calibration
service while optimizing our own efficiencies. Additionally,
CalTrak-Online provides our customers direct access to
calibration certificates, calibration data, and access to other
key documents required in the calibration process.
CalTrak
®
has been validated to U.S. federal regulation 21CFR
820.75, which is important to the pharmaceutical and
FDA-regulated industries, where federal regulations can be
particularly stringent. See the section entitled
“Calibration Services Segment —
CalTrak
®
”
below in this Item 1 for more information.
Our attention to quality goes beyond the products and services
we deliver. Our sales, customer service and support teams stand
ready to provide expert advice, application assistance and
technical support wherever and whenever our customers need it.
Since calibration is an intangible service, our customers rely
on us to uphold high standards and trust in the integrity of our
people and processes.
Among our customers, and representing 31% of our consolidated
revenue, are Fortune 500/Global 500 companies, including
Wyeth, Johnson & Johnson, DuPont, Exxon Mobil, Dow
Chemical, Nestle and Duke Energy. Transcat has focused on the
pharmaceutical and FDA-regulated industries, industrial
manufacturing, energy and utility, chemical process and other
industries since its founding in 1964. We are the leading
supplier of calibrators in the markets we serve. We believe our
customers do business with us because of our integrity,
commitment to quality service, our
CalTrak
®
asset management system, and our broad range of product
offerings.
Transcat was incorporated in Ohio in 1964. We are headquartered
in Rochester, New York and employ more than 300 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 strategy for growth is to expand both our distribution
products and calibration services segments by leveraging these
offerings to markets that value product breadth and
availability. Our target customers are those that rely on
accredited calibration services to maintain the integrity of
their processes
and/or
operate in regulated environments. Our strategic focus is to
serve a customer base that requires precise measurement
capability for their manufacturing and testing processes in
order to minimize risk, waste and defects. We do this by
targeting customers who value superior quality, service and
convenience associated with our multiple locations, broad
capabilities and breadth of choice. We believe our combined
offerings, experience, and integrity create a unique and
compelling value proposition for our customers and prospects
that is built upon trust and technical competence.
We strive to differentiate ourselves and build barriers to
competitive entry by offering the best products, delivering high
quality calibration and repair services, and integrating those
products and services to benefit our customers’ operations
and lower their costs.
ACQUISITIONS
On January 27, 2010, we acquired United Scale &
Engineering Corporation (“United Scale”), a scale and
weighing systems distributor and calibration and repair services
provider based in Wisconsin. United Scale has approximately
2,000 customers located in Wisconsin, Northern Illinois and
Upper Michigan and has been in business for almost 50 years
meeting both ISO 9001 and ISO/IEC 17025 accreditation standards.
United Scale had 26 employees as of March 27, 2010.
Our acquisition of United Scale broadens our calibration
capabilities and expands our geographic footprint into the upper
Midwest. Through this acquisition, we will also broaden our
product offering to include scales and weighing systems which
frequently require integration, installation and custom
programming.
On August 14, 2008, we acquired Westcon, Inc.
(“Westcon”), a test and measurement instruments
distributor and calibration services provider based in Portland,
Oregon.
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Table of Contents
Our acquisition of Westcon established a west coast distribution
center that enables us to provide faster service to a broader
base of potential customers while adding a full-service
calibration operation that geographically complements and
expands our nationwide network of laboratories. Westcon has and
will continue to serve the wind energy industry, which we see as
a high-growth target market that fits well within our energy
market focus.
SEGMENTS
We service our customers through two business segments:
distribution products and calibration services. Note 8 of
our Consolidated Financial Statements in this report presents
financial information for these segments. We serve over 18,000
customers, with no customer or controlled group of customers
accounting for 10% or more of our consolidated net revenue for
any of the fiscal years 2008 through 2010. We are not dependent
on any single customer, the loss of which would have a material
adverse effect on our business, cash flows, balance sheet, or
results of operations.
We market and sell to our customers through multiple sales
channels consisting of direct catalog marketing, our website, a
field sales organization, proactive outbound sales, and an
inbound call center. Our field, outbound and inbound sales teams
are each staffed with technically trained personnel. Our
domestic and international inbound sales organization covers
territories in North America, Latin America, Europe, Africa,
Asia, and the Middle East. Our calibration and repair services
are offered only in North America and Puerto Rico. We
concentrate on attracting new customers and also on
cross-selling to existing customers to increase our Product
sales and Service revenue. Our revenue from customers in the
following geographic areas during the periods indicated,
expressed as a percentage of total revenue, is as follows:
| FY 2010 | FY 2009 | FY 2008 | ||||||||||
|
United States
|
90 | % | 89 | % | 87 | % | ||||||
|
Canada
|
7 | % | 7 | % | 9 | % | ||||||
|
Other International
|
3 | % | 4 | % | 4 | % | ||||||
|
Total
|
100 | % | 100 | % | 100 | % | ||||||
DISTRIBUTION
PRODUCTS 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 distribution
products industry for test and measurement instrumentation, in
those geographic markets where we predominately operate, is
serviced by broad-based national distributors and niche or
specialty-focused organizations such as Transcat.
Most industrial customers find that maintaining an in-house
inventory of
back-up
test
and measurement instruments is cost prohibitive. As a result,
the distribution of test and measurement instrumentation has
traditionally been characterized by frequent, small quantity
orders combined with a need for rapid, reliable, and complete
order fulfillment. The decision to buy is generally made by
plant engineers, quality managers, or their purchasing
personnel. Products are generally obtained from more than one
distributor.
The majority of our products are not consumables, but are
purchased as replacements, upgrades, or for expansion of
manufacturing and research and development facilities. Our
catalog and sales activities are designed to maintain a constant
presence in front of the customer to ensure we receive the order
when they are ready to purchase. As a result, we evaluate
revenue trends over a twelve-month rolling period as any
individual month’s or quarter’s revenue can be
impacted by numerous factors, many of which are unpredictable
and potentially non-recurring.
We believe that a distribution products customer chooses a
distributor based on a number of different criteria including
the timely delivery and accuracy of orders, consistent product
quality, the technical competence of the representative serving
them, value added services, as well as price. Value added
services include providing
5
Table of Contents
technical support to insure our customer receives the right
product for their specific need through application knowledge
and product compatibility. We also provide calibration of
product purchases, on-line procurement, same day shipment of
in-stock items, a variety of custom product offerings and
training programs. Because of the breadth of products we offer
and the services we provide, we are often a “one-stop
shop” for our customers who gain the operational efficiency
of dealing with just one distributor for most or all of their
test and measurement equipment needs.
Our distribution products segment accounted for 66% of our
consolidated revenue in fiscal year 2010. Within the
distribution products segment, our routine business is comprised
of customers who place orders to acquire or to replace specific
instruments, which average approximately $1,560 per order. Items
are regularly added to and deleted from our product lines on the
basis of customer demand, market research, recommendations of
suppliers, sales volumes and other factors.
Marketing and Sales.
Through our
comprehensive Master Catalog, supplemental catalogs, website,
e-newsletters,
and other direct sales and marketing programs, we offer our
customers a broad selection of highly recognized branded
products at competitive prices. The instruments typically range
in price from $250 to over $25,000.
During fiscal year 2010, we distributed approximately
1.1 million pieces of direct marketing materials including
catalogs, brochures, supplements and other promotional
materials, of which approximately 665,000 were distributed to
customer contacts and approximately 450,000 were distributed to
potential customer contacts. We also distributed approximately
180,000
e-newsletters
to our list of customers and prospects. Some of the key factors
that determine the number of catalogs and other direct marketing
materials received by each customer include new product
introductions, their market segments and the timing, frequency
and monetary value of past purchases.
The majority of our product sales are derived from direct mail
and on-line marketing. Our Master Catalog offers access to more
than 25,000 test and measurement products and is used by
customers, sales representatives and branch personnel to assist
with customer product selection. During fiscal year 2010,
approximately 85,000 copies of our Master Catalog were produced
and distributed to existing and prospective customers in North
America and Puerto Rico. The Master Catalog provides standard
make/model and related product information and is also available
in an electronic format upon request and on our website,
transcat.com.
We use smaller catalog supplements that feature new products,
promotions, or specific product categories to target prospects
and acquire new customers. The catalog supplements are launched
at varying periods throughout the year.
Customers can also purchase products through our website,
transcat.com. Our website serves as a growing market channel for
our products and services and provides product availability,
detailed product information, advanced features such as product
search and compare capabilities, as well as downloadable product
specification sheets. We have optimized the website’s
search engine, streamlined order entry and have the unique
ability to supplement an order with an accredited calibration.
Traffic to our website has grown more than 13% over the prior
fiscal year and represented 8% of our Product segment sales in
fiscal year 2010.
Competition.
The distribution products
markets we serve are highly competitive. Competition for sales
in distribution products is quite fragmented and ranges from
large national distributors and manufacturers that sell directly
to customers to small local distributors. Key competitive
factors typically include customer service and support, quality,
turn around time, inventory availability, brand recognition and
price. To address our customers’ needs for technical
support and product application assistance, and to differentiate
ourselves from competitors, we employ a staff of highly-trained
technical sales specialists. In order to maintain this
competitive advantage, technical training is an integral part of
developing our sales staff.
Suppliers and Purchasing.
We believe
that effective purchasing is a key element to maintaining and
enhancing our position as a provider of high quality test and
measurement instruments. We frequently evaluate our purchase
requirements and suppliers’ offerings to obtain products at
the best possible cost. We obtain our products from nearly 400
suppliers of brand name and private-labeled equipment. In fiscal
year 2010, our top 10 vendors accounted for approximately 65% of
our aggregate business. Approximately 29% of our product
6
Table of Contents
purchases on an annual basis are from Fluke Electronics
Corporation (“Fluke”), which we believe to be
consistent with Fluke’s share of the markets we service.
We plan our product mix and inventory stock to best serve the
anticipated needs of our customers whose individual purchases
vary in size. We can usually ship to our customers our top
selling products the same day they are ordered. During fiscal
year 2010, approximately 94% of orders for our top selling
products were filled with inventory items already in stock.
Operations.
Our distribution operations
take place within an approximate 37,000 square-foot
facility located 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 laboratory. The Portland location also
serves as a calibration laboratory. In fiscal year 2010, we
shipped over 33,000 product orders in aggregate from both
locations. In addition, we added two additional distribution
facilities in Wisconsin through our acquisition of United Scale,
which 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.
In addition to our direct end-user customers, we also sell
products to resellers who then sell to end-users. Our sales to
resellers are typically at a lower gross margin than sales to
direct customers and therefore the percentage of reseller sales
to total revenue in any given period can have an impact on our
overall gross profit margin. During fiscal year 2010, 24% of our
distribution product sales were to resellers compared with 25%
in fiscal year 2009 and 20% in fiscal year 2008. We believe that
these resellers have access, through their existing
relationships, to end-user customers to whom we do not market
directly.
Exclusivity Agreement with Fluke.
We
have been the exclusive worldwide distributor of Altek and
Transmation branded products since fiscal year 2002. Annually,
in exchange for exclusive distribution rights, we have committed
to purchase a minimum amount of Altek and Transmation products
from Fluke. Each year, we have exceeded this commitment. By its
terms, the most recent exclusivity agreement with Fluke expired
on December 31, 2008. We continue to be the exclusive
worldwide distributor of these products on terms substantially
similar to the agreement that expired on December 31, 2008.
Backlog.
Customer product orders
include orders for instruments that we routinely stock in our
inventory, customized products, and other products ordered less
frequently, which we do not stock. Pending product shipments are
primarily backorders, but also include products that are
requested to be calibrated in our laboratories prior to
shipment, orders required to be shipped complete, and orders
required to be shipped at a future date.
At March 27, 2010, the value of our pending product
shipments was approximately $1.8 million, compared with
approximately $1.2 million and $1.4 million at
March 28, 2009 and March 29, 2008, respectively.
During the first three fiscal quarters of fiscal year 2010, our
pending product shipments continued to increase when compared
against the ending balance of the previous fiscal year. We
believe that manufacturers reduced production during the
economic downturn and then were slower to respond to increased
market demand as the economy began to improve, leading to
increased backorders. During the fourth quarter of fiscal year
2010, we reduced the outstanding balance of pending product
shipments by $0.6 million, when compared to the end of the
third quarter of fiscal 2010, by early recognition of the need
to accelerate purchases to make up for extended lead times from
manufacturers. The net decrease is inclusive of
$0.2 million in incremental pending product shipments
associated with United Scale, which was acquired during our
fiscal fourth quarter. Our pending product shipments and total
product backorders increased during the third quarter of fiscal
year 2009 as a direct result of our integration of Westcon onto
our order entry system. During the fourth quarter of fiscal year
2009, pending product shipments decreased 30%, when compared to
the balance at the end of the third quarter of fiscal year 2009.
We attribute this to decreased orders as a result of a decline
in the general economy as demand from existing customers
weakened despite aggressive pricing initiatives. During fiscal
year 2010, the month-end level of pending product shipments
varied between a low of $1.3 million and a high of
$2.6 million.
7
Table of Contents
The following graph shows the quarter-end trend of pending
product shipments and backorders for fiscal years 2009 and 2010.
CALIBRATION
SERVICES SEGMENT
Summary.
Calibration is the act of
comparing a unit or instrument of unknown value to a standard of
known value and reporting the result in some rigorously defined
form. After the calibration has been completed, a decision is
made, again based on rigorously defined parameters, on what, if
anything, is to be done to the unit to conform to the required
standards or specifications. The decision may be to adjust,
optimize or repair a unit; limit the use, range or rating of a
unit; scrap the unit; or leave the unit as is. The purpose of
calibration is to significantly reduce the risk of product or
process failures caused by inaccurate measurements.
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, within our calibration services
segment, has been to focus our investments in the core
electrical, temperature, pressure and dimensional disciplines.
We can address approximately 90% to 95% of the calibration
requests we receive 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 can have unique or proprietary
capabilities. These vendor relationships have enabled us to
continue our pursuit of having the broadest calibration
offerings to these targeted markets.
Strategy.
Our calibration services
segment provides periodic calibration and repair services for
our customers’ test and measurement instruments. We
specifically target industries where quality calibrations are a
critical operational component and believe calibration sourcing
decisions are based on accreditation, reliability, trust,
customer service, turn-around time, location, documentation,
price and a one-source solution. Our success with customers is
based on the trust they have in the integrity of our people and
processes.
Transcat’s calibration services strategy encompasses two
methods to manage a customer’s calibration and repair needs:
| 1) | If a company wishes to outsource its calibration needs, we offer an “Integrated Calibration Services Solution” that provides a complete wrap-around service which includes: |
| • | program management; | |
| • | calibration; | |
| • | logistics; and | |
| • | consultation services. |
| 2) | If a company has an in-house calibration operation, we can provide: |
| • | calibration of primary standards; | |
| • | overflow capability either on-site or at one of our Calibration Centers of Excellence during periods of high demand; and | |
| • | consultation and training services. |
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In either case, we strive to have the broadest accredited
calibration offering to our targeted markets which includes
certification of our technicians pursuant to the American
Society for Quality (“ASQ”) 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 and registration. Our
quality systems are further detailed in the section entitled
“Quality” below.
CalTrak
®
.
CalTrak
®
and CalTrak-Online are our proprietary metrology management
systems that provide a comprehensive calibration quality
program. Many of our customers have unique calibration service
requirements to which we have tailored specific services.
CalTrak-Online allows our customers to track calibration cycles
via the Internet and provides the customer with a safe and
secure off-site archive of calibration records that can be
accessed 24 hours a day. Access to records data is managed
through our secure password-protected website. Calibration
assets are tracked with records that are automatically
cross-referenced to the equipment that was used to calibrate.
CalTrak
®
has also been validated to meet the most stringent requirements
within the industry.
We perform over 145,000 in-house calibrations annually. These
are performed at our twelve Calibration Centers of Excellence or
at the customer’s location. During fiscal year 2010,
services completed by our Calibration Centers of Excellence
represented 76% of our calibration services segment revenue
while approximately 21% of the revenue was derived from
calibration services that were subcontracted to third party
vendors. Our calibration services segment accounted for 34% of
our total consolidated revenue in fiscal year 2010.
Marketing and Sales.
Calibration
improves an operation’s maximum productivity and efficiency
by assuring accurate, reliable instruments and processes.
Through our calibration services segment, we perform periodic
calibrations on new and used instruments as well as repair
services for our customers. All of our Calibration Centers of
Excellence provide accredited calibration of common measurement
parameters.
We have sales teams that seek to acquire new customers in our
targeted markets and account management teams to ensure
continued relationships with existing customers. In addition, we
employ our Master Catalog, supplements, mailings, journal
advertising, trade shows, and the Internet to market our
calibration services to customers and prospective customers with
a strategic focus in the highly regulated industries including
pharmaceutical, FDA-regulated, energy and utilities, and
chemical processing. We also target industrial manufacturing and
other industries that appreciate the value of quality
calibrations. Due to growth in wind energy Service revenue in
fiscal year 2010, the energy/utilities industry segment’s
share of our Service business increased. 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
program.
The approximate percentage of our calibration services business
by industry segment for the periods indicated is as follows:
| FY 2010 | FY 2009 | FY 2008 | ||||||||||
|
Pharmaceutical/FDA-Regulated
|
37 | % | 38 | % | 37 | % | ||||||
|
Industrial Manufacturing
|
22 | % | 25 | % | 27 | % | ||||||
|
Chemical Manufacturing
|
8 | % | 9 | % | 11 | % | ||||||
|
Energy/Utilities
|
20 | % | 15 | % | 14 | % | ||||||
|
Other
|
13 | % | 13 | % | 11 | % | ||||||
|
Total
|
100 | % | 100 | % | 100 | % | ||||||
Competition.
The calibration outsource
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 provide only
basic measurements and service markets in which quality
requirements may not be as demanding
9
Table of Contents
as the markets that we strategically target. Very few of these
companies are structured to compete on the same scale and level
of quality as us. There are also several companies with whom we
compete who have national or regional operations. Certain of
these competitors may have greater resources than us and some of
them have accreditations that are similar to ours. We
differentiate ourselves from our competitors by demonstrating
our commitment to quality and by having a wide range of
capabilities that are tailored to the markets we serve.
Customers see the value in using our unique CalTrak-Online
program to monitor their instrument’s status. We are
fundamentally different from most of our competitors because we
have the ability to bundle product, calibration and repair as a
single source for our customers.
Quality.
The accreditation process is
the only system currently in existence that assures measurement
competence. Each of our laboratories is audited and reviewed by
external accreditation bodies proficient in the technical
aspects of the chemistry and physics that underlie metrology,
ensuring that measurements are properly made. Accreditation also
requires that all standards used for accredited measurements
have a fully documented path, known as the traceability chain,
either directly or through other accredited laboratories, back
to the national or international standard for that measurement
parameter. This ensures that our measurement process is
consistent with the global metrology network that is designed to
standardize measurements worldwide.
To ensure the quality and consistency of our calibrations for
our customers, we have sought and achieved several international
levels of quality and accreditation. Our calibration
laboratories are ISO 9001:2000 registered through
Underwriter’s Laboratories, which itself has international
oversight from the ANAB-ANSI-ASQ National Accreditation Board.
We believe our scope of accreditation to ISO/IEC 17025 to be the
broadest for the industries we serve. The accreditation process
also ensures that our calibrations are traceable to 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 laboratory, or accepted fundamental
and/or
natural physical constants, ratio type of calibration, or by
comparison to consensus standards. Our laboratories are
accredited to ISO/IEC 17025:2005 and ANSI/NCSL Z540-1-1994 using
two of the accrediting bodies in the United States that are
signatories to the International Laboratory Accreditation
Cooperation (“ILAC”). These two accrediting bodies
are: National Voluntary Laboratory Accreditation Program (NVLAP)
and American Association for Laboratory Accreditation (A2LA).
These accrediting bodies provide an objective, third party,
internationally accepted evaluation of the quality, consistency,
and competency of our calibration processes.
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.
10
Table of Contents
To provide the widest range of service to our customers in our
target markets, our ISO/IEC 17025:2005 accreditations extend
across many technical disciplines. The following table
represents our capabilities for each of our Calibration Centers
of Excellence as of March 27, 2010 (A=Accredited;
N=Non-accredited):
WORKING-LEVEL CAPABILITIES:
| Electrical Metrology Disciplines | Dimensional Metrology Disciplines | |||||||||||||
|
Direct
|
Parts
|
|||||||||||||
|
Current/
|
High
|
Inspection
|
||||||||||||
|
Alternating
|
Frequency/
|
(Geometric
|
||||||||||||
|
Current
|
Ultra
|
Radio
|
Dimensioning
|
|||||||||||
|
- Low
|
- High
|
Frequency/
|
Luminance/
|
& Tolerancing/
|
||||||||||
| Frequency | Frequency | Microwave | Illuminance | Length | Optics | 3-D Metrology) | ||||||||
|
Boston
|
A | A | A | A | ||||||||||
|
Charlotte
|
A | A | A | |||||||||||
|
Dayton
|
A | A | A | A | ||||||||||
|
Ft. Wayne
|
A | A | ||||||||||||
|
Houston
|
A | A | A | A | N | |||||||||
|
Los Angeles
|
A | A | A | A | N | |||||||||
|
Ottawa
|
A | A | A | A | ||||||||||
|
Philadelphia
|
A | A | A | A | A | A | ||||||||
|
Portland
|
A | A | A | A | ||||||||||
|
Rochester
|
A | A | A | A | A | A | ||||||||
|
San Juan
|
A | A | A | |||||||||||
|
St. Louis
|
A | A | A | |||||||||||
| Physical Metrology Disciplines | ||||||||||||||
|
Particle
|
Gas
|
Relative
|
Mass
|
Pressure,
|
||||||||||
| Flow | Counters | Force | Analysis | Humidity | Weight | Vacuum | ||||||||
|
Boston
|
A | A | A | A | ||||||||||
|
Charlotte
|
A | N | A | A | A | |||||||||
|
Dayton
|
A | A | A | A | ||||||||||
|
Houston
|
A | A | A | |||||||||||
|
Los Angeles
|
A | A | A | A | ||||||||||
|
Ottawa
|
A | A | A | A | ||||||||||
|
Philadelphia
|
A | A | N | A | A | A | ||||||||
|
Portland
|
A | A | A | A | ||||||||||
|
Rochester
|
N | A | A | A | A | |||||||||
|
San Juan
|
A | A | A | A | ||||||||||
|
St. Louis
|
A | A | A | A | ||||||||||
|
Wisconsin(1)
|
A | A | ||||||||||||
| Physical Metrology Disciplines (continued) | Life Sciences Disciplines | |||||||||||||
|
Revolutions
|
||||||||||||||
|
Per Minute,
|
Vibration,
|
Chemical/
|
||||||||||||
| Torque | Temperature | Speed | Acceleration | Biomedical | Biological | Pharmaceutical | ||||||||
|
Boston
|
A | A | A | N | ||||||||||
|
Charlotte
|
A | A | A | N | ||||||||||
|
Dayton
|
A | A | A | N | ||||||||||
|
Houston
|
A | A | A | N | ||||||||||
|
Los Angeles
|
A | A | A | N | N | N | ||||||||
|
Ottawa
|
A | A | A | |||||||||||
|
Philadelphia
|
A | A | A | A | N | N | N | |||||||
|
Portland
|
A | A | A | N | ||||||||||
|
Rochester
|
A | A | A | N | N | N | ||||||||
|
San Juan
|
A | A | ||||||||||||
|
St. Louis
|
A | A | A | N | ||||||||||
11
Table of Contents
REFERENCE-LEVEL CAPABILITIES:
|
Pressure/
|
||||||||||||
|
Dimensional
|
Electrical
|
Humidity
|
Mass
|
Vacuum
|
Temperature
|
|||||||
| Standards | Standards | Standards | Standards | Standards | Standards | |||||||
|
Charlotte
|
A | A | ||||||||||
|
Dayton
|
A | A | ||||||||||
|
Ft. Wayne
|
A | |||||||||||
|
Houston
|
A | A | ||||||||||
|
Philadelphia
|
A | A | A | A | ||||||||
|
Portland
|
A | A | ||||||||||
|
Rochester
|
A | A | ||||||||||
|
San Juan
|
A | A |
| (1) | Wisconsin operations regionally headquartered in Milwaukee (New Berlin), with locations in Madison and Green Bay, includes calibration of legal for trade (NIST Handbook 44) and industrial scales (heavy capacity, medium capacity, small capacity, vehicle, livestock, hopper, belt, platform, bench, counting, laboratory balances, etc.) |
CUSTOMER
SERVICE AND SUPPORT
Our breadth of distribution products and calibration services
along with our strong commitment to customer sales, service and
support enable us to satisfy our customer 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
technically-trained 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 which often provides technical
assistance to our customers to facilitate the purchasing
decision. To ensure the quality of service provided, we
frequently monitor our customer service through customer
surveys, interpersonal communication, and daily statistical
reports.
Customers may place orders via:
| • | Mail to Transcat, Inc., 35 Vantage Point Drive, Rochester, NY 14624; |
| • | Fax at 1-800-395-0543; |
| • | Telephone at 1-800-828-1470; |
| • | Email at sales@transcat.com; or |
| • | Our website at transcat.com. |
INFORMATION
REGARDING EXPORT SALES
Approximately 10% of our net revenue in fiscal year 2010
resulted from sales to customers outside the United States,
compared with 11% and 13% in fiscal years 2009 and 2008,
respectively. Of those sales in fiscal year 2010, 42% were
denominated in U.S. dollars and the remaining 58% were in
Canadian dollars. Our revenue is subject to the customary risks
of operating in an international environment, including the
potential imposition of trade or foreign exchange restrictions,
tariff and other tax increases, fluctuations in exchange rates
and unstable political situations, any one or more of which
could have a material adverse effect on our business, cash
flows, balance sheet or results of operations. See “Foreign
Currency” in Item 7A of Part II of this report
for further details.
INFORMATION
SYSTEMS
We utilize a basic software platform, Application Plus, to
manage our business and operations segments. We also utilize a
turnkey enterprise software solution. This software includes a
suite of fully integrated modules to manage our business
functions, including customer service, warehouse management,
inventory management, financial management, customer management,
and business intelligence. This solution is a fully mature
business package and has been subject to more than 20 years
of refinement.
12
Table of Contents
SEASONALITY
We believe that our business has certain historical seasonal
factors. Historically, our fiscal first and second quarters have
been generally weaker and our fiscal third and fourth quarters
have been stronger due to industrial operating cycles.
ENVIRONMENTAL
MATTERS
We believe that compliance with federal, state, or local
provisions relating to the protection of the environment will
not have any material effect on our capital expenditures,
earnings, or competitive position.
EMPLOYEES
At the end of fiscal year 2010, we had 303 employees,
compared with 281 and 247 employees at the end of fiscal
years 2009 and 2008, respectively.
EXECUTIVE
OFFICERS
The following table presents certain information regarding our
executive officers and certain key employees as of
March 27, 2010:
| Name | Age | Position | ||||
|
Charles P. Hadeed
|
60 | President, Chief Executive Officer and Chief Operating Officer | ||||
|
John J. Zimmer
|
51 | Vice President of Finance and Chief Financial Officer | ||||
|
Michael P. Craig
|
56 | Vice President of Human Resources | ||||
|
John P. Hennessy
|
61 | Vice President of Sales and Marketing | ||||
|
Rainer Stellrecht
|
59 | Vice President of Laboratory Operations | ||||
|
Lori L. Drescher
|
50 | Vice President of Business Process Improvement and Training | ||||
|
David D. Goodhead
|
62 | Vice President of Wind Energy Sales | ||||
|
Jay F. Woychick
|
53 | Vice President of Wind Energy Commercial Operations and Vendor Relations | ||||
|
Derek C. Hurlburt
|
41 | 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 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 an internet website at transcat.com. On our website,
we make available, free of charge, documents we file with 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 filed with or furnished to
the SEC. We make this information available as soon as
reasonably practicable after we electronically file such
materials with, or furnish such information to, the SEC. Our SEC
reports can be accessed in the investor relations section of our
website. 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 charters
13
Table of Contents
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.
| 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.
The Economic Recession Could Have A Negative Impact On Our
Major Customers And Suppliers Which In Turn Could Materially
Adversely Affect Our Results Of Operations And
Liquidity.
The economic recession has had a
significant negative impact on businesses around the world.
Although we believe that our cash provided by operations and
available borrowing capacity under our current credit facility
will provide us with sufficient liquidity through current
economic conditions, the impact of this recession on our major
customers and suppliers cannot be predicted and may be quite
severe. The inability of major manufacturers to ship our
products could impair our ability to meet the delivery date
requirements of our customers. A disruption in the ability of
our largest customers to access liquidity could cause serious
disruptions or an overall deterioration of their businesses
which could lead to a significant reduction in their future
orders of our products and services and the inability or failure
on their part to meet their payment obligations to us, any of
which could have a negative effect on our results of operations
and liquidity.
We Depend On Manufacturers To Supply Our Inventory And
Rely On One Vendor Group To Supply A Significant Amount Of Our
Inventory Purchases. If They Fail To Provide Desired Products To
Us, Increase Prices, Or Fail To Timely Deliver Products, Our
Revenue and Gross Profit Could Suffer.
A
significant amount of our inventory purchases are made from one
vendor, Fluke. Our reliance on this vendor leaves us vulnerable
to having an inadequate supply of required products, price
increases, late deliveries, and poor product quality. Like other
distributors in our industry, we occasionally experience
supplier shortages and are unable to purchase our desired volume
of products. If we are unable to enter into and maintain
satisfactory distribution arrangements with leading
manufacturers, if we are unable to maintain an adequate supply
of products, or if manufacturers do not regularly invest in,
introduce to us,
and/or
make
new products available to us for distribution, our sales could
suffer considerably. Finally, we cannot provide any assurance
that particular products, or product lines, will be available to
us, or available in quantities sufficient to meet customer
demand. This is of particular significance to our business
because the products we sell are often only available from one
source. Any limits to product access could materially and
adversely affect our business.
Our Future Success May Be Affected By Future
Indebtedness.
Under our revolving credit
facility, as of March 27, 2010, we owed $2.5 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 be in compliance 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.
If 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
14
Table of Contents
public market by our existing shareholders or holders of stock
options or as a result of the perception that these sales could
occur.
Our Stock Price Has Been, And May Continue To 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; | |
| • | Period-to-period fluctuations in our operating results; and | |
| • | Our ability to satisfy our debt obligations. |
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
calibration services, 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. If our operating results in some quarters fail to meet
the expectations of stock market analysts and investors, our
stock price would likely decline. Some of the factors that could
cause our revenues and operating results to fluctuate include:
| • | Fluctuations in industrial demand for products we sell and/or services we provide; and | |
| • | Fluctuations in geographic conditions, including currency and other economic conditions. |
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 affect 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.
The Distribution Products Industry Is Highly Competitive,
And We May Not Be Able To Compete
Successfully.
We compete with numerous
companies, including several major manufacturers and
distributors. Some of our competitors have greater financial and
other resources than we do, which could allow them to compete
more successfully. Most of our products are available from
several sources and our customers tend to have relationships
with several distributors. Competitors could obtain exclusive
rights to market particular products, which we would then be
unable to market. Manufacturers could also increase their
efforts to sell directly to end-users and bypass distributors
like us. Industry consolidation among product distributors, the
unavailability of products, whether due to our inability to gain
access to products or interruptions in supply from
manufacturers, or the emergence of new competitors could also
increase competition and adversely affect our business or
results of operations. In the future, we may be unable to
compete successfully and competitive pressures may reduce our
sales.
15
Table of Contents
If We Fail To Attract And Retain Qualified Personnel, We
May Not Be Able To Achieve Our Stated Corporate
Objectives.
Our ability to manage our
anticipated growth, if realized, effectively depends on our
ability to attract and retain highly qualified executive
officers and technical personnel. If we fail to attract and
retain qualified individuals, we will not be able to achieve our
stated corporate objectives.
Our Revenue Depends On Retaining Capable Sales Personnel
As Well As Our Relationships With Key Customers, 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 who appreciate the value of our
services as well as key customers, vendors and manufacturers. 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 affect on our business and results of
operations.
Our Acquisitions Or Future Acquisition Efforts, Which Are
Important To Our Growth, May Not Be Successful, Which May Limit
Our Growth Or Adversely Affect Our Results Of Operations And
Financial Condition.
Acquisitions have been
an important part of our development to date. During the fourth
quarter of fiscal year 2010, we acquired United Scale. 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. As a result of
our acquisition of United Scale and future acquisitions, 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.
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.
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.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
Not applicable.
16
Table of Contents
| ITEM 2. | PROPERTIES |
We lease the following properties:
|
Approximate
|
||||||
| Property | Location | Square Footage | ||||
|
Corporate Headquarters, Product Distribution Center and
Calibration Laboratory
|
Rochester, NY | 37,250 | ||||
|
Calibration Laboratory
|
Anaheim, CA | 4,000 | ||||
|
Calibration Laboratory
|
Boston, MA | 4,000 | ||||
|
Calibration Laboratory
|
Charlotte, NC | 4,860 | ||||
|
Calibration Laboratory
|
Cherry Hill, NJ | 8,550 | ||||
|
Calibration Laboratory
|
Dayton, OH | 9,000 | ||||
|
Calibration Laboratory(1)
|
Fort Wayne, IN | 5,000 | ||||
|
Calibration Laboratory
|
Houston, TX | 8,780 | ||||
|
Calibration Laboratory
|
Ottawa, ON | 3,990 | ||||
|
Calibration Laboratory and Product Distribution Center
|
Portland, OR | 12,600 | ||||
|
Calibration Laboratory
|
San Juan, PR | 1,560 | ||||
|
Calibration Laboratory
|
St. Louis, MO | 4,000 | ||||
|
Service and Distribution Center
|
New Berlin, WI | 16,000 | ||||
|
Service Center
|
Green Bay, WI | 3,320 | ||||
|
Service and Distribution Center
|
Madison, WI | 7,670 | ||||
| (1) | Subsequent to March 27, 2010, we have decided to move the operations of the Fort Wayne, IN calibration laboratory to our Houston, TX location. |
We believe that our properties are generally in good condition,
are well maintained, and are generally suitable and adequate to
carry on our business in its current form.
| ITEM 3. | LEGAL PROCEEDINGS |
None.
| ITEM 4. | RESERVED |
Our common stock is traded on the NASDAQ Capital Market under
the symbol “TRNS.” As of June 16, 2010, we had
approximately 643 shareholders of record.
17
Table of Contents
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 Capital Market for each
quarterly period in fiscal years 2010 and 2009.
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||
|
Fiscal Year 2010:
|
||||||||||||||||
|
High
|
$ | 6.20 | $ | 7.87 | $ | 7.21 | $ | 8.55 | ||||||||
|
Low
|
$ | 4.12 | $ | 4.40 | $ | 4.09 | $ | 5.51 | ||||||||
|
Fiscal Year 2009:
|
||||||||||||||||
|
High
|
$ | 7.00 | $ | 8.96 | $ | 9.24 | $ | 8.90 | ||||||||
|
Low
|
$ | 5.00 | $ | 6.10 | $ | 5.58 | $ | 3.81 | ||||||||
DIVIDENDS
We have not declared any cash dividends since our inception and
do not intend to pay any dividends in the foreseeable future.
| ITEM 6. | SELECTED FINANCIAL DATA |
The following table provides selected financial data for fiscal
year 2010 and the previous four fiscal years (in thousands,
except per share data). Certain reclassifications of financial
information for prior fiscal years have been made to conform to
the presentation for the current fiscal year.
| FY 2010 | FY 2009 | FY 2008 | FY 2007 | FY 2006 | ||||||||||||||||
|
Statements of Operations Data:
|
||||||||||||||||||||
|
Net Revenues
|
$ | 81,061 | $ | 75,419 | $ | 70,453 | $ | 66,473 | $ | 60,471 | ||||||||||
|
Cost of Products and Services Sold
|
61,767 | 56,671 | 51,912 | 49,860 | 45,372 | |||||||||||||||
|
Gross Profit
|
19,294 | 18,748 | 18,541 | 16,613 | 15,099 | |||||||||||||||
|
Operating Expenses
|
16,913 | 16,062 | 15,258 | 14,264 | 13,581 | |||||||||||||||
|
Gain on TPG Divestiture(1)
|
— | — | — | (1,544 | ) | — | ||||||||||||||
|
Operating Income
|
2,381 | 2,686 | 3,283 | 3,893 | 1,518 | |||||||||||||||
|
Interest Expense
|
63 | 100 | 101 | 334 | 427 | |||||||||||||||
|
Other Expense, net
|
35 | 67 | 437 | 283 | 162 | |||||||||||||||
|
Income Before Income Taxes
|
2,283 | 2,519 | 2,745 | 3,276 | 929 | |||||||||||||||
|
Provision for (Benefit from) Income Taxes
|
832 | 963 | 382 | 1,217 | (2,648 | ) | ||||||||||||||
|
Net Income
|
$ | 1,451 | $ | 1,556 | $ | 2,363 | $ | 2,059 | $ | 3,577 | ||||||||||
|
Share Data:
|
||||||||||||||||||||
|
Basic Earnings Per Share
|
$ | 0.20 | $ | 0.21 | $ | 0.33 | $ | 0.30 | $ | 0.54 | ||||||||||
|
Basic Average Shares Outstanding
|
7,352 | 7,304 | 7,132 | 6,914 | 6,647 | |||||||||||||||
|
Diluted Earnings Per Share
|
$ | 0.19 | $ | 0.21 | $ | 0.32 | $ | 0.28 | $ | 0.50 | ||||||||||
|
Diluted Average Shares Outstanding
|
7,549 | 7,469 | 7,272 | 7,335 | 7,176 | |||||||||||||||
|
Closing Price Per Share
|
$ | 7.14 | $ | 4.90 | $ | 5.50 | $ | 5.25 | $ | 5.00 | ||||||||||
18
Table of Contents
| As of or for the Fiscal Years Ended March | ||||||||||||||||||||
| 27, 2010 | 28, 2009 | 29, 2008 | 31, 2007 | 25, 2006 | ||||||||||||||||
|
Balance Sheets and Working Capital Data:
|
||||||||||||||||||||
|
Inventory, net
|
$ | 5,906 | $ | 4,887 | $ | 5,442 | $ | 4,336 | $ | 3,952 | ||||||||||
|
Property and Equipment, net
|
4,163 | 4,174 | 3,211 | 2,814 | 2,637 | |||||||||||||||
|
Goodwill
|
10,038 | 7,923 | 2,967 | 2,967 | 2,967 | |||||||||||||||
|
Total Assets
|
35,713 | 29,391 | 24,344 | 22,422 | 21,488 | |||||||||||||||
|
Depreciation and Amortization
|
2,080 | 1,897 | 1,761 | 1,622 | 1,401 | |||||||||||||||
|
Capital Expenditures
|
1,128 | 1,775 | 1,505 | 1,194 | 914 | |||||||||||||||
|
Long-Term Debt
|
2,532 | 3,559 | 302 | 2,900 | 4,272 | |||||||||||||||
|
Shareholders’ Equity
|
20,257 | 18,619 | 15,117 | 11,229 | 8,647 | |||||||||||||||
| (1) | In fiscal year 2007, we recognized a previously deferred pre-tax gain of $1.5 million from the sale of Transmation Products Group to Fluke in March 2002. |
OVERVIEW
Operational Overview.
We are a leading
global distributor of professional grade handheld test and
measurement instruments and accredited provider of calibration,
repair and weighing system services across a wide array of
measurement disciplines.
We operate our business through two reportable business segments
that offer different products and services to the same customer
base. Those two segments are distribution products and
calibration services.
In our Product segment, our Master Catalog is widely recognized
by both original equipment manufacturers and customers as the
ultimate source for test and measurement instruments.
Additionally, because we specialize in handheld test and
measurement instruments, as opposed to a wide array of
industrial products, our sales and customer service personnel
can provide value-added technical assistance to our customers to
aid them in determining what product best meets their particular
application requirements.
Sales in our Product segment can be heavily impacted by changes
in the economic environment. As customers increase or decrease
capital and discretionary spending, our product 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 lines or channels
of distribution.
Our strength in our Service segment is based upon our wide range
of disciplines and our investment in the quality systems that
are required in our targeted market segments. Our services range
from the calibration and repair of a single unit to managing a
customer’s entire calibration program. We believe our
Service segment offers an opportunity for long-term growth and
the potential for continuing revenue from established customers
with regular calibration cycles.
We evaluate revenue growth in both of our business segments
against a four quarter trend analysis, and not by analyzing any
single quarter.
Financial Overview.
In evaluating our
results for fiscal year 2010, the following factors should be
taken into account:
| • | Fiscal year 2010 operating results include those of United Scale, a Wisconsin based supplier and servicer of industrial scales and weighing systems, from the date of acquisition on January 27, 2010. |
19
Table of Contents
| • | Fiscal year 2010 operating results include a full year of operations from Westcon, whereas, fiscal year 2009 operating results include those of Westcon from the date of acquisition on August 14, 2008. | |
| • | Fiscal year 2008 net income includes a $0.8 million reversal of a deferred tax asset valuation allowance. We reversed the allowance after an evaluation of the status of our foreign tax credits and the likelihood that these credits would be utilized prior to their expiration. |
Net revenue for fiscal year 2010 was $81.1 million, a 7.5%
increase compared with net revenue of $75.4 million for
fiscal year 2009. Product segment sales increased 3.2% to
$53.1 million, or 65.6% of total net revenue, in fiscal
year 2010. Of our Product segment sales in fiscal year 2010, 75%
were sold directly to end-user customers while 24% were to
resellers compared with 74% and 25%, respectively, in fiscal
year 2009. Domestic sales comprised 90% of the total Product
segment sales in fiscal year 2010, while 7% were to Canada and
3% were to other international markets.
Service segment revenue increased 16.6% to $27.9 million,
or 34.4% of total net revenue, in fiscal year 2010. Of our
Service segment revenue in fiscal year 2010, 76% was generated
by our Calibration Centers of Excellence while 21% was generated
through subcontracted third party vendors, compared with 80% and
17%, respectively, in fiscal year 2009.
Gross margin for fiscal year 2010 was 23.8%, a 110 basis
point decline compared with gross margin of 24.9% in fiscal year
2009. Product segment gross margin was 23.4% in fiscal year 2010
compared with 25.4% in fiscal year 2009, while Service segment
gross margin improved to 24.5% in fiscal year 2010 compared with
23.7% in fiscal year 2009.
Operating expenses were $16.9 million, or 20.9% of total
net revenue, in fiscal year 2010 compared with
$16.1 million, or 21.3% of total net revenue, in fiscal
year 2009. Operating income was $2.4 million in fiscal year
2010 compared with $2.7 million in fiscal year 2009.
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, depreciable lives of fixed
assets, estimated lives of our major catalogs and intangible
assets, and deferred tax asset valuation allowances. Future
events and their effects cannot be predicted with certainty;
accordingly, our accounting estimates require the exercise of
judgment. The accounting estimates used in the preparation of
our Consolidated Financial Statements will change as new events
occur, as more experience is acquired, as additional information
is obtained, and as our operating environment changes. Actual
results could differ from those estimates. Such changes and
refinements in estimation methodologies are reflected in
reported results of operations in the period in which the
changes are made and, if material, their effects are disclosed
in the Notes to our Consolidated Financial Statements.
Accounts Receivable.
Accounts
receivable represent amounts due from customers in the ordinary
course of business. These amounts are recorded net of the
allowance for doubtful accounts and returns in the Consolidated
Balance Sheets. The allowance for doubtful accounts is based
upon the expected collectability of accounts receivable. We
apply a specific formula to our accounts receivable aging, which
may be adjusted on a specific account basis where the formula
may not appropriately reserve for loss exposure. After all
attempts to collect a receivable have failed, the receivable is
written-off against the allowance for doubtful accounts. The
returns reserve is calculated based upon the historical rate of
returns applied to revenues over a specific timeframe. The
returns reserve will increase or decrease as a result of changes
in the level of revenues
and/or
the
historical rate of returns.
20
Table of Contents
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:
| Years | ||||
|
Machinery, Equipment, and Software
|
2 - 6 | |||
|
Furniture and Fixtures
|
3 - 10 | |||
|
Leasehold Improvements
|
2 - 10 | |||
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.
We
estimate the fair value of our reporting units using the fair
market value measurement requirement, rather than the
undiscounted cash flows approach. We test goodwill and
intangible assets for impairment on an annual basis, or
immediately if conditions indicate that such impairment could
exist. The evaluation of our reporting units on a fair value
basis indicated that no impairment existed as of March 27,
2010 and March 28, 2009.
Catalog Costs.
We capitalize the cost
of each Master Catalog mailed and amortize the cost over the
respective catalog’s estimated productive life. We review
response results from catalog mailings on a continuous basis;
and if warranted, modify the period over which costs are
recognized. We amortize the cost of each Master Catalog over an
eighteen month period and amortize the cost of each catalog
supplement over a three month period. Total unamortized catalog
costs in prepaid expenses and other current assets on the
Consolidated Balance Sheets were $0.4 million as of
March 27, 2010 and March 28, 2009.
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 in this section and Note 4 of our
Consolidated Financial Statements for further details.
Stock-Based Compensation.
We measure
the cost of services received in exchange for all equity awards
granted, including stock options, warrants and restricted stock,
based on the fair market value of the award as of the grant
date. We record compensation cost related to unvested stock
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 stock 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.
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. Beginning in the second
quarter of fiscal year 2008, options granted to executive
officers vest using a graded schedule of 0% in the first year,
20% in each of the second and third years, and 60% in the fourth
year. Prior options granted to executive officers vested equally
over three years. The expense relating to these executive
officer options is recognized on a straight-line basis over the
requisite service period for the entire award.
21
Table of Contents
During the first quarter of fiscal years 2010 and 2009, we
granted performance-based restricted stock awards in place of
options as a primary component of executive compensation. The
performance-based restricted stock awards vest after three years
subject to certain cumulative diluted earnings per share growth
targets over the eligible three-year period. During the second
quarter of fiscal year 2009 and in conjunction with the
acquisition of Westcon, we modified these awards by increasing
the cumulative diluted earnings per share growth performance
condition. The modification did not have an impact on our
Consolidated Financial Statements.
Compensation cost ultimately recognized for these
performance-based restricted awards will equal the grant-date
fair market value of the award 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. At
March 27, 2010, we estimated the probability of achievement
for these performance-based awards granted in fiscal year 2010
and 2009 to be 75% and 0% of the target level, respectively.
See Note 7 of our Consolidated Financial Statements for
further disclosure regarding our stock-based compensation.
Revenue Recognition.
Product sales are
recorded when a product’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.
22
Table of Contents
RESULTS
OF OPERATIONS
The following table sets forth, for the prior three fiscal
years, the components of our Consolidated Statements of
Operations.
| FY 2010 | FY 2009 | FY 2008 | ||||||||||
|
Gross Profit Percentage:
|
||||||||||||
|
Product Gross Profit
|
23.4 | % | 25.4 | % | 27.8 | % | ||||||
|
Service Gross Profit
|
24.5 | % | 23.7 | % | 23.3 | % | ||||||
|
Total Gross Profit
|
23.8 | % | 24.9 | % | 26.3 | % | ||||||
|
As a Percentage of Total Net Revenue:
|
||||||||||||
|
Product Sales
|
65.6 | % | 68.3 | % | 67.5 | % | ||||||
|
Service Revenue
|
34.4 | % | 31.7 | % | 32.5 | % | ||||||
|
Total Net Revenue
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Selling, Marketing and Warehouse Expenses
|
13.2 | % | 13.2 | % | 12.9 | % | ||||||
|
Administrative Expenses
|
7.7 | % | 8.1 | % | 8.8 | % | ||||||
|
Total Operating Expenses
|
20.9 | % | 21.3 | % | 21.7 | % | ||||||
|
Operating Income
|
2.9 | % | 3.6 | % | 4.6 | % | ||||||
|
Interest Expense
|
0.1 | % | 0.1 | % | 0.1 | % | ||||||
|
Other Expense
|
— | 0.1 | % | 0.6 | % | |||||||
|
Total Other Expense
|
0.1 | % | 0.2 | % | 0.7 | % | ||||||
|
Income Before Income Taxes
|
2.8 | % | 3.4 | % | 3.9 | % | ||||||
|
Provision for Income Taxes
|
1.0 | % | 1.3 | % | 0.5 | % | ||||||
|
Net Income
|
1.8 | % | 2.1 | % | 3.4 | % | ||||||
FISCAL
YEAR ENDED MARCH 27, 2010 COMPARED TO FISCAL YEAR ENDED MARCH
28, 2009
(dollars
in thousands):
Revenue:
| For the Years Ended | ||||||||
|
March 27,
|
March 28,
|
|||||||
| 2010 | 2009 | |||||||
|
Net Revenue:
|
||||||||
|
Product
|
$ | 53,143 | $ | 51,480 | ||||
|
Service
|
27,918 | 23,939 | ||||||
|
Total
|
$ | 81,061 | $ | 75,419 | ||||
Net revenue increased $5.6 million, or 7.5%, from fiscal
year 2009 to fiscal year 2010.
Our products net sales accounted for 65.6% of our total net
revenue in fiscal year 2010 and 68.3% of our total net revenue
in fiscal year 2009.
Year-over-year
product net sales increased $1.7 million, or 3.2%. Our
fiscal years 2010 and 2009 product sales in relation to prior
fiscal year quarter comparisons were as follows:
| FY 2010 | FY 2009 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Product Sales Growth (Decline)
|
20.5 | % | 8.5 | % | (7.6 | )% | (8.5 | )% | (1.4 | )% | 7.6 | % | 15.5 | % | 12.7 | % | |||||||||||||||||
Product net sales per day declined in both the first and second
quarter of fiscal year 2010 when compared against the same
quarter in the prior fiscal year, a direct result of the
economy. As the economy began to improve in the second half of
fiscal year 2010, we experienced growth in daily sales volume
for both the third
23
Table of Contents
and fourth quarters of fiscal year 2010 when compared against
the third and fourth quarters of fiscal year 2009. Our product
sales per business day for each fiscal quarter during fiscal
years 2010 and 2009 were as follows:
| FY 2010 | FY 2009 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Product Sales Per Business Day
|
$ | 230 | $ | 249 | $ | 190 | $ | 176 | $ | 191 | $ | 226 | $ | 206 | $ | 192 | |||||||||||||||||
The increase in product net sales was primarily due to increased
sales in the wind energy industry. During fiscal year 2010,
product sales to the wind energy industry were
$4.7 million, or 8.8% of net product sales. The sales
growth achieved in the wind energy industry was partially offset
by a decline in sales to non-wind energy customers within our
direct channel as a result of the economic climate experienced
during fiscal year 2010. As economic conditions improved in the
latter part of fiscal year 2010, the second half
year-over-year
sales growth did not fully offset the sales decline from the
first half. During the first half of fiscal 2010, non-wind sales
to our direct channel declined 17.3%, when compared to the first
half of fiscal year 2009. During the second half of fiscal year
2010, non-wind sales to our direct channel increased 6.0%, when
compared to the same period in the prior fiscal year. Sales to
our reseller channel were relatively consistent from fiscal year
2009 to fiscal year 2010. The following table presents the
percent of net sales for our significant product distribution
channels for each fiscal quarter during fiscal years 2010 and
2009:
| FY 2010 | FY 2009 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Percent of Net Sales:
|
|||||||||||||||||||||||||||||||||
|
Direct
|
75.2 | % | 70.8 | % | 77.5 | % | 75.2 | % | 77.0 | % | 72.7 | % | 71.1 | % | 74.1 | % | |||||||||||||||||
|
Reseller
|
23.2 | % | 27.8 | % | 21.1 | % | 23.3 | % | 21.6 | % | 26.1 | % | 27.3 | % | 24.3 | % | |||||||||||||||||
|
Freight Billed to Customer
|
1.6 | % | 1.4 | % | 1.4 | % | 1.5 | % | 1.4 | % | 1.2 | % | 1.6 | % | 1.6 | % | |||||||||||||||||
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||
Customer product orders include orders for instruments that we
routinely stock in our inventory, customized products, and other
products ordered less frequently, which we do not stock. Pending
product shipments are primarily backorders, but also include
products that are requested to be calibrated in our laboratories
prior to shipment, orders required to be shipped complete, and
orders required to be shipped at a future date. Our total
pending product shipments at the end of fiscal year 2010
increased by approximately $0.6 million, or 49.2% from the
balance at the end of fiscal year 2009. The increase in pending
product shipments was primarily attributable to increased
backorders, as well as $0.2 million in incremental pending
product shipments associated with United Scale, which was
acquired during our fiscal fourth quarter. As the economy
improved and customer demand in the marketplace quickly
increased, manufacturers were slower to respond, thus resulting
in longer lead times for many of the products we sell. The
following table reflects the percentage of total pending product
shipments that were backorders at the end of each fiscal quarter
in 2010 and 2009 and our historical trend of total pending
product shipments:
| FY 2010 | FY 2009 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Total Pending Product Shipments
|
$ | 1,576 | $ | 2,351 | $ | 1,904 | $ | 1,445 | $ | 1,189 | $ | 1,701 | $ | 1,398 | $ | 1,366 | |||||||||||||||||
|
% of Pending Product Shipments that are Backorders
|
89.5 | % | 82.8 | % | 78.9 | % | 72.2 | % | 81.0 | % | 84.1 | % | 70.7 | % | 74.7 | % | |||||||||||||||||
Calibration services revenue, which accounted for 34.4% of our
total net revenue in fiscal year 2010 and 31.7% of our total net
revenue in fiscal year 2009, increased 16.6% from fiscal year
2009 to fiscal year 2010. The growth in revenue is primarily a
result of the expansion of our traditional service customer base
through
24
Table of Contents
new customer acquisition as well as increased in-house and
outsourced services provided to the wind energy industry.
Service revenue with the wind-energy industry in fiscal year
2010 was $2.1 million, or 7.6% of total service revenue.
Also, within any year, while we add new customers, we also have
customers from the prior year whose calibrations may not repeat
for any number of factors. Among those factors are the
variations in the timing of customer periodic calibrations on
instruments and other services, customer capital expenditures
and customer outsourcing decisions. Because of the timing of
calibration orders and segment expenses can vary on a
quarter-to-quarter
basis, we believe a trailing twelve month trend provides a
better indication of the progress of this segment. Our fiscal
years 2010 and 2009 calibration service revenue in relation to
prior fiscal year quarter comparisons, were as follows:
| FY 2010 | FY 2009 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Service Revenue Growth (Decline)
|
30.6 | % | 10.7 | % | 15.5 | % | 7.2 | % | (0.9 | )% | 10.3 | % | 4.5 | % | 5.3 | % | |||||||||||||||||
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, we have historically outsourced 15% to
20% of Service segment revenue to third party vendors for
calibration beyond our chosen scope of capabilities. During
fiscal year 2010, we outsourced 21.1% of our total service
revenue. The slight increase in the percentage of outsourced
revenue is attributable to specific services provided to the
wind energy industry, which fall outside our current scope of
business. We will continue to evaluate the need for capital
investments that could provide more in-house capabilities for
our staff of technicians and reduce the need for third party
vendors in certain instances. The following table presents the
percent of Service segment revenue for the significant sources
for each fiscal quarter during fiscal years 2010 and 2009:
| FY 2010 | FY 2009 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Percent of Service Revenue:
|
|||||||||||||||||||||||||||||||||
|
Depot/Onsite
|
75.9 | % | 73.5 | % | 77.3 | % | 79.3 | % | 81.2 | % | 78.5 | % | 78.6 | % | 80.8 | % | |||||||||||||||||
|
Outsourced
|
21.6 | % | 24.0 | % | 20.2 | % | 18.2 | % | 15.8 | % | 18.2 | % | 18.8 | % | 16.4 | % | |||||||||||||||||
|
Freight Billed to Customers
|
2.5 | % | 2.5 | % | 2.5 | % | 2.5 | % | 3.0 | % | 3.3 | % | 2.6 | % | 2.8 | % | |||||||||||||||||
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||
Gross
Profit:
| For the Years Ended | ||||||||
|
March 27,
|
March 28,
|
|||||||
| 2010 | 2009 | |||||||
|
Gross Profit:
|
||||||||
|
Product
|
$ | 12,442 | $ | 13,070 | ||||
|
Service
|
6,852 | 5,678 | ||||||
|
Total
|
$ | 19,294 | $ | 18,748 | ||||
Total gross profit dollars in fiscal year 2010 increased by
$0.5 million, or 2.9%, from fiscal year 2009. As a
percentage of total net revenue, total gross profit declined
110 basis points over the same time period.
We evaluate product gross profit from two perspectives. Channel
gross profit includes net sales less the direct cost of
inventory sold. Our total product 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
total product gross profit can vary based upon price
discounting; the mix of
25
Table of Contents
sales to our reseller channel, which have lower margins than our
direct customer base; and the timing of periodic vendor rebates
and cooperative advertising income received from suppliers.
Total product gross profit in fiscal year 2010 was 23.4% of
total product sales and declined 200 basis points when
compared with 25.4% of total product sales in fiscal year 2009.
Product gross profit declined $0.6 million in fiscal year
2010 compared to fiscal year 2009. Despite increased product
sale volume, an increase in price discounting drove the
decrease. The gross profit percentage in our direct and reseller
channels declined 140 basis points and 240 basis
points, respectively, from fiscal year 2009 to fiscal year 2010.
Pricing in the marketplace remained competitive during both the
downturn and recovery phases of the economy, and as a result, we
increased discounting accordingly. In addition, total product
gross profit was negatively impacted by approximately
$0.2 million less in combined vendor rebate and cooperative
advertising income in fiscal year 2010, when compared to fiscal
year 2009. The key driver of this decline in fiscal year 2010
was lower
point-of-sale
rebates achieved from Fluke. The following table reflects the
quarterly historical trend of our product gross profit as a
percent of total product sales:
| FY 2010 | FY 2009 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Channel Gross Profit % — Direct(1)
|
24.7 | % | 23.1 | % | 23.2 | % | 24.3 | % | 24.0 | % | 24.6 | % | 26.5 | % | 25.8 | % | |||||||||||||||||
|
Channel Gross Profit % — Reseller(1)
|
16.0 | % | 15.0 | % | 15.6 | % | 17.0 | % | 18.7 | % | 17.8 | % | 18.3 | % | 18.2 | % | |||||||||||||||||
|
Channel Gross Profit % — Combined(2)
|
22.6 | % | 20.8 | % | 21.6 | % | 22.6 | % | 22.8 | % | 22.8 | % | 24.2 | % | 23.9 | % | |||||||||||||||||
|
Other Items %(3)
|
3.1 | % | 1.2 | % | 0.6 | % | 0.9 | % | 1.2 | % | 1.6 | % | 1.8 | % | 3.4 | % | |||||||||||||||||
|
Total Product Gross Profit %
|
25.7 | % | 22.0 | % | 22.2 | % | 23.5 | % | 24.0 | % | 24.4 | % | 26.0 | % | 27.3 | % | |||||||||||||||||
| (1) | Channel gross profit% calculated as net sales less purchase costs divided by net sales. | |
| (2) | Represents aggregate gross profit% for direct and reseller channels, calculated as net sales less purchase cost divided by net sales | |
| (3) | Includes vendor rebates, cooperative advertising income, freight billed to customers, freight expenses, and direct shipping costs. |
Calibration services gross profit increased $1.2 million,
or 20.7%, from fiscal year 2009 to fiscal year 2010. As a
percent of service revenue, calibration services gross profit
increased 80 basis points from fiscal year 2009 to fiscal
year 2010. Despite this increase, margin expansion was somewhat
limited during fiscal year 2010 due to the volume of revenue
growth attributed to third-party vendor repairs and
calibrations, primarily to wind energy customers, and
incremental performance-based management bonus and profit
sharing expense in fiscal year 2010. The following table
reflects our calibration services gross profit growth in
relation to prior fiscal year quarters:
| FY 2010 | FY 2009 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Service Gross Profit Dollar Growth (Decline)
|
25.4 | % | 15.0 | % | 25.5 | % | 2.9 | % | 5.7 | % | 16.8 | % | 4.8 | % | (0.3 | %) | |||||||||||||||||
Operating
Expenses:
| For the Years Ended | ||||||||
|
March 27,
|
March 28,
|
|||||||
| 2010 | 2009 | |||||||
|
Operating Expenses:
|
||||||||
|
Selling, Marketing and Warehouse
|
$ | 10,682 | $ | 9,935 | ||||
|
Administrative
|
6,231 | 6,127 | ||||||
|
Total
|
$ | 16,913 | $ | 16,062 | ||||
26
Table of Contents
Operating expenses were $16.9 million, or 20.9% of total
net revenue, in fiscal year 2010 compared with
$16.1 million, or 21.3% of total net revenue, in fiscal
year 2009. Increased performance-based management bonus and
profit sharing expenses contributed $0.6 million, or 73.4%
of the overall annual increase. Exclusive of this increase, the
remaining
year-over-year
increase in operating expense was 1.4%, an indication of our
continued commitment to control costs.
Other
Expense:
| For the Years Ended | ||||||||
|
March 27,
|
March 28,
|
|||||||
| 2010 | 2009 | |||||||
|
Other Expense:
|
||||||||
|
Interest Expense
|
$ | 63 | $ | 100 | ||||
|
Other Expense, net
|
35 | 67 | ||||||
|
Total
|
$ | 98 | $ | 167 | ||||
Total other expense decreased by less than $0.1 million
from fiscal year 2009 to fiscal year 2010. Lower interest
expense was a result of reduced debt balances and lower interest
rates, while other expense decreases were due to reductions in
foreign currency losses. We have a program in place to hedge the
majority of our risk from fluctuations in the value of the
U.S. dollar relative to the Canadian dollar.
Taxes:
| For the Years Ended | ||||||||
|
March 27,
|
March 28,
|
|||||||
| 2010 | 2009 | |||||||
|
Provision for Income Taxes
|
$ | 832 | $ | 963 | ||||
Our effective tax rates for fiscal years 2010 and 2009 were
36.4% and 38.2%, respectively.
FISCAL
YEAR ENDED MARCH 28, 2009 COMPARED TO FISCAL YEAR ENDED MARCH
29, 2008
(dollars
in thousands):
Revenue:
| For the Years Ended | ||||||||
|
March 28,
|
March 29,
|
|||||||
| 2009 | 2008 | |||||||
|
Net Revenue:
|
||||||||
|
Product
|
$ | 51,480 | $ | 47,539 | ||||
|
Service
|
23,939 | 22,914 | ||||||
|
Total
|
$ | 75,419 | $ | 70,453 | ||||
Net revenue increased $5.0 million, or 7.0%, from fiscal
year 2008 to fiscal year 2009.
Our distribution products net sales accounted for 68.3% of our
total net revenue in fiscal year 2009 and 67.5% of our total net
revenue in fiscal year 2008.
Year-over-year
product net sales increased 8.3%, primarily due to incremental
sales associated with our acquisition of Westcon and increased
reseller sales to expand our market reach. We believe that the
overall economic environment, specifically the conditions
experienced in the second half of our fiscal year, negatively
impacted our overall sales performance for the year. This belief
stems, in part, from the number of notices we have received from
our suppliers and customers regarding plant shut downs, closures
and workforce reductions. In the first half of fiscal year 2009,
we experienced 14.1% growth in product net sales compared with
the first half of fiscal year 2008; while in the second half of
fiscal year 2009, we grew only 3.2% compared with the second
half of fiscal year 2008, including incremental sales from
27
Table of Contents
Westcon. Our fiscal years 2009 and 2008 product sales in
relation to prior fiscal year quarter comparisons were as
follows:
| FY 2009 | FY 2008 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4(1) | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Product Sales (Decline) Growth
|
(1.4 | )% | 7.6 | % | 15.5 | % | 12.7 | % | (2.4 | )% | 5.8 | % | 13.6 | % | 3.7 | % | |||||||||||||||||
| (1) | The fourth quarter of fiscal year 2008 was a 13-week period compared to a 14-week period in the fourth quarter of fiscal year 2007. |
Product net sales per day increased in each quarter of fiscal
year 2009 as compared with the same period of fiscal year 2008,
except for our fourth quarter of fiscal year 2009. We believe
this was primarily due to a decline in the general economy. Our
product sales per business day for each fiscal quarter during
fiscal years 2009 and 2008 were as follows:
| FY 2009 | FY 2008 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Product Sales Per Business Day
|
$ | 191 | $ | 226 | $ | 206 | $ | 192 | $ | 197 | $ | 213 | $ | 178 | $ | 171 | |||||||||||||||||
Overall product sales from fiscal year 2008 to fiscal year 2009
reflect 1.8% growth in our direct distribution channel. The
direct distribution channel experienced a 5.8% growth in the
first half of fiscal year 2009, due primarily to a combination
of increased prices, new product introductions by strategic
suppliers, increased customer response to our sales and
marketing efforts, and growing sales through our website. Direct
distribution channel’s sales in the third and fourth
quarters of fiscal year 2009 declined 1.5% and 1.9%,
respectively, compared to those in the third and fourth quarters
of fiscal year 2008. We attribute this decline to the general
weakness in the economy as demand from customers decreased
despite aggressive pricing. For fiscal year 2009, our direct
distribution channel gross profit percentage decreased
160 basis points, primarily as a result of more competitive
pricing in both our U.S. and Canadian markets. While our
direct distribution channel grew modestly in fiscal year 2009,
our reseller distribution channel increased 34.0%, when compared
to fiscal year 2008. We believe resellers continue to utilize us
for our extensive availability to a broad range of new and
existing products from within our inventory. While sales
increased significantly, our continued use of a volume-based
pricing structure allowed us to improve our reseller gross
profit percentage by 70 basis points in fiscal year 2009
when compared to the fiscal year 2008. The following table
presents the percent of net sales for our significant product
distribution channels for each fiscal quarter during fiscal
years 2009 and 2008:
| FY 2009 | FY 2008 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Percent of Net Sales:
|
|||||||||||||||||||||||||||||||||
|
Direct
|
77.0 | % | 72.7 | % | 71.1 | % | 74.1 | % | 77.4 | % | 79.5 | % | 77.4 | % | 79.1 | % | |||||||||||||||||
|
Reseller
|
21.6 | % | 26.1 | % | 27.3 | % | 24.3 | % | 21.1 | % | 19.1 | % | 21.0 | % | 19.3 | % | |||||||||||||||||
|
Freight Billed to Customer
|
1.4 | % | 1.2 | % | 1.6 | % | 1.6 | % | 1.5 | % | 1.4 | % | 1.6 | % | 1.6 | % | |||||||||||||||||
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||
Customer product orders include orders for instruments that we
routinely stock in our inventory, customized products, and other
products ordered less frequently, which we do not stock. Pending
product shipments are primarily backorders, but also include
products that are requested to be calibrated in our laboratories
prior to shipment, orders required to be shipped complete, and
orders required to be shipped at a future date. Our total
pending product shipments at the end of fiscal year 2009
decreased by approximately $0.2 million, or 16.2% from the
balance at the end of fiscal year 2008. We believe this decrease
was a result of a decline in the general economy. The following
table reflects the percentage of total pending product shipments
that were
28
Table of Contents
backorders at the end of each fiscal quarter in 2009 and 2008
and our historical trend of total pending product shipments:
| FY 2009 | FY 2008 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Total Pending Product Shipments
|
$ | 1,189 | $ | 1,701 | $ | 1,398 | $ | 1,366 | $ | 1,419 | $ | 1,411 | $ | 1,689 | $ | 1,678 | |||||||||||||||||
|
% of Pending Product Shipments that are Backorders
|
81.0 | % | 84.1 | % | 70.7 | % | 74.7 | % | 81.5 | % | 78.1 | % | 74.1 | % | 81.0 | % | |||||||||||||||||
Calibration services revenue, which accounted for 31.7% of our
total net revenue in fiscal year 2009 and 32.5% of our total net
revenue in fiscal year 2008, increased 4.5% from fiscal year
2008 to fiscal year 2009. Incremental revenue achieved through
new customer acquisition, resulting from our sales and marketing
efforts and our acquisition of Westcon, was partially offset by
declines in our existing customer base. Within any year, while
we add new customers, we also have customers from the prior year
whose calibrations may not repeat for any number of factors.
Among those factors are the variations in the timing of customer
periodic calibrations on instruments and other services,
customer capital expenditures and customer outsourcing
decisions. Because of the timing of calibration orders and
segment expenses can vary on a
quarter-to-quarter
basis, we believe a trailing twelve month trend provides a
better indication of the progress of this segment. Our fiscal
years 2009 and 2008 calibration service revenue in relation to
prior fiscal year quarter comparisons, were as follows:
| FY 2009 | FY 2008 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Service Revenue (Decline) Growth
|
(0.9 | )% | 10.3 | % | 4.5 | % | 5.3 | % | 10.6 | % | 9.9 | % | 8.6 | % | 5.6 | % | |||||||||||||||||
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, 15% to 20% of Service segment revenue
is generated from outsourcing customer equipment to third party
vendors for calibration beyond our chosen scope of capabilities.
The following table presents the percent of Service segment
revenue for the significant sources for each fiscal quarter
during fiscal years 2009 and 2008:
| FY 2009 | FY 2008 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Percent of Service Revenue:
|
|||||||||||||||||||||||||||||||||
|
Depot/Onsite
|
81.2 | % | 78.5 | % | 78.6 | % | 80.8 | % | 81.0 | % | 78.8 | % | 78.9 | % | 79.2 | % | |||||||||||||||||
|
Outsourced
|
15.8 | % | 18.2 | % | 18.8 | % | 16.4 | % | 16.4 | % | 18.6 | % | 18.4 | % | 18.2 | % | |||||||||||||||||
|
Freight Billed to Customers
|
3.0 | % | 3.3 | % | 2.6 | % | 2.8 | % | 2.6 | % | 2.6 | % | 2.7 | % | 2.6 | % | |||||||||||||||||
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||
Gross Profit:
| For the Years Ended | ||||||||
|
March 28,
|
March 29,
|
|||||||
| 2009 | 2008 | |||||||
|
Gross Profit:
|
||||||||
|
Product
|
$ | 13,070 | $ | 13,205 | ||||
|
Service
|
5,678 | 5,336 | ||||||
|
Total
|
$ | 18,748 | $ | 18,541 | ||||
29
Table of Contents
Gross profit, as a percent of total net revenue, decreased from
26.3% in fiscal year 2008 to 24.9% in fiscal year 2009.
Distribution products gross profit decreased $0.1 million,
or 1.0%, from fiscal year 2008 to fiscal year 2009. Contributing
to this decline was a greater mix of sales into our lower margin
reseller channel, a decrease of $0.3 million in income from
our rebate programs, and increased pricing discounts. These same
factors led to a decline in product profit margin from 27.8% in
fiscal year 2008 to 25.4% in fiscal year 2009.
Our product gross profit may be influenced by a number of
factors that can impact quarterly comparisons. Among those
factors are sales to our reseller channel which have lower
margins than our direct customer base, periodic rebates on
purchases, and cooperative advertising received from suppliers.
The following table reflects the quarterly historical trend of
our product gross profit as a percent of product net sales:
| FY 2009 | FY 2008 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Channel Gross Profit % — Direct(1)
|
24.0 | % | 24.6 | % | 26.5 | % | 25.8 | % | 26.2 | % | 26.7 | % | 27.8 | % | 26.6 | % | |||||||||||||||||
|
Channel Gross Profit % — Reseller(1)
|
18.7 | % | 17.8 | % | 18.3 | % | 18.2 | % | 16.4 | % | 18.3 | % | 18.4 | % | 16.7 | % | |||||||||||||||||
|
Channel Gross Profit % — Combined(2)
|
22.8 | % | 22.8 | % | 24.2 | % | 23.9 | % | 24.1 | % | 25.1 | % | 25.8 | % | 24.6 | % | |||||||||||||||||
|
Other Items %(3)
|
1.2 | % | 1.6 | % | 1.8 | % | 3.4 | % | 3.0 | % | 3.0 | % | 2.1 | % | 3.4 | % | |||||||||||||||||
|
Total Product Gross Profit %
|
24.0 | % | 24.4 | % | 26.0 | % | 27.3 | % | 27.1 | % | 28.1 | % | 27.9 | % | 28.0 | % | |||||||||||||||||
| (1) | Channel gross profit% calculated as net sales less purchase costs divided by net sales. | |
| (2) | Represents aggregate gross profit% for direct and reseller channels, calculated as net sales less purchase cost divided by net sales | |
| (3) | Includes vendor rebates, cooperative advertising income, freight billed to customers, freight expenses, and direct shipping costs. |
Calibration services gross profit increased $0.3 million,
or 6.4%, from fiscal year 2008 to fiscal year 2009. As a percent
of service revenue, calibration services gross profit increased
40 basis points from fiscal year 2008 to fiscal year 2009.
The improvement in calibration services gross profit and margin
is a direct result of reduced performance-based bonus and profit
sharing expense. The following table reflects our calibration
services gross profit growth in relation to prior fiscal year
quarters:
| FY 2009 | FY 2008 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Service Gross Profit Dollar Growth (Decline)
|
5.7 | % | 16.8 | % | 4.8 | % | (0.3 | )% | 32.5 | % | 14.0 | % | 5.0 | % | 3.8 | % | |||||||||||||||||
Operating
Expenses:
| For the Years Ended | ||||||||
|
March 28,
|
March 29,
|
|||||||
| 2009 | 2008 | |||||||
|
Operating Expenses:
|
||||||||
|
Selling, Marketing and Warehouse
|
$ | 9,935 | $ | 9,056 | ||||
|
Administrative
|
6,127 | 6,202 | ||||||
|
Total
|
$ | 16,062 | $ | 15,258 | ||||
Operating expenses were $16.1 million, or 21.3% of total
net revenue, in fiscal year 2009 compared with
$15.3 million, or 21.7% of total net revenue, in fiscal
year 2008. Included in fiscal year 2009 operating expenses were
$1.1 million in Westcon expenses, of which
$0.3 million related to non-recurring administrative
expenses associated with integration. Exclusive of incremental
Westcon expenses, our organic operating expenses decreased 1.8%
in fiscal year 2009 compared with fiscal year 2008, primarily
due to reductions in
30
Table of Contents
employee stock-based compensation, performance-based management
bonus and employee profit sharing expense, partially offset by
investments in our sales and marketing for the Service segment.
Other
Expense:
| For the Years Ended | ||||||||
|
March 28,
|
March 29,
|
|||||||
| 2009 | 2008 | |||||||
|
Other Expense:
|
||||||||
|
Interest Expense
|
$ | 100 | $ | 101 | ||||
|
Other Expense, net
|
67 | 437 | ||||||
|
Total
|
$ | 167 | $ | 538 | ||||
Interest expense of $0.1 million in fiscal year 2009 was
consistent with interest expense in fiscal year 2008. Other
expense decreased $0.4 million from fiscal year 2008 to
fiscal year 2009 due to reduced foreign exchange losses. We have
a program in place to hedge the majority of our risk to
fluctuations in the value of the U.S. dollar relative to
the Canadian dollar.
Taxes:
| For the Years Ended | ||||||||
|
March 28,
|
March 29,
|
|||||||
| 2009 | 2008 | |||||||
|
Provision for Income Taxes
|
$ | 963 | $ | 382 | ||||
In fiscal year 2009, we recognized a $1.0 million provision
for income taxes, compared with a $0.4 million provision in
fiscal year 2008. Fiscal year 2008 included a $0.8 million
benefit from a reduction in our deferred tax asset valuation
allowance relating to our U.S. foreign tax credit
carryforwards.
LIQUIDITY
AND CAPITAL RESOURCES
We believe that amounts available under our current credit
facility and our cash on hand are sufficient to satisfy our
expected working capital and capital expenditure needs as well
as our lease commitments for the foreseeable future.
Cash Flows.
The following table is a
summary of our Consolidated Statements of Cash Flows (dollars in
thousands):
| For the Years Ended | ||||||||
|
March 27,
|
March 28,
|
|||||||
| 2010 | 2009 | |||||||
|
Cash Provided by (Used in):
|
||||||||
|
Operating Activities
|
$ | 5,649 | $ | 3,816 | ||||
|
Investing Activities
|
(4,139 | ) | (7,416 | ) | ||||
|
Financing Activities
|
(1,469 | ) | 3,472 | |||||
Operating Activities:
Cash provided by
operating activities for fiscal year 2010 was $5.6 million
compared to $3.8 million in fiscal year 2009. Significant
working capital fluctuations were as follows:
| • | Inventory/Accounts Payable: Inventory balance at March 27, 2010 was $5.9 million, an increase of $1.0 million when compared to the $4.9 million on-hand on March 28, 2009. The increase was partly due to inventory acquired in the acquisition of United Scale as well as a strategic decision we made to maintain higher inventory levels of specific, higher-volume products, in support of greater sales growth and in an effort to reduce future backorder issues similar to those experienced at times during fiscal year 2010. The timing of inventory receipts impacted the accounts payable balance and is the primary reason for the $3.6 million increase in accounts payable in fiscal year 2010, compared to a $1.6 million |
31
Table of Contents
| decrease in fiscal year 2009. In general, our accounts payable balance increases or decreases as a result of timing of vendor payments for inventory receipts. |
| • | 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 2009 to fiscal year 2010:
|
March 27,
|
March 28,
|
|||||||
| 2010 | 2009 | |||||||
|
Net Sales, for the last two fiscal months
|
$ | 17,824 | $ | 14,226 | ||||
|
Accounts Receivable, net
|
$ | 11,439 | $ | 8,981 | ||||
|
Days Sales Outstanding
|
39 | 38 | ||||||
| • | Accrued Compensation and Other Liabilities: Lower payments for employee profit sharing and performance-based management bonuses during fiscal year 2010, while accruing for future payments at March 27, 2010, contributed to the $1.5 million of cash provided during fiscal year 2010 compared with $0.8 million of cash used in fiscal year 2009. |
Investing Activities:
In fiscal year 2010, we
used $4.1 million of cash in investing activities. The
primary uses of the cash were $1.9 million for the
acquisition of United Scale, $1.1 million in contingent
consideration relating to our acquisition of Westcon and
$1.1 million to purchase property and equipment, primarily
for additional lab capabilities and information technology. In
fiscal year 2009, we used $7.4 million of cash in investing
activities, of which approximately $5.6 million was
associated with the purchase of Westcon. In addition, during
fiscal year 2009, we used $1.8 million of cash for the
purchase of property and equipment primarily for the expansion
of capabilities in our calibration laboratories which included
improvements to our facilities and infrastructure.
Financing Activities:
During fiscal year 2010,
we used $1.5 million in cash for financing activities,
including $1.0 million to reduce our debt. In addition, we
used $0.6 million of cash for the repurchase of
143,000 shares of common stock from beneficiaries of a
former Board member’s estate at a price of $4.45 per share.
This use of cash was offset by $0.2 million of cash
generated primarily from the issuance of common stock through
the exercise of stock options and warrants. Financing activities
provided $3.5 million in cash during fiscal year 2009. Net
borrowings from our revolving line of credit provided
$3.2 million during fiscal year 2009, primarily due to
borrowings used to acquire Westcon. In addition,
$0.2 million of cash was generated in fiscal year 2009
primarily from the issuance of common stock through the exercise
of stock options and warrants.
Contractual Obligations and Commercial
Commitments.
The table below contains
aggregated information about future payments related to
contractual obligations and commercial commitments such as debt
and lease agreements (in millions):
| Payments Due By Period | ||||||||||||||||||||
|
Less than
|
1-3
|
3-5
|
More than
|
|||||||||||||||||
| 1 Year | Years | Years | 5 Years | Total | ||||||||||||||||
|
Revolving Line of Credit(1)
|
$ | — | $ | 2.5 | $ | — | $ | — | $ | 2.5 | ||||||||||
|
Operating Leases
|
1.1 | 1.6 | 0.7 | 1.4 | 4.8 | |||||||||||||||
|
Total Contractual Cash Obligations
|
$ | 1.1 | $ | 4.1 | $ | 0.7 | $ | 1.4 | $ | 7.3 | ||||||||||
| (1) | Due to the uncertainty of forecasting expected variable rate interest payments, this amount excludes interest portion of the debt obligation. |
32
Table of Contents
OUTLOOK
With an expanded service capability and product portfolio, we
are strategically positioned to further capitalize on our
customers’ requirements for high quality calibration and
repair services and a convenient, cost-competitive source for a
broad inventory of handheld test and measurement equipment.
Looking ahead to fiscal year 2011, we anticipate that our
quarterly performance should result in strong first half
year-over-year
comparisons that will moderate in the second half to be more in
line with our previously communicated organic growth rates of
low-to-mid
single digit growth in our Product segment and low double digit
growth in our Service segment. More significantly, we expect
that as our top line expands, we will continue to realize the
significant leverage available in our Service segment and our
bottom line should expand at an appreciably greater rate.
Capital spending, excluding any acquisitions, is expected to be
in the range of $1.5 million to $2.0 million in fiscal
year 2011.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
INTEREST
RATES
Our exposure to changes in interest rates results from 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 27, 2010, $13.8 million was
available under our credit facility, subject to the maximum
borrowing restriction based on a 2.75 multiple of earnings
before income taxes, depreciation and amortization for the
preceding four consecutive fiscal quarters, of which
$2.5 million was outstanding.
Under our credit facility described in Note 3 of our
Consolidated Financial Statements, interest is adjusted on a
quarterly basis based upon our calculated leverage ratio. We
mitigate our interest rate risk by electing the lower of the
base rate available under the credit facility and the London
Interbank Offered Rate (“LIBOR”). As of March 27,
2010, the base rate and the LIBOR rate were 3.3% and 0.2%,
respectively. Our interest rate for fiscal year 2010 ranged from
1.1% to 2.8%. On March 27, 2010 and March 28, 2009, we
had no hedging arrangements in place to limit our exposure to
upward movements in interest rates.
FOREIGN
CURRENCY
Over 90% of our net revenues for fiscal years 2010 and 2009 were
denominated in United States dollars, with the remainder
denominated in Canadian dollars. A 10% change in the value of
the Canadian dollar to the United States dollar would impact our
net revenues by less than 1%. We monitor the relationship
between the United States and Canadian currencies on a
continuous basis and adjust sales prices for products and
services sold in Canadian dollars as we believe to be
appropriate.
We periodically enter into foreign exchange forward contracts to
reduce the risk that our earnings would be adversely affected by
changes in currency exchange rates. We do not apply hedge
accounting and therefore, the change in the fair value of the
contracts, which totaled less than $0.1 million in each of
fiscal years 2010 and 2009 was recognized as a component of
other expense in the Consolidated Statements of Operations and
Comprehensive 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 27, 2010, we had a foreign exchange
contract set to mature in April 2010, outstanding in the
notional amount of $0.4 million. On March 28, 2009, we
had foreign exchange contracts outstanding in the notional
amount of $0.3 million. We do not use hedging arrangements
for speculative purposes.
33
Table of Contents
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INDEX
| Page(s) | ||||||||
| 35 | ||||||||
|
Consolidated Financial Statements
|
||||||||
| 36 | ||||||||
| 37 | ||||||||
| 38 | ||||||||
| 39 | ||||||||
| 40-56 | ||||||||
| Schedule II — Valuation and Qualifying Accounts for the Years Ended March 27, 2010, March 28, 2009 and March 29, 2008 | 57 | |||||||
34
Table of Contents
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 27, 2010 and March 28, 2009 and the related
consolidated statements of operations and comprehensive income,
shareholders’ equity and cash flows for each of the three
years in the period ended March 27, 2010. In connection
with our audits of the financial statements, we have also
audited the schedule listed in the accompanying index. These
financial statements and schedule are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements and schedule 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 audit 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 and
schedule. 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 at
March 27, 2010 and March 28, 2009, and the results of
their operations and their cash flows for each of the three
years in the period ended March 27, 2010, in conformity
with accounting principles generally accepted in the United
States.
As discussed in Note 10 to the consolidated financial
statements, effective March 29, 2009 the Company adopted
Statement of Financial Accounting Standards No. 141
(revised 2007), Business Combinations, now codified as
Accounting Standards Codification Topic 805, Business
Combinations.
Also, in our opinion, the financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
June 24, 2010
35
Table of Contents
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In Thousands, Except Per Share Amounts)
| For the Years Ended | ||||||||||||
|
March 27,
|
March 28,
|
March 29,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Product Sales
|
$ | 53,143 | $ | 51,480 | $ | 47,539 | ||||||
|
Service Revenue
|
27,918 | 23,939 | 22,914 | |||||||||
|
Net Revenue
|
81,061 | 75,419 | 70,453 | |||||||||
|
Cost of Products Sold
|
40,701 | 38,410 | 34,334 | |||||||||
|
Cost of Services Sold
|
21,066 | 18,261 | 17,578 | |||||||||
|
Total Cost of Products and Services Sold
|
61,767 | 56,671 | 51,912 | |||||||||
|
Gross Profit
|
19,294 | 18,748 | 18,541 | |||||||||
|
Selling, Marketing and Warehouse Expenses
|
10,682 | 9,935 | 9,056 | |||||||||
|
Administrative Expenses
|
6,231 | 6,127 | 6,202 | |||||||||
|
Total Operating Expenses
|
16,913 | 16,062 | 15,258 | |||||||||
|
Operating Income
|
2,381 | 2,686 | 3,283 | |||||||||
|
Interest Expense
|
63 | 100 | 101 | |||||||||
|
Other Expense, net
|
35 | 67 | 437 | |||||||||
|
Total Other Expense
|
98 | 167 | 538 | |||||||||
|
Income Before Income Taxes
|
2,283 | 2,519 | 2,745 | |||||||||
|
Provision for Income Taxes
|
832 | 963 | 382 | |||||||||
|
Net Income
|
1,451 | 1,556 | 2,363 | |||||||||
|
Other Comprehensive Income (Loss)
|
62 | (116 | ) | 393 | ||||||||
|
Comprehensive Income
|
$ | 1,513 | $ | 1,440 | $ | 2,756 | ||||||
|
Basic Earnings Per Share
|
$ | 0.20 | $ | 0.21 | $ | 0.33 | ||||||
|
Average Shares Outstanding
|
7,352 | 7,304 | 7,132 | |||||||||
|
Diluted Earnings Per Share
|
$ | 0.19 | $ | 0.21 | $ | 0.32 | ||||||
|
Average Shares Outstanding
|
7,549 | 7,469 | 7,272 | |||||||||
See accompanying notes to consolidated financial statements.
36
Table of Contents
TRANSCAT,
INC.
(In thousands, Except Share and Per Share Amounts)
|
March 27,
|
March 28,
|
|||||||
| 2010 | 2009 | |||||||
|
ASSETS
|
||||||||
|
Current Assets:
|
||||||||
|
Cash
|
$ | 123 | $ | 59 | ||||
|
Accounts Receivable, less allowance for doubtful accounts of $82
and $75 as of March 27, 2010 and March 28, 2009,
respectively
|
11,439 | 8,981 | ||||||
|
Other Receivables
|
418 | 119 | ||||||
|
Inventory, net
|
5,906 | 4,887 | ||||||
|
Prepaid Expenses and Other Current Assets
|
915 | 774 | ||||||
|
Deferred Tax Asset
|
566 | 380 | ||||||
|
Total Current Assets
|
19,367 | 15,200 | ||||||
|
Property and Equipment, net
|
4,163 | 4,174 | ||||||
|
Goodwill
|
10,038 | 7,923 | ||||||
|
Intangible Assets, net
|
1,234 | 1,091 | ||||||
|
Deferred Tax Asset
|
533 | 635 | ||||||
|
Other Assets
|
378 | 368 | ||||||
|
Total Assets
|
$ | 35,713 | $ | 29,391 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
|
Current Liabilities:
|
||||||||
|
Accounts Payable
|
$ | 8,798 | $ | 4,748 | ||||
|
Accrued Compensation and Other Liabilities
|
3,171 | 1,757 | ||||||
|
Income Taxes Payable
|
251 | 215 | ||||||
|
Total Current Liabilities
|
12,220 | 6,720 | ||||||
|
Long-Term Debt
|
2,532 | 3,559 | ||||||
|
Other Liabilities
|
704 | 493 | ||||||
|
Total Liabilities
|
15,456 | 10,772 | ||||||
|
Shareholders’ Equity:
|
||||||||
|
Common Stock, par value $0.50 per share, 30,000,000 shares
authorized;
|
||||||||
|
7,698,450 and 7,656,358 shares issued as of March 27,
2010 and March 28, 2009, respectively; 7,279,668 and
7,380,576 shares outstanding as of March 27, 2010 and
March 28, 2009, respectively
|
3,849 | 3,828 | ||||||
|
Capital in Excess of Par Value
|
9,357 | 8,606 | ||||||
|
Accumulated Other Comprehensive Income
|
382 | 320 | ||||||
|
Retained Earnings
|
8,304 | 6,853 | ||||||
|
Less: Treasury Stock, at cost, 418,782 and 275,782 shares
as of March 27, 2010 and March 28, 2009, respectively
|
(1,635 | ) | (988 | ) | ||||
|
Total Shareholders’ Equity
|
20,257 | 18,619 | ||||||
|
Total Liabilities and Shareholders’ Equity
|
$ | 35,713 | $ | 29,391 | ||||
See accompanying notes to consolidated financial statements.
37
Table of Contents
TRANSCAT,
INC.
(In thousands)
| For the Years Ended | ||||||||||||
|
March 27,
|
March 28,
|
March 29,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Cash Flows from Operating Activities:
|
||||||||||||
|
Net Income
|
$ | 1,451 | $ | 1,556 | $ | 2,363 | ||||||
|
Adjustments to Reconcile Net Income to Net Cash Provided by
|
||||||||||||
|
Operating Activities:
|
||||||||||||
|
Deferred Income Taxes
|
35 | 246 | 40 | |||||||||
|
Depreciation and Amortization
|
2,080 | 1,897 | 1,761 | |||||||||
|
Provision for (Recovery of) Accounts Receivable and Inventory
Reserves
|
133 | 304 | (23 | ) | ||||||||
|
Stock-Based Compensation Expense
|
579 | 666 | 780 | |||||||||
|
Changes in Assets and Liabilities, net of acquisitions:
|
||||||||||||
|
Accounts Receivable and Other Receivables
|
(2,453 | ) | 1,418 | (186 | ) | |||||||
|
Inventory
|
(669 | ) | 836 | (1,039 | ) | |||||||
|
Prepaid Expenses and Other Assets
|
(707 | ) | (694 | ) | (662 | ) | ||||||
|
Accounts Payable
|
3,639 | (1,585 | ) | 640 | ||||||||
|
Accrued Compensation and Other Liabilities
|
1,529 | (789 | ) | (15 | ) | |||||||
|
Income Taxes Payable
|
32 | (39 | ) | (66 | ) | |||||||
|
Net Cash Provided by Operating Activities
|
5,649 | 3,816 | 3,593 | |||||||||
|
Cash Flows from Investing Activities:
|
||||||||||||
|
Purchase of Property and Equipment
|
(1,128 | ) | (1,775 | ) | (1,505 | ) | ||||||
|
Payments of Contingent Consideration
|
(1,094 | ) | — | — | ||||||||
|
Business Acquisitions, net of cash acquired
|
(1,917 | ) | (5,641 | ) | — | |||||||
|
Net Cash Used in Investing Activities
|
(4,139 | ) | (7,416 | ) | (1,505 | ) | ||||||
|
Cash Flows from Financing Activities:
|
||||||||||||
|
Revolving Line of Credit, net
|
(1,001 | ) | 3,199 | (2,598 | ) | |||||||
|
Payments on Other Debt Obligations
|
(26 | ) | (10 | ) | — | |||||||
|
Issuance of Common Stock
|
201 | 239 | 266 | |||||||||
|
Repurchase of Common Stock
|
(647 | ) | — | — | ||||||||
|
Excess Tax Benefits Related to Stock-Based Compensation
|
4 | 44 | 86 | |||||||||
|
Net Cash (Used in) Provided by Financing Activities
|
(1,469 | ) | 3,472 | (2,246 | ) | |||||||
|
Effect of Exchange Rate Changes on Cash
|
23 | (21 | ) | 9 | ||||||||
|
Net Increase (Decrease) in Cash
|
64 | (149 | ) | (149 | ) | |||||||
|
Cash at Beginning of Period
|
59 | 208 | 357 | |||||||||
|
Cash at End of Period
|
$ | 123 | $ | 59 | $ | 208 | ||||||
|
Supplemental Disclosures of Cash Flow Activity:
|
||||||||||||
|
Cash paid during the period for:
|
||||||||||||
|
Interest
|
$ | 74 | $ | 91 | $ | 114 | ||||||
|
Income Taxes, net
|
$ | 741 | $ | 715 | $ | 253 | ||||||
|
Supplemental Disclosure of Non-Cash Investing and Financing
Activities:
|
||||||||||||
|
Contingent Consideration Related to Business Acquisition
|
$ | 207 | $ | — | $ | — | ||||||
|
Stock Issued in Connection with Business Acquisition
|
$ | — | $ | 1,113 | $ | — | ||||||
|
Capital Lease Obligation
|
$ | — | $ | 49 | $ | — | ||||||
|
Expiration of Warrants from Debt Retirement
|
$ | — | $ | — | $ | 329 | ||||||
See accompanying notes to consolidated financial statements.
38
Table of Contents
|
Capital
|
||||||||||||||||||||||||||||||||||||
|
Common Stock
|
In
|
Accumulated
|
Treasury Stock
|
|||||||||||||||||||||||||||||||||
|
Issued
|
Excess
|
Other
|
Outstanding
|
|||||||||||||||||||||||||||||||||
| $0.50 Par Value |
of Par
|
Comprehensive
|
Retained
|
at Cost | ||||||||||||||||||||||||||||||||
| Shares | Amount | Value | Warrants | Income | Earnings | Shares | Amount | Total | ||||||||||||||||||||||||||||
|
Balance as of March 31, 2007
|
7,286 | $ | 3,643 | $ | 5,268 | $ | 329 | $ | 43 | $ | 2,934 | 276 | $ | (988 | ) | $ | 11,229 | |||||||||||||||||||
|
Issuance of Common Stock
|
130 | 65 | 201 | 266 | ||||||||||||||||||||||||||||||||
|
Stock-Based Compensation
|
608 | 608 | ||||||||||||||||||||||||||||||||||
|
Tax Benefit from Stock-Based Compensation
|
86 | 86 | ||||||||||||||||||||||||||||||||||
|
Restricted Stock
|
30 | 15 | 157 | 172 | ||||||||||||||||||||||||||||||||
|
Expired Warrants
|
329 | (329 | ) | — | ||||||||||||||||||||||||||||||||
|
Comprehensive Income:
|
||||||||||||||||||||||||||||||||||||
|
Currency Translation Adjustment
|
385 | 385 | ||||||||||||||||||||||||||||||||||
|
Unrecognized Prior Service Cost, net of tax
|
8 | 8 | ||||||||||||||||||||||||||||||||||
|
Net Income
|
2,363 | 2,363 | ||||||||||||||||||||||||||||||||||
|
Balance as of March 29, 2008
|
7,446 | $ | 3,723 | $ | 6,649 | $ | — | $ | 436 | $ | 5,297 | 276 | $ | (988 | ) | $ | 15,117 | |||||||||||||||||||
|
Issuance of Common Stock
|
210 | 105 | 1,247 | 1,352 | ||||||||||||||||||||||||||||||||
|
Stock-Based Compensation
|
666 | 666 | ||||||||||||||||||||||||||||||||||
|
Tax Benefit from Stock-Based Compensation
|
44 | 44 | ||||||||||||||||||||||||||||||||||
|
Comprehensive Income:
|
||||||||||||||||||||||||||||||||||||
|
Currency Translation Adjustment
|
(104 | ) | (104 | ) | ||||||||||||||||||||||||||||||||
|
Unrecognized Prior Service Cost, net of tax
|
(12 | ) | (12 | ) | ||||||||||||||||||||||||||||||||
|
Net Income
|
1,556 | 1,556 | ||||||||||||||||||||||||||||||||||
|
Balance as of March 28, 2009
|
7,656 | $ | 3,828 | $ | 8,606 | $ | — | $ | 320 | $ | 6,853 | 276 | $ | (988 | ) | $ | 18,619 | |||||||||||||||||||
|
Issuance of Common Stock
|
42 | 21 | 180 | 201 | ||||||||||||||||||||||||||||||||
|
Repurchase of Common Stock
|
143 | (647 | ) | (647 | ) | |||||||||||||||||||||||||||||||
|
Stock-Based Compensation
|
579 | 579 | ||||||||||||||||||||||||||||||||||
|
Tax Expense from Stock-Based Compensation
|
(8 | ) | (8 | ) | ||||||||||||||||||||||||||||||||
|
Comprehensive Income:
|
||||||||||||||||||||||||||||||||||||
|
Currency Translation Adjustment
|
101 | 101 | ||||||||||||||||||||||||||||||||||
|
Unrecognized Prior Service Cost, net of tax
|
(39 | ) | (39 | ) | ||||||||||||||||||||||||||||||||
|
Net Income
|
1,451 | 1,451 | ||||||||||||||||||||||||||||||||||
|
Balance as of March 27, 2010
|
7,698 | $ | 3,849 | $ | 9,357 | $ | — | $ | 382 | $ | 8,304 | 419 | $ | (1,635 | ) | $ | 20,257 | |||||||||||||||||||
See accompanying notes to consolidated financial statements.
39
Table of Contents
| NOTE 1 — | GENERAL |
Description of Business:
Transcat, Inc.
(“Transcat” or the “Company”) is a leading
global distributor of professional grade handheld test and
measurement instruments and accredited provider of calibration,
repair and weighing system services primarily for the
pharmaceutical and FDA-regulated, industrial manufacturing,
energy and utilities, chemical process, and other industries.
Basis of Presentation:
During the second
quarter of the fiscal year ended March 27, 2010, the
Company adopted Statement of Financial Accounting Standards
(“SFAS”) No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles. This statement, now codified as Accounting Standards
Codification (“ASC”) Topic 105, Generally Accepted
Accounting Principles, did not change accounting principles
generally accepted in the United States (“GAAP”), but
established the ASC as the single source of authoritative
accounting principles recognized by the Financial Accounting
Standards Board (“FASB”). The adoption of this
statement did not have an impact on the Company’s
Consolidated Financial Statements.
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., Westcon, Inc. (“Westcon”)
and USEC Acquisition Corp. (“USEC Acquisition”). All
significant intercompany balances and transactions have been
eliminated in consolidation.
On January 27, 2010, Transcat, through its wholly-owned
subsidiary USEC Acquisition acquired United Scale &
Engineering Corporation (“United Scale”), a Wisconsin
corporation, pursuant to a Stock Purchase Agreement. See
Note 10 for more information on this acquisition.
On March 29, 2009, the Company adopted
SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements — an amendment of ARB
No. 51, now codified within ASC Topic 810, Consolidation.
This statement applies to the accounting for noncontrolling
interests (previously referred to as minority interests) in a
subsidiary and for the deconsolidation of a subsidiary and
requires noncontrolling interests to be reported as a component
of equity, which changes the accounting for transactions with
noncontrolling interest holders. Since the Company does not have
any noncontrolling interests, the adoption of this statement did
not have an impact on the Company’s Consolidated Financial
Statements.
Use of Estimates:
The preparation of
Transcat’s Consolidated Financial Statements in accordance
with Generally Accepted Accounting Principles (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, depreciable lives of fixed
assets, estimated lives of major catalogs and intangible assets,
and deferred tax asset valuation allowances. 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 27, 2010 (“fiscal
year 2010”), March 28, 2009 (“fiscal year
2009”) and March 29, 2008 (“fiscal year
2008”) consisted of 52 weeks.
40
Table of Contents
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.
Property and Equipment, Depreciation and
Amortization:
Property and equipment are stated
at cost. Depreciation and amortization are computed primarily
under the straight-line method over the following estimated
useful lives:
| Years | ||
|
Machinery, Equipment and Software
|
2 - 6 | |
|
Furniture and Fixtures
|
3 - 10 | |
|
Leasehold Improvements
|
2 - 10 |
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, represent an allocation of
purchase price to identifiable intangible assets of an acquired
business.
Transcat estimates the fair value of the Company’s
reporting units using the fair market value measurement
requirement, rather than the undiscounted cash flows approach.
The Company tests goodwill and intangible assets for impairment
on an annual basis, or immediately if conditions indicate that
such impairment could exist. The evaluation of the
Company’s reporting units on a fair value basis indicated
that no impairment existed as of March 27, 2010 and
March 28, 2009.
A summary of changes in the Company’s goodwill and
intangible assets is as follows:
| Goodwill | Intangible Assets | |||||||||||||||||||||||
| Product | Service | Total | Product | Service | Total | |||||||||||||||||||
|
Net Book Value as of March 29, 2008
|
$ | 1,524 | $ | 1,443 | $ | 2,967 | $ | — | $ | — | $ | — | ||||||||||||
|
Additions (see Note 10)
|
3,965 | 991 | 4,956 | 480 | 726 | 1,206 | ||||||||||||||||||
|
Amortization
|
— | — | — | (45 | ) | (70 | ) | (115 | ) | |||||||||||||||
|
Net Book Value as of March 28, 2009
|
$ | 5,489 | $ | 2,434 | $ | 7,923 | $ | 435 | $ | 656 | $ | 1,091 | ||||||||||||
|
Additions (see Note 10)
|
1,283 | 832 | 2,115 | 17 | 324 | 341 | ||||||||||||||||||
|
Amortization
|
— | — | — | (79 | ) | (119 | ) | (198 | ) | |||||||||||||||
|
Net Book Value as of March 27, 2010
|
$ | 6,772 | $ | 3,266 | $ | 10,038 | $ | 373 | $ | 861 | $ | 1,234 | ||||||||||||
The intangible assets are being amortized on an accelerated
basis over their estimated useful life of 10 years.
Amortization expense relating to intangible assets is expected
to be $0.2 million in fiscal year 2011,
41
Table of Contents
$0.3 million in fiscal year 2012, $0.2 million in each
of the fiscal years 2013 and 2014, and $0.1 million in
fiscal year 2015.
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 $0.4 million as of March 27, 2010 and
March 28, 2009.
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 Measurements:
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, accounts
payable and accrued liabilities approximate fair value due to
their short-term nature.
During fiscal year 2010, the Company adopted Financial Statement
of Position (“FSP”)
No. 157-2,
Partial Deferral of the Effective Date of Statement 157, and FSP
No. 157-4,
Determining Fair Value When the Volume and Level of Activity for
the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly, now codified
within ASC Topic 820, Fair Value Measurements (“ASC
820”). The adoption of these pronouncements did not have a
material impact on the Company’s Consolidated Financial
Statements.
Stock-Based Compensation:
The Company measures
the cost of services received in exchange for all equity awards
granted, including stock options, warrants and restricted stock,
based on the fair market value of the award as of the grant
date. The Company records compensation cost related to unvested
stock 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
stock 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 2010, 2009 and 2008,
the Company recorded non-cash stock-based compensation cost in
the amount of $0.6 million, $0.7 million and
$0.8 million, respectively, in the Consolidated Statements
of Operations and Comprehensive Income.
The estimated fair value of options granted was calculated using
the Black-Scholes-Merton pricing model
(“Black-Scholes”), which produced a weighted average
fair value granted of $3.67 per share in fiscal year 2010, $4.02
per share in fiscal year 2009 and $4.59 per share in fiscal year
2008.
The following are the weighted average assumptions used in the
Black-Scholes model:
| FY 2010 | FY 2009 | FY 2008 | ||||
|
Expected life
|
6 years | 6 years | 6 years | |||
|
Annualized volatility rate
|
57.3% | 61.3% | 68.3% | |||
|
Risk-free rate of return
|
2.8% | 3.3% | 4.5% | |||
|
Dividend rate
|
0.0% | 0.0% | 0.0% |
42
Table of Contents
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 is based on a
zero-coupon U.S. government instrument over the contractual
term of the equity instrument. Expected volatility is based on
historical volatility of the Company’s stock. The expected
option term represents 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. For the expected term, the Company has
“plain vanilla” stock options, and therefore used a
simple average of the vesting period and the contractual term
for options granted subsequent to January 1, 2006.
Revenue Recognition:
Product sales are
recorded when a product’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 repair
activity is performed and then shipped
and/or
delivered to the customer. Some service revenue is generated
from managing customers’ calibration programs in which the
Company recognizes revenue in equal amounts at fixed intervals.
The Company generally invoices its customers for freight,
shipping, and handling charges. Provisions for customer returns
are provided for in the period the related revenue is recorded
based upon historical data.
Vendor Rebates:
Vendor rebates are based on a
specified cumulative level of purchases and incremental product
sales and are recorded as a reduction of cost of products sold.
Purchase rebates are calculated and recorded quarterly based
upon our volume of purchases with specific vendors during the
quarter. Point of sale rebate programs are based upon annual
year-over-year
sales performance on a calendar year basis and are recorded as
earned, on a quarterly basis, based upon the expected level of
annual achievement.
Cooperative Advertising Income:
Transcat
records cash consideration received from a vendor as a reduction
of cost of products sold as the related inventory is sold. The
Company recorded, as a reduction of cost of products sold,
consideration in the amount of $1.1 million in each of the
fiscal years 2010, 2009 and 2008.
Shipping and Handling Costs:
Freight expense
and direct shipping costs are included in cost of products and
services sold. These costs were approximately $1.4 million,
$1.5 million and $1.4 million for fiscal years 2010,
2009 and 2008, respectively. Direct handling costs, the majority
of which represent direct compensation of employees who pick,
pack, and otherwise prepare, if necessary, merchandise for
shipment to customers, are reflected in selling, marketing, and
warehouse expenses. These costs were $0.7 million in fiscal
year 2010, $0.5 million in fiscal year 2009 and
$0.4 million in fiscal year 2008.
Foreign Currency Translation and
Transactions:
The accounts of Transmation
(Canada) Inc. are maintained in the local currency and have been
translated to United States dollars. Accordingly, the amounts
representing assets and liabilities, except for equity, have
been translated at the period-end rates of exchange and related
revenue and expense accounts have been translated at average
rates of exchange during the period. Gains and losses arising
from translation of Transmation (Canada) Inc.’s balance
sheets into United States dollars are recorded directly to the
accumulated other comprehensive income component of
shareholders’ equity.
Transcat records foreign currency gains and losses on Canadian
business transactions. The net foreign currency loss was less
than $0.1 million in each of the fiscal years 2010 and 2009
and $0.4 million in fiscal year 2008. Beginning in the
third quarter of fiscal year 2008, the Company began utilizing
foreign exchange forward contracts to reduce the risk that
future earnings would be adversely affected by changes in
currency exchange rates. The Company does not apply hedge
accounting and therefore, the change in the fair value of the
contracts, which totaled less than $0.1 million in each of
the fiscal years 2010 and 2009 and $0.2 million in fiscal
year 2008, was recognized as a component of other expense in the
Consolidated Statements of Operations and Comprehensive 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 27, 2010,
43
Table of Contents
the Company had a foreign exchange contract set to mature in
April 2010, outstanding in the notional amount of
$0.4 million. On March 28, 2009, the Company had
foreign exchange contracts outstanding in the notional amount of
$0.3 million. The Company does not use hedging arrangements
for speculative purposes.
On March 29, 2009, the Company adopted
SFAS No. 161, Disclosures about Derivative Instruments
and Hedging Activities, now codified within ASC Topic 815,
Derivatives and Hedging. This statement intends to improve
financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors
to better understand their effects on an entity’s financial
position, financial performance, and cash flows. The adoption of
this pronouncement did not have a material impact on the
Company’s Consolidated Financial Statements.
Comprehensive Income:
Other comprehensive
income is comprised of net income, currency translation
adjustments and unrecognized prior service costs, net of tax. At
March 27, 2010, accumulated other comprehensive income
consisted of cumulative currency translation gains of
$0.6 million and unrecognized prior service costs, net of
tax, of $0.2 million. At March 28, 2009, accumulated
other comprehensive income consisted of cumulative currency
translation gains of $0.5 million and unrecognized prior
service costs, net of tax, of $0.2 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, warrants, and unvested restricted
stock awards using the treasury stock method in periods in which
they have a dilutive effect. In computing the per share effect
of assumed conversion, funds which would have been received from
the exercise of options, warrants, and unvested restricted stock
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 year 2010, the net additional common stock
equivalents had a $.01 per share effect on the calculation of
dilutive earnings per share. For fiscal years 2009 and 2008, the
net additional common stock equivalents had no effect and a
$0.01 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:
| For the Years Ended | ||||||||||||
|
March 27,
|
March 28,
|
March 29,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Average Shares Outstanding — Basic
|
7,352 | 7,304 | 7,132 | |||||||||
|
Effect of Dilutive Common Stock Equivalents
|
197 | 165 | 140 | |||||||||
|
Average Shares Outstanding — Diluted
|
7,549 | 7,469 | 7,272 | |||||||||
|
Anti-dilutive Common Stock Equivalents
|
644 | 616 | 615 | |||||||||
On March 29, 2009, the Company adopted FASB Staff Position
No. EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities, now codified within
ASC Topic 260, Earnings Per Share (“ASC 260”). This
pronouncement addresses whether instruments granted in
share-based payment transactions are participating securities
prior to vesting, and therefore, need to be included in the
computation of earnings per share under the two-class method as
described in ASC 260. The adoption of this pronouncement
did not have a material impact on the Company’s
Consolidated Financial Statements.
Subsequent Events:
In May 2009, the FASB
issued SFAS No. 165, Subsequent Events, now codified
as ASC Topic 855, Subsequent Events (“ASC 855”). This
statement established general standards of accounting and
disclosures of events that occur after the balance sheet date
but before financial statements are issued or are available to
be issued. It is effective for financial periods ending after
June 15, 2009 and is to be applied prospectively. In
February 2010, the FASB issued Accounting Standards Update
(“ASU”)
2010-09,
Subsequent Events, which amended ASC 855 by clarifying that
Securities and Exchange Commission filers need not
44
Table of Contents
disclose the date through which subsequent events have been
evaluated and that reissuances for which a subsequent events
evaluation is required are limited to “revised”
financial statements, as defined in the ASU.
The Company has evaluated all events and transactions that
occurred subsequent to March 27, 2010. No material
subsequent events have occurred that require recognition or
disclosure in the Consolidated Financial Statements.
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:
|
March 27,
|
March 28,
|
|||||||
| 2010 | 2009 | |||||||
|
Machinery, Equipment and Software
|
$ | 16,608 | $ | 15,475 | ||||
|
Furniture and Fixtures
|
1,710 | 1,688 | ||||||
|
Leasehold Improvements
|
904 | 657 | ||||||
|
Total Property and Equipment
|
$ | 19,222 | $ | 17,820 | ||||
|
Less: Accumulated Depreciation and Amortization
|
(15,059 | ) | (13,646 | ) | ||||
|
Total Property and Equipment, net
|
$ | 4,163 | $ | 4,174 | ||||
Total depreciation and amortization expense amounted to
$1.3 million in fiscal year 2010 and $1.1 million in
each of the fiscal years 2009 and 2008.
| NOTE 3 — |
|
Description.
Transcat, through a credit
agreement (the “Credit Agreement”) with JPMorgan Chase
Bank, N.A. maturing in August 2011, has a revolving credit
facility in the amount of $15.0 million (the
“Revolving Credit Facility”), subject to the maximum
borrowing restriction based on a 2.75 multiple of earnings
before income taxes, depreciation and amortization for the
preceding four consecutive fiscal quarters. As of March 27,
2010, $13.8 million was available under the Credit
Agreement, of which $2.5 million was outstanding and
included in long-term debt on the Consolidated Balance Sheet.
Interest and Other Costs.
Interest on
the Revolving Credit Facility accrues, at Transcat’s
election, at either a base rate (defined as the highest of
prime, a three month certificate of deposit plus 1%, or the
federal funds rate plus
1
/
2
of 1%) (the “Base Rate”) or the London Interbank
Offered Rate (“LIBOR”), in each case, plus a margin.
Commitment fees accrue based on the average daily amount of
unused credit available on the Revolving Credit Facility.
Interest and commitment fees are adjusted on a quarterly basis
based upon the Company’s calculated leverage ratio, as
defined in the Credit Agreement. The Base Rate and the LIBOR
rates as of March 27, 2010 were 3.3% and 0.2%,
respectively. The Company’s interest rate for fiscal year
2010 ranged from 1.1% to 2.8%. Loan costs associated with the
Chase Credit Agreement, totaling less than $0.1 million,
are being amortized over the term of the agreement.
Covenants.
The 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 2010.
Other Terms.
The Company has pledged
all of its U.S. tangible and intangible personal property
and the common stock of its wholly-owned subsidiaries,
Transmation (Canada) Inc. and Westcon as collateral security for
the loans made under the Revolving Credit Facility.
45
Table of Contents
| NOTE 4 — | INCOME TAXES |
Transcat’s net income before income taxes on the
Consolidated Statements of Operations is as follows:
| FY 2010 | FY 2009 | FY 2008 | ||||||||||
|
United States
|
$ | 2,289 | $ | 2,544 | $ | 2,695 | ||||||
|
Foreign
|
(6 | ) | (25 | ) | 50 | |||||||
|
Total
|
$ | 2,283 | $ | 2,519 | $ | 2,745 | ||||||
The net provision for income taxes for fiscal years 2010, 2009
and 2008 is as follows:
| FY 2010 | FY 2009 | FY 2008 | ||||||||||
|
Current Tax Provision:
|
||||||||||||
|
Federal
|
$ | 710 | $ | 631 | $ | 236 | ||||||
|
State
|
87 | 86 | 106 | |||||||||
| $ | 797 | $ | 717 | $ | 342 | |||||||
|
Deferred Tax Provision (Benefit):
|
||||||||||||
|
Federal
|
$ | 34 | $ | 225 | $ | 69 | ||||||
|
State
|
1 | 21 | (29 | ) | ||||||||
| $ | 35 | $ | 246 | $ | 40 | |||||||
|
Provision for Income Taxes
|
$ | 832 | $ | 963 | $ | 382 | ||||||
A reconciliation of the income tax provision computed by
applying the statutory United States federal income tax rate and
the income tax provision reflected in the Consolidated
Statements of Operations is as follows:
| FY 2010 | FY 2009 | FY 2008 | ||||||||||
|
Federal Income Tax at Statutory Rate
|
$ | 776 | $ | 856 | $ | 933 | ||||||
|
State Income Taxes, net of Federal benefit
|
91 | 101 | 110 | |||||||||
|
Valuation Allowance(1)
|
— | — | (784 | ) | ||||||||
|
Other, net
|
(35 | ) | 6 | 123 | ||||||||
|
Total
|
$ | 832 | $ | 963 | $ | 382 | ||||||
| (1) | In fiscal year 2008, after assessing all available evidence, the Company determined that it was more likely than not that the benefits associated with its U.S. foreign tax credit carryforwards would be realized. As a result, the Company reduced its deferred tax valuation allowance by $0.8 million and recorded the reduction as a benefit from income taxes in the Consolidated Statements of Operations. |
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Table of Contents
The components of the net deferred tax assets are as follows:
|
March 27,
|
March 28,
|
|||||||
| 2010 | 2009 | |||||||
|
Current Deferred Tax Assets:
|
||||||||
|
Accrued Liabilities
|
$ | 263 | $ | 231 | ||||
|
Other
|
303 | 149 | ||||||
|
Total Current Deferred Tax Assets
|
$ | 566 | $ | 380 | ||||
|
Non-Current Deferred Tax Assets (Liabilities):
|
||||||||
|
Stock-Based Compensation
|
$ | 708 | $ | 511 | ||||
|
Foreign Tax Credits (expiring through March 2018)
|
494 | 614 | ||||||
|
Depreciation
|
(524 | ) | (536 | ) | ||||
|
Intangible Assets
|
(469 | ) | (414 | ) | ||||
|
Other
|
324 | 460 | ||||||
|
Total Non-Current Deferred Tax Assets
|
$ | 533 | $ | 635 | ||||
|
Net Deferred Tax Assets
|
$ | 1,099 | $ | 1,015 | ||||
Deferred U.S. income taxes have not been recorded for basis
differences related to the investments in the Company’s
foreign subsidiary, which consist primarily of undistributed
earnings. During fiscal year 2008, the Company’s foreign
subsidiary declared and paid dividends to Transcat in the amount
of $2.6 million (in U.S. dollars), of which
$1.3 million was previously taxed. The Company incurred
additional tax of $0.4 million on the remaining dividend,
which was fully offset by the utilization of a portion of the
Company’s available foreign tax credits, as a component of
the provision for income taxes in the Consolidated Statements of
Operations. The remaining earnings of the Company’s foreign
subsidiary are considered permanently reinvested in the
subsidiary, therefore, the determination of the deferred tax
liability on unremitted earnings is not practicable because such
liability, if any, depends on circumstances existing if and when
remittance occurs.
The Company files income tax returns in the U.S. federal
jurisdiction, various states and Canada. During fiscal year
2010, the Internal Revenue Service (the “IRS”)
commenced an examination of the Company’s U.S. federal
income tax returns for the tax years ended March 28, 2009
and March 29, 2008. Subsequent to March 27, 2010, the
IRS completed its examination with no material adjustments being
proposed. The Company is no longer subject to examination by
U.S. federal income tax authorities for the tax years 2009
and prior, by state tax authorities for the tax years 2006 and
prior, and by Canadian tax authorities for the tax years 2002
and prior. There are no tax years currently under examination by
state or Canadian tax authorities.
During fiscal years 2010, 2009 and 2008, the Company recognized
no adjustments for material uncertain tax benefits and expects
no material changes to unrecognized 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 and penalties related to
uncertain tax positions were recognized in fiscal years 2010,
2009 and 2008 or were accrued at March 27, 2010 and
March 28, 2009.
| NOTE 5 — | DEFINED CONTRIBUTION PLAN |
All of Transcat’s United States 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 vest over a three year
period. The Company temporarily suspended matching contributions
to the 401K Plan for fiscal year 2010. The Company’s
matching contributions to the 401K Plan were $0.3 million
in each of the fiscal years 2009 and 2008.
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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 2010, 2009 and 2008.
| NOTE 6 — | POSTRETIREMENT HEALTH CARE PLANS |
The Company has two defined benefit postretirement health care
plans. One plan provides limited reimbursement to eligible
non-officer participants for the cost of individual medical
insurance coverage purchased by the participant following
qualifying retirement from employment with the Company (the
“Non-Officer Plan”). The other plan 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:
| FY 2010 | FY 2009 | |||||||
|
Postretirement benefit obligation, at beginning of fiscal year
|
$ | 458 | $ | 359 | ||||
|
Service cost
|
85 | 50 | ||||||
|
Interest cost
|
33 | 24 | ||||||
|
Benefits paid
|
(7 | ) | (6 | ) | ||||
|
Actuarial loss
|
82 | 31 | ||||||
|
Postretirement benefit obligation, at end of fiscal year
|
651 | 458 | ||||||
|
Fair value of plan assets, at end of fiscal year
|
— | — | ||||||
|
Funded status, at end of year
|
$ | (651 | ) | $ | (458 | ) | ||
|
Accumulated postretirement benefit obligation, at end of fiscal
year
|
$ | 651 | $ | 458 | ||||
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 2010 | FY 2009 | FY 2008 | ||||||||||
|
Net periodic postretirement benefit cost:
|
||||||||||||
|
Service cost
|
$ | 85 | $ | 50 | $ | 34 | ||||||
|
Interest cost
|
33 | 24 | 16 | |||||||||
|
Amortization of prior service cost
|
13 | 13 | 13 | |||||||||
| 131 | 87 | 63 | ||||||||||
|
Benefit obligations recognized in other comprehensive income:
|
||||||||||||
|
Amortization of prior service cost
|
(13 | ) | (13 | ) | (13 | ) | ||||||
|
Net loss
|
77 | 31 | — | |||||||||
| 64 | 18 | (13 | ) | |||||||||
|
Total recognized in net periodic benefit cost and other
comprehensive income
|
$ | 195 | $ | 105 | $ | 50 | ||||||
|
Amount recognized in accumulated other comprehensive income, at
end of fiscal year:
|
||||||||||||
|
Unrecognized prior service cost
|
$ | 327 | $ | 263 | $ | 245 | ||||||
The prior service cost is amortized on a straight-line basis
over the average remaining service period of active participants
for the Non-Officer Plan and 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 the fiscal year 2011 is less
than $0.1 million.
48
Table of Contents
The postretirement benefit obligation was computed by an
independent third party actuary. Assumptions used to determine
the postretirement benefit obligation and the net periodic
benefit cost were as follows:
|
March 27,
|
March 28,
|
March 29,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Weighted average discount rate
|
6.1 | % | 7.4 | % | 6.7 | % | ||||||
|
Medical care cost trend rate:
|
||||||||||||
|
Trend rate assumed for next year
|
8.5 | % | 9.0 | % | 9.5 | % | ||||||
|
Ultimate trend rate
|
5.0 | % | 5.0 | % | 5.0 | % | ||||||
|
Year that rate reaches ultimate trend rate
|
2018 | 2018 | 2018 | |||||||||
|
Dental care cost trend rate:
|
||||||||||||
|
Trend rate assumed for next year and remaining at that level
thereafter
|
5.0 | % | 5.0 | % | 5.0 | % | ||||||
Benefit payments are funded by the Company as needed. Payments
toward the cost of a retiree’s medical and dental coverage,
which are initially determined as a percentage of a base
coverage plan in the year of retirement as defined in the plan
document, are limited to increase at a rate of no more than 3%
per year. The following benefit payments, which reflect expected
future service, as appropriate, are expected to be paid as
follows:
|
Fiscal Year
|
Amount | |||
|
2011
|
$ | 26 | ||
|
2012
|
29 | |||
|
2013
|
43 | |||
|
2014
|
64 | |||
|
2015
|
77 | |||
|
2016-2020
|
397 | |||
Increasing the assumed health care cost trend rate by one
percentage point would increase the accumulated postretirement
benefit obligation and the annual net periodic cost by less than
$0.1 million. A one percentage point decrease in the
healthcare cost trend would decrease the accumulated
postretirement benefit obligation and the annual net periodic
cost by less than $0.1 million.
| NOTE 7 — | STOCK-BASED COMPENSATION |
The Transcat, Inc. 2003 Incentive Plan, as amended (the
“2003 Plan”), provides for, among other awards, grants
of restricted stock and stock options to directors, officers and
key employees to purchase common stock at no less than the fair
market value at the date of grant. At March 27, 2010, the
number of shares available for future grant under the 2003 Plan
totaled 0.2 million.
In addition, Transcat maintains a warrant plan for directors
(the “Directors’ Warrant Plan”). Under the
Directors’ Warrant Plan, as amended, warrants have been
granted to non-employee directors to purchase common stock at
the fair market value at the date of grant. All warrants
authorized for issuance pursuant to the Directors’ Warrant
Plan have been granted and were fully vested as of August 2009.
Restricted Stock:
During the first quarter of
fiscal years 2010 and 2009, the Company granted
performance-based restricted stock awards in place of options as
a primary component of executive compensation. These
performance-based restricted stock awards vest after three years
subject to certain cumulative diluted earnings per share targets
over the eligible three-year period.
Compensation cost ultimately recognized for these
performance-based restricted stock awards will equal the
grant-date fair market value of the award 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. At March 27, 2010, the Company estimated the
probability of achievement for the performance-based restricted
stock awards granted in fiscal year 2010 to be
49
Table of Contents
75% of the target level. During the fourth quarter of fiscal
year 2010, based on an assessment of achieving the performance
condition, the Company adjusted the estimated probability of
achievement for the performance-based restricted stock awards
granted in fiscal year 2009 from 50% to 0%. As a result,
cumulative compensation cost relating to these awards was
reduced by $0.1 million and reflected as a reduction of
expense in the Consolidated Statement of Operations in fiscal
year 2010. Total expense relating to performance-based
restricted stock awards, based on grant-date fair market value
and the estimated probability of achievement, was less than
$0.1 million during each of fiscal years 2010 and 2009.
Unearned compensation totaled $0.2 million as of
March 27, 2010.
Restricted stock awards granted in fiscal year 2008 vested
immediately and as such, the Company realized total expense,
based on fair market value, in the amount of $0.2 million
in fiscal year 2008.
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. Beginning in the second quarter of fiscal year 2008,
options granted to executive officers vest using a graded
schedule of 0% in the first year, 20% in each of the second and
third years, and 60% in the fourth year. Prior options granted
to executive officers vested equally over three years. The
expense relating to these executive officer 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 2010, 2009 and 2008:
|
Weighted
|
||||||||||||||||
|
Average
|
Weighted Average
|
|||||||||||||||
|
Number
|
Exercise
|
Remaining
|
Aggregate
|
|||||||||||||
|
of
|
Price per
|
Contractual
|
Intrinsic
|
|||||||||||||
| Shares | Share | Term (in Years) | Value | |||||||||||||
|
Outstanding as of March 31, 2007
|
329 | $ | 3.11 | |||||||||||||
|
Granted
|
407 | 6.90 | ||||||||||||||
|
Exercised
|
(71 | ) | 1.37 | |||||||||||||
|
Cancelled/Forfeited
|
(9 | ) | 4.12 | |||||||||||||
|
Outstanding as of March 29, 2008
|
656 | 5.64 | ||||||||||||||
|
Granted
|
19 | 6.75 | ||||||||||||||
|
Exercised
|
(6 | ) | 2.69 | |||||||||||||
|
Cancelled/Forfeited
|
(4 | ) | 6.35 | |||||||||||||
|
Outstanding as of March 28, 2009
|
665 | 5.70 | ||||||||||||||
|
Granted
|
10 | 6.55 | ||||||||||||||
|
Cancelled/Forfeited
|
(1 | ) | 2.89 | |||||||||||||
|
Outstanding as of March 27, 2010
|
674 | 5.72 | 6 | $ | 1,106 | |||||||||||
|
Exercisable as of March 27, 2010
|
417 | 4.84 | 6 | 1,004 | ||||||||||||
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 2010 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 option holders exercised their options on
March 27, 2010. 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 27, 2010 was $0.5 million, which
is expected to be recognized over a weighted average period of
one year. In fiscal year 2010, there were no stock options
exercised. The aggregate intrinsic value of stock options
exercised in fiscal year 2009 was less than $0.1 million
and was $0.3 million in fiscal year 2008. Cash receipts
from the exercise of options in fiscal year 2009 were less than
$0.1 million and were $0.1 million in fiscal year 2008.
50
Table of Contents
The following table presents options outstanding and exercisable
as of March 27, 2010:
| Options Outstanding | Options Exercisable | ||||||||||||||||||||
|
Weighted
|
Weighted
|
Weighted
|
|||||||||||||||||||
|
Average
|
Average
|
Average
|
|||||||||||||||||||
|
Remaining
|
Exercise
|
Exercise
|
|||||||||||||||||||
|
Number
|
Contractual
|
Price
|
Number
|
Price
|
|||||||||||||||||
|
of
|
Term
|
per
|
of
|
per
|
|||||||||||||||||
| Shares | (in Years) | Share | Shares | Share | |||||||||||||||||
|
Range of Exercise Prices:
|
|||||||||||||||||||||
|
$2.20-$3.50
|
133 | 4 | $ | 2.51 | 133 | $ | 2.51 | ||||||||||||||
|
$3.51-$5.00
|
55 | 5 | 4.31 | 55 | 4.31 | ||||||||||||||||
|
$5.01-$6.50
|
204 | 7 | 5.58 | 147 | 5.57 | ||||||||||||||||
|
$6.51-$7.72
|
282 | 7 | 7.61 | 82 | 7.72 | ||||||||||||||||
|
Total
|
674 | 6 | 5.72 | 417 | 4.84 | ||||||||||||||||
Warrants:
Warrants expire in five years from
the date of grant. The following table summarizes warrants for
fiscal years 2010, 2009 and 2008:
|
Weighted
|
||||||||||||||||
|
Average
|
Weighted Average
|
|||||||||||||||
|
Number
|
Exercise
|
Remaining
|
Aggregate
|
|||||||||||||
|
of
|
Price per
|
Contractual
|
Intrinsic
|
|||||||||||||
| Shares | Share | Term (in years) | Value | |||||||||||||
|
Outstanding as of March 31, 2007
|
153 | $ | 3.27 | |||||||||||||
|
Exercised
|
(43 | ) | 1.82 | |||||||||||||
|
Cancelled/Forfeited
|
(11 | ) | 4.51 | |||||||||||||
|
Outstanding as of March 29, 2008
|
99 | 3.75 | ||||||||||||||
|
Exercised
|
(32 | ) | 2.57 | |||||||||||||
|
Cancelled/Forfeited
|
(4 | ) | 5.25 | |||||||||||||
|
Outstanding as of March 28, 2009
|
63 | 4.28 | ||||||||||||||
|
Exercised
|
(18 | ) | 3.19 | |||||||||||||
|
Cancelled/Forfeited
|
(4 | ) | 2.88 | |||||||||||||
|
Outstanding as of March 27, 2010
|
41 | 4.89 | 1 | $ | 92 | |||||||||||
|
Exercisable as of March 27, 2010
|
41 | 4.89 | 1 | 92 | ||||||||||||
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 2010 and the exercise price, multiplied by the
number of
in-the-money
warrants) that would have been received by the warrant holders
had all warrant holders exercised their warrants on
March 27, 2010. The amount of aggregate intrinsic value
will change based on the fair market value of the Company’s
stock. The aggregate intrinsic value of warrants exercised was
$0.1 million in each of the fiscal years 2010 and 2009, and
$0.2 million in fiscal year 2008. Cash received from the
exercise of warrants was less than $0.1 million in each of
fiscal years 2010, 2009 and 2008.
51
Table of Contents
The following table presents warrants outstanding and
exercisable as of March 27, 2010:
| Warrants Outstanding | |||||||||||||
|
Remaining
|
|||||||||||||
|
Number
|
Contractual
|
Warrants
|
|||||||||||
|
of
|
Life
|
Exercisable
|
|||||||||||
| Shares | (in Years) | (in Shares) | |||||||||||
|
Exercise Prices:
|
|||||||||||||
|
$4.26
|
24 | — | 24 | ||||||||||
|
$5.80
|
17 | 1 | 17 | ||||||||||
|
Total
|
41 | 1 | 41 | ||||||||||
| NOTE 8 — | SEGMENT AND GEOGRAPHIC DATA |
Transcat has two reportable segments: Distribution Products
(“Product”) and Calibration Services
(“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 revenues. The following table presents segment and
geographic data for fiscal years 2010, 2009 and 2008:
| FY 2010 | FY 2009 | FY 2008 | ||||||||||
|
Net Revenue:
|
||||||||||||
|
Product
|
$ | 53,143 | $ | 51,480 | $ | 47,539 | ||||||
|
Service
|
27,918 | 23,939 | 22,914 | |||||||||
|
Total
|
81,061 | 75,419 | 70,453 | |||||||||
|
Gross Profit:
|
||||||||||||
|
Product
|
12,442 | 13,070 | 13,205 | |||||||||
|
Service
|
6,852 | 5,678 | 5,336 | |||||||||
|
Total
|
19,294 | 18,748 | 18,541 | |||||||||
|
Operating Expenses:
|
||||||||||||
|
Product(1)
|
10,155 | 9,622 | 9,392 | |||||||||
|
Service(1)
|
6,758 | 6,440 | 5,866 | |||||||||
|
Total
|
16,913 | 16,062 | 15,258 | |||||||||
|
Operating Income
|
2,381 | 2,686 | 3,283 | |||||||||
|
Unallocated Amounts:
|
||||||||||||
|
Other Expense, net
|
98 | 167 | 538 | |||||||||
|
Provision for Income Taxes
|
832 | 963 | 382 | |||||||||
|
Total
|
930 | 1,130 | 920 | |||||||||
|
Net Income
|
$ | 1,451 | $ | 1,556 | $ | 2,363 | ||||||
|
Total Assets(2):
|
||||||||||||
|
Product
|
$ | 20,969 | $ | 16,807 | $ | 13,871 | ||||||
|
Service
|
11,938 | 10,233 | 7,407 | |||||||||
|
Unallocated
|
2,806 | 2,351 | 3,066 | |||||||||
|
Total
|
$ | 35,713 | $ | 29,391 | $ | 24,344 | ||||||
52
Table of Contents
| FY 2010 | FY 2009 | FY 2008 | ||||||||||
|
Depreciation and Amortization(3):
|
||||||||||||
|
Product
|
$ | 742 | $ | 778 | $ | 739 | ||||||
|
Service
|
1,136 | 954 | 893 | |||||||||
|
Unallocated
|
202 | 165 | 129 | |||||||||
|
Total
|
$ | 2,080 | $ | 1,897 | $ | 1,761 | ||||||
|
Capital Expenditures:
|
||||||||||||
|
Product
|
$ | 25 | $ | 21 | $ | 45 | ||||||
|
Service
|
767 | 1,456 | 1,268 | |||||||||
|
Unallocated
|
336 | 298 | 192 | |||||||||
|
Total
|
$ | 1,128 | $ | 1,775 | $ | 1,505 | ||||||
|
Geographic Data:
|
||||||||||||
|
Net Revenues to Unaffiliated Customers(4):
|
||||||||||||
|
United States(5)
|
$ | 72,595 | $ | 66,892 | $ | 60,881 | ||||||
|
Canada
|
5,872 | 5,296 | 6,597 | |||||||||
|
Other International
|
2,594 | 3,231 | 2,975 | |||||||||
|
Total
|
$ | 81,061 | $ | 75,419 | $ | 70,453 | ||||||
|
Long-Lived Assets:
|
||||||||||||
|
United States(5)
|
$ | 4,059 | $ | 4,065 | $ | 3,093 | ||||||
|
Canada
|
104 | 109 | 118 | |||||||||
|
Total
|
$ | 4,163 | $ | 4,174 | $ | 3,211 | ||||||
| (1) | Operating expense allocations between segments were based on actual amounts, a percentage of revenues, headcount, and management’s estimates. | |
| (2) | Goodwill and intangible assets were allocated based on the percentage of segment revenue acquired. For fiscal year 2010, goodwill and intangible assets of $11.2 million were allocated between our segments as follows: 63% to Product and 37% to Service. For fiscal year 2009, goodwill and intangible assets of $9.0 million were allocated between our segments as follows: 66% to Product and 34% to Service. For fiscal year 2008, goodwill of $3.0 million was allocated between our segments as follows: 51% to Product and 49% to Service. | |
| (3) | Including amortization of catalog costs. | |
| (4) | Net revenues are attributed to the countries based on the destination of a product shipment or the location where service is rendered. | |
| (5) | United States includes Puerto Rico. |
53
Table of Contents
| NOTE 9 — | COMMITMENTS |
Leases:
Transcat leases facilities, equipment,
and vehicles under non-cancelable operating leases. Total rental
expense was approximately $1.3 million in fiscal year 2010,
$1.2 million in fiscal year 2009 and $1.1 million in
fiscal year 2008. The minimum future annual rental payments
under the non-cancelable leases at March 27, 2010 are as
follows (in millions):
|
Fiscal Year
|
||||
|
2011
|
$ | 1.1 | ||
|
2012
|
0.9 | |||
|
2013
|
0.7 | |||
|
2014
|
0.4 | |||
|
2015
|
0.3 | |||
|
Thereafter
|
1.4 | |||
|
Total minimum lease payments
|
$ | 4.8 | ||
The Company leases its facility in Portland, Oregon from an
executive officer of the company (the former sole shareholder of
Westcon) under a non-cancelable operating lease which expires in
August 2011. The minimum future annual rental payments are
approximately $0.1 million per year.
Concurrent with the acquisition of United Scale, the Company
entered into a non-cancelable operating lease agreement for a
facility in New Berlin, Wisconsin, which is owned by an employee
of the Company (a former owner of United Scale). The lease
agreement is for a three year period commencing on the
acquisition date. The minimum future rental payments are
approximately $0.1 million per year.
| NOTE 10 — | ACQUISITIONS |
On March 29, 2009, the Company adopted
SFAS No. 141 (revised 2007), Business Combinations,
now codified as ASC Topic 805, Business Combinations. This
statement, which is to be applied prospectively upon adoption,
established principles and requirements for how an acquirer in a
business combination recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest; recognizes and
measures the goodwill acquired in the business combination or a
gain from a bargain purchase; requires the need to recognize
contingent consideration at fair value on the acquisition date;
and determines what information to disclose to enable users of
the financial statements to evaluate the nature and financial
effects of the business combination. The statement also requires
acquisition-related transaction expenses and restructuring costs
be expensed as incurred rather than capitalized as a component
of the business combination.
On January 27, 2010, Transcat, through its wholly-owned
subsidiary USEC Acquisition, acquired United Scale pursuant to a
Stock Purchase Agreement (the “Purchase Agreement”)
for approximately $2.0 million. United Scale is a
supplier and servicer of industrial scales and weighing systems
to customers located primarily in Wisconsin, Northern Illinois
and Upper Michigan. The acquisition expands the Company’s
footprint in the Midwest and broadens Transcat’s product
and service offerings. The results of operations of United Scale
are included in Transcat’s consolidated operating results
as of the date the business was acquired. Pro forma information
as of the beginning of the fiscal years presented and the
operating results of United Scale since the date of acquisition
have not been disclosed as the acquisition was not considered
significant.
The assets and liabilities of United Scale are recorded under
the purchase method of accounting at their estimated fair values
as of the date of acquisition. Goodwill, totaling
$1.0 million, represents costs in excess of fair values
assigned to the underlying net assets of the acquired business.
Other intangible assets, namely customer base totaling
$0.3 million, represent an allocation of purchase price to
identifiable intangible assets of the acquired business.
Intangible assets are being amortized for financial reporting
purposes on an accelerated basis over the estimated useful life
of 10 years. Goodwill and the intangible assets are not
deductible for tax purposes.
54
Table of Contents
Contingent consideration, relating to certain holdback
provisions under the terms of the Purchase Agreement, with an
estimated fair value of $0.2 million, using Level 3
inputs to assess fair value under ASC 820, was accrued at
the date of purchase. The value of the contingent consideration
remained unchanged at March 27, 2010 and is included as an
other current liability in the Consolidated Balance Sheet.
Acquisition costs, totaling $0.2 million, were recorded as
incurred as an administrative expense in the Consolidated
Statement of Operations.
In addition, concurrent with the acquisition, Transcat and the
former owners of United Scale entered into an Earn Out
Agreement. This agreement provides that the former owners may be
entitled to receive earn out payments subject to certain
continued employment and post-closing gross profit targets.
These potential future payments are expected to be recorded as
compensation expense in the period earned.
On August 14, 2008, Transcat acquired Westcon, a
distributor of professional grade test and measurement
instruments and provider of calibration and repair services to
customers located primarily in the western United States. Under
the terms of the Agreement and Plan of Merger (the “Merger
Agreement”), Transcat paid an aggregate purchase price of
approximately $6.9 million, which was paid in a combination
of the issuance of 150,000 shares of Transcat common stock
valued at approximately $1.1 million and approximately
$5.8 million in cash. $0.5 million of the cash
purchase price was distributed to satisfy certain debt
obligations of Westcon, with the remainder being paid to the
sole shareholder.
The following is a summary of the preliminary purchase price
allocation:
|
Purchase Price Paid:
|
||||
|
Cash Paid to Seller at Closing
|
$ | 4,216 | ||
|
Westcon Debt Paid by Transcat at Closing
|
466 | |||
|
Fair Value of Common Stock Issued
|
1,113 | |||
|
Cash Paid to Seller in November 2008
|
1,017 | |||
|
Direct Acquisition Costs
|
116 | |||
|
Total Purchase Price
|
$ | 6,928 | ||
|
Allocation of Purchase Price:
|
||||
|
Intangible Asset — Customer Base
|
$ | 1,206 | ||
|
Deferred Tax Liability
|
(458 | ) | ||
|
Goodwill
|
4,956 | |||
| 5,704 | ||||
|
Plus: Current Assets
|
1,675 | |||
|
Non-Current Assets
|
274 | |||
|
Less: Current Liabilities
|
(658 | ) | ||
|
Non-Current Liabilities
|
(67 | ) | ||
|
Total Purchase Price
|
$ | 6,928 | ||
The assets and liabilities of Westcon were recorded under the
purchase method of accounting at their estimated fair values as
of the date of acquisition. Goodwill represents costs in excess
of fair values assigned to the underlying net assets of the
acquired business. Other intangible assets, namely customer
base, represent an allocation of purchase price to identifiable
intangible assets of the acquired business. Intangible assets
are being amortized for financial reporting purposes on an
accelerated basis over the estimated useful life of
10 years. Goodwill and the intangible assets are not
deductible for tax purposes.
The primary reasons for the Company’s acquisition of
Westcon and the principal factors that contributed to the
recognition of goodwill were the strengthening of the
Company’s presence in the western United States
and/or
the
synergies and related cost savings gained from the integration
of the acquired operation.
55
Table of Contents
Under the terms of the Merger Agreement, a contingent payment of
up to $1.4 million was subject to holdback restrictions to
secure the obligations of Westcon and its sole shareholder for
post-closing adjustments, retention of business, reimbursement
and indemnification. During fiscal year 2010, the Company paid
$1.1 million to the sole shareholder in full satisfaction
of this contingency and recorded the payment as additional
goodwill on the Company’s Consolidated Balance Sheet.
In addition, Transcat and the sole shareholder of Westcon
entered into an Earn Out Agreement dated as of the closing of
the merger. This agreement provides that the sole shareholder
may be entitled to certain contingent earn out payments subject
to continued employment and achieving certain post-closing gross
profit and revenue targets. During fiscal year 2010, payments
totaling $0.1 million were earned and recorded as
compensation expense in the Consolidated Statement of Operations
and Comprehensive Income.
The results of operations of Westcon were included in
Transcat’s consolidated operating results as of the date
the business was acquired. The following unaudited pro forma
results assume the acquisition occurred at the beginning of each
period presented. The pro forma results do not purport to
represent what the Company’s results of operations actually
would have been if the transactions set forth had occurred on
the date indicated or what the Company’s results of
operations will be in future periods.
| (Unaudited) | ||||||||
| FY 2009 | FY 2008 | |||||||
|
Net Revenue
|
$ | 78,569 | $ | 79,781 | ||||
|
Net Income
|
$ | 1,413 | $ | 2,353 | ||||
|
Basic Earnings Per Share
|
$ | 0.19 | $ | 0.32 | ||||
|
Diluted Earnings Per Share
|
$ | 0.19 | $ | 0.32 | ||||
| NOTE 11 — | QUARTERLY DATA (Unaudited) |
The following table presents a summary of certain unaudited
quarterly financial data for fiscal years 2010 and 2009:
|
Net
|
Basic
|
Diluted
|
||||||||||||||||||
|
Net
|
Gross
|
Income
|
Earnings (Loss)
|
Earnings (Loss)
|
||||||||||||||||
| Revenues | Profit | (Loss) | per Share(a) | per Share(a) | ||||||||||||||||
|
FY 2010:
|
||||||||||||||||||||
|
Fourth Quarter
|
$ | 23,535 | $ | 6,431 | $ | 869 | $ | 0.12 | $ | 0.12 | ||||||||||
|
Third Quarter
|
21,823 | 4,806 | 483 | 0.07 | 0.06 | |||||||||||||||
|
Second Quarter
|
18,495 | 4,172 | 188 | 0.03 | 0.02 | |||||||||||||||
|
First Quarter
|
17,208 | 3,885 | (89 | ) | (0.01 | ) | (0.01 | ) | ||||||||||||
|
FY 2009:
|
||||||||||||||||||||
|
Fourth Quarter
|
$ | 18,964 | $ | 5,042 | $ | 556 | $ | 0.08 | $ | 0.07 | ||||||||||
|
Third Quarter
|
19,992 | 4,731 | 342 | 0.05 | 0.05 | |||||||||||||||
|
Second Quarter
|
18,610 | 4,574 | 430 | 0.06 | 0.06 | |||||||||||||||
|
First Quarter
|
17,853 | 4,525 | 228 | 0.03 | 0.03 | |||||||||||||||
| (a) | Earnings per share calculations for each quarter include the weighted average effect of stock issuances and common stock equivalents for the quarter; therefore, the sum of quarterly earnings per share amounts may not equal full-year earnings per share amounts, which reflect the weighted average effect on an annual basis. Diluted earnings per share calculations for each quarter include the effect of stock options, warrants and non-vested restricted stock, when dilutive to the quarter. In addition, basic earnings per share and diluted earnings per share may not add due to rounding. |
56
Table of Contents
|
Expense
|
||||||||||||||||
|
(Income)
|
||||||||||||||||
|
Balance
|
Realized in
|
Additions
|
Balance
|
|||||||||||||
|
at the
|
Consolidated
|
(Reductions) to
|
at the
|
|||||||||||||
|
Beginning
|
Statements
|
Allowance/
|
End of
|
|||||||||||||
| of the Year | of Operations | Reserve | the Year | |||||||||||||
|
Allowance for Doubtful Accounts:
|
||||||||||||||||
|
FY 2010
|
$ | 75 | $ | 85 | $ | (78 | ) | $ | 82 | |||||||
|
FY 2009
|
$ | 56 | $ | 160 | $ | (141 | ) | $ | 75 | |||||||
|
FY 2008
|
$ | 47 | $ | 49 | $ | (40 | ) | $ | 56 | |||||||
|
Reserve for Inventory Loss:
|
||||||||||||||||
|
FY 2010
|
$ | 223 | $ | 31 | $ | 93 | $ | 347 | ||||||||
|
FY 2009
|
$ | 62 | $ | 103 | $ | 58 | $ | 223 | ||||||||
|
FY 2008
|
$ | 129 | $ | (67 | ) | $ | — | $ | 62 | |||||||
|
Deferred Tax Valuation Allowance:
|
||||||||||||||||
|
FY 2010
|
$ | — | $ | — | $ | — | $ | — | ||||||||
|
FY 2009
|
$ | 35 | $ | (35 | ) | $ | — | $ | — | |||||||
|
FY 2008
|
$ | 819 | $ | (784 | ) | $ | — | $ | 35 | |||||||
57
Table of Contents
None.
(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. Management excluded United Scale from its assessment of
internal control over financial reporting as of March 27,
2010 due to the acquisition occurring during the fourth quarter
of fiscal year 2010.
An evaluation was performed under the supervision and with the
participation of our management, including the principal
executive officer and the principal financial officer, of the
effectiveness of the design and operation of our procedures and
internal control over financial reporting using the framework
and criteria established by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this
evaluation, our management, including the principal executive
officer and the principal financial officer, concluded that our
internal control over financial reporting was effective in
providing reasonable assurance regarding the reliability of
financial reporting and the preparation of our financial
statements for external purposes in accordance with generally
accepted accounting principles as of March 27, 2010.
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 temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s
report in this annual report.
(c)
Changes in Internal Controls over Financial
Reporting.
There has been no change in our
internal control over financial reporting that occurred during
the last fiscal quarter covered by this annual report (our
fourth fiscal quarter) that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.
| ITEM 9B. | OTHER INFORMATION |
Not applicable.
58
Table of Contents
| 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 2010 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 27, 2010 fiscal year end.
The information required by this Item 11 is incorporated
herein by reference from our proxy statement for our 2010 Annual
Meeting of Shareholders under the heading “Compensation of
Named Executive Officers and Directors,” which proxy
statement will be filed pursuant to Regulation 14A within
120 days after the March 27, 2010 fiscal year end.
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 2010 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 27, 2010 fiscal year end.
Securities Authorized for Issuance Under Equity Compensation
Plans as of March 27, 2010:
Equity
Compensation Plan Information
(In Thousands, Except Per Share Amounts)
(In Thousands, Except Per Share Amounts)
|
Number of securities
|
||||||||||||
|
Number of securities
|
remaining available
|
|||||||||||
|
to be issued
|
Weighted average
|
for future issuance under
|
||||||||||
|
upon exercise of
|
exercise price of
|
equity compensation plans
|
||||||||||
|
outstanding options,
|
outstanding options,
|
(excluding securities
|
||||||||||
|
warrants and rights
|
warrants and rights
|
reflected in column (a))
|
||||||||||
|
Plan category
|
(a) | (b) | (c) | |||||||||
|
Equity compensation plans approved by security holders
|
841 | (1) | $ | 5.68 | 221 | |||||||
|
Equity compensation plans not approved by security holders
|
— | — | — | |||||||||
|
Total
|
841 | $ | 5.68 | 221 | ||||||||
| (1) | Includes performance-based restricted stock awards granted to officers and key employees pursuant to our 2003 Incentive Plan. See Note 7 of our Consolidated Financial Statements in Item 8 of Part II. |
The information required by this Item 13 is incorporated
herein by reference from our proxy statement for our 2010 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 27, 2010 fiscal year end.
59
Table of Contents
The information required by this Item 14 is incorporated
herein by reference from our proxy statement for our 2010 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 27, 2010 fiscal year end.
(a) See Index to Financial Statements included in
Item 8 of this report.
(b) Exhibits.
See Index to Exhibits contained in this report.
60
Table of Contents
SIGNATURES
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.
TRANSCAT, INC.
|
Date: June 24, 2010
|
By: |
/s/
Charles
P.
Hadeed
President, Chief Executive Officer and Chief Operating 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
|
||||
|
June 24, 2010
|
/s/
Charles
P. Hadeed
|
Director, President, Chief Executive Officer and Chief Operating Officer (Principal Executive Officer) | ||||
|
June 24, 2010
|
/s/
John
J. Zimmer
|
Vice President of Finance and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer) |
||||
|
June 24, 2010
|
/s/
Carl
E. Sassano
|
Chairman of the Board of Directors | ||||
|
June 24, 2010
|
/s/
Francis
R. Bradley
|
Director | ||||
|
June 24, 2010
|
/s/
Richard
J. Harrison
|
Director | ||||
|
June 24, 2010
|
/s/
Nancy
D. Hessler
|
Director | ||||
|
June 24, 2010
|
/s/
Paul
D. Moore
|
Director | ||||
|
June 24, 2010
|
/s/
Harvey
J. Palmer
|
Director | ||||
|
June 24, 2010
|
/s/
Alan
H. Resnick
|
Director | ||||
|
June 24, 2010
|
/s/
John
T. Smith
|
Director |
61
Table of Contents
INDEX TO
EXHIBITS
|
(2)
|
Plan of acquisition, reorganization, arrangement, liquidation or succession | |||
| Not applicable. | ||||
|
(3)
|
Articles of Incorporation and Bylaws | |||
| 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. | |||
| 3.2 | Code of Regulations, as amended through May 4, 2009, are incorporated herein by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K dated October 26, 2009. | |||
|
(4)
|
Instruments defining the rights of security holders, including indentures | |||
| Not applicable. | ||||
|
(9)
|
Voting trust agreement | |||
| Not applicable. | ||||
|
(10)
|
Material contracts | |||
| #10.1 | Transcat, Inc. Amended and Restated Directors’ Warrant Plan is incorporated herein by reference from Exhibit 99(b) to the Company’s Registration Statement on Form S-8 (Registration No. 33-61665) filed on August 8, 1995. | |||
| #10.2 | Transcat, Inc. Employees’ Stock Purchase Plan is incorporated herein from Exhibit 99(e) to the Company’s Registration Statement on Form S-8 (Registration No. 33-61665) filed on August 8, 1995. | |||
| #10.3 | Amendment No. 1 to the Transcat, Inc. Employees’ Stock Purchase Plan is incorporated herein by reference from Exhibit 10(b) to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1996. | |||
| #10.4 | Amendment No. 1 to the Transcat, Inc. Amended and Restated Directors’ Warrant Plan is incorporated herein by reference from Exhibit II to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. | |||
| #10.5 | Amendment No. 2 to the Transcat, Inc. Employees’ Stock Purchase Plan is incorporated herein by reference from Exhibit V to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. | |||
| #10.6 | Amendment No. 2 to the Transcat, Inc. Amended and Restated Directors’ Warrant Plan is incorporated herein by reference from Exhibit 10(i) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. | |||
| #10.7 | Amendment No. 3 to the Transcat, Inc. Employees’ Stock Purchase Plan is incorporated herein by reference from Exhibit 10(k) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. | |||
| #10.8 | Amendments No. 3 and 4 to the Transcat, Inc. Amended and Restated Directors’ Warrant Plan are incorporated herein by reference from the Company’s definitive proxy statement filed on July 7, 1998 in connection with the 1998 Annual Meeting of Shareholders. | |||
| #10.9 | Amendment No. 5 to the Transcat, Inc. Amended and Restated Directors’ Warrant Plan is incorporated herein by reference from Appendix B to the Company’s 1999 preliminary proxy statement filed on June 21, 1999 in connection with the 1999 Annual Meeting of Shareholders. | |||
| #10.10 | Amendment No. 4 to the Transcat, Inc. Employees’ Stock Purchase Plan is incorporated herein by reference from Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001. | |||
| #10.11 | 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. | |||
62
Table of Contents
| #10.12 | 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. | |||
| #10.13 | Form of Warrant Certificate representing warrants granted under the Amended and Restated Directors’ Warrant Plan is incorporated herein by reference from Exhibit 10.42 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 26, 2005. | |||
| #10.14 | 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. | |||
| #10.15 | Form of Amended and Restated Agreement for Severance Upon Change in Control for Charles P. Hadeed is incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 19, 2006. | |||
| #10.16 | 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. | |||
| 10.17 | Credit Agreement dated as of November 21, 2006 by and between Transcat, Inc. and JPMorgan Chase Bank, N.A. is incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 21, 2006. | |||
| 10.18 | Amendment Number One to Credit Agreement dated as of August 14, 2008 between Transcat, Inc. and JPMorgan Chase Bank, N.A. is incorporated herein by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2008. | |||
| 10.19 | Agreement and Plan of Merger by and among Transcat Acquisition Corp., Westcon, Inc. and David Goodhead dated as of August 14, 2008 is incorporated herein by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2008. | |||
| 10.20 | 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. | |||
| #10.21 | Amendment to Agreement for Severance Upon Change in Control for Charles P. Hadeed dated December 16, 2008 is incorporated herein by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 27, 2008. | |||
| #10.22 | Form of Award Notice for Performance-Based Restricted Stock granted under the Transcat, Inc. 2003 Incentive Plan is incorporated herein by reference from Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2009. | |||
| 10.23 | Transcat, Inc. 2009 Insider Stock Sales Plan is incorporated herein by reference from Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2009. | |||
| *#10.24 | Transcat, Inc. Post-Retirement Benefit Plan for Officers (Amended and Restated Effective January 1, 2010). | |||
| *10.25 | Transcat, Inc. Post-Retirement Benefit Plan for Non-Officer Employees (Amended and Restated Effective January 1, 2010). | |||
| *10.26 | Amendment No. 2 to Credit Agreement dated February 26, 2010 between Transcat, Inc. and JPMorgan Chase Bank, N.A. | |||
| #10.27 | Certain compensation information for Charles P. Hadeed, President, Chief Executive Officer and Chief Operating Officer of the Company is incorporated herein by reference from the Company’s Current Report on Form 8-K dated April 5, 2010. | |||
| #10.28 | Certain compensation information for John J. Zimmer, Vice President of Finance and Chief Financial Officer of the Company is incorporated herein by reference from the Company’s Current Report on Form 8-K dated May 20, 2010. |
63
Table of Contents
|
(11)
|
Statement re computation of per share earnings | |||
| Computation can be clearly determined from the Consolidated Statements of Operations and Comprehensive Income included in this Form 10-K as Item 8. | ||||
|
(13)
|
Annual report to security holders, Form 10-Q or quarterly report to security holders | |||
| Not applicable. | ||||
|
(14)
|
Code of Ethics | |||
| Not applicable. | ||||
|
(16)
|
Letter re change in certifying accountant | |||
| Not applicable. | ||||
|
(18)
|
Letter re change in accounting principles | |||
| Not applicable. | ||||
|
(21)
|
Subsidiaries of the registrant | |||
| *21.1 | Subsidiaries | |||
|
(22)
|
Published report regarding matters submitted to a vote of security holders | |||
| Not applicable. | ||||
|
(23)
|
Consents of experts and counsel | |||
| *23.1 | Consent of BDO Seidman, LLP | |||
|
(24)
|
Power of Attorney | |||
| Not applicable. | ||||
|
(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 | |||
| * | Exhibit filed with this report. | |
| # | Management contract or compensatory plan or arrangement. |
64
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. ReservedPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataNote 1 GeneralNote 2 Property and EquipmentNote 3 DebtNote 4 Income TaxesNote 5 Defined Contribution PlanNote 6 Postretirement Health Care PlansNote 7 Stock-based CompensationNote 8 Segment and Geographic DataNote 9 CommitmentsNote 10 AcquisitionsNote 11 Quarterly Data (unaudited)Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9a(t). Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedules