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 26,
2011
|
||||
|
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 Global Market (effective June 13, 2011) |
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 24, 2010 (the last business day of the
registrant’s most recently completed second fiscal quarter)
was approximately $47 million. The market value calculation
was determined using the closing sale price of the
registrant’s common stock on September 24, 2010, as
reported on the NASDAQ Capital Market.
The number of shares of common stock of the registrant
outstanding as of June 19, 2011 was 7,285,862.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement
relating to the Annual Meeting of Shareholders to be held on
September 13, 2011 have been incorporated by reference into
Part III, Items 10, 11,12,13 and 14 of this report.
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 distributor of professional grade handheld
test and measurement instruments and accredited provider of
calibration, repair and other measurement services. We are
primarily focused on providing our products and services to the
following:
| • | 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 (“Product”) and calibration services
(“Service”).
Through our Product segment, we market and distribute national
and proprietary brand instruments to approximately 15,000
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 500 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 Service segment, we deliver precise,
reliable, fast calibration and repair services. As of our fiscal
year ended March 26, 2011 (“fiscal year 2011”),
we operated fourteen calibration laboratories (“Calibration
Centers of Excellence”) strategically located across the
United States, Puerto Rico, and Canada servicing over 10,000
customers. Each of our Calibration Centers of Excellence is
covered by ISO/IEC 17025 scopes of accreditation which are
believed to be among the best in the industry. Our accreditation
meets many international levels of quality, consistency and
reliability. See “Service Segment — Quality”
below in this Item 1 for more information.
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
certificates, data, and other key documents required in
1
Table of Contents
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 Service 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 29% of our consolidated
revenue, are Fortune 500/Global 500 companies, including
Wyeth, Johnson & Johnson, General Electric, DuPont,
Exxon Mobil, Dow Chemical, Nestle and NextEra 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 a
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 and services.
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 objective is to continue to grow our Service and Product
segments through organic revenue growth and acquisitions.
Our organic product growth strategy is to be the premier
distributor of leading hand-held test and measurement equipment.
In support of this strategy, we continuously add new vendors and
products consistent with our targeted channels and product
segments to ensure a market leadership position. We have access
to over 25,000 products through our vendor relationships with
the goal to service all of our customers’ test and
measurement equipment needs.
Within the Service segment, our strategy is to focus on
customers that rely on accredited calibration services and value
superior quality to maintain the integrity of their processes
and/or
meet
the demands of regulated business environments. We focus on
customers that require precise measurement capability for their
manufacturing and testing processes to minimize risk, waste and
defects. We leverage these strategies based on our multiple
locations, highly qualified technicians and breadth of
capabilities.
Our acquisition strategy primarily targets calibration service
businesses that expand our geographic reach and leverage our
infrastructure while also increasing the depth
and/or
breadth of our calibration capabilities. Because our acquisition
strategy is focused on service businesses, we expect that the
growth rate of our Service segment should exceed that of our
Product segment over the long term.
We believe our combined product and service offerings,
experience, technical expertise and integrity create a unique
and compelling value proposition for our customers. We strive to
differentiate ourselves and build barriers to competitive entry
by offering the best products and services, and integrating
those products and services to benefit our customers’
operations and lower their costs.
ACQUISITIONS
On January 11, 2011, we acquired substantially all of the
assets of Wind Turbine Tools, Inc. and affiliated entities
(“WTT”). WTT, located in Lincoln, Montana, is a
premier provider of wind energy industry product tool kit
solutions, technical assistance and torque calibration. Our
acquisition of WTT expanded our reach into the wind energy
industry and positions us well to accelerate growth within this
industry.
On November 1, 2010, we acquired certain assets of the
service division of ACA TMetrix Inc. (“TMetrix”).
TMetrix provides calibration and repair services throughout
Canada and is located in Mississauga, Ontario.
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Our acquisition of TMetrix incrementally added to our Service
business in Canada while enabling us to leverage our
infrastructure.
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. Our acquisition of United Scale
broadened our calibration capabilities and product offerings to
include scales and weighing systems which frequently require
integration, installation and custom programming as well as
expanded our geographic footprint into the upper Midwest.
On August 14, 2008, we acquired Westcon, Inc.
(“Westcon”), a test and measurement instruments
distributor and calibration services provider based in Portland,
Oregon. 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 had served, and we 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: Product
and Service. Note 8 of our Consolidated Financial
Statements in this report presents financial information for
these segments. We serve approximately 15,000 customers through
our Product segment and over 10,000 customers through our
Service segment, with no customer or controlled group of
customers accounting for 10% or more of our consolidated net
revenue for any of the fiscal years 2009 through 2011. 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 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 2011 | FY 2010 | FY 2009 | ||||||||||
|
United States
|
90 | % | 90 | % | 89 | % | ||||||
|
Canada
|
7 | % | 7 | % | 7 | % | ||||||
|
Other International
|
3 | % | 3 | % | 4 | % | ||||||
|
Total
|
100 | % | 100 | % | 100 | % | ||||||
PRODUCT
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 typically 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, website 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.
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Table of Contents
We believe that a product customer chooses a distributor based
on a number of different criteria including the timely delivery
and accuracy of orders, consistent product quality, the
technical competence of the representative serving them, value
added services, as well as price. Value added services include
providing technical support to insure our customer receives the
right product for their specific need through application
knowledge and product compatibility. We also provide calibration
of product purchases, 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 Product segment accounted for 66% of our consolidated
revenue in fiscal year 2011. Within the Product segment, our
routine business is comprised of customers who place orders to
acquire or to replace specific instruments, which average
approximately $1,600 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.
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 calibration and
repair services are offered only in North America and Puerto
Rico.
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 2011, we distributed approximately
1.2 million pieces of direct marketing materials including
catalogs, brochures, supplements and other promotional
materials, of which approximately 653,000 were distributed to
customer contacts and approximately 605,000 were distributed to
potential customer contacts. We also distributed approximately
550,000
e-newsletters
to our list of customers and prospective customers. Some of the
key factors that determine the number of catalogs and other
direct marketing materials 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 2011,
approximately 70,000 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 prospective
customers 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.
Product sales via our website have grown approximately 32% over
the prior fiscal year and represented 9% of our Product segment
sales in fiscal year 2011.
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. In addition, web-based
distributers have become more prevalent in recent years and are
increasing their market share. Key competitive factors typically
include customer service and support, quality, turnaround time,
inventory availability, brand recognition and price. To
4
Table of Contents
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 over 500
suppliers of brand name and private-labeled equipment. In fiscal
year 2011, our top 10 vendors accounted for approximately 65% of
our aggregate business. Approximately 30% of our product
purchases on an annual basis are from Fluke Electronics
Corporation (“Fluke”), which we believe to be
consistent with Fluke’s share of the markets we service.
We plan our product mix and inventory stock to best serve the
anticipated needs of our customers whose individual purchases
vary in size. We can usually ship to our customers our top
selling products the same day they are ordered. During fiscal
year 2011, approximately 94% of orders for our top selling
products were filled with inventory items already in stock.
Operations.
Our distribution operations
primarily take place within an approximate
37,250 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 2011, we
shipped nearly 36,000 product orders in the aggregate from both
locations. In addition, we have two warehouse facilities in
Wisconsin which fulfill orders for scales and a warehouse
facility in Montana, which primarily serves the wind energy
industry.
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 2011 and the
fiscal year ended March 27, 2010 (“fiscal year
2010”), 24% of our product sales were to resellers compared
with 25% in the fiscal year ended March 28, 2009
(“fiscal year 2009”). 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, 2010. We continue to be the exclusive
worldwide distributor of these products on terms substantially
similar to the agreement that expired on December 31, 2010.
Some of the products that are subject to this agreement are
nearing their “End of Life.” We have access to
alternative products, but they are not subject to this
exclusivity agreement.
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 or at a future
date, and other orders awaiting final credit or management
review prior to shipment.
5
Table of Contents
The following graph shows the quarter-end trend of pending
product shipments and backorders for fiscal years 2010 and 2011:
SERVICE
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.
Calibration improves an operation’s maximum productivity
and efficiency by assuring accurate, reliable instruments and
processes. Through our Service 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.
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 Service 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 items requested to be calibrated
with our in-house capabilities. For customers’ calibration
needs in less common and highly technical disciplines, we have
historically subcontracted to third party vendors that have
unique or proprietary capabilities. These vendor relationships
have enabled us to continue our pursuit of having the broadest
calibration offerings to these targeted markets.
Strategy.
Our Service 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. |
6
Table of Contents
| 2) | If a company has an in-house calibration operation, we can provide: |
| • | calibration of primary standards; | |
| • | overflow capability either on-site or at one of our Calibration Centers of Excellence during periods of high demand; and | |
| • | consultation and training services. |
In both cases, we strive to have the broadest accredited
calibration offering to our targeted markets which includes
certification of our technicians pursuant to the American
Society for Quality standards, complete calibration management
encompassing the entire metrology function, and access to our
service offerings. We believe our calibration services are of
the highest technical and quality levels, with broad ranges of
accreditation 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 fourteen Calibration Centers of Excellence
or at the customer’s location. During fiscal year 2011,
services completed by our Calibration Centers of Excellence
represented 77% of our Service segment revenue while
approximately 21% of the revenue was derived from calibration
services that were subcontracted to third party vendors. Our
Service segment accounted for 34% of our total consolidated
revenue in fiscal year 2011.
Marketing and Sales.
We have sales
teams that seek to acquire new customers in our targeted markets
and account management teams to ensure continued relationships
with existing customers. In addition, we employ our Master
Catalog, supplements, mailings, journal advertising, trade
shows, and the Internet to market our 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. 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 are as follows:
| FY 2011 | FY 2010 | FY 2009 | ||||||||||
|
Pharmaceutical/FDA-Regulated
|
35 | % | 37 | % | 38 | % | ||||||
|
Industrial Manufacturing
|
23 | % | 22 | % | 25 | % | ||||||
|
Energy/Utilities
|
18 | % | 20 | % | 15 | % | ||||||
|
Chemical Manufacturing
|
9 | % | 8 | % | 9 | % | ||||||
|
Other
|
15 | % | 13 | % | 13 | % | ||||||
|
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 may not have a
range of capabilities as broad as ours. There are also several
companies with whom we compete who have national or regional
operations. Certain of these competitors may have greater
resources than us and some of them have accreditations that are
similar to ours. We differentiate ourselves from our competitors
by demonstrating our commitment to quality and by having a wide
range of capabilities that are tailored to the
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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. Other than our recently
acquired operations in Wisconsin and Montana, our labs are
accredited by the National Voluntary Laboratory Accreditation
Program.
To ensure the quality and consistency of our calibrations for
our customers, we have sought and achieved international levels
of quality and accreditation. 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
accrediting bodies in the United States that are signatories to
the International Laboratory Accreditation Cooperation
(“ILAC”). 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.
8
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 26, 2011 (A=Accredited;
N=Non-accredited; P=Pending accreditation):
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 | |||||||||||
|
Charlotte
|
A | A | A | |||||||||||
|
Dayton
|
A | A | A | A | ||||||||||
|
Houston
|
A | A | A | A | N | A | ||||||||
|
Lincoln
|
A | A | ||||||||||||
|
Anaheim
|
A | A | A | A | N | |||||||||
|
Ottawa
|
A | A | A | A | ||||||||||
|
Cherry Hill
|
A | A | A | A | A | |||||||||
|
Portland
|
A | A | A | A | ||||||||||
|
Rochester
|
A | A | A | A | A | |||||||||
|
San Juan
|
A | A | A | |||||||||||
|
St. Louis
|
A | A | A | |||||||||||
|
Toronto
|
P | P | P | |||||||||||
| Physical Metrology Disciplines | ||||||||||||||
|
Particle
|
Gas
|
Relative
|
Mass
|
Pressure,
|
||||||||||
| Flow | Counters | Force | Analysis | Humidity | Weight | Vacuum | ||||||||
|
Boston
|
A | A | A | N | ||||||||||
|
Charlotte
|
A | N | A | A | A | |||||||||
|
Dayton
|
A | A | A | A | ||||||||||
|
Houston
|
A | A | A | |||||||||||
|
Lincoln
|
A | |||||||||||||
|
Anaheim
|
A | A | A | A | ||||||||||
|
Ottawa
|
A | A | A | A | ||||||||||
|
Cherry Hill
|
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 | ||||||||||
|
Toronto
|
N | |||||||||||||
|
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 | ||||||||||
|
Lincoln
|
A | A | ||||||||||||
|
Anaheim
|
A | A | A | N | N | N | ||||||||
|
Ottawa
|
A | A | A | |||||||||||
|
Cherry Hill
|
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 | ||||||||||
|
Toronto
|
P | P | P | |||||||||||
9
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 | ||||||||||
|
Houston
|
A | A | A | |||||||||
|
Cherry Hill
|
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 products and 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 years 2011 and
2010 resulted from sales to customers outside the United States,
compared with 11% in fiscal year 2009. Of those sales in fiscal
year 2011, approximately 39% were denominated in
U.S. dollars and the remaining 61% were in Canadian
dollars. Our revenue is subject to the customary risks of
operating in an international environment, including the
potential imposition of trade or foreign exchange restrictions,
tariff and other tax increases, fluctuations in exchange rates
and unstable political situations, any one or more of which
could have a material adverse effect on our business, cash
flows, balance sheet or results of operations. See “Foreign
Currency” in Item 7A of Part II of this report
for further details.
INFORMATION
SYSTEMS
We utilize a turnkey enterprise software solution, Application
Plus, to manage our business and operations segments. This
software includes a suite of fully integrated modules to manage
our business functions, including customer service, warehouse
management, inventory management, financial management, customer
relations management, and business intelligence. This solution
is a fully mature business package and has been subject to more
than 20 years of refinement.
10
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 2011, we had 313 employees,
compared with 303 and 281 employees at the end of fiscal
years 2010 and 2009, respectively.
EXECUTIVE
OFFICERS
The following table presents certain information regarding our
executive officers and certain key employees as of
March 26, 2011:
| Name | Age | Position | ||||
|
Charles P. Hadeed
|
61 | President, Chief Executive Officer and Chief Operating Officer | ||||
|
John J. Zimmer
|
52 | Vice President of Finance and Chief Financial Officer | ||||
|
Michael P. Craig
|
57 | Vice President of Human Resources | ||||
|
John P. Hennessy
|
62 | Vice President of Sales and Marketing | ||||
|
Rainer Stellrecht
|
60 | Vice President of Laboratory Operations | ||||
|
Lori L. Drescher
|
51 | Vice President Sales Operations | ||||
|
Jay F. Woychick
|
54 | Vice President of Wind Energy Commercial Operations and Vendor Relations | ||||
|
Derek C. Hurlburt
|
42 | 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 documents are available in print at no
charge to any shareholder who makes a request. Such requests
should be made to our corporate secretary at our corporate
headquarters, 35 Vantage Point Drive, Rochester, New York 14624.
11
Table of Contents
| 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.
A Continuation Or Worsening Of The Recent Economic
Recession May Adversely Affect Our Results Of Operations And
Liquidity.
The recent economic recession has
caused business activity across a wide range of industries and
regions in the U.S. to be greatly reduced. Although
economic conditions have begun to improve, certain sectors
remain weak and unemployment remains high. Many businesses are
still in serious difficulty due to lower consumer spending.
Continued or worsening economic conditions could be caused by
declines in economic growth, business activity or investor or
business confidence; limitations on the availability or
increases in the cost of credit and capital; increases in
inflation or interest rates; high unemployment, natural
disasters; or a combination of these or other factors. Although
we believe that our cash provided by operations and available
borrowing capacity under our current credit facility will
provide us with sufficient liquidity if economic conditions
continue or worsen, the impact of continued or worsening
recessionary trends 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. For example, the recent Tsunamis in Japan
may affect product component availability. We do not expect this
to have a material impact. 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 26, 2011, we owed $5.3 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.
12
Table of Contents
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
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.
13
Table of Contents
If We Fail To Attract Qualified Personnel, We May Not Be
Able To Achieve Our Stated Corporate
Objectives.
Our ability to manage our
anticipated growth, if realized, effectively depends on our
ability to attract and retain highly qualified executive
officers and technical personnel. If we fail to attract and
retain qualified individuals, we will not be able to achieve our
stated corporate objectives.
Our Revenue Depends On Retaining Capable Sales Personnel
As Well As Our Relationships With Key Customers, Key Vendors And
Manufacturers Of The Products That We
Distribute.
Our future operating results
depend on our ability to maintain satisfactory relationships
with qualified sales personnel as well as key customers, vendors
and manufacturers who appreciate the value of our services. If
we fail to maintain our existing relationships with such persons
or fail to acquire relationships with such key persons in the
future, our business and results of operations may be adversely
affected.
Our Future Success Is Substantially Dependent Upon Our
Senior Management.
Our future success is
substantially dependent upon the efforts and abilities of
members of our existing senior management. Competition for
senior management is intense, and we may not be successful in
attracting and retaining key personnel, the inability of which
could have an adverse 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. As part of our
business strategy, we may make additional acquisitions of
companies that could complement or expand our business, augment
our market coverage, provide us with important relationships or
otherwise offer us growth opportunities. If we identify an
appropriate acquisition candidate, we may not be able to
negotiate successfully the terms of or finance the acquisition.
In addition, we cannot assure you that we will be able to
integrate the operations of our acquisitions without
encountering difficulties, including unanticipated costs,
possible difficulty in retaining customers and supplier or
manufacturing relationships, failure to retain key employees,
the diversion of our management’s attention or failure to
integrate our information and accounting systems. We may not
realize the revenues and cost savings that we expect to achieve
or that would justify the investments, and we may incur costs in
excess of what we anticipate. To effectively manage our expected
future growth, we must continue to successfully manage our
integration of the companies that we acquire and continue to
improve our operational systems, internal procedures, accounts
receivable and management, financial and operational controls.
If we fail in any of these areas, our business growth and
results of operations could be adversely affected.
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.
14
Table of Contents
| ITEM 2. | PROPERTIES |
The following table presents the properties that we lease:
|
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
|
Houston, TX | 10,333 | ||||
|
Calibration Laboratory
|
Ottawa, ON | 3,990 | ||||
|
Calibration Laboratory
|
Toronto, ON | 2,070 | ||||
|
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 Center and Warehouse
|
New Berlin, WI | 16,000 | ||||
|
Service Center
|
Green Bay, WI | 3,320 | ||||
|
Service Center and Warehouse
|
Madison, WI | 7,670 | ||||
|
Calibration Laboratory and Warehouse(1)
|
Lincoln, MT | 11,406 | ||||
| (1) | Properties purchased in conjunction with our acquisition of WTT |
We believe that our properties are in good condition, are well
maintained, and are generally suitable and adequate to carry on
our business in its current form.
| ITEM 3. | LEGAL PROCEEDINGS |
None.
| ITEM 4. | (REMOVED AND RESERVED) |
In June 2011, The Nasdaq Stock Market approved our application
to transfer our common stock listing from the NASDAQ Capital
Market to the NASDAQ Global Market, effective with the opening
of business on June 13, 2011. Our common stock continues to
be listed under the symbol “TRNS.”
As of June 16, 2011, we had approximately
643 shareholders of record.
15
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 2011 and 2010.
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||
|
Fiscal Year 2011:
|
||||||||||||||||
|
High
|
$ | 7.50 | $ | 7.89 | $ | 7.90 | $ | 8.75 | ||||||||
|
Low
|
$ | 6.54 | $ | 6.25 | $ | 6.38 | $ | 6.96 | ||||||||
|
Fiscal Year 2010:
|
||||||||||||||||
|
High
|
$ | 6.20 | $ | 7.87 | $ | 7.21 | $ | 8.55 | ||||||||
|
Low
|
$ | 4.12 | $ | 4.40 | $ | 4.09 | $ | 5.51 | ||||||||
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 2011 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 2011 | FY 2010 | FY 2009 | FY 2008 | FY 2007 | ||||||||||||||||
|
Statements of Operations Data:
|
||||||||||||||||||||
|
Net Revenues
|
$ | 91,186 | $ | 81,061 | $ | 75,419 | $ | 70,453 | $ | 66,473 | ||||||||||
|
Cost of Products and Services Sold
|
67,888 | 61,767 | 56,617 | 51,912 | 49,860 | |||||||||||||||
|
Gross Profit
|
23,298 | 19,294 | 18,748 | 18,541 | 16,613 | |||||||||||||||
|
Operating Expenses
|
18,711 | 16,913 | 16,062 | 15,258 | 14,264 | |||||||||||||||
|
Gain on TPG Divestiture(1)
|
— | — | — | — | (1,544 | ) | ||||||||||||||
|
Operating Income
|
4,587 | 2,381 | 2,686 | 3,283 | 3,893 | |||||||||||||||
|
Interest Expense
|
73 | 63 | 100 | 101 | 334 | |||||||||||||||
|
Other Expense, net
|
32 | 35 | 67 | 437 | 283 | |||||||||||||||
|
Income Before Income Taxes
|
4,482 | 2,283 | 2,519 | 2,745 | 3,276 | |||||||||||||||
|
Provision for Income Taxes
|
1,694 | 832 | 963 | 382 | 1,217 | |||||||||||||||
|
Net Income
|
$ | 2,788 | $ | 1,451 | $ | 1,556 | $ | 2,363 | $ | 2,059 | ||||||||||
|
Share Data:
|
||||||||||||||||||||
|
Basic Earnings Per Share
|
$ | 0.38 | $ | 0.20 | $ | 0.21 | $ | 0.33 | $ | 0.30 | ||||||||||
|
Basic Average Shares Outstanding
|
7,290 | 7,352 | 7,304 | 7,132 | 6,914 | |||||||||||||||
|
Diluted Earnings Per Share
|
$ | 0.37 | $ | 0.19 | $ | 0.21 | $ | 0.32 | $ | 0.28 | ||||||||||
|
Diluted Average Shares Outstanding
|
7,521 | 7,549 | 7,469 | 7,272 | 7,335 | |||||||||||||||
|
Closing Price Per Share
|
$ | 8.00 | $ | 7.14 | $ | 4.90 | $ | 5.50 | $ | 5.25 | ||||||||||
16
Table of Contents
| As of or for the Fiscal Years Ended | ||||||||||||||||||||
|
March 26,
|
March 27,
|
March 28,
|
March 29,
|
March 31,
|
||||||||||||||||
| 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
|
Balance Sheets and Working Capital Data:
|
||||||||||||||||||||
|
Inventory, net
|
$ | 7,571 | $ | 5,906 | $ | 4,887 | $ | 5,442 | $ | 4,336 | ||||||||||
|
Property and Equipment, net
|
5,253 | 4,163 | 4,174 | 3,211 | 2,814 | |||||||||||||||
|
Goodwill
|
11,666 | 10,038 | 7,923 | 2,967 | 2,967 | |||||||||||||||
|
Total Assets
|
41,360 | 35,713 | 29,391 | 24,344 | 22,422 | |||||||||||||||
|
Depreciation and Amortization
|
2,293 | 2,080 | 1,897 | 1,761 | 1,622 | |||||||||||||||
|
Capital Expenditures
|
1,647 | 1,128 | 1,775 | 1,505 | 1,194 | |||||||||||||||
|
Long-Term Debt
|
5,253 | 2,532 | 3,559 | 302 | 2,900 | |||||||||||||||
|
Shareholders’ Equity
|
23,329 | 20,257 | 18,619 | 15,117 | 11,229 | |||||||||||||||
| (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
distributor of professional grade handheld test and measurement
instruments and accredited provider of calibration, repair and
other measurement 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 Product and Service.
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 trailing twelve month trend, and not by analyzing any
single quarter.
Financial Overview.
In evaluating our
results for fiscal year 2011, the following factors should be
taken into account:
| • | Fiscal year 2011 operating results include a full year of operations from United Scale, whereas, fiscal year 2010 operating results included those of United Scale from the date of acquisition on January 27, 2010. | |
| • | Fiscal year 2011 operating results include those of TMetrix and WTT, which were acquired on November 1, 2010 and January 11, 2011, respectively. |
17
Table of Contents
Net revenue for fiscal year 2011 was $91.2 million, a 12.5%
increase compared with net revenue of $81.1 million for
fiscal year 2010. Product segment net sales increased 12.6% to
$59.9 million, or 65.6% of total net revenue, in fiscal
year 2011. Of our Product segment sales in fiscal year 2011, 74%
were sold directly to end-user customers while 24% were to
resellers compared with 75% and 24%, respectively, in fiscal
year 2010. Domestic sales comprised 90% of the total Product
segment sales in fiscal year 2011, while 7% were to Canada and
3% were to other international markets.
Service segment net revenue increased 12.2% to
$31.3 million, or 34.4% of total net revenue, in fiscal
year 2011. Of our Service segment revenue in fiscal year 2011,
77% was generated by our Calibration Centers of Excellence while
21% was generated through subcontracted third party vendors,
compared with 76% and 21%, respectively, in fiscal year 2010.
Gross margin for fiscal year 2011 was 25.5%, a 170 basis
point increase compared with gross margin of 23.8% in fiscal
year 2010. Product segment gross margin was 25.7% in fiscal year
2011 compared with 23.4% in fiscal year 2010, while Service
segment gross margin improved to 25.3% in fiscal year 2011
compared with 24.5% in fiscal year 2010.
Operating expenses were $18.7 million, or 20.5% of total
net revenue, in fiscal 2011 compared with $16.9 million, or
20.9% of total net revenue, in fiscal year 2010. Operating
income was $4.6 million in fiscal year 2011 compared with
$2.4 million in fiscal year 2010.
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.
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.
18
Table of Contents
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 | |||
|
Buildings
|
39 | |||
Property and equipment determined to have no value are written
off at their then remaining net book value. We capitalize
certain costs incurred in the procurement and development of
computer software used for internal purposes. Leasehold
improvements are amortized under the straight-line method over
the estimated useful life or the lease term, whichever is
shorter. Maintenance and repairs are expensed as incurred. See
Note 2 of our Consolidated Financial Statements for further
information.
Goodwill and Intangible Assets.
We
estimate the fair value of our reporting units using the fair
market value measurement requirement. We test goodwill for
impairment on an annual basis, or immediately if conditions
indicate that such impairment could exist. We determined that
the fair value of each of our reporting units exceeded its
carrying amount and that no impairment was indicated as of
March 26, 2011 and March 27, 2010. Other intangible
assets are evaluated for impairment when events or changes in
business circumstances indicate that the carrying amount of the
assets may not be fully recoverable. No impairment indicators
were present as of March 26, 2011 and March 27, 2010.
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 26, 2011 and March 27, 2010.
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.
19
Table of Contents
During the first quarter of fiscal years 2011, 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 target levels 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 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, we record compensation cost based on an assessment of the
probability of achieving the performance conditions. At
March 26, 2011, we estimated the probability of achievement
for the performance-based restricted stock awards granted in
fiscal years 2011 and 2010 to be 75% and 50% of the target
levels, respectively. The performance-based restricted stock
awards granted in fiscal year 2009 did not vest on
March 26, 2011 as the performance condition related to
these awards was not achieved.
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.
20
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 2011 | FY 2010 | FY 2009 | ||||||||||
|
Gross Profit Percentage:
|
||||||||||||
|
Product Gross Profit
|
25.7 | % | 23.4 | % | 25.4 | % | ||||||
|
Service Gross Profit
|
25.3 | % | 24.5 | % | 23.7 | % | ||||||
|
Total Gross Profit
|
25.5 | % | 23.8 | % | 24.9 | % | ||||||
|
As a Percentage of Total Net Revenue:
|
||||||||||||
|
Product Sales
|
65.6 | % | 65.6 | % | 68.3 | % | ||||||
|
Service Revenue
|
34.4 | % | 34.4 | % | 31.7 | % | ||||||
|
Total Net Revenue
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Selling, Marketing and Warehouse Expenses
|
12.9 | % | 13.2 | % | 13.2 | % | ||||||
|
Administrative Expenses
|
7.6 | % | 7.7 | % | 8.1 | % | ||||||
|
Total Operating Expenses
|
20.5 | % | 20.9 | % | 21.3 | % | ||||||
|
Operating Income
|
5.0 | % | 2.9 | % | 3.6 | % | ||||||
|
Interest Expense
|
0.1 | % | 0.1 | % | 0.1 | % | ||||||
|
Other Expense
|
— | — | 0.1 | % | ||||||||
|
Total Other Expense
|
0.1 | % | 0.1 | % | 0.2 | % | ||||||
|
Income Before Income Taxes
|
4.9 | % | 2.8 | % | 3.4 | % | ||||||
|
Provision for Income Taxes
|
1.9 | % | 1.0 | % | 1.3 | % | ||||||
|
Net Income
|
3.0 | % | 1.8 | % | 2.1 | % | ||||||
FISCAL YEAR ENDED MARCH 26, 2011 COMPARED TO FISCAL YEAR
ENDED MARCH 27, 2010
(dollars in thousands):
Revenue:
| For the Years Ended | ||||||||
|
March 26,
|
March 27,
|
|||||||
| 2011 | 2010 | |||||||
|
Net Revenue:
|
||||||||
|
Product
|
$ | 59,862 | $ | 53,143 | ||||
|
Service
|
31,324 | 27,918 | ||||||
|
Total
|
$ | 91,186 | $ | 81,061 | ||||
Net revenue increased $10.1 million, or 12.5%, from fiscal
year 2010 to fiscal year 2011.
Our product net sales accounted for 65.6% of our total net
revenue in fiscal years 2011 and 2010.
Year-over-year
product net sales increased $6.7 million, or 12.6%. Our
fiscal years 2011 and 2010 product sales in relation to prior
fiscal year quarter comparisons were as follows:
| FY 2011 | FY 2010 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Product Sales Growth (Decline)
|
14.5 | % | 9.1 | % | 12.5 | % | 15.1 | % | 20.5 | % | 8.5 | % | (7.6 | )% | (8.5 | %) | |||||||||||||||||
21
Table of Contents
Product sales per day for each quarter of fiscal year 2011 were
higher than the product sales per day during the same period of
fiscal year 2010. Our product sales per business day for each
quarter during fiscal years 2011 and 2010 were as follows:
| FY 2011 | FY 2010 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Product Sales Per Business Day
|
$ | 263 | $ | 267 | $ | 214 | $ | 203 | $ | 230 | $ | 249 | $ | 190 | $ | 176 | |||||||||||||||||
When compared to sales from fiscal year 2010, fiscal year 2011
product sales to non-wind energy customers increased by
$8.1 million, including $1.6 million in incremental
sales from United Scale. Within the industries we operate and
excluding United Scale, both direct and reseller channel sales
growth rates were between 13% and 14%. We attribute this
increase to a better economy and resulting improved pricing
environment as well as continued direct marketing campaigns.
During the same period, sales to wind energy customers declined
$1.4 million, or 30.2%, in what was widely considered a
weak year in the wind energy industry. The following table
presents the percent of net sales for our significant product
distribution channels for each quarter during fiscal years 2011
and 2010:
| FY 2011 | FY 2010 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Percent of Net Sales:
|
|||||||||||||||||||||||||||||||||
|
Direct
|
73.5 | % | 75.2 | % | 73.5 | % | 74.3 | % | 75.2 | % | 70.8 | % | 77.5 | % | 75.2 | % | |||||||||||||||||
|
Reseller
|
24.9 | % | 23.3 | % | 24.9 | % | 24.1 | % | 23.2 | % | 27.8 | % | 21.1 | % | 23.3 | % | |||||||||||||||||
|
Freight Billed to Customer
|
1.6 | % | 1.5 | % | 1.6 | % | 1.6 | % | 1.6 | % | 1.4 | % | 1.4 | % | 1.5 | % | |||||||||||||||||
| 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 or at
a future date, and other orders awaiting final credit or
management review prior to shipment.
Year-over-year
increases in each of the aforementioned classifications
contributed to an approximately $0.7 million, or 31.5%,
increase in our pending product shipments balance at the end of
fiscal year 2011 compared to the balance at the end of fiscal
year 2010. Variations in pending product shipments can be
impacted by several factors, including the timing product orders
are placed in relation to the end of the fiscal period,
specialized product orders that are not stocked, or production
issues experienced by manufacturers. The following table
reflects the percentage of total pending product shipments that
were backorders at the end of each quarter in fiscal years 2011
and 2010 and our historical trend of total pending product
shipments:
| FY 2011 | FY 2010 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Total Pending Product Shipments
|
$ | 2,784 | $ | 2,976 | $ | 2,347 | $ | 2,242 | $ | 2,117 | $ | 2,692 | $ | 2,226 | $ | 1,825 | |||||||||||||||||
|
% of Pending Product Shipments that are Backorders
|
70.1 | % | 74.6 | % | 68.3 | % | 67.4 | % | 78.6 | % | 74.9 | % | 71.2 | % | 60.6 | % | |||||||||||||||||
Calibration services net revenue, which accounted for 34.4% of
our total net revenue in fiscal years 2011 and 2010, increased
12.2% from fiscal year 2010 to fiscal year 2011. Because 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. The growth in
fiscal year 2011 is the result of increased revenue from
non-wind energy customers, including expansion of our
traditional service customer base as well as $1.5 million
of incremental revenue from United Scale. Services provided to
wind-energy customers during
22
Table of Contents
fiscal year 2011 was consistent with those provided in the prior
fiscal year and represented 6.8% 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. Our fiscal years 2011 and
2010 calibration service revenue in relation to prior fiscal
year quarter comparisons, were as follows:
| FY 2011 | FY 2010 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Service Revenue Growth
|
1.0 | % | 10.3 | % | 14.1 | % | 28.8 | % | 30.6 | % | 10.7 | % | 15.5 | % | 7.2 | % | |||||||||||||||||
Within the calibration industry, there is a broad array of
measurement disciplines making it costly and inefficient for any
one provider to invest the needed capital for facilities,
equipment and uniquely trained personnel necessary to address
all measurement disciplines with in-house calibration
capabilities. Our strategy has been to focus our investments in
the core electrical, temperature, pressure and dimensional
disciplines. Accordingly, over the long-term, we expect to
outsource 15% to 20% of Service segment revenue to third party
vendors for calibration beyond our chosen scope of capabilities.
During any individual quarter, we could fluctuate beyond these
percentages. During fiscal year 2011, we outsourced 20.6% of our
total service revenue. 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
2011 and 2010:
| FY 2011 | FY 2010 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Percent of Service Revenue:
|
|||||||||||||||||||||||||||||||||
|
Depot/Onsite
|
78.2 | % | 77.6 | % | 77.9 | % | 74.4 | % | 75.9 | % | 73.5 | % | 77.3 | % | 79.3 | % | |||||||||||||||||
|
Outsourced
|
19.3 | % | 20.0 | % | 19.8 | % | 23.3 | % | 21.6 | % | 24.0 | % | 20.2 | % | 18.2 | % | |||||||||||||||||
|
Freight Billed to Customers
|
2.5 | % | 2.4 | % | 2.3 | % | 2.3 | % | 2.5 | % | 2.5 | % | 2.5 | % | 2.5 | % | |||||||||||||||||
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||
Gross Profit:
| For the Years Ended | ||||||||
|
March 26,
|
March 27,
|
|||||||
| 2011 | 2010 | |||||||
|
Gross Profit:
|
||||||||
|
Product
|
$ | 15,366 | $ | 12,442 | ||||
|
Service
|
7,932 | 6,852 | ||||||
|
Total
|
$ | 23,298 | $ | 19,294 | ||||
Total gross profit dollars in fiscal year 2011 increased by
$4.0 million, or 20.8%, from fiscal year 2010. As a
percentage of total net revenue, total gross profit improved
170 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 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 2011 was 25.7% of
total product sales and increased 230 basis points when
compared with 23.4% of total product sales in fiscal year 2010.
Product gross profit increased $2.9 million in fiscal year
2011 compared to fiscal year 2010, primarily the result of
higher sales as well as a
23
Table of Contents
combined $1.1 million in incremental vendor rebates and
cooperative advertising income. The gross profit percentage in
our direct and reseller channels increased 130 basis points
and 40 basis points, respectively, from fiscal year 2010 to
fiscal year 2011. Gross margins were generally better in fiscal
year 2011 due in part to an improved economy. The following
table reflects the quarterly historical trend of our product
gross profit as a percent of total product sales:
| FY 2011 | FY 2010 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Channel Gross Profit % — Direct(1)
|
24.7 | % | 25.2 | % | 25.5 | % | 25.0 | % | 24.7 | % | 23.1 | % | 23.2 | % | 24.3 | % | |||||||||||||||||
|
Channel Gross Profit % — Reseller(1)
|
15.3 | % | 16.2 | % | 16.6 | % | 16.9 | % | 16.0 | % | 15.0 | % | 15.6 | % | 17.0 | % | |||||||||||||||||
|
Channel Gross Profit % — Combined(2)
|
22.4 | % | 23.1 | % | 23.3 | % | 23.0 | % | 22.6 | % | 20.8 | % | 21.6 | % | 22.6 | % | |||||||||||||||||
|
Other Items %(3)
|
2.6 | % | 3.7 | % | 0.5 | % | 4.0 | % | 3.1 | % | 1.2 | % | 0.7 | % | 0.9 | % | |||||||||||||||||
|
Total Product Gross Profit %
|
25.0 | % | 26.8 | % | 23.8 | % | 27.0 | % | 25.7 | % | 22.0 | % | 22.3 | % | 23.5 | % | |||||||||||||||||
| (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 $1.1 million,
or 15.8%, from fiscal year 2010 to fiscal year 2011. As a
percent of service revenue, calibration services gross profit
increased 80 basis points from fiscal year 2010 to fiscal
year 2011. Despite this increase, margin expansion was somewhat
limited during fiscal year 2011 as incremental revenue growth
associated with acquisitions was accompanied by incremental lab
costs. The following table reflects our calibration services
gross profit growth in relation to prior fiscal year quarters:
| FY 2011 | FY 2010 | ||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||
|
Service Gross Profit Dollar Growth
|
2.5 | % | 10.0 | % | 16.4 | % | 50.1 | % | 25.4 | % | 15.0 | % | 25.5 | % | 2.9 | % | |||||||||||||||||
Operating
Expenses:
| For the Years Ended | ||||||||
|
March 26,
|
March 27,
|
|||||||
| 2011 | 2010 | |||||||
|
Operating Expenses:
|
||||||||
|
Selling, Marketing and Warehouse
|
$ | 11,756 | $ | 10,682 | ||||
|
Administrative
|
6,955 | 6,231 | ||||||
|
Total
|
$ | 18,711 | $ | 16,913 | ||||
Operating expenses increased $1.8 million, or 10.6%, from
fiscal year 2010 to fiscal year 2011. A primary driver of the
increase was employee-related expenses, which included
incremental costs associated with United Scale and WTT
personnel. Also contributing to the increase were additional
investments in sales and marketing initiatives, which were
funded in part by increased cooperative advertising income.
Despite the increase in costs, operating expenses as a
percentage of total net revenue declined 40 basis points
for the same period.
Taxes:
| For the Years Ended | ||||||||
|
March 26,
|
March 27,
|
|||||||
| 2011 | 2010 | |||||||
|
Provision for Income Taxes
|
$ | 1,694 | $ | 832 | ||||
24
Table of Contents
Our effective tax rates for fiscal years 2011 and 2010 were
37.8% and 36.4%, respectively.
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 product 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
quarters 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 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 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 | % | ||||||||||||||||||
25
Table of Contents
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 or at
a future date, and other orders awaiting final credit or
management review prior to shipment. Our total pending product
shipments at the end of fiscal year 2010 increased by
approximately $0.5 million, or 34.9%, from the balance at
the end of fiscal year 2009. The increase in pending product
shipments was primarily attributable to increased backorders,
which included $0.2 million in incremental pending product
shipments associated with United Scale, which was acquired
during the fourth quarter of fiscal year 2010. 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 quarter in
fiscal years 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
|
$ | 2,117 | $ | 2,692 | $ | 2,226 | $ | 1,825 | $ | 1,569 | $ | 2,039 | $ | 1,671 | $ | 1,830 | |||||||||||||||||
|
% of Pending Product Shipments that are Backorders
|
78.6 | % | 74.9 | % | 71.2 | % | 60.6 | % | 65.4 | % | 72.9 | % | 61.8 | % | 59.9 | % | |||||||||||||||||
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 was primarily a
result of the expansion of our traditional service customer base
through new customer acquisition as well as increased in-house
and outsourced services provided to the wind energy industry.
Service revenue from the wind-energy industry was
$2.1 million in fiscal year 2010, 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. During fiscal year 2010, we outsourced 21.1% of our
total service revenue. The slight increase in the percentage of
outsourced revenue was attributable to specific services
provided to the wind energy industry, which fell outside our
scope of business. We 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
26
Table of Contents
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 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 | % | 0.7 | % | 0.9 | % | 1.2 | % | 1.6 | % | 1.8 | % | 3.4 | % | |||||||||||||||||
|
Total Product Gross Profit %
|
25.7 | % | 22.0 | % | 22.3 | % | 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. |
27
Table of Contents
| (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 | ||||
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.
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.
LIQUIDITY
AND CAPITAL RESOURCES
We believe that amounts available under our credit agreement,
which was extended for three years on January 15, 2011 with
substantially similar terms, 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.
28
Table of Contents
Cash Flows.
The following table is a
summary of our Consolidated Statements of Cash Flows (dollars in
thousands):
| For the Years Ended | ||||||||
|
March 26,
|
March 27,
|
|||||||
| 2011 | 2010 | |||||||
|
Cash Provided by (Used in):
|
||||||||
|
Operating Activities
|
$ | 2,573 | $ | 5,649 | ||||
|
Investing Activities
|
(5,074 | ) | (4,139 | ) | ||||
|
Financing Activities
|
2,422 | (1,469 | ) | |||||
Operating Activities:
Cash provided by
operating activities for fiscal year 2011 was $2.6 million
compared to $5.6 million in fiscal year 2010. Significant
working capital fluctuations were as follows:
| • | Inventory/Accounts Payable: Inventory balance at March 26, 2011 was $7.6 million, an increase of $1.7 million when compared to $5.9 million on-hand at March 27, 2010. The increase was partly due to a strategic decision 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. In general, our accounts payable balance increases or decreases as a result of timing of vendor payments for inventory receipts. However, this correlation may vary at a quarter-end due to the timing of vendor payments for inventory receipts and inventory shipped directly to customers, as well as the timing of product sales. In fiscal year 2011, inventory increased and payables decreased primarily due to the timing of inventory purchases. Inventory was purchased near the end of fiscal year 2010 which was paid for in fiscal year 2011. | |
| • | 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 2010 to fiscal year 2011:
|
March 26,
|
March 27,
|
|||||||
| 2011 | 2010 | |||||||
|
Net Sales, for the last two fiscal months
|
$ | 19,305 | $ | 17,824 | ||||
|
Accounts Receivable, net
|
$ | 12,064 | $ | 11,439 | ||||
|
Days Sales Outstanding
|
37 | 39 | ||||||
Investing Activities:
In fiscal year 2011, we
used $5.1 million of cash in investing activities,
$3.4 million for business acquisitions and
$1.6 million to purchase property and equipment, primarily
for additional service capabilities and infrastructure
improvements that included facility expansion and investment in
information technology. 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 purposes similar
to those in fiscal year 2011.
Financing Activities:
Financing activities
provided $2.4 million in cash during fiscal year 2011, of
which $2.7 million was from net borrowings from our
revolving line of credit, primarily for business acquisitions
and the repurchase of 80,000 shares of common stock at a
price of $6.90 per share. In addition, we received
$0.3 million of cash in fiscal year 2011 from the issuance
of common stock through the exercise of stock options and
warrants. 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 in fiscal year 2010 was
offset by $0.2 million of cash generated primarily from the
issuance of common stock through the exercise of stock options
and warrants.
29
Table of Contents
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)
|
$ | — | $ | 5.3 | $ | — | $ | — | $ | 5.3 | ||||||||||
|
Operating Leases
|
1.3 | 1.8 | 1.1 | 1.1 | 5.3 | |||||||||||||||
|
Total Contractual Cash Obligations
|
$ | 1.3 | $ | 7.1 | $ | 1.1 | $ | 1.1 | $ | 10.6 | ||||||||||
| (1) | Due to the uncertainty of forecasting expected variable rate interest payments, this amount excludes interest portion of the debt obligation. |
OUTLOOK
Looking ahead, we see a stable to modestly improving economic
outlook in our fiscal year ending March 31, 2012 that
should result in mid-single digit Product segment growth and
stable gross profit ratios, exclusive of the impact of the WTT
acquisition. Our Service segment should grow at a greater rate
than our Product segment, and in combination with our service
targeted acquisition strategy, expand our service and operating
margins.
| 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 26, 2011, $5.3 million was
outstanding and included in long-term debt on the Consolidated
Balance Sheet.
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”), plus a margin. As of
March 26, 2011, the base rate and the LIBOR rate were 3.3%
and 0.2%, respectively. Our interest rate for fiscal year 2011
ranged from 1.2% to 2.8%. On March 26, 2011 and
March 27, 2010, 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 2011 and 2010 were
denominated in U.S. dollars, with the remainder denominated
in Canadian dollars. A 10% change in the value of the Canadian
dollar to the U.S. dollar would impact our 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 2011 and 2010 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 26, 2011, we had a foreign exchange
contract set to mature in April 2011, outstanding in the
notional amount of $0.9 million. We do not use hedging
arrangements for speculative purposes.
30
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| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INDEX
| Page(s) | ||||||||
| 32 | ||||||||
|
Consolidated Financial Statements
|
||||||||
| 33 | ||||||||
| 34 | ||||||||
| 35 | ||||||||
| 36 | ||||||||
| 37-52 | ||||||||
| Schedule II — Valuation and Qualifying Accounts for the Years Ended March 26, 2011 March 27, 2010 and March 28, 2009 | 53 | |||||||
31
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 26, 2011 and March 27, 2010 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 26, 2011. 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 as of
March 26, 2011 and March 27, 2010, and the results of
their operations and their cash flows for each of the three
years in the period ended March 26, 2011, in conformity
with accounting principles generally accepted in the United
States.
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 USA, LLP
BDO USA, LLP
New York, New York
June 22, 2011
32
Table of Contents
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In Thousands, Except Per Share Amounts)
| For the Years Ended | ||||||||||||
|
March 26,
|
March 27,
|
March 28,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Product Sales
|
$ | 59,862 | $ | 53,143 | $ | 51,480 | ||||||
|
Service Revenue
|
31,324 | 27,918 | 23,939 | |||||||||
|
Net Revenue
|
91,186 | 81,061 | 75,419 | |||||||||
|
Cost of Products Sold
|
44,496 | 40,701 | 38,410 | |||||||||
|
Cost of Services Sold
|
23,392 | 21,066 | 18,261 | |||||||||
|
Total Cost of Products and Services Sold
|
67,888 | 61,767 | 56,671 | |||||||||
|
Gross Profit
|
23,298 | 19,294 | 18,748 | |||||||||
|
Selling, Marketing and Warehouse Expenses
|
11,756 | 10,682 | 9,935 | |||||||||
|
Administrative Expenses
|
6,955 | 6,231 | 6,127 | |||||||||
|
Total Operating Expenses
|
18,711 | 16,913 | 16,062 | |||||||||
|
Operating Income
|
4,587 | 2,381 | 2,686 | |||||||||
|
Interest Expense
|
73 | 63 | 100 | |||||||||
|
Other Expense, net
|
32 | 35 | 67 | |||||||||
|
Total Other Expense
|
105 | 98 | 167 | |||||||||
|
Income Before Income Taxes
|
4,482 | 2,283 | 2,519 | |||||||||
|
Provision for Income Taxes
|
1,694 | 832 | 963 | |||||||||
|
Net Income
|
2,788 | 1,451 | 1,556 | |||||||||
|
Other Comprehensive Income (Loss)
|
103 | 62 | (116 | ) | ||||||||
|
Comprehensive Income
|
$ | 2,891 | $ | 1,513 | $ | 1,440 | ||||||
|
Basic Earnings Per Share
|
$ | 0.38 | $ | 0.20 | $ | 0.21 | ||||||
|
Average Shares Outstanding
|
7,290 | 7,352 | 7,304 | |||||||||
|
Diluted Earnings Per Share
|
$ | 0.37 | $ | 0.19 | $ | 0.21 | ||||||
|
Average Shares Outstanding
|
7,521 | 7,549 | 7,469 | |||||||||
See accompanying notes to consolidated financial statements.
33
Table of Contents
|
March 26,
|
March 27,
|
|||||||
| 2011 | 2010 | |||||||
|
ASSETS
|
||||||||
|
Current Assets:
|
||||||||
|
Cash
|
$ | 32 | $ | 123 | ||||
|
Accounts Receivable, less allowance for doubtful accounts of $73
and $82 as of March 26, 2011 and March 27, 2010,
respectively
|
12,064 | 11,439 | ||||||
|
Other Receivables
|
617 | 418 | ||||||
|
Inventory, net
|
7,571 | 5,906 | ||||||
|
Prepaid Expenses and Other Current Assets
|
840 | 915 | ||||||
|
Deferred Tax Asset
|
631 | 566 | ||||||
|
Total Current Assets
|
21,755 | 19,367 | ||||||
|
Property and Equipment, net
|
5,253 | 4,163 | ||||||
|
Goodwill
|
11,666 | 10,038 | ||||||
|
Intangible Assets, net
|
1,982 | 1,234 | ||||||
|
Deferred Tax Asset
|
296 | 533 | ||||||
|
Other Assets
|
408 | 378 | ||||||
|
Total Assets
|
$ | 41,360 | $ | 35,713 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
|
Current Liabilities:
|
||||||||
|
Accounts Payable
|
$ | 8,241 | $ | 8,798 | ||||
|
Accrued Compensation and Other Liabilities
|
3,579 | 3,171 | ||||||
|
Income Taxes Payable
|
208 | 251 | ||||||
|
Total Current Liabilities
|
12,028 | 12,220 | ||||||
|
Long-Term Debt
|
5,253 | 2,532 | ||||||
|
Other Liabilities
|
750 | 704 | ||||||
|
Total Liabilities
|
18,031 | 15,456 | ||||||
|
Shareholders’ Equity:
|
||||||||
|
Common Stock, par value $0.50 per share, 30,000,000 shares
authorized;
|
||||||||
|
7,759,580 and 7,698,450 shares issued as of March 26,
2011 and March 27, 2010, respectively; 7,260,798 and
7,279,668 shares outstanding as of March 26, 2011 and
March 27, 2010, respectively
|
3,880 | 3,849 | ||||||
|
Capital in Excess of Par Value
|
10,066 | 9,357 | ||||||
|
Accumulated Other Comprehensive Income
|
485 | 382 | ||||||
|
Retained Earnings
|
11,092 | 8,304 | ||||||
|
Less: Treasury Stock, at cost, 498,782 and 418,782 shares
as of March 26, 2011 and March 27, 2010, respectively
|
(2,194 | ) | (1,635 | ) | ||||
|
Total Shareholders’ Equity
|
23,329 | 20,257 | ||||||
|
Total Liabilities and Shareholders’ Equity
|
$ | 41,360 | $ | 35,713 | ||||
See accompanying notes to consolidated financial statements.
34
Table of Contents
| For the Years Ended | ||||||||||||
|
March 26,
|
March 27,
|
March 28,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Cash Flows from Operating Activities:
|
||||||||||||
|
Net Income
|
$ | 2,788 | $ | 1,451 | $ | 1,556 | ||||||
|
Adjustments to Reconcile Net Income to Net Cash Provided by
|
||||||||||||
|
Operating Activities:
|
||||||||||||
|
Deferred Income Taxes
|
138 | 35 | 246 | |||||||||
|
Depreciation and Amortization
|
2,293 | 2,080 | 1,897 | |||||||||
|
Provision for Accounts Receivable and Inventory Reserves
|
158 | 133 | 304 | |||||||||
|
Stock-Based Compensation Expense
|
428 | 579 | 666 | |||||||||
|
Change in Contingent Consideration
|
(97 | ) | — | — | ||||||||
|
Changes in Assets and Liabilities, net of acquisitions:
|
||||||||||||
|
Accounts Receivable and Other Receivables
|
(357 | ) | (2,453 | ) | 1,418 | |||||||
|
Inventory
|
(1,269 | ) | (669 | ) | 836 | |||||||
|
Prepaid Expenses and Other Assets
|
(458 | ) | (707 | ) | (694 | ) | ||||||
|
Accounts Payable
|
(1,720 | ) | 3,639 | (1,585 | ) | |||||||
|
Accrued Compensation and Other Liabilities
|
724 | 1,529 | (789 | ) | ||||||||
|
Income Taxes Payable
|
(55 | ) | 32 | (39 | ) | |||||||
|
Net Cash Provided by Operating Activities
|
2,573 | 5,649 | 3,816 | |||||||||
|
Cash Flows from Investing Activities:
|
||||||||||||
|
Purchase of Property and Equipment
|
(1,647 | ) | (1,128 | ) | (1,775 | ) | ||||||
|
Payments of Contingent Consideration
|
— | (1,094 | ) | — | ||||||||
|
Business Acquisitions, net of cash acquired
|
(3,427 | ) | (1,917 | ) | (5,641 | ) | ||||||
|
Net Cash Used in Investing Activities
|
(5,074 | ) | (4,139 | ) | (7,416 | ) | ||||||
|
Cash Flows from Financing Activities:
|
||||||||||||
|
Revolving Line of Credit, net
|
2,740 | (1,001 | ) | 3,199 | ||||||||
|
Payments on Other Debt Obligations
|
(19 | ) | (26 | ) | (10 | ) | ||||||
|
Payment of Contingent Consideration
|
(52 | ) | — | — | ||||||||
|
Issuance of Common Stock
|
300 | 201 | 239 | |||||||||
|
Repurchase of Common Stock
|
(559 | ) | (647 | ) | — | |||||||
|
Excess Tax Benefits Related to Stock-Based Compensation
|
12 | 4 | 44 | |||||||||
|
Net Cash Provided by (Used in) Financing Activities
|
2,422 | (1,469 | ) | 3,472 | ||||||||
|
Effect of Exchange Rate Changes on Cash
|
(12 | ) | 23 | (21 | ) | |||||||
|
Net (Decrease) Increase in Cash
|
(91 | ) | 64 | (149 | ) | |||||||
|
Cash at Beginning of Period
|
123 | 59 | 208 | |||||||||
|
Cash at End of Period
|
$ | 32 | $ | 123 | $ | 59 | ||||||
|
Supplemental Disclosures of Cash Flow Activity:
|
||||||||||||
|
Cash paid during the period for:
|
||||||||||||
|
Interest
|
$ | 72 | $ | 74 | $ | 91 | ||||||
|
Income Taxes, net
|
$ | 1,577 | $ | 741 | $ | 715 | ||||||
|
Supplemental Disclosure of Non-Cash Investing and Financing
Activities:
|
||||||||||||
|
Contingent Consideration Related to Business Acquisition
|
$ | 65 | $ | 207 | $ | — | ||||||
|
Stock Issued in Connection with Business Acquisition
|
$ | — | $ | — | $ | 1,113 | ||||||
|
Capital Lease Obligation
|
$ | — | $ | — | $ | 49 | ||||||
See accompanying notes to consolidated financial statements.
35
Table of Contents
TRANSCAT,
INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In Thousands)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In Thousands)
|
Capital
|
||||||||||||||||||||||||||||||||
|
Common Stock
|
In
|
Accumulated
|
Treasury Stock
|
|||||||||||||||||||||||||||||
|
Issued
|
Excess
|
Other
|
Outstanding
|
|||||||||||||||||||||||||||||
| $0.50 Par Value |
of Par
|
Comprehensive
|
Retained
|
at Cost | ||||||||||||||||||||||||||||
| Shares | Amount | Value | Income | Earnings | Shares | Amount | Total | |||||||||||||||||||||||||
|
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 | |||||||||||||||||
|
Issuance of Common Stock
|
58 | 29 | 271 | 300 | ||||||||||||||||||||||||||||
|
Repurchase of Common Stock
|
80 | (559 | ) | (559 | ) | |||||||||||||||||||||||||||
|
Stock-Based Compensation
|
406 | 406 | ||||||||||||||||||||||||||||||
|
Restricted Stock
|
3 | 2 | 20 | 22 | ||||||||||||||||||||||||||||
|
Tax Benefit from Stock-Based Compensation
|
12 | 12 | ||||||||||||||||||||||||||||||
|
Comprehensive Income:
|
||||||||||||||||||||||||||||||||
|
Currency Translation Adjustment
|
28 | 28 | ||||||||||||||||||||||||||||||
|
Unrecognized Prior Service Cost, net of tax
|
75 | 75 | ||||||||||||||||||||||||||||||
|
Net Income
|
2,788 | 2,788 | ||||||||||||||||||||||||||||||
|
Balance as of March 26, 2011
|
7,759 | $ | 3,880 | $ | 10,066 | $ | 485 | $ | 11,092 | 499 | $ | (2,194 | ) | $ | 23,329 | |||||||||||||||||
See accompanying notes to consolidated financial statements.
36
Table of Contents
TRANSCAT,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
| NOTE 1 — | GENERAL |
Description of Business:
Transcat, Inc.
(“Transcat” or the “Company”) is a leading
distributor of professional grade handheld test and measurement
instruments and accredited provider of calibration, repair and
weighing system services primarily for pharmaceutical and
FDA-regulated, industrial manufacturing, energy and utilities,
chemical process, and other industries.
Principles of Consolidation:
The Consolidated
Financial Statements of Transcat include the accounts of
Transcat, Inc. and the Company’s wholly-owned subsidiaries,
Transmation (Canada) Inc., USEC Acquisition Corp. (“USEC
Acquisition”), WTT Acquisition Corp. (“WTT
Acquisition”) and WTT Real Estate Acquisition, LLC. All
intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates:
The preparation of
Transcat’s Consolidated Financial Statements in accordance
with accounting principles generally accepted in the United
States 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 26, 2011 (“fiscal
year 2011”), March 27, 2010 (“fiscal year
2010”) and March 28, 2009 (“fiscal year
2009”) consisted of 52 weeks.
Accounts Receivable:
Accounts receivable
represent amounts due from customers in the ordinary course of
business. These amounts are recorded net of the allowance for
doubtful accounts and returns in the Consolidated Balance
Sheets. The allowance for doubtful accounts is based upon the
expected collectability of accounts receivable. Transcat applies
a specific formula to its accounts receivable aging, which may
be adjusted on a specific account basis where the formula may
not appropriately reserve for loss exposure. After all attempts
to collect a receivable have failed, the receivable is
written-off against the allowance for doubtful accounts. The
returns reserve is calculated based upon the historical rate of
returns applied to revenues over a specific timeframe. The
returns reserve will increase or decrease as a result of changes
in the level of revenue
and/or
the
historical rate of returns.
Inventory:
Inventory consists of products
purchased for resale and is valued at the lower of cost or
market. Costs are determined using the average cost method of
inventory valuation. Inventory is reduced by a reserve for items
not saleable at or above cost by applying a specific loss
factor, based on historical experience, to specific categories
of inventory. The Company evaluates the adequacy of the reserve
on a quarterly basis.
37
Table of Contents
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 | |||
|
Buildings
|
39 | |||
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. The Company tests goodwill for impairment on an
annual basis, or immediately if conditions indicate that such
impairment could exist. The Company determined that the fair
value of each of the reporting units exceeded its carrying
amount and that no impairment was indicated as of March 26,
2011 and March 27, 2010. Other intangible assets are
evaluated for impairment when events or changes in business
circumstances indicate that the carrying amount of the assets
may not be fully recoverable. No impairment indicators were
present as of March 26, 2011 and March 27, 2010.
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 28, 2009
|
$ | 5,489 | $ | 2,434 | $ | 7,923 | $ | 435 | $ | 656 | $ | 1,091 | ||||||||||||
|
Additions (see Note 10)
|
1,284 | 830 | 2,115 | 17 | 324 | 341 | ||||||||||||||||||
|
Amortization
|
— | — | — | (79 | ) | (119 | ) | (198 | ) | |||||||||||||||
|
Net Book Value as of March 27, 2010
|
$ | 6,773 | $ | 3,264 | $ | 10,038 | $ | 373 | $ | 861 | $ | 1,234 | ||||||||||||
|
Additions (see Note 10)
|
1,258 | 371 | 1,628 | 836 | 214 | 1,050 | ||||||||||||||||||
|
Amortization
|
— | — | — | (140 | ) | (162 | ) | (302 | ) | |||||||||||||||
|
Net Book Value as of March 26, 2011
|
$ | 8,031 | $ | 3,635 | $ | 11,666 | $ | 1,069 | $ | 913 | 1,982 | |||||||||||||
The intangible assets are being amortized on an accelerated
basis over their estimated useful life of up to 10 years.
Amortization expense relating to intangible assets is expected
to be $0.6 million in the fiscal year ending March 31,
2012 (“fiscal year 2012”), $0.4 million in fiscal
year 2013, $0.3 million in fiscal year 2014, and
$0.2 million in fiscal years 2015 and 2016.
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 26, 2011 and
March 27, 2010.
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
38
Table of Contents
differences. If necessary, a valuation allowance on net deferred
tax assets is provided for items for which it is more likely
than not that the benefit of such items will not be realized
based on an assessment of both positive and negative evidence.
See Note 4 for further discussion on income taxes.
Fair Value of Financial Instruments:
Transcat
has determined the fair value of debt and other financial
instruments using a valuation hierarchy. The hierarchy, which
prioritizes the inputs used in measuring fair value, consists of
three levels. Level 1 uses observable inputs such as quoted
prices in active markets; Level 2 uses inputs other than
quoted prices in active markets that are either directly or
indirectly observable; and Level 3, which is defined as
unobservable inputs in which little or no market data exists,
requires the Company to develop its own assumptions. The
carrying amount of debt on the Consolidated Balance Sheets
approximates fair value due to variable interest rate pricing,
and the carrying amounts for cash, accounts receivable and
accounts payable approximate fair value due to their short-term
nature.
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 2011, 2010 and 2009,
the Company recorded non-cash stock-based compensation cost in
the amount of $0.4 million, $0.6 million and
$0.7 million, respectively, in the Consolidated Statements
of Operations and Comprehensive Income.
The estimated fair value of options granted in fiscal years 2010
and 2009 were 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 and $4.02 per share in fiscal year 2009. During fiscal year
2011, the Company did not grant any stock options.
The following are the weighted average assumptions used in the
Black-Scholes model:
| FY 2010 | FY 2009 | |||
|
Expected life
|
6 years | 6 years | ||
|
Annualized volatility rate
|
57.3% | 61.3% | ||
|
Risk-free rate of return
|
2.8% | 3.3% | ||
|
Dividend rate
|
0.0% | 0.0% |
The Black-Scholes model incorporated assumptions to value
stock-based awards. The risk-free rate of return for periods
within the contractual life of the award was based on a
zero-coupon U.S. government instrument over the contractual
term of the equity instrument. Expected volatility was based on
historical volatility of the Company’s stock. The expected
option term represented the period that stock-based awards are
expected to be outstanding based on the simplified method, which
averages an award’s weighted-average vesting period and
expected term for “plain vanilla” share options.
Options are considered to be “plain vanilla” if they
have the following basic characteristics: granted
“at-the-money”;
exercisability is conditioned upon service through the vesting
date; termination of service prior to vesting results in
forfeiture; limited exercise period following termination of
service; and options are non-transferable and non-hedgeable. The
Company will continue to use the simplified method until it has
the historical data necessary to provide a reasonable estimate
of expected life. 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
39
Table of Contents
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 $1.4 million in fiscal year
2011 and $1.1 million in each of the fiscal years 2010 and
2009.
Shipping and Handling Costs:
Freight expense
and direct shipping costs are included in cost of products and
services sold. These costs were approximately $1.5 million,
$1.4 million and $1.5 million for fiscal years 2011,
2010 and 2009, respectively. Direct handling costs, the majority
of which represent direct compensation of employees who pick,
pack, and otherwise prepare, if necessary, merchandise for
shipment to customers, are reflected in selling, marketing, and
warehouse expenses. These costs were $0.8 million in fiscal
year 2011, $0.7 million in fiscal year 2010 and
$0.5 million in fiscal year 2009.
Foreign Currency Translation and
Transactions:
The accounts of Transmation
(Canada) Inc., the Company’s wholly-owned subsidiary, years
2004 and 2005 evedative level of purchases annual amounts at
fixed intervals. activity is performed the shipped and are
maintained in the local currency and have been translated to
U.S. dollars. Accordingly, the amounts representing assets
and liabilities, except for equity, have been translated at the
period-end rates of exchange and related revenue and expense
accounts have been translated at an average rate of exchange
during the period. Gains and losses arising from translation of
Transmation (Canada) Inc.’s balance sheets into
U.S. dollars are recorded directly to the accumulated other
comprehensive income component of shareholders’ equity.
Transcat records foreign currency gains and losses on Canadian
business transactions. The net foreign currency gain was less
than $0.1 million in fiscal year 2011 and the net foreign
currency loss was less than $0.1 million for each of the
fiscal years 2010 and 2009. The Company utilizes foreign
exchange forward contracts to reduce the risk that its earnings
would be adversely affected by changes in currency exchange
rates. The Company does not apply hedge accounting and
therefore, the change in the fair value of the contracts, which
totaled less than $0.1 million in each of the fiscal years
2011, 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 accounts receivables denominated in Canadian dollars
being hedged. On March 26, 2011, the Company had a foreign
exchange contract, set to mature in April 2011, outstanding in
the notional amount of $0.9 million. The Company does not
use hedging arrangements for speculative purposes.
Comprehensive Income:
Other comprehensive
income is comprised of net income, currency translation
adjustments and unrecognized prior service costs, net of tax. At
March 26, 2011, accumulated other comprehensive income
consisted of cumulative currency translation gains of
$0.6 million and unrecognized prior service costs, net of
tax, of $0.1 million. 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.
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
and the related tax benefits are considered to have been used to
purchase shares
40
Table of Contents
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 each of the fiscal years 2011 and 2010, the net additional
common stock equivalents had a $.01 per share effect on the
calculation of dilutive earnings per share. For fiscal year
2009, the net additional common stock equivalents had no effect
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 26,
|
March 27,
|
March 28,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Average Shares Outstanding — Basic
|
7,290 | 7,352 | 7,304 | |||||||||
|
Effect of Dilutive Common Stock Equivalents
|
231 | 197 | 165 | |||||||||
|
Average Shares Outstanding — Diluted
|
7,521 | 7,549 | 7,469 | |||||||||
|
Anti-dilutive Common Stock Equivalents
|
598 | 644 | 616 | |||||||||
Subsequent Events:
On April 5, 2011, the
Company acquired substantially all of the assets of CMC
Instrument Services, Inc., a Rochester, New York-based provider
of dimensional calibration and repair services.
The Company has evaluated all other events and transactions that
occurred subsequent to March 26, 2011. No other material
subsequent events have occurred that require recognition or
disclosure in the Consolidated Financial Statements.
| NOTE 2 — | PROPERTY AND EQUIPMENT |
Property and equipment consist of:
|
March 26,
|
March 27,
|
|||||||
| 2011 | 2010 | |||||||
|
Machinery, Equipment and Software
|
$ | 17,926 | $ | 16,608 | ||||
|
Furniture and Fixtures
|
1,842 | 1,710 | ||||||
|
Leasehold Improvements
|
1,174 | 904 | ||||||
|
Buildings and Land
|
675 | — | ||||||
|
Total Property and Equipment
|
$ | 21,617 | $ | 19,222 | ||||
|
Less: Accumulated Depreciation and Amortization
|
(16,364 | ) | (15,059 | ) | ||||
|
Total Property and Equipment, net
|
$ | 5,253 | $ | 4,163 | ||||
Total depreciation and amortization expense amounted to
$1.5 million in fiscal year 2011, $1.3 million in
fiscal year 2010 and $1.1 million in fiscal year 2009.
| NOTE 3 — |
|
Description.
On January 15, 2011,
Transcat extended its credit agreement (the “Credit
Agreement”), which provides a revolving credit facility in
the amount of $15.0 million (the “Revolving Credit
Facility”), for three years. The Credit Agreement allows,
within any twelve month period, business acquisitions totaling
up to $10.0 million and payments of dividends and
repurchases of common stock of up to $2.0 million. All
other significant terms were unchanged.
The Revolving Credit Facility is subject to a 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 26, 2011,
$15.0 million was available under the Credit Agreement, of
which $5.3 million was outstanding and included in
long-term debt on the Consolidated Balance Sheet.
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Table of Contents
Interest and Other Costs.
Interest on
the Revolving Credit Facility accrues, at Transcat’s
election, at either a base rate (the “Base Rate”), as
defined in the Credit Agreement, 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
rate as of March 26, 2011 were 3.3% and 0.2%, respectively.
The Company’s interest rate for fiscal year 2011 ranged
from 1.2% to 2.8%. Loan costs associated with the 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 2011.
Other Terms.
The Company has pledged
all of its U.S. tangible and intangible personal property
and a majority of the common stock of its wholly-owned
subsidiary, Transmation (Canada) Inc. as collateral security for
the loans made under the Revolving Credit Facility.
| NOTE 4 — | INCOME TAXES |
Transcat’s net income before income taxes on the
Consolidated Statements of Operations is as follows:
| FY 2011 | FY 2010 | FY 2009 | ||||||||||
|
United States
|
$ | 4,483 | $ | 2,289 | $ | 2,544 | ||||||
|
Foreign
|
(1 | ) | (6 | ) | (25 | ) | ||||||
|
Total
|
$ | 4,482 | $ | 2,283 | $ | 2,519 | ||||||
The net provision for income taxes for fiscal years 2011, 2010
and 2009 is as follows:
| FY 2011 | FY 2010 | FY 2009 | ||||||||||
|
Current Tax Provision:
|
||||||||||||
|
Federal
|
$ | 1,402 | $ | 710 | $ | 631 | ||||||
|
State
|
154 | 87 | 86 | |||||||||
| $ | 1,556 | $ | 797 | $ | 717 | |||||||
|
Deferred Tax Provision:
|
||||||||||||
|
Federal
|
$ | 133 | $ | 34 | $ | 225 | ||||||
|
State
|
5 | 1 | 21 | |||||||||
| $ | 138 | $ | 35 | $ | 246 | |||||||
|
Provision for Income Taxes
|
$ | 1,694 | $ | 832 | $ | 963 | ||||||
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 2011 | FY 2010 | FY 2009 | ||||||||||
|
Federal Income Tax at Statutory Rate
|
$ | 1,524 | $ | 776 | $ | 856 | ||||||
|
State Income Taxes, net of Federal benefit
|
179 | 91 | 101 | |||||||||
|
Other, net
|
(9 | ) | (35 | ) | 6 | |||||||
|
Total
|
$ | 1,694 | $ | 832 | $ | 963 | ||||||
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Table of Contents
The components of the net deferred tax assets are as follows:
|
March 26,
|
March 27,
|
|||||||
| 2011 | 2010 | |||||||
|
Current Deferred Tax Assets:
|
||||||||
|
Accrued Liabilities
|
$ | 276 | $ | 263 | ||||
|
Other
|
355 | 303 | ||||||
|
Total Current Deferred Tax Assets
|
$ | 631 | $ | 566 | ||||
|
Non-Current Deferred Tax Assets (Liabilities):
|
||||||||
|
Stock-Based Compensation
|
$ | 807 | $ | 708 | ||||
|
Foreign Tax Credits (expiring through March 2018)
|
394 | 494 | ||||||
|
Depreciation
|
(506 | ) | (524 | ) | ||||
|
Intangible Assets
|
(377 | ) | (469 | ) | ||||
|
Other
|
(22 | ) | 324 | |||||
|
Total Non-Current Deferred Tax Assets
|
$ | 296 | $ | 533 | ||||
|
Net Deferred Tax Assets
|
$ | 927 | $ | 1,099 | ||||
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 of less than $0.1 million. The undistributed
earnings 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
2011, the Internal Revenue Service (the “IRS”)
completed an examination of the Company’s U.S. federal
income tax returns for the tax years ended March 28, 2009
and March 29, 2008. The IRS proposed no material
adjustments. 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 2007 and
prior, and by Canadian tax authorities for the tax years 2003
and prior. There are no tax years currently under examination by
state or Canadian tax authorities.
During fiscal years 2011, 2010 and 2009, 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 or penalties related to
uncertain tax positions were recognized in fiscal years 2011,
2010 and 2009 or were accrued at March 26, 2011 and
March 27, 2010.
| 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’s matching contributions to the 401K
Plan were $0.3 million in each of the fiscal years 2011 and
2009. The Company temporarily suspended matching contributions
to the 401K Plan for fiscal year 2010.
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 2011, 2010 and 2009.
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Table of Contents
| 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 2011 | FY 2010 | |||||||
|
Postretirement benefit obligation, at beginning of fiscal year
|
$ | 651 | $ | 458 | ||||
|
Service cost
|
134 | 85 | ||||||
|
Interest cost
|
39 | 33 | ||||||
|
Benefits paid
|
(20 | ) | (7 | ) | ||||
|
Actuarial (gain) or loss
|
(98 | ) | 82 | |||||
|
Postretirement benefit obligation, at end of fiscal year
|
706 | 651 | ||||||
|
Fair value of plan assets, at end of fiscal year
|
— | — | ||||||
|
Funded status, at end of year
|
$ | (706 | ) | $ | (651 | ) | ||
|
Accumulated postretirement benefit obligation, at end of fiscal
year
|
$ | 706 | $ | 651 | ||||
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 2011 | FY 2010 | FY 2009 | ||||||||||
|
Net periodic postretirement benefit cost:
|
||||||||||||
|
Service cost
|
$ | 134 | $ | 85 | $ | 50 | ||||||
|
Interest cost
|
39 | 33 | 24 | |||||||||
|
Amortization of prior service cost
|
13 | 13 | 13 | |||||||||
| 186 | 131 | 87 | ||||||||||
|
Benefit obligations recognized in other comprehensive income:
|
||||||||||||
|
Amortization of prior service cost
|
(13 | ) | (13 | ) | (13 | ) | ||||||
|
Net (gain) or loss
|
(108 | ) | 77 | 31 | ||||||||
| (121 | ) | 64 | 18 | |||||||||
|
Total recognized in net periodic benefit cost and other
comprehensive income
|
$ | 65 | $ | 195 | $ | 105 | ||||||
|
Amount recognized in accumulated other comprehensive income, at
end of fiscal year:
|
||||||||||||
|
Unrecognized prior service cost
|
$ | 206 | $ | 327 | $ | 263 | ||||||
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 2012 is less
than $0.1 million.
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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 26,
|
March 27,
|
March 28,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Weighted average discount rate
|
5.8 | % | 6.1 | % | 7.4 | % | ||||||
|
Medical care cost trend rate:
|
||||||||||||
|
Trend rate assumed for next year
|
8.5 | % | 8.5 | % | 9.0 | % | ||||||
|
Ultimate trend rate
|
5.0 | % | 5.0 | % | 5.0 | % | ||||||
|
Year that rate reaches ultimate trend rate
|
2019 | 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 | |||
|
2012
|
36 | |||
|
2013
|
49 | |||
|
2014
|
60 | |||
|
2015
|
73 | |||
|
2016
|
68 | |||
|
Thereafter
|
420 | |||
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 at the fair market value at the date of grant. At
March 26, 2011, 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, were fully vested as of August 2009 and
expire August 2011.
Restricted Stock:
During the first quarter of
fiscal years 2011, 2010 and 2009, the Company 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.
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 26, 2011, the Company estimated the
probability of achievement for the performance-based restricted
stock awards granted in fiscal years 2011 and
45
Table of Contents
2010 to be 75% and 50% of the target levels, respectively.
During the fourth quarter of fiscal year 2011, 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
2010 from 75% to 50%. As a result, cumulative compensation cost
relating to these awards was reduced by less than
$0.1 million and reflected as a reduction of expense in the
Consolidated Statement of Operations in fiscal year 2011. The
performance-based restricted stock awards granted in fiscal year
2009 did not vest on March 26, 2011, as the performance
condition related to these awards was not achieved. Total
expense relating to performance-based restricted stock awards,
based on grant date fair value and the estimated probability of
achievement, was less than $0.1 million in each of the
fiscal years 2011, 2010 and 2009. Unearned compensation totaled
$0.2 million as of March 26, 2011.
Stock Options:
Options generally vest over a
period of up to four years, using either a graded schedule or on
a straight-line basis, and expire ten years from the date of
grant. The expense relating to options is recognized on a
straight-line basis over the requisite service period for the
entire award.
The following table summarizes the Company’s options for
fiscal years 2011, 2010 and 2009:
|
Weighted
|
||||||||||||||||
|
Average
|
Weighted Average
|
|||||||||||||||
|
Number
|
Exercise
|
Remaining
|
Aggregate
|
|||||||||||||
|
of
|
Price per
|
Contractual
|
Intrinsic
|
|||||||||||||
| Shares | Share | Term (in Years) | Value | |||||||||||||
|
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 | ||||||||||||||
|
Exercised
|
(16 | ) | 3.25 | |||||||||||||
|
Cancelled/Forfeited
|
(4 | ) | 7.17 | |||||||||||||
|
Outstanding as of March 26, 2011
|
654 | 5.77 | 6 | $ | 1,459 | |||||||||||
|
Exercisable as of March 26, 2011
|
511 | 5.30 | 5 | 1,378 | ||||||||||||
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 2011 and the exercise price, multiplied by the
number of
in-the-money
stock options) that would have been received by the option
holders had all holders exercised their options on
March 26, 2011. 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 26, 2011 was $0.1 million, which
is expected to be recognized over a weighted average period of
one year. The aggregate intrinsic value of stock options
exercised in each of the fiscal years 2011 and 2009 was less
than $0.1 million. Cash receipts from the exercise of
options in each of the fiscal years 2011 and 2009 was less than
$0.1 million. In fiscal year 2010, there were no stock
options exercised.
46
Table of Contents
The following table presents options outstanding and exercisable
as of March 26, 2011:
| 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
|
121 | 3 | $ | 2.52 | 121 | $ | 2.52 | ||||||||||||||
|
$3.51-$5.00
|
55 | 4 | 4.31 | 55 | 4.31 | ||||||||||||||||
|
$5.01-$6.50
|
199 | 6 | 5.57 | 189 | 5.55 | ||||||||||||||||
|
$6.51-$7.72
|
279 | 6 | 7.61 | 146 | 7.67 | ||||||||||||||||
|
Total
|
654 | 6 | 5.77 | 511 | 5.30 | ||||||||||||||||
Warrants:
Warrants expire in five years from
the date of grant. The following table summarizes the
Company’s warrants for fiscal years 2011, 2010 and 2009:
|
Weighted
|
||||||||||||
|
Average
|
||||||||||||
|
Number
|
Exercise
|
Aggregate
|
||||||||||
|
of
|
Price per
|
Intrinsic
|
||||||||||
| Shares | Share | Value | ||||||||||
|
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 | ||||||||||
|
Exercised
|
(20 | ) | 4.26 | |||||||||
|
Cancelled/Forfeited
|
(4 | ) | 4.26 | |||||||||
|
Outstanding as of March 26, 2011
|
17 | 5.80 | $ | 37 | ||||||||
|
Exercisable as of March 26, 2011
|
17 | 5.80 | 37 | |||||||||
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 2011 and the exercise price, multiplied by the
number of
in-the-money
warrants) that would have been received by the warrant holders
had all holders exercised their warrants on March 26, 2011.
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 less than
$0.1 million in fiscal year 2011 and $0.1 million in
each of the fiscal years 2010 and 2009. Cash received from the
exercise of warrants was less than $0.1 million in each of
fiscal years 2011, 2010 and 2009. The remaining contractual term
of the warrants is less than one year.
47
Table of Contents
| 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 sales. The following table presents segment and
geographic data for fiscal years 2011, 2010 and 2009:
| FY 2011 | FY 2010 | FY 2009 | ||||||||||
|
Net Revenue:
|
||||||||||||
|
Product
|
$ | 59,862 | $ | 53,143 | $ | 51,480 | ||||||
|
Service
|
31,324 | 27,918 | 23,939 | |||||||||
|
Total
|
91,186 | 81,061 | 75,419 | |||||||||
|
Gross Profit:
|
||||||||||||
|
Product
|
15,366 | 12,442 | 13,070 | |||||||||
|
Service
|
7,932 | 6,852 | 5,678 | |||||||||
|
Total
|
23,298 | 19,294 | 18,748 | |||||||||
|
Operating Expenses:
|
||||||||||||
|
Product(1)
|
10,971 | 10,155 | 9,622 | |||||||||
|
Service(1)
|
7,740 | 6,758 | 6,440 | |||||||||
|
Total
|
18,711 | 16,913 | 16,062 | |||||||||
|
Operating Income
|
4,587 | 2,381 | 2,686 | |||||||||
|
Unallocated Amounts:
|
||||||||||||
|
Other Expense, net
|
105 | 98 | 167 | |||||||||
|
Provision for Income Taxes
|
1,694 | 832 | 963 | |||||||||
|
Total
|
1,799 | 930 | 1,130 | |||||||||
|
Net Income
|
$ | 2,788 | $ | 1,451 | $ | 1,556 | ||||||
|
Total Assets:
|
||||||||||||
|
Product
|
$ | 25,470 | $ | 20,969 | $ | 16,807 | ||||||
|
Service
|
13,284 | 11,938 | 10,233 | |||||||||
|
Unallocated
|
2,606 | 2,806 | 2,351 | |||||||||
|
Total
|
$ | 41,360 | $ | 35,713 | $ | 29,391 | ||||||
48
Table of Contents
| FY 2011 | FY 2010 | FY 2009 | ||||||||||
|
Depreciation and Amortization(2):
|
||||||||||||
|
Product
|
$ | 673 | $ | 742 | $ | 778 | ||||||
|
Service
|
1,377 | 1,136 | 954 | |||||||||
|
Unallocated
|
243 | 202 | 165 | |||||||||
|
Total
|
$ | 2,293 | $ | 2,080 | $ | 1,897 | ||||||
|
Capital Expenditures:
|
||||||||||||
|
Product
|
$ | 31 | $ | 25 | $ | 21 | ||||||
|
Service
|
1,282 | 767 | 1,456 | |||||||||
|
Unallocated
|
334 | 336 | 298 | |||||||||
|
Total
|
$ | 1,647 | $ | 1,128 | $ | 1,775 | ||||||
|
Geographic Data:
|
||||||||||||
|
Net Revenues to Unaffiliated Customers(3):
|
||||||||||||
|
United States(4)
|
$ | 81,666 | $ | 72,595 | $ | 66,892 | ||||||
|
Canada
|
6,698 | 5,872 | 5,296 | |||||||||
|
Other International
|
2,822 | 2,594 | 3,231 | |||||||||
|
Total
|
$ | 91,186 | $ | 81,061 | $ | 75,419 | ||||||
|
Long-Lived Assets:
|
||||||||||||
|
United States(4)
|
$ | 5,087 | $ | 4,059 | $ | 4,065 | ||||||
|
Canada
|
166 | 104 | 109 | |||||||||
|
Total
|
$ | 5,253 | $ | 4,163 | $ | 4,174 | ||||||
| (1) | Operating expense allocations between segments were based on actual amounts, a percentage of revenues, headcount, and management’s estimates. | |
| (2) | Including amortization of catalog costs. | |
| (3) | Net revenues are attributed to the countries based on the destination of a product shipment or the location where service is rendered. | |
| (4) | United States includes Puerto Rico. |
| NOTE 9 — | COMMITMENTS |
Leases:
Transcat leases facilities, equipment,
and vehicles under non-cancelable operating leases. Total rental
expense was approximately $1.4 million in fiscal year 2011,
$1.3 million in fiscal year 2010 and $1.2 million in
fiscal year 2009. The minimum future annual rental payments
under the non-cancelable leases at March 26, 2011 are as
follows (in millions):
|
Fiscal Year
|
||||
|
2012
|
$ | 1.3 | ||
|
2013
|
1.1 | |||
|
2014
|
0.7 | |||
|
2015
|
0.6 | |||
|
2016
|
0.5 | |||
|
Thereafter
|
1.1 | |||
|
Total minimum lease payments
|
$ | 5.3 | ||
49
Table of Contents
| NOTE 10 — | ACQUISITIONS |
On 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. 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.
During fiscal year 2011, Transcat completed two business
acquisitions. On November, 1, 2010, Transcat, through
Transmation (Canada) Inc., acquired certain assets of the
service division of ACA TMetrix Inc. (“TMetrix”).
TMetrix provides calibration and repair services throughout
Canada and is located in Mississauga, Ontario. On
January 11, 2011, Transcat, through WTT Acquisition,
acquired substantially all of the assets of Wind Turbine Tools,
Inc. and affiliated entities (“WTT”). WTT, located in
Lincoln, Montana, is a premier provider of wind energy industry
product tool kit solutions, technical assistance, torque
calibration and hydraulic services. These acquisitions expand
the Company’s reach within the wind energy industry and add
to Transcat’s Service business in Canada.
The total purchase price paid for these businesses was
approximately $3.4 million. The assets acquired were
recorded under the acquisition method of accounting at their
estimated fair values as of the date of acquisition. Goodwill,
totaling $1.6 million, represents costs in excess of fair
value assigned to the underlying net assets of the acquired
businesses. Other intangible assets, namely customer bases
totaling $1.0 million, represent an allocation of purchase
price to identifiable intangible assets of the acquired
businesses. Intangible assets are being amortized for financial
reporting purposes on an accelerated basis over the estimated
useful life of 10 years. Goodwill and the intangible assets
are deductible for tax purposes. Acquisition costs, totaling
$0.2 million, were recorded as incurred as an
administrative expense in the Consolidated Statement of
Operations. Pro forma information as of the beginning of the
periods presented and the operating results of the businesses
since the date of acquisition have not been disclosed as the
acquisitions were not considered significant.
In addition, concurrent with the acquisition WTT, the Company
entered into an Earn Out Agreement with the former owner. This
agreement provides that the former owner may be entitled to
receive earn out payments subject to certain continued
employment and certain post-closing gross profit and revenue
targets. These potential future payments are expected to be
recorded as compensation expense in the period earned.
On January 27, 2010, Transcat, through USEC Acquisition,
acquired United Scale & Engineering Corporation
(“United Scale”) pursuant to a Stock Purchase
Agreement (the “United Scale 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 results of operations of United Scale are included
in Transcat’s consolidated operating results as of the date
the business was acquired.
The assets and liabilities of United Scale were recorded under
the acquisition 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.
At the date of purchase, the Company accrued contingent
consideration in the amount of $0.2 million relating to
certain holdback provisions under the terms of the United Scale
Purchase Agreement. During fiscal year
50
Table of Contents
2011, Transcat paid less than $0.1 million in partial
satisfaction of this contingency. As of March 26, 2011,
less than $0.1 million in contingent consideration remains
accrued and is included in other current liabilities in the
Consolidated Balance Sheet.
On August 14, 2008, Transcat acquired Westcon Inc.
(“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 “Westcon 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 assets and liabilities of Westcon were recorded under the
acquisition 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.
Under the terms of the Westcon 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 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 each of the fiscal years 2011
and 2010, payments totaling $0.1 million were earned and
recorded as compensation expense in the Consolidated Statement
of Operations and Comprehensive Income.
51
Table of Contents
| NOTE 11 — | QUARTERLY DATA (Unaudited) |
The following table presents a summary of certain unaudited
quarterly financial data for fiscal years 2011 and 2010:
|
Net
|
Basic
|
Diluted
|
||||||||||||||||||
|
Net
|
Gross
|
Income
|
Earnings (Loss)
|
Earnings (Loss)
|
||||||||||||||||
| Revenues | Profit | (Loss) | per Share(a) | per Share(a) | ||||||||||||||||
|
FY 2011:
|
||||||||||||||||||||
|
Fourth Quarter
|
$ | 25,757 | $ | 6,930 | $ | 1,086 | $ | 0.15 | $ | 0.14 | ||||||||||
|
Third Quarter
|
23,881 | 6,052 | 897 | 0.12 | 0.12 | |||||||||||||||
|
Second Quarter
|
20,920 | 4,958 | 527 | 0.07 | 0.07 | |||||||||||||||
|
First Quarter
|
20,628 | 5,358 | 278 | 0.04 | 0.04 | |||||||||||||||
|
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 | ) | ||||||||||||
| (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. |
52
Table of Contents
TRANSCAT,
INC.
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
|
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 2011
|
$ | 82 | $ | 85 | $ | (94 | ) | $ | 73 | |||||||
|
FY 2010
|
$ | 75 | $ | 85 | $ | (78 | ) | $ | 82 | |||||||
|
FY 2009
|
$ | 56 | $ | 160 | $ | (141 | ) | $ | 75 | |||||||
|
Reserve for Inventory Loss:
|
||||||||||||||||
|
FY 2011
|
$ | 347 | $ | (41 | ) | $ | 214 | $ | 520 | |||||||
|
FY 2010
|
$ | 223 | $ | 31 | $ | 93 | $ | 347 | ||||||||
|
FY 2009
|
$ | 62 | $ | 103 | $ | 58 | $ | 223 | ||||||||
|
Deferred Tax Valuation Allowance:
|
||||||||||||||||
|
FY 2011
|
$ | — | $ | — | $ | — | $ | — | ||||||||
|
FY 2010
|
$ | — | $ | — | $ | — | $ | — | ||||||||
|
FY 2009
|
$ | 35 | $ | (35 | ) | $ | — | $ | — | |||||||
53
Table of Contents
None.
| ITEM 9A. | CONTROLS AND PROCEDURES |
(a)
Conclusion Regarding the Effectiveness of Disclosure
Controls and Procedures.
Our principal executive
officer and our principal financial officer evaluated our
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
as of the end of the period covered by this annual report.
Disclosure controls and procedures are designed to ensure that
information required to be disclosed in our reports filed under
the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules
and forms and that such information is accumulated and
communicated to our principal executive officer and principal
financial officer to allow timely decisions regarding required
disclosure. Based on this evaluation, our principal executive
officer and our principal financial officer concluded that our
disclosure controls and procedures were effective as of such
date.
(b)
Management’s Annual Report on Internal Control
over Financial Reporting.
Our management is
responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control system
was designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles in the United States of
America. In designing and evaluating our internal control
system, we recognize that any controls and procedures, no matter
how well designed and operated, can provide only reasonable, not
absolute, assurance of achieving the desired control objectives
and that the effectiveness of any system has inherent
limitations including, but not limited to, the possibility of
human error and the circumvention or overriding of controls and
procedures. Management, including the principal executive
officer and the principal financial officer, is required to
apply judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Because of the inherent
limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected in a timely
manner.
An evaluation was performed under the supervision and with the
participation of our management, including the principal
executive officer and the principal financial officer, of the
effectiveness of the design and operation of our procedures and
internal control over financial reporting using the framework
and criteria established by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this
evaluation, our management, including the principal executive
officer and the principal financial officer, concluded that our
internal control over financial reporting was effective in
providing reasonable assurance regarding the reliability of
financial reporting and the preparation of our financial
statements for external purposes in accordance with generally
accepted accounting principles as of March 26, 2011.
This annual report does not include an attestation report of our
independent registered public accounting firm regarding internal
control over financial reporting. Management’s report on
internal control over financial reporting was not subject to
attestation by our independent registered public accounting firm
pursuant to rules of the Securities and Exchange Commission that
permit us to provide only management’s report in this
annual report.
(c)
Changes in Internal Controls over Financial
Reporting.
There has been no change in our
internal control over financial reporting that occurred during
the last fiscal quarter covered by this annual report (our
fourth fiscal quarter) that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.
| ITEM 9B. | OTHER INFORMATION |
Not applicable.
54
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 2011 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 26, 2011 fiscal year end.
| ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this Item 11 is incorporated
herein by reference from our proxy statement for our 2011 Annual
Meeting of Shareholders under the headings “Executive
Compensation” and “Director Compensation,” which
proxy statement will be filed pursuant to Regulation 14A
within 120 days after the March 26, 2011 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 2011 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 26, 2011 fiscal year end.
Securities Authorized for Issuance Under Equity Compensation
Plans as of March 26, 2011:
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
|
829 | (1) | $ | 4.67 | 231 | |||||||
|
Equity compensation plans not approved by security holders
|
— | — | — | |||||||||
|
Total
|
829 | $ | 4.67 | 231 | ||||||||
| (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 2011 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 26, 2011 fiscal year end.
55
Table of Contents
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this Item 14 is incorporated
herein by reference from our proxy statement for our 2011 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 26, 2011 fiscal year end.
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) See Index to Financial Statements included in
Item 8 of this report.
(b) Exhibits.
See Index to Exhibits contained in this report.
56
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 22, 2011
|
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 22, 2011
|
/s/ Charles
P. Hadeed
|
Director, President, Chief Executive Officer
and Chief Operating Officer (Principal Executive Officer) |
||
|
June 22, 2011
|
/s/ John
J. Zimmer
|
Senior Vice President of Finance and
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
||
|
June 20, 2011
|
/s/ Carl
E. Sassano
|
Chairman of the Board of Directors | ||
|
June 22, 2011
|
/s/ Francis
R. Bradley
|
Director | ||
|
June 22, 2011
|
/s/ Richard
J. Harrison
|
Director | ||
|
June 22, 2011
|
/s/ Nancy
D. Hessler
|
Director | ||
|
June 22, 2011
|
/s/ Paul
D. Moore
|
Director | ||
|
June 22, 2011
|
/s/ Harvey
J. Palmer
|
Director | ||
|
June 22, 2011
|
/s/ Alan
H. Resnick
|
Director | ||
|
June 22, 2011
|
/s/ John
T. Smith
|
Director |
57
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 October 26, 2009, are incorporated herein by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 29, 2009. | |||
|
(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 | 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. | |||
| #10.3 | 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. | |||
| #10.4 | 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. | |||
| #10.5 | 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. | |||
| #10.6 | 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. | |||
| #10.7 | Transcat, Inc. Employees’ Stock Purchase Plan is incorporated herein by reference from Exhibit 99(e) to the Company’s Registration Statement on Form S-8 (Registration No. 33-61665) filed on August 8, 1995. | |||
| #10.8 | 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. | |||
| #10.9 | 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. | |||
| #10.10 | 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. | |||
| #10.11 | 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. | |||
58
Table of Contents
| #10.12 | Form of Award Notice for Incentive Stock Options granted under the Transcat, Inc. 2003 Incentive Plan is incorporated herein by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 25, 2004. | |||
| #10.13 | 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. | |||
| #10.14 | 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 | 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. | |||
| #10.16 | Form of Award Notice for Performance-Based Restricted Stock granted under the Transcat, Inc. 2003 Incentive Plan, as amended, is incorporated herein by reference from Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2009. | |||
| #10.17 | 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 filed on April 25, 2006. | |||
| #10.18 | 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. | |||
| 10.19 | Credit Agreement dated as of November 21, 2006 by and between Transcat, Inc. and JPMorgan Chase Bank, N.A. is incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 28, 2006. | |||
| 10.20 | 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. | |||
| 10.21 | Amendment No. 2 to Credit Agreement dated February 26, 2010 between Transcat, Inc. and JPMorgan Chase Bank, N.A. is incorporated herein by reference from Exhibit 10.26 the Company’s Annual Report on Form 10-K for the year ended March 27, 2010. | |||
| *10.22 | Amendment Number Three to Credit Agreement dated as of January 15, 2011 between Transcat, Inc. and JPMorgan Chase Bank, N.A. | |||
| 10.23 | 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. | |||
| 10.24 | 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. | |||
| 10.25 | 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. | |||
| #10.26 | Transcat, Inc. Post-Retirement Benefit Plan for Officers (Amended and Restated Effective January 1, 2010) is incorporated herein by reference from Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the year ended March 27, 2010. | |||
| 10.27 | Transcat, Inc. Post-Retirement Benefit Plan for Non-Officer Employees (Amended and Restated Effective January 1, 2010) is incorporated herein by reference from Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the year ended March 27, 2010. | |||
| #10.28 | Certain compensation information for Charles P. Hadeed, President, Chief Executive Officer and Chief Operating Officer of the Company, John J. Zimmer, Vice President of Finance and Chief Financial Officer of the Company, and John P. Hennessey, Vice President of Sales and Marketing of the Company is incorporated herein by reference from the Company’s Current Report on Form 8-K filed on April 8, 2011. |
59
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 USA, 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. |
60
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. (removed and Reserved)Part 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. 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