What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-06-08 compared with 2020-06-08 · 295 added, 254 removed, 482 unchanged (53% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management’s Annual Report on Internal Control Over Financial Reporting

Management of Transcat, Inc.

(the “Company”) is responsible for establishing and maintaining an adequate system of internal control over financial reporting.

This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

generally accepted accounting principles.

The Company’s internal control over financial reporting includ es those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements.

Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time.

Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission.

Based on that evaluation, management concluded that the Company’s internal control over financial reporting was effective as of March 28, 2020.

The effectiveness of the Company’s internal control over financ ial reporting has been audited by Freed Maxick CPAs, P.C.

Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting based on the framework in Internal Control –

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission.

Based on that evaluation, management concluded that the Company’s internal control over financial reporting was effective as of March 27, 2021.

The effectiveness of the Company’s internal control over financial reporting has been audited by Freed Maxick CPAs, P.C.

an independent registered public accounting firm, as stated in their report which is included herein.

3 unchanged sentences

Rochester, New York

To the Shareholders and the Board of Directors of Transcat, Inc.

Opinions on the Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Transcat, Inc.

and its subsidiaries (the "Company") as of March 28, 2020 and March 30, 2019, and the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the years ended March 28, 2020 and March 30, 2019, and the related notes (collectively referred to as the "financial statements").

We also have audited the Company's internal control over financial reporting as of March 28, 2020, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 28, 2020 and March 30, 2019, and the results of its operations and its cash flows for each of the years ended March 28, 2020 and March 30, 2019 in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 28, 2020, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

Basis for Opinion

The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Annual Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company's financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

and its subsidiaries (the Company) as of March 27, 2021 and March 28, 2020, and the related consolidated statements of income, comprehensive income, changes in shareholders'

equity and cash flows for the years ended March 27, 2021 and March 28, 2020, and the related notes to the consolidated financial statements (collectively, the financial statements).

We also have audited the Company’s internal control over financial reporting as of March 27, 2021, based on criteria established in Internal Control —

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 27, 2021 and March 28, 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 27, 2021, based on criteria established in Internal Control —

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

Basis for Opinions

The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the Annual report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company's financial statements and an opinion on the company's internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

8 unchanged sentences

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process 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.

A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

BioTek Services, Inc.

Purchase Price Allocation

Critical Audit Matter Description

As discussed in Notes 1 and 9 to the consolidated financial statements, effective December 16, 2020, the Company acquired substantially all of the assets of BioTek Services, Inc.

(“BioTek”).

The total purchase price paid for the assets of BioTek was approximately $3.5 million.

The Company applied the acquisition method of accounting for the acquisition.

Under this method, identifiable assets acquired and liabilities assumed are measured at their acquisition-date fair value.

The Company used a valuation hierarchy, and utilized an independent third-party valuation specialist to determine the fair values used in this allocation.

Intangible assets and goodwill represented an allocation of purchase price to identifiable intangible assets of the acquired business in the amount of $2.0 million and $1.1 million, respectively.

The Company’s determination of the fair value used for the allocation of the purchase price is based upon assumptions of the future performance of BioTek and includes work performed by a third-party valuation specialist.

Due to the subjectivity involved in estimating the fair values and ultimate allocation of purchase price, we identified the fair value estimates for purchase price allocation of BioTek’s intangible assets as a critical audit matter, which required a higher degree of auditor judgement as well as the use of professionals with specialized skill and knowledge.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the estimation of fair value associated with the purchase price allocation of the BioTek acquisition included the following, among others:

We obtained an understanding of the process and assumptions used by management to develop the estimate of the purchase price allocation.  

We obtained an understanding of management’s controls relating to the purchase price allocation and tested the operating effectiveness of the controls, as necessary.  

We engaged an internal valuation specialist to test certain assumptions and approaches used.  

We tested cut-off of working capital at the acquisition date for any impact to the fair value assigned to the identifiable tangible and intangible assets acquired or liabilities assumed.  

We tested management’s allocation, including testing of the completeness and accuracy of source information used, mathematical accuracy of management’s calculations, and evaluated reasonableness and consistency of methodology and assumption.  

/s/ Freed Maxick CPAs, P.C.

We have served as the Company's auditor since 2012.

Rochester, New York

25 unchanged sentences

For the Fiscal Years Ended

Other Comprehensive Loss:

Other Comprehensive Income (Loss):

Currency Translation Adjustment

Other, net of tax effects of $ 36 and $ 42 for the years ended March 27, 2021 and March 28, 2020, respectively.

Total Other Comprehensive Loss

Total Other Comprehensive Income (Loss)

Comprehensive Income

12 unchanged sentences

Right to Use Assets, net

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES AND SHAREHOLDERS'

Current Liabilities:

9 unchanged sentences

Total Liabilities

Shareholders' Equity:

Shareholders'

Common Stock, par value $ 0.50 per share, 30,000,000 shares authorized;

3 unchanged sentences

Retained Earnings

Total Shareholders' Equity

Total Liabilities and Shareholders' Equity

Total Shareholders'

Total Liabilities and Shareholders'

See accompanying notes to consolidated financial statements.

13 unchanged sentences

Accounts Receivable and Other Receivables

Prepaid Expenses and Other Assets

Prepaid Expenses and Other Current Assets

Accounts Payable

Accrued Compensation and Other Liabilities

Accrued Compensation and Other Current Liabilities

Income Taxes Payable

7 unchanged sentences

Cash Flows from Financing Activities:

Proceeds from (Repayment of) Revolving Credit Facility, net

Proceeds from Term Loan

(Repayment of) Proceeds from Revolving Credit Facility, net

Repayments of Term Loan

1 unchanged sentence

Repurchase of Common Stock

Net Cash Provided by (Used In) Financing Activities

Net Cash (Used In) Provided by Financing Activities

Effect of Exchange Rate Changes on Cash

Net (Decrease) Increase in Cash

Net Increase (Decrease) in Cash

Cash at Beginning of Fiscal Year

6 unchanged sentences

TRANSCAT, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’

(In Thousands, Except Per Share Amounts)

5 unchanged sentences

Stock-Based Compensation

Other Comprehensive Income

Other Comprehensive Loss

Balance as of March 28, 2020

2 unchanged sentences

Stock-Based Compensation

Other Comprehensive Loss

Other Comprehensive Income

Balance as of March 27, 2021

3 unchanged sentences

(In Thousands, Except Per Share and Per Unit Amounts)

NOTE 1 – GENERAL

NOTE 1 –

Description of Business:

Transcat, Inc.

(“Transcat” or the “Company”) is a leading provider of accredited calibration and laboratory instrument services and a value-added distributor of professional grade handheld test, measurement and control instrumentation.

(“Transcat”

or the “Company”) is a leading provider of accredited calibration and laboratory instrument services and a value-added distributor of professional grade handheld test, measurement and control instrumentation.

The Company is focused on providing services and products to highly regulated industries, particularly the life science industry, which includes pharmaceutical, biotechnology, medical device and other FDA-regulated businesses.

4 unchanged sentences

Principles of Consolidation:

The consolidated financial statements of Transcat include the accounts of Transcat and the Company’s wholly -owned subsidiaries, Transcat Canada Inc., United Scale & Engineering Corporation, WTT Real Estate Acquisition, LLC and Anmar Metrology, Inc.

The consolidated financial statements of Transcat include the accounts of Transcat and the Company’s wholly-owned subsidiaries, Transcat Canada Inc., United Scale & Engineering Corporation, WTT Real Estate Acquisition, LLC and Anmar Metrology, Inc.

(which merged with and into the Company on March 28, 2020).

1 unchanged sentence

Use of Estimates:

The preparation of Transcat’s Consolidated Financial Statements in accordance with accounting principles generally accepted in the United St ates (“GAAP”) requires that the Company make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

The preparation of Transcat’s Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires that the Company make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

Significant estimates and assumptions are used for, but not limited to, allowance for doubtful accounts and returns, inventory reserves, estimated levels of achievement for performance-based restricted stock units, fair value of stock options, depreciable lives of fixed assets, estimated lives of major catalogs and intangible assets, and the valuation of assets acquired and liabilities assumed in business acquisitions.

7 unchanged sentences

In a 53-week fiscal year, the last quarter is a 14-week period.

The fiscal years ended March 28, 2020 (“ fiscal year 2020 ”) and March 30, 2019 (“fiscal year 2019”) both consisted of 52 weeks.

The fiscal years ended March 27, 2021 (“fiscal year 2021”) and March 28, 2020 (“fiscal year 2020”) both consisted of 52 weeks.

Accounts Receivable:

6 unchanged sentences

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 consists of products purchased for resale and is valued at the lower of cost or net realizable value.

Inventory consists of products purchased for resale and is valued at the lower of average cost or net realizable value.

Costs are determined using the average cost method of inventory valuation.

18 unchanged sentences

The Company applies the acquisition method of accounting for business acquisitions.

Under the acquisition method, the purchase price of an acquisition is assigned to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair values at the date of acquisition.

Under the acquisition method, identifiable assets acquired and liabilities assumed are measured at their acquisition-date fair value.

The Company uses a valuation hierarchy, as further described under Fair Value of Financial Instruments below, to determine the fair values used in this allocation.

10 unchanged sentences

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.

A summary of changes in the Company’s goodwill and intangible assets is as follows:

Intangible Assets

Net Book Value as of March 30, 2019

Additions (see Note 9)

Currency Translation

Currency Translation Adjustment

Net Book Value as of March 28, 2020

Additions (see Note 9)

Currency Translation

Currency Translation Adjustment

Net Book Value as of March 27, 2021

2 unchanged sentences

Catalog Costs:

Transcat capitalizes the cost of each Master Catalog mailed and amortizes the cost over the respective catalog’s estimated productive life.

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 $0.1 million as of March 28, 2020 and March 30, 2019.

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 $ 0.1 million as of both March 27, 2021 and March 28, 2020.

Deferred Taxes:

11 unchanged sentences

The carrying amount of debt on the Consolidated Balance Sheets approximates fair value due to variable interest rate pricing on a portion of the debt with the balance bearing an interest rate approximating current market rates, and the carrying amounts for cash, accounts receivable and accounts payable approximate fair value due to their short-term nature.

Investment assets, which fund the Company’s non-qualified deferred compensation plan, consist of mutual funds and are valued based on Level 1 inputs.

At March 28, 2020 and March 30, 2019, investment assets totaled $0.4 million and $0.5 million, respectively, and are included as a component of other assets (non-current) on the Consolidated Balance Sheets.

Investment assets, which fund the Company’s non-qualified deferred compensation plan, consist of mutual funds and are valued based on Level 1 inputs.

At each of March 27, 2021 and March 28, 2020, investment assets totaled $ 0.4 million and are included as a component of other assets (non-current) on the Consolidated Balance Sheets.

Stock-Based Compensation:

7 unchanged sentences

Revenue Recognition:

Distribution sales are recorded when an order’s title and risk of loss transfers to the customer.

The Company recognizes the majority of its Service revenue based upon when the calibration or other activity is performed and then shipped and/or delivered to the customer.

The majority of the Company’s revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and/or our obligation has been fulfilled.

Some Service revenue is generated from managing custo mers’ calibration programs in which the Company recognizes revenue over time.

Some Service revenue is generated from managing customers’

calibration programs in which the Company recognizes revenue over time using the output method-time elapsed as this portrays the transfer of control to the customer.

Revenue is measured as the amount of consideration it expects to receive in exchange for product shipped or services performed.

23 unchanged sentences

Freight expense and direct shipping costs are included in the cost of revenue.

These costs totaled approximately $2.6 million in each of fiscal years 2020 and 2019, respectively.

These costs totaled approximately $ 2.5 million and $ 2.6 million in fiscal years 2021 and 2020, respectively.

Direct handling costs, the majority of which represent direct compensation of employees who pick, pack, and prepare merchandise for shipment to customers, are reflected in selling, marketing and warehouse expenses.

4 unchanged sentences

Accordingly, the amounts representing assets and liabilities have been translated at the period-end rates of exchange, and related revenue and expense accounts have been translated at an average rate of exchange during the period.

Gains and losses arising from translation of Transcat Canada Inc.

’s financial statements into U.S.

dollars are recorded directly to the accumulated other comprehensive loss component of shareholders’ equity.

Gains and losses arising from translation of Transcat Canada Inc.’s financial statements into U.S.

dollars are recorded directly to the accumulated other comprehensive loss component of shareholders’

Transcat records foreign currency gains and losses on business transactions denominated in foreign currency.

1 unchanged sentence

The Company continually utilizes short-term foreign exchange forward contracts to reduce the risk that its earnings would be adversely affected by changes in currency exchange rates.

The Company does not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a net loss of less than $0.1 million in fiscal year 2020 and a net gain of $0.2 million in fiscal year 2019, was recognized as a component of other expense in the Consolidated Statements of Income.

The Company does not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a net loss of less than $ 0.1 million in each of fiscal year 2021 and 2020, was recognized as a component of Other Expenses in the Consolidated Statements of Income.

The change in the fair value of the contracts is offset by the change in fair value on the underlying accounts receivables denominated in Canadian dollars being hedged.

4 unchanged sentences

Comprehensive income is composed of currency translation adjustments, unrecognized prior service costs, net of tax, and unrealized gains or losses on other assets, net of tax.

For the Company’s Canadian subsidiary, the local currency is Canadian dollars.

Assets and liabilities of that subsidiary are translated into United States dollars at the period-end exchange rate or historical rates as appropriate.

Consolidated statements of earnings (loss) amounts are translated at average exchange rates for the period.

The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive loss in shareholders’ equity.

Transaction gains and losses are included in the Consolidated Statements of Income.

1 unchanged sentence

The Company determines the fair value of plan assets and benefit obligations as of the end of each fiscal year.

The unrecognized portion of the gain or loss on plan assets is included in the consolidated balance sheets as a component of accumulated other c omprehensive loss in shareholders’ equity and is recognized into the plans’ expense over time.

See Note 5 for further discussion on the company’s post retirement plan.

The unrecognized portion of the gain or loss on plan assets is included in the consolidated balance sheets as a component of accumulated other comprehensive loss in shareholders’

equity and is recognized into the plans’

expense over time.

See Note 5 for further discussion on the company’s post retirement plan.

The Company has a non-qualified deferred compensation plan for the benefit of certain management employees and non-employee directors.

Investment assets, which fund the Company’s non -qualified deferred compensation plan, consist of mutual funds.

The unrecognized portion of the gain or loss on plan assets is included in the consolidated balance sheets as a component of accumulated other comprehensive loss in shareholders’ equity .

Investment assets, which fund the Company’s non-qualified deferred compensation plan, consist of mutual funds.

The unrecognized portion of the gain or loss on plan assets is included in the Consolidated Balance Sheets as a component of accumulated other comprehensive loss in shareholders’

At March 27, 2021, accumulated other comprehensive loss consisted of cumulative currency translation gains of $ 0.1 million, unrecognized prior service costs, net of tax, of $ 0.5 million and an unrealized gain on other assets, net of tax, of $ 0.1 million.

At March 28, 2020, accumulated other comprehensive loss consisted of cumulative currency translation losses of $ 0.6 million, unrecognized prior service costs, net of tax, of $ 0.3 million and an unrealized gain on other assets, net of tax, of $ 0.1 million.

At March 30, 2019, accumulated other comprehensive loss consisted of cumulative currency translation losses of $0.3 million, unrecognized prior service costs, net of tax, of $0.2 million and an unrealized gain on other assets, net of tax, of less than $0.1 million.

Earnings per Share:

2 unchanged sentences

In computing the per share effect of assumed conversion, proceeds received from the exercise of options and unvested restricted stock units are considered to have been used to purchase shares of common stock at the average market prices during the period, and the resulting net additional shares of common stock are included in the calculation of average shares of common stock outstanding.

For fiscal years 2020 and 2019, the net additional common stock equivalents had a $0.02 and $0.04 per share effect on the calculation of dilutive earnings per share, respectively.

For each of fiscal years 2021 and 2020, the net additional common stock equivalents had a $ 0.02 per share 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 Fiscal Years Ended

Average Shares Outstanding – Basic

Average Shares Outstanding –

Effect of Dilutive Common Stock Equivalents

Average Shares Outstanding – Diluted

Average Shares Outstanding –

Anti-dilutive Common Stock Equivalents

Shareholders’ Equity:

During fiscal year 2020, the Company repurchased and subsequently retired 0.1 million shares of its common stock.

During fiscal year 2019, the Company repurchased and subsequently retired less than 0.1 million shares of its common stock.

Shareholders’

During each of fiscal years 2021 and 2020, the Company repurchased and subsequently retired 0.1 million shares of its common stock.

There were no stock option redemptions during either fiscal year 2021 or fiscal year 2020.

COVID-19 Pandemic:

The COVID-19 pandemic has had a negative impact on our fiscal year 2021 and fiscal year 2020 operations and financial results, and the full financial impact of the pandemic cannot be reasonably estimated at this time due to uncertainty as to its severity and duration.

The Company took actions to manage its resources conservatively to mitigate the negative impact of the pandemic, including aligning variable costs with demand, froze hiring and wages, with the exception of technology personnel, tightly controlled discretionary spending;

reduced the CEO’s salary and Board of Director cash retainer fees by 20% and reduced other executive team members salaries by 10% during the first and second quarter of fiscal year 2021;

and amended our revolving credit facility to provide for, among other things, $ 10.0 million in additional borrowing capacity and financial covenant modifications.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted.

The CARES Act included a provision that allows the Company to defer the employer portion of social security payroll tax payments that would have been paid between the enactment date and December 31, 2020, with 50% payable by December 31, 2021 and 50% payable by December 31, 2022.

During fiscal year 2021, the Company deferred $ 2.0 million of employer social security payroll taxes, of which $ 1.0 million is recorded in accrued compensation and other current liabilities and $ 1.0 million is recorded in other liabilities on the Consolidated Balance Sheets.

Recently Issued Accounting Pronouncements:

In February 2016, the FASB issued ASU No.

2016-02, Leases (ASC Topic 842), which requires lessees to recognize substantially all leases on the balance sheet and disclose key information about leasing arrangements.

The new standard establishes a right of use ("ROU") model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.

Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

In July 2018, FASB issued ASU 2018-11, Leases (ASC Topic 842), which provides entities with an additional transition method to adopt the new lease standard.

Under this method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

Consequently, the prior comparative period's financials will remain the same as those previously presented.

The Company adopted the new lease standard on March 31, 2019, during the first quarter of fiscal year 2020.

The Company adopted the package of practical expedients permitted under the transition guidance which allowed us to carry forward the historical lease classification.

Upon adoption, the Company used hindsight in determining lease terms.

The most significant impact of adoption was adding ROU lease assets and lease liabilities on the Consolidated Balance Sheets by the present value of the Company’s leasing obligations, which are primarily related to facility and vehicle leases.

The present value of the remaining lease payments is recognized as lease liabilities on the Consolidated Balance Sheets with corresponding ROU assets.

The value of the assets and liabilities added to the Consolidated Balance Sheets was approximately $8 million each.

The ROU assets are shown separately on the face of the Consolidated Balance Sheets.

$1.7 million of the lease liabilities was included in Accrued Compensation and Other Liabilities on the Consolidated Balance Sheets with the remainder included in Lease Liabilities.

Adopting the new standard did not have a material impact on our Consolidated Statement of Income or Consolidated Statement of Cash Flows.

Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

The ASU replaces the "incurred loss" model with an "expected credit loss" model that requires entities to estimate an expected lifetime credit loss on financial assets, including trade accounts receivable.

The ASU replaces the "incurred loss"

model with an "expected credit loss"

model that requires entities to estimate an expected lifetime credit loss on financial assets, including trade accounts receivable.

The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.

As credit losses from the Company's trade receivables have not historically been significant, the Company anticipates that the adoption of the ASU will not have a material impact on the consolidated financial statements.

Reclassification of Amounts:

Certain reclassifications of financial information for prior fiscal years have been made to conform to the presentation for the current fiscal year.

NOTE 2 – PROPERTY AND EQUIPMENT

NOTE 2 –

PROPERTY AND EQUIPMENT

Property and equipment consists of:

3 unchanged sentences

Leasehold Improvements

Buildings and Land

Total Property and Equipment

2 unchanged sentences

Total depreciation and amortization expense relating to property and equipment amounted to $ 5.0 million and $ 4.8 million in fiscal years 2021 and 2020, respectively.

NOTE 3 – LONG-TERM DEBT

On October 30, 2017, we entered into an Amended and Restated Credit Agreement (the “Credit Agreement”), which amended and restated our prior credit facility agreement.

The Credit Agreement extended the term of our $30.0 million revolving credit facility ( the “Revolving Credit Facility”) to October 29, 2021.

As of March 28, 2020, $30.0 million was available under the Revolving Credit Facility, of which $17.7 million was outstanding and included in long-term debt on the Consolidated Balance Sheets.

As of March 30, 2019, $30.0 million was available under the Revolving Credit Facility, of which $6.5 million was outstanding and included in long-term debt on the Consolidated Balance Sheets.

See Note 11 - Subsequent Event for additional information about our Credit Agreement.

On December 10, 2018, we entered into an Amended and Restated Credit Agreement Amendment 1 (the “2018 Agreement”).

The 2018 Agreement has a term loan (the “2018 Term Loan”) in the amount of $15.0 million, which replaced the previous term loan.

As of March 28, 2020, $12.6 million was outstanding on the 2018 Term Loan, of which $2.0 million was included in current liabilities on the Consolidated Balance Sheets with the remainder included in long-term debt.

As of March 30, 2019, $14.5 million was outstanding on the 2018 Term Loan, of which $1.9 million was included in current liabilities on the Consolidated Balance Sheets with the remainder included in long-term debt.

NOTE 3 –

LONG-TERM DEBT

On May 18, 2020, the Company entered into the Amended and Restated Credit Facility Agreement Amendment 2 (“Amendment Two”) with Manufacturers and Traders Trust Company that amended the Company’s Credit Agreement (as amended by Amendment Two, the “Credit Agreement”).

Amendment Two extended the term of the revolving credit facility (the “Revolving Credit Facility”) to October 20, 2022 and increased the revolving credit commitment to $ 40 million.

Amendment Two modified the definition of the applicable rate used to determine interest charges on outstanding and unused borrowings under the Revolving Credit Facility and it amended the definition of permitted acquisitions to amend borrowings available under the Revolving Credit Facility for acquisitions.

In addition, Amendment Two amended the definition of restricted payments to exclude amounts up to $2.5 million during each fiscal year used to pay certain employee tax obligations associated with share-based payment and stock option activity, and modified certain restrictions to the Company’s ability to repurchase its shares and pay dividends.

Amendment Two modified the leverage ratio and fixed charge coverage ratio covenants with which the Company is required to comply for the fiscal year ending March 27, 2021.

Amendment Two also established a London Interbank Offered Rate (“LIBOR”) floor of 1 % and included a mechanism for adoption of a different benchmark rate when LIBOR is discontinued.

During the third quarter of fiscal year 2021, Manufacturers and Traders Trust Company eliminated the prior requirement included in Amendment Two that limited capital expenditures to $ 5.5 million for the fiscal year ending March 27, 2021.

During the fourth quarter of fiscal year 2021, Manufacturers and Traders Trust Company eliminated the prior requirement included in Amendment Two that limited restricted payments up to $ 2.5 million to pay certain tax obligations associated with share-based payment and stock option activity for the fiscal year ending March 27, 2021.

On December 10, 2018, the Company entered into an Amended and Restated Credit Agreement Amendment 1 (the “2018 Agreement”).

The 2018 Agreement has a term loan (the “2018 Term Loan”) in the amount of $ 15.0 million.

As of March 27, 2021, $ 10.6 million was outstanding on the 2018 Term Loan, of which $ 2.1 million was included in current liabilities on the Consolidated Balance Sheets with the remainder included in long-term

The 2018 Term Loan requires total repayments (principal plus interest) of $ 0.2 million per month through December 2025.

Under the Credit Agreement, borrowings that may be used for business acquisitions are limited to $20.0 million per fiscal year.

During fiscal year 2020, $13.8 million was used for business acquisitions, including holdback payments.

During fiscal year 2019, $3.9 million was used for business acquisitions, including holdback payments.

The allowable leverage ratio under the Credit Agreement is a maximum multiple of 3.0 of total debt outstanding compared to earnings before income taxes, depreciation and amortization, or EBITDA, and non-cash stock-based compensation expense for the preceding four consecutive fiscal quarters.

The Credit Agreement provides that the trailing twelve-month pro forma EBITDA of an acquired business be included in the allowable leverage calculation.

The Credit Agreement has certain covenants with which we must comply, including a fixed charge ratio covenant and a leverage ratio covenant.

Principal payments relating to the 2018 Term Loan will be $ 2.1 million in fiscal year 2022, $ 2.2 million in fiscal year 2023, $ 2.2 million in fiscal year 2024, $ 2.3 million in fiscal year 2025 and $ 1.8 million in fiscal year 2026.

As of March 27, 2021, $ 40.0 million was available under the Revolving Credit Facility, of which $ 8.9 million was outstanding and included in long-term debt on the Consolidated Balance Sheets.

During fiscal year 2021, $ 3.6 million of borrowings was used for business acquisitions.

During fiscal year 2020, $ 13.8 million of borrowings was used for business acquisitions, including holdback payments.

The allowable leverage ratio under the Credit Agreement for the first, second, third and fourth fiscal quarter of fiscal year 2021 and the first quarter of fiscal year 2022 is a maximum multiple of 3.0 , 5.0 , 5.5 , 7.0 and 4.0 , respectively, of total debt outstanding compared to EBITDA and non-cash stock-based compensation expense for the preceding four consecutive fiscal quarters.

After the first quarter of fiscal 2022, the allowable leverage ratio is a maximum multiple of 3.0 .

The Credit Agreement provides that the trailing twelve-month pro forma EBITDA of an acquired business is included in the allowable leverage calculation.

Interest and Other Costs:

Interest on outstanding borrowings under the Revolving Credit Facility accrues, at Transcat’s election, at either the variable one-month LIBOR or a fixed rate for a designated period at the LIBOR corresponding to such period, in each case (subject to a 1% floor), plus a margin.

Interest on outstanding borrowings under the 2018 Term Loan accrues at a fixed rate of 4.15 % over the term of the loan.

Unused fees accrue based on the average daily amount of unused credit available on the Revolving Credit Facility.

Interest rate margins and unused fees are determined on a quarterly basis based upon the Company’s calculated leverage ratio, as defined in the Credit Agreement.

The Company’s interest rate for the Revolving Credit Facility for fiscal year 2021 ranged from 1.4 % to 2.7 %.

The Credit Agreement has certain covenants with which the Company must comply, including a fixed charge ratio covenant and a leverage ratio covenant.

We were in compliance with all loan covenants and requirements during fiscal years 2021 and 2020.

Our leverage ratio, as defined in the Credit Agreement, was 0.94 at March 27, 2021, compared with 1.53 at March 28, 2020.

Interest on the Revolving Credit Facility continues to accrue, at our election, at either the variable one-month London Interbank Offered Rate (“LIBOR”) or a fixed rate for a designated period at the LIBOR corresponding to such period, in each case, plus a margin.

Interest on outstanding borrowings of the 2018 Term Loan accrues at a fixed rate of 4.15% over the term of the loan with principal and interest payments made monthly.

Commitment fees accrue based on the average daily amount of unused credit available under the Credit Agreement.

Interest rate margins and commitment fees are determined on a quarterly basis based upon our calculated leverage ratio, as defined in the Credit Agreement.

The one-month LIBOR at March 28, 2020 was 1.0 %.

The Company’s interest rate for the Revolving Credit Facility during fiscal year 2020 ranged from 1.8% to 3.7%.

The Company has pledged all of its U.S.

tangible and intangible personal property, the equity interests of its U.S.

based subsidiaries, and a majority of the common stock of Transcat Canada Inc.

tangible and intangible personal property, the equity interests of its U.S.-based subsidiaries, and a majority of the common stock of Transcat Canada Inc.

as collateral security for the loans made under the Revolving Credit Facility.

NOTE 4 – INCOME TAXES

On December 22, 2017, the Tax Act was signed into law.

The Tax Act includes numerous changes to existing tax law, including a permanent reduction in the federal corporate income tax rate from 35% to 21%.

Since the Company is a fiscal year taxpayer, the lower corporate income tax rate was effective for fiscal years 2020 and 2019.

The Tax Act also caused the Company’s U.S.

deferred tax assets and liabilities to be re measured as of March 31, 2018 based on the rates at which they are expected to reverse, which is generally 21% plus the applicable state rates.

In addition, the Tax Act provided for a one- time “deemed repatriation” of accumulated foreign earnings for post-1986 undistributed foreign subsidiary earnings and profits through fiscal year 2018.

The Company finalized the additional provision for income tax expense on the deemed repatriation at less than $0.1 million with the filing of its fiscal year 2018 U.S.

federal income tax return.

No additional provision for U.S.

federal or foreign taxes has been made as the foreign subsidiary’s undistributed earnings are considered to be permane ntly reinvested.

It is not practicable to determine the amount of other taxes that would be payable if these amounts were repatriated to the U.S.

While the Tax Act provides for a territorial tax system, effective for tax years beginning after December 31, 2017, it includes the Global Intangible Low- Taxed Income (“GILTI”) and Foreign Derived Intangible Income (“FDII”) provisions.

The Company has elected to account for the GILTI tax in the period in which it is incurred.

NOTE 4 –

While the Tax Cuts and Jobs Act of 2017 provides for a territorial tax system, effective for tax years beginning after December 31, 2017, it includes the Global Intangible Low-Taxed Income (“GILTI”) and Foreign Derived Intangible Income (“FDII”) provisions.

The Company has elected to account for these provisions in the period in which incurred.

During fiscal years 2021 and 2020, the Company recorded net income tax benefits of less than $ 0.1 million each year as a result of these provisions.

Transcat ’ s income before income taxes on the Consolidated Statements of Income is as follows:

Foreign subsidiary’s undistributed earnings are considered to be permanently reinvested.

Transcat’s income before income taxes on the Consolidated Statements of Income is as follows:

United States

7 unchanged sentences

State Income Taxes, net of federal benefit

Research and Development Credits

Foreign Taxes and Federal, State and Foreign Tax Credits

Tax Impact of Equity Awards

The components of net deferred tax assets (liabilities) are as follows:

Deferred Tax Assets:

6 unchanged sentences

Stock-Based Compensation

Deferred Payroll Tax –

Capitalized Inventory Costs

9 unchanged sentences

federal income tax authorities for fiscal years 2017 and prior, by state tax authorities for fiscal years 2015 and prior, and by Canadian tax authorities for fiscal years 2014 and prior.

There are no income tax years currently under examination by U.S.

federal, or state income tax authorities.

The examination of the Company’s Scientific Research and Experimental Development credit reflected on its Canadian corporation income tax return for the period ended March 31, 2018 was concluded in fiscal year 2020, resulting in an assessment of less than $0.1 million.

There are no income tax years currently under examination by Canadian or state income tax authorities.

The fiscal year ended March 31, 2018 is currently under examination by the Internal Revenue Service.

A reserve of less than $ 0.1 million was recorded during the fiscal year ended March 27, 2021 relating to this examination.

During fiscal years 2021 and 2020, there were no uncertain tax positions.

No interest or penalties related to uncertain tax positions were recognized in fiscal years 2021 and 2020 or were accrued at March 27, 2021 and March 28, 2020.

The Company’s effective tax rate for fiscal years 2020 and 2019 was 17.1% and 22.6%, respectively.

Its tax rate is affected by recurring items, such as state income taxes and tax credits, which the Company expects to be fairly consistent in the near term.

The Company’s effective tax rate for fiscal years 2021 and 2020 was 21.9 % and 17.1 %, respectively.

The tax rate is affected by recurring items, such as state income taxes and tax credits, which the Company expects to be fairly consistent in the near term.

It is also affected by discrete items that may occur in any given year but are not consistent from year to year.

3 unchanged sentences

As such, it expects its effective tax rate in fiscal year 2022 to be between 20.0 % and 22.0 %.

NOTE 5 – EMPLOYEE BENEFIT PLANS

NOTE 5 –

EMPLOYEE BENEFIT PLANS

Defined Contribution Plan.

All of Transcat’s U.S.

based employees are eligible to participate in a defined contribution plan, the Long- Term Savings and Deferred Profit Sharing Plan (the “Plan”), provided they meet certain qualifications.

In fiscal years 2020 and 2019, the Company matched 50% of the first 6% of pay that eligible employees contribute to the Plan.

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.

All of Transcat’s U.S.

based employees are eligible to participate in a defined contribution plan, the Long-Term Savings and Deferred Profit Sharing Plan (the “Plan”), provided they meet certain qualifications.

In response to the COVID-19 pandemic, the Company suspended the employer match to the Plan for the first six months of fiscal year 2021.

In the second six months of fiscal year 2021, the Company matched 50 % of the first 6 % of pay that eligible employees contribute to the Plan.

In fiscal year 2020, the Company matched 50 % of the first 6 % of pay that eligible employees contribute to the Plan.

In the long-term savings portion of the Plan (the “401K Plan”), plan participants are entitled to a distribution of their vested account balance upon termination of employment or retirement.

Plan participants are fully vested in their contributions while Company contributions are fully vested after three years of service.

The Company’s matching contributions to the 401K Plan were approximately $0.9 million and $0.8 million in fiscal years 2020 and 2019, respectively.

The Company’s matching contributions to the 401K Plan were approximately $ 0.4 million and $ 0.9 million in fiscal years 2021 and 2020, respectively.

In the deferred profit sharing portion of the Plan, Company contributions are made at the discretion of the board of directors.

1 unchanged sentence

Employee Stock Purchase Plan.

The Company has an Employee Stock Purchase Plan (the “ESPP”) that allows for eligible employees as defined in the ESPP to purchase common shares of the Company through payroll deductions at a price that is 85% of the closing market price on the second last business day of each calendar month (the “Investment Date”).

The Company has an Employee Stock Purchase Plan (the “ESPP”) that allows for eligible employees as defined in the ESPP to purchase common shares of the Company through payroll deductions at a price that is 85 % of the closing market price on the second last business day of each calendar month (the “Investment Date”).

650,000 shares can be purchased under the ESPP.

2 unchanged sentences

Non-Qualified Deferred Compensation Plan.

The Company has available a non-qualified deferred compensation plan (the “NQDC Plan”) for directors and officers.

Participants are fully vested in their contributions.

2 unchanged sentences

Participant accounts are adjusted to reflect performance, whether positive or negative, of selected investment options chosen by each participant during the deferral period.

In the event of bankruptcy, the assets of the NQDC Plan are available to satisfy the claims of the Company’s general creditors.

The liability for compensation deferred under the NQDC Plan was $0.4 million and $0.5 million as of March 28, 2020 and March 30, 2019, respectively, and is included as a component of other liabilities (non-current) on the Consolidated Balance Sheets.

In the event of bankruptcy, the assets of the NQDC Plan are available to satisfy the claims of the Company’s general creditors.

The liability for compensation deferred under the NQDC Plan was $ 0.4 million as of both March 27, 2021 and March 28, 2020, and is included as a component of other liabilities (non-current) on the Consolidated Balance Sheets.

Post-retirement Health Care Plans.

The Company has a defined benefit post-retirement health care plan which provides long-term care insurance benefits, medical and dental insurance benefits and medical premium reimbursement benefits to eligible retired corporate officers and th eir eligible spouses (the “Officer Plan”).

The change in the post-retirement benefit obligation is as follows:

29 unchanged sentences

Benefit payments are funded by the Company as needed.

Payments toward the cost of a retiree’s medical and dental coverage are initially determined as a percentage of a base coverage plan in the year of retirement and are limited to increase at a rate of no more than 50% of the annual increase in medical and dental costs, as defined in the plan document.

Payments toward the cost of a retiree’s medical and dental coverage are initially determined as a percentage of a base coverage plan in the year of retirement and are limited to increase at a rate of no more than 50 % of the annual increase in medical and dental costs, as defined in the plan document.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:

1 unchanged sentence

A one percentage point decrease in the healthcare cost trend would decrease the accumulated post-retirement benefit obligation and the annual net periodic post-retirement benefit cost by $ 0.2 million.

NOTE 6 – STOCK-BASED COMPENSATION

The Company has a share-based incentive plan (the “ 2003 Plan ”) that provides for, among other awards, grants of restricted stock units and stock options to directors, officers and key employees at the fair market value at the date of grant.

NOTE 6 –

STOCK-BASED COMPENSATION

The Company has a share-based incentive plan (the “2003 Plan”) that provides for, among other awards, grants of restricted stock units and stock options to directors, officers and key employees at the fair market value at the date of grant.

At March 27, 2021, 0.9 million restricted stock units or stock options were available for future grant under the 2003 Plan.

4 unchanged sentences

Expense for restricted stock grants is recognized on a straight-line basis for the service period of the stock award based upon fair value of the award on the date of grant.

The fair value of the restricted stock grants is the quoted market price for the Company’s common stock on the date of gran t.

The fair value of the restricted stock grants is the quoted market price for the Company’s common stock on the date of grant.

These restricted stock units are either time vested or vest following the third fiscal year from the date of grant subject to cumulative diluted earnings per share targets over the eligible period.

Beginning in fiscal year 2020, the annual performance- based award for the Company’s non -employee directors was replaced with an annual grant of restricted stock units valued at $50,000 that vest after one year.

The restricted stock unit grants to non-employee directors were made in September 2019.

Beginning in fiscal year 2020, the annual performance-based award for the Company’s non-employee directors was replaced with an annual grant of restricted stock units valued at $ 50,000 that vest after one year.

The restricted stock unit grants to non-employee directors were made in September 2020 and September 2019.

Compensation cost ultimately recognized for performance-based restricted stock units will equal the grant date fair market value of the number of units that coincides with the actual outcome of the performance conditions.

1 unchanged sentence

The expense relating to the time vested restricted stock units is recognized on a straight-line basis over the requisite service period for the entire award.

During fiscal year 2020, 47,000 shares granted were time vested and 28,000 shares were subject to performance targets.

During fiscal year 2021, 80,000 shares granted were time vested.

During fiscal year 2020, 47,000 shares granted were time vested and 28,000 shares were subject to performance targets.

The following table summarizes the restricted stock units vested and shares issued during fiscal years 2021 and 2020 (amounts in thousands):

April 2015 – March 2018

June 2017 – May 2018

April 2018 – March 2019

April 2016 – March 2019

June 2017 – May 2019

October 2018 – September 2019

April 2018 –

April 2016 –

June 2017 –

October 2018 –

September 2019

April 2018 –

April 2017 –

September 2019

September 2019 –

September 2020

October 2018 –

September 2020

April 2018 –

The following table summarizes the non-vested restricted stock units outstanding as of March 27, 2021:

1 unchanged sentence

March 27, 2021

April 2017 – March 2020

79% of target level

April 2018 – March 2020

April 2018 – March 2021

April 2018 –

60 % of target level

April 2018 – March 2021

October 2018 – September 2027

April 2019 – March 2022

October 2018 –

September 2027

April 2019 –

65 % of target level

April 2019 – March 2022

August 2019 – July 2020

April 2019 –

August 2019 –

April 2020 –

July 2020 –

September 2020

September 2019 – September 2020

September 2020 –

September 2020

September 2020 –

September 2020

September 2020 –

September 2023

September 2020

September 2020 –

September 2021

January 2021 –

Total expense relating to restricted stock units, based on grant date fair value and the achievement criteria, was $ 1.4 million and $ 0.8 million in fiscal years 2021 and 2020, respectively.

1 unchanged sentence

Stock Options:

The Company grants stock options to employees and directors equal to the quoted market price of the Company’s stock at the date of the grant.

The fair value of stock options is estimated using the Black-Scholes option pricing formula that requires assumptions for expected volatility, expected dividends, the risk-free interest rate and the expected term of the option.

1 unchanged sentence

Options vest either immediately or over a period of up to five years using a straight-line basis and expire either five years or ten years from the date of grant.

During fiscal year 2020, the Company’s Board of Directors granted an option for 5,000 shares of common stock to a Company employee that vest over three years, and an option for 10,000 shares of common stock to a new member of the Board of Directors that vest over 5 years.

During fiscal year 2019, the Company’s Board of Directors granted stock options for 25,000 shares of common stock to Company employees.

5,000 shares pursuant to these options immediately vested.

20,000 shares pursuant to these options vest over five years.

The expense related to all stock option awards was $0.1 million in each of fiscal year 2020 and 2019.

The following table summarizes the Company’s options for fiscal years 2020 and 2019:

We calculate the value of the stock options granted using the Black-Scholes model.

We calculate expected volatility for stock options by taking an average of historical volatility over the expected term.

The computation of expected term was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards and vesting schedules.

The interest rate for periods within the contractual life of the award is based on the U.S.

Treasury yield in effect at the time of grant.

We assume no expected dividends.

During fiscal year 2021, the Company’s Board of Directors granted an option for 5,000 shares of common stock to a Company employee that vests over three years and an option for 15,000 shares of common stock to an employee that immediately vested.

During fiscal year 2020, the Company’s Board of Directors granted an option for 5,000 shares of common stock to a Company employee that vest over three years , and an option for 10,000 shares of common stock to a new member of the Board of Directors that vest over 5 years.

The expense related to all stock option awards was $ 0.1 million in each of fiscal years 2021 and 2020.

The following table summarizes the Company’s options for fiscal years 2021 and 2020:

Term (in Years)

3 unchanged sentences

Exercisable as of March 27, 2021

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 2020 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 28, 2020.

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 28, 2020 was $0.2 million, which is expected to be recognized over a period of five years.

The aggregate intrinsic value of stock options exercised in fiscal years 2020 and 2019 was $2.5 million and less than $0.1 million, respectively.

Cash received from the exercise of options in fiscal years 2020 and 2019 was $1.4 million and less than $0.1 million, respectively.

NOTE 7 – SEGMENT AND GEOGRAPHIC DATA

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 2021 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 27, 2021.

The amount of aggregate intrinsic value will change based on the fair market value of the Company’s stock.

Total unrecognized compensation cost related to non-vested stock options as of March 27, 2021 was $ 0.1 million, which is expected to be recognized over a period of three years.

The aggregate intrinsic value of stock options exercised in fiscal years 2021 and 2020 was $ 1.6 million and $ 2.5 million, respectively.

Cash received from the exercise of options in fiscal years 2021 and 2020 was $ 0.8 million and $ 1.4 million, respectively.

NOTE 7 –

SEGMENT AND GEOGRAPHIC DATA

Transcat has two reportable segments:

19 unchanged sentences

United States (4)

Operating expense allocations between segments are based on actual amounts, a percentage of revenues, headcount, and management’s estimates.

Including amortization of catalog costs and intangible assets.

1 unchanged sentence

United States includes Puerto Rico.

NOTE 8 – COMMITMENTS

NOTE 8 –

Transcat leases facilities, equipment, and vehicles under various non-cancelable operating leases.

As of March 27, 2021, the remaining lease terms on our operating leases range from approximately one year to less than ten years .

Renewal options not yet exercised and termination options are not reasonably certain of exercise by the Company.

There is no transfer of title or option to purchase the leased assets upon expiration.

The weighted average discount rate for both of the years ended March 27, 2021 and March 28, 2020 was 4.15 %.

The components of lease expense for the current and prior-year comparative periods were as follows:

Operating lease cost

Variable lease cost

Total lease cost

Supplemental cash flow information related to leases was as follows:

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flow from operating leases

Right to Use Assets obtained in exchange for lease liabilities

Total rental expense was approximately $ 3.8 million and $ 3.7 million in fiscal years 2021 and 2020, respectively.

1 unchanged sentence

Total minimum lease payments

Imputed interest

Present value of remaining lease payments

Effective December 2018, the Company has term loan repayments (principal plus interest) of $ 0.2 million per month through December 2025.

These amounts are not reflected in the table above.

NOTE 9 – BUSINESS ACQUISITIONS

NOTE 9 –

BUSINESS ACQUISITIONS

Effective December 16, 2020, Transcat acquired substantially all of the assets of BioTek Services, Inc.

(“BioTek”), a Virginia based provider of pipette calibration services.

This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service capabilities.

BioTek’s focus on pipettes complements the current offerings Transcat provides to the life science sector.

100% of the goodwill and intangible assets relating to the BioTek acquisition has been allocated to the Service segment.

Intangible assets related to the BioTek acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to 10 years and are deductible for tax purposes.

Amortization of goodwill related to the BioTek acquisition is deductible for tax purposes.

The total purchase price paid for the assets of BioTek was approximately $3.5 million.

$ 0.4 million of the purchase price has been put into escrow as a holdback for indemnification claims, if any.

The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of BioTek’s assets and liabilities acquired during the period presented:

Intangible Assets –

Customer Base & Contracts

Intangible Assets –

Covenant Not to Compete

Plus:       Current Assets

Non-Current Assets

Total Purchase Price

Effective, February 21, 2020 , Transcat acquired substantially all of the assets of TTE Laboratories, Inc.

(“TTE") a Boston, MA -based provider of pipette calibration services and equipment.

This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service capabilities.

TTE’s focus on pipettes complement s the current offerings Transcat provides to the life science sector.

The Company applies the acquisition method of accounting for business acquisitions.

The Company uses a valuation hierarchy, as further described under Fair Value of Financial Instruments in Note 1 above, and typically utilizes independent third-party valuation specialists to determine the fair values used in this allocation.

Purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition.

75% of the goodwill and intangible assets relating to the TTE acquisition has been allocated to the Service segment with the remaining 25% allocated to the Distribution segment.

Intangible assets related to the TTE acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to 10 years and are deductible for tax purposes.

Amortization of goodwill related to the TTE acquisition is deductible for tax purposes only.

The total purchase price paid for the assets of TTE was approximately $12.2 million.

(“TTE") a Boston, MA-based provider of pipette calibration services and equipment.

This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service capabilities.

TTE’s focus on pipettes complements the current offerings Transcat provides to the life science sector.

We will refer to TTE as “pipettes.com”.

75% of the goodwill and intangible assets relating to the pipettes.com acquisition has been allocated to the Service segment with the remaining 25% allocated to the Distribution segment.

Intangible assets related to the pipettes.com acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to 10 years and are deductible for tax purposes.

Amortization of goodwill related to the pipettes.com acquisition is deductible for tax purposes.

The total purchase price paid for the assets of pipettes.com was approximately $12.2 million.

$ 1.2 million of the purchase price has been put into escrow as a holdback for indemnification claims, if any.

The following is a preliminary summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of TTE’ s assets and liabilities acquired during the period presented:

Intangible Assets – Customer Base & Contracts

Intangible Assets – Covenant Not to Compete

Current Assets

The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of pipettes.com assets and liabilities acquired during the period presented.

Intangible Assets –

Customer Base & Contracts

Intangible Assets –

Covenant Not to Compete

Plus:       Current Assets

Non-Current Assets

Current Liabilities

Less:       Current Liabilities

Total Purchase Price

The results of acquired businesses are included in Transcat’s consolidated operating results as of the dates the businesses were acquired.

The following unaudited pro forma information presents the Company’s results of operations as if the acquisition of TTE had occurred at the beginning of fiscal year 2020 and fiscal year 2019.

The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the transaction had occurred at the beginning of the perio d presented or what the Company’s operating results will be in future periods.

The results of acquired businesses are included in Transcat’s consolidated operating results as of the dates the businesses were acquired.

The following unaudited pro forma information presents the Company’s results of operations as if the acquisitions of pipettes.com and BioTek had occurred at the beginning of fiscal year 2020.

The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the transactions had occurred at the beginning of the period presented or what the Company’s operating results will be in future periods.

Fiscal Years Ended

3 unchanged sentences

Effective July 19, 2019, Transcat acquired Infinite Integral Solutions Inc.

IIS, headquartered in Mississauga, Ontario, Canada, is the owner and developer of the CalTree™ suite of software solutions for the automation of calibration procedures and datasheet generation.

(“IIS”).

IIS, headquartered in Mississauga, Ontario, Canada, is the owner and developer of the CalTree™

suite of software solutions for the automation of calibration procedures and datasheet generation.

Total consideration for the shares of IIS was 1.4 million Canadian dollars, subject in part to the achievement of certain milestones.

1.0 million Canadian dollars was paid during fiscal year 2020 and is included as a business acquisition in the Consolidated Statement of Cash Flows.

1.0 million Canadian dollars was paid during fiscal year 2020 and was included as a business acquisition in the Consolidated Statement of Cash Flows.

1.0 million Canadian dollars has been allocated to software and property and equipment and 0.3 million Canadian has been allocated to goodwill.

Due to the immaterial amount of pre-acquisition revenue and expenses, no pro forma table of results has been presented.

Effective April 1, 2019, Transcat acquired substantially all of the assets of Gauge Repair Service (“ GRS ”), a California-based provider of calibration services.

This transaction leveraged the Company’s infrastructure while also increasing the depth and breadth of the Company’s service capabilities.

Effective April 1, 2019, Transcat acquired substantially all of the assets of Gauge Repair Service (“GRS”), a California-based provider of calibration services.

This transaction leveraged the Company’s infrastructure while also increasing the depth and breadth of the Company’s service capabilities.

Due to the immaterial amount of the purchase price of the GRS assets, it has been included in the purchases of property and equipment in the Consolidated Statement of Cash Flows.

Effective August 31, 2018, Transcat acquired substantially all of the assets of Angel’s Instrumentation, Inc.

(“Angel’s”), a Virginia-based provider of calibration services.

This transaction expanded the Company’s geographic reach while also increasing the depth and breadth of the Company’s service capabilities.

The Company applies the acquisition method of accounting for business acquisitions.

Purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition.

All of the goodwill and intangible assets relating to the Angel’s acquisition have been allocated to the Service segment.

Intangible assets related to the Angel’s acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to 10 years and are deductible for tax purposes.

Amortization of goodwill related to the Angel’s acquisition is deductible for tax purposes only.

The total purchase price paid for the assets of Angel’s was approximately $4.7 million, net of $0.1 million cash acquired.

The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Angel’s assets and liabilities acquired during the period presented:

Intangible Assets – Customer Base & Contracts

Intangible Assets – Covenant Not to Compete

Current Assets

Non-Current Assets

Current Liabilities

Total Purchase Price

Certain of the Company’s acquisition agreements, including Angel’s , include provisions for contingent consideration and other holdback amounts.

Certain of the Company’s acquisition agreements include provisions for contingent consideration and other holdback amounts.

The Company accrues for contingent consideration and holdback provisions based on their estimated fair value at the date of acquisition.

As of March 28, 2020, there were no unpaid contingent consideration or holdback amounts reflected in the Consolidated Balance Sheets.

$0.9 million of holdback amounts were paid during fiscal year 2020.

As of March 30, 2019, $0.4 million of contingent consideration and $0.5 million of other holdback amounts were unpaid and reflected in current liabilities on the Consolidated Balance Sheets.

During fiscal year 2019, $0.3 million of contingent consideration or other holdbacks were paid.

The results of acquired businesses are included in Transcat’s consolidated operating results as of the dates the businesses were acquir ed.

The following unaudited pro forma information presents the Company’s results of operations as if the acquisition of Angel’s had occurred at the beginning of fiscal year 2019.

The pro forma results do not purport to represent what the Company’s result s of operations actually would have been if the transaction had occurred at the beginning of the period presented or what the Company’s operating results will be in future periods.

Total Revenue

Basic Earnings Per Share

Diluted Earnings Per Share

Effective June 12, 2018, Transcat acquired substantially all of the assets of NBS Calibration, Inc.

(“NBS”), an Arizona- based provider of calibration services.

This transaction aligned with the Company’s acquisition strategy of targeting businesses that expand the Company’s geographic reach and leverage its infrastructure while also increasing the dept h and breadth of the Company’s service capabilities.

Due to the immaterial amount of the purchase price of the NBS assets, it has been included in the purchases of property and equipment, net, in the consolidated statement of cash flows.

As of March 27, 2021, there was no other holdback amounts unpaid and reflected in current liabilities on the Consolidated Balance Sheets.

During fiscal year 2021, acquisition costs of $ 0.1 million were recorded as incurred as general and administrative expenses in the Consolidated Statements of Income.

During fiscal year 2019, acquisition costs of less than $0.1 million were recorded as incurred as general and administrative expenses in the Consolidated Statements of Income.

NOTE 10 – QUARTERLY DATA (Unaudited)

NOTE 10 –

QUARTERLY DATA (Unaudited)

The following table presents a summary of certain unaudited quarterly financial data for fiscal years 2021 and 2020:

14 unchanged sentences

NOTE 11 SUBSEQUENT EVENT

Amendment Two extended the term of the Revolving Credit Facility to October 20, 2022 and increased the Revolving Credit Commitment to $40 million.

Amendment Two modified the definition of Applicable Rate used to determine interest charges on outstanding and unused borrowings under the revolving credit facility and it amended the definition of Permitted Acquisitions to amend borrowings available under the Revolving Credit Facility for Acquisitions.

In addition, Amendment Two amended the definition of Restricted Payments to exclude amounts up to $2.5 million during each fiscal year used to pay certain tax obligations and added certain restrictions to the Company’s ability to repurchase its shares and pay dividends.

Amendment Two modified the Leverage Ratio and Fixed Charge Coverage Ratio covenants with which the Company is required to comply and limited Capital Expenditures to $5.5 million for the fiscal year ending March 27, 2021.

Amendment Two also established a LIBOR floor of 1% and included a mechanism for adoption of a different benchmark rate in the event LIBOR is discontinued.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Effective April 29, 2021, Transcat acquired substantially all of the assets of Upstate Metrology Inc.

(“Upstate Metrology”), a New York based provider of calibration services.

This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service capabilities.

The total purchase price paid for the assets of Upstate Metrology was approximately $ 0.9 million.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data