10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: December 23, 2006

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
(State or other jurisdiction of incorporation or organization) 16-0874418
(I.R.S. Employer Identification No.)

35 Vantage Point Drive, Rochester, New York 14624
(Address of principal executive offices) (Zip Code)

(585) 352-7777
(Registrant’s telephone number, including area code)

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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o                    Accelerated filer o                     Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares of Common Stock, par value $0.50 per share, of the registrant outstanding as of January 19, 2007 was 6,952,850.

		Page(s)
PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements:
	Consolidated Statements of Operations and Comprehensive Income for the Third Quarter and Nine Months Ended December 23, 2006 and December 24, 2005		3
	Consolidated Balance Sheets as of December 23, 2006 and March 25, 2006		4
	Consolidated Statements of Cash Flows for the Nine Months Ended December 23, 2006 and December 24, 2005		5
	Consolidated Statements of Shareholders’ Equity for the Nine Months Ended December 23, 2006		6
	Notes to Consolidated Financial Statements		7-13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14-25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		26
Item 4.	Controls and Procedures		26
PART II.	OTHER INFORMATION
Item 6.	Exhibits		26
SIGNATURES			27
INDEX TO EXHIBITS			28
EX-10.2
EX-10.3
EX-31.1
EX-31.2
EX-32.1

2

TRANSCAT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In Thousands, Except Per Share Amounts)

	(Unaudited)					(Unaudited)
	Third Quarter Ended					Nine Months Ended
	December			December		December			December
	23, 2006			24, 2005		23, 2006			24, 2005
Product Sales	$	12,296		$	11,500	$	32,713		$	30,297
Service Sales		4,944			4,733		14,907			14,120
Net Sales		17,240			16,233		47,620			44,417
Cost of Products Sold		8,926			8,704		24,170			22,917
Cost of Services Sold		4,003			3,674		11,731			10,431
Total Cost of Products and Services Sold		12,929			12,378		35,901			33,348
Gross Profit		4,311			3,855		11,719			11,069
Selling, Marketing, and Warehouse Expenses		2,155			2,256		6,097			6,199
Administrative Expenses		1,403			1,178		4,013			3,607
Total Operating Expenses		3,558			3,434		10,110			9,806
Gain on TPG Divestiture		1,544			—		1,544			—
Operating Income		2,297			421		3,153			1,263
Interest Expense		84			98		268			321
Other Expense		145			34		265			130
Total Other Expense		229			132		533			451
Income Before Income Taxes		2,068			289		2,620			812
Provision for Income Taxes		861			—		1,050			—
Net Income		1,207			289		1,570			812
Other Comprehensive (Loss) Income		(239	)		12		(145	)		92
Comprehensive Income	$	968		$	301	$	1,425		$	904
Basic Earnings Per Share	$	0.17		$	0.04	$	0.23		$	0.12
Average Shares Outstanding		6,938			6,682		6,919			6,611
Diluted Earnings Per Share	$	0.16		$	0.04	$	0.21		$	0.11
Average Shares Outstanding		7,428			7,288		7,415			7,196

See accompanying notes to consolidated financial statements.

3

TRANSCAT, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Amounts)

	(Unaudited)
	December			March
	23, 2006			25, 2006
ASSETS
Current Assets:
Cash	$	138		$	115
Accounts Receivable, less allowance for doubtful accounts of $83 and $63 as of December 23, 2006 and March 25, 2006, respectively		7,863			7,989
Other Receivables		626			—
Finished Goods Inventory, net		4,145			3,952
Prepaid Expenses and Deferred Charges		1,046			732
Deferred Tax Asset		1,059			1,038
Total Current Assets		14,877			13,826
Property, Plant and Equipment, net		2,593			2,637
Assets Under Capital Leases, net		1			50
Goodwill		2,967			2,967
Prepaid Expenses and Deferred Charges		101			113
Deferred Tax Asset		727			1,624
Other Assets		266			271
Total Assets	$	21,532		$	21,488
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	4,417		$	4,219
Accrued Payrolls, Commissions, and Other		1,748			2,530
Income Taxes Payable		—			102
Current Portion of Term Loan		—			667
Capital Lease Obligations		3			56
Revolving Line of Credit		—			3,252
Total Current Liabilities		6,168			10,826
Term Loan, less current portion		—			353
Revolving Line of Credit		4,359			—
Deferred Compensation		116			118
Deferred Gain on TPG Divestiture		—			1,544
Postretirement Benefit Obligation		267			—
Total Liabilities		10,910			12,841
Shareholders’ Equity:
Common Stock, par value $0.50 per share, 30,000,000 shares authorized; 7,195,820 and 7,048,028 shares issued as of December 23, 2006 and March 25, 2006, respectively; 6,929,472 and 6,791,240 shares outstanding as of December 23, 2006 and March 25, 2006, respectively		3,598			3,524
Capital in Excess of Par Value		5,152			4,641
Warrants		329			329
Unearned Compensation		—			(15	)
Accumulated Other Comprehensive Gain		36			181
Retained Earnings		2,445			875
Less: Treasury Stock, at cost, 266,348 and 256,788 shares as of December 23, 2006 and March 25, 2006, respectively		(938	)		(888	)
Total Shareholders’ Equity		10,622			8,647
Total Liabilities and Shareholders’ Equity	$	21,532		$	21,488

See accompanying notes to consolidated financial statements.

4

TRANSCAT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

	(Unaudited)
	Nine Months Ended
	December			December
	23, 2006			24, 2005
Cash Flows from Operating Activities:
Net Income	$	1,570		$	812
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Deferred Income Taxes		975			—
Depreciation and Amortization		1,226			1,009
Provision for Returns and Doubtful Accounts Receivable		54			5
Provision for Slow Moving or Obsolete Inventory		52			6
Common Stock Expense		349			78
Amortization of Restricted Stock		38			35
Gain on TPG Divestiture		(1,544	)		—
Changes in Assets and Liabilities:
Accounts Receivable and Other Receivables		(537	)		306
Inventory		(245	)		299
Prepaid Expenses, Deferred Charges and Other		(721	)		(796	)
Accounts Payable		198			912
Accrued Payrolls, Commissions and Other		(777	)		(272	)
Income Taxes Payable		(102	)		(12	)
Net Cash Provided by Operating Activities		536			2,382
Cash Flows from Investing Activities:
Purchase of Property, Plant and Equipment		(709	)		(604	)
Net Cash Used in Investing Activities		(709	)		(604	)
Cash Flows from Financing Activities:
Revolving Line of Credit, net		1,107			(1,465	)
Payments on Term Loans		(1,020	)		(591	)
Payments on Capital Leases		(53	)		(48	)
Issuance of Common Stock		161			353
Net Cash Provided by (Used in) Financing Activities		195			(1,751	)
Effect of Exchange Rate Changes on Cash		1			5
Net Increase in Cash		23			32
Cash at Beginning of Period		115			106
Cash at End of Period	$	138		$	138
Supplemental Disclosures of Cash Flow Activity:
Cash paid during the period for:
Interest	$	278		$	326
Income Taxes	$	177		$	42
Supplemental Disclosure of Non-Cash Financing Activity:
Treasury Stock Acquired in Cashless Exercise of Stock Options	$	50		$	—
Non-Cash Issuance of Common Stock	$	109		$	63
Expiration of Warrants from Debt Retirement	$	—		$	101
Disposal of Fully Reserved Obsolete Inventory	$	—		$	93

See accompanying notes to consolidated financial statements.

5

TRANSCAT, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In Thousands)

(Unaudited)

					Capital
	Common Stock				In								Accumulated					Treasury Stock
	Issued				Excess								Other					Outstanding
	$0.50 Par Value				of Par					Unearned			Comprehensive			Retained		at Cost
	Shares		Amount		Value			Warrants		Compensation			Gain			Earnings		Shares		Amount			Total
Balance as of March 25, 2006		7,048	$	3,524	$	4,641		$	329	$	(15	)	$	181		$	875		257	$	(888	)	$	8,647
Issuance of Common Stock		128		64		147													9		(50	)		161
Reversal of Unearned Compensation Upon Adoption of SFAS 123R						(15	)				15													—
Stock Option Compensation						297																		297
Restricted Stock:
Issuance of Restricted Stock		20		10		44																		54
Amortization of Restricted Stock						38																		38
Comprehensive Income:
Currency Translation Adjustment														18										18
Unrecognized Prior Service Cost, net of tax														(163	)									(163	)
Net Income																	1,570							1,570
Balance as of December 23, 2006		7,196	$	3,598	$	5,152		$	329	$	—		$	36		$	2,445		266	$	(938	)	$	10,622

See accompanying notes to consolidated financial statements.

6

TRANSCAT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Per Share Amounts)

NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION

Description of Business: Transcat, Inc. (“Transcat” or the “Company”) is a leading distributor of professional grade test, measurement, and calibration instruments and a provider of calibration and repair services, primarily throughout the process, life science and manufacturing industries.

Basis of Presentation: Transcat’s unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, the Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation (consisting of normal recurring adjustments) have been included. The results for the interim periods are not necessarily indicative of the results to be expected for the fiscal year. The accompanying Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements as of and for the fiscal year ended March 25, 2006 (“fiscal year 2006”) contained in the Company’s 2006 Annual Report on Form 10-K filed with the SEC.

Principles of Consolidation: On December 11, 2006, the Company commenced the process of dissolving and liquidating its wholly owned subsidiary, metersandinstruments.com, Inc. Accordingly, the accounts of metersandinstruments.com, Inc. were absorbed by the Company. Because the subsidiary was inactive, the dissolution does not have an effect on the Consolidated Financial Statements.

Gain on TPG Divestiture: During the fiscal year ended March 31, 2002, the Company sold its interest in Transmation Products Group (“TPG”). As a result of certain post closing commitments, the Company deferred recognition of a $1.5 million gain on the sale. During the third quarter ended December 23, 2006, the Company satisfied those commitments and consequently realized the gain as a component of Operating Income in the accompanying Consolidated Financial Statements (see Note 7).

Recently Issued Accounting Pronouncements: In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN 48”), to clarify certain aspects of accounting for uncertain tax positions, including issues related to the recognition and measurement of those tax positions. This interpretation is effective for fiscal years beginning after December 15, 2006. The Company is in the process of evaluating the impact of the adoption of this interpretation on the Company’s results of operations and financial condition.

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Qualifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB 108 requires that public companies utilize a “dual-approach” to assessing the quantitative effects of financial misstatements. This dual approach includes both an income statement focused assessment and a balance sheet focused assessment. The guidance in SAB 108 must be applied to annual financial statements for fiscal years ending after November 15, 2006. The Company believes that the implementation of SAB 108 will not have a material effect on its Consolidated Financial Statements.

In September 2006, FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS 157 on its financial statements.

NOTE 2 – 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 dilutive stock options, warrants, and non-vested restricted stock awards. In computing the per share effect of assumed conversion, funds which would have been received from the exercise of options and warrants 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.

7

For the third quarter and the first nine months of the fiscal year ending March 31, 2007 (“fiscal year 2007”), the net additional common stock equivalents had a $.01 per share effect and a $.02 per share effect, respectively, on the calculation of dilutive earnings per share. For the third quarter and the first nine months of the fiscal year 2006, the net additional common stock equivalents had no effect and a $.01 per share effect, respectively, on the calculation of dilutive earnings per share. The total number of dilutive and anti-dilutive common stock equivalents resulting from stock options, warrants and non-vested restricted stock are summarized as follows:

	Third Quarter Ended				Nine Months Ended
	December		December		December		December
	23, 2006		24, 2005		23, 2006		24, 2005
Shares Outstanding:
Dilutive		491		606		496		585
Anti-dilutive		387		409		382		430
Total		878		1,015		878		1,015
Range of Exercise Prices per Share:
Options	$	0.80-$5.80	$	0.80-$4.52	$	0.80-$5.80	$	0.80-$4.52
Warrants	$	0.97-$5.80	$	0.97-$4.26	$	0.97-$5.80	$	0.97-$4.26

NOTE 3 – STOCK-BASED COMPENSATION

In June 2003, the Company adopted the Transcat, Inc. 2003 Incentive Plan (“2003 Plan”), which was approved by the Company’s shareholders in August 2003 and which was amended by the Company’s shareholders in August 2006 to permit directors to participate in the plan. The 2003 Plan replaced the Transcat, Inc. Amended and Restated 1993 Stock Option Plan (“1993 Plan”). The 918 shares that were outstanding as of the termination of the 1993 Plan were reserved for issuance under the 2003 Plan. The 2003 Plan provides for grants of options to directors, officers and key employees to purchase Common Stock at no less than the fair market value at the date of grant. Options generally vest over a period of up to four years and expire up to ten years from the date of grant. As of December 23, 2006, the Company had 762 stock options available for grant. There were 57 stock options granted during the nine months ended December 23, 2006. Compensation expense of $0.3 million related to stock options for the nine months ended December 23, 2006 has been recognized as a component of Administrative Expenses in the accompanying Consolidated Financial Statements.

Effective March 26, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”), which requires the Company to measure the cost of employee services received in exchange for all equity awards granted, including stock options, based on the fair market value of the award as of the grant date. SFAS 123R supersedes SFAS No. 123, Accounting for Stock-Based Compensation, and Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). The Company has adopted SFAS 123R using the modified prospective application method which requires the Company to record compensation cost related to unvested stock awards as of March 25, 2006 by recognizing the unamortized grant date fair value of these awards over the remaining service periods of those awards with no change in historical reported earnings. Awards granted after March 25, 2006 will be valued at fair value in accordance with the provisions of SFAS 123R and recognized on a straight line basis over the service periods of each award. Results for prior periods have not been restated. SFAS 123R also requires excess tax benefits from the exercise of stock options to be presented in the consolidated statements of cash flows as a financing activity rather than an operating activity, as presented prior to the adoption of SFAS 123R. Excess tax benefits are realized benefits from tax deductions for exercised options in excess of the deferred tax asset attributable to stock-based compensation costs for such options. The Company did not have any stock-based compensation costs capitalized as part of an asset. The Company estimated forfeiture rates for the first nine months of fiscal year 2007 based on its historical experience.

Prior to fiscal year 2007, the Company accounted for stock-based compensation in accordance with APB 25 using the intrinsic value method, which did not require that compensation cost be recognized for the Company’s stock options provided the option exercise price was equal to or greater than the common stock fair market value on the date of grant. Prior to fiscal year 2007, the Company provided pro forma disclosure amounts in accordance with SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure (“SFAS 148”), as if the fair value method defined in SFAS 123 had been applied to its stock-based compensation. The Company’s net income and net income per share for the nine months ended December 24, 2005 would have been reduced if compensation cost related to stock options had been recorded in the financial statements based on fair value at the grant dates.

8

The estimated fair value of the options granted during fiscal year 2007 and prior years was calculated using the Black-Scholes-Merton option pricing model (“Black-Scholes”). The following summarizes the assumptions used in the fiscal year 2007 Black-Scholes model:

Expected life	6 years
Annualized volatility rate		79% - 80	%
Risk-free rate of return		4.67% - 4.75	%
Dividend rate		0.0	%

The Black-Scholes model incorporates assumptions to value stock-based awards. The risk-free rate of return for periods within the contractual life of the option is based on a zero-coupon U.S. government instrument over the contractual term of the equity instrument. Expected volatility is based on historical volatility of the Company’s stock. The expected term of all options granted is estimated by taking the average of the weighted average vesting term and the contractual term, as illustrated in the SEC Staff Accounting Bulletin 107. This methodology is not materially different from the Company’s historical data on exercise timing. Separate groups of employees that have similar historical exercise behavior with regard to option exercise timing and forfeiture rates are considered separately for valuation and attribution purposes.

As a result of adopting SFAS 123R, Net Income included $0.2 million for stock-based compensation during the nine months ended December 23, 2006 and less than $0.1 million for stock-based compensation in the third quarter of fiscal year 2007. The impact on both basic and diluted earnings per share for the quarter ended December 23, 2006 was $.02 per share. For the nine months ended December 23, 2006, the impact on basic and diluted earnings per share was $.04 and $.03, respectively, per share. Pro forma net income as if the fair value based method had been applied to all stock option awards is as follows:

	Third Quarter Ended						Nine Months Ended
	December			December			December			December
	23, 2006			24, 2005			23, 2006			24, 2005
Net Income, as reported	$	1,207		$	289		$	1,570		$	812
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		44			45			248			113
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(44	)		(95	)		(248	)		(263	)
Pro Forma Net Income	$	1,207		$	239		$	1,570		$	662
Earnings Per Share:
Basic — as reported	$	0.17		$	0.04		$	0.23		$	0.12
Basic — pro forma	$	0.17		$	0.04		$	0.23		$	0.10
Average Shares Outstanding		6,938			6,682			6,919			6,611
Diluted — as reported	$	0.16		$	0.04		$	0.21		$	0.11
Diluted — pro forma	$	0.16		$	0.03		$	0.21		$	0.09
Average Shares Outstanding		7,428			7,288			7,415			7,196

As of December 23, 2006, the Company had $0.3 million of total unrecognized compensation cost related to stock options that is expected to be recognized over a weighted average period of approximately two years.

9

Option activity as of December 23, 2006 and changes during the nine months then ended were as follows:

						Weighted Average
	Number			Weighted		Remaining		Aggregate
	of			Average		Contractual		Intrinsic
	Shares			Price		Term (in years)		Value
Outstanding as of March 25, 2006		452		$	1.97
Add (Deduct):
Granted		57			5.69
Exercised		(85	)		1.02
Forfeited		(9	)		2.70
Outstanding as of December 23, 2006		415			2.67		5	$	1,168
Exercisable as of December 23, 2006		298		$	1.87		4	$	1,067

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 the third quarter of fiscal year 2007 and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all option holders exercised their options on December 23, 2006. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s stock.

The aggregate intrinsic value of stock options exercised during the nine months ended December 23, 2006 and December 24, 2005 was $0.4 million and $0.6 million, respectively. Cash receipts from the exercise of options were less than $0.1 million during the nine months ended December 23, 2006 and $0.3 million during the nine months ended December 24, 2005. The Company recognized an immaterial tax benefit in the nine months ended December 23, 2006 related to the exercise of employee stock options.

Compensation expense related to shares issued to the Company’s employees through the Employees’ Stock Purchase Plan was $8 for the nine months ended December 23, 2006.

NOTE 4 – DEBT

Description. On November 21, 2006, Transcat entered into a Credit Agreement (the “Chase Credit Agreement”) with JPMorgan Chase Bank, N.A. (“Chase”). The Chase Credit Agreement provides for a three-year revolving credit facility in the amount of $10 million (the “Revolving Credit Facility”). The Chase Credit Agreement replaced the Amended and Restated Loan and Security Agreement dated November 1, 2004, as further amended, (the “GMAC Credit Agreement”) with GMAC Commercial Finance LLC (“GMAC”), which was set to expire in October 2008.

The GMAC Credit Agreement consisted of two term loans in the amount of $1.5 million and $0.5 million, respectively, a revolving line of credit (having a maximum available amount of $9 million with availability determined by a formula based on eligible accounts receivable (85%) and inventory (50%)), and certain additional terms. Using funds drawn under the Revolving Credit Facility, Transcat paid GMAC an aggregate amount of $4.1 million to retire the GMAC Credit Agreement and the outstanding borrowings thereunder, which included the amounts due under the revolving line of credit, the two term loans and a termination premium of $48 (0.5% of the sum of $9 million plus the aggregate non-revolving loan balance).

Interest and Commitment Fees. Interest on the Revolving Credit Facility accrues, at Transcat’s election, at either a base rate (defined as the highest of prime, a three month certificate of deposit plus 1%, or the federal funds rate plus ¹/2 of 1%) (the “Base Rate”) or the London Interbank Offered Rate (“LIBOR”), in each case, plus a margin. Commitment fees accrue based on the average daily amount of unused credit available on the Revolving Credit Facility. Interest and commitment fees are adjusted on a quarterly basis based upon the Company’s calculated leverage ratio, as defined in the Chase Credit Agreement. The Base Rate and the LIBOR rates as of December 23, 2006 were 8.3% and 5.4%, respectively. The Company’s interest rate for the first nine months of fiscal year 2007, including interest associated with the GMAC Credit Agreement, ranged from 6.0% to 8.4%.

Covenants. The Chase Credit Agreement has certain covenants with which the Company has to comply, including a fixed charge ratio covenant and a leverage ratio covenant. The Company was in compliance with all loan covenants and requirements, including those of the GMAC Credit Agreement, throughout the first nine months of fiscal year 2007.

Loan Costs. In accordance with EITF Issue No. 98-14, Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements, costs associated with the Chase Credit Agreement are amortized over the term of the Credit Agreement. On November 21, 2006, unamortized costs associated with the GMAC Credit Agreement totaling $147, including the $48 termination premium, were written off and recorded as Other Expense in the Consolidated Financial Statements.

10

Other Terms. The Company has pledged all of its U.S. tangible and intangible personal property as collateral security for the loans made under the Revolving Credit Facility.

In accordance with EITF Issue No. 95-22, Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements that include both a Subjective Acceleration Clause and a Lock-Box Arrangement, the line of credit included in the GMAC Credit Agreement was classified as short-term in the accompanying Consolidated Financial Statements.

NOTE 5 – POSTRETIREMENT HEALTH CARE PLANS

During the third quarter ended December 23, 2006, the Company adopted 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 (“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 (“Officer Plan”).

The Company accounts for the plans in accordance with SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions (“SFAS 106”) and SFAS No. 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106 (“SFAS 132R”).

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (“SFAS 158”). SFAS 158 requires that employers recognize on a prospective basis the funded status of their defined benefit pension and other postretirement plans on their consolidated balance sheet and recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost. The Consolidated Financial Statements and the accompanying disclosures reflect the Company’s early adoption of SFAS 158.

The change in the postretirement benefit obligation from inception to December 23, 2006 is as follows:

Postretirement benefit obligation at inception	$	262
Service cost		3
Interest cost		2
Postretirement benefit obligation as of December 23, 2006		267
Fair value of plan assets as of December 23, 2006		—
Funded status as of December 23, 2006	$	(267	)
Accumulated postretirement benefit obligation as of December 23, 2006	$	267

The components of net periodic postretirement benefit cost and other amounts recognized in other comprehensive loss from inception to December 23, 2006 are as follows:

Net periodic postretirement benefit cost:
Service cost	$	3
Interest cost		2
		5
Benefit obligations recognized in other comprehensive loss:
Unrecognized prior service cost, net of tax		163
Total recognized in net periodic benefit cost and other comprehensive loss	$	168
Amount recognized in accumulated other comprehensive gain as of December 26, 2006:
Unrecognized prior service cost, net of tax	$	163

11

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 fourth quarter ending March 31, 2007 and for the fiscal year ending March 29, 2008 is $3 and $13, respectively.

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:

Weighted average discount rate	5.9%
Medical care cost trend rate	10% in 2007, gradually declining to 5% by the year 2017 and remaining at that level thereafter
Dental care cost trend rate	5% in 2007 and remaining at that level thereafter

Increasing the assumed health care cost trend rate by one percentage point would increase the accumulated postretirement benefit obligation by $41 at December 23, 2006, and the annual net periodic cost by $3. A one percentage point decrease in the healthcare cost trend would decrease the accumulated postretirement benefit obligation by $34 at December 23, 2006, and the annual net periodic cost by $2.

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
2007	$	1
2008		3
2009		5
2010		11
2011		16
2012 - 2016		129

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NOTE 6 – SEGMENT INFORMATION

Transcat has two reportable segments: Distribution Products (“Product”) and Calibration Services (“Service”). The Company has no inter-segment sales. The following table presents segment information for the third quarter and nine months ended December 23, 2006 and December 24, 2005:

	Third Quarter Ended						Nine Months Ended
	December			December			December			December
	23, 2006			24, 2005			23, 2006			24, 2005
Net Sales:
Product	$	12,296		$	11,500		$	32,713		$	30,297
Service		4,944			4,733			14,907			14,120
Total		17,240			16,233			47,620			44,417
Gross Profit:
Product		3,370			2,796			8,543			7,380
Service		941			1,059			3,176			3,689
Total		4,311			3,855			11,719			11,069
Operating Expenses:
Product		2,209			2,095			6,170			5,794
Service		1,349			1,339			3,940			4,012
Total		3,558			3,434			10,110			9,806
Operating Income (Loss):
Product		1,161			701			2,373			1,586
Service		(408	)		(280	)		(764	)		(323	)
Gain on TPG Divestiture		1,544			—			1,544			—
Total		2,297			421			3,153			1,263
Unallocated Amounts:
Other Expense (including interest)		229			132			533			451
Provision for Income Taxes		861			—			1,050			—
Total		1,090			132			1,583			451
Net Income	$	1,207		$	289		$	1,570		$	812

NOTE 7 – COMMITMENTS

Unconditional Purchase Obligation: In fiscal year 2002, in connection with the sale of TPG to Fluke Electronics Corporation (“Fluke”), the Company entered into a distribution agreement (“Distribution Agreement”) with Fluke. Under the Distribution Agreement, among other items, the Company agreed to purchase a pre-determined amount of inventory during each calendar year from 2002 to 2006. In December 2006, the Company’s purchases exceeded the required amount for calendar year 2006, as they had in each of the prior four years, which fulfilled the Company’s contractual purchase obligations to Fluke under the Distribution Agreement and triggered the recognition of the previously deferred gain totaling $1.5 million in the third quarter of fiscal year 2007.

By its terms, the Distribution Agreement was to terminate on December 31, 2006. In the normal course of business, the Company expects to enter into a new distribution agreement (“Future Agreement”) with Fluke. Until the Future Agreement is completed, Fluke has agreed to extend the Distribution Agreement through March 31, 2007, but with no minimum product purchase requirements.

NOTE 8 – VENDOR CONCENTRATION

Approximately 28% of Transcat’s product purchases on an annual basis are from Fluke, which is believed to be consistent with Fluke’s share of the markets the Company serves.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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. Therefore, our actual results may materially differ from those expressed or forecasted 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.

Rounding. Certain percentages may vary depending on the basis used for the calculation, such as dollars in thousands or dollars in millions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Revenue Recognition: Sales are recorded when products are shipped or services are rendered to customers, as we generally have no significant post delivery obligations, our prices are fixed and determinable, collection of the resulting receivable is probable, and returns are reasonably estimated. Provisions for customer returns are provided for in the period the related sales are recorded based upon historical data. We recognize the majority of our service revenue based upon when the calibration or repair activity is performed 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. Our shipments are generally free on board shipping point and our customers are generally invoiced for freight, shipping, and handling charges.

Accounts Receivable: Accounts receivable represent receivables from customers in the ordinary course of business. These amounts are recorded net of the allowance for doubtful accounts and returns in our Consolidated Balance Sheets. The allowance for doubtful accounts is based upon the expected collectibility of accounts receivable. We apply a specific formula to our accounts receivable aging, which may be adjusted on a specific account basis where the specific 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 sales over a specific timeframe. The returns reserve will increase or decrease as a result of changes in the level of sales and/or the historical rate of returns.

Stock Options: Effective March 26, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”), which requires us to measure the cost of employee services received in exchange for all equity awards granted including stock options based on the fair market value of the award as of the grant date. SFAS 123R supersedes SFAS No. 123, Accounting for Stock-Based Compensation and Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). We have adopted SFAS 123R using the modified prospective application method which requires us to record compensation cost related to unvested stock awards as of March 25, 2006 by recognizing the unamortized grant date fair value of these awards over the remaining service periods of those awards with no change in historical reported earnings. Awards granted after March 25, 2006 are valued at fair value in accordance with the provisions of SFAS 123R and recognized on a straight line basis over the service periods of each award. Results for prior periods have not been restated. SFAS 123R also requires excess tax benefits from the exercise of stock options to be presented in the consolidated statements of cash flows as a financing activity rather than an operating activity, as presented prior to the adoption of SFAS 123R. Excess tax benefits are realized benefits from tax deductions for exercised options in excess of the deferred tax asset attributable to stock-based compensation costs for such options. We did not have any stock-based compensation costs capitalized as part of an asset. We estimated forfeiture rates for the first nine months of fiscal year 2007 based on our historical experience.

Off-Balance Sheet Arrangements: We do not maintain any off-balance sheet arrangements.

14

RESULTS OF OPERATIONS

The following table sets forth, for the third quarter and first nine months of fiscal years 2007 and 2006, the components of our Consolidated Statements of Operations (calculated on dollars in thousands).

	(Unaudited)						(Unaudited)
	Third Quarter Ended						Nine Months Ended
	December			December			December			December
	23, 2006			24, 2005			23, 2006			24, 2005
As a Percentage of Net Sales:
Product Sales		71.3	%		70.8	%		68.7	%		68.2	%
Service Sales		28.7	%		29.2	%		31.3	%		31.8	%
Net Sales		100.0	%		100.0	%		100.0	%		100.0	%
Product Gross Profit		27.4	%		24.3	%		26.1	%		24.4	%
Service Gross Profit		19.0	%		22.4	%		21.3	%		26.1	%
Total Gross Profit		25.0	%		23.7	%		24.6	%		24.9	%
Selling, Marketing, and Warehouse Expenses		12.5	%		13.9	%		12.8	%		14.0	%
Administrative Expenses		8.1	%		7.3	%		8.4	%		8.1	%
Total Operating Expenses		20.6	%		21.2	%		21.2	%		22.1	%
Gain on TPG Divestiture		9.0	%		—	%		3.2	%		—	%
Operating Income		13.4	%		2.5	%		6.6	%		2.8	%
Interest Expense		0.5	%		0.6	%		0.6	%		0.7	%
Other Expense		0.8	%		0.2	%		0.6	%		0.3	%
Total Other Expense		1.3	%		0.8	%		1.2	%		1.0	%
Income Before Income Taxes		12.1	%		1.7	%		5.4	%		1.8	%
Provision for Income Taxes		5.0	%		—	%		2.2	%		—	%
Net Income		7.1	%		1.7	%		3.2	%		1.8	%

15

THIRD QUARTER ENDED DECEMBER 23, 2006 COMPARED TO THIRD QUARTER ENDED DECEMBER 24, 2005 (dollars in millions):

Sales:

	Third Quarter Ended
	December		December
	23, 2006		24, 2005
Net Sales:
Product	$	12.3	$	11.5
Service		4.9		4.7
Total	$	17.2	$	16.2

Net sales increased $1.0 million or 6.2% (calculated on dollars in millions) from the third quarter of fiscal year 2006 to the third quarter of fiscal year 2007.

Our distribution products net sales results, which accounted for 71.3% of our sales in the third quarter of fiscal year 2007 and 70.8% of our sales in the third quarter of fiscal year 2006 (calculated on dollars in thousands), reflect improved year-over-year customer response to our sales and marketing activities and increased sales in our indirect channel of distribution. Our fiscal years 2007 and 2006 product sales in relation to prior fiscal year quarter comparisons, is as follows (calculated on dollars in millions):

	FY 2007									FY 2006
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Product Sales Growth		7.0	%		5.3	%		11.7	%		4.0	%		16.2	%		13.3	%		5.6	%

In the third quarter of fiscal year 2007, our direct channel grew at 7.3% (calculated on dollars in thousands) year-over-year. This is in line with our strategic expectations. In addition, we experienced continued double-digit growth in our indirect channel, primarily from high-volume electrical and instrumentation wholesalers, which caused a shift in our mix by distribution channel. Government sales continued to decrease as a result of less aggressive quoting on government orders, while increasing the government channel gross profit percent by 6.8 points. The following table provides the percentage of net sales and the approximate gross profit percentage for significant product distribution channels for the third quarter of fiscal years 2007 and 2006 (calculated on dollars in thousands):

	FY 2007 Third Quarter						FY 2006 Third Quarter
	Percent of			Gross			Percent of			Gross
	Net Sales			Profit % (1)			Net Sales			Profit % (1)
Direct		84.8	%		26.0	%		84.5	%		25.8	%
Government		1.0	%		6.8	%		3.1	%		0.0	%
Indirect		14.2	%		13.7	%		12.4	%		14.2	%
Total		100.0	%		24.0	%		100.0	%		23.6	%

(1) Calculated at net sales less purchase costs divided by net sales.

16

Customer product orders include orders for products that we routinely stock in our inventory, customized products, and other products ordered less frequently, which we do not stock. Unshippable product orders are primarily backorders, but also include products that are requested to be calibrated in our calibration laboratories prior to shipment, orders required to be shipped complete, and orders required to be shipped at a future date. Our total unshippable product orders for the third quarter of fiscal year 2007 were $0.8 million higher than the third quarter of fiscal year 2006. This was mainly a result of an increase in the number of large product orders being placed by customers. Larger orders are often shipped across multiple months and cause a temporary increase in backorders as we await the receipt of the goods from our suppliers or stagger shipments to customers based on an agreed upon delivery schedule. These orders were also the key driver of the increase in the percentage of unshippable product orders that are backorders. The following table reflects the percentage of total unshippable product orders that are backorders at the end of each fiscal quarter and our historical trend of total unshippable product orders (calculated on dollars in millions):

	FY 2007									FY 2006
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Total Unshippable Orders	$	2.1		$	2.1		$	1.4		$	1.4		$	1.3		$	1.5		$	1.3
% of Unshippable Orders that are Backorders		90.5	%		90.5	%		78.6	%		92.9	%		84.6	%		72.1	%		78.7	%

Calibration services net sales increased $0.2 million, or 4.3% (calculated on dollars in millions), from the third quarter of fiscal year 2006 to the third quarter of fiscal year 2007. This increase is attributable entirely to our acquisition of NWCI during the fourth quarter of fiscal year 2006. In addition, within any quarter, while we may add new customers, we may also have customers from the prior year whose calibrations may not repeat during the same quarter for any number of factors. Among those factors are the variations in the timing of customer periodic calibrations on equipment and repair services, customer capital expenditures and customer outsourcing decisions. Our fiscal year 2007 third quarter calibration services sales in relation to prior fiscal year quarter comparisons, is as follows (calculated on dollars in millions):

	FY 2007									FY 2006
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Service Sales Growth		4.3	%		6.4	%		6.4	%		0.0	%		11.9	%		11.9	%		6.8	%

Gross Profit:

	Third Quarter Ended
	December		December
	23, 2006		24, 2005
Gross Profit:
Product	$	3.4	$	2.8
Service		0.9		1.1
Total	$	4.3	$	3.9

Gross profit increased as a percent of net sales from 23.7% in the third quarter of fiscal year 2006 to 25.0% in the third quarter of fiscal year 2007 (calculated on dollars in thousands).

Product gross profit increased $0.6 million, or 21.4% (calculated on dollars in millions) from the third quarter of fiscal year 2006 to the third quarter of fiscal year 2007, primarily attributable to the 7.0% (calculated on dollars in millions) increase in product net sales and approximately $0.4 million in additional vendor rebates and cooperative advertising income. Vendor rebates and cooperative advertising income can vary from quarter to quarter, depending on our inventory purchases and marketing initiatives. As a percentage of product net sales, product gross profit increased 3.3 points (calculated on dollars in millions) from the third quarter of fiscal year 2006 to the third quarter of fiscal year 2007. The $0.4 million in incremental vendor rebates and cooperative advertising accounted for 3.5 points of this improvement (calculated on dollars in millions). The balance was primarily attributable to a reduction in our discount rates extended to customers within our direct channel and a reduction in our overall sales to the government channel, which are typically at low profit margins. The product net sales growth in our indirect distribution channel, which typically supports lower margins, partially offset the improvement in the product gross profit percentage.

17

Our product gross profit can be impacted by a number of factors that influence quarterly comparisons. Among those factors are sales to certain channels that do not support the margins of our core customer base, periodic rebates on purchases discussed above, and cooperative advertising received from suppliers reported as a reduction of cost of sales in accordance with Emerging Issues Task Force Issue No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor (“EITF 02-16”). The following table reflects the quarterly historical trend of our product gross profit as a percent of net sales (calculated on dollars in millions):

	FY 2007									FY 2006
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Product Gross Profit % (1)		24.0	%		23.7	%		22.1	%		23.1	%		23.9	%		22.6	%		22.8	%
Other Income (Expense) % (2)		3.6	%		1.6	%		3.6	%		-0.2	%		0.4	%		1.9	%		1.7	%
Product Gross Profit %		27.6	%		25.3	%		25.7	%		22.9	%		24.3	%		24.5	%		24.5	%

(1)	Calculated at net sales less purchase costs divided by net sales.
(2)	Includes vendor rebates, cooperative advertising income, freight billed to customers, freight expenses, and direct shipping costs.

Calibration services gross profit decreased $0.2 million or 5.0 points (calculated on dollars in millions) from the third quarter of fiscal year 2006 to the third quarter of fiscal year 2007. This decrease is primarily due to increases in our operating costs along with relatively flat revenue (exclusive of incremental NWCI sales). The following table reflects the quarterly historical trend of our calibration services gross profit as a percent of net sales (calculated on dollars in millions):

	FY 2007									FY 2006
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Service Gross Profit %		18.4	%		22.0	%		24.0	%		29.1	%		23.4	%		27.7	%		27.7	%

Operating Expenses:

	Third Quarter Ended
	December		December
	23, 2006		24, 2005
Operating Expenses:
Selling, Marketing, and Warehouse	$	2.2	$	2.3
Administrative		1.4		1.2
Total	$	3.6	$	3.5

Operating expenses increased $0.1 million, or 2.9% (calculated on dollars in millions), from the third quarter of fiscal year 2006 to the third quarter of fiscal year 2007. Operating expenses as a percent of total net sales decreased from 21.2% in the third quarter fiscal year 2006 to 20.6% in the third quarter fiscal year 2007 (calculated on dollars in thousands). Selling, marketing, and warehouse expenses decreased $0.1 million due to our continuing efforts to control spending, while achieving the above mentioned 6.2% overall sales growth. Administrative expenses increased $0.2 million from the third quarter of fiscal year 2006 to the third quarter of fiscal year 2007. The increase was primarily attributable to an increase in employee-related expenses and the expensing of stock options pursuant to SFAS 123(R).

18

Gain on TPG Divestiture:

	Third Quarter Ended
	December		December
	23, 2006		24, 2005
Gain on TPG Divestiture	$	1.5	$	—

This one-time gain represents the recognition of a previously deferred gain on the sale of Transmation Products Group (“TPG”) to Fluke Electronics Corporation, which occurred in fiscal year 2002. Although the sale of TPG occurred in fiscal year 2002, we were precluded from recognizing the gain at that time because we had entered into a distribution agreement with Fluke in connection with the transaction that required us to purchase a pre-determined amount of inventory during each calendar year from 2002 to 2006. In December 2006, our purchases exceeded the required amount for calendar year 2006, as they had in each of the prior four years, which fulfilled our contractual purchase obligations under the distribution agreement and triggered the recognition of the gain in the third quarter of fiscal year 2007.

Other Expense:

	Third Quarter Ended
	December		December
	23, 2006		24, 2005
Other Expense:
Interest Expense	$	0.1	$	0.1
Other Expense		0.1		—
Total	$	0.2	$	0.1

Interest expense was consistent from the third quarter of fiscal year 2006 to the third quarter of fiscal year 2007. Other expense increased $0.1 million from the third quarter of fiscal year 2006 to the third quarter of fiscal year 2007, primarily attributable to expenses incurred as part of our debt refinancing arrangements (see Note 4 of the Consolidated Financial Statements for additional information).

Taxes:

	Third Quarter Ended
	December		December
	23, 2006		24, 2005
Provision for Income Taxes	$	0.9	$	—

In the third quarter of fiscal year 2007, we recognized a $0.9 million provision for income taxes of which, approximately $0.6 million relates to taxes associated with the gain on the sale of TPG. In the third quarter of fiscal year 2006, we did not recognize any provision for income taxes as the current provision for income taxes was offset by a reduction in our deferred tax asset valuation allowance.

19

NINE MONTHS ENDED DECEMBER 23, 2006 COMPARED TO NINE MONTHS ENDED DECEMBER 24, 2005 (dollars in millions):

Sales:

	Nine Months Ended
	December		December
	23, 2006		24, 2005
Net Sales:
Product	$	32.7	$	30.3
Service		14.9		14.1
Total	$	47.6	$	44.4

Net sales for the first nine months of fiscal year 2007 increased $3.2 million or 7.2% (calculated on dollars in millions) from the first nine months of fiscal year 2006.

Our distribution products net sales results, which accounted for 68.7% of our net sales in the first nine months of fiscal year 2007 and 68.2% of our net sales in the first nine months of fiscal year 2006 (calculated on dollars in thousands), reflect improved year-over-year customer response to our sales and marketing activities.

Sales growth in both our direct and indirect channels has accounted for the $2.4 million, or 7.9% (calculated on dollars in millions) increase in distribution products net sales for the first nine months of fiscal year 2007 compared to the first nine months of fiscal year 2006. We anticipate that our indirect channel’s growth rate and percent of total product sales will decline as we focus sales efforts on those customers generating higher profit margins. Sales within our government channel have continued to decrease as a result of less aggressive quoting of low margin government orders, while generating higher profit margins. Our fiscal years 2007 and 2006 product net sales in relation to prior fiscal year first nine months comparisons, is as follows (calculated on dollars in millions):

	FY 2007 Nine Months						FY 2006 Nine Months
	Percent of			Gross			Percent of			Gross
	Net Sales			Profit % (1)			Net Sales			Profit % (1)
Direct		83.4	%		25.6	%		84.8	%		25.3	%
Government		0.9	%		4.5	%		2.4	%		0.7	%
Indirect		15.7	%		12.9	%		12.8	%		13.8	%
Total		100.0	%		23.4	%		100.0	%		23.2	%

(1) Calculated at net sales less purchase costs divided by net sales.

Calibration services net sales increased $0.8 million, or 5.7% (calculated on dollars in millions), from the first nine months of fiscal year 2006 to the first nine months of fiscal year 2007. This increase is attributable entirely to our acquisition of NWCI during the fourth quarter of fiscal year 2006. In addition, within any nine month period, while we may add new customers, we may also have customers from the prior year whose calibrations may not repeat during the same period for any number of factors. Among those factors are the variations in the timing of customer periodic calibrations on equipment and repair services, customer capital expenditures and customer outsourcing decisions.

20

Gross Profit:

	Nine Months Ended
	December		December
	23, 2006		24, 2005
Gross Profit:
Product	$	8.5	$	7.4
Service		3.2		3.7
Total	$	11.7	$	11.1

Gross profit decreased as a percent of net sales from 24.9% in the first nine months of fiscal year 2006 to 24.6% in the first nine months of fiscal year 2007 (calculated on dollars in thousands).

Product gross profit increased $1.1 million, or 14.9% (calculated on dollars in millions) from the first nine months of fiscal year 2006 to the first nine months of fiscal year 2007, primarily because of the above mentioned 7.9% (calculated on dollars in millions) increase in product net sales and approximately $0.6 million in incremental vendor rebates and cooperative advertising income. Vendor rebates and cooperative advertising income can vary from year to year, depending on our inventory purchases and marketing initiatives. As a percent of product net sales, product gross profit increased 1.7 points (calculated on dollars in thousands) from the first nine months of fiscal year 2006 to the first nine months of fiscal year 2007, primarily attributable to the above mentioned $0.6 million increase in rebates and cooperative advertising income achieved in the first nine months of fiscal year 2007. Improvement to our product gross profit percent as a result of a reduction in our discount rates extended to our customers within our direct channel was offset by sales growth in our indirect distribution channel, which typically supports lower gross profit margin percentages.

Our product gross profit can be impacted by a number of factors that influence year over year comparisons. Among those factors are sales to certain channels that do not support the margins of our core customer base, periodic rebates on purchases discussed above, and cooperative advertising received from suppliers reported as a reduction of cost of sales in accordance with EITF 02-16.

Calibration services gross profit decreased $0.5 million or 4.8 points (calculated on dollars in thousands) from the first nine months of fiscal year 2006 to the first nine months of fiscal year 2007. This decrease is primarily due to increases in our calibration laboratory operating costs, despite relatively flat year over year revenue (exclusive of incremental NWCI sales). Expense increases are primarily due to employee-related expenses as well as rent and depreciation increases in support of expanding our lab capabilities. These increases were partially offset by incremental service gross profit generated from our acquisition of NWCI.

Operating Expenses:

	Nine Months Ended
	December		December
	23, 2006		24, 2005
Operating Expenses:
Selling, Marketing, and Warehouse	$	6.1	$	6.2
Administrative		4.0		3.6
Total	$	10.1	$	9.8

Operating expenses increased $0.3 million, or 3.1% (calculated on dollars in millions), from the first nine months of fiscal year 2006 to the first nine months of fiscal year 2007. This was primarily attributable to the expensing of stock options in accordance with Statement of Financial Accounting Standards 123R, which we adopted in the first quarter of fiscal year 2007. Despite this increase, operating expenses as a percent of total net sales decreased from 22.1% in the first nine months of fiscal year 2006 to 21.2% in the first nine months of fiscal year 2007 (calculated on dollars in thousands). Selling, marketing, and warehouse expenses decreased $0.1 million due to our continued efforts to control spending, while achieving the above mentioned 7.2% overall sales growth. Administrative expenses, including $0.3 million of stock option expense, increased $0.4 million from the first nine months of fiscal year 2006 to the first nine months of fiscal year 2007.

21

Gain on TPG Divestiture:

	Nine Months Ended
	December		December
	23, 2006		24, 2005
Gain on TPG Divestiture	$	1.5	$	—

This one-time gain represents the recognition of a previously deferred gain on the sale of Transmation Products Group (“TPG”) to Fluke Electronics Corporation, which occurred in fiscal year 2002. Although the sale of TPG occurred in fiscal year 2002, we were precluded from recognizing the gain at that time because we had entered into a distribution agreement with Fluke in connection with the transaction that required us to purchase a pre-determined amount of inventory during each calendar year from 2002 to 2006. In December 2006, our purchases exceeded the required amount for calendar year 2006, as they had in each of the prior four years, which fulfilled our contractual purchase obligations under the distribution agreement and triggered the recognition of the gain in the first nine months of fiscal year 2007.

Other Expense:

	Nine Months Ended
	December		December
	23, 2006		24, 2005
Other Expense:
Interest Expense	$	0.3	$	0.3
Other Expense		0.3		0.1
Total	$	0.6	$	0.4

Interest expense was consistent from the first nine months of fiscal year 2006 to the first nine months of fiscal year 2007 as reductions in debt levels were offset by increasing interest rates. Other expense increased $0.2 million from the first nine months of fiscal year 2006 to the first nine months of fiscal year 2007, primarily attributable to expenses incurred as part of our debt refinancing arrangements (see Note 4 of the Consolidated Financial Statements for additional information).

Taxes:

	Nine Months Ended
	December		December
	23, 2006		24, 2005
Provision for Income Taxes	$	1.1	$	—

In the first nine months of fiscal year 2007 we recognized a $1.1 million provision for income taxes of which, approximately, $0.6 million relates to taxes associated with the gain on the sale of TPG. In the first nine months of fiscal year 2006, we did not recognize any provision for income taxes as the current provision for income taxes was offset by a reduction in our deferred tax asset valuation allowance.

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LIQUIDITY AND CAPITAL RESOURCES

Cash Flows. The following table is a summary of our Consolidated Statements of Cash Flows (in thousands):

	Nine Months Ended
	December			December
	23, 2006			24, 2005
Cash (Used in) Provided by:
Operating Activities	$	536		$	2,382
Investing Activities		(709	)		(604	)
Financing Activities		195			(1,751	)

Operating Activities: Cash provided by operating activities for the first nine months of fiscal year 2007 was $0.5 million, a decrease of nearly $1.9 million (calculated on millions of dollars) when compared to the $2.4 million of cash provided by operating activities in the first nine months of fiscal year 2006. This is attributable to $0.8 million less cash provided via receivables reductions, primarily due to a $0.6 million increase in other receivables for the first nine months of fiscal year 2007 compared to a $0.1 million decrease in other receivables during the first nine months of fiscal year 2006. The $0.6 million dollar increase in fiscal year 2007 reflects vendor rebates and cooperative advertising income due to Transcat as of the end of the third quarter. Inventory levels increased by $0.2 million in the first nine months of fiscal year 2007 compared to a $0.3 million decrease in the first nine months of fiscal year 2006. Despite this increase, as shown in the table below, inventory levels are $1.5 million lower at December 23, 2006 than December 24, 2005. Cash provided by increases in accounts payable was $0.7 million less in the first nine months of fiscal year 2007 compared to the first nine months of fiscal year 2006 due to the timing of vendor payments for inventory. Also, approximately $0.5 million more in cash was used to reduce accrued payrolls and commissions in the first nine months of fiscal year 2007 compared to the first nine months of fiscal year 2006. These items were partially offset by an approximately $0.8 million increase in net income in the first nine months of fiscal year 2007 compared to the first nine months of fiscal year 2006. Significant working capital fluctuations were as follows:

• Inventory/Accounts Payable: Inventory of $4.1 million on December 23, 2006 is $0.1 million higher than fiscal year 2006 year-end inventory on March 25, 2006 and $1.5 million less than the inventory level on December 24, 2005. The year-over-year decrease is due to refined inventory ordering models and increased focus on maintaining lower inventory levels. Our $1.1 million decrease in accounts payable, as the following table illustrates (dollars in millions), is primarily the result of the timing of outstanding checks clearing and reduced inventory purchases:

	December		December
	23, 2006		24, 2005
Accounts Payable	$	4.4	$	5.5
Inventory, net	$	4.1	$	5.6
Accounts Payable/Inventory Ratio		1.07		0.98

• Receivables: Accounts receivable decreased by $0.1 million to $7.9 million at December 23, 2006 from $8.0 million at December 24, 2005 despite a $0.7 million increase in sales during the last two months of the fiscal year 2007 third quarter when compared to the last two months of the fiscal year 2006 third quarter. Improved collection efforts resulted in a three day year-over-year improvement in our DSO, as the following table illustrates (dollars in millions):

	December		December
	23, 2006		24, 2005
Net Sales, for the last two fiscal months	$	12.1	$	11.4
Accounts Receivable, net	$	7.9	$	8.0
Days Sales Outstanding (based on 60 days)		39		42

Investing Activities: The $0.7 million of cash used in investing activities during the first nine months of fiscal year 2007, which was $0.1 million (calculated on millions of dollars) more than the first nine months of fiscal year 2006, was primarily for capital expenditures within our calibration laboratories and to enhance the capabilities of our external website.

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Financing Activities: The $0.9 million decrease in our overall debt, as shown in the table below, is the result of the $2.6 million of cash provided by operating activities during the last three months of fiscal year 2006 and the first nine months of fiscal year 2007 used to repay and refinance our debt. See Note 4 to our Consolidated Financial Statements for further information regarding our debt.

	December		December
	23, 2006		24, 2005
Term Debt	$	—	$	1.2
Revolving Line of Credit		4.4		4.0
Capital Lease Obligations		—		0.1
Total Debt	$	4.4	$	5.3

Debt. On November 21, 2006, we entered into a Credit Agreement (the “Chase Credit Agreement”) with JPMorgan Chase Bank, N.A. The Chase Credit Agreement provides for a three-year revolving credit facility in the amount of $10 million. The Chase Credit Agreement replaced our Amended and Restated Loan and Security Agreement (the “GMAC Credit Agreement”) with GMAC Commercial Finance LLC.

The Chase Credit Agreement has certain covenants with which we must comply, including a fixed charge ratio covenant and a leverage ratio covenant. We were in compliance with all loan covenants and requirements, including those of the GMAC Credit Agreement, throughout fiscal year 2006 and the first nine months of fiscal year 2007. We expect to meet the covenants on an on-going basis.

See Note 4 of our Consolidated Financial Statements for more information on our debt. See Item 3, Quantitative and Qualitative Disclosures about Market Risk, of this report for a discussion of interest rates on our debt.

Unconditional Purchase Obligation: In fiscal year 2002, in connection with the sale of TPG to Fluke Electronics Corporation (“Fluke”), we entered into a distribution agreement (“Distribution Agreement”) with Fluke. Under the Distribution Agreement, among other items, we agreed to purchase a pre-determined amount of inventory during each calendar year from 2002 to 2006. In December 2006, our purchases exceeded the required amount for calendar year 2006, as they had in each of the prior four years, which fulfilled our contractual purchase obligations to Fluke under the Distribution Agreement and triggered the recognition of the previously deferred gain totaling $1.5 million in the third quarter of fiscal year 2007.

By its terms, the Distribution Agreement was to terminate on December 31, 2006. In the normal course of business, we expect to enter into a new distribution agreement (“Future Agreement”) with Fluke. Until the Future Agreement is completed, Fluke has agreed to extend the Distribution Agreement through March 31, 2007, but with no minimum product purchase requirements.

Exclusive Distribution Agreement: In accordance with the Distribution Agreement, we operated as the exclusive worldwide distributor of Transmation and Altek products. During 2006, we entered into a new agreement with Fluke (“New Agreement”), effective for the calendar year 2007, to continue as the exclusive worldwide distributor of Transmation and Altek products. The New Agreement is distinct from the Future Agreement. Our exclusivity under the New Agreement is conditioned on meeting certain minimum purchase requirements of Transmation and Altek products.

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OUTLOOK

We anticipate that the fourth quarter of our fiscal year 2007 will be strong, reflecting normal seasonality and fourteen weeks of sales (as compared with thirteen weeks of sales in our fourth quarter of fiscal year 2006). We expect that our year-over-year growth in Distribution Products sales to direct customers should continue into the fourth quarter of fiscal year 2007 and that sales through our indirect sales channels may decline as we focus on improving our gross profit percentage for that channel.

Enhancements to our sales processes and our sales incentive plan are designed to generate organic growth in Calibration Services and we expect to see a positive result from these activities in the fourth quarter of fiscal year 2007.

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ITEM 3. 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. On December 23, 2006 and December 24, 2005, we had no hedging arrangements in place to limit our exposure to upward movements in interest rates.

Under our Chase Credit Agreement described in Note 4 of our Consolidated Financial Statements, interest is adjusted on a quarterly basis based upon our calculated leverage ratio. The base rate, as defined in the Chase Credit Agreement, and the London Interbank Offered Rate (“LIBOR”) as of December 23, 2006 were 8.3% and 5.4%, respectively. Our interest rate for the first nine months of fiscal year 2007, including interest associated with the GMAC Credit Agreement, ranged from 6.0% to 8.4%.

FOREIGN CURRENCY

Approximately 91% of our sales were denominated in United States dollars with the remainder denominated in Canadian dollars for the nine months ended December 23, 2006 and December 24, 2005. A 10% change in the value of the Canadian dollar to the United States dollar would impact our 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. On December 23, 2006 and December 24, 2005, we had no hedging arrangements in place to limit our exposure to foreign currency fluctuations.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. Our Chairman and Chief Executive Officer (our principal executive officer) and our Vice President of Finance and Chief Financial Officer (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 quarterly report. Based on this evaluation, our Chairman and Chief Executive Officer and our Vice President of Finance and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date.

(b) 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 quarterly report (our third fiscal quarter) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS

See Index to Exhibits.

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SIGNATURES

     Pursuant to the requirements 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: February 6, 2007	/s/ Carl E. Sassano
	Carl E. Sassano
	Chairman and Chief Executive Officer
Date: February 6, 2007	/s/ John J. Zimmer
	John J. Zimmer
	Vice President of Finance and Chief Financial Officer

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INDEX TO EXHIBITS

(10)	Material Contracts
	10.1	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 the Company’s Current Report on Form 8-K dated November 21, 2006.
	10.2	Transcat, Inc. Post-Retirement Benefit Plan for Officers
	10.3	Transcat, Inc. Post-Retirement Benefit Plan for Non-Officer Employees
(31)	Rule 13a-14(a)/15d-14(a) Certifications
	31.1	Certification of Chief Executive Officer
	31.2	Certification of Chief Financial Officer
(32)	Section 1350 Certifications
	32.1	Section 1350 Certifications

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EX-10.2

Transcat Inc. Post-Retirement Benefit Plan
For Officers

Introduction

The Transcat Inc. Post-Retirement Benefit Plan for Officers (the “Plan”) is a group health plan that provides benefits to eligible retired Corporate Officers and their eligible spouses. There are three kinds of benefits provided under the Plan: (i) long term care insurance coverage; (ii) medical and dental insurance coverage; and (iii) medical premium reimbursement benefits. In this document, Transcat Inc. is referred to as the “Company.”

This document, together with the subscriber contracts and coverage certificates issued by the insurance carriers and health maintenance organizations (“HMO”) through which coverage is provided, is the summary plan description of the Plan. This document, together with the subscriber contracts and coverage certificates, is also considered the written instrument for the Plan for purposes of Section 402(a)(1) of the Employee Retirement Income Security Act of 1974 (“ERISA”).

The Plan is effective December 23, 2006.

Eligibility Requirements

Corporate Officer Eligibility. Corporate Officers who retire from active employment with the Company on or after December 23, 2006 at age 55 or older with 5 or more years of continuous service and who do not work in any full-time employment (as defined below) after retirement are eligible to participate in the Plan. In this document, a Corporate Officer who retires and is eligible to participate in the Plan may also be referred to as a “Retiree.”

For purposes of eligibility to participate in the Plan, an individual will be considered a Corporate Officer if the individual has the title of Vice President or higher or is the Corporate Controller.

Years of continuous service means an individual’s most recent period of continuous, uninterrupted employment with the Company on or after the date the individual reaches age 50. Service prior to age 50 does not count as years of service for purposes of determining eligibility to participate in the Plan. An employee is considered to be employed by the Company during any period of absence for which the employee is paid his or her regular compensation or receives short-term disability benefits under a Company-sponsored plan and during any other Company-authorized paid or unpaid leave of absence, provided that the employee returns to active employment with the Company at the expiration of such period of absence.

A Retiree will be considered to be working in full-time employment after retirement if the Retiree regularly works 30 or more hours per week at a job at which the Retiree is eligible for medical benefits. The Company, in its sole discretion, will determine whether an individual is working in such full-time employment after retirement for purposes of determining eligibility to participate in the Plan. As a condition to participating in the Plan, a Retiree is required to report to the Company when the Retiree begins working in full-time employment (as defined above) after retirement. If the Company determines that a Retiree has commenced full-time employment after retirement and has not reported such employment to the Company, the Retiree will cease to be eligible to participate in the Plan and may be required to reimburse the Company for the cost of any benefits (including premiums paid for long term care coverage, dental and

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medical coverage and premium reimbursement payments) provided during the period the Retiree was working in full-time employment.

Spousal Eligibility. A Retiree’s spouse is eligible for benefits under the Plan as described in more detail below and subject to the following:

1)	the spouse and Retiree must be legally married under the law of the State in which they reside;
2)	a spouse who becomes the spouse of a Retiree after the date the Retiree retires from the Company is not eligible for benefits under the Plan;
3)	long term care coverage is not available to a spouse who is not the original spouse with respect to whom the Company provided long term care coverage on or after the date the Corporate Officer reached age 55 with 5 years of service;
4)	long term care coverage is not available to a spouse who becomes the spouse of a Corporate Officer after the Corporate Officer’s long term care coverage began.

A Retiree’s spouse who is eligible for benefits under the terms of the Plan is referred to as an “Eligible Spouse.”

No Guarantee of Coverage. Eligibility for medical and dental coverage and for long term care coverage is subject to the eligibility provisions contained in the subscriber contracts and coverage certificates through which benefits are provided under the Plan. In the event that an insurance carrier or HMO through which coverage is provided determines that a retiree or spouse is not eligible for that coverage under a contract with the carrier or HMO, the individual shall not be eligible for that coverage under the Plan. The Company does not guarantee that coverage will be available to a Retiree or Eligible Spouse under any carrier or HMO contract, or that a Retiree or Eligible Spouse will be eligible to obtain any individual coverage.

Description of Benefits

Long Term Care Insurance Coverage. During active employment, the Company provides long term care insurance coverage for Corporate Officers who reach age 55 and have 5 years of qualifying service with the Company. An actively employed eligible Corporate Officer may enroll the Officer’s spouse in long term care insurance coverage on the date the Officer is first eligible for coverage. Once a Corporate Officer has enrolled a spouse in long term care insurance coverage, no subsequent spouse of that Corporate Officer may be enrolled in long term care insurance coverage through the Company.

The long term care insurance coverage benefit under this Plan consists of the continuation of the Company’s payment of the premium for the long term care insurance coverage that commenced at the time the Officer first qualified for coverage. The Company’s payment for coverage continues through the end of the ten year period measured from the commencement of long term care insurance coverage, provided that the Company may at any time elect to fully pay up a

2

Retiree’s and/or Eligible Spouse’s policy prior to the end of the ten year period. The long term care insurance coverage will be provided under individual insurance policies owned by the Retiree and Eligible Spouse. Such policies will be designed to be fully paid up policies after ten years of premium payments. Eligibility for coverage under a policy is subject to the discretion of the insurance carrier through which coverage is provided and the Company does not guarantee that any Retiree or Eligible Spouse will qualify for coverage. In the event that a Retiree’s or Eligible Spouse’s long term care insurance policy is terminated solely due to the Company’s failure to pay the required premium payments during the ten year period and, before the Company has acquired a comparable replacement policy, the Retiree or Eligible Spouse incurs expenses that would have been covered under the terminated policy, the Company will pay the benefits that would have been payable under the terminated policy if it had remained in effect.

Example: Corporate Officer continues in active employment after reaching age 55 with 5 years of service. Long term care coverage for the Officer and the Officer’s spouse begins during active employment when the Officer reaches age 55. The Officer retires from the Company at age 58. Long term care coverage commences immediately (continues) upon retirement under the Plan and, subject to the terms of the Plan, the Company pays the premiums for the Officer’s and Eligible Spouse’s coverage until the Officer reaches age 65, the end of the ten year period that began when coverage commenced.

Medical and Dental Insurance Coverage. Company subsidized medical and dental insurance coverage benefits are provided under the Plan to eligible Retirees and their Eligible Spouses beginning when the Retiree reaches age 60. A Retiree who retires prior to reaching age 60 may elect to purchase medical and dental coverage under this Plan for the Retiree and Eligible Spouse until subsidized coverage begins at age 60 by paying 100% of the applicable premium for coverage, subject to the insurance carrier’s determination that the Retiree and Eligible Spouse are eligible for coverage. To the extent possible, medical and dental coverage under this Plan shall be provided through the same insurance contract through which such coverage is provided to active employees of the Company. Benefits are provided under contracts with insurance carriers and HMOs and are fully described in the subscriber contract or coverage certificate issued to the Retiree and/or spouse upon enrollment. The Company does not pay or otherwise guarantee any of the benefits under the contracts with the insurance carriers or HMOs. The subscriber contracts or coverage certificates are considered part of the summary plan description for the Plan.

A Retiree who retires prior to reaching age 60 and is not enrolled for medical and/or dental benefits at the time the Retiree reaches age 60, must contact the Company at least 90 days in advance of the Retiree’s 60^th birthday to request enrollment material and must complete and return the appropriate enrollment forms on a timely basis (as specified in the enrollment information) in order for coverage to be effective on the first coverage entry date on or after the Retiree’s 60^th birthday (subject to the insurance carrier’s determination as to eligibility and effective date of coverage). Subsidized coverage for an Eligible Spouse who reaches age 60 prior to the date the Retiree reaches age 60 cannot begin until the Retiree reaches age 60. An Eligible Spouse may not be enrolled for medical or dental insurance coverage under the Plan unless the Retiree is enrolled for such coverage under the Plan or is eligible for medical premium reimbursements, as described below.

Example: Corporate Officer retires from the Company immediately upon reaching age 55 with 5 years of service. The Officer does not elect to purchase coverage under the Plan. The Officer

3

must notify the Company 90 days prior to the Officer’s 60^th birthday that the Officer wishes to enroll for medical and dental coverage under the Plan effective as of the Officer’s 60^th birthday. If the Officer completes and returns the enrollment material in a timely manner and the insurance carrier(s) and/or HMO(s) approve the enrollment, Company subsidized medical and dental coverage will commence on the first coverage entry date on or after the Officer’s 60^th birthday. Even if the Officer’s Eligible Spouse reached age 60 prior to the Officer reaching age 60, subsidized coverage for the Eligible Spouse would not begin until the Officer reached age 60.

Subsidized medical insurance coverage for a Retiree under the Plan terminates when the Retiree reaches age 65. Subsidized medical insurance coverage for the Eligible Spouse of a Retiree terminates when the Eligible Spouse reaches age 65, provided, however, that if the Retiree reaches age 65 before the Eligible Spouse reaches age 65, the amount of the Company’s contribution toward the cost of an Eligible Spouse’s subsidized medical insurance coverage will be reduced at the time the Retiree reaches age 65, as described below.

Subsidized dental insurance coverage for a Retiree and Eligible Spouse continues after the date the Retiree and Eligible Spouse reach age 65, subject to the terms of the Plan.

Example 1: Corporate Officer retires from the Company at age 60 with 10 years of service. The Officer’s Eligible Spouse is age 63 at the time the Officer retires. Medical and dental coverage for the Officer and Eligible Spouse begin immediately upon the Officer’s retirement. The Eligible Spouse’s subsidized medical insurance coverage terminates on the Eligible Spouse’s 65^th birthday and the Eligible Spouse becomes eligible for medical insurance premium reimbursements (described below). The Eligible Spouse is responsible for taking steps to obtain individual medical insurance coverage. The Officer’s medical insurance coverage continues until the Officer reaches age 65, subject to the terms of the Plan. The Officer’s and Eligible Spouse’s subsidized dental insurance coverage continues subject to the terms of the Plan.

Example 2: Corporate Officer retires from the Company at age 63 with 13 years of service. The Officer’s Eligible Spouse is age 61 at the time the Officer retires. Medical and dental coverage for the Officer and Eligible Spouse begin immediately upon the Officer’s retirement. The Officer’s subsidized medical insurance coverage terminates on the Officer’s 65^th birthday. The Eligible Spouse is age 63 on the Officer’s 65^th birthday and remains eligible for continued subsidized medical insurance coverage (at a reduced Company contribution rate beginning on the date of the Officer’s 65^th birthday, as described below) until the Eligible Spouse reaches age 65, at which time the Eligible Spouse’s subsidized medical insurance coverage terminates and the Eligible Spouse becomes eligible for medical insurance premium reimbursements (described below). The Officer’s and Eligible Spouse’s subsidized dental insurance coverage continues subject to the terms of the Plan.

The Company will contribute toward the cost of coverage up to a maximum “capped” amount determined by the Company. The capped amount applicable to a Retiree or Eligible Spouse beginning in the first year in which the Retiree or Eligible Spouse is eligible for subsidized medical and dental insurance coverage is based on the capped amount that was in effect for the year in which the Retiree retired, or, in the case of an Officer who had satisfied the eligibility requirements to participate in the Plan but died before retiring, the capped amount in effect for the year in which the Officer died, increased by 3% each year beginning after the year in which the Officer retired or died. The capped amount is equal to 72% of the applicable premium for

4

one-person or two-person coverage under a base coverage plan determined by the Company for the year in which the Retiree retires. For Retirees who retire in 2007, the base plan used for determining the Company contribution amount is the Preferred Care TriVantage plan for medical coverage and the Business Council of New York State Dental Plan for dental coverage. For Retirees who retire in 2007, the maximum monthly Company contribution is equal to $230.48 for Retiree-only medical insurance coverage, $518.57 for Retiree and Eligible Spouse medical insurance coverage, $20.28 for Retiree-only dental insurance coverage and $58.14 for Retiree and Eligible Spouse dental insurance coverage. The base plans selected by the Company for purposes of determining the Company contribution amount may change from year to year in the discretion of the Company, but will be plans that provide benefits at a substantially comparable level to the benefits provided under the Preferred Care TriVantage plan and the Business Council of New York State Dental Plan. The Company’s contribution toward the cost of coverage for a Retiree and/or Eligible Spouse will increase to reflect any increase in the cost of the base plan coverage, but the increase in the Company’s contribution for any year will not exceed 3%.

Example: Officer 1 is not married and retires from the Company in 2007 at age 63 with 13 years of service. Medical and dental coverage for Officer 1 begins immediately and the Company contribution toward the cost of coverage is equal to$230.48 per month for medical insurance coverage and $20.28 per month for dental insurance coverage. The 2007 Company contribution amounts represent 72% of $320.11, the monthly cost for one-person medical coverage under the base medical plan and 72% of $28.17, the monthly cost for one-person coverage under the base dental plan.

Officer 2 is not married and retires from the Company in 2008 at age 63 with 13 years of service. Medical and dental coverage for Officer 2 begins immediately. For 2008, assume that the monthly cost for one-person coverage under the base medical plan is $400 and the monthly cost for one-person coverage under the base dental plan is $45. For Officer 2, the Company contribution toward the cost of coverage is equal to $288 per month for medical insurance coverage (72% of $400) and $32.40 for dental insurance coverage (72% of $45). For Officer 1, the Company contribution toward the cost of coverage for 2008 is equal to $237.39 for medical insurance coverage and $20.89 for dental insurance coverage. The reason for the difference in the Company’s contribution toward the cost of coverage for Officer 1 and Officer 2 in 2008 is that the increase in the Company’s contribution toward the cost of coverage for Officer 1 in 2008 is limited by the 3% cap on increases.

In the event that an Eligible Spouse remains eligible for subsidized medical insurance coverage after the date the Retiree reaches age 65 (see Example 2 above), the amount of the Company’s contribution toward the cost of medical insurance coverage for the Eligible Spouse will be reduced beginning on the date the Retiree reaches age 65. The reduced contribution amount is an amount equal to the maximum medical premium reimbursement the Retiree is eligible to receive, as described below in the “Medical Premium Reimbursements” section.

The Retiree and/or Eligible Spouse are required to pay any additional cost of coverage over and above the amount paid by the Company. If the coverage option selected costs less than the applicable maximum monthly Company contribution, the Company contribution will be equal to the cost of the coverage selected. The Company will not pay the Retiree or Eligible Spouse the difference between the cost of coverage selected and the maximum monthly Company contribution. Nor will the Company pay any amount to a Retiree or Eligible Spouse who is

5

eligible for but does not elect coverage under the Plan. The Retiree’s and/or Eligible Spouse’s contributions toward the cost of coverage must be paid on a timely basis as specified by the Company. If required contributions are not paid on a timely basis, coverage may be terminated.

Example: Corporate Officer retires from the Company in 2007 at age 63 with 10 years of service. Officer’s Eligible Spouse is age 58 at the time the Officer retires. The cap amounts applicable for Officers who retire in 2007 are $230.48 for Retiree-only medical insurance coverage, $518.57 for Retiree and Eligible Spouse medical insurance coverage, $20.28 for Retiree-only dental insurance coverage and $58.14 for Retiree and Eligible Spouse dental insurance coverage. The medical and dental coverage for the Officer and Eligible Spouse begin immediately upon the Officer’s retirement and the Officer and Eligible Spouse are covered under two-person medical and two-person dental coverage. The maximum Company monthly contribution toward the cost of their coverage during 2007 is $518.57 for medical insurance coverage and $58.14 for dental insurance coverage. Assume that for 2008 and 2009, the total cost of medical and dental insurance coverage increases by 10% each year, so the amount of the increase in the Company’s contribution for the Officer and Spouse is 3% each year. For 2008, the maximum Company monthly contribution cap amounts for the Officer and Eligible Spouse increase by 3% to $534.13 and $59.88 and increase by 3% again for 2009 to $550.15 and $61.68. The Officer reaches age 65 in 2009. The Eligible Spouse is age 60 at that time.

The Officer’s subsidized medical insurance coverage terminates at age 65 and the Officer becomes eligible for medical insurance premium reimbursements (described below). The Officer is responsible for taking steps to obtain individual medical insurance coverage. The Eligible Spouse’s subsidized medical insurance coverage may continue (at the reduced Company contribution amount, which is equal to the amount of the Retiree’s premium reimbursement, as described below) until the date the Eligible Spouse reaches age 65. When the Eligible Spouse reaches age 65, the Eligible Spouse’s subsidized medical insurance coverage terminates and the Eligible Spouse becomes eligible for medical insurance premium reimbursements. The Eligible Spouse is responsible for taking steps to obtain individual medical insurance coverage.

Medical Premium Reimbursements. When a Retiree reaches age 65, the Retiree is eligible for limited reimbursement from the Company of premiums paid by the Retiree for an individual policy of medical insurance coverage purchased by the Retiree. Such medical premium reimbursements are available to the Eligible Spouse of an age 60 or older Retiree when the Eligible Spouse reaches age 65. The Retiree and/or Eligible Spouse is responsible for obtaining such policies of individual insurance.

Example 1: Corporate Officer retires from the Company at age 60 with more than 5 years of service. The Officer’s Eligible Spouse is age 64 at the time the Officer retires. Immediately upon retirement, medical and dental insurance coverage begins for the Officer and Eligible Spouse. The Eligible Spouse reaches age 65 and the Eligible Spouse’s medical insurance coverage under the Plan terminates. The Eligible Spouse is responsible for obtaining individual medical insurance coverage and the Eligible Spouse becomes eligible for medical premium reimbursements (in the amount described below) for individual medical insurance coverage purchased by the Eligible Spouse. The Officer’s medical insurance coverage under the Plan continues, subject to the terms of the Plan, until the Officer reaches age 65, at which point the Officer’s medical insurance coverage under the Plan terminates and the Officer becomes eligible

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for medical premium reimbursements. Dental coverage continues subject to the terms of the Plan.

Example 2: Corporate Officer retires from the Company at age 62 with more than 5 years of service. The Officer’s Eligible Spouse is age 54 at the time the Officer retires. Immediately upon retirement, medical and dental insurance coverage begins for the Officer and Eligible Spouse. When the Officer reaches age 65, the Officer’s medical insurance coverage under the Plan terminates and the Officer is responsible for obtaining individual medical insurance coverage and becomes eligible for medical premium reimbursements (in the amount described below) for individual medical insurance coverage purchased by the Officer. The Eligible Spouse may continue to receive subsidized medical insurance under the Plan (at the reduced Company contribution amount beginning when the Officer reaches age 65) until the Eligible Spouse reaches age 65. When the Eligible Spouse reaches age 65, the Eligible Spouse’s medical insurance coverage terminates and the Eligible Spouse is responsible for obtaining individual medical insurance coverage and becomes eligible for medical premium reimbursements (in the amount described below) for individual medical insurance coverage purchased by the Eligible Spouse. As described above, although the Eligible Spouse’s subsidized medical insurance coverage continues until the Eligible Spouse reaches age 65 (subject to the terms of the Plan), the amount of the Company’s contribution toward the cost of the Eligible Spouse’s medical insurance coverage is reduced beginning on the date the Officer reaches age 65. Dental coverage continues subject to the terms of the Plan.

The maximum amount of reimbursement available to a Retiree or Eligible Spouse for any month is a “capped” amount determined by the Company. The capped amount applicable to a Retiree or Eligible Spouse beginning in the year when the Retiree or Eligible Spouse reaches age 65 is based on the capped amount that was in effect for the year in which the Retiree retired, or, in the case of an Officer who had satisfied the eligibility requirements to participate in the Plan but died before retiring, the capped amount in effect for the year in which the Officer died, increased by 3% each year beginning after the year in which the Officer retired or died.

Example: Corporate Officer retires from the Company in 2007 at age 60 with 10 years of service. In 2007, when the Officer retires, the capped amount for medical premium reimbursements is $53.28 (as described below). Medical and dental coverage for the Officer begins immediately upon the Officer’s retirement. When the Officer reaches age 65 in 2012, the Officer’s medical insurance coverage terminates and the Officer is responsible for obtaining individual medical insurance coverage and becomes eligible for medical insurance premium reimbursements. The maximum monthly reimbursement amount for the Officer in 2012 is $61.78, determined by increasing the $53.28 capped amount 3% each year after 2007.

The capped amount is equal to 72% of the applicable premium for a base Medicare supplemental coverage plan determined by the Company. For Retirees who retire in 2007, the maximum reimbursement amount is $53.28 per month per individual, which is equal to 72% of $74, the 2007 monthly premium for the Excellus Medicare Blue Choice HMO Optimum Plan, the base plan selected by the Company for 2007. The maximum monthly reimbursement amount will be adjusted on an annual basis, but in no case will the amount of the maximum monthly reimbursement amount for an individual increase by more than 3% over the preceding year’s maximum monthly reimbursement amount. The base Medicare supplemental plan selected by the Company for purposes of determining the maximum reimbursement amount may change

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from year to year in the discretion of the Company, but will be a plan that provides benefits at a substantially comparable level to the benefits provided under the Excellus Medicare Blue Choice HMO Optimum Plan.

If a Retiree or Eligible Spouse purchases coverage that costs more than the maximum reimbursement amount available under the Plan, the Retiree or Eligible Spouse is responsible for paying the additional cost of coverage over and above the maximum reimbursement amount. If the coverage purchased by a Retiree or Eligible Spouse costs less than the applicable maximum monthly reimbursement amount, the reimbursement from the Plan will be equal to the cost of the coverage. The Plan will not reimburse the excess of the maximum monthly reimbursement over the actual cost of coverage.

A Retiree or Eligible Spouse may claim reimbursement on an annual or periodic basis (not more frequently than quarterly) for premiums paid by the individual for coverage. The individual claiming reimbursement must provide the Company with adequate verification of the premium payments for which he or she is claiming reimbursement.

Example: Corporate Officer retires from the Company in 2007 at age 60 with 10 years of service. In 2007 when the Officer retires, the capped amount for medical premium reimbursements is $53.28. The Officer’s Eligible Spouse is age 63 at the time the Officer retires. Medical and dental coverage for the Officer and Eligible Spouse begin immediately upon the Officer’s retirement. When the Eligible Spouse reaches age 65 in 2009, the Eligible Spouse’s medical insurance coverage terminates and the Eligible Spouse is responsible for obtaining individual medical insurance coverage and becomes eligible for medical insurance premium reimbursements. The maximum monthly reimbursement amount for the Eligible Spouse in 2009 is $56.53.

Surviving Spouse Benefits

The surviving spouse of a Retiree or of an Officer who had satisfied the eligibility requirements to participate in the Plan but died before retiring is eligible for surviving spouse benefits as described below. An eligible surviving spouse is referred to as a “Surviving Spouse.”

Long Term Care Insurance Coverage. Long term care insurance coverage is available under the Plan only to a spouse who was the Officer’s spouse on the date the Officer first becomes eligible to enroll for long term care insurance coverage through the Company. If a Corporate Officer who has satisfied the eligibility requirements to participate in the Plan but dies before retirement or if a Retiree dies before the end of the period during which the Company pays for long term care insurance coverage, the Company will continue to pay for long term care insurance coverage for the Surviving Spouse through the end of the applicable ten year period for the Surviving Spouse’s coverage (subject to the insurance carrier’s determination as to the Surviving Spouse’s continued eligibility for coverage). A spouse who becomes the spouse of an Officer after the date the Officer first becomes eligible to enroll for long term care insurance through the Company is not eligible for long term care insurance coverage and is not eligible for coverage as a surviving spouse after the Retiree’s death.

Example: Corporate Officer continues in active employment after reaching age 55 with 5 years of service. Long term care coverage for the Officer and the Officer’s spouse begins during

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active employment when the Officer reaches age 55. At that time, the Officer’s spouse is age 50. The Officer retires from the Company at age 58. Long term care coverage commences immediately (continues) upon retirement under the Plan and the Company pays the premiums for the Officer’s and spouse’s coverage. The Officer dies at age 62. The Company pays the premiums for the Surviving Spouse’s coverage until the Surviving Spouse reaches age 60, which is the end of the 10 year period during which the Company pays for coverage.

Medical and Dental Insurance Coverage. The spouse of a Corporate Officer who was eligible to retire but had not retired as of the date of his or her death is eligible for continued medical and dental insurance coverage under the Plan. Medical insurance coverage for the Surviving Spouse may continue through the date the Surviving Spouse reaches age 65, provided that the Company’s contribution toward the cost of the Surviving Spouse’s medical coverage is reduced on the date the Corporate Officer would have reached age 65 to the amount of the maximum medical premium reimbursement the Corporate Officer would have been eligible to receive at age 65, with such amount determined as if the Corporate Officer had retired on the Corporate Officer’s date of death. Dental insurance coverage continues subject to the terms of the Plan. When the Surviving Spouse’s medical insurance coverage terminates on the date the Surviving Spouse reaches age 65, the Surviving Spouse will be eligible for medical premium reimbursements as described below.

A spouse who was the Retiree’s spouse on the date the Retiree retired from the Company is eligible for continued medical and dental insurance coverage under the Plan after the retiree’s death. Medical insurance coverage continues through the date the Surviving Spouse reaches age 65, provided that the Company’s contribution toward the cost of the Surviving Spouse’s medical coverage is reduced beginning on the date the Retiree would have reached age 65 to the amount of the maximum medical premium reimbursement the Corporate Officer would have been eligible to receive at age 65. Dental insurance coverage continues subject to the terms of the Plan. When the Surviving Spouse’s medical insurance coverage terminates on the date the Surviving Spouse reaches age 65, the Surviving Spouse will be eligible for medical premium reimbursements as described below.

A spouse who was not the Retiree’s spouse on the date the Retiree retired from the Company is not eligible for medical and dental insurance coverage after the Retiree’s death. A Surviving Spouse who is eligible for coverage is eligible only for self-only coverage under the Plan.

Medical Premium Reimbursements. A spouse who was the Retiree’s spouse on the date the Retiree retired from the Company or who is the spouse of a Corporate Officer who was eligible to retire but had not retired as of the date of his or her death is eligible for continued reimbursements for premiums paid by the Surviving Spouse for an individual policy of medical insurance purchased by the Surviving Spouse after the date the Surviving Spouse reaches age 65. The maximum amount of reimbursements available and the requirements for obtaining such reimbursements are as set forth in this Plan. A spouse who was not the Retiree’s spouse on the date the Retiree retired from the Company is not eligible for medical premium reimbursements after the Retiree’s death. A Surviving Spouse is eligible only for reimbursement for self-only coverage purchased by the Surviving Spouse.

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Provisions Applicable to Medical and Dental Insurance Coverage

The following provisions are applicable to the medical and dental insurance coverage provided through the Plan to Retirees and Eligible Spouses. These provisions are not applicable to long term care insurance coverage or to the individual policies of medical insurance purchased by a Retiree or Eligible Spouse when the Retiree or Eligible Spouse is eligible for medical premium reimbursement benefits under the Plan.

Annual Enrollment Period. If there is more than one subsidized coverage option available in a Retiree’s/Eligible Spouse’s geographic area, before the beginning of each plan year, the Retiree/Eligible Spouse will be given the opportunity to change coverage options under the Plan. If there is more than one coverage option available in the Retiree’s/Eligible Spouse’s geographic area, more detailed coverage, cost and election material will be furnished each year during the annual open enrollment period.

Certificate of Creditable Coverage. A certificate of creditable coverage is a document that reports the period of time that a Retiree or Eligible Spouse has had medical benefits coverage under the Plan without a 63-day break in coverage. This information may be helpful if the Retiree or Eligible Spouse becomes covered under a group health plan other than the Plan and that other group health plan contains a preexisting condition limitation. Under Federal law, the Retiree’s or Eligible Spouse’s coverage under the Plan may reduce or eliminate the application of the other plan’s preexisting condition limitation.

A certificate of creditable coverage will be provided automatically when a Retiree’s or Eligible Spouse’s coverage under the Plan terminates. A Retiree or Eligible Spouse also has the right to request a certificate of creditable coverage from the Plan at any time, as long as the request is made within 24 months after their coverage under the Plan terminates. Requests should be directed to the insurance carrier or HMO through which the coverage was provided.

Medicaid-Eligible Individuals. In determining whether an individual is eligible for coverage and in making benefit payments, the Plan will not take into account the fact that an individual is eligible for or is covered by Medicaid. In addition, the Plan will make benefit payments in accordance with any assignment of rights made by or on behalf of an individual as required by a state Medicaid Plan and in accordance with any state law, which provides that the state has acquired rights to payment with respect to a participant.

Mastectomy Benefit Coverage. Under Federal law, group health plans, insurance companies, and health maintenance organizations (HMOs) that provide coverage for medical and surgical benefits for mastectomy must also provide coverage for reconstructive surgery in a manner determined in consultation with the attending physician and the patient. Required coverage includes reconstruction of the breast on which the mastectomy was performed, surgery and reconstruction of the other breast to produce a symmetrical appearance, and prostheses and treatment of physical complications at all stages of the mastectomy, including lymphedemas. These benefits are subject to the normal deductible and coinsurance provisions that apply to other benefits under the individual’s coverage.

Minimum Stay for Mothers and Newborns. Group health plans and health insurance issuers generally may not, under Federal law, restrict benefits for any hospital length of stay in connection with childbirth for the mother or newborn child to less than 48 hours following a vaginal delivery, or less than 96 hours following a cesarean section. However, Federal law

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generally does not prohibit the mother’s or newborn’s attending provider, after consulting with the mother, from discharging the mother or her newborn earlier than 48 hours (or 96 hours as applicable). In any case, plans and issuers may not, under Federal law, require that a provider obtain authorization form the plan or the insurance issuer for proscribing a length of stay not in excess of 48 hours (or 96 hours).

COBRA Continuation Coverage for Spouses. A Retiree’s spouse will be eligible to purchase temporary continuation of medical and/or dental coverage under the Plan if the spouse loses medical and/or dental insurance coverage under the Plan as a result of divorce from the retiree or the retiree’s death. In the event of the Retiree’s death, the spouse may be eligible for surviving spouse benefits as described above and may choose either surviving spouse coverage or to purchase temporary COBRA continuation coverage. COBRA continuation coverage may be purchased for a maximum of 36 months from the date of death or divorce.

A spouse is required to notify the Company in writing not later than 60 days after a divorce from the Retiree. If written notice is not provided to the Company on a timely basis, the spouse will not be eligible for COBRA continuation coverage.

A spouse who is eligible to purchase COBRA continuation coverage must make written election for continuation coverage no later than the date that is 60 days after the later of the date coverage would otherwise end or the date the Company provides written notice of the right to purchase continuation coverage. The election form must be hand-delivered to the Company or postmarked on or before the 60^th day or the spouse will not be permitted to purchase continuation coverage.

In considering whether to elect continuation coverage, a spouse should take into account that a failure to continue group health coverage will affect the spouse’s future rights under Federal law. First, the spouse can lose the right to avoid having pre-existing condition exclusions applied to the spouse by other group health plans if the spouse has more than a 63-day gap in health coverage, and election of continuation coverage may help the spouse not have such a gap. Second, a spouse will lose the guaranteed right to purchase individual health insurance policies that do not impose such pre-existing condition exclusions if the spouse does not get continuation coverage for the maximum time available. Finally, a spouse has the right to request special enrollment in another group health plan for which the spouse is otherwise eligible (such as a plan sponsored by the spouse’s employer) within 30 days after their group health coverage ends because of a qualifying event listed above. The spouse will also have the same special enrollment right at the end of continuation coverage if the spouse gets continuation coverage for the maximum time available.

COBRA continuation coverage will end as of the date any of the following occurs:

1)	The required premiums are not paid on a timely basis.
2)	The maximum 36 month continuation coverage period expires.
3)	The Company ceases to provide any group health coverage to any employees.

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4)	The date the spouse becomes covered under another group health plan that does not contain any exclusion or limitation with respect to a preexisting condition of the spouse.
5)	The date the spouse becomes entitled to Medicare.

Termination of Participation

A Retiree’s participation in the Plan (or a specific benefit under the Plan) will terminate on the earliest of the following dates:

1)	all participation for the Retiree terminates on the date the Retiree dies;
2)	with respect to medical and/or dental insurance coverage under the Plan, coverage terminates on the last day of the period for which the Retiree has paid the required contribution for coverage, if the Retiree fails to timely make a required contribution (the Company shall establish a policy regarding the payment of required contributions, which policy shall provide a 60 day grace period following notification to the Retiree before coverage is terminated);
3)	with respect to the Company’s continued payment of long term care premiums, the Company’s payment of such premiums terminates on the date the Retiree begins to work in full-time employment after retirement from the Company; or
4)	with respect to subsidized medical and dental coverage and medical premium reimbursements under the Plan, benefits terminate on the date the Retiree begins to work in full-time employment at which the Retiree is eligible for medical benefits after retirement from the Company.

A Retiree’s Eligible Spouse will cease to participate in the Plan (or a specific benefit under the Plan) on the earliest of the following dates:

1)	the date the Retiree ceases to participate in the Plan, unless the Retiree’s participation ceases due to the Retiree’s death and the Eligible Spouse is eligible for surviving spouse benefits;
2)	in the case of an Eligible Spouse’s medical and/or dental insurance coverage, coverage terminates on the last day of the period for which the Eligible Spouse has paid the required contribution for coverage, if the Eligible Spouse fails to timely make a required contribution (the Company shall establish a policy regarding the payment of required contributions, which policy shall provide a 60 day grace period following notification to the Eligible Spouse before coverage is terminated);
3)	in the case of a surviving spouse’s coverage, the date the surviving spouse remarries;

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4) all participation for the Eligible Spouse terminates on the date the Eligible Spouse dies or is divorced from the Retiree.

A Retiree’s or Eligible Spouse’s long term care insurance coverage and/or medical and dental insurance coverage under the Plan may terminate prior to the date the Retiree’s or Eligible Spouse’s participation in the Plan terminates in the event that the insurance carrier or HMO determines that the individual ceases to be eligible for coverage under the applicable insurance contract.

A Retiree may at the time of retirement elect to delay the commencement of medical and dental insurance coverage under the Plan for the Retiree and/or the Retiree’s Eligible Spouse. A Retiree who elects to delay commencement of medical and dental insurance coverage under the Plan must notify the Company when the Retiree and/or Eligible Spouse desires to later enroll in medical and dental insurance coverage and such coverage will become effective as soon as administratively practicable after such notice is provided, subject to the insurance carriers/HMOs agreement to make such coverage available to the Retiree and/or Eligible Spouse. Delayed enrollment in medical and dental insurance coverage does not extend the time period during which a Retiree and/or Eligible Spouse is eligible for such coverage under the Plan. A Retiree or Eligible Spouse whose medical and/or dental insurance coverage under the Plan terminates after having become effective (regardless of the reason for such termination) are not eligible to later re-enroll for medical or dental insurance coverage and are not eligible for medical premium reimbursements.

Amendment or Termination of Plan

Except for Corporate Officers who have attained age 55 with 5 years of qualifying service and Retirees who have retired from the Company and qualified for benefits, no Corporate Officer or spouse has a vested right to benefits under the Plan. This means that Corporate Officers who have not attained age 55 with 5 years of qualifying service (and their spouses) do not have a non-forfeitable right to qualify for coverage under the Plan and the Company reserves the right to amend the Plan at any time to change or terminate the Plan with respect to such Corporate Officers and their spouses. If the Plan is so amended, any Corporate Officer (and spouse) who is not age 55 with 5 years of qualifying service at the time of the amendment may be ineligible for benefits under the Plan or may be eligible for reduced or changed benefits under the Plan. Such an amendment to the Plan may change the benefits under the Plan in a way that changes, reduces or increases benefits or reduces or increases the amount that retirees and spouses pay for benefits, either as a share of the premium cost or as deductibles, co-payments, co-insurance or other cost-sharing provisions. The Plan may not be terminated or modified in a manner that reduces benefits for any Retiree or Corporate Officer who has attained age 55 with 5 years of qualifying service.

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Claim Procedures

Claims for the payment of medical, dental or long term care insurance benefits are subject to the claim procedures contained in the insurance contract through which such coverage is provided and are not the responsibility of the Company.

For medical premium reimbursements under the Plan, if you disagree with the amount of a medical premium reimbursement, you have the right to appeal to the Company. All appeals must be made in writing within 180 days after the date the reimbursement in question was paid. Appeals should be addressed to the Company at the address specified below. You may submit written comments, documents, records and other information relating to your claim and you will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to your claim for benefits. The review of your appeal will take into account all comments, documents, records and other information you submit, without regard to whether such information was considered in the initial benefit determination.

You will be notified in writing of the Company’s decision on your appeal not later than 60 days after the Company receives your request for review. If the decision is adverse, the notification will set forth: (1) the specific reason or reasons for the adverse determination; (2) reference to the specific plan provisions on which the determination is based; (3) a statement that you are entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to your claim; and (4) a statement of your right to bring an action under section 502(a) of ERISA. Please refer to the claim section of your subscriber contract or coverage certificate for a description of the specific claim procedures applicable to your claims for benefits.

Discretionary Authority

The insurance carriers and HMOs through which coverage is provided under the Plan have full discretionary authority to interpret the terms of the subscriber contracts and coverage certificates that they issue and to determine eligibility for benefits in accordance with the terms of such subscriber contracts and coverage certificates. In carrying out its responsibilities under the Plan as the plan administrator, the Company has full discretionary authority to interpret the terms of the Plan. Any interpretation or determination made by an insurance carrier or HMO, or by the Company pursuant to such discretionary authority shall be given full force and effect unless found by a court of competent jurisdiction to be arbitrary and capricious.

Statement of Rights

As a participant in the Plan, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA provides that all Plan participants be entitled to:

Receive Information About Your Plan and Benefits

Examine, without charge, at the plan administrator’s corporate office all documents governing the Plan including insurance contracts.

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Obtain upon written request to the plan administrator, copies of documents governing the operation of the Plan, including insurance contracts and updated summary plan description. The plan administrator may make a reasonable charge for the copies.

Prudent Actions by Plan Fiduciaries

In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate your Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. No one, including your employer or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a welfare benefit or exercising your rights under ERISA.

Enforce Your Rights

If your claim for a welfare benefit is denied or ignored, you have a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules.

Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request a copy of Plan documents or the latest annual report from the Plan and do not receive them within 30 days, you may file suit in a Federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for benefits, which is denied or ignored, in whole or in part, you may file suit in a state or Federal court, provided that you have exhausted all your administrative appeal rights. If it should happen that Plan fiduciaries misuse the Plan’s money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If you are successful the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees; for example, if it finds your claim is frivolous.

Assistance With Your Questions

If you have any questions about your Plan, you should contact the plan administrator. If you have any questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the plan administrator, you should contact the nearest Area Office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Pension and Welfare Benefits Administration.

Address Changes

In order to protect your family’s rights, you should keep the plan administrator informed of any charges in the addresses of family members. You should also keep a copy, for your records, of any notices you send to the plan administrator.

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Plan Name

The legal name of the Plan is the Transcat Inc. Post-Retirement Benefit Plan for Officers.

Plan Number

511

Employer

Transcat Inc.
35 Vantage Point Drive
Rochester, New York 14624
(585) 352-7777

Employer Identification Number

16-0874418

Type of Plan

The Plan is a welfare benefit plan that provides medical, dental and long term care insurance benefits through contracts issued by insurance carriers and health maintenance organizations. A list of the carriers and health maintenance organizations that provide coverage under the Plan is attached to the end of this document. The Plan also provides limited reimbursement of premiums paid by Retirees and spouses for individual medical and dental insurance coverage obtained by the Retiree and/or spouse.

Plan Administrator

Transcat Inc.
35 Vantage Point Drive
Rochester, New York 14624
(585) 352-7777

Type of Administration

The Plan is administered by Transcat Inc. The insurance carriers and health maintenance organizations through which benefits are provided administer claims under the contracts through which such benefits are provided.

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Agent for Service of Legal Process

Transcat Inc.
35 Vantage Point Drive
Rochester, New York 14624
(585) 352-7777

Contributions/Funding

The Company and participants contribute toward the cost of coverage under the Plan.

Plan Year

The plan year for the Plan is the calendar year.

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Insurance Carriers and Health Maintenance Organizations
Providing Medical and Dental Insurance Coverage
(Excluding Carriers/HMOs providing individual coverage)

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Acknowledgment of Receipt

By signing below, the authorized representative of the Company certifies that a copy of this summary plan description/plan document for the Transcat Inc. Post-Retirement Benefit Plan for Officers was provided to the below-named Corporate Officer and Eligible Spouse (if any), and the Corporate Officer and Eligible Spouse (if any) acknowledge that the Company provided the Corporate Officer and Eligible Spouse with a copy of this summary plan description/plan document for the Transcat Inc. Post-Retirement Benefit Plan for Officers.

Transcat Inc.
By:
	Date
Signature of Retiree	Date
Print Name of Retiree
Signature of Eligible Spouse	Date
Print Name of Eligible Spouse

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EX-10.3

Transcat Inc. Post-Retirement Benefit Plan
For Non-Officer Employees

Introduction

The Transcat Inc. Post-Retirement Benefit Plan for Non-Officer Employees (the “Plan”) provides limited reimbursements to eligible Participants for the cost of individual medical insurance coverage purchased by the Participant following qualifying retirement from employment with Transcat Inc. (the “Company”). The Plan does not itself provide health benefits. The actual health benefits provided to a Participant are provided through the individual policy of insurance purchased by a Participant after retirement from the Company.

This document is the summary plan description of the Plan and is also considered the written instrument for the Plan for purposes of Section 402(a)(1) of the Employee Retirement Income Security Act of 1974 (“ERISA”).

The Plan is effective December 23, 2006.

Eligibility Requirements

Non-Officer Employees who retire from active employment with the Company on or after December 23, 2006 at age 65 or older with 20 or more years of continuous full-time service and who do not work in any other full-time employment (as defined below) after retirement are eligible to participate in the Plan. A Non-Officer Employee who retires after satisfying the eligibility requirements is referred to as a “Participant” in this document.

For purposes of eligibility to participate in the Plan, an individual will be considered a “Non-Officer Employee” if the individual is classified by the Company as a common law employee and does not have the title of Vice President or higher and is not the Corporate Controller. An individual who the Company classifies as a leased employee, or who is on the payroll of another company or is treated as an independent contractor by the Company for employment tax purposes is not eligible to participate in the Plan, even if a court or other authority determines that the individual is a common law employee.

For purposes of determining whether an employee has 20 or more years of continuous full-time service, years of continuous service means an employee’s most recent period of continuous, uninterrupted employment with the Company on a full-time basis on or after the date the employee reaches age 45. Service prior to age 45 does not count as years of service for purposes of determining eligibility to participate in the Plan. An employee is considered to be employed on a full-time basis if the employee regularly works 30 or more hours per week. An employee who has a break in service of 12 months or less will not lose service credited prior to the break and will receive service credit for the period of the break in service if each of the following requirements is satisfied: (i) the employee had at least 15 years of credited service at the time the employee began the period of absence; (ii) the employee received his or her regular compensation or received short-term disability benefits under a Company-sponsored plan during the period of absence or the absence was otherwise authorized by the Company; and (iii) the employee returns to active full-time employment with the Company not later than 12 months after the absence begins.

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An individual will be considered to be working in full-time employment after retirement (and therefore not eligible to participate in the Plan) if he or she regularly works at a job for 30 or more hours per week. The Company, in its sole discretion, will determine whether an individual is working in full-time employment after retirement for purposes of determining eligibility to participate in the Plan.

Premium reimbursement benefits are available only for coverage for the eligible retiree. Reimbursement for the cost of coverage for a spouse or other dependents is not provided under the Plan.

The Plan does not provide any benefits other than premium reimbursements in accordance with the rules described in this document. The Company does not guarantee that a Participant will be eligible for any Individual Coverage. The Participant is solely responsible for obtaining Individual Coverage.

Initial Enrollment

If you are eligible to participate in the Plan at the time you retire, you will be provided with current reimbursement benefit information at that time.

Description of Premium Reimbursement Benefits

The maximum amount of reimbursement available to a Participant for any month is a “capped” amount equal to 72% of the applicable premium for a base Medicare supplemental coverage plan determined by the Company. The capped amount applicable to a Participant is determined based on the year in which the Participant retired and will be increased by 3% each year. For Participants who retire in 2007, the maximum reimbursement amount is $53.28 per month, which is 72% of $74, the 2007 monthly premium for the Excellus Medicare Blue Choice HMO Optimum Plan, the base Medicare supplemental coverage plan selected by the Company for 2007.

Example: Employee 1 retires in 2007 at age 65 with 20 years of service, qualifying to participate in the Plan. Employee 1 is responsible for obtaining individual medical insurance coverage and is eligible for a maximum reimbursement amount of $53.28 per month for coverage purchased in 2007. In 2008, Employee 1’s maximum reimbursement amount is increased 3% to $54.88. Employee 2 retires in 2008 at age 65 with 20 years of service, qualifying to participate in the Plan. If the premium for the base Medicare supplemental coverage plan in 2008 is $95, the maximum reimbursement amount in 2008 for employees who retire in 2008 would be $68.40 per month (72% of $95). The reason for the difference in the maximum reimbursement amounts for Employee 1 and Employee 2 in 2008 is that Employee 1’s maximum reimbursement amount is determined based on the maximum in the year Employee 1 retired and is increased 3% per year after that.

If a Participant purchases Individual Coverage that costs more than the maximum reimbursement amount available under the Plan, the Participant is responsible for paying the additional cost of coverage over and above the maximum reimbursement amount. If the Individual Coverage purchased by a Participant costs less than the applicable maximum monthly reimbursement amount, the reimbursement from the Plan will be equal to the cost of the coverage. The Plan will

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not reimburse the excess of the maximum monthly reimbursement over the actual cost of coverage. Nor will any amount be paid to an individual who does not purchase individual coverage. For example, if the maximum monthly reimbursement amount established by the Company is $55 and the Participant purchases coverage that costs $35 per month, the Plan will reimburse the Participant $35 per month.

As noted below in the section titled “No Vesting; Amendment or Termination of Plan,” the Company reserves the right to amend or terminate the Plan at any time. This includes the right to reduce the amount of or terminate the reimbursements available under the Plan.

Claiming Reimbursement

A Participant may claim reimbursement on an annual or periodic basis (not more frequently than quarterly) for premiums paid by the Participant for Individual Coverage. The Participant must provide the Company with evidence satisfactory to the Company of the premium payments for which the Participant is claiming reimbursement.

Termination of Participation

A Participant will cease to participate in the Plan on the earliest of the following dates:

1)	the date the Participant dies;
2)	the date the Participant begins to work in full-time employment (as determined by the Company) after retirement from the Company;

Amendment or Termination of Plan

The Company has the right to amend or terminate the Plan at any time, except with regard to employees who have reached age 65 and completed 20 or more years of qualifying service with the Company and Participants (employees who retired from the Company at or after age 65 with 20 or more years of qualifying service with the Company and qualified for benefits). This means that employees who have not reached age 65 with 20 or more years of qualifying service with the Company do not have any vested rights under the Plan and the Company may amend or terminate the Plan at any time. If the Plan is amended or terminated, such employees may cease to have the right to accrue qualifying years of service for purposes of qualifying to participate in the Plan, or the reimbursement benefit under the Plan may be reduced. The Plan may not be terminated or modified in a way that reduces premium reimbursements for any Participant or employee who has attained age 65 with 20 or more years of qualifying service with the Company.

Claim Procedures

Claims for the payment of medical benefits under the Individual Coverage purchased by a Participant are subject to the claim procedures contained in the insurance contract through which such coverage is provided and are not the responsibility of the Company. Such claims must be submitted to the insurance carrier in accordance with the claim procedures specified in the insurance contract..

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A Participant who disagrees with the amount of a reimbursement under this Plan has the right to appeal. All appeals must be made in writing within 180 days after the date the reimbursement in question was paid. Appeals should be addressed to the Company at the address specified below. A Participant may submit written comments, documents, records and other information relating to the Participant’s claim and will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the Participant’s claim for benefits. The review of the appeal will take into account all comments, documents, records and other information submitted by the Participant, without regard to whether such information was considered in the initial benefit determination.

The Participant will be notified in writing of the Plan Administrator’s decision on the appeal not later than 60 days after the Plan Administrator receives the request for review. If the decision is adverse, the notification will set forth: (1) the specific reason or reasons for the adverse determination; (2) reference to the specific plan provisions on which the benefit determination is based; (3) a statement that the Participant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Participant’s claim for benefits; and (4) a statement of the Participant’s right to bring an action under section 502(a) of ERISA.

Discretionary Authority

In carrying out its responsibilities under the Plan as the plan administrator, the Company has full discretionary authority to interpret the terms of the Plan. Any interpretation or determination made by the Company pursuant to such discretionary authority shall be given full force and effect unless found by a court of competent jurisdiction to be arbitrary and capricious.

Statement of Rights

As a Participant in the Plan, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA provides that all Plan Participants be entitled to:

Receive Information About Your Plan and Benefits

Examine, without charge, at the plan administrator’s corporate office and at other specific locations, such as worksites, all documents governing the Plan.

Obtain upon written request to the plan administrator, copies of documents governing the operation of the Plan and updated summary plan description. The plan administrator may make a reasonable charge for the copies.

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Prudent Actions by Plan Fiduciaries

In addition to creating rights for Plan Participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate your Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of you and other Plan Participants and beneficiaries. No one, including your employer or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a welfare benefit or exercising your rights under ERISA.

Enforce Your Rights

If your claim for a premium reimbursement benefit is denied or ignored, you have a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules.

Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request a copy of Plan documents and do not receive them within 30 days, you may file suit in a Federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for premium reimbursement benefits which is denied or ignored in whole or in part, you may file suit in a state or Federal court, provided that you have exhausted all your administrative appeal rights. If it should happen that Plan fiduciaries misuse the Plan’s money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If you are successful the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees; for example, if it finds your claim is frivolous.

Assistance With Your Questions

If you have any questions about your Plan, you should contact the plan administrator. If you have any questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the plan administrator, you should contact the nearest Area Office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Pension and Welfare Benefits Administration.

In order to protect your family’s rights, you should keep the plan administrator informed of any charges in the addresses of family members. You should also keep a copy, for your records, of any notices you send to the plan administrator.

Plan Name

The legal name of the Plan is the Transcat Inc. Post-Retirement Benefit Plan for Non-Officer Employees.

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Plan Number

510

Employer

Transcat Inc.
35 Vantage Point Drive
Rochester, New York 14624
(585) 352-7777

Employer Identification Number

16-0874418

Type of Plan

The Plan is a welfare benefit plan that provides limited reimbursements to Participants for the cost of individual medical insurance coverage purchased by the Participant.

Plan Administrator

Transcat Inc.
35 Vantage Point Drive
Rochester, New York 14624
(585) 352-7777

Type of Administration

The Plan is administered by Transcat Inc. The insurance carrier through which a Participant purchases individual coverage administers claims under the insurance contract.

Agent for Service of Legal Process

Transcat Inc.
35 Vantage Point Drive
Rochester, New York 14624
(585) 352-7777

Contributions/Funding

The Company pays reimbursement benefits under the Plan out of its general assets.

Plan Year

The plan year for the Plan is the calendar year.

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Acknowledgment of Receipt

By signing below, the authorized representative of the Company certifies that a copy of this summary plan description/plan document for the Transcat Inc. Post-Retirement Benefit Plan for Non-Officer Employees was provided to the below-named employee and the employee acknowledges that the Company provided the employee with a copy of this summary plan description/plan document for the Transcat Inc. Post-Retirement Benefit Plan for Non-Officer Employees.

Transcat Inc.
By:
	Date
Signature of Participant	Date
Print Name of Participant

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EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Carl E. Sassano, Chairman and Chief Executive Officer of Transcat, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Transcat, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 6, 2007	/s/ Carl E. Sassano
	Carl E. Sassano
	Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, John J. Zimmer, Vice President of Finance and Chief Financial Officer of Transcat, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Transcat, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 6, 2007	/s/ John J. Zimmer
	John J. Zimmer
	Vice President of Finance and Chief Financial Officer

EX-32.1

Exhibit 32.1

SECTION 1350 CERTIFICATIONS

     Carl E. Sassano, the Chief Executive Officer of Transcat, Inc. and John J. Zimmer, the Chief Financial Officer of Transcat, Inc. certify that (i) the quarterly report on Form 10-Q for the third quarter ended December 23, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the quarterly report on Form 10-Q for the third quarter ended December 23, 2006 fairly presents, in all material respects, the financial condition and results of operations of Transcat, Inc.

Date: February 6, 2007	/s/ Carl E. Sassano
	Carl E. Sassano
	Chairman and Chief Executive Officer

Date: February 6, 2007	/s/ John J. Zimmer
	John J. Zimmer
	Vice President of Finance and Chief Financial Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Transcat, Inc. and will be retained by Transcat, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.